The Worst Investors in History

The 'new bull market'... Time is the best truth machine... I've found something worse than meme stocks... The story of MMTLP... The worst investors in history... An anti-plague of epic proportions is needed...

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Google 'new bull market' and have a good laugh...

An article published on the Nasdaq's website on Monday morning said plainly, "A New Bull Market Has Arrived." The tech-heavy exchange – which publishes its own content for some reason – pointed out that the Nasdaq Composite Index was up 27.5% since January 1 and that it had just logged six straight weeks of gains – the longest such streak since 2020.

And that means we're in a new bull market...? How do they figure?

Well, they're probably relying on the old saying recently repeated by Carson Group Chief Market Strategist Ryan Detrick in a note he published on Tuesday called "Welcome to the New Bull Market." You've probably heard something like this before...

Don't shoot the messenger, but historically, it is widely considered a new bull market once stocks are more than 20% off their bear market lows. This is similar to when stocks are down 20% they are in a bear market.

The same idea that Detrick cited also prompted Barron's to publish a piece titled, "S&P 500 Nears New Bull Market" on Monday.

These are lazy ideas with no grounding in reality...

Here's one example... There were four massive rallies of between 25% and 44% that occurred before the Nasdaq finally hit bottom at the end of the 2000 to 2002 bear market.

I (Dan Ferris) won't clutter up the page with the other examples you can find throughout history, but there are plenty from other bear markets. Likewise, it's too tedious to run through all the other recent "new bull market" headlines from Yahoo Finance, the New York Times, and many other sources.

But the idea that a 20% gain from a low marks a new bull market is dumb, and it needs to go away forever... The popularity of the new-bull-market narrative is enough evidence to suggest that it's very likely wrong...

If you want the truth about bull and bear markets, here it is...

Time is the single-greatest truth-teller of all, and only after enough of it has passed can you confidently state whether it was a bull or bear market, and when it began and when it ended.

How much time is enough?

I don't know and neither does anyone else. But apparently it can be a lot longer than you'd ever expect.

For example, the Dow Jones Industrial Average went sideways from February 1966 to November 1982. That's right... It didn't hit a permanent new high for 16 years.

But in between, you could have been fooled into thinking that it was hitting a new high for the period... Check out the chart below... The Dow poked above its high from 1966 a few years later, in January 1973... but the move was a temporary high...

And it happened nearly a decade before the next new high in November 1982...

Would anyone in his right mind call any portion of that period a bull market? It wasn't a bull market. It was a 16-year sideways grind. It contained five drawdowns of 24% or more...

Some folks would ask for more examples before they'd be convinced that this one means anything, but that makes no sense to me at all. I'm not saying that I know whether it's a bull, bear, or sideways market right this minute. I'm only saying that you don't know and neither does anyone else... and that weird things can happen, like 16-year sideways markets punctuated by new highs that don't mean more new highs ahead for almost a decade.

There's a smugness in all this bear/bull market talk that I don't like...

It appears to me that enough investors – or speculators or gamblers or whatever they really are – have bullishness deeply embedded in their psyches.

If a bull market's age tells you how firmly bullishness is embedded in the average investor's soul, today's investors might have it more deeply and firmly lodged in their hearts and minds than any investors in history.

Since the bull market that started in March 2009 and ended in late 2021/early 2022 was the longest bull market in history... just maybe, to shake that bullishness loose, it'll take a longer, more brutal bear market and/or sideways market than ever.

Another way to say that is that today's investors may be more bullishly inclined than those of any previous era... from 1929... the late 1960s/early 1970s... the late 1990s... or late 2007.

The people who got caught up in frenzies during those giddy times in the markets were as crazy as humans can often be, but they weren't this crazy. They didn't buy bonds yielding less than zero and cash-burning garbage stocks and special purpose acquisition companies and clean energy and cannabis and cryptocurrencies and non-fungible tokens and meme stocks...

In other words, we've got our own set of problems now...

I mean, when it comes to investors who will literally buy any piece of crap in the world and swear it's going to make them rich any minute, even after they've gone broke and didn't notice... the present era takes the cake.

