In This Episode

Steven Yates, former deputy security advisor to Vice President Cheney, joins the podcast this episode to weigh in on the North Korean negotiations slated for next week. Steven is already an expert on East Asian security issues – he learned Mandarin from his time as a missionary in Taiwan – and after 13 years removed from public service, he can offer a candid assessment on the risks – and promise – that these talks pose.

Buck and Porter talk about what Porter’s calling one of the most reprehensible government decisions he’s seen in his life, and Miss America’s tragicomic efforts to decree – or pretend – that looks don’t matter.

Buck asks Steven for his take on Kim Jong Un’s move a few days back to replace three of his top generals. It’s highly unusual for there to be a changing of the guard in the days leading up to a historic summit. “Any kind of change comes as a shock to most analysts.”
Derek N. from the mailbag asks how the Iranian sanctions taking effect in November against US companies still doing business with Iran will affect oil companies. Porter explains why it won’t make much difference thanks to the ongoing shale boom – which, despite epic production, won’t stop oil prices from booming.

Featured Guests

Steven Yates
Steven Yates
Stephen Yates is an analyst, commentator, and advisor on US politics, policy, and international affairs. With experience at senior levels of the White House, international business and public policy institutions, he has been involved with foreign policy and cross-border corporate transactions in Asia, the Middle East and other geographies.


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 Here are the hosts of your show, Buck Sexton and Porter Stansberry.

Buck: Hey everybody. Welcome back to another episode of the Stansberry Investor Hour. I'm nationally syndicated radio host and guy whose hair swoop should be in the Guinness book of world records, Buck Sexton. With me here today is the founder of Stansberry Research and according – according to Country Club Guy, a 25+ handicap, Mr. Porter Stansberry.

Porter: That's ridiculous, Country Club Guy.

Country Club Guy: He hits every one of those 25- [crosstalk]

Porter: That's ridiculous.

Country Club Guy: 25 strokes? Even I know that's not the way it's supposed to be. He even asks for strokes on par three.

Porter: That's ridiculous.

Country Club Guy: That's just wrong.

Porter: Listen, I'm about a 21 index and when I play you, I take 18 strokes and sometimes I win.

Country Club Guy: Sometimes, very few.

Buck: Today, we'll be talking to my friend, Stephen Yates, CEO of D.C. International Advisory, former deputy national security advisor to Vice President Dick Cheney. He is a true China and East Asia national security and geopolitical expert. It's going to be a really interesting interview.

Oh, and by the way, this coming October 1st and 2nd at the iconic Bellagio Resort and Casino, when you join us in Las Vegas this October, you'll hear from influential people like Robert Kiyosaki, Jim Grant, Steve Forbes, Dave Barry, Dennis Gartman, Trish Regan, well done sire, Penn Jillette, and Dr. Lacy Hunt, just to name a few.

And, of course, the entire Stansberry Research crew of editors and analysts will be there. You'll hear new ideas from Porter himself, Steve Sjuggerud, AKA Sjug, Doc Eifrig, AKA Doc, Dan Ferris, Bryan Beach and Dave Lashmet. Get all the details at That's and register today.

Remember, you can get transcripts from Stansberry Investor Hour, additional information about our guests, and be notified each Thursday when we publish a new episode by going to

With that, Mr. Porter, the baton is yours.

Porter: Just one thing about the Vegas conference. Country Club Guy, have we arranged for me to have a pretty special hotel room/villa?

Country Club Guy: It's the same suite that Michael Jordan uses when he goes out there to do his gambling. Except there is no basketball court.

Porter: Very nice, very nice, and is there the adjacent room? I've heard something about the adjacent room.

Country Club Guy: It's there, we got it all. We're trying to figure out how to pay for it, but it's –

Porter: Is the adjacent room going to be well stocked?

Country Club Guy: Stocked with alcohol?

Porter: Sure. Just teasing. The other thing I wanted to say about Vegas is last year, these ideas, the new ideas that we talked about in Vegas, were pretty spectacular. I had a crypto idea that went about 5x in the preceding six months. So you can really do well, if we deliver good ideas again, and, of course, past performance does not guarantee future returns. But before we get into the banksters and the gangsters, which is what the damn prosecutors are.

I wanted to talk about one of the most reprehensible government decisions I have ever seen in my life. For those of you who don't know about this yet, the mayor of New York City is unilaterally demanding a change to one of the true meritocracies left in America. There are a number of really excellent high schools in and around the five boroughs of New York City where admission is completely 100% based on a test. I have a guy in the room who took that test, Buck Sexton.

Buck: In fact, I qualified for the flagship school Stuyvesant here in New York City. It's a public school. These are public schools, but incredibly elite.

Porter: They're very elite and these schools produce some of our country's best talent, so the mayor has decided – again, unilaterally that there are not enough brown people in these schools. Now, I want to be very clear. This is not my opinion, I don't care what the color of your skin is.

Buck: Black and brown.

