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Kirk Spano: How To Avoid Losing Money Through The Volatility


  • Kirk Spano highlights small midcap opportunities, including regional banks.
  • Inflation and alternative energy.
  • Bullish on big tech and Bitcoin.

Carton boxes labelled as different investment product categories on a laptop showing stock candle diagram. Illustration of well-diversified portfolios and the importance of asset diversification.

Dragon Claws

Listen to the podcast embedded above or on the go via Apple Podcasts or Spotify.

  • 4:00 - Inflation and its causes
  • 13:40 - Post-petro dollar age will be very good for U.S.
  • 17:00 - Looking at regional and large banks
  • 29:00 - Big tech companies are going to do well.
  • 35:00 - REITs and SPACs
  • 42:00 - Bullish on Bitcoin

Recorded on March 29, 2023


Rena Sherbill: Kirk, welcome to the Investing Experts Podcast. Longtime Seeking Alpha contributor, longtime fan of your work. Super happy for you to be with us on the podcast.

Kirk Spano: How are you doing today?

RS: Doing well, doing well. Catch us up, talk to investors, maybe paint investors a picture about where we are in this moment in time in the marketplace. I know you cover a lot of different sectors and kind of points in the marketplace. But do us a favor of joining all those points together or maybe synthesizing them for us a little bit.

KS: Okay. Well, over the course of my career, I've covered energy, technology and the financial sector. And for a very long time, I've told my investors, probably going back 2018, at some point, the banks are going to have a problem again. COVID change the timelines and the intensities.

So what we're seeing today, I think, is a culmination of quantitative easing for a long time, this massive disruption from COVID, the shift to work from home for a quarter of the economy, of the white collar economy. And now you have inflation, which is, as we know, roughly half caused by energy. And the offsets to that are slow moving. Monetary policy is trying to slow inflation down. It really has done a very good job. A year and a half ago, I wrote an article saying that inflation could last around two years. I was told by one commenter, in the -- at the bottom of the article that -- he said something along the lines of, if we had two years of inflation, that'd be horrible.

I said, yeah. And I called it transitory because the long term secular picture is more deflationary than inflationary. However, people have been waiting to say inflation is here for 30 years. We beat it in the 80s. It came down. We essentially had baseline inflation, what we were targeting for a very long time, or below. And now we have the impact of COVID and QE, and energy prices higher because OPEC and Russia are manipulating them on the supply side. China just came out of COVID zero.

So now there's more demand. And people get all breathy about what's going on. But I've been talking to members of our service for years about what's going on. And we've pretty much nailed it. We called the correction last year. I still think that large cap stocks have at least another 10% downside. And it's going to largely be tied to the banks, I think, because the Fed has to continue being vigilant about inflation, because an energy shock could push it back up. Everything else is pretty much coming down. They've won the war on real estate already. We're seeing deflation there.

Services, inflation is really the only thing that's left, but it's minor. And frankly, who wants to see their wages go down, right? That services inflation for employment is good inflation. So we shouldn't worry too much about that. We don't really want to cause much unemployment. We just want a little bit more slack, particularly across, technology. I think that there's some interesting things coming with technology; the capture of profits from AI for the big tech corps, Microsoft (MSFT), Google (GOOG) (GOOGL), Amazon (AMZN). They're not going to lose in this whole scenario. If their stock prices go down, again, probably want to buy them.

But I'm still avoiding the big banks. Although I see quite a bit of opportunity in the regional banks. I think that the consolidation that's coming with the Fed backstop is going to be pretty positive for them. So I don't know if they're done going down quite yet in stock price. I think there's a little dilution coming. However, once they shore up these banks, and we see the Fed pause sometime soon, maybe they raise in May, maybe they don't. But they're going to be vigilant.

I wouldn't expect an interest rate cut this year. I agree with BlackRock and a bunch of others on that. I think that interest rates probably don't come down until December at the earliest, but probably next year. And we'll see if there's an energy shock between now and the election, because that's -- I think the geopolitics of this gets short shrift. I think that is really what they're concerned about, is an energy path. And if they can avoid that, and I think that we're setting up for a huge bull market, and I say that as a guy who gets called perma-bear all the time.

RS: For a little bit of context. Yeah, I want to get into the banking side of things, and why you're excited about the regional banks. I want to get into the technical stocks also. I wanted to pick your brain, especially for those who aren't perhaps yet subscribers to margin of Safety Investing, your investing group on Seeking Alpha, for those who aren't familiar with your thoughts about the connection between energy and inflation, and how that pertains to everything we're talking about, can you expand on that a little bit and break it down a little bit more about that connection?

KS: Sure. So anybody who is older than me has seen this a number of times in their life. But when the price of energy goes up, oil in particular, but it drags along natural gas, you'll see inflation in the economy. And that is not just in the energy component of the calculation. But if corporations and agriculture have to spend more on energy than the past than prices for manufactured goods, for food, those all go up as well.

So we know, looking at the statistics going way, way back, all the way back to the 1950s especially, is that energy is the number one component of inflation, not only directly but also indirectly. So if we have cheap energy, then inflation is generally pretty low. You'll get your little pops here and there, barrel oil goes up 10 bucks, whatever the case might be. But if the price of energy is stable, you're not going to have a lot of inflation in general, unless you see massive monetary stimulus, which we have seen. So that definitely contributed.

But I think that as long as we have a picture where energy is stable to decreasing, and I think that's coming in several years, as more and more alternative energy comes online. The growth rate on alternative energy is what 17% a year. We have 1 in 11 new cars are EVs now. The transmission grid is being built out at a breakneck pace. I know people in that industry.

So as long as energy doesn't shoot up, in the short term, we've probably won the inflation war. But there might be one more battle to go between now and the election is probably what I would think because, again, Russia and OPEC, holding back on supply. And then Russia invading Ukraine, that really created a problem on the supply side of the supply demand equation. And now with China coming back, and not quite full force, but a lot of new demand from lifting COVID Zero, there's the potential for a jump there.

