In this week's Investor Hour, Dan's going solo.

Instead of the usual tête-à-tête with a guest (we'll return to this regularly scheduled format of our program next week, though), he wants to share something with his listeners that he recently hammered home in the Stansberry Digest...

This is a bear market. I've been a fool not to think it. And I've been a fool not to say it to you. So let's consider that huge mistake fixed... I'll never make it again as long as I live.

So for today's episode, Dan's coming straight to you, the listener, with his keen observations on the recent market action and his tips on what steps you can take to protect your portfolio.

And to round out his assessment of today's bear market in equities, he's bringing on fellow colleague and resident cryptocurrency expert Eric Wade for a special commentary on the bear market in cryptos.

Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research. Today I'm just going to talk, no interview. We're almost halfway through the year. It's been a historic year, huge, end of the biggest, most expensive bull market in history. I have a lot to talk about. Then in the mailbag today, a moral dilemma, cowboys, and crypto. And remember, you can call our listener feedback line, 1-800-381-2357. Tell us what's on your mind and hear your voice on the show. So for my opening rant, I'm just going to talk about where we are, where I think we're going a lot more. That and more right now on the Stansberry Investor Hour.

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So it's ugly out there. Let's just get that [laughter] – let's get that on the table. It is ugly. It is historically ugly in fact. As I told readers in my recent Stansberry Digest, it is one for the record books. I quoted a friend of ours, Jason Goepfert, over at SentimentTrader.com, and this is what he told his readers last week. He said, "This is probably the most brutal market I've encountered in 20 years of publishing, 30 years of investing, and 80 years of data history. The 1930s were more consistently and more egregiously difficult, and maybe the 1970s could rival it. But in terms of value destruction and lack of alternative investments holding value, this will rank among the worst several months for investors ever." So this is one of the smartest, most knowledgeable market statistics guys I know saying, "Yes, folks, it's as ugly as it feels, maybe uglier even than it feels." And few people know the data from the last 80 years as well as he does, and Jason is saying that. He knows and he's saying that.

So while I continue to expect that there is a bear market rally around here somewhere, because that is what happens, I would say be very careful buying into it. You know, I don't think this just another buyable dip, OK?

And while I'm at it, while I'm using the phrase bear market, I have to admit I've made a mistake with this and I'm going to clear it up right now. So, you know, if it walks like a duck and it quacks like a duck, it's a duck, right? You don't say it walks like a duck and quacks like a duck but it's not quite a duck yet. That's not how it works, but that's what I've been doing, right? I've said, "Hey, it's not officially a bear market yet because the S&P 500 isn't down 20% from its January 3 close, so you know, not official." But that's silly because what else have I been saying? I've been saying, "Hey, this is exactly what a bear market feels like," and I've been talking about bear market rallies and the whole thing without saying yes, it's a bear market.

So that was silly, and I read a tweet by a rather famous trader, famous among traders at any way, named Ed Borgato. And it was last week and he said, "This idea that it's not a bear market until minus 20% is OK for writing about the market. But a practitioner knows this is nonsense." And I read that tweet and it kind of stung a little bit, because here I am writing about this stuff but I'm actually a practitioner as well. And in my personal investing I'm treating it like a bear market. I'm saying, "Well, not official yet," in my writing, so that was silly, and I'm never going to make this mistake again. If it walks like a duck, quacks like a duck, it's a duck. And this ain't a duck – it's a bear market. So – even though the S&P 500 as we speak is down roughly 17%, not 20%, OK?

So the action is just too crystal clear to ignore. We've had all these down days, one after another, punctuated by these kind of explosive 3% and 4% gains, you know, on the up days. It's classic bear market action, so that's where we are. And, you know, at this point all the speculative garbage has been absolutely destroyed, down 50%, 60%, 70%, 80%. A lot of tech stocks are down more than 50%. And now they're shooting the generals, OK, which means the market leaders, you know, the stocks that are like the greatest businesses in the world and these are the ones you can buy even when everything else is falling apart – no, no, no. Eventually in a bear market, everything falls. And stocks like Apple, Amazon, Meta Platforms – just cash gushers, amazing businesses with amazing, wide moats and are just cash gushers – down anywhere from, you know, 20%, 25%. Netflix is down 70%. So yeah, the market gods are out shooting the generals now. We're at that phase of the bear market.

All right, so it was foolish not to say it. I'm saying it now. And, you know, I mentioned buying the dips. Like, for a long time buying the dips looked really smart, and it mostly is. You know, throughout history most years, like 70% of years are up, and only 30%, only three years in 10 are down years, right? So it's – you know, it's just the smart thing to do, is to keep buying – most of the time. But then you reach these extremely overvalued moments when capital that you commit, you know, in the wrong way at that time, it just gets destroyed. That's all there is to it. When you buy at the top of a raging, super-expensive bull market, like, you know, September 1929, early 2000, you know, anytime in the few months before January of this year, that – you'd better have a trailing stop on everything that you commit at those times, because if you're not buying the right names, you're going to take some serious losses no matter what the business.

