This month, we're tackling the best-of-the-best and the worst-of-the-worst innovations and unnovations... like self-driving cars, the death of cash, and the next oil supercycle. Plus a profile of serial entrepreneur Jesse Itzler. How to save your retirement. "Voice of the market" Dennis Gartman talks oil and bitcoin. And the Internet of Things has a dangerous catch.
Driving the Next Oil Supercycle AMERICAN CONSEQUENCES 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 Powering the Driverless Car Revolution Discovery on the Blood Road
What's the best innovation since sliced bread... and what's going stale
SEPTEMBER 2 0 1 7
ONEBLADESHAVE .COM/ STANSBERRY
CONTENTS
SEPTEMBER 2017 : ISSUE 4
LOST? CLICK HERE
66
72
20
36 30
06
04 Inside This Issue
80 Cybercrime Innovation BY JEFF BROWN 84 A Conversation With... Dennis Gartman 88 Innovations That Get No Respect BY P.J. O'ROURKE 92 Read This 94 The Final Word BY BUCK SEXTON 98 Featured Contributors
Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Managing Editor: Steven Longenecker Contributing Editors: Jeff Brown, Turney Duff, Dr. David Eifrig, Dave Lashmet, Rebecca Rusch, Buck Sexton, Dr. Steve Sjuggerud, Flavious Smith Newswire Editors: Scott Garliss, John Gillin, Greg Diamond Creative Director: Erica Wood Cartoon Director: Frank Stansberry Contributing Cartoonists: Michael Ramirez General Manager: Jamison Miller Advertising: Sam DeCroes, Jared Kelly, Jill Peterson Editorial feedback: feedback@ americanconsequences.com AMERICAN CONSEQUENCES
BY STEVEN LONGENECKER
06 Letter From the Editor BY P.J. O'ROURKE 12 What Could Possibly Go Wrong? 14 What Moved the Market 16 From Our Inbox 20 Profile of Jesse Itzler BY TURNEY DUFF 26 How Fear Will Ruin Your
Financial Future BY DR. DAVID EIFRIG
REAL INNOVATIONS 38 Driverless Cars BY DAVE LASHMET 46 Oil Supercycle BY FLAVIOUS SMITH 56 Cashless Society BY DR. STEVE SJUGGERUD
30 Unnovations BY P.J. O'ROURKE
WITH STEVEN LONGENECKER
66 7 Geniuses Look Into the Future BY P.J. O'ROURKE 72 Blood Road BY REBECCA RUSCH
American Consequences | 3
INSIDE THIS ISSUE
F or September, editor in chief P.J. actually glow, and surveying in ventions that might become con ventions. Or might need to be un novated. Bestselling author Turney Duff profiles serial entrepreneur Jesse Itzler ... and how Itzler has turned one lesson into 25 years of success after business success. O'Rourke is taking an innovative look at innovation, asking which bright ideas
2. Flavious Smith , the veteran Texas oil man and author of Oil $500 , goes beyond fracking... the extraction process critical to the American energy renaissance... and lets us in on the new tech that will drive the next commodity supercycle. 3. And Dr. Steve Sjuggerud is predicting the greatest transformation in how people pay for stuff since people started paying for stuff... He says cash is dead. In five years or less you will be paying for everything, from a new car to a pack of gum, with your phone. Then angel investor and technology executive Jeff Brown explains how innovation isn't limited to legal enterprise... and why cybercrime is likely to surge in the years ahead. Endurance athlete and author Rebecca Rusch shares her ride of the Ho Chi Minh trail and the surprising discovery at the end of her journey. And "voice of the market" Dennis Gartman talks oil, North Korea, and bitcoin. Finally, nationally syndicated talk radio program host Buck Sexton will close out with a look at how the convenience of the "Internet of Things" comes with a dangerous catch. Enjoy the issue. And tell us what you think at feedback@americanconsequences.com . Regards, Steven Longenecker Managing Editor, American Consequences
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Help them kick the fear and get going on the road to building wealth today.
Dr. David Eifrig
The biggest roadblock to the successes that innovation can bring is fear. Dr. David Eifrig explains how half of Americans are wrecking their chances for a wealthy retirement. If you don't have an investment account, Doc details a four-part plan to get started... even if your initial investment is as small as $25. In our feature spread, three industry experts detail some of the most important innovations changing the future of America... 1. You've heard about self-driving cars. But you haven't heard about what comes next. Biotech and technology expert Dave Lashmet shows how the real breakthrough in self-driving cars is self-teaching cars.
