In this week's Stansberry Investor Hour, Dan and Corey are joined by Jeff Phillips. He's a well-respected expert in the resource and mining industries and president of Global Market Development. With more than 20 years of experience consulting with Fortune 500 companies and government agencies, Jeff is one of the most trusted names in his field. Now, he's giving us an exclusive look into his "highly speculative" approach to investing.
But first, Dan and Corey discuss the recent impressive U.S. employment numbers and their potential impact on interest rates. According to Dan, "It ain't looking like a recession anymore." After that, Dan and Corey examine the burgeoning artificial-intelligence ("AI") bubble – highlighting Nvidia's recent run, its continued growth, and its varying effects on different professions and sectors. Dan says...
Complacency is baked into the market. It has yet to top out... and now we have an AI bubble developing... and I still feel like there's more downside.
Then, Jeff joins the conversation to talk about his unique approach to speculation. He explains that while traditional investing involves cash flow and dividend-paying stocks, speculation entails identifying something that will gain value over time, allowing an investor to sell it at a later stage.
Jeff shares his belief that the financial markets are facing a significant problem and are on the verge of a substantial decline in asset valuations. However, amid this cautionary note, Jeff highlights the potential for exceptional growth in speculative natural resource stocks. He thinks they're a promising investment in an otherwise uncertain market landscape...
You're going to have an incredible opportunity where a lot of these speculative natural resource stocks will do really, really well.
Finally, Jeff covers the intrinsic value of finite assets and how their prices correlate with the Green Deal's efforts to combat the ever-pressing climate crisis. He details how electric vehicles – which use materials predominantly sourced from China – rely heavily on these resources. And as a result, companies operating in the natural resource market stand to greatly benefit.
President of Global Market Development
Jeff is a well-respected expert in the resource and mining industries and president of Global Market Development. With more than 20 years of experience consulting with Fortune 500 companies and government agencies, Jeff is one of the most trusted names in his field.
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 Digest. Today, we talk with Jeffrey Phillips of Global Market Development.
Dan Ferris: And before that, Corey and I will talk about the huge blowout employment numbers and what that implies for interest rates ahead.
Corey McLaughlin: And remember if you want to get in touch with us send an email to [email protected] and tell us what's on your mind.
Dan Ferris: That and more right now on the Stansberry Investor Hour. Well, it ain't looking like a recession anymore I'll tell you that, because employment numbers were just blowout. They were expecting 109,000 jobs and the U.S. added 339,000 jobs in May. It's just not feeling very recession-y to me.
Corey McLaughlin: Doesn't sound like it based on that number, right?
Dan Ferris: Yeah. I mean David Cervantes who we had on the show, he said, "The economy is "en fuego." It's on fire. We're just cranking along here, but like I said in the intro this has implications of course, for Fed policy, which the entire world is focused on because of the fastest tightening cycle in history, what are they going to do next? Hire for longer would be much worse than I think with the market than everybody's expecting and yet we get these en-fuego numbers and the market is discounting a pause or skip in June, this month. I don't know, maybe they do skip, but who cares?
Right? They're going to hike again, period. Right?
Corey McLaughlin: You have to think eventually yes, that they will even if they take the new skip over the next month or sorry this month when they meet again. You're not seeing the employment situation or the jobs market weaken significantly beyond what has already happened really the end of last year was when we were talking about all of the layoffs in tech and that sort of thing. I think that part happened, which kind of led to the bubble with all the overgrowth of some of these companies. The fears of what was going to come and or the reality led to the job cuts in the tech world, but yeah when we're seeing double the expected job creation at this point. I don't think that this was what the Fed was going for or was expecting at the beginning of all of this.
The job part is important because they're balancing basically inflation, a jobs market, and don't want to see the runaway part of inflation with wages getting permanently unsustainable.
Dan Ferris: Well yeah, it's the other part of their twin mandate, right? Stable pricing, meaning stable inflation and maximum possible employment and unemployment is still under 4%, which is pretty low, and now we're adding all these jobs. I don't know, I just still think that complacency is baked into the market it has yet to fully top out. Now we have an AI bubble developing with Nvidia priced like Cisco was priced in March of 2000. It was like 200 times net income, it's the plumbing of this current mania, it's like the exact same situation and Wall Street has it as a buy – all of Wall Street analysts have it as a buy of 200 times net income and there's – I just feel like there's more downside.
Even after a year like 2022, nothing's cheap, what's cheap? I don't know, not much.
Corey McLaughlin: Nvidia certainly isn't cheap, that makes me laugh too. Yeah, now it's a buy. Okay, what about six months ago when you actually could have had a decent gain on it? But yeah, that's buzzy like I said last week the whole AI thing I mean anybody who's paid attention to the world and the market, it says known AI has been a thing for five or 10 years. So, for it to get mainstream now yes, that does tell you something.
Dan Ferris: Did you see on Twitter a guy showed the cover of Forbes Magazine from 1998 and it was about this company that was beating Dell in some way? I forget what it was called PC-something-dot-com – PC order or PC order now, I think. It doesn't really matter because it's gone, it doesn't exist anymore. But the cover of Forbes was like PC order now is beating Dell using artificial intelligence and they had a picture of the CEO and people have been talking about artificial intelligence most of my life and I'm 61. So, it's been around, but obviously, ChatGPT has kind of alerted the whole world that it's here.
And it's real, I think we're going to see very interesting like those obnoxious customer service lines maybe they'll get a little less obnoxious and a little more usable, and other things too. One of the things I asked ChatGPT what is so great about artificial intelligence or something like that and it listed these things and one of them was enhanced personalization. And the little blurb next to that was about ad targeting. Like we haven't had that for 20 years. I can't open my computer without it trying to sell me a new gun or a knife or whatever I just bought 10 minutes ago.
