P.J. joins the team...

P.J. joins the team... Bull market darlings... Elon's SolarCity comes back to Earth... Watching the SIA Blacklist... An update on OneBlade...

As you surely know by now, I (Porter) write these Friday editions of our daily Digest personally. I can't recall ever using the platform to brag before... but that's where I start this week...

It's my pleasure to announce that P.J. O'Rourke, America's leading political satirist, has joined Stansberry Research as a contributing editor.

P.J. is a personal hero of mine. He's the author of three New York Times best-selling books – including one that I believe is truly irreplaceable, Eat the Rich. According to 60 Minutes, P.J. is the most-quoted living man in The Penguin Dictionary of Modern Humorous Quotations.

But he's more than all of that stuff. He's also a sincere family man who lives with his wife and three children on a tree farm in New Hampshire. He's a man who shares my values – about economics, yes, but more important, about life.

We struck up a friendship during our last Stansberry Conference Series event. Rarely have I met someone so accomplished and brilliant who was still so modest and friendly. It's a genuine pleasure to welcome P.J. to our team... and... please forgive me... but I'm terribly proud to be associated with him. His first contribution is at the end of today's Digest. Look for his work in upcoming Friday Digests.

Oh... and one more thing. Please do me a favor. If you're a P.J. O'Rourke fan, too, send us a note to pass along a warm welcome to him at feedback@stansberryresearch.com.

Now, no offense to P.J., but the most entertaining thing about bull markets is the bullsh... ahem... the nonsense... that drives the stock market higher and higher through the soaring prices of popular "story stocks." After the market peaks and then recedes, we will look back on these companies and wonder why anyone ever paid anything for them. Do we have any Pets.com investors in the room?

Every bull market has its particular darlings. One of note just blew up. It's called Theranos. You might have heard about it recently. Here, a very attractive, young, tall, lithe blonde woman who dresses exactly like late Apple founder Steve Jobs has been peddling a "miracle" technology that can render hundreds of different blood tests from patients, at almost no cost, without using a needle.

These claims led to a private market valuation for her business of $6 billion. If she had been able to go public, that valuation number would have surely gone even higher...

There's only one slight problem: There hasn't been any "peer-reviewed" testing of the technology. Instead, many of her employees told the Wall Street Journal that it doesn't work. They say almost all of the testing is done with standard "venous" blood draws. Somehow, these facts and her Halloween-costume-like appearance didn't tip off any of the venture capitalists.

The biggest story of this bull market is Tesla CEO Elon Musk. Here again, we have a kind of Steve Jobs wannabe... or something even more "Steve Jobs-like" than Jobs himself. After all, Jobs merely wanted to change the world. Musk has bigger ambitions: He has famously claimed that, according to his "calculations," we can colonize Mars. His company, SpaceX, is building something he calls the Mars Colonial Transporter.

But before we all move to Mars, Musk wants us to stop burning fossil fuels. So he has built a car that doesn't have an engine, only batteries. And he has convinced thousands of homeowners to sign a 20-year lease agreement to put solar panels on their roofs through his other company, SolarCity (SCTY). The stock market loved these ideas. At one point recently, investors valued Tesla (TSLA) at more than $35 billion, roughly the same value other investors ascribe to BMW.

To put this in perspective, consider that Tesla sold $3 billion worth of cars last year, losing around $200 million in the process. These are cars Consumer Reports now says have "chronic reliability problems," based on interviews with actual Tesla owners. BMW, which also makes electric cars, sold 2.1 million cars last year and earned almost $9 billion doing so. Its cars, by the way, have a sterling reputation for quality and reliability.

And then there's SolarCity. Its earnings report came out last night. The stock dropped 20% in response. It isn't hard to figure out why... The company's business plan is nothing more than smoke and solar mirrors. First, I dare you to try and actually find the quarterly earnings release. You won't be able to... because they don't want investors to see it. Instead, in their press release, they only publish a link to their investor relations website, where you will find the press release again... with a link that takes you back to the investor relations website... and so on.

