The Big Worry Behind My Next Epic Rager

'What, me worry?'... Mad magazine, Barstool Sports, and Davey Day Trader... An unusual time in the markets today... The big worry behind my next epic rager... This nonsense from politicians started in 1936... 'Fat tails' out the windshield... The bigger they are, the harder they fall... The past still echoes in the present...

'What, me worry?'...

Alfred E. Neuman taunted the world with that question for nearly seven straight decades.

The fictional gap-toothed, big-eared boy and his slogan started out as the posterchild for painless dentistry in a series of early 20th century ads. But Neuman didn't gain widespread fame until 1954, when the satirical Mad magazine adopted him as its unofficial mascot.

In the words of Mad founder Harvey Kurtzman, Neuman was "part leering wiseacre, part happy-go-lucky kid." And he "didn't have a care in the world, except mischief."

Neuman's quirky smile and catchphrase appeared on the cover of almost every edition in one form or another through last year, when Mad decided to stop publishing new content.

Today, I (Dan Ferris) see Neuman's face and iconic question when anyone brings up Dave Portnoy...

If you're not familiar with Portnoy, he founded Barstool Sports as a gambling and fantasy sports publication in the Boston area in 2003. After moving to the Internet, the site gained a cult following through its often-controversial coverage of various sports and celebrities.

In 2016, Portnoy sold a majority stake to The Chernin Group, a New York-based media investment company. And in January, Barstool cashed in on sports betting... selling a 36% stake to Penn National Gaming (PENN) for $163 million. The deal valued Barstool Sports at $450 million, and Penn National will eventually increase its ownership to 50% or more.

Now, with more free time, Portnoy has taken on a new endeavor... day trading.

Armed with his outrageous personality, Portnoy often taunts bearish traders and short sellers from his Twitter account... and he even took aim at Warren Buffett last month.

But Portnoy outdid even himself earlier this week...

I try to dismiss Portnoy as nothing more than "part leering wiseacre, part happy-go-lucky kid" like Neuman when he says he has the stock market in his back pocket and that he's better than Buffett.

But Portnoy – who likes to call himself "Davey Day Trader" – upped the ante by an order of magnitude on Monday. In a video posted on his Twitter account, Portnoy boasted...

I control the stock market.

I'm convinced that Portnoy says this stuff with zero sarcasm. He's totally serious... When he says stocks only go up, he means it. When he says he's better than Buffett, he means it.

From now on, Portnoy's Twitter tirades will immediately remind me of Neuman, asking the perennial question, "What, me worry?"

What, me worry... that stock prices absolutely don't go straight up forever?

What, me worry... that mine is the kind of hubris that wipes out fortunes, and at least once or twice has resulted in a tragic, untimely passing (in the classical way of defenestration)?

What, me worry... that "I control the stock market" falls squarely into the category of cocky quotes you hear from inexperienced day traders at market tops?

Of course, Portnoy isn't the first person to say something so foolish in our history...

His comments are on par with economist Irving Fisher's immortal words of late 1929, "Stock prices have reached what looks like a permanently high plateau." And they're similar to former Citigroup Chairman and CEO Chuck Prince's quip, "As long as the music is playing, you've got to get up and dance"... which he uttered in 2007 – just before the global financial crisis.

Portnoy's fame as an investing "guru" has happened since March. It'll be interesting to see what happens when he faces another big drawdown like the one that happened in March.

I wonder if Portnoy will still control the stock market when it's plunging lower...

For now, I'm satisfied that Portnoy is the Alfred E. Neuman of our time. Perhaps he's a little more sophisticated and "edgy" than Neuman... But he's still without a care in the world, endlessly taunting us with braggadocio-infused online mischief.

One more thing...

It's suspicious that Portnoy is pounding his chest harder than ever at the same moment when a chimpanzee could have thrown darts at almost any asset class and hit a winner.

I'm not saying Portnoy is a chimpanzee. That type of insult just isn't my style. I'm saying he's just like a chimpanzee at how he's picking winners today... which is obviously different.

It's unusual for stocks, bonds, gold, silver, and volatility to all rise together as they've done recently...

Stock and bond prices have generally traveled in opposite directions this century. Your bonds have tended to do well when your stocks have not, and vice versa.

And of course, precious metals typically serve as a "chaos hedge"... They have frequently risen in value as stocks have fallen during times of panic.

Volatility, represented by the Chicago Board Options Exchange's Volatility Index ("VIX"), goes up when traders buy put options on the S&P 500 Index. And they generally don't do that much until the S&P 500 starts falling (though CBOE's Russell Rhoads once pointed out to me that the S&P 500 and the VIX go in opposite directions only about 80% of the time).

As I noted on this week's episode of the Stansberry Investor Hour podcast, it makes you wonder which of these assets will turn south first...

