In This Episode

Chris Mayer, editor of Chris Mayer’s Focus at Bonner & Partners, joins Buck to discuss the four simple things anyone can do to succeed in the stock market, how he builds a portfolio for the stock-averse founder of Agora Publishing, Bill Bonner, and what he looks for in companies that could be potential “100 bagger” investments.

John Gillin and Scott Garliss stop by to give you a preview of the new Investors MarketCast podcast from Stansberry Research. You’ll hear about the classic signs of a recession that are starting to be more obvious in economies around the globe, why a projected 2.25% Fed rate hike could be deadly for bond markets by 2020, and what it means for the markets right now when fund managers are still holding record amounts of cash.


Featured Guests

Chris Mayer
Chris Mayer
Chris learned the art of valuing companies the hard way – clocking a decade as a corporate banker while also earning his MBA. After 11 years with Agora Financial – during which he wrote two very successful research letters – Chris joined Bonner & Partners to develop a first-of-its-kind investment advisory. Launched in April 2016, Bonner Private Portfolio is the only trading service ever to be actively followed by Bill Bonner. In fact, Bill’s family trust has committed to invest $5 million in Chris’s model portfolio.
READ FULL BIO
John Gillin
John Gillin
John Gillin began his career as a sales trader in New York City at boutique investment bank Wertheim Schroder. After seven years at Wertheim, John was recruited to come work for Baltimore firm Alex. Brown and Sons Inc., where he covered some of the largest hedge funds in the world, as well as major mutual funds like T. Rowe Price and Wellington.
READ FULL BIO
Scott Garliss
Scott Garliss
Scott Garliss is the editor of Stansberry NewsWire and Stansberry NewsWire Premium– real-time daily blogs in which he and his analysts scour the markets to offer you a better understanding of the forces driving market volatility… and recommending the best ways to trade that volatility.
READ FULL BIO

Transcript

Announcer: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.

Buck Sexton: Hey, everybody. Welcome back to another episode of the Stansberry Investor Hour. I'm nationally syndicated radio host Buck Sexton, and joining me today is Chris Mayer of Bonner Partners as well as Scott Garliss and John Gillin from Stansberry's brand-new podcast, The Investors MarketCast. The Investors MarketCast is a brand-new 30-minute broadcast put together each week to give you the up-to-date market news you can use. Stansberry hired three veteran portfolio and hedge-fund managers: John Gillin, Scott Garliss, and Greg Diamond.

Now these seasoned pros sift through all the market noise out there each week to bring you the type of investment news, ideas, and insights other media outlets completely gloss over or are not paying attention to at all. Search for Investors MarketCast on iTunes, YouTube, or Stitcher to get the latest on topics like the big innovation problem at Apple, why regional banks will move higher, bitcoin blues, and how to protect yourself from eurozone chaos.

Let's show the Investors MarketCast gang some Investor Hour appreciation and help them build their audience by going to iTunes or You Tube, searching for the Investors MarketCast, and hitting the "subscribe" button so you never miss an episode. And what will you get in return, dear listener? Incredible insights, ideas, and investment news delivered right to your device each week for free from three incredibly smart and experienced market movers.

We'll also include links to the Investors MarketCast in this week's e-mail update, which you should all be receiving each Thursday morning. Not on the list yet for e-mail updates including time codes, guest info, links to the latest show, and access to our transcripts? Well, just go to InvestorHour.com and sign up today to get on the free list.

Also joining me today will be Chris Mayer, editor of Chris Mayer's Focus from Bonner & Partners. Chris has been traveling the world for the last couple of decades to get the real boots-on-the-ground perspective for his investment ideas. Chris is here today to talk about the four things you can do today to succeed in the stock market, how he builds a model portfolio for Agora's founder Bill Bonner, and what he learned on his most recent trip visiting a 10-bagger company. OK, let's get started.

All right, our first guest this week via Skype is Chris Mayer. After 11 years with Agora Financial, Chris Mayer joined Bonner & Partners to develop a first-of-its-kind investment advisory, the Bonner Private Portfolio. This is the only trading service ever to be actively followed by Bill Bonner. In fact, Bill's family trust has committed to invest $5 million in Chris' model portfolio. Chris' latest project, Chris Mayer's Focus, provides in-depth hedge-fund-quality analysis on a select group of small cap stocks with the potential to become the next Starbucks, Walmart, or Berkshire Hathaway.

Chris has been a guest on Forbes on Fox, Fox Business, CNN Radio, Russia Today TV, multiple appearances also on CNBC and radio. Chris likes sharing investment wisdom through books as well. His first, Invest Like a Dealmaker: Secrets From a Former Banking Insider covers time tested essential principles of investing. His newest book, 100 Baggers: Stocks That Return 100-to-1 and How to Find Them teaches readers all the key characteristics of companies that return $100 for every $1 invested.

After two decades of investing, Chris developed a proprietary "CODE system" and investment strategy he used to outperform not only the S&P 500 but also legendary investors like Warren Buffett, Carl Icahn, John Paulson, and David Einhorn for ten years straight. Ladies and gentlemen, with us now, Chris Mayer.

Chris Mayer: Hey, thanks for having me on, Buck.

Buck Sexton: All right, what is the code system? If you are able to achieve returns better than Buffett and Icahn, our listeners need to know what this CODE system is.