And no, I'm not talking about the meme stocks like GameStop (GME) and AMC Entertainment (AMC). Yes, they're exorbitantly overvalued garbage. But no matter what I say, the market still says they're worth billions (though GameStop shares did drop 18% the other day after the company fired its CEO.)

Both GameStop and AMC were once decent, profitable businesses. They don't look like frauds. They're just crappy businesses that are probably going to zero one day, whose shareholders mostly just don't get it...

To tell you how wild this market still is, let me tell you about something much worse than meme stocks...

Introducing Meta Materials' preferred stock, more popularly known by its ticker symbol, MMTLP...

As the Wall Street Journal recently explained in an excellent short history of this absolute turd:

MMTLP was a set of preferred shares whose value was largely underpinned by oil and gas assets in the Orogrande Basin of West Texas. They were issued in 2021 when Torchlight Energy Resources, a Plano, Texas-based oil company, merged with Meta Materials [(MMAT)], a Canadian nanotechnology firm. They traded in the risky [over-the-counter ("OTC")] market until December, when they were removed from circulation.

In their last weeks of trading, buzz mounted that the shares were poised for a short squeeze, a phenomenon in which short sellers exit their bets against a stock, causing its price to rally. Fueled by such chatter, MMTLP surged more than 650% from the start of October to Nov. 21. That put a peak valuation of about $2 billion on the underlying assets – even though some oil and gas analysts have dismissed them as worthless.

OK, one thing to point out right away here...

Calling this an "OTC-traded oil and gas preferred stock merging with a Canadian nanotechnology firm" should have told anyone who is not a fool that this thing could be a fraud and, if not, that it's definitely worth less than zero.

Without getting into the details, the Financial Industry Regulatory Authority ("FINRA") halted trading in the shares before the market opened on December 9. It said investors who bought the stock that day would own a worthless shell by the time the trade settled two days later.

It gets complicated here, but suffice it to say that it takes two market days for trades to settle. And during the two days following December 9, MMTLP shares were going to be swapped for shares in a new public company called Next Bridge Hydrocarbons, after which MMTLP shares would be cancelled and have zero value. So anybody who bought shares on December 9 or after wouldn't legally own the stock until after it became a worthless shell.

There's more to it than this, which you can read about on the FINRA and Meta Materials websites. But one thing anyone with a shred of thought would have noted was this bit from the Next Bridge prospectus...

There is presently no public market for our shares of Common Stock and our shares are not expected to become [direct-to-consumer] eligible for electronic trading to third parties. There is no expectation that a trading market will develop or be sustained. Accordingly, you may have to hold the shares of Common Stock indefinitely.

So the reality of this is that the stock was always worthless, and anybody caught holding it was destined to hold it forever if they didn't get rid of it before the Next Bridge transaction.

But you wouldn't have known that unless you had actually read the prospectus.

But fools don't do research...

They are more likely to squawk on social media and buy garbage stocks they know nothing about... and they want to get rich quickly, which they think they can do.

So instead of blaming Meta Materials' management for promoting likely worthless assets, then planning openly to dump those assets into untradeable shares... the "investors" who believed the "buzz" ended up blaming short sellers and FINRA.

They said FINRA had conspired with short sellers to keep MMTLP's share price down. So they've tried to sue FINRA in four states, including California, where a judge dismissed the suit. The other three suits are still pending.

This group has also tried harassing the head of the U.S. Securities and Exchange Commission ("SEC"), confronting him on Capitol Hill in April. They picketed the SEC's headquarters in Washington.

We can get into a separate discussion about the SEC, but the point in this case is that rather than a conspiracy to keep Meta Materials' share price down, it's far more likely there was one to prop it up.

You don't need a conspiracy to keep the price of a piece of crap down. You need one to prop it up.

The SEC investigated several stock promoters alleged to have performed a pump-and-dump scheme on Torchlight Energy Resources before the 2021 merger that created Meta Materials. Former hedge-fund manager Jeff Davies told the Journal about this idea...

Given the lack of drilling success, production or cash flow at Orogrande, it is certainly possible the preferred stock transaction was simply a means to create the perception or reality of a short squeeze.

