Replay of my webinar; Over-the-top sales pitch?; Why I'm Optimistic That We'll Soon Stop the Coronavirus; The huge analytical mistake people are making; Is the Coronavirus as Deadly as They Say?; Bernanke, Klarman, and Ackman are bullish

By Whitney Tilson

Wednesday, March 25, 2020

1) Last night, my colleague Enrique Abeyta and I hosted a free webinar on the coronavirus crisis and its implications for investors. We did a deep dive and took many questions for more than two hours.

Normally the replays of events like this are only available to our subscribers, but in light of the current crisis and the importance of our message, we’ve decided to post it publicly. You can watch it here.

During the webinar, Enrique and I explained why we’re cautiously optimistic that the measures we’ve ramped up over the past few weeks are having their desired effect, sharply reducing the replication rate of the coronavirus and, therefore, the growth in the number of newly infected Americans.

As it becomes clear that we’ve controlled the spread of the virus and know exactly where the outbreaks are – which could happen as soon as a couple of weeks from now – we can start bringing our economy back to life… and stocks will go nuts!

To repeat what I’ve said before: this is the absolute best time to be an investor in more than a decade. To borrow a phrase from a friend of mine, Enrique and I are “trembling with greed” right now.

Again, you can watch the replay of the event right here.

2) We’ve received positive feedback about the webinar – but one person didn’t care for part of it. He wrote:

Jared’s extensive and over-the-top sales pitch felt like boiler room stuff and was way off pitch with your deep and sober analysis that I read and share every day. The whole thing just felt really off brand to me…

Here was my reply:

I appreciate the frank feedback and am sorry that you had that reaction.

But you won’t get any apology from me.

I’ve busted my a** pretty much 24/7 for two weeks doing research, talking to dozens of people, and pulling together what I think is valuable, differentiated work on this crisis.

And then, rather than sharing it only with my paying subscribers, I offered to everyone, for free. And more than 10,000 people tuned in last night and benefited from that.

But I’m not running a charity and no longer manage money – my business is selling newsletters – so Jared did a little a marketing in the first 10 minutes before turning it over to Enrique and me. Then, for nearly two hours, we shared all of our hard work, with no marketing whatsoever.

Yes, there was a longer marketing pitch at the end, but anyone who wasn’t interested in hearing the best deal we’ve ever offered to become a subscriber could simply stop watching.

If I understand you correctly, you don’t object to a little marketing, but to the “over-the-top sales pitch.”

Fair enough. It’s definitely highly promotional and sometimes it makes me uncomfortable. Believe me, I tone down the marketing folks a lot. But mostly I let them do their thing because it works. Trust me, for 20 years my partners at Stansberry Research have been testing every conceivable format and pitch – and this is what sells far better than anything else.

My team and I focus 100% of our energies on delivering great insights and sound investment advice to all of our readers, whether paid or the far higher number who get most of our content for free.

I’m confident that we did that tonight.

Best regards,


3) I’m putting the finishing touches on two special in-depth reports entitled “Why I’m Optimistic That We’ll Soon Stop the Coronavirus” and “The Five Reasons We’re Bullish On Stocks Right Now.” Empire Investment Report subscribers are receiving both of them… along with the report we released last night: “10 Stocks to Buy to Profit from the Coming Market Upturn.”

You can hear my pitch for two of the stocks in our “10 Stocks to Buy” report at the end of last night’s webinar (again, you can watch it here).

And here’s one section from “Why I’m Optimistic That We’ll Soon Stop the Coronavirus” on why focusing on reported new cases can be completely misleading:

There are many reasons why I think those predicting doomsday are wrong. The first is that they’re making a huge analytical mistake by focusing on the wrong data.

The number of Americans testing positive for the coronavirus is growing exponentially right now, roughly doubling every two days for the last two weeks, as you can see in this chart (the trends are similar across much of Europe):

If this rate of growth continues, the number of cases will grow by more than 30 times in the next 10 days, resulting in 1.75 million infected Americans. And if it continues for 10 more days after that, we’ll have 56 million cases. With a 1% mortality rate, that would result in the death of more than half a million of our fellow citizens!

In the face of this grim math, it’s no wonder our political leaders are shutting down our economy, irrespective of the cost. What choice do we have? After all, that’s what simple math tells us, right?

Not so fast…

There’s a huge error in this analysis. You see, the chart above (and the accompanying 24/7 media coverage) shows the number of positive coronavirus test results, not the number we really care about: how many people are actually infected.

To understand the difference, let’s imagine that an infected person arrives undetected in a particular city and starts an outbreak of the coronavirus. And, hypothetically, let’s assume that it spreads steadily, such that 1,000 people are infected at the end of the month. This is called “linear growth,” and here’s what it looks like on a chart:

Now, let’s imagine that nobody knew about the virus until the end of the third week, at which point testing ramps up quickly, such that by the end of the month every infected person has been detected. This is what that chart would look like, showing “exponential growth”:

Both charts cover the same time period, and the same number of people are infected… but the second one is much scarier, isn’t it?

Looking at the only data they can see – the second chart – most folks would no doubt project the recent, exponential growth indefinitely into the future, causing widespread – but largely unwarranted – panic.

Now, in reality, the various, limited case studies we have on the coronavirus indicate that the rate it actually spreads is somewhere in between these two hypothetical examples I’ve given.

Exactly where is nearly impossible to know, however, with such a new virus, because its replication rate appears to be highly dependent on many factors like the temperature and humidity, population density, age and health of the population, smoking rate, and, perhaps most importantly, the degree of social distancing.

Widespread testing – some of it random – is the only way to know the critical information necessary to win this fight: the number of infected people, where they are, and how rapidly the virus is spreading.

