Market Outlook: Chris Irons discusses the potential for a sharp deleveraging event, emphasizing that the current cycle of market crashes followed by increased money printing is unsustainable.
Economic Insights: He critiques the reliance on Modern Monetary Theory (MMT) and highlights the widening wealth gap as a consequence of current monetary policies.
Investment Strategy: Irons advises focusing on value investing and diversifying outside of the U.S. market, suggesting investments in gold, silver, miners, and emerging markets.
Market Risks: He warns about the dangers of the passive bid and options market, which can lead to distorted valuations and potential market instability.
Company Analysis: Irons expresses skepticism about high valuations of companies like Tesla and Nvidia, suggesting they are over-reliant on speculative future growth.
Investment Opportunities: He sees potential in sectors like nuclear energy and psychedelics, which are currently under the radar but have strong growth prospects.
Key Takeaway: Investors should be cautious and contrarian, focusing on fundamental value and being prepared for potential market corrections.
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferrris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McLaclin, editor of the Stanberry Daily Digest. Today we talk with Chris Irons, also known as Quot the Raven on Substack. Chris is a very smart guy and he's a salty old dog. So, get ready for that. But get out your pens and pencils. He's got a lot of great ideas about what is happening in the world right now that I want you to hear. You need to hear them in my opinion and you need to hear them in a different way. And this is that way. So, let's do it. Let's talk with Chris Irons. Let's do it right now. All right. Chris Irons, welcome to the show. apparently for the first time ever. I thought you'd been on before, but I guess not. >> Happy to be here. And as I said before, I thought my my halflife with ever being invited back to anything Stanbury after my 2019 onstage performance in Las Vegas was much longer than six years. I thought it was going to be at least at least 20 years. But, you know, it's great to be back six years later. I'm not surprised it took so long. Well, you know, so you know how people are, you know, they they hear a they hear a little salty language and they get all flustered. Um >> Yeah. Well, I appreciated the invite and uh you know, happy to be here. >> Yes. >> And you're putting too much stock in our planning as well. That if if you uh think that uh >> that's right, >> that was an issue for us. Yeah. >> Hey, I enjoyed myself. I, you know, I I get invited to these like conferences and things, which I don't really do too many anymore. I do still get invites. And my thought process is like, you know, if I go, I go. If I don't, I don't. I'm not, you know, I'm just going to go and say what I want to say, and that's going to be it. And if I don't get invited back, you know, that's okay. I remember the guy at your at your stage show, you know, because everybody, it was like very professionally done, professional sound, professional everything, great crowd, >> you know, was like, "Oh, yeah. Do you want to wear a jacket? I remember he asked me like, "Do you want to wear a suit coat?" Because I had a tank top on because like about 30 minutes before the presentation started, I was out at the pool at it was at the wind, right? I think >> I think >> I was >> Yeah, I was out at the pool drinking beers and having a good time and I looked down. I was like, "Oh I got to be on stage in 30 minutes." So, I ran inside and I The guy's like, "You want my suit coat?" I was like, "No, it's 90° outside." Anyways, I have graduated since from a tank top now to a sleeveless shirt. And so maybe in six years when you invite me on again, I'll be wearing a button-down shirt. >> It's getting closer to sleeves, folks. It's a it's a process. It's an evil >> longer. Yeah. >> Yeah. >> Well, uh, you know, I enjoy your your commentary. I enjoy your presentations. So, u you know, apparently I have some amount of sway over who gets on this show. So, here you are. And I'm happy to have you. I'm happy to have um most folks who who are self-p profofessed, you know, libertarian and Austrian economics um oriented as are you. So, yeah, happy happy to have you here. And um of course, you're an investor, too, so you know, there's potentially lots of stuff to talk about. Um we might start there. In fact, I'd like to start there if you don't mind. Um, what does what does a um an Austrian-minded fellow like yourself think of, >> you know, things like tariffs, you know, is there any is there any good outcome potential from this >> from the highest tariff since 1930s? Okay. >> Yeah. I think a lot of the criticism of tariffs, you know, in the fact that it does eventually work its way back into prices does make sense. Um, there's some people who argue against that, like Jim Rickards did a pretty good job of, you know, making a case as to why tariffs don't affect prices, but one way or the other between tariffs and between monetary policy, I mean, nominal prices are going to continue to go up regardless of what we do. Um, and that's part of like my broader kind of macroeconomic thesis, which is the Fed will do anything at all costs to try to save face at any point. And so, you know, I think not to not to carry the Austrian school/ libertarian like Peter Schiff disciple line, but I do think at some point we're going to have an extremely sharp deleveraging. I think it's going to be worse than anything that we've seen thus far. not saying that to try to elicit any type of response just out of common sense with the way that this cycle goes, which is, you know, we crash, we print more, we crash, we print even more, we crash, we print even more than that. And so the the the, you know, MMT kind of like uh abusing the corpse of the dollar cycle that we're on right now, it just accelerates and gets faster and faster as time progresses. And so naturally with that come bigger and bigger distortions than bigger and bigger drops in the market. Um you know as far as the idea of tariffs as a political strategy like I don't hate it because I think that there is a you know look the only thing this country exports right now is dollars. I mean we don't manufacture anything here. And so the case that I made was look back during COVID when we needed important items when the supply chains were really gummed up, we really found out during CO just exactly how many items come from overseas. And it was, you know, maybe a year or so that we were walking into stores and it was natural for half of the shelves to be empty because they weren't the items from overseas weren't getting here anymore or they were trickling in. And so what you'd see is this small selection of items that were manufactured in the United States or had finally made their way over. But more importantly are the things that Trump is talking about like the ingredients that are used to make pharmaceuticals. the pharmaceuticals themselves, uh the rare earth minerals, the things that really >> in the balance hang, uh significant portions of our quality of life. And so I don't think that it's a bad idea. as as misguided as I think some of the tariff rates were that Trump came up with and the calculation that he used was, I don't think it's a bad idea to make this hard stop and say, "Listen, we have to do something because when you drive through the Pennsylvania countryside in northeast PA and really even in places near like where I grew up in New Jersey, I think a one factory for example that used to be a Kimberly Clark factory, you know, that just shut down. I mean, they were making tissues and toilet paper and things like that. You see it in Detroit, you see it in places like Bethlehem. If you if you go to Bethlehem, Pennsylvania, you see like the whole steel industry is essentially shut down. And those are just microcosms of what's happened across the entire United States. So we used to be a country that manufactured its own goods that had sound money that you know was uh you know had a budget surplus was in a much better financial position if you gauge financial positions through an econ 101 common sense like Austrian school point of view. And so I don't think that the idea of wanting to rejigger our trade deficit is necessarily a terrible idea. I think that there are a lot of moving parts. Um not the least of which are, you know, the the cost of items that we get from overseas versus the cost of manufacturing here. Um, but net net I think that it's a good idea because it brings up it it puts into the zeitgeist the idea that the country doesn't manufacture anymore which has been a problem for a long time. So if you're like me and you believe that we're overspending and we are over consuming and that we have essentially entered a period of like you know decadence or like you know just like uh you know we have the global reserve currency we use it we weaponize it. Um, and now like I find myself going to Europe and I find myself going to like cities in Europe and thinking like, man, why doesn't the United States look this nice? And so in some ways it almost feels like we're we're over the like we've reached the zenith of like our, you know, flourishing as an empire. And in order to try to correct any of that, first off, it's going to be near impossible to correct. It's like turning around the Titanic. like just doesn't happen quickly. >> But in order to do it, there are certain giant fundamental changes we'd have to make. Not the least of which is, you know, onshoring some manufacturing again and then of course trying to cut spending and trying to balance the budget, which we're not doing a fantastic job of either. So, um, I see the good and the bad. >> Yeah, it's it's creating real wealth is is speaks for itself, right? And if you do less of that and you and in the in the in the process or sending your net worth overseas in the you know what net worth you have you're you're shipping it overseas and then you're also you know not creating as much of it could be a problem. I think what's even more frightening from the Liberation Day debacle, what happened, I I think if you want to take away from that >> outside of arguing over tariffs, it would be the market's reaction to what happened and how quickly and swiftly it reacted and then how coincidentally after several days of, you know, down 2%, down 3% and the 10 year and 30-year yields moving higher, how coincidentally, oh, all of a sudden, like there was a 60-day pause or a 90-day pause. And, you know, I mean, people on CNBC were acting like it was the goddamn end of the world. Like, I thought Steve Leman was going to cry. It was just, you know, and that speaks to a broader theme, which is sometimes when you want to make big changes, you have to deal with some discomfort. But nothing had even happened at that point, like the the price hadn't Yeah. >> Yeah. Hadn't hit and nothing was missing from shelves. It was just pure panic. And the idea that like, okay, the market went down 10 or 15%. And so now we need to just scrap this entire plan shows you how truly trapped we are. Because if we get to a major sharp deleveraging event, and it will happen at some point in the future where the Fed's not going to be able to stop it and the president's not going to be able to stop it, and then it's like, bar the door because we have no idea what's coming next. Um, but that will happen. But it just shows you just how beholden we are to the little number on the screen that, you know, has the S&P in it. Because as I've written about, there's a million reasons we could talk about them, but like you know, something like the the passive bid, when that starts to dry up and people start to redeem instead of contribute, like you're going to see a nightmare. You know, >> Chris, I just I didn't get to it. I just saw the piece of yours about, you know, it was I forget the title, something about how passive unwinds and I didn't get to it. So, let's do talk about that. That was one of the things I I was gonna ask you about too because we recently had our one of our colleagues Brian Beach on here >> who's been talking about and Dan too talking about the passive bid. >> We've had Mike Green on. >> Yeah. >> And Mike Green that he Mike Green was the impetus for that piece and really basically the piece that I wrote is you know a lot of it is summarizing his thoughts um because he's the person that I you know really sharpened my vision on this from. Um, in fact, in that piece, it passes along a great interview that Michael Green did with Palisades Gold Radio, which the first half of that interview, I thought was the best explanation for exactly how out of whack things could get due to the passive bid that I've heard thus far. What I knew going into that interview was that the this passive bid, which is essentially uh routine forced buying through individuals who purchase ETFs that are weighted to the S&P or people who contribute, you know, regularly via their retirement funds, uh their 401ks to these types of ETFs >> with no reference to fundamentals whatsoever. >> Right? What happens is those funds buy, you know, a list of names, usually the top weighted names in the S&P 500 proportional to the amount that you invest in the ETF. And what they don't do is they don't look for value. They don't look at price to earnings ratio. They don't look at price to sales ratio. They don't look at where the market is. It is a consistent purchasing program that doesn't let up regardless of valuation. And in the case of you know nowadays you