If you do find the actual report, you will read things like this:

PowerCo represents steady-state cash flow, and DevCo represents the engine that drives the growth in PowerCo's contracted and installed assets. In the third quarter of 2015, DevCo delivered record throughput in distributed solar installations with 256 MW Installed, the equivalent to an annualized rate over 1 GW. Not only did this translate into growth of 86% year-over-year but it represented growth of 35% as compared to the prior quarter. Q3 2015 MW Installed was below guidance by 4 MW, or approximately a day and a half's worth of installations.

I've been reading financial reports for 20 years. I've never seen a bigger bunch of malarkey. There is no such thing as "steady-state" cash flow. Every bit of cash flow has associated costs – depreciation and capital costs – if nothing else.

And what you see there in the last sentence – what the company has tried to hide behind a bunch of nonsense – is that it didn't hit its guidance for installations. That means it's not growing as fast as it said it would. Investors in story stocks can take anything but reduced growth, so the stock fell 20% today. That's a shame... We had planned to sell it short in our next issue of my Investment Advisory.

The reality is that SolarCity is a fraud. It produces no gross margin by installing solar panels. It loses money on every one. And most of its revenue comes from a tax credit that's expiring in 2017. When that day comes, SolarCity is going to be kaput.

That's the funny thing about all of Musk's "success." It's always tied to the government. Take SpaceX. Are we really going to Mars? I don't know, maybe. But where will the money come from? Musk has invested $100 million. That seems like a lot... But NASA has spent $500 million on payments to the firm. Without this government spending, SpaceX would have just been another "X."

With this government backing, Musk was able to convince both Google and Fidelity (yes, Fidelity) to invest a total of $1 billion into the firm earlier this year. This values SpaceX, whose rockets keep crashing, at $12 billion. Anyone want to bet how that investment works out?

What will Musk do with all of that money? Will he really put people on Mars? Maybe. But for now, he has found a much more terrestrial location for the cash. According to various public reports, he is stashing hundreds of millions of dollars in "solar bonds" being peddled by SolarCity.

If you dig into the accounting at Tesla, you'll see the same kind of stuff. The company receives hundreds of millions of dollars in tax credits on its vehicles, which it's able to sell for cash. It also bends the rules around lease accounting beyond recognition. Without these maneuvers, the poor economics of its business would be much more obvious. Maybe it wouldn't matter to investors right now – they're in love. But I bet they'll care when those tax credits expire and when those leased cars are returned.

What we see when we look at Musk's operations is a classic flimflam. There's a lot of fancy talk and some cool gizmos. But what's really driving these businesses is a gullible government and even more gullible investors. How long can Musk keep the swindle rolling?

Our hunch is that Musk's reputation (and the share prices of his companies) are linked to this bull market. When the bull goes, so will Musk. Meanwhile, his tax credits are starting to expire. Investors (and Consumer Reports) are starting to ask tough questions. The folks who allowed SolarCity to drill holes in their roofs came to think better of that decision when it rained. In short, the momentum can only go on for so long.

Tesla is trading around $209 a share, down from $286 only three months ago. SolarCity is down more than 50% from its high. Good luck and good night.

We look forward to the day when our grandkids ask us if Musk really promised investors he would colonize Mars. "Oh yes," we'll reply. "And Fidelity gave him $1 billion to do it, too."

It's difficult to quantify the precise effect these story stocks have on the market. The real effect is psychological. These kinds of companies convey a kind of "magical thinking" that anything is possible. They enable a kind of feedback loop where belief is, at least temporarily, converted into wealth.

We've tracked the magnitude of these kinds of stories for years in my newsletter. We call it the "SIA Blacklist." It's the list of stocks trading on major markets around the world that are valued at more than $10 billion but have less than $1 billion worth of sales. As I explain to investors every month, the idea isn't to short these stocks – as most of them will be leaders of a bull market. What's important is how many companies are on the list.

