This article was originally published on November 2, 2020, but the ad we’re covering has been updated with a new headline and some “Biden’s New Plan” lead-ins so we’re re-posting it here to help answer some reader questions — the meat of the ad, the “what you should do” part, seems largely unchanged, and what follows has not been updated since it was first posted on November 2.
Porter Stansberry is a very compelling storyteller. He’s also a thoughtful and smart guy, in my experience, and what I’ve seen of his analytical work is often rational and compelling… but he has built his (now huge) business mostly, I think, by being a great marketer, playing off of both greed and fear with strong narratives that suck you in.
And the ad we’re looking at today is another of those, the “Will You Be Left Behind?” pitch that is being used to recruit new subscribers to Stansberry Innovations Report ($49 first year, renews at $199/yr). The promo piece is a little less menacing than, but otherwise not so terribly different from, his widely-circulated “End of America” pitches that we saw over and over from 2011 to 2016 or so, and along a similar vein. The basic idea has usually been that terrible things are coming, and you need to act like the smart rich people and have a survival plan… which is a really, really appealing marketing pitch for a lot of people, particularly those who are also primed to believe that “something is wrong” (and as this nightmarish election season finally comes to a close, of course, that’s almost everyone).
The “End of America” survival plan, as I recall, was mostly about the collapse of the dollar and the collapse of urban society… get some gold, buy some farmland, buy only the safest “capital efficient” stocks. That evolved into the “American Jubilee” pitch a couple years ago, about another coming currency nightmare that might wash away asset values and crash the US Dollar as massive debt forgiveness programs take hold, and a pitch to keep your money safe and buy high-quality companies, “trophy assets” and silver.
Those and similar ads from other publishers over the years, particularly coming out of the last crisis eight or nine years ago, often strike me as “dystopian nightmare” fear-based marketing pitches… but the basic investment ideas Porter touted in “End of America” and “American Jubilee” were generally pretty rational and reasonable (they didn’t all work out, of course, but they weren’t high-risk or silly ideas). The risk was not necessarily in following Porter’s actual ideas, or those of others who sold the “doom” story well during times of uncertainty, the risk was in getting so scared by the stories of imminent collapse that you overreacted, hid your money or your gold coins under the mattress over the past decade, and missed an extraordinary bull market.
Nobody, of course, foresaw exactly what our real nightmare would be, a global pandemic that hits during an election year, creates a never-before-seen unemployment crisis, and politicizes the disaster response, but Porter’s basic spiel these days is about the inevitable crises that will come from the wild increases in “income inequality.” And that strikes home, to some degree…
“In regular places all over America, the ‘lights’ are going out.
“No, I don’t mean the street lights or any other kind of electrical gizmo.
“I’m talking about a vastly more important kind of light… the kind that comes from within. I’m talking about how, all over the country, Americans are losing hope in our most basic social agreement….
“There’s a reason so many Americans are losing hope — losing their sense of independence and their dignity. There’s a reason so many people are turning to the failed plans of socialism.
“It’s because most Americans are being left behind… in a way we’ve never, ever seen before.
“The gap between the rich and the poor has always existed. But never, ever, on this level. And never with this speed.
“Every day, thousands and thousands of Americans are ascending into an entire new level of wealth — something even beyond what millionaires could afford a decade ago. And, instead of plateauing, these changes are continuing to power this new class higher… turning millionaires into billionaires.”
That may be the reason for the appeal of things like student loan forgiveness and single-payer health care, rallying cries for young protesters, but that’s also, I’d say, the reason Donald Trump was elected — political sentiments and reasons for the anger differ, but a huge number of people on both sides of the political spectrum feel ignored and left behind, and both Donald Trump and Bernie Sanders, strange as that sounds, are beacons of hope as they promise to fight for that left-behind cohort.
