This week, Damien Hoffman founder of Wall St. Cheat Sheet talks with me about the stock market, the economy, politics, corporations, and about his plans and aspirations. Hope you enjoy our interview as much as I did.
Ilene: Hi Damien, can you tell me a little about yourself, how you got involved in Wall St. Cheat Sheet, and what your goals are?
Damien: I am an entrepreneur at heart. I graduated college during the height of the dotcom boom and started a successful company with a few friends. When they decided to manage the company indefinitely, I decided to move on to build my skill set.
To make a long story short, I went to law school, clerked at the Florida Supreme Court, and worked at an investment bank. With my newfound skills and relationships, I got involved in some very cool consulting projects for several years.
Then, after the big crash, my brother and I thought it was the perfect time to get into financial media. We are both successful traders and come from a family which is passionate about investing. So, we launched a newsletter in November 2008 to meet the demand from friends and family who were screwed during the crash. It was an instant success.
In the summer of 2009, we ramped up the blog. It’s caught on like wildfire. We are very humbled by how many people support what we’re doing and have appreciated our work.
Ilene: Yes – I very much enjoy your site. What are your plans for Wall St. Cheat Sheet?
Damien: We have a lot of exciting plans for 2010. The head of our Board of Directors is Larry Kramer, the co-founder of MarketWatch. Larry has been very active in helping us execute our business plan.
In the next couple quarters, you can expect some awesome new resources like TV, educational webinars, and a few novel tools which I cannot reveal yet.
Additionally, this week we are launching Leisure Cheat Sheet (leisurecheatsheet.com), and this year you will also see DC Cheat Sheet (dccheatsheet.com) for politics and The Sports Cheat Sheet (thesportscheatsheet.com) for sports. We are in negotiations with some very exciting content partners for our new sites.
Ilene: That sounds very exciting! Given all that you’ve seen from your perspective in the financial media, what is your world view of the events that lead to the financial crisis, and where are we now?
Damien: The financial crisis is nothing short of a global scam gone bad. There are no coincidences on Wall Street. Everything is vetted by tons of junior staffers who work 100-hours a week, and then vetted by senior managers who work 80-plus-hours a week. When the credit markets disconnected from reality with CDOs and uncollateralized default swaps, smart people understood it wouldn’t end well. The same is true for lending money to people with no docs. It defies the fundamental laws of turning a profit.
Unfortunately, since there are not enough service jobs in the U.S. to satisfy what might be called "a natural level" of demand for goods and services, we are now in the game of inventing more ridiculous financial schemes. Watch a few episodes of Flip That House. It doesn’t take a PhD to see we were treating the most stable and important part of our social stability as a board game.
I also think a huge problem is the short-term profit motive. You can see it everywhere: on reality TV, in your local newspaper, road rage, parents fighting at school sporting events, etc. We have created an American culture around "I’ve got to get mine." So, when people get a chance to make some loot, they take it while the getting is good. No docs? No problem. My boss says we can work with you. You don’t have the collateral to pay if the debt defaults? No problem. We have some physicists who say it can never happen. So on, and so forth.
At the moment, I think Barack Obama has really done a major disservice to the country. Not for all the tax issues which get the most attention. All those taxes would have happened under McCain because Bush burned down the house and we had to build a new one — and that costs money.
The bigger issue is millions of Americans empowered President Obama to change all the crony shit that blew up the system in the first place. However, Obama is still waging a war, not a single financial executive has been properly punished for their unconscionable actions in abetting a global crime, and health care companies used lobbyists to turn the reform into another fat payday at our citizens’ expense.
The conclusion: many people will stop caring who they vote for because we are literally in an era when the rhetoric of the two parties makes us think they are different, but business in Washington operates according to a franchisee manual which accomplishes the same goals no matter whether the profits come from war or bureaucracy.
When we couple this disappointment with the imminent obligations to pay for the Boomers’ entitlements, and the bankers’ nuclear cleanup, we may need some time before we see glory days again. But I believe everything is cyclical. So this too shall pass.
Ilene: The financial system’s near-death experience and subsequent resurrection seems fake to many people. Because there have been no fundamental changes, the so-called recovery also feels like a scam. Perhaps there’s a sense that certain entities did in fact benefit - like Goldman Sachs. So, getting back to a question, what are your thoughts on the mechanism of and intentions behind the “global scam gone bad?” If some actors came out ahead, did they plan it and profit from it?
