Episodes

Announcer:                 Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour. [Music playing] Tune in each Thursday on iTunes, Google Play and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I’m also the editor of Extreme Value published by Stansberry Research. Today, we'll talk with Michael Gayed. Michael manages a really interesting, very high-turnover fund that has crushed it so far this year. Stick around to learn more about his simple, but obviously highly effective, market timing strategy as well as other insights. And this week in the mailbag, we have tons of mailbag. Since I wasn't here last week, double e-mail bag.

And some of it is [laughs] pretty wild. One listener says he has all the materials he needs to build a guillotine. Yikes. Stay tuned. In my opening rant this week, I'm in a philosophical mood. OK? Which is a good mood for investors to be in right now. Plus, I'll try to answer the one question I think is on a lot of your minds right now. I hate to do it, but I think I have to. That and more right now on the Stansberry Investor Hour. There's no way that I'm not going to talk about this, so let's just get it over with. And I will tie it in to investing. It's very personal.

But about a year ago, you may recall my then-92-year-old mom scared the bejesus out of us. We thought that was it for her. Well, mom recently passed on September 1. And of course, we're all devastated by it. And I went back east and spent time with the family. You know, it doesn’t matter how old you are. I'm almost 59. But, you know, if you have a great relationship with your parents – which I did – and one of them dies, it's bad, man. [Laughs] It's bad. You can't imagine that person not being in the world. It's just like someone pulled the rug out from under you. But it does make you...  it reorients you.

And I think if people can be a little philosophical about these things, you can get some insight out of it and move on with your life in a better way than before. And I think it's valuable to you that I'm going through a terrible thing, and maybe you're not. So maybe I can glean some insight that you don’t have to go through a terrible thing to get. That's what I'm hoping to do today – in additional to answering the big question I think is on everybody's mind, which I'll get to at the end of this rant. So what I'm thinking here is that something I've said before... I've said it many times. I will say it many times again.

But somehow with the events of the past week for me, investing is very personal. There are no off-the-shelf solutions. If you are an individual investor and you want to manage your own money, buy your own securities, build your own portfolio... it's personal, right? Maybe if you work for a big institution, you got to follow the rules, you're building a somewhat generic strategy, blah-blah-blah – even then, you got to know yourself to get things right in the market. And that's where I'm going to start. I'm going to start with the first of the three Delphic maxims. The Delphic maxims were thought to be inscribed on the front part of the temple to Apollo at Delphi, right? In Ancient Greece.

I don't know that they know they were inscribed. I think they're just thought to have been inscribed. There are three of them. They are: "know thyself" (that's the first one), "nothing to excess" (that's the second one), and the third one is "surety brings ruin." And we'll talk about what that means in a moment here. So the first one is know thyself, right? You have to know yourself well enough to manage your own money or you're going to screw it up. And the basic way that people don't know themselves well enough is, they don't know how they're going to behave in a downturn. They don't know how they're going to behave when stocks drop 34% – or, I think it was 34% – in 30 days or whatever it was in March.

I mean, brutal action. Just brutal, right? We had 10% down days on the S&P 500. It was brutal. And people just don't know how they're going to behave. They think they do. They say, "Oh, I'm going to – you know, I'll weather the storm." And then, they're down 25%, and they're on Amazon shopping for new underwear, selling all their stocks. It gets crazy, right? So you really do have to know yourself and be honest with the knowledge that you discover about yourself. And you have to use that to build your portfolio.

And first of all, remember, building your portfolio... you're never done. It will be an ongoing process that will last almost your entire life. And just one example of a way that you have to know yourself, like I said, is your ability to weather drawdowns. And just think about how you have behaved at the worst moments in your life and try to use that as some insight for how you're going to behave when you're down 30%, 40%. And what I like to do – I'm on a quest to know myself better that I was on, when I was younger. You know, you don't even think about it – some of us don't think about it when we're younger.

But now, like, every single day I read one, two, three, four, five different books of daily meditation-type things. There's The Daily Stoic by Ryan Holiday, The Daily Drucker by Peter F. Drucker...  it's just – and each of these things, it's like 366 days. There's one little bit for each day, right? The Book of Life by J Krishnamurti. I don't understand 90% of what I read in there. But I hope to, [laughs] someday. The Artist's Way Every Day by Julia Cameron and Nathaniel Brandens' Self-Esteem Every Day. And each of these books is the same, you know? For whatever date – September 10, 100, 12, whatever - there's a different little thing. It could be just one or two sentences.

And I'm just kind of mining these people's insight and looking for good ideas to help me, you know, know myself better and understand what I'm capable of and what I'm not...  what I know I'm not going to do, right? Another great book which I just finished recently, The Art of Learning by Josh Waitzkin. He was the kid who was a great chess prodigy who became a very accomplished world champion in martial arts as well. He was the subject of that film Searching for Bobby Fisher, which he discusses in the book how it kind of screwed up his life a little bit.

Felix Dennis wrote two good books called How to Get Rich and The Narrow Road, which helped me sort of get to know what I'm willing to do to make money and what I'm not willing to do. And maybe none of these books are useful to you. Maybe none of that helps you. Again, you got to figure out what it is. So it's a mining process. You need to read as much as you can and cover a lot of ground in your reading. We talked about this before... cover a lot of ground. If you read 10 pages and you're not turned on, move on to the next thing. Move on to the next book. I'm surrounded by... at this point, I think it's close to 1,000 books. And I haven't read most of them.

And I just thumb through – I mean, every day I probably thumb through 20 of them, you know? I just want to get a taste of them to see what I want to read next, to see what turns me on next. And some stuff that didn't turn me on five years ago, it's like I'm really into it now. So you keep going through it, right? Know thyself. Second Delphic maxim, nothing to excess. You remember Magnum Force, the Dirty Harry movie in 1973? If you're like as old as me or almost as old as me, [laughs] you may remember it. and Dirty Harry said, "A man's got to know his limitations." There was a great scene in there where his lieutenant – of course, the lieutenant is always against him, right? And the lieutenant says, "You know, he's out of control. He uses his gun too much. He's too wild."

And he tells Harry – he says, "My whole career, I never had to take my gun out of the holster." And Harry replies with this kind of insult in a compliment. He says, "You're a good man, lieutenant. A good man always knows his limitations." Right? "You're a crappy shot. You should never take your gun out of the holster," is how I take that. And at the end of the movie, the lieutenant says – the lieutenant's a bad guy. He's corrupt, and he says, "I’m not going to kill you, Harry. I'm going to prosecute you and humiliate you," or whatever.

And then, the lieutenant gets in this car that he forgets has a bomb in it, and he drives away. And it explodes and kills him. And Harry says, "A man's got to know his limitations." So you got to know your limitations. If you don't, the market will teach them to you. And you don't want that. One way to know your limitations is this mantra I've been preaching for over a year now: shrewd diversification. Shrewd diversification. Stocks, cash, precious metals and bitcoin, right? There are scenarios – you could easily imagine scenarios when your stocks are down, your case maintains its value and your precious metals and bitcoin maybe go up.