Corey McLaughlin: Right, as with anything there's a bit overblown with – AI is and has been already changing certain things, but it may change some jobs and sectors more than others. So, I'm not a talker by trade, I'm a writer by trade. So, a lot of people in the writing and editing industry are – oh this will just replace our jobs. But from a writing perspective, I don't think it's going to replace anything original. It doesn't replace the human being able to create anything original.
It can replace kind of those menial articles, which you already see in financial media, like AI's been writing earnings reports and news and stuff for years. And you'll see it and as a discerning financial media consumer you can kind of tell all right this is written by a robot and maybe looked over by somebody and that's that, but it doesn't tell you much. I mean it just basically compiles what you can read and that's something that AI can do. It can kind of cut some of the time out of routine things sort of, but as far as creating new original things I'm not that worried about it.
Dan Ferris: I'm not worried either. I asked it one time – I think we might have talked about this I asked Chat GPT if it knew who Dan Ferris was. And it sort of knew who I was and I said can you write a stock recommendation in the style of Dan Ferris and it said sure, I can do that. And the thing that it recommended was renewable energy. I'm like boy you couldn't have gotten it more wrong.
Corey McLaughlin: There you go, that's your job security, what are you talking about AI?
Dan Ferris: Zero yeah. The one thing for example, Jensen Huang the CEO of Nvidia founder, co-founder CEO of Nvidia, was saying at this event recently in Taiwan that as if there wasn't enough hype he was saying it's the tipping point of a new age of computing. He said basically we're all programmers now because all you have to do is talk to the AI platform and tell it what kind of code you want to write. And I've done that I've said can you write me some code that does this or this or this and man, it's done. It's done instantly and the code just goes zip right in front of your eyes. Wow, if I were a low-level programmer in a big company, I'd be very worried right now.
Corey McLaughlin: Yes, that's one of the things I was thinking about when saying it will affect certain jobs more than others like coding. Some people think oh we should learn coding right now, and yeah that's a good skill to have but at the same time AI can do a lot of that stuff. So, yeah that's –
Dan Ferris: Maybe we should learn to tell the AI platform how to code because that's a skill.
Corey McLaughlin: Right, another thing to transition here I was thinking can we teach the AI to lower inflation? Or cut inflation? Can we figure that one out? Because it's not going anywhere and it's going back to the Fed and what this means for unemployment and interest rates, it doesn't seem like the likely scenario would be lower rates, right? That doesn't factor in anywhere right now.
And so, maybe that's another reason why the Fed people out there talking or referring to this now as a skip as we said because that implies that the rates will go higher not lower even if they pause this month. I think they are just trying to see, I don't know exactly what, but I think they probably want to see what some of this fallout from the banking crisis is in terms of credit tightening and that sort of thing. And just not ruffle anything too much there is my guess this month and then – but if the inflation if the PC numbers stay where they are. They actually went up last month they didn't go down, this is the inflation number that the Fed pays attention to. So, we have – all right forget the past 18 months you have inflation going slightly higher, you have jobs market at record lows and not showing significant signs of weakening and you have a stock market drifting higher since October, does that say lower inflation is coming?
No. The more I go through this and waiting – people are waiting for this recession to happen, waiting, waiting, and wondering what's going on and why isn't the bottom falling out yet. I mean I'm just trying to forget the past and just look at what's happening now and if you look at it that way you would think the Feds need to raise rates higher eventually than they're saying and it may not be next month, but at the very least they're going to hold the rates where they are and eventually maybe they'll raise more.
Dan Ferris: Yeah, so I'm looking at the Fed watch tool right now, the historical – the June contract, which I think it actually expires at the end of June. Last time on the show I think I said that the contracts expire on the meeting day. I think that's not true now, but obviously I don't trade them who cares, they're so weird, but so, the June contract which is really all about the June 14 meeting. On May 10, there was a 99.6% probability that rates would stay as they are. Now it's – I guess it's down to about 80% or below 80%.
Before that, it was all over the place. It was like, 50/60, 30, it's been everywhere. It's almost like and if you look at the chart it looks like two years old is scribbling with a crayon on the refrigerator it just doesn't. It looks like a chaotic market. In other words, nobody really has any idea what the – now that they've hiked 500 basis points just real quick.
People are really uncertain about what comes next, which I think is a short-term bet, so I get it, but overall I think it's almost like a waste of energy to even think about it because there's no way we're not higher for longer, whatever that might mean. If you think it's a big difference that fed-funds target is 500 to 525 for the next two years versus 475 to 500 for the next two years... I think the focus is still way off. I think there's still too much optimism out in the world, people are still looking for bottoms and wanting to buy dips. There was some stuff recently within the past month or so about like people are just still so into buying the dip and I don't think that's going to work for the next 10 years.
I think you're going to be disappointed on your dip buying and I think growth traps. This is another thing I think growth traps are 10 times worse than value traps now and GMO put out some research recently showing that. You're just as likely to get into a growth trap as a value trap... 25% of the market is one or the other and whether you're buying stocks in the cheapest half or the most expensive half, it doesn't matter... 25% of the time it's a trap, meaning the revenue is going to keep declining the fundamentals are going to keep declining.
So, things get cheap and become value stocks because of that. So, it's not as bad when you're in a value trap as in a growth trap when whoa the value – the revenue declines. And that of course is what has happened to Nvidia. Trailing 12-month of revenues declined last three periods and they're claiming that it's going to climb 50%, quarter over quarter next time, but we'll see and in the meantime, it is priced like a classic growth trap, and the value traps they lose your money 15% a year. The growth traps lose your money 23% a year.
