The Case Against Economists

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Dear Reader,

Whenever despair slumps our shoulders and the sorrows of the world gnaw our liver… we can rely on CNBC to bring us up:

“Latest Data Show the Economy Ended 2019 on a Strong Note, Putting Recession Fears to Bed.”

Thus we are caressed, soothed, cheered, lifted.

And mortified.

When fear goes to bed… we vault instantly up from our own, hemorrhaging icy sweat.

That is because danger is highest when the guard is lowest — when fear dozes and snoozes.

A Jinx?

CNBC continues in the same lovely, terrifying vein:

The fourth-quarter growth scare is a thing of the past, as the U.S. economy looks set to close the books on 2019 with a solid rise.

Manufacturing and trade reports Tuesday confirmed that GDP is on pace to rise more than 2% for the period.  An Atlanta Fed gauge estimates the gain at 2.3%, better than the 2.1% in the third quarter and enough to close out the year with [an] average quarterly gain of about 2.4%.

While that would mark a slowdown from the 2.9% increase in 2018, it would still be indicative that the decade-old expansion is alive and well and prepped to continue into 2020.

Just so. But we might remind the joymongers that recession is nearly always an invisible menace.

It often comes in on tiptoe… like a noiseless thief in the night.

The Shockingly Short Route From Expansion to Recession

As we have written before:

Periods of jogging, even galloping, growth may immediately precede recession.

We invite you again to consult the following dates. Each reveals the real economic expansion rate — the economic growth rate adjusted for inflation — immediately before recession’s onset:

  • September 1957:     3.07%
  • May 1960:                2.06%
  • January 1970:          0.32%
  • December 1973:      4.02%
  • January 1980:          1.42%
  • July 1981:                4.33%
  • July 1990:                1.73%
  • March 2001:             2.31%
  • December 2007:      1.97%.

(Again we acknowledge Lance Roberts of Real Invest‍ment Advice for the data).

No Indication of Recession “Anywhere in Sight”

Review the figures. You are immediately seized by this strange and remarkable fact:

Recession has followed hard upon jumping growth of 3.07%, 4.02%… and 4.33%.

“At those points in history,” Roberts reminds us, “there was NO indication of a recession ‘anywhere in sight.’”

Let the record further reflect:

Growth ran 2% or higher immediately prior to five of nine recessions listed.

Third-quarter 2019 GDP came ringing in at 2.1%. And the Federal Reserve projects Q4 2019 will turn in 2.3% growth when the tally comes in Jan. 30.

What was GDP before the last recession — the Great Recession?

It was 1.97% — a workable approximation of the rate presently obtaining.

“Very, very few recessions have been predicted nine months or a year in advance,” affirms economist Prakash Loungani.

Adds George Washington University economist Tara Sinclair:

“There’s no economic data or research or analysis that suggests we can look 12 months into the future and predict recessions with any confidence.”

The facts are with them…

A Failure Rate Second to Few

The world has endured 469 downturns since 1988. How many did the IMF see coming?


This we have on authority of one Andrew Brigden, chief economist at Fathom Consulting.

But perhaps IMF economists are uniquely blinded and botched. Their private-sector brethren may enjoy superior vision. Private-sector economists are, after all, closer to the field of action.

But the record indicates private-sector economists are equally sightless, equally unable to penetrate the fog of data that surrounds them.

Between 1992 and 2014… 153 combined recessions came to 63 countries the world over.

How many recessions did private-sector economists spot coming — as a whole?


What is more, these bunglers generally undershoot recession’s severity.

Do we condemn the erring and wayward vision of professional economists, their phantom vision?

No. We question their value, certainly. But we do not condemn them.

“A Bedlam of Unpredictability”

The economy is a bedlam of unpredictability, an infinitely complex Rube Goldberg contraption — a chaos of billiard balls in endless and delirious collision.

Try to keep track of it…

A cue ball goes careening into a rack. A six ball lights out in one direction. A nine ball strikes out in a second, a four ball in a third…

A three ball goes knocking into an 11 ball, a two ball into a seven ball, a one ball into a 14 ball, a five ball into a 12 ball, a 13 ball into an eight ball, a 10 ball into a 15 ball…

Each in turn shoots in a random direction. Each then runs into another previously sent on its own indeterminate course.

Another dizzying chain reaction begins… with its own set of imponderables.

Into which pocket will each ball drop ultimately?

The answer is not only difficult to determine at the outset. It is impossible to determine at the outset.

The number of variables is endlessly boggling.

And so the economic outcome is impossible to determine too far out. And for the same exact reason.

As well hazard the winner of the 2096 presidential election… the number of angels that can fit on a pinhead… or the precise number of rocks in a senator’s skull.