Or scenarios in which – temporarily at least – stocks, precious metals, bitcoin all take a different-sized hit, probably. Different size, I'm guessing. And your cash is there. So you can take advantage of the lower prices in any or all three of them. So that's true diversification. For me, the truest diversification for an equity portfolio is cash because it's the one thing everybody wants at that moment. The more people sell and sell and sell, they're selling so that they can raise cash because they feel that'll maintain value, and they'll stop losing money, right? Shrewd diversification. Know your limitations. Also, you know, don’t trade. Most of you don't have businesses trading in and out – trading options.

Nassim Taleb says, "Most people should never get anywhere near options. They're too multidimensional." And they are. People who know options are like...  they're like mathematical geniuses, right? They know all this Greek stuff and, you know, just lots of complicated higher math that frankly, you know, I don't personally know. And probably never will. Don't buy things you don't understand. Know your limitations, right? Nothing to excess is the basic idea. And the third Delphic maxim is a great one. It's classic for investors. "Surety brings ruin."

In other words, overconfidence, right? Being too confident in what you know brings ruin. And one reader last week wrote in and said...  you know, he had asked a question about Berkshire Hathaway and insurance companies in general, not Berkshire. He said, "In a zero-percent interest-rate environment, how is this going to work out? Insurance companies are going to get killed, aren't they? They all own stocks and bonds and things." And at Stansberry, we generally like insurance as a business. And I gave him whatever answer I gave him. He wrote back and said, "Your answer was not good enough for me or anybody else listening."

But you know something? It's all I got. Would you rather I pretend that I knew things I don't know? Let me tell you something. In finance, if somebody pretends – if they always have an answer for you, it's a red flag. You want them to say, "I don't know," or, "This is all I know. This is all I got for you. I hope it's useful," which is what I said to that guy. And I'm not going to go back and try to fix my answer, because that's all I know.

And it doesn’t need fixing. If you want a better answer, go to somebody else. This is not the finance program where we're going to lie to you. This is the one where I'm going to say, "I don't know," or, "The best I can do is," whatever. Because that kind of – that belief that you always have to be the guy who knows...  that's a kind of overconfidence. And it's the stupid kind of overconfidence. It's the kind of overconfidence where you're not even aware. And it's actually borne of lack of confidence, isn't it? Sure, it is. You're afraid, "Oh, what are people going to think of me on the podcast if I don't know all the answers?"

Hopefully, they'll think I'm the guy to listen to. Because surety brings ruin. Overconfidence brings ruin. Pretending you always know the answer brings ruin. What you need in the market is strong convictions loosely held. Get a – do all the work you need to do. You'll never have a complete picture on any stock, bond...  any kind of deal you pursue in the financial markets. But do all the work you need to do, make a decision. There's your strong conviction. And it's loosely held because you know you can be wrong, right?

Some of the very best equity investors don't even get it right half the time. Not even half. And half the time or better is actually really good. I think in Extreme Value, we're at about 55%. So we're pretty decent. And the rest of the time, you know, we take a little loss or, you know, every now and then a larger one. Although, we're pretty much past that. We tend to take smaller losses and move on these days. And that's what you need to do. Overconfidence will destroy you. And you see how there's two maxims combined, right? Know your limitations – basically nothing to excess – and surety brings ruin.

So that's my interpretation of the Delphic maxims for investors. And otherwise, yeah, you're on your own. I can do research on individuals' equities. I can talk about my views on the overall stock market, the overall bond market, what have you. But you have to build this thing from the bottom up. And, you know, just in the course of extreme emotional upheaval in the past week, I just realized that a man's got to know his limitations. And I can only go so far. And it behooves me – once I get that far – to tell you that, "I'm there. I'm at my limits," and that you really do need to do some work.

If you want to manage your own money and beat – you know, either match or beat the market or do really well as an investor, do you think that that's going to take a lot of work or a little work? Do you really think you can farm that out? Because you can't. Sure, I buy research. I read other people's research all the time. Sometimes I read their research, I read the whole thing, I go do my own work and I do exactly what they said. But I do what they said as my own decision, right? I don't just say, "Hey. Warren Buffett says, 'Buy this.' I'm going to buy that."

You can't do that. You can't do it. You'll never make any money that way. You have to have a full strategy that you develop yourself based on your own, you know, reading and investigation and self-knowledge and your own description of your limits – your own perception of your limits. All right? So that is the very beginning of the outline of some kind of way that you can make investing your own – wrap your own arms around your investment strategy.

And I said I'd try to answer this question on everybody's mind, right? Is this it? You know, the market was down as much as like 5%. S&P 500 was down as much as 5% recently. I think the Nasdaq was down a little more. But is this the end? Well, you know, probably not, right? Probably not. One of our guys, Greg Diamond, who we've had on the program who I've had a lot of respect for – he does all the things that I don't do, right? He's a trader, and he's a technical analysis virtuoso. And he says, you know, he thinks this actually will be a...  is or will be, if it's not over yet, a buyable dip. And he's probably right. The odds are over time, that he's right.

Now, what I would say is that if you're a long-term value-oriented investor like me, you got to be careful how much you pay for stocks and bonds. And in a zero-interest-rate environment, just about every stock and bond is way the hell too expensive to expect any kind of a decent long-term return out of it. So you got to be careful. And if you're an Extreme Value reader, you're probably thinking, "Well, how the hell do you wind up with all these new recommendations lately?" Look. All I can tell you is that, being on this side of March 2020, there's still a great deal of uncertainty baked into a lot of what I think are really good businesses.

So, you know, we're still able to find them. Knock wood. I'm going to knock whatever wooden thing I can find here that we can still keep finding these deals. I feel like we might be running out of juice there. But I thought that months ago. So [laughs] who knows? Who knows... Maybe we'll find another one in, you know, October and November and December as we did in this month's issue of Extreme Value which comes out Friday, September 11. All right. I don't know if this is the end. I just know that stocks and bonds are very, very expensive and you should be careful – since you and I, you know, we're managing our money individually, right?

And looking to know ourselves and our limitations and not be too full of hubris. We can't pretend to know where the top is, but we do know what we know. And we know that the return you get is a function of how much you pay relative to the intrinsic value of the asset. A lot of assets are trading [laughs] – I would say – at substantial premiums to their intrinsic values. So you got to be careful. All right. Let's move on. Let's talk to Michael Gayed. I bet you haven't heard of this guy, but he's really interesting. I promise you will be glad that we talked to him. Let's do that right now.

Hey, guys. I wanted to let you in on an opportunity that my friend and colleague Dave Lashmet has found. Dave and I are among the very first people Porter ever hired when he started Stansberry Research more than 20 years ago. Dave is wicked smart and one of the premier biotech stock-pickers on the planet. Just this year, he recommended Inovio Pharmaceuticals to his readers before it soared 1,139% in just four months. He also showed his readers how to make 777% gains on popular chip-maker Invidia. Since 2015, Dave has had 19 picks in his portfolio double in price.

