The smart money is selling again... It could be 'enemy action'... The market top 'bell' might have an AI-like ring... The market delivers the worst for the greatest number of people... Why I can't go 'full bearish' in the short term...
 The selling (still) continues...
It's another Friday Digest... and another round of "smart money" selling. First, it was Warren Buffett's Berkshire Hathaway selling roughly 60% of its Apple (AAPL) stock. Then Buffett's top insurance guy, Ajit Jain, sold more than half of his Berkshire Hathaway stock. Then, we reported on Berkshire Hathaway selling more and more of its Bank of America (BAC) stock. Now, Dell Technologies (DELL) founder, chair, and CEO Michael Dell is selling. According to data compiled by Bloomberg, Dell has reduced his position in the company from 33.4 million shares in March to 18.3 million shares today – a 45% reduction. Dell sold $2.3 billion worth of stock alone last month, after a 55% run-up in the share price due to artificial-intelligence ("AI") speculation. Dell and his wife still own a big chunk of the company, and they still control it. But dumping a couple billion dollars' worth of stock is nothing to sneeze at. And Dell isn't just selling his company's stock... The Michael & Susan Dell Foundation reduced its position in semiconductor firm Broadcom (AVGO) from 11.9 million shares at the beginning of the year to less than 4 million shares in June. As I (Dan Ferris) keep saying, it's almost like the world's biggest investors are gearing up for a market meltdown or something. And we haven't even mentioned Nvidia's (NVDA) insiders. The AI chipmaker's market cap is around $3 trillion. So the $1.8 billion of stock Nvidia executives and directors have sold this year might not seem like much – but $1.8 billion is a ton of money. It's about five times the amount insiders made selling the stock last year. It could be 'enemy action'... All of this selling reminds me of something from Ian Fleming's James Bond novel Goldfinger. The title villain, Auric Goldfinger, first encounters Bond while cheating at a card game in Florida. Bond threatens to tell the police, so Goldfinger starts losing. Goldfinger runs into Bond again at a golf course in England and the two play a round. Goldfinger again tries to cheat, but Bond ultimately wins the match. Later on in the novel, Goldfinger's henchman captures Bond, and the villain utters the iconic quote: Mr. Bond, they have a saying in Chicago: "Once is happenstance. Twice is coincidence. The third time it's enemy action." This is the fourth time we've written about mega investors and insiders selling. So we're past happenstance or coincidence. It's a pattern. And if these insiders selling stocks for billions of dollars really is "enemy action," we're about to see some fireworks in the market. Now, we've said before that insiders tend to buy for one reason (they're bullish). But they sell for any number of reasons – from financing a new vacation home to putting their kids through college. So I'm not suggesting that these insiders are selling for the same reason... or that it's a sign of a market top. Trying to call market tops is an exercise in futility. After all, it's not like anyone rings a bell at the top. But it's worth thinking about what 'the bell' would sound like... Given that Dell and the Nvidia folks are direct beneficiaries of the AI mania, the bell at the top would likely have a distinct AI-like ring. So check out the following bell-like quote from AI firm OpenAI CEO Sam Altman: This may turn out to be the most consequential fact about all of history so far. It is possible that we will have superintelligence in a few thousand days (!); it may take longer, but I'm confident we'll get there. Altman is suggesting that computers will outperform human beings in some meaningful way somewhere between eight and 11 years from now. Fortune magazine puts it between five and a half years and 14 years. It seems a little strange for investors to pay through the nose for AI-related stocks when the most optimistic guy in the industry says it could take more than a decade for the technology to make a big difference in our lives. That brings me to another point... Altman talks about AI outperforming humans like it's the greatest thing that could ever happen: I believe the future is going to be so bright that no one can do it justice by trying to write about it now; a defining characteristic of the Intelligence Age will be massive prosperity. But several other smart folks have talked about AI "superintelligence" like it's the worst thing that could ever happen to humanity. The late physicist Stephen Hawking warned in a 2014 BBC interview that: I think the development of full artificial intelligence could spell the end of the human race. Once humans develop artificial intelligence, it would take off on its own, and re-design itself at an ever-increasing rate. Humans, who are limited by slow biological evolution, couldn't compete and would be superseded. In a 2017 speech, Hawking said: Unless we learn how to prepare for, and avoid, the potential risks, AI could be the worst event in the history of our civilization. It brings dangers, like powerful autonomous weapons, or new ways for the few to oppress the many. It could bring great disruption to our economy. Hawking and Altman both think AI will completely transform human life. They just disagree on whether that's a good thing. But what if AI isn't such a big deal 10 years from now? In a recent Bloomberg interview, Massachusetts Institute of Technology economist Daron Acemoglu estimates that just 5% of jobs will be replaced or heavily aided by AI over the next decade. He thinks a lot of the money being invested in AI right now will be wasted. Acemoglu shared three visions of how AI could play out economically and financially. The first vision is the most benign, where AI hype "slowly cools" and