Damien: There are those who know how the system works, and there are those who do not. Those with this knowledge are able to lobby the government to turn otherwise illegal (i.e., socially harmful) behavior into perfectly legal action. In many respects, the U.S. offers corporations the same freedom of speech as voting citizens. Thus, corporations are free to use their disproportionate wealth to drown out the interests of the people through lobbying. In other countries it’s called bribery.
The intentions behind the scam are simple: corporations don’t go to jail, they can easily pay fines, and they rarely get their charter revoked (no matter how many times they are fined). So, very smart people who control the reigns of these entities know they basically won the lottery. The game is to accumulate as much wealth as possible while these powerful positions are held. Of course, this doesn’t apply to every corporation, but it does apply to those which caused the crisis.
Ilene: Do you think our laws for corporations have contributed to our problems with government being seemingly run by financial interests, lobbyists? Do you have any ideas for solutions?
Damien: I don’t think the Founders ever imagined legal entities finding equal protections under the Constitution. It must have seemed too bizarre. What nation of human beings would give artificial entities the same protections when their goals are so different? Meaning, corporations turn a profit by any means legally necessary, while human beings care about things like love, relationships, clean water and food, communities, friends, etc. There is an obvious conflict of interests between the human race and a machine looking to monetize every square inch of physical reality.
For starters, corporate lobbying must be abolished. Every person who works at a corporation has their legal vote in all elections. Therefore, they have freedom of speech to speak on behalf of the corporation’s interest (if they so choose). Why should there also be derivative speech by a non-living entity which has incredible wealth to speak on behalf of the handful of people running the entity? It doesn’t make common sense unless we treasure corporate goals over that of human beings.
I am not a fan of debilitating taxes and wealth distribution. I think there is a healthy ground to tax and put that wealth into the commons, but those taxes cannot cause ambitious people to flee. I am also not a fan of Laissez Faire. We cannot allow the greediest people in the world to monetize everything until life is nothing but an Enron-like shell game. As a tribe, we must decide what areas of life are sacred — what things are more important than work and business.
Unfortunately, the US is polarized due to the brain washing of the two-party system and their abetting media outlets. So long as the masses remain ignorant while believing they are getting fair and balanced information, the intelligent will manipulate them. This has been the case for as long as we’ve recorded human history.
In the short-term, Americans need to read the Constitution and understand what we have been trying to build as a free society. There are many scary new developments which have eroded what makes this country special, so we need to wake up, if we want to preserve what makes this country unique.
Ilene: How do you see the near term future unfolding, and the more distant future, for the U.S. and the world?
Damien: I think China and India will continue to demand more global resources. As a result, they will become increasingly more powerful in the political sphere. At the moment, the U.S. has a lot of issues to fix at home. I envision the next decade as what sports teams like to call "rebuilding years." Yeah, we’re still the New England Patriots, but we aren’t going past the first round of the playoffs for a while.
Ilene: How would you invest - are there any asset classes you think are relatively better than others for investing - e.g., gold, stocks, emerging markets?
Damien: Right now my #1 investment is in my business. The ROI of your own business is always your best bet. After that, I like gold for a long time since our debt issue is extremely complicated and there will be enough scary moments to keep gold in play.
Our Premium Newsletter is also long Intuitive Surgical (NASDAQ:ISRG) since $152, Systemax (NYSE:SYX) since $12.75, and we just got stopped out of our remaining position in Google (NASDAQ:GOOG) after our first portion of shares hit our profit target at $620.
As you can see, we like companies with no debt and are doing very well executing their business model.
Ilene: Do you think the dollar will keep dropping and if so, does that affect your investment decisions? Do you think gold will keep going up from here?
Damien: I think the dollar will be in trouble so long as we monetize our debt. I also think the post-WWII era is falling below the horizon. So, there are now other nations (e.g., China) strong enough to diversify their holdings. If you were a growing economy, why would you rest your laurels on the U.S. Dollar? It’s backed by a promise. It’s hard to rest all your proverbial eggs on a promise.
The natural hedge is gold. We think gold will continue to remain in the spotlight for a long time to come. As a result, we launched TheDailyGold.com with Chartered Market Technician Jordan Roy-Byrne. Jordan is very passionate about the macro issues, and he covers an incredibly large universe of commodities, stocks, and debt. His Premium Gold & Silver service has been a huge hit — his research is deep and his picks are on fire.