So it's good that we've had stockpiles go up in the last month or two on gas and oil. Those are easily manipulated back down, if they choose to do that. I don't see a lot of handshakes between President Biden and the Saudis and the Russians and the Chinese at this point. So there is a cold economic war going on. And we'll win. It'll just take time as supply chains move as alternative energy comes online. And we're in a big transition right now. So in the short term, can there be another pop of energy inflation, for sure. But in the long term, I don't think we have a lot to worry about.

RS: And how does that, if it does, does it play into what's happening in the banking sector? Or is that really limited to what's happening in the U.S. for the most part?

KS: So what I said to subscribers back in 2020 is, and I really -- I posed it as a question. I said, look, the whole on the economy was smaller than the fiscal and monetary stimulus that they added. Why would they do that? What would make the federal reserve and the federal government put trillions and trillions of extra dollars into the economy when the banking collapse and the real estate collapse? And just everything that came from the shock to the system by stopping the economy was going on.

And I think the answer was pretty easy, is we know that there's a baby boomer retirement crisis coming sometime towards the end of this decade or early next decade when they're all on Medicare and Social Security. And we know that 70% of them don't have a lot of retirement savings. I think they pulled forward bailouts of the future. And I don't think it was stupid. I don't think it was unplanned. I think this idea that they don't know what they're doing is wrong. I think that they don't tell us the truth with regularity.

But I think that they pulled forward bailouts to the future. So when the inflation came, and it was largely stimulated by OPEC, pulling back on oil production, and Russia pulling back on oil production, you had to ask yourself, well, what do we do about it before the Federal Reserve? And the answer was we normalize interest rates? The idea that interest rates are high right now is very short sighted. Interest rates are exactly normal right now, historically speaking.

So all we've seen is what I've been calling a great normalization in interest rates. So the Fed has reloaded its bazooka. I wrote that article a year and a half ago, that that's what they were going to do. They've done it. The bazooka is largely loaded now. Could they start stockpiling some ammunition next to them by raising rates another time or two? They could? I don't think that they will. I really think that we're going to see the pause soon. If not May, it'll be shortly thereafter. Because we know that once we get through the summer dry season, energy probably can't hurt us very much, unless there's a real big shock.

So I wouldn't expect anything horrible. We could have a bad moment, I think would be something that you buy. But between now and then -- between now and the election, I should say, we'll see what the little steps are. But again, coming out of whatever happens in the next few quarters. Well, I just cannot find a scenario. And I look for them. Like I said to the point where people call me a perma-bear.

But I can't see a scenario where the United States doesn't do very, very well, once these new supply chains are completely set up and running, which is 2025-2026.

RS: Because those are more beneficial to the US in terms of location, and where the money's coming in.

Surely, a robot here a robot there, costs the same. So when it comes to manufacturing, and I'm in Milwaukee, I work with a lot of manufacturers. I set up 401(k) plans for them, the way that AI is being implemented, the way that labor's being trained, with all these supply chains moving here, for manufacturing, particularly the car industry, and the semiconductor industry. You take a look at those two industries.

If you have a good automotive industry in your country, and you have a good semiconductor industry in your country, you're the king. Because the automotive industry with everything that's connected to it is huge. And then semiconductors, run all the technology. So as Intel (INTC) builds and Ford (F) builds and GM builds, and Taiwan Semiconductor (TSM) builds, and Texas Instruments (TXN) and everybody else build stuff here now. And everything is scheduled to start coming online by the end of next year and 2025 and 2026.

You just look at all this and you're like, wow, the United States is going to become a pretty significant exporter again, to the extent that we're in a lower level of globalization because everybody's going to be able to build everything with exceptions of the very high end stuff, which is what we're getting into. So all this high end manufacturing that we're going to have available -- I've been to some of these places, and it's just amazing what's coming.

So I know that there's a persistent the empire's dying, and dollar's going to crash, all these negative thoughts, but the post-petro dollar age is going to be very, very good for America. Tom Li sees it coming as well and a number of other, big time pundits. And we're all seeing this the same way as that, once we get through this transition period, boy, things look really good. Now for an investor the question is, is how do you avoid losing money through the volatility? And how do you get positioned as the opportunities present themselves?

And I have a very short approach to that, and I tell people scale in slowly and at wide price points, because there are stocks out there now that are down 70%, 80% in the small and midcap space, 90% of them. And that doesn't mean they can't lose another 50%. So what's the definition of a stock that goes down 90%, one that went down 80% and then lost half, so after that. So it's a process to get involved. But there's so many good small midcap opportunities right now, including the regional banks. And I don't think the regional banks are completely ripe. But you take a look at all this. And you just think this is just a transition.

People are uncomfortable with transitions. It makes them scared, makes them uncertain. It introduces a motion to their decision making process. If you can work your way through that, which is a large part of what we do at Margin of Safety Investing, then you're going to do pretty well.

RS: Yeah, it's half the battle. So a lot of positivity from the alleged perma-bear, interesting. So talk to us about what the banking industry looks like. I think people are clear about why they're scared. And I think people are pretty well versed at this point. Certainly probably most of the people listening to this podcast are pretty well versed in the Silicon Valley Bank (OTCPK:SIVBQ) implosion and the fallout there after, and UBS buying up Credit Suisse (CS) and all that. How do you look at the bigger banks and how does that differ from how you're looking at the regional banks?

KS: So with the regional and large banks, they have a wall of real estate, and commercial loans coming due over the next two years. It's about a half a trillion dollars each year, which is normal. It's about a half a trillion dollars every year, 100 billion either direction. After a while, billions turn into real money, I guess. And these loans are the loans from 2018 and 2019. I think that people don't realize that the real estate loans are reset every five years.

So it's kind of like an ARM mortgage. Most commercial loans reset every five years. So these are loans from 2018 and '19, coming due this year, next year, that were from higher prices on the real estate, as well as higher occupancy rates. So you have commercial real estate running at offices in particular, running out like 55% occupancy. That's way down from where they were. They were in the 60s before. They're not collecting as much in rent. And I know that already you're starting to see REITs and certain landlords given the keys back on all sorts of Class B office space. But now you're starting to see office towers in class A getting keys handed back.