4 | September 2017
To ensure you never miss an episode of Stansberry Investor Hour… click here . IT’S ALL
He’s back… Porter Stansberry is back on the air… in a big way. Together with co-host Buck Sexton, a brilliant former intelligence officer for the CIA, he’s just wrapped up the twelfth episode this summer of Stansberry Investor Hour . As always, Stansberry Investor Hour is completely independent of corporate sponsors. In a world where traditional media gets 70% of its revenues from benefactors they can’t offend, you can always count on Buck and Porter calling it like they see it. They’re not afraid to rile up anyone with their predictions or observations – including, as you’ll see, their own listeners. Just look at their recent guest list, which reads like a “who’s who” of some of the most influential (and sometimes controversial) figures in the world. From Julian Assange, the besieged founder of WikiLeaks, to Paul Vigna, a cryptocurrency expert explaining why Bitcoin’s here to stay, to “smart beta” hedge fund pioneer Meb Faber and even Glenn Beck, their guest list is never short on notoriety. Every Thursday, the Stansberry Investor Hour podcast will upload to iTunes, with only one mission; keeping folks like you up to date with world events and what they mean for your money.
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Check out some of our most recent guests...
From Editor in Chief P.J. O’Rourke
LETTER FROM THE EDITOR
IT'S ALL IN YOUR HEAD
WE LIVE IN A GAME-CHANGINGWORLD OF INNOVATION... AND THE BRAIN IS THE SUPER BOWL
CLICK HERE TO READ THEWEB VERSION
6 | September 2017
W hat really changes everyday life is more mental than material – things you hold in your mind, not things you hold in your mitts. The most important innovations are ideas... The most important innovation in human history was the discovery and control of fire. Any dumb animal can discover fire... Say, if it falls into a volcano or if a lightning strike sets the forest ablaze. But control of fire – starting one, keeping one from burning down the tree you live in, putting one out – requires an animal with ideas, a humanoid. The same is true of tools. You can find a sharp rock... usually by stepping on it. Ouch. Or you can get the notion to make a rock sharp. Do you put it in the fire to make it sharp? No. Do you whack it on a tree to make it sharp? No. Do you strike one kind of rock against another, different kind of rock? That’s the idea! Ideas are the innovations that have had the greatest effect on human society. War is an idea... and a reminder that innovation is not necessarily a good thing in and of itself. Every innovation is a step forward. But you might step forward into a spear point. All primates fight – scratching and biting among themselves. But some humanoid had the innovative thought, “Instead of fighting each other, let’s fight someone else.” A band of Homo sapiens was sitting around, tired of making fires and running low on mammoth meat. One of them said, “The
band of Homo neanderthalensis in the next cave over has a fire going and lots of mammoth meat. Let’s get together and kill them and take their stuff.” Agriculture and the domestication of animals were other (better) ideas... Being a hunter-gatherer is a lot of work. One day a gatherer said, “I was wandering all over the savannah gathering grain from wild grasses. When I returned, I spilled some on the ground. Now there are more wild grasses sprouting right there. Instead of wandering all over the savannah, we could just sit here and watch the grass grow.” And they did. That’s agriculture in a nut (or fruit or grain) shell. Hunting is difficult, too. You have to find the roaming animals. Migrating wildebeest can roam as far as a thousand miles. You have to sneak up on the wildebeest. You have to make sure you spear the wildebeest instead of the wildebeest goring you. Then you have to drag the wildebeest meat back a thousand miles to your family. Hunting would be much easier if the hunters could get the animals to stick around... or be tied up in a barn so they can’t gore anybody. Maybe humans tried to domesticate the wildebeest, but its first name isn’t “wild” for
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Every innovation is a step forward. But you might step forward into a spear point.
American Consequences | 7
LETTER FROM THE EDITOR
by Sophocles. (Spoiler alert: Oedipus dates his mother. It doesn’t end well.) They had the idea to compose a really, really long poem that doesn’t rhyme, The Iliad . As if that weren’t enough, they had the idea to compose another, The Odyssey . They even had the idea to have ideas about ideas – philosophy. Perhaps I had an ancestor in Ancient Greece. If I did, when philosophy came along, I’ll bet O’Rourkopolis was saying, “Could we please go back to hunting and gathering?” But we must remember the many innovative benefits of civilization... I’ll think of one in a minute. But it’s a beautiful day, and I’m stuck indoors with that acme of civilized innovation, Microsoft Word. I’d rather be hunting. Or this time of year, fishing. In a pinch, I’ll even gather , if there are wild blackberry bushes along the trout stream... OK, I thought of one. The Ancient Greeks had the idea of democracy. Democracy isn’t perfect, but it’s an enormous improvement on how most people have been governed for most of history, from the Pharaohs to the Putin. Democracy, however, is also an example of how long it can take an innovative idea to come into widespread use, no matter how good the innovation is. We’re spoiled by living in a world of fast- forward innovation. Monday morning, an idea is nothing but some blue-sky rant on an
nothing. Maybe humans tried to domesticate the cave bear. Big mistake. Maybe humans tried to domesticate the rhinoceros. Bigger mistake. Finally, humans settled on domesticating the mouflon and the auroch. Those are the names for untamed sheep and cows when they’re running around loose without a barn to go to. Sheep and cows were simple to domesticate because they’re sheepish and easily cowed. So now the hunters could sit around watching the grass grow with the gatherers. And every now and then the hunters would say, “Let’s go in the barn and kill a sheep and cow.” I’m pretty sure this is how humans got the idea for civilization. They were bored sitting around watching the grass grow. Very bored... How bored do you have to be before you start lugging giant blocks of stone across the desert until you have so many giant blocks of stone you get the pyramids of Egypt? And the idea of civilization didn’t stop with piles of rocks. Soon you had the Ancient Greeks. Their big innovation was to have ideas about everything . They had the idea to put on plays – lengthy, confusing, tragic dramas such as Oedipus Rex I'm pretty sure this is how humans got the idea for civilization. They were bored sitting around watching the grass grow.