Chris Mayer: Well, the CODE is an acronym and it stands for four things that I look for in any investment. So "C" is for cheap, looking for undervalued stocks. "O" is for owner-operators, and this is where I'm looking for stocks where people running and have skin in the game. They either own a lot of stock themselves. "D" is for disclosures. I want to find businesses I know what's going on, we can understand their public filings and there's not any red flags there, and "E" finally is for excellent financial condition.

Only look for stocks that have great balance sheets, staying away from names that have a lot of debt. All four of those things together work pretty well, powerfully together. Find good stocks.

Buck Sexton: You recently wrote about the four simple things that you should do to succeed in the stock market. Can you walk us through each one of those?

Chris Mayer: Yes. In that article about the four simple things... The first thing I mentioned was I think probably is the thing that's most associated with me, the thing that I harp on the most as being important, and that is to invest with people who have skin in the game. It just makes common sense. If you're going to invest in a company, you want the company managers to be stockholders like you, and you want their interest to be aligned with yours. So that's the most important thing.

The other four I talked about, one was "be patient," and that's because the real successes in investing come when you're able to compound your money over a long period of time. I like to give the example of what happens if you take a penny and you double it every day for 30 days. At the end of that period of time you'll have almost $11 million. But what's interesting is on the second-to-last day you have $5, and the third-to-last-day you have $2.5. So it shows you that a lot of the returns are back-end-loaded with investing and you have to give your investments time.

The third thing is you can't expect to win all the time, and there's a lot of studies about this, about how even the top-performing investors, the ones that are at the very top of the decile of performance wind up spending quite a bit of time at the bottom, which goes to show you that even the best investors will trail and do badly from time to time. So it's a game where you want to win over a long period of time and not really worry about any year, particularly year two.

And the last point I made in that article was don't diversify too much, and this comes from a lot of experience I've had with readers as well where they own these enormous stock portfolios where they have 40 or 50 stocks and there's just no way that they could possibly follow all those names or know anything about them. So I always tell people, think about it. Is your 30th best idea really worth owning? Is your 29th best idea really that good? And many of the best investors have focused their investments and they've put big chunks of their money in many just as little as 10 or 15 stocks. So those are the four points.

Buck Sexton: How do you approach building the Bonner private portfolio? Bill is known for staying away from stocks in favor of things like real estate and business partnerships, so how do you handle that?

Chris Mayer: Well, Buck, Bill is interesting that way. I mean he is pretty negative on the stock market as a whole, but he himself is a deep value guy. He likes to find bargains and in his own investing wealth that he has outside of his private businesses he has about a third or so in stocks. He has written about this as well. A third stocks, a third cash, and a third gold is kind of the three that he likes to put in. Number one, I think we look for assets that we can hold onto for a long time. Bill doesn't like trendy, fad-y stuff, and as well he shouldn't.

So we own things that we can sit on for a long time and that are not leveraged. We look all over the world. If you look at the Bonner private portfolio we have stocks in France and Italy and the U.K., all over the place. That's really how we handle that. We're looking for deep value and things we can own. We're not looking to trade. We're not looking at the latest trends, and that works for Bill as well.

Buck Sexton: You recently made a visit to what you call a ten-bagger company. What do you look for in a ten-bagger and what'd you learn on this trip?

Chris Mayer: Well, the things we always look for, it sounds basic, but it's very important, and that is something that can get really big and that has the economics to get really big. So think about if you could own a McDonald's when they had 30 restaurants, and you could look at each of those restaurants, you know their return and the capital invested on those things is 20 or 30% of wherever it was, and you know they can continue to open more of them across the country. That's the kind of thing you want to have when you're looking for these ten-baggers or 100-baggers.

So on this particular trip that you're mentioning we were looking at a new entertainment venue. It's really only just starting and they're very popular, and this one has just opened their first location. The economics on that particular location should be very good. Again, we're talking in returns on their capital should be north of 20%. So the idea is they can continue to open that. That's how you really get those 10 times, 100 times returns is you have to find a business that can earn 20% or 25% on its capital and one that can invest all those profits and then just do it again and again and again. Then it's just math. If you get 25% a year for 20 years that's 100 times right there.

Buck Sexton: Steve Sjuggerud, "Sjug" as I like to call him, was on the last podcast last week. He was talking about his recent trip to China. What's your take on China's economy and society? Is this something you've looked at closely recently and what do you think about investment opportunities in China?

Chris Mayer: Well, that's a big, big question. I guess I'd answer it first by saying that for an investor like me, China is tough to invest in because I pay a lot of attention to things like the structure of business and the assets they own. Again, we're looking at owning things for a very long time, and in China for example, I'll tell you something that almost very few people know. There are these things called variable interest entities, VIEs, and what that means is for the big stocks in China like the Alibabas, the Tencents, and other stocks like that, you own shares of those companies, but those companies don't own their assets.

They own shares in a variable interest entity. So it's a very strange thing. It's kind of like a license agreement in China. Obviously, lots of people have done very well in China, have made money, but when I look at those kind of funky structures I have to ask myself, well, if that was in the U.S. would I invest in a company like that with that sort of structure? So I think there's some dangers with that. You don't know if those contracts will be held up if they're challenged, and, well, I think those are big risks.

We are happy to invest in the trends that are happening around China because there's tremendous growth there of course, and there are different ways to do that. I guess I would say so far we have no direct exposure to China because we've always kind of stumbled on these issues of the legal and regulatory framework on our investments and whether or not they can be enforced.

