They're Not Telling This Part of the Story
Bessent's taunt... The stock market isn't antifragile... Carlin, Shakespeare, and Taleb... 'Up and to the right'... The rest of the story... My principle of investment returns... Warnings from a market wizard... My No. 1 Buffett lesson...
It's like U.S. Treasury Secretary Scott Bessent is taunting me (Dan Ferris)...
Bessent is a financial genius who worked for George Soros, where he played a key role in successful speculations against the British pound and the Japanese yen. He became treasury secretary shortly after Donald Trump's inauguration.
Bessent spoke on Monday morning at the Milken Institute Global Conference in Beverly Hills, California. Later that same day, he repeated some of the comments he made at the event in a post on the social platform X...
US markets are antifragile. Indeed, the entirety of our economic history can be distilled in just five words: "Up and to the right." On a long-term horizon, it's never a bad time to invest in America – but especially now.
Antifragile is a term coined by trader/author Nassim Taleb, and the main title of his 2012 book, Antifragile: Things That Gain From Disorder.
In his book, Taleb classifies assets as robust, fragile, and antifragile.
A robust asset can survive disorder without losing too much of its value. Fragile assets, as you can probably guess, fare worst in times of trouble. During a massive bubble, any risk asset – including a stock – is fragile.
Taleb separates antifragile from merely robust. A robust asset doesn't gain from disorder... It merely doesn't lose much from it. By contrast, antifragile assets increase in value when markets panic.
Bessent is implying that U.S. markets will, as Taleb might say, gain from the disorder...
That sounds wrong to me. But the market seems to be agreeing with Bessent (for now).
The S&P 500 Index has already retraced much of what it lost in the initial "tariff tantrum" panic, which bottomed on April 8 with the U.S. benchmark slightly below 5,000 for the first time in a year.
However, the index hasn't made any new highs. Until that happens, the jury is out, and Bessent is simply trying to pump up our confidence.
Comedian George Carlin had it mostly right when he said he never believes anything the government tells him.
William Shakespeare would be spot on if he said the treasury secretary "doth protest too much, methinks."
And Taleb himself said of Bessent on X...
Markets are never as FRAGILE as when the government claims they are antifragile.
I'd agree with all of them... You know everything is not alright when the government insists otherwise. If everything really were alright, it would feel ridiculous and totally unnecessary to comment at all.
Bottom line: Bessent said U.S. markets are antifragile because he knows how fragile they are right now.
It's like when economist Irving Fisher declared that the U.S. stock market had reached "what looks like a permanently high plateau" on October 15, 1929 – two weeks before the market began its historic 89% descent, setting off a nearly three-year bear market.
Also, though Bessent accurately identified the long-term trend of U.S. markets as "up and to the right," it's not nearly the whole story.
And investors need to know the rest of the story right now.
Bessent didn't mention the times when 'up and to the right' took a long breather over the past century...
I've warned you several times over the past few years about this specific risk, but let's quickly run through the most important examples one more time.
From September 1929 to November 1954, the Dow Jones Industrial Average failed to make a new all-time high. That's a 25-year interruption to "up and to the right."
The Dow also trended downward from February 1966 to November 1982...
And after peaking in March 2000, the Nasdaq Composite Index didn't make a new high until April 2015.
The secretary knows this story...
With his deep knowledge of financial markets, you can bet that Bessent knows that "up and to the right" is the very long-term trend – and that the next decade will very likely include some rough times for the U.S. financial markets.
He knows full well that, if anything could disrupt the long-term trend and send it sideways for a decade or more, it's the radical reordering of global trade flows the Trump administration is executing now.
Reordering global trade will also reorder global investments. Right now, dollars flow from the U.S. to countries that produce low-cost goods... and then they flow back into U.S. investments. Fewer dollars going abroad will mean fewer foreign investors buying U.S. stocks and bonds.
