Episodes

Dan Ferris:                 Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin:    And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today we talk with KraneShares' Chief Investment Officer Brendan Ahern.

Dan Ferris:                 Brendan is actually an old friend of the firm. Steve Sjuggerud met him many years ago. They went to China. Steve learned all about the firm. He liked what he saw. And it's no wonder that he liked what he saw because you're about to find out that Brendan is a great guy, very knowledgeable about China and investing in general. And so, let's do it. Let's talk with Brendan Ahern. Let's do it right now.

                                    Brendan, welcome to the show. It's good to have you here.

Brendan Ahern:          And many thanks for the opportunity, Dan and Corey.

Dan Ferris:                 Yeah. So, I'm intrigued by you just because I don't know what the chief investment officer of a company like Krane – and when I look at KraneShares, to me KraneShares is like the China ETF company, so what does the – what does someone in your position at such a company do? I just – I honestly don't know.

Brendan Ahern:          That's a great question, actually. I think ultimately, yes, we are an asset manager focused on investing in growth equities within China and broader emerging markets. But I think the most important thing we do is try to provide a balanced, data-driven perspective on what's happening in China's economy and capital markets. We don't – we're not into selling greed or fear or apocalypse. We don't use hyperbole and exaggeration. We're data junkies. And we want to provide that to investors so they can make a rational decision whether or not to invest with us or not. And we're small business owners. We've built something from zero.

                                    And so, we are also very, I think, up front with people about the volatility of investing with us, that things can go well but they can also not go well. Emerging markets inherently are very volatile. But it's really about the data and the research. And we go to China. We meet with the – we meet with the companies we're invested in and we try to provide those perspectives where I think in general Western media is a source of disinformation. It's not a good source for what's going on over there.

Dan Ferris:                 Right. So, I have to ask Corey: He's not selling fear and greed. Do we even want to talk to this guy? I mean, come on. Do we have any use for this?

Corey McLaughlin:    [Laughs] Yes. I mean, I have a lot more use for him myself. But yeah.

Dan Ferris:                 Yeah, I know. We have more use in fact. And what you just said about Western media versus getting information from China, that's – you're in. We definitely want to know more.

                                    Of course, we should probably gradually get to this but I can't help myself. I can never help myself. So, if there are other things you want to get to, fine, but China's central bank did some stuff recently, huh?

Brendan Ahern:          They – finally. Finally.

Dan Ferris:                 And I feel like they – the equities took off like a rocket. So, something big is up in the market.

Brendan Ahern:          Yeah, yeah, yeah. Yeah, I mean, finally the PBoC and – they clearly waited for the Fed to cut rates. That's very clear. And why did they wait? Well, currency movements are driven by interest rate differentials, so by waiting for the Fed to cut it didn't – if they had cut before the Fed, the renminbi, their currency would've de-appreciated versus the dollar and U.S. politicians would say they're manipulating their currency. So, they actually waited for the Fed and then are following suit by cutting broad measures of interest rates.

                                    But I think it doesn't really have much to do with the U.S. economy or U.S. They're doing this because the situation in China has gotten not dire – it's gotten – but it's not going great. And they're finally coming up with a prescription to a number of problems that have weighed on the economy, on their stock market, on their real estate market, and on consumer confidence. So, the end citizen in China has kind of been giving the government the thumbs down, and this is the first movement, last Tuesday and Thursday, of getting off the proverbial pot.

Dan Ferris:                 Do they get their thumbs cut off when they do that in China? I mean, are they allowed to do that in China?

Brendan Ahern:          The government – I think the government is attuned to public sentiment. And there's examples of that. A lot of the reduction in pollution in China, particularly in Beijing, is because people got angry. People were like, "It's snowing in summer. And that's not snow – it's ash. I can't look across the street." And that was the case eight years ago, nine years ago. That's no longer the case. And I'm – I had asthma as a kid, and I actually jogged in Beijing four years ago and it just shows – so, they are aware of the public's view.

                                    And every government globally, if there's economic demise, you get fired as a politician. That was true with Boris Johnson or President Trump because of the collapse of the economy because of COVID or Asian tigers in the late '90s. When there's economic collapse, there is regime change. And that's true in China. That's true in China. So, the government is acting because of very, very low consumer confidence in China driven by the falling real estate prices.

Dan Ferris:                 Right. We're not saying we expect President Xi to give up his lifetime appointment.

Brendan Ahern:          No.

Dan Ferris:                 We're just saying that they changed their actions to respond to the people.

Brendan Ahern:          Correct. Yeah.

Dan Ferris:                 The reaction to – well, there's two things really in the PBoC's action here. One of them, of course, is the sort of promise to do more. I forget the guy's name. Xiao Feng? Do I have – or –? The PBoC governor's name.

Brendan Ahern:          Yeah.

Dan Ferris:                 But he said –

Brendan Ahern:          I just say Pan.

Dan Ferris:                 He really made it clear, "We're going to do more –" Who?

Brendan Ahern:          Pan Gongsheng.