Buck Sexton: Speaking of 10-baggers, you've written about one key mistake that must be avoided to find stocks that return 10 times your money. What is the big mistake that has to be avoided?

Chris Mayer: Well, there's a lot of mistakes to make, but in that particular piece I was talking about the big mistake would be being too rigid about things like certain favored valuation ratios like price earnings ratio, for example. Investors always focus on that and then they don't want to invest in a certain company because it seems expensive to them. I had a great example that an investor shared with me, and this was a personal example for him where he remembers looking at Starbucks way back when, when it was pretty early on, and he loved the business, liked the CEO, but the PE at the time was 40. So it seemed too expensive and he passed on it, and the stock is up more than 100-fold since then.

So I think when you get too focused on one particular metric you lose sight of the bigger picture, and in Starbucks' case you had a business that had tremendous profit margins, that opened stores at a high rate, and earned a lot of profits, and it was only just getting started. That is the big mistake. All these 100-baggers, and you mentioned it, I did both the 100-baggers book and did this big study on stocks that returned 100 to 1, many of them did not necessarily look obviously cheap when they started their run, but they were great businesses.

So if you really understood it and you dug into it, you're more likely to buy into a business like that than if you just focused on something because you didn't want to buy it because its price earnings ratio was too high or doesn't pay a dividend. Investors get hung up on one or two little metrics and they lose sight of the big picture.

Buck Sexton: Finally, Chris, let's tease your investment service a little bit. Chris Mayer's Focus. The opioid crisis in this country is devastating. It's destroying lives every single day. You've researched a company that could help solve this problem and it's a really interesting investment idea. Without revealing the company, can you tell us a little bit about this?

Chris Mayer: Sure. So the opioid crisis is something everyone knows a little something about. It's been covered in the media, and I think the most shocking thing to me about it is that last year was the second year in a row that life expectancy in the United States dropped, and the U.S. is the only major developed country that has this problem. All the other countries, it's sort of slow move up and to the right, and the problem is the opioid crisis. The number of deaths is just staggering.

So what we've looked for is part of the idea of looking for 100-baggers, too, is to find companies that solve very big problems or that meet some mega need. And we've found a company that provides that, and it just launched a new treatment for opioids that is far better than anything else on the market. We think that could be a billion-dollar drug made, perhaps even more. So that's the kind of thing that we look for in Focus.

We look for a company like that, that has the chance to really become big, and this is again a small company. Market cap is only a few billion dollars and you compare it to some of the other big pharma companies that are $50 billion, $100 billion or more, so there's plenty of room there. So there you go. That's what we like about that one.

Buck Sexton: Chris Mayer, everybody. Chris, thank you so much. Everybody, you can go to FocusOffer.com for more of Chris's work. Again, www.focusoffer.com. Chris, thank you so much.

Chris Mayer: All right, thank you, Buck.

Buck Sexton: All right, up next we're going to bring on Scott Garliss and John Gillin from the brand-new podcast production at Stansberry Research, The Investors MarketCast. Scott Garliss spent the last 20 years trading for top investment banks like First Union Securities, Wachovia, and FBR Capital Markets. His job was to reach out to important clients to make sure they were on top of upcoming events that could likely move the markets, both economic and political.

John Gillin has worked for boutique investment banks covering the largest hedge funds and mutual funds in the world. His extensive experience, and knowledge of the inner workings of equities, options, commodities, and futures allows him a unique perspective to give you direct access to the latest ideas, events, and forces shaping the world's financial markets. Each week John, Scott, and veteran portfolio manager Greg Diamond talk trends, investment ideas, and developing economic news to give you the information edge you need to make money in today's stock market and avoid unnecessary risk.

The Investors MarketCast reveals what's really going on behind the scenes on Wall Street so you can profit on Main Street. We checked in with Scott and John earlier this week and this is what they had to say.

John Gillin: This is John Gillin. I'm here with my friend Scott Garliss. Quickly on the weekly recap, again Nasdaq 100 up almost 1.5%, and then Consumer Services got in the game after being in a bear market that was up 2.5, but you also had rallies in the FTSE, the London Market, the Dax, German, and even some of the Spanish and Italian markets, which certainly is a bit of a head-scratcher given everything that they've been going through. The Dow was off 1% and that was due to energy, and then on Friday, Boeing and CAT got whacked around as the Chinese tariffs really came into view.

Something I did want to mention: Boeing delivered 202 aircraft to China in 2017. That was over 25% of all deliveries. So that is your litmus test. It's about the technology, it's about the Russell, and then the events from last week. Why don't we start talking on European Central Bank, which was absolutely key and avoided the temper tantrum. Your thoughts there?

Scott Garliss: Yeah, you know I feel like I've talked about this a number of times, for anybody reading this regularly, the Fed and the ECB were the big things last week. Everybody was looking for the ECB to be very hawkish coming to this meeting. The one big piece of speculation was that the ECB, they're basically going to end asset purchases, but people weren't sure would they announce it now or would they announce it next meeting?

What they did was they came out and said, "OK, we're going to put an end to asset purchases by the end of the year." Right now it's like $30 to $35 billion. That was supposed to end in September. We talked about that last time. Then it's going to taper off between September and the end of December, beginning of January. So that was hawkish.

