Trish Regan: Most Americans are still going about life, investing, retirement planning as though nothing unusual has happened to our financial system. And few seem to realize the repercussions of the trillions and trillions and trillions of dollars that has all been bumped into the U.S. financial system just in the last 18 months alone.
Well, this is a wake-up call. I mean, people are recognizing this. You have at least four billionaires that have stated publicly Americans aren’t paying enough attention to this development.
And now, a friend of this show, a former Goldman Sachs banker says sooner than most people think, millions of Americans will potentially be pushed down out of the middle class, out of private retirement, out of a decent life based on independence and privacy, into what he calls a collectivist nightmare called financial lockdown.
So find out how to protect yourself, how to protect your family, how to protect your money. You can get a free copy of his new report. In it, he’ll show you the four steps that he recommends you take immediately. Go to retirementwarning2021.com to get your free copy. Again, Retirement Warning 2021 for a free copy of his new report.
When you’re starting to see some nervousness right now on Wall Street, I think that was reflected certainly in Monday’s market with the Dow ending off more than 900. Since then, people have kind of managed to calm themselves a bit. But what I want to do today is really give you a path forward to help you navigate just exactly what is ahead.
I mean, I think that there are some fundamental problems that we have that are long-term problems in this economy, namely that we just spend more than we make. And how long can you really do that? Right?
Hello, everyone. This is Trish Regan. Welcome to American Consequences with Trish Regan. We are spending more than we make. We’re dealing now with the debt ceiling all over again. We deal with it. It seems constantly, right? It’s a political showmanship. The showdown that we see in Washington with the Democrats doing one thing, the Republicans doing another, possibly the government shutting down.
So long as we don’t default on our debt. I don’t believe in that. As Americans, it’s critical that we pay our bills and that we pay them on time. So I don’t like the talk of default. Let me tell you, for those that really don’t like Joe Biden, my goodness, if he were ever to become the first president of the United States of America to default on debt, well then I guess he will go down in history as really and truly being the worst.
So I don’t think that’s going to happen. I mean, he’s got people like Janet Yellen around him who came out with a big article in the Wall Street Journal on Monday of this week, her op-ed saying, “Look, we would face an economic catastrophe if anything like that happened.”
So I don’t think it’s going to happen. I think it’s a lot of theater, but you need to be able to cut through that noise. So that’s one worry. I write about that, by the way, in this week’s edition of American Consequences, so check that out, americanconsequences.com, and you can sign up for the e-mail where you get my writings there, as well as some other tremendous, tremendous offers that we have writing for that publication all for you for free. But that’s one issue. OK.
The other issue is, well, China and the sort of Lehman-like moments that they may be going through in China with Evergrande. The reality is this, we have been through that moment. OK. I remember it very well. I was on the front lines of that crisis, reporting on it every single day for you.
So we’ve been through Lehman. Oh, and then there was the sequel that the Europeans went through as well with European debt crisis, and so the good news is European banks and U.S. banks have shielded themselves somewhat from anything like that.
So when people talk about contagion and how big a deal this could be and whether or not there’s a domino effect, I would point out that our U.S. banks and our European banks have gone through stress tests in order to make sure something like that doesn’t happen.
And unless they’re holding stuff that they’ve completely hidden in their portfolio, which they’re not supposed to do anymore, then we really shouldn’t have that big of a problem here. Yeah, you know what? It might hurt the Chinese economy, that could have an effect on other Asian economies, that could have an effect on companies that trade with China, right? But will it actually destroy, in a systemic way, what we have right now? I don’t think so.
I think that is completely overblown. So I’d take a little bit of a chill pill on that one. And then the last thing going on of course is the Federal Reserve. And everybody’s worried that you know what, Jerome Powell is just going to pull the rug out from under. I’m sorry, when has the Fed ever pulled the rug out from under?
Let’s be clear… if anything, I worry about the Fed creating an ulterior kind of problem because things are just getting so frothy given that they have been there for so long, doing all they’ve done. I’m really not worried about that. And they’ll telegraph whatever they want to telegraph. Ultimately the proof is in the pudding, depending on what they actually do. And thus far, it’s been only accommodative.
So keeping all that in mind, you need to look at the fundamentals of this economy. There are headwinds out there in the way of possibly larger corporate taxes, larger individual taxes. Those kinds of things could take a bite out of earnings, could take a bite out of consumer spending power.
So those are real problems, but if you’ve got the Fed still printing, then maybe that somehow they negate each other in a way. We are so lucky to have on this podcast today one of my dearest friends, a gentleman who I’ve known many, many years, who’s just got a wonderful background. He’s a Princeton University-trained economist. He worked in markets on Wall Street managing global risk assets for ING, Furman Selz, and Dreyfus.
And he was very active in trading oil futures, the equity markets, of course, equity options. He started his career out of Princeton at Merrill Lynch, and the reason I know him is because I was lucky enough to sit right by his side for three years. The two of us used to co-host a wonderful program on Bloomberg Television together from 3 to 5 p.m. every single day.
I used to call you my work husband, Adam. Adam Johnson joining us right now. He is the author and the founder of bullseyebrief.com. Bullseye Brief, this is where you can get all your investing news. He’s got great ideas for how you can make your money work for you. He also manages some money. Adam, it’s good to talk to you again.
Adam Johnson: Oh, thank you. It’s great to be with you and my goodness, what a thoughtful and kind introduction. Thank you. I loved our three years together and I’m going to love our time together today. This is just fantastic. So thanks for having me, Trish.
Trish Regan: You’re brilliant and you’re a great guy as well. And one thing that I always – I will tell people, Adam is so diligent. I’m just going to say that like, I would be amazed. First of all, he’d get to the office hours ahead of me every morning. You were up at 4:30 in the morning and already looking at stocks and he’d be there bright and early at his desk at 7 a.m., literally charting everything out. And he still does this today. He’s very committed, very diligent.
