The Clueless CEO Just Keeps Talking

The clueless CEO just keeps talking... Sam Bankman-Fried ignores his lawyers (again)... 30%, 90%, what's the difference?... 'What the hell is water?'... The Wall Street Journal calls a new bull market... Why that's clearly wrong... Meet the newest 'Bull Club' member... This investment tells us the bottom isn't here yet... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] The clueless CEO just keeps talking... Sam Bankman-Fried ignores his lawyers (again)... 30%, 90%, what's the difference?... 'What the hell is water?'... The Wall Street Journal calls a new bull market... Why that's clearly wrong... Meet the newest 'Bull Club' member... This investment tells us the bottom isn't here yet... --------------------------------------------------------------- Fortunately for us, Sam Bankman-Fried doesn't listen to his lawyers... On Wednesday, the disgraced founder of crypto blowup FTX took part in the New York Times' DealBook Summit in New York City. No, Bankman-Fried didn't willingly enter the lion's den against his lawyers' wishes amid reports that U.S. prosecutors in Manhattan are preparing charges related to FTX's demise. He's not that daring. Instead, Bankman-Fried conducted a virtual interview for the conference from the Bahamas. That's where he lives and where FTX is headquartered. In the interview, Bankman-Fried told reporter Andrew Ross Sorkin that his lawyers gave him "classic advice." And in typical, clueless CEO fashion... he ignored every single word. But Bankman-Fried didn't just ignore every word. He also put his foot even further into his mouth... Sorkin: What are your lawyers telling you right now? Are they suggesting this is a good idea for you to be speaking? Bankman-Fried: No. They are very much not. The classic advice, right: Don't say anything. Recede into a hole. And that's not who I am. It's not who I want to be. I don't have – I think I have a duty to talk to people. I have a duty to explain what happened. And I think I have a duty to do everything I can to try and do what's right. I (Dan Ferris) doubt I'm the only one who wonders what he thought his "duty" was before FTX started lending customer deposits to an affiliated firm to trade crypto garbage. Wait, there's more... Sorkin: How concerned are you about criminal liability at this point? Bankman-Fried: I don't think that – obviously, I don't personally think that I have – I think the real answer is it's not – it sounds weird to say it, but I think the real answer is it's not what I'm focusing on. It's – there's going to be a time and a place for me to think about myself and my own future. But I don't think this is it. Right now, look, I've had a bad month. This has not been a fun month for me. But that's not what matters here. What matters here is the millions of customers. What matters here is all the stakeholders in FTX who got hurt and trying to do everything to help them out. As long as that's the case, I don't think that what happens to me is the important part of that, and I don't think that's what it makes sense for me to be focusing on. A bad month?!? Not been a fun month?!?! I can't speak from experience. After all, I've never led a company from the top of the crypto world into bankruptcy court essentially overnight. And I've never lost billions upon billions of other people's money. But if that ever happened, I think I'd probably consider it more than just a "bad month." Bankman-Fried's interview with Sorkin took a little more than an hour... The overriding theme of their conversation was how much Bankman-Fried didn't know about his own company. He didn't know how much leverage FTX had until the company started failing... He didn't know Alameda Research, the affiliated crypto-trading firm, had a huge margin position with FTX. On that point, he told Sorkin, "I was surprised by the size of what it was"... And he didn't know the amount of downside in FTX's proprietary crypto token FTT, either. Bankman-Fried viewed a 30% drop over a few days as the "extreme downside perspective." It seems like he underestimated that by more than a few percentage points... FTT traded between $22 and $26 per token in October. But then, as you can see, it fell from $22 on November 7 all the way to about $2 on November 9 – a 90% drop in two days... Every time Bankman-Fried speaks, it becomes clearer that he was a really clueless CEO... In another interview this week, Good Morning America's George Stephanopoulos asked Bankman-Fried if he knew FTX deposits were being used to pay Alameda's creditors. Bankman-Fried's response oozed ignorance. He used phrases like... "best I can tell"... "I think"... and "as best I understand." Ultimately, his response amounted to, "The value of the collateral on a large position collapsed very quickly." In other words... Bankman-Fried never answered the question about whether he knew how deposits were being used. Instead, he simply told us one