But what they did say was the next question is when is the ECB going to raise rates, and nobody was really sure when that was going to happen, but they came out and said it wouldn't happen before the end of the summer in 2019. That's a long way off. So they said basically September of 2019 is the first time they'll really debate raising rates.

John Gillin: And didn't they maintain the option, kind of going back to the Bernie Sanders play, they could reload the punchbowl?

Scott Garliss: They did, and that was interesting, too. They said if things don't pan out the way we're thinking about it, we could wind up going back to asset purchases again. So everybody is –

John Gillin: Whatever it takes.

Scott Garliss: Basically. They want to get inflation up to 2%. So the big question, again we've talked about this in the past, beginning of the year was hey, the ECB and the BOJ have to catch up to the Fed or the ECB being the European Central Bank and the BOJ being the Bank of Japan, have to catch up to the Federal Reserve in terms of their policy actions. We saw a little bit of that out of the ECB, but it wasn't wholehearted. It was kind of a half-pregnant move, and nobody ever likes a half-pregnant move because as we all know it's impossible to be half pregnant.

But what it did do was it caused the euro to sell off after the initial spike higher, and that spiked the dollar again because 47% of the revenues that come into the S&P 500 are from multinational companies. That doesn't mean that they are all from overseas, but that's the percent of revenues those companies make up. So a higher dollar can weigh on the S&P.

I think we saw a bit of that on Friday, and then conversely a lower euro is good for companies over in Europe because they sell more. Cheaper euro means the cost of goods and services is cheaper overseas. So we saw European indexes rally a bit on this.

John Gillin: North Korean summit. I mean my take is, look, he's a monster, but he's our monster, so we want to put him back in the sandbox.

Scott Garliss: Snuffelupagus?

John Gillin: Yeah. If you read through the litany of offenses, it boggles the mind, but a nuclear power you've got to talk.

Scott Garliss: He had his own family killed.

John Gillin: Yeah. It's disgusting.

Scott Garliss: So you know what? The proof is going to be in the pudding there. A lot of details yet to be figured out. You walk away from this and you're like, all right, step made in the right direction.

John Gillin: And it's a market positive, no question in my mind.

Scott Garliss: It is. Is it an incredible victory? I don't know yet. Is it a huge defeat? I don't know yet. But like you said, it is a market positive because there's one more sort of overhanging negative that's sort of been taken down, not completely.

John Gillin: Not firing missiles over Japan or over Guam. So the G7, that's come and gone, but that was an absolute insult-fest, and what were some of the comments I read over the weekend? Rude, selfish, unreasonable, headstrong. Oh, that actually came from China. Then of course the ECB's joker said, "With friends like this, who needs enemies?" But the pocket-picking has been going on for too long, and as we've explained in past podcasts, the administration said as much.

Scott Garliss: Yeah.

John Gillin: Stuff has to change. And it's important that July 6 is the kickoff for tariffs with China, so there's still time.

Scott Garliss: I think in all three of these instances talking about North Korea, talking about the G7, and talking about the tariff kickoff, again it's something we talked about the last couple of weeks. Basically, the administration, if you constantly read the tweets that Trump is putting out there, I mean he is saying exactly what he is going to do. He's not pulling punches or kidding around on a lot of this stuff so far. It's pretty straightforward.

John Gillin: Oh boy is it straightforward.

Scott Garliss: "Here's my plan, here's what I'm going to do," and he's following up on it. He's following up on a lot of his campaign promises. It's interesting because a lot of people were thinking, okay, they went back and they read The Art of The Deal, they read the other things, and they're like, maybe this guy, this is just all a setup. It's a game. I did some of that, too. Maybe he's pushing for more to accept less, but right now it doesn't seem like he's pushing for more to accept less. He's pushing for more to accept more.

John Gillin: Well, we had talked about this and there was an article over the weekend. The fiscal stimulus in place has ten times the effect of the tariffs, and with earnings growing it arguably 20 to 24%, the most important part of the market is of course the economy.

Scott Garliss: Yeah. They're going to slow down a little bit this quarter in terms of growth, but still overall the picture for the whole year, expectations are very high for earnings growth.

John Gillin: Yeah, and that's not to say markets can't go sideways to a little bit down in earnings growth as you get a change in multiples, but that's for another discussion. So the fast and furious is China strikes back and the rhetoric picks up. I did read foreign investment companies including from Hong Kong and Taiwan product 43% of China's exports, and manufacturers make up 77% of Chinese exports.

So there is a lot of permutations here. It's a lot more involved and the math gets pretty aggressive. If this were to go on for a long period of time, which I don't think it will, industrials and energy will be most affected. I did want to mention – we'll get right into the Fed and four rate hikes. Your thoughts, higher rates on equities, etc.?

Scott Garliss: I mean, I think you have to look at it in terms of one of the things you've been speaking about: its effect on emerging markets and emerging-market currencies. There's an article, I can't remember if it was the Journal or Reuters this morning or overnight talking about the emerging markets are stuck in a really interesting spot – because not only are we seeing the dollar spike and it's having a negative effect on their currencies, but also at the same time oil is moving higher, too. I know we've seen a pullback recently around the conjecture whether or not OPEC is going to up production. But still, so oil is moving higher and the dollar is moving higher, so it's a double whammy.

John Gillin: Jammed on all sides.

Scott Garliss: Because it's sucking up more of their income just to get gasoline and basic things, and then on top of that the dollar is taking more of that power away from them.