Dan Ferris:                 Gongsheng, right, is what I was trying to – Pan. OK. We'll call him Pan. He sounded like "We're going to do more and more and more." The promise was for more. And the market seems to have taken it very, very seriously. And I mean, some of these things are just up 20%, 30%, 50% just like that.

Brendan Ahern:          Yeah.

Dan Ferris:                 What do you make of that? Is this an overreaction? Are you shocked at the reaction? How do you take it?

Brendan Ahern:          Well, I think there's – I mean, what they did is they talked about – they cut all these interest rates. They really are very focused on stabilizing real estate prices because two-thirds of urban household wealth is in real estate, and that's why consumer confidence has come down. And that's why domestic consumption has been so low. So, if you can get property prices up, you raise consumer confidence, you raise domestic consumption.

                                    But they also said, "We want to raise the stock market" because the stock market is like an indicator of animal spirits, of consumer confidence. And the PBoC said, "We're going to give 500 billion RMB –" so kind of divide by seven and that gives you the dollars, so we're talking about almost $7 billion – but to insurance companies, brokerage firms, and mutual fund families to buy stocks. "We'll just give you $7 billion. And if that doesn't get the stock market up, we're going to give them another 500 billion RMB. And if that doesn't get the stock markets, we'll just give them more."

                                    So, it's like you have this huge flashing green light. That is mainly focused to Shanghai and Shenzhen stocks. And this is like where – this is self-serving and highly biased as an asset manager. This would be like KBAs or Chinese As – so, Chinese A-shares are Shanghai/Shenzhen stocks. So, this is very much directed to the mainland China stock. Shanghai/Shenzhen, 95% owned by investors in China.

                                    Now, there's also Chinese companies in Hong Kong, and they've had a really, really strong reaction. That – and then you have the U.S. ADRs as well. And that reaction has been very, very strong, partially driven by – up until two weeks ago – Bank of America does a global portfolio manager survey and they say to mutual fund managers, "What are your favorite trades?" The No. 1 trade was Mag Seven and the No. 2 was short China. And so, a lot of that short selling was in Hong Kong in ADRs. So, offshore China. This is, again, the self-serving asterisk part, KWEB, contrasting KBA and KWEB.

                                    So, those investors, hedge funds, or those investors who were short China just got run over. They're going to get carried out. But more importantly, why you're seeing this reaction is that investors globally have been very underweight China. China's economy is $18 trillion GDP but India at $3.5 trillion actually was a bigger part of global indices at $3.5 trillion. Does that – I mean, that makes no sense, but it just shows there's this incredible underweight to Chinese equities globally. Some of that money that came out of China and went into U.S. tech or India or Japan. And what you're seeing is a re-rating back in.

                                    And that's where, yeah, we've had this incredible reaction. There's going to be pullbacks and corrections. But I think if you believe they're going to stick to this stimulus, and we only saw monetary – the fiscal is still coming. The fiscal details are still pretty vague. That's still coming. If this re-rating, we're talking about a lot of money coming back into China, not today or tomorrow but in the next months, quarters, and years where in general people have really been underweight U.S. stocks – non-U.S. stocks in general. And so, this re-rating will play out over time, but you see this immediate reaction from the fast-moving crowd. And that's – not a lot of people can move that fast.

Dan Ferris:                 Yes. So, I want – the idea of underweighting, the $18 trillion versus $3 trillion in India, that intrigues me because if that's every fixed, look out. I mean, that's a lot of capital.

Brendan Ahern:          It's – and yeah, the –

Dan Ferris:                 It sounds like it de facto fixes itself, though, to a certain extent.

Brendan Ahern:          It'll rectify itself, I think. But it'll take time, Dan. That's where – listen, a hedge fund can change its opinion, or an individual investor, but think about the pension funds and endowments and –

Dan Ferris:                 Exactly.

Brendan Ahern:          They've got to get the investment committee, and that might be every quarter. They've got to talk to their trustees or their director. And that's just not U.S. That's global if it's – and that's why I'm more constructive of – in the long run, that if you know more fiscal support is, that supertanker of underweight, it doesn't turn on a dime. It'll take time. And some of the problems in China aren't going to solve themselves overnight. Real estate is an issue. And they're starting to fix it, and there'll be ups and downs in that effort.

Dan Ferris:                 And there is – correct me I'm wrong here – there is genuine oversupply in the real estate. I mean, that's not – that's real.

Brendan Ahern:          It's very real. China has urbanized over the last 40 years, moving people out of rural areas into cities in order to raise their standard of living, giving them access to health care and education. And that's led to this overbilling. The only thing I can think about, Dan, is it's like – my mom is from Denver, so I've been going to Denver for almost 50 years. And if you know Denver, you used to fly into Stapleton Airport. The Brown Palace was the nicest place to eat in Denver and we'd drive up to Boulder to see a CU game where my mom went to school – go Buffs! And there was nothing in between Boulder and Denver. And then, people discovered what – Denver is a beautiful place to live, and they started building and the city got bigger and bigger and bigger. And now it goes all the way out to Boulder. It goes – they put DIA, the airport, out in the middle of nowhere. Now the city goes all – and that's like 130 cities in China because hundreds of millions of people coming out of really poor – coming in, and that's where – if you know these cities in China, you always – you just – China just minted instant millionaires in real estate. It's like the broken slot machine. It just…

                                    And for the first time ever, because of the concern about over-levered developers in China, that ended. The music stopped. And that then led to property prices falling. For the first time in people our age's life, real estate didn't go up. And that's really weighed on domestic consumption and consumer confidence, which is hurting the economy, which is why they're doing this pivot, really a 180 to try to get real estate prices up.