At the bottom of a bear market, few companies are valued at these kinds of astronomic valuations. At bull market tops, you will find 25 or more names on this list.

Even as late as the end of 2012, there were still fewer than 10 names on our Blacklist. That indicated that there wasn't too much "froth" in the markets. Our list hit a peak this past January, topping out at more than 35 names. It has been steadily declining every month. It's now down to around 20 names.

This is evidence that the "froth" is coming out of the markets. And it's one of the reasons I expect we'll soon see a bear market develop. It's something to keep your eye on, especially if you're tempted to try to buy these story stocks as they fall. Don't do it.

What follows is something personal. If you're offended that I'm discussing my private life or my ventures outside of financial publishing, feel free to stop reading.

But I know that many subscribers are interested in my other adventures. And as some of you know, I'm deeply involved in a much simpler technological innovation. I'm no Musk. I don't dream of saving the world. I simply wanted to enjoy my morning shave.

I was fed up with cheap, plastic-coated-cartridge shaving razors, like the kind being peddled by every major shaving business, from Gillette to Harry's. I remembered how my father shaved – with a real steel razor and a sharp, single blade. There were mysterious things involved, like soap in a bowl, a hot towel, and a brush made of exotic animal hair. That was the kind of shave I wanted to have, too. I wanted a razor my wife would be afraid to borrow. I wanted a razor I would be proud to own and proud to some day pass down to my kids or grandkids.

So about 10 years ago, I began trying to figure out for myself why I hated shaving with a cartridge. I wanted to learn what "real" shaving was all about. Like most folks, I ended up enjoying straight-razor shaves at the barbershop. I migrated toward "safety razors" – steel-handled razors with a guard and a single blade. The problem was, these things were anything but safe. I would frequently cut myself and I found there was tremendous variation in the quality of the different razors I could find to fit them.

You might think this is a bit too quixotic... but I wanted something better. I wanted the quality of a straight-razor shave, with the safety and convenience of a cartridge razor.

It wasn't easy. After about $1 million and nearly 100 different prototypes, the team I put together to build the world's best razor settled on a design we call OneBlade. You'll have to try it yourself to understand what shaving experts from all around the world are calling the most "efficient" razor that has ever been built.

As one reviewer wrote...

Performance is lovely; this is a comfortable and effective razor. Angle of approach is intuitive, i.e. user friendly, and forgiving.

The handle is ergonomic; despite appearances of not being so. I found the 'hollow' part to be easy to use as anchor/grip points for my fingers, and the steel handle shaft has a brushed finish allowing for reasonable grip as well.

The head has a spring-action pivot/tilt mechanism that allows for dampening during shaving. The spring has sufficient tension that the razor is not floppy at all. The shave itself is comfortable and smooth.

This is not an aggressive razor, yet is quite efficient. 2 1/2 passes yield results comparable to my other favored DE and SE razors. The overall effect with this razor design is that of an efficient shave with no skin irritation at all.

Our product has proven to be immediately popular with shaving enthusiasts. Some are so excited about this new razor that they're putting up their own YouTube videos showing our product and their shaving results. More than 4,000 people have viewed these videos. Isn't that amazing? At our recent conference in Las Vegas two weeks ago, we set up a barbershop with two chairs and two top barbers from New York and Austin, Texas. We gave away free straight-razor shaves using the OneBlade. Almost everyone who got a shave bought a razor.

I'm proud of what we've built. It's thrilling to watch other people around the world enjoy my new product. Our real "marketing launch" will begin over the next several weeks as we gear up the sales machine for Christmas. I'd love your feedback on our first TV ad. You can watch it on our website here. And while you're there, buy a razor! You'll love it.