Will stocks and precious metals fall together in a "risk off" moment? Will the 10-year bond's price fall (causing its yield to rise) if the U.S. dollar's recent weakness continues? And will the VIX ever fall to less than 20 again?

That level is widely considered the long-term average of the VIX. And it spent plenty of time at less than 20 as the bull market marched higher from 2012 until earlier this year. But since late February, it has been persistently above 20, hitting a new all-time high in March.

Both Portnoy and I are unburdened by such questions, of course. Regular Digest readers have heard me describe the best way to handle investing before... Prepare, don't predict.

I don't worry much about short-term price movements in any asset...

A situation like our present uncertainty is a great reason to hold a truly diversified portfolio (stocks, cash, precious metals, and bitcoin) and maintain a long-term view as an investor.

That type of portfolio makes perfect sense because nobody knows the future... not even Portnoy.

Given that I believe it's absolutely essential to acknowledge the impenetrable vastness of one's ignorance about the future... I don't waste the self-inflicted pain of worry on short-term, trivial nonsense.

I like to save my worrying for the big stuff... When I really want to get it on and do some serious worrying, I put on an old pair of jeans and a leather jacket, rent an abandoned warehouse, hire a loud band, smoke a bunch of whatever, and throw a serious rager.

The next rager might need to happen sooner rather than later...

You see, the big worry today that's worth being seen wearing inappropriately youthful clothing is... the value of the U.S. dollar and its status as the global reserve currency.

I worry about the dollar because I'm still skeptical of the status-quo, big-government strategy of monetary policy (central-bank money-printing and market intervention) coordinated with fiscal policy to finance massive government deficit spending... allegedly to stimulate economic activity.

I believe that all the borrowing and spending will reduce the value of the U.S. dollar over time... and it will ultimately compromise its status as the global reserve currency.

The more I learn about why central banks and governments do what they do, the more I believe the Federal Reserve will wreck the dollar.

A lot of what central bankers and governments do today is a result of their desire to avoid another Great Depression, which I must acknowledge they've so far managed to do.

'Fiscal policy' wasn't a thing before the 1930s...

In the U.S. at least, the government wasn't involved in every aspect of our life before then.

People were truly free to take their own risks and live with their own consequences. As Gene Smiley tells it in his excellent overview, Rethinking the Great Depression...

Before 1936 the dominant economic theory was one of markets. It described how the system of relative (or real) prices allocated resources among different markets so that, in the aggregate, the employment of resources resulted in the production of those commodities and services on which individuals placed the greatest values.

Why specifically 1936?

That's the year English economist John Maynard Keynes published his classic economics treatise, The General Theory of Employment, Interest and Money. The book supported President Franklin D. Roosevelt's experiments in modern interventionist economics (though he and Keynes didn't exactly see eye to eye) and gave birth to the modern discipline we call macroeconomics.

Keynes' notion of fiscal policy transformed taxing and spending from ways to pay for the government to provide its limited services into tools for increasing aggregate demand in order to bring about full employment. Through these tools, the government could control the economy (or so politicians believed).

In other words, fiscal policy is just the B.S. story that politicians and other powermongers started telling after 1936 so they could get as much control of your life as possible.

As I've said before in the Digest, you should study the period of history from 1929 to 1945...

And the twin outcomes you should focus on the most are...

1. Government regulation and intervention of just about everything
2. Taxes

The Great Depression inured us to the idea of total government intervention in every aspect of our daily lives... just as World War II would start with 30% of American income earners paying income taxes and end with virtually every household in the country paying income taxes.

The period from 1929 to 1945 was a politician's dream come true...

It was a crisis of epic proportions, exploited by the power-hungry and not wasted on principled notions of self-ownership and property rights. (It's suspicious that depressions and wars are so exploitable by the ruling class. It's almost like they bring them about on purpose.)

The "print, borrow, and spend money" script makes me feel as though my car has conked out on the highway and a brilliant physicist has pulled over to help me... and then recommended that I initiate a nuclear chain reaction in the gas tank to fix my problem.

"That'll get 'er moving!"

The physicist is probably right, but I want all the parts of the car to move together and take me home... not explode in all directions to the ends of the known universe. Who knew such a subtle difference existed between reliable transportation and nuclear weapons testing?

Likewise, we're not expected to notice – or complain about, if we do notice – the non-subtle difference between modest economic growth with sound financial underpinnings... and faster growth generated by money-printing, massive borrowing, heavy taxation, and wild spending by the twits in Congress.

I brought up my fears about the U.S. dollar on a call with other Stansberry Research analysts this week...

As I was inviting everyone to get stoned on worry at my warehouse rager, a colleague correctly pointed out that Japanese central bankers and government have run the same "coordinated" monetary-fiscal script for a long time... and it hasn't caused the yen to crash.

I had to concede his point.

