Special guest P.J. O’Rourke reveals the paradox of populism in elections and recounts his recent trip to a rocket factory in South America. Porter dives deeper into the oil super cycle and explains why record low stock market volatility could be a sign of a top in equities. Buck shocks Porter with something very few people know about former FBI Director James Comey.
Leading Political Satirist & Best-Selling Author and Editor-In-Chief American Consequences
P.J. O'Rourke was born and raised in Toledo, Ohio, and attended Miami University (Ohio) and Johns Hopkins University. He began writing funny things in 1960s "underground" newspapers, became editor-in-chief of National Lampoon, then spent 20 years reporting for Rolling Stone and the Atlantic Monthly as the world's only trouble-spot humorist, going to wars, riots, rebellions, and other "Holidays in Hell" in more than 40 countries.
Announcer: Broadcasting from Baltimore Maryland and New York City. You're listening to the Stansberry investor hour. Tune in each Thursday on iTunes for the latest episode of Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.
Buck Sexton: Welcome everyone to the Stansberry Investor Hour. We are joined of course by Porter Stansberry, CEO of Stansberry Research. I'm Buck Sexton and special guest this week P.J O'Rourke. Writer, thinker extraordinaire. P.J, Porter, great to have you gentlemen.
P.J. O'Rourke: Thank you.
Porter Stansberry: Yes always good to be with you Buck.
Buck Sexton: We were thinking about topics - go ahead.
Porter Stansberry: I just wanted to say last week Buck I caught you short with the stuff about Qatar -
Buck Sexton: I'm never going to live this down am I.
Porter Stansberry: Qatar Qatar. You told me it's pronounced gutter in certain circles.
Buck Sexton: Yeah it is if you want to be cool.
Porter Stansberry: And I just wanted to give you a chance to prove that you are the supposedly former CIA officer and you know what's going on in the world.
Buck Sexton: I am supposed to know about the mid-east. I promise you that was in my read file but after what happened in Europe it got pushed down a little bit in the hierarchy of what I had to spend my time on. That's too much prefacing. Qatar has long-standing ties to supporting extremist groups around the region. They are far too friendly even for some of the Arab states when it comes to dealing with either designated terrorists groups, groups like the Taliban. And there's also the Sunni-Shia divide that rears its head with all of this.
So you had a few Arab states led by Saudi Arabia that decided that they were going to really turn the screws by the way. They had cut off Qatar from their air space. They had just pushed them out in the cold - which is tough to do in the Mid-East but you know what I mean - and not I think there's a rapprochement that's in progress. But this had been building for a long time. It had to do with Muslim Brotherhood support from countries like Qatar, gutter, any of the above. So that is the answer that I should have had for you on the spot last week. Hopefully I'll somewhat redeem myself but I don't want to keep talking about it because PJ is going to fall asleep.
P.J. O'Rourke: No. No. Not at all because I've spent a lot of time over in that region myself although I've never been to Qatar or Gutter or -
Buck Sexton: I didn't mean because we were talking about Qatar. I just meant my version of it PJ but by all means.
P.J. O'Rourke: Not at all. I had a question for you about that. I assume from its position along on the Arabian side of the Persian Gulf that it's a Sunni Country?
Porter Stansberry: It is a Sunni Country that's correct.
P.J. O'Rourke: And yet they seem to have better than normal relations with Iran.
Porter Stansberry: That is right. I think that is one of the most upsetting points of contention between them all. Although I'm not a former CIA officer I don't really know.
Buck Sexton: You're doing a great job.
Porter Stansberry: I got to needle Buck every chance I get. So I think we've got the Qatar situation wrapped up for now but I did want to give PJ a chance to talk about the current madness in Washington. So a couple things and you can riff on whichever one you like best but; one the rumor now is that Trump is going to fire Sessions, he is going to get rid of his Attorney General because that is the easy way to solve any kind of a coverup in Washington as Nixon proved.
P.J. O'Rourke: Yes I was going to say haven't we tried this before.
Porter Stansberry: And then the other thing was did you hear about this play. And I don't know the details of where it's going on but there's some play somewhere I guess in New York where they are murdering Trump in ethology in the middle of this dramatic event.
P.J. O'Rourke: They're doing Shakespeare Julius Caesar and guess who is Julius Caesar?
Porter Stansberry: Donald Trump.
Porter Stansberry: Complete with Eastern European wife by the way.
P.J. O'Rourke: And of course not to praise Caesar but to bury him. Can you imagine if somebody did Othello with Othello cast as Barack Obama.
Porter Stansberry: Yeah I don't think that would be allowed to happen somehow.
P.J. O'Rourke: No I think all the Middlebury students would have bused down to New York in order to break that up.
Porter Stansberry: Soros's professional protesters would have ransacked the theater.
P.J. O'Rourke: Exactly. We all knew there was a double standard about the third thing. If you're a liberal jerk you're praised for being edgy. If you're a conservative jerk you're Trumped.
Porter Stansberry: So PJ the other thing I know that's going on that is very interesting to me is that you went to Africa recently and looked at a private enterprise model rocket business. What were you doing down there?