But today, Dave says he's found a tiny drug company that's discovered a medical breakthrough that could dwarf all of those gains. He calls it his "pick of the decade" with 20x potential because it could have the power to cure disease, affecting millions of Americans. And I'm not talking about COVID. This disease leads to 10 times more deaths than COVID every year, and Dave says up to seven out of 10 Americans could be prescribed this new drug. This drug has the power to change the world and solve a global crisis that has been creeping up on Americans in particular over the past three decades.

But Dave also warns that this breakthrough won't stay a secret for long. This small firm is going up against some big pharma companies. But the trial results of their drug are performing better, and they're primed to hit the market first. Dave created a short video where he explains how one company a fraction of the size of other big pharma companies made this big discovery and how it could mean 20x gains for you. Keep in mind, Dave's research isn't cheap, and it's not for everyone. But with the potential of 20x gains, it's worth it. Go to www.investorhourtech.com where Dave gives you the full details. Again. That's www.investorhourtech.com. [Music starts and stops]

Today's guest is Michael Gayed. Michael is respected as an award-winning, results-oriented investment manager showcasing 15 years of success. He is known for identifying and implementing various investment strategies to capture market anomalies. Michael offers a proven track record of investment opportunities, quickly understanding market dynamics and relationships that few tend to focus on. He's also an out-of-the-box thinker committed to hard work with a passion for investing. He's way more popular on Twitter than on real life with over – at this point, he's got like 170,000 followers. Which is amazing to me. Michael, welcome to the program.

Michael Gayed:          I appreciate it. I'm glad that at least one of those followers decided to reach out and [laughs] do this interview.

Dan Ferris:                 That's right. Another hundred and...  you might be getting another 169,000 of these.

Michael Gayed:          Yeah. Why not?

Dan Ferris:                 So before we – yeah. [Laughs] Before we get going here, I always like to start with someone in your business who has their hands on other people's money especially. I always like to begin by asking how old you were when you first got an idea – very first got an idea – that you were going to wind up in the financial industry.

Michael Gayed:          So I think the first time I probably got the idea of being in the industry was probably in the womb itself when I was a young embryo. I kind of have a non-traditional background in the industry. I had a sort of family history in it. For those that are old enough to remember, you may recognize the name Bob Farrell, who was a legendary technician working at Merrell Lynch in the late 1980s. My father worked alongside Bob Farrell with a gentleman also named Steve Shobin who was relatively well-known in the '90s.

And kind of learned a lot about markets at a very, very young age – really via osmosis. No one was, I think, more passionate about markets and about capitalism than my father. And I remember, you know, many vivid conversations listening to him talking about markets to my mother at the dinner table even though I really wanted just to open up my Game Boy and play that [laughs] when he was talking. So, you know, coming out of college, joined the family business. He had invested in a firm that he had built from the ground up. He was the CIO. Long story short, he ended up passing away in 2008. I was not of age to take over the business, and I had no name – certainly not one that anybody cared about post-Lehman. So I kind of had to reinvent myself. And here we are.

Dan Ferris:                 That's pretty cool. In the womb. [Laughs] As a young embryo. That's an answer I can honestly say I've never gotten before on the show.

Michael Gayed:          All about differentiating myself.

Dan Ferris:                 So get me – that's right. [Laughs] Differentiated from the moment of conception. So OK. So get me to today. You're writing a newsletter called The Lead-Lag Report. You manage a mutual fund. You've got this insane Twitter following. I follow you on Twitter. It's a great feed. Get me up to today, then. How'd you get here? From 2008.

Michael Gayed:          So after – yeah. So after my father passed, yeah, I really didn't know what I do. I thought, "Well, maybe I'll get an MBA, kind of reset my career." Same day, I got accepted into Cornell, which was very excited for when I got the acceptance. I got a job offer from a family office. Decided to end up working for the family office – it was a $2 billion family office that was based out in Geneva. I would go back and forth. I was managing a small portfolio for that family for about a year. After about a year, kind of realized that I really want to have more than just one client... more than just the family office.

So I ended up joining an investment firm. I ended up having a small stake in it. Launched the ATAC Rotation Mutual Fund onto that firm, and about a year ago launched the Lead-Lag Report, which is a separate research offering service for those that don't to necessarily look into my mutual fund. Or kind of more self-directed, Lead-Lag Report is available on seekingalpha.com. The primary focus around the research that I do is about giving voice to math and really giving voice to conditions that favor stock market volatility.

Yes, it is true that more people have lost money waiting for a correction than not. My approach is not about waiting for a correction. My approach is about trying to identify conditions that favor the correction and then figuring out the right way to execute when those conditions are suggesting higher risk. And The Lead-Lag Report, I think, is a very strong way of kind of expressing the narrative around certain intermarket signals to hopefully provide guidance to those who want to manage downside risk, which ultimately I'd argue is the ultimate [laughs] way to really build wealth.

Dan Ferris:                 So if I had to – if I had to slap a label on you, would I call you a macro-focused, technically based kind of investor?

Michael Gayed:          So I'd say more on the intermarket analysis side of things. Intermarket analysis is a branch of technical analysis that says that what you're looking at matters. So just take a step back for a moment. You know, traditional technical analysis says, "Here's a chart. Here's price. Here's history." A true technician doesn’t really care what they're looking at. They don't care if it's a stock, bond – they don't care if it's Apple or some other company. It's purely about price behavior, and it's really analysis and isolation.

Intermarket analysis is different in the sense that it's looking at the relationships of different parts of the marketplace to each other all with the idea that there might be some information that one part of the investment landscape is noticing that another might not be. And the idea is that that relative movement across stocks, bonds, commodities, sectors, currencies might show you the whites of the eyes of a regime change to come. So everything for me is really about sort of the interplay of different parts of the marketplace to each other to see where there might be some gradual diffusion of information you can take advantage of to, hopefully, quote-unquote "beat the market."

Dan Ferris:                 So when you say intermarket – when you describe just as you just described it – I'm getting a vague whiff of Stanley Druckenmiller, no?

Michael Gayed:          Yeah. A little Druckenmiller. A little Pring. Also, my father had – and John Murphy as well. My father wrote a book on Intermarket analysis in 1990 that I republished in 2013. You know, sort of I think along those lines of those kind of classic macro thinkers that try to sort of integrate multiple schools of thought and try to notice what seemed to be very gradual changes in certain asset classes which may be more sensitive to things that really matter the most when it comes to risk-taking.

Dan Ferris:                 Risk-taking. Boy. Everybody knows what they're doing. You know, that's where we always wind up. Risk-taking. So how do you – I'm just looking at your ATAC fund. It turns over quite a bit. How do you manage risk in that fund?

Michael Gayed:          So the ATAC Rotation Fund is very much a different animal than most other strategies that are out there. It's a risk-on, risk-off mutual fund that goes fully into equities risk-on, or fully into Treasurys risk-off, based on leading indicators to risk... to conditions that favor higher risk. That fund as of, you know, this conversation is up nearly 60% for the year. Not because it's in some kind of crazy biotech stock or anything like that. It's because it managed the risk that came from the COVID crash and then the melt up that occurred afterwards.

So the – again. I mentioned everything I do is about giving voice to math. I coauthored four white papers that won four separate awards – two that won the Dow award from the Charted Market Technicians Association and two that won the NAE Founders Award. All of the papers relate to the same kind of idea, which is that I may not know the exact mile marker. I might crash my car.