Corey McLaughlin: Right, I hadn't seen that, but yeah that describes what Nvidia, growth trap and that would be something to watch out for those going forward.
Dan Ferris: Yep, we never hear about these either like all the growth people like to say value investing doesn't work half of them are value traps or whatever. Well, a quarter of them are, but guess what? A quarter of your picks are traps too.
Corey McLaughlin: I can think of –
Dan Ferris: And they're going to treat investors a lot worse.
Corey McLaughlin: I can think of a bunch of them right off the top of my head from 2020, 2021. Remember all the work-from-home stocks? Zoom, Peloton. It's the same characteristics and signatures as Nvidia now. Although I will say Nvidia is probably a more robust company than either of those.
Dan Ferris: Yeah, it's a much better business than those.
Corey McLaughlin: Similar Mr. Market behavior I would say around it though.
Dan Ferris: Yeah it is and it's – and it's got a nifty fifty vibe to it, you know nifty fifty was back in the – 50 big stocks back in the late '60s early '70s where people said you could pay anything for them because they'll grow forever and it was like Xerox and Polaroid. No kidding and they were down 90% within a few years and it's the same kind of vibe here because it's like you can pay 200 times net income for this thing because it's going to – AI is going to take over the world. And it's just like the internet boom, the internet did kind of take over the world. It did transform the way we live and work and you still got murdered in all the big stocks. You still got murdered in Cisco and Microsoft and all the rest of them, Amazon whatever.
So, most of them didn't turn out like Amazon where you could have bought it at the top and still made a thousand times your money or whatever crazy thing it was. So, I don't know. I don't think you should count on Nvidia being the next Amazon where you can buy it on the top and hang on for 30 years and it will be worth $100 trillion dollars. Unless the currency goes Zimbabwe, I just don't see it.
Corey McLaughlin: Well if the currency goes Zimbabwe, who knows maybe we're getting close. I will say that I don't want to not pay attention to what the broader market is doing too. We were talking about these text stocks and they've gotten a lot of the headlines and have pushed the Nasdaq, which is mega-cap – tech stocks up. I think it's like 25% at the start of the year. The rest of the market – now you can look at this two ways. The rest of the market hasn't done great right?
And you look at market breadth which I like to look at the number of stocks going up versus going down. There's more going down over the last year than up. So, you can look at that two ways you can say that there's this tech frenzy again or AI bubble that's pushed headlines higher, which is true. And then there's the other ones that are just kind of dragging along sideways, which seems more appropriate for our times, which is fine, and the stuff that's probably not getting overvalued at this point, and then maybe also it could be a bowl thing. We know there's a lot of cash on the sidelines and if there's there and there's not, we're not seeing bubblicious stuff all over the market I mean it feels like it but it's really not everywhere.
I'm just pointing that out if you think October was the bottom, if you're a believer in that and you're looking at this and you're saying as we speak today or hitting slightly newer highs above February since October. My point is it's not the worst of stock markets we've ever seen either compared to last year.
Dan Ferris: Oh true, I mean yeah and you know it's funny you said the rest of the market except for the Nasdaq it's like the whole rest of the Nasdaq the indexes are being pulled up by five or seven stocks, and the rest of them are kind of sucky which is very interesting in and of itself. So, yeah, I mean I think we're either going to see a lower bottom at some point in the next year or two or three or however long it takes, I don't care the timing doesn't mean anything to me. Or we've already started going sideways and it's going to be a brutal chop for 10 years like what followed all the other big mega-bubbles that I've talked about, and talked about and talked about until I'm blue in the face.
Corey McLaughlin: I'm increasingly believing that we're in the sideways market already. So, that's my personal base case, it doesn't mean anything other than my view, but the more I think about it and I forget that I've thought this before. All of the stimulus of 2020 and 2021, it's not just going to go away like poof overnight. I'm saying the consequences of that. It's just not and we could be in this inflationary era for a decade and if that's the case it's going to be a higher-rate environment, a tougher growth environment, and make of that what you will.
You call it whatever you want, but I think it's just more important to think about the broader conditions that we're in than labeling things recession not recession. Yeah, I'm thinking Mr. Sideways as well for the time being.
Dan Ferris: All right, well now that we've successfully predicted the next 10 years of the future we'll talk to somebody in the present and that somebody is Jeff Phillips who's a – he's a rich successful investor who's been around for decades and decades and I think you will all really really enjoy what he has to say. Great guy, great talker, successful investor. Let's talk with him right now.
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All right, time once again for our interview. Today's guest is Jeff Phillips. Jeff Phillips is a self-styled speculator who's been around for a while. He's had lots of success in a lot of risky markets and we're going to talk with him today about whatever comes to mind, but we will focus on what Jeff does best. So, with that Jeff, thanks for being here.
Jeff Phillips: Thanks for having me, Dan.
Dan Ferris: So, Jeff before we hit the record button here you were telling me you don't call yourself an investor, you call yourself a speculator? And that's a really interesting distinction to me as someone of a devotee of the Ben Graham philosophy of value. He describes those two things as being very separate and he describes them very particularly, but what I want to know from you is why a speculator? Why do you not call yourself an investor?
Jeff Phillips: Mainly because I've been in the natural resource sector which I can explain a little bit more for the last 30 years, which is investing – people call it investing, I call it speculating organized – you know with some knowledge base. But there's so many risks in that market whether you're looking at different commodities from copper to zinc to oil and gas to gold. Where it's lithium, critical metals... and there's so many different specialty areas in that segment and there's just a lot of risks so you're really speculating and that's what I've been doing for 30 years. Unlike investing in dividend-paying stocks and companies that have cash flow. You were speculating on finding something that's going to have value for someone later on that you're going to be able to sell it to and it's not too much different than the California gold rush when people were speculating they could find gold.