Porter: But it doesn't matter, right, because the idea is it's a meritocracy. You get into these schools, because you deserve to be there, because you've proven yourself academically on the test. Is there any kind of discrimination in the test? Of course not, it's just a test. You took it, what's in it, Buck?

Buck: It's a very straight-forward, it's kind of like the SATs except you're in the eighth grade instead of in high school. And I remember the day I was there, because this was before all the digital-era stuff. You know, I'm old, and we had two – you're only allowed to bring in your ticket and your two pencils and it was Buck and a sea of several thousand other kids who are overwhelmingly – as you looked around, overwhelmingly Asian. Actually, East Asian and the schools – it's actually closer to 70% Asian now and every few years, this comes up as a "social justice issue".

Porter: And I went to a very integrated high school, probably 30, 40% of my high school was black, it was African American, but these – I never even thought about the color of their skin, you know. It didn't even occur to me. They're just good kids, they're my friends that I play sports with.

And people our age, so I'm 46 this year, you're 10 years younger, roughly. Right? We grew up in an integrated society. We don't think about race the way that the people who were 50 and 60 years old do in America. At least I don't believe that we do.

But you're not talking about the average high school. You're talking about the absolute, best cream of the crop, the place where all the smartest kids go.

Buck: The highest average SATs of any public high school in the country, I believe.

Porter: That is important for our country, okay? And yes, there are, in my opinion, thereareimportance's to kids being integrated. But at the very highest level, the most important thing is meritocracy. The smartest kids have got to get together, get to know each other, go to school, so that our country can be successful. These are going to be the actual leaders in math, science, and engineering, and that stuff matters.

Buck: Can I ask you guys real quick about a different kind of meritocracy. This is really sad, because meritocracy is on the way out in this country. You know they're banning the bikini and nightgown competition from Miss America, now?

Country Club Guy: But it's not about looks anymore.

Porter: You're not going to change human nature. People who are attractive are always going to have an enormous advantage in life.

Buck: Absolutely true.

Porter: You're not going to change human nature.

Buck: One of the biggest lies, oh, Country Club Guy, every job we've gotten right, it's been because, you know, we got that certain swagger.

Country Club Guy: What is the old saying is good looks open doors, but great hair blows them off the hinges?

Buck: That's amazing, I want to borrow – yeah, big P's got great hair. No, this is one of these things where if somebody asked me now what in the absence of any looks being a part of the Miss America – this was just announced this week – what are they being judged on now? I mean, is it now a nerd competition? Like who has the most degrees?

Porter: Who sings and dances.

Buck: But then it becomes a talent show, it's not any – it's no longer a pageant.

Porter: Why don't you do The Voice thing and make the judges turn around, so they can't actually even see them.

Buck: Yeah, you're changing the essence.

Porter: It's a beauty pageant.

Buck: Right, but, you know, they've sort of moved away from the beauty pageant to just a pageant to now it's going to be I don't even know what.

Porter: I thought you had all that other nonsense, the talent and the interview. I thought you had all that other stuff just to give us some excuse to look at beautiful women in bathing suits.

Buck: That was it, that was the business model.

Porter: Yeah, trust me, Trump wasn't involved with these pageants.

Buck: Oh yeah, no, this is Miss America, which has that whole "we're a scholarship foundation," but like Miss Universe is still going to be a parade of smoke shows. That's what they do.

Porter: I wonder if what's her name will be a judge of the Miss America contest. I wonder if Ariana will be coaching these young ladies towards success.

Buck: Porter, why do you always treat women like pieces of meat? Like the porterhouse that you eat three times a day, look at you, I can smell the A1 sauce in your pores. It's disgraceful. Hasn't had a vegetable in like six months, has he? Country Club Guy, feed him some romaine. Force feed it like jam it into his face. Make him chew. Wash it down with alcohol, I don't care.

Porter: By the way, anybody who thinks I treat women like a piece of meat should spend just an hour watching my wife live her life. Yes.

Buck: It's important for the misses to be calling the shots.

Country Club Guy: By the way, Porter does love asparagus, so -

Porter: I love asparagus. I love Brussel sprouts.

Country Club Guy: What is it called, blanching it? I don't know what these fancy guys –

Porter: Come on.

Buck: Brussel sprouts are actually my favorite of all vegetables.

Porter: You get them really crispy?

Buck: I crisp them up and throw some pancetta in there, usually.

Country Club Guy: Buffalo wing sauce on there?

Porter: Try fresh horseradish.

Country Club Guy: Next up a cooking show [crosstalk].

Buck: I am not going to give up on Meat Day, as an aside. I've heard these stories, the lore has spread far and wide, and there has not been a meat day.

Porter: There is going to be a big Meat Day this fall.

Buck: I know, I know it's going to be cold outside, it's a little weird to sit there and eat 20 pounds of meat. Well, not that weird, actually, on a hot day. It's called a barbecue.

Country Club Guy: Yeah, I don't know, Porter.

