American Consequences - February 2019

The Gig Economy

Do Dirty Socks Make You a Liberal?

The Devil Drives Tesla

I D E A S T H A T M A T T E R E D I T E D B Y P . J . O ’ R O U R K E AMERICAN CONSEQUENCES

DON’T LET YOUR FEELINGS INK THE DEAL

MONEY& your EMOTIONS

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CONTENTS

FEBRUARY 2019 : ISSUE 19

LOST? CLICK HERE

34

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20

52

46

Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Publisher: Steven Longenecker Assistant Managing Editors: AMERICAN CONSEQUENCES

4 Inside This Issue

52 Love, Lies, and Tea Leaves on Wall Street BY TURNEY DUFF 56 Sympathy Versus Empathy BY P.J. O'ROURKE 60 Do Dirty Socks Make You a Liberal? BY ANDREW FERGUSON

BY STEVEN LONGENECKER

6 Letter From the Editor BY P.J. O'ROURKE

12 What Moved the Market

14 What Could Possibly Go Wrong?

Chris Gaarde, Laura Greaver Creative Director: Erica Wood Contributing Editors: Mike Barrett, Turney Duff, Dr. David Eifrig, John Fedderke, Andrew Ferguson, C. Scott Garliss, Anatole Kaletsky, Alice B. Lloyd, Joseph S. Nye Jr., Dr. Ron Paul, Buck Sexton, Dr. Richard Smith Newswire Editors: C. Scott Garliss, John Gillin, Greg Diamond

16 From Our Inbox

66 Why the Algos Need a Heart BY C. SCOTT GARLISS

20 How Fear Will Ruin Your Financial Future BY DR. DAVID EIFRIG

70 The World Economy Goes Hollywood BY ANATOLE KALETSKY

24 The Pendulum of Investor Psychology BY MIKE BARRETT

74 The Year of Trump?

BY JOSEPH S. NYE JR.

30 The Gig Economy

78 Rough Times Ahead, But Liberty Can Still Win BY DR. RON PAUL

BY JOHN FEDDERKE

34 Tales of Emotional Investments

Cartoon Director: Frank Stansberry General Manager: Jamison Miller Advertising: Jared Kelly, Jill Peterson Editorial feedback: feedback@ americanconsequences.com

82 The Book Grump

40 The Devil Drives Tesla BY ALICE LLOYD

84 Read This

COMPILED BY STEVEN LONGENECKER AND P.J. O'ROURKE

46 The Most Dangerous of All Biases BY DR. RICHARD SMITH

86 The Final Word

BY BUCK SEXTON

American Consequences 3

INSIDE THIS ISSUE

W hether it’s selling too soon or riding a loser too long, emotional investing can sink your portfolio... and break your heart. And while no one wants to lose money in the markets, the reality is you will lose. A bad earnings report, another data breach, or an actual bear market... at some point something is going to give. This month, we’re taking a look at what happens when folks invest with their hearts instead of their heads... When you love an investment so much, you pull your stops and ride it to the bottom because this time is different... Editor in Chief P.J. O’Rourke gets to the root of fear and greed in life and the markets... and makes the case for sympathy over empathy with a little help from Bush, Bezos, and Bubba... Featured contributor Andrew Ferguson examines the Left’s obsession with social “science”... Former congressman Ron Paul warns us about a $22 trillion problem we should be afraid of...

Journalist Alice B. Lloyd reports on the eccentric and often erratic Elon Musk and his quest to “save the world”... Former CIA analyst Buck Sexton spends time with Roger Stone and tells us what’s really driving the Russia investigation... Toledo resident John Feddereke takes a closer look at his hometown’s rising “Hipster Economy”... Author and former trader 8YVRI])YǺ tells us why reading people is as important to investing as reading data... Some of our favorite market analysts and editors share their most memorable – and emotional – tales from the trading room floor... And our resident anonymous Book Grump reviews and rips the latest best-selling business books. We’ve uploaded a PDF suitable for printing to our archive page. And tell us what you think at feedback@ americanconsequences.com. Regards, Steven Longenecker Publisher, American Consequences

4

February 2019

ADVERTORIAL

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If you were invested in stocks in 2018, you no doubt know it was a wild ride. Many experts and analysts on financial news shows began to proclaim that the bull market was over. Despite the drop in the markets, one man has had an unusual warning for investors: “Get out of cash.” Urgent Warning I recently met up with former hedge fund manager, Dr. Steve Sjuggerud – one of the most widely-followed financial analysts in the world. Today, he shuns the spotlight and lives on a remote island off the Florida coast. He’s built a new life… and a substantial fortune… by sharing a series of eerie predictions. Many of which have proven correct. • In January of 2000 , he wrote: “We are at the peak of most likely the greatest

DOW COULD SOON SKYROCKET BEYOND 50,000 Dr. Sjuggerud says, “I believe BEFORE stocks collapse, we will witness an event that will send the Dow soaring past 40,000... 50,000 -- even higher... as people who have sat on the sidelines so far panic into the markets. This final, furious stage of a bull market has a name… it’s called a ‘Melt Up.’ He told me, over the next year or two, there’s going to be a massive panic out of the traditional banking system . Bottom-line : Steve says the Melt-Up has now officially begun… and will only get bigger. Some of the biggest investors in the world are pulling billions of dollars at a time out of bank deposit accounts…They’re even selling their gold bullion. And they’re putting all this cash in the LAST place you’d ever expect .