see market breath meaning the amount of uh companies that are driving the index higher is getting smaller and smaller. So, it's not uncommon to see a case where you have, you know, 60% of the S&P red on a day or 65% of the entire index red, but the index itself green because the higher weighted names in the index, your Amazon, Tesla, Microsoft, whatever, the Mag 7 and others are green on the day. So they have been the the equities that are driving the market rally higher >> and their valuations have gotten pretty stretched. I mean you're talking 40 45 times the earnings on some of these names. A name like Tesla, I mean you're in the hundreds of right now, >> right? And so the point that Mike Green was trying to make that was something that I did not know um because I knew how the buying worked, but what I didn't know was that when people go to redeem from these major, you know, 20 trillion ETFs and funds, meaning when you take those emergency draws out of your 401k, which happens when there's periods of financial distress or when you lose your job, when you do that, that a lot of these funds don't have cash liquid to absorb those redemptions. And what Michael Green was saying in this interview is that the funds have instead done things like taking on leverage specifically so they don't have to sell. >> And that's a great solution until you get to a point. It's only a great solution if the market continues to move higher. But basically, it it could eventually become a margin call on these, you know, multi- trillion dollar passive funds, which when you add that to a major margin call in something like crypto, which is levered 100 to one, and individual uh personal accounts that retail invaders uh investors trade in, you could have an absolute nightmare that it doesn't matter what the Fed does because you can't come in with a you can't come in with 20 trillion dollar bid if you're the Fed. I mean, you can and they they would figure out some stupid way to do it and some dumb name for it, but then you're talking about 10 15% inflation or something the next the next year. And so there's going to be a blowoff valve and uh and you know, just to listen to Michael Green's perspective on this and I recommend everybody listen to that interview. >> Yeah. Um, as I tell my subscribers on my Substack, you know, I don't know why you subscribe to me because all I'm doing is just passing along what I learned from other people, but you know, it really seems like uh something devastating could be waiting in the wings there. Uh, if we do move low enough fast enough, and that's the key. Can we move will the market move low enough fast enough that it will trigger these calls before we have a time to react like we did with the liberation day? like when Trump and Bent come in and say, "All right, there's an issue. We're going to do a 60-day pause." And the market breathes again, then people get a little bit of a uh, you know, a little bit more time. But there will be an issue where people are just going to have to pay up. you know, it's going to hit that time threshold where the market is low enough for long enough that people are going to start to see real collateral calls, real margin calls, real inability to to, you know, service whatever needs to be paid on a monthly basis. And so that'll be it'll be unprecedented when it happens from where we're at now. >> Right. And if you if you think about it, um I like the way you put it and and and I also I I feel like we all we all took the cue from Mike Green on this. And the algorithm is, you know, receive a dollar of capital, buy a dollar of equity with no other inputs. And then you're talking about the reverse of that, right? Redeem a dollar >> and sell a dollar of equity. Um but when you're you know when you're borrowing too on top of that it really makes and you're talking about 20 trillion in funds like just everything to that's that has the S&P 500 like the top you know the three biggest funds VO spy IVV are like almost two trillion just those three funds are almost two trillion of nothing but S&P 500 right >> yeah which is to say nothing of all the other >> close to 40% of that money is in 10 stocks, >> right? >> You know, >> which means which means if something happened tomorrow, and I'm not saying this is going to happen, but let's say something happened tomorrow where one of these major mag seven companies was found to have committed accounting fraud. Not saying this is going to happen, but every once in a while, pops up. Things happen, something unexpected happens. you know, a key person at the top dies or a company commits fraud or there's some type of major like product liability or something that something that innocuous could be or even even more innocuous than that could be the impetus for exactly what sets off a cascade lower just by virtue of its waiting in funds like these. And so >> the we're we're really in a situation where we're putting so many of our eggs all in seven baskets and that's frightening. >> Yeah. I mean we've seen just in the past I don't know several years or something. U enormous one-day draw downs. I know in meta you can look up on something like Investopedia you know biggest one day market cap losses. You know what I'm talking about. and and and you know you'll see like minus 19 20% in a day on a massive massive market cap company >> and how much of that would it take right I I hear what you're saying you don't know what it's going to be you don't even know what the catalyst could be >> specifically if I had to pick like if I had to pick two names I was the most concerned about and none of this is investment advice and I'm just speculating and giving you a hypothec ical but you know you you have a name like Tesla where Tesla where their legacy business essentially is going to collapse >> and the valuation is extraordinarily stretched based on the fundamentals and so it's a call option on their future of robotics and AI and full self-driving so okay like what happens if that doesn't come to fruition then also you have like a company like Nvidia which has all these very interesting ciruitous transactions and relationships with other names specifically like coreweave and like you know uh super micro that and even Microsoft I think they have a huge customer concentration issue with Microsoft um and so you do have a lot of eggs in one basket again um where it just I don't know you know look I I was a professional short seller for like 10 years I worked with some of the best short sellers in the world when you do that you start to just get a sense for when things might be a skew. You you see enough related party transactions and enough like, you know, forensic accounting weirdness and even just enough like sometimes behavior from a specific CEO or, you know, you just kind of have a finger on the pulse a little bit more than someone who has not been in that world for a while. And again, I'm not saying that this is an issue with any of these companies. I'm just saying like for me, you know, something like Nvidia coming in and backstopping Coreweee's IPO when it couldn't catch a bid at $40 per share and they have this, you know, business relationship with them at the same time where they're reliant on one another and then all of a sudden Coree what goes to $150 a share when there was no bid for it during its IPO. Like I don't know, you know, like that stuff doesn't make sense to me. And I understand option gamma, you know, could be driving it higher speculation, but you know, it's definitely it's a convenient move for Coreweave insiders and it's a convenient move for Nvidia and anybody else that bought the IPO, but when you look back at that day, there didn't seem to be an appetite for the AI story. There didn't seem to be an appetite for their stock at $40 per share. So I'm like watching carefully um you know even things like data centers too and some of the valuations on some of these you know legacy data centers watching Chris I've noticed you watching I've noticed you watching like Meta and Microsoft you were writing about how you know they're doing great but >> but you know the market kind of puked it back. >> Yeah. Well, on Friday, I just wrote a small note about that. The fact that you know that there will that's the action you would expect to see when valuations are peaking, right? What would you expect to see? You'd expect to see a great fundamental quarter because like Microsoft for example beat analyst estimates. Meta beat analyst estimates raised guidance, right? So, you got a beat beat from both of these huge names, >> right? and the next day the market just sold it right off. And so the market bounced yesterday and now today it's selling off a little bit more. But those are the types of things that would suggest to me that the market says look despite this great quarter, how big can we make this delta between the fundamentals and the multiple that we're paying? >> Yeah. I wanted to ask you about something else. Um you mentioned the options gamma just a couple minutes ago. Um, and I've seen you write about and we know about like the meme stock traders and then and you know the short squeeze and all of that, but you write about the weaponized options when like this idea that it if it goes the other way if people start going doing puts instead of calls and I it's this underlying feature of the market. I think it's it's like it's like there like people know it exists or a bug if you want to call it a feature or a bug like all this exists and it's something on my mind for a long time with all the zero day trading you know uh activity and everything. Um can you just get into that a little bit and maybe enlighten people on on what you're concerned about there? >> This and the passive bid I've argued are basically the two tails that are wagging the market dog. the market used to rise and fall because individual people would come in and buy Apple stock and then that would drive the ETF a little bit higher, you know, because it's highly weighted in there. And now the opposite is happening. People are buying the ETF and that's driving Apple higher. And that's why you get these insane out of whack valuations. Another, you know, incredible feature of the market is when dealers sell options, when they sell calls or they sell puts, there's a certain percentage of the exposure that they get from that that they have to hedge against. And so if I sell you a call option uh at a certain price, um you know, I essentially got to go out and buy that stock in in a smaller amount to make sure that I'm reducing my, you know, exposure, my counterparty exposure to that transaction. When that happens over and over and over again and you get a million people piling into, you know, the same stock at a strike price that's far outside of wherever the uh notional price or far outside of whatever the spot price is at the moment. What you get is essentially forced buying from dealers that are trying to hedge against the sale of all of those call options. And when that happens at Moss, then options become the flywheel that spins up the market's equities instead of, you know, being a kind of side, you know, derivative feature of the market that lets you speculate in addition to owning the equity. So between the passive bid and the options market, I'm not sure we've had a fair price on equities in forever. And you know, this is what happened with GameStop. People say, "Oh, you know, was it was it just that people were, you know, coming in and buying shares of GameStop all the way up to $350 a share?" Probably not just that. It was probably had a lot to do with people buying the furthest dated strike. And anytime the options market makers would list new strikes, they go out and buy the furthest dated strike. And that would have, you know, forced the dealers to buy the stock at whatever price. Plus, you had some retail buying as well. When you think about the dollar amount that you would need to move the stock that high that quickly just buying the equity, the dollar amount to move it by buying options is significantly smaller. And nowadays, if you go on Wall Street Bets, you just go look at it today and people are posting their wins and their losses, everybody's trading options. Nobody even buys equity anymore. The entire market has become options. I mean, the entire market has become leverage gambling. I mean, top to bottom, there's no other way to put it. You have a cohort of less sophisticated investors who are making up a larger part of the market than they've ever made before and their only means of investing is speculating on options which become again a tail that wags the market dog. So when you look back to COVID for example and we had that huge dip and then the NASDAQ basically tripled off the bottom despite the fact that the economic turnaround didn't appear to be substantial at all. And then you see an article like I believe it was in FT where you know you're sitting around dumbfounded wondering like okay like you know why is Tesla up 10x in in six months right like what what could po how could that possibly make sense and you see these articles that say Soft Bank and Goldman Sachs I think were the two names that were in there buying index calls off the bottom. So they were making these enormous levered bets that on an index ETF which forces buying of the index ETF which forces that cash to be distributed per its waiting to the individual equities. And so that works in two ways. So the same way that we blasted off the bottom and you do see these insane moves like we saw in Tesla in December of 2019 to mid2020 where it did I think 10x which was bizarre. Those