Porter: It's all meat all day.

Buck: All right everybody, this week on the Stansberry Investor Hour, we have a very special guest and the timing is fantastic, because as you know, the planned mega summit is coming up between Kim Jong Un and Donald Trump. The fate of North Korea, of the Korean peninsula some would say of Asian security overall and with it global security hangs in the balance. And you also have a back and forth over a looming trade war, which we know is affecting markets, is affecting all kinds of international business.

That's also at the top of the headlines these days. We have a true East Asia national security and geopolitical expert with us, and a good friend of mine, Stephen Yates. He is the former deputy national security advisor to Vice President Dick Cheney. He's also the CEO of D.C. International Advisory and he speaks Mandarin Chinese, by the way, was a missionary in Taiwan – has some really interesting stories. Stephen, thanks so much for making the time for the Investor Hour.

Stephen: Great to be with you.

Buck: Let's start with North Korea, the summit. What is realistic, assuming things go well here? What would be, an A-, if we were going to grade this upcoming summit? What would they get out of it?

Stephen: Well, the bare minimum is actually has turned out to be vital for the president to go to the table to hear firsthand what the real offer is from North Korea. We've had United States, North Korea, and occasional multilateral partners for the better part of the last three decades having things proposed, sometimes agreed, violated, renegotiated, et cetera, et cetera.

And so there isn't a lot of new ground to cover about what the basic proposition is. Is North Korea going to denuclearize? How would that be verified? And are there inducements or other kinds of incentives put into the process?

Sometimes, there's a talk of unification of the peninsula or some kind of peace agreement, but the basic elements are pretty well known after all this time. But really, we've got two unconventional leaders coming together in what is the classic conventional kind of setting of a summit and this is, in my estimation, uncharted waters.

There isn't really any precedent for this kind of gathering and yet, I think we might actually be on the initial steps of this journey of maybe making the Korean peninsula less of one of the global hotspots that those of us who spent time in government over the years have always called one of the greatest concerns about proliferation or outbreak of major power war.

Buck: What do you think Americans reading about this and wondering how this is going to go and, you know, the ramifications, as I said at the outset, are huge, if this goes well, obviously. It could be a major diplomatic breakthrough of the likes we really haven't seen since the fall of Berlin Wall.

But what do people need to know about our North Korean negotiating adversary here? Okay, it's a totalitarian kingdom, it's the most repressive society on the planet. I mean, we have the basics, right. The folks listening to this podcast are all very well informed, but what does North Korea really want?

Stephen: First, I think that there's a context for this that is how negotiations have proceeded in the Trump administration that informs what I think the North Koreans expect and we should expect of them. And I think one of the things that anyone watching this needs to be careful of is they need to avoid drawing long-term conclusions in response to the short-term tactics of these interactions.

Just like it was a mistake when this was on in the first instance to think that we're on a smooth glide path through to a Nobel Peace Prize. And then when it was taken off, it was wrong to assume, well, we're on the path to war, what was the breakdown, et cetera, et cetera. We're going to have some back and forth, some give and take. It's possible that the leaders don't actually meet on time. It's possible that they meet and they break without agreement and then meet again.

There's even been foreshadowing of a follow-on summit before we've even gotten to this meeting opening. I think the first thing that we have to be mindful of and I think the North Koreans will think this way, too. We're not expecting the big deal to be consummated right here in this one meeting. So from North Korea's point of view, we're really in uncharted waters. We know a lot about the basics of North Korea and they're almost all bad. We know who their biggest enabler is and that's Beijing, or China.

But there's still not that much we know about what makes Kim Jong Un tick, how secure his power is. He has murdered members of his family and his regime. He has deposed military leaders recently and so it could be that he has fully consolidated power and he's coming to the table ready to make his deal without any threat of defiance from his top leadership back in North Korea.

Buck: I just want to ask how did you read that move that Kim Jong Un made just a few days ago where he replaced three of his top generals and really, the power structure in North Korea is Kim – well, Kim, his sister, the former director of their intelligence service, who just met with Pompeo in New York and generals, from what we know. I mean, that's it, right? So when he starts replacing top-level generals, that has real implications for what's going on and the power dynamic at the top of the North Korean state. Should we read that as positive? Is it too hard to know? What did you think of it?

Stephen: It's very unusual, even when you go back to the Cold War and looking at old Sovietology, for there to be a changing of the top-level guard in the days going into a major summit. It was perceived during those times, mostly, as a signal of uncertainty or weakness. But to be honest about it, we just don't know what these signals mean in North Korea. Until we have some kind of a framework in place and we can actually measure is there implementation, is there violation? Are there other things that are happening that have gone off the rails for us?

We don't really have the accurate or meaningful feedback mechanisms to make heads or tails of this, but it's definitely unusual for that kind of a thing to happen before such an important setting.

Usually, North Korea is one of these areas that's so scripted. They've got the famous parades of thousands and thousands and thousands of people marching in unison, total control. So any kind of change comes as a shock to most analysts.