“Melt-Up” millionaires You see, Dr. Steve Sjuggerud believes tens of thousands of newmillionaires could be minted very soon. PLEASE NOTE : It’s important you take action as soon as possible, because a huge new investor is entering the market. And this new investor is going to trigger a stock buying panic the likes of which we’ve never seen before. Dr. Sjuggerud is an intensely private man. But he was recently prodded by a friend – one of the most successful investment analysts in the world – to share the details of his stunning research with the general public. Warning: What he has to say is controversial… and not at all what you’ll hear from the mainstream press. But for the time being, you can watch his exclusive interview – free of charge - here: www.LastBullMarket2019.com

financial mania that will ever be seen in our lifetimes.” Next thing you know, the NASDAQ fell more than 75%. • On November 1, 2002 , he said, “I expect a real estate bubble to take hold. We don’t know how far it will go. But it has likely just begun.” You probably remember what happened next – home prices soared. • On Friday, March 20, 2009 – at the peak of the financial panic, he wrote: “You want to own stocks right now.” Stocks have nearly tripled since. But his latest prediction has caught many Americans completely off-guard .

:$7&++,6(;&/86,9(,17(59,(:˱)5((2)&+$5*(˨+(5( www.LastBullMarket2019.com

From Editor in Chief P.J. O’Rourke

LEARNING TO LOVE OUR EMOTIONS

Usually, as people grow up, they acquire some common sense, which is to say they get frightened. “

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February 2019

LETTER FROM THE EDITOR

It’s an oldWall Street saying: “Markets are driven by greed and fear.” If so, markets are a sort of one-man full-court basketball game where you dribble EGUYMWMXMZIP]HS[RXLIǼSSVFSEVHWXSWMROER&ZEVMGIFEWOIXSRP]XSǻRHXLEXXLI Worry side is down by two points, and then, panic-stricken, you have to pass the ball to yourself back across the center line and make a Safe Haven layup. STARTING WITH 'GREED' AND 'FEAR'

This is a ridiculous metaphor for investing. Warren Buffett, in his 2004 Annual Shareholder Letter, famously said, “Be fearful when others are greedy and greedy only when others are fearful.” Good advice, if you can assume that everybody’s wrong all the time. John Maynard Keynes addressed greed and fear in his 1936 magnum opus (and damn dull read) The General Theory of Employment, Interest, and Money . ... the characteristic of human nature that a large portion of our positive activities depend on spontaneous optimism rather than mathematical expectation... [Greed] ... can only be taken as a result of animal spirits... [Emotions] Thus if the animal spirits are dimmed and the spontaneous optimism falters... [Fear] ... enterprise will fade and die. Note that the Wise Men of Wall Street, the Oracle of Omaha, and the Father of Modern Macroeconomics all seem to regard greed and fear as bad things.

We have no one to stick up for greed except Gordon Gekko, played by Michael Douglas in the 1987 Oliver Stone film Wall Street . ... greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary sprit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind. But, remember, Gekko is the movie’s villain . He’s named after a lizard. (More than a dozen years before GEICO made a lizard cute.) And there’s no one at all to stick up for fear. FDR (who, incidentally, had a terrible understanding of market economics) was full of baloney on the subject. “The only thing we have to fear is fear itself.” And death, famine, war, conquest, heart disease, cancer, plane crashes, car wrecks, accidents in the home, snakes, heights, public speaking, falling behind on our car payments, etc. In fact, greed and fear are the second and third most valuable emotions you possess.

CLICK HERE TO READ THEWEB VERSION

American Consequences 7

LETTER FROM THE EDITOR

Love, of course, being the first – if you’re lucky enough to have any. But greed and fear I bet you’ve got. One way to better understand greed is to look at the origin of the word. The word isn’t actually greed . That’s a 17th century innovation, turning the adjective greedy into the noun greed (what linguists call a “back-formation”). The original word in Old English is grædig , which, by the 13th century, becomes the more recognizable gredie , and all it means is “hungry.” The Indo-European root of greedy is gher- , “to like or want.” That gher- root, with various phonetic shifts, shows up all over the place in our family of languages. It’s there in the Latin word hortari , “to cause to strive or desire,” from which we get the English word exhort . And it’s also in the Greek word kharis , “grace, favor,” from which we get charisma . As a word, greedy comes from a really good family. (And I’m feeling really good that for the first time in 50 years, I’ve found a use for my college minor in linguistics.) When we say a word, we invoke a concept. When we denigrate greed, we denigrate hunger. People who don’t eat are sick – or soon will be. Are you a “Market Anorexic”? Are you living in a tent with one change of underwear so that you can convert all your worldly goods into Krugerrands and bury them in a secret part of the campground? Oliver Stone is the real villain in Wall Street – for putting the truth about greed into the mouth of the movie’s bad guy.

Fear – in all its origins, roots, forms, formations, derivations, and cognates – means fear. And where would we be without fear?