This is a point I've been making for years. You know, even the best businesses get destroyed in a bear market. Their share prices do. The businesses don't, and it just shows you, you know, you can have the greatest business in the world. If it's overvalued, you're going to lose money, and that's all there is to it.

So, you know, if you look at the multidecade chart of the S&P 500 and say, "Look, Dan, it's just up and to the right," yeah, but there are moments when, you know, if you commit near those tops, your capital is destroyed and doesn't even get whole again for more than a decade, right? You're just destroying capital and you don't even break even on that capital if you manage to hang on through the bottom, you know, for more than a decade. So the dot-com peak is a perfect example, if you look at the S&P 500. You know, except for that brief moment in late 2007, the market didn't really permanently eclipse – we hope permanently – permanently eclipse its dot-com peak until 13 years after the dot-com peak in March 2000. The market didn't pass its 1929 peak until 1954, 25 years. So you put a dollar in at that top, it's 25 years until you break even again, and in the meantime its value declined as low as 11 cents, all right?

All right, so you get the point there. You can't buy every dip. [Laughter] And, you know, when the dips occur near the top of the most expensive bull market in history, ooh, look out. You'd better have a trailing stop or some kind of system that lets you exit with a small loss instead of an enormous one. So that argument is no good. You can't just always buy and buy and buy.

And we've covered this before, too, in relation to the ARKK ETF. That's a microcosm where you can see all the money coming in at the top, and as we speak – actually this has been true for several months now, or a few months now – the average dollar invested in Cathie Wood's ARKK Innovation ETF, ticker symbol ARKK, was underwater months ago, right? Those people are showing a loss. And now, now they're showing a loss relative to the S&P 500. You know, it looked like the greatest thing in the world when it was going up 150% over the course of, like, a year or a year and a half or whatever it was. But then all that capital just got destroyed.

And people do this in the overall market. They do. They go all in at the top. Back in November I mentioned this. Bloomberg reported this back in November. They said, "Investors have poured almost $900 billion into equity exchange traded in long-only funds in 2021, exceeding the combined total from the past 19 years, according to analysts at Bank of America and EPFR Global." So more money went into stocks in 2021 than in the previous 19 years combined. That is what it looks like when people go all in at the top, right? That ain't just buying the dips and staying in for the long term. That's going all in at the top. They're going to get destroyed. They always do.

That is the reality of how most people invest. They aren't, you know, careful, patient, whatever, whatever. They get excited and just do something really stupid. They do the exact wrong thing at the exact wrong time. And then in the ensuing bear market, and they always arrive sooner or later – the bear market can take the indexes, the S&P 500 – we'll just stick with that one – back – you know, it can take it back a decade or more. So the dot-com bust, which really bottomed out in 2002, took the S&P 500 back to 1997 levels, right, from 2002 back to 1997. Oh, OK, that's not so bad. Financial crisis low of 2009 took the S&P 500 back to 1996 levels. Whoa! You know? It's just – that's major pain. And you might say, "Yeah, but they were great moments to buy." Yeah, but they weren't buying. They were selling all that stuff they poured in at the top. So all you need to do – hey, just be the bravest person on earth and you'll make a lot of money buying at those times, right?

Unfortunately there's this little thing that you can't really see on the charts – you can sort of see it on the long-term charts – called uncle points, an uncle, like when you cry uncle, right? That's the point at which you just can't take it anymore and you sell out. So, you know, at some point along the way between March of 2000 and late 2002, most people just couldn't take it anymore and they sold out. They weren't buying the dips. They probably stayed out of the market for another five or 10 years. And same thing with the financial crisis. They just can't take it after a while.

So the hyper-rational behavior required to exploit the simple phenomenon of stocks mostly going up over the long term is extremely rare. It's extremely rare. People never talk about uncle points, but it's exactly how most people behave. I mean, it's crazy because if a guy like me said, "Here's what you should do: Get really excited at the top, pour all your money in, and sell out at the bottom," like, you'd think I went insane. But that's how most people behave, right? So what's so insane about it if that's what everybody's going to do anyway?

And you can see, like, if you've got a real good, decent charting service and you can see the volume – you know, the volume on the up days and on the down days. You can look – like, get a shot of the Nasdaq or something around the dot-com crash period, and you can see the downward spikes. You know, there's a downward spike and then a bounce, and then a lower downward spike and then a bounce, and then a downward spike. You know, all the way down to the bottom, you know, you'll see four or five times how the volume spiked up on those down days leading up to that bottom, you know? And that's like – that's the uncle point. That's people saying, "Oh, I can't take it!"

So I think you're seeing some of that now, right? That's why I keep saying, hey, I wouldn't be surprised if there was a bear market rally around here somewhere, because that's generally what happens. People hit an uncle point and then the market bounces. You know, and then it goes up for a little while – oh – and then all the people who stayed in beyond that uncle point, then they go, "Oh, I'm going to sell out," so the market makes a lower high instead of going to a new one, right? And then we hit a lower uncle point, and lower and lower, and that just keeps repeating until the bear market is over.

