The Largest Wealth Transfer in History
S3:E10 Porter Stansberry
Hosted by Addison Wiggin
“Wall Street is a mindset”, says Porter Stansberry, founder of Stansbury and Associates and Porter and Company Research. In this episode, Porter shares his insights on the banking system, distressed investing strategies, and his big prediction for the financial markets and global economy in the next three to five years.
- The structural integrity of the banking system
- The buzzword “banking crisis”, and
- What it means for the demise of the dollar.
He shares his insights on how to use distressed investing strategies to find good companies with bad balance sheets and lock in safe returns of 10, 20, and 30%.
Porter makes a big prediction about what we can expect in the financial markets and the global economy in the next three to five years.
This is an episode that you don’t want to miss.
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by The Essential Investor, in March 2020. He films from a homegrown studio in his basement.
Porter Stansberry founded Stansberry Research in 1999 with the firm’s flagship newsletter, Stansberry’s Investment Advisory. He is also the host of Stansberry Radio, a weekly broadcast that has quickly become one of the most popular online financial radio shows.
Prior to launching S&A, Porter was the first American editor of the Fleet Street Letter, the world’s oldest English-language financial newsletter.
Today, Porter is well-known for doing some of the most important – and often controversial – work in the financial advisory business. Since he launched Stansberry’s Investment Advisory, his string of accurate forecasts has made his advisory one of the most widely read in the world, and has helped his readers both avoid catastrophe and make incredible gains.
Addison Wiggin: Welcome to The Wiggin Sessions. I am Addison Wiggin. Today I have with me Porter Stansberry. Porter is the founder of Stansberry and Associates, and most currently Porter and Company Research. Welcome, Porter.
Porter Stansberry: Addison, pleasure to see you again, old friend.
Addison Wiggin: Good to see you. Hey, I want to start by going into the way back machine.
Porter Stansberry: Let’s do it.
Addison Wiggin: There was a time when you and I were new to the business, if we could either one of us remember. We were at the New Orleans Investment Conference together and we were-
Porter Stansberry: 1998.
Addison Wiggin: 1998, that’s right. I was speculating it was 25 years ago. But we were sitting at dinner together at one of those round tables while somebody was given a speech, and we were just discussing our prospects in the business. And I think I said something naive like, “Well, how are we going to make this work when we don’t live on Wall Street? We don’t live in New York.” And you said, and this has stuck with me since you said it, obviously since I’m bringing it up now. That you said, “Come on, Addison, you don’t have to live in New York to understand finance or work on Wall Street. Wall Street is a state of mind.” And that has stuck with me ever since.
Addison Wiggin: I’ve never worried about living in New York. I like going there, but I think you’re right. But I wanted to bring it up because you’ve had a particular approach to the way you think about finance and the way you think about investing that’s unique. I would say the way that you describe your ideas and stuff is very calm, cool, collected. And you’ve never really worried about Wall Street as an entity. But maybe you could start by saying, what did you mean 25 years ago when you said Wall Street is a state of mind?
Porter Stansberry: The first thing that occurs to me is just that the wealth management industry does not exist to make you wealthy, it exists to make them wealthy. And I think that was the starting point. Even 25 years ago, I saw that the people who were the clients of major investment banks like Morgan Stanley or Merrill Lynch, they were oftentimes very poorly served. Now in regards to Merrill, I’m not trying to disparage everybody. There were certainly very many good people at that firm, like there were very many good people at Morgan Stanley. I’ve known many of them over the years. But there was always an inherent conflict. Which was, those banks made their money primarily by serving the people who were selling securities, or they themselves who were selling securities. And the customer, our subscribers, my friends who were successful in business or in medicine who would entrust these people with their savings, they truly didn’t understand that.