That's a simplification, but it's accurate enough to make the point: U.S. stocks could become less popular with many foreign investors. If Trump is successful in his bid to reorder trade, expect more investment dollars to flow out of U.S. stocks and into foreign stocks.
The latest figures show that foreign investors hold nearly $17 trillion in U.S. stocks and nearly $13 trillion in U.S. debt securities. U.K. investors hold the most: $1.8 trillion in stocks and another $1.3 trillion in bonds. Japanese and Canadian investors each hold more than $2.5 trillion in U.S. stocks and bonds. Chinese investors hold roughly $1.4 trillion.
I won't guess at how much will flow in or out of the U.S. or any of its trading partners... But I will point out that $17 trillion is 29% of the $58 trillion U.S. stock market. That's a big chunk that'll potentially see increased outflows in the next few years.
My warnings about sideways markets aren't based on predictions about trade flows or any other economic trend...
They've always been based on a very important principle: Investment returns are determined by the price you pay for investments. The more you pay, the less you make.
If a bond pays $10 a year in interest and you pay $100 for it, you'll earn 10% for the life of that bond. If that same bond costs you $200, you'll earn 5%.
Stocks are similar, except their returns come from the underlying business's earnings, not interest payments. If earnings grow a lot over the long term, a stock will tend to perform well (other things being equal). But the more you pay for that earnings stream, the less your return will be.
If you look at long-term measures of stock market valuation, it's impossible to miss the fact that the biggest peaks came right at the top of huge financial bubbles that all ended in deep bear markets that lasted two years or more.
As I said, the 1929 peak was followed by a bear market that took nearly three years to bottom at an 89% drop. The 2000 Nasdaq peak kicked off a bear market that took more than two and a half years to fall 78%.
As I've pointed out several times in the last couple years, the cyclically adjusted price-to-earnings ("CAPE") ratio has been spending a lot of time in bubble territory over the past few years. Since December 2019, the CAPE ratio has been 30 or higher in about 70% of the monthly readings.
That suggests that, for about five and a half years, folks buying the S&P 500 or any one of many S&P 500-like funds in their 401(k) accounts have paid bubble prices about 70% of the time.
That'll lower their returns over the next several years, and it exposes them to a greater risk of having to endure a steep, long bear market. To avoid one, earnings would have to soar and markets would have to stay elevated for years.
But U.S. financial markets aren't that accommodating. They're a lot more fragile than most folks think right now. When they break is anyone's guess... But when disorder sends them crashing down, don't be surprised.
I want to be clear that I'm not expressing a political opinion about the new U.S. trade policy...
Trump isn't instituting tariffs because he thinks they'll juice the stock market. These import taxes have broader goals for his administration... from encouraging domestic manufacturing, to forcing other countries to reduce their own tariffs on American goods, to exacting various other geopolitical concessions.
So I'm not saying that tariffs are bad because they could cause a bear market. I'm only trying to accurately identify what's happening so I can help you prepare for what's likely to come. It's a worthy exercise at times like this. The financial press is calling on prominent, successful investors to do the same...
In a recent CNBC interview, Paul Tudor Jones – one of the trading legends featured in the book Market Wizards – said that while he agrees with the goal of correcting trade imbalances, he would have preferred Trump to use tariffs more "surgically." I take that to mean targeting only specific goods for import levies.
Jones stated his expectations for investors...
For me, it's pretty clear. You have Trump who's locked in on tariffs. You have the Fed who's locked in on not cutting rates. That's not good for the stock market.
He expects the stock market to make new lows, even if Trump cuts Chinese tariffs from their current triple-digit levels back to 50%:
He'll dial it back to 50% or 40%, whatever. Even when he does that... it'd be the largest tax increases since the '60s. So you can kind of take 2%, 3% off growth.
Investor/author Howard Marks is, like us, not inclined to make predictions...
In his own recent CNBC interview, Marks pointed out that his latest memo, published on April 8, is titled, "Nobody Knows." And, as he told CNBC, "I stand by that."
