Get Ready for More Epic Flameouts

More right with each passing day... Peloton's rise and fall... 50 stocks, a $1.5 trillion wipeout... You can't hide from the mega bubble... The Meme Stock of Destiny... When Buffett won't buy... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] More right with each passing day... Peloton's rise and fall... 50 stocks, a $1.5 trillion wipeout... You can't hide from the mega bubble... The Meme Stock of Destiny... When Buffett won't buy... --------------------------------------------------------------- It might feel like a dumb time to be bearish... I (Dan Ferris) have been pessimistic about equities since December 2020, as longtime Digest readers and Extreme Value subscribers may recall. With the stock market a whisper away from making new all-time highs, many folks will roll their eyes at my bearish warnings. And that's how it goes. Once you recognize the risks inherent in an insanely overvalued market, you have to deal with appearing to be horribly wrong, possibly for a year or two... even as you become more right with each passing day. If the market does make new highs, everyone will say bears are stupid and wrong again, yawn, and keep buying. I'm fine with appearing to be wrong until I'm all too right... I just wish folks would notice that being as bearish as I've been on the most overhyped, overvalued garbage in the stock market over the past few years has been a pretty good call. For example, I wrote about Peloton Interactive (PTON) in [my September 3, 2019 Digest]( a few weeks before the exercise-bike maker went public. I called it a "Fear Factor IPO," a reference to the old TV game show that challenged contestants to do crazy things like climbing into a box full of live snakes or eating live giant hissing cockroaches from Madagascar. In other words, you'd only buy Peloton on a dare... because exercise equipment is a highly cyclical business with inconsistent profits (if any) based almost entirely on product fads that come and go like the weather. Don't bother writing in to tell me how much you love your Peloton... It doesn't matter if Peloton makes great bikes. It wouldn't change the fact that the company has been a disaster for investors... The stock went public on September 26, 2019 at $29 per share. It peaked on January 13, 2021 at $167. Today, it's less than $5. The company recently announced CEO Barry McCarthy's resignation, which became effective May 2. He'll get $50,000 a month for three months, then $5,000 per month for a while, plus $1.25 million, plus $3 million in stock, plus accelerated stock option vesting... plus other stuff, all for not saving the company. I imagine most folks would have said his compensation incentivized him to create shareholder value. It looks more like he was incentivized to hang around for as long as he could, then leave with as much of Peloton's money as possible. Peloton also announced recently that it would lay off 400 employees, about 15% of its workforce, to "bring its spending in line with its revenue." In other words, the business is shrinking. Its revenue peaked in 2021 at $4 billion and shrank to less than $2.7 billion for the four quarters ended March 31, 2024. Since going public, the company has had only four quarters of positive operating income, from the fourth quarter of 2020 through the third quarter of 2021. It's almost as though Peloton's business model – selling luxury exercise bikes and subscriptions to remote fitness classes – requires a pandemic lockdown to succeed. Like I said, it's such an awful business, you'd only buy it on a dare. And yet, everybody and his brother wanted to own the stock in January 2021 when it peaked at $167 per share, before its epic 97% flameout. I similarly criticized Cathie Wood's ARK Innovation Fund (ARKK) as overhyped, overvalued garbage on February 11, 2021 – the day before it peaked. I likened Wood to Gerald Tsai, a fund manager whom everyone thought was a genius in the 1960s "go-go" market mania. (After huge success at Fidelity, Tsai left and started his own mutual fund called the Manhattan Fund. It made 39% in its first year, then became the worst-performing mutual fund in history after seven years.) ARK Innovation fell 81% from its all-time high to its December 28, 2022 low. Today, it still trades 72% below its all-time high. I suspect it will never recover from those losses. It is not, as its creator alleges, an investment in disruptive innovation. It's a gamble on a bunch of overhyped garbage that existed mostly by the grace of the Federal Reserve and its attendant mega bubble. Now, to be fully transparent, I also criticized Tesla (TSLA). It has fallen nearly 60% from its pandemic-mania highs, but it's still up nearly 1,000% over the past five years. My skepticism of Tesla was a reasonable call. The automobile industry is highly capital-intensive and highly competitive, and it's very difficult to earn consistent margins. Doing so with a