But I do know the conditions that favor an accident. I know when it's raining to slow down, play risk-off... when it's sunny, speed up, play risk-on. And in the context of markets, there are leading indicators that help to identify those conditions. And I think this is a... I heard you talking about – when you were referencing risk-taking – everyone knows what they're doing. You know, obviously that's a... I assume a sarcastic comment. And I would agree with the sarcasm, right? The reality is, most people just know how to put petal to the metal. They don't think about what's ahead of them. They think about what's behind them.

And often times, what's behind them is what causes them to, you know, speed up or slow down. Rather than say, "OK. Well, you know, looks like there's some rain pellets coming down. Let me start slowing down," in the context of markets there are leading indicators that tell you the weather, the conditions under which volatility is likely to rise or fall. The ones that are tracked in the ATAC Rotation Fund are utilities and Treasurys.

So really quick on that. The 2014 Dow Award paper documents this anomaly whereby historically, when you go back to the 1920s, when the utility sector – the most boring sector of the stock market... when that's outperforming, the broader stock market on a very short-term basis – generally you tend to see stock market volatility rise afterwards with a lag. So in other words, utilities typically move first. Then you tend to have higher-risk conditions afterwards. One of the stats in the paper shows that the top 1% of VIX spikes. Those real collapses in equities, like what we saw earlier this year, historically utilities are already leading 83% of the time before the VIX spike takes place.

And it's not some random correlation. The causation there is around interest rates. Utilities are the most bond-like sector of the stock market, so their movement tells you a lot about changes in the demand for capital and ultimately changes in growth and inflation expectations. Same kind of deal with Treasurys. Historically when very long-duration Treasurys outperform intermediates, a form of yield-curve-flattening... same kind of phenomenon. You tend to see stock market volatility rise afterwards. And most major crashes, corrections in bear markets are preceded by strength in utilities and Treasurys. So they tell you something about the weather, the conditions that favor the accident.

So what the fund basically does kind of very simplistically is, it's looking at the behavior or utilities and Treasurys. If those areas are outperforming on a short-term basis, suggesting conditions favor higher-risk, the fund goes all in 100% into Treasurys, risk-off. If they're suggesting that volatility will likely fall – which means underperformance of utilities, underperformance of Treasurys – fund rotates fully back to equities. S it's a true kind of risk-on, risk-off, very aggressive rotational approach.

The anomaly, however – and this is kind of important. The anomaly that's being tracked in the fund only lives in the short-term, which is why the turnover is so high. It's not like if you have a situation where utilities and Treasurys are leading for a year you have a bear market. Actually, the longer the utilities and Treasurys lead, the more likely you are to have a reversion – meaning some kind of a move higher – and risk-seeking behavior to come. It's really all when you have these short-term bursts of strength where there's some predictive power, and that's how the fund from a quantitative perspective does what it does.

Dan Ferris:                 OK. So just looking at a chart of like the XLU – the utilities ETF – it looks like going into January, you know, and maybe in December and starting last summer or something... looks like the utilities really started screaming. You know, maybe halfway through last year or something and then really just ripped up into January of this year. And I assume that's... when you see that ripping action in the utilities, that's when you're getting your signal that says basically, "Risk off."

Michael Gayed:          Right. Exactly. And it's really even on a shorter time frame. So it's rolling somewhere between three to six weeks, is typically where there's some predictive power, meaning utilities are outperformed in the last three, four, five or six weeks, historically that tends to precede major volatility periods. Now, there's an interesting kind of discussion to take this, right? I mentioned before that the top 1% of VIX spikes, utilities tend to already be leading 83% of the time. That does not mean that every time utilities lead you have a VIX spike. It's just that when you have a VIX spike, you tend to already see utilities leading.

And I think this is something which is missed by a lot of people when they look at risk indicators. You can have an indicator that is wrong a lot, slowing down entering the storm – and actually, I used to use that example when I was presenting in CFA chapters. Whenever you're driving and you slow down entering a storm, you are inherently making a prediction – every time you drive, and you're slower than normal. You're making the prediction that you're going to crash in that storm. Otherwise, why would you slow down? The probabilities are that you're not going to, right?

So you're wrong a lot, right? In terms of your predictions... slowing down to mitigate the potential that you crash. You're wrong a lot every time you drive into the storm. Of course, when you're right and you avoid the accident that's what matters the most, right? Magnitude over frequency, so to speak. And I like to couch utilities and Treasurys in the same sort of way of thinking, right? Utilities and Treasurys give off tons of signals on a short-term basis, which means you're slowing down entering a storm a lot. Now, if you are in an environment like the mid '90s or like post 2003, the problem with those environments is that you slow down a lot entering with a storm, and with hindsight you never have the accident, because the market is smooth up and to the right.

So you're stuck in this kind of purgatory of death by 1,000 cuts of false positives, meaning you get a signal, and it just doesn’t happen, right? The conditions are there. The outcome is not. So it looks like you're wrong. I'm playing risk-off, playing defense. But the one time you're right, you're really, really right. Like, had occurred – you know, obviously prior to COVID – a signal came in mid-to-late January and stayed there up until March 31. And I think this is sort of missed by a lot of investors, and I'd argue risk-seekers in general.

This is a game not of frequency but of magnitude. A lot of behavior aside, studies show that people would rather get sort of consistent dollars day after day after day, even if they lose all of it on the 100th day, than lose a dollar every single day and then make all of it back and then some on the 100th day, right? People like seeing consistency. They like seeing things being right more often than not. How many times have you heard people talk about, "You know, what's your batting average when it comes to trading?" Batting average doesn’t matter.

Dan Ferris:                 Right. Exactly.

Michael Gayed:          Right? What matters is not the number of times you're right or wrong. It's about the magnitude of you being right and the magnitude of you being wrong. And I think this year has been a very good reminder of that. Unfortunately, I think the Fed wants to make it clear that, you know, it's time to forget that again.

Dan Ferris:                 Also, Mike, I just wanted to say I was actually not being sarcastic when I talked about risk. Maybe I didn't say – I didn't speak clearly enough. What I meant to say was that, especially here on the program, when I'm talking to people who seem to know what they're talking about, the conversation always gets to risk faster than when I'm talking to people who kind of maybe don't, you know... at least aren't practitioners and don’t have the history of having to manage risk.

Michael Gayed:          Sure.

Dan Ferris:                 That's what I meant to say. And likewise, the more sophisticated folks do what you just did. And they get into this, you know... it's really like a discussion of tales, right? Because the tale in that storm is, you die if you don't [laughs] slow down, right? And that's some serious magnitude. Yeah. So, you know, these are – I just want to emphasize this stuff for our listeners. You know? These are good topics, and Mike was taking you down the right road. Look. I know this is a bit random, but it actually is part of the discussion we're having here. I just... you and I need to have a bonding moment over your pinned tweet.

