PARIS – Our subject: Who’s dumber, more dangerous…

…those who want to reform capitalism and control it?

…Or those who want to do away with it altogether?

Fix Capitalism?

The question springs from several recent news items. First, Alexandria Ocasio-Cortez was elected… and New York Magazine came out with “When Did Everyone Become a Socialist?”

Then, America’s most successful hedge fund manager, Ray Dalio, claimed that capitalism needed to be fixed:

I have also seen capitalism evolve in a way that it is not working well for the majority of Americans because it’s producing self-reinforcing spirals up for the haves and down for the have-nots. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.

And then, Financial Times correspondent, Edward Luce, piled on:

History tells us that elites who do not share power are ultimately doomed (see French revolution). Those with the wisdom and foresight to bend find they are far less likely to eventually break. The question America’s financial and tech elites must ask is “what price social peace?” I would say social peace is worth several carried interest loopholes. As TB Macaulay, the great British historian, remarked: “You must change in order to stay the same”.

Both outright socialists and capitalist reformers have more or less the same goal – to bang, bend, and bamboozle the world into a shape that is more pleasing to them.

They think the rich don’t pay enough in taxes. Or that income is improperly distributed. Or that the Chinese are getting away with something. Or that people shouldn’t use so much fossil fuel. Whatever their own prejudice or predilection, they want to make it the law of the land.

One way or the other – that is, either by innocence or imbecility – they missed the biggest lesson of the 20th century.

Compelling Evidence

And here, we pause. We tip our hat and say a silent prayer for those uncounted millions of people who provided such stark and compelling evidence.

Thanks to their poor, gloomy lives and early, pathetic deaths…

…the National Socialists (Nazis) in Germany, the Bolsheviks in the Soviet Union, the Maoists in China, the Peronists in Argentina… the communists in Cuba… and all their victims…

…thanks to them, we know how socialism works.

To make a long story short, at the end of WWI, Germany was close to starvation. Farms had been woefully neglected during the war; young farmers were wasted in the trenches. And then, Britain’s blockade prevented importing food.

Like Scarlett O’Hara, the young Adolf vowed that would never happen to him again.

But rather than let the farmers keep their money and buy tractors, the amateur economist came up with an outrageous plan – build tanks, not tractors, and use them to take farmland away from the Poles!

That is, he rejected the win-win deals of a civilized economy. Instead, he went win-lose… all the way… and lost, big time.

For its part, the Soviet Union looked like a going concern in the 1920s and 1930s, too. Leading activists, such as George Bernard Shaw and Eleanor Roosevelt, went to have a look. They came back impressed.

One of America’s leading economists – Paul Samuelson – was impressed, too… He thought the Soviet economy was doing so well it would overtake the U.S. by 1984.

Samuelson won the Nobel Memorial Prize in 1970 for doing “more than any other contemporary economist to raise the level of scientific analysis in economic theory.”

Scientific analysis? What a joke!

You can make it look as scientific as you want. Just put in some formulae and a few Greek symbols. But economics is not a science.

Win-Lose Deals

You can count rolls of steel, man-hours of labor, and miles of railroad track. And tanks, too. But what are they worth?

To know the answer to that, you need free markets… with honest prices. The Soviets permitted neither. Win-lose deals don’t work that way. World improvers don’t allow people to decide for themselves; they want to make the decisions themselves.

Like socialist Germany, the Soviet Union was only simulating a healthy economy, not stimulating one. People had jobs. Factories belched smoke.

Lame economists tallied the gains. But it was a system based on win-lose deals from top to bottom; a waste of time and money from start to finish.

Jobs were given by the government. The feds ran the important businesses and set prices, too. And like all win-lose deals, the longer the Soviet system ran, the more real wealth it destroyed.

We got to see that in person. With our own eyes.

Stay tuned.





Editor’s Note: Regular Diary readers know that Bill is bearish on the future of the broader U.S. stock market. But that doesn’t mean that well-placed investments in individual companies can’t still be profitable. And because finding these investments is of such interest to dear readers, we’re sharing another insight from former fund manager Whitney Tilson.

Remember, Whitney is the man CNBC called “The Prophet” because of how accurate his market predictions were. Below, he reveals the three most dangerous words in investing, and shows how readers can avoid falling into this common trap…

By Whitney Tilson, founder, Empire Financial Research

The common cliché on Wall Street is that the four most dangerous words in investing are, “This time is different.”

But I’ve found a three-word phrase that’s uttered just as frequently… and is arguably even more dangerous.

“I missed it.”

You’ve probably grumbled these words before. Especially if you’ve ever passed on a stock you were considering buying… then watched as it marched to new high after new high.

The thing is, a great run higher doesn’t necessarily mean it’s too late to buy.

Today, I’ll show you why this simple, three-word phrase can be so misleading…

In my decades as a value investor, I’ve seen it time and time again.

Value investors like me tend to look in the bargain bin for beaten-up stocks that are trading at 52-week (if not multi-year) lows. They get a sense of satisfaction from getting a better deal than the guy who bought it a month or a year ago.