The balance of power has shifted so far to asset-owners over the past 50 years, and become ever more concentrated in the hands of the super-wealthy as businesses become larger and often less entwined with community, that it’s easy for those who have not been able to build any wealth to lose hope — and to rally around blaming someone for that loss.
So I agree with Porter’s central point, that the primary problem right now is that the explosive improvement in efficiency of the computer age, coupled with a few financial crises that shook the lower income levels most viciously, have brought about a new era of massive and rising inequality — a “success” gulf between the wealthy and the eroding middle class that is only getting wider. He sees that leading to socialism and violent unrest, which are both great “fear” triggers for the demographic who subscribes to investment newsletters, and I don’t have the hubris to be that predictive, but that’s one possible outcome.
There is an investment point to Porter’s pitch, of course, so let’s shift to that now:
“While millions of Americans have been left behind so far, tens of millions more will be left behind in the coming decade if they don’t take the critical steps now.
“Meanwhile, anyone who understands what lies at the root of these trends can have a chance to profit in a big way. It’s not hard — if you truly understand what’s happening.”
The big “don’t get left behind” spiel here is really mostly just about technology… he talks about the critical impact that automation had in farming, helping to create an almost permanent wave of poverty across the South, and about the impact the microchip had in transforming society, or later optical networking to speed data transfer, and points at a few areas where there’s a clear risk of yet more massive job losses — like in trucking, for example, where autonomous highway trucks could erase what is the most common job in many states. The timing of those trends is not terribly predictable, and the reasons for historical shifts can be debated, but clearly technological change has created lots of winners and losers over the years.
So what’s next? More from Porter:
“If you think technology is leaving most Americans behind now, what’s coming next should terrify you.Are you getting our free Daily Update
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“The group I call the Digerati (the huge network of Americans who have been developing new technologies for decades, and growing ever richer as a result)… has built their own currency.
“And it lies completely outside the control of any government.
“This group and their new money are soon going to leave everyone behind. Every last person in this country… and every other country… in the entire world.”
OK, so that’s just bitcoin, which, along with the blockchain technology that bitcoin ushered into the world a dozen years ago, has certainly gotten the attention of a lot of folks…
“The smartest and richest people and companies in the world are learning everything they can and testing this new technology, because it represents a critically important new way for humans and machines to communicate, cooperate, and do business.
“But again… because it’s still in its infancy, most people don’t yet fully recognize what’s happening…
“The sad thing is, as the lights go out for so much of America, everyone who has been left behind will turn on each other, creating a global crisis unlike anything the world has ever seen before.
“It won’t be a war of nationalism — between countries and big armies. It will be a war of the ‘Digerati’ — between people who understand how to use this new technology, and everyone else.”
Well, I suppose I might get left behind to some degree… I still don’t really understand bitcoin, (though I do own a little bit because currencies are built by social acceptance, and clearly bitcoin has continued to find greater acceptance), and while I understand the concept of the blockchain I still have a lot of trouble rationally valuing any company that claims to have built a better blockchain.
Here’s more of Porter on Bitcoin:
“You see, most people think that Bitcoin is ‘finite’ — that the last Bitcoin will be mined at a certain date in the future, around 2140.
“But they’re wrong.
“Bitcoin isn’t finite at all, not in an economically meaningful way. The last Bitcoin will never be mined, no more than the last barrel of oil will ever pumped out of Texas. I’ll explain to you why this matters, and why it’s such a big deal.
“And this new understanding of Bitcoin also portends a huge move higher in its price. Bitcoin could soon trade well above $100,000 per coin. And then well above $1 million per coin… all within the next decade or so.”
I’ll be curious to see whether this happens or not — it is possible, of course, because the coded-in scarcity of bitcoin will gradually mean that the competition to earn each bit of bitcoin that is created by mining will be fiercer, which, if the general idea of bitcoin continues to be accepted, will mean each coin should have substantially more value. As the river slows to a trickle, each drop of water becomes more valuable.