Blackstone (BX) handed the keys back. Simon (SPG) handed the keys back to a mall in my neighborhood. So you take a look at that. And that's going to impact the FFO of the REITs. They got some problems coming. The banks are going to have to find a way to absorb this. The Fed has created a facility to help them through it already. That was part of SVB, which I really think, when those books come out it'll be an interesting story. If you've been watching the incredibly exciting Congressional hearings on SVB and Signature Bank (OTCPK:SBNY), you come away with three things.

First off, the politicians are clearly in it for the politics and the greed. And they're clearly either stupid or lying to us. And I guess that was four things, I popped in on the one end there. But you watch these politicians and the questions they ask. And it's so much stumping. And nobody wants to even ask the important question, which is, if the Fed and FDIC knew that there was a problem at SVB months ago right, because they told them to raise capital, fix your balance sheet, raise capital, fix it. And they didn't step in, they didn't lend out of the Fed window. And they let the bank go down. They didn't have to. It was a decision.

So I asked the question, why did they let SVB go down? Well, SVB controlled, what over 80% of all the venture funding in the country, was a monopoly. So you have to ask yourself a question, if you're a monopoly, and you can't protect yourself, why should the Fed do it? I think that's a pretty fair question. And then the Fed and the FDIC, let them go under, said look, you had all this business, you were controlling 80% of the market, and you couldn't take care of your own business. Why should we bail out the executives and the shareholders and some of the bondholders?

We're going to take care of the depositors, because they are employers. I think the FDIC is going to have to change rules on that very soon. But we're going to let you go under, and they did the same thing with Signature, which had gone from being a conservative bank, to being a bank involved in riskier and riskier transactions in commercial, as well as crypto. You know, they had what 25% of their revenue from crypto last year or two years ago. The government isn't in love with that idea.

So I think that these -- the second and third biggest bank failures in history, within a day of each other, was not accidental. It wasn't a lack of regulation, it wasn't a lack of supervision. It was you did this to yourself, screw you. And we'll, we'll take care of the other problems. We're not saving you. So now you've got Citizens Bank (FCNCA), which is majority owned by a billionaire family, taking over SVB, I think you're going to see, First Republic (FRC) with -- this is a company I'm starting to invest in. I think you're going to see First Republic taken over by someone with very, very deep pockets. That's a bank that is in the Midwest and in the Southeast.

So in the southeast, they're roaring. And in the Midwest, they're about the roar. Because if you don't think that the rust belt is getting back to shiny steel again, and it's shiny iron and shiny semiconductors and shiny cars, you're not paying attention. The Midwest has water, it has food in its building supply chains based on manufacturing expertise. So those are two great places to start a new national bank.

I think that's going to happen. I think First Republic is going to get bought out by somebody with giant pockets. Somebody's going to buy 80 or 90% of that bank through a private share offering to raise capital, pay back JPMorgan (JPM), Bank of America (BAC) and Citigroup (C) for $30 billion that they borrowed. And in my head, it makes a lot of sense for a little company in Omaha to get involved with that. We'll see…

RS: It's a little one?

KS: They're actually kind of big. Uncle Warren's (BRK.A) (BRK.B) company. But there's a lot going on in the regional banking. All the banks, regional and large cap are going to have to deal with this wall of commercial real estate maturities in the next couple of years. The big banks are just going to be the big banks. They'll get -- borrow at the Fed window, right? They do that all the time. There's a trillion dollar slush fund, to support the repo market and, and other things. So this is something that I don't think people realize was created during COVID, is that there's a trillion dollar slush fund.

So they don't have a shortage of money to draw on to make sure that the banking system is stable. But again, it's transition. People hate transition. The regional banks are going to do two things. You're going to see a lot of M&A activity so that we're going to end up with three, four or five, six more national banks. And we're going to see a lot of mergers or sequential mergers, where five banks disappear and now there's one giant lump.

And we're also going to see a lot of the large small banks get a little bit smaller, unless the FDIC comes out with like, a $10 million limit for corporate deposits, which is actually what I think they should do. And the quarter million limit go up to a half a million, which I think they should do, then they just charge higher insurance premium, because that's how they pay for that fund. They just charge an insurance premium to the banks for their deposits. So that's coming.

I know that there's a lot of people in Congress questioning who's going to pay for these bailouts. Well, it's the FDIC fund that all those insurance premiums go into. And they have discretion on what the additional charges will be. They don't have to charge it pro rata across the board. The small banks didn't really have anything to do with this. So they can charge the additional premiums to the regional banks, and to the national banks. They've already tipped their hat that that's what they're going to do. And that's going to spur a lot of M&A in the regional banks. But as I said to my subscribers, and I don't know if this is going to have to get edited, there might be one more kick in the junk coming.

And we'll see how that plays out. But I tell you what, with a bank stock like First Republic, they need $30 billion, while the stock is already down 90%. So for somebody to lease off the high, and I think the high was too high. But for somebody to put $30 billion to that bank and walk away with 80$ or 90% ownership, there's not really a lot of dilution that has to go on anymore, right? Because the price is already so low.

So if all of a sudden First Republic was very sound with his capital structure, I think that's good for the stock. I don't think people go, oh, we have to cut it in half. Because they're diluting it. I think they go, oh, there's not a problem anymore. So of Warren Buffett or, pick your pick, your billionaire brings his company in and says, hey, I'll buy 80% or 90% of the stock. And remember, at 80% ownership, you can account for that in your own company's earnings, right. You can incorporate the bank earnings into your company's earnings. That's why 80% is a big threshold.

Berkshire Hathaway might move in that direction with say Occidental Petroleum (OXY). So once your company owns 80% of another company -- Liberty does this all the time with their affiliates. Now it falls to your balance sheet. So that's something that you get in return for only 80% of the stock. I can't imagine that is not what happens with First Republic.