They did not understand that the companies that they were with, the people they saw advertising at the golf tournaments, the brands they saw on top of tall buildings, they thought the purpose of those firms was to serve investors. And of course, as you know, it’s not. The purpose of those firms is to serve corporations who are listing securities. Wall Street as a state of mind meant to me that we have an obligation to our readers. We don’t have a legal fiduciary duty, but I’ve always believed that we had a moral and ethical fiduciary duty to do what we could to even the playing field for those people. Those folks are going to spend $100 or $1,000, or sometimes more, $5,000 with us. And they’re doing so because they trust us more than they trust those firms. And we have to do a good enough job to be worthy of that trust and to help them succeed.
And I think that not everything has worked out, of course. But by and large, I think that’s what we’re responsible for the success we had at Stansberry Research. And I’m hopeful that that’ll be what drives the success at my new firm, which by the way is, plug, is called Porter and Company. And we’d certainly love to have your business if you guys are interested in thorough and independent financial research.
I’m going to stay in the way back machine here for a second. And there was a time when you were staying in an apartment over in Bolton Hill in Baltimore. And Jennifer and I, my wife and I went and visited with you. And you actually brought a copy of Man, Economy, and State to the Table.
Porter Stansberry: I love that book.
Addison Wiggin: Yeah. This is not Man, Economy, and State, because I couldn’t find my copy, but it looked like this. It was a big blue book. This is a copy of Ulysses. But it was a big blue book and you carried it around with you for two years, I think.
Porter Stansberry: Yeah. When Bill introduced me to the ideas behind libertarian philosophy and Austrian economics, I got so excited because it was the first time I’d ever read any philosophy of how human beings can most efficiently interact and cooperate. I’d never read anything like it, and it appealed to me so much because of the things that we had been taught in college were completely useless, and they didn’t fundamentally make any sense. And those ideas I think are beautiful, and I think that they lie at the heart of why America has been such a vibrant nation for so long. And I’m, of course as you know, and I think you are too, we’re very concerned that those principles and that foundation that allows so much cooperation, so much specialization and labor, so much formation of capital has been lost.
Addison Wigginz: Why do you think it has been lost? What do you think is going on? I know that you write and think about this stuff a lot.
Porter Stansberry: I think fundamentally the magic of America has been lost over the last, roughly 80 years. And I think you could date it all the way back to 1913 with the formation of the Federal Reserve, the beginning of the in tax law and the end of the republic with direct election of senators. There has been a shift from the idea of liberty and freedom to this idea of equity, where I somehow now am responsible for my neighbor’s welfare. Not just responsible for maintaining a society that’s fair and equitable, but instead I’m responsible for his outcome. And he now has a claim to my property and my happiness and my wellbeing regardless of whether or not I choose to accept that. And this is a very big idea, but how that occurs, how that change and philosophy is transmitted through the economy has happened in a myriad of ways.
Porter Stansberry: Everything from moving away from merit-based promotion and acceptance to elite colleges. To the rise of steeply progressive income taxes, both at the federal and state level. To the rise of organized employee unions. And that last one I think is really underappreciated. Even the most liberal of our presidents, Franklin Delano Roosevelt and Jack Kennedy, knew that unions were inappropriate for government workers because they were supposed to be serving the people. But if they organize and control elections, then all of a sudden it’s the people who are serving them. And if you look at the teacher’s union, that’s exactly what has occurred. The teacher’s union is not educating children, they’re hijacking the electorate in one election after another. And the results of their work for 30 years has been steadily worse, and there’s nothing that we the people seem to be able to do about it because they’re better organized and they win elections.
Porter Stansberry: Well, that’s just a terrible way to organize society. And I’ll point you to another thing that I think is really interesting. Is if you ever go and read the Communist Manifesto, this is written in 1848 by Carl Marx. And these ideas percolated through Germany and eventually came to America in the early 1900s, and led to a lot of the ideas that we have in America today. If you read the Communist Manifesto, you’ll discover that out of the 10 principles, we already have eight in full.