That’s partly guessing about human nature, of course, since we also can’t really know whether bitcoin will remain the “store of value” coin in the cryptocurrency universe, but I wouldn’t say it’s an irrational guess — once something achieves a level of acceptance, it’s hard to unseat it. Not impossible, trends and tastes change, but hard… gold has stuck around for a couple thousand years as a bedrock kind of currency, always accepted to some degree as rare and valuable, but it has also lost relative value for long periods of time as tastes and sentiment changed, sometimes for decades.
One more bit from the ad, just to get some details in here for posterity:
“And just as gold was the perfect ‘proof of work’ for the age of ever-increasing locomotive power of the industrial age, Bitcoin is the perfect currency and the best stable ‘proof of work’ (and money) for the computer age.
“The important thing for you to know right now, of course, is this:
“In the near future, Bitcoin will not be worth the $7,000 to $10,000 range it’s trading in today… it will be worth at least 10 times that amount.”
OK, so this ad is using some older data — Porter has been running similar ads for a while, (this particular one started with an August 2020 date), and the big picture trends don’t necessarily change that fast, but bitcoin is out of that range now, it was in the $7-10,000 range for most of the first half of 2020, but has been above $10,000 since late July and is at $13,500 or so at this point.
And he sees blockchain technology bringing about what is effectively a libertarian dream…
“The blockchain allows far more direct interaction between free and private individuals and they remove the need for virtually all of the functions of the state and the corporation.
“It’s all happening right now, probably even to people you know well. And you are being left behind.”
So… what do we do?
Porter lays out a few steps — the first one is “understand bitcoin better,” which you can go out and do on your own, or subscribe to his newsletter to get his bitcoin guide. But then he gets into some actual investment recommendations, which is always what we’re interested in…
“According to the Financial Times, the CEO of Microsoft says, “tech spending as a percentage of GDP is expected to double over the next decade, as digitization spreads.”
“This means you MUST now own what I consider America’s ‘Master Digital Currencies.’
“Over the next few years, there’s nowhere safer and more lucrative for your money.”
OK, so what are those “Master Digital Currencies?” Is he talking about actual cryptocurrencies, like bitcoin and ethereum?
Not really, he’s mostly talking up big tech companies…
“What I’m talking about when I say ‘Master Digital Currencies’ are the shares of the most dominant, fastest-growing companies that are fostering this digital transition.
“These are the companies that millions of other businesses are using to move from an analog world to a digital one. The companies I’m going to tell you about play a critical role in nearly all of the digital commerce in America today.
“In short: If you buy or sell something on the Internet, odds are, these companies have a hand in it… and make a big profit.”
OK, then… so what are the actual companies? Even if we don’t understand cryptocurrencies or have a lot of faith in a particular currency or token, we can at least understand some companies that profit from this continuing “digerati” revolution, right?
Here are the clues he drops:
“The first company provides the backbone – the most critical part of the digitization process – for more than 1 million businesses around the globe, including my business.
“Investors have earned gains of 500% over the past five years. Since the start of 2020, it’s up more than 65% this year alone… it just keeps going up and up.”
Thinkolator sez that’s almost certainly Amazon (AMZN), which is likely to be disrupted by blockchain to some degree if we see the extremes that Porter talked about in the pitch (after all, a perfect blockchain world would mean that marketplaces are unnecessary), but also essentially runs so much of the infrastructure of the internet through its Amazon Web Services that it is probably fair to call Amazon the “backbone” for businesses that are making a digital transition.