new technology and new brand is extra hard. Tesla's ability to achieve profitability was an unlikelier success story than most of its bulls believed. But the bulls were right on this one... at least the ones who got in early enough. So I'm not saying I'm always right... What I am saying is that avoiding overhyped, overvalued companies in difficult industries – and any and every business trading at a mega-bubble valuation – is a valuable skill that helps you avoid catastrophic losses. And lots of lousy businesses' stocks that soared in the pandemic have blown up... The Financial Times reported on Wednesday that 50 winning stocks from the pandemic mania have lost a total of $1.5 trillion of market value since the end of 2020. Just seven of them have gained in market value since then. Maybe I didn't catch Tesla before it soared, but nor did I get wiped out by buying any of these other trendy stocks. The Financial Times cited the examples of RingCentral (RNG) and Zoom Video Communications (ZM) – online-communications platforms that thrived as work-from-home became the norm during the pandemic lockdowns. RingCentral rose 134% in 2020, according to the Times, and Zoom rose 413%. Since the end of 2020, the two stocks were among the seven worst performers out of the 50 the Financial Times listed. RingCentral trades about 92% off its pandemic-era high. Zoom trades about 89% off its high. You might consider it odd that they've performed so similarly, since one of them consistently makes money and one of them doesn't... RingCentral has never had a profitable quarter, but its revenue has grown every quarter since going public in 2013. Zoom's revenue has grown nearly as consistently, and it has earned positive operating income in every quarter but one since the fourth quarter of 2020. Its revenue soared from $330 million before the pandemic to $4.1 billion in 2022, and while growth has slowed a lot, revenue hasn't fallen. And yet they've both been horrible disasters in the stock market for the same reason: Their share prices ran up way too high during the mania. Once that happens, it doesn't matter how profitable the business is. It'll likely be a long, hard slog for Zoom, despite its consistent profitability. Wow. Owning a consistently profitable business is supposed to help protect you against losses over the long term... But if you've paid mega-bubble prices, nothing can protect you. Once you pay way too much for a stock, a good performance from the underlying business can't save you from disaster. That's the problem with bubbles. They turn everything they touch into a speculative bet. And most speculative bets are lousy bets. So far, this Digest probably feels like a history lesson. I wish it was, but it's not... The same conditions that led to 80% to 90% losses on stocks like Peloton, the ARK Innovation Fund, RingCentral, and Zoom are still in place today. For example, take a look at Destiny Tech100 (DXYZ), which went public recently. The fund intends to own 100 of the top private technology companies backed by venture-capital firms. Its stated goal to amass 100 positions. So far, it has 23. One position – SpaceX – accounts for 34.6% of the fund's assets. About 52% of the fund's assets are in space-related stocks. The fund went public on March 26 at $8.25 a share and soared like a meme stock to $99.79 by April 8 – up more than 1,100% in just two weeks. On April 11, the fund's creator and chief executive, Sohail Prasad, said the crazy price action was part of the market's "discovery process," meaning that folks were trying to figure out what its holdings were worth. Since they're private companies, there's no public market valuation to check... leaving investors to figure it out for themselves. The fund periodically publishes a net asset value, but the latest one is dated December 31, 2023. The fund has fallen 85% from its peak to less than $15 per share today. But it's still way overvalued. DXYZ's most recently published net asset value is $4.84 per share. So even after dropping 85%, the stock is still trading at around triple the reported value. Also, knowing the guesses, fabrications, and justifications that go into private companies' valuations, I'm willing to bet it's worth even less than $4.84 per share. Whatever its real value, the CEO's idea about a discovery process is clearly not true. There's no discovery process that says, "Let's assume this thing is worth somewhere between 5 and 20 times its net asset value." Instead, DXYZ ran up like a meme stock and is still way overvalued for the same reason the stock market trades at mega-bubble valuations: because people have come to disregard the relationship between a business's market valuation and its financial performance. Stocks don't move like that in a discovery process. They move like that when folks are in the throes of an insane speculative fever and don't care about anything except trying to make a lot of money very