Corey McLaughlin:    That's what I was going to ask you about. Obviously, the stimulus, it's big. How do you think it "works?" Or what's the – and is this it? I mean, are you just anticipating kind of just this is the stance of the central bank there for a long time going forward?

Brendan Ahern:          I think why we're constructive, Corey, is that we've really seen the monetary policy bazooka where they've cut interest rates, a whole host of interest rates, interest rates related to intrabank lending, the deposit rate, the mortgage rate. They've removed a lot of the home purchase restrictions. They've cut the amount of money necessary for a down payment. They're allowing this massive refinancing of all mortgages in China to put money back into households' wallets, so to speak.

                                    But what we've only seen the start of is the fiscal stimulus. And on the fiscal stimulus what they've said is "We're going to provide subsidies to auto purchases" – that's hybrid and electric vehicle but also ICE, internal combustion engines. "We're going to provide subsidies for people to buy new home appliances" – refrigerators, air conditioners.

                                    But it's only really the start. And what we think will come out over the next several weeks is them really saying, "We're going to put one and a half to 3% of GDP into stimulus geared to raising domestic consumption." Domestic consumption has been very tepid in China. Households have lost money on part of their portfolio, their real estate portfolio. So, they're – they still have money – M2, bank deposits in China is like this. But they need to get people to put money back. They need to get people spending.

                                    Now, why they're doing that, which is kind of interesting, is because what's worked in China has been export-driven manufacturing ,and now they see their biggest client, the U.S., is cutting interest rates. The Fed is saying, "Hey, the U.S. economy is slowing." And so, they know the demand for export-driven manufacturing from China to the U.S., and some of that might be through Vietnam or through Malaysia, Indonesia, or Mexico. So, how do – if they know part of their economy is going to slow because of the global economy slowing, they need to raise domestic consumption, which is why they're pushing this button right now. And I think what's interesting is everyone thought they wouldn't do anything before the election, but they don't – I don't think they care about the election. They care about their own economy.

Corey McLaughlin:    Yeah, which gets to another point that you raised right at the beginning about how the Western view on China just in general is – it is what it is. I mean, you can explain it. But that's kind of my question to you, is what does the Western media and even investors and analysts, what are the top two or three things that they get wrong and have wrong about China?

Brendan Ahern:          I think one, U.S. businesses are doing really well in China. And every U.S. investor is implicitly invested in China. If you think about Tesla, 25% of revenue, or Apple, 16%, or ExxonMobil, 12%, Qualcomm, Texas Instruments, upwards of two-thirds. So, businesspeople and investors have been getting along just fine and the diplomats have both sides have not. And I think the media plays with some of the – what D.C. wants. But I think that should make every investor nervous. It should make every – if these politicians can't get along, that's a big problem because a lot of U.S. companies are really dependent on China. We in the West, we outsource our pollution to these poor people, if it's India or China. There's no coal smelters or rare earth processors here in the U.S. for a reason, because it turns the environment into the dark side of the moon. And that's never coming back. And God help us if – it should scare people to be like "Oh, we want to process rare earths here." You go out and see what that's done to the environment, you'd think twice.

                                    So, I think there's a lot of political rhetoric that's not really economic reality. And it's like tariffs. The Chinese government doesn't write – Chinese companies don't – Walmart, Home Depot, Costco write the tariff check to the U.S. Treasury. And a lot of that stuff we can't build here, we shouldn't want to build it here. And I think China exports deflation. We're a beneficiary to that.

                                    So, I think the – again, some of the narrative doesn't really fit the data. And that should make every investor nervous a little bit. If you own Apple or Nike or Boeing or Caterpillar, no China, big problem.

Dan Ferris:                 Right. On the other side of that, some years ago, I don't know how long ago it was, I came upon a book called Asian Financial Statements. And the basic idea was "Don't trust any of them." You've got to be extremely careful. What is that like? Do you have – are there standard problems analyzing Asian financial statements? And you can by all means focus on China.

Brendan Ahern:          Yeah, yeah. I think there's – things are improving. Big U.S. accounting firms are doing the books on particularly the Hong Kong and U.S. ADRs today. And yes, that's their China subsidiary. So, I think the trajectory of improvement is there. The government is pushing for more corporate governance. It's been part of our counsel to investors, is to be diversified, that there can be problems with individual companies. Evergrande was audited by a big US Four accounting firm. So, that's a little bit self-serving again because obviously we provide baskets of exposure. But there's an argument for being diversified to try, if there is a bad apple, that it doesn't sink the proverbial ship.