Buck: Now, you were there during the Bush administration at the highest levels of decision-making on the national-security side. Now that you had some time to see how things have played out, you know, I could also about the Obama administration, but I think they just largely allowed status quo to continue with North Korea.

Since you were there and you saw it, what can you tell us about what worked, what didn't work, and what you wish you had known or what you wish the president, the vice president who you were advising, Cheney and Bush, had known about North Korean actions and intentions back in 2000 to 2008?

Stephen: Well, I don't know there are things that I wish I would have known, not that I'm some kind of a genius on these things, but I think things played out largely the way I expected they would. I didn't believe that there was a verifiable deal to be had a decade or so ago and we had what I thought was the U.S. drawn by our allies, in some sense, into being what is usually called an ardent-suitor position where we wanted or needed a deal more than the other party did.

There have been assumptions over the decade that North Korea was in famine or in some kind of distress, that our sanctions were hurting them. I have no doubt that the people of North Korea have suffered through this entire travesty. But it was very unprovable that the leadership itself had changed their calculus. When you have leaders of rogue nations making strategic choice to acquire the world's ultimate weapons, that's usually not a flippant choice.

It's not something they typically are willing to negotiate away. And we had evidence of North Korea cheating on an earlier agreement at the outset of the Bush administration. So some of us were fairly certain that they would cheat on a new agreement just as well and they did. So we did have ambassador Chris Hill I think playing the role of an ardent suitor, whether it's for diplomatic purposes or a need for political win in the second term of the Bush administration.

It had motivation to try to push a deal thinking it was verifiable, thinking it was almost Nobel worthy, and yet within a very short period of time, North Korea had tested nuclear device and we had – through The Obama years, the best you could say is they didn't make any bad deals, but they didn't really do anything to change things. I think really the Clinton, Bush, and Obama – three two term presidencies – did in fact preserve the status quo, which was an enhancement of North Korea's nuclear capabilities and their means to deliver them by intercontinental ballistic missiles.

Buck: Well, this is important. If past is prologue, and as you said, I've been saying this on different platforms from recent months, too, there's really been a bipartisan, if not failure, at least inability to stop North Korea's missile and nuclear programs. I think that's just fact. I don't think anybody really disagrees that – it obviously hasn't stopped. It's gotten worse, it's gotten more aggressive, and there's been greater problems, but that they lied in the past and reneged on agreements very quickly means that even if this summit in Singapore goes incredibly well, we're going to have to hold back on the celebrations, because who knows if they're going to stick to any deal.

But Stephen, I want to move us to China, because first off, actually, a perfect transition here is what does China want? You know China incredibly well as a professional, as a national security expert. And as I mentioned, you actually speak Mandarin, which is very rare. I know, Stephen, you're a very humble guy, but I like to bring this up, because I know there are all these different folks who go on TV and they're oh yeah, I was a national security expert whatever.

I'm like weren't you working on, you know, EU politics or something? Now you're talking about what's going on in China? But anyway, you actually know what's going on in China and Asia more broadly. What do the Chinese, what does Xi Jinping want here for this summit, during it, and after?

Stephen: So I think that's a really, really important angle that can't be forgotten. To a degree I think the president and his team have been wise to push for some high-level bilateral interaction direct with North Korea, in part because China is the dominant strategic actor of Asia. And it's going to determine what the contours of any enduring deal are going to be and whether it succeeds or fails in a large or small way.

There's an assumption among a lot of experts, usually academic, that the preferred outcome by both Koreans is unification of the peninsula. And it's also assumed that the Chinese don't want unification of the peninsula, because they want a buffer between where their military border is with North Korea and where U.S. troops are stationed. So there's assumptions that the Chinese want U.S. strategic forces off of the peninsula.

They don't want a unified Korean nation and that they don't mind there being some strategic tension driving the focus of the United States and its military away from China's military modernization, maybe its aggressive territorial claims against Taiwan or the South China Sea. And so in some ways, North Korea has been a convenient strategic distraction to do what Deng Xiaoping had talked about a long time back of biding their time while increasing their power. Basically, drawing little attention to the fact that they were becoming one of the greatest strategic threats to Americans' primacy in the world, but also in East Asia particularly.

So when they look at North Korea, they're not looking at a short-term deal. It's not a transactional situation. It has a role in their self-image of what their role is in East Asia and the world.

Especially its power relative to the United States. And if the United States is seen as driving the terms of the solution or calming of the North Korea strategic challenge and China is seen as on the sidelines, it is likely that China will not take that well and try to find ways to basically take a stick and put it in our bike tires.

Buck: How should people listening to this, Stephen, to our wonderful subscribers who are concerned with politics and just everything going on around the world, but also have a focus here. I mean, this is the Stansberry Investor Hour, so people want to know about how this will affect the markets, it'll affect their investments, 401(k)s, and so on and so forth. China is viewed by this administration as problematic when it comes to trade. I think that's putting it mildly, right?