And what about fear? The word means... No, I won’t take you down another rabbit hole of etymology. Fear – in all its origins, roots, forms, formations, derivations, and cognates – means fear. And where would we be without fear? Toddlers have none. If you’ve raised a toddler, you know where that leads... right to the basement door and the top step of the long, steep cellar stairs. Or worse. As America’s most profound philosopher, Dave Barry, says to his two-year- old in his profoundly philosophical book Babies and Other Hazards of Sex : “NEVER EVER PUT YOUR FINGER IN THAT PART OF THE DOGGIE!” Usually, as people grow up, they acquire some common sense, which is to say they get frightened. But some don’t. We’ve all known people who had no fear. People who rode their motorcycles like Evel Knieval but without planning in advance which cars, trucks, or Snake River canyon they were going to jump over. People who consumed drugs the way the rest of us consumed Doritos. People who drank so much that they would have halted

8

February 2019

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the rise in global sea level if oceans were beer. People who attempted to fix the snow blower while it was still running. You used to know a lot of people like that. You don’t know them anymore. They’re dead. And you’re not... thanks to fear. Investing is not a game of one-man basketball. The better metaphor is cooking. Of course, there’s greed and fear involved in that too, especially if you’re a glutton eater and a frightful cook the way I am. Where the heck is the top to the blender? Well, a piece of Saran wrap will probably do... How was I supposed to know you can’t microwave raw eggs? Darn it, the pilot light’s out. I’ll just poke my head into the oven with my Bic and... You’re afraid you can’t afford the grocery bill. You’re afraid you didn’t get the right ingredients. You’re afraid you’ll poison your family. (What’s the date on this can of beans? 2012? Wasn’t 2012 a good vintage year for beans?) But most of the time the “Fear and Greed of Cooking” works out just fine. You feed your family. When you follow the greed and fear recipe, you’re using just the right mixture of liking and wanting, of causing to strive and desire, of grace and favor (a pinch of luck), plus a dash of trepidations, apprehensions, misgivings, and qualms to keep you from cooking up something stupid. Dig in .

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American Consequences 9

AND SO IS WIKIPEDIA WALL STREET (1987) was directed and co-written by Oliver Stone. Michael )SYKPEWTPE]IHXLIǻRERGMEPWPIE^IFEPP,SVHSR,IOOS[LSQEOIWXLIRSXSVMSYW “greed is good” speech, and Charlie Sheen played his hero-worshiping sidekick who reforms in the end. When I looked up the movie on Wikipedia I came across these intriguing notes about the movie’s conception, reception, and audience reaction, all quoted directly from the Wall Street Wiki article: GOOD

“The defense of greed is a paraphrase of the May 18, 1986, commencement address at the UC Berkeley’s School of 'YWMRIWW&HQMRMWXVEXMSRHIPMZIVIHF] arbitrageur Ivan Boesky (who himself was later convicted of insider trading charges), in which he said, ‘Greed is all right, by the way. I want you to know that. I think greed is healthy. You can be greedy and still feel good about yourself.’” “Rita Kempley in the Washington Post [reviewing the movie when it was VIPIEWIHA[VSXIXLEXXLIǻPQƵMWEXMXW weakest when it preaches visually or verbally. Stone doesn’t trust the time- honored story line, supplementing the obvious moral with plenty of soapboxery.’”

ƸXLIǻPQLEWGSQIXSFIWIIREWXLI archetypal portrayal of 1980s success... .XLEWEPWSTVSZIRMRǼYIRXMEPMRMRWTMVMRK people to work on Wall Street, with Sheen, Douglas, and Stone commenting over the years how people still approach them and say that they became stockbrokers because of their respective GLEVEGXIVWMRXLIǻPQƹ Ƹ.RVIZMI[MRKXLIǻPQƶWWIUYIP]IEVW later, Variety noted that though the SVMKMREPǻPQ[EWƵMRXIRHIHEWEGEYXMSREV] tale on the pitfalls of unchecked ambition and greed, Stone’s 1987 original instead LEHXLIIǺIGXSJXYVRMRK)SYKPEWƶLYKIP] charismatic (and Oscar-winning) villain into a household name and boardroom icon – an inspiration to the very power players and Wall Street wannabes for whom he set such a terrible example.’”

– P.J. O’Rourke

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February 2019

Why Trump’s 2020 Defeat Is Written In History BY BRETT AITKEN, MANAGING DIRECTOR, STANSBERRY RESEARCH ADVERTORIAL

He’s a successful businessman who VM^MZPMTLX]JTQKW ٻ KMJMNWZM_QVVQVO the Presidency… 0M¼[KWUQVOQV\WXW_MZIN\MZIV MTMK\WZITKWTTMOMTIVL[TQLM° )VLPMLQLQ\JaJMI\QVOIVW]\WN touch New Yorker opponent. 7VKMQVW ٻ KMPMTI]VKPM[I^I[\ \ZILM_IZXZWUQ[QVO\W[\IVL]X NWZ)UMZQKI¼[PMIZ\TIVL_Q\P ! QVKZMI[ML\IZQ [ٺ QV\W\IT 0MM^MV[TI[PM[QUUQOZI\QWVTM^MT[ \W)UMZQKIJa! _PQTMKZIKSQVO LW_VWVQTTMOITQUUQOZI\QWV\PZW]OP LMXWZ\I\QWV[\IZOM\QVOI[UIVaI[ million people. AW]UIa\PQVS1¼U\ITSQVOIJW]\ Donald Trump. *]\1¼UIK\]ITTaLM[KZQJQVO0MZJMZ\

0WW^MZ)UMZQKI¼[[\8ZM[QLMV\ The similarities between Trump and the man who saw a Great Depression happen under his watch are eerie. And they won’t stop here. 7^MZ\PMTI[\[Q`UWV\P[UaÅZUIVL1 have spent hundreds of hours (and tens of thousands of dollars) in research to ZMIKPWVM[PWKSQVOKWVKT][QWV My research shows… President Trump is about to face a crisis on the level of what President 0WW^MZ[I_QV!! But it’s not the kind of crisis anyone expects. And just like with Herbert Hoover – the crisis could shut Republicans out of the ?PQ\M0W][MNWZIOMVMZI\QWVWZTWVOMZ . This presentation reveals exactly why.

