Poor Charlie's Arrogance

Warren Buffett ponders what comes next for the economy... Poor Charlie's arrogance... Places between 'financial freedom for everyone,' 'Ponzi scheme,' and the 'end of civilization'... Ten tips to be a successful crypto investor... Steve Sjuggerud's latest 'Melt Up' update...

'And then what?'...

Legendary investor Warren Buffett spoke for a lot of people during Berkshire Hathaway's (BRK-B) annual meeting on Saturday... and not just the thousands of shareholders in the iconic company that he has led for decades.

While on a stage in Los Angeles next to longtime partner Charlie Munger, the 90-year-old Buffett was asked for his opinion on the unprecedented amount of government stimulus that the economy has enjoyed over the past year, as well as its influence on stocks.

How exactly will this massive economic experiment we seem to be living in today turn out?

In response, Buffett said what we know is on a lot of people's minds – from sophisticated investors like him to everyday folks on Main Street. Here's his response to the question...

It's a fascinating time. We've never really seen what shoveling money in on a [fiscal] basis [like] we're doing it, following a monetary policy of something close to zero percent interest rates. It is enormously pleasant. But in economics, you can never do only one thing. You always have to say "and then what?"

We're sending out huge sums... The president just said it on Wednesday... 85% of the people are going to get a $1,400 check. A couple of years ago we were saying 40% of the people couldn't come up with $400 in cash.

So far we have had no unpleasant consequences of it... People who get the money feel better. People lending the money don't feel very good, but it causes stocks to go up, causes businesses to flourish, it causes an electorate to be happy, and we'll see if it causes anything else.

If it doesn't cause anything else, you can count on it to continue. But there are consequences to everything in economics.

There sure are.

For starters, just look at a generation of new investors making risky bets in today's markets...

We could go on and on with examples, but we'll spare most of them for now... Our colleague and True Wealth analyst Vic Lederman will dive deeper into this idea in a special guest Digest tomorrow.

Here's just one sign of investor "euphoria," as we call it...

Ginned up on a tidal wave of central bank "easy money" policy all around the world... and stimulus checks here in the U.S... people who've never previously commented on the economy and markets are sharing their success stories all over social media and telling people to join the party.

In other words, people are getting drunk off success – and in many cases, they don't even know they're drinking.

On Saturday, Buffett commented about inexperienced traders making short-term – as in one-week – options bets on companies like Apple (AAPL). This example of excess risk-taking that he cited makes sense, of course, considering that Berkshire owns roughly $100 billion, or 5%, of Apple – more than the traders he spoke about ever will.

Our friend and Empire Financial Research founder Whitney Tilson has attended the past 23 Berkshire shareholder meetings and served as a guest analyst on Yahoo Finance's live coverage of the meeting this past weekend. As he pointed out on the "postgame" show about Buffett and Munger's views on the markets today...

They said at one point it's the most remarkable time in their entire lives to sit back and be a spectator.

That's saying a lot from two guys who have nearly 190 years of life experience among them. (Munger is 97 years old.) And it's true...

If you're a billionaire today who owns a lot of stock – or if you're anyone, frankly, who owns a lot of stock – life in the market has been pretty good since last March. But as our colleague Dan Ferris has said in the Digest before, "Don't confuse a bill market with brains."

That's part of the reason why Buffett today is warning that the good times can't possibly last forever. In the meantime, he just keeps making decisions based on what he believes in (investing in great companies and great prices, and buying back shares of Berkshire) and staying away from everything else – like the wild speculations of the day.

As Whitney said in his free daily e-letter earlier today (a recommended read for a full recap on the Berkshire meeting), this approach has served Buffett, Munger, and their shareholders well. More from Whitney...

To be a successful investor, you need to be both arrogant – thinking you have an important insight that's different from the consensus view – but also humble – recognizing that the crowd is usually right and/or that you have no expertise in most areas.

Nobody could have predicted the events of the past year – and nobody today can say with certainty what will happen going forward – though a lot of people try. But Buffett and Munger don't...

As rich, successful, and acclaimed as they are, they don't let their egos lead them down rabbit holes. They keep their heads down, focus on what they know and what they're good at, and don't spend one moment thinking about things like the possible consequences of unprecedented monetary and fiscal stimulus or the fact that others are making fortunes in cryptocurrencies.

This is no doubt a good lesson for anyone...