Porter Stansberry: I just think that is really sapping the vitality of our economy. It’s reducing our ability to form capital, it’s reducing our ability to work together efficiently, and it is has big consequences. Look at the decline in the value of the dollar. Look at the complete fracture between the economy’s productivity and real wages. This is destroying our middle class. These are big issues, and I’ve written about them a lot. But I don’t think people think about what the basic social contract should be and then think about, okay, well then what should policies be? The basic social contract has been perverted and been warped, and so now what politicians are elected to do is to take more from Peter, to give more to Paul. And every election that’s what’s going to win, is more promises to be taken from the rich and given to some other people.
Porter Stansberry: The problem is, of course, is that once you’ve spent your neighbor’s wallet, he’s unlikely to refill it. And so you see everybody doing everything they can to avoid regulation, to avoid being a contributing member of society, to actually to leave the country. As we both know people who have. Because paying combined marginal rates of close to 60% for your entire life makes it very difficult to build capital, to save capital, to invest capital. And then having to pay another 50% of it once you die is outrageous. Your combined lifetime tax rate is something like 75%. And at that point, you’re really being disincentivized for even getting out of bed in the morning. It’s no wonder that our economy is suffering and that real wages have been in decline for 40 or 50 years now, and that other places have taken the lead in terms of being the most free societies with the best opportunities.
Porter Stansberry: It’s pretty amazing how many people I know have moved to Singapore. Who wants to live on an island at the equator? Nobody, unless they care deeply about personal liberty and capital formation. How many people we know have moved to Monaco? It shouldn’t be that way. America should be where all of the world’s greatest entrepreneurs want to live. What did the guy do after he founded Facebook? I can’t remember the guy’s name. It wasn’t Zuckerberg, it was the other partner. He moved to Singapore. That should never happen. And how about the fact that it wasn’t Julian Assange, who I’ve met, by the way. I had a great experience with him. I think it’s a shame that he’s in jail, it’s absolutely outrageous. But not the Julian Assange guy, but the US citizen from Hawaii who spilled all the secrets.
Addison Wiggin: Edward Snowden.
Porter Stansberry: Edward Snowden. Yeah. How strange is it that in this day and age… When we were kids, people who were political dissidents, people who fought for political freedom, they left Russia and came to America. And they were lauded as humanitarians. Today, Edward Snowden, who was revealing that our government had been murdering people in Iraq and was doing shameful things with all of our personal data. He’s a humanitarian, he was standing up for the liberty and the sovereignty and the dignity of every individual American. He had to flee to Russia. The world’s gone completely backwards. And I don’t think people think about it enough or care about it enough. But if you want to know why your life is so much harder than your parents’ lives, that’s the reason, the basic social contract has been perverted in America. And unfortunately, our country is no longer a place where you’re left to pursue your own happiness. You get taxed with pursuing somebody else’s agenda virtually every day of the year.
Addison Wiggin: Just the way you’re talking about it sounds like you ought to move too. Do you see any light at the end of the tunnel? How does this change? Or does it?
Porter Stansberry: Well, you can tell where we’re going with this, right? And I wrote this in my End of America documentary back in 2010. Once countries go down this road, they’re on path to serfdom. The road to serfdom. And once you start printing money to pay for that path, you’re really on a short leash. It’s only a matter of time until there will be both a financial and a societal collapse. And every time we have to print, it’s going to be way more bigger printing every single time. I can’t tell you exactly when that day will come where it’ll just collapse, but it’s a lot sooner than people think.
Addison Wiggin: Yeah. Well, we have this with buzzword that’s flying around the banking crisis, and that’s a symptom of exactly what you’re talking about. And we can even see the moral hazard of the treasury and the Fed coming in to support regional banks. It’s kind of a buzz, but it’s a symptom of exactly what you’re talking about.