So if you look at the chart and you object, or if you look at like The Wall Street Journal and you say, "Hey, Warren Buffett's buying – I should be buying, too. You know, he just bought – he bought more Apple recently and he's buying these energy stocks, Occidental, Chevron. He's spending billions and billions of dollars, tens of billions of dollars over the last few months." Well, OK. That's what Warren Buffett is doing, but let me ask you something. Are you a 91-year old billionaire with more money than you could spend in 50 lifetimes and do a lot of people consider you the greatest living investor and do you run one of the most robust financial fortresses on earth? You know, if you can answer yes to all three of those, well, you're Warren Buffett, and guess what? You're not him, right? You're not him. I mean, maybe you could answer – conceivably you could answer yes to the first one. You could be 91 and have more money than you could spend in 50 lifetimes. But you can't answer yes to the other two.

And the point is obvious, right? I'm being sarcastic, but I'm willing to bet Warren Buffett has read – he's probably taken in more financial information than any living human being, and he has – I'm sure takes more stock market pain than most people alive. He's been sailing through bear markets for more than half a century without changing much of what he's doing for decades and decades. And if his personal fortune falls 80%, he's still a billionaire, you know? So be careful looking at stuff like, hey, what's Warren Buffett doing, right?

Now he is buying those energy stocks, and that's probably not a bad idea because in my mind energy is a reasonably good defensive move, you know? That's one thing you might want to consider doing, because everything that's in place that's making certainly oil prices go higher and natural gas, you know, it doesn't look like it's going away anytime soon, right? We've got the war in the Ukraine and we've got just inflation generally and we've got the sort of environmental push to turn everything into wind and solar and sustainable technologies. And it's just – it's too much too soon. Should we have those technologies, you know, 50 or 100 years from now? Maybe. Are we going to have them five years from now generating most of our power and fulfilling most of our energy needs? Absolutely not. And the more you penalize those industries, the more expensive oil gets. So oddly enough, the environmental movement doesn't make oil a bad bet... it makes a good bet, a better bet even. So that I get. You know, that part of what Buffett is doing makes a lot of sense to me.

So yes, it's ugly. It's a bear market, absolutely, for sure. I should've been saying it all along. And I think there's a bear market rally around here somewhere, but I think there's more downside. If you look at one of the original reasons why I started getting concerned about speculative, frothy, overvalued stocks, it's just the long-term nature of the overall valuation of the market, right? So most of the time I don't care about the price to sales ratio of the S&P 500. It doesn't mean anything. It's like our two-time guest Kevin Duffy likes to say: It's not a stock market... it's a market of stocks, individual stocks. And if you find a great deal on a great business, I don't care of it's a bear market. You should buy it, right?

A market of stocks, but every now and then, very rarely – and I'm picking on the price to sales ratio because it's an easy one. There are several metrics. We've talked about them before. They're tracked by a guy named John Hussman. He's done lots of research to bolster his case for tracking them. But price to sales is among them and it's the easiest one to look at. And so when the S&P 500 price to sales ratio gets to these extreme levels, I think you should be concerned about returns on many of the stocks that you may be buying. And we got there. We got to more than three times sales on the S&P 500, most expensive moment in the history of U.S. stocks, right? And that's just happened within the past six months. So it's just rational to me that you should be the most worried about your returns in U.S. stocks, and I was. And, you know, you see what's happened since then.

And the point I'm making now, though, is I think there's more downside, because if you look at the price to sales or another decent ratio like the CAPE ratio, cyclically adjusted PE, C-A-P-E, CAPE ratio of the S&P 500. Sure, it hit an all-time high level, and it's down since the S&P 500 is down. But it's not even down to the top of 1929, right? And 1929, March of 2000, and just call it January of this year were the three most expensive moments in the history of U.S. stocks. And we're still above that level. We're still above one of them, right? We're only below the very most expensive, and I think we're slightly below the 2000 peak. But we haven't even gotten down to the 1929 peak. So it's still really expensive out there and I think there's still downside to come. Sure, there will be bear market rallies in between now and the ultimate bottom, but I just think there's more risk of downside in the overall market.

OK, having said that, there's one other little item that I want to tell you about, and it just – it makes things – like, this is not pleasant, OK? It might scare you a little bit. That's not my intention but it's a risk, and I think the risk of this event that I'm going to mention in a minute is greater now than at most times, right? Most of the time I don't talk about this stuff, but when, you know, certain extreme conditions are in place, you have to talk about it.

So my biggest worry today goes by the lovely name of liquidity cascades. I mean, it just – it sounds like a beautiful waterfall, doesn't it, liquidity cascade, or one of those champagne fountains at a wedding reception. "Oh, look at the lovely liquidity cascade. Who made that? Look at all the time they took. It's so beautiful."

Unfortunately, in the market liquidity cascade is not beautiful. It can be ugly, really ugly. It can happen in either direction. You can get a liquidity cascade that causes prices to soar out of sight like in the meme-stock phenomenon with GameStop and AMC and other meme stocks. They just soar out of sight straight up, like 1,000% in a few days, a few weeks, whatever. That's a liquidity cascade, and then you can – the one I'm talking about is downward. And the worst example in history of October 1987. Dow Jones Industrial Average fell more than 22%, worst day in a 126-year history, right? The index is 126 years old... that was its worst day. It's called Black Monday.

