Billionaires Now... Your 401(k) Later?

An absurdity in the mainstream media... The writers of these 'last tick' articles aren't stupid... Time will tell if I'm right... Elizabeth Warren's beef cows... Billionaires now – your 401(k) later?... Left, right, and center mean nothing... Back and forth the Sneetches go... Do your best not to be a sheep...

The headlines are too often predictable...

On Wednesday, the Wall Street Journal noted, "U.S. Stocks Close Lower as Trade Progress Slows." And the Financial Times said, "S&P 500 Eyes Biggest Drop Since October on U.S.-China Trade Deal Worries."

What these two headlines fail to tell you is this... The S&P 500 only finished Wednesday down about 0.4%. That's normal, day-to-day movement for the U.S. benchmark index.

And I (Dan Ferris) want to believe Barron's was being tongue-in-cheek when it published a headline yesterday that read, "The Dow Loses 11 Points on Fears Trade Talks Might Drag On."

But nothing in the ensuing article indicated the writer wasn't dead serious about an 11-point drop in the Dow Jones Industrial Average through midday trading.

The tiny market moves that these articles describe are random movements. There's no story to tell because there's no real cause. They just happen.

So it's absurd to print a headline saying the Dow lost 11 points because of anything. The Dow regularly gains or loses 11 points – and many other statistically insignificant amounts – for no reason at all.

It's the financial equivalent of the tabloids covering Kim Kardashian's latest hairdo...

Kardashian is one of the most watched women on the planet. The Hollywood celebrity probably changes her hair five times a day. I'm sure a lot of women could be sold a story on why she did her hair a certain way at 3:01 p.m. on a Tuesday, but who cares?

At some point, you hope that folks would figure out the tabloids were just making up nonsense to fulfill an irrationally strong demand for stories about a random phenomenon.

I've long said that the TV financial news media is mostly made up of fashion models reading teleprompters and commenting on every tick of the market.

Perhaps the tick-watchers writing for the Wall Street Journal and the Financial Times aren't good-looking enough to be on TV. In that case, I'd like to thank those publications for sparing us their unpleasant appearances and giving them gainful employment.

There is such balance in nature.

But maybe actual human beings with their hands on real money do care about the latest trade deal headlines and similar "noise"... Maybe these folks care enough that it's not a waste of time and money for the biggest financial news sources on the planet to print it. I think there's more to it than that...

The writers of these 'last tick' articles are lazy, but they're not stupid...

They're scratching an irrational, yet all-too-human itch to hear a story about the stock prices millions of people watch obsessively... day by day, minute by minute.

The writer's job isn't to actually figure out why a particular, tiny, random market movement occurred. You can't really do that.

But many people don't know you can't do it. And enough are hungry for stories about why stock prices go up and down that the Wall Street Journal and the Financial Times can publish these articles all the time. The writers can tell you the market went up or down 11 points for some reason they heard from a trader... or maybe cooked up on their own.

These financial publications view the readers of such stories like the 4-year-old who says, "Tell me the story one more time, Mommy... Please?" And you tell it to him again.

If the news folks were trying to truthfully explain these types of random ticks, they would simply publish a "Daily Market Tick Monitor" that tells you whether or not the market's latest tick was statistically significant based on the history of its price movements.

Can you imagine what that would look like?

Never again would we see a "Dow Loses 11 Points" article. Just a little box on the cover of the Wall Street Journal, the Financial Times, and all the other financial publications. And most days, it would just read, "Today's Stock Market Action: Statistically Insignificant."

None of the major news sources will ever do it, but they should... It would immediately free up resources to do real work and ferret out real stories.

It would improve the state of financial journalism.

Well-known macro investor John Burbank – founder and chief investment officer at San Francisco-based hedge fund Passport Capital – likes to say, "Price is a liar."

I think he means that stock and other asset prices often reflect unjustified levels of optimism or pessimism. In other words, some asset somewhere is always too cheap and some other asset somewhere else is always too expensive.

Prices aren't the only liars. There are also human beings lying to themselves and each other, telling made-up stories about the random price movements in the market.