I mean, that’s really how I’d describe you because you always had, and you have, some of the best research around in terms of trying to figure out which stocks to actually be in on. And so I knew that it would be great to talk to you today because people are worried. They see the market tank like it did on Monday and they worry that there’s going to be more days like that ahead. What is your sort of overall thesis on what’s going on right now?
Adam Johnson: Well, Trish you know that my thing is American ingenuity, the people and companies driving the world forward. And as I was listening to you talk about what’s happening right now, it occurred to me if only the U.S. government were as effective as U.S. businesses at running itself and running the future and planning for the future, my gosh, we would be unstoppable, but Washington constantly trips over itself.
So thank goodness the rest of us who are working hard and building businesses get it right because I think that U.S. corporations really have gotten it right through COVID. No one’s perfect, but I think we’ve done a great job.
And now is we’re starting to look at COVID as kind of a rearview mirror thing, all of a sudden it puts in focus some of these other issues that you were talking about. From too much debt to where are we going to balancing the budget to infrastructure, etc.
And so I think now, as we get past COVID, we’re starting to think about all this stuff and the reason that this week in particular has been so rocky is all of a sudden, all those other issues are back in focus and Washington hasn’t articulated a particularly clear path forward. It’s really up to U.S. businesses.
And so U.S. business via the stock market took a little bit of a hit, but we’re going to be fine because we always are. We’re Americans, we’re resilient, we figure it out even if Washington can’t quite get it right.
Trish Regan: Yeah. No, I don’t have a lot of faith in Washington. I don’t have faith in either party, frankly. I think that there’s so much self-interest. But there’s also self-interest on the business side as well.
Perhaps, as a capitalist – and I’m a capitalist – that that ultimately benefits shareholders. Although, I say that with a little bit of an asterisk because you run the risk that some of these companies – I think about Big Tech for example, are more interested in their own sort of self-preservation and their own success than in the country’s.
And to me, a business’s success is still aligned with American success. So I kind of see them as one in the same, but I mean, you’ve said to me all along, you and I have talked not on television and not on a podcast, but just as friends, and we’ve talked about this market and you’ve expressed concern.
I know you believe that you need to be invested and that there are opportunities out there, but you said it’s gotten harder and harder to find those opportunities because everything has just been going up, up, up, up, up, and away.
Adam Johnson: Yeah. I mean, there’s no doubt that some of the money that’s out there has been chasing opportunity and push valuations up pretty high. I mean, you look at software companies and they’re trading at extremely high valuations.
I mean, to the point where I won’t buy them anymore. Fortunately that’s not true of everything that’s out there, but that’s kind of the flipside of low interest rates. If it’s really cheap to borrow, you’ll go out and maybe even on borrowed money put that money to work into assets. I mean, it’s like a housing, right?
If a mortgage is only 3%, I mean, wow, you can get a lot of house for that 3%. Now, if rates start going up to 4 and 5%, all of a sudden you can’t get as much house. So there may be something like that that happens with stocks down the road.
But I think we’re OK for now, Trish. And if anything, pullbacks, like what we’ve seen this week, are healthy because it’s like a relief valve that kind of keeps everyone in check, says, “Hang on there. You might be getting ahead of yourself.” So I actually think that little sell-offs along the way are just good kind of gentle reminders and little corrections that keep us honest.
Trish Regan: I look at those sell-offs as ways to get in. If you have any cash on the sidelines that you’ve been wanting to put to work, and again, I don’t need the money tomorrow, I don’t need it next year, I don’t need it five years from now. So I’m talking about very long-term horizons.
If it’s something that you can be in for the long term, then you certainly want to avoid getting out when everybody’s selling and you want to take those opportunities to actually get in. And so when the market’s off 900, that’s when you want to be going in. It’s not easy. I mean, there’s a psychological aspect to this. Isn’t there, Adam?
Adam Johnson: It’s hard. And what I have found, I’ve been at this a long time, Trish. And what I have found is that I am generally best-served by doing whatever makes me most uncomfortable.
So if the market’s down 900 points and I look at a couple of my names and, oh my gosh, gulp, they’re down 8, 9, 10% in a day, that makes me really uncomfortable. And, actually, I should be buying more of those stocks.
And again, that makes me uncomfortable, but what I’ve learned is over time, it’s the uncomfortable that is oftentimes the right decision. You have to zig when other people zag. And by the same token, when you’re feeling like a rock star, because your names just go up and up and up and up, and you’re like, “Boy, I’m so smart.”
Well, you know what? Actually, maybe you ought to sell a little something at that point which is why I always set a target in advance for my bullseyeBrief.com subscribers. If I put a stock out there, and of course I have a new stock pick every week, I say, “Here’s where I want to buy it, and here’s where I want to sell it.”
And when it gets to my target, I sell half. I think that’s smart discipline. So I think it’s about balance, Trish. I really do. And being willing to go against the grain, especially on weeks like what we’ve seen this week.
Trish Regan: Your newsletter Bullseye Brief, bullseyeBrief.com, you provide one pick every single week?
Adam Johnson: Yeah. It’s a lot of work. You said I work hard. I probably work too hard, but I do love it, Trish.
Trish Regan: No, I’m not kidding. By the way again, I’ve known Adam a long time and he’s always worked too hard. I mean, it’s a wonderful – I think you have just a tremendous work ethic and I admire it. And your level of detail and your precision has always been something that’s impressed me, but tell me what goes into – so give me some examples.