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8 | September 2017
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obscure tech blog. Wednesday afternoon, the innovation is for sale in Wal-Mart. This is not the historical norm. It might even be a sign that we’re faced with “innovation inflation” or experiencing an “innovation bubble.” Ideas usually take much longer to reach fruition. “Milk from contented aurochs” may have occurred to Australopithecus 3 million years ago, but nobody had a fresh glass of it until about 8500 B.C. Ancient Greek democracy flourished only from 508 B.C. to 338 B.C in just one small city-state, Athens, and it was interrupted several times by tyrants. There’s been lots of civilization since, but the idea of democracy wasn’t really tried again until 1776. And after 241 years, we’re still working out the kinks. We must, however, give civilization its due. Putting innovative ideas into effect would be even slower if it weren’t for civilization bringing crowds of people together in small spaces. The Latin root of the word “civilization” is civitas , “city.” You can’t have civilization without cities. Watch reruns of Hee Haw for proof. When you have a city crowd, you have a crowd of skills and knowledge. Imagine James Watt inventing the first efficient steam engine without a lot of skills and knowledge readily at hand. He would have had to go to the Harz Mountains in Germany to dig iron ore, travel to Damascus, Syria, to find the best iron smelters, and visit
We're spoiled by living in a world of fast-forward innovation.
Toledo, Spain, for the finished metalwork. Then he’d have to venture out to Mongolia to find little horses to be pit ponies and go to Wales to put the pit ponies to work in coal mines hauling coal to burn to boil water. The Industrial Revolution would never have happened... Watt would have stayed in his native Scotland blowing off steam the old- fashioned way, drinking scotch. Civilization also makes international trade possible. There is one basic requirement for international trade, international nations. You have to have some place to trade with . Just sailing over the horizon like Christopher Columbus, encountering scattered groups of natives, enslaving them, and giving them diseases is not an efficient mode of international trade. It’s best to know what you’re doing. Cornwall has tin. France has wine. Get the two together and you have a wine-filled tin cup. Better than drinking out of your cupped hands. Much better than not drinking at all. Yet even in a simple trade innovation like this, ideas play an important role. The old “mercantilist” concept of trade was that two-way trade was bad. Cornwall should just sell tin to France and not buy wine or all the money would go back to the Frenchmen. Of course, the result of “no two-way trade” is no trade at all. All your goods are made at
American Consequences | 9
LETTER FROM THE EDITOR
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home and stay at home. In Cornwall, they’d have to imbibe Cornish cabernet sauvignon. Ugh. In France, instead of wrapping leftovers in tinfoil, they’d have to stuff the leftovers through the necks of wine bottles, which is particularly hard with an extra pork chop. It took the ideas of Adam Smith in The Wealth of Nations to convince people that international trade was mutually beneficial to the nations involved and not some rip-off to scam their national treasuries out of gold. Adam Smith’s innovative thinking opened a two-and-a-half century era of free trade. This, even more so than the Industrial Revolution, enriched the world. We live in a time when wealth is, more than ever, almost completely a product of ideas.
And that brings up a third point of caution about intellectual innovation. Even the most brilliant ideas don’t always last... Due to dumbbells in high places in China, the U.S., the EU, and elsewhere, our wealth- creating period of free trade may be coming to an end. Even so, we live in a time when wealth is, more than ever, almost completely a product of ideas. Consider the wealthiest men of the 19th and early 20th centuries: Cornelius Vanderbilt (railroads), John Jacob Astor (fur trade), Henry Ford (automobiles), John D. Rockefeller (oil refining), and Andrew Carnegie (steel, with a strong sideline in philanthropy). This was physical stuff. Take the train to Beaver Creek, Colorado, fill up the Model T with gasoline, run over a beaver, and wear the beaver hat to the opening ceremony of Carnegie Mellon University. Now consider some of the wealthiest men right now: Bill Gates, Jeff Bezos, Warren Buffett, Mark Zuckerberg, and Larry Ellison. With your Microsoft PC and Oracle databases, you don’t have get out of your chair to pester friends and acquaintances, purchase things you don’t know what to do with, and buy shares of stock to keep until you die. It’s all right not to get out of your chair. It gives you time to think. The most important innovations are ideas. Don’t just do something, sit there!
By permission Michael Ramirez and Creators Syndicate, Inc.
10 | September 2017
50% OF SILICON VALLEY BILLIONAIRES NOW PREPARING FOR A CRISIS? While middle class Americans are pouring money into the stock market… Some of the richest people in Silicon Valley are doing something that is pretty much the exact opposite.