And it's Mark Yusko on Twitter saying, "All cap-weighted index Dow is, it ensures that you will have the maximum exposure to precisely the wrong asset at precisely the wrong time." I love Mark. We've had him with the program. I love that quote. And I love the fact that you pinned that one up there, and you said, "I absolutely love this," because that's sort of – I mean, that's what we're talking about here with all this magnitude stuff, right? Everybody wants to be in the thing that goes up and up and up – those steady gains. And then one day, you know, it's going to cut them in half or worse. And that's where we are. And cap-weighted index got us there, didn't it?

Michael Gayed:          Yeah. I think a few things, right? So first of all, you know, consistency is an illusion. Even though the Fed wants us to believe that it's real. And I think people forget that market cap-weighted S&P 500 is a strategy that has cycles – like every other strategy has cycles. And as Mark Yusko correctly pointed out, it's really at the core in momentum strategy, right? Because it's overweighting the things which are already doing the most... the best, right? In terms of just momentum, in terms of – and we've clearly seen that with the S&P 500 really being driven by just the FAANGs and kind of the top five stocks making up more than 20% of the index, which hasn't really happened in almost forever. Which I think actually, on a side note, creates a large degree of concentration risk that most investors are not really appreciating.

And, you know, the... I have to tell you. One of my great frustrations is whenever people say, "The market," they always refer to the S&P 500. "The market's doing well. The market's gone up. You know, we're underperforming the market." Excuse me, but the market is not five stocks. Which is what the S&P 500, I would argue, has become in terms of what's driving performance. The market technically is every single equity, right? And from that – which includes global equities. And even if you were going to say the market from a domestic standpoint, I'd argue the Russell 2000, small caps, are the market. It's not the S&P.

Unfortunately, because of the media I think there is – they've played up and caused everybody to fall for the availability heuristic. Because all they show is the Dow, the Nasdaq, the S&P. And the average retail investor then associates the market as that because that's what they think about the moment they hear "the market," because that's what's pushed on them by financial media. I think it's incredibly damaging. Because what ends up happening is, to Yusko's point, it results in people comparing everything against that which is actually the most dangerous.

Which is the exact wrong asset at the exact wrong time because it results in this concentration risk which other investments may not have, which may actually be better for those that have a certain degree of risk tolerance they have to be hyper-aware of. So I think there are a lot of things, I think, wrong with the way that the narrative around stocks goes that then creates a false sense of understanding of what's really happening beneath the surface.

Dan Ferris:                 Yeah. And it is false. I mean, the S&P 500 is not the market. It's just a portfolio, and it performs like a portfolio. Like, you know, "What portfolio doesn't have the few, you know, huge winners pulling its performance along?" Right? And to think about it as the market is just, you know... it's a story that they're telling, right? It's not the truth about what the market is. It's just a portfolio that happens to have these five winners that are just blazing hot. It's crazy.

Michael Gayed:          And look. At some point, you know, I think a lot of risks are being underappreciated when it comes to FAANGs and tech. You know, listen. We've got I don't know how many trillions of dollars – $26 trillion was the last time I checked, but I'm sure that probably is ballooning every single second we're talking – on the federal side. So regardless of whether it's Trump or Biden, you know, taxes are coming not just for individuals – and I'd argue very high-net-worth individuals – they're going to be coming for companies.

Dan Ferris:                 Yeah.

Michael Gayed:          And a lot of these tech companies have gotten away with murder with the way these tax rates are effectively zero. So my point in saying is that regulation or some degree of bull's-eye targeting is coming to those top-five stocks. I don't know when. But that is a risk that I think most people are not even thinking about. But I promise you it's coming. Because it becomes a very easy political target to go after.

Dan Ferris:                 Oh, yeah. I mean, that's – Ray Dalio's been telling us this for a little while now. You know? "Get ready for the" – basically the backlash that is very typical at this part of the cycle, right? This is when we get the redistribution of income, you know, via taxes, etc., etc. And there's actually – I wanted to talk more about that, you know, this idea that... you're right. People will – as Howard Marks might say, "People lack an imagination about these FAANG stocks." Right? They simply can't imagine them not continuing to dominate the markets, continuing to outperform everything.

And it is very much like what happened at the top of dot-com. And I think – I forget. I think the five performers there were like Intel, GE, Microsoft, Cisco, and maybe one other that I can't remember. But certainly Cisco, Intel, GE, they have not broken even with their dot-com highs. [Laughs] Right? So people can't imagine that right now, can they? They can't imagine like Facebook or Amazon or any of these things not breaking even with their current highs for 20 years. They should imagine it, shouldn't they?

Michael Gayed:          Yeah. No. And I'll take it even a step further. The question is, "Why can't they imagine it?" I think we have ample evidence from history of exactly that point. You know, "Why is it that people are so sucked into the narrative?" And I think it's a bigger discussion and thought experiment, really, around sort of where we are as a society in terms of attention spans and respecting history and falling for narratives. You know, there was a great study Microsoft had done in the late '90s that looked at... however it was conducted, it was trying to identify the average attention span of a person. I think the study was conducted in Canada. In the late '90s, however they conducted the study, they found that the average attention span was about 12 seconds, right?

For most individual people before they got distracted by something else. They reran the same study a few years ago the exact same way and found the attention span went from something like 12 seconds to, I believe now, eight seconds. I'd argue it's now probably close to six seconds, which is why Vine's – those kind of very quick videos – only last six seconds. My point of mentioning that is that because of technology and all these distractions we have day to day, everyone's attention span is only getting shorter and shorter which means that it's hard to imagine the past repeating itself because we don't even have the ability to even look at the past if all we can do is hold our attention for six seconds on any single topic.

And this kind of extraordinary "short termism" – the idea that this time is different – is I think so pervasive now that it makes me really wonder just how bad the next downturn will end up being and how damaging it will be for individual portfolios, because it goes back to significant concentration risk which, in the S&P 500, has never been this high in five stocks. You know, withholding periods being so short, with attention spans being so short, it's no wonder than when volatility comes in, it's wildly aggressive. It's very different than prior volatility periods.

Dan Ferris:                 Right. And a really particularly troubling aspect of this concentration risk this time around is, it's in trillions and trillions and trillions of dollars of assets that have a one-way... you know, the algorithm is, "Get a dollar of capital, buy a dollar of equity." And the way that reverses is just [laughs] what it sounds like. Need a dollar of cash? Sell a dollar of equity. And what's his name? Michael Green from Logica Funds makes the point that, "You know, Renaissance Technologies has $100 billion under management, and they're really" – for them, the most difficult thing in the world is assessing the influence their strategies have on their market. At $100 billion. And BlackRock and Vanguard have trillions, and they don't care. Like, they don't know, and they don’t care. They don't think about it. So, you know – and we don't know what that looks like when that strategy reverses. But maybe-

Michael Gayed:          I think we know... I'd argue, actually, that we know exactly what happens, right? In the sense that when it reverses, you get your hit to the economy. Because the stock market has gone from a discounting mechanism of the future to a driver of it through the wealth effect. And when that volatility hits because of all this concentration among the big players, the Fed comes in, they do an aggressive amount of interest-rate suppression – which hurts the average American and widens the wealth gap – and the cycle keeps on repeating.