If you buy something with your money, you should know the details about what you're buying. It sounds simple, but many people very often skip right over the simple concept... Buffett and Munger have made a lot of money by focusing on it.

But we must also point out another fact of life we've learned... There's a difference between being confidently arrogant and recklessly arrogant. If you do the latter, sometimes you'll miss what's right in front of you.

Along these lines, we want to comment about one more important topic that came up during the Berkshire meeting...

On Saturday, Buffett tried to avoid making headlines about cryptocurrencies...

When one shareholder asked Buffett and Munger if they still considered cryptos "worthless artificial gold," with the crypto market valued at $2 trillion today, Buffett very deliberately went into politician mode, as he described it, and dodged answering. Instead, he said...

We had a governor one time in Nebraska and he would get a tough question... and he'd look right at the person and say, "I'm all right on that one." Well, I'm all right on that one, and maybe we'll see if Charlie is.

Munger was not all right.

He went in the completely opposite direction... Right after Buffett said it would do him no good to say anything about bitcoin, Munger went all "get off my lawn" – and not in the cool kind of way, like Clint Eastwood in the movie Gran Torino. As Munger said...

Of course, I hate the bitcoin success. I don't welcome a currency that's so useful to kidnappers and extortionists and so forth. Nor do I like just shuffling out a few extra billions to somebody who just invented a new financial product out of thin air.

So, modestly, I think the whole damn development is disgusting and contrary to the interests of civilization. And I'll leave the criticism to others.

To which Buffett said, "I'm all right on that one."

Given this exchange, we sense that the Oracle of Omaha – while probably not investing in cryptos anytime soon – has at least done his homework on bitcoin and other cryptos.

In this case, the same can't be said for Munger. (And yes, we realize we're talking about a 97-year-old man who shouldn't care what we think, and whom we admire for being in good enough condition to sit on stage for four hours and field questions.)

We can base this belief on the "extortionists" line alone (the same could be said for the U.S. dollar, after all) and his illusions to all cryptos being a Ponzi scheme... These themes have been repeated in the media about bitcoin since it was created 12 years ago.

We get where Munger is coming from, but this hits us as a bridge too far... Frankly, we expected a little more from him.

Maybe the warnings are useful for the "get rich quick" crowd... But for the rest of investors thinking about the economy in the big picture, simply dismissing cryptos does a disservice.

Said another way, even if you like Buffett and Munger – and we do, with the latter's coffee-table book full of wisdom, Poor Charlie's Almanack, within eyeshot as we write today – Munger's comments stink of the bad type of arrogance.

There is room for gray area...

In this case, there's space between the ideas that crypto could lead to some utopian world for everyone, as many bulls believe it will... or that it's a Ponzi scheme and will lead to the "end of civilization," like the most ardent bears feel.

Many people easily fall into one side or the other, but we've said it before... You don't have to be "all in" or "all out" on cryptos – or any other investment, for that matter.

You don't have to dismiss bitcoin altogether, nor do you need to put all your money into it or other cryptos. In fact, we suggest "dipping your toes in the water" with a small allocation to get started to diversify your portfolio.

Somebody get Charlie a subscription to our Crypto Capital newsletter, please...

Just last Friday, the day before the Berkshire meeting, Crypto Capital editor Eric Wade welcomed a new analyst, Stephen Wooldridge II, to the fold with his weekly video update. They talked about the very dynamic playing out in cryptos today...

Eric called it "gluttony," that, yes, some people are making wild speculations in coins like Dogecoin, which were designed as a joke. That shows you just what can happen if enough people simply get together to buy something for no other reason than to drive the price up.

But just like people can speculate wildly in stocks, at the same time, there are quality cryptos that folks can own... that will help facilitate new business or change many existing industries.

These are the types of cryptos that Eric recommends in his newsletter, as his subscribers can attest... And they've already returned a significant amount of money.

On Friday, Eric and Stephen had the type of nuanced discussion we wish Buffett and Munger would have had. Stephen shared a few of the highlights of a new special report for subscribers, "10 Tips to Be a Successful Crypto Investor." And in response to Eric's idea about gluttony in the crypto world today, he said...

I think that people are kind of focusing on the wrong areas in the media. Like you said, Dogecoin is exploding, every other day and then falling back down again. And people jumping onto that rally, they're so excited about it when they don't even really know anything about the technology behind Dogecoin. And NFTs, it's a brilliant technology, but people are just focusing on the wrong areas of it.