American Consequences 11

THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH

WHAT MOVED THE MARKET

For real- time market updates from some of Wall Street’s most plugged- in analysts, CLICK

REBOUNDING FROM THE ABYSS...

U.S. stock markets roared back in January...

reported better-than-feared earnings, forcing shorts to cover their negative bets. Trade representatives from the U.S. and China set dates for important meetings, the bellicose rhetoric was put aside, and the market was optimistic a deal could be accomplished... But there were other problems... Momentum is easing across the world’s major economies. China is seeing lower private sector investment and a slowdown in factory MRǼEXMSR8LIPEWXXMQIXLMWSGGYVVIHGSVTSVEXI TVSǻXW[IVILEQQIVIH In the U.K., Brexit remains a concern. A lack of a plan has multinational corporations leaving London in droves, bludgeoning the economy. The economic data from the region has been another weak spot, with U.K. manufacturing data at a three-year low. It’s one of the most basic rules for investing, yet it’s also one of the hardest to follow... As much as investors were worried they were dumping shares at or near the bottom in December, now the opposite is true... Investors are worried they may be buying shares at or close to a near-term top. So how do we know when it’s the right time to buy versus sell? BUY LOWAND SELL HIGH... USUALLY...

In fact, it was their best start in 30 years. The S&P 500 Index was up 8%, the Dow Jones up 7%, and the Russell 2000 up nearly 12%. Commodities were led by an 18% jump in crude prices and a 3% pop in gold. The reasons for the 180-degree reversal from December were many... The Fed’s policies were much of the reason for U.S. markets falling apart in December... The complaints from the public and private sector were that the Fed was too rigid, and it ǻREPP]HE[RIHSR+IH(LEMV/IVSQI5S[IPP that perhaps there was sound reasoning behind the uproar. The horror of late 2018 had more to do with fear of slowing global growth, trade wars, a Democrat-controlled House, and an uncooperative Federal Reserve, but a change in the calendar brought some optimism. We were delivered blowout payroll numbers. The early January report showed a gain of 312,000 jobs versus a forecast of 176,000, and average earnings grew 3.2%. This was manna from heaven and the equity gains kept piling up. Earnings season kicked in and did not disappoint. The big semiconductors delivered, returning technology to the head of the pack. Market whipping boys IBM and GE also

HERE to get instant

access to NewsWire.

12

February 2019

EDITORS John Gillin

Greg Diamond C. Scott Garliss

Remember, analysts have recently slashed estimates for the S&P 500. They’re worried about China-U.S. trade negotiations... and they’re worried that a breakdown in the talks could have negative implications for growth. If that’s the case, estimates are likely headed lower and the market will look expensive once more. However, if the opposite winds up being true, this record-long bull market could still have room to run...

While there are many factors, one important factor to keep an eye on is valuation. In particular, we like to use the price-to-earnings (P/E) ratio to gauge where we think the S&P 500 is headed... For anyone unfamiliar, P/E is used to measure a stock price relative to its estimated earnings. Remember, earnings potential is a constantly moving target. In other words, as companies update metrics or the news cycle changes, estimated earnings move, too. As a result, we need to keep an eye on which direction the S&P 500’s P/E moves. A rising P/E might indicate an overvalued stock or asset, whereas a falling P/E might indicate a low price relative to future earnings. By monitoring this variable based on history, you can have a better idea of when to buy and when to sell... increasing your potential gains. For example, based on estimated forward 12-month earnings of $168.16, the S&P 500’s 5*VEXMSMW4ZIVXLIPEWXǻZI]IEVW EGGSVHMRKXSHEXEVIWIEVGLǻVQ+EGXIXXLI S&P’s average P/E ratio is 16.4 times. That means based on history, we could be getting close to a market top or a correction. Now, it doesn’t mean we can’t go above 16.4, but you can at least get an idea of fair value.

American Consequences 13

WHAT COULD POSSIBLY GO WRONG?

Financial follies and disaster in the making

Buybacks are hugely popular among CEOs and CFOs of publicly traded companies for two reasons... First, they increase a company’s EPS without any actual increases in earnings. By reducing the number of shares outstanding, management can increase EPS without any changes to profits. This makes EPS one of Wall Street’s favorite financial metrics... Companies are rewarded with higher stock prices when their EPS jumps. That leads to the second reason executives love share buybacks: Top executives earn millions of dollars with bonuses and stock options tied to EPS and share price... which is plenty of incentive to buy back shares and artificially inflate EPS quarter after quarter. Companies have taken on huge amounts of debt to pay for these buybacks, and it’s only expected to get worse... Analysts project nearly $1 trillion in buybacks this year, far exceeding 2018’s record $770 billion.

&VIGSVHJSVMRǼEXIHIEVRMRKW

U.S. corporate earnings – and more specifically, corporate earnings per share (“EPS”) – have been on a tear. After declining for seven consecutive quarters in 2015 and 2016, EPS of companies in the S&P 500 soared by double-digit percentages through September 2018. And with roughly half of the companies in the S&P 500 reporting fourth-quarter 2018 results to date, that streak almost certainly extended to end the year. Unfortunately, that momentum has turned... Wall Street analysts are now forecasting EPS could decline this quarter for the first time in three years, anticipating a 1% drop in earnings per share versus an expected 3.3% increase. If true, it would be the first such contraction since the second quarter of 2016. And falling analyst estimates aren’t the only reason for concern... This trend has been fueled by a huge boom in debt-financed share buybacks.