I have to tell you. You know, all this really does at the end of the day – the end conclusion to all this – is a continuing erosion of the middle class and continuing concentration of wealth among, not just the 1%, but 0.1% or 0.01%. All in the name of saving the market and the market being sort of more and more concentrated around just a few firms and players that are really driving assets... to your point. That's a very, very bad thing for the system. And I think that's going to – we're going to have to, you know, deal with that issue probably sooner than later from a policy and macro policy at some point.

Dan Ferris:                 Right, right. The farther it goes, the uglier the outcome gets in that respect. You know, we get even more bigger, more severe calls for redistribution of wealth on the other end of it. Whereas, if we had control of it and didn't get here it might not be as bad. So we're getting to the end of our time here, Michael. And I always end with the same question. Every guest gets the same final question. If you could leave our listeners with just one thought today, what would that be?

Michael Gayed:          Don't put any money with any brokers that have zero commission costs. Actually, quite the opposite.

Dan Ferris:                 What?

Michael Gayed:          Go for the broker that has the highest commission cost. And I'll tell you why. I know this sounds strange.

Dan Ferris:                 No kidding. Yeah.

Michael Gayed:          You know, it used to be a case that people would hold onto stocks. Usually the case that people would hold onto mutual funds, to strategies. And a lot of studies show that the No. 1 reason why investors underperform is one thing and one thing only: overtrading. And the overconfidence that comes from thinking you can buy and sell with incredible – I can't say the word – specificity – there it is [laughs] – that they can get the exact sort of right day and time to buy and sell a position.

And as commission rates have gone down and trading commission rates have gone down, it's resulted in more temptation to overtrade based on gut feeling, right? As opposed to something that's more quantitative, something you can kind of show from a back-test perspective of having validity. The fact that you've entered this world where commission rates are now free and that you have people literally using the stock market as a form of Vegas – to buy and sell without any barriers to doing so – is very damaging to one's investment portfolio. And it's not just me saying it. There are ample studies that show that overtrading is the No. 1 reason why investors underperform.

So in many ways, the best thing to do is to go for the [laughs] broker that has the highest commission, to prevent you from that temptation to overtrade. And I think this is so incredibly important, and it kind of goes back to even this kind of discussion around short-termism. When you don’t have barriers to entry or exit, you end up having the worst of humanity being expressed through the click of a button. Buy and sell, react off of noise – not signal – get emotional because you can always get back in, so why not sell now? I think it's very damaging. And I wish that that were talked about and addressed more in the financial media. The downside of commission-free trading is, it actually makes people do the wrong thing at the exact wrong time.

Dan Ferris:                 I think that is very – that's a very wise thought to leave us with. I totally agree. It's become a casino. And this is basic Michael Porter competitive strategy. Like you said, you lower the barriers to entry, and the competition goes through the roof, and it becomes impossible to get an advantage. Brilliant. Thank you. That's excellent. We are going to have to talk with you again – I just know that – all day long. So maybe in six or 12 months you can come back and tell us what you're thinking at that time.

Michael Gayed:          Always happy to.

Dan Ferris:                 All right, Michael. Thanks very much, and I guess it's bye-bye for now.

Michael Gayed:          All right. Appreciate it. Thank you.

Dan Ferris:                 OK. That was a lot of fun. I hope you enjoyed that as much as I did. I've been wanting to talk to Michael for a while. Like I said, just never got around to it. And you better [laughs] believe we're going to get around to it again someday. Because I personally got a lot out of that, and I hope you did too. And of course, you know, if you got a lot out of it write into [email protected] and tell us about it. All right. Let's look at the mailbag. [Music plays and stops] When my friend and colleague Steve Sjuggerud talks, I listen. Steve predicted the rise of gold in 2003, the top of the dot-com bubble in 2000, and he even called the bottom of the Great Recession in 2009.

Steve is once again pounding the table on a new prediction. He believes that a mania will hit the U.S. stock market and take most investors by surprise. He said that thousands – if not millions – of dollars will change hands as a result of the anomalies he found in the market. If you want to find out how you can profit from Steve's prediction, he has laid everything out in a video that just went viral. Go to www.investorhourtruewealth.com to watch the video and find out how you can profit in this roller coaster of a market. I watched it, and what Steve found is astonishing. Again. That's www.investorhourtruewealth.com.

OK. It's time for the mailbag. In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Just Send your questions, comments and politely worded criticisms to [email protected]. I read every word of every e-mail you send me, and I respond to as many as possible. I got one e-mail of somebody who said that I was too rude. I broke my own rule about being polite. I'm only human, but you're right. I did. I think I would probably do it again under the circumstances. It's on Episode 158. I'll let you decide. I'm on the fence. I hear you. But, eh, I don't know.

All right. First this week from Nita S. – which I think that's like short for Anita, Nita S. And Nita S. says, "Of course the government won't go to your house and steal your gold. They will just make it illegal to buy or sell gold in the U.S. How can you trade gold for food if there is no place to turn it into dollars?" Well, you can trade it for food, Nita, if it's illegal to own it because people need food, and people under those circumstances might not – might not – want U.S. dollars. Let's just say that's the scenarios.

And so, what'll happen? Black markets will crop up. I just started... on the plane this weekend, I started a book called Alongside Night by – what's his name? J. Neil Schulman, I think is his last name. Science-fiction book about the economic breakdown, the moment of economic breakdown, in the United States. And there's black markets for everything. The black market is where everybody gets the stuff they really want. And there are no shortages in the black market. And in the regular economy, there are shortages. It's a really interesting book, and it's a fun book so far too. But you got to learn to imagine those scenarios, I think. You don't want to be short on imagination as in investor. That's my answer. I think black markets would crop up.

And if the U.S. dollar really tanked and the government clamped down really hard, you'd still be able to buy things from people with gold. Bob writes in. And Bob says, "Hi, Dan. I'm a lifetime subscriber to Extreme Value. Thanks for all you do. I have a bit of a different question for you." And then, he describes something in his individual IRA that I don't want to get into because I don't want to be misconstrued as giving personal advice. But I'm sure I can do this without giving the individual personal advice that we just don't give.

Because his question is, "Would a Debt Jubilee " – he says, "I keep hearing talk about a possible Debt Jubilee. Would a Debt Jubilee impact my CDs?" His certificates of deposit. "Could I lose my principle if this happens even though they are FDIC insured? What is my exposure here? Thanks for your input. Bob." I think your basic exposure is just U.S. dollars. It's my opinion that the most realistic scenario for Debt Jubilees in the United States... individual Jubilees in like – you know, you could easily see one in education because it's a big political issue, and you have people like Elizabeth Warren and Bernie Sanders and other people talking about basically forgiving all the student loan debt.

So I think that would probably happen. I don't think you'll see other big Debt Jubilees because we live in a fiat-currency regime. So the government can print all the money they need, and that's really how debt gets, you know, effectively kind of jubilee or canceled. It gets inflated away, right? I think that’s your exposure. Your exposure is U.S. dollars. So whatever that means for you, Bob, that's all I can give you. Now, the next question is too long. I probably shouldn't read it, but I'm only human. So I'm going to because he likes me a lot. [Laughs]

And Bret R. writes in and says, "I plan on writing a general response in thanks to the Stansberry crew for this past Town Hall event." We do that for our Alliance members. He says, "However, I wanted to direct some specific gratitude and kudos to you. I have to say that your performance was exceptional. It may be due to your practice on this podcast. I thought your explanations on your cover topics were thorough and well-essentialized, especially your response to the macro question about the dollar's reserve status." And he continues in a similar vein. I won't read the whole thing.