                                    But I think the trajectory is improving. These – a lot of – what's probably missed a little bit is the role of U.S. private equity in China and emerging markets, that a lot of these companies that we're invested in were funded by U.S. companies. U.S. private equity, venture capital that went into China in the early 2000s and became the Alibabas and Tencents and others. So, those companies have had to deal with a Western investor mindset, which is why they act differently than – in mainland China it's been more of the domestic investor is the main investor. So, that investor's not quite arguably to the same standard, which, again is why, we recommend being diversified, particularly on that onshore China space.

Dan Ferris:                 What do you make of David Tepper's comment – David Tepper, a famous fund manager who has been in the news about China recently. He was asked what he's buying in China. He said, "Everything." As someone who sells baskets of Chinese equities, that should make you pretty happy.

Brendan Ahern:          It's been a great validation to hear the enthusiasm to – from such a legend of our business. And again, he's a hedge fund, so he can hedge. And he can move really quickly. But I think he started coming into the space, to his credit, probably about two quarters ago. And he's – you can see his 13Fs. He does publicly file. So, he was early. And that's part of what, I think, makes him a legend. Part of his reputation is to be a contrarian. And I think that's part of his great, great reputation, is going against the grain, which the media is telling – probably saying he was out of his mind, and he went and did it. I tip my hat to him.

Dan Ferris:                 Right. So, spelling out a question a little – a more specific question from that is just the idea of buying everything, is there something you like – I guess the real question would be is there something you like better than something else in China right now? Or is it really – because of the nature of the easing and everything and the fiscal stimulus to come, is it like you're just buying China, you're buying the baskets?

Brendan Ahern:          Yeah, yeah. I think, Dan, I would say you're buying beta. You're just – you want to buy the market. And I mean, on Monday it was amazing. Of over 5000 stocks listed on the Shanghai and Shenzhen stock exchange, four went down.  I mean, four. You're just like –

Corey McLaughlin:    I feel bad for those four.

Brendan Ahern:          I mean, over – I was going to look, what were those four names? Over 5,000 –

Dan Ferris:                 So, a somewhat broad rally.

Brendan Ahern:          Just a touch. Just a smidge. And it was very – Hong Kong doesn't have nearly as many stocks listed there but it was similar. Literally, no stocks went down. And so, that's, I think, what Tepper was just saying. You just want to hit the side of the barn. Can you imagine being the guy or gal that their definition of China was one of those four stocks that went down? So, I think he's just saying own it all. I think where we would – our communication to investors is like you've got this onshore China, Shanghai/Shenzhen, and then you have this offshore, Hong Kong and the ADRs. And this is where we kind of say KBA versus KWEB. And again, there's a lot of other China ETFs from competitors out there, so don't just look at our stuff.

                                    But where a lot of that PBoC governor was saying was for the KBA names, where he was saying that is what the Chinese government really cares about because it's the domestic investor. It owns those same stocks. And then, you have foreign investors, they really want these growth stocks like we hold in KWEB, the Alibabas and Tencents and Meituans. And the foreign investors will kind of come back to those growth names in Hong Kong. And so, I think as an investor you have to think about – and self-serving, I own them both because I can't predict which one's going to do better. I've lost a lot of money over the last three and a half years in them both and I'm not quite back to even but I'm getting there. But I think you'd have to say what's going to drive this?

                                    And I think there's arguments for both camps. But they're not interdependent. They're very different investor bases so they can do very different things. And I think you'd say the domestic investor in China –

Dan Ferris:                 Actually, Brendan, before you go on, though, the names overlap? Are we saying the names don't overlap or they do overlap, they're just dramatically different investor bases? 

Brendan Ahern:          They don't overlap. They do not overlap.

Dan Ferris:                 OK. So, the names don't overlap. I got you. All right. Here we go. That's good.

Brendan Ahern:          Yep, they don't. And then – and there's no fungibility. There are a smaller set of companies that are dual-listed but there's no fungibility. You can't switch back and forth. And that's part of why they move so different. And so, you kind of say is the domestic investor going to get really excited? And I would say I think so. And back in 2014, 2015 you had a big, big bull market in mainland China. It got a little out of hand in terms of leverage. They're not going to let that happen again. But I also think foreign investors are really, really underweight in China. And just some of that money coming back in, it's real money. And that will take time. That'll take time.

                                    And Dan and Corey, I have to say China has done – made huge policy mistakes over the last few years. Huge PR blunders. It's just – there's a lot of things they've done that is why these stocks have done so badly, why they're so underweight, and they're arguably trying to change some of that. Some of the political stuff in D.C. and – that may or may not go away. It's hard to say.

Dan Ferris:                 Right. Do you have any view on the prospects for war in Taiwan?

Brendan Ahern:          We've been – I think the most important thing is that China saw what happened to Russia, and that is why we don't believe they will invade Taiwan militarily, that China's economy is very geared towards the West, that they're very dependent upon export-driven manufacturing. And Russia had nothing to lose because it's not integrated in the global economy. I mean, yes, they've got oil and metals. China cannot afford not to export to Europe, to the United States. Their economy would just collapse.

Dan Ferris:                 Sanctions would kill them. Yeah.