Porter Stansberry: Well, yeah, and I was going to give you a metaphor about that. The police departments in our country end up being the place where all of our bad social policies become manifest. They end up dealing with the ramifications of the broken social order that we’ve instilled. The banks end up being where all of our bad policy choices manifest themselves financially. So all of the bad mal-investment, all the consequences of the Fed’s printing, all of those things are going to end up in the banks. Because the banks are just leverage expressions of our entire economy. You’re not going to have an entirely dysfunctional public school system without having police departments get completely taxed and stressed and fall apart. Likewise, you’re not going to have a monetary system that relies on never-ending fiscal deficits and inflation that does it eventually destroy your banking system. Those are just the repositories of those problems, they’re not the originators of them.
Addison Wiggin: You recently wrote, “I do not expect we are going to see any kind of inflationary crash like we did in the 20s and 30s. I think the governments have learned that the only way out of this problem is through generating nominal GDP growth, which will mean higher and larger amounts of fiscal deficits,” which you’re talking about. “That means higher interest rates and more inflation for a lot longer than anybody expects.” I was talking to your good buddy, and mine, Dan Ferris last week, and he was trying to extrapolate the most extreme situations. And I believe he called it America’s Japan moment. Where the stock market just goes sideways for 30, 40 years, and people who are accounting on investments in their 401Ks or IRAs, or something like that to retire or pay for tuition and those kinds of things, they’re just not going to see any return on their money. In the meantime, their money just gets worth less and less in terms of purchasing power.
Porter Stansberry: Yeah. The real problem is the loss of purchasing power. The financial markets are really, as you know, hard to predict. And in the kind of inflationary environment I expect, inflation of six to 8% for 20 years, is going to wipe out 90% of your purchasing power. But assets and asset prices can do very well. There are a lot of companies, Hershey is one I talk about all the time, that can actually succeed in inflationary periods because they’re able to raise prices more than their costs increase. That’s not necessarily good for the individual, but it could be very good for the investors of Hershey. I’m a little bit more sanguine, or I’m a little bit more comfortable with where the financial markets are and how they will handle this. What I’m much more worried about is what happens to the social fabric of our economy.
Porter Stansberry: You don’t want to live in a society where 1% of the people are responsible for 50% of the GDP. I’ve been to those places, they’re not nice. You go to Nicaragua, that’s what it’s like. You don’t want that coming to America. And that’s what I fear. I also really fear that we just have a government that only is able to function through lies. The CIA killed President Kennedy, that’s becoming very clear. And yet they fully expected that we believe that the gunman acted alone and then Jack Ruby just happened to kill him two days later in a basement. None of that stuff makes any sense. Likewise, the idea that you can print $7 trillion to deal with COVID and there’s not going to be runaway inflation is just fallacy. So what’s going on? And when, if ever, are the adults going to ever be in charge again? And how did these clowns get in charge of our country?
Addison Wiggin: Yeah.
Porter Stansberry: It’s shocking to me. And I’m surprised more Americans aren’t more concerned about it.
Addison Wiggin: Well, I think the political division in the country shows that at least half of adults are at least aware of the predicament we’re in. There’s a lot of people that are just turning the other way and don’t really… It’s the bread and circus idea, they don’t really care.
Porter Stansberry: Speaking of [inaudible 00:19:26]-
Addison Wiggin: … many people who are actively concerned.
Porter Stansberry: Well, speaking of lies and smoke and mirrors, what are the size of the total banking deposits the United States? Something like 17.8 trillion. And what’s the size of the FDIC fund that’s supposedly ensuring them? Under 300 billion. You believe any of that? Neither do I. How about social security? You have $100 trillion outstanding liability, and you think you’re going to pay for that with payroll taxes? There’s no way. That’s not going to happen. They’ll eventually lift the cap on the social security taxes from, I think they’re at 12% of income or something like that, to all the way. It’s just an enormous, absolutely absurd Ponzi scheme that’s been sold to Americans for so long that they think it’s an entitlement. It’s just a tax.