Very few people were lucky enough to do that and they were the people that were knowledgeable and they worked hard and they speculated. You still have to have some luck. So, that's why I call it speculating.
Dan Ferris: I see, so you've spent your career putting money into what? Tiny little exploration mining stocks hoping to strike it big once out of every whatever 10 times or so? And knowing that the rest are going to fail, right?
Jeff Phillips: Yeah maybe not fail. I like small caps and it doesn't have to be in the natural resources sector, it can be any of the hot sectors of the day. I mean we see all the headlines daily right now about AI, I think people are speculating in AI. I think that probably will change the world, but I think you get the fear of missing out and people investing in anything and they're not really investing they're speculating that someone else will buy the stock tomorrow next, week, or next year at a higher price. In the natural resource sector, I've made a career out of trying to find the good companies and I can give you examples without names.
Again I'd like to say I'm always knowledgeable but sometimes the deals that I'm in I try to be in 10 to 12 deals, spread against different commodities and different country risk. If I rank those deals on a scale of one to 12 and I put the deal that I think is least likely to work it's often the deal that works, that's speculating, but they're all decent deals. Does that make sense?
Dan Ferris: Sure, absolutely. It's classic sort of humble view of the really successful speculators. They know that any one of them could go 100 to 1 and that their favorite one could go to zero and it sounds like you've learned that lesson long ago.
Jeff Phillips: Yeah, and most of these companies that I'm investing in aren't right – again it's high risk. So, when I say I don't invest, I own dividend-paying stocks. I have a fairly significant retirement account. I'm essentially retired now. So, I still invest in companies and I watch the financial markets and I see what we're doing to the dollar right now and so I understand investing, but my career has been in speculating. So, two years ago I financed a company and these are penny stocks.
I often equate them to burning matches, if you hold them long enough no matter – they tend to burn you and that's all small-cap speculations. It could be cannabis stocks. It could be 99% of the crypto-currencies. It doesn't mean you can't make money buying the hot new cryptocurrency, but you have to be able to realize that you're speculating and if you hold it long enough it probably won't work out. So, a lot of the times you're speculating that that's what you talk in your newsletter about some of these meme stocks, and obviously that's not investing that's people gambling and that's not even really speculating that's waiting for the greater pull fairy.
Dan Ferris: Yeah, that's pure gambling, isn't it? I mean talking about burning matches there are failing companies and dying industries loaded up with debt just lighting cash on fire quarter after quarter and these people think they're going to make a fortune by holding on to the long term because they're going to get a short squeeze or something that's going to last forever. I don't quite understand it.
Jeff Phillips: No, but in this market at this point you've had, as you realize of all people. What you write – you've had a situation that's never happened in history where they had interest rates close to zero for a prolonged period of time, which has forced people into being speculators and less investors. And people don't know any better. I talk to people all the time and I'm 55 years old, I guess that's old now because I talk to – I have a very successful guy if success is based on how much money you've made, he's very successful. But he asked me the other day... He said what was it like when the market crashed and how did these resource stocks hold up?
He's in the resource stock industry and I said well when the dot-coms crashed and there was silence on the phone and he said what do you mean the dot-coms? Well, I forgot he was 35 years old. He's talking about the real estate crash, he was like eight years old trying to imagine that bubble. But I've seen and I was younger too. I've seen three pretty good market overall financial market corrections in '92, when I first got out of college and entered the resource business, natural resources.
I learned a lot watching the gentleman by the name Rick Rule, who you and I both know and was a great person to study in this space when I was young and got to communicate with him and same area as him. So, anyway, I've seen it three times where you have the dot-com Nasdaq crash, the real estate whatever-they-want-to-call-it correction, and also the '92 recession. So, what I'm excited about in the natural resource sector is I think we're in for the pendulum swinging the other way here in the financial markets and some reality coming back to less speculation and more investing, which I think going to hurt a lot of people in their investment accounts. But what happens out of the bad markets is when things settle down and we move forward, the natural resource sector tends to have its biggest booms. Where instead of trying to get one in five stocks right, almost every stock works in the short-term wildly because it becomes the new hot thing to speculate in copper, to speculate in zinc.
Because at the end of the day when we have the reset people realize we need more of this stuff and it's getting harder to find, more expensive and there's a lot more political risk where you can find this stuff now. So, you're going to head into one of the best resource markets I've ever seen and I've seen three really good ones after major corrections in the overall financial markets. So, I think we're within a couple years of seeing things like copper, uranium, you've already seen lithium because of the electrification of things, which is a whole other topic, whether I believe that's actually going to come to fruition or not. But I think the commodities are going to do really well.
Dan Ferris: All right, so now I understand why you're a speculator and not primarily an investor and you clearly have some of the same thoughts that we've talked about on this show before that we're coming into a time where being a speculator in some of these natural resources is an absolutely wonderful idea. And you mentioned in a couple or three years or whatever is that how long you think it's going to take for it to become a great opportunity or its already a great opportunity now and that's when you think it's going to start paying off?
Jeff Phillips: Like in most things I can't tell you the timing of things Dan, I think I know what's going to happen. I can't tell you exactly when it's going to happen. So, like in anything, rich or poorer, it's good to have cash. You don't want to find yourself in a situation where you're over-leveraged and you can be right in the longer term and really get your butt handed to you in the short term. Yeah, my personal belief is that we're getting very close to a problem in the overall financial markets that's much greater than last summer and I think we're going to see asset valuations, especially in the stock market, come down considerably.
