“The Most Valuable Asset In the World Today”

Posted On Jun 2, 2017 By Dave Gonigam

  • Navel-gazing time: How we misunderestimated Facebook
  • James Altucher’s dead-on Facebook prediction… from 2007! (and what he says now)
  • Stock traders shake off a lousy jobs number…
  • … while gold and bond traders take the wrong message from the number
  • Friday map fun: Recreational marijuana taxes, state by state
  • A pilot weighs in on the proposed laptop ban… online shopping guilt… an inquiry about James Altucher’s event next Thursday… and more!

We wind down the week with a confession: We let you down five years ago. But today we’re going to do our level best to make it up to you.

It was in May 2012 that Facebook went public. The Agora Financial team turned up its collective nose.

For a year or so, our judgment was vindicated. But since mid-2013, FB’s share price has grown more than fivefold…

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With a market cap north of $400 billion, FB is now the fifth-biggest public company in the world — behind Amazon, Microsoft, Alphabet (Google) and the big kahuna, Apple.

In our defense, our reasoning was sound. At the time FB went public, it was trading for 25 times sales. Not earnings, sales. It was trading for 100 times earnings.

In addition, FB was playing games with its much-touted claims about the number of “monthly users.” And insiders were selling their shares.

Also in our defense, we did note in the spring of 2014 that the bear case against FB had collapsed: Facebook users evidently had no problem with ads taking up the limited screen space on a smartphone, or with video ads that ate into their monthly mobile data limits.

But it wasn’t till July of last year that one of our editors actually recommended Facebook as a long-term hold — Ray Blanco in Technology Profits Confidential. And that was mostly as a play on virtual reality.

In contrast, our newest contributor James Altucher made a bold prognostication about Facebook 10 years ago.

In July 2007 — nearly five years before Facebook went public — James was nearly laughed off CNBC when he said Facebook would one day be a publicly traded $100 billion company.

When FB started trading on the Nasdaq in May 2012… it was a $100 billion company.

A chastened CNBC had him back on a few weeks after that 2012 IPO. “I think long term,” he said, “we’re going to see over the next five years up to $10 billion in earnings. They’re going to increase mobile advertising. They’re going to roll out more advertising tools… There’s never been a company like this. There’s never been a medium where you could target a billion people with one ad. Facebook is it.”

Again, James nailed it. FB booked $10 billion in earnings last year. They’ve been growing at a 40% annual clip.

“And this growth is not expected to slow anytime soon,” said James last January.

Facebook’s biggest asset is its user base — and the enormous quantity of personal data those users have surrendered to FB, which it will gladly sell to advertisers.

“It is quite possibly the most valuable asset in the world today. More valuable than Saudi Arabia’s oil reserves, Google’s algorithms or the recipe for classic Coke.”

Again he said that in January. At the time FB was trading for $116. As we check our screens this morning it’s approaching $152. And he tells us it’s still a buy. (Heck, it’s trading for 38 times earnings instead of that 100 times earnings multiple five years ago. Compared with, say, Amazon, FB is a value stock!)

So… James had Facebook right and we had it wrong. We’re always looking to strengthen our team… and James’ prescient calls were one of many things that drew us to him. (To say nothing of his hedge fund experience, his venture capital experience and his best-selling books.)

[Now, about how we’re going to make up our Facebook flub to you: James is hosting an exclusive live webinar for Agora Financial readers next Thursday. He will reveal details of his strategy to uncover the Facebooks of the future — companies with a similar growth trajectory that are only now starting their rocket ride higher.

The profit potential if you apply his strategy? Ten times your money… before the end of this year.

Ordinarily James charges $525 for an event like this. But because he’s part of our team now — and because we’re still feeling a little sheepish about the whole Facebook thing — we’re offering you access for FREE.

The event is next Thursday, June 8, at 1:00 p.m. EDT. James extends you a personal invitation when you click here.]

To the markets… where all three of the major U.S. indexes are pushing beyond yesterday’s record closes.

As we write the Dow has just crested 21,200. The S&P 500 rests at 2,436. The Nasdaq is strongest of the bunch, up two-thirds of a percent at 6,287.

Traders clearly aren’t put off by a weak jobs number.

The wonks at the Bureau of Labor Statistics conjured only 138,000 new jobs for the month of May. That’s not even enough to keep up with population growth. And the April number was revised downward.

Bloomberg tried its best to give the report a positive spin: “Cooler hiring may partly reflect the challenge of finding skilled and experienced workers amid a tightening job market.”

Which might be true if worker pay were growing… but it’s not. Average hourly earnings grew only 0.2% on the month and 2.5% on the year.

The official unemployment rate fell to 4.3% — a number last seen in May of 2001 (in the midst of a mild recession, we hasten to add). The real-world unemployment rate from Shadow Government Statistics is 22.0% — the lowest since August 2010.

Treasuries and gold rallied hard the moment the jobs number came out at 8:30 a.m. EDT.

At last check, gold is up nearly 1%, to $1,277. That’s the strongest reading since late April.