I mean if you would share, I know people have to normally subscribe and you have a great deal on new subscribers, but if somebody just kind of wanted to get a sense of what it is that you’re looking at, walk us through it. And by the way, I get the newsletter. So I know what I’m talking about, but I want a chance for other people to hear it as well.
Adam Johnson: Well, I tell you what, let me just give you a really obvious one. I think it’s obvious that we can all understand. Delta Air Lines, ticker DAL. And I’ll tell you why I like Delta. It’s incredibly well-run, No. 1, but No. 2, it has more levers to pull than any other airline, and that’s why it fits my criteria for American ingenuity.
In other words, not only has Delta figured out how to basically chop up the cabin into 30 different price points. I mean, there’s first-class, there’s business, there’s business on the aisle, there’s business on the window, etc., etc. 30 different price points for their tickets. Delta has also figured out how to make money in other ways. There’s cargo, which is about 10% of its revenues. I know that sounds obvious, but not all passenger airlines do that. Delta does, and it’s a real moneymaker.
Here’s another one for you. Again, people may not realize this, but Delta mechanics are actually fixing aircraft of other airlines, like for example, Lufthansa, American, etc. And not only do they fix and repair the aircraft for those other airlines, they actually manage the parts inventory that enables them to fix. So it’s parts and maintenance.
And then there’s a fourth lever that probably very few people realize – it’s very powerful, Trish. American Express pre-COVID was paying Delta Air Lines $1 billion a year in order to basically buy up seat capacity, extra seats, so that it could then award rewards to American Express customers for using their AmEx cards, right?
So all of a sudden, no longer is Delta just an airline, it’s an airline chopping up the cabin in 30 different ways, it’s a cargo operator, it’s a parts and service provider, and it’s a marketing, gosh, I don’t even know what the word is because it’s so original and so creative, it’s a marketing machine, thanks to its deal with American Express. So that to me is a really exciting company and it’s also trading very cheap and the stock is way down.
So I’ve written up Delta Air Lines as a pick for my Bullseye subscribers. I’m making people money on it. And that’s just, I think a great example of American ingenuity, something we can all relate to and, something that actually creates wealth for all of us over time.
Trish Regan: Wow. I will tell you, I like Delta Air Lines and I like Delta Air Lines because I’ve just found their customer service to be so far above and beyond in just in a league of its own, especially when you compare it with the likes of American.
I’ll tell you this, I have never tweeted. I never tweeted anger at any U.S. company, any company ever, other than American Airlines, because I will never forget. We were down in Miami, in South Beach, Miami for a New Year’s Eve thing and needed to be back up in New Hampshire for a planned family ski trip.
And we had a seat booked on the first flight out on New Year’s Day, out of South Beach. First-class tickets out of South Beach into Boston. Well, you know what they did, they decided to reroute us entirely.
American Airlines comes along and said that morning, at like 5:30 in the morning, we’re on our way out of the hotel with the kids and everything, “Hey, guess what? We’re going to reroute you. We’re going to put you tomorrow. Not, even today, tomorrow, in coach to Washington, D.C.” And I’m like, “No, no, no, no. Wait a second. We paid a lot of money for these first-class tickets today to Boston.” And they did this all via automation.
And this was several years ago. This was before COVID and I’m like, you got to be kidding me. And I called and I was on hold forever and ever, and ever. We finally got in the car on the way to the airport and changed our flight to go out of a different airport on JetBlue which got us back home. And we had to eat the cost of the JetBlue tickets.
In the meantime, I thought, I mean, what kind of airline would actually do that? And I’m just one of many, many, many, many stories, and I did tweet something at them. They actually finally refunded us.
I mean, I was so livid. I’ve never been so angry at a company, but lesson learned. I was like, “That’s it. I’m always flying Delta. If I can fly Delta, I fly Delta,” and JetBlue is good as well. But that’s interesting to hear. I’ve had very, very good experiences on Delta and I’m glad that sort of the rest of the company per your analysis is checking out.
I want to ask you about oil because I’ve liked oil a lot in this environment because I’m still betting really on a global recovery. And I know we’re going through sort of the second round here with Delta and it’s still a problem. But I do believe.
I mean, I’m an optimist at heart. I know you are too, Adam, and I think we’re eventually going to be OK, which is why companies like Delta – as long as these companies are well-capitalized and able to sort of manage through this – they should do well.
But oil, I would think as the economy recovers would benefit. There’s not a ton of supply and we’re dealing with inflation as well. And unfortunately given all this debt, devaluation if you would, of kinds with the U.S. dollar. So how does that affect oil?
Adam Johnson: Natural gas prices had been ripping, meaning going up real fast, and I’ll tell you what’s going on here, Trish. Two things, one COVID and two, the White House.
So if you remember last year everybody just stopped doing everything and gasoline demand imploded. So the price of oil plummeted and at one point it was crazy.
Actually the oil futures went negative because since demand had basically fallen off a cliff, all the oil was backing up and we’d filled all our storage tanks. There was no place left to put it. And the only way you could get people to take delivery of those oil futures, actually take the barrels, was to basically make it so cheap that they could afford to go out and rent, no joke, this is what they did.
They went out and they rented rail cars, pulled them into Tulsa, Oklahoma, to the futures delivery depot, and basically filled individual rail cars with oil and then moved them a couple of hundred miles and just parked them on siding.
And you had to discount the oil to the price of what you could pay for all that. What happened was that oil producers basically shut off the valve. They just said, “This is a nightmare. We don’t ever want to have to deal with this again.” So you can never take production down 100%, but they cut it way back by like, in some cases, 50, 60, 70%.
Well, that basically prevented oil from getting backed up at the terminals. But what it also meant was they didn’t turn the spigots back on very quickly because they were worried that it was going to happen all over again.