And he's telling me that he avoided some of my picks because of my counsel to kind of ignore the macro most of the time. And he says now that he thinks I understand the macro better, he's going to go back and reconsider some of my picks in Extreme Value. Which Alliance members get all our newsletters, so he gets Extreme Value. Thank you, Bret R. Next, Jeff K. "Mister Ferris, have you ever looked at adding National Beverage Corps" – ticker symbol FIZZ – "to your recommendations? I plan to hold my shares indefinitely. Here's what I like best about the company. While the company's executives and directors as a group own 75.2% of the common shares, just the founder and his son own 74.4%. They are fully committed. Sincerely, Jeff K."

You know something, Jeff? I have heard very, very smart investors – Chris Mayer is one of them. We've had him on the program. Hope to have him back soon. He likes, you know, owner-operated companies. That's basically what you're telling me. National Beverage Corps is an owner-operated company that you can, you know... that the rest of us can buy some shares in. And I agree with your basic premise. I won't comment on the company specifically, but I think your basic premise is spot-on. Absolutely. Next, Peter H. writes in. Peter H. says – I can't answer your second question because it's too specific. It's about a recent Extreme Value pick. So sorry. My answer to that question, Peter, would be yes. [Laughs] I'll just tell you that.

But the first question is more general for everybody. And Peter says, "Hi, Dan. I like your podcast so much I recently bought your newsletter. Thanks for all your great work. I had two questions. The first was your thoughts about cryptocurrency. I have heard a number of value investors like yourself recommending a small investment in bitcoin, which I have done. But I have heard other value investors say not to invest in bitcoin or other cryptocurrencies because the Fed will at some point create its own cryptocurrency which will make all other cryptocurrency worthless. Wondered your thoughts about that. Thanks again for your great work. Peter H."

Thank you, Peter. Welcome to Extreme Value, by the way. I disagree with those other folks. I think the Fed can do anything it wants, and bitcoin is going to be an extremely well-managed currency. Let me ask you this. [Laughs] Given their track record with the U.S. dollar – which I think is down about, you know, 96% or 97% since they started up actually in late November... I think it was November 1914, not 1913 as is often believed. But they actually started operations in late 1914. Since that time, [laughs] the U.S. dollar has been destroyed.

And, you know, I got to wonder – what – are they going to be better at the cryptocurrency because they have such a great track record with managing currencies? I don't think so. Bitcoin, on the other hand, was created specifically to address that problem. And so, it's a pure market animal. It can't be shoved down your throat. So it has to be well-managed, or it's gone. Good question, Peter. Thank you. Romeo B., a frequent correspondent.

Hey, Romeo. He says, "What is your take on stock yield enhancement programs where investors lend shares to their brokers in order to earn additional income? It sounds great, but also a bit of a financialization sign-of-the-top type of thing. Second question. How strict are you in analyzing company's debt? There are a lot of businesses out there – some world-class – that can easily service interest payments. But the total leverage is really not that sexy. Thanks for sharing your knowledge as always. Romeo B."

I don't think that lending your shares is some big sign of the top thing. Maybe it is. I haven't thought about it that much. But I will entertain this scenario. It's possible, right... when you loan anything, your risk is just getting it back. So maybe there's some scenario where the counterparty fails – like the brokerage firm fails – and your shares are tied up extra long, and you can't get at them for a while because you've lent them out... maybe? I don't know. I think these are your assets inside the financial system, and in my opinion, you need true diversification in precious metals and bitcoin to hedge your inside-the-financial-system assets because of precisely all the unknowns with things like lending shares.

You know, you don't have to predict what could happen. You just want to be hedged against it with true diversification. Next question. You know, "How strict am I with analyzing company's debt?" I look at it two ways. There are two kinds of good balance sheets: one kind of good balance sheet, which we found again this month in Extreme Value, is more cash than debt. And the company we found has enough cash that they could pay off all their debts and still have $400 million in cash leftover – which, for a company their size, is substantial.

So that's a good balance sheet. Another kind of good balance sheet is, as you imply, a company that could easily service their interest payments and whose revenue and earnings in cash flows we believe are solid and safe enough that we're comfortable recommending the company with, you know, more debt than cash at that point. There are many of those out there, I think. There are a lot of really great business that have used debt wisely or semi-wisely [laughs], and they will easily service their interest payments. And I don't think they represent a huge risk necessarily.

But you're right to think of it that way. It’s not that sexy a lot of the time. And probably, there are more companies that people think, "Ah, they're just find," that are not fine. So it's a good question. OK. Next, we're going to hear from Jeff the Viking in Victoria, Australia. This is [laughs] awesome. He says, "Greetings, Dan. Longtime listener and subscriber writing to you from under virtual house arrest, Down Under, in Australia."

And he lives in Victoria, and he says, "Chairman Dan Andrews. Dan Andrews is the premier of Victoria." And he's calling him chairman like Chairman Powell." He says, "Chairman Dan Andrews, state government, has now gone full police state authoritarian, centrally control-everything. And like monkeys throwing feces, they just don't know when to back off. You may be astounded to know that a friend of mine playing guitar – he is a professional musician – in his own gated front yard yesterday was raided by the police and told to desist upon threat of a hefty fine under COVID laws – to keep everyone safe, of course."

"On an even more ominous note, the authorities have closed my safe deposit box facility for six weeks – to keep me safe, of course. Traveling to visit my elderly parents involves negotiating with police roadblocks, registration plate cameras, helicopters and drones – risking huge fines and a very real risk of public shaming in the media – to keep them safe, of course. My girlfriend was in another state when most state borders closed, and I won't be allowed to see her until at least December. The police force have also just decreed that anybody breaking COVID-19 regulations such as failing to wear a mask while wheeling out my rubbish bin can have their firearms confiscated and firearms license revoked."

And he includes a link to the story. "How would that go down in your neck of the woods, Dan?" Well, I wouldn’t like it very much. But he finishes up. He says, "Fortunately, I hoarded plenty of spare guitar strings along with enough wood and tools in my shed to begin constructing a functioning guillotine. Keep up the awesome work. Jeff the Viking. Victoria, Australia." Thank you, Jeff, and good luck down there, my friend. It sounds like you're going to need it. Wow. OK.

Shawn P. has a real question here. He says – or, no. I'm sorry. This isn’t a question. He says, "Thank you for all you do, and particularly the insightful guest you bring to your program. I needed information about how I could turn my physical cash savings into gold, silver and bitcoin." Oh. "I also want to know if Stansberry Research has such platforms, because I clearly see that our currency is about to crash into a valueless piece of paper. I hope to get a response for you, anytime. Once again, thank you for your podcast. I've never missed it since I discovered it early this year. Thanks. Shawn P."