Unfortunately, however, we failed to take the coronavirus seriously for far too long and thus failed to ramp up our testing, as South Korea and other nations did.

As a result, we’re blind, thrashing about, and unable to mount an effective defense against this terrible scourge. [In yesterday’s e-mail, I wrote about what we should do about this: The One Thing We Need to Do Right Now: Some Random Testing.]

But what we do know with certainty is that focusing on reported new cases can be completely misleading.

4) I have many thoughts about these two articles in today’s Wall Street Journal and New York Times, but this e-mail is already too long, so I’ll just include the links here and discuss them later…

If it’s true that the novel coronavirus would kill millions without shelter-in-place orders and quarantines, then the extraordinary measures being carried out in cities and states around the country are surely justified. But there’s little evidence to confirm that premise – and projections of the death toll could plausibly be orders of magnitude too high.

Fear of Covid-19 is based on its high estimated case fatality rate – 2% to 4% of people with confirmed Covid-19 have died, according to the World Health Organization and others. So if 100 million Americans ultimately get the disease, two million to four million could die. We believe that estimate is deeply flawed. The true fatality rate is the portion of those infected who die, not the deaths from identified positive cases.

The latter rate is misleading because of selection bias in testing. The degree of bias is uncertain because available data are limited. But it could make the difference between an epidemic that kills 20,000 and one that kills two million. If the number of actual infections is much larger than the number of cases – orders of magnitude larger – then the true fatality rate is much lower as well. That’s not only plausible but likely based on what we know so far.

In essence, he was raising an issue that economists have long grappled with: How can a society assess the trade-off between economic well-being and health?

“Economists should be doing this cost-benefit analysis,” said Walter Scheidel, an economic historian at Stanford University. “Why is nobody putting some numbers on the economic costs of a monthlong or a yearlong shutdown against the lives saved? The whole discipline is well equipped for it. But there is some reluctance for people to stick their neck out.”

Some economists who support lifting the current restrictions on economic activity say governors and even the Trump administration have not sufficiently assessed the costs and benefits of those restrictions.

“We put a lot of weight on saving lives,” said Casey Mulligan, a University of Chicago economist who spent a year as chief economist on Mr. Trump’s Council of Economic Advisers. “But it’s not the only consideration. That’s why we don’t shut down the economy every flu season. They’re ignoring the costs of what they’re doing. They also have very little clue how many lives they’re saving.”

There is, however, a widespread consensus among economists and public health experts that lifting the restrictions would impose huge costs in additional lives lost to the virus — and deliver little lasting benefit to the economy.

5) Former Federal Reserve chairman Ben Bernanke had some soothing words during his appearance on CNBC this morning (video clips here, here, and here). I think he’s right. Excerpt:

Ben Bernanke, the former Federal Reserve chairman who served before and after the 2008 financial crisis, told CNBC on Wednesday the coronavirus economic halt is more like a “major snowstorm” than an economic depression.

“This is a very different animal than the Great Depression,” Bernanke stressed. “The Great Depression, for one thing, lasted for 12 years, and it came from human problems: monetary and financial shocks that hit the system.”

“This has some of the same feel of panic, some of the feel of volatility,” he said in a “Squawk Box” interview. “It’s really much closer to a major snowstorm or a natural disaster than it is to a classic 1930s-style depression.”

Bernanke said he does expect a “very sharp” U.S. recession, but also a “fairly quick” recovery.

6) Most investors are cowering under their desks right now, but many of the ones I respect the most share my bullishness. One is legendary investor Seth Klarman of Baupost Group, who just opened his fund to new capital for the first time since 2011: Seth Klarman Sees Bargains, Baupost Seeks More Capital During Chaos. Excerpt:

Seth Klarman is bargain hunting.

The value investor told clients this week that Baupost Group has spent about $1.5 billion scooping up assets in recent weeks, according to a person familiar with the matter. Amid the carnage caused by the fears around the coronavirus pandemic, he’s seeking more commitments for his hedge fund for the first time since 2011, said the person, who asked not to be named because the discussions aren’t public.

7) You might be surprised to learn that Pershing Square Capital Management’s Bill Ackman has also turned bullish. He presciently saw the tsunami that was about to hit us earlier this year and hedged his portfolio. As a result, he’s significantly outperformed the market this year.

He was perceived as being super-bearish when he called into CNBC last Wednesday – Forbes called it “the billionaire interview that tanked the stock market” – but he really wasn’t if you listened carefully. He warned that stocks like one of his favorites, Hilton Worldwide (HLT), would “go to zero” if the government didn’t take strong action, but also said he was buying Hilton (and nearly every other stock in his portfolio) because he was confident that the government would do what was necessary to stop the rapid spread of the coronavirus.

This is a major reason why I’m bullish as well. It’s similar to what Berkshire Hathaway (BRK-B) CEO Warren Buffett said in late 2008 when the credit markets were freezing up: if the government didn’t intervene to flood the markets with liquidity, the entire financial system would collapse. But because the government did, in fact, do so, it was an incredible time to buy nearly any financial stock.

I think the same pattern will repeat here, which is why we’re recommending one financial stock to Empire Investment Report subscribers, will add another next week, and why I bought a basket of seven others in my personal account last week (to ensure no conflicts of interest, none of us at Empire Financial Research are allowed to buy any stocks we recommend).

On Monday, in an interview with Julia La Roche of Yahoo Finance, Ackman clarified his thoughts, saying he’s “very bullish” and “We are completely out of our hedge. We took that $2.5 billion and we have invested that $2.5 billion in equities” in the last 10 days – a huge commitment in light of Pershing Square’s reported $8 billion in assets.

Best regards,


P.S. Here are pictures of Julia interviewing me at the Berkshire Hathaway annual meeting, and us running a Spartan race…

Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.