I don't think there's another way to do it actually, unless you think the public's going to buy $30 billion worth of First Republic stock right now. And unless you can make it a meme on Reddit, I don't think that's going to happen, right? It's not GameStop (GME) or something that -- was at GameStop or AMC or something great and bankrupt, like those companies, why would you bother with a bank that has FDIC and fed backing?

RS: Do you -- it sounds like First Republic is at the top of your regional bank list. Is that because of the regions that they're in for the most part? I mean, everything that you described is also compelling. But in terms of the core of what they are.

KS: Yeah, well, of the distressed banks, First Republic, for sure. And then of the banks that are not distressed and just got beat up a little bit, I really like Fifth Third, I tell you what, Fifth Third, a very well run bank. That's another one that I think becomes a national -- similar regions. So I would think that you see, First Republic, whoever buys that, 80% of that, can make that a national bank through acquisitions. I think first -- Fifth Third, is going to do the same thing, right? They're not first, they are Fifth, so there's national. But bank shares versus Bancorp and everything else.

But this is a very over banked country. We have more banks per capita than I think, anywhere else in the world, except some of those little countries that are just banking countries, where we have 1.4 banks per 100,000 people. It's something -- it's like it's the most in the world of the big countries. Consolidation is not going to hurt competition, because you'll still have your credit unions and your little banks all over the country, taking care of 90% of the population. But then you have to have an infrastructure for banking that will support corporate America and make sure everybody keeps their job.

It's on its way. There's not a crisis developing unless somebody really screws up. That's what it would take. It would take a major mistake, or series of mistakes, and some bad luck and some geopolitical prodding. But the odds of all those things lining up are pretty slim, which means it could happen. I don't think it's going to happen. But it could happen.

RS: Well said, well said. Switching gears a little bit, although the connections are pretty strong in terms of how you're looking at investments, talk to us a little bit about the tech stocks and where we're at there, and what you like and what you don't like.

KS: So in the last couple of weeks, you've seen this big rally in Microsoft, Google, Apple (AAPL). And I think it's justified from the standpoint of what they have coming. When a company finds a way to lower their costs, those costs don't entirely get passed on to the consumer. So the business captures a lot of cost savings. In fact, it usually captures well over half. So if the price of a widget goes from $10 to $6 and there's $4 savings, maybe the consumer saves a buck, but then the company captures three of those dollars.

Well, artificial intelligence is doing that, especially at some of these big tech companies, which are incredibly cash rich to begin with. I've never really understood why we beat up the big tech companies. I mean, if we're not going to regulate them, and we're not going to really do anything to hamper them being an oligopoly, why are people saying, well, higher interest rates are bad for them. Why?

In the NASDAQ 100, the companies on that list account for something like 70% odd of all the cash of corporate America, all of it. So you have the Russell 1000, which includes S&P 500. And then you whittle that down to the NASDAQ 100. And it's even, I think the top 30 companies have over half the cash in corporate America.

If interest rates are going up, and you're sitting on a big pile of cash, how does that hurt you? It doesn't make sense. So these big tech companies are going to do well. They'll beat the S&P 500 as a rule. And if you just own NASDAQ, instead of the S&P 500, except during tech crashes you've beaten the S&P 500 over every single rolling three year period out there, every single one going back 20 years. So now that the dotcom bust is no longer in the 20 year look back, there isn't a three year period where the NASDAQ hasn't beaten the S&P 500.

Between the tech companies, the biotech companies and the consumer companies, handful of FinTech and communications, why wouldn't you want to be in those incredibly cash rich cash flow producing companies? That's the simple shortcut for people just buy (QQQ) on the dips. And it's a wonderful strategy. And it's worked and doesn't require a lot of trading. I think that you were smart to trim it a year to year to year and a half ago. I said so repeatedly. That's when all people calling me perma-bear woke up. But I think that AI is a big deal.

It's something that was talked about at CES 2020, the Consumer Electronics Show that I want to, right before COVID. And I've been talking about that with my subscribers very long time, that the things that came out of the Consumer Electronics Show in 2020, where the executives told you this probably takes about two years, and this probably takes about 10 years. But investors get that backwards all the time.

Things that they talked about are happening. One of the things they talked about was the energy transition. They said look in 2026 there is no way for internal combustion engine cars to exist not profitably. So you're seeing all these companies ramp up, so that in 2026 and 2027, they can start selling the majority of EVs. It's already 1 out of 11 new cars is an EV.

By the end of this decade, and I'd say sooner, I think probably by 2027 half of the new cars will be EVs. And that means that we're on the slow grind to having the older cars, the internal combustion engine cars gradually come off, the fleet, by what, middle to late 2030s. We're going to be 80%, 90% EVs by 2040. And I think the new sales will be 80% to 90% by 2030.

Then you're going to have to wait for the ICE vehicles to get old. Demand for oil goes down. We have all this new alternative energy. And you start seeing an economy that just doesn't have a lot of roadblocks. Because we have everything else, right. We have rule of law, we have property rights, we have reasonable taxes. Not everybody will tell you that, but compared to the European countries, and some other countries, our taxes are very reasonable.

I've learned as I've made more money that as you get well into the hundred thousands in income, and especially more than that, and with investing, it's not hard to have a tax rate in the 20%, versus the 30% just by using the loopholes that are out there. So we're not an incredibly high tax country. And imagine if we maintain full employment for a very long time, because as the baby boomers retire, we're certainly not having enough babies to replace them. And we're xenophobic to the point where we're never going to allow 30 million immigrants into the country, which is probably from an economic standpoint, what we should do.

You just have a -- we're going to export inflation, probably, but things are going to be really good here. And the dollar is going to stay strong. It'll be in a new higher range. I first wrote about that on Market Watch in 2012. And the dollar happened. The dollar compared to the basket is much higher today than it was a decade ago. And a decade ago everywhere, it was saying the dollar is going to collapse. Those same people, right, they pound down their -- on their tables and on their chests. They do that thing from the Wolf of Wall Street, right? Woohoo, woohoo, we have inflation, we have a dollar collapse. No, we don't.