P.J. O'Rourke: Not Africa actually. Everybody thought I was in Africa which was fine with me it gave me a great excuse not to respond to emails and phone calls. The monkeys grabbed my iPhone. French Guiana is actually in South America. It's just North of Brazil.
Porter Stansberry: There is my geo skills for you.
P.J. O'Rourke: There is a bunch of little Guiana's that run across the coast there on the shoulder of South America between Venezuela and Brazil.
Porter Stansberry: I thought that was Suriname.
P.J. O'Rourke: That used to be Dutch Guiana. And then there's Guiana which used to be British Guiana and then there's French Guiana that's still French Guiana. So it's an amazing place. Absolute jungle it looks like you could film Tarzan there but it's French Tarzan. You know me Tarzan you attractive waitress with [foreign language] and little caviar nibblets. So anyway Arian Space is a private corporation. It was originally started by the European space agency but it is now a privately owned company.
And they are the most successful satellite launch providers in the world. About half of the commercial satellites that are floating around up there in orbit were launched by Arian Space. And so I got invited down to see their Arian Five which is their biggest missile which basically looks like I guess if it isn't war it's not a missile, their biggest rocket. It looks like what we used to launch the space shuttle except without the space shuttle hanging out the side.
Porter Stansberry: I grew up in Central Florida and those launches are really impressive if you haven't seen one.
P.J. O'Rourke: If you haven't seen one as I've said in my piece in the Stansberry Digest if you haven't seen one go out there and do it immediately because it is a couple of minutes that will last you a lifetime. It is the most spectacular.
Porter Stansberry: And PJ would you mind can we talk about our new project together. We're working on a new magazine for you.
P.J. O'Rourke: Yeah. American Consequences. This is fun. Fun for me at least I hope it is fun for other people too. The idea is that Stansberry Research has this depth of bench of analysis and intellect and all sorts of stuff. Instead of simply using it as an investment tool which is great of course although my wife is the one with a business degree. I have no idea. For all I know we're invested in kurgans buried in the yard but we also want to talk about the big ideas behind the economy. Economics is something that is really idea driven in a good way with Adam Smith. In a bad way with John Maynard Canes and with lots of boys in between.
Porter Stansberry: Right now our tagline is Ideas That Matter. And what I see is that magazines have largely gone away. They are not around anymore. And magazine articles used to be the way that people could get more in depth with current events. So it's longer than a newspaper article right but it's not a book. And the other thing was that people used to pass around magazines. And great magazine articles, there was an important place for them in the daily political and economical discourse. And they have gone away. So what we want to try to do is bring that back. And we're going to bring it back in way that people can share it. So the articles are going to be hosted on places like Facebook and hopefully there will be people tweeting about them and sharing them on Instagram and other places where you can pass the content around.
And if you are interested in signing up to make sure that you receive the magazine which I said will be free. So if you want to make sure you get the first issue and we will continue to send them to you of course, just go to InvestorHour.Com and you can sign up for a free subscription to American Consequences. The editor is PJ O'Rourke and we are going to have five or six big name authors in every issue and a bunch of other stuff that we hope that you like. And PJ thank you very much for participating in that and helping us get this started. I am hoping that we can find a new way forward to publish magazine successfully because that kind of content like I said has really gone away.
P.J. O'Rourke: Well it is interesting how it's gone away too. It is either reduced to 140 characters in which you can't possibly learn much or a lot of people will take what used to be a magazine article and they'll go straight to a book with it. And if you read a lot of books about current events and social and economic trends and political trends and so on you quickly realize that this was really meant to be a magazine article like the sofa padding people have been in there with bags of soft words bulking it up until it could go between hardback covers.
Porter Stansberry: Yes. And there is a lot of great stuff that is out there in various places now like in blogs but it's not being collected, synthesized, edited and put in one place.
P.J. O'Rourke: That's right. So we hope to do a bunch of that.
Porter Stansberry: So that is what we are going to try to do for you and we hope you like it. PJ before we let you get out of here I just also wanted to ask you are always writing about foreign politics as well as American politics. And there has been some crazy stuff going on in Britain that I don't know that anyone really understands. There is a woman Prime Minister and she called an election but it didn't go well but she's still in power. And they are Brexiting or they are not. Is there anything that we need to know about that's going on over there or can we just ignore it?
P.J. O'Rourke: Yeah I think it actually it teaches a strange lesson about the forces of populism. Populism it's not a political ideology at all. What populism is it's a political mood and that mood you can sort of sum up that mood it is the voters saying I am not getting treated right. Somebody is grabbing something from me and I don't know what is going on here and I'm mad at everybody. Then populists usually pick a scapegoat it might be Wall Street Investors or the 1 percent. Of course back between World War I and World War II we know who it was it was the Jews. Now it's Washington insiders or it's the alt right or the GOP in general, Trump specifically. But anyway this populism which got Trump elected can turn in actually any direction. It is not a left or right thing.