New 52-week highs (as of 10/29/15): Lancashire Holdings (LRE.L), Altria (MO), Sysco (SYY), Travelers (TRV), and Alleghany (Y).

Have you tried the OneBlade? Let me know what you think of it at feedback@stansberryresearch.com.

Regards,

Porter Stansberry
Baltimore, Maryland
October 30, 2015

Editor's note: Stansberry Research is thrilled to introduce our newest writer, someone whose name you might recognize... P.J. O'Rourke. Well-known as one of America's few conservative political commentators who is funny on purpose, P.J. has been mocking bad politics and worse economics for 45 years.

He got his start in the "underground" newspapers of the 1960s. In the '70s, he worked as the managing editor, then editor in chief of the National Lampoon. He worked as a foreign correspondent for Rolling Stone and The Atlantic Monthly, covering combat, rebellion, rioting, and general unpleasantness from the civil war in Lebanon through the Iraq War.

Today, he is a contributing editor at The Weekly Standard, writes for The Daily Beast, appears as a regular panelist on NPR's news quiz show Wait... Wait... Don't Tell Me... and is an H.L. Mencken Research Fellow at the Cato Institute. He's also the author of 20 books, including the newly published anthology of his work, Thrown Under the Omnibus.

Today, P.J. discusses the Democratic candidates for the upcoming presidential elections. And be on the lookout for Part II – where P.J. covers the Republican candidates – in Monday's Digest...

2016 Presidential Candidate Roundup, Part I
(Lasso Them at Your Own Risk)

By P.J. O'Rourke

If he or she gets elected, which candidate would have what financial effect on you?

I can answer that question in three sentences: If any of the candidates who are most likely to be elected get elected, you're screwed. However, there are also some candidates who would keep you from being screwed if they got elected. But they aren't going to get elected, so you're screwed.

Who are these jacklegs, highbinders, wire-pullers, mountebanks, swellheads, buncombe spigots, boodle artists, four-flushers and animated spittoons offering themselves as worthy of America's highest office?

Do they take us voters for fools? Of course they do. But are they also deluded? Are they also insane? Are they receiving radio broadcasts on their teeth fillings telling them they'd be good presidents?

Clinton, Bush, Fiorina, Sanders, Rubio, Cruz, Kasich, Huckabee, Christie, Santorum, O'Malley, Jindal, Graham, Pataki, Chafee, and Trump.

That's not a list of presidential candidates. That's the worst law firm in the world. That's a law firm that couldn't get Caitlyn Jenner off on a charge of Bruce Jenner identity theft.

Has the office of the presidency diminished in stature until it attracts only the leprechauns of public life? Or have our politicians shrunk until none of them can pass the carnival test – "You Must Be Taller Than the Clown to Ride the White House Tilt-A-Whirl"?

Indeed, I tremble for my country when I reflect that – after all is said and done and the smoke has cleared – the two candidates for president are probably still going to be Clinton and Bush.

Members of the electorate will go into the ballot booth, see those two names, and think to themselves, "Gosh, I'm getting forgetful. I did this already"... and leave without marking the ballot. Voter turnout will be 6%.

The shuttle from the local old-age home will send a few senile Republicans to the polls. A Democratic National Committee bus will collect some derelicts from skid row. And we will have the first president of the United States elected by a franchise limited to sufferers from Alzheimer's disease and drunken bums.

Meanwhile, I support Donald Trump – because of something the great political satirist H.L. Mencken said: "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

Trump's chief domestic policy will be to appear on TV. That's one reason he's leading in the polls. Americans can relate to Trump. The first and foremost goal of everyone in America is to be on TV.

As president, Trump will get to be on TV all the time, 24/7. But this might not be all bad. Just spraying his hair during commercial breaks should keep Trump too busy to push any other birdbrain domestic policies the way President Obama has.

And Trump can yell "You're fired!" all he wants. It will make for a healthy turnover in Trump cabinet appointees such as Ivanka, Dennis Rodman, Larry King, and Vince McMahon.