And, you know, most people say, "Oh, no, well, that was a very specific thing, Dan. That was based on program trading where, you know, computers automatically would buy or sell based on the market action and they just kept automatically selling and selling and selling and it spiraled downward and out of control. So, you know, we don't do that anymore." Eh, a little problem. The thing didn't start in the U.S. where the program trading was in effect. It started in non-Japanese Asian markets and continued all the way around the world until it got back to Japan. It didn't start in the markets where there was program trading and it happened all over the world, in markets where there was zero program trading. So program trading could not have been the cause of Black Monday. It was an aspect of it, but it was not the cause of it. We don't know the cause, right? Contrary to what most people believe, it just didn't start in the United States. It started in Asia.

So, you know, a liquidity cascade is when selling happens in one market and then it happens in another, and that selling in that next market reinforces the selling in the first one, and it just all reinforces each other and spirals down, out of control. And I read about this in a paper that was published a couple of years ago, 2020, by a group called Newfound Research, and the report is called "Liquidity Cascades: The Coordinated Risk of Uncoordinated Market Participants." And you can glean it from the title, right? Everybody's doing their different thing in the market most of the time. Everybody – you know, maybe people don't really care what anybody else is doing. And then all of a sudden you get these events where everybody is coordinated and every asset price correlates to one, you know? And it all goes down together.

And I'm afraid we could get something like that. I think the conditions are ripe. And in the paper that Newfound Research published, they pointed to three commonly cited sources of market risk and they said, you know, there's accommodative monetary policy, passive investing, and the insufficient liquidity that results from increased leverage. So in any one of these at any given time, it may not be a big deal. But when you put all three of them together, it can produce what they called knock-on effects in the paper. And they said, "When these knock-on effects reach the S&P 500, the entire market structure can begin to break down."

And they're all there, right? We've had a hyper-accommodative monetary policy for years that is just not starting to be reversed. And we've had passive investing for years. Passive investing is a bigger force than ever. It's even bigger than when they published this paper in 2020. And, of course, I've discussed once or twice here and in my Stansberry Digest the third element, which is leverage, and the insufficient liquidity that results from leverage. And, you know, you can look at the FINRA margin data statistics and – FINRA's just an organization that publishes these statistics and does some other thing. But the margin data, if you compare it to GDP is the way most people do it, you know, it just soared out of sight. And I'm sure it's come down, but you know, there's still more there, right? There's more leverage that hasn't been unwound.

And when that unwinds and there's not a lot of liquidity because people are using leverage and they've got to sell, they become forced sellers, right – if you're using leverage, if you're using margin debt and you get in trouble, your broker won't call you up and say, "I'm going to sell you out." He'll just sell you out and then tell you, "Hey, I sold you out," right? So that's forced selling, and passive investing kind of piles on top of that, doesn't it, because so-called passive investing is really momentum investing. People just keep buying the indexes regardless of valuation because, you know, they're going up and they feel good and they just keep buying, and they buy every dip, right?

Well, that's basically an algorithm that says, "Receive a dollar of capital... buy a dollar of equity." That can reverse, right? Receive demand for a dollar of cash... sell a dollar of equity. And the thing is when that starts to reverse, the equity is worth less and less and less, so to get a dollar, you have to sell more and more and more shares. And passive investing – I think in addition to leverage and lower liquidity in the market and monetary policy now reversing with the Fed beginning to tighten, these three things can get together and I think there's risk of something like a Black Monday, October 19, 1987 event. I think there's a risk of something like that.

Now a liquidity cascade doesn't necessarily mean a one-day event. It could be days, even weeks. But I think you'll know it when you're in it [laughter] because the market will be just getting hammered. You know, you'll have huge down days.

And you may remember in my surprises for 2022, my No. 10 surprise is always the same. It's something that I – well, it's been the same for the last couple of years, as long as I've been doing the surprises. And it would surprise everybody if the market fell, like, 20% or more in one day. It would surprise them a lot more now because the NYSE and other exchanges have this thing where if the S&P 500 falls 20% in one day, they shut down the exchange. So you could say, "Dan, how can the market fall more than 20% if they shut down the exchange?" My contention is philosophically that human beings are in markets the way fish are in water, and saying that you can just shut down the exchange if you're down 20% is kind of like the fish saying, "Well, you know, if a hurricane's coming, I'll just swim a hundred miles away or I'll exercise control over the wind and the tides and the waves," and they don't have control over the wind and the tides and the waves. And, you know, they can't just swim a hundred miles away in an hour.

So it's a little bit too much hubris, I think. It's a little bit too much, you know, control. It's more – it sounds like people think they have more control over markets than I think they really do. Let's just leave it at that. So I think the S&P 500 can fall more than 20% in a single day.