investments leading to "modest" uses of it prove at least somewhat fruitful. Acemoglu calls the second vision "AI spring followed by AI winter." As Bloomberg describes it: [T]he frenzy builds for another year or so, leading to a tech stock crash that leaves investors, executives and students disillusioned with the technology. In the third vision, Acemoglu sees AI technology going unchecked and eventually creating "negative outcomes for the whole economy." As Bloomberg says: [T]he mania goes unchecked for years, leading companies to cut scores of jobs and pump hundreds of billions of dollars into AI "without understanding what they're going to do with it," only to be left scrambling to try to rehire workers when the technology doesn't pan out. "Now there are widespread negative outcomes for the whole economy." Acemoglu believes some combination of the second and third scenarios is most likely, given global executives' fear of missing out on AI development. That's why billions of dollars continue to pour into AI every quarter... The Wall Street Journal reports that Amazon (AMZN), Alphabet (GOOGL), Microsoft (MFST), and Meta Platforms (META) have already spent a few hundred billion dollars on AI, including more than $52 billion in the second quarter of this year. The four have reported roughly $598 billion in total capital spending since 2020. OpenAI just received more than $10 billion in new financing, which puts the firm at a $157 billion valuation. It was valued at $29 billion in 2023 and $80 billion earlier this year. The company raised $6.6 billion from a list of big companies (including Microsoft and Nvidia) and opened a $4 billion line of credit, with an option to increase it by $2 billion. It'll have no trouble burning through all that cash. OpenAI expects to lose $5 billion in 2024 on expected revenues of $3.7 billion. Though nowhere near profitable, monthly revenue hit $300 million in August, up 1,700% since the beginning of 2023. The company is forecasting $11.6 billion of revenue next year and $100 billion by 2029. Nobody is making money on AI yet... Companies are just spending, logging operating losses, and hoping to come up with a great business one day. Money is pouring in from investors... and yet there's nothing but operating losses as far as the eye can see. With the capital spending arms race heating up, let's agree that Acemoglu's first scenario, in which AI interest slowly cools, is off the table. So the only question now is will it be more like the second scenario – where tech stocks crash and investors move on to their next ill-fated fad – or will this nonsense go on for years and years... and eventually end up in a massive global rout when everybody realizes they're never going to make any money at it? Considering the incredible cash-gushing power of companies like Nvidia, Microsoft, Alphabet, and Meta... their cash-rich fortress balance sheets... and their mindless devotion to technology proliferation... it's not hard to see Acemoglu's worst-case scenario playing out, ending in "widespread negative outcomes for the whole economy." Remember, the market has a way of delivering the worst for the greatest number of people. The "age of massive prosperity" that Altman predicts sounds disturbingly like the "new era" declarations that have accompanied every major market top since Irving Fisher declared that stocks had reached "what looks like a permanently high plateau" on October 15, 1929. At the time of Fisher's remark, the Dow Jones Industrial Average was trading about 9% below its September 3 peak – a level which wouldn't be eclipsed for 25 years – and was just two weeks from the massive crash of October 28 to 29, when it would lose nearly 24% of its value in just two trading sessions. I would be very careful about investing in anything just because you think AI is going to "so bright that nobody can do it justice," and is virtually guaranteed to bring about "an age of massive prosperity." I know I sound bearish (as usual)... But I can't go full-on bearish because of one development... The Federal Reserve, European Central Bank, and People's Bank of China have all cut interest rates. The Bank of Japan has also signaled a pause to its promised rate hikes. Such a massive, coordinated easing with asset prices soaring is unprecedented. Investors are already optimistic, buying the most expensive stock market in history. Easier financial conditions could wind up throwing gasoline on the proverbial fire. In other words, the world's central banks could have just set off another dot-com bubble-like episode. During the dot-com bubble, the Nasdaq Composite Index rose 255% from October 1998 to March 2000. The dot-com bubble was the most expensive moment in history by our favorite metric, the S&P 500 cyclically adjusted price-to-earnings ("CAPE") ratio, which hit 44 in December 1999 – three months before the index fell 49% during a 21-month bear market. The Nasdaq fell 78% over the same period and took 15 years to recover. Today, the CAPE ratio is 36.6 – its highest level since January 2022, which was the start of a 10-month 25% rout in the S&P 500. Again, I'm not making any predictions. I'm not saying rich insiders are selling because they know there's going to be a big crash. I'm not saying AI has no value whatsoever and doesn't deserve any investment capital. And I'm not calling the top. Nobody can predict market tops. But as I've repeatedly pointed out, you can absolutely identify moments of extreme risk. The fact that the world's central banks might have set off a global frenzy that could send the world's stock markets soaring is not a good thing. There's always a horrendous reckoning on the other side of a massive mania. So it feels like a risky moment to me. Risk and markets travel in the same direction. And the higher they go and the bigger the valuations get, the harder they tend to fall. Be careful out there.