Maybe we should just say there's a lot of lying about stock prices and leave it at that.

Giant financial institutions rule the short-term action in the stock market anyway. You'll do better ignoring the "last tick" headlines and focusing on a longer-term strategy.

If you've been reading my Digests in recent months, you know I have just the thing for you...

I've heralded a big turn in the stock market. As I wrote in the September 17 Digest...

A brand-new "Golden Age of Value" began on Monday, September 9.

As our friend Jason Goepfert reported at SentimenTrader.com, that day saw the biggest one-day shift in momentum since 2009 between the best-performing stocks year-to-date ("YTD") and worst performers. Simply put, the worst performers YTD performed best that day, and the best performers YTD performed worst.

Of course, the best performers YTD have been the best performers of the past decade. These are the big, fast-growing businesses that trade at high valuations. The worst ones are the opposite... slower growing and cyclical, with cheap valuations.

The bottom line for investors is that... the stocks that have made them a fortune for the past 10 years are not the ones likely to make them a fortune over the next 10 years.

Over the past decade, the recipe for success was simple...

You just had to own the so-called "FAANG" stocks – technology giants Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Alphabet/Google (GOOGL).

The worst performer in the list (Google) is up about 4.5 times over the past 10 years, according to data compiled by market-data firm FactSet. The best performer (Netflix) is up about – gulp – 36 times over that period. Take a look...

Add in other names like Nvidia (NVDA), which is up 16-fold, and Microsoft (MSFT), which is up fivefold, and you have a portfolio that seems easy to hold in hindsight.

But if I'm right, it'll be a much different case over the next 10 years...

Investors won't see anywhere near these types of returns from the FAANG stocks – or any of the technology-related darlings that have surged over the past decade. The chance to make 36 times your money on Netflix is in the past, not the future.

But that doesn't mean you need to be bearish on the entire stock market. Perhaps a shift can occur without a total market collapse...

As our good friend and Empire Financial Research founder Whitney Tilson told readers of his free Empire Financial Daily e-letter on Tuesday, "A rotation into more traditional value stocks is far more likely than a general market meltdown."

I'm still bearish on the overall stock market, but I'd rather be wrong and make money than right and lose it. I'd love it if Whitney's scenario turned out to be right... since it's the one that would allow my Extreme Value subscribers to make the most money.

The last big move from momentum stocks into value stocks happened after the dot-com bust. But that doesn't mean we need another "tech wreck" bear market to get investors interested in traditional value stocks again...

History doesn't repeat. It only rhymes... And unfortunately, it doesn't tell you exactly which parts it'll choose to rhyme with. You have to figure that out on the fly. That's the hard part.

Perhaps this year's crop of failed initial public offerings isn't a sign of an imminent meltdown. Perhaps it's a speculative safety valve...

With less speculative excess in the market, investors could simply be rotating away from the most popular names of the past 10 years... and into those that are far more attractively priced and set to outperform for the next 10.

Time will tell if I'm right about the Golden Age of Value over the next decade.

Time will also tell if you're allowed to keep anything you earn in 10 years...

We're all the government's milk cows. That's just life in one of the richest developed nations that has ever existed. There's not much you can do except eat, sleep, pay taxes, and otherwise avail yourself of the ample opportunities such a country offers.

But that's not all... Democratic presidential candidate Elizabeth Warren thinks we need to start cutting our country's richest citizens up like beef cows.

We're supposed to believe life will be wonderful if only Warren – or whichever politicians rise to power – can steal enough money from the billionaires under the premise that they'll use it to cure all of society's ills.

As a recent Wall Street Journal article noted, in some cases, Warren's proposed tax policies would have some folks paying more than 100% in taxes on certain investments.

Yes, you read that right. The Wall Street Journal provided an example...

Consider a billionaire with a $1,000 investment who earns a 6% return, or $60, received as a capital gain, dividend, or interest. If all of Ms. Warren's taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%.

That's hypothetical, of course. Tax treatments are complex and vary widely. But does anyone doubt how easy and safe it is to cast billionaires as villains today?