same moves can happen on the way down, which means like when market psychology breaks, whenever that happens, we get to a moment where the Fed and the president can't help and people understand that and there's no turning back and there's no six-month delay on tariffs at the last minute. Um, when that happens again, you're going to see, you know, options weaponized in the other direction, which I think could be extremely dangerous. So between that and the passive bid, we have these like two giant trap doors underneath the market that to me perfectly explain why valuations are as batshit insane as they are now. You get all these great investors like Mark Smeaggel, my friend, writing about the, you know, market cap to GDP and, you know, historical PE averages and it's just like, how could we be here? Well, this market functions very differently than a market 20 years ago. You know, we didn't have ETFs like we did 20 years ago. We didn't have options liquidity like we did 20 years ago. Totally different market, totally unprecedented, you know, situation that we've been in is even going to monetary policy again. And so, we're going to have totally unprecedented outcome. The worst part is over the last 20 years, everyone has been conditioned to think that they should always buy the dip and there's always going to be a bailout or a solution from the Fed or from the government. And at some point something is just going to break. And I'm not trying to be a fear-monger, but it's just simple math. Like, we're just moving higher faster than we ever have. There's more speculation and more leverage. Margin debts at an all-time high right now. Real rates are positive. the economy is starting to grind to a halt. So, job losses will come next. Discretionary spending will start to, you know, be reduced. That will hit earnings. And then all of a sudden, you're going to be starting a flywheel in the wrong direction. And then it's like, hold the on. >> Yeah. Unemployment could certainly hit passive flows, too, right? The earnings. >> That would be what you'd want to watch, right? Like that would be the number to watch for passive flows, >> right? >> Well, gosh. Um, let me just uh put a gun to my head real quick here. Um, here. >> Hey, listen, man. I'm an I'm an optimistic dude. I'm not trying to be like Mr. Doom and Gloom. I think it's ridiculous how people that, >> you know, just speak with any type of common sense and suggest anything other than like Tom Lee like beating off to Ethereum on CNBC. Like, you know, like people that suggest anything other than that, they're like, "Oh, all of a sudden, like, oh, they're anti-American. They're against the market. or this or that, you know? Look, man, numbers are finite. You know, math is math. Econ 101 is econ 101. No matter how much modern monetary we want to build on top of the basic rules of debits and credits and supply and demand, they're still there. And like Ron Paul says, like, you know, eventually the free market and those natural laws of economics are going to have their way. You know, it's just when and how and you know, who's going to be the scapegoat that takes the blame? Is it going to be Russia? Is it going to be short sellers? You know, who the knows? >> Yeah. >> But really, it will be a it will be a mess of our own making when it happens, >> right? And you don't want to be the person caught up in that, I think, is is the is is the idea. Like that's >> Yeah. and Stanbury people know this too because I remember in in 2019 there's a really good cross-section of like Stanbury's audience with um you know kind of libertarian and Austrian school thinkers at least that's what I can remember from drinking whiskey in a bar with some of them but >> could be a little hazy memory on that one >> no you're right you're right and and it's even I would even say there's sort of a firmwide bent in that action. Um, and certainly, look, I I I made a joke about putting a gun in my head, but I mean, I I've been I've been in this mode of questioning um, you know, speculative excess since May of 2017 off and on. You know, I like I was hugely hugely bullish, you know, March, April of 2020 for, you know, several months and then, you know, we we just it all just came right back to where we were. So, um, yeah, I I hear you. I I I've had to write I write once a week and I've had to write now and then. Look, I'm I really am an optimist about human humanity, you know. I really am pro I I I I promise you and I hear you sort of telling me the same thing. when we crashed during COVID for example, you know, I was writing and talking on podcasts that I'm, you know, I'm buying financials, I was buying JP Morgan, I was buying Goldman Sachs, I was buying, you know, these companies that were trading at like point8 times book, 75 times book, like under one times book >> because it wasn't a financial crisis, you know, like nominally the financial system is always going to be there because the Fed is, you know, the lender of last resort always. And so I knew it was very different from 2008. Um, you know, so it's not that I don't think that there are things that aren't opportunistic because I do like I was saying that and those those names are all up like three or 4x since then in just a couple of years. Um, and even, you know, on my Substack at the beginning of every year, I put out a list of names that I'm watching for the year. And, you know, only one of them was a short this year and 20 four other ones were longs. Um, you know, you just got to find where there is still some value. You know, I'm just not like I'm not out there long the Mag Seven. Um, I'm long things like gold miners, silver miners, things like psychedelic names, like all these little niche pockets of the market that, >> you know, kind of undernoticed. I was long nuclear coming into this year, which has been, you know, has had a great tailwind. Um, so I'm not I'm not a uh I'm not a pessimist. I'm just trying to put together a clear picture of exactly where we stand based on common sense and not from this like echo chamber that you see. You know, I don't really watch CNBC anymore, but I had it on yesterday and it was top to bottom beginning to end to the day. Nobody was skeptical. You know, Gunlock was on for a little bit and he was like, okay, he somewhat cautious, but every guest they brought on was just making excuses on why people should be buying now, which is a ridiculous thing to do because these people are they're backfitting thesis as to why we should buy to the ridiculous price instead of looking at the price and making up their mind, which is like what I'm doing. They're making up their mind and then backfitting it to what the price is now. Which is why you get all these asinine price targets from people like ARC and like you know all these sellside analysts that they don't have a sell feature that you know they don't they don't they don't put out sell reports. It just doesn't happen. So the question then becomes like what do you have to make up? What do you have to factor into your Tesla model to justify, you know, a $1,000 price target when the legacy business is in collapse? You know, like what? >> I don't know. I'm glad that's not my job, you know, like I would feel like an trying to make something up to justify that. >> Yep. I I'm glad you mentioned Arc because I recently they they um you know they send out these uh emails about their blog post and things and the one email that caught my eye was they were bragging about their year-to- date performance and I thought well you know huge sentiment indicator when Arc is bragging about their year-to- date performance you know in August or July or whatever it was >> you know something is up and now they're saying >> this woman go ahead >> she promised she promised promised 40% compounded returns some years back. Do you remember that? >> Yeah. >> Do you know Do you know how far off the mark she is from that? So like that's that's exactly what I'm talking about. Like I even wrote about that on my uh >> on my blog. I don't if I can't pull it up real quick. I'm not going to. But uh here it is. Keeps moving the goalposts. You know, this was back in 2022. And uh this was how she was listing things on her on her website. But she said, um, yeah, according to our current estimates, our more concentrated flagship strategy today could deliver a 40% compound annual rate of return during the next five years. Okay? So, she said that in 2022. Okay. >> And had she compounded 40% since then, actually, which would be some I don't even know how ridiculous of a price that would be. >> Yeah. Let's just go back and check just for shits and giggles here because we're having a nice time today. >> Uh she was at probably about $70 a share then and she's at about $70 a share now. So she has an approximation over the course of um five years produced zero% returns. >> So the difference between promising 40% compounded and zero is a huge deal. 40% compounded from the original would have been let's see 70 plus 28 so that would have been 98 at the end of the first year which would have been like 140 at the close of the second year >> right >> it would have been 196 at the close of the third year it would have been 270ish at the end of the fourth year and it would have been three 4 32 it would have been near somewhere between $350 $50 and $400 a share now and she's at 72. >> Yep. >> Just a little bit off. >> Little bit off. >> Just a touch off. Yeah. And if we have the >> three months ago she was at like 40, you know, like she's just just now up at 72. >> Right. and the idea um that you're going to have a compounding some kind of predictable compounding effect on stocks that are you know the funds still contained a lot of and still does have a lot of kind of cash burning speculations in them. >> Sure. >> Um is a little silly. There's no compounding with that. It's it's a pure speculation. And she keeps talking about investing in disruptive innovation. Well, you're speculating on kind of garbagey businesses and trying to replace them occasionally with, you know, Google or whatever, but even that is >> and there is a whole tide of crap that needs to be taken out to pasture and shot like all this, you know, speculation in crypto outside of, let's say, Bitcoin and Ethereum, you know, there's hundreds of billions of dollars in speculation and leverage and you have still have a ton of spacks that trade a ton of pre-revenue companies, you know, I mean, all of that needs to get carried out. All of it. And it will eventually. It's just a question of when, >> right? Well, a lot of, you know, a lot of the specs are effectively destroyed. I mean, down 80, 90, you know, plus percent. Um, you know, cannabis has had its head handed to it. all the stuff that was a bubble in March or April of 2021, you know, cannabis, spaxs, clean energy, bunch of stuff. Uh yeah, and there's still I agree though, there's still, you know, there's still a bid for it. I mean, she that ARC fund, her main fund was up like 90% in, you know, off of that April 8th bottom recently. So, you know, >> let me just tell you, if if that miraculous move in Tesla doesn't happen >> in December of 2019 to, you know, let's say June of 2020 where it was up 10x, that move doesn't happen. No one ever no one ever hears about Kathy Wood and no one ever hears about Ross Gerber. And that's it. Those are the two pieces of success that those two managers had that they clung to. Ross is now getting wise to Tesla. you know, would I think even if she doesn't like it at some point, I don't think she can, you know, I just can't quit you, you know, like she's got so many supporters that are like Tesla supporters and everything. >> Yeah. >> And so they've they've clung to that. If that doesn't happen, that crazy December 2019 to June 2020 move in Tesla, which happened somehow right after Elon Musk got his pay package. Mhm. >> But if that doesn't happen, no one ever hears of this woman ever because she has one after the other after the other invested in that's gone bankrupt. Invested in stuff that's down 90% pre- revenue this that I mean there's just not a you know I remember Ross Gerber buying Archimoto which went bankrupt I think. Like there just there hasn't been a piece of like pre-order pre-revenue dog that these people haven't fallen in love with. And so I think at some point, you know, that strategy is not going to work anymore. Who knows when that is. >> Yeah. >> All right. Well, so clearly we're not buying the buying the ARC funds, >> but I'm not I'm not Look, I'm not giving financial advice. I'm just telling you how I feel about these things. You guys can buy whatever you want. >> No, no, I know. But what I wanted to say was how if we if somebody wants to hedge this, you know, the passive bid, the speculative mania of the market, the fact that the Fed comes to the, you know, belief that the Fed and the government will come to the rescue at all times. Um, what what do what do you what do you look at? What I mean, where do you where do you go? And um is it maybe it's something that's overlooked uh that there's an area that you might be interested in that that uh for people to consider? >> Well, for me it's like a combination, right? And so like I have some short exposure on the indices um which is like always like a place you can start if you want to hedge against the market going down. Um but then also too just like I try to stay diversified outside of the United States. like I have a lot of uh uh emerging markets. If you look at like even something simple like the EM ETF, it's a good way to just get some emerging market uh and then there's like the EMD, I