more thing he didn't know about the business until it was way too late. On this topic, Sorkin also asked about a November 7 Twitter post in which Bankman-Fried said... FTX has enough to cover all client holdings, we don't invest client assets, even treasuries. We have been processing all withdrawals and will continue to be. Bankman-Fried deleted the post by the end of that day. And to Sorkin, he described that as the "transition day," when he went from being merely nervous about increasing customer withdrawals to thinking the odds were against FTX being able to handle all of them. Bankman-Fried also admitted that he started getting "a little bit nervous" as early as November 2. And in the DealBook interview, he said, "I was excited about the prospects for FTX a month ago." [As you'll recall]( the company declared bankruptcy on November 11. So Bankman-Fried apparently went from "a little bit nervous" to not believing FTX could meet customer withdrawal requests in just a few days – perhaps as soon as a single day. And FTX went from having exciting "prospects" to bankruptcy in less than a month. When you put it that way, it really has been a bad month for Bankman-Fried. It seems like he really didn't know a whole lot about anything going on at FTX. I wonder if the other executives even let him know the Wi-Fi password. Underestimating the FTT token's downside potential is another point of breathtaking ignorance... It's incredible that anybody would think any crypto asset wasn't capable of crashing 90% in two days. And that's especially true of a second-class crypto asset like the FTT token. But in reality, that type of overconfidence and lack of risk aversion is typical of a massive liquidity-driven mega-bubble. The participants are like the two fish in the now-famous parable that late author David Foster Wallace recited in a 2005 commencement speech at Kenyon College in Ohio... There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, "Morning, boys. How's the water?" And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, "What the hell is water?" Pardon the pun about "liquidity" and "water." I try to avoid puns, but this one is spot-on... Most participants in a massive liquidity-driven mega-bubble mistake the market's action for their own budding financial prowess. They think they know how to trade stocks, cryptos, options – or whatever the financial instrument du jour. They think they've finally made it as the good times keep rolling. But they have no idea that they're just riding high due to an enormous amount of liquidity. Then, the market starts falling. And before long, they find out that they don't have any special skills or secret knowledge. It was all an illusion created by piles of cheap money. Before we move on, I feel obliged to acknowledge one important point... If any bank in America experienced withdrawals relative to assets at the level that FTX dealt with, that bank would be out of business, too. Banks don't fail that often. However, there's always the risk that they could fail in a bank run similar to FTX's crypto run. FTX is an exchange, not a bank – but the principle still applies. In this case, the big events so far seem to be... - The FTT token's value collapsed - Customer withdrawals soared - Withdrawals were shut down due to lack of funds - FTX goes bankrupt So the FTX saga looks like the typical setup of a bubble... It's full of hubris, leverage, and possible fraud. And then, the whole thing falls apart when the market prices of assets collapse, triggering a fatal liquidity crisis. That basic outline is probably older than money itself. It makes you wonder if FTX would've survived with much better accounting and internal controls. Maybe it would've simply taken a day or two longer to shut down withdrawals and declare bankruptcy. We probably won't know all the details about the FTX saga for several months, a couple years, or perhaps even ever. Until then, we're left wondering to what degree it failed due to incompetence, reckless use of leverage, and potential fraud. But one thing seems certain... The more Bankman-Fried speaks or posts on Twitter, the more clueless he seems about everything going on at his company. Perhaps he should listen to his lawyers more often. Now, in an apparent stark contrast to the ongoing drama in the crypto world... The stock market's prospects seem to be getting brighter. Well, at least according to the mainstream media. The headlines were jubilant as the markets closed Wednesday evening... "Dow Jumps More Than 700 Points to Exit Bear Market," said the Wall Street Journal. "U.S. stocks record first back-to-back monthly gains since 2021," said the Financial Times. Folks on Twitter and elsewhere noted that the benchmark S&P 500 Index closed above its 200-day moving average. As you likely know, that's widely viewed as a key technical level. The Dow Jones Industrial Average closed at roughly 34,590 on Wednesday. That's