It can turn in any direction and we just watched a very strange thing go in in Britain is that first Brittan voted for Brexit. They voted to get out of the European union not because of various good arguments for doing that having to do with the currency and trade restrictions and so on and so forth and EU bureaucratic load it was actually just out of a fear of immigrants. That seemed to be the takeaway. It was just a fear of foreigners. Specifically of course the refugees from the Syrian disaster. But also directed a lot against what they call the Polish Plumber, somebody who does a good job for a fair price.
Therefore messes things up for everybody else. So they vote to do Brexit then they have a serious of terror attacks and instead of voting for the conservative, for the Tories, which is a normal human response to attacks from the outside is to vote for the more conservative, the tough realists. They voted for labor. Not quite enough to unseat Theresa May but darn close. And they may do it yet. And their labor party is run by somebody who makes Bernie Sanders look like Mayor Michael Bloomberg.
Porter Stansberry: So it's pretty confusing this strain of populism.
P.J. O'Rourke: It is and the thing about populism is it just gets out from under people I mean look at this murderous thug Duarte in the Philippines. The Philippines had a terrible crime problem so the elected a criminal president. Go figure.
Porter Stansberry: Well thanks PJ for your time today and you're insight and I still don't know what to do about my European investments. Stocks over there seem to be going up regardless of the Tories or the Laborer's or the whoever's, the Brexit's.
P.J. O'Rourke: That's why I'm so glad my wife has a business degree.
Porter Stansberry: Okay. Great. So they are still Brexiting but they are not quite Brexiting with as much gusto.
P.J. O'Rourke: Yes that sums it up. You know what they are trying to do is they're trying you know people say, "Oh no we had a friendly divorce." And I always go, "No you didn't."
Porter Stansberry: Yeah. I'm not sure there's any such thing.
P.J. O'Rourke: No there is no such thing.
Porter Stansberry: But one of those famous people recently they called their divorce - it was the guy from Cold Play and -
Buck Sexton: Conscious Uncoupling.
P.J. O'Rourke: Conscious Uncoupling.
Buck Sexton: That's what I'm here for the pop-culture tidbits.
P.J. O'Rourke: I always thought that's when I rolled over and went to sleep. No that's unconscious coupling [laughs] sorry.
Porter Stansberry: According to my wife who is a student of People's magazine, she was apparently going to baseball games and such with other men so they consciously uncoupled. Gwyneth Paltrow. Is that right? I don't really know what happened of course.
Buck Sexton: Chris Martin of Coldplay and Gwyneth Paltrow.
P.J. O'Rourke: I think their lawyers are calling it something different.
Buck Sexton: But I did notice that he - again informed by my wife the student of People Magazine, he is now dating someone much younger and prettier. So hmm.
Porter Stansberry: I think Jennifer Lawrence is my the Hunger Games lady.
P.J. O'Rourke: Old lady she is a kid.
Porter Stansberry: So he landed on his feet. So good for him. As long as we can have a deal where conscious uncoupling lead to a more equitable financial distributions I think we could all go for that.
P.J. O'Rourke: No I'm not going for that my wife knows where the gun is.
Porter Stansberry: I didn't mean we would chose conscious uncoupling as opposed to staying married. I just mean that if the choices were divorce where the woman gets everything and conscious uncoupling and by the way have you seen the stuff where the guys they have to pay alimony until they're dad. Even when they are not working.
P.J. O'Rourke: That will teach them to marry younger women. You know there is a free market answer to this because there is a free market answer to everything. Why are divorces so expensive.
Porter Stansberry: Because they are worth it.
P.J. O'Rourke: Because they are worth it.
Porter Stansberry: All right. PJ great to have you.
P.J. O'Rourke: Great to be here.
Porter Stansberry: Good luck with the new magazine American Consequences. Again go to InvestorHour.com to sign up for a free subscription.
P.J. O'Rourke: Read it or else.
Porter Stansberry: Read it or else. We have to give credit to Buck for the new motto. And Buck I don't know what you have got on your agenda for the rest of our investor hour but the thing I really noticed this week I thought was pretty shocking was despite the escalating drama in Qatar and some other uncertainty around the world like the loss of the conservative party to the labor party in Britain that oil prices still fell about another 10 percent. Which is shocking. Any time there is uncertainty in the Middle East you usually see oil prices go way up. And I also, I'm sure you have not followed this intimately but Saudi Arabia is dramatically reducing their exports to the United States market. So we are now importing less oil from Saudi Arabia than we have since 1988 which is a very significant reduction. And I want to tell everyone -
Buck Sexton: How much of that is a result of the shale revolution here?
Porter Stansberry: All of it. American production has gone from 5 million barrels a day to 10 million barrels a day. Total American consumption is 20 million barrels a day. So we are still only producing about half as much oil than we consume. But we are producing a heck of a lot more of it than we used to and we are cutting Saudi Arabia out of the market which is good.
Buck Sexton: We were the original oil super power. I think people forget that. I think first oil strikes or the first time they really found it and used it was in Pennsylvania and then of course Texas came along.
Porter Stansberry: Yeah there were two big discoveries in Texas. The first one was Spindle Top and that was in 1903. Maybe 1901-1903.