Addison Wiggin: Yeah, I was writing about the FDIC, and even among readers of our material, there’s still belief that the FDIC… It’s really just a symbol of-
Porter Stansberry: It’s just a mirage.
Addison Wiggin: But they-
Porter Stansberry: Kind of like the domino theory that got us into Vietnam. Kind of like the weapons of mass destruction that were supposedly in Iraq. Kind of the very limited incursion into Afghanistan that lasted 20 years and costed 10 trillion. I can’t fathom how much… I guess the answer is forever. And I think that it’s the growth in mass media that has allowed the government to become just an entire bastion of lies. That if you tell a big enough lie enough times, it becomes the truth, that was Hitler’s discovery of human nature. And man, the government is absolutely winning the propaganda war. And they’ve created an alternate reality where they can get away with printing money, where they can start wars endlessly, where there’s never any financial reckoning. Addison, do you remember a time when running a $500 billion annual deficit was shocking?
Addison Wiggin: Yeah.
Porter Stansberry: I can remember a time when the total government debt was just a couple trillion dollars. Now it’s 31 trillion, and there’s never a year we don’t run at least a trillion dollar deficit.
Addison Wiggin: Yeah. Well, it’s going to get worse now too.
Porter Stansberry: Of course. Where does all that lead us? It leads us completely into bankruptcy. Well, how does a sovereign nation who owns the world reserve currency go bankrupt? They don’t. They just print more money. But what’s going to happen is all of your wages are going to disappear. If you’re a guy who makes $100,000, that’s going to be worth $10,000 in about five years. You’re not going to be able to feed your family. And you’re going to see the rise of all this… Socialists call this enemy, all of this destructive cultural and personal behavior because people become so dispirited and desperate. You’ll see a huge increase in prostitution. We’ve already seen it, it’s called OnlyFans. I’ve heard that’s what it’s called. I don’t know. You’ll see a huge increase in gambling.
Porter Stansberry: Look at what’s happened in gambling in our lifetimes, right? Gambling was something you used to have to go to Las Vegas to do, or maybe Atlantic City if you were a shady mobster. Now you can gamble any day you want on your cell phone. There’s a gambling parlor in virtually every city in the country. What the heck happened? Every state has a lottery. All these things, all these social changes that you and I have experienced over the last 30 or 40 years, these are all products of a society that’s completely lost their bearings. There is no firm foundation of value. There is no way to exchange real firm labor for assets, because the money is corrupted.
Porter Stansberry: And so because of that, because there is no foundation, the entire culture is run amok. And those problems are all going to get worse. And people think this is maybe witchcraft what I’m saying, but it is absolutely true. In every society in history that has gone to paper money, the paper money has always failed in an inflationary spiral. And the culture was destroyed along with the money. Because all of a sudden savings and hard work didn’t pay off, and so the people lost that. They completely lost those traditions, and as a result they were destroyed.
Addison Wiggin: You also wrote recently, “The good news, if there is any, of any of this, is that for people who know how to hedge their savings and their wages, it’s a one way bet. And you can bet it all the time.” What do you mean by that? That’s the way out that I was leaning towards. The French have an expression, [foreign language 00:24:21]. Which means, every man for himself. That’s what they used to say in the trenches in World War I when they were getting overrun.
Porter Stansberry: Yeah. We need that expression for our financial future. When you know that the only way out for the government is to print, and you know that the inflation will not be contained, it does make it a lot easier to plan your financial strategies. Some of the very largest fortunes that were ever created in the financial markets, and I’m talking about our friend Jim Rogers and his former partner George Soros, happened in the 1970s when there is a similar one-way bet. It wasn’t possible for the government to pay for the social programs of Lyndon Baines Johnson and the Vietnam War at the same time. So inflation was going to be here and was going to be here for a while. And those guys, the fortune that they made in things like lumber and coffee and sugar and silver was enormous. They were able to take these leverage bets and commodities that they knew were going to have to increase in price.