still about 6% shy of the index's January 4 all-time closing high of about 36,800. But the Journal says it's a new bull market because it's 20% or more off its bottom. (The index closed as low as 28,725 on September 30 – roughly two months ago.) In other words, the newspaper is saying bear market rallies can't exceed 20%. So now, thanks to the Journal, I need to go through the tedious process of listing more than one 20% bear market rally for you, our valued Digest readers. Honestly, this is so dumb... On two occasions, the Nasdaq Composite Index rallied 35% and 41% between its March 2000 top and its October 2002 bottom. And at two different times, the Dow rallied 48% and 23% between September 1929 and July 1932. That's enough to make my point. I won't waste any more of our time. It makes the Journal look like a whiny kid in the back seat of their parents' car on a road trip, asking for the 20th time in two hours, "Are we there yet?" If I hear this is a new bull market one more time, as God is my witness, I will turn this car around and you kids will all go to your rooms without even stopping at McDonald's. If you think what ended in January was an average bull market and this is an average bear market, then it's probably over. But if you think the most massive financial mega-bubble in recorded history started peaking in March 2020 with the 10-year U.S. Treasury hitting an all-time-low yield of just below 0.4% (and therefore an all-time-high price)... with parts of the stock market peaking in 2021... and the Dow and S&P 500 peaking in the first two trading sessions this year, then... There is absolutely no way this thing is over yet. Another year or two and an eventual bottom 70% or so below the peak would be about normal. If that feels wrong to you after Wednesday's upbeat headlines, I get it. Almost nobody wants to believe a bear market could last another one or two years – or perhaps longer. But entertaining extreme scenarios is kind of my thing, so here we go... One sign of a true bear market bottom is that the capital markets will be closed off to any additional nonsense from the "Bull Club." [As we've discussed many times in recent months]( the Bull Club's current members include Archegos Capital Management founder Bill Hwang (who was arrested in April on fraud and racketeering charges), ARK Investment Management's Cathie Wood, WeWork founder Adam Neumann, Bankman-Fried, and a few others. Notably, the capital markets are still open to Wood and Neumann. They've both raised millions of dollars this year for different questionable purposes. And they're far from alone... The most recent example comes from our newest Bull Club inductee... (Man, it's getting crowded in this clubhouse.) I'm talking about Kevin Paffrath. He's better known on social media as "Meet Kevin." Paffrath gives advice about real estate, stocks, cryptos, and other financial topics. He has a YouTube channel with nearly 1.9 million subscribers. And it has had more than 460 million views. Paffrath and his wife, Lauren, also run a real estate company in Southern California. It's called the Paffrath Organization. They own 20 or so properties. But the couple makes most of their money – reported in 2020 at $6 million annually – from YouTube advertising fees. There's nothing wrong with any of that. But Paffrath belongs among the bubble pumpers in the Bull Club for a simple reason... He promoted crypto disasters like FTX and crypto lender BlockFi – which just went bankrupt this week. He made $2,500 every time he mentioned FTX in a YouTube video. And he recently posted an apology on Twitter, saying he messed up and lost $433,000 overall. And despite that, just like with Wood and Neumann, the capital markets remain open to Meet Kevin... On Tuesday, Paffrath launched his own exchange-traded fund ("ETF"). It's called the Meet Kevin Pricing Power Fund (PP). And it sounds like a cheap knock-off of Wood's flagship ARK Innovation Fund (ARKK). Here's what the ETF's website says... [The ETF] will invest in Innovative Companies that, in Kevin's view, also have more "pricing power" than their peers. At any given moment, the ETF will allocate 70% to 100% to individual stocks and 0% to 30% to a strategy labeled as "Targeted ETF Selection (Macro-Hedging)." For example, the third-largest position is currently an ETF that invests in two-year U.S. Treasury notes. The top 10 holdings currently make up nearly 80% of Meet Kevin's ETF. Like ARKK, the largest holding is electric-car maker Tesla (TSLA). It accounts for 22.4% of the ETF's roughly $1.6 million in net assets. Tech giant Apple (AAPL) is second, at 13.8% of assets. And Meet Kevin apparently has bigger capital-burning aspirations. The prospectus for the Meet Kevin Pricing Power Fund threatens to push two more ETFs on investors... - Meet Kevin Select Fund (MKS) - Meet Kevin Moderate Fund (MKI) Paffrath plans for these two ETFs to allocate smaller percentages of assets