Buck Sexton: Look at you.
Porter Stansberry: And then East Texas which was the big hunt, the HL Hunt discovery and that was in '33-'34 time frame.
Buck Sexton: Why did oil prices drop then given what has been - is it just because of the changes in the US market insulates a little bit from that geopolitical uncertainty that causes the rise in price?
Porter Stansberry: No the reason why the price of oil is falling is actually simpler than that. The amount of oil storage in the US continues to grow. American production continues to grow, American rig count continues to grow. So there is just more and more oil. Now this is leading a lot of people to be very bearish. In fact lots of different measurements of sentiment et cetera have really caused oil stocks to go down. There has also been about 400 bankruptcies in the last two years in the oil patch. So that is oil and gas companies and oil service companies. So the industry has been wiped out. Another good sign of a bottom, suicides are on the rise sadly across the industry including a member of the CEO of Chesapeake Energy Aubrey McClellan. These are all signs -
Buck Sexton: Wait what is the correlation there Porter that suicides go up when - explain that one.
Porter Stansberry: Yeah this is one of the interesting sort of anecdotal signs of a bottom in commodities markets. A lot of people in commodities are die-hard. And then they do die hard meaning that they hang on until they are completely broke and then they have to be wheeled out. And I saw this last happen wide spread suicides in '08 during the collapse in precious metals. The junior mining stocks got wiped out and two people that I knew casually through business killed themselves because of it. And the same is now happening across the oil patch. Fortunately no one that I know. But yeah it's happening. Suicides are up about 30 percent now. Berta and a couple of famous Texas oilmen have also exited the hard way.
So these are signs and that's leading for the first time in a very, very long time, that's leading investors to abandon oil stocks and the oil sector. And wouldn't you know it of course that's when I get interested in it because I would rather buy commodities when they are legendarily cheap then when they are really expensive. So I have been since 2006 Buck I have been warning people that oil prices are going to collapse because of the shale revolution. And at the time you might remember that peak oil was the rage. There was this completely nonsensical idea that was first written about by a guy named Marion Hubbard in the 1950s and he was an engineer for Humble oil and he was convinced that there was a known and finite amount of oil in various reserves and that once the reserves were all known that then you could calculate when you would run out of oil.
And there was this idea called Hubbard's Peak. And Hubbard's Peak was when you were at exactly half way through the reservoir then production rates would have to begin to decline because you were halfway through all the oil. And it was this very naïve, mathematically pure but simplistic view of the way that commodity discoveries work. So what happens is no one actually knows the size of the total reserves because as technology improves the amount of recoverable oil actually increases likewise more reservoirs are discovered. So if you looked and you were paying attention you would see things about Hubbard's predication that were simply wrong.
For example he forecasted that Ohio among other places would be completely out of oil by 1970. And of course it wasn't. There were still people still producing plenty of oil from Ohio and other reservoirs. So even though he was obviously wrong and you could prove he was wrong. It was a very compelling thing that was very simplistic that investors could wrap their minds around and that equity and debt promoters would use to sell. So what better investment could you make Buck than buying oil if we are going to run out of oil? Because what is the future price of oil going to be? Well it's going to go to infinity because we're running out of it.
Well of that is just a bunch of clap trap and nonsense but people actually believed that Hubbard's Peak had been met for the world in the early 2000s. And that therefore production was going to - had to physically had to - decrease year after year and that therefore the price of oil was going to continue to go up year after year regardless of demand. And that notion sent the price of oil to $150.00 a barrel. And it led to record amounts of investment and discovery and production increases. And so what do you have now Buck? You've got an enormous global glut that's been brought about by the investments that have been made from 2005 to 2015. It's economics. And yes the markets work.
And the cure for high prices is high prices because it leads to more investment and more production and Hubbard's Peak has got nothing to do with it. And so this is what I've been expecting for a decade and now it's happening and so for the first time again since the mid 2000s I'm actually turning bullish on oil. Now I don't expect Buck it's going to be at bottom tomorrow. In fact I still think we haven't seen the total eventual wipeout. I think you're going to see oil prices below $30.00 again. And I think you're going to see some major bankruptcies like Chesapeake for example I expect will go bankrupt. Chesapeake owes over I think it's about $1.5 billion in debt repayments, principal repayments for 2017-2018. Meanwhile they're losing money on a quarterly basis. They are losing cash. They can't produce at a profit at the current price and there is no way for them to get more money.
So I expect you will see a filing from Chesapeake. If it doesn't actually file then it's going to just be a garage sale situation where they have to sell off all their assets for pennies to try to repay those current debts. So either way it won't be good for shareholders. So we are seeing the beginnings of this bottoming happen. And what I want to do is educate investors that this is the time to be interested in commodities. You don't want to be interested in commodities when they're talking about it every night on CNBC and the price has gone up for four or five or ten years straight. You want to get interested in commodities when prices have been going down for seven or eight years and all the companies in the sector are going out of business and nobody wants to talk about it.