quickly. Warren Buffett and his lieutenants at Berkshire Hathway are doing the opposite of that right now... They admit they can't find anything to buy with their record cash hoard of $189 billion. At the annual Berkshire shareholder meeting last Saturday in Omaha, 93-year-old Buffett said he didn't think anybody at Berkshire had "any idea of how to use it effectively, and therefore we don't use it. We only swing at pitches we like. Today things aren't attractive." "Things" are the stocks, corporate bonds, and businesses in which Berkshire invests its capital. And all the ones it likes right now are unattractively priced – too expensive. I don't want to make you think that there are no opportunities in the stock and bond markets just because Buffett says "things aren't attractive." The larger Berkshire grows, the more its investible universe shrinks. Unless you have $189 billion to invest, you don't have that problem. But you should still pay attention. Buffett hasn't often remarked that stocks are so unattractive that there's nothing to buy, but two notable exceptions come to mind: his 1986 and 1999 shareholder letters. In his 1986 letter, published February 27, 1987, Buffett wrote: We currently find no equities that come close to meeting our tests. This statement in no way translates into a stock market prediction... Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. As this is written, little fear is visible in Wall Street. Instead, euphoria prevails – and why not? What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves. Unfortunately, however, stocks can't outperform businesses indefinitely. Less than eight months later, on October 19, 1987, the Dow Jones Industrial Average suffered what is still the biggest one-day loss in its history: a 22.6% drop. It took 23 months to eclipse its pre-crash highs. In his [1999 shareholder letter]( published March 1, 2000, as the dot-com bubble was beginning to fall apart, Buffett said: Right now, the prices of the fine businesses we already own are just not that attractive. In other words, we feel much better about the businesses than their stocks. That's why we haven't added to our present holdings... Our reservations about the prices of securities we own apply also to the general level of equity prices. We have never attempted to forecast what the stock market is going to do in the next month or the next year, and we are not trying to do that now. But... equity investors currently seem wildly optimistic in their expectations about future returns... If investor expectations become more realistic – and they almost certainly will – the market adjustment is apt to be severe, particularly in sectors in which speculation has been concentrated. The Nasdaq Composite Index had peaked on March 10, 2000 and was down nearly 22% when Buffett published his letter. It would eventually fall by a total of 78% by the time it hit bottom on October 9, 2002. Buffett could publish either excerpt today and be spot on. All the ingredients are here: Stocks are too expensive, investors are euphoric, and Buffett isn't buying. The S&P 500 Index and Nasdaq are both about 1% away from making new all-time highs. Take another look at Buffett's messaging... "The market adjustment is apt to be severe" for the last three years. He didn't predict a stock market decline, but he pointed out that equities starting from ultra-high valuations tend to be poor. And when such valuations are accompanied by ultra-optimistic investor expectations, they tend to end with a "market adjustment" that is "apt to be severe." That's what I've been saying lately, too. Note that Buffett said 'things,' not 'stocks'... My suspicion is that he wanted to lump corporate bonds into the mix. As Bloomberg reported on May 3: A record amount of junk bonds are trading at levels typically seen in high-grade debt, as traders see little evidence of economic weakness ahead, according to Bank of America Corp. Some 48% of high-yield bonds by par were trading inside of 200 basis points at the end of April, according to the bank. Earlier episodes of notes trading at these levels coincided with Federal Reserve hikes or pauses, only to be abruptly derailed by interest rate cuts. The phrase "derailed by interest rate cuts" may confuse those who view cuts as a guarantee of higher stock prices. That's a flawed view because the Fed only cuts to try to soften the blow of a weakening economy... which is generally not great for stocks. Praying for cuts conjures up the old song by John Prine called "Dear Abby," which includes the line: Stop wishin' for bad luck and knockin' on wood. Hoping for rate cuts means hoping the economy weakens, which is really just wishing for bad luck. Believing cuts will be OK for you because you're buying stocks and junk bonds is just knocking on wood. (The same is true of anyone praying for gold and bitcoin prices to soar, but we'll leave that one for another day.) The bottom line is