We have a transition. And just like Warren Buffett says, I've learned to never bet against the United States. I would just repeat that the people. This is a transition. We're going to come out of it better. We always do. Here's the reasons why. Technology is one of them. AI is going to create more capture for not only are tech companies, but industrial companies that use technology well, are going to do really, really well.

RS: It's interesting, you were talking about the consolidation that's coming, that's already happening in the financial sector and the banking sector. On The Cannabis Investing Podcast, we see it all the time, all this consolidation in the cannabis sector. We can point to a number of different sectors, that that's happening in and hearing about, all the tech that's happening in the automotive industry, it's like the sectors are also consolidating.

It's hard to know what's tech, what's automotive at this point. We see Qualcomm (QCOM), we see Tesla (TSLA). And it's, yeah, very much to what you're speaking of. It's almost like there's no true tech. Everything is an amalgamation of different things at this point. Are there companies that you think are stronger than others to this point?

KS: Yeah, I think that there's companies that are beat up right now. And I think that the easy one to look at is Intel (INTC). Intel spun off Mobileye (MBLY), but only like, 10% of the company, they'll spin off another 8% or 9%, stay above that 80% threshold. I think that that's going to do very well for them. The combination of things that are going to eventually lead to autonomous driving are coming. It's going to take -- that was one of the things at CES 2020, where back then Elon Musk was talking about autonomous vehicles by like, last year.

At CES, they were laughing at him. They were like, no, this is 10 years away. And it's proving to be, sometime in the 2030 is probably when we get it. And it's going to be the combination of AI, high speed, low latency communication, right, 5G moving into 6G by then. And at that point, you have -- I forget the term for what's the thing that Mobileye actually does? It's not the AI for automation, but it's basically the sensors.

RS: The LiDAR.

KS: Yeah, LiDAR. There's a lot of companies in LiDAR, but Mobileye, is real, probably the leader. And you take a look at, okay, you combine LiDAR with AI, and the CEO of Samsung called AI, and 5G and IoT, the perfect marriage, because you're getting fast thinking computers that can communicate with each other through the IoT. And it's fast, right, because the communications aren't showing latency. 5G has been a little slow to rollout. And I think it's because they already have the technology, kind of on the drawing board for how they're going to make it so fast.

In the future, when quantum computers are probably here in the 2030s -- are a facsimile of quantum computers here in the 2030s, all these things will happen. That's when you get your giant e-cars. But in between now and then, again, it's a transition period, from really interesting technology to stage three, and stage four, and stage five of all these technologies getting better.

So I would just say take a look at big tech. But I would also be taking, and this is something that I have been doing a lot of, take a look at the small caps that have just gotten decimated. There are so many single digit stocks out there that have revenues and balance sheets that you just look at it and go, why isn't the stack 5 or 10 times higher? I mean, literally 500% or 1,000%, higher. And it's just because everybody hates SPACs, right. SPACs are evil, SPACs are bad, every SPAC is going to hell. And it's just not the case, 9 out of 10 of them might. But 1 out of 10 of those SPACs are going to do well.

And a lot of these companies that have spent a decade or 15 years building themselves, they're close to inflection points. Their balance sheets are showing it, their revenues are showing it. The shift from net profitable to profitable is happening. As long as we don't get the mother of all recessions, again, I just say people should be thinking about what is on their shopping list right now. And small tech and big tech and regional banks are going to be a trade, two or three years trade. I don't think you'd own it forever.

I wrote an article for my subscribers in 2018. That was, why would you ever own a bank when you can own Microsoft or Apple? And I still pretty much feel that way. It's just that when banks get beat up, and I've written this as well, when the banking sector just gets completely beat up, because we're at the end of a cycle and going to start a new secular trend, that's when you buy it. Right. It was smart to buy banks in 2009. It was dumb to buy banks in 2008, right. And then, around 2018, one of the things I told people that volatility was going to come back, it did, with a vengeance. And you wanted to sell your banks before that big volatility event in 2018.

I don't think people have their head wrapped around COVID yet. I think we have a generation of books to be written on that. But the economic impact of COVID, whether it should happen to shouldn't have that happen whatever, it happened, is so great, that the timelines have all been shifted. And this shift to remote, hybrid or hybrid work, I think it's going to be more hybrid than remote, has changed a lot of dynamics.

And one thing that I would point out because they all do connect is I work with a couple of family offices and private equity firms. Not KKR and Blackstone size but families that are worth eight figures, that they put together multifamily office and then they start buying the real estate and they're taller.

Every city out there, you know who those families are right there. They have a brick at the museum, right? So they have a -- they sponsor the charitable events. So these wealthy families in cities that are generally worth eight figures, sometimes nine. I know a couple of people worth nine figures, they're sitting on cash right now. And they're waiting for an opportunity to buy real estate that they like, that they can redevelop. And then flip it in a few years for double or triple. And they're just sitting there waiting. And they know that the REITs are going to get beat up. The super wealthy don't invest in REITs. They buy the real estate. And that's what's coming.

So if Blackstone can give back the keys to a Class A office tower, you better believe that a lot of these banks who get these buildings back are going to be trying to sell them off. And I know that in at least three cities that I look to invest in, with people there's Class A office towers that are going to get the keys handed back in the next couple of years. And when those buildings are owned by the banks, and the banks sell them off.

The way those deals work is you go -- your big investor comes in and says, hey, I'll buy the building from you. This is the price I need. And I'll get the redevelopment loan through you. And the bank says, hey, great, we get business out of this. We get this dumb building off of our inventory, because we don't want to own real estate. I've never quite understood the rules on that. But in my mind, banks should hold on to the real estate, but they never do. And I'm sure there's regulatory rules, why they can't.

So the buildings get bought, and what's going to happen with a lot of the Class A office towers, if they're at 40% or 50% occupancy, you're going to see the top 20%, 30%, 40% of the floors get converted into residential. And that's going to bring people back into the downtowns, that's going to bring people back to where the action used to be, right, there are a lot of downtowns. I'm going to San Francisco in six weeks and have been told, it isn't what it used to be right. And I think that'll change.