Brendan Ahern:          The other reason we've been very skeptical is the U.S. Navy. The U.S. spends more on defense than the next nine countries, including China. We have 16 aircraft carriers, they have two, one of which is this rust bucket they bought from – when you go to Asia, if you parked one of our 16 aircraft carriers in the Strait of Malacca outside of Singapore, China would starve without Middle East oil. I mean, the economy would collapse.

                                    So, I think we're – we obviously want – the U.S. government is very clearly going to support Taiwan. And I think that's a huge deterrent. I don't know why there's some skepticism about the U.S., our great military. It's a great deterrent for China doing something militarily.

                                    In the long run, it's a patriotic issue in China. Taiwan was part of China. And they want it back in the long run. It's just – they just – I just don't think – you do the mental math. It just doesn't make any sense to do it militarily.

Dan Ferris:                 Right. So, my understanding is that Taiwan was kind of a product of the Communist revolution. People sort of escaped to there and obviously they had a non-Communist system and economically it worked. And things change. I'm not going to profess to have some sharp view on this and to know how it ought to be. It will be the way it will be and it doesn't matter what we think.

Brendan Ahern:          Yeah.

Dan Ferris:                 But there's a case to be made that it's like a different country now. It's not the same.

Brendan Ahern:          For sure. I mean, it's a complicated issue. It goes back to the Opium War – we're talking 1860, the British, the French, the Russians, Americans. Most people don't realize – U.S. marines were based in Shanghai less than 100 years ago. We owned a piece of Shanghai because after the Opium War the emperor was dethroned and that – and we got a piece of it along with the Germans, French, Dutch. So, it's a really complicated issue. And I agree, Dan, no one in Taiwan has lived under Chinese rule since 1901 when the Japanese invaded. Which is part of the events that led to World War II. So, it's a really complicated issue. I couldn't agree more.

Dan Ferris:                 Right. And we don't get the clarity of a sort of Hong Kong situation. It's like "We'll keep it, then we'll give it back, and that'll be…" Tough. It's a tough thing.

Brendan Ahern:          One hundred percent.

Dan Ferris:                 But I'm reassured. And I find your comments reassuring and sensible. It seems to me the Chinese don't seem like they're – or maybe I'll let you tell me this, but it just doesn't seem like they're so just utterly jingoistically isolationist or whatever you'd have to be, however you want to describe that to cut themselves off from the world via the inevitable sanctions that would result. So, I – but I see headlines. I have a headline I have on my personal computer here that it popped up on the, on Financial Times, and it says, "U.S. Navy SEAL unit that killed Osama bin Laden trains for China invasion of Taiwan." Now, in and of itself it's just a headline. It's – it doesn't mean any – we're going to war or anything. It's clearly an attempt to get eyeballs on the Financial Times. I get all that. But maybe that headline just speaks to what you're saying, the disconnect between Western media and what's really going on in China. Is it that simple?

Brendan Ahern:          I think you know, Taiwan is an issue of patriotism in China. And for the Chinese government they have a constituency that says, "This should be ours." And they have to speak to that domestic constituency. At the same time, I think there is a recognition that Taiwan, it's been off on its own for a while. I think the experience of China coming – the British giving Hong Kong back and the problems that have come with Hong Kong is – so there's – yeah, I think, I think ultimately China needs stability. You look at a map of China – we've got them surrounded. The biggest some of the biggest military bases for the U.S. – South Korea, Japan, Taiwan, the Philippines, Australia, India, and China – Northwest China, they've had a lot of problems there because of Afghanistan. So, China is surrounded to some degree. And then I think more importantly, just their economy is geared to the West. They need us, we need them. And that should be a great deterrent that cooler heads prevail.

Dan Ferris:                 Right. All right. That's good. I'm satisfied on the issue of Taiwan.

Brendan Ahern:          The one thing I was going to say, it was, Dan and Corey, is Google this thing called Kinmen County. Kinmen County is part of Taiwan that sits just three miles off of mainland China. Most of – the big island of Taiwan is a hundred miles away. Kinmen County is part of Taiwan. It sits three miles away. When you use Google maps, you'd say people live there. And you'd say if people thought they're about to roll in, that would be the last place on earth you would live. But you'll use Google Maps, you see houses and high schools and it just shows that –

Dan Ferris:                 Ooh, it's nice.

Brendan Ahern:          Listen, some of this, yeah – I've not been – I've been to Taiwan, which was nice, and I recommend, but yeah, I just say Kinmen County just shows a little bit of what the locals in Taiwan think about the probability of the tanks rolling in. The place would be abandoned if they thought that was the case.

Corey McLaughlin:    Right. Yeah. That makes sense. I was going to ask you about the kind of economic – more about the economic reality domestically there. I mean, all things being equal, say there's no war happening, no war threats happening, there's no horrible real estate situation, what does the Chinese economy have going for it right now with either the, the population demographics, whatever it may be domestically? Say the stimulus works as planned. How would that play out?

Brendan Ahern:          I think it's – the next leg of stimulus it will be geared to the domestic consumption story. And I think that'll benefit a lot of U.S. multinationals in China that if you can – if they can get consumer confidence up, people will start spending more. But then there's certainly a lot of domestic companies are great beneficiaries. If it's – there's the e-commerce companies that do 26% of retail sales. They're – as consumer confidence rises, people will travel more domestically, internationally. They'll eat out more. They'll spend more on apparel and cosmetics.

