Avoid Becoming Mega-Bubble Roadkill

Avoid becoming mega-bubble roadkill... The deep-voiced, turtleneck-wearing lady is back... Fraud will become more common as the mega-bubble unfolds... We can't avoid fraud or mega-bubbles – but evading disaster is possible... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Avoid becoming mega-bubble roadkill... The deep-voiced, turtleneck-wearing lady is back... Fraud will become more common as the mega-bubble unfolds... We can't avoid fraud or mega-bubbles – but evading disaster is possible... --------------------------------------------------------------- You've likely seen a few rotting deer carcasses in your travels... According to the Humane Society of the U.S., roughly 1.5 million deer-vehicle accidents happen each year. And deer aren't the only victims, of course... Every year, millions of squirrels, rats, opossums, and raccoons die after running in front of Grandma Sue's minivan, Aunt Sally's station wagon, or Cousin Bobby's pickup truck at exactly the wrong time. Sadly, cars kill far too many pets like dogs and cats as well. And if you've ever seen a rotting deer carcass, you've likely spotted something else lurking in the shadows. Or frankly, you might've noticed it eating the scraps right out in the open. I (Dan Ferris) am talking about the vultures... Most of the time, you won't see a vulture – especially in the daylight. But as soon as a poor, unfortunate animal is sitting lifeless on the side of the road... they're everywhere. The thing is, mega-bubbles attract fraud the way roadkill attracts vultures... And as regular Digest readers know, [I've been writing a lot about our current mega-bubble](. So I expect fraud to start popping up more and more in the financial headlines over the next few years. In fact, like a vulture, it's already coming out of the shadows again... The latest fraud-related headline features [the return of Elizabeth Holmes](. Holmes was found guilty of four counts of investor fraud and conspiracy in January. She faces up to 20 years in prison at her October 17 sentencing in San Jose, California. As you might recall, Holmes co-founded and served as the CEO of Silicon Valley blood-testing startup Theranos. She claimed the company's technology could perform rapid testing using only a tiny sample of blood – 1/100th to 1/1,000th of the normally required amount. You've probably been through the blood-testing process... You go to the testing center, get stuck with a big needle, wait while a technician fills up multiple vials of blood, and possibly feel faint or throw up. Then, you wait several days while your blood sample is analyzed. Theranos aimed to improve that process. However, its technology didn't work. And that became a big problem for Holmes when the company needed to raise more money... So Holmes apparently faked some results to give investors the same feeling they would've had if it worked. In other words, she committed fraud and eventually got caught. Despite all the drama around Holmes' trial and the fraud conviction, I bet that she's probably still most famous for being an attractive young woman who hardly ever blinks, faked a deep voice, and wore black turtlenecks like Apple (AAPL) founder Steve Jobs. Now, though, Holmes wants another trial. And the reason seems weird at first... Holmes said in a recent court filing that former Theranos lab director Adam Rosendorff came to her house unannounced to tell her he felt bad about how everything went down. In Holmes' trial, Rosendorff was the prosecution's star witness... The government mentioned him more than any other witness in its opening and closing statements. And he testified longer than anyone else – spending five days on the stand. Holmes didn't speak with Rosendorff when he came to her house. But her husband, William Evans, did. And according to Holmes' court petition, Rosendorff told Evans that... (1) he tried to answer the questions honestly at Ms. Holmes' trial, but the government tried to make everyone look bad; (2) the government made things seem worse than they were; (3) everyone at Theranos was working hard to do something good and meaningful; (4) he felt that he had done something wrong, apparently in connection with Ms. Holmes' trial; (5) he wanted to talk to Ms. Holmes; (6) he thought a conversation with Ms. Holmes would be healing for both of them; (7) both she and he were young at the time of the events; and (8) these concerns were weighing on him to the point where he had difficulty sleeping. That reads like a list of therapy notes. Rosendorff could've busted out the "I feel bad, feel like I'm doing something wrong, I was young and the government is making me look bad" stuff in court. That way, the whole world could've heard it – instead of just Holmes' husband on her doorstep. What if this were a death-penalty case? Innocent people have been executed. And in recent years, death-row inmates have been freed using DNA evidence. So we know the legal system is far from perfect. I never want anybody testifying against me doing something wrong or feeling like they're doing something wrong during their testimony. And that's especially true if the "right thing" would keep me alive or out of prison. So maybe Holmes has a point. Maybe a now-contrite Rosendorff needs to be heard. But her petition also includes something that seems to