Show Notes
In June 1990 I told Louis Rukeyser on Wall Street Week that the Japanese bull market was over, and the Nikkei didn’t see its 1989 high again until 2024. The reason was simple: Japanese stocks were still trading at 50 times earnings while their long bonds paid around 7%. A stock at 50 times earnings gives you a 2% earnings yield, and 2% can’t compete with a 7% government bond. In the same interview I warned that any company with a leveraged balance sheet in a cyclical industry could get into trouble, and I singled out the airlines. The recession started the following month, and within 7 months Continental and Pan Am had both filed for bankruptcy. I still run those same 2 tests on every stock today, comparing what the business earns me against what a bond pays me and checking how much debt is holding it up. With long-term rates pushing higher, a lot of the AI darlings are priced on stories and financed with borrowed money, and the crowd is still convinced this time is “different.” I learned my trade under Peter Lynch at Fidelity and ran the #1 mutual fund in the country in 1985, my first year managing money. I went on to found 2 hedge funds that each grew past $1 billion, and decades later the method hasn't changed: Our longs are up 24.4% on average and our shorts are down 36.5%, a 60.9% spread that works out to 133% annualized, and 21 of our 24 scored calls are winners.
Stock prices follow earnings, and right now that test points us long energy and the gold miners and short the consumer names, tech and anything sensitive to interest rates. Dispersion is increasing, so the gap between the right stocks and the wrong ones keeps getting wider. Every position we hold is inside The Noble Update, including the 10 new ideas from the last month, and new picks keep getting added. On October 1, the annual goes from $450 to $599 and the Founding Membership (with free access to 6 conferences per year) goes from $950 to $1,200, with the monthly moving to $99. Subscribe before then and lock in today’s price for as long as you stay subscribed:
And remember: WE ARE IN A MARKET OF STOCKS.
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More from The Noble Update Podcast
Last week CoreWeave's bonds traded at yields around 15%, and the cost of insuring its debt implied roughly a 60% chance of default within 5 years. Oracle's default insurance hit a record high at the same time. That's what it looks like when narratives and dreams run into a lack of cash flow and a mountain of debt.
This is the final episode of our series with Tom Gober. Last episode ended with Tom challenging the offshore reinsurers to show us the $1.5 trillion, and in Episode 4, he shows you which companies are behind it. Just 40 companies account for 85% of it, and the biggest sends $235.7 billion to a single offshore affiliate while holding only $4 billion of surplus, which Tom describes as moving money from one pocket to another, like "trust me, bro, I got this."
Last episode, we left off with Tom Gober about to reveal a secret document he found in a company president’s personal files, and Episode 3 opens with what it said. A CFO in a criminal case was recorded calling these offshore deals “a little bit like morphine,” and Tom explains why: once you start, the hole gets bigger and you need a bigger dose. Here’s what we’re going over in Episode 3 “The Secret Side Letter”: * Tom tells you what was in the side letter hidden behind a reinsurance contract that looked perfect to an examiner, from a case that sent the man in control to prison for 18 and a half years, and you’ll hear what happened when the FBI knocked on his door in Del Mar. * Tom puts the cushion of the entire US life and annuity industry at about $650 billion, and he says more than that sits in secret captives alone, while more than $1 trillion has gone offshore, out of sight. * Tom shows what happened at a big insurance group after KKR took it over from Goldman Sachs, including a carrier with about $3.7 billion in affiliated investments sitting on roughly $200 million of surplus, where a 6% haircut would wipe out its entire surplus. * Big institutions hold more than $500 billion of short-term notes issued through these insurers, and at one of those companies, a legal opinion puts those investors on equal footing with policyholders like you, which Tom says means they’ll see trouble coming first and get to the exit before you do. Tom also names the two insurers he loves, so stay for that. In my world, if you sell a stock through one broker and buy it right back through another, that’s painting the tape, and you’re not allowed to do it because it kills true price discovery. When the same owner sits on both sides of an insurance company’s investments, it looks eerily similar to me. Tom ends this one with a simple message for the offshore reinsurers and secret captives: if the $1.5 trillion is really there, show us.
Our long/short spread widened to 67.4% today, with our longs up 25.9% on average and our shorts down 41.6%.
Today is the last day you can get into the Best Technical Ideas Online Summit for $99, and I couldn’t be MORE EXCITED about this one. I like to say that putting on these summits is like coaching an All-American team. Most conferences are stuck with whoever’s on their roster, while we get to pick the best players in the country. On October 27 and 28, that team is John Roque, Rich Ross, David Keller, Brian Shannon and 16 more of the best technicians on Wall Street, and I’m hosting the summit in collaboration with Bill Kelleher. Each speaker brings 3 ideas, so you walk away with 60 of them over 2 days. It runs 10 AM to 4 PM ET with replays if you can’t watch live, and every session goes straight to the charts with no fireside chats and no bloviation. The focus is ACTIONABLE, MONEY-MAKING IDEAS. Back in the day, hedge fund guys would get together for stock idea dinners where the price of admission was an idea, and you walked out with a notebook full of them. This summit brings that experience to the individual investor, and that’s what democratizing finance the right way looks like. I wish I’d had access to something like this when I was starting out at Fidelity 45 years ago. Conferences with this kind of firepower cost thousands of dollars to attend. You can’t even buy a good dinner for $99, and today that’s the price of 60 ideas from the best chart readers in the business. If you’re wondering why you should care what technicians have to say: This market runs on narrative dominance, and the chart is where you see what the money is really doing. If you're not willing to spend $99 to hear what these 20 people see in the charts, are you really serious about your money? The early bird price ends today, and tomorrow the ticket goes to $199. Lock in your seat for the investment event of the year here: noble-capevents.com