So we’re now actually operating at a supply deficit. We’ve drawn down all those inventories and almost said, a little has got to go back up to provide incentives for oil companies to say, “Oh, well. I guess it’s safe to go out and drill again.”
But you see there’s this other complication because the Biden administration very early on when they effectively got into the White House just decided that they would disallow any new drilling on federal land. Well, what people don’t realize is sometimes you have up to a third of U.S. production occurring on federal land.
So at a time where you need to get the oil running again, it’s actually been harder for oil companies to go out and do that drilling. And that’s why all prices are rising. It’s a twofold effect. We’re now at a deficit and Washington has made it harder to access some of those cheaper barrels.
So that’s why oil is going up and it’s why I’ve gotten my bullseyebrief.com subscribers into a couple of names: Energy Transfer, EOG, and Halliburton.
Trish Regan: And Halliburton?
Adam Johnson: Yeah, the largest oil field services company out there, Halliburton. EOG is a driller so they make money by drilling oil, and as the oil goes up, Halliburton is a service company so EOG hires them to drill the well, and then Energy Transfer – which by the way, pays a big dividend about 7 or 8% – is a pipeline operator that ships the oil once it’s gotten up to the surface. So I like all three of those. And it’s the whole complex, if you know what I mean.
Trish Regan: Let me ask you about a company where actually we’ve got a big conference happening for Stansberry Research out there in October at the Wynn Resorts in Las Vegas, which by the way, is my favorite hotel in all of Las Vegas. I think it’s just a really, really well-run place.
And I’ve interviewed Steve Wynn many times over the years, including for a documentary I did on Vegas a couple of years ago, actually when I was at Bloomberg. And yeah, I was really impressed by – I know that he’s suffered from some scandals, etc., and he’s not as involved, but I was impressed with his level of detail because he was describing to me how he literally – I mean, he had such a hand in the design of everything, and his eyesight had started to go in later years, and so he wasn’t as equipped to do that.
But really, I mean, his sort of knack and understanding and appreciation for detail was pretty specific and admirable. And he was just all in on those casinos.
Wynn is a great resort. I remember him telling me about the influence of the Asian gamblers and what that had meant. He also was going heavy at that time into Macau. And I was struck by the fact that in the hotel rooms, all of the room service menus were written in Chinese, in Mandarin, as well as in English.
And there was a very concerted effort to appeal to those Asian customers because they were very, very big spenders and he explained how they love to come to Vegas and of course, Macau as well. So China’s going through a bit of a thing. You heard my intro, perhaps at the beginning.
I don’t think it’s going to hurt us so much, but then you look at companies like Wynn, right, that are fairly dependent on the Chinese economy succeeding. Where does that leave you on a company like Wynn or any other company for that matter that’s dependent on China’s success?
Adam Johnson: Well, believe it or not, I actually bought some Wynn yesterday. The ticker of course is W-Y-N-N. And here’s the thing, Trish, Wynn gets about 45%of its revenues from the casinos that it operates in Macau, and there was a headline about a week ago that it was just a headline.
It was a very vague story. There was a headline that Chinese regulators want to keep a closer eye on the Macau casinos and in particular U.S.-based operators, like Wynn. The stock, before that headline came out, was trading at $110. And, to me, looked like it was on its way back to the old highs or certainly any way to $150 because the Las Vegas properties are booked every weekend at 800 bucks, they’re going gangbusters.
I was out there myself a week ago for the MoneyShow and had dinner at the SW Grill, which you probably know, the Steve Wynn Grill, right? So this headline came out about China and again, the stock went from $110 down to like 80 bucks. I think that’s crazy.
To take 30%off the stock price simply because of a headline and a vaguely worded story with no specifics, no timeline, nothing. I think that’s classic overreaction. I understand why people do it because they’re scared and one of the mantras right now is no China, don’t touch it, it’s unpredictable, we have no idea what they’re doing.
Look at what they did with Alibaba, with Ant Financial, with JD, with Tencent. I mean, it’s like an assault on all their biggest companies, because Xi doesn’t want to give up control. He doesn’t want to capitalism become bigger than the state. And that’s scary.
So I understand why people are selling Wynn but I think actually buying Wynn right now is just a fantastic opportunity. So I bought some yesterday.
Trish Regan: You did. Well, I mean, that’s the idea, right? Buy low, sell high.
Adam Johnson: Do what’s uncomfortable? You say, “Oh my God, but the Chinese, they could regulate it. Oh my gosh, this is scary.” Yes. It’s uncomfortable. Uncomfortable means buy it. It’s a hard thing to do.
Trish Regan: Again. I’m just saying, I’ll preface this but I don’t want people betting their kid’s shoe money or education money on stocks but I do think that you need to think about what it is that you’re willing to put to work in the markets.
And the reality is, look, Adam, I’m sorry, but you’re not going to get any yield anywhere else other than equities. I mean, that’s in part a function of the Federal Reserve at 1.3%would be on the 10-year Treasury. I love you, Adam, but I’m not lending you money for 10 years at 1.3%, right? Because I bet that inflation is going to be higher.
Adam Johnson: Yeah. Well, so what you’re getting at is one of my favorite acronyms out there, T-I-N-A, TINA. They call it the TINA trade and that stands for There Is No Alternative, T-I-N-A. And that’s one of the reasons I think the stock market has been going up and up and up and it’s not crazy. I mean, parts of it are a little crazy like software, but that’s, I think, what’s been propelling some of those crazier valuations, people saying there is no alternative, where else can I get the growth? Thank goodness. It’s like when we first started talking, and Trish, I said, if only the U.S. government were as effective at as U.S. businesses at running its own house, we would be unstoppable.