He's correct. And I've pointed out in previous Digests that the Fed and the U.S. government are indeed running the Japanese script.

But I also had to point out that the Japanese economy and stock market of the past few decades isn't exactly a great success story. It's more like a textbook example of a prolonged downturn that persisted, despite all the monetary and fiscal policy lessons from Keynes.

So while my colleague was unassailably correct in his historical observation of what has happened in the Japanese economy, I'm not worried about the scene in the rearview mirror.

I'm worried about the 'fat tails' out the windshield...

In probability, "fat tails" refer to highly unlikely events.

Nassim Taleb wrote a whole book about such events called The Black Swan. That's his own name for these types of events. In his own words, The Black Swan is...

[A book] on how high impact but rare events dominate history, how we retrospectively give ourselves the illusion of understanding them thanks to narratives, how they are impossible to estimate scientifically, how this makes some areas – but not others – totally unpredictable and unforecastable, how confirmatory methods of knowledge don't work, and how thanks to Black Swan-blind "faux experts" we are prone to building systems increasingly fragile to extreme events.

That's a mouthful. But to me, the idea is simple...

I interpret Taleb's comments as supportive of my own idea that it's probably better to throw a worry rager about the types of events that dominate history instead of ones that can cause a one-month, 30% drawdown in your equity portfolio. That sort of thing won't even catch you a decent buzz.

Black swans can be good or bad...

The rise of the Internet is an example of a good one, while the 9/11 terrorist attacks are an example of a bad black swan.

If a good black swan happens, a decently diverse equity portfolio will reflect what happens. You shouldn't have anything to worry about.

But if a bad black swan happens, you'd better have done all your worrying before it arrives. You won't have a chance to right your financial ship.

In other words, at this point, I feel obligated to think and say a bunch of stuff that my much brighter and probably better-informed colleagues will push back on. And frankly, besides my gray hair and scars, I really have no advantages over them...

As luck would have it, when you're trying to avoid losing life and limb, the grizzled, old survivor with the scars and all four limbs intact might just be able to help you.

It's the last bit of Taleb's description that has me the most worried...

I'm talking about the part when Taleb mentions how "faux experts... are prone to building systems increasingly fragile to extreme events."

That's what conventional monetary and fiscal policy coordination in the style of Japan looks like to me. It looks like a system for generating black swans and other big, bad outcomes.

Using policy coordination to fool around – directly or indirectly – with the value of the one financial instrument that touches almost the entire global population every minute of every day seems like the sort of system tinkering that could generate a swan big and black enough to blot out the sun.

It's also why the example of Japan and the yen doesn't mean anything to me...

The yen makes up about 5% of global foreign exchange reserves. Meanwhile, the U.S. dollar accounts for around 60% of global foreign exchange reserves and about 80% of transaction settlements. It's hard to sell anything in this world without getting paid in dollars.

The yen's reserve status is much smaller than the dollar, but it's still very important...

If the yen were suddenly sold down to 4% of global foreign exchange reserves, it would be disruptive. The trip from 5% of reserves to 4% for the yen would be large in percentage terms... but the trip from 60% to, say, 50% for the U.S. dollar would be Earth-shaking.

The bigger they are, the harder they fall... And the U.S. dollar is bigger than anything.

I've made this point before, but it's definitely worth repeating today...

Before the Great Depression, several small contractions occurred that began as banking "panics" – most notably in 1873, 1893, and 1907 – in which as many as a few dozen banks failed. Then, roughly 9,000 banks failed or suspended operations in the Great Depression.

Did the Fed – which opened for business in November 1914 – make our banking system more fragile to an extreme event like the Great Depression? Was it just a big, centralized boondoggle built by "Black Swan-blind faux-experts"?

After all, the proposition that any organization could manage the rate of inflation and the level of unemployment in a multitrillion-dollar economy (multibillion 100 years ago) is absurd... A big, developed economy like ours is far too complex for that kind of top-down management.

Hopefully, history won't repeat... and we'll once again avoid another Great Depression, with its 9,000 bank failures.

Yet the past still echoes in the present...

Reviews website Yelp reports that 55% of all U.S. business closures considered temporary when the COVID-19 crisis began earlier this year are now considered permanent. Those businesses are gone forever because the government decided they were "nonessential."

The government pulled the same "nonessential" baloney in World War II... It turned the U.S. into a command-and-control economy and reduced or eliminated the production of goods it deemed nonessential, forcing the entire country to make the implements of war.

I don't pretend to know how the current experiment in economic control and monetary and fiscal stimulus will turn out. As an American, I hope it all ends just fine... and that we can all look back on this Digest years from now and say, "Dan threw a worry rager for nothing."

But I don't believe for one minute that you and I can afford to bet that way.

By the way, I'm not the only one who is concerned about what's happening in America today...