                                    So, I think there's a whole host of domestic as well as international companies that will benefit from the rise of domestic consumption. And I think we can anticipate that this export-driven manufacturing will slow as the global economy slows, as the U.S. economy is slowing a bit. There'll be less demand for those goods. So, they'll see, I think, a little bit of the handing the baton within the domestic economy from export-driven manufacturing to this domestic consumption story.

Dan Ferris:                 Is KraneShares in any Taiwan names or just mainland China?

Brendan Ahern:          So we did – we have an emerging market version. Our flagship fund KWEB is very focused on the China growth stocks, internets, but we had an investor that said, "Hey, can you do that for emerging markets?" I don't buy countries. That's so specific. I buy EM. So KEMQ is kind of the EM version of KWEB, and it does include Taiwan. It includes the Taiwan semis: South Korea, Indonesia, Malaysia. So, it kind of just takes the KWEB thesis and applies it to broad EMs. We do, we do have exposure to Taiwan, but we also work with a lot of investors in Taiwan. I've been there numerous times.

Dan Ferris:                 All right. Do you – so, do you have any view on the – I forget what it's called – the United States Technology Act – I forget what it's called, but that's going to push money into among other places semiconductors and investing in semiconductor manufacturing in the United States, which of course would tend to you know, draw some of that away from Taiwan?

Brendan Ahern:          Yeah. Yeah. I think it's – it may – to me, it seems very logical that the chips that the U.S. military needs are produced domestically. And so, Taiwan semis – building this plant in Arizona – and that makes a lot of sense. Just today, literally today there's a typhoon hitting Taiwan. And so, the markets were closed, but it just shows that natural disaster, I mean, forget China or natural disaster, I mean, they actually had an earthquake in Taiwan about a month or two ago. And it thankfully was not near where Taiwan semis' plant is, but imagine a major just earthquake. The whole world is dependent upon this one company. And so, I think for the U.S. military makes just a whole – it makes tons of sense that that be made here. Should this be made here? Probably not because you can only sell it to not even 400 million people, where you build it in China, you can then sell it to not just their one and a half, you can sell it to the four billion people in Asia. You can put it on a plane and fly it here, no problem.

                                    So, I think some of the "bring it back" argument, I'm pretty skeptical of. And I think part of that is this – the Chinese companies are really moving to China plus one, that when the Chinese government shuttered the port of Shanghai because of zero-COVID policy, Chinese companies were – we viewed it as a supply chain problem. For Chinese companies, they're like "We have a revenue problem." We can't get our stuff to our clients. And they're the ones going into Vietnam, Malaysia, Indonesia, and Mexico to diversify their supply chain in order to protect their revenue stream.

                                    So, this idea of we're going to bring it all back, that's where I'm like, "Man." Honestly, I don't think you want more coal steel smelters in America. I don't think you want to process rare earths here because our blue skies go away. That's just a fact because of the – we're willing to – we outsource it to – we pollute them, not us.

Dan Ferris:                 Yeah, I mean, there are ways to do it without polluting, but they get expensive, so it just makes more sense to do it elsewhere. Let's talk – I want to go back and talk about being data-driven. At this point, when somebody says data-driven, I'm like "Yeah, you and everybody else." So, the way to do that, I think, is to distinguish Krane from any – the way anybody else might use data to analyze and pick stocks in China and do other things in China that you do with data.

Brendan Ahern:          Yeah, I think the – a lot of people have argued the data is all made up and this and that. And listen, a lot of these companies, they're audited by the big four U.S. accounting firms. And just take that – I mean, that's just the facts. But I think around some of the government data, people are like "Ah, the government just makes it up." And – but I think what a lot of investors don't recognize is that this thing is a mobile surveillance device, that when I drive down the street, and I decide to go to Walmart instead of Target, that data is being sold, is being packaged and sold to the largest U.S. asset managers and hedge funds. These free apps on your phone, why are they free? Because in that 15 pages you scroll through, you're giving that app free reign to your phone. And we've all had this experience where, man, I was talking to my friend on the phone about my vacation to Myrtle Beach and when I turn my phone back on, I had all these ads for hotels in Myrtle Beach. So, these things are mobile surveillance devices. And that's true in China.

                                    So, every month we're getting data on what are people buying – what are the – what video games are being downloaded the most in China? Then there's actually – and it's funny, China has this new game that's become a huge sensation. And we know it's doing so well, because they're selling the data. And that's true for the e-commerce companies. They're selling all of this data. So, we don't need government data, because you have firms that aggregated up – they're screen scraping the internet in China. My favorite – and we're – we don't use it, but there's this company – just Google it – it's – I'm just blown away by this whole SpaceKnow – Space-K-N-O-W. And they fly satellites all over the world, taking photos of factories and train stations, parking lots, and malls. And so, you can go to them and say, "How many cars is Tesla going to build in Fremont versus Shanghai?" And they can do that based on how much steel and aluminum is sitting in the storage areas. And so, there's all this data out there that's available. That's not from the government. It's from research firm – it's from these companies that aggregate app data and are screen scraping. And it gives us a really, really good indication of what's really going on there. So, forget the GDP data, or the government – you don't need it. You don't need it. It's 2024. And I don't think most investors understand that.