U.S. corporations have done a blockbuster job. And I think people, investors all over the world recognize that they want the exposure and when rates are as low as they are, you say, there is no alternative. I want to own U.S. stocks.
Trish Regan: No. I mean, look, and I get that. And I think what I try and clarify for people is yes, I have real long-term fundamental concerns. I mean, I question the direction of the country, I question all this spending, I question how future generations are going to be able to succeed in this really changing world and whether the U.S. is going to remain the dominant player on the international stage, both from an economic standpoint and from a military standpoint.
And these fears that I have, I think that they’re quite real and maybe shared by a lot of these listeners. Simultaneously, I’m also a realist, right? And I want to make sure that people are able to capture some of this upside. Even if you believe the Fed is just insane and inflation is crazy. So what do you do with that? OK.
You can sit there and point the finger and say this is nuts, but until you actually see, I think, some stress in the debt markets, you got to kind of play the game. And if you don’t, then you run the risk that you wake up 10 years from now and you really have nothing to show for it, which is by the way, one reason why I like gold. And I’m looking at some of the notes that you sent me.
And thank you for that because you told me individually sort of some of the things that you were scoping out. One of them I believe is gold. And I think that that makes a ton of sense as well, but you give me your thoughts on why you were pushing gold.
Adam Johnson: Yeah. Well, the funny thing is I’m really a growth investor. So for me to own gold, it doesn’t happen very often. But I do like gold right now because I like having some ballast in the portfolio. Just some balance and then some of this craziness.
And there was one company in particular, a gold miner called Barrick Corp. And the ticker is appropriately GOLD, G-O-L-D. And the reason I like Barrick, even though Newmont, which I imagine some of our listeners have heard of, even though Newmont is bigger, Barrick has a lower cost of production. In fact, they have the lowest in the world. It’s an extremely well ranked.
Trish Regan: Wow. I didn’t know that. Doesn’t Newmont have a good dividend?
Adam Johnson: Yes, but it fluctuates with the price of gold. I mean, arguably as it should. In fact, I’ll tell you what, I can pull up my Bloomberg Terminal right here, and tell you right now that the Newmont dividend is 4%. That’s pretty darn good. In fact, I think that’s actually higher than Barrick’s. Barrick’s dividend, just bear with me as I pull it up, is yeah, it’s about 2%.
Trish Regan: I only mentioned it and it’s – I don’t get down in the weeds as much as you, but I actually had been looking at Newmont. So that’s why I bring it up. And I remember thinking, wow, that’s a pretty impressive dividend.
Adam Johnson: Yeah. It really is. But Barrick is more profitable, and they’ve been retaining some of their earnings to reinvest into the mines and that’s why their dividend isn’t as high. It’s just a wonderful company. By the way, their break-even, Trish, across all their minds globally, it’s about $635. So with gold at whatever, 1,750 or 1,800, they are minting money. And gold is still a couple hundred bucks below the all-time high.
And so I think in an environment where spending is running amok, where we do have inflation, where people are thinking about preservation of wealth, I think there is a place for gold in the portfolio. And therefore there is a place for Barrick gold, ticker G-O-L-D, is one of your stockholders. I just think it’s a prudent placed…
Trish Regan: No, I think that having one of the miners is actually a really clever way to play it because then you’re both sort of hedging against inflation, get simultaneously benefiting from the business as well. So as long as it’s a solid business and to your point, very profitable and putting the money back into the business itself, then that’s an exciting long-term proposition for people.
I mean, I’ve liked gold for a long time in part just because – I still, there was a part of me that just keeps saying, this is a little bit nutty. I mean, you can’t just keep spending like this, you can’t keep printing like this and not have some – And somebody gave me some stats the other day on a new analyst at Goldman Sachs, like what a starting analyst position is going for.
And I think it was somewhere around, I want to say like 130K a year that they’re paying, which is double what they were paying when – or just a little more than double when I was getting out of school, and the year would have been, you were going right into 2000 and what they were paying a starting analyst, I was in the emerging debt markets group trading the likes of Argentina and Venezuela.
So when I tell you about printing money, I’m not kidding, I’ve seen it before. And the salaries have doubled since then. And I was thinking about it. I was like, yeah, probably rents have doubled like everything. And sure enough, if you look at gold in comparison to the dollar, that’s one way I think, where you can really hedge out some of that inflation. So I like it along with equity markets in general.
And to me, those trades kind of go hand in hand. So I like the idea of the gold company. Biotech is another one of your specialties. This is a tricky area for me, and I know that you’re close with people who have a real background in this space and you know a lot about it. What is it that you look for in biotech companies?
Adam Johnson: I look for a company that is developing a drug for some sort of condition where no treatment currently exists. So I’m looking for trailblazers. Take, for example, a little company called 9 Meters Biopharma. The ticker is N-M-T-R, 9 Meters Biopharma. It’s focused on two different drugs for two different conditions. One is called short bowel syndrome, which typically happens if you’ve had stomach cancer and they have to remove a large portion of your small intestine and you literally have a shorter bowel, and you have trouble absorbing food.
So they have one drug that’s got data coming out probably within six weeks, which I think is going to be very strong. It helps people basically absorb food. They have just a fraction of their small intestine, this drug goes in there and it slows down the digestive process, lets the food stay in there and they can get the nutrients that they need instead of having to rely on a feeding tube which is horrible.
And then the other drug that they’re looking after or that they’re developing is for celiac. People with gluten intolerance. Both are in late-stage trials – Phase III for people who understand sort of biotech lingo. Both are very promising based upon the Phase II trial data that we had. And both are producing data for us over the next couple of months. So there are a lot of catalysts and the stock’s only $1.25. So 9 Meters is a great example of a catalyst-driven company pursuing…
Trish Regan: What’s the ticker on that one?