think, which is emerging market dividends. Uh you can look them up, >> but uh for me personally, what I like is, you know, I like owning gold. Uh I like owning silver, gold miners, silver miners, uh even real estate. uh which I actually do think will will also crash at some point. Um but just trying to stay as diversified outside of um what's driving the market now to put it simply like right now it's speculation and so I would be more weighted towards value. I look at a name like you know UPS right now which trades at 12 times earnings pays a dividend. Um it's a company that I am certain is going to be around in 20 years. is shipping is not going away. It's a business that's going to be here forever. UPS and FedEx basically have a duopoly right now. Um, so I would much prefer to look at a name like that than to speculate at 50 times sales on Nvidia or whatever. Um, so you can obviously just get vanilla short the indices. Um, but for me also too, it's having exposure to emerging markets, having exposure to gold, silver, miners. I even own some Bitcoin. I own a little bit of Ethereum. anything I can do to kind of get out of the system as it exists uh today. Um but you know also like I own longdated puts on some of the indices um just as a hedge most of my portfolio is long but it's just long in stuff that's not mag seven >> Gotcha. Yeah. >> Right. Yeah. There's there's plenty there's plenty to do. I would even say there's been plenty to do. Like we've made a long pick after long pick in our extreme value newsletter and that's a weird thing to be calling a newsletter at all and the these days people are like value does that you know and I like how you unabashedly uh make constant reference to value and valuation. You know, a lot of people now they're like, "Well, it doesn't matter anymore because market structures changed everything." And you know, um, and it and you even you even refer to cape ratio something I do. I didn't think anybody else on the face of the earth cared about that. Everybody thinks it's stupid. It doesn't work. Doesn't tell you anything. I would say it's a great way to identify a an extreme peak in the S&P 500. I mean, you can see, you know, this chart screams at you. In other words, it just >> it does. Yeah. And we're like near almost where we were uh all-time highs, which was leading into the tech bubble of 2000. But, you know, this started like 10, 15 years ago kind of with the death of active investing. you used to be able, you know, great managers who are, you know, were great long short managers like Einhorn, um, Chenos, you know, these types of guys, like they understood to short bubbles and to buy value and that's really what investing should be. Um but like active investing just started to crap out um you know two decades ago because of monetary policy and because of you know the fact that we've just decided to print at all costs and we can't take more than a 3% draw down in the S&P. So the game has changed but I still think it's temporary. I feel like these things always have a way of making their way back to historical norms, um, historical averages, and, uh, it's just a question of when that happened. And until then, you'll have to listen to everybody's stories as they try to tell you why this time it's different. >> Um, until then, you'll have to listen to people make the argument that 30 times earnings is the new 12 times earnings, right? Um, and really, you know, that's to me it just comes off as arrogant. It comes off as hubris. And so I'm I'm much more inclined to continue to focus on value because look, like if the market's trading at a 30 multiple and I can buy UPS for 13 times earnings and I feel like it's going to be a business there for a while, you know, then what's the difference? Like and and how hard is that going to get sold off? Like if the market collapses 50%, you know, Microsoft's going to go down 50%, Nvidia is going to go down 60%, you know, UPS will probably go down another 10 or 15%. And so, you know, there's you eventually find a bottom on names that are, you know, value names that generate cash consistently that, you know, have these remarkable like decadesl long cash generative businesses. Um, but what people don't realize and a lot of dip buyers don't realize is that when you're buying something that is burning cash or you're buying something pre-revenue or you're buying something that's unprofitable or you're buying something that doesn't have any um, you know, that's insolvent on its balance sheet essentially like there is no bottom. You know, when you when you talk about something like Fartcoin, like there is no bottom. It's not it's not 1 one millionth of a cent. It's not 1 one trillionth of a cent. It's zero. Um, and with insolvent companies and companies that don't generate cash, like they will die uh when the market pulls back and that's just how it goes, you know, like some it's like Silicon Valley Bank, you know, like sometimes you just can't meet your redemptions anymore and there's just no more bid and psychologically when we start to make that change and people start to realize that that effect will cascade further and further. And then our discussion today about buying UPS at 13 times earnings versus buying Nvidia at whatever 100 times sales isn't going to look as stupid as people think that it's going to look now when they see it because this time it's different, Dan. And me and you are the only people that don't get it. >> Right. And I I recently noticed that um well actually let me just say first I'm glad you mentioned David Einhorn because he was very smart. you know, he he he was not getting great results and then he said, "Well, it it was almost like he thought about where do investment returns really come from?" is what I took from his comments at the time some years ago >> and they come they don't come from the market constantly pushing the valuation high forever because that doesn't happen, you know, they come from cash, >> right? And so and how that cash is deployed and if the cash is deployed in a manner that basically sends the return straight to the shareholder whether it's dividends or share repurchases or something else um then you you found something in my opinion you know you found something if you've got a a business or a company um I even actually recommended a a publicly traded master or limited partnership which I don't do a lot of but I thought the more I looked at it, the more I thought, well, this thing's gushing cash. It's going to keep gushing cash. You know, the debts, the balance sheet is a fortress and and the cash is going to make its way into the shareholders pocket. >> Right. >> Right. >> So, it's going to be a big return even if the market hates it. In fact, if the market keeps hating it, the cash will keep flowing and you won't be able to avoid the return. Right? That's what I want now. That's what I that's how I'm trying to get around this because buying, you know, as you say, the top 10 of the S&P 500 at 50, 100 times earnings is is just crazy. It's not a way to get returns. Historically, it's just never worked out well. You know, the guys at at Research Associates, Rob Arnot, they they do their um what is it called? big dogs or top dogs research where they show like the the biggest companies in the S&P 500 kind of change every so often, every decade or so. They're different because when they get up there, they perform like crap for a decade, >> right? >> So, yeah, same page. Look for look for cash gushers. I've been looking for cash gushers for years and I think now it's like more important than ever. So, cheers to you. Cheers to you. not not investment advice, but cheers to the the UPS argument, you know, if not the investment. All right. Well, um, a guy like you, I could just like throw you softballs all all day because we see the world similarly. But we've actually we've gotten to the point where we can ask our final question. Take as much time as you want with this. If you've already said your answer to the final question, by all means, feel free to repeat it at, you know, at length, whatever you want to do. Um, but it's a simple question. It's the identical question for every guest, no matter what the topic. And it it's if I could just get you to leave our listeners with one idea, one takeaway today, what would that be? You mean like an investment idea or just anything? >> Anything. I've had people say, you know, go outside and spend more time in nature and, you know, spend time with >> That's a great idea. >> Yeah. or or go, you know, go to my website. Some of them say, you know, there it runs the gamut, right? >> No, I would just say like the two things I would remember are that you know the the the MMT cycle that we're in, it's accelerating and as it accelerates, it widens the inequality gap and at some point something is going to break from that. It's the problem that everybody is complaining about, which is the halves have more than the have nots. But both parties advocate for monetary policy as it exists today. And all that does is it prize open the wealth gap faster. It makes the rich richer. So if you look at a chart of the, you know, bottom 50% and the top 10% of net wealth in the US, the top 10% is quickly moving further away from the bottom 50%. And the same parties that say that they're trying to, you know, take care of this one way or the other. It's a little bit more of a talking point on the left. I would say those same people advocate for MMT and the uh monetary policy as it exists today. I really do believe that we're at a insane inflection point right here where the Fed is absolutely cornered. You know, inflation is at 2.8%. They're going to have something is going to have to give. um because they're not going to be able to raise rates without uh or I'm sorry, they're not going to be able to lower rates without uh without inflation starting to tick higher and they're really at a spot where eventually they're going to have to choose between a def basically a quick like deflationary depression and or like inflation. And it feels like with like introducing stable coins into the system to buy treasuries and you know this entire crypto ecosystem that we are like quickly embracing and threading kind of into the like material of our financial system um specific even to the treasury. Uh it just feels like we're at this strange point. We're like, "Okay, we came off the gold standard and now we're like we're we're at the we've gone from the the gold standard to fiat transition and now we're kind of at this fiat to digital transition where even more rules just kind of fly out the window because we have even more like ways to micromanage the money supply with the market where it is, you know, so extremely overvalued in my opinion and the Fed basically out of options. uh from at least from the way that I see it, I mean Jim Chenos said to me once, I'll never forget like this is years ago, but he said, you know, this is an unprecedented experiment in monetary policy and it's just going to have unprecedented results. And so, you know, the more complacent everybody gets, the more non-complacent you should become, uh the higher valuations get and the more you see other people making money, the more cautious you should become instead of, you know, giving into the FOMO. Um the the point is all these great investors Einhorn Aman etc. you know we're all great contrarians and you have to be a contrarian if you want to make money because you have to identify massive trends and massive breaks in trends um before they happen. And so all I'm trying to do is b my time until the inevitable happens and just make sure that I'm not caught up in that hurricane when it does happen. And that doesn't mean surrendering gains. I'm beating the S&P this year on my 25 stocks for 2025. I'm beating the S&P by like 30% on those names, right? Black, I have nuclear, I have gold miners, I have psychedelics, I have, you know, all these other areas that have done extremely well despite the fact. So, you don't need to be in the same like dog that they're pumping on CNBC every day. Um, but just just be wary of the fact that like things are not as they seem. And um it's like co like you know one day it's not a big issue and then you wake up the next day and people are fist fighting over toilet paper and that's how quickly things can change. So it's times like now when people need that reminder that like hey you know this animal spirits or whatever you want to label it. You know, when somebody buys a stock at 59 times earnings, whatever you want to call it, animal spirits, markets appetite, you know, those things only last for so long. And then when they're done, they're done. So this is like the stairs up, elevator down analogy, whatever you want to call it. But just and do your own research. That's it. I said that in 2019 at the Sansbury conference. You know, the lessons I learned from being a, you know, being in the shortselling world for 10 years is that everybody's a liar. Everybody's a fraud. Nothing is as it seems. There's a whole underbelly to this world that makes things run in the way that they do that the average person would themselves if they saw even 10% of. And so, just be like vigilant about protecting yourself and protecting your your family and your community. and you know just keep your head on a swivel investing and otherwise. >> All right. Well, thank you for that and thanks for being here, Chris. It's been a pleasure to talk with you. >> Yeah, my pleasure. Thanks so much, D. >> Great. >> Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stanbury Research, its parent company, or affiliates.