It’s a great strategy if – and this is a big if – you can correctly identify companies whose fundamentals turn around. The key here is to avoid value traps: the companies that never turn around, and thus their profits (and stocks) keep falling and falling…

But what about stocks that never really fall out of favor and end up in the bargain bin? We value investors often miss them.

Take Alphabet (GOOGL). In August 2004, the company went public at a split-adjusted $42.50 a share. By October, the price had already more than doubled. A year after that, it had doubled again. And two years after that – in October 2007 – shares were trading at $355. Today, they’re up to around $1,200.

Sure, it would be great to have bought as soon as it went public. You’d be sitting on gains of more than 2,800% today. But even if you didn’t buy on day one, you didn’t miss it.

Heck, if you had sucked your thumb for a year, watched the stock go up 300%, and bought shares in October 2005, you still could have doubled your money in only two years…


If you made this mistake, well, join the crowd. I watched Google’s shares go from $50… to $100… to $150… to $200… to $250… (You get the point.)

It would be one thing if I had done the work on it and concluded that it was outside my circle of competence (it wasn’t) or was too expensive (it wasn’t).

But that wasn’t the case. I simply didn’t do the work. Why? It’s not because I was lazy. Rather, every time I looked at the stock, it was usually trading at or near an all-time high, so I kept telling myself, “I missed it” and moved on. If I had just bought what I knew was a great business at any of those points, I’d be sitting on a multi-bagger today.

Let me give you another example. My friend Chris Stavrou, who runs Stavrou Partners – a family office based out of New York – bought shares of Warren Buffett’s Berkshire Hathaway (BRK.A), back when he was a stockbroker in the 1970s.

He started buying it for his clients around $400 a share – after it had risen more than 2,000% over the previous decade. But Chris didn’t fall into the “I missed it” trap.

A decade later, he opened up his own hedge fund. By then, Berkshire was trading at an all-time high of $1,800 a share.

So did he say to himself, “Wow, this stock has moved up a lot – I think I’ll wait for a pullback” or “Drat, I missed it”? No. He saw that it was a great company run by a brilliant investor and the stock was still attractive at $1,800. So he bought it for his nascent fund – and still owns those shares today, each valued at more than $300,000!

So learn this lesson well: Whether a stock is trading at a 10-year low or a 10-year high tells you absolutely nothing about whether it’s cheap or expensive. Some stocks trading at multi-year lows are horrible value traps that are headed to zero. And some stocks trading at multi-year highs are going to be spectacular winners going forward.

The lesson here is, don’t fall into the “I missed it” trap. Ignore where the stock price has been, do the work, and make a rational decision based on your assessment of where the stock is likely to go in the future.

Whitney Tilson

Editor’s Note: Whitney knows all about spectacular winners. He bought Apple at $1.50 and Amazon at $56… Now, the man who predicted the dot-com crash, the housing bust, and more is holding a free online event tonight, at 8 p.m. ET… And what he reveals may be his biggest prediction yet. Click here for details.


America Isn’t Alone in Calling for More Stimulus
As Bill said earlier this week, stimulus in all its forms is a fraud. But it’s stimulus that seems to be sweeping the globe. Chinese leaders have recently stepped up in an attempt to ease trade risk… in the form of more “stimulus.” And it appears to be working. For now…

Pinterest Shuns Social-Media Label
Pinterest is the latest soon-to-IPO company causing a buzz. The digital bulletin-board site has a direct line to millions of people looking to buy things… leaving many to think it could take on powerhouses like Facebook and Google in ad revenue. But what does Pinterest have to say about this? Don’t compare us to social media or a search engine…

The Real Motivation for FacebookCoin
Our editor has been critical of social media giant Facebook. And for good reason. The company regularly “mines” your personal data and sells it to the highest bidder… but it knows it’s in hot water with regulators. And Bill’s top tech expert, Jeff Brown, reveals Facebook’s atomic option to save its own skin…


In today’s mailbag, a couple of responses to yesterday’s Diary… Should our editor become “one of the hated”?

You offer a great deal that is valuable. You also have opinions which bash all sides, usually fairly. Yet, I am unaware that you have ever sought to become one of the hated – a politician – who actually tries to aid all your constituents. Give it a shot and then criticize.

– Michael K.

It’s obvious things are getting progressively worse, and have been for months. But the economy is still chugging along, seemingly oblivious to the impending doom.

– Norman I.

And one dear reader thanks Bill for his views on the world… and his wine…

Just a quick note to say I look forward to your letters explaining life on the ranch. You sound like my kind of guy, which I believe are rare. A friend of mine, another independent thinker and also another one of your readers, is starting plans for a trip to Argentina. You mentioned a neighbor that puts up guests to help with ranch expenses. I would truly love to visit your area (possibly your spread) and get the lay of the land. I’m a Colorado rancher, mountain guide, horseman, past Safari guide, and investor who appreciates your views on the world… I’m also looking forward to the wines that I’ve been told have shipped.

– Kirk S.


Do you want to attend a masterclass on how to spot America’s fastest-growing stocks… for free?

“One of the biggest power players on Wall Street” is releasing his very own masterclass… and we’ve arranged for you to receive it. You’ll learn how you could place one unconventional move… and potentially grow richer every hour the market is open.

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