Adam Johnson: Yeah. N-M-T-R, 9 Meters is the company. And by the way, nine meters is approximately the length of a person’s digestive tract. So that’s how they got [Crosstalk].
Trish Regan: I thought you were going to say colon again. I’m like, how many times can we say this in one shot?
Adam Johnson: Literally, that’s where the name of the company come from.
Trish Regan: No. Look, it’s important stuff. And these are, to your point, things that people really need. Yeah. The biotech space though, it’s crazy, right? Because it’s like you feel like, oh my gosh, like you’re so dependent on whether any of this stuff gets through and it kind of feels like sometimes technology is interfacing with big government and the FDA in a way that can feel quite cumbersome. And that’s why I find the space more challenging.
Adam Johnson: Well, it also requires an expertise. I was a pre-med at Princeton. I mean, I was so certain I was going to be a doctor and I ended up kind of falling in love with economics and switched. But I love science. And I guess I’m blessed with having an aptitude for it as well as some family members who are very well-versed in biotechnology.
Trish Regan: Not what I was going to say. I mean, I think you come by it just very naturally, I mean, given your, your family’s expertise and given your own interest in this space. So that makes it really unique.
By the way, we’re talking with Adam Johnson, everyone. Adam is one of my greatest friends. And Adam and I used to co-host a show together on Bloomberg Television that you may have watched 3 to 5 p.m. every day during the market close and thereafter. And Adam took what he used to do on the show, which was his insight and action.
In fact, sometimes over the years, I mistakenly referred to what you do is insight and action, because it was so entrenched with what we used to talk about every day. But it has become bullseyebrief.com.
And Bullseye Brief is his newsletter that he puts out with some really rich stock picks. And when I say rich, I mean in that you really have done just such extensive research. And it’s something I’ve always admired about how you work.
Some of the other things that I think are in question right now, a lot of people are asking, Adam, can this real estate market really hold up? And there was an interesting statistic I was looking at and a little bit alarmed by talking about how market bubbles are often proceeded by this uptick in real estate prices. And it’s something that we’ve seen repeatedly actually in ’87, in the years preceding ’87, in the horrible day in ’87, Black Monday, real estate prices had hit an all-time high.
And then again, you saw it in 2007 proceeding 2008’s meltdown, real estate prices had hit an all-time high. And here we are again. And guess what? The data shows real estate prices have hit an all-time high. How should we think about that?
Adam Johnson: Remember that because of population growth you naturally have rising demand for housing. So the fact that the prices for housing go up shouldn’t necessarily alarm us. I mean, it’s natural. If there more people there’s higher demand and therefore prices should go up.
I guess the real question, and I think it’s probably what you’re getting at is, are they up too much? Or is there some sort of runaway or have low rates basically pushed us into getting homes that are too big for us that maybe we can’t afford if rates go up? And yeah, I hear you. There is always that concern in the back of my mind. But I will also tell you that a very fascinating thing has happened over the past 10 years. Really since 2009, Trish.
All of the developers like Toll Brothers, Lennar, Pulte, they basically reconfigured their businesses. And whereas they used to build houses on spec on the hopes that someone would come along to buy it, now they’re only building based upon pre-orders. And what has happened at the same time is that the millennial population has gone from being kids in school to now young people in the workforce, and they haven’t been out buying.
And so now actually as these millennials who are starting to make some real money are in their 30s, we’re finding that in certain places, there’s actually a shortage of housing. I know that sounds crazy because you and I still think of 2009, which wasn’t that long ago. But markets recalibrate very quickly.
And so if I talk to people in the real estate business, what I’m hearing is that the, quote, unquote, the “‘Villes” are really hot and that’s the deficit. Louisville, Jacksonville, Charlottesville, Nashville, right? The “‘Villes” are hot. That’s where all these 30-something-year-old kids want to go because in a lot of cases, there are universities in those towns, there are tech startup firms in those towns.
You can work from home, you can get more home in places like that because it’s cheaper than New York City. And they’re really livable, fun cities with great nightlife access to the outdoors. And so while there have been some huge price increases in these, so-called ‘Villes, there are probably not enough houses right now to support this up-and-coming millennial population. It’s kind of a fascinating sort of situation, Trish.
Trish Regan: Yeah. No, I believe that. And look, I think that real estate is actually one of those inflation hedges again. And you also have to – Real estate’s tricky. If it’s your home that you’re just going to live in, you kind of just have to sort of accept that.
I mean, I look at home valuations in the area in which I live in New England and they’ve just gone through the roof because people have relocated out of the city. But unless you’re going to sell your house and move to Tennessee or Texas or Mississippi where your dollar is going to go further, it’s kind of hard, right?
Unless you’re willing to downsize, it doesn’t really mean much, but I think it does make people feel good. One other thing I would point out is, I’ve talked to a lot of banks who have told me that they’ve been far stricter with – in terms of loan quality. They’re not allowing cash-out refinancing. They’re not allowing people that maybe took forbearance during COVID to get a new mortgage.
I mean, there’s a lot of very much stricter rules than you would have seen back in the ’05, ’06, ’07 era when you had those NINA loans and no income, no assets. So I think that, again, as I said with China’s Lehman moment, I mean, look, we’ve seen that movie before, Europe has seen that movie or the SQL before.
And I think consequently we’re a little bit more guarded and banks are more guarded in terms of their credit quality. And I hope that that’s, in part, what could make this rise in real estate a little bit different. You also have. I mean, look at the success of rates right now, and you have a lot of smart money and investors chasing these rental properties, because they’re aware of exactly what you said, which is that millennials do need housing.