It kind of feels like this is a bit before its time. I think we have a little bit more technological upgrades to go before blockchain is ready for this kind of mass adoption. But I definitely don't think this is the end. Blockchain itself, I still believe is in its infancy.

In fact, we don't think it is out of line to suggest that one of the answers to Buffett's "and then what?" question about the economy and unprecedented stimulus might just be the emergence of the cryptocurrency market.

We don't know what the endgame for cryptos will be, and it might take a while for the story to play out. But at the moment, many folks – and heck, Wall Street firms – are already buying bitcoin as an inflation hedge... and Eric has said he is willing to bet we're still in the early stages of "mass adoption."

The point is... what's right for one person today, like Munger, might not be right for another, like somebody who wants their smaller amount of cash to be worth something in a few years. Sometimes it's hard to take your own advice... and stick to what you know.

Now, we also know about the 'Melt Up'...

This government-fueled frenzy, as Buffett described, continues to roll on...

And monetary policy is so loose that we're starting to see public dissent from folks within the ranks of the Federal Reserve and the European Central Bank ("ECB").

We're also wondering just how, and when, the party will end...

Well, our colleague and True Wealth editor Dr. Steve Sjuggerud has a pretty good idea of what he believes will come next. And he wants to make sure everyday folks know all of the details...

That's why he shared a new update on his Melt Up thesis last week. Tens of thousands of folks tuned in to hear what he had to say...

As Steve told them, just by watching or listening to the event, you're already ahead of 99% of other Americans when it comes to achieving financial success and avoiding disaster in the next few months. From Steve's presentation...

Next year, you'll be surrounded by people kicking themselves for either getting out [of the market] too soon and missing out on the once-in-a-generation gains during the final surge and people kicking themselves for not getting out soon enough during the "Melt Down."

So what I'm offering you tonight is a chance to be among the small number of folks who truly get the best of both worlds – all of the extraordinary potential profits of the final surge with none of the heartache that comes from being blindsided by an epic crash.

In short, if you're looking for another answer for what comes next for U.S. stocks (aside from the alternative of cryptos emerging, as we discussed today), be sure to check out Steve's latest update.

If you missed the debut of Steve's event last week, don't fret... You can still watch the full replay for free right here. But it will only be available for a limited time... So don't wait another minute.

The Coming Digital Currency 'Reset'

The European Central Bank is looking to roll out a digital version of its currency within the next four years, according to ECB President Christine Lagarde. If that sounds like a big deal, that's because it is...

For Willem Middelkoop, author of The Big Reset, the move has great implications. He tells our colleague Daniela Cambone that the plans "are really part of a larger monetary reset"...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 4/30/21): American Homes 4 Rent (AMH), Axis Capital (AXS), Brown & Brown (BRO), CBRE Group (CBRE), Crown Castle (CCI), Comfort Systems USA (FIX), W.W. Grainger (GWW), Hershey (HSY), Invitation Homes (INVH), Cheniere Energy (LNG), McDonald's (MCD), Annaly Capital (NLY), Northrop Grumman (NOC), TFI International (TFII), United States Commodity Index Fund (USCI), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), and Waste Management (WM).

In today's mailbag, readers respond to Dan Ferris' Friday Digest about Tesla (TSLA). Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Oh boy Dan, as a fellow piano major, I wish I had your financial chops!!!!! Keep those technical passages running!" – Paid-up subscriber Joe C.

"Dan Ferris' 30 April write-up on TSLA took some considerable research and analysis. And it was really entertaining. I burst out laughing 3 times. Proof that the dry world of finance, stocks, bonds and investing in general can have a light side. Thanks Dan. Good one." – Paid-up subscriber John P.

"Dan, you need to send that Musk/Kirkhorn sketch to Saturday Night Live. They'd probably love to run it next week after Musk hosts... As for the suggestion of 'the love child of Thomas Edison and Snoop Dogg' – well, I had to postpone dinner." – Paid-up subscriber Gary S.

"Great article. Very informative. Everyone who owns Tesla stock should read it and decide for themselves if they want to keep investing in a company that does whatever it can to juice their books. What Tesla has done this last quarter should be illegal. It can only end badly for this stock if this is the way they do business. And, you are right, Musk seems to be smoking something, not sure what." – Paid-up subscriber Rick G.

"Dan: I hope that you are vacationing in Medford and enjoying yourself. Or, were you too close to the crap in Portland and had to move before if came up your way?