I think coming out of that you're going to have an incredible opportunity where a lot of these expected natural resource stocks and even the bigger ones the Barricks, the Newmonts, the Cameco, uranium companies of the world will do really well. I mean in those companies will be up three or four-fold. Yeah, we're coming into that time again, because it's always been that way when I've seen financial patterns in the overall markets. But yeah, I'm personally buying some things right now with the idea that I may have to hold them on paper. I may be down 50% these are highly liquid companies that are burning cash looking for – trying to improve or looking for an asset or a commodity that they're trying to grow the deposit.
Yeah, I'm investing now, but I realize it could be a year from now or two years from now by the time they take off. I don't think they're going a lot lower and I'm not using money I don't have to do that speculation so I don't have to sell at any given time.
Dan Ferris: Right, patience required this – we've heard some of this strategy from Rick Rule in past interviews. So, we do hope the listeners will recognize it again as I do.
Jeff Phillips: Rick is one of the most serially successful speculators... entrepreneurs in the natural resource space. So, I greatly respect Rick's opinion and he's been around longer than I have and obviously done very well. But even in a bad market, people like Rick do well... even when the resource market isn't doing well because they understand in these speculative things you're betting on people... share structure. And again if you don't get the timing right you won't have management and an asset that can make it to the next cycle. Even in the market that we've had for the last two years and some of the other people you've interviewed you know and listen to me in the speculation side of things that's why I'm talking to you because you've had a couple people recommend that I might be a good person to talk to.
But they've invested in deals and two years ago – I'll give you an example, we put money into highly speculative lithium play but it was a good share structure, decent people running the company, and the asset looked like it had promise. It doesn't mean it's going to work out and when they went out to drill that asset, they got very lucky. It turned out to be much bigger than anybody thought it could be and it's gone on to be probably a – it will be the largest lithium resource in a deposit in North America. Again, these are tiny cap stocks and we financed it 15 cents and it trades at $15 now and it's probably going much higher. So, it doesn't take anything but a few of those to make up for the ones that go out and try to do something and it doesn't work out because Mother Nature didn't cooperate or a country's political structure changed or a myriad things that can go wrong.
Dan Ferris: You know you have pointed out more than once that it is such a risky space there are so many risks. I can't help but think that focusing on that space in the way that you have for 30 years is a really kind of a personal choice. What is it about your personality like are you especially patient for example?
Jeff Phillips: I don't think I'm especially patient I think I'm averagely patient, but there are people that again are much more successful and again I think a lot just comes as you get older and more experienced in that space, but yeah I focused on that space. I like it though and my wife hates when I do this. It's a form of treasure hunting. Again, I know that it's not always going to work out, but you have to have a personality that when something doesn't work out it doesn't really upset you to the end that you worry about it constantly. You move on and you speculate again on something and I guess it's the excitement when things do work out like the company example, I gave you.
Again, it's when you put a few hundred thousand or half a million dollars into a deal and some people are putting $5,000 it just depends on what you're doing. It should be your risk capital in this space. Again, it's not investing, you're not putting your retirement account 100% into the natural resource space, although there are people who do stuff like that and find themselves wildly lucky. I'm sure somebody who bought AMC at the beginning at sold it at the top thinks they're pretty smart. But at the end of the day, you want to invest in, there's so many people that are selling things that aren't necessarily true.
First, you've got to differentiate in this speculative space that these people are real people and have had success and then you've got to accept the risk you're taking and you've got to enjoy the highs and lows. I had another company that's doing very well and they had to shut down all their operations yesterday because the province of Quebec in Canada has 162 wildfires right now. So, this company was full steam ahead drilling off an asset and they've had to shut down drilling. So, that's kind of a bummer on paper today I'm losing money, but I can't control that and again there's things far more important than whether my company can be drilling when other people are possibly losing their houses.
So, you've got to keep everything in perspective. We can talk about the financial markets like you do, but at the end of the day, it's all important 'till someone tells you the new mole on your skin's cancer and it all goes away pretty quick... what you were worried about yesterday. So, you've just got to take everything with a grain of salt if you're a speculator.
Dan Ferris: That's a very philosophical view. When losing large sums of money is a possibility or any sum really, it pays to be philosophical I think.
Jeff Phillips: Yeah, and again not everybody's cut out to wake up one morning and look at their portfolio and see it's down when COVID-19 hit, in that first month. I watched a portfolio of resource stocks drop 50 to 60%, which was 10s of millions of dollars in a month. So, again – and some people, that's nothing to them and some people that's a lot. I mean everybody's different, but you have to be able to stomach the ups and downs if you're going to speculate and you have to and most people don't even really realize and normal people that are investing a lot of these things now whether it be – you've talked about what's her name at the ARK Funds. I mean again, I think that's going to be like some of the dot-com people that I can't even remember their names anymore that are the hottest players and I think that all goes poof in the future.
But you know more about that than I do, but I just think there's a lot of people that because of – I'm sort of off what my subject is which is natural resources obviously, but I just think there's not a lot of investing anymore. Everybody's a fear of missing out and everyone's been pushing into the stock market. I mean, I had a hard time teaching my daughter about why – she's 17 years old, so for 17 years of her life I couldn't really explain, you think I would. I'm a finance major. I couldn't really explain to her why she wanted to put money into a savings account. So, literally.
Until recently we've actually had some meaningful conversation, she's going to college now and I've explained to her why she wants to set up her IRA and why she wants to put part of her paycheck into a savings account, because she can earn 4.2%. I could never have that conversation with her. You think of all the people that have gone 50 to 80 in the last 20 years or 50 to 70 and they've all been forced to be in the stock market. They've all been forced to go into the casino so to speak and it's been skewed. So, I'm fairly negative on the consequences.
I don't know what's going to trigger those consequences, but I think we're starting to see it in the commercial real estate market. I have a good friend here in San Diego that's one of the biggest brokers in the life science business, which is a huge business. A huge speculative stock market here in San Diego and he said it went from the best – in his 30-year career, the best sales and leasing environment he'd ever seen to the worst he'd ever seen in less than six months. He's actually retiring because there's no business. I think that's the start of, you know I think the interest rates moving up and the amount of money they've printed.