Adam Johnson: If you look at the rise of the millennial population, and this is a number that comes from the NAHB, National Association of Home Builders. In theory, they’re going to go out and buy 5.5 million homes over the next several years. But the problem is, like right now, they’re only 600,000 homes for sale across the US.
Typically at any given moment, they’re about 1.5 million homes for sale. Now, part of the reason there may be fewer homes for sale is people kind of hoarding their houses because of COVID. They don’t want to sell, but there is a deficit out there of homes. And there are a lot of millennials who want homes. It’s kind of like oil. There is a deficit and we all need oil.
Trish Regan: Let me ask you about that because a lot of people want to get us off of oil, right? I mean, I’ve actually made the argument that as much as the White House says, we want to go green, I’m like, OK, well, that just means oil prices are going to be higher because that actually has sort of the reverse effect. If you cancel the Keystone pipeline, then that makes oil that much more precious in terms of a commodity.
I mean, maybe – There was one reporter that asked that question, I think, in one of the press conferences. Are you sort of deliberately trying to or is it going to have an effect where people might migrate increasingly to EV-style vehicles because oil prices become so expensive? And yes, that could influence, I suspect, some behavior.
I think they asked Jennifer Granholm this, Department of Energy. But I do suspect in the interim you have more people that will be willing to invest in oil under the assumption that it’s going to continue moving higher in part. And this is the law of unintended consequences, right? Because Washington is making it that much more difficult.
Adam Johnson: Well, here’s the other thing. Let me turn this whole argument on its head. It may be that increasing reliance on electric vehicles increases oil demand. And let me explain why. 60%, six-oh. 60% of the electricity in this company, Trish, is generated through fossil fuels. People don’t realize that. 40% net gas, 20% coal.
And so if we start buying all these electric vehicles to replace our gasoline vehicles, we’re going to have to generate more electricity. Where’s that going to come from? Well, sorry to break the news to folks, but it’s going to come in part through burning more natural gas and maybe even burning more coal, ironic.
And again, as you said, total unintended consequence that electric vehicle demand could actually spur more oil demand. You can’t make that up.
Trish Regan: No. You can’t except that, to your point earlier, about, if only government could be as efficient as business, I mean, sometimes they just, for whatever reason, don’t quite get the whole picture there in Washington, D.C.
And this is no knock on the Biden administration, but rather a knock on all of them. We’re talking with Adam Johnson. Adam Johnson is one of my dear friends, former co-host of mine on Bloomberg Television, and the author and founder of bullseyebrief.com. bullseyebrief.com, where you can get really some phenomenal insight into the stocks that will make you money. Adam, dare I ask what your performance is?
Adam Johnson: Yeah. I’ve beaten the S&P 500 by about call it 3:1 since launching in 2016. So I’m very proud of that. And it’s a lot of hard work, but I do love what I do. It’s very rewarding. I got an e-mail from a subscriber who said, “I just want to say thank you. I showed my wife who’s in med school her 401k, or IRA rather, and you made her a lot of money.” And she said, “At that rate, I’ll be able to pay off my med school loans a lot sooner than I thought.” And that just made my day.
Trish Regan: I know that about you. And when I think about some of my wonderful folks at Stansberry Research, which is the sponsor, I should point out, of this program, American Consequences. It’s a very similar thing.
I mean, what you hear from people over and over again is that it makes them happy to be able to share knowledge, because you’re helping people create something and you’re helping them to grow their wealth or preserve their wealth, and there’s something just tremendously rewarding about that. Hey, I got to ask you, where you just in St. Moritz, did I see that?
Adam Johnson: Yeah. Over in Switzerland. I love Switzerland, I love hiking the Alps, and I was there for about a week. And Trish it was amazing. Every single morning I’d get up, I’d have a double espresso, I’d put on my hiking boots and no joke, I would hike to 11, 12, one day 13,000 feet and take pretty much the whole day. And then I’d get back down into town and kick back and relax and have a good dinner and do it again the next day. It was awesome.
Trish Regan: I tell you, I’m like really, really jealous because we love Switzerland. I mean, it’s like my favorite place. I love the country. I love how efficient everything is and how clean everything is. I mean, it was just a really, really, really great place. And we like to ski there and we definitely like to hike there.
And I had wanted – I’ve been postponing these trips now. We were supposed to go in March 2020 skiing. And then we were supposed to go in August 2020 hiking. And then we said, OK, well, we’ll go skiing in 2021. That didn’t happen in March.
Then we said, well, we’ll go hiking in August 2021. And here we are in September, we wound up doing it. It’s literally called, I joke about it, but it’s called the Switzerland of America. And that’s the White Mountains in New Hampshire. They billed themselves as the Switzerland of America.
So I was like, “Hey kids, you know what? Switzerland of America right here in New Hampshire.” So we went hiking in New Hampshire, which was nice, but not quite the same. I will say this. I was at the home of the gold standard.
I was at the Mount Washington hotel where they created the Bretton Woods Agreement. And then the gold bugs out there will appreciate this, this is when we officially pegged the U.S. dollar to the gold standard. And you know what I was there on? The 50th anniversary of us getting off the gold standard. Because in August of 1971, Richard Nixon, because the Fed had focused on employment instead of inflation, Johnson’s Great Society from ’65, right into ’70, then leading up to ’71, they just completely abandoned all their focus on employment and said, “We’re going to – Oh, forgive me on inflation. So we’re going to focus on employment.”
And that’s why I think Larry Summers and others including me have been warning that this could be a problem because we saw what happened ’65, ’67, ’68, ’69. And then by ’71, Nixon had no choice, he had to go off the gold standard. And you’ve seen tremendous inflation actually ever since and all the repercussions of that.