that stocks and bonds are unattractive, and Buffett isn't buying... And when valuations get this far out of whack, lousy returns and even bear markets have historically followed. By the time you read this, the S&P 500 and Nasdaq may have hit new all-time highs. If so (or not), it'll seem to most folks like I'm once again casting words into the wind. I only hope that when the wind begins to change direction – as it always does eventually – the words will still be ringing in your ears. --------------------------------------------------------------- Recommended Links: [You Have Six Weeks to Move Your Money]( The biggest hedge funds on Wall Street are already preparing for a massive $10 trillion reckoning. The date is set, and 3,000 stocks stand to be impacted. Today, the forensic accountant who called the 2020 and 2022 crashes explains exactly what's coming... and how to protect yourself. [Click here for the details](. --------------------------------------------------------------- [Mysterious Gold Leverage Just Announced]( As gold continues to hit all-time highs, many folks will run out and buy bullion or mining stocks. But that's not the best way to ride this gold bull market higher. Note, this investment idea showed a 995% gain the last time we shared it. [Click here to find out what to do](. --------------------------------------------------------------- New 52-week highs (as of 5/9/24): ABB (ABBNY), Agnico Eagle Mines (AEM), Alamos Gold (AGI), Altius Minerals (ALS.TO), Amazon (AMZN), American Express (AXP), Aya Gold & Silver (AYASF), Booz Allen Hamilton (BAH), Alpha Architect 1-3 Month Box Fund (BOXX), Cameco (CCJ), Cintas (CTAS), Commvault Systems (CVLT), Dimensional International Small Cap Value Fund (DISV), SPDR EURO STOXX 50 Fund (FEZ), Comfort Systems USA (FIX), VanEck Gold Miners Fund (GDX), iShares U.S. Aerospace & Defense Fund (ITA), Kinross Gold (KGC), Kinder Morgan (KMI), MAG Silver (MAG), Markel (MKL), Motorola Solutions (MSI), Procter & Gamble (PG), Ryder System (R), RadNet (RDNT), SilverCrest Metals (SILV), Teck Resources (TECK), Teradyne (TER), Trane Technologies (TT), Tyler Technologies (TYL), Vertiv (VRT), Wheaton Precious Metals (WPM), Consumer Staples Select Sector SPDR Fund (XLP), and Utilities Select Sector SPDR Fund (XLU). In today's mailbag, feedback on [yesterday's Digest]( which included an update on what has been going on in Argentina since Javier Milei was elected and started taking a "chainsaw" to government spending in an effort to fight hyperinflation... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Hi Corey, It was good to see your update on the progress Milei has made in Argentina since taking office. Interestingly, I had just read another story about that elsewhere yesterday. Unfortunately, the focus of the previous article was on the fact that essentially all of Milei's proposed legislation to implement much of his agenda is stuck in their legislature and since his party does not have a majority, the outlook, according to the author, was not good for any of it passing, thus stalemating much of what he is trying to do. I'm guessing if he can't get that done, the Argentine people will lose faith in him and things will end badly for the proposed reforms. As you suggest, he doesn't have a lot of time to show more progress." – Subscriber Fred S. "Thursday's notes on Argentina are off by a factor of more than 10X. The Digest says '5,000 government workers.' The internet says 50,000 workers. And Milei's press secretary corrected a journalist asking about the 50,000 government workers, explaining that the number was 70,000 contracts that would not be renewed. He added that the cost burden of those 70,000 contracts would be lifted off the Argentine citizen..." – Subscriber Paul J. Corey McLaughlin comment: Let me clear up any confusion... The 5,000 government workers we referred to were the folks Argentine President Javier Milei had already laid off "by January," as we wrote yesterday. That is accurate. We included that number to emphasize that he was intent on making good on his campaign promises after being elected in late November. The 70,000 you refer to is the number of state jobs that Milei says he plans to cut in the months ahead, according to a speech he gave in March. Here's a more important point, though, than hashing out the numbers... It's something we suggested yesterday and Fred alluded to in his feedback above. It's about the sentiment about all this... Unrest is growing among "the people" in Argentina amid Milei's policies... More recently, last month, the Milei administration said it had cut 15,000 state jobs. This led to protests in the streets from those already fired and the folks who might be next, unlike those who cheered Milei as he wielded a chainsaw during his election campaign... Polls show Milei remains popular, but not as much as when he won the election, and not among everyone. More people want different changes