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February 2019

But we also expect the Fed and other central banks to do everything they can to keep this boom going as long as possible...

The Fed ‘eases’ itself into a corner...

For decades, the Fed’s primary policy tool has long been manipulating short-term interest rates. When the economy slows, the Fed typically cuts interest rates to stimulate inflation. When the economy recovers, it then raises rates to remove that stimulus. Time and again, each Fed “cutting cycle” has required lower and lower interest rates to produce the same effect of stimulating the economy. Likewise, the Fed has been forced to halt its rate-hike cycles at lower and lower peaks before yet another recession or market shock has inevitably sprung up. Following the housing bust, the Fed cut interest rates to effectively 0% and held them there for nearly seven years. Even now, after three years of “tightening,” short-term rates are barely over 2% – near their lowest levels in history. Yet, even at these relatively low levels, we’ve already seen signs that the economy is beginning to weaken, leading the Fed to abruptly halt its rate-hike plans last month. In short, it appears the Fed is now stuck... It can’t continue to raise rates without derailing the so-called “recovery.” Yet, if it doesn’t continue to raise rates, it will have little room to cut them when the next crisis inevitably arrives. While the first three rounds of QE certainly helped boost asset prices here in the U.S., it’s still not clear how much it helped the real economy. For now, we remain cautious... We believe the downside risks to stocks and the economy are greater than any time since this long bull market began.

7 million delinquent borrowers...

Despite a strong economy and low unemployment, the Federal Reserve Bank of New York reported that at the end of 2018, a record-high 7 million people were 90 days or more behind on their car payments... 1 million more people than when the country was recovering from the 2008 economic crisis. In 2010, the share of 90-day delinquent borrowers peaked at 5.3% and the total number of borrowers has risen significantly in the last few years. Subprime auto loans increased to 39% of the market in 2015, and many lenders are giving people a few extra years to repay... a tactic to make loans look more affordable than they may be. As with the 2008 mortgage crisis, the bulk of these delinquent payments are among borrowers with lower credit scores... people more likely to turn to payday and auto- finance lenders rather than banks or credit unions. According to the Fed, 6.5% of auto-finance loans are 90 days delinquent – compared to 0.7% of loans by credit unions – and the auto-finance loans often carry higher interest rates. Since a car is often a higher-priority payment for these folks, a rise in delinquencies can signal economic distress among low-income and working-class Americans. Borrowers who are delinquent on their car payments often lose their vehicle, making it even more difficult to get to work, school, or the doctor.

American Consequences 15

FROM OUR INBOX

Re: Our Newest Readers Weigh In I feel your reporting has been exceptional and keep up the great work. – John R. P.J. O’Rourke comment: John, you can help! If you like what we’re doing, pass the news – and the free American Consequences subscription – to your friends. Just keep me laughing gang, while we wait for the DebtBomb charade to blow. – David E. P.J. O’Rourke comment: David, we might as well go to the poorhouse with smiles on our faces. Re: Your publication... P.J. O’Rourke comment: Although, Andrew, you seem to take issue with that. But as Mark Twain said, “The secret source of laughter is not joy but sorrow.” Re: Our January ‘Trade’ Issue Thank you for working to educate the ones who seem to be aware that something is really wrong with the direction our country was taking until Trump was elected. Appreciate your writing style. – Ralph S. P.J. O’Rourke comment: Thanks, Ralph. Although we aim to spread our message of “individual liberty, individual dignity, and individual responsibility” to everyone – no matter how they voted in 2016... or 2018. It turns out life is serious business. – AndrewR.

With all the ranting and raving coming from liberals, I sometimes start questioning my sanity. I wonder if I can really be that wrong. I look forward to American Consequences , just so I don’t feel so alone. It is nice to know other people are wrong too. – Gene L. P.J. O’Rourke comment: Gene, I’ve been known to be among them myself! But, if you don’t like rants and raves and do like people trying their best to think clearly, you’ll never be lonely sticking with us. Re: The Real Meaning of Trade Who in their right mind would actually read a draft copy of The Wealth of Nations ??? – Cameron B. P.J. O’Rourke comment: Ummm... For my sins, Cameron, and in order to write my book On The Wealth of Nations , I read almost everything Smith wrote, except a few essays about astronomy. But I wasn’t quite crazy enough to read his rough drafts. That passage appeared in a footnote to Smith’s complete works, published by Liberty Press. Re: Free Trade: A Basic Human Right OK, I’m getting REALLY tired of reading, in practically every news item, how bad Trump is. Can’t you people just give me facts without inserting your damned political opinions? – Richard B.