I’m talking about folks like: Peter Thiel (founder of Paypal) Steve Huffman (founder of Reddit) Mark Zuckerberg (founder of Facebook) Tim Chang (of Mayfield venture capital) Larry Ellison (founder of Oracle) Reid Hoffman (founder of LinkedIn)
If you care about your family… your money… and your future, I strongly encourage you to find out what these folks are doing… And why it might be important for you to do something similar… right away. Everything is explained on my research firm’s website, right here… P.S. Most Americans don’t know there’s one simple and very inexpensive thing you can do to protect yourself. Learn more here…
WHAT COULD POSSIBLY GO WRONG?
Financial follies and disaster in the making
Watch for the crowd in today's market...
Don't look now... 'NIRP' is back in the headlines... Negative interest-rate policy (or "NIRP," for short) is like capitalism turned upside down... Instead of being paid to save capital, you're charged a fee to keep the money you've already earned. At its core, NIRP is government theft with a complicated name. A handful of European central banks adopted this perverse form of monetary policy a few years back. It began to gain widespread favor in late 2015. And while short-term rates remain at zero or below in much of the developed world, most folks believe the NIRP "experiment" is largely in the past. But there's a small but growing chorus of economists and government officials who believe NIRP will be – even should be – the preferred tool of central bankers when the next slowdown arrives. We believe it is only a matter of time before the "Melt Up" ends and the market meltdown begins. This suggests that when it does, NIRP could resume its spread almost immediately.
The most popular recent winning trade is the so-called "FANG" stocks – Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) – and other similar technology and media plays. Today's market is very reminiscent of the big tech and telecom boom of the late 1990s. Instead of worthless dot-com companies, today's debt bubble is pushing up worthless "virtual currencies" – hundreds of them. The outcome will be the same... Most investors buying the FANG stocks for the first time today and those buying virtual currencies are going to take a beating. Just like folks who piled into tech stocks in 1999... and just like folks who piled into real estate and commodities in 2007. Investing late isn't smart. Investing late into what's wildly popular is deadly. We can't tell you when the punishment will start. But we can tell you how it will finish.
12 | September 2017
If you needed one more reason to own chaos hedges – like gold and silver – you have it.
media is widely predicting the same thing... But the auto bulls are likely to be disappointed... Remember, we heard similar arguments when hundreds of thousands of vehicles were damaged during Hurricane Sandy in 2012. Yet the reality was a little different... the post-Sandy spike in sales was nearly indistinguishable from the seasonal spikes in other years... So yes, we could see a short-term boost in sales as vehicles are replaced. But history suggests that's all it will be. Greenspan told Bloomberg TV, "Real long- term interest rates are much too low and therefore unsustainable." And he said when rates begin rising, they are "likely to move reasonably fast." The market hasn't been this in love with government bonds in years... The last time we saw a similar extreme level of sentiment was September 2016. Back then an exchange-traded fund that tracks long-term government bonds fell 15% in just around three months. It was the same story in 2012... A 17% fall from December 2012 to September 2013 after sentiment hit similar levels. Most folks consider government bonds to be safe investments. But like anything else, buying at the wrong time can lead to serious losses. A 15% decline to end the year is completely possible. That makes U.S. government bonds an asset to avoid today. Former Fed Chair Alan Greenspan warns on bonds...
America's debt hits a new record...
Total U.S. household debt – including mortgages, student loans, credit cards, and auto loans – is now at its highest level ever: $12.8 trillion. That surpasses the previous peak of $12.7 trillion reached in the third quarter of 2008 – around the same time the last financial crisis boiled over with the collapse of Lehman Brothers. In the past year alone, Americans tacked on more than $552 billion in total debt. Credit-card debt is particularly becoming an unmanageable burden for many borrowers. It now sits at $784 billion – its highest level since the end of 2009 – and it's not far from the $866 billion peak in 2008. This debt can turn bad very quickly. Lenders with the most exposure to credit-card loans – and especially subprime credit-card loans – are in for some pain. Don't expect Harvey to save the auto industry... U.S. vehicle sales plunged again last month – hitting the lowest rate since February 2014. And sales of sport utility vehicles ("SUVs") and trucks – a longtime relative bright spot for the industry – are now slowing, too. Some readers have asked if the storm could save the industry from this trend. After all, if hundreds of thousands of vehicles were destroyed, won't that lead to big demand for new vehicles to replace them? The financial
American Consequences | 13
WHAT MOVED THE MARKET THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH...