Porter Stansberry: And the government made it easy for them. And occasionally the government would put in these price controls, which is every speculator’s wet dream. Give me a price control. Wherever the price control is set, that’s where the price will be until it eventually breaks and goes higher. So it’s a one-way bet. And I happen to think that right now you’re looking at an absolute one-way bet when it comes to petrochemicals. Energy. Because I have a theory for you about this. There’s a new OPEC, and it’s a secret OPEC. And most people don’t understand it. But for about 40, 50 years, Saudi Arabia was the leading oil producer in the world, the leading producer of energy. And they organized OPEC and they controlled it. Now, yes, I know technically it was started by a Venezuelan lawyer. You guys don’t need to tell me about facts of history. I’ve read the prize, I know something about the oil business from firsthand experience and from understanding the history of it. But Saudi Arabia largely controlled the price of oil for decades because they controlled OPEC, and OPEC controlled production.
Porter Stansberry: One of the things that’s always fascinating me about people in oil is that the myth of peak oil, or the myth that we’re going to run out of oil is just absolutely rampant. People believe it in their bones for some reason. But if you study the oil business, what you learn is that in every single era the effort was always to control production, right? Not to find it. Finding it wasn’t the hard part, the hard part was not swapping the market. So when it got started, you had the Rockefeller system, and then later you had the Texas Railroad Commission, and then you had OPEC. Well, there’s a new OPEC, Addison, and then new OPEC is in Washington DC. Why? Well, because the United States is now by far the largest producer of energy in the world. We’re the largest exporter of natural gas. We’re the largest petroleum producer. Ethane, petrochemicals. All the stuff is now all coming, more than anywhere else, from America. And so what are we doing to control the supply of it? What we’re doing is ESG.
Porter Stansberry: The new OPEC is a teenage girl from Scandinavia, who unfortunately is mentally ill, and is saying that if you keep using that stuff, you’re going to boil the oceans. Or whatever the vice president said the other day. It’s complete madness. If you reduce the production of energy, there will be severe consequences. People will die. The standard of living will decline massively. That ain’t going to happen. So if we know that we’ve already invested how many trillions in wind and solar panels all around the world, and have we changed the mix of energy production at all? No, it continues to increase. It will continue to increase. We’re going to use more coal, we’re going to use more oil. We’re going to use more natural gas. And yeah, we’re going to use more windmills and solar panels for whoever the morons are that want to pay too much for energy, they will.
Porter Stansberry: But that’s not going to stop oil. It’s not going to stop gas. And so I think you have a really good opportunity right here with the depletion of the strategic petroleum reserve, with China’s economy being on the fritz for so long, oil prices are very depressed relative to the rate of inflation, relative to the likely future pace of nominal GDP growth globally. And so I think it’s a great opportunity, if you’ve got a five or seven year window, to make some really big investment gains that can hedge your losses that are going to result from the decline in real wages and things like that because of inflation.
Addison Wiggin: Yeah. And we saw an example of that just microcosm, I guess, when Russia invaded Ukraine. And the flow of gas continued and increased even through the war zone. And [inaudible 00:29:26] around the corner. And then they go close to India and then around the corner.
Porter Stansberry: There’s another big lie. I wonder who blew up the Nord Stream pipeline?
Addison Wiggin: Yeah. Actually, let’s just talk about the war, since we’re on the subject. I’ve had guests on who have speculated that most notably James Howard Kunstler, he was just rabid about the idea that they need the war in order to wipe out all of the pension obligations in Europe and all that kind of stuff. They needed something to bring everyone together. And he was saying it was propagated by the world economic flow and that-
Porter Stansberry: Yeah. Well, we’ve got COVID vaccine shots in America that’s going to wipe out 40% of the population. And I guess a land war in Asia is the other thing that we need to make the economics work.
Addison Wiggin: But nobody’s talking about that.