Use Common Sense and Avoid the Echo Chamber
Summary
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferrris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McLaclin, editor of the Stanberry Daily Digest. Today we talk with Chris Irons, also known as Quot the Raven on Substack. Chris is a very smart guy and he's a salty old dog. So, get ready for that. But get out your pens and pencils. He's got a lot of great ideas about what is happening in the world right now that I want you to hear. You need to hear them in my opinion and you need to hear them in a different way. And this is that way. So, let's do it. Let's talk with Chris Irons. Let's do it right now. All right. Chris Irons, welcome to the show. apparently for the first time ever. I thought you'd been on before, but I guess not. >> Happy to be here. And as I said before, I thought my my halflife with ever being invited back to anything Stanbury after my 2019 onstage performance in Las Vegas was much longer than six years. I thought it was going to be at least at least 20 years. But, you know, it's great to be back six years later. I'm not surprised it took so long. Well, you know, so you know how people are, you know, they they hear a they hear a little salty language and they get all flustered. Um >> Yeah. Well, I appreciated the invite and uh you know, happy to be here. >> Yes. >> And you're putting too much stock in our planning as well. That if if you uh think that uh >> that's right, >> that was an issue for us. Yeah. >> Hey, I enjoyed myself. I, you know, I I get invited to these like conferences and things, which I don't really do too many anymore. I do still get invites. And my thought process is like, you know, if I go, I go. If I don't, I don't. I'm not, you know, I'm just going to go and say what I want to say, and that's going to be it. And if I don't get invited back, you know, that's okay. I remember the guy at your at your stage show, you know, because everybody, it was like very professionally done, professional sound, professional everything, great crowd, >> you know, was like, "Oh, yeah. Do you want to wear a jacket? I remember he asked me like, "Do you want to wear a suit coat?" Because I had a tank top on because like about 30 minutes before the presentation started, I was out at the pool at it was at the wind, right? I think >> I think >> I was >> Yeah, I was out at the pool drinking beers and having a good time and I looked down. I was like, "Oh I got to be on stage in 30 minutes." So, I ran inside and I The guy's like, "You want my suit coat?" I was like, "No, it's 90° outside." Anyways, I have graduated since from a tank top now to a sleeveless shirt. And so maybe in six years when you invite me on again, I'll be wearing a button-down shirt. >> It's getting closer to sleeves, folks. It's a it's a process. It's an evil >> longer. Yeah. >> Yeah. >> Well, uh, you know, I enjoy your your commentary. I enjoy your presentations. So, u you know, apparently I have some amount of sway over who gets on this show. So, here you are. And I'm happy to have you. I'm happy to have um most folks who who are self-p profofessed, you know, libertarian and Austrian economics um oriented as are you. So, yeah, happy happy to have you here. And um of course, you're an investor, too, so you know, there's potentially lots of stuff to talk about. Um we might start there. In fact, I'd like to start there if you don't mind. Um, what does what does a um an Austrian-minded fellow like yourself think of, >> you know, things like tariffs, you know, is there any is there any good outcome potential from this >> from the highest tariff since 1930s? Okay. >> Yeah. I think a lot of the criticism of tariffs, you know, in the fact that it does eventually work its way back into prices does make sense. Um, there's some people who argue against that, like Jim Rickards did a pretty good job of, you know, making a case as to why tariffs don't affect prices, but one way or the other between tariffs and between monetary policy, I mean, nominal prices are going to continue to go up regardless of what we do. Um, and that's part of like my broader kind of macroeconomic thesis, which is the Fed will do anything at all costs to try to save face at any point. And so, you know, I think not to not to carry the Austrian school/ libertarian like Peter Schiff disciple line, but I do think at some point we're going to have an extremely sharp deleveraging. I think it's going to be worse than anything that we've seen thus far. not saying that to try to elicit any type of response just out of common sense with the way that this cycle goes, which is, you know, we crash, we print more, we crash, we print even more, we crash, we print even more than that. And so the the the, you know, MMT kind of like uh abusing the corpse of the dollar cycle that we're on right now, it just accelerates and gets faster and faster as time progresses. And so naturally with that come bigger and bigger distortions than bigger and bigger drops in the market. Um you know as far as the idea of tariffs as a political strategy like I don't hate it because I think that there is a you know look the only thing this country exports right now is dollars. I mean we don't manufacture anything here. And so the case that I made was look back during COVID when we needed important items when the supply chains were really gummed up, we really found out during CO just exactly how many items come from overseas. And it was, you know, maybe a year or so that we were walking into stores and it was natural for half of the shelves to be empty because they weren't the items from overseas weren't getting here anymore or they were trickling in. And so what you'd see is this small selection of items that were manufactured in the United States or had finally made their way over. But more importantly are the things that Trump is talking about like the ingredients that are used to make pharmaceuticals. the pharmaceuticals themselves, uh the rare earth minerals, the things that really >> in the balance hang, uh significant portions of our quality of life. And so I don't think that it's a bad idea. as as misguided as I think some of the tariff rates were that Trump came up with and the calculation that he used was, I don't think it's a bad idea to make this hard stop and say, "Listen, we have to do something because when you drive through the Pennsylvania countryside in northeast PA and really even in places near like where I grew up in New Jersey, I think a one factory for example that used to be a Kimberly Clark factory, you know, that just shut down. I mean, they were making tissues and toilet paper and things like that. You see it in Detroit, you see it in places like Bethlehem. If you if you go to Bethlehem, Pennsylvania, you see like the whole steel industry is essentially shut down. And those are just microcosms of what's happened across the entire United States. So we used to be a country that manufactured its own goods that had sound money that you know was uh you know had a budget surplus was in a much better financial position if you gauge financial positions through an econ 101 common sense like Austrian school point of view. And so I don't think that the idea of wanting to rejigger our trade deficit is necessarily a terrible idea. I think that there are a lot of moving parts. Um not the least of which are, you know, the the cost of items that we get from overseas versus the cost of manufacturing here. Um, but net net I think that it's a good idea because it brings up it it puts into the zeitgeist the idea that the country doesn't manufacture anymore which has been a problem for a long time. So if you're like me and you believe that we're overspending and we are over consuming and that we have essentially entered a period of like you know decadence or like you know just like uh you know we have the global reserve currency we use it we weaponize it. Um, and now like I find myself going to Europe and I find myself going to like cities in Europe and thinking like, man, why doesn't the United States look this nice? And so in some ways it almost feels like we're we're over the like we've reached the zenith of like our, you know, flourishing as an empire. And in order to try to correct any of that, first off, it's going to be near impossible to correct. It's like turning around the Titanic. like just doesn't happen quickly. >> But in order to do it, there are certain giant fundamental changes we'd have to make. Not the least of which is, you know, onshoring some manufacturing again and then of course trying to cut spending and trying to balance the budget, which we're not doing a fantastic job of either. So, um, I see the good and the bad. >> Yeah, it's it's creating real wealth is is speaks for itself, right? And if you do less of that and you and in the in the in the process or sending your net worth overseas in the you know what net worth you have you're you're shipping it overseas and then you're also you know not creating as much of it could be a problem. I think what's even more frightening from the Liberation Day debacle, what happened, I I think if you want to take away from that >> outside of arguing over tariffs, it would be the market's reaction to what happened and how quickly and swiftly it reacted and then how coincidentally after several days of, you know, down 2%, down 3% and the 10 year and 30-year yields moving higher, how coincidentally, oh, all of a sudden, like there was a 60-day pause or a 90-day pause. And, you know, I mean, people on CNBC were acting like it was the goddamn end of the world. Like, I thought Steve Leman was going to cry. It was just, you know, and that speaks to a broader theme, which is sometimes when you want to make big changes, you have to deal with some discomfort. But nothing had even happened at that point, like the the price hadn't Yeah. >> Yeah. Hadn't hit and nothing was missing from shelves. It was just pure panic. And the idea that like, okay, the market went down 10 or 15%. And so now we need to just scrap this entire plan shows you how truly trapped we are. Because if we get to a major sharp deleveraging event, and it will happen at some point in the future where the Fed's not going to be able to stop it and the president's not going to be able to stop it, and then it's like, bar the door because we have no idea what's coming next. Um, but that will happen. But it just shows you just how beholden we are to the little number on the screen that, you know, has the S&P in it. Because as I've written about, there's a million reasons we could talk about them, but like you know, something like the the passive bid, when that starts to dry up and people start to redeem instead of contribute, like you're going to see a nightmare. You know, >> Chris, I just I didn't get to it. I just saw the piece of yours about, you know, it was I forget the title, something about how passive unwinds and I didn't get to it. So, let's do talk about that. That was one of the things I I was gonna ask you about too because we recently had our one of our colleagues Brian Beach on here >> who's been talking about and Dan too talking about the passive bid. >> We've had Mike Green on. >> Yeah. >> And Mike Green that he Mike Green was the impetus for that piece and really basically the piece that I wrote is you know a lot of it is summarizing his thoughts um because he's the person that I you know really sharpened my vision on this from. Um, in fact, in that piece, it passes along a great interview that Michael Green did with Palisades Gold Radio, which the first half of that interview, I thought was the best explanation for exactly how out of whack things could get due to the passive bid that I've heard thus far. What I knew going into that interview was that the this passive bid, which is essentially uh routine forced buying through individuals who purchase ETFs that are weighted to the S&P or people who contribute, you know, regularly via their retirement funds, uh their 401ks to these types of ETFs >> with no reference to fundamentals whatsoever. >> Right? What happens is those funds buy, you know, a list of names, usually the top weighted names in the S&P 500 proportional to the amount that you invest in the ETF. And what they don't do is they don't look for value. They don't look at price to earnings ratio. They don't look at price to sales ratio. They don't look at where the market is. It is a consistent purchasing program that doesn't let up regardless of valuation. And in the case of you know nowadays you see market breath meaning the amount of uh companies that are driving the index higher is getting smaller and smaller. So, it's not uncommon to see a case where you have, you know, 60% of the S&P red on a day or 65% of the entire index red, but the index itself green because the higher weighted names in the index, your Amazon, Tesla, Microsoft, whatever, the Mag 7 and others are green on the day. So they have been the the equities that are driving the market rally higher >> and their valuations have gotten pretty stretched. I mean you're talking 40 45 times the earnings on some of these names. A name like Tesla, I mean you're in the hundreds of right now, >> right? And so the point that Mike Green was trying to make that was something that I did not know um because I knew how the buying worked, but what I didn't know