But it doesn't have to. Like, the liquidity cascade can be, you know, minus 19% for five days in a row or something, you see? And when that happens, people are going to hit their uncle points, you know? And they might not hit them soon enough, right? They might not just say, "Wow, this is scary... I'm out," soon enough. It could be such a shock they'll be like, "OK, well, wait a minute. The market's down, you know, 40% in three days or some crazy thing. I'm just going to ride it out. It can't possibly go lower." And then it goes lower, and then they sell out and they're down 80% and their retirement is now just screwed.

You know, I think using trailing stops is like more important than ever. Most of the time with trailing stops in my advice to the readers of my Extreme Value newsletter, we're selective. We say, "Look, we're willing to hold this stock even if it's down 20% because it's a great business and over time we think it's going to do really great, so we're not going to use a trailing stop." But we've added stops onto stocks lately because you can't count on people to be hyper-rationally and perfectly, and you shouldn't count on yourself to do it, right? Richard Feynman, the late, great scientist, he said, you know, "The job of a scientist, but really of investors and lots of people, is to make sure you don't fool yourself, and you are the easiest person to fool." OK? Make sure you're not fooling yourself and you are the easiest person to fool.

So how do you not fool yourself? Well, it's fairly simple, I think. You prepare... don't predict. Don't pretend you can predict these things. Just prepare for them. And recognize a heightened risk of stock price declines happening. That was big part of what I've been warning you about before this year. And now prepare for the risk of these liquidity cascades, and it's the same preparation. Make sure you're holding plenty of cash. Sell all your speculative garbage even if it's down 80% and you think, "Oh, it's got to come back." Yeah, sure, that's what they all said in the dot-com crash, too, and a lot of it did not come back.

So sell all your speculative garbage. That'll help you raise cash. I think holding plenty of cash is still a great idea. You can still prepare in that way. I think you can still buy gold and silver, right? They're not – I don't worry much about the dollar price of gold and silver. You just want to hold them to have them outside of the normal financial system. And, you know, we've been recommending some what I call high-quality defensive stocks, and we've been sensitive to trading losses by using trailing stops. And in a liquidity cascade, if your stop gets hit, you're just out, man. You're just out.

So that's what I would say. Prepare, don't predict. Prepare means cash, gold, and silver, and getting rid of all your garbage equity, and use trailing stops and think about who you are as an investor. I can't tell you that you're not the person who's going to ride this thing out and buy stocks all the way to the bottom and back up and just get super rich. I can't tell you that. Only you know that for sure. I'm just saying it's unlikely that you're that person because most people aren't, OK?

All right, that is my rant for today. You know, so far – look, I hate to beat my own drum, but so far, you know, my warnings have proven somewhat prudent, OK? I had a good idea to be bearish. I was early. I was about a year early because I got really bullish in April 2020. Then I was bearish by late 2020. Of course, the market did great in 2021, but that was the end of it. So I was about a year early because the Nasdaq peaked in late 2021. But now, you know, the warnings were proven to be spot on and here we are. So I think there's more to come. I think that we'll definitely see some blistering rallies and you need to prepare and don't try to predict.

All right, that's the rant for today, and now let's just take a look at the mailbag and we'll have a little fun with that, try to lighten things up a little bit. Let's do it right now.

All right, right now what I'd like to do is have our first ever Crypto Corner with our very own crypto guy, Eric Wade, my colleague here at Stansberry. In the next few weeks we'd like to have Eric on from time to time to give us some updates about the crypto market. The global cryptocurrency market seems to have landed in a freefall in the month of May. Prices of several top tokens have fallen from great heights. Bitcoin has dipped below $30,000 and the price seems to be leveling out but we'll check in with Eric and see what he says.

So, Eric, where are we in all of this volatility with crypto? And should we be concerned about further downside? Are we going to see a rebound? What's happening? And welcome to the show, by the way.

Eric Wade: Thank you. I am glad to be here. Can you hear me OK? Am I getting through?

Dan Ferris: Yes.

Eric Wade: All right, fantastic, and that's a fair question and I'm actually glad to start off with that. Volatility definitely has peaked. We follow CVI, Crypto Volatility Index, and it had gotten to that point. I'm sure your listeners are comfortable with that point tin time where volatility had been muted for so long that you start to tell yourself, "OK, we're due for some volatility." And the CVI, yeah, definitely leapt out of bed, interestingly not as high as you might imagine, but definitely noticeable.

So if you think – if you're thinking in terms of is this as bad as it can get, not if you're going by the numbers, and that number being the volatility type of prediction. On the other hand, though, this market action that we've seen for general – and talking generally with cryptos, we're very, very low on the fear and greed index, bouncing somewhere between eight and 10, which traditionally you read that as a contrarian it can't get much worse. And of course, anybody who's been investing long enough to have considered cryptos knows there's very little truth in that statement, right? It can always get worse. Knives – you can catch one, and then you can catch three more, etc., or you can miss one and it can hit your foot when the time comes, right?

So what I'm trying to get at is the crypto market has been dealing with volatility, has been dropping, plunging, some of them extremely deeply 90%, 95% drop in the last couple of weeks. And yet at the same time, there's almost a feeling among some of the bluest of the blue chips investors that we took a pretty good punch and we're still standing. And there's an interesting story behind that, I think.