So, these buyers of Meta Materials' preferred stock were holding something that was completely worthless, which was about to go to zero, which they expected to soar to the moon, but was possibly even fraudulently created to artificially increase the share price.

And they ended up being stuck with shares they couldn't sell. But from everything they thought they knew about the markets and heard or read online, this sounded like a good way to make money.

(For all of the details on the MMTLP story, you can read the Journal article here, and you can learn more about FINRA's actions here and Meta Materials here. For context, I also recommend Bloomberg columnist Matt Levine's excellent take on it here.)

Point is, these are the worst investors in history...

They didn't know or care what anything was worth. They did zero research and bought the absolute worst garbage in the market. Now, they think they're owed something because of some phony, unnecessary conspiracy, which is likely the total opposite of the truth.

They were born out of the longest bull market in history, and now they expect another one to begin... just because.

The bull market from 2009 to late 2021/early 2022 was an ideal breeding ground for speculators like these, especially during the insane mega-bubble period after March 2020.

It'll take an anti-plague of epic proportions to rid the landscape of them.

I said above that time is the greatest truth-teller, and it'll take most fools the rest of their lives to figure out that they don't know crap about investing and never did. They'll be on their deathbeds decades from now, finally realizing that they put their hard-earned money into a bunch of scams and crappy, dying businesses – then behaved like petulant preteens who were just told they'd better have their asses home by 10 p.m., or else.

These MMTLP shareholders are only one reason why I think we're in for a serious, god-awful slog for at least a decade. I expect such a brutal period to include multiple episodes in which the headlines are filled with talk of a new bull market... like what's happening right now.

Let's be clear...

I have no idea how the next decade or so will play out in the market. I don't know if the stock market will make new highs this year... or if it won't make a new high for another 25 years. There are precedents for both. Most bear markets don't go into a second year. But it also took the Dow Jones Industrial Average 25 years to make a new high after the 1929 peak.

Whatever happens in the next decade or so, it'll have to be significant enough to punish the massive misallocation of capital that took place during the mega bubble... and that means torturing the kinds of people who were hoping MMTLP would make them rich until they finally shut up and go away.

I can't predict what will happen.

Maybe the bear will take another two years and eventually bottom out when the S&P 500 Index is down 75% or more...

Maybe the market will go sideways for 16 years like it did from 1966 to 1982... and maybe, like back then, the market will decline 25% or more multiple times before making a permanent new high.

It took 16 years and multiple ascents for the Dow to finally exceed 1,000 for good in 1982. This time, maybe it'll take a decade or two, including multiple ascents and multiple 20% or greater declines for the S&P 500 to permanently exceed 5,000. (It's around 4,300 today.)

But I'm pretty sure that when that moment arrives, it won't include an army of "investors" howling about short squeezes on worthless stocks. Bull markets are born at moments of maximum pessimism. We haven't seen anything like that yet.

New 52-week highs (as of 6/8/23): ABB (ABB), Berkshire Hathaway (BRK-B), W.W. Grainger (GWW), Ingersoll Rand (IR), Eli Lilly (LLY), London Stock Exchange Group (LNSTY), MSA Safety (MSA), MasTec (MTZ), and Invesco S&P 500 BuyWrite Fund (PBP).

In today's mailbag, feedback on a recent interview by our editor-at-large Daniela Cambone... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"First of all, Thank You to Stansberry Research for providing all the information about the financial world and what is going on around us. It really helps to have such a broad look at things from people who are experts in their field and are really trying their best to tell us what they see coming.

"Second, Thank You to Stansberry Research for the interview with G. Edward Griffin. Unfortunately, he is 100% correct about what has been and is going on in the world. That is what makes AI the final nail in the coffin of individual freedom...

"The Banking Cartel creates disaster after disaster to slowly destroy individual Constitutional Rights, personal freedom, and personal financial security, and each step of the way Joe Q. Public believes the propaganda!

"Keep putting out as much of the truth as you can, since it really is the most powerful weapon we have." – Stansberry Alliance member Robert S.

Good investing,

Dan Ferris
Eagle Point, Oregon
June 9, 2023