Besides, we are in no position to mock the faulty psychic eyesight of economists…

A Prediction, Horribly Failed

That is because our own crystal gazing gives a consistently false image. For instance:

Roll back the calendar — to last Jan. 3.

The stock market had just come within one whisker of correction, defined as a 20% stagger.

We believed the curtain was coming down at last. We divined the Dow Jones would close 2019 at roughly 18,000… and the S&P near 2,000.

But we underestimated the Federal Reserve’s ferocious response and the vast pull of its magnetism.

Jerome Powell went into his trick bag. And our apocalypse went into oblivion…

The Dow Jones concluded the year above 28,500; the S&P above 3,200.

This year we tempted fate further yet. That is, we came out flat-footed with a prediction of the future, 10 years out.

We claimed the S&P will end this newly hatched decade between 1,500 and 2,300.

Today it floats at 3,265.

We claimed additionally the Dow Jones will be similarly trounced percentage wise.

Bulls, take heart! You need only glance at our record if concerned.

But come back home…

Few respectable economists forecast recession this year — or a stock market calamity.

And look at their record…


Brian Maher
Managing editor, The Daily Reckoning

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What Separates the Rich from the Poor

This post What Separates the Rich from the Poor appeared first on Daily Reckoning.

It’s no secret the rich tend to stay rich and the poor rarely find their way out of money-grubbing.

The chances of someone of little means finding his or her way to considerable wealth are that much lower.

The question begs: what, exactly, separates the rich from the poor?

Too many people assume the wealthiest people rely on connections, luck or an inheritance to build wealth and retain it across posterity. In reality, those who continue to grow their fortune almost always take a different path than the rest of the investing crowd.

Being a rebel has the potential to pay massive dividends in the investing world. Swim against the tide, buck the trends and you just might develop a successful investing strategy that stands the test of time or at least nets you a quick profit that you can spread out across a diverse portfolio.

Risk Tolerance is a Large Piece of the Puzzle

An investor’s tolerance for risk is a good indicator of his or her chance for building wealth. There has to be some tolerance for risk in order to make a meaningful amount of money in a reasonable amount of time.

In some cases, a stock or mutual fund with heightened risk is that much more of a prudent investment than one with minimal risk. This is your chance to have your money work for you.

Tolerate risk, take a few chances and you might end up investing “house money” in the near future while other more conservative investors are still waiting to make an initial profit.

The moral of the story is an overly-conservative approach to investing is nearly akin to sitting on the sidelines and doing nothing. Embrace risk to a certain point and you will be on your way to compounding wealth.

The Rich Do Not Take Investing Cues from Mass Media

Another key difference between rich and poor investors is those who fail to achieve investing success often allow outside forces to strongly influence their decisions.

The wealthy are more self-righteous, focused and careful when it comes to investing. Ask any successful investor about investing in a business featured in the public spotlight and he or she will likely state by the time it is on the news, the opportunity is gone.

Be Open to the Contrarian Strategy

Contrarian investors almost always do the opposite of what the investing masses do. This means if the masses are bullish on the market, contrarians will short stocks or buy put options, expecting the market to go down. Though this may seem like an odd strategy to inexperienced investors, it works if applied in a careful and timely manner.

Those who can separate fact from hype capitalize on over-eager investors and novices looking to make a quick buck by riding the wave. Keep an open mind to the contrarian investing strategy, recognize the fact that the investing world is rife with followers and you just might make a substantial amount of money.

The Difference Between Rich and Poor: Shrugging Off Investing Tips

I won’t pretend advantage doesn’t exist in the world. There are plenty of people who got lucky on a stock pick, were born into the right family, or married someone who was.

But plenty of the 1% have achieved their position on the economic totem pole for good reason, having earned their wealth or become savvy investors after inheriting money. The poor are more likely to consider investment tips doled out by supposed experts only  to lose their money. A reality that I don’t think is fair.

Alternatively, those who have had their own success in the market are less inclined to follow the advice of false experts. Investment tips are a lot like opinions–everyone seems to have them.

Don’t be gullible. Don’t assume another person’s information or research are accurate. This is your chance to demonstrate irreverence for convention, break free from the pack and think critically before investing your hard-earned savings.

Key in on Value

Value is the name of the game when it comes to investing as well as business.

However, defining value is a challenge.

This word means different things to different people. In the context of investing, value is typically thought of as the stock price in relation to the total number of shares. Like I discussed in yesterday’s issue, there is also a lot of value to be gained from stock charts. Furthermore, value has considerable meaning in the context of investing in terms of a business’s price to earnings ratio, commonly referred to as the P/E ratio.