The markets observe Purchasing Managers' Index (PMI) data as an indicator of the direction of growth. Data in all three regions were more or less in-line with expectations and prior period numbers. This helped to boost market sentiment that the global growth picture could be firming. September 3 North Korea tests and detonates a hydrogen bomb. This action – North Korea's sixth and largest test to date – drew a warning of "massive military response" from the U.S., roiling global stock markets and increasing demand for safe-haven investments such as gold. August 31-September 10: Hurricanes Harvey and Irma bring pain for U.S. energy and insurance sectors. Hurricane Harvey struck the Gulf Coast of Texas as a Category 4 storm, creating a major flooding event and knocking refining capacity off-line. Houston, a vital center for the U.S. energy industry, houses a large portion of the nation's refining capacity. This lack of refining demand due to shutdowns negatively impacted gasoline production. The storm also put pressure on the insurance space due to exposure fears. Hurricane Irma made landfall in Florida as a Category 4 storm as well. While Florida lacks the refining capacity of the Texas Gulf Coast, it is home to 20.6 million people. Many were forced to flee ahead of the storm, which also weighed on oil due to the potential impact on
August 24-26 The Federal Reserve's 2017 Economic Policy Symposium. The Jackson Hole conference was expected to be a catalyst for European Central Bank (ECB) President Mario Draghi to discuss a pickup in regional growth and ease investors into the idea of winding down quantitative- easing measures put in place to boost liquidity. Mr. Draghi's speech came as a bit of a disappointment to the markets. While he did say the global and European financial systems are in a better place now than before the financial crisis, he failed to mention any type of stimulus action, causing yields to pull back. August 30-31 Revised second-quarter U.S. GDP and PCE reported. We noted last month that the Fed would be paying close attention to these data to aid their decision on when to begin the balance sheet unwind. The GDP number came in at 3%, better than the 2.8% expectation, and the Personal Consumption Expenditures (PCE) number of 1.4% was in-line with expectations. These data probably have the Fed leaning toward commencing the balance sheet runoff this month, and hiking the federal funds rate one more time in December. September 1-8 Markit releases August PMI data for China, Europe, and U.S.
EDITORS
Scott Garliss
John Gillin Greg Diamond
14 | September 2017
gasoline demand. This ended up becoming a buying opportunity for the insurance sector as an initial selloff reversed course and investors realized the large insurers do not have much exposure to the state. If you have any money in the energy sector, don't miss this short, free interview on YouTube. Click here to watch it now. In Summary... Hurricanes, floods, earthquakes, and North Korea fears were all around us last month and in early September. But 9/11 was the reminder that we can support each other and rebuild. It was a day that real heroes ran into harm's way just to try and help. We saw a lot of that type of spirit and sacrifice over the last few weeks. We'll get Houston and Florida back, and we'll help Mexico and care for the destitute in the Caribbean. It's what we do. The focus finally returned to doing the right thing for the people. The tweets stopped, there has been bipartisan agreement to do whatever it takes to help the afflicted communities, and with the ball rolling in the right direction, a "can do" spirit surrounds tax reform. So the market shifted quickly to the reflation trade. Bonds sold off, yields bumped up, and buyers were back scooping tech, financials, and industrials. Companies involved in the rebuild – including suppliers, raw-material and finished-goods providers, and transport and logistics firms – all got their marching orders, and their stocks soared higher on the "Buy American" theme.
September 20 The Federal Reserve is
WATCH THESE DATES
scheduled to release its policy decision on interest rates, with a press conference afterward. It is the perfect opportunity for it to announce the start of the balance sheet unwind. September 22 Markit releases U.S. and European Flash Purchasing Managers Index data. September 24 Germany holds its federal elections. September 25 Speaker of the House Paul Ryan (R-WI) and Director of the Office of Management and Budget Mick Mulvaney (R-SC) have suggested this as the target release date for tax-reform plan details. September 28-30 China releases PMI data. October 5 The ECB releases monetary-policy meeting minutes. October 13-17 TheU.S., China, and theeurozone release ConsumerPrice Index (CPI) data for September.
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American Consequences | 15
FROM OUR INBOX
Re: The NewMutant Capitalism
P.J. O’Rourke comment:
Mr. Sworder, If I’m remembering the Churchill quotation correctly, you mean “Democracy is the worst form of government – except for all the others that have been tried.” Wise words from a wise man. And you are one too!
Being a mid-war (II) baby the current issue Letter From the Editor hit the spot. – John F Pearson
P.J. O’Rourke comment:
Mr. Pearson, As a very early Baby Boomer, I’m not far behind you. Honestly, kids today! (And by “kids” I mean everyone under 50.) Who gets ‘em?
Re: Our newest readers sound off
I hate you! The last thing I need in my life now is a new obsession. Well guess what American Consequences is becoming? I hate having an addictive personality. Especially in my home state of Washington. Pot is legal here and we make some of the best beer and wine in the world! – Tracy Ellis Mr. Ellis, I fear that some of the economic news we bring you in American Consequences , may be best consumed with a roach clip and a tall cold one on hand? When I was 16 years old in 1979, my favorite magazine (next to Penthouse ) was National Lampoon . The 1st time I became aware of the name ‘PJ O’Rourke’ was after reading a piece about a family vacation (Vacation ‘55?). It was one of the most hilarious things I had ever read and I became a big fan of yours, P.J. O’Rourke comment:
Re: Our August Inbox
PJ, top dollar to you for your replies. Everyone must read as much as possible from all quarters. The ignorance of so many – particularly among the hysterical/ dogmatic single-issue campaigners – is truly alarming, but I guess it has been since time immemorial. We might rail against, pour scorn on, and deride our politicians, but voters get the Government we deserve; it reflects our choices. Maybe that’s why so many are so angry – they seem themselves! Such is functioning democracy, and you will know Churchill’s immortal reflection on democracy. I really enjoy your writing and am reading your Wealth of Nations . – Colin Sworder, U.K.