was that when people go to redeem from these major, you know, 20 trillion ETFs and funds, meaning when you take those emergency draws out of your 401k, which happens when there's periods of financial distress or when you lose your job, when you do that, that a lot of these funds don't have cash liquid to absorb those redemptions. And what Michael Green was saying in this interview is that the funds have instead done things like taking on leverage specifically so they don't have to sell. >> And that's a great solution until you get to a point. It's only a great solution if the market continues to move higher. But basically, it it could eventually become a margin call on these, you know, multi- trillion dollar passive funds, which when you add that to a major margin call in something like crypto, which is levered 100 to one, and individual uh personal accounts that retail invaders uh investors trade in, you could have an absolute nightmare that it doesn't matter what the Fed does because you can't come in with a you can't come in with 20 trillion dollar bid if you're the Fed. I mean, you can and they they would figure out some stupid way to do it and some dumb name for it, but then you're talking about 10 15% inflation or something the next the next year. And so there's going to be a blowoff valve and uh and you know, just to listen to Michael Green's perspective on this and I recommend everybody listen to that interview. >> Yeah. Um, as I tell my subscribers on my Substack, you know, I don't know why you subscribe to me because all I'm doing is just passing along what I learned from other people, but you know, it really seems like uh something devastating could be waiting in the wings there. Uh, if we do move low enough fast enough, and that's the key. Can we move will the market move low enough fast enough that it will trigger these calls before we have a time to react like we did with the liberation day? like when Trump and Bent come in and say, "All right, there's an issue. We're going to do a 60-day pause." And the market breathes again, then people get a little bit of a uh, you know, a little bit more time. But there will be an issue where people are just going to have to pay up. you know, it's going to hit that time threshold where the market is low enough for long enough that people are going to start to see real collateral calls, real margin calls, real inability to to, you know, service whatever needs to be paid on a monthly basis. And so that'll be it'll be unprecedented when it happens from where we're at now. >> Right. And if you if you think about it, um I like the way you put it and and and I also I I feel like we all we all took the cue from Mike Green on this. And the algorithm is, you know, receive a dollar of capital, buy a dollar of equity with no other inputs. And then you're talking about the reverse of that, right? Redeem a dollar >> and sell a dollar of equity. Um but when you're you know when you're borrowing too on top of that it really makes and you're talking about 20 trillion in funds like just everything to that's that has the S&P 500 like the top you know the three biggest funds VO spy IVV are like almost two trillion just those three funds are almost two trillion of nothing but S&P 500 right >> yeah which is to say nothing of all the other >> close to 40% of that money is in 10 stocks, >> right? >> You know, >> which means which means if something happened tomorrow, and I'm not saying this is going to happen, but let's say something happened tomorrow where one of these major mag seven companies was found to have committed accounting fraud. Not saying this is going to happen, but every once in a while, pops up. Things happen, something unexpected happens. you know, a key person at the top dies or a company commits fraud or there's some type of major like product liability or something that something that innocuous could be or even even more innocuous than that could be the impetus for exactly what sets off a cascade lower just by virtue of its waiting in funds like these. And so >> the we're we're really in a situation where we're putting so many of our eggs all in seven baskets and that's frightening. >> Yeah. I mean we've seen just in the past I don't know several years or something. U enormous one-day draw downs. I know in meta you can look up on something like Investopedia you know biggest one day market cap losses. You know what I'm talking about. and and and you know you'll see like minus 19 20% in a day on a massive massive market cap company >> and how much of that would it take right I I hear what you're saying you don't know what it's going to be you don't even know what the catalyst could be >> specifically if I had to pick like if I had to pick two names I was the most concerned about and none of this is investment advice and I'm just speculating and giving you a hypothec ical but you know you you have a name like Tesla where Tesla where their legacy business essentially is going to collapse >> and the valuation is extraordinarily stretched based on the fundamentals and so it's a call option on their future of robotics and AI and full self-driving so okay like what happens if that doesn't come to fruition then also you have like a company like Nvidia which has all these very interesting ciruitous transactions and relationships with other names specifically like coreweave and like you know uh super micro that and even Microsoft I think they have a huge customer concentration issue with Microsoft um and so you do have a lot of eggs in one basket again um where it just I don't know you know look I I was a professional short seller for like 10 years I worked with some of the best short sellers in the world when you do that you start to just get a sense for when things might be a skew. You you see enough related party transactions and enough like, you know, forensic accounting weirdness and even just enough like sometimes behavior from a specific CEO or, you know, you just kind of have a finger on the pulse a little bit more than someone who has not been in that world for a while. And again, I'm not saying that this is an issue with any of these companies. I'm just saying like for me, you know, something like Nvidia coming in and backstopping Coreweee's IPO when it couldn't catch a bid at $40 per share and they have this, you know, business relationship with them at the same time where they're reliant on one another and then all of a sudden Coree what goes to $150 a share when there was no bid for it during its IPO. Like I don't know, you know, like that stuff doesn't make sense to me. And I understand option gamma, you know, could be driving it higher speculation, but you know, it's definitely it's a convenient move for Coreweave insiders and it's a convenient move for Nvidia and anybody else that bought the IPO, but when you look back at that day, there didn't seem to be an appetite for the AI story. There didn't seem to be an appetite for their stock at $40 per share. So I'm like watching carefully um you know even things like data centers too and some of the valuations on some of these you know legacy data centers watching Chris I've noticed you watching I've noticed you watching like Meta and Microsoft you were writing about how you know they're doing great but >> but you know the market kind of puked it back. >> Yeah. Well, on Friday, I just wrote a small note about that. The fact that you know that there will that's the action you would expect to see when valuations are peaking, right? What would you expect to see? You'd expect to see a great fundamental quarter because like Microsoft for example beat analyst estimates. Meta beat analyst estimates raised guidance, right? So, you got a beat beat from both of these huge names, >> right? and the next day the market just sold it right off. And so the market bounced yesterday and now today it's selling off a little bit more. But those are the types of things that would suggest to me that the market says look despite this great quarter, how big can we make this delta between the fundamentals and the multiple that we're paying? >> Yeah. I wanted to ask you about something else. Um you mentioned the options gamma just a couple minutes ago. Um, and I've seen you write about and we know about like the meme stock traders and then and you know the short squeeze and all of that, but you write about the weaponized options when like this idea that it if it goes the other way if people start going doing puts instead of calls and I it's this underlying feature of the market. I think it's it's like it's like there like people know it exists or a bug if you want to call it a feature or a bug like all this exists and it's something on my mind for a long time with all the zero day trading you know uh activity and everything. Um can you just get into that a little bit and maybe enlighten people on on what you're concerned about there? >> This and the passive bid I've argued are basically the two tails that are wagging the market dog. the market used to rise and fall because individual people would come in and buy Apple stock and then that would drive the ETF a little bit higher, you know, because it's highly weighted in there. And now the opposite is happening. People are buying the ETF and that's driving Apple higher. And that's why you get these insane out of whack valuations. Another, you know, incredible feature of the market is when dealers sell options, when they sell calls or they sell puts, there's a certain percentage of the exposure that they get from that that they have to hedge against. And so if I sell you a call option uh at a certain price, um you know, I essentially got to go out and buy that stock in in a smaller amount to make sure that I'm reducing my, you know, exposure, my counterparty exposure to that transaction. When that happens over and over and over again and you get a million people piling into, you know, the same stock at a strike price that's far outside of wherever the uh notional price or far outside of whatever the spot price is at the moment. What you get is essentially forced buying from dealers that are trying to hedge against the sale of all of those call options. And when that happens at Moss, then options become the flywheel that spins up the market's equities instead of, you know, being a kind of side, you know, derivative feature of the market that lets you speculate in addition to owning the equity. So between the passive bid and the options market, I'm not sure we've had a fair price on equities in forever. And you know, this is what happened with GameStop. People say, "Oh, you know, was it was it just that people were, you know, coming in and buying shares of GameStop all the way up to $350 a share?" Probably not just that. It was probably had a lot to do with people buying the furthest dated strike. And anytime the options market makers would list new strikes, they go out and buy the furthest dated strike. And that would have, you know, forced the dealers to buy the stock at whatever price. Plus, you had some retail buying as well. When you think about the dollar amount that you would need to move the stock that high that quickly just buying the equity, the dollar amount to move it by buying options is significantly smaller. And nowadays, if you go on Wall Street Bets, you just go look at it today and people are posting their wins and their losses, everybody's trading options. Nobody even buys equity anymore. The entire market has become options. I mean, the entire market has become leverage gambling. I mean, top to bottom, there's no other way to put it. You have a cohort of less sophisticated investors who are making up a larger part of the market than they've ever made before and their only means of investing is speculating on options which become again a tail that wags the market dog. So when you look back to COVID for example and we had that huge dip and then the NASDAQ basically tripled off the bottom despite the fact that the economic turnaround didn't appear to be substantial at all. And then you see an article like I believe it was in FT where you know you're sitting around dumbfounded wondering like okay like you know why is Tesla up 10x in in six months right like what what could po how could that possibly make sense and you see these articles that say Soft Bank and Goldman Sachs I think were the two names that were in there buying index calls off the bottom. So they were making these enormous levered bets that on an index ETF which forces buying of the index ETF which forces that cash to be distributed per its waiting to the individual equities. And so that works in two ways. So the same way that we blasted off the bottom and you do see these insane moves like we saw in Tesla in December of 2019 to mid2020 where it did I think 10x which was bizarre. Those same moves can happen on the way down, which means like when market psychology breaks, whenever that happens, we get to a moment where the Fed and the president can't help and people understand that and there's no turning back and there's no six-month delay on tariffs at the last minute. Um, when that happens again, you're going to see, you know, options weaponized in the other direction, which I think could be extremely dangerous. So between that and the passive bid, we have these like two giant trap doors underneath the market that to me