I think we're going to start seeing consequences that it's above my pay grade. I can't tell you exactly what those are going to be, but I think it's going to be bad.
Dan Ferris: Right, so you're just over 30 years you've developed a healthy respect for cycles it sounds like?
Jeff Phillips: Absolutely and again I couldn't give anybody personal investment advice because I believe having a third of your money inspected investments to make a good return, a third of your money in real estate and a third of your money in other hard assets is probably a good investment strategy. It's worked for me, but doesn't necessarily work for everybody. But again, I think I mentioned to you I'm big car collector. I'm kind of a car nut. I like history and I like old cars all the way from the '20s through the '70s and '80s and you see, even that market... it's become ridiculous.
I mean I used to laugh when Doug Casey who you and I both know because he's on record of saying 12 years ago that the muscle car market was the biggest bubble he'd ever seen and that bubble's grown fourfold since then and I didn't disagree with him then. But my point is that all of these things because of the easy money have been pushed to astronomical levels and I think that easy money is going to start to evaporate over the – they're going to print more and more, which is going to be worse.
Dan Ferris: Yeah, it's an odd juxtaposition isn't it? Because on the one hand, many people right now are saying well the Fed can't keep this up forever and they're going to have to go back to low interest rates, because they're going to break the economy et cetera, et cetera. Meanwhile, employment numbers and GDP and all these things are surprising to the upside and the stock market is reflecting that.
Jeff Phillips: The stock market yeah. The stock market again for all that you and I probably share somewhat similar views on parts of the financial markets. The stock market really isn't off that much at all and when you look at the fact that you've had a geo-political event that hasn't happened in a long time with Russia and Ukraine. You've had several quite large banks here in California fail and one in New York. They were funding a lot of the speculative tech stuff and office stuff.
It takes longer to see those consequences and I don't think we've seen the consequences yet, but maybe you disagree? I don't know.
Dan Ferris: No, I actually do agree on that point. I don't think the – shall we call it the unpleasantness in the banking sector is done by any means because it really hinged on those banks that failed. I don't think we'd be talking about them in interest rates were still zero because they bought a bunch of expensive securities and they had to write them all down and they really had to write them down because they had to sell them in the case of Silicon Valley. So, that was a – they had to take the loss not just write it down. So, are they the only people that bought securities, Treasury securities with nearly 0% yields that year? I don't think so.
Jeff Phillips: I agree with you 100% and I think there's other areas again that the increased interest rates are going to start. I think there are tremors now. I think they're going to be much bigger cracks as we move forward and like you said some people believe the Fed's going to reverse course and lower interest rates. Either way, I think patience is pretty critical at this point. You're going to bounce back and forth until you have to have a reckoning, which is bad debt has to go away.
Companies that don't make a profit that have been able to buy shares back, by borrowing money cheaply are not going to be able to do that anymore and you're going to have to have a reset. And that's when my space is – again I'm always in the resource space and I've been around long enough that I've managed to do well year in and year out, usually, but not every decade you have an event in the natural resource space. It becomes like a mem stock space that everybody wants to be in it. People realize that copper is really going to be difficult to meet the demand here in the future because the easy deposits have been found. They're going to start realizing that uranium costs $60 a pound to get out of the ground and it sells for less than that.
So, we've had underinvestment in the uranium space. They're going to realize that zinc and other things that are in the same boat and what you end up having after that financial reckoning is a very good natural resource market, because at the end of the day whether it's the speculative stuff or the bigger companies that funds tend to buy in those spaces. Those companies do very well because they're hard assets. It's a finite asset. It's getting more expensive to get and again I'm sure you talk to people in the and you can't not read a paper and read about electrification and the green new deal and solar and everything else.
But it's amazing how many people that are what I would call very environmentally friendly and are all for this and when I ask them where lithium comes from, they can't answer the question. Or I'd say how much copper does it take or where do we get our copper or do you realize your Tesla has x number of pounds of rare earths in it? Do you know where rare earths come from? Well, they all come from China, we don't actually make our own, they're all processed in China. And their environmental standards are extremely low and it's always ironic to me that at the end of the day, you need the metals and they come out of the ground.
That's where we get them. If you want to plug your cars in – California's passing they want to be fully electric by 2000 – I don't remember what it is now. I don't know where they're going to put all the charging stations because we don't have a lot of real estate left here in California and on top of that the power grid is based on fossil fuels and non-clean energy and you still have to power your Tesla that's a whole other conversation that's interesting. Anyway, I'm off on a tangent sorry.
Dan Ferris: No, that's a good tangent. When people talk about – like all of the sort of fashionable ways to consume things like green energy and even veganism they're completely out of touch with the reality of how metal and food is produced. Vegetable farmers kill hundreds of thousands of animals, like they decimate the landscape of animals. People are like oh, we didn't kill a cow... yay, we ate carrots or whatever. But I'm like yeah you killed 100 squirrels and 100 moles and 100 whatever else, but sure you didn't kill a cow. It's the same thing in copper, it's like okay Mr. Environmental, are you okay with a new Chuqui or Escondida mine – one of these massive, massive copper mines in Chile like every year for the next 10 years? Because it's going to take something like that.
Jeff Phillips: The problem Dan is what people don't realize either is because of – and again I'm all for protecting the environment and doing things responsibly, but it's like well there's two sides. We don't have a smelter left here in the United States for copper. Even though copper is produced all over the world, 60% of it now is produced, smelted, turned into copper in China. You look at uranium, again the only real green energy is nuclear energy that has zero carbon footprint, the problem is that it also has a byproduct that you have to be very careful of.