16 | September 2017
Send us a message, question, or criticism at feedback@americanconsequences.com
always scanning the title page in future issues for your name. Later, when John Hughes made a movie (and built an empire) around your short story, I took some pride in knowing your work and that others shared in my sense of humor. Further on, when I started reading National Lampoon again in my twenties, I was pleasantly surprised to see your name credited as Chief Editor... Fast forward to my fifties and your name comes into my life again, this time attached to an online financial magazine. My first thought was that it must be some kind of goof. And now, here I am signing up for it and reading it from my desk in the Upper East-side. What a crazy world. And please, stop following me. Best of luck with this endeavor and I guess I should look forward to reading more from you in the future. – Jim Kiene Mr. Kiene, Thanks! (And I promise to quit stalking you.) One correction, however, to your kind words. The “Family Vacation” short story was actually written by John Hughes himself. He was one of my best friends. And a genius. And critically underappreciated. His Breakfast Club might be the best film about adolescence ever. P.J. O’Rourke comment:
I’m only subscribing because PJ once said “I’m not a vegetarian because I love animals, it’s because I hate vegetables!” – Louie
P.J. O’Rourke comment:
Louie, I don’t remember saying it, but I sure was right!
Re: How Robber Barons Became Robin Hoods I loved that article. Yes why is it that progressives can’t see the forest for the trees? My best guess is they’ve been brainwashed by their professors who wanted more money and willing to argue that fact as part of their teaching of “truth.” My second guess is that it can be confusing when their socialist leaders decide to spend beyond their means. Most likely progressives won’t wake up until the economy collapses at which point they may start to search for better explanations as to why things occur. Life can be pretty simple until one discovers it isn’t. Safe zones are the perfect analogy. – Al McInally
Andrew Ferguson comment:
Hey, thanks! A man of sound judgment, obviously.
American Consequences | 17
FROM OUR INBOX
Re: How to Get RichWithout Turning a Profit I am impressed so far with your publication! I hope in the near future you will direct articles for people with, for example, only SSD income & very little cash in the bank! – Sheri Sherman Sheri, we’ll absolutely feature these sorts of articles in American Consequences . In this issue, check out How Fear Will Ruin Your Financial Future . That comes from Dr. David Eifrig’s Retirement Millionaire letter... He’s a big believer in starting small – even if it’s just $25 – when you first begin investing. Steven Longenecker comment:
Re: These Folks Aren’t Playing With Monopoly Money
P.J., P.J., P.J... I love your writing and most of your politics, but your main quote in this article – “monopolies are only possible with the bureaucratic enforcement powers of government” – is delusional. Adam Smith knew it as do most economists who do not derive all their answers from pure libertarian presuppositions. Let me be clear though – I define monopoly as any ability to influence prices (or market share or quality of service) over the semi- long run (a few years). Warren Buffett has stated that his primary objective is to invest in companies with “durable pricing power.” Do you honestly think he’s looking only at companies that have curried government favor? – Greg Dietz Mr. Dietz, Good point! I should have been clearer in my definition of monopoly. I was talking about the ability to permanently set prices, which is only possible with government police powers. You are quite right about the ability to strongly influence prices over the span of a few years. It’s an issue we should address. P.J. O’Rourke comment:
By permission Michael Ramirez and Creators Syndicate, Inc.
18 | September 2017
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How a part-owner of the Atlanta Hawks turned one lesson into 25 years of hitting success after success
DIFFERENT
THE INNOVATION OF A BROWNIE
Music or brownies... it was a coin flip for American University senior Jesse Itzler’s plans for after graduation. His friend’s aunt would send them delicious
When his advertising professor assigned a project to create a fictitious brand, Jesse decided he was going to use it as a test... a chance to research and develop Aunt Franny’s Brownies. One beautiful spring morning weeks later, Jesse walked across campus to his advertising class. It was presentation day and he was unprepared. But only five students, pulled at
treats every month. They were the best. He believed she was using some kind of magical ingredient because they made everyone happy – really happy. Who can’t build a business model from that?
20 | September 2017
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By Turney Duff
random out of a hat, had to deliver a “State of the Union” address for the company they created. Since there were more than a hundred kids in the class, Jesse liked his chances. He settled into his usual seat near the back row of the large lecture hall. The professor handed out the hat and instructed each student to write down their name on a piece of paper, pop it in, and then pass it. That’s when Jesse got a brilliant idea – he wrote down “Ronnie” instead of his own name. Ronnie was a clown who sat in the same back row... He made everyone within a 10-foot radius of him miserable. And he’d been doing it for four years. Jesse wrote down “Ronnie” on as many scraps of paper as he could until the hat finally reached his desk. He stuffed 20 ballots in. There was no chance the professor wouldn’t pull Ronnie’s name. And no chance that Ronnie had prepared. Jesse was grinning in anticipation when the hat made its way back to the professor... It was going to be fun to watch Ronnie squirm up there. The professor reached his hand in, pulled out the first name, and unfolded the paper. “Jesse Itzler,” the professor said. “Can you please come up to the front?” Jesse looked down the row to see Ronnie laughing uncontrollably. That jag-off must have done the same thing to him.