John Gillin: And I've discussed it by seeing articles that I read about, "Oh, you've got to take advantage of the selloff in emerging markets and particularly bonds, and currencies are going to stabilize." That's a bunch of nonsense. If you look at what's going on in – we've talked a lot about Spain. We've talked a lot about Italy. Turkey has got an election coming up, what's happened with the Turkish lira and their bond yields have spiked. Let's talk about Germany.

Scott Garliss: Hang on. Before we get into Germany –

John Gillin: No, no, let's talk about Germany.

Scott Garliss: I wanted to finish something on the Fed. So the Fed took expectations from three rate hikes this year to four rate hikes this year. It was kind of in-between. It was really close to happening, but it definitely happened. Good or bad, it's done. It's probably good that, hey, let's get it out of the way. Let's figure out what it's going to be instead of this conjecture.

So I think you have to look at that, too, and the Fed is looking at that as there's growth here. That's a good thing, right? It's probably a really good thing for a lot of commodity-related plays because as growth picks up demand is going to pick up. There's going to be more interest in those materials. We'll see.

John Gillin: Certainly late-cycle stuff and we're going to hear more about that.

Scott Garliss: Exactly.

John Gillin: We've got a big event coming up at Stansberry Research.

Scott Garliss: Exactly. If you go back and look at a bunch of commodities, they usually run pretty hard late in the cycle, and sort of what Porter has talked about a bit and Steve has talked about 100%. So you have to look at the Fed and what's going on there versus what's going on at the other central banks, and I think it highlights why the U.S. can be a safe place in terms of where you want to put your money. Just because there's this growth going on in the U.S. doesn't seem to really be happening as much in the rest of the world right now. I think you were saying the Atlanta Fed recently took their

John Gillin: Yeah, what do they call it? Their Now Cast is up to 4.8% and that's –

Scott Garliss: That's for the second quarter, right?

John Gillin: Yeah, and of course that gets –

Scott Garliss: That's crazy territory.

John Gillin: Mixed markets. The New York Fed is at 3.2%, but if you get some with a mid- to high-three handle, that's impressive.

Scott Garliss: I'll take 3.2% growth.

John Gillin: I'll take 3%. We've been stuck on two for how long?

Scott Garliss: Tell me about it. So you're seeing that, and again inflation is going to be a consequence of growth, and the way you combat inflation is you have to raise rates. Powell said, "Hey, we want to raise rates, but we want to be careful that we don't cap growth." And that's the tricky line, right? So what's going to happen?

John Gillin: Then of course he spoke and the market has been down the last couple of days and that's your proxy going forward.

Scott Garliss: So what we have this week is the ECB Central Banking Forum kicks off in Portugal. It's a big deal because there are a lot of obviously central bankers there. Draghi kicks it off tonight, then on Wednesday the big event is going to be Draghi, Powell, Kuroda, and Lowe, who's the reserve bank of Australia head, are all going to be speaking on a panel and I believe –

John Gillin: And how are you not there? That's like your equivalent of U2.

Scott Garliss: Yeah right. So what would concern me there, what I think is going to be a big part of the conversation is going to be inflation. Remember last year this event was really notable for the markets because it got the global growth picture going in an upward trajectory in the middle of the year because what Draghi said was disinflationary pressures have turned into inflationary pressures, and people looked at that and said, okay, the global growth dynamic has changed, and look what the U.S. markets did. Look what the European markets did.

Everything took off and accelerated into the end of the year. Now the question is going to be this year they're probably going to talk up inflation again. Are people going to look at that and say this is great from a growth perspective? Global growth is there and we're going to see this explosion again? Or are people going to look at it and say, uh-oh, this means they might be capping growth down the road?

John Gillin: All right, so devil's advocate for a second. In the existential risk to the world economy because of tariffs, which is an outstanding word, I can't tell you how proud my people are going to be that I used that, here's a couple of data points. After two years of expansion, air traffic has been flat in the first quarter, particularly in Europe and Asia. Container ships, no growth, none.

Scott Garliss: Interesting.

John Gillin: In freight since the fall. The Oxford economist that I'm in touch with on a weekly basis as you know said the weakest showing globally since February of 2017. Central banks are withdrawing the cheap money they sent coursing through the global financial system in 2008, and that's causing a slowdown.

Scott Garliss: Yeah, man. They're pulling back on the punchbowl.

John Gillin: Not here, but it's happening elsewhere.

Scott Garliss: Goes back to what we were talking about earlier.

John Gillin: And now if you could jump – we talked about Germany before and this is something I didn't know, and Scott has got a very compelling thing to talk about.

Scott Garliss: So what we were talking about Spain and Italy, we talked about that last week. Spain and Italy were a big issue that the markets have overcome, and one of the things in particular was the change of government in Italy. Populists took over and some of these guys who were in the cabinet or were proposed to be in the cabinet in Italy, they were anti-euro and they were saying that the Italian people and all of Europe should reevaluate the euro system. And that really scared people and they talked about a breakup of the euro.

The reason why this is important is because Italy is the third-largest economy in the eurozone. But we got over that, so markets sort of have gone up a little bit since then. But what we do have now is Germany. That's the largest eurozone economy and what happened, a situation that's developed there is there's been some push and pull with the immigrant policies in Germany. So Angela Merkel, the chancellor, her party is the Christian Democratic Union, also known as the CDU.