That's when it's time to get interested because that's when you're going to have your best opportunities to buy truly trophy assets at a very cheap price. Anyways we had a great webinar about all this stuff last week. And I hope you guys tuned in and saw it. And we're going to be doing a lot more of it. So if you want to see our oil coverage then go to our website StansberryResearch.com and search for oil, search for "Flavius Smith" and you'll find some of our work. But it is a really interesting time and I would encourage everybody to start poking around the oil patch. In the meantime Buck I know you have got all kinds of things to tell us about your friend Comey, the FBI head who is like the guy from Les Mis the prosecutor who will never stop.
Buck Sexton: Javier. Mr. Javier. Look Comey has been depending on, it's a fascinating way of seeing how the media plays the games that they do because when Comey stood in front of the American people and more or less prevented Hilary from being charged for the email investigation and also prevented the embarrassment of having the Attorney General Loretta Lynch be the one after she met with Hilary's husband on that tarmac to step forward and say there would be no charges the media loved Comey. And then he sometime after that right before the election came out and said they had reopened the email investigation and they hated Comey. But overall you have been hearing for a while that this guy is the last honest man in America.
He is like the G-man/boy scout who everybody can trust and he's just all about getting his guy and truth justice and the American way and all of that. And what we have seen as of last week to be sure is that Comey is a political in fighter. This is a guy who plays the belt weigh game and he plays it dirty. He leaked to the New York Times memos that while not necessarily classified were in violation in my estimation and I know something about this having worked for the federal government were in violation of FBI policy and more than that just showed that he's got a political axe to grind. He clearly was trying to and unfortunately succeeded in creating the momentum for a special prosecutor - special counsel as they call it to get appointed. And this is, Porter, a disaster for the administration. This whole special counsel thing. This is going nowhere good.
Porter Stansberry: I said this last week. This is like the playbook of how the minority party even though they don't have a house in congress can stall the administration. They distract everybody, they tie the president up in this kudzu investigation. What I think is really interesting is there is no question about the fact that Hilary Clinton was violating National Security laws. She doesn't even deny it. I mean she did but she lied and it's obvious that she lied. She said there was no classified material. There was what hundreds or thousands of classified documents -
Buck Sexton: Over a hundred count.
Porter Stansberry: - on her server. That is a clear violation of the law. It is an open and shut case. But our inspector Clouseau here couldn't see a crime given those facts. Meanwhile I still haven't heard a single piece of evidence that suggests reliably that there's any connection whatsoever between President Trump and the Russian's? In fact what Comey has said on the record is that President Trump wasn't a subject of the investigation. But now somehow he is. This I can't. You have to explain Washington to me because I can't understand this.
Buck Sexton: There is a few things here. First of all it is worth noting that CNN was running with the story for a whole night it was their lead on their primetime shows that Comey was going to contradict Trump and say that he did not tell him three times that Trump was not under investigation. That was not true. If that is not fake news I don't know what is fake news because that was obviously a lie or highly inaccurate to the point of being journalistic malpractice. Another quick side before I get into the lack of evidence in the Russian investigation because I think some of your listeners will remember this one. You know who the guy is who decided to go and press charges and send Martha Stewart to jail despite not doing any insider trading?
Porter Stansberry: No.
Buck Sexton: James Comey.
Porter Stansberry: No way.
Buck Sexton: James Comey. He was the prosecutor for the Southern District of New York who decided to get her -
Porter Stansberry: That is a nice tidbit. I didn't realize that.
Buck Sexton: He was the guy who decided to go after her for obstruction and lying to investigators and this established with Comey the precedent of using the process as the punishment. Use the process to trip people up. Martha Stewart went to prison for five months for lying about a non-crime and Comey felt good about that. I can tell you I worked at the NYPD for just a little while doing counter terrorism.
Porter Stansberry: What a scum bag.
Buck Sexton: Some of the guys there - it just came up once we were riding around in the car talking about stuff and they were just like, "I don't know how whoever pushed those charges sleeps at night." That was the law enforcement on the street view. They were like putting her away for five months for what? For nothing. That was Comey. Comey is a political animal. He is a guy who sees the angles and has been self-promoting and his latest thing is to tie himself in as it's just all about the FBI it's not about him that's the reverse of reality. It's really Comey holding himself up as the FBI. Him and the FBI are one. But to answer your question and your point Porter about the lack of evidence that is one of the biggest problems you have with this whole special counsel is that there is still not even a designated crime to be investigated.
This is equivalent to let's assemble a crack team of investigators and have them wonder around in a neighborhood until they find a crime. No usually it's we assemble investigators to look for a murder or to look for a bank robber or to look for a white collar criminal but that would be obviously a different kind of investigation. Point here being they still don't have a crime. They have a team, they have a counsel, they are going to be investigating and putting people under oath collusion is not a crime. They can't even think of what the possible scenario is in which Trump would have personally engaged in any illegal or criminal activity. And beyond that Trump came across from even Comey's own words as being outraged that he's even having to deal with all this crap. He just thinks it's - Trump behind closed doors thinks this is total nonsense and I think that says a lot.