I think people who buy real estate in San Francisco in the next year or two are going to make a fortune, because it'll all get better again. So again, it's just a cyclical thing with a huge historical event that screwed up a lot of things. And we're just going to come out of it, starting sometime middle to later this decade. We'll have to fight off a boomer crisis. That's probably the next time you see big QE. But between now and then, I tell you what, it's interesting times that we live in.

RS: Yeah, absolutely. It's interesting that you say the point about the uber wealthy not buying REITs, they're buying real estate. And I think you bringing up the notion of the SPAC I think people's big complaint in why they think they're all going to hell is it seems like the play on the SPACs is before the SPACs get to the public. And that's who's really able to make the real money on the SPAC is the trick, just as you said, really deeply digging into the financials to suss out who the real -- the real good nuggets are out of the SPACs.

KS: Well, yeah, a lot of the SPACs were just -- they were -- as businesses they were jokes. They were piles of money, that the people who started the pile of money basically gave themselves 20x share versus what they put in. And virtually every SPAC out there should have dropped by the known dilution they want, right. Some of them went up. But almost every SPAC should have dropped down to $8, $7, $6 a share instantly on the business combination. And then once people got shocked by what was going on, then just everybody sold everything.

So there's a lot of SPACs out there that based on the cash on their balance sheets and the way their businesses are developing, right? Because a lot of SPACs are just giving the money back. But the ones who did a business combination, they're just a business now. Right they are not SPAC anymore. So you have to take a look at those and say, okay, it's a business now. Let's analyze this business, like any other business, and the public, the retail public isn't at that point yet.

If you've been paying attention to some of the big vulture investors out there, they've been talking about it for six months, at least, if not a year, that they're out there looking for the companies that are that are worth buying. There's a basket of stocks out there, the satellite-as-a-service stocks, I wrote about one called Spire Global when it was down to 7 bucks a share. And I said you should start buying this one. I didn't know it was going to go down to a buck. But we've scaled in slowly at very wide price points. We have a cost basis under $2 on Spire Global.

And I'll tell you what, based on the growth of that business and the money on their balance sheet, there's no way it's not a $10 stock in next couple of years. Space-as-a-service, satellites-as-a-service is headed to being a trillion dollar industry probably by the end of the decade. And you have stocks out there, where the revenues that they're projecting over the next couple of years are more than their market caps. It's insanity.

So hate is a wonderful thing to buy. There's blood in the streets, everybody's hateful, buy it. And all you have to do is analyze it like any other company and get rid of the emotions and just say, okay, who's the sucker here? The one who is buying the $100 REIT, that's going to lose 30% of its FFO, or the person who's buying the -- pick an industry, right, the 3D company, the satellite company, the AI company. The AI companies are run off already.

But who's the sucker, the one who insists that their REIT that's going to lose 30% of their FFO will work through it, or the investor who says, here's a single digit stock, who's got cash on the balance sheet, and they have monetizable assets, or they have a business that's growing at 30%, 40%, 50% a year? I don't know. I think one is the sucker and one's not. And I think that this is the same thing that plays out over and over again.

I had a great uncle. He turns 90 in a couple of weeks, who was a trader on the floor of the Chicago Board of Trade. And I don't know if that's what it was called at the time. And they've changed names in Chicago a couple times. But in the 1980s, that's what he was doing. And he said, it was just so funny, the people who kept making the batteries and people who kept making the good trades. And I don't trade -- I don't do short term trades. I own everything that I buy. Sometimes I make a catalyst trade over a quarter or two, because I know that there's a report coming in. But mainly I own my investments for years, for three, four, five years. I made a lot of money on Exact Sciences (EXAS). I bought -- that one was a $1.65 a share. I famously or infamously argued with, who's that big short seller out in California, Lemon something or whatever they're…

RS: Citron.

KS: Yeah, Citron. I call them lemon. Citron, I wrote that article about Citron is wrong about Exact Sciences. It went over 100. So if you can buy some of these small companies, 1% positions, I'm not saying throw the bank at them. But you buy a basket of a dozen small companies at a 1% each, and you get to the 1%, in two or three purchases over months. And a few of them go up 50 fold. It happens. I saw -- it did that for me for Exact Sciences. I have a list of 20 companies that I've had 10 baggers on over the last 2.5 decades, and several of them came out of the dotcom. Several of them came out of the financial crisis.

For a hot minute, we had 10 baggers on some of the stuff we bought after COVID. And they've all lost 50% back though. And unlike Cathie Wood, I sold a bunch of them. So you take a look at how to invest. And it really is the things that Warren Buffett talks about forever, right? He's been writing these letters saying, look, when everybody hates something, just evaluate the business. And if it's a good business, buy it. And when everybody is throwing speculative money around, you should be selling to them. Let them buy the hopes and dreams.

And Sam Zell said on an interview sometime last year, I'm cursed by knowing the numbers. And that's what you need to try to do is understand the numbers. And right now the numbers say that we have a generational opportunity to buy small and midcaps. There's a short term opportunity -- to me short term is a few years, short term opportunities to buy regional banks. I still won't buy the big banks. I just don't see there's any upside. If you want dividends, there's all sorts of industries, industrial companies that are going to capture a lot more revenue, right, a lot more to the bottom line, as their cost of production goes down because of the AI.

There's big trends out there that people should be paying attention to and stop fighting things for -- from your biases that you've accumulated over a lifetime or regency bias, if you're young. One of the things about the young traders, I wrote this article on Seeking Alpha as well. I said, look, will the millennials and Gen Z traders, flip the switch to the downside, right. They're buying calls and buying calls and buying calls, pump everything up. And they're starting to learn how to buy puts.

And they're learning how to short stuff. And they find vulnerabilities in low float companies, low float, small caps in particular. And they gang up. They use Reddit and they use Twitter and their little discord rooms. They say let's all short this company, because nobody's buying it right now. And we'll beat the heck out of this, 70%, 80%, then we'll run away. They're already doing it. And if there's a fearful moment, this year or next year, I think there's twice as many traders now as there was five years ago. That's all speculative money. It's all people who believe, well I can out trade everybody. I'm really good at this. I have a system. I'm a chartist. And they come up with all this stuff.

