The Biggest Crap Published by Wall Street

Alliance Day at our Stansberry Conference... Bull, bear, or BS?... Recession talk... Josh Brown on the markets... The biggest crap published by Wall Street... What to build a portfolio around... Cut out the noise... Whitney Tilson on why small caps are struggling...

Bull, Bear, or BS?...

Today marked the third and final day of our annual Stansberry Research conference... As always, we follow up the main conference with our Alliance Meeting – an exclusive series of sessions and stock picks from our editors and analysts specifically for our highest-level subscribers.

To kick things off, for the second straight year, many of our most popular editors convened on stage for a panel called "Bull, Bear, or BS." This debate covered a range of topics and questions thrown out to the group by our Director of Research Matt Weinschenk.

Retirement Millionaire editor Dr. David "Doc" Eifrig, True Wealth editor Brett Eversole, The Ferris Report editor and regular Friday Digest essayist Dan Ferris, and Stansberry Research senior analysts Matt McCall and Eric Wade were all on the stage at the same time.

While Dan quipped more than once, "I think being bullish or bearish is kind of dumb," they gave their takes anyway.

The first topic: Recession...

Is it coming? Is it not? Did it already happen? Everyone had thoughts about the confusion out there in the market today on the question. But Doc, in particular, seemed to have conviction in his take – that the economy is about to hit trouble. He said...

I'm leaning into the idea that interest rates at a higher level and 30% of U.S. debt is going to roll over, which reprices investing and savings and where you allocate savings. That's coming to roost.

Jobs are going to roll over and cause problems... and we can talk about inflation and commodities. The economy is still good, but it's about to roll over in the next 12 months.

Brett was a bit more optimistic, though acknowledged potential risks ahead...

Consumer spending is very high. Unemployment is very low. Net worths are at all-time highs. At the end of the day, all the data says we're fine... The economy right now, and it can change at any time, is fine.

On it went from there... I (Corey McLaughlin) can't get to everything given our deadline and the timing of the session, which is still going on as I write... But the group also covered the state of the U.S. consumers, whether higher yields are creating competition for stocks, the significance of 10-year Treasury rates, artificial intelligence, the balance-sheet shenanigans of Sam Bankman-Fried's crypto operations, and even more...

After all that, more of our editors and analysts took to the stage to deliver Alliance member-only stock picks for the year ahead... There's a reason today is always the most popular and well-attended day of our annual conference.

Alliance members heard from Josh Brown, too...

The final day of our conference kicked off with a presentation by Josh Brown, the CEO of Ritholtz Wealth Management and a noted market commentator. He's a regular on CNBC, and while we're often skeptical of what we hear on mainstream financial media, Josh is one voice on TV we can listen to.

As Josh shared early in his talk today, the guiding light of his career has been to "tell the truth." Over the past 20 years, he has built a following from his online commentary that has in turn helped him build a successful financial advising business...

I think what I have in common with a lot of the folks at Stansberry is that since the beginning, probably because I didn't know any better, I've always felt comfortable telling the truth.

In hindsight, if somebody had probably advised me differently in the early days, I probably would have burned fewer bridges. I would have been a bit gentler about my opinions, but it is what it is.

He started writing the "Reformed Broker" blog in 2008 and eventually became business partners with another blogger, Barry Ritholtz – who now hosts a popular podcast on Bloomberg. Today, Ritholtz Wealth Management has about 4,000 clients and roughly $4 billion of assets under management.

The biggest crap published by Wall Street... 

On stage today, Josh described how he goes about managing money, his outlook for the economy, and how and why Wall Street isn't looking out for individual investors...

For instance, you know those "price targets" – the numbers that firms like Goldman Sachs, JPMorgan Chase, and other big banks will publish about their predictions for the S&P 500 Index or specific companies? Crap, Josh said...

Of all the bull[crap] on Wall Street, calendar-year price targets for the S&P 500 are the biggest bull[crap] you've ever seen. Raise your hand if you agree.

I did.

Josh continued while showing a chart of 16 of the most followed strategists on Wall Street and their year-end targets for the benchmark U.S. index this year that they published in January, all of which have missed the mark. For instance, JPMorgan's year-end target for the S&P 500 was 4,200, which is 4% off current levels and with two months left.

As Josh said...

Guys, I know the people who make these targets. I've had beers with them. I promise you there is no science going on here. If you take nothing else from today, I promise you this... The market has exceeded pretty much everyone's expectations... The big takeaway here is there's a reason why Wall Street produces these price targets. That reason has nothing to do with what's best for you.

No. 1: It's PR. Put out the lowest price target on the street for next year or the highest and you're going to get a lot of attention, a lot of TV, the [Wall Street] Journal is going to write about it, maybe the New York Times. That's valuable to Wall Street, but not valuable to you.