now... Just yesterday, Argentina's top labor union went on a 24-hour strike for the second time in five months to demand a "dignified wage" as the Argentine Congress weights a bill that would, among other things, change existing labor laws. The Buenos Aires Times says... Argentina practically ground to a halt on Thursday as a massive general strike called by the nation's main union federation challenged President Javier Milei's government and its severe austerity. In the nation's capital, streets were mostly empty, with very little public transport. Many schools and banks closed their doors while most shops were shuttered. Garbage was left uncollected. Rail and port terminals were closed, while the industrial action forced the cancellation of hundreds of flights, leaving airports semi-deserted. Some buses – from firms that did not take part in the strike – were running in the morning, although with few passengers. Cars were circulating, but traffic levels were similar to that seen on weekends. The port of Rosario, which exports 80 percent of the nation's agro-industrial production, was all but paralysed in the midst of its busiest season. As the paper also reported... Milei insists his "plan is working" and has said the protests go "against what people voted five months ago." But critics say Milei's few wins have come at the cost of the poor and working classes, and are unlikely to last. In an interview with the BBC this week, Milei noted he'd already lowered government spending below tax revenue in Argentina for the first time since 2008 (even though inflation is still running at triple-digit annual levels). He also said that "real life needs time," that ordinary citizens weren't paying the price for cuts, and that "the most regressive tax that most afflicts people is inflation." No argument here... But herein lies the other end of the "chainsaw" policy... Even if it's a popular idea, it's messy to implement, as trying to reverse decades of hyperinflation stands to be. A good lesson: It's probably better not to get there in the first place. Good investing, Dan Ferris Eagle Point, Oregon May 10, 2024 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios Investment Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,357.1% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,309.5% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 890.0% Extreme Value Ferris WRB W.R. Berkley 03/16/12 718.1% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 624.9% Retirement Millionaire Doc HSY Hershey 12/07/07 491.2% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 455.6% Stansberry's Investment Advisory Porter TT Trane Technologies 04/12/18 431.4% Retirement Millionaire Doc NVO Novo Nordisk 12/05/19 365.4% Stansberry's Investment Advisory Gula TTD The Trade Desk 10/17/19 352.2% Stansberry Innovations Report Engel Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 3 Retirement Millionaire Doc 1 Extreme Value Ferris 1 Stansberry Innovations Report Engel --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Investment Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 2,291.8% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,580.2% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,239.4% Crypto Capital Wade MATIC/USD Polygon 02/25/21 807.2% Crypto Capital Wade AGI/USD Delysium AI 01/16/24 428.7% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams PNC Warrants PNC-WS 6.16 years 706% True Wealth Systems Sjuggerud Maxar Technologies^ MAXR 1.90 years 691% Venture Tech. Lashmet Silvergate Capital SI 1.95 years 681% Amer. Moonshots Root ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. --------------------------------------------------------------- Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio Investment Symbol Duration Gain Publication Analyst Band Protocol BAND/USD 0.31 years 1,169% Crypto Capital Wade Terra LUNA/USD 0.41 years 1,166% Crypto Capital Wade Polymesh POLYX/USD 3.84 years 1,157% Crypto Capital Wade Frontier FRONT/USD 0.09 years 979% Crypto Capital Wade Binance Coin BNB/USD 1.78 years 963% Crypto Capital Wade You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberryresearch.com. Please note: The law prohibits us from giving personalized financial advice. © 2024 Stansberry Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry Research, 1125 N Charles St, Baltimore, MD 21201 or [stansberryresearch.com](. Any brokers mentioned constitute a partial list of available brokers and is for your information only. Stansberry Research does not recommend or endorse any brokers, dealers, or investment advisors. Stansberry Research forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Stansberry Research (and affiliated companies) must wait 24 hours after an investment recommendation is published online – or 72 hours after a direct mail publication is sent – before acting on that recommendation. This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.