For years, Porter has been warning about our financial system's collapse. And now, with the government continuing to pump trillions into the economy, he's stepping forward again...

Porter believes we're only several weeks (or maybe a few months) away from an extremely rare monetary event. But this idea is far too long and complex to explain in a single Digest.

So next Thursday, July 30, at 10 a.m. Eastern time, he'll deliver all the details in an urgent broadcast. It could be the most important and critical message of his distinguished career...

During this event, Porter will discuss the problem with the U.S. dollar and other fiat currencies... and explain why he's so worried about the reversal of the American way of life. And most important, he'll share a simple roadmap for how you can protect your wealth.

You won't want to miss Porter's message... And it's absolutely FREE for anyone to tune in. We just ask that you register ahead of time. Again, it takes place next Thursday, July 30, at 10 a.m. Eastern time. Sign up right here.

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In today's mailbag, feedback on whether you're "in" on gold and silver... and a personal story about COVID-19 relative to the race for a vaccine. Do you have a question or comment? As always, send it to us at feedback@stansberryresearch.com.

"Heck yes I'm in! Take a look at silver's chart going back to the peak in early 2011. Want to know who the fool was who was buying silver bullion at $49? Me, that's who. I lost half of my $360,000 investment in that blunder. I was not under John Doody's tutelage at the time! But thankfully I had time to recover.

"In May this year I figured I'd do a lot better in silver stocks than silver bullion, so I moved my $179K out of BullionVault and back to ETrade where I invested it all in John Doody's Fave Five. I don't yet have it back up to the $360K mark but I've recovered nearly 40% of what was lost. Retirement is looking better now.

"As a side note, I'd like to mention that in addition to the above-mentioned BullionVault account, I've actually been invested with Gold Stock Analyst and Silver Stock Analyst since 2014, so was delighted when John became part of Stansberry. His work is beyond reproach and we're very lucky to have him." – Paid-up subscriber Barbara D.

"I have been one of your subscribers for many years and have learned so much from all your information. I feel it is a sad commentary to our education system to have someone like myself a college graduate that never had to take a course in economics, truly sad and really dangerous.

"On to the covid situation, I have to say that with all the junk science presented as facts I feel the public would be much better off hearing none of it, unless the goal is to rule by fear. I lost my father this past June in a hospital in Annapolis MD, which is under the Hopkins umbrella, and what I witnessed was unbelievable! I had to reluctantly send my father to the hospital after yet another fall in the house, which left him a few days later in pain, extremely confused, and as my parents live alone my mother of 93 could never handle dad.

"So my father gets admitted, tested negative for covid but was placed on a mixed ward. Now in the midst of a pandemic contagion nobody could explain to me how there is even such a thing as a mixed ward. In the days going forward I protested daily to move my 96 year old father to a negative ward, after several days I was told the entire hospital was covid. They have nearly 400 rooms in that hospital and I truly doubt there were that many cases, so did that mean the air circulating system was for the entire hospital?...

"So when I got the call that my father was going down fast and we need to get to the hospital, they allowed myself and my 93-year-old mother to go up for 15 min and everyone at the hospital were saying how LUCKY we were to get to see our father. Now is where my big questioning moments begin to happen as I could not get into my eye Dr. or even the DMV without being at least checked for temperature and questioned.

"Not one time in the hospital did any of us have our temp. taken, and being on a floor with known positive patients we were never told to self-quarantine and to be tested, this includes my 93-year-old mother. I received the phone call that my father had passed two days later and the Dr. told me that our family could go and spend as much time as needed with our father's body. I asked if that would be in the same room on the same floor which I was told of course. I then asked why was it OK to see him dead and not when he was alive to which I was given no answer.

"Now, as someone that has a BS in biology and try to go through life making decisions based on facts I don't see too many deductions that can be made of these actions. 1. This virus is not as contagious as we are being told or 2. It is and they just don't care who gets it.

"I was left with a feeling that something is very, very wrong with this entire situation maybe even a bit evil. Nonetheless I think that real hard science facts should be presented to the masses! If I'm not wrong, the covid virus family includes common cold and many other flu viruses which have no effective vaccination so why are we to believe that a vaccine is the MAGIC BULLET! The narrative changed from we need to flatten the curve to be safe to we will not be safe until a vaccine is made. It certainly looks like it is all about money, greed is tearing this world apart and will end up destroying our civilization.

"As I stated above, and aside from my personal disgust of this broken health care system, there is something very, very wrong with this entire narrative but that is just me." – Paid-up subscriber Scott S.

Corey McLaughlin comment: Scott, condolences to you and your family. Thank you for sharing your story and perspective. (And I could not agree with you more on the financial education point. Glad you have found value as a longtime subscriber.)

Good investing,

Dan Ferris
Vancouver, Washington
July 24, 2020