perfectly explain why valuations are as batshit insane as they are now. You get all these great investors like Mark Smeaggel, my friend, writing about the, you know, market cap to GDP and, you know, historical PE averages and it's just like, how could we be here? Well, this market functions very differently than a market 20 years ago. You know, we didn't have ETFs like we did 20 years ago. We didn't have options liquidity like we did 20 years ago. Totally different market, totally unprecedented, you know, situation that we've been in is even going to monetary policy again. And so, we're going to have totally unprecedented outcome. The worst part is over the last 20 years, everyone has been conditioned to think that they should always buy the dip and there's always going to be a bailout or a solution from the Fed or from the government. And at some point something is just going to break. And I'm not trying to be a fear-monger, but it's just simple math. Like, we're just moving higher faster than we ever have. There's more speculation and more leverage. Margin debts at an all-time high right now. Real rates are positive. the economy is starting to grind to a halt. So, job losses will come next. Discretionary spending will start to, you know, be reduced. That will hit earnings. And then all of a sudden, you're going to be starting a flywheel in the wrong direction. And then it's like, hold the on. >> Yeah. Unemployment could certainly hit passive flows, too, right? The earnings. >> That would be what you'd want to watch, right? Like that would be the number to watch for passive flows, >> right? >> Well, gosh. Um, let me just uh put a gun to my head real quick here. Um, here. >> Hey, listen, man. I'm an I'm an optimistic dude. I'm not trying to be like Mr. Doom and Gloom. I think it's ridiculous how people that, >> you know, just speak with any type of common sense and suggest anything other than like Tom Lee like beating off to Ethereum on CNBC. Like, you know, like people that suggest anything other than that, they're like, "Oh, all of a sudden, like, oh, they're anti-American. They're against the market. or this or that, you know? Look, man, numbers are finite. You know, math is math. Econ 101 is econ 101. No matter how much modern monetary we want to build on top of the basic rules of debits and credits and supply and demand, they're still there. And like Ron Paul says, like, you know, eventually the free market and those natural laws of economics are going to have their way. You know, it's just when and how and you know, who's going to be the scapegoat that takes the blame? Is it going to be Russia? Is it going to be short sellers? You know, who the knows? >> Yeah. >> But really, it will be a it will be a mess of our own making when it happens, >> right? And you don't want to be the person caught up in that, I think, is is the is is the idea. Like that's >> Yeah. and Stanbury people know this too because I remember in in 2019 there's a really good cross-section of like Stanbury's audience with um you know kind of libertarian and Austrian school thinkers at least that's what I can remember from drinking whiskey in a bar with some of them but >> could be a little hazy memory on that one >> no you're right you're right and and it's even I would even say there's sort of a firmwide bent in that action. Um, and certainly, look, I I I made a joke about putting a gun in my head, but I mean, I I've been I've been in this mode of questioning um, you know, speculative excess since May of 2017 off and on. You know, I like I was hugely hugely bullish, you know, March, April of 2020 for, you know, several months and then, you know, we we just it all just came right back to where we were. So, um, yeah, I I hear you. I I I've had to write I write once a week and I've had to write now and then. Look, I'm I really am an optimist about human humanity, you know. I really am pro I I I I promise you and I hear you sort of telling me the same thing. when we crashed during COVID for example, you know, I was writing and talking on podcasts that I'm, you know, I'm buying financials, I was buying JP Morgan, I was buying Goldman Sachs, I was buying, you know, these companies that were trading at like point8 times book, 75 times book, like under one times book >> because it wasn't a financial crisis, you know, like nominally the financial system is always going to be there because the Fed is, you know, the lender of last resort always. And so I knew it was very different from 2008. Um, you know, so it's not that I don't think that there are things that aren't opportunistic because I do like I was saying that and those those names are all up like three or 4x since then in just a couple of years. Um, and even, you know, on my Substack at the beginning of every year, I put out a list of names that I'm watching for the year. And, you know, only one of them was a short this year and 20 four other ones were longs. Um, you know, you just got to find where there is still some value. You know, I'm just not like I'm not out there long the Mag Seven. Um, I'm long things like gold miners, silver miners, things like psychedelic names, like all these little niche pockets of the market that, >> you know, kind of undernoticed. I was long nuclear coming into this year, which has been, you know, has had a great tailwind. Um, so I'm not I'm not a uh I'm not a pessimist. I'm just trying to put together a clear picture of exactly where we stand based on common sense and not from this like echo chamber that you see. You know, I don't really watch CNBC anymore, but I had it on yesterday and it was top to bottom beginning to end to the day. Nobody was skeptical. You know, Gunlock was on for a little bit and he was like, okay, he somewhat cautious, but every guest they brought on was just making excuses on why people should be buying now, which is a ridiculous thing to do because these people are they're backfitting thesis as to why we should buy to the ridiculous price instead of looking at the price and making up their mind, which is like what I'm doing. They're making up their mind and then backfitting it to what the price is now. Which is why you get all these asinine price targets from people like ARC and like you know all these sellside analysts that they don't have a sell feature that you know they don't they don't they don't put out sell reports. It just doesn't happen. So the question then becomes like what do you have to make up? What do you have to factor into your Tesla model to justify, you know, a $1,000 price target when the legacy business is in collapse? You know, like what? >> I don't know. I'm glad that's not my job, you know, like I would feel like an trying to make something up to justify that. >> Yep. I I'm glad you mentioned Arc because I recently they they um you know they send out these uh emails about their blog post and things and the one email that caught my eye was they were bragging about their year-to- date performance and I thought well you know huge sentiment indicator when Arc is bragging about their year-to- date performance you know in August or July or whatever it was >> you know something is up and now they're saying >> this woman go ahead >> she promised she promised promised 40% compounded returns some years back. Do you remember that? >> Yeah. >> Do you know Do you know how far off the mark she is from that? So like that's that's exactly what I'm talking about. Like I even wrote about that on my uh >> on my blog. I don't if I can't pull it up real quick. I'm not going to. But uh here it is. Keeps moving the goalposts. You know, this was back in 2022. And uh this was how she was listing things on her on her website. But she said, um, yeah, according to our current estimates, our more concentrated flagship strategy today could deliver a 40% compound annual rate of return during the next five years. Okay? So, she said that in 2022. Okay. >> And had she compounded 40% since then, actually, which would be some I don't even know how ridiculous of a price that would be. >> Yeah. Let's just go back and check just for shits and giggles here because we're having a nice time today. >> Uh she was at probably about $70 a share then and she's at about $70 a share now. So she has an approximation over the course of um five years produced zero% returns. >> So the difference between promising 40% compounded and zero is a huge deal. 40% compounded from the original would have been let's see 70 plus 28 so that would have been 98 at the end of the first year which would have been like 140 at the close of the second year >> right >> it would have been 196 at the close of the third year it would have been 270ish at the end of the fourth year and it would have been three 4 32 it would have been near somewhere between $350 $50 and $400 a share now and she's at 72. >> Yep. >> Just a little bit off. >> Little bit off. >> Just a touch off. Yeah. And if we have the >> three months ago she was at like 40, you know, like she's just just now up at 72. >> Right. and the idea um that you're going to have a compounding some kind of predictable compounding effect on stocks that are you know the funds still contained a lot of and still does have a lot of kind of cash burning speculations in them. >> Sure. >> Um is a little silly. There's no compounding with that. It's it's a pure speculation. And she keeps talking about investing in disruptive innovation. Well, you're speculating on kind of garbagey businesses and trying to replace them occasionally with, you know, Google or whatever, but even that is >> and there is a whole tide of crap that needs to be taken out to pasture and shot like all this, you know, speculation in crypto outside of, let's say, Bitcoin and Ethereum, you know, there's hundreds of billions of dollars in speculation and leverage and you have still have a ton of spacks that trade a ton of pre-revenue companies, you know, I mean, all of that needs to get carried out. All of it. And it will eventually. It's just a question of when, >> right? Well, a lot of, you know, a lot of the specs are effectively destroyed. I mean, down 80, 90, you know, plus percent. Um, you know, cannabis has had its head handed to it. all the stuff that was a bubble in March or April of 2021, you know, cannabis, spaxs, clean energy, bunch of stuff. Uh yeah, and there's still I agree though, there's still, you know, there's still a bid for it. I mean, she that ARC fund, her main fund was up like 90% in, you know, off of that April 8th bottom recently. So, you know, >> let me just tell you, if if that miraculous move in Tesla doesn't happen >> in December of 2019 to, you know, let's say June of 2020 where it was up 10x, that move doesn't happen. No one ever no one ever hears about Kathy Wood and no one ever hears about Ross Gerber. And that's it. Those are the two pieces of success that those two managers had that they clung to. Ross is now getting wise to Tesla. you know, would I think even if she doesn't like it at some point, I don't think she can, you know, I just can't quit you, you know, like she's got so many supporters that are like Tesla supporters and everything. >> Yeah. >> And so they've they've clung to that. If that doesn't happen, that crazy December 2019 to June 2020 move in Tesla, which happened somehow right after Elon Musk got his pay package. Mhm. >> But if that doesn't happen, no one ever hears of this woman ever because she has one after the other after the other invested in that's gone bankrupt. Invested in stuff that's down 90% pre- revenue this that I mean there's just not a you know I remember Ross Gerber buying Archimoto which went bankrupt I think. Like there just there hasn't been a piece of like pre-order pre-revenue dog that these people haven't fallen in love with. And so I think at some point, you know, that strategy is not going to work anymore. Who knows when that is. >> Yeah. >> All right. Well, so clearly we're not buying the buying the ARC funds, >> but I'm not I'm not Look, I'm not giving financial advice. I'm just telling you how I feel about these things. You guys can buy whatever you want. >> No, no, I know. But what I wanted to say was how if we if somebody wants to hedge this, you know, the passive bid, the speculative mania of the market, the fact that the Fed comes to the, you know, belief that the Fed and the government will come to the rescue at all times. Um, what what do what do you what do you look at? What I mean, where do you where do you go? And um is it maybe it's something that's overlooked uh that there's an area that you might be interested in that that uh for people to consider? >> Well, for me it's like a combination, right? And so like I have some short exposure on the indices um which is like always like a place you can start if you want to hedge against the market going down. Um but then also too just like I try to stay diversified outside of the United States. like I have a lot of uh uh emerging markets. If you look at like even something simple like the EM ETF, it's a good way to just get some emerging market uh and then there's like the EMD, I think, which is emerging market dividends. Uh you can look them up, >> but uh for me personally, what I like is, you know, I like owning gold. Uh I like owning silver, gold miners, silver miners, uh even real estate. uh which I actually do think will will also crash at some