No. 2: People are asking. Keep in mind, the 16 banks that you see here, are predominantly talking to institutional investors. Yes, they know better, but they want these price targets. They want a framework. They want to hear the strategists explain, "This is what I think's going to happen. This is where I think things are going to end up, and working backward, here are the reasons why we're going to get there."

The reasons might be tied to some combination of geopolitics, interest rates, unemployment, Federal Reserve policy, and valuation metrics... but it's all "arts and crafts" rather than science, Josh said. "This is yet another one of the years we learned not to pay a lot of attention to this stuff."

Rather than being drawn into those headlines and predictions or any others, you're better off owning a portfolio that is designed with your goals in mind and can withstand the inevitable uncertainties and risks of being in the market. For example, after a year like 2022, many folks have become risk averse, right when it might be unwise to do so...

We try to give people the context that your risk tolerance is going to change with your mood. Why don't we build a portfolio based on something other than your mood right now? Let's build it based on what you actually need us to do.

You might sense a theme emerging from many of our guests at this year's conference. Cut out the noise. Figure out what you want. What do you want to do with your money? What risks you are willing to take, or not? Only then can you craft a plan to put those thoughts into action and pick stocks or other assets that might fit that plan.

The difference between large caps and small caps right now...

Last night, while drinks were being served in the hallways, our Director of Research Matt Weinschenk moderated a panel discussion featuring Empire Financial Research founder Whitney Tilson, Altimetry founder Joel Litman, Quill Intelligence's Danielle DiMartino Booth, and Clocktower's Marko Papic.

The sessions went 90 minutes and covered a lot of ground – from the potential market impacts of geopolitics to the future of artificial intelligence – but I want to highlight just one point that Whitney made about market valuations today.

Matt asked Whitney specifically about why we might be seeing such a significant "divergence" between value and growth stocks today... And Whitney turned the answer slightly into how he thinks about it: the difference between the S&P 500 and small-cap stocks.

For instance, you can compare the "Magnificent Seven" tech stocks that have seen big gains this year or the S&P 500 (up 14% year-to-date) with the Russell 2000 Index. As we mentioned in a Digest last week, this U.S. small-cap index has been trading within a technical range for about 10 months.

The Russell 2000 is actually down slightly from a full year ago, when most people would say the market broadly "bottomed." That's simply not true, though, for smaller stocks. The difference in performance between bigger and smaller companies has confounded some market observers...

To Whitney, it reflects expectations of the higher-interest-rate era...

In general, Whitney noted, bigger companies were able to refinance long-term loans during the near-zero interest rate days during the pandemic. Smaller companies aren't so fortunate. As Whitney said...

Part of it is the debt that is coming due. Big companies can issue long-term bonds. They locked in low interest rates, so their debt maturity allows them to benefit from low interest rates for many years into the future on average.

Smaller companies are generally using bank lines of credit, etc., so their debt has been repriced substantially upward, which is a headwind to profits broadly, and [with] debt maturity, smaller companies may have some troubles there. There are some good reasons why smaller companies are trading at valuation discounts.

This also presents an opportunity, he said... to buy cheap, good, small-cap stocks.

In general, Whitney said the "contrarian value guy in me is poking around the nooks and crannies of the market."

You don't have to go after the tiniest companies, either, he said. In his view, there are many companies with market caps of $1 billion to $5 billion that could be attractive buys – such as a recent recommendation in his Empire Investment Report.

Whitney said he doesn't have a big macro take on the market. Rather, he's focused on finding stocks that can double or triple in the next few years – and being patient and letting it happen.

Watch conference videos on demand...

For Alliance members, if you weren't in Las Vegas in person or missed today's livestream, you will be able to check out all our video replays and transcripts soon. Stay tuned to your inbox for more details.

And for all readers and subscribers, if you are interested in getting access to the first two days of our conference, click here to find out more and to register to get notified immediately when the videos and transcripts become available.

New 52-week highs (as of 10/17/23): BWX Technologies (BWXT), CBOE Global Markets (CBOE), Costco Wholesale (COST), Enterprise Products Partners (EPD), Diamondback Energy (FANG), Liberty Energy (LBRT), Omega Healthcare Investors (OHI), Palo Alto Networks (PANW), Construction Partners (ROAD), Shell (SHEL), and Textron (TXT).

In today's mailbag, more feedback about former seven-time Tour de France winner Lance Armstrong, who was interviewed by our Dr. David "Doc" Eifrig on Day 1 of our Stansberry Conference... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I am a former bike racer, and Alliance member. So with knowledge about the era when he road, it was what everybody did. While it was not the right thing to do, I give Lance a slight benefit because of the trauma he endured with brain cancer and his recovery." – Stansberry Alliance member Carl S.

All the best,

Corey McLaughlin
Las Vegas, Nevada
October 18, 2023