Porter Stansberry: I can see his frustration. I wonder though do you think that Trump is smart enough - maybe smart is not the right word - do you think that Trump is wise enough to realize like I said this is kind of like a Kudzu game, the more he moves around, the more he talks, the more things he does, the more they will have opportunities to tie him up. I don't understand why he can't get his Whitehouse communications in order. I have no idea why he keeps tweeting. This is not helping him at all. And isn't there anybody on his staff that he will listen to?
Buck Sexton: I think he will listen to - based on what I hear and I've got some friends who cover the white house very closely and have good sourcing there. He listens to Jared, he listens to Ivanka and then he listens to one or two other people but it changes depending on the day. Look the messaging strategy is also another one of those places is it Trump that's the problem or is it his team that's the problem. Because if Trump has everybody reading from one sheet of music and then he just goes off and does his own improvisation that makes it very hard for the rest of the team to follow suit. And as you mentioned on the Twitter thing now you've got the president.
This is unprecedented in human history. You are essentially getting a look into the president's mind in real time. I mean the leader of the free world the most powerful person on earth is just sharing thoughts with the entire world, in real time with no filter. This is not something that anybody would have even considered as a possibility. Never mind the technology involved but just also the ramifications of what this means for a presidency. And as you point out trying to jam up the president. Trying to create pitfalls. Trying to set landmines out there for the administration political landmines that can cause real damage. That is what the whole special counsel is about.
That is what they are trying to do. You get enough people under oath answering enough questions, enough investigators opening up files and looking at what people are doing and getting them to say what was said and when it was said. And someone all of a sudden will be in the crosshairs, they will make a mistake, they will be facing charges. And the fact Porter that it's a process crime. That it's minor. Nothing was stolen, nobody was hurt and it should be no harm no foul won't matter at all to the media because any criminality uncovered by this muller investigation, this special counsel investigation will be shown as evidence that there's more right this was just the beginning. Why would they lie if they had nothing to hide. So you can see the script is already written. And I think there were some republicans who got a little wimpy on this one. They said okay let's just restore the integrity of our processes.
Porter Stansberry: I don't think that's it. I think the politicians who are in favor of the institutional state and they don't want Trump as an outside wrecking their playground.
Buck Sexton: Well there's that too for sure. I'm talking there is no question there are republicans who - look I think there are republicans who as long as they kept their jobs in the house or the senate they would be fine with Trump stepping aside. They would be really happy if Trump resigned or was impeached as long as they could keep their job. Now if you have the president -
Porter Stansberry: Pence 2018.
Buck Sexton: I think a lot of them would rather have Pence. Keep in mind part of the whole narrative of the Russia Trump collusion and the hacking of the election and all these stories that you see is that Trump's whole election is to the left and to the deep state folks. It's illegitimate so therefore Pence as Vice President would be equally illegitimate. It's not like they would lay off him because he's less of a loose cannon which is certainly the case. Look I think this is going to turn very quickly into a very - Trump has to show some wins. He has got to put points on the board. And I know for the folks listening who are really concerned about what is going on with the economy, Porter he has got the house, he has got the senate.
Porter Stansberry: He still can't get anything done.
Buck Sexton: If they don't get something done on taxes I think people are just going to throw up their hands and say all right I am out. It is not just a rigged game. It is a game that goes nowhere.
Porter Stansberry: It is shocking that they can't get anything done. Even though they ostensibly control both houses. But I think the reality is the republicans themselves are so fractured. It is kind of like back when in the early days of Reagan even though Reagan didn't have both houses he had the Blue Dog Democrats which in most cases they were more conservative than some of the "republicans". What I am trying to say is the party affiliations are way more nebulous than they have been in a long time. Just because you are a republican doesn't mean you are a conservative. Look at Michael Bloomberg who hates Donald Trump.
Buck Sexton: And hates the second amendment and there is a whole bunch of things. Porter I could ask you the question right now and your answer is going to be as valid as anybody in party leadership or anybody in the republican party in general, does the republican party care about spending and does the republican party care about the debt?
Porter Stansberry: No.
Buck Sexton: I think the answer has to be emphatically no, right? They pretend to.
Porter Stansberry: The base does. But the people in power care about having more power. And having more power usually means more taxes. But I want to get back to investing Buck. You and I had a good discussion about politics but I want to talk about what this might mean for investors and I have a surprising answer which is I don't think even if, even if the president was impeached I don't think it would hurt the markets. And the reason why is the reason that Julia Nasange told us that Weeky Leaks didn't really have anything on president trump and the reason why is because all the dirt on Trump is already out there. There is nothing you can tell the American people about President Trump that are going to shock them anymore.
So I think if Trump were impeached even I don't think it would hurt the markets. I don't think the markets care anymore. The one thing that would help the markets of course is a comprehensive tax reform and it would be even better in my mind if it included a border adjustment tax. And that doesn't mean I don't like free trade. I do like free trade. I just think that the current international tax structure makes no sense for American businesses. So it is crazy that when Germany sends us a car the German company doesn't pay any taxes on it but when we try to send them a Cadillac our companies have to pay. And that needs to be rationalized so that our companies can do a better job of competing with foreign companies. That's simple in my mind.