So I won’t disagree with that one — I waffle on whether I consider Amazon or Alphabet to be the most essential company in the world, but this has definitely been the year that reinforces the power of Jeff Bezos’ machine. And I added a bit personally last week, too, at prices above where it is right now, this is what I wrote in the Friday File a few days ago:
“Amazon (AMZN) beat the earnings expectations again, no surprise there in the wake of Shopify and everyone else in e-commerce shouting to the rooftops about how dramatic the move to online buying has been. The numbers for Amazon are just huge, they hit quarterly sales of $96 billion, well above their own guidance, and reported earnings of $12.37 a share (earnings are not really the target for Amazon, at least these days, and if they’re ever judged just on earnings and earnings growth investors should be ready for a “look out below!” moment, but they are growing so fast everywhere that some of that trickles through into profits. Their guidance for the fourth quarter was lower than investors had expected on the bottom line, probably because they’re spending so heavily to be ready for the holiday shopping blitz, but the sales guidance was higher than analyst averages, they expect $112 to $121 billion in revenue in the fourth quarter, which would be almost 30% growth. For a $1.6 trillion company. This is just nutty.
“It appears the only thing that can really slow Amazon down is government regulation at this point, but there are also probably just about as many Amazon Prime members in the US as there were voters in the 2016 elections (the vote count was around 130 million last time around, Amazon doesn’t regularly disclose Prime membership but it was reportedly over 110 million before the pandemic), so the people have, to some degree, chosen Amazon over either the Republican or Democratic parties (OK, that’s a stretch, I know). Given that popularity with customers, and with Amazon re-committing to being a massive hiring engine and paying a well-above-average minimum wage, I wouldn’t be surprised if the government’s bark is worse than its bite with Amazon (and, for that matter, with the antitrust suit against Google and the other pressure that legislators and regulators are trying to bring to bear on “big tech” in general).
“So with yet another Amazon-dominated holiday season upon us, and the relatively disappointing forecast that Amazon gave probably caused largely by one-time expense increases from COVID and from the fact that their low-margin Prime Day discounts came in the fourth quarter this year instead of the usual third quarter offering, I see no signs of faltering dominance here… nor any signs that Jeff Bezos will be able to spend fast enough to kill Amazon’s profitability even if he wants to. Earnings growth is not really the story for Amazon, they’re all about building a dominant platform and delighting customers to get them to stay, but they could also easily double their earnings from 2020 to 2022, and that’s truly remarkable for a $1.5 trillion company that would still, using those 2022 estimates, have revenue that’s lower than Walmart (WMT). I want to poke holes in Amazon here, it’s still trading at 50X those 2022 earnings estimates, but it’s hard to see a real competitor who can keep up, or a real reduction in demand for their products or services, so I added a bit more on this post-earnings dip.”
And what’s next?
“The second business is helping the digital transition of more than 230,000 businesses. This includes everything from construction companies and hospitals… to real estate firms and retail.
“This company has paid investors remarkable gains of 360% over the past five years.”
The Thinkolator isn’t as quick with an answer for that one. It sounds like Iron Mountain, to some degree, though it’s definitely not them — that data storage company which is becoming a digital storage company has not shown anything like 360% returns over the past five years (it has trailed the market quite considerably, in fact, despite a strong dividend it has returned about 20% over the past five years, versus more than 70% for the S&P 500 (and, yes, nearly 500% for Amazon)).
So… maybe Adobe (ADBE)? That’s actually up more like 420% in five years, as of August when this ad was dated, but you can find a roughly five-year period recently when it has gained “only” 360% (June 2015 to June 2020, for example). That’s probably not the match, since I don’t really have a connection to that 230,000 businesses hint… and yes, I know that sounds like a big number, but that’s just about the number of businesses that call New York City home (well, before the pandemic, anyway). Adobe has more than 230,000 businesses around the world using just its Magento platform (which is mostly an e-commerce platform, a Shopify competitor).
This could be lots of other companies, including gigantic Microsoft (MSFT), which has more than 230,000 businesses using just its Teams product and seems to collaborate with just about everybody in “digital transformation” to some degree. So in the absence of other ready clues, I’ll halfheartedly throw Microsoft out as “most likely” for you, but leave you to your own guesses… and yes, both Adobe and Microsoft are key players in the “digitalization” of the world and have been doing great, and they’re both priced like key players so you might want to get yourself in an optimistic mood before you look at their current valuation.