P/E ratios account for important fundamentals. This number is especially valuable when comparing companies that do business in the same industry. The P/E ratios can be compared against competing businesses as well as the industry average.

Make prudent use of these tools, and you will be able to identify lucrative opportunities for overlooked value. Alternatively, the charts and this important ratio can also be used to review stocks in an investment portfolio to pinpoint those that might be overvalued.

Successful investors also key in on ratios like the price-cash flow ratio. If a business’s stock price is fairy low in relation to operating cash flow, it is a good sign the stock is valued below where it should be.

Savvy investors also pinpoint value with the price to book ratio.

Book value is value of a company’s common stock minus liabilities as well as preferred shares. The bottom line is those who enjoy investing success are willing to put in the time or hire someone to perform in-depth analyses of financial ratios and other details to determine if a value opportunity exists.

The Wealthy are Opportunists

If a stock is beaten up well beyond reason, plenty of wealthy investors will consider swooping in to take advantage of a possible “dead cat bounce.”

This is an investing term that refers to a battered stock left for dead that ultimately bounces back to life, even if only temporarily. This is just one example of how irreverence for convention and willingness to tolerate risk can pay off in a big way.

Pick enough beaten down stocks for dead cat bounces, sell following the bounce and you can profit along with those successful investors who have taken advantage of similar opportunities for years.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post What Separates the Rich from the Poor appeared first on Daily Reckoning.

How to Buy Hawaii’s Most Desirable Real Estate for $11

This post How to Buy Hawaii’s Most Desirable Real Estate for $11 appeared first on Daily Reckoning.

Every single day as I suffer through this frigid winter, I dream of buying a house somewhere beautiful, sunny and warm.

My dreams aren’t just for any random warm location, though. I have a specific place in mind.

For me, there is no place that I would rather be than Maui, Hawaii!


For now at least, elementary school age children and strong family ties to where I currently live are keeping me from fulfilling that dream.

I can, however, do the next best thing…

I can own a significant piece of Maui and make some serious coin doing it. And you can too!

Introducing Maui Land and Pineapple – A Stock Picker’s Paradise

Maui Land and Pineapple Company, Inc. (MLP) owns more than 23,000 acres in one of the most beautiful parts of Maui. This includes more than 21,000 acres of land right next to the world famous Kapalua Resort.

Maui map

Click to enlarge

The Kapalua Resort is a luxury resort that has two world-class golf courses, white sand beaches, two marine sanctuaries, the Ritz Carlton Hotel, and many other award-winning accommodations.

The point that I want to make very clear is that this isn’t just 23,000 acres of land. This is 23,000 acres of the most desirable, irreplaceable and most valuable land on the entire planet.

Maui Land and Pineapple began operations back in 1903.

By 1933, the company had acquired almost all of the property that it holds today.

The specifics of when Maui Land and Pineapple acquired this land is very important to know.

Because as you can imagine, this land that was acquired prior to 1933 was purchased for pennies on the dollar relative to what it could be sold for today.

Meanwhile, the way that generally accepted accounting standards (GAAP) works is that land is carried on a company’s financial statements at its original cost. For Maui Land and Pineapple, that means that the company’s financial statements are carrying its Maui land at pre-1933 prices!

That would be what you call serious hidden asset value, folks!

What Is This Company Really Worth?

The stock market is currently assigning a value to all of Maui Land and Pineapple of $215 million. That value is calculated by multiplying the company’s share price by the number of shares it has outstanding.

I think that valuation is far too low.

In instances where Hawaiian property has an ocean view, you can see land transactions take place at prices in excess of $500,000/acre. Even agricultural land in Maui gets sold for more than $25,000/acre.

If I am very conservative and assume that a fair valuation for Maui Land and Pineapple’s land would be $20,000 per acre, that would mean the company’s 23,000 acres alone is worth $460 million.

That would peg the value of the land alone as being worth $24 per share, which is more than twice the current trading price of $11 per share!

In addition to the land, Maui Land and Pineapple also operates two public water utilities businesses, a commercial property leasing business, and is working on adding value to the property that it owns by slowly developing it. All of these easily add several additional dollars of value per share.

This is the beauty of stock market investing. Sometimes “Mr. Market” just isn’t very efficient.

A person can’t go to Maui and buy a parcel of land for 50 percent less than what acreage on the island has been selling for. But in the stock market that is exactly what shares of Maui Land and Pineapple are offering us today.

Now if I can just figure out a way to get that nice Mr. Market to sell me some South Pacific heat and send it my way to get me through this winter!

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge

The post How to Buy Hawaii’s Most Desirable Real Estate for $11 appeared first on Daily Reckoning.