But the Chinese, India, they're building very modern nuclear power plants at this point with new technology and we are attempting to do that here now with small-scale nuclear reactors, but the fact is most of our nuclear energy structure was built 50 years ago. It's the equivalent to driving a 1957 Chevy down the road and the highway and wondering why when you get in an accident it's much more dangerous than a new car with airbags. Not only have we stopped in nuclear, we've stopped inventing and improving, we've stopped with what we have not in our backyard. It's the same with mining. We don't mine the rare earths.
We don't have the lithium. We don't have the graphite. The lithium-ion battery is half graphite. So, I love that and this is probably off the subject that you want to talk about but there's two types of graphite, there's natural flake and there's synthetic graphite. Natural flake, only about 8% of a battery, electric-car battery is natural flake, that was three years ago, but it wasn't changed that much.
Most of its synthetic and they make synthetic graphite by hanging sheets of coal and heating it to 2,500 degrees Fahrenheit for a couple weeks they turn it into graphite and then the Chinese sell it to us for our batteries and the Japanese to make the batteries so we can stick them in our electric cars. Well, those furnaces aren't running on nuclear energy they're running on coal in China. People don't realize, and now you have the geopolitical risk. You mentioned Chile and the Escondido mine. Chile just nationalized their lithium market about four weeks ago, which is creating havoc for some of the big lithium producers and it may change, but again if you're exploring for lithium they're making it 100% more socialist.
You've seen Peru, which has one of the largest copper producers and ranks high in gold and silver and other metals. They're being led by a government now that says not in our backyard. Well, our problem is we get all of our metals here in the states from other places because we haven't developed our own assets for a long time. That's going to be a problem down the road.
Dan Ferris: Yeah, it sounds like it. So, Jeff are you comfortable giving us a specific name of a company that you're interested in now, or not?
Jeff Phillips: I don't really feel comfortable giving specific recommendations except your listeners should understand that the natural resources markets are going to do very well over the next decade. Prices of these underlying commodities are going up. So, if you like uranium and I don't know what the price of Cameco is right now, but again if you think uranium it has to be higher otherwise the lights are going to go off, people won't mine it. Cameco's going to do very well. So, Cameco is a less risky type of speculation it's institutional it's a bigger company, it produces uranium.
As opposed to a company that I've invested in that's got a discovery but is trying to prove it's big enough and again – not real comfortable giving recommendations because I don't know who your listeners are and I don't want people to think this is investing, it's speculating.
Dan Ferris: Understood yeah, it's totally up to you. Well, I guess we've already established that you're a natural resources focus guy and you think this is a good time because over the next several years with lots of volatile ups and downs, it is going to work out well. You're convinced at this point as things stand that the setup is like you said either there's a lot more investment and a lot higher prices or the lights go out. Or we don't have enough copper to do anything that we want to do.
Jeff Phillips: Correct.
Dan Ferris: Yeah, got it, yeah. All right Jeff since we're not going to talk about individual names, maybe you could just and I realize you've sort of dealt with this throughout our conversation, but maybe you could just kind of give us the bullet points like the three or four or five things that if someone is going to speculate in these stocks what do you look for? If you could reduce it to that? I don't even know if you can.
Jeff Phillips: Yeah, I have to remember that I'm in this space so some things I take for granted after 30 years. But again a subset of your listeners probably already invests in these types of companies, they probably get promotions from different newsletters and they sound wonderful this could be the biggest gold mine ever discovered or this could be the biggest lithium – I see this stuff. I get emails all the time so – one is to find someone that whether it's a broker or a newsletter writer that's got a track record of a longer period of time and it's had some success in this space. And it's worth spending some money to subscribe to knowledgeable people. You know you have a number of newsletter writers in different spaces.
It always stuns me that someone's willing to – they think spending $2,000 to get financial advice whether it's on crypto-currency or natural resources is too much money, but they want to invest $80,000 in this space. I'd start by investing the $2,000 in a resource who's knowledgeable who's had a good track record. You've got the internet it's pretty easy to figure out who's doing what and I've invested first in a good adviser whether it's a broker in a certain speculative space or a newsletter writer. But as far as my space is concerned, there's three things that are important to me when I look at a company and I get three companies I do a lot of private placements. Remember these companies are burning cash, they need cash to do metalogical work.
They need cash to drill more, they need cash for engineering acquisitions if they're trying to grow and add to their portfolio respective properties. So, I look for three things. One is I first look at the management team and see if their track record – if they've had any success in the past. And then I remember that there's two types of success, there's a person who actually built a company and sold it to another company, which in my definition is true success. But then there's people in the speculative space that have been around long enough and they've had a number of companies that may eventually have not worked out because of cycles and the commodity space and prices and country risk, but most of their deals have done very well after they've started them or gotten involved into a bull market.
So, I look for success. Most of the guys or women who've actually sold a company. The next most important thing in these companies is to look at the share structure and their cash position. They're always raising money, so I don't want to buy a stock when the company's down to $400,000 in the bank because I know it's not going to go anywhere. Because the brokers in this space in Australia and Canada and some here in the states are waiting to finance this company and they're going to sell shares to put money back in if they actually like it anyway.
So, its share structure and their ability to finance. And then the third thing is the asset. Does the asset merit? There's 80% of the companies in the – and most of these companies are based in Canada and Australia, 80% of them are recycling stuff that my geologists that I employ will look at and say I stepped on that 32 years ago when I was with Reotypto or Plaster Dome. It hasn't changed in 32 years they're just putting lipstick on a pig and promoting it because lithium's hot right now.