Warren is smart enough to know you can't accurately paint an entire class of people with the same moral brush based on an arbitrary net worth threshold. She's doing it on purpose.

Smart or not, when the game is virtue signaling, Warren smiles and says, 'Hold my beer'...

You can buy a "Billionaire Tears" coffee mug on her website for $25. And as financial news service MarketWatch noted last weekend, people familiar with her campaign said it's one of the hottest-selling items on her website.

Not a great way to signal you're capable of rational thought about the tax code.

Yes, the tax code needs fixing... But starting the debate like this makes it worse, not better. I bet Warren is smart enough to know that, too (and corrupt enough not to care).

Warren plans to steal from the rich and give to the unrich by providing more health care, childcare, housing, and education for all Americans. Nobody could possibly be against those wonderful things... could they?

If you don't think our country's billionaires should pay more taxes to help poor people, maybe we should lock you up until you're a better person. You know... like Elizabeth Warren.

Don't waste your time writing in to tell me it's not stealing...

Of course we should all pitch in to build and protect a decent way of life. I've never said otherwise. But this isn't about taxing fairly...

It's about using mean-spirited rhetoric to get elected. Warren is manufacturing a villain, same as Trump, Obama, Bush, Clinton... and all the rest of them have done in the past.

If you think this is about "soaking the rich" or fixing the tax code, you're just falling for the sales pitch. If Warren gets elected and passes her Draconian measures, how long will it be before mere centimillionaires are the new targets?

A wealth tax will reduce the number of billionaires. Warren will need to find new beef cows once she gobbles up the current herd.

Then, how long until she targets the millionaires... or even $100,000-aires... or anyone with a 401(k)? You don't think it could happen? You're not paying attention, Skeezix.

Federal tax rates were 0% on all incomes – whether you made $1 billion or minimum wage – until the 16th Amendment made income taxes a permanent fixture in 1913. At the time, the minimum taxable income was $20,000... or about $609,000 in current dollars.

In today's dollars, the lowest taxable income has evolved substantially over the past century... It has shifted from a 1% tax on incomes $609,000 and up in 1913 to a 12% tax on incomes $9,700 and up (for an individual) today.

It's not about fairness. It's about politicians getting their foot in the door so they can steal as much money as possible from as many people as possible, rich and poor alike.

Politicians always do this...

They sell you a scheme, claiming it will only affect a small group of people who can easily afford it – like Warren is doing with the roughly 600 billionaires in our country right now.

Then it creeps and creeps over many years... Then, all of a sudden, the government is openly ripping off people who can't afford it and attempting to say it's the fault of "rich people" who don't pay enough... under the tax code the government itself created.

Just like Warren's appeal today, the original income tax was a "soak the rich" scheme. The mood of the day was "big government good, rich people bad." As historian Paul Johnson wrote in his excellent 1997 book, A History of the American People...

Gradually, the progressive intelligentsia, and the bulk of the Democratic Party, began to see a strong federal government, with wide powers of intervention, as the defender of the ordinary man and woman against the excesses of corporate power.

The notion of the Public Sector (good; needs to be expanded) as opposed to the Private Sector (potentially bad; needs to be invigilated and regulated) began to take possession of the minds of the do-gooders.

For this purpose, it was necessary for the state to expand its revenues. Therefore a personal income tax, especially if it possessed progressive characteristics, and therefore was income-redistributive as well as revenue-raising, was a desirable institution...

The state, not only in the United States but in many other countries, was seen as a knight in shining armor, coming to the rescue of the poor and the weak and the victimized, and doing with objective benevolence what otherwise would be done selfishly by greedy aggregations of private wealth.

(How poetic that these medieval knights were little more than indentured Mafia hitmen, not defenders of the downtrodden.)

The first permanent income tax in the U.S. was justified by the spreading belief that people with money were evil and greedy... people without it were deserving of more... and that the federal government had to intervene to restore the balance.

Any student of human nature – as all good investors are – should have known what would happen... They should have known income tax rates wouldn't do anything but rise. And the lowest taxable incomes wouldn't do anything but fall.

