The Weekend Edition is pulled from the daily Stansberry Digest.
The stock market is loony...
Last month, House Speaker Nancy Pelosi announced that Democrats would proceed with an impeachment inquiry into President Donald Trump. She accused him of violating the U.S. Constitution by urging Ukrainian President Volodymyr Zelensky to investigate Joe Biden, the former vice president and current Democratic presidential candidate.
The stock market immediately started falling after Pelosi's announcement... The benchmark S&P 500 Index finished that day – September 24 – down about 0.8%, closing at 2,966.60.
Then, the next day, Trump released a partial transcript of his conversation with the Ukrainian president... and the market went up. The S&P 500 gained about 0.6% on the day, closing at 2,984.87 – just slightly below where it was before the whole mess began.
Do you realize what this means?!
It means real people with real money are sitting around, waiting to buy and sell stocks based on watching TV and reading news headlines.
Maybe a neurologist among our DailyWealth readers can tell me what causes someone to sell an interest in a business based on a five-second-old news headline that has nothing to do with anything the business will do today... tomorrow... and certainly not next year. And then, less than 24 hours later, reverse course and buy that interest back.
It can't be normal behavior.
But maybe normal is a bad benchmark for judging stock market events...
Loony WeWork co-founder Adam Neumann stepped down as the company's CEO last month under pressure from everyone who had uttered or written his name recently. It turns out self-dealing, "lite" corporate governance, and weird, flowery language in an initial public offering ("IPO") prospectus aren't all they once were.
I have to wonder if JPMorgan Chase's (JPM) deep involvement in WeWork will ultimately tarnish Chairman and CEO Jamie Dimon's sterling, "endorsed by Warren Buffett" reputation.
JPMorgan was the lead underwriter on WeWork's IPO, which the company withdrew at the end of last month. And the investment bank is also among those who lent $500 million to Neumann against his WeWork shares.
As the WeWork saga was playing out, it was announced that Dimon received a call from SmileDirectClub (SDC) CEO David Katzman, wondering what went wrong with the mail-order orthodontics company's own IPO... which kind of bombed. The stock currently trades at about $10.25 per share – more than 50% lower than its IPO price of $23 per share.
No matter what happens, I doubt folks will let Dimon forget about WeWork for a while...
Last month, Ritholtz Wealth Management CEO and CNBC regular Josh Brown posted a video about Neumann's ouster and the failure of WeWork's IPO on Twitter. He also wrote...
Wall Street was THISCLOSE to selling you #WeWork at $50 billion. Stop quacking like a duck and they'll stop throwing breadcrumbs at you.
Investors will never stop quacking like ducks and Wall Street will never stop trying to make money by shoving toxic breadcrumbs down their throats... though maybe they're more like geese, with Wall Street forcibly fattening them up to make foie gras.
Whichever waterfowl you like, Brown nailed his point...
It seems like everywhere you look on Wall Street, some rich dude is taking investors for a ride. And they're quacking like crazy, practically begging him to do it.
Take billionaire hedge-fund mogul Ken Griffin, for example...
Griffin started trading stocks from his Harvard dorm room at age 19. He's worth roughly $12 billion today, according to Forbes.
More than once in the past couple of years, Griffin's hedge fund, Citadel, has sold investment-grade bonds to pay a dividend to him and other owners. The company sold $500 million worth in 2017... And it just did the same thing again last month.
Now, Citadel's bondholders won't likely wind up in the same sorry state as WeWork's shareholders and lenders. But the guy is already worth $12 billion. I'll go out on a limb and assume his partners are super-rich, too. Why do they need another $500 million right this minute? Why does Griffin need another dime?
Maybe he'll buy another Manhattan apartment for $238 million (the most expensive home in America) or another house near Buckingham Palace for $122 million. He bought both of those places earlier this year. And according to the Wall Street Journal, Griffin has spent more than a half-billion dollars on real estate since 2012.
I don't care that Griffin is rich... or that he got rich from hedge-fund fees. I just find it weird that he's using his company's credit rating to fund his art and real estate fetishes... when he is – or at least, should be – loaded to the gills with cash.
Then again, what do I know? Maybe having $12 billion isn't all it's cracked up to be. I'm sure billionaires have problems I can't begin to fathom...
What if Griffin needs another couple of paintings to hang in one of his new homes – and has to spend another $500 million on them, like he did in 2016? What if he's just a little short on his "walking around money" to do that? What then?