And rising Treasury prices are pushing yields down. A 10-year note yields 2.15% — the lowest since mid-November.

Near as we can tell, traders are acting on the assumption that the job number is so weak that the Federal Reserve might hold off on plans to raise the fed funds rate at its next meeting in 12 more days, on June 14.

Not a chance, says Jim Rickards: “Our Fed forecast since last year has been the same.

“The Fed will raise rates 0.25% every March, June, September and December until 2019 unless one of three ‘pause’ factors kicks in. The three pause factors are job creation below 75,000 per month, persistent disinflation and a disorderly market drop. None of those three is present now. After today, there won’t be any significant employment or inflation data before June 14. Markets are holding up well despite being overvalued. So it’s all systems go for a rate hike on June 14.”

After June? Jim says the economic numbers will show accelerating weakness: “At some point, the Fed will pause the rate hikes, possibly by September. Fed Gov. Lael Brainard issued just such a warning in a speech on Tuesday. (Brainard is one of four Fed officials worth listening to. The others are Yellen, Fischer and Dudley. You can skip the rest.)

“Brainard will still vote ‘yes’ on the rate hike in June, but she’s warning her colleagues she’s a possible ‘no’ in September. She won’t be alone.”

Now for another sign that marijuana investing’s time has come.

The good folks at the nonpartisan Tax Foundation churn out many excellent maps showing various taxation levels in the 50 states. Over the years, The 5 has shared their maps of everything from income taxes to champagne taxes.

This week, they rolled out (heh) a new one of recreational marijuana taxes. You can click on it to make it bigger…

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OK, so it’s legal in only eight states — actually four right now, eight by next year. But that’s still more than one in five Americans, and the map will surely add more green over the next couple of years.

The Tax Foundation report accompanying the map is interesting. We were unaware until now of California’s godawful complicated scheme once recreational weed becomes legal in 2018. In addition to a 15% sales tax, there will be a flat $9.25 per ounce on flowers and $2.75 per ounce on leaves. That should keep California’s bud bureaucrats plenty busy.

Meanwhile, our Ray Blanco says this month presents an opportunity to legally double or triple your money with marijuana, in as little as a day’s time. Check out Ray’s latest research right here.

“TSA possibly banning laptops on international flights?” writes a reader who happens to be a pilot for one of the big four U.S. airlines. “How about embracing technology to actually detect IEDs and similar deadly threats before they are placed aboard commercial flights instead?

“Spewing politically correct but otherwise ineffectual pablum from on high in Washington is not the answer to protecting commercial air travelers in this instance.

“Meanwhile, a far bigger threat would be for the terminally solution-challenged TSA to insist on placing dozens or even hundreds of lithium battery-powered laptops in cargo holds during a flight. Just ask UPS, who suffered a fatal crash in 2010 blamed on lithium battery thermal runaways.

“Of course, if the TSA is seeking the first Darwin Award ever given to a government department, there may be a method to their madness.”

On our suggestion of a passive-aggressive act of resistance against TSA agents who ask you to pull your books out of your carry-on, a reader writes: “I like the idea even more of handing a pocket Constitution to the TSA agent who would dare ask me to unpack before boarding a flight.

“Unfortunately, in this Orwellian world, I would probably be led away in handcuffs for sedition and obstruction of justice. The TSA’s reasoning: ‘You, sir, are in a Constitution-free zone and that applies to all federally regulated airways, railways, roadways and waterways.’

“If interrogated further with questioning, I will just apply James Altucher’s principle of the three most powerful words one can say in response, which are ‘I don’t know.’

“Though it may not help in this instance, it would not hurt to add ‘I take the Fifth…’

“Also, I would have the number of a good constitutional lawyer on hand. Preferably, one who didn’t serve two terms in the White House. Ouch!”

“To the reader who wondered about online sales of clothes and shoes, I have been doing that over the past couple of years.

“Before it was just books, CDs, DVDs, vitamins, etc. I buy ammo on-line also, and along with the clothes purchases, I figure I save time and gas by not gallivanting around town to shop.

“I sometimes feel a little guilty that I’m contributing to the demise of a segment of the retail industry that I grew up supporting enthusiastically as a kid and continued to do so in my adult years.”

The 5: We hear ya. It’s a balancing act. Certainly, you shouldn’t feel guilty about buying online instead of from a big-box chain store. But there’s much to be said for supporting locally owned brick-and-mortar retailers…

“Due to my work schedule,” writes our final correspondent, “I won’t be able to attend James Altucher’s call. Do you know if it will be recorded and replayed?

“And should I go ahead and sign up, even though I know I can’t attend the live event?”

The 5: Yes, absolutely. We don’t go out of our way to advertise it, but you will be able to watch a replay. So don’t let your schedule hold you back from signing up. Do it right here.

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

overtime

As promised yesterday, it’s time to dive into James Altucher’s “ultimate cheat sheet” for investing all your money. A quick reminder of his disclaimer: “Don’t follow any of my advice. This is advice that I do and follow and it works for me.”