Porter Stansberry: No. Why would we talk about the fact that… I mean, this is really serious, something like the largest increase in history to mortality and working age people last year. And no one’s mentioning it except for all the life insurance companies whose earnings are shitting the bed. Yeah, a land war in Asia, what could possibly go wrong? Listen, I have no idea why the Russians and the Ukrainians want to fight each other. I know a little bit that about the history. They’ve been fighting each other for centuries, and they’ll probably keep fighting each other for centuries. And I’m happy to sell arms to both sides, but I certainly don’t want to send my sons to fight over there. And if I’m not willing to fight and I don’t want my sons to fight, then I think we should probably leave them alone.
Addison Wiggin: Yeah. Except we don’t.
Porter Stansberry: That’s not smart.
Addison Wiggin: Yeah. Well, we only make [inaudible 00:31:27], I think. Let’s talk about your business a little bit. When we were talking a couple weeks ago, you were saying that you were partnering with Martin Fridson, he’s your distressed investing expert. You want to talk about that? Because I also think that’s a one-way bet when we’re talking about banking crisis and companies on Wall Street that are going to… They might be good companies, but they’re PNLs don’t look so good.
Porter Stansberry: Yeah. Marty Fridson, for those of you who don’t know the name, is the dean of high yield on Wall Street. He’s worked for all of the biggest firms in the country. He started at Solomon Brothers where high yield was basically invented in the early 1980s, late 1970s. And then he ran high yield research at Morgan Stanley and at Merrill. So he has a really illustrious 30 year career focusing strictly on high yield securities. And Addison, as I’m sure you know, there’s two ways you end up with a high yield security. You can start out as a high yield security, like a lot of cable companies did, a lot of wireless communication companies did. Or you can end up a high yield security, which is where you’re formally a high quality investment credit, but you get downgraded. You get downgraded because of challenges to your business or challenges in the economy. And as your credit gets riskier, the yield has to go up.
Porter Stansberry: And right now we are at the cusp of what is going to be the largest credit default cycle in history by probably a factor of 10. And if you look at the investment grade universe, the largest tranche of investment grade that has grown even larger as a percentage of the total is the double B tranche. The lowest quality investment grade. And a whole bunch of that’s going to get downgraded over the next, I would say 36 months. And so you’re going to have a really good opportunity to buy good corporate bonds with yields to maturity of between 15 and 20%. So you’re going to be able to make equity-like returns, but in a safe bond. Now, when I say safe, I’m not talking about buying anything that’s in danger of bankruptcy or default. I’m just talking about formerly investment grade credits that have been downgraded, but are still very high quality businesses and still have plenty of cash flows to pay all the obligations.
Porter Stansberry: There’s other situations we’ll also be following where you’ll have a more speculative company that simply because there is doubt about its ability to acquire financing. In other words, the business is running fine, but they’re worried about the credit markets themselves. And as a result, you can get these squeezes where there is no way to borrow money, the window is closed. And when that happens, those yields can sometimes go up to 25, 30%. And eventually of course they will find financing, but the uncertainty of it drives prices much higher. Those two things, and being in that market, toggling between those two opportunities, I think is going to give us a chance to have something between 40 and 60 different recommendations over 36 months that’ll have an average yield to maturity of between 25 and 30%.
Porter Stansberry: And that sounds pretty incredible, but I would tell you we’ve done it before. Coming out of the ’08, ’09 crisis we did exactly the same thing. And coming out of the 2015, 2016 bear market, which no one even remembers, we did exactly the same thing. When the tide turns in the credit markets, it’s really interesting. Because those investors, all those institutions get paid to not take risk. So the moment something gets downgraded, they just dump the bond. There is no attempt to a analyze it or to think about it, they just want it off the books. And in fact, many institutions are not allowed to own things that are not an investment grade credits. So when they get kicked out of the investment grade world, there’s a big opportunity for people who know what they’re doing and have experience, and that’s why we hired Marty.