I can't imagine the horror of owning all that real estate... the taxes... the furniture... the paint... and worst of all, having other rich people walk through your latest mega purchase, saying things like, "Bless your heart, what a cute little place," or "That rug was an interesting choice."
Wall Street banks, brokerages, and hedge funds aren't the only ones selling to buyers who know less than they should...
Corporate insiders are selling, too. So maybe you should exercise caution about taking the other side of the trade.
The Financial Times reported last month that insiders – including chief executives and board members – are selling shares of their own companies "at the fastest pace in two decades."
U.K.-based data-analysis firm Smart Insider tracks insider buying and selling. And it says insiders are on track to sell $26 billion worth of stock this year – the highest total since they sold $37 billion in 2000. The firm also noted big insider shareholders at Walmart (WMT), Estee Lauder (EL), and Lululemon Athletica (LULU) were particularly aggressive sellers recently.
Insiders know more about their businesses than you do. More than I do. More than Warren Buffett does (most of the time). A piddling few will be honest enough to say, "I'm heading for the exits, so I'll have something left if I get fired before the market bottoms." They'll mostly say things like, "No matter how bad it looks, we're fine. Buy the stock. I'm just selling a few shares as part of a long-term plan."
They don't actually say that, but that's what I hear when they talk. Maybe I'm the one with the neurological disorder. We still need that brain doctor to write in...
Today's corporate insiders remind me of Rosalind and Phebe in Shakespeare's romantic comedy, As You Like It. The masterpiece deals with several cases of love at first sight and its consequences. As Rosalind tells Phebe in Act III, Scene V...
For I must tell you friendly in your ear
Sell when you can: you are not for all markets:
Cry the man mercy, love him; take his offer:
Foul is most foul, being foul to be a scoffer.
That's a poetic way of saying, "You better marry this guy, because you're too unattractive and spiteful to expect many more offers, so sell when you can and marry him already."
It's similar to what desperate, beleaguered outsider shareholders hear in their mind's ears at market bottoms. And it's the same thing insiders seem to be hearing today... near a market top.
Corporate insiders don't need someone like Rosalind whispering in their ears...
They won't wait until times get bad to sell.
According to the Financial Times, insider selling this year is on track to eclipse the amount sold in 2007 (the year the S&P 500 peaked before the financial crisis) and again in 2017 (the year I told my Extreme Value subscribers we were finally in a bona fide market mania and to sell when you can).
Since May 2017, I've been saying that the stock market is in a mania...
But I've still managed to find some good deals since then. I've told people to hold plenty of cash, buy gold, and buy value when and where they can find it.
I've also been saying that expensive, fast-growing (mostly technology-related) companies would soon stop providing investors with amazing returns... And when that happens, you better learn to be a value investor. I said a new "Golden Age of Value" would arrive... eventually.
The thing is... With all the loony selling I've detailed today, the market has finally shifted.
The Golden Age of Value has arrived.
Growth is done. Value has taken command... and I'm betting it will stay in charge for some years to come. (I recently put my entire 401(k) into a value fund.)
So if you're looking for those 50% to 100% pops over the next six to 12 months (give or take), you won't find them in fast-growing tech stocks and hot IPOs anymore. From here on out, you'll need to learn to look for cheap, beat-up businesses with more than a little hair on them.
I've been searching for those stocks for the past 17 years as the editor of Extreme Value. My chief research officer Mike Barrett and I are finding a bunch of stocks that have basically been left for dead for the last several years while everyone was buying the so-called "FAANG" stocks.
It's the end of the road for growth-obsessed investors and a brand-new day for us value guys! As they say in Cajun Country, "Laissez les bon temps rouler!" (Let the good times roll!)
Mike and I are looking forward to sharing all of our best ideas with our Extreme Value subscribers in the coming weeks and months. But you can get started immediately... We've already identified the top three stocks that are poised to win big as this shift plays out.
I recently put together a special presentation to explain all the details – including how you can instantly access all of my research on these three companies. Get the details right here.
Editor's note: Thanks to a huge market event on September 9, every dollar of the profits you've made during this historic bull market is now on the line. You could be in for a rude awakening if you get the next move wrong. But you don't have to be a victim... Dan just released an urgent warning to help you survive – and even thrive – as this shift happens. Learn more here.