Buy the New York Knicks – Get the Rangers (Almost) Free!

This post Buy the New York Knicks – Get the Rangers (Almost) Free! appeared first on Daily Reckoning.

Everyone knows that the best time to get great deals is after the holiday season.

Come January, the stores need to offer some incentive to get shoppers interested in pulling credit cards that were exhausted in November and December.

Apparently the stock market is thinking the same thing this year because there are plenty of great deals to be had.

And I’ve got my eye on one such deal that is going to let you purchase some highly admired American assets at an incredible price…

Buy One Iconic Sports Team and Get Another Nearly Free!

The Madison Square Garden Company (MSG) owns some of America’s most famous (and valuable) professional sporting and entertainment assets.

Included in the MSG asset portfolio are the New York Knicks, the New York Rangers, Madison Square Garden, the Los Angeles Forum, Radio City Music Hall and the Beacon Theater.

Madison Square Garden Company

These irreplaceable American treasures don’t just have incredible value, they are also constantly over time increasing in value.

Take the New York Knicks franchise for example. The Knicks were founded in 1946 and still represent one of the most valuable sporting franchises in the world today. Or how about the New York Rangers — which first iced a team in 1926!

These sporting franchises are incredibly durable businesses that aren’t going away any time soon. How many American companies in other industries operating today can match this kind of longevity?

The answer is very few, which is why assets like these are so special.

The most valuable asset that MSG owns is the NBA’s Knicks. Forbes values the Knicks at a whopping $3.6 billion, and pegs it as the most valuable franchise in the NBA.1

The true value of the Knicks is actually likely higher than the Forbes estimate. Recent sales of NBA franchises have taken place at prices well north of their Forbes valuation. The Houston Rockets and Brooklyn Nets were sold for 33 percent and 30 percent premiums to their respective Forbes valuations.

At a similar premium, the Knicks would fetch almost $4.7 billion in a sale.

Now here is where things get interesting…

If I add the $4.7 billion value of the Knicks to the $1 billion of cash that MSG has on its balance sheet I arrive at a figure of $5.7 billion.

With 23.7 million shares outstanding and a share price bumping around $260, the stock market is valuing the entirety of Madison Square Garden Company at $6.1 billion.

That means that all of MSG’s assets that aren’t the Knicks plus the cash are being valued by the market as being worth only $400 million.

Which as I’m about to show you is a heck of a bargain!

Johnny, Tell Them What They Get For $400 Million!

Those “other” assets that MSG owns are worth multiples of $400 million.

We can start with the New York Rangers franchise which Forbes estimates is worth $1.5 billion.2 That means that the Rangers alone are worth multiples of the $400 million.

Then we can move to Madison Square Garden itself, the world’s most famous arena. To get an idea of what the Garden might be worth, we can consider that more than $1 billion was recently spent renovating it or that it is tax assessed as being worth $1.2 billion. Again a value that is multiples of $400 million.

But wait, there is more!

The air rights above Madison Square Garden are also very valuable. In New York, where there isn’t an inch of unoccupied land to build on, vertical real estate is extremely valuable. A 2015 sale of Manhattan air rights above a Hudson River pier brought in $500 per square foot.3 At a similar valuation, the air rights above Madison Square Garden would fetch $1.1 billion.

I wish I could bottle that air and sell it!

Other assets that can be had for the low price of $400 million include the Forum in Los Angeles, MSG Entertainment (think the Christmas Spectacular and the Radio City Rockettes), Radio City Music Hall and others.

In total, there is very little doubt that there are several billions of dollars of value that is not being reflected in the current share price.

In addition to presenting very attractive value, MSG shares also offer a looming catalyst that will force the market to recognize that value.

The company has announced that it will be spinning out the sports teams (Knicks, Rangers, and the WNBA’s Liberty) into a separate company. That spin-out is being specifically done to force the market to finally properly value these iconic franchises.

In the last conference call, MSG management said that it expects that the spin-out will be completed in the first half of 2019. Which means now is the perfect time to do some post-holiday bargain shopping.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge

2 The Business of Hockey, Forbes
3 MSG: Trophy Properties for 35% Off

The post Buy the New York Knicks – Get the Rangers (Almost) Free! appeared first on Daily Reckoning.

Special Situations Alert For Savvy Investors

By Dudley Pierce Baker

Investors should always be on the alert for special situations that appear in the markets from time to time.

Our definition of a special situation would be when opportunity and timing come together and present investors with a greater than normal chance for exceptional gains.

We believe the current time in the equity markets is approaching this special situation and suggest that investors be ready to act soon by establishing positions in long/term warrants.