The Ultimate Cheat Sheet For Investing All of Your Money Part 2

A) Should I daytrade?

Only if you are also willing to take all of your money, rip it into tiny pieces, make cupcakes with one piece of money inside each cupcake and then eat all of the cupcakes.

Then you will get sick, and eat all of your money, but it will taste thrilling along the way. Which is what daytrading is.

B) I don’t believe you. Many people daytrade for a living.

No. I personally know of two. Maybe three. And they work 24 hours a day at it and have been doing it for a decade or more. So unless you want to put in that amount of time and be willing to lose a lot first then you shouldn’t do it.

One more thing: when you daytrade and lose money it’s not like a job.

When you go into a job you never lose money. If you show up for two weeks, you get paid. Even if you have been warned repeatedly about sexual harassment you still get paid. You might get fired but they won’t take your money.

The stock market takes your money on bad days.

Sometimes it takes a lot of your money. We’re not used to the brutality of that and it can destroy a person psychologically, which makes one (me) trade even worse.

C) Well, who makes money in the market then?

Three types of people:

  1. People who hold stocks forever. Think: Warren Buffett (has never sold a share of Berkshire Hathaway since 1967) or Bill Gates (he sells shares but for 20 years basically held onto his MSFT stock).
  2. People who hold stocks for a millionth of a second (see Michael Lewis’s book “Flash Boys” which I highly recommend.) This is borderline illegal and I don’t recommend it.
  3. People who cheat.

I’ve seen it for 20 years. I’ve seen every scam. I can write a history of scams in the past 20 years.

Without describing them, here’s the history: Reg S, Calendar trading, Mutual fund timing, Death spirals, Front running, Pump and Dump, manipulating illiquid stocks, Ponzi schemes, and inside information. Inside information has always existed and always will exist. Those are scams from just the past 15 years. If I went back 50 years the list would be fifty times as big.

One time I wanted to raise money for one of my funds. I went to visit my neighbor’s boss. The boss had been returning a solid 12% per year for 20 years.

Everyone wanted to know how he did it. “Get some info while you are there,” a friend of mine in the business said when he heard I was visiting my neighbor’s boss.

The boss said to me, “I’m sorry, James. We like you and if you want to work here, then that would be great. But we have no idea what you would be doing with the money. And here at Bernard Madoff Securities, reputation is everything.”

So I didn’t raise money from Bernie Madoff  although he wanted me to work there. Seemed like a very nice guy.

I was depressed when I left his offices in the so-called “lipstick building.” Why will I never be good enough? I thought.

Later, the same friend who wanted me to get “info” and “figure out how he does it” said to me: “we knew all along he was a crook.”

Which is another thing common in Wall Street. Everybody knows everything in retrospect and nobody ever admits they were wrong.

Show me a Wall Street pundit who says “I was wrong” and I’ll show you… I don’t know… something graphic and horrible and impossible [fill in blank].

Remember the magic words.

“I.” “Don’t.” “Know.”

D) So how can one make money in the market?

I told you about: #1. Pick some stocks and hold them forever.

E) What stocks should I hold?

Warren Buffett has some advice on this (and I know because I wrote THE book about him. A friend of mine who knows him told me my book was the only book that Buffett thought was accurate about him).

So since I don’t know anything, I will let Warren Buffett take over here.

He says, “If you think a company will be around 20 years from now then it is probably a good buy right now.”

I would add to that, based on what Warren does. It seems to me he has five criteria:

  1. A company will be around 20 years from now.
  2. At some point, company’s management has demonstrated in some way that they are honest, good people. If you can get to know management even better.
  3. The company’s stock has crashed for some reason (think American Express in early 60s, which he loaded up on. Or Washington Post in the early 70s. Or Coca-Cola in the early 80s).
  4. The company’s name is a strong brand: American Express, Coke, Disney, etc.
  5. Demographics play a strong role. Especially if you can get into a rising demographic through the backdoor. I explain exactly how here.

With Coke, Buffett knew that everyone in the world would be drinking sugared water before long. Who can resist? He also started buying furniture companies right before the housing boom. He knew that as the population in the US grows, people will need chairs to sit on.

Note that Buffett is not what some people call a “Value investor.” But I won’t get into that discussion here.

F) What else?

One time I accidentally got an email that was intended for a famous well-known investor. It was from his broker and contained his portfolio. I can’t say how this accident happened but it did.

Of course, I opened the email.

This is a man who writes about lots of stocks.

His entire portfolio was in municipal bonds…

Regards,

James Altucher
for The 5 Min. Forecast

Ed. note: James will be back on Monday with still more items from his “ultimate cheat sheet.” And by all means, you don’t want to miss his live online event, exclusively for Agora Financial readers, next Thursday at 1:00 p.m. EDT.

James will reveal what he calls “the 1,000% backdoor secret” — a strategy he’s used personally to parlay a $2,000 grubstake into a $10 million fortune in nine months.

The event is FREE. Check out James’ invitation at this link, and then RSVP with your email address.


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