Buck Sexton: A lot of the major trade agreements also should be renegotiated which I think is look at NAFTA. These things have been around for a long time and have not been updated certainly in a comprehensive and in some cases really in any fashion. Did you want to talk about tech stocks by the way?
Porter Stansberry: Yes I wanted to get back to what I think is impacting the market right now and that is the first really big pull back in tech stocks we have seen in a long time. And of course even though the declines are really pretty small, 3 percent, 4 percent, 5 percent, I think the markets reaction to it was pretty surprising because volatility has been non-existent for so long. And there is two things I want you to pay attention to Buck if you haven't yet. Number one there is a great article in the Wall Street Journal it was either published today or yesterday and I read it online so I don't know exactly which day it was published in the paper officially but it is all about how traders have turned the Vix which is the index of volatility into a tool to hedge their portfolios.
And it actually started with Mark Cubin in the late 2000s, in like 2007-2008 he wanted to use the Vix to hedge his other investments. So he went to Goldman and he said, "Hey can you guys do a derivative for me where I will make x on my money if the Vix goes up?" And they said, "No we can't do it because the way that the Vix was constructed, the way the index measured volatility was too cumbersome." So Goldman goes to the guys who created the Vix index which is the Chicago Board of Options Exchange and they said, "Hey would you reformulate your index so that we can do a better job of mimicking it in the futures markets?"
And incredibly CBOC said, "Sure we'll do that for you." So they reformulated the Vix index so that Goldman could build a tracking index of it for investors. And if you look at the stock Goldman essentially created is called VXX and what that does is it uses futures to mimic the performance of the Vix index that was reconstituted. The thing that is important about it is if you try to go long volatility. So if you have a bias that stocks are going to be more volatile in the future and you would go buy VXX to hedge yourself you are going to get killed because it costs so much to roll the futures forward that this ETF has a very high carrying costs.
So if you look at the chart of VXX for the long term, look at a 10 year chart, you will see it is down like 99 percent because the thing has so much time decay that it is a really bad long term investment. The flipside is if you sell it, you sell it short, you're going to almost always make money. And so that has led to a huge amount of capital going short volatility in various ways. Through options, through ETF's through futures. And those people are making money on that carry.
So it has been attracting a lot of investors, even retail investors are now short volatility. And Buck the problem is it is like the tail wagging the dog. The index was created to measure volatility in the market but now because people have put so much capital into those particular investments it is influencing the market to be lower volatility and lower volatility and lower volatility and that is setting us up for a bad problem and I think you can see where I am heading with this. If you get a bunch of institutional money and a bunch of retail money that is all short volatility and then something happens, whether that's North Korea throwing a bomb at South Korea or it could be something like imagine if there were an accounting scandal at Facebook or Google or Apple heaven forbid.
I mean if there was a stampede out of the markets that volatility index can go from 10 to 80 overnight. And I don't think anybody who is short that index can even imagine that outcome right now. So we kind of have a situation where we have our market that is a very extended bull market and we have very, very low volatility, record low volatility and you've got this huge crowded trade where everyone is shorting volatility because it has basically been a one-way bet for the last seven or eight years. And my concern is that if the markets reverse or when they reverse a lot of people are going to get hurt by being short volatility. So anyways follow this trend in the markets, shorting volatility and you're going to see how this big top and equity markets are forming. It is something we haven't seen before.
Buck Sexton: How about some subscriber mail Porter. Are you up for that?
Porter Stansberry: Yeah we can do that.
Buck Sexton: Let's do it. We have got first coming from Jeff he writes - and by the way those who want to write can go to - just send and email to [email protected] And obviously for all of your things investor hour just go to InvestorHour.com. So we have mail from Jeff he says, "Recently Porter you discussed how the central banks in some countries have started buying stock in public companies. I was very interested to learn for example that the central bank of Switzerland currently owns $60 billion of US stocks. I understand that central banks buy bonds in order to lower the interest rate for bonds and this is supposed to stimulate their economy. But I don't understand how owning a huge amount of US stocks benefits a country like Switzerland. Does this somehow help their economy or are they simply speculating that US stocks will continue to go up and they want to go along for the ride? PS I love the new Investor Hour podcast keep up the good work." That is from Jeff. What do you think?
Porter Stansberry: Well let's look at it how does it benefit the citizens of Switzerland. If the central bank decided not to print a bunch of money and they kept their currency sound and hard then the currency would appreciate and wages would appreciate in Switzerland. Unfortunately though it would be very difficult for them to export pharmaceuticals and financial services which is their two core businesses. So there would probably be an increase in wages but a resulting increase in unemployment. And that would of course lead to a political problem. So to prevent that political problem the central bank is instead of allowing the currency to appreciate is printing currency and buying stocks.