He said the tariffs constitute a major change, which in turn requires a change of one's investment outlook. But Marks also said that:
But since we don't know where the tariffs are going to come out, we can't say how it should be changed... We're just in limbo right now, waiting for some finalization on the tariffs, and that may be awhile in coming.
Marks said the market's rally since April 8 doesn't make a lot of sense to him. He said benefits from tariffs would arrive in the long term, but that in the short term, they'll produce "increased prices, tougher times for consumers, likely or possibly leading to a recession." He explained the rally simply...
I think the stock market is full of people who are constitutionally optimistic, and they've taken the opportunity of relenting on tariffs to reassert their optimism.
It's not a prediction... But Marks' combination of negative short-term tariff implications (including recession) and "optimistic" investors hints at my own warning that a bear market is more likely than normal.
"Prepare, don't predict" is still the best I believe investors can do. In other words, I wouldn't directly bet on a recession happening. Instead, be ready for that possibility by holding plenty of cash and gold and refusing to buy stocks unless they're reasonably priced. (The latest issue of Extreme Value contains a new recommendation of a tech company that's trading at a historically attractive valuation... Stansberry Alliance members and my subscribers can find it here.)
Finally... I can't help commenting on Warren Buffett's announcement that he'll step down as CEO at the end of the year...
I don't believe this will change much about capital allocation at Berkshire Hathaway (BRK-B). Buffett will remain as chairman, and as he showed on Saturday – when he answered questions for more than four hours at Berkshire's annual shareholder meeting – he has plenty of energy and is still sharp. He speaks more slowly now, but all his knowledge and insight are still there... ready to be called upon at a moment's notice when needed.
Buffett may well remain in the chairman's position until his death, the same way former Berkshire Vice Chair Charlie Munger kept at it until he died in 2023 at the age of 99.
Still... Buffett's retirement strikes me as highly symbolic of the end of perhaps the greatest era in history for investing in U.S. stocks.
Buffett took over Berkshire Hathaway in 1965. According to Buffett's latest annual letter, the S&P 500 is up about 39,000% (including dividends) since then – a 390-fold increase. If you'd invested $10,000 in 1965, you'd have $3.9 million, an excellent result.
But during that same period, Berkshire Hathaway rose more than 5.5 million percent. That is an astonishing 55,000-fold increase. If you'd invested $10,000 in Berkshire in 1965, you'd have $550 million today. Berkshire's share price could fall 99% and it would still beat the S&P 500 during Buffett's tenure.
It has been an incredible run... not only because Buffett nearly doubled the rate of compounding of the S&P 500, but for how long he did it. Nobody has done anything like that for that length of time. It's highly unlikely it'll ever be repeated.
The greatest lesson I ever learned from Buffett was to forget about speculative stocks and focus on finding and holding great businesses for the long term. Stocks aren't just ticker symbols and price squiggles. They're shares in real businesses, and you do well by understanding and investing in the greatest businesses – as long as you purchase them at reasonable prices.
Great businesses held for the long term will continue to be your best investment. They'll continue to thrive and grow through good times, and they'll weather the bad times better than most other assets.
Now is not the time to speculate. Hold cash. Hold gold. And hold great businesses. Someday we'll get out of tariff limbo, and you'll be glad you did.
New 52-week highs (as of 5/8/25): iShares MSCI Italy Fund (EWI), iShares U.S. Aerospace & Defense Fund (ITA), Travelers (TRV), and UGI (UGI).
In today's mailbag, more thoughts on housing prices, a subject discussed in yesterday's mail... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"The average price of a house in the year 2000 was $207,000. Gold's average price was $279, or 742 ounces of gold to buy the average house.
"In 2025 the average house is priced at $416,900. Gold is about $3,300, or about 126 ounces of gold [to buy the average house]. At $3,000 gold, it's still only 138 ounces...
"Gold is 'Beyond Money'." – Subscriber Ryan E.
Good investing,
Dan Ferris
Medford, Oregon
May 9, 2025