confirm why she was convicted in the first place... [L]acking any statistically significant evidence concerning the accuracy and reliability of Theranos technology, the government was forced to rely heavily on Dr. Rosendorff's testimony during Ms. Holmes' trial. That sounds like Holmes and her lawyers are saying, "Since there's no evidence that the Theranos technology worked or didn't work, we all had to take Rosendorff's word for it." By this point, it sure seems like Rosendorff's testimony was one of the main reasons for Holmes' conviction. Still, you would think her lawyers would find another way to make their point instead of reminding everyone that there's no evidence Theranos' technology works. The October 2015 Wall Street Journal article that ultimately brought Theranos down showed the company didn't actually do many of the 240 tests it claimed to offer. And most of the tests it did offer were done the old-fashioned way – from vials of drawn blood, not by using its own Edison testing system. The Wall Street Journal also reported that some employees questioned the accuracy of the few tests the company did run on its own system. But who knows? Maybe Holmes would say that the concept was good and that it just wasn't quite ready yet. So she didn't think it was a big, bad, convictable lie to sort of tell everyone it was working better than it really was – if you could say it was working at all. In a second petition filed on Wednesday, Holmes argued that the prosecution failed to prevent the destruction of Theranos' Laboratory Information System. This database contained the company's test-failure rates, which she claims would've helped her case. The second filing also alleged that the prosecution portrayed her 13-year relationship with ex-boyfriend and former Theranos Chief Operating Officer Ramesh "Sunny" Balwani differently in his trial than in her trial. In his trial, she argued that the prosecution said he was controlling her to make him seem abusive. And in her trial, she alleged that the prosecution tried to show he had no control to make her look as bad as possible. If that's all true, I'm not surprised. My father was a lawyer and a judge. And he told his seven children to avoid it as a profession. It sure sounds to me like Holmes deserves to get some of these issues cleared up before they send her off to prison for 20 years. But I have to admit that I don't really know. After all, I listened to my father. I'm not a lawyer. But I do know what you're probably thinking by now... 'OK, Dan, we're now more than 1,250 words into today's Digest... so what's the point of the Holmes tale?' That's simple... It's rare to see a Silicon Valley entrepreneur prosecuted for fraud. But as the current mega-bubble deflates... fraud convictions will likely happen more and more. It could be similar to how the 2008 financial crisis taught us that financial crises aren't as rare as traditional financial models say. When egos and money are on the line, fraud always lurks somewhere. Like a vulture waiting for the next deer-vehicle accident, it's looking for a failed project run by a weak-minded opportunist. An unraveling mega-bubble will likely entice the weaker minds among venture-capital ("VC") targets to give into temptation and lie to their investors. It's like legendary investor Warren Buffett says... you never know who has been swimming naked until the tide goes out. One reason it's hard to avoid fraud is because most folks don't set out to commit fraud... Some do, of course. But Holmes seems like she truly set out to change the world. However, when that didn't work out as planned, she behaved poorly and wound up committing fraud. With all that money involved, greed likely played a role. But again, I doubt it was mainly about money for Holmes. It was mostly about being like Steve Jobs and becoming famous for changing the world – and then, the refusal to admit defeat in that quest. The outcome reflects poorly on Holmes, but not on any of the investors who gave her money or folks who served on the company's board of directors. They couldn't have known how it would turn out. Maybe that's why we seem to have forgotten about some of the hugely successful folks who got caught up in this saga... Theranos raised $945 million from the likes of media titan Rupert Murdoch, Oracle (ORCL) founder Larry Ellison, the Walton family of Walmart (WMT) fame, and the family of former Secretary of Education Betsy DeVos. And former Defense Secretary James Mattis and former Secretary of State George Shultz served on Theranos' board. It's nearly impossible to differentiate an honest genius from one who will commit fraud one day... At least not until someone digs in, gets all the facts, and reports the full story the way the Wall Street Journal did with Theranos in 2015. It's easy to say "there were signs" after the fact. But when it comes down to it, Holmes caught everybody by surprise. For example, take her fake deep voice... Sure, in hindsight, it looks suspicious. But whether it's right or not, one popular belief is that women with deep voices are perceived as more fit to lead than women with higher voices. Perhaps Holmes was just trying to be a successful young female leader in a male-dominated arena. It's odd and requires a stupid amount of effort to keep up. But it's not an indicator that a person will