Similar to my thinking about Amazon, I won’t argue against owning either Adobe or Microsoft, though I don’t own either right now… but if you want to buy a stock that trades at 50X earnings, best to spend some time cuddling babies or frolicking with puppies first to get you in the right frame of mind. If you’re fearing the future, you won’t want to buy it, and you can only buy popular tech stocks if you want to prepay for a chunk of the imagined future. These are investments you make with hope and optimism, not with dystopian malaise.
If you’ve a better guess for number two here, please do share with a comment below… but we’ll move on…
“The third business dominates the world of Internet commerce… and either already dominates or is a major player in critical digitization technologies like: artificial intelligence (machine learning), personal storage, online videos, self-driving car technology, and more.
“Investors have doubled their money over the past five years… and the gains are likely to be extraordinary from here – it’s also soaring in 2020.”
That must be good ol’ Alphabet (GOOG). Again, not a surprising company, and clearly one of the strongest technology companies in the world even if it has “only” doubled over the past five years… and a stock I’ve been buying for more than 15 years now, so, again, I’m not going to argue with Porter on this one. As with Amazon, the biggest real threat in the near term is government regulation, though it’s a little more urgent with Alphabet because of the actual antitrust lawsuit just underway.
As an investor, Alphabet is still overwhelmingly an advertising company — they have a fast-growing cloud services division, and are trying to build up Waymo as the dominant service provider for autonomous driving, among many other initiatives, but most of their revenue comes from search advertising, their broad network of contextual internet ads (including here on Stock Gumshoe), and ads on YouTube. Here’s what I wrote following their earnings report last week:
“Alphabet (GOOG) this week posted probably the most dramatic ‘blowout’ quarter of the megacap tech stocks — investors are continuing to digest what the new antitrust lawsuit might mean about the future of Google’s monopoly-like businesses in the US, but right now the big news is that they’re recovering fantastically from the COVID slowdown in advertising. Which is probably good news for all companies in the digital ad space — if Google can beat earnings estimates this dramatically, then maybe we’re starting to make up for the sudden disappearance of those big travel and other COVID-impacted advertisers earlier in the year. Earnings came in at $16.40 per share, 60% growth over last year and 40% above what analysts were expecting… and the top line was pretty impressive, too, with 15% revenue growth (that’s quite a lot for Google, which reported $46 billion in revenue for the quarter after falling to $38 billion last quarter when ad budgets were slashed during the heat of the pandemic’s first wave), about 10% above what analysts had been forecasting. The growth was driven by advertiser spend for search and YouTube, which are Google’s two strongest businesses (YouTube is smaller, but growing faster that Google’s core search and web advertising business), but Google Cloud and the Google Play store are reportedly also growing well. And it also helped a little bit that they’ve reduced the share count by about 2% this year through buybacks, and still have something like $120 billion in net cash on the books — close to 10% of the market cap.”
And one more…
“The fourth business you should own immediately is going to be ultimately responsible for taking our world of paper contracts, agreements, and other documents, and digitizing them.
“This company already has around 550,000 business customers, and they own more than 60% of this market.”
Well whaddya know, that’s another favorite around these parts — those clues point at DocuSign (DOCU), the e-signature company that is trying to build up its “agreement cloud” that provides contract maintenance and management in addition to just electronic signatures. This has obviously been a fantastic year for DocuSign, since the push to make transactions and deals without breathing the same air as your counterparty has led to a natural surge in a business that was already doing really well. I did take some profits on my DocuSign position back when Zoom reported, two months ago now, because DOCU had a ludicrous move that day as folks were looking for the “next Zoom”, but it has since come down 30% or so from those highs so it’s a little easier to consider it again today. Here’s a little excerpt of what I wrote following DocuSign’s last earnings call, in early September when the price was right aroun