Trump has been yelling about how China is taking us to school on the trade issue time and time again. And we keep hearing there's going to be a trade war, if Trump pushes back. I think this administration has started to at least make the basic case, to lay the groundwork for people to understand China is engaged in all kinds of not just currency manipulation, but also has all these tariffs in place, protectionism, predatory practices when it comes to intellectual property.

I find it strange that there hasn't been more pushback from previous administrations about China's trade practices. I just wanted you to weigh in on why you think that's been the case and what you think of the Trump approach right now.

Stephen: Well, I think for the last 50 years, we've had a somewhat simplistic conversation about China, what we call China's rise, how we help manage it using air quotes, because we're not actually in control of that. And what the prudent response should be by the United States about how to increase the odds that after China's rise, there is some semblance of order, peace, et cetera around the globe.

So the preferred approach, I refer to it as the Mandarin approach, is that we should just be calm, deliberative, don't overreact, recognize they're the rising power, that they should be able to get away with things that we wouldn't tolerate from others and we're going to help them grow out of their problems. It's a little bit of a problem-child analogy and the prudent parent doesn't overreact when the kid throws food on the floor or has a tantrum.

In this case, we're talking about nations. We're not supposed to have those kinds of feelings or attitudes, necessarily in my view. If you want to draw that analogy out further, if you allow that kind of behavior in adolescents, why would you expect it not to manifest in adulthood? So in my assessment, after China's rise, there is not likely to be peace, if we haven't rebalanced the terms of our strategic relationship on economics, on what we're doing to promote peace and freedom of navigation in the global commons and the air and the sea.

And these are just going to be incredibly important challenges. And we've had decades of summits among top U.S. leaders where talking points would be exchanged, occasional moves would be there, but I don't think any administration has taken a truly strategic approach to China since the Nixon/Kissinger move to shift the Cold War and to try to embrace what at that time was a horrific China for the strategic purpose of balancing against Soviet communism.

So we really haven't had I think a strategic and adult conversation about it.

The Trump approach I think has been disruptive and what I would say as a constructive way, because it's resetting what the terms of this relationship are. Back to that adage of not drawing too many long-term conclusions based on short-term tactics, we have allowed the economic relationship to go on for a long time where China can set its own terms for behavior inside its borders that we wouldn't tolerate anywhere else in the world.

I mean, we hit the Europeans up all the time on much smaller matters. We've never let the Russians get away with as much on the security space as we've let the Chinese get away with. In fact, the Chinese basically tell us the words we're allowed to use in describing what American policy towards them is going to be. So we have a policy called a "one China" policy. Whether you're for or against what you think that means, that's not an English phrase.

Most Americans would not describe any policy as well, how many Chinas did you think there were? So I think Trump has been helpful in going after the economic relationship. It is the most important strategic part of the relationship that we have big influence over. Where they go with their military, we don't have as much control over.

We can influence some, but the economic relationship, they need us and he seems to inherently understand that in a way that previous presidents either didn't know or didn't listen to when advisors tried to bring that up. I think the trade negotiations going on now are probably the most important strategic event in U.S. China relations since the normalization of relations back in the 70s.

Buck: You know, China has offered to purchase around $70 billion of U.S. goods if the Trump administration doesn't go forward with some of these proposed tariffs.

This would include soy beans, corn, natural gas, coal, and I think it's fascinating that to any outsider who didn't bring a political ends to this, it looks like a negotiation, which is what Trump has been promoting all along as his approach to China, as well as a whole bunch of other problems. But the headlines that get blared everywhere are trade war, trade war.

I look at this and say the U.S. actually has economic leverage in this situation with China. We're in a stronger situation, position than China is, but we've always seemed to approach the issue of trade with China from a weaker hand. We seem to think that we have to make all the concessions. We just have to sit and suffer in silence while they steal intellectual property, while they engage in all these different practices that the folks listening are familiar with.

It feels like this is the beginning of all of that starting to change. So how worried are you and by all means, I don't know – I really don't know what Stephen's response is going to be here, folks, but how worried are you that this is going to lead to what could really be described a trade war?

Stephen: In a scale from 0% to 100%, I'm pretty close to 0%, because not that there won't be friction or uncertainty, and markets don't like uncertainty that much. I think there has to be some degree of uncertainty, if we're going to reset what the basic parameters of this relationship are going to be going forward, at least how we adjust them. I think what President Trump is doing, he probably isn't going to get all that he wants, because as you say, I think accurately, it is a negotiation.

If the left or the establishment kind of thinking wants to say we're risking a trade war, well, to not take some of these efforts is risking economic appeasement. I think we've lived with some consequences of that for too long. We have to recognize that the Chinese are a grown up, tough, strategic, smart, and effective negotiating counterpart.

When you go down that list and you overlay that list of items on the electoral-college map, what the Chinese have done – maybe better than a lot of counterparts – is they have studied the 2016 election and they look at where the Trump coalition is knowing that we're heading into a reelect time in '20. And they're saying well, you're playing to the working class, why don't I play to the working class, too?