Plus, Trump understands the American economy. He'll push America's economic growth the same way he pushed his own – with bad debt, bad debt, and more bad debt.

The average American household debt is now more than $225,000. Trump has "restructured" $3.5 billion in business debt and $900 million in personal debt. ("Restructured" being the Trump way of saying he didn't pay it.) We Americans know a leader when we see one!

Americans love debt. Otherwise America's national debt wouldn't have gone from $15 billion in 1930 to $18 trillion today. If Trump gets in the Oval Office, the sky is the limit.

Then, imagine Trump's foreign policy. Here's a guy who seems to be under the illusion that he's about 10 times richer than he actually is, who believes Obama was born in Karjackistan to the Queen of Sheba, and who thinks childhood vaccination caused the movie Rain Man. Russia, China, Iran, ISIS, the Taliban, and Hamas will be paralyzed with fear. Who knows what this lunatic will do?

What he'll do is build hundreds of Trump casinos, Trump hotels, and Trump resorts in Moscow, Beijing, Tehran, Raqqa, Kandahar, and the Gaza Strip. Then, all of them will go bankrupt the way Trump Taj Mahal, Trump Plaza Hotel, and Trump Entertainment Resorts did. He will leave Russia trying to palm off eastern Ukraine on angry bondholders, and China, auctioning distressed property in the Spratly Islands.

Hell, this might just work!

So... who else do we have running for president?

Former Secretary of State Hillary Rodham Clinton

Hillary retains her iron grip on second place because whoever is ahead of her is so far ahead, we don't know who it is yet.

I mean, at this point in the 2008 election cycle, Barack Hussein Obama was as likely to be nominated for president as a small-time community-organizing junior Senator from Illi-wherever with a name like somebody who tried to sabotage an airplane with an underpants bomb.

Speaking of airplanes, Hillary carries more baggage than the Boeing she used as Secretary of State to visit every country that later blew up in her face in her quest to fulfill the mission of the U.S. Secretary of State, which is to accumulate frequent-flier miles.

On the upside, she's familiar with the White House. She knows where the extra toilet paper is stored and where the spare key to the nuke-missile launch-briefcase is hidden (the Truman Balcony, second pillar from the right).

Vice President Joe Biden

The Democratic Party Establishment's Plan B. But, oops, the "B" part of Plan B – the Biden part – doesn't think the plan is any good. My guess is that Joe decided not to run after Googling himself. Enter "Biden quotes" into a search engine, and here's what you get:

Has anyone ever spoken for H.L. Mencken's "common man" like Joe?

At one time, Joe was thinking about Massachusetts Senator Elizabeth Warren as his vice president running mate. I'm thinking Lizzie might still show up on a "Girls Gone Wild" presidential ticket.

Warren has Native American ancestry.

How?

As well you may ask. But it's a fundraising plus... if she gets her own casino.

Warren is an expert in bankruptcy law, giving her a vision for our nation's future. She masterminded the Consumer Financial Protection Bureau. Everybody feeling protected enough yet? And Warren turned left – the only direction that GPS units give in the hybrid cars that vegan aroma-therapist Democratic primary voters drive.

Then there is the candidate who is so far ahead of Hillary that we don't know who it is yet. That would be the screwy-kablooey commander of the Vermont-Cong.

Senator Bernie Sanders

Bernie is a socialist. He says so himself. Let me give you the dictionary definition of "socialist." A socialist is somebody who will take your flat-screen TV and give it to a family of meth addicts in the backwoods of Vermont.

Bernie says he wants to make America more like Europe. Great idea. Europe has had a swell track record for 100 years now – ever since Archduke Ferdinand's car got a flat in Sarajevo in 1914. Make America more like Europe? Where do you even go to get all the Nazis and Commies and 90 million dead people that it would take to make America more like Europe?

Regards,

P.J. O'Rourke