The reason why they are buying stocks is because they don't want to buy bonds that have a negative yield and I don't blame them. They are buying stocks because there's really nothing left for them to buy except for stocks. So they have now purchased equity that is worth close to $100,000.00 per citizen of Switzerland just by printing the money. And you ask yourself what is the impact of that? Well would you rather have a depreciating currency or shares in Apple? I would rather have shares in Apple. So there is a certain logic to it. I wouldn't be surprised at all if overall it benefits the people of Switzerland. I mean if you can print money and buy shares of Apple I expect you would do the same.
Buck Sexton: It sounds great.
Porter Stansberry: Yeah so I don't necessarily think this is a bad policy for the people of Switzerland but I do think it's a really, really strange way to run the world because how can you reliably exchange goods and services with Switzerland if they are just printing money to pay you. In a way you can look at it as the Swiss people have found a way to essentially steal almost $100 billion worth of US companies. Now they didn't steal it and it wasn't illegal but there is no firm foundation. There was no exchange of value. They just printed up the paper and sent it our way. So at some point that has to reverse. At some point and I wish I knew when.
At some point people are going to go, "Hey wait a minute you're just turning on a printing press. I'm not going to exchange value for that." And at that moment then you have got a big problem. But currently the world completely believes in worthless currencies. It believes in worthless currencies to the point where you can make a good argument that BIC coin has intrinsic value and the US dollar doesn't. So eventually we are going to have to face a very, very big problem. But until then trying to follow the value chain like I wrote the other week it is like trying to figure out an Escher painting. It just goes in circles. It doesn't ever end and right now it's very expansionary.
So I would continue to expect financial assets to rise. But again the problem is sooner or later someone is going to wake up somewhere and go this doesn't make any sense. And you can't predict when that will happen but you can know what will happen when that does happen is that there is no bottom. There is no firm foundation for any of these currencies whether it's the dollar or the yen or the you euro or the swissy or the frank or the euro. In fact one of my favorite expressions was taught to me by my friend Doug Casey. He goes, "Well you know Porter when you are picking currencies you are just trying to find the least ugly girl. It is not a beauty contest because none of them are very attractive."
And the other funny line about currencies is the dollar is a we owe you nothing because the dollar is just an abstraction. There is no promise to pay anything. So a dollar denominated debt is a we owe you nothing but a Euro denominated debt it's not even a political union, so a Euro denominated debt is a who owes you nothing. And if history teaches us anything it is that sooner or later expanding your currencies will cause inflation and the moment that central banks are forced to hike interest rates in order to prevent a run on their currencies that the whole scheme will fall apart dramatically. The first time in history I can find a central bank printing money and buying stock was when John Law persuaded King Louis 15th in France in 1716 to give him a charter to create the first central bank the Bank General in France.
And in 1719 he paid the king back by printing up 30,000 shares of the Mississippi Company and selling it to pay off the French National Debt. And about six months later inflation soared and the game was over and to control the inflation the French Government tried all the usual tricks. They tried to outlaw gold. They tried to outlaw price increases. All those things of course don't work and the currency was destroyed, there was anarchy in the streets. John Law was run out of town. The king was over thrown. It wasn't a good situation. So it is going to be very interesting to see what happens with this giant global central bank bubble because it is hard to imagine how you are going to get your value out of these currencies. It is hard to imagine how all that money and all that value could squeeze in to gold or bit coin or silver or real estate or anything that is real.
Buck Sexton: Any last calls Porter? Anything else you want to throw into the mix or should we just tell everybody how to stay up to date with all things Stansberry.
Porter Stansberry: Well we have a website. We have the Daily Digest, we are now on Facebook and we are launching Twitter. So it is not hard to keep up with us. How do they keep up with you Buck you are on radio all the time aren't you?
Buck Sexton: Why thank you sir. Yes I pop up on Fox News during the week here and there. That is ad hoc but every night from 6:00 to 9:00 Eastern people can listen to it's called Buck Sexton with America Now but it is my radio show. And you can listen on the iHeart radio app. You can also subscribe and I hope your listeners will give it a shot and do so on iTunes Buck Sexton with America Now. And we do politics. A bit of what Porter and I talked about on this episode of the Investor Hour. A lot on National Security. I've got fantastic guests. I have got a rolodex of real experts instead of I play one on TV experts and they come on and talk about whatever is in the news and whatever people want to get into. So I hope people check out Buck Sexton with America Now. I would love some of the Stansberry family to give it a listen.
Porter Stansberry: I have to check it out. I have to admit that I have not heard your radio show yet but I'm going to remember to do that this week. Thanks for being with us today.
Buck Sexton: It is a phenomenal show.
Porter Stansberry: Thanks for working with me on the Investor Hour show as well. And thanks to PJ for being here. And I think we are going to let you off a little bit light today folks. We will give you a little time to spend at the pool with your families. Happy Summer.
Buck Sexton: Absolutely. Thank you Porter and thank you everyone listening we will be back next week.
Announcer: Thank you for listening the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes go to InvestorHour.com and enter your email. Have a question for Porter and Buck? Send them and email at [email protected] If we use your question on the air we will send you one of our studio mugs. This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copywrited by the Stansberry Radio Network.