Because if I throw some things to coal country, if I throw some things to a manufacturing base in what used to be the Rust Belt, et cetera, et cetera, then maybe I can use some of this political capital against you like you used it against Hillary Clinton. They do more analysis on our politics than we do. And so that's why it's a serious negotiation. It's not a war. It's more chess and so that's my deeply rooted belief in how they approach this and partly because their political system is much less stable than ours is.

They cannot survive with that kind of a political structure, if there's a great deal of economic uncertainty for them. Their biggest moment of political uncertainty came in the run up to the Tianamen Square massacre driven largely by inflation and labor problems.

It wasn't necessarily a yearning for democracy that we impose upon that narrative. That was part of it, that's what we saw, but it was inflation and labor problems. And they are much, much more politically sensitive to that than we are.

Buck: Stephen Yates was the deputy national security advisor for Vice President Dick Cheney. He is also the CEO of D.C. International Advisory. is where you can go.

They do political risk management and opportunity and Stephen is the best in the business, folks. So if you want more of this analysis and if you want to reach out, Stephen, my friend, thank you so much for making the time. Illuminating as always and we'll talk to you soon.

Stephen: Sounds great, thank you Buck.

Buck: Thanks very much. All right, mailbag time. Thanks, everybody, for writing in this week... Filling our inbox with useful feedback that we love so much. People like David Y. from Hawaii, aloha, who bought three tickets to our conference in Las Vegas, all because of the podcast, yeah. We'll see you there, David, and he isn't even a subscriber, but we're going to change that out in Las Vegas, David. Absolutely.

[email protected], by the way, is how you let us know what you think about this. Please do let us know. Porter is not a snowflake, you will not hurt his feelings, so give it a whirl.

Porter: My favorite thing are these super critical feedback e-mails that I get either through the newsletter or through the podcast. I get a complete kick out of it and the newsletter side of things, folks, people have been all over me, because on Friday Digests – when I do a lot of educational stuff in the e-mails that I write on Friday's – I always tell people there's no such thing as teaching, there's only learning. What I mean by that, of course, is you have to be ready as a student to actually think and read carefully. Otherwise, there's nothing I can do to help you.

There's a couple of people who apparently are teachers. They go bonkers about it and I'm like, "It's just a metaphor, I don't mean it literally and everybody else gets that but you."

Buck: I can tell you on the radio side, actually, more so, I've worked with consultants and had advisors and everything else. The best feedback I've ever gotten, the stuff where I'm like oh man, I really got to do that, is people who start out e-mails or Facebook messages to me about the show I do and they're like, "Generally, I like you, but this thing really stunk." And then they light into me. I'm like yeah, sometimes they're right. That's where you really get the stuff that changes, so I really do like it.

First up this week, we have Derek N. He writes, "Porter and Buck, want to thank you guys for running an awesome podcast." Well, thank you for having excellent taste, Derek. "I am what you call a 'millennial.' Even though I hate being generalized as that, and I found that your podcast has catapulted me into conversations with my bosses that have gained some credibility and yes, I pass off your ideas as my own. That's how the financial services world works. Anyways, I wanted to get your thoughts on a geopolitical and investing topic." Oh, interesting.

"These Iranian sanctions taking place start to take effect on their oil markets come November, at which point their secondary sanctions come into play that state any foreign company that is still trading with Iran will be denied access to the U.S. financial markets across the board. I sense blood in the streets. How should an investor take an event like this and tailor an investment strategy? Personally, I think this is an oil play more than anything. P.S., what would a young student, debt-ridden, professional need to do to get a break on a membership?" Oh, he's going right to the big man himself. He said, "Big P, hook it up."

Porter: Well, it's an interesting point about the Iranian sanctions and I admit, I'm unfamiliar with the technical specifics of the sanctions and I really don't have any idea what the impact on the oil markets will be. I just tell you generally that if that was going to affect the markets, that kind of thing would already be priced in. The markets would be pricing way ahead of that, but I don't think it's actually going to make much difference, given how much U.S. production has increased and given how much slack there is right now in the oil markets, generally.

The feds are talking the Saudis into raising production by a million barrels a day. I – you know, Buck, I told you a couple shows ago, I think you're going to see oil between $60 and $80 a barrel for a very, very long time. There's a tremendous reservoir of oil that has been discovered in the United States and it can be produced very quickly any time prices spike above $60, $70. There's something like 4,000 to 6,000 wells, oil wells, that have already been drilled and the Eagle Ford and the Permian and the Bakken that are not being pumped right now, because the completion process of putting in all that infrastructure would cost too much relative to the price of oil today.

So I just don't think you're going to get anywhere as an investor, you know, by November being _____ oil. I don't think that's going to happen. As for how you can get involved with Stansberry Research, I'll tell you the honest truth, Derek. If you will just go to our website, you can sign up for a handful of free e-letters. DailyWealth is a fantastic product. You can read it completely for free and you're going to get 90% of all the educational stuff that we write in our newsletters is going to be in DailyWealth and it's free.