I play professional poker. And I'm telling you, all these people with trading systems, it reminds me of people who know exactly which slot machine to play. It is the funniest thing I've ever seen. It is cyclical. It happens every generation. And it's happening right now. I do think the millennials and the Gen Zer's are better traders than their older counterparts. However, I think they have -- at least a big chunk of them have some comeuppance coming. They've already seen it in crypto, they all got wiped out on their -- am I allowed to say shit coins?

RS: You are.

KS: Okay, they all got beat up on their shit coins. But I'll tell you what, I'm bullish on Bitcoin. I've been telling people every time Bitcoin's under $20 buy it. I did an interview about a little over a year ago, when Bitcoin was 45 grand, 50 grand. And I said, look, it's going to go to 30, for sure. And it might go under 20. And I explained why. And it did. So when it got down to 30, I said, start paying attention; when it got under 20, I said start buying it.

I wrote the article on Seeking Alpha about who should buy Grayscale Bitcoin Trust (OTC:GBTC). If you had bought Grayscale Bitcoin Trust when I wrote that article in November, December, whatever it was, you are up 40% or 50% in a couple of months. And with Bitcoin, and I just throw that out there because it is going to have an impact on the global banking system. Got to remember, not everybody's in America. And there are people out there and there are countries out there, governments out there that don't like America, they don't like the West, right? I'm looking at you too, little flattie [ph]. And I'm looking at uggg, and I'm looking at whatever, Prince MBS, whatever.

You take a look at these folks, and you say, okay, they're buying Bitcoin. Why are they doing it? The emerging markets are buying Bitcoin, why are they doing it? The very wealthy are buying Bitcoin, why are they doing it? Well, there's some pretty easy answers, is for the countries they are buying Bitcoin, because they need to hedge against the dollar. And they don't want it to be the euro, because the euro is going to move choppy and sideways forever.

Europe is going to be the definition of mediocrity when it comes to economics and finance 50 years from now. It's already started. When I said that the dollar a decade ago was going to be on par with the euro, I got laughed at. You're out of your mind. Oh, here we are. They're at par. And they'll chop around that line, above and below a little bit. But Bitcoin is a hedge against periods when the dollar gets very strong. And the dollar, once the cheap energy age comes back, and it's coming, the dollar is just going to stay strong and get stronger. And there's going to be periods when the dollar gets too strong, and it starts to break things, which we just saw with the banks.

Bitcoin's going to be a six figure price tag in the not too distant future. And the super wealthy buyers and the family offices are starting to buy it. If you read Institutional Investor, or you talk to people I talk to you they're buying Bitcoin, because it's kind of -- it's almost like an international passport, right? I mean, if you get in trouble or if you just want to play a shell game, owning some bitcoin is important. Now the banking system is capturing Bitcoin, though. So you're going to see all these crypto transactions regulated.

And you got Gensler at the SEC pushing the issue. I don't think he's necessarily anti-crypto or Bitcoin. He just wants freaking rules. And if he can't get Congress to do it, he's going to push it through the courts. He's going to -- he's going to stimulate a decision. And he just went after -- or the CTFC just went after Binance and CZ out of China. That's part of the whole geopolitical thing with currencies and everything else.

So the economic cold war that we're flirting with, and maybe it's already happening. It's hard to tell. If you read foreign affairs, some say it's coming, some say it's already happening, whatever. It's not as good as it was years ago, with globalization.

Back in the [indiscernible]. I can't come up with a price of Bitcoin that's less than 300,000. I can't come up with it. I keep trying. But just on the adoption, right, if people are deciding that it's a currency, but it's not a central bank currency, it's a hedge against the central bank currencies. Doesn't mean that we're ever going to buy our pizza with Bitcoin. But it's going to have a role in international finance. And there's just no way it doesn't go up to 300,000 from here. And I'm going to put out a paper on that.

Cathie Wood, her stuff you should read about Bitcoin. I think on a FOMO rally, it can go over a million. But the Bitcoin maximalists, on Twitter and Reddit and wherever else they -- I'll say populate. I have different words for it. I mean, to me, they're kind of like a virus, but the maximalists are just full of crap. You're not going to see Bitcoin replace the dollar. It is a hedge against the dollar. And it's a way of having a single digit percentage of your money somewhere where the central bank can't blow you up.

RS: And is that the only one that you like? Sorry to cut you off at the end.

KS: Yeah, so of the cryptocurrencies, bitcoin is the only one that's going to function in that way. It's a commodity. Ethereum, Ripple, Chainlink, there are project-based cryptocurrencies. And I know that most people don't understand the difference between Bitcoin and all the other ones. So like Dogecoin was like Bitcoin, but it's not. So all the competitors of Bitcoin are going away. You need one. And Bitcoin has won that battle. Bitcoin is the one that's going to be the commodity. It's digital gold. That's what it is.

Ethereum, Ripple, Chainlink, I mentioned those three, because they've all been getting adopted by the banking industry. The IMF and World Bank have Chainlink and Ethereum-based things being built. Ripple just got in the bed with Bank of America. So you'll look through, and you'll find a half a dozen, maybe a dozen project-based cryptocurrencies that are really validation methods for something else that's going on transactions, whatever the case might be, or technology development. Those will survive.

There's not a lot -- it's a double digit number, I don't know if it's a dozen or three dozen. I don't have a grip on every project that's out there. But there's not many. And Bitcoin is going to win the currency commodity war. Dogecoin is going to disappear. Everything else is going to disappear. And we're seeing that. So one of the thesis that we've had is that 99% of the cryptos are going to zero. But that 1% that survives, they're going to be important because you have the basket, that has to do with developing something or transacting something, and then you have Bitcoin, which is digital gold. And that is why people should be buying Bitcoin somehow.