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February 2019

Send us a message, question, or criticism at feedback@americanconsequences.com senators sleeping under bridges, and the president serving leftovers at state dinners. I’m not up to speed on the Colorado free P.J. O’Rourke comment: Richard, American Consequences has no anti- or pro-Trump editorial agenda. We just “calls ‘em as we sees ‘em” on individual policy issues. Also, our contributors have a wide range of policy opinions, and as long as what they say is well- reasoned and well-informed, we don’t try to stifle them. Re: Furloughed Feds and the BorderWall Why do we have to worry about the government workers getting paid? Are they working for us? If they were, there would not be a school strike in Los Angeles and Nancy Pelosi would be in an old folks home, not in Congress. I would be glad to give tax dollars for that!! Now our new Colorado governor wants our tax money for free kindergarten. ;L]$0MRHIVKEVXIR[EWJVII[LIRQ]ǻZI went to school, paid for by property tax. When did Liberalism become Socialism? We were hippies in our day, but at least the kids were high, not the politicians! – Louise E. P.J. O’Rourke comment: I guess the only thing I can really say, Louise, is that when it comes to government shutdowns, I’d prefer to see congressmen going to the pay-day lenders,

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American Consequences 17

FROM OUR INBOX

kindergarten issue, but I remember that when my kids were that age I would have gladly paid to get them out of the house for a few hours every day. Re: ‘Is Sunscreen the New Margarine?’ Loved the article... well written... and freeing. Freeing from those who frequently warn my wife and me about our sun-loving habits. My father and mother both worked outside a lot... much sun exposure... and I grew up living summers in shorts and mostly no shirt. My dad and mom lived into their late 90s... I’m going for the same... – Dennis S. P.J. O’Rourke comment: Dennis, in a free society, we expect people to have enough sense to come in out of the rain... and the sun. I’m trusting that you’re a better judge of what’s good for you than some government bureaucracy. (Even though, as a pigment-free Irishman, I wear SPF 1000.)

I don’t often comment on American Consequences but I do read almost every word. However, when I read the [article] I was thrilled to discover there are some in the medical profession that can still see the blindingly obvious – we didn’t come to Earth from somewhere else. We evolved here and we’re fully equipped by nature to live here. Now if only some similar ‘big picture’ thinking could enter the American Psychological Association, things may start looking up. – Paul J. P.J. O’Rourke comment: Paul, it is possible however that psychologists did arrive here from a different planet. Re: Fair Reporting? I’ve read several reviews of American Consequences and the consensus is you and your letter are biased very far to the “right.” In my experience, the conservative movement has no allegiance to facts, unbiased and honest reporting. I will read and authenticate your blog and if you are found biased toward known liars and miscreants, I will report it to all. I consider this a fair deal. – Rick H. P.J. O’Rourke comment: Have at it, Rick. Although I do wonder if you’ve ever really had a heart-to-heart talk with any regular old “small-c” conservatives – I’ll bet there are some among your friends, relatives, and co-workers. Nonetheless, I’ll give you this: people who get too wound up in political “movements” of any kind tend to loosen their grip on the facts.

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February 2019

ƚƼĜĹčƼŅƚųūœĘĜƋĵ±Ĺ„±ĵŞĬåųūŅüŸƋŅÏĩŸĜŸŅĹĬƼƋĘåĀųŸƋÚåÏĜŸĜŅĹĜűĬŅĹčĬĜĹåŅüŅüƋåĹ ĜĵŞƚĬŸĜƴå±ĹÚåĵŅƋĜŅűĬÏĘŅĜÏåŸţ‰ĘåĀåĬÚŅüÆåʱƴĜŅų±ĬåÏŅĹŅĵĜÏŸôŞŅŞƚĬ±ųĜDŽåÚÆƼ Daniel Kahneman's Thinking Fast and Slow and Richard Thaler's Nudge ôĘåĬŞŸÚåŸÏųĜÆå the many ways in which humans are predictably irrational. You may not knowwhat you're going to get... but with a little planning, you can control how you'll react. Keep this in mind ƵĘåĹūÆĜƋĜĹčĜĹƋŅūƋĘåŸåĵ±ųĩåƋŅýåųĜĹčŸţţţ LIFE IS LIKE A BOX OF CHOCOLATES ^ AND THE MARKETS

They look great on the outside. But when the growth stops, they'll burn ]SYVǻRERGMEPXSRKYI Hypergrowth Chocolate Chiles

If you do nothing else, stop paying so much to brokers and mutual-fund managers. LEAVE 'EM!! Gold-Leaf Fee-Heavy Creams

CAUTION!

'Free Cash Flow'- "«¼¼—“aØèĠ—Ü

Contrarian Nut Delight

8LIQSWXWOMPPJYPǻRERGMEP confectioner can't fake free cash. These are the best chocolates in the box. EAT 'EM UP!

If you want to beat the market, your portfolio must PSSOZIV]HMǺIVIRXJVSQXLI market. Try something new, but do manage your risk. TAKE A BITE! White Chocolate 'Hold Forever' Marzipan We'd all like to "hold forever," but don't get stuck owning a buggy-whip maker in EREYXSQSFMPIEKI &PWS white chocolate isn't real GLSGSPEXIERHQEV^MTER is as bad as fondant.) CONSUME RESPONSIBLY!

'Falling Knife' Key Lime Pie

Sure, that last slice is on sale. But where did the rest of the pie go? Down the gullet or in the trash bin? Nothing says a stock's value can't keep plunging. NIBBLE CAREFULLY!

By Steven Longenecker

American Consequences 19

By Dr. David Eifrig

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February 2019

NEARLY HALF OF ALL AMERICANS ARE RUINING THEIR FINANCIAL FUTURES... A survey from online banking-news aggregator Bankrate found that 57% of Americans are not invested in the stock market, including in their retirement accounts. Not investing is one of the biggest mistakes you can make if you want a wealthy retirement. Some of those folks probably have great excuses. Maybe they lost a job... Or they don’t trust Wall Street... Probably, money is tight. Or it’s just “too hard” to figure out the brokerage forms to get started. These excuses are all based on fear.