Likewise, the podcast is free. We also have an entire education center on our website that – Country Club Guy, how many thousands of articles are on that educational website? I mean, it's everything.

COUNTRY CLUB GUY: It's too many to even count.

Porter: You can spend a year reading all of our free stuff. If you don't have any – if you can't afford – think about it this way. If you can't afford to join the Alliance and pay $30,000 and get all of our stuff or you can't afford one of our lifetime subscriptions for $1,000, you know, to an individual newsletter like mine, if you can't afford that, the chances are you don't have any money to invest anyways. So I wouldn't bother paying for a subscription if I didn't have any money to invest. If I hadn't saved $50,000 or $100,000, I wouldn't bother with trying to buy individual stocks or trying to time the oil market.

You're way better off at this stage in your life focusing on increasing your income and minimizing your expenses. Just do that. You know, read the free e-letters, use the educational center, listen to the podcast, so that when you have the money saved, you'll have a better chance of being able to implement it successfully. I wouldn't – if you really are in debt still and you don't have much capital to invest, I wouldn't bother with a subscription.

Buck: All right, we have Andy A. next up here. "Dear Porter and Buck," – we're going to cut this one down a little bit, because it's a bit long, but thank you, Andy. "I like to think I know where all the bodies are buried, as regards to the podcast, having listened to the earliest versions back with Porter's bag carrier, Erin, the Black Label shows, and now the latest incarnation. In my opinion, Buck has added a very important element to the show and I enjoy the debate immensely, although Buck should remove the kneepads occasionally and challenge stronger with his impressive knowledge of the geopolitical landscape and history.

"I would like to hear your respective views on the current trade wars being waged with the U.S., with its allies like the EU and Canada, what it means for the markets long-term, and where is Trump getting counsel on these topics now that Cohen has left? As a final point, Buck should ask Porter what he thinks about Dinesh D'Souza's recent full pardon. Back in 2012, Porter had one of the best podcast fights with Dinesh – " Really, I didn't know about this, " – who came off as a bit of a wanker, by the way."

Congratulations to Buck on his new gig. If you ever need someone to stand in for the Country Club Guy, who seems to spend the whole program sipping pink gin and enjoying yourself, please let me know. I've bought Stansberry newsletters for years and you should charge more. From, Andy." Well, we got a lot here. Do you want to take this one?

Porter: I agree with all that, Andy. I think Buck should take off the kneepads.

Buck: Hey man, you got to keep the boss happy, Andy. You got to keep the boss happy.

Porter: I would love to know what you think of the Dinesh pardon. I think Dinesh is more than a bit of a wanker. I think he's a nut job and the point – I had an argument about – with Dinesh, because he was in favor, at the time, of expanding our nuclear stockpiles.

Buck: Yeah, we got enough nukes to blow everything away.

Porter: I pointed out to Dinesh that we had already lost 12 operational nuclear weapons in the last 50 years and that if we couldn't even keep track of the ones we already have, maybe building a whole bunch more isn't such a good idea. I also pointed out that with 5,000 thermonuclear weapons, you could blow up the 100 largest cities in the world 500 times.

Buck: It's really the delivery mechanisms. So what matters with nukes going forward is going to be – it's not quantity, it is going to be quality. You have things like the hypersonic glide vehicle, which they're working on, which will mean that effectively, you can deliver a nuclear weapon much, much faster than current ICBM technology allows, and also a lot less drag, can carry a bigger, heavier warhead, things like that.

So there's a need to keep nuclear stockpiles, one, safe. Don't lose them and don't allow bad things to leak out of them. Also, as missile technology and counter technology develops, it's not like you can sit there with your ICBMs from the 60s and be like, "Well, we still have the same nuclear utilities." That said, people who are like, "Let's just have more – let's just have a bigger triad," don't understand what they're talking about. That's just really wasteful, expensive, and causes a lot of problems and dangers. The people like Dinesh don't know that, by the way, because they don't actually have any national security background, but they can play it on TV sometimes.

As to Dinesh's – and I have a cold, so if my voice breaks like a teenager here, apologies. I heard you had a cold, too recently, by the way, I got roughed up. Today's the first day when my voice is back. Dinesh broke the law and he knew that he broke the law. I would have been much more sympathetic to him, if he had said there's the whole component of criminal activity. If he had said, "I didn't know this was illegal," I would have been like all right, it's a little arcane. He's like, "No, I knew it was a crime, but I wanted to help out a friend."

You kind of have got to get punished for that. The only question beyond that is, did he get more harshly treated than other people with a very similar case profile? I think the answer to that is probably yes, but it's not a case of he didn't do it or he should have gotten off scot-free with it. It's just a question was the punishment a little harsher and that's a judgement call. That's what I see with Dinesh, but pardoning him is – it doesn't really make a lot much difference. People are still going to say he's a convicted felon, I mean his detractors. I have no personal relationship with Dinesh. I've had him on radio a few times.