In the United States with the totally dysfunctional government and a pending default on the government debt, the Dow Jones and the S&P 500 are holding up amazingly well.

But, for how long we ask and why have they been so strong of late? The potential for a collapse is clearly upon investors.

With a collapse, in our opinion, would come opportunity and this would present an excellent entry point for some of your favorite stocks.

Many of our readers are investors in gold, silver and the natural resource shares. The resource sector has been our personal focus of attention since the beginning of the bull market in 2001.

This sector has been brutalized over the last two years and there are numerous opportunities but we are of the opinion that a bottom is not yet in place. Yes, we can argue this decision, but we shall continue to remain cautious for now but are looking for positive signs everyday in the technical indicators to assist us.

Some of you may be familiar with warrants. Warren Buffet and Rick Rule, among others, know about warrants and the benefits thereof and would never do a deal without warrants attached to their investments. They would negotiate the longest terms possible, definitely a minimum of two years but more likely three to five years and these warrants would be classified as long-term warrants.

What is a warrant?

Most investors are familiar with stock options, calls and puts so let’s go with this core knowledge. A call option is defined as a derivative giving the holder the right, but not the obligation, to acquire the underlying security at a specific price and expiring on a specific date in the future. A call option may have an expiration of usually no more than 12 months.

The major difference with warrants is that a warrant is actually a security issued by a company usually in connection with a financing and frequently referred to as an ‘equity kicker’, an incentive, if you will, to get the deal done. This is what Warren Buffet and Rick Rule look for, this major ‘equity kicker’, otherwise they would not be assisting with a financing.

Most warrants are issued in connection with private placements. Virtually all companies in the natural resource sector have issued warrants but most will never trade. In the United States, again we see financings every week with warrants attached to a new equity offering but most of these warrants will never trade.

However, the good news is that there are around 200 stock warrants that are trading in the United States and Canada. These warrants are issued symbols, trade like common shares and can have initial expiration dates from two years to ten years. Company management and their financial advisors make all the decisions of details of the warrants including whether the warrants will trade or remain privately held.

What will my broker say?

Hopefully, you are a savvy investor and have an online brokerage account and do not need the assistance of a broker. Chances are if you would call your broker and say you would like to buy the warrants trading on General Motors, he would either laugh or/and would not even know what you are talking about. In fact, he/she should be asking you, which one, as there are currently three warrants trading on General Motors.

Why buy warrants instead of the common shares?

Every investor whether individual or professional, wants to maximize their gain on any transaction but unfortunately, many do not consider long-term warrants for one and only one reason; a total lack of knowledge and understanding.

In summary, it is all about gaining more leverage and in most situations, if an investor is anticipating a gain of 100% in the common shares, then the warrants should produce a gain of 200% and thus, we would say, the warrants produce a 2-to-1 leverage over the common shares.

Basic Requirements:

  • Find a company you like.
  • The company has long term warrants trading — over two years of remaining life.
  • The current market environment is positive; bull versus bear.
  • The timing is right.

Timing your entry point is always extremely important for any investment and this is where we come back to the special situation alert with which we started this article.

The timing is right in front of us to make our investments and a great time to be considering long- term stock warrants and making a list of those opportunities.

Positive Aspects of long term warrants

  • Leverage of 2-to-1 over buying the common shares.
  • Substantial lower price than buying the common shares.

One of the largest financial institutions in the United States has a long-term warrant trading. It does not expire until 2018 and our leverage calculations look very positive. The common shares currently sell for around $41 and the warrant below $14. Thus, an investor can control the same number of shares by buying the warrants at $14 instead of paying $41. One of the big name newsletter writers currently recommends this financial company, but obviously does not know the company has a long term warrant trading on the NYSE. I may tell him at an upcoming investment conference in San Francisco in November, but then, he should already know so why should I have to tell him.

Negative aspects of warrants

Unfortunately there is a negative to warrants and that is if the common shares are trading below the exercise price of the warrant on the expiration date, then the warrants will be totally worthless.

This is exactly the same situation for call options and it the primary reason that investors need to pick companies you like that have long term warrants.

We trust this article has been of value to you and we welcome you to visit our website for additional information on stock warrants at Also, don’t forget to signup for our weekly email, The Warrant Report.

Dudley Pierce Baker
Founder – Editor
Guadalajara – Ajijic, Mexico

Disclosure: Neither Dudley Pierce Baker nor is an investment advisor and any reference to specific securities does not constitute a recommendation thereof. is an online newsletter providing complete details on all stock warrants trading in the United States and Canada. The information and opinions expressed should not be construed as a solicitation to buy and securities mentioned in this service.