Dan Ferris: By all means, lay it on me.

Eric Wade: [Laughter] All right, so you alluded to it a little bit, that two of the top 10cryptos just absolutely imploded in the last couple of weeks. And I know everybody knows that. And everybody's thinking, "Why did he bring this guy on here to talk about something that happened eons ago in the crypto space?" We're talking about Terra and Terra's stablecoin, UST. And stablecoin's supposed to be worth a dollar. It's pegged to a dollar but it's not backed by dollars in this case. It was backed by mathematics in that these dollar coins, UST, whenever it gets a little bit above a dollar, the system balances it out by selling some, and whenever it gets a little below a dollar, the system balances it out by buying a little bit, right? There's a little – not a central bank but a central bank algorithm that's supposed to keep this thing pegged at a dollar.

Well, it broke. The peg broke. Like many currency pegs throughout history, when it breaks, sometimes it can work its way back up. And this was almost a perfect storm because Terra's stablecoin had broken in the past and worked its way back. So, of course, everybody got to work trying to prop this thing up, doing what you need to do. The algorithms kicked in, the buying, the selling. It all kicked in to try to prop this thing back up and it all failed.

So the stablecoin dropped from let's say a dollar to let's say a nickel. At the same time, the coin that's supposed to have the value to prop it up, Terra, plunged from let's say $100 to under a penny, and those were both top 10 coins. So at the time this was going on, bitcoin dropped from $38,000 all the way down to $30,000. Once it pierced $30,000, it went into this range that we were all – most of the longer-term holders of bitcoin were looking at this thinking, "We're now in the territory of this level has to hold or we're all in trouble," and it broke through that and scared a lot of people. That's where we get this fear and greed index being absolute fear. Bitcoin had to stay above $28,000, $29,000 in order for us all to feel like we're OK. We can handle this. And it didn't. It dropped all the way into the $25,000s on some exchanges, $26,000 range on some exchanges. That was – it started to feel a little bit like Contagion, right, when one thing bad happens and spreads into others. It feels like contagion. Where is this going to end? If we lose Lehman, then who do we lose next, etc.? And we had two top 10 cryptos absolutely imploding.

OK, we know all that. Why is Eric bothering to talk about this? Because the things that came out of it are – the first one is no bailouts. The crypto market took two big punches, started to feel like the last fight in a Rocky movie where you know Rocky's going to beat up for one, three, five, or seven rounds, and then at some point one punch is going to land but not knock Rocky down. And crypto investors started to feel like that at least for bitcoin, that we broke through our must-not-pass line and came back and acted like it never even happened. And yeah, it's been kind of rangy and we've been absorbing this volatility, and the people that get scared are scared. But we noticed we passed through this big test without any bailouts and pretty much all inside. I mean, imagine if two top 10 stocks cratered 99% or so. Imagine what the market would be doing to deal with it, and crypto handled it.

So there is this feeling on the one hand – I said there's two things going on. One, we took a pretty good punch. We're not out of the woods. I already mentioned we haven't had our big volatility event yet. So we're not out of the woods, but we felt like we could take the punch, and maybe Rocky's going to finish the fight and win.

The other one that happened is we started seeing a lot of workout plans for those two cryptos that I said plunged 90%, 95% or so. The community started coming together with, hey, how can we work through this? And just the bravado it takes to look at a project that's down 99-some-odd percent and say, you know, it used to be a hundred dollars and now it's a hundredth of a penny, etc. And to say, "Hey, I think we can work our way through this," and I'm laughing because it's just so painful to think about that – like I said, the bravado of that is we think we can recover a stablecoin from a nickel back up to a dollar, which has never been pulled off before. And we think we can recover from a hundredth of a penny to I don't know what on the Terra side, and that's a pretty brave one.

And the webpage that collects the proposals for how can we get out of this has 400 proposals, with people putting stuff in, saying, "I think if we do this," or, "I think if I do that," or something. And so that's what makes this still kind of newsworthy, is that the crypto industry across the board, both the maxis that say, "I love bitcoin and only bitcoin," well, they saw themselves really stepping up this week. And then the people that are willing to look at the smart contract chains like Terra's, etc. – and do we even have any business being in the stablecoin business? That remains to be seen. But –

Dan Ferris: That's a good question.

Eric Wade: Everybody's building like we're going to survive this. Yeah, thank you. Go with that. You said something about a good question.

Dan Ferris: Yeah. I mean, you know, do we have any business being in the stablecoin business was the question, and I thought, yeah, I mean, those are the kinds of things most people listening to this are asking. They're like, you know, is – some people are asking was this one giant Ponzi? Did the super bears have it right? Are we going to get out of this? Or is it like I suspect and one of our readers wrote in – one of our listeners, sorry, wrote in and said, "Maybe this is like in the dot-com boom when everything got washed out except for the really good names," you know? To me that's what it looks like.