commit fraud. The same thing could be said about Holmes' unblinking stare and her love for turtlenecks. Imitating Steve Jobs is practically a requirement of success in the tech world. Ultimately, no fraud-detecting blueprint exists. Like the poor animals getting hit by Grandma Sue... Fraud just happens. You can't stop it. Last week, I reminded you "[how blurred the line is between visionary genius and huckster]( But maybe I didn't go far enough... Visionary geniuses are likely to be hucksters – or at least "huckster-ish" by nature. And like vultures with roadkill, they all come out as easy money turns a bull market into a massive mega-bubble. Generic advice like 'avoid anything that's too good to be true' doesn't work, either... Many early-stage companies look too good to be true. They need to look that way to raise money. VC firms and the folks with all the capital crave these types of stories. Making money by selling books on the Internet looked too good to be true in the 1990s, for example. The fact that Jeff Bezos always intended for books to be just the very beginning of Amazon's (AMZN) huge growth plans didn't matter to all the early naysayers. Perhaps you just can't get around the fact that finding the next Amazon – or breakthrough medical technology like Theranos claimed, for that matter – means taking big risks. And if you say Amazon wasn't all that risky, that's just hindsight talking... In Amazon's early days, the Internet bookseller looked just like every other failing dot-com business model. It was burning cash and losing money on every book it sold. I'll say it even more plainly... To find the next Amazon, the risks you can't avoid taking could include putting money into a fraudulent company... That's one big, important point I want to make in today's Digest. In the mega-bubble we're living in – during which many new tech companies have come out of the VC world and into the public markets – stuff like the Theranos affair will become more prevalent. Mega-bubbles are mass hysteria. They get people whipped up into a frenzy. Investors will buy anything... And folks like Holmes will claim anything to attract those investments. The types of people who thrive in these environments probably aspire to create a "reality distortion field" – the term coined to describe what Jobs created at Apple... That's when powerful charmers are able to convince everyone around them of just about anything – including things like the ability to quickly perform 240 tests from a small drop of blood. If somebody tells you they're going to change the world enough times and attracts nearly $1 billion of capital, it's probably harder not to believe them. Then, it all blows up and the steamy details hit the headlines. I think that's where we're headed in the next stage of this mega-bubble. And I promise you... a fraud case will come out at some point that will make Theranos seem boring. And the second point I want to make today is likely even more critical... If you're a VC investor looking for the next Amazon or tech breakthrough, you likely can't avoid overpaying for a bunch of garbage companies – even if you know you're doing it in a giant mega-bubble. Betting on new tech startups is a numbers game... You need to make enough bets to find the few good ones that will pay for all your losers – and then some. And startups come out in droves during a mega-bubble. Everyone wants to get fed before the vultures pick the deer carcass clean. It's easy to say you simply won't invest. But as a VC firm, you probably can't survive if you don't play the game. And as long as the mega-bubble keeps inflating... retail and other investors go nuts over these VC investments as they go public, too. If the VCs don't invest, plenty of other firms will... and you'll be left out. So if you're going to bet on these types of companies, continuing to invest throughout a mega-bubble is probably a requirement. That feeling carries into the public markets as "FOMO" – the fear of missing out on the next stock that goes public and rises 100% in a day or something crazy like that. This FOMO behavior reminds me of a quote from the housing bubble. Citigroup's (C) then-CEO Chuck Prince famously said in July 2007... When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing. Citigroup and everyone else soon stopped dancing when the housing bubble burst. With Theranos, things got complicated and everyone involved stopped dancing years ago. But as the current mega-bubble continues, it was likely just the first of many more to come. Of course, I could be reading too much into the Theranos affair and Holmes' occasionally odd-sounding petition based on her former lab director's feelings. But all the terrible stuff that Theranos-type investors can't avoid makes me want to know... Can everyday investors like you and I avoid these mistakes? If we stick to the stock market and stay away from early-stage tech companies, will we be OK in this mega-bubble? Avoiding calamities is paramount in many areas of life. I've discussed this idea before... It's an idea from author and trader Nassim Taleb, called "via negativa" – Latin for the "negative way." Spelled out, Taleb says... "The learning of life is about what to avoid." So with that in mind... what's the big thing that regular equity investors like you and I need to avoid and can expect