They have had a longstanding alliance with the Christian Social Union, the CSU, and then they recently in the late winter in February they reached a new alliance with the Social Democrats, SPD, and this allowed them to form a majority coalition again. But one of the big things that the SPD is in favor of is allowing political asylum, and they want to let all these political refugees into Germany's borders. So what the Christian Social Union is saying, they kept one post in this new organization of the government was interior ministry, and the guy who runs the interior ministry is saying he wants all migrants turned away at Germany's borders now, and this is against what Angela Merkel is about.

What they're proposing is giving the government a two-week window. Here it is, you need to re-figure out the laws with the rest of Europe in these two weeks, otherwise we could walk away from our union or alliance. So what's happening is you're seeing other countries in Europe are not accepting these migrants and they're sending them to Germany and Germany is accepting them. And what we did see was there was an instance over the weekend where Italy turned away a ship full of migrants and they sent them to Spain.

And part of the charter of the European Union is you're supposed to accept a certain amount, but the SPD does not want quotas on the amount of people that Germany accepts. They actually want to change the laws that more people can get in legally into – but the CSU is against it. Angela Merkel is in a really interesting spot all of a sudden because if she agrees with the one side and says, okay, we want to stop migrants from coming in, the other major party to her coalition she just went against everything they're in favor of is letting all these people in.

The next couple weeks could be really interesting because if we see a situation where that coalition falls apart, Germany has to go into new elections. And that's going to be a problem because Germany is the biggest economy and all of a sudden, we have all these trade tensions going on in Europe, all this other stuff happening, and you have a lame duck head of Germany.

John Gillin: And everybody has moved to the populist point on the compass, certainly with Italy and Spain and what happens in Germany. That will affect markets.

Scott Garliss: And Merkel and Macron, the president of France, had been working together to make some changes within the European Union recently, and she has talked about going along with some of France's ideas that are a little radical for Germany. But a lot of the rest of Europe is on board with it and they want it pushed. This has been a positive for the euro because a lot of people are looking at this as European unity.

John Gillin: Well, as far as the European Union I just want to interject that with all of the tariff issues and what's going to happen coming out of Europe, it blew me away that the U.S. can't negotiate directly with France and Germany on trade. They've have to go through Brussels.

Scott Garliss: Yes.

John Gillin: Just a breakdown in communication.

Scott Garliss: Yeah, I mean because anybody within the eurozone, that's 17 countries, but within the European Union there's 27 countries. So there's a lot of cooks in the kitchen, man.

John Gillin: Oh man, well said. Well, how that all plays out particularly as we get – looking at tariffs coming into and out of the European Union and Canada. I did read that Mr. Trump says we've got a $100 billion deficit with Canada. Trudeau says they're running a surplus or we're running a surplus, and the Europeans will always fall back on, "Well, we're investing billions and creating jobs," and then in order to negotiate you have to go through Brussels. It's a mess.

Scott Garliss: And again, one of the main reasons we highlight all this stuff is just because of the effects it can have on the dollar and what that can do to the markets and the impact on business here. Again, like we keep talking about, 47% of S&P revenue is coming from U.S. multinationals. There's no way these things don't have impact on what happens to the S&P especially if the dollar goes higher.

John Gillin: True. Something we were talking about, indexing, which will all make sense in a second, indexing equities. So when Twitter was put in the S&P that created $1.5 billion in market cap, which is just astounding, and then people get a little bit excited and traders bid up in the short term. Anyway, the way bonds are weighted, they're weighted by the size of their debt. Let's take Italy for instance. It's the third-largest debtor in the world, and the more country borrows, the more their paper bond index investors must buy. It's just kooky.

Scott Garliss: It makes absolutely no sense.

John Gillin: And that's why people get back to, well, people are forced into buying Italian bonds. They're forced into buying Spanish bonds.

Scott Garliss: How about you buy less?

John Gillin: Yeah. Why don't you be a responsible manager? What are you doing in this crap?

Scott Garliss: How about based on the size of the economy and the growth and not based on their size of their debt? Holy cow. Could you imagine if the corporate bond market, if corporate bond indexers it was based on how much debt a company took on?

John Gillin: I can't tell you, I don't know what the rules are there now.

Scott Garliss: What a disaster that would be.

John Gillin: It would be something for Porter to write about, I can tell you that.

Scott Garliss: I mean it certainly would. Speaking of that, what were we talking about? There was an article earlier that we were talking about in the Journal, AT&T and Comcast, and the crazy amount of debt these guys are taking on to buy up. What did you call the –

John Gillin: Vanity purchases.

Scott Garliss: Yeah. It's insane. At some point those pigeons have to come home to roost. Porter is constantly talking about this, just the amount of corporate debt coming due in 2019 and 2020. I mean I can't remember right off the top of my head, but I want to say it's like $3 to $4 trillion.

John Gillin: Yeah.

Scott Garliss: As rates keep going up, and think about it, the Fed just said we're adding another 25 basis points this year and they already told us we're adding in another 25 basis points next year, and there are two more expected in 2020, so let's think about it. In '18, '19, and '20, you are talking about nine hikes to – what is it?

John Gillin: Fed funds.

Scott Garliss: Yeah, Fed funds. That's 2.25%. Now think about that, if you got a refund, you have to roll your debt over in the next couple years, and you have to pay an extra 2.5%. That adds up.