Eric Wade: Yeah, there's probably a lot of truth right up the middle of that because if it recovers, it wasn't a Ponzi, and if it washes out the ones that are capable of failing – and there are algorithmic stablecoins that have plunged and never recovered. So this former top 10 beauty queen could be on the ash heap. It's not on it yet, though, because there are so many people that are saying, "Let's do this." And there are even proposals for what if we try to take two chains, like the one that failed and relaunch it new, and keep the old one. And people who want to work on the old one, work on that, and the people that want to take the new one off to another direction, work on that. And they've been – it's maybe a little early to be optimistic, but I would say it's definitely inspirational because whenever something craters like that, it's almost always lights out. And then it does look a lot like a Ponzi, right, that they popped because there weren't new investors getting in. But by definition we do have new people putting new time and energy and effort into this, so I'm going to say maybe it's a little too early to say it is a Ponzi, even though it walks like it could – some of them walk like they needed new money to come in to stay propped up.

And so we'll see. Yeah, I'm not willing to call those two Ponzis yet, but I would say they seriously overinflated. Boy, did they overinflate. And we didn't know that they were overinflated until – well, if I can indulge just one more minute, the – it's not funny. None of this is funny. But the – an interesting point of this is the guys that were working on securing the token that imploded, the dollar-stabilized coin, were actually in the process of diversifying their risk and spreading out into blue chips. So I mean, if we had time to allow this to get to the point of looking back where we could unemotionally reflect on this, we'd think that is really interesting timing, that as they were making the steps that would have made this thing last forever, was right – by backing it with bitcoin, backing it with Ethereum or blue chips. That was the moment that it imploded. If it had lasted another month, it probably would've lasted forever. So we'll see. Maybe they can build it back.

Dan Ferris: All right, one last question for me, Eric. It sounds funny to me to say – you know, talk about any of these things like they're blue chips. And if you asked me I would've said, "Well, bitcoin and Ethereum are the blue chips," but I mean, are there really, truly others? What are the blue chips? Like...

Eric Wade: Yeah. Well, it takes a lot to make it into the top ten. It's not just market cap, but it means that there are millions of people that have taken the time to put even at least a little bit of money into it. And yeah, you're right. Blue chips with an asterisk next to it of, you know, crypto blue chips.

But on the other hand, we've got crypto projects that are worth hundreds of billions of dollars or tens of billions of dollars, and we're rivaling the market caps not necessarily of blue chip stocks once you get past the top few, but yeah, in our industry there are some blue chips. Been around for years, been battle-tested, have good backing behind them, etc. Clearly these two that imploded weren't – in hindsight weren't as blue chip as we thought they were because they imploded with a bank – you know, a pretty traditional bank run scenario blew them up. But –

Dan Ferris: So maybe –

Eric Wade: But yeah, that's a fair question you're asking. Are they even blue chips? Maybe that's a word that comes loaded with – maybe I need to find a better word.

Dan Ferris: Right, so maybe sort of a mottled turquoise chip or something. I don't know. Yeah. [Laughter] All right, man, well, thanks for being here and doing this. I'm going to give you – let's do a shorter version of my typical final question of my interviews here on the podcast and just say what kind of thought do you want to leave the listener with today about cryptos?

Eric Wade: Oh, boy. I guess question everything. We've been somewhat solid – and everybody understands volatility. So I think we've lured ourselves into understanding that we know there's volatility coming and may be stopped in the general sense. No one particular person is guilty of this, but maybe we've convinced ourselves so much that we can handle the volatility that it's worth looking at some of the what ifs again. You know, what could cause that? Just because I can handle it doesn't mean I should relax my standards. So that would be the last thought I would leave people with, is just go through your portfolio top to bottom. Question everything. Maybe even ask yourself that age-old question of, "Would I buy this today?"

Dan Ferris: Excellent, great final thought. Well, Eric, thanks for doing this, and like I said when I started out with this, we want to see you back here real soon and do another Crypto Corner with us because the market is in turmoil and I know people are wondering about it. So let's do it soon.

Eric Wade: Yeah, thank you, and I appreciate that, appreciate the opportunity to get in here for a few minutes.

Dan Ferris: All right, we'll talk to you soon.

Eric Wade: All right.

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In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Send questions, comments, and politely worded criticisms to feedback@investorhour.com. I read as many e-mails as time allows and respond to as many as possible. You can also call our listener feedback line: 800-381-2357. Tell us what's on your mind and hear your voice on the show.

First up this week is James B. James B. says, "Dan, I am a conflicted investor. There are a number of companies whose valuations are getting closer to interesting to me, but they have corporate policies that are contrary to my personal values. I feel like investing is a personal expression about how we believe the world should be. As an example, Starbucks – their stock is getting to a valuation that I can get onboard. They seem to have a squared-away business model and a large, willing customer base that pays for their products. However, they recently announced that they will pay transportation costs for employees to have abortions if they live in a state that restricts access to abortion. Avoiding the divisive language around the topic, I don't agree with that. I also fail to see how this makes sense as a pure business decisions. I can bring other popular companies that have made social virtue-signaling a corporate identity. That is Disney, Coca-Cola, Netflix, Meta, Twitter, Blackbox, Citibank, etc. Starbucks is one of many in the field, and I chose the topic abortion because it's a polarizing topic to strip away the grey on the spectrum. My question is, is investing a moral choice or should I just embrace the suck? James B." Embrace the suck. OK, James.