When it comes to investing, fear prevents most people from starting... whether it’s fear of losing money or fear stemming from ignorance. It’s common investor behavior to freeze in the face of fear. A tiny part of your brain called the amygdala kicks in whenever there’s a perceived threat. The amygdala makes us want to avoid risk. Money, in today’s society, represents a sense of security. We need money to obtain what we need to survive... food, shelter, medicine. Any threat of losing money can trigger the amygdala to kick in full-force.

CLICK HERE TO READ THEWEB VERSION

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American Consequences 21

to post year after year of gains, eventually rallying more than 500% from its crash levels to peak in 2000. The story repeats itself throughout history – most recently in 2008. On September 29, 2008, the Dow fell nearly 7% in one day... Investors left the market in droves. By the end of 2008, trillions of dollars were pulled from the stock market. Within a few months, a new bull market began. But those who sold at the bottom – and were too afraid to get back in – robbed themselves of an incredible opportunity to make money. Since March 2009, the Dow has risen 250%. It’s one of the longest-ever bull markets... with average market gains that could have turned an initial investment of $5,000 into $17,500. Even at my personal-finance and health- focused daily letter, Health &Wealth Bulletin , one of my research assistants was scared of the market not long ago. So I challenged her to start investing. I even bullied her a bit to get her to stop digging her heels in. She told me that the hardest part of getting started was finding where to open a brokerage account. As she told me: I approached the assignment like I would with any other: with hours of research. I went through many different trading websites, only to find myself overwhelmed with forms and instructions. For example, just trying to figure out how

But that fear is dangerous to your investments. The “safest” thing for your amygdala is to follow the crowd... To stay out of the market until you hear that everyone is buying in – normally at the top. When you hear cocktail-party chatter filled with stories of stock victories, that’s a classic sign of the end of a bull market and the start of a bear market. It works the same way with fear, too... As author and financial columnist Jason Zweig writes in his book, Your Money and Your Brain , we saw this type of fear when the market dropped 23% in a single day... the “Black October” market crash. At the time, I was working on the trading desk for Goldman Sachs. On October 19, 1987, the stock market fell more in a single day than the crash that started the Great Depression. That’s a crazy move. And when things get that crazy, clients panic... For days, we worked, ate, and slept at the office... and helped our clients move assets around. It was a true global panic. There was no time to go home, so we simply wore the same clothes from the day before. It was a nerve-racking experience, but it taught me one simple lesson: When extreme fear hits the market and things are falling apart, it creates incredible opportunities. That October, people ran for the exits, selling off as many stocks as possible. And the fear kept people wary of stocks for years afterward... even as the market went on

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February 2019

to fund my account was awful. I don’t live too close to a branch of my bank, so the process of setting up a wire transfer seemed tedious and time-consuming. Worse, I only had a small amount to invest and many brokerages required minimum balances beyond my means. But after a few months of research, she opened her first brokerage account and started investing. And a lot of her initial fears are gone. To help you get started, here are four simple things to know when looking for a brokerage account: 1. FRACTIONAL SHARES. If you’re starting off with a small portfolio, find out if the brokerage firm offers a plan to let you invest in fractional shares. That way, you’re putting some money to work immediately, even if it’s not enough to buy, say, an entire share of Apple. Just pay attention to what fees you might have to pay. 2. FEES. Figure out what the fees are for completing a trade. Some places charge fees for fractional share transactions as well, which can affect your budget. Make sure you know exactly how much each trade will cost before you start so you won’t get any surprises.

Some brokerages, like Fidelity, Schwab, TD Ameritrade, and Vanguard, offer commission- free funds. 3. MINIMUM BALANCE. Some brokerages require a minimum account balance. For example, Interactive Brokers used to require a minimum balance of $10,000, and although it recently eliminated that minimum, it will still require you to spend at least $10 per month in commissions. On the other hand, most other brokerages like Fidelity, Merrill Edge, TD Ameritrade, and Vanguard each offer a $0 minimum balance. So if you have a small portfolio or you don’t plan on trading often, those are likely better options for you. 4. TAXES. Every brokerage will provide a form for tax time, but make sure you read the fine print. See if you are required to go online and request the form or if it will be automatically mailed to you. Make sure you understand how it works and you’ll save yourself a headache. If you still aren’t sure about taking that first step, remember that the most important step is the first one – getting started. And if you know someone who should be investing but hasn’t started yet, share this article with them. Help them kick the fear and get going on the road to building wealth today.

A tiny part of your brain called the amygdala kicks in whenever there's a perceived threat.

FEAR INVESTIN

American Consequences 23

INVESTORS MAKE THEIR BIGGEST EMOTIONAL MISTAKES AT MARKET EXTREMES...

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February 2019

Years ago, Bill – an affable gentleman in his 60s – shared a personal story with me that I’ll never forget. What made the story unforgettable is that it didn’t have to end the way it did... Like many people in their 60s, Bill moved to Florida after living most of his life somewhere else – in this case, Corning, New York.

Known as “Crystal City,” it’s also the world headquarters for glassmaker Corning, a Fortune 500 company with dozens of manufacturing facilities around the world. Corning’s roots in this small town started in 1851, dating back to the early days of America’s glassmaking industry.

By Mike Barrett

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American Consequences 25

EXPLOITINGTHEPENDULUM OF INVESTORPSYCHOLOGY

It's easy to get complacent about a stock that has treated you well... But never allow yourself to get so emotionally attached that it clouds your judgment.