Addison Wiggin: I want to ask you, you’re in Florida, right?
Porter Stansberry: I am, yeah. Miami Beach.
Addison Wiggin: Miami Beach. All right. I wanted to ask you, Citadel just moved down there from Chicago, and I forgot the name of the island that’s on the south side of Miami Beach where they moved.
Porter Stansberry: Fisher Island?
Addison Wiggin: When they moved, you bought five houses or something like that, and it became the most expensive neighborhood in the world overnight. What is your experience of people moving out of New York, especially during the pandemic, and then now we’re seeing people from Chicago and people from LA are moving there? Miami is a boom town right now.
Porter Stansberry: Especially Miami Beach. Certainly, the prices have become absurd. I’ve been living in Miami Beach off and on since 2000. I bought my first home here in 2009. And it’s interesting, the very first property I owned, I can see it, it’s directly across the street from me. And it’s a long story, and it’s a painful one. But it’s waterfront, and the house I’m living in currently isn’t. And I turned down an offer to buy that house for $2.7 million in 2001. Today, that house would cost at least $10 million. The house I’m in here, the house I’m in now is the fourth house I’ve either owned or leased on this street. And I bought it in February of 2020, so right before the COVID Lockdowns. And I bought it for 4.2 million. And I’ve had someone offer me 6.5 for it within a year of buying it.
Porter Stansberry: The property prices have gone nuts. And lots of good investment groups have moved to Miami Beach from New York. They’ve also moved to Palm Beach. They’ve also moved to Brickell. There’s a lot of different firms in different places, but Miami Beach has always been the nicest place in South Florida besides Palm Beach. And it’s getting even nicer. Everything’s being redeveloped. The quality of the beachfront hotels continues to go up. And of course, the prices. Starwood Capital, the hotel group, they just opened a headquarters not more than 500 yards from my house. So there’s lots of finance people down here doing lots of interesting things. I don’t want to say his name, but I’ve socially met one of the world’s largest natural gas traders. He also owns a bunch of restaurants down here. Very interesting guy, and a fishing buddy of mine now. So it’s just fun to be down here and run into a lot of people. And there’s definitely a lot more energy down here in terms of business stuff than there has been before.
Addison Wiggin: How do you reconcile those prices and the… Don’t know how to phrase it properly. We’ll just call it wealth that’s concentrating in Miami. How do you put that in context of the conversation we’re having of societal breakdown? It’s like a refuge from it.
Porter Stansberry: Yeah. It’s always been a very nice place to live. Miami Beach was settled in the 1920s, or developed in the 1920s, and a lot of wealthy people have enjoyed this stretch of ground. And the water is beautiful, the beaches are beautiful, the restaurants are great. There’s an incredible airport. I would say, except for spring break, the traffic usually isn’t that bad. Lately, the traffic’s been horrendous, but that’s a factor to spring break. It’ll pass.
Porter Stansberry: There is a societal breakdown that goes on, but I’ll tell you that for wealthy people, all of this stuff is very good news, not bad news. All this inflation benefits someone. All of this war. Think about how many tanks and guns and planes and bombs we spent on Afghanistan and Iraq the last 20 years. Somebody made money on all that stuff, and when they did, they built a house in Miami Beach. And I know a couple of them. Yeah. Listen, it’s bad. Like I said, I don’t want to live in Nicaragua. I don’t want our country to be this way, but it makes it easier for people who are wealthy, not harder. Addison, I only have one prediction for your audience. They need to go to portersprediction.com, and they will discover the very best way I think to make money on the coming inflation.
Addison Wiggin: I hope you enjoyed our conversation with Porter. If you want to get more information about his prediction, go to portersprediction.com. That’s portersprediction.com. If you like today’s episode of The Wiggin Sessions, tell your friends and your family about it. Send them to jointhesessions.com. That’s jointhesessions.com.