So you really want to find projects that may have the merit to turn into something bigger. So, a larger mining company wants to take over that asset and turn it into producing assets. So really, it's people, share structure, and assets. And really people first, share structure, asset third. So that would be my criteria.
Dan Ferris: I want our listeners to underscore something you said: my geologist that I employ. I bet that helps, doesn't it? To be able to employ one's own geologist.
Jeff Phillips: Absolutely, and that's what I'm sort of getting at whether you're fully immersed in this space for years and have lots of people doing stuff for you or you spend some money on someone like in your organization that specializes in. You know I'm not going to go because I read something on Yahoo and says this is the next great cannabis company. I'm going to go subscribe to a newsletter of someone who's – I'm just using cannabis as an example, because it was a bubble we had that's imploded. I would want to have somebody that's more knowledgeable than me in this space go out and look at that sort of thing. And again in all of these things, I mentioned a friend of mine who passed away and was a newsletter writer for 60 years named Jim Dines, he had one of his – Dinisms, and one of them was always drink upstream from the herd.
So, whether you're speculating or – don't follow the crowd be ahead of the pack so it was again I think when you're doing these things by the time you're reading about it everywhere online you probably missed the boat. The best investment you can make is hiring whether it's a geologist or a newsletter writer someone who has a specialty in that space. And that doesn't mean that you should follow that person blindly. Often, I don't agree with my geologist or I think the share structure and the people will overcome the mediocre asset or they'll add other assets, but I want to have a lot of different opinions. So, again if you're going to play in any space specifically the natural resources, higher-risk juniors space.
Getting good information and spending money, you've got to spend some money to make some money. A lot of people don't do that. They just want to make money and have anybody on the internet tell them what they think they should do. So, again that would be my advice.
Dan Ferris: All right, well it's time for my final question which is the same for every guest no matter what the topic even if it's nonfinancial same final question. And you may have answered it already and that's cool, because I did ask you for the list that you just gave us. Now instead of three or four things, I'm going to ask you if you could leave our listener with just one idea today what would that be?
Jeff Phillips: One idea today? I guess my one idea today was I sit here and I read all the financial stuff and have been successful in my space and a successful investor in real estate. I've developed real estate. I tend to since this is a financial show, without being too corny my one piece of advice is find balance. Don't focus too much, don't get consumed by planning for retirement, planning for this, what might happen, how bad it could get.
Remember that the most important thing is you're not given any guarantee on your time, enjoy your family, enjoy your health because eventually we won't have our health and don't worry so much and have fun. I don't know if that's too corny for you, but that would be my advice.
Dan Ferris: Not at all. You echo more than one previous guest with that answer and it's funny because it's usually like the really successful people who I know have put in massive hours. They're saying hey there's more to this than putting in all these hours. So, I appreciate that I'm sure the listeners do as well.
Jeff Phillips: I've had several people point out and we all joke especially being in the commodity business. What's the most valuable commodity? And especially younger guys all sit there and think is it gold, is it copper, is it lithium, is it this? The most valuable commodity you have is time.
Dan Ferris: Yeah, I knew it.
Jeff Phillips: Use your time wisely.
Dan Ferris: Certainly, a finite amount of that, we're all born with peak time.
Jeff Phillips: Yeah, and I'm not discounting the fact that you should plan your finances and you should save and make good decisions, but you know at the end of the day you want your health and you want – I guess the other piece of advice would be rich or poor it's good to have cash. Don't over-leverage yourself. Don't find yourself in a position where if your timing is wrong you can be wiped out. Make sure you invest and speculate responsibly.
Dan Ferris: All right Jeff, listen thanks for being here. I really enjoyed talking with you. I'm sure the listeners enjoyed it as well.
Jeff Phillips: I hope it was something that they enjoyed listening to, but thank you for having me.
Dan Ferris: Many mainstream analysts are predicting that stocks will recover soon, but I say we'll instead witness a cash frenzy unlike we've experienced in 21 years before stocks recover and I'm urging Americans not to buy a single stock until they see it. I predicted the Lehman Brothers crash in 2008, and I called the top of the Nasdaq in 2021, but this, this is the No. 1 most important thing to pay attention to for 2023. And I'm not talking about another market crash or politics or inflation or any of these other things. As all of this unfolds the financial consequences of what I'm talking about could last for several decades if you don't understand what's happening there will be winners and losers and now is the time to decide which one you'll be. This is why I strongly encourage you to read about my warning, totally free today.
It's all spelled out in a free report we've put together. Get the facts yourself go to: www.stockdeadzone.com to get your free copy of this report. You can learn how to get my four steps to prepare for what's coming. Again that's www.stockdeadzone.com for a free copy of this new report.
Well, I hope you enjoyed that. Jeff is a really – he's just a super successful investor. You almost couldn't tell by the way he talks about things because he's not like bragging and he's not trying to sell you anything and he's not trying to convince you of anything really. He's just kind of telling you what he's doing and why and those types of people – they almost seem to fly under the radar, but that's the attitude of all the very best wealthiest investors that I know personally. They're never trying to convince me of anything really, which I find very interesting.
It's like they have strong opinions lightly held and Jeff certainly has that. He said well I could be wrong I could lose money et cetera, et cetera. But his success speaks for itself and you heard him refer when I asked him what are the things you like to look at and the first thing out of his mouth was the management team and the second thing was do they have a track record of success. That's a big hint right, and being able to hire your own geologist is a big hint if you're going to speculate in natural resources. And before he even talked about that he said get a broker and adviser and newsletter writer. God bless him for saying that.
And somebody who's really good, who you can trust. So, a lot about relationships and people was embedded in just about everything he told us and if there was one take away that would be my big takeaway from talking with Jeff. Anyway wow, that was a great conversation for me. I hope it was for you too and that's another interview and another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did.
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