Corning’s meteoric 1,200% rise in just 24 months meant Bill was suddenly worth millions. With retirement just a decade away, he was set. It was too good to be true... And then, without warning, it wasn’t. The dot-com bubble suddenly burst... tech stocks crashed... and $5 trillion in paper wealth disappeared. Two months after hitting an all-time high near $325, Corning shares were down 50%. They wouldn’t stop falling until they hit $3 in October 2002... a stunning 99% implosion. Tragically, Bill never sold. It’s said that investors tend to make their biggest mistakes at market extremes. Sadly, this is a perfect example. Achieving financial independence and letting it slip through your fingers takes an enormous mental toll. I’m sure not a day goes by that Bill doesn’t wonder how better his life might be had he handled things differently – probably when his alarm clock goes off, reminding him to get up and get ready for work every day. Of course, with the benefit of hindsight, it’s easy to ask the most obvious question... Why didn’t Bill sell some of his shares before it was too late ?

Bill became nostalgic as he recalled his many years living in Corning. He fondly remembered executives and plant workers routinely “rubbing shoulders” at their kids’ school events and in the town’s shops and restaurants. Everybody, it seems, was also a Corning shareholder. Bill told me he had owned shares most of his adult life, added to them over the years when he could, and reinvested the dividends. In 1999, Corning’s stock (and Bill’s net worth) suddenly began to soar... Shares doubled between June 1999 and December 1999... then doubled again as the dot-com mania hit full stride, peaking in August 2000 near $325 (on a pre-split basis).

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February 2019

The answer is less obvious: Bill was too emotionally attached to Corning and its stock. He wasn’t prepared to part ways with it because he never imagined such a day would come. In his latest book, Mastering the Market Cycle , investing guru Howard Marks identifies one of the greatest and most underappreciated attributes of superior investors – an unemotional nature. Here’s how he explains it... One of my most persistent observations and – in a related way – one of the questions I’m most often asked is whether people can learn to be unemotional. My answer is “yes and no.” I think it’s possible for people to be on the lookout for potential emotional influences and to try to restrain their effect. But I also think people who are inherently unemotional will have it much easier. A lack of emotionality is a gift (in investing, that is, but perhaps not in other areas, like marriage). It’s not my point that emotional people can’t be good investors, but it will require a great deal of self- awareness and self-restraint. Let Bill’s heartbreak serve as an important lesson: It’s easy to get complacent about a stock that has treated you well... But never allow yourself to get so emotionally attached that it clouds your judgment. The Corning story offers two lessons that are becoming important for investors these days... Marks eloquently sets the stage for them both, with the following excerpt from his book.

(As an aside, the seventh chapter, titled “The Pendulum of Investor Psychology,” is a must- read for serious investors.) As he wrote... In the real world, things generally fluctuate between “pretty good” and “not so hot.” But in the world of investing, perception often swings from “flawless” to “hopeless.” The pendulum careens from one extreme to the other, spending almost no time at “the happy medium” and rather little in the range of reasonableness. First there’s denial, and then there’s capitulation. During the late ‘90s, Corning’s business was “pretty good.” It started doing what many companies do when times are good – acquiring smaller competitors and consolidating the industry. The acquired companies brought lots of new revenue streams and caused earnings to soar. Investors, in turn, saw the exceptional numbers and assumed Corning’s earnings would be flawless for years to come. Investors generally figure the near future will look a lot like the recent past. Most of the time, they’re pretty much right. But eventually, the future doesn’t look as good as the recent past, which triggers an abrupt shift in investor expectations... and causes stock prices to plummet. In the fall of 2000, it became increasingly clear that Corning’s stock was priced to perfection and that its future would likely be far less than that. The pendulum of investor psychology suddenly swung toward hopeless.

American Consequences 27

EXPLOITINGTHEPENDULUM OF INVESTORPSYCHOLOGY

As the pendulum of investor psychology swings like a wrecking ball away from ǼE[PIWWERHXS[EVHLSTIPIWWMRZIWXSVWEVI sure to overreact and create a huge number of attractive investment opportunities.

perfection, assuming that this strong growth will continue for years to come. But at some point, the flawless sentiment priced into stocks will start careening the other way. There’s another important lesson we can draw from Bill’s story... As the pendulum of investor psychology swings like a wrecking ball away from flawless and toward hopeless, investors are sure to overreact and create a huge number of attractive investment opportunities. When Corning finally bottomed in 2002 around $3 a share, sentiment was as irrational as it had been at the peak in August 2000. Sure, a full recovery was still years away. But Corning had proven it could weather the worst of storms. It was a classic deep-value moment... where the upside potential far outweighed the downside risk. (Investors that bought Corning stock near its lows in late 2002 made 10 times their money a year later.) Superior investors learn to exploit the pendulum of investor psychology as it swings between flawless and hopeless.

Investors anticipated that Corning’s acquisition binge would be disastrous once demand slowed. Sure enough, the company wrote down the value of its newly acquired businesses an enormous $5 billion the next year. It also acknowledged the following... Most of the impaired facilities are currently available for sale [and] others will be demolished. The impaired equipment will be auctioned, sold, or disposed during 2002. Four years later, in its 2004 annual report, Corning noted the market was still out of balance, saying... We see few signs of a broader recovery in overall demand, mix of premium products, and pricing for our products [in the telecom division]. I want you to keep the following in mind... Strong capital markets and historically low, near-0% interest rates have once again encouraged U.S. corporations to go on a “buy growth” binge over the past several years. As a result, investors have priced stocks to

Mike Barrett has two decades of investing experience in stocks, real estate, and precious metals. He's also been an analyst with the Extreme Value investment advisory for the past 8 years.

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February 2019

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