As Jesse descended down the steep steps of the lecture hall, he tried to prepare his pitch. He had to come up with something – fast. When he got to the front of the room, the professor stepped aside to give him the floor. He stood there silent for a moment, looking out at his expecting classmates. “Hugs and kisses in every bite,” Jesse started. “Aunt Franny’s Brownies.” From there he launched into his pitch. He was winging it the best he could, but being in front of an audience felt natural to him. He liked it. “ And I can promise you that it’s the best tasting brownie you’ll ever eat .” He was thirty seconds into his pitch when... “Stop,” the professor said. “Just stop.”
"IF YOU WANT TO BE A BROWNIE THEN YOU HAVE TO BE BETTER – DIFFERENT. A NEW, BETTER BROWNIE.”
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THE INNOVATION OF A BROWNIE
DIFFERENT Jesse stopped. His professor then asked a question that would define his career... “ What’s your point of differentiation ?” “They’re homemade, moist, and delicious.” “A thousand brownies come out every year,” the professor said. “If you want to be a brownie then you have to be better – different. A new, better brownie.” By the time Jesse returned to his seat, he had already begun changing his plans for after graduation. The year was 1990 and hip-hop was starting to explode on the music scene. He knew he could write rhymes and rap. He loved it. And well, he was white. Not too many white kids in the hip-hop scene in 1990. Jesse had found his new, better brownie. He calls it his $160,000 lesson. It’s the only thing he remembers learning in college – you have to be better. And different. It’s been more than 25 years since he learned it, but that wisdom has catapulted his success into the music business, airline industry, beverage industry, and publishing a New York Times bestselling book... “They can be gluten free.” “You can sit down now.”
From Mistaken Identity to the New York Knicks Months after graduation, Jesse sat in Mike Ross’ office at Delicious Vinyl... a hot new independent record label with signed artists like Tone Lōc and Young MC. As he waited, he looked around the dimly lit room to see album covers, celebrity photos, and graffiti art hanging on the walls. He wanted to be a part of it. It didn’t matter that Ross’ assistant mistakenly set up the meeting thinking he was Brooklyn-born rap star Dana Dane. And it didn’t matter that Jesse hadn’t corrected her when she made the mistake. He was exactly where he needed to be. “Who are you?” Ross, president of Delicious Vinyl, asked when he saw Jesse sitting in his office. “Where’s Dana?” Jesse used a Harry Truman technique, “If you can’t convince them – confuse them.” He started throwing words at him: Dana’s late, I record with him, I have my own tape, he’ll be here in 20. And it worked – Ross was confused. But after Jesse played his demo, he heard the four greatest words an artist can ever hear, “Who is your lawyer?” Jesse’s first single, “Shake It Like a White Girl,” reached No. 74 on the Billboard “Hot 100” chart in 1991 and received play on the Yo! MTV Raps hit television show. Not bad
22 | September 2017
“Go New York Go” became the No. 1 requested song on New York radio. Every game at Madison Square Garden, fans sang alongside Jesse’s rap song. It became the team’s anthem. Visiting teams wanted in on the action. And fortunately for Jesse, he was the only guy selling this kind of brownie. It was better – different. But Knicks fans had no way of purchasing his song. So Jesse took “Go New York Go” and licensed a few other hot songs played at the games to make a CD. In between songs, he added great moments in the team’s history. The album sold 50,000 units... And his phone started to ring with other professional sports teams, television networks, and national brands wanting his services. The NBA had him write and perform the Emmy-winning “I Love This Game” song. The result, a company he co-founded called Alphabet City, married his loves of sports and music... and it would set him up for his next idea. Cashing Out and Moving Up Jesse was blown away the day he stepped onto a private jet for the first time. He was 28 years old. The day before he and his partner sold Alphabet City to SFX, his bank-account balance was $87. The deal was for cash and stock totaling $6 million... with another $10 million as a possible earn out.
Jesse had found his new, better
brownie. He calls it his $160,000 lesson. It’s the only thing he remembers learning in college – you have to be better.
for a white Jewish kid in a predominately black industry. But reality wasn’t much like an extravagant hip-hop video... Not even close. Money was tight, touring was grueling, and a second album wasn’t offered. The music industry was sending him a message... It was time for a new recipe. Back in New York, he sat across from Nancy Grunfeld in a small conference room. She was the wife of the New York Knicks owner. The meeting had been set up to discuss radio jingles he was working on for her. For Jesse, writing and performing jingles was an easy way to get a small paycheck while he waited to make his next move. “We should do a song for the Knicks,” Jesse said to Nancy as their meeting was wrapping up. “The one now is outdated... We should do something new.” She was intrigued. So he went home and wrote “Go New York Go” on his couch that night. Two days later, they played it for Knicks owner Ernie Grunfeld. He loved it.