So there is a question. Yes. That's why I included you, Shawn. It's easy to turn physical cash savings into gold, silver and bitcoin. I use coin base for some of my bitcoin cryptocurrency transactions. It's really easy to use. But, you know, I'm not saying – I'm not endorsing it. I'm just saying that's the one I use. And gold and silver, you've got to have some kind of a coin shop somewhere near you. And, you know, I've bought – I've personally bought American Eagles and Krugerrands and gold Maple Leafs. Any of those coins can work in gold or silver.

And silver rounds – I just buy silver, 1 ounce... what they call rounds. And there are other things you can do. There are physical trusts. I recommend publicly traded physical gold and silver trusts that are an effective ownership in physical gold and silver. But you can buy as little as, like, one share that might cost only $15. So there are different ways to do that, and it's pretty easy. If you have a brokerage account, you can just go into the stock market and buy shares of a publicly traded physical gold or silver trust. So it's easy. Just start where I just told you, and you'll find your way.

Tony C. writes in and says, "I love your podcast. I've learned so much about the world of investing from you. Thank you." Well, thank you, Tony. She continues. "My question is this. I own some physical gold and silver. I own gold and silver ETFs, gold- and silver-miner ETFs, as well as a few gold company stocks. If the gold – if the stock market does indeed drop significantly, I understand this would include ITF's. Would this also include gold and silver ETFs, or would gold and silver ETFs follow gold and silver market prices? Hope my question makes sense. Thank you. Any help you can give me on this. Tony C."

I think the big publicly traded gold and silver trusts will follow the price of gold and silver. As we've seen, that can fall – when everybody wants cash, they'll sell anything, including precious metals and bitcoin, right? In those moments when people are panicking. But what has tended to happen, like in the 2008 to 2009 crash and more recently this year is that you get that big sell-off, everybody just starved for cash... it's like oxygen, and then, the gold and silver tend to outperform in the recovery.

Because people are getting scared. They think the Fed's going to print lots of money, which of course they've done. And so, they want more protection. So I tend to hold my gold and silver through those and add to when, you know, you get lucky enough to get a good drawdown like that. Good question, though. I'm going to – I've gotten it before. I'll get it again. I'll answer it as often as I think need be. All right. We've got three more of these. "As an Alliance member" – this is Harold S.

He says, "I always enjoy your weekly podcasts. Keep them coming. I need your help in explaining to me this confounding fact." This is a great question, folks, by the way – from Harold S. He says, "Fed Chair Powell has stated interest rates will be held at their existing low rate, and at the same time every effort will be made to increase the inflation rate. In fact, he stated the Fed's aim is to let inflation run hot to make up for the past/present low rate."

"I take this to mean the Fed will have no problem watching the nation's real interest rate become a negative 4% to 5% for an extended period. Am I reading this correct? In addition, we both know the actual inflation rate is already much higher than the Fed's 2% target. Are we being set up to be looking at a negative 8% to negative 10% real interest rate not too far in the future? How can this be market-bullish? I would appreciate your comments and advice on how you read Mister Powell's Federal Reserve. Howard S."

I assume you mean stock market-bullish. So this is a good question because if you're going to let inflation run hot, well, interest rates go up when inflation runs hot, right? Yeah, they have during inflationary episodes in the past. And it makes sense that the government will try to jack up the rate to make the currency more attractive as it actually [laughs] becomes less attractive, right? The people – they try to save the currency by making it less attractive. But certainly, the famous example is the '70s, Paul Volcker... talk about just slash-and-burn, and an amazing effort to make the currency attractive once again. Man. Rates topped out, I think, in 1980 or 1981 at like 15% for Treasurys.

So yeah. that made the currency more attractive. Inflation was crushed. You know, end of problem. So it's a great question. How does it play out? I don't know, Harold. I think they – I think what happens is, they keep rates as low as they can for as long as they can. And that just – to a certain extent, they push on a string because you can increase... the Fed can increase bank reserves. They can go and screw around in the securities markets. But they can't make people borrow money, and they can't make people spend money.

But eventually, people get concerned enough that they start buying things like gold and silver, and they start wanting to hold fewer U.S. dollars. And, you know, they start spending money on things that the Fed doesn’t want them to spend money on, like just any asset that will maintain its value. And an inflationary environment can be a really hot economy too. So there are different scenarios that could take place. Once again, could we wind up with negative 8% to negative 10% real rates in the United States? Sure, we could. That's one possibility.

We could wind up with negative rates here. That's the end – I think it's part of the endgame insomuch as there is ever an endgame in financial markets of the Federal Reserve policy which is basically – as we talked about in a previous podcast – the Bank of Japan playbook. And they push their rates negative. So if the Fed's doing the same thing – you know, buying debt, buying corporate debt, maybe eventually buying corporate equity – it stands to reason that, yeah, negative interest rates will happen. And that could cause a real surge – like we haven't already had one, right – in asset prices. Great question. Be truly diversified, Harold. [Laughs] That's my ultimate answer.

OK. We've got – let's see. Lifetime subscriber Andy F. here. "Speaking as someone on the institutional side of the financial world, I can say with 100% certainty to your listeners that Mark Putrino nailed many vital concepts; one, moving a volume of shares is not easy. Buffett explains if you started with $1 million, he could generate 50% annualized returns. And Andy is implying partly because he doesn't have to move a lot of shares. No. 2: Have a plan. Stick to the plan. No. 3: The pathway on professional returns matters. Drawdowns for a personal account need only be answered by you. Go try that with other people's money. It won't work."

"There is one subtlety I want to mention. Mark is a contrarian, and he is looking at fading the lumber rally." Remember, we talked about this in our interview with Mark Putrino. And Andy continues... "Over the years, I have learned that being an independent thinker is more important than being a contrarian. The distinction is that I've lost or not made as much money fighting the trend. The trend is very powerful, and it's there for a reason. Don’t fight it or look for opportunity on the other side unless you see a much greater opportunity with a catalyst that few are seeing. Keep up the great work. Andy F."

Thank you, Andy. I think all that speaks for itself, and I appreciate you writing in. Finally, we get to our last question. I hope you have enjoyed this. I enjoy the mailbag. I really do love it. I hope you get as much out of it as I do. Last one from Tim D. He says, "Dan Ferris. The content of your program is very good – especially your rant. However, the quality of your presentation leaves a lot to be desired. Suggest you eliminate the phrases "you know" and "ya know" from your vocabulary. Would help a lot. Tim D." Well, you know, Tim, I've thought about this. You know? And, you know, I think you're right. You know what I mean? It's a process, and I'll work on it. I agree with you. You know?

All right. That's it for this week. That's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. Do me a favor. Subscribe to the show on iTunes, Google Play or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. You can also follow us on Facebook and Instagram. Our handle is @investorhour. Also, follow us on Twitter where our handle is @Investor_Hour. Have a guest you want me to interview? Drop us a note at [email protected]. Till next week. I'm Dan Ferris. Thanks for listening.

Announcer:                 [Music playing] Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail: [email protected]. This broadcast is 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 copyrighted by the Stansberry Radio Network.

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