Dan Ferris:                 The idea of this company SpaceKnow is a little scary.

Brendan Ahern:          Oh, yeah.

Dan Ferris:                 They know everything from space, I think is what the name of that is trying to tell us. I mean, they just have image after image here of just detailed factories and airports and all kinds of things that they're showing.

Corey McLaughlin:    That's really interesting. Reminds me of driving past the port of Baltimore here and looking at how many cars are there or not to see how – see what's going on with the auto industry.

Brendan Ahern:          And Corey, there's hedge funds that are – there's data firms. They're paying someone to sit out there and count it.

Corey McLaughlin:    Yeah, I know.

Brendan Ahern:          They're putting a drone over that – and that's true in – outside of the port of Dalian or Shanghai or Hong – there's people, their job is to sit and be "How – what – how big was that boat? How many containers were on it?" And it's just – yeah, yeah. I mean, it's – things have really evolved from being like, "Yeah, I need the National Bureau of Statistics" to tell me what retail sales was every month. I knew that weeks ago real time.

Corey McLaughlin:    Yep.

Dan Ferris:                 That's cool. So, actually I still – maybe then since that was a longer discussion that I – so, sum it up for our listener then. What's – if you had to say, "Hey, how does KraneShares use all this data that – in ways that might give them an advantage?" put it that way for our listener?

Brendan Ahern:          Well, I think we're producing research that's leveraging that. I mean, just yesterday I met with Alibaba in New York and so I'll be writing about, "Hey, I met –" their head of PR was in our office and they were showing – they showed me this incredible video of how they're using AI to facilitate – buy – say, U.S. or global people buying and selling goods, I mean, from China or from Germany or from the U.S. Incredible. Just incredible. And so, we're trying to provide that insight.

                                    And I think most of us get our China views from Western media, and I think they're paid to get clicks, which is some of the hyperbole exaggeration and apocalysm. And we want to provide people a perspective of what's really happening. And yeah, we're investors. The only way I get paid is if people buy our ETFs. I mean, that's some – at the same time we are small business owners. Every piece of idealism in me has been snuffed out in trying to build a company, but I have kids, and they've got to grow up in a world with China and maybe we're building a little bit of a bridge. Maybe people say, "Hey, if we can communicate with Chinese companies, maybe the politicians should as well." But yeah, I think it's really about just providing that data. And I say to people, Dan and Corey, we should be just a tiny part of a portfolio. We're super volatile. We're super volatile. And so, you've got to downplay it. You've got to say, "Hey, this is just a small piece of a well-diversified portfolio."

                                    But I think – we do think there's an opportunity. We've had a big run here. Maybe you wait for pullbacks and corrections inevitably. But yeah, we do think there's an opportunity. And if – what a lot of investors I don't think understand is we get this west – this U.S. media narrative, but outside of the U.S., when you travel in Asia or the Middle East or Europe, or – it's a very different media narrative because they do a lot of business with China. China – and you go to any commodity country, their number one client is China. Do you think their media is bashing China every day? No. If you're in Switzerland or Germany, huge trade. I mean, Audi, Volkswagen one of the largest producers of cars in China – or Roche or AstraZeneca, huge operating. And unfortunately, that, I think, is underestimated a little bit. And that's where, yeah, we're not rooting against U.S. equities. I'm heavily personally invested. But we just think there is an opportunity for diversification, which hasn't really worked in quite some time.

Dan Ferris:                 All right. So, sort of putting it all together then, you're – there's a focus on China and you're outside the mainstream media bubble. You're in the room with these people. You are – and you're using data that maybe other institutions use it, but the average investor doesn't use any of this stuff. And you've – you didn't start doing this last week. So, it's interesting to me. You have become very interesting to me during this interview. And I'll be certainly paying a lot more attention to Krane after this. What – actually, what size AUM for the whole company?

Brendan Ahern:          We're just over $10 billion today, Dan. And I'd say one thing. I just want to – your former colleague, retired colleague, Dr. Steve Sjuggerud, was very instrumental in – he got interested in our firm and we ended up going – bringing Steve to China. Steve was like "Brendan, I'm calling your bluff. I don't believe you." And I think that just shows one of the value adds I've always felt about Stansberry is we don't – we've never paid one dollar to Stansberry.

Dan Ferris:                 No, we don't – we wouldn't take it.

Brendan Ahern:          And that's something that I think your subscribers should maybe understand is that you're not beholden to people like me, because we're not paying you anything. And that's that objectivity, that lack of bias, I think, is something that's really important for – that Stansberry does. And if it's Brett Eversole or Vic and Chris and team, they've been great stewards of that – from Steve and yourself – as stewards of Stansberry today.