So anyway, it was the anniversary of that. No, it was just a coincidence. I just happened to be there for it, which was sort of funny. There was actually a conference going on, I was like, uh, I ought to be at that conference, but instead I was out hiking in the mountains. And you were in Switzerland as, as I wanted to be.
But my concern was whether or not one could get back, and traveling with children, it was a concern because they’re not vaccinated and God forbid anything happened and then you get sort of indefinitely stuck in Switzerland. Although there would be worse places of course, to be stuck in. You’re back in New York.
Let me just ask you this, what’s the difference in New York now versus say what you saw during – I mean, you were there all through COVID, were you not?
Adam Johnson: Yeah, I was here the whole time. I kept coming to my office all alone. I was in a 40-story building. And according to the security guys, I was one of seven people coming into the building. It was so weird. I mean, Fifth Avenue, there I was in the conference room all alone, this million-dollar conference room with a big table that can accommodate 25 people, totally deserted.
And I would go in there every day at 12 noon in front of the big windows, looking out over the Apple store on Fifth Avenue, and I do yoga. I mean, the conference room became my personal yoga studio and then I’d walk barefoot across an empty trading floor. The feel was weird. So weird.
Trish Regan: That was so weird. That is so weird. How does it feel now? Do you feel like people are back? Do you feel like energy is returning to the city? What’s it like?
Adam Johnson: It feels great. I mean there there’s traffic, which, usually, you’d say, oh, no, there’s so much traffic. Thank God there’s traffic. It feels good to hear horns and know that there are people bustling and it’s just a very, very different place. And it’s come back so quickly.
And I remember back in the depth of all that stuff, and people said, oh, New York is – it’s over. And I said, no, I was here for 9/11 and the aftermath of 9/11. And people said the same thing. It’s New York, it’s the capital of the world. And by the way, even if it weren’t New York, if it were some other city, have a little more faith in human beings and our ability to bounce back and take control again and own our lives. And that’s what’s happening in New York.
It feels so good, Trish. I can’t wait for you to come in and you and I can go get a coffee or whatever and hang out and celebrate the fact that there are people everywhere. It’s bustling again.
Trish Regan: No. It’s really good. I mean, it was quite eerie and I remember you telling me about it. And then I would see your posts on social media where you were showing how everything was boarded up, all the stores, because there was looting and everything going on. And I admired your bravery and your stamina for sticking it out.
You could have come and hung out with me in the country or your parents or plenty of friends, but you were like, nope, I’m going to the office. Every single day, I’m walking down Fifth Avenue, I don’t care. And that’s what I’m telling you is this guy has got determination and routine matters and you stuck it out. And it’s nice that things are getting back to normal.
Adam Johnson: Oh, I know. Well, we got through it as we always do. I think the lesson is don’t ever let yourself get too far down. It’s OK to be upset about a loss, it’s OK to feel uncertain about the future, but don’t ever let yourself get too far down because there’s always an opportunity to turn things around. That’s just one of the takeaways of this whole crazy experience we’ve all been through.
Trish Regan: Well, Adam Johnson, thank you again. It is always good to talk to you, my friend. Adam Johnson, the author of Bullseye Brief and founder bullseyebrief.com. Go check them out there.
You can follow them on social media. I know you’re on LinkedIn, Twitter, Instagram, Facebook, the whole nine yards, and he’s got some really interesting takes and good ways to make you some money. Thank you, Adam. Good to chat.
Adam Johnson: Oh, Trish. Thank you. Great to be with you. Congratulations on the show and thanks for letting me be a part of it today. I love being with you.
Trish Regan: Well, it is nice isn’t it? To be back and engaging in normal life again, in some way, shape, or form. We just got word this week that the administration is actually going to allow Europeans that have been vaccinated to come and be tourists in the United States again, imagine that?
Adam was just talking about Delta, maybe some of these airlines will benefit from the increase in travel. I read an article this morning saying, be careful, make sure that if you’re going to Europe, you get your tickets now because prices will be going up. Look, it’s a great thing to be out and about again. I hope that this continues.
I think that we’re coming sort of to this realization of what a new normal is and how you have to protect yourself and sort of live your life accordingly, right? Given the threat that that exists. And for some is more than others, but the important part is resilience. And this is what Adam was talking about. And the markets are resilient, investors are resilient, and fundamentally Americans are just resilient.
And so I think that’s the sort of positive takeaway we can take with all of us for the week. Just a reminder, please make sure you go and check out our website at American Consequences. I write there every week. We’ve got a new issue of the magazine coming up. P.J. O’Rourke has a wonderful piece on schools and the craziness these days, shall we say, in some of these schools. The education industry is a big one.
Anyway, check out P.J.’s piece there as well as my stories that I’ve been writing regularly on inflation and the threat of inflation and how it’s here and how it’s going to get worse. And, of course, Doc who was on the show recently has been warning of this as well – Retirementwarning2021.com. Retirementwarning2021.com, and get your free copy of what he’s talking about there. There’s a lot to consider, there’s a lot to take advantage of right now, and there’s a lot to be cautious about.
Protect yourself while still taking advantage of those opportunities. That’s a big part of what we try and encourage in American Consequences. Of course, you can also follow me on my own social media platform, my own website, trishintel.com, where I am every day, writing on economics, markets, and politics, and my own daily show there, trishintel.com.
In the meantime, I will see you right back here with another wonderful guest next week. Have a wonderful week everyone, and chin up. I do think that if you’re invested right now, you won’t regret it. Have a great week. See you next time.
Recorded Voice: Thank you for listening to this episode of American Consequences. Want more Trish? Read her weekly articles, Thursdays, in our magazine at americanconsequences.com. And subscribe for free to get all of our daily articles and the monthly magazine. We’d love to hear from you too.
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