"[From Friday's Digest]...

Now, the cynics among you might say we've been similarly critical – and frankly, wrong – in the Digest about Tesla's impending doom in the past... And so far, you're exactly right.

"As other writers with a bias, you do point out the negatives but leave out positives like the charges for Musk's stock compensation. And if you took a cost accounting course, I would hope you realize that is impossible to accurately allocate the fixed costs to each car. We can't be sure whether they are making money or losing money on each car. They have done well enough to stay in business and to invest in production facilities in China, Germany and Texas. While competition is now on Tesla's tail, Tesla does have a lead on batteries and technology.

"I have owned Tesla stock since before I bought my Model 3 in 2015. The stock has rewarded me handsomely. And we enjoy the car.

"I have taken some profits periodically. Have traded around my position with options. Owned some Leaps. Fortunately they split the stock, thus the options split, and I was able to sell 1/5 of the original Leap at a time on the way up. (I am 82 years of age, so I do try to keep my risk under control.)

"I appreciate you and other bears who have given me the opportunity to make money on Tesla in-the-money call spreads. The 500/550 May '21 call spread will yield me 42.6% at expiration for 2.5 months in the position. B/E is 535 with stock currently at 709."

"We experienced a reasonable correction from Tesla's 900 high down to 540. If there is a fat tail coming soon, I would expect it to be upward rather than downward. Current sentiment toward Tesla stock seems pretty pessimistic.

"But, to paraphrase Dan Ferris, we diversify because markets are difficult to predict accurately. I do take some profits on the way up, which limits my gains, but I am maintaining an oversized position. I have taken out my original Tesla investment many times over.

"I enjoy reading your work. Keeps me on my toes. I don't always agree with everything you write, but that is to be expected. You wouldn't agree with everything I say or do." – Paid-up subscriber Bill H.

"Dan, The biggest reason I became an Alliance member was to get your excellent analysis. However lately you have been writing with a lot of vitriol. Today, your comment on climate change baited and insulted your readers. In a past Digest, you attributed greed as a motive to the Federal Reserve for prompting inflation when a more logical explanation is that inflation allows their tools to work. You also compared Democrats with mask mandates to the Genocidal Dictator Pol Pot.

"I am tired of divisive politics slipping into everything. I miss the old days of dry sarcasm about world improvers, etc. I like to believe humor is better than insults but maybe Stansberry has discovered that divisive vitriol gets more subscribers." – Stansberry Alliance member Jim S.

Dan Ferris comment: Jim, thank you for giving me the opportunity to clarify my position...

I think I've done a decent job of limiting the political content of my writing. So we'll have to agree to disagree about that point.

The climate issue is ridiculous, partly because it's impossible to be reasonable about it without insulting and baiting everyone who thinks they know anything about climate. I'm still confident you know nothing about climate. Feel free to work to disabuse me of that conviction.

But I have a question for you... Do you really think "dry sarcasm" is a sufficient response for people like nearly universally corrupt, power-mongering Democrat and Republican politicians and the Federal Reserve, who have directly caused and otherwise facilitated the suffering of millions of people, mostly those of little means (and I'm not just talking about the past year)?

The one who spits in his enemy's eye and engages him in an all-out battle holds the moral high ground, not the one who lets him off the hook with dry sarcasm. Those world improvers have subjected millions of innocents to their failed, phony, and sometimes murderous Wars on Poverty, Drugs, Terror, COVID-19, Climate... And a nation of – as far as anyone can tell – increasingly brainless, spineless, and gutless people has let them do it.

This country was built by people who pulled their guns off the mantle and aimed their unmatched eloquence and their bullets at the most powerful nation on Earth.

Now, we honor them by sitting on our couches watching CNN and Fox News... ordering pizza through our phones... and waiting for Anthony Fauci and the Centers for Disease Control and Prevention to tell us if it's OK to take a vacation or visit our relatives... all the while gleefully doing whatever bloviating donkeys like Donald Trump and Joe Biden tell us.

I say we need more brains, more spines, more guts... and less dry sarcasm.

I completely agree with you that the topic of politics has a very limited, if any, place in our financial publications, and then only as it pertains to an investment thesis – except for Friday Digests, which have always been a more open forum.

I've honored those limits, but if anyone at Stansberry Research expects me to check my brain, spine, or guts at the door when I show up for work, they can just fire me now... because it's not happening.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 3, 2021