point. Um but just trying to stay as diversified outside of um what's driving the market now to put it simply like right now it's speculation and so I would be more weighted towards value. I look at a name like you know UPS right now which trades at 12 times earnings pays a dividend. Um it's a company that I am certain is going to be around in 20 years. is shipping is not going away. It's a business that's going to be here forever. UPS and FedEx basically have a duopoly right now. Um, so I would much prefer to look at a name like that than to speculate at 50 times sales on Nvidia or whatever. Um, so you can obviously just get vanilla short the indices. Um, but for me also too, it's having exposure to emerging markets, having exposure to gold, silver, miners. I even own some Bitcoin. I own a little bit of Ethereum. anything I can do to kind of get out of the system as it exists uh today. Um but you know also like I own longdated puts on some of the indices um just as a hedge most of my portfolio is long but it's just long in stuff that's not mag seven >> Gotcha. Yeah. >> Right. Yeah. There's there's plenty there's plenty to do. I would even say there's been plenty to do. Like we've made a long pick after long pick in our extreme value newsletter and that's a weird thing to be calling a newsletter at all and the these days people are like value does that you know and I like how you unabashedly uh make constant reference to value and valuation. You know, a lot of people now they're like, "Well, it doesn't matter anymore because market structures changed everything." And you know, um, and it and you even you even refer to cape ratio something I do. I didn't think anybody else on the face of the earth cared about that. Everybody thinks it's stupid. It doesn't work. Doesn't tell you anything. I would say it's a great way to identify a an extreme peak in the S&P 500. I mean, you can see, you know, this chart screams at you. In other words, it just >> it does. Yeah. And we're like near almost where we were uh all-time highs, which was leading into the tech bubble of 2000. But, you know, this started like 10, 15 years ago kind of with the death of active investing. you used to be able, you know, great managers who are, you know, were great long short managers like Einhorn, um, Chenos, you know, these types of guys, like they understood to short bubbles and to buy value and that's really what investing should be. Um but like active investing just started to crap out um you know two decades ago because of monetary policy and because of you know the fact that we've just decided to print at all costs and we can't take more than a 3% draw down in the S&P. So the game has changed but I still think it's temporary. I feel like these things always have a way of making their way back to historical norms, um, historical averages, and, uh, it's just a question of when that happened. And until then, you'll have to listen to everybody's stories as they try to tell you why this time it's different. >> Um, until then, you'll have to listen to people make the argument that 30 times earnings is the new 12 times earnings, right? Um, and really, you know, that's to me it just comes off as arrogant. It comes off as hubris. And so I'm I'm much more inclined to continue to focus on value because look, like if the market's trading at a 30 multiple and I can buy UPS for 13 times earnings and I feel like it's going to be a business there for a while, you know, then what's the difference? Like and and how hard is that going to get sold off? Like if the market collapses 50%, you know, Microsoft's going to go down 50%, Nvidia is going to go down 60%, you know, UPS will probably go down another 10 or 15%. And so, you know, there's you eventually find a bottom on names that are, you know, value names that generate cash consistently that, you know, have these remarkable like decadesl long cash generative businesses. Um, but what people don't realize and a lot of dip buyers don't realize is that when you're buying something that is burning cash or you're buying something pre-revenue or you're buying something that's unprofitable or you're buying something that doesn't have any um, you know, that's insolvent on its balance sheet essentially like there is no bottom. You know, when you when you talk about something like Fartcoin, like there is no bottom. It's not it's not 1 one millionth of a cent. It's not 1 one trillionth of a cent. It's zero. Um, and with insolvent companies and companies that don't generate cash, like they will die uh when the market pulls back and that's just how it goes, you know, like some it's like Silicon Valley Bank, you know, like sometimes you just can't meet your redemptions anymore and there's just no more bid and psychologically when we start to make that change and people start to realize that that effect will cascade further and further. And then our discussion today about buying UPS at 13 times earnings versus buying Nvidia at whatever 100 times sales isn't going to look as stupid as people think that it's going to look now when they see it because this time it's different, Dan. And me and you are the only people that don't get it. >> Right. And I I recently noticed that um well actually let me just say first I'm glad you mentioned David Einhorn because he was very smart. you know, he he he was not getting great results and then he said, "Well, it it was almost like he thought about where do investment returns really come from?" is what I took from his comments at the time some years ago >> and they come they don't come from the market constantly pushing the valuation high forever because that doesn't happen, you know, they come from cash, >> right? And so and how that cash is deployed and if the cash is deployed in a manner that basically sends the return straight to the shareholder whether it's dividends or share repurchases or something else um then you you found something in my opinion you know you found something if you've got a a business or a company um I even actually recommended a a publicly traded master or limited partnership which I don't do a lot of but I thought the more I looked at it, the more I thought, well, this thing's gushing cash. It's going to keep gushing cash. You know, the debts, the balance sheet is a fortress and and the cash is going to make its way into the shareholders pocket. >> Right. >> Right. >> So, it's going to be a big return even if the market hates it. In fact, if the market keeps hating it, the cash will keep flowing and you won't be able to avoid the return. Right? That's what I want now. That's what I that's how I'm trying to get around this because buying, you know, as you say, the top 10 of the S&P 500 at 50, 100 times earnings is is just crazy. It's not a way to get returns. Historically, it's just never worked out well. You know, the guys at at Research Associates, Rob Arnot, they they do their um what is it called? big dogs or top dogs research where they show like the the biggest companies in the S&P 500 kind of change every so often, every decade or so. They're different because when they get up there, they perform like crap for a decade, >> right? >> So, yeah, same page. Look for look for cash gushers. I've been looking for cash gushers for years and I think now it's like more important than ever. So, cheers to you. Cheers to you. not not investment advice, but cheers to the the UPS argument, you know, if not the investment. All right. Well, um, a guy like you, I could just like throw you softballs all all day because we see the world similarly. But we've actually we've gotten to the point where we can ask our final question. Take as much time as you want with this. If you've already said your answer to the final question, by all means, feel free to repeat it at, you know, at length, whatever you want to do. Um, but it's a simple question. It's the identical question for every guest, no matter what the topic. And it it's if I could just get you to leave our listeners with one idea, one takeaway today, what would that be? You mean like an investment idea or just anything? >> Anything. I've had people say, you know, go outside and spend more time in nature and, you know, spend time with >> That's a great idea. >> Yeah. or or go, you know, go to my website. Some of them say, you know, there it runs the gamut, right? >> No, I would just say like the two things I would remember are that you know the the the MMT cycle that we're in, it's accelerating and as it accelerates, it widens the inequality gap and at some point something is going to break from that. It's the problem that everybody is complaining about, which is the halves have more than the have nots. But both parties advocate for monetary policy as it exists today. And all that does is it prize open the wealth gap faster. It makes the rich richer. So if you look at a chart of the, you know, bottom 50% and the top 10% of net wealth in the US, the top 10% is quickly moving further away from the bottom 50%. And the same parties that say that they're trying to, you know, take care of this one way or the other. It's a little bit more of a talking point on the left. I would say those same people advocate for MMT and the uh monetary policy as it exists today. I really do believe that we're at a insane inflection point right here where the Fed is absolutely cornered. You know, inflation is at 2.8%. They're going to have something is going to have to give. um because they're not going to be able to raise rates without uh or I'm sorry, they're not going to be able to lower rates without uh without inflation starting to tick higher and they're really at a spot where eventually they're going to have to choose between a def basically a quick like deflationary depression and or like inflation. And it feels like with like introducing stable coins into the system to buy treasuries and you know this entire crypto ecosystem that we are like quickly embracing and threading kind of into the like material of our financial system um specific even to the treasury. Uh it just feels like we're at this strange point. We're like, "Okay, we came off the gold standard and now we're like we're we're at the we've gone from the the gold standard to fiat transition and now we're kind of at this fiat to digital transition where even more rules just kind of fly out the window because we have even more like ways to micromanage the money supply with the market where it is, you know, so extremely overvalued in my opinion and the Fed basically out of options. uh from at least from the way that I see it, I mean Jim Chenos said to me once, I'll never forget like this is years ago, but he said, you know, this is an unprecedented experiment in monetary policy and it's just going to have unprecedented results. And so, you know, the more complacent everybody gets, the more non-complacent you should become, uh the higher valuations get and the more you see other people making money, the more cautious you should become instead of, you know, giving into the FOMO. Um the the point is all these great investors Einhorn Aman etc. you know we're all great contrarians and you have to be a contrarian if you want to make money because you have to identify massive trends and massive breaks in trends um before they happen. And so all I'm trying to do is b my time until the inevitable happens and just make sure that I'm not caught up in that hurricane when it does happen. And that doesn't mean surrendering gains. I'm beating the S&P this year on my 25 stocks for 2025. I'm beating the S&P by like 30% on those names, right? Black, I have nuclear, I have gold miners, I have psychedelics, I have, you know, all these other areas that have done extremely well despite the fact. So, you don't need to be in the same like dog that they're pumping on CNBC every day. Um, but just just be wary of the fact that like things are not as they seem. And um it's like co like you know one day it's not a big issue and then you wake up the next day and people are fist fighting over toilet paper and that's how quickly things can change. So it's times like now when people need that reminder that like hey you know this animal spirits or whatever you want to label it. You know, when somebody buys a stock at 59 times earnings, whatever you want to call it, animal spirits, markets appetite, you know, those things only last for so long. And then when they're done, they're done. So this is like the stairs up, elevator down analogy, whatever you want to call it. But just and do your own research. That's it. I said that in 2019 at the Sansbury conference. You know, the lessons I learned from being a, you know, being in the shortselling world for 10 years is that everybody's a liar. Everybody's a fraud. Nothing is as it seems. There's a whole underbelly to this world that makes things run in the way that they do that the average person would themselves if they saw even 10% of. And so, just be like vigilant about protecting yourself and protecting your your family and your community. and you know just keep your head on a swivel investing and otherwise. >> All right. Well, thank you for that and thanks for being here, Chris. It's been a pleasure to talk with you. >> Yeah, my pleasure. Thanks so much, D. >> Great. >> Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stanbury Research, its parent company, or affiliates.