| Recommended Links: | |  Must-See: 2024 Election Warning He predicted the 1998 emerging market crisis, the 2007 financial crisis, the bankruptcy of General Motors, and the recent wave of banking collapses. Now Porter Stansberry is back, sharing a new warning that he considers to be one of the most important of his 25-year career. It involves the presidential election and the shocking twist that nobody sees coming but could forever reshape the American financial system. See Porter's new election warning here. | |
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New 52-week highs (as of 10/3/24): Automatic Data Processing (ADP), Altius Renewable Royalties (ARR.TO), Alpha Architect 1-3 Month Box Fund (BOXX), BWX Technologies (BWXT), Constellation Energy (CEG), CF Industries (CF), Western Asset Emerging Markets Debt Fund (EMD), Home Depot (HD), Intercontinental Exchange (ICE), Jack Henry & Associates (JKHY), Kinder Morgan (KMI), Lumentum (LITE), Cheniere Energy (LNG), Meta Platforms (META), Pembina Pipeline (PBA), Sprouts Farmers Market (SFM), Texas Pacific Land (TPL), The Trade Desk (TTD), Viper Energy (VNOM), Vistra (VST), and ExxonMobil (XOM). In today's mailbag, more of your feedback on Tuesday's Digest about the importance of financial education and how you got started learning about money and investing... Keep your thoughts on stories coming. We'll share more next week. As always, send your notes to feedback@stansberryresearch.com. "Great article by Corey McLaughlin on how they do not teach finances in school. In addition to finance, they should also teach financial history, both from a worldwide and a U.S. view. The U.S. has gone through several 'central banks' in its history, and everyone has been greedy, self-serving, and in my opinion, wicked. The reason we have a $35 trillion debt is because we have a central bank..." – Subscriber Mark M. "Back in early 1999 I wrote an article for NAIC [National Association of Investment Companies] and was published in their 'Better Investing' monthly magazine in response to their earlier magazine asking, 'How can we get more people interested in investing?' I took the challenge to write an article and did so. It was titled 'Let's Get Back to Basic Principles and Practices'. I started out by a person or couple SETTING GOALS as Step 1. Then went on to 'spending wisely for your basic living needs', and then 'investing wisely'. "My background is engineering and not one in investing, but I had seen things that worked and things that did not, so my article focused on what worked for me from practical experience. "Then we went through the down market in 2000 through 2002. I had put my IRA into being managed by two big financial firms who as part of their sales pitches said we will protect your money from losses in a down market. Well, I lost 50% of my IRA under their management. False sales pitches!! I took my money out of their hands and became my own manager and am to this day. "This lesson was a tough one, and I learned to use TIGHT STOP LOSSES depending on the market environment. My maximum is a 10% loss in any investment, when I then sell. If that investment turns around and starts going back up and I still like it, then it is easy to repurchase it. No more 'buy and hold' after retiring, as compared to a younger person who has time to recover and can handle more risk. I'm 83 years old now and more than ever I will not tolerate any 50% market downturns. "And I never stopped learning about managing my money and investing. There are so many variables to consider that it makes it an interesting challenge. Stansberry helps me stay abreast of what is going on in the markets and places to consider investing." – Subscriber Chris N. Good investing, Dan Ferris
Eagle Point, Oregon
October 4, 2024
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios. Returns represent the total return from the initial recommendation. | Investment | Buy Date | Return | Publication | Analyst | MSFT
Microsoft | 11/11/10 | 1,367.8% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 1,328.1% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data Processing | 10/09/08 | 1,028.4% | Extreme Value | Ferris | BRK.B
Berkshire Hathaway | 04/01/09 | 703.1% | Retirement Millionaire | Doc | TT
Trane Technologies | 04/12/18 | 516.6% | Retirement Millionaire | Doc | WRB
W.R. Berkley | 03/15/12 | 495.9% | Stansberry's Investment Advisory | Porter | HSY
Hershey | 12/07/07 | 475.5% | Stansberry's Investment Advisory | Porter | AFG
American Financial | 10/11/12 | 466.9% | Stansberry's Investment Advisory | Porter | TTD
The Trade Desk | 10/17/19 | 408.7% | Stansberry Innovations Report | Engel | PANW
Palo Alto Networks | 04/16/20 | 356.6% | 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 | | 4 | Stansberry's Investment Advisory | Porter | | 3 | Retirement Millionaire | Doc | | 2 | Stansberry Innovations Report | Engel | | 1 | Extreme Value | Ferris |
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 | 1,515.8% | Crypto Capital | Wade | ONE/USD
Harmony | 12/16/19 | 1,123.3% | Crypto Capital | Wade | POL/USD
Polygon | 02/25/21 | 719.4% | Crypto Capital | Wade | CVC/USD
Civic | 01/21/20 | 309.5% | 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 | | 
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