John Gillin: Yeah, and you're going to get a recession. It's just part of the cycle, folks. This isn't anybody making any dire predictions, and a recession is two down quarters in a row of GDP growth. So if you were growing at 3%, next quarter you get 2.9, following quarter 2.8. That's a classic recession. It doesn't mean a whole lot, but if you are as you said trying to figure out your debt equation, you – uh-oh, Tongo, you got a problem.

Scott Garliss: Yeah. I think guys like Paul Tudor Jones are out there. These are some of the guys that are the biggest shorts, and I'm sure Ken Griffin is right there. They're throwing the "crash" word around again. Anything is possible. That seems a bit aggressive at the moment.

John Gillin: Why not? Let everybody stir it up.

Scott Garliss: Yeah, mixed markets.

John Gillin: You know what I wanted to talk quickly about? Our friends Doc and Sjug went over to China and there was an article over the weekend that was titled "China Swipe Battles." It had to do with Alipay and WeChat Pay, and these third-party Chinese mobile platforms last year handled $15.4 trillion in transactions, and that's up from $2 trillion in 2015. I mean, the growth is just astounding.

I was talking to Doc and he said everybody has got their phone app 100% of the time, and he talked about watching a street fair and I guess you could swipe for the juggler or Captain Underpants, whatever he was. Who's the guy in Times Square? The underwear cowboy.

Scott Garliss: The Naked Cowboy?

John Gillin: Yeah. So you're up there, you give him a swipe. I mean that is where it's going. MasterCard and Visa last year, $12.5 trillion in transactions all-in. It's trying to fathom what's going on over in China and please listen to these guys, folks. Please listen to Sjug and Doc and everybody else that's writing about it because unless you've gone there, our friend Dan our producer has been there and just got back, you can't imagine.

Scott Garliss: People have said the panhandlers in China will accept WeChat payments.

John Gillin: Let's go.

Scott Garliss: Yeah. I remember when I lived in New York I was walking down the street one time. I was used to people being like, "Hey, you got a dollar? You got any change?" And some guy came up to me, I was walking by Central Park, and he's like, "My man, you got a $20?" What? I got a $20? And now they're accepting WeChat payments. It's crazy. I also saw there's an article out there, WhatsApp is trying out a mobile payment system in India now and like a million people have recently tried this WhatsApp payment system.

John Gillin: Which is owned by Facebook. Oh, speaking of Facebook, check this out. The WhatsApp cofounders who left after the Cambridge Analytica debacle, evidently they left $1.3 billion in stock options on the table.

Scott Garliss: I mean, that's some conviction.

John Gillin: Dude, you're throwing your hands up, "I made enough." I think they bought the company for $19 billion, but you're walking out on that, the funny money that's around.

Scott Garliss: It's insane, $1.3 billion.

John Gillin: Blow me away.

Scott Garliss: There's some small countries that could use that.

John Gillin: So I wanted to interject one –

Scott Garliss: Do you think Zuckerberg donates that? That'd be pretty noble.

John Gillin: As I said before, I don't want to get on Zuck's plane. I want to be in a pair of his Zucket flying shoes. Things not to do. So don't attack a sitting senator when he's sitting on his tractor. You remember that? Rand Paul.

Scott Garliss: What happened?

John Gillin: They threw that guy in the clink for 30 days.

Scott Garliss: That's a nice one to have on your record, too.

John Gillin: Just kooky. Speaking of D.C., is any of these even worthy of comment, the Manafort, the Cohen, the market is just snore. The Mueller investigation becomes snore.

Scott Garliss: There's so much back-and-forth there, it's hard to tell what's real and what's not real. I think you just need to keep a leery eye on it to see if one of these things turns into something that really snowballs and takes off and like, OK, hey, Mueller has got all these guys and they're all really pointing the finger at this guy and they can draw lines. I think that's when it's going to become a real issue. The flipside is hey, they've got all these guys and there's nothing to be had. This is a waste of time. It would take pressure off the administration and whatever. It would remove this overhang. That would be a market positive.

John Gillin: How about midterms right now? Are you handicapping that, or does it matter?

Scott Garliss: You know what, man? Midterms it felt like the Democrats had the momentum; now it seems like the Republicans are getting the momentum. I think it's a really fine line that we're going to be dancing and it'll be very interesting. I think it feels like, and I know a lot of people are predicting it, but it does feel like the momentum is gaining for the Democrats to take back the House. All these guys have retired or they're retiring. That strikes me as very interesting, all the GOP guys are retiring and walking away. But it sort of feels like it's going to be a close battle either way and it could be the same way in the Senate.

John Gillin: I think a lot of these guys are probably looking at a vibrant economy saying, "I'm sick of getting yelled at. I'm going to get back into private practice and make some dough for the family."

Scott Garliss: Why not?

John Gillin: Yeah. Let somebody else have a shot at this.

Scott Garliss: Pretty much. I think an interesting battle to pay attention to headed into the election, just started seeing some stuff about this recently, Trump was saying "I need to get this border wall legislation done, otherwise potential government shutdown in the fall." Remember we went through this was it in September? We could be headed back toward this again in September. It's early, but it's only a few months out.

My wife and I were going over the calendar, she's like, "We have all these things coming up on these weekends." I'm like, oh my god, the summer is just starting and our summer is planned out. What happened?

John Gillin: Yeah, and then the government shuts down.

Scott Garliss: Yeah.