And again, that's exactly what happened... and what will always happen.

No matter how you measure it, the program to "soak the rich" became a program to "soak every soakable pile of loose change in the republic, rich and poor alike."

Warren wants power, not a better United States – and certainly not a fair tax code...

If she wins the presidential election a year from now, she will abuse a wealth tax. And subsequent administrations are guaranteed to do even worse... It's human nature. This type of thing is why Europe is a big, fat, sclerotic, slow-growth, overregulated, overtaxed mess.

Elizabeth Warren won't do the tiniest bit of good with the money her policies are designed to steal from the country's billionaires.

She'll use the presidency for personal gain... and then leave us all saddled with measures that have never worked anywhere in the world, nor at any time in history.

She shouldn't be president of the U.S. any more than a 17-year-old should be handed a bottle of whiskey and the keys to a Ferrari and told to go out and have a good time.

It doesn't matter who gets elected in 2020. I guarantee you the next administration will do what they all do... make government bigger, and infringe upon your person and property just a little bit – or maybe even a lot.

Don't sit by waiting and hoping for good changes to happen. Instead, prepare yourself for what is far more likely... more economic destruction by the political class.

To help you prepare for what's next, my Stansberry Research colleagues have published the second edition of The Battle for America. It'll show you how to survive – and even thrive – in the aftermath of the next election. If you haven't read it yet, click here to find out how you can get a copy today.

Now is as good of a time as any to make one thing clear...

No, I'm not a Republican. Far from it. Left, right, and center mean nothing to me... They're all part of the same hypocrisy.

When I hear someone call themselves a liberal (Democrat) or a conservative (Republican) out loud, with a straight face, it reminds me of the classic Dr. Seuss story, The Sneetches.

If you're not familiar with the story, one group of Sneetches believes it's superior to the other because its members have green stars on their bellies, while the others don't.

Then, a fellow shows up with a machine that puts stars on... And he charges a few bucks a pop to turn the starless Sneetches into star-bellied Sneetches. But then, having a star loses its appeal... And the entrepreneur sells them a trip through another machine to remove it.

Back and forth the Sneetches go... until they're all broke.

People say they're liberal... conservative... or whatever. Then, I picture them among the Sneetches, running through these machines like idiots, endlessly following everyone else around in circles until no one has a penny left and no one can remember who is who.

Thinking for oneself doesn't produce decisions like, "I should become a card-carrying member of the Democratic/Republican/Whatever party."

That's what you come up with if you refuse to think.

But let's face it...

Thinking and doing the right thing just gets you into trouble in politics. Ask Edward Snowden or Julian Assange.

It's probably better to avoid either politics or thinking altogether. Maybe you should spend that time figuring out how to get your assets someplace where the model of government isn't two wolves and sheep deciding what to have for lunch. (Good luck with that!)

I'm willing to bet you now think I should take my own advice and avoid talking about politics. I'll do my best, but you must promise to do your best not to be a sheep.

New 52-week highs (as of 11/21/19): DocuSign (DOCU) and Flutter Entertainment (PDYPY).

In today's mailbag, one Digest reader writes in about our in-house style. We would love to hear what you think about Elizabeth Warren... the 2020 presidential election... and what it all means for the future of America. As always, share your thoughts with us at feedback@stansberryresearch.com.

"If the author is using the word... 'I was 38 years old...' it is helpful to know who is writing this article. Most of the time I have noticed, or I am too slow or dumb to find out the name of the author. It should be at the beginning of the article. I have [been] following the Digest for a while and I have [an] opinion or two about some of them. If not, please make it easier to find it in a consistent place..." – Paid-up subscriber Mike T.

Corey McLaughlin comment: Your comments are duly noted and raise some good points.

We attempt to identify the author of each day's Digest as early as possible... and we actually did that yesterday.

Thomas Carroll's name is in the third sentence of yesterday's Digest, just before the line you mentioned in your e-mail... With that said, we welcome any suggestions about how we can make the author of each Digest more obvious. And as always, thanks for reading.

Good investing,

Dan Ferris
Vancouver, Washington
November 22, 2019