Dan Ferris:                 Yeah, you would never be on – if any of that other stuff were true about money or whatever, you'd never be on the program and nobody at Stansberry would ever have anything to do with you. So –

Corey McLaughlin:    Yes, we should take this opportunity to remind people that we do not need to take advertising dollars.

Brendan Ahern:          I just think it's something that your end subscribers should recognize, that you won't go down that path. And that objectivity, that lack of biases is so critical, I think, today, where I think a lot of the media narrative is driven by a monetary incentive to get people to click.

Dan Ferris:                 Yeah. To be honest, if – even if the podcast does ever take advertising dollars, I want our listener to know I don't give a shit, I will piss off every advertiser when I damn well please and they can fire me if they don't like it. Just so you know. Just so this – just covering the future, just so the listener knows, all right?

Corey McLaughlin:    You're saying they won't be advertising for long. Yeah, OK.

Dan Ferris:                 Yeah, well, they'll advertise once and then they'll have a guest on from that company and I'll tell him he's an idiot and then that'll be the end of it. [Laughs] So, we are at the point when we can ask our final question. It's the same for every guest, no matter what the topic, even if it's a nonfinancial topic. Same question. If you've already said the answer, feel free to repeat it. That's – there's no problem with that. And the final question is this: If you could leave our listener with a single thought today, what would you like it to be?

Brendan Ahern:          Stay inquisitive. I think that's something that we the – people that gravitate to us they don't they don't buy a narrative that they're spoon-fed. They're not choosing to receive opinions that affirm their beliefs. They're – I think they really come to us for that data-driven that we tend – we're biased but we try to be balanced. And we're not apologists. There's been some real problems over there, policy errors. But yeah, stay inquisitive. And I kind of say go see it yourself. Just go give it a shot. I think when you challenge some of your own beliefs, you come out a better person. And I think that that's something that Steve Sjuggerud taught me, was "I'm calling your bluff. Go show it to me." And yeah, I think that inquisitive nature is probably inherent to most of your subscribers.

Dan Ferris:                 Great answer. Thank you for that. And thanks for being here, Brendan. Really great conversation. Really enjoyed talking with you.

Brendan Ahern:          No, no, mutually. Thank you so much, Dan and Corey. It's a pleasure. And thank you so much for the opportunity.

Dan Ferris:                 All right.

Corey McLaughlin:    All right. Thanks.

Dan Ferris:                 Hi, this is Dan Ferris with a special announcement regarding the upcoming Stansberry Conference and Alliance meeting. In-person tickets to the event are now sold out, but you can still see the Vegas action live with a discounted live stream pass. Go to StansberryVegas2024.com to get your virtual pass today. We've got some spectacular things planned for this year's event, including founder Porter Stansberry will sit down on stage with bestselling author Michael Lewis, who wrote famed financial books like Moneyball, The Big Short, and Flash Boys. I'm personally really excited for this as it's sure to be a can't-miss interview.

                                    Other top-notch speakers include an artificial intelligence expert, a former governor and the CIA's former chief of disguise. All your favorite Stansberry editors will be there too, presenting their top ideas and stock picks, like Doc Eifrig, Eric Wade and Greg Diamond. I'll be on stage as well sharing my annual state of the market address. And I think some of what I have to say this year may surprise a lot of you. Our live stream pass allows you to log into our event right from your phone or computer in the comfort of your own home. No travel required.

                                    You'll also have access to our post-event presentations, meaning you can pause or rewind as many times as you'd like through the end of the year. All the incredible information and stock tips will be right at your fingertips. Go to www.StansberryVegas2024.com right now to secure your virtual live stream pass. That's www.StansberryVegas2024.com.

                                    That guy's a lot of fun to talk with. He knows a lot about China and he's really easy to talk to. I'm glad we had him on the show.

Corey McLaughlin:    Me too. I knew of his – what you were talking about there at the end, I knew of his history there with Steve a little bit. But it was good to talk to him personally and see – get a kind of independent view on what's happening in China, what's going on there, his view, and what works with stimulus, the difference between domestic and the foreign companies. Anybody who admits – he's running this obviously China-focused ETF company, but to just put a small amount into it, that speaks to some integrity as well. It was good to talk to him. Yeah.

Dan Ferris:                 Right. When a guy starts out by saying, "We don't sell fear and greed," I joked about it, I said, "Oh, well, we don't want to talk to you," but that's of course exactly – that's a joke because it's exactly what we want. We want someone who knows all this wild data that he talked about knowing and uses it to give a really more objective view to get outside the mainstream media bubble and get in the room with these people. I thought that was great. I mean, it makes me want to pay a lot more attention to what they're doing.

                                    I signed up for his blog at ChinaLastNight.com, which he told us about after we turned off the recording button, ChinaLastNight.com, which apparently was not his idea – it was Steve Sjuggerud's idea and then he started doing it. Steve's got a lot of good ideas, and I guess this is another one of them. Yeah. All right.

Corey McLaughlin:    A personal note to Steve that became a newsletter.

Dan Ferris:                 Yes, that's right. All right. Well, that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it every bit as much as we did. We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "Transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also 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. Follow us on Facebook and Instagram, our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview, drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week, I'm Dan Farris. Thanks for listening.

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