John Gillin: I can't quite remember. There have been more gremlins out there, but the market is focused on growth. It's focused on jobs, wage gains, sentiment numbers which have been terrific, and the U.S. is pretty unique. We are on an island as opposed to what's going on around us. Certainly skirmishes, but the market so far has shrugged shoulders and said "I'm going to bet on the brilliance of these individual companies."

Scott Garliss: And look at the cash levels. I think the Global Fund Manager survey recently came out and said that fund managers have like 4.8% cash levels. Again, the 10-year average is 4.5. Look, if you're 4.5 or higher that's pretty high. The charter for a typical mutual fund says you can't go above 5%, so if you're at 5% you're the highest level you can go in terms of cash. That cash has to come to work at some point. Whenever I see that I always think to myself, I want to be on the other side of that because that money is going to chase at some point, and when that money starts to jump in and chase, that's when you want to sell. I think but you're seeing some of that.

Like you've been talking about, people are going defensively and they're going after technology names because of this. I think the mid-cap, small-cap banking sector, the KRE being the main ETF, we've been talking about that. It's another good way to play because of consolidation. Actually, can we go back? Really quickly, Time Warner, AT&T.

That ruling last week allowing this to go through with no terms and the guy saying he would deny any stays by the DOJ, that is a big deal for consolidation wave going off in the U.S. This judge is basically saying if there isn't a lot of overlap of these companies they're going to be allowed to go through, and it makes the DOJ have to rethink before they really –

John Gillin: That's the way to compete now. You've got to make acquisitions because you're not seeing organic growth in a bunch of industries, and actually that's why some of the consumer names started to get moving last week after the deal was announced. The spotlight goes on to, what is Kraft Heinz going to do and all of the other, these monster brands that have been horrible stocks like Procter & Gamble, General Mills, or Kimberly-Clark. Anyway, it's amazing how quickly the money is moving. We saw it move right back into retail because there was just a hint of better news.

Scott Garliss: And the one other thing I'd throw on top of that is what you highlighted earlier. You see commodities start to take off late cycle, and another sign that we might be late cycle is another stat that shows up in the late-cycle play is that you see acquisitions really pick up. And the thing about it is, it's not the number of acquisitions, it's the size of the acquisitions, and what we're seeing is the size of acquisitions is really expanding right now.

We're all-time highs. I mean, we hit a record first quarter in terms of the number of acquisitions announced, and I want to say it's $2 trillion is what we talked about the other week has been announced globally year-to-date or through the end of May. That's huge.

John Gillin: So pay attention to those publicly traded investment banks like a Lazard or a Moelis, which are going to benefit big time from this. The stocks that don't act well, the Goldmans, the Morgan Stanleys, JPMorgans, any of these big global money center plays that have – they're affected by negative moves in emerging market and currencies.

Scott Garliss: Yield compression.

John Gillin: Yeah. Flattening of the yield curve certainly is a tough one at interest margins.

Buck Sexton: All right, everyone, hope you enjoyed that segment from this week's Investors MarketCast. Let's all go support these guys and their new program by searching for Investors MarketCast on iTunes, YouTube, Stitcher, and hitting that "subscribe" button. All right, it's mailbag time, although I don't have Big P here. Usually we go back and forth. I throw the ball, he does the alley-oop on the mailbag. I'm going to have to do this solo this time. It's making me sad, no Big P. But here's what we've got in the mailbag and thanks again to everybody for writing in.

We appreciate it and we really hope that you can continue to give us the useful feedback that you have been, people like John H. Peter, Alex W., Bill F., Chris C., Daniel K., Mark F., and Lee S. just to name a few. Your comments and questions are an important part of the show here, so please, please do keep them coming right to us at [email protected] Please send us funny stuff. You can make fun of me. You can even make fun of Porter. He's got a good sense of humor so send us jokes.

Send us things. If you've got a really witty haiku; whatever you can think of. First up in the mailbag from Jeremy R. "Buck, I'm a big fan of your show, Deep Dive podcast, and your work on The Investor Hour. Shields high, Jeremy." Hey, Jeremy, thank you. We got a Team Buck guy who listens to The Investor Hour. That's what I like to hear. Those of you who want to join Team Buck, by the way, it's real easy. You can just listen to The Buck Sexton Show on Apple Podcasts.

If you like the political analysis stuff, you have to come to Investor Hour to learn about investing, but if you want just more all-in politics you can go to The Buck Sexton Show. It's there, it's free, and you'll get to hear me do all kinds of funky things there. Bill, next up here. "Buck and Big P." See, everyone is calling him Big P now. "I'm a lifetime member and a long-armed terminal listener. Really enjoy the podcast. Question: Based on the new criteria, who has a better chance of being Miss America, Arianna or Abby Joseph Cohen?"

I'll be honest with you, I know where Arianna is, obviously. "You better not lie. I miss Porter. He is always disappearing on me at the most inopportune time." But I have no idea who Abby Joseph Cohen – do you guys know who Abby Joseph Cohen is? I'll have to Google this. I don't know who that is, so I got nothing on that one, but Arianna clearly I've got some thoughts on, and there you have it.

We'll keep it short on the mailbag for this week because obviously your finance questions I'd be like, "That is a good question, Porter?" If you got a question for us please do write to [email protected] If we use your question on the show we will send you some Stansberry Research goodies. Love us or hate us, just don't ignore us. Thank you everybody for listening. Honor, privilege, and pleasure to have your attention here, and we will see you next time.

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