My answer to your first question, is investing a moral choice, is I don't quite think so. I mean, you said here, "I feel like investing is a personal expression about how we believe the world should be." I think investing is about compounding your capital with a full recognition of how the world is and that most of us just don't get to say how the world should be, right? Starbucks is just a great business, and you know, they do this one thing that offends you, but it's a great business and they just sell coffee really.

So if you go down this road, James, you can't buy any stocks, if you're really honest with yourself, right? There's no corporation that isn't doing something you don't like. They're treating their employees some way you don't like. They're doing something with their product you don't like and they're selling things in a way that – you know, corporations are just too – these ones you're talking about are just too huge and complex. You get that many people together doing anything and there's no way you're going to agree with everything everyone is doing. And, you know, that's just the nature of life. You can apply it to almost any large aggregation of human beings. You can't get a lot of them together and then agree that you approve of everything all of them are doing. That's my answer. I hope that's good enough for you. I realize it may be unsatisfying, but there it is, James, and thank you for the question, though. I think it's a very good one.

Next is Karen B. and Karen B. says, "Hi, Stansberry Investor Hour. Thank you for your publication. I'm just curious how many cowboys you know. Now some are stinkers, I admit, but every genre has a stinker or two. If you knew my Uncle Lee W. of Baker, Nevada, I don't think he would head your podcast 'Don't Be a Cowboy with Your Money.' Karen B."

Karen B.'s question was longer than this, but, Karen, I agree with you. We shouldn't have called last week's episode, "Don't Be a Cowboy with Your Money." And I don't think of the titles, but I approve them and I am responsible. The buck stops here and you're right. You're absolutely right.

Next comes Jim T., and Jim T. says, "Hi, Dan. I enjoy the show and look forward to it each week. My question concerns my crypto. I am curious what type of wallet you hold your portfolio in. I've been educating myself more on this as the stock of my exchange coin base has plummeted from $350 to around $60 per share. My crypto is currently held in a custodial account with them and I've been reading that it is definitely not good not only from a security standpoint but also in the event of a company bankruptcy." Stop you right there, Jim. I've heard the same thing. You can wind up losing your crypto if they go bankrupt.

And Jim continues. "I've decided to move my crypto off the exchange to a cold wallet that is not held in the Internet or the cloud. Me and only me – I and only I," I think you meant to say, "have the keys and it is my responsibility to keep them safe and secure. My research makes me think this is the most prudent way to hold any significant amount of crypto. Your thoughts on this would be appreciated. Keep up the great shows. We need your voice going forward in this nutty market. Jim T."

Thank you for that, Jim. I won't comment on whether you should or shouldn't do this, but everything you said makes perfect sense to me. Your thinking on this seems very sound to me, and that's all I'll say. I sold my crypto and so I'm out of it.

Last this week is Aussie Stu, and Aussie Stu says, "G'day, Dan. First I want to say how much respect I have for your calls about this market. For a long time you told us to prepare for this bubble to burst, and boy has it burst. I found a great quote in a financial book I thought you might like. 'The Noah principle: Predicting rain doesn't count. Building arks does.' I think this sums up what you've been telling us. I have two questions. The first is about smaller speculative stocks. Do you have any thoughts about what percentage these small growth stocks should make up of one's portfolio? The second is for your crypto expert, Eric Wade. The crypto market has been decimated. Do you think that this crash is indeed proof that cryptos were never going to amount to much? Or is this crash just what we needed to get rid of the junk and allow the real projects to shine? I must admit when things are bleak, it really is hard to see a bright future. Thanks again, Dan – doing a great job. Aussie Stu."

Thanks! Thanks, Stu. It's great to hear from you again. So first question, I don't think that there's any set off-the-shelf kind of percentage of how much small growth stocks should make up of your portfolio. It's up to you, right? I mean, it depends on how much risk you like and what you mean by small growth stocks, if you're buying an ETF or if you're buying a few individual names. It's really, really, really hard to generalize about that kind of advice. I'm going to leave that one there. I'm sorry it's unsatisfying, but it really is the truth.

The next one is I think yes. I think that the crypto crash is sort of like the dot-com crash, right? The Internet really was an incredible thing for businesses and a few of them really, really came out of it looking great. Amazon is I guess the best example. And, you know, all the rest got wiped out. So I think, you know, with all these cryptos out there – at some point I thought there was like – did somebody say 16,000 or something, some ridiculous number? So the overwhelming majority of those will get wiped out and disappear and never be heard from again, but a few of them will probably continue to exist and find a use. So I think that is exactly what is happening. Thank you, Stu.

That's another mailbag and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We provide a transcript for every episode. Just go to InvestorHour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com. And do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @InvestorHour. On Twitter we are @Investor_Hour. Have a guest you want me to interview? Drop me a note, feedback@investorhour.com, or call the listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. Until next week, I'm Dan Ferris. Thanks for listening.

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