If you are I'd say under the -- if you're not retired yet you should buy some Bitcoin. It doesn't have to be much. I've been telling my folks take a single digit percentage of your bank savings, put it at Coinbase (COIN) and buy some Bitcoin. Oh, I'm afraid of Coinbase. Coinbase is in bed with BlackRock and the CTFC. And they're going to make peace with the SEC at some point. And they're just going to have to come up with the rules.

So I'm not saying buy Coinbase stock but if I was going to put Bitcoin somewhere, that's what I use. I use Coinbase and then I put it in cold storage, so that if I have to switch, I can switch. So it's important to know that stuff. If you want to buy the Grayscale Bitcoin Trust because you have the risk tolerance for it, read the article, that's an alternative because of the discount on Grayscale Bitcoin Trust. And if you just want to have something that has exposure to Bitcoin, and you don't want to manage the basket and you just want to ETF, the ARK, Next Gen Internet, is (ARKW) is the symbol that owns some Square, it owns Coinbase, it owns some Grayscale Bitcoin Trust. And then it also owns like Shopify, which is down 90%. And they're a big deal.

So there's a fund you can buy, if you just want exposure, and you want to limit your exposure, but you want a little bit, which is what I think most people should be doing. I don't think you should throw the bank at it. But you should have some exposure. It's just like, when I was a broker, you always had some older broker tell you make sure you put 5% in gold. Like why? I bought a whole bunch of gold in 2000, because a client talked me into it, and I bought it for everybody. And we were buying gold for in the 300s and 400s an ounce. That worked out.

We have traded in and out of the gold mining stocks, which right now I hate. But if gold falls to 1,500, and I said that in my last investment webinar for clients, if gold falls to 1,500, 1,400, 1,300, then I'll be all over it. But I don't really buy the gold securities. I'm looking at buying heirloom jewelry, I buy the gold coins. I buy the little mini bars. And it's not because they're really great investments. It's just a little hedge. And it's pretty and has some antique value, and it has some novelty value, right.

So gold is not a great investment. It's just something that physically I would like to own. But you don't have to if you don't think gold is pretty, don't buy. It's not going to make a big difference in your portfolio. Now if you trade GLD, and you're a great trader. And remember, four out of five people are not. IRS records show that, that 80% of people write off on their taxes every year trading losses, give or take. And sometimes it's 75%, sometimes 85%. But it's four out of five people who tried to trade are bad at it. And it's because they're competing with people like me, who are good at it, and still know not to do it.

Think that through. I'm good at trading and I don't do it. Because it is not as safe. And it is not as easy as just saying he looked at dollar bill, and he will sell it to me for $0.50, because that still happens, especially in the small caps, and in real estate. So I'm not seeing anything that's original here. I'm just standing on the shoulders of giants. And I have been willing, and that's what it comes down to I think I've been willing to adapt their methods. And I've learned the numbers. And I'm really good at analyzing businesses because I love doing it.

I go to a lot of the businesses and I talk to the executives. And I learn the industries. I read the trade mags. Jimmy Rogers in like 1990, before he was even super famous, he was just kind of famous. Those were the days with Soros, whatever that fund was that they had. Here's a guy who grew up kind of like Jimmy Carter in peanut country in Alabama. And at 37 he was a retired billionaire. Did something right. Well, he said his most important lesson was, he had been on a train or an airplane or something and somebody said -- or he asked the guy next to him, what's the most important thing about investing? And the guy said, just read everything. Because nobody does it.

If you read the trade journals, and you read the corporate reports, you are ahead of 90% of the people out there. So that's what I've done. I just read a lot. And to the extent that I can publish my notes I do. And that's what you learn over time is you learn how businesses work, you learn how real estate works. Everybody learns by mistakes. I've made plenty. And you learn when to buy when there's truly blood in the streets, read strapping 30% in the next year, which I think is very possible, is not really a blood in the streets sort of thing. That's just going to be what fair value is.

Now if they drop 50 or 60%, you got my attention, because now there's a margin of safety built in?

RS: Well, I think anybody who is hearing you for the first time is checking out Margin of Safety Investing on Seeking Alpha and wondering what else they can cull from your compelling analysis, I would say. And to your point about you're not doing anything special, I think in a world of unsound advice, sound advice is really special. And competent analysis is, I think, rarer and rarer. And, yeah, this has just been such a great conversation, super actionable, and super compelling, and really interesting, I think pulling all the different points together.

And for those that want to keep going on and on in this conversation, fear not, Kirk will be a regular voice in this platform, and just thank you so much. And if there's anything else you'd like to share, or say to investors before we end this part of the conversation.

KS: Yeah, I'll just do the elevator pitch here. Look, if you want to try Margin of Safety Investing, you get a month to check it out, free trial, maybe it's two weeks out on all, but it's free. There's a 20% discount for your first year running right now, I am raising the price at the end of the year for new subscribers after January, just because I'm probably charging half what I should be charging compared to similar services. And I have a couple of special reports coming on. I put out about four special reports a year.

I'm going to be talking about the future of energy. We're halfway through our Bitcoin report, which you know, a lot of you don't care about, but some of you do. But the future of energy is a big deal. And one of the articles that I have sitting in my queue that I haven't finished, but I actually outlined it over a year ago, the title of the article is how I'm going to take climate change deniers' money. And I'm not being political there. I'm just telling you a lesson I got from my grandfather was if you want to know how things are working, and why things are working, and where the money is, and what's the future holds, follow the big money.

Well, folks, the big money, billions and trillions of dollars are flowing into this energy transition. And you have opportunities in solar, you have opportunities in batteries, you have opportunities in grid management, you have opportunities in hydrogen. Over the next 10 years, you're going to see the biggest, I'd say functional change to the way that you do something because everybody's going to be buying EVs. Everybody's going to have solar or access to alternative energy somehow. It's harder in the city to put up solar, but you're going to have access. And it's going to be pretty amazing.

And that in turn, is going to free up a lot of money to be made in industry. So, that's what we're talking about. We talk about the big secular trends, and then we try to figure out how we can make money on that.

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