to innovative companies. And they'll put larger percentages into broad-based ETFs and macro hedges. Oh boy. If this guy is still in the ETF business a year from now, I'll eat my hat. Heck, I don't even wear hats. But I'll buy a tasty one if any of these ETFs are still trading in December 2023. Perhaps my biggest problem is just that the crypto blowup is too fresh... It's too soon for a guy who touted FTX and BlockFi to be asking the public for more money. At the very least, there's something stone-cold tone-deaf about Paffrath essentially saying... "I screwed up and made $2,500 per mention touting two bankrupt institutions. And now, I want to earn fees from your assets. So buy my ETF!" Here's the key takeaway for us as investors today... Paffrath's YouTube videos still get 50,000 to 100,000 views. At the bottom, you won't even be able to find him on social media because he'll have to delete his accounts out of shame. So sure, let the Wall Street Journal tell us that the Dow is in a new bull market. Let other folks follow the herd back into stocks, ignoring everything that has happened this year. Forget the bottom... Meet Kevin's very existence tells us that the top isn't even fully in yet. --------------------------------------------------------------- Recommended Links: # [Here's What Wall Street's Watching Today]( Half of the top 300 financial institutions, the U.S. Department of Defense, and the brightest minds at Harvard University, London Business School, and the University of Chicago await one man's prediction for 2023. Don't be left out. [Click here for his major 2023 warning](. --------------------------------------------------------------- # ['A Gold Storm Is Coming']( Some of the richest men in the world are jumping in right now... because evidence suggests we could see MUCH HIGHER gold prices before the end of this year. But if you're not taking advantage of a little-known way to invest for less than $10, you're missing out. [Click here for full details](. --------------------------------------------------------------- New 52-week highs (as of 12/1/22): Automatic Data Processing (ADP), Aehr Test Systems (AEHR), Alamos Gold (AGI), Atkore (ATKR), Bristol-Myers Squibb (BMY), Cintas (CTAS), Gilead Sciences (GILD), General Mills (GIS), Novo Nordisk (NVO), and Valmont Industries (VMI). Today's mailbag features feedback about the launch of my new research service, The Ferris Report. We made all the content available to Stansberry Alliance members yesterday. As part of their partnership with us, they can access it at no additional cost [right here](. Meanwhile, what's on your mind? Tell us at feedback@stansberryresearch.com. "Finally. It's time for ALL DAN ALL DAY. Love your insight on investing and the world. Happy for you, and ME too. So, pull up your pants, tighten your belt, open your eyes wide. Dan is gonna take us on a most wonderful ride. No seriously, I'm with you all the way." – Stansberry Alliance member Doug K. Good investing, Dan Ferris Eagle Point, Oregon December 2, 2022 P.S. If you listen to the Wall Street Journal or any number of other mainstream analysts, you might think that stocks are already recovering – or will very soon. But before that can happen, I believe we'll witness a "cash frenzy" unlike anything we've experienced in two decades. In fact, I believe this is the No. 1 thing you need to pay attention to in 2023. Millions of Americans aren't prepared for what's coming. But I want to make sure folks like you don't get blindsided. That's why I just put together a brand-new urgent briefing... If you have any cash on the sidelines or any money in stocks right now, this could be the most important message you see all year. [Click here for the full details](. --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst ADP Automatic Data 10/09/08 939.1% Extreme Value Ferris MSFT Microsoft 11/11/10 914.7% Retirement Millionaire Doc MSFT Microsoft 02/10/12 785.7% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 555.2% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 470.3% Stansberry Innovations Report Wade BRK.B Berkshire Hathaway 04/01/09 460.0% Retirement Millionaire Doc AFG American Financial 10/12/12 453.4% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 426.6% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 322.5% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 306.3% 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 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Extreme Value Ferris 1 Stansberry Innovations Report 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 1,128.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,098.8% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,075.1% Crypto Capital Wade MATIC/USD Polygon 02/25/21 869.6% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 401.2% 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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