Porter: I don't think he's coming back on our podcast after our little spat.

Buck: I am not surprised.

Porter: He called me some kind of a name. It was pretty funny. I thought I'd done a good job. When you're in a debate with someone and their fallback position is well, you're a moron, then you know you've pretty much got the argument won. Buck, by the way, have you read anything about how many times we almost detonated a nuclear weapon by accident?

Buck: Yeah, it's a little scary.

Porter: Pretty scary.

Buck: You go back to Cuban Missile Crisis, too, there's some things. There were some close calls.

Porter: There were times where people were flying planes around the country that had nuclear bombs on the wings and they didn't know it.

Buck: And there's a really bad John Travolta and Christian Slater movie about losing it. It's called Broken Arrow. That's why everyone knows what a broken arrow is now, by the way.

Porter: All right, we got any more mail?

Buck: We have – let me see here, one bit more from Evan. "Hey Porter and Buck, I'll admit I've done no research into the railroad industry, but I did notice that UNP and CSX hit 52-week highs last week. Saw it in my DailyWealth Premium e-mail. UNP is up almost 100% since a low around $75 a few years ago. I know Porter has explained that BNSF has a different growth rate and capital efficiency than the insurance companies Berkshire owns, but I still have a problem understanding his negative portrayal of BNSF when other railroads are doing so well. For a casual observer, can you explain why BNSF is so bad for Berkshire while UNP and CSX are doing so well? Thanks, Evan – lifetime Stansberry subscriber."

Porter: Well gee, I could, if you wanted to spend two hours on it. But since I've already written gigantic essays explaining this, I would just refer you back to those essays. A couple of minor points, BNSF has had a lot more infrastructure problems than the other railroads. It was in way worse shape when Buffett bought it, so he had to spend a lot more money fixing it up than the other roads.

But that's not really the point. The point that Evan – that you're missing – is that insurance companies get all their capital for free. People pay them their capital in premiums and then they make money on that. They don't have to go out and spend billions and billions and billions and billions of dollars maintaining their infrastructure. Their infrastructure, if you're an insurance company, is simply their brand and their relationship with brokers. It doesn't cost capital to maintain that distribution network.

Not the way it does capital to maintain a railroad, so my point is not that Buffett can't turn BNSF around as a railroad and my point is not that the railroad can't make reasonable returns on capital, even though it hasn't done it so far. My point is that that's a really lousy, long-term investment and it's not going to beat the S&P 500, because railroads are very, very low-margin and very, very capital-intensive. So what I think you should do, and I've explained this again and again and again, is if you have a business like a railroad, you don't want to finance it with equity capital, because the returns on assets are very low.

You want to finance it with debt financing, so you can leverage those small margins and still produce a very good return on equity. But you can't leverage an insurance company. You know, Buffett makes a lot of his money by being the only guy in the world who can write a check for $10 billion for a super cat loss and he can write a check for $10 billion without sweating it. He can write a check for $100 billion, if he had to, and that makes Berkshire a great company to sell big insurance policies. That's a great business.

You can't put those two businesses together very efficiently or very well. Berkshire the insurance company needs to have a lot of cash and it can't afford to have debt. But Berkshire the railroad needs to have a lot of debt in order to leverage up its operating margins and produce a good return on equity. That's why putting those businesses together doesn't make sense. So I believe that Berkshire will eventually be split. You're going to have an industrial Berkshire that owns things like the railroad and the other – the utilities and they own a metal fabrication company.

And potentially something like it looks like they're going to end up buying a Chinese electric-car maker, eventually, BDY or BYD. Anyways, that – those manufacturing and utilities and railroads, those are companies that you'd want to have a high amount of debt attached to and that pay a regular dividend. That's the proper structure for those kinds of companies. The insurance company, you don't want to have to pay a dividend and you want it to be a growth business, which is what Berkshire was between, say, 1975 and 1995. And those were Berkshire's glory days, so you could split them and let the people who want a safe dividend stock own the Berkshire industrial business and you could let people like me, who want a Berkshire growth stock own the insurance companies.

Buck: That's going to be it for mailbag. If you got a question, please write to us at [email protected] If we use your question, we've got this fun exchange in place where we send you Stansberry Research goodies. Love us or hate us…

Porter: Please don't ignore us and let me know all the little things that I do wrong. Go ahead. Fire away.

Country Club Guy: Porter loves constructive criticism.

Buck: And that's going to be it for this week. See you all next time. Thanks for joining us.

Thank you for listening to the Stansberry Investor Hour. To access today's note and receive notice of upcoming episodes, go to and enter your e-mail. Have a question for Porter and Buck? Send them an e-mail at [email protected] If we use your question on air, we'll send you one of our studio mugs. This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copywrited by the Stansberry Radio Network.

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