American Consequences | 23
THE INNOVATION OF A BROWNIE
DIFFERENT It was time to celebrate... They were guests of Bob Sillerman, the president of SFX, for a boondoggle to the Bahamas. As he prepared for takeoff and buckled his seatbelt, he looked around the luxurious aircraft and then over at his partner. “ How do we get to do this all of the time ?” There were only three ways at the time to fly private: own, buy a fractional share with a five-year commitment, or charter a plane – none of which was very accessible to a large demographic. It wasn’t realistic even if you made $1 million a year. So he and his partner created an untapped market for people who wanted to fly privately a few times a year. The company was different. To get a deal with Warren Buffett’s private- plane operator NetJets, they marched Carl Banks from the New York Giants, music superstars Run-DMC, a top sports agent for NBA players, and a Wall Street guy who
owned his own firm into NetJets’ office. NetJets had a fleet of 500 planes. Their idea was to sell a 25-hour prepaid flight card to get access to one of NetJets planes... all of the benefits, none of the long-term responsibility. They brought the focus group to them and one by one each of these stars explained how and why they’d never buy a fraction of a jet, but they would spend $100,000-$200,000 on a jet card. Soon after, Marquis Jet was formed. Flying first class would never be the same. Berkshire Hathaway, the parent company of NetJets, bought Marquis Jet in 2009. That same year, Jesse took yet another step up. He created and founded the 100 Mile Group – a
Now he was picking and choosing which brownies he wanted to eat...
Jesse is now re-inventing business retreats
24 | September 2017
brand incubator and accelerator. It was an opportunity for him to take “shots on goal” on the many startups he thought had potential. Now he was picking and choosing which brownies he wanted to eat... “It seems like there’s a trend with the consumption of healthy beverages,” he said to his assistant one day. “There’s a new craze every four years. I think the next one will be coconut water.” If you’ve seen the grocery stores lately, he was right... The 100 Mile Group partnered with Zico Coconut Water and Coca-Cola. A few years later, Zico was acquired by Coca-Cola. Throughout all of Jesse’s business adventures, he’s always been sort of a fitness freak. So much so that he hired a Navy SEAL to move
So he invited 50 people from across the country to participate in a networking getaway where they could learn from people in the top of their industry. I was thrilled to get an invite and opportunity to speak. Who knows what’s next from Jesse... but in the meantime, “ Who’s hungry for a brownie ?”
Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where their founder and several Galleon employees were found guilty of insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol, and
power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side; AWall Street Trader’s Tale of Spectacular Excess.
in with him and his family for 31 days in 2010. He wanted to get in the best shape of his life – both mentally and physically. It resulted in the New York Times bestseller Living With a SEAL... a funny and inspirational book about pushing yourself in all facets of your life.
Jesse Itzler is a serial entrepreneur. If you’d like to hear him speak, he will be a featured guest at the Stansberry 2017 Las Vegas Conference... along with one of the “Sharks” from Shark Tank... the son of a U.S. president... a former Fed insider... and many more. Click here for full details on how to get access from the comfort of your couch right here.
“But I’ll tell you,” Jesse said while standing in front of a rapt audience at his lake house in Connecticut this past July. “Aunt Franny’s brownies were really good.” Jesse was speaking at the Live Life for a Living Retreat he was hosting. He’d gotten an idea to re-invent business retreats... They all seemed the same to him. He wanted to do something better – different.
American Consequences | 25
How FearWill Ruin Your Financial Future
26 | September 2017
THE WORST THING TO DOWHEN INVESTING IS TO NEVER START... HERE'S HOWTO GET STARTED
Nearly half of all Americans are ruining their financial future...
A survey from online banking-news aggregator Bankrate found that 52% of Americans are not invested in the stock market, including in their retirement accounts.
By Dr. David Eifrig
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.
Money, in today’s society, represents a sense of security. We need money in order to obtain what we need to survive... food, shelter, medicine. Any threat of losing money can trigger the amygdala to kick in full force. 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...
Not investing is one of the biggest mistakes
you can make if
These excuses are all based on fear.
you want a wealthy retirement.
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.
As author and financial columnist Jason Zweig writes in his book , Your Money and
American Consequences | 27
Financial Future
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 to post year after year of gains, eventually rallying more than 500% from its crash levels to peak in 2000.
If you still aren't sure about taking that first step, remember that the most important step is the first one – getting started.
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 nearly 170%. Even one of my research assistants was scared of the market. So I challenged her to start investing. I even bullied her a bit to get her to stop digging her heels in.
28 | September 2017
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 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. 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.
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 has a minimum balance requirement of $10,000, and you need to spend at least $10 per month in commissions. On the other hand, Capital One Investing (formerly ShareBuilder) offers a $0 minimum balance, and you don’t need to spend a certain amount on commissions each month. So if you have a small portfolio or you don’t plan on trading often, this might be a better option 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, feel free to share this article with them. Help them kick the fear and get going on the road to building wealth today.
2. FEES. Figure out what the fees are for completing a trade. Some places charge fees
American Consequences | 29
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