to learn how to avoid? That's easy... We need to avoid buying overpriced garbage during a mega-bubble. The VC guys need to play to stay relevant. But you and I are merely managing our own accounts. We don't have to do anything. We can – and should – learn to avoid the mistakes they're practically forced to make... You could've avoided the worst of the dot-com stocks in 1999 and 2000. You could've avoided banks and homebuilders in the run-up to the financial crisis. And starting in early 2021, you could've avoided the ARK Innovation Fund (ARKK), cannabis stocks, special purpose acquisition companies, and clean energy – which were all in obvious bubbles. In fact, I think it's a million times easier to spot the most inflated, overvalued mega-bubble in history than to figure out before anyone else if someone like Holmes is committing fraud. I planted my latest flag [starting in late 2020](. And I've since ranted, raved, and shouted from the highest mountaintop about the most inflated, most overvalued mega-bubble ever. So far, so good. But I hope I'm able to stay ahead of the bursting mega-bubble and help Stansberry Research readers like you survive – and even thrive – as it all plays out. In the end, perhaps the biggest lesson of all is right in front of us... Buying all the early-stage tech companies everybody went crazy over the past year or two makes it harder – if not impossible – to avoid frauds and mega-bubbles. And to be a good stock investor over the long term, you can't rely on your ability to forecast market movements. After all, you'll never have that ability. We can't predict the future. But you can prepare. You can avoid big losses by taking the right steps... Hold plenty of cash, high-quality stocks, and precious metals. By doing that, you'll be prepared for a wide range of potential outcomes. That's the key to long-term success. And ultimately, that is how you and I avoid becoming roadkill in this mega-bubble. --------------------------------------------------------------- Recommended Links: # [Doc Eifrig's 30-Day Bear Market Challenge]( Doc's now asking readers to STOP buying stocks for 30 days and instead try the 94% accurate, stock-free strategy he has used to rack up 132 straight winners for his readers. You'll get paid INSTANT CASH each time, up front, without exposing yourself to needless risk in this rocky market. [Find out how to accept his challenge right here](. --------------------------------------------------------------- # [Major Announcement From Dr. Steve Sjuggerud]( "This is what I'm doing with my own money right now – I recommend you do the same," says Steve, founding partner of Stansberry Research. In a brand-new update, he explains his No. 1 recommended sector that could reliably make you hundreds-of-percent gains in the coming months, no matter what the market does next. Plus, he details why today is such a watershed moment... the setup of a lifetime. [See Steve's urgent new message right here](. --------------------------------------------------------------- New 52-week highs (as of 9/8/22): None. In today's mailbag, perhaps the last word on our weeklong discussion on housing affordability, which stemmed from thoughts about student-loan forgiveness. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Thanks to Jacqueline G. for jumping in [[in yesterday's mailbag](... I actually built a small spreadsheet today of the size and cost of all of my homes over the years... She is correct. "I thought about responding earlier but there really is no winner of this debate... "In my humble opinion, the folks that came before us, at least before me, had a far harder life and a far harder time making ends meet, and I think many would say enjoyed a standard of living far below what most of us take for granted today. "With all of the social safety nets, labor laws, minimum wages, and available education at all ages, I guess there will always be those who prefer to make excuses and feel entitled to more." – Stansberry Alliance member G.M. Good investing, Dan Ferris Eagle Point, Oregon September 9, 2022 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 926.4% Retirement Millionaire Doc ADP Automatic Data 10/09/08 853.9% Extreme Value Ferris MSFT Microsoft 02/10/12 795.9% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 576.7% Stansberry Innovations Report Wade HSY Hershey 12/07/07 536.9% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 418.6% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 402.4% Retirement Millionaire Doc WRB W.R. Berkley 03/16/12 380.1% Stansberry's Investment Advisory Porter NTLA Intellia Therapeutics 12/19/19 300.3% Stansberry Innovations Report Engel FSMEX Fidelity Sel Med 09/03/08 297.4% Retirement Millionaire Doc Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 3 Retirement Millionaire Doc 1 Extreme Value Ferris 4 Stansberry's Investment Advisory Porter 2 Stansberry Innovations Report Engel/Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst ETH/USD Ethereum 12/07/18 1,323.6% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,163.9% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,112.1% Crypto Capital Wade MATIC/USD Polygon 02/25/21 848.9% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 414.4% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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