Episodes

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

 

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan interviews Harris Kupperman, Founder and Chief Investment Officer of Praetorian Capital Management.

 

Dan Ferris: And today Corey and I will talk about the bond market... maybe the stock market... and definitely the employment numbers.

 

Corey McLaughlin: And remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

 

Dan Ferris: That and more right now on the Stansberry Investor Hour.

 

So the headline I'm looking at is on the Wall Street Journal, and it says hiring accelerated with 336,000 jobs added last month... which is way above what was expected.

 

Corey McLaughlin: Yeah, about 150,000 more than the economists thought, so...

 

Dan Ferris: Right. Not that economists know anything.

 

Corey McLaughlin: Right.

 

Dan Ferris: But they usually get it close, because it, you know, that's the way they operate. So they never see these big changes. They never see these big surges or big drops. So I don't know about you, but I mean, I think, and it seems like the market thinks, that this means that we're more likely now to get another hike. To get another interest-rate hike. I think that's on a lot of folks' minds.

 

Corey McLaughlin: It seems that way. Because going into this, the latest jobs report, I think there was some expectation. I was expecting the numbers to get worse. And if you look at the unemployment rate, the unemployment rate actually stayed the same, which was 3.8%. Which didn't go down, or it didn't change. So, from that standpoint maybe yeah, not much has changed. But that monthly number certainly was off expectations.

 

Yeah, it's all tied into what we've been seeing with the bond market over the last couple of weeks I think, since that Fed meeting where they talked about higher for longer, less rate cuts in next year and basically acknowledging that inflation and growth might be higher, so. And interest rates won't have a reason to go lower. Yeah, so it's been an interesting last couple of weeks I would say since that Fed meeting, for sure.

 

Dan Ferris: Absolutely. And you know, with the 10 year hitting 4.8% yield and people talk about 5% now. I mean, that is, it's just been so quick the way interest rates when from zero to five and a half, basically. And now, if we're looking at the FedWatch tool, which is a highly reactive kind of an indicator, the odds on a November hike were like you know, it was like 85. It was actually close to 90% I know at one point in the past few days. But now it's down around 69%... 69% odds, I'm sorry, the odds of staying the same. I said the odds of a hike. The odds of staying the same were close to 90% but now it's under 70%, with the odds of a hike at close to 31%.

 

So it would be just like the FedWatch tool to start off kind of slow and then really ramp up right into the meeting. But it's a big change overnight, obviously. And it's funny, Corey. I have to give you and I a little bit of credit. Like, we've been saying higher for longer for, like consistently. Since the Fed started hiking. We've been saying higher for longer, and we've been right. And now the Fed is saying exactly what we were saying. Yeah, wait a minute. Higher for longer.

 

Corey McLaughlin: Right, I was thinking about this earlier, not necessarily patting anybody on the back. Or myself. Or you. But like, it did surprise me just like you just said, the speed with which we've seen these moves in the last week or two. Like me and you, we've been talking about this. And a lot of people have been talking about it. I think others too, for a while. You know, expecting a higher rate environment for longer, but still. You know, I guess enough people weren't.

 

And it's, that part of the market still always gets me. Like, we could observe and think and see, think what we see is coming. But still, you know, the shoes have to drop at some point. And I think that's what we're seeing now. And from here, it's like OK. The rates go even higher from here. Because for like the last year or so, I think the expectation has been all right, rates will get to around 5% or so, and you know. Inflation will come down.

 

And we'll all move on from there. But now it's a bit of a mess. I don't know, you know, could people be overreacting? Underreacting? I don't know. But it's definitely volatile right now. And I suppose it will be until this next, through the rest of the year really. Till we get a better, again we're following inflation. And now throw in employment on top of that. It's like we're following the two big things, wondering where the economy's going to go generally. So it's not all a small question.

 

Dan Ferris: And the bond market thing, everybody realizes it now. It showed up on a Business Insider headline on Thursday. And the headline said, the collapse in Treasury bonds now ranks among the worst market crashes in history. And then there are some bullets. Since March 2020, Treasury bonds with maturities of 10 years or more have plummeted 46%, Bloomberg says. I mean, that's the safest thing in the world, is Treasury bonds. And down by almost half. Basically a three year bear market in the safest allegedly, you know, security in the world.

 

Corey McLaughlin: Yeah, I know. Right, how many people talked about the worst year for bonds since the Civil War? And now it's followed up by another pretty bad one right now. So I don't think many people had that one coming. Unless you kind of foresaw the higher rate environment coming. I mean, this was basically long-term yields are catching up to shorter term ones at this point.

 

Dan Ferris: Right.

 

Corey McLaughlin: As we're speaking now actually, though, the shorter term yields are going up as well. You know, that has my attention, if shorter term yields keep going up. Like, the two year is up right now as I'm speaking.

 

Dan Ferris: Yeah, so the curve is it's like uninverting. The yield curve is uninverting, so the long end, the rates on the long end are going higher. And I think that's a big deal, because of course the inversion has been going on for I think you know this better than I do. For well over a year now, I think. It's been quite a while.

 

Corey McLaughlin: Yeah, it's probably 18 months at this point. The first part of 2022.

 

Dan Ferris: So that's the big recession signal that everybody talks about. And I think the un-inversion is the part that scares folks, because that's when the recession starts to become imminent in some people's eyes. Frankly though, so far I don't see it. I don't see 336,000 jobs, I don't see any recessing happening there. You know? And you can say well, you know, the markets are weak or whatever. And stocks are down.

 

And even oil is down. Yeah, but it's still 80 bucks. And they're, you know, oil companies mint money at 80 bucks a barrel. And the supply situation hasn't changed any. And the demand consistently moves up. The green energy transition is not happening. We're still growing in our use of fossil fuels, and they haven't dented the percentage of you know, fossil fuel global energy use, right? It's still 82% or 83% or something like that. And we know that solar and wind technology is crap and there's a lot of problems with it, and they're starting to come out in the press.

 

And things are happening that are getting some environmentally oriented folks kind of upset with the solar and wind people. So none of that's a slam dunk anymore in my opinion. And oil prices are high enough to mint money with the situation not changing a whole lot. I don't know, I just don't see recession here. Maybe, that doesn't mean anything because nobody ever does. Nobody gets the predictions right in either direction, but I don't see it.

 

Corey McLaughlin: Right. It's like as you said, the reversion is what I've called it, of the yield curve. Typically that's the point when the actual recession follows, after that point. The inversion is kind of predictive, but it could go anywhere, in history it's from anywhere the recession follows, is followed anywhere from six to 24 months. So that's quite a wide range. So when the reversion happens is when the recession seems imminent.

 

But you're right. At the same time we're having, we're seeing GDP numbers that are being expected to go higher. Job market not quite cratering at the moment. And you know, will it? Maybe ahead. You know, maybe it's all ahead still. So I think at the end of the day, whatever ends up happening I think the answer is a little higher inflation than people have been used to for longer. I think that's, you know, if we get into a recession and the Fed cuts rates, can inflation just stay higher or snap back to a higher level? Sure. And another thing I think is going overlooked in all of this is, we talk about flipping the last 20 or 40 years on its head.

 

Another thing contributing to all these rising bond yields is the Fed and the Treasury issuing tons of bonds into the market to finance spending plus the Fed is cutting its balance sheet by about, it's still at like $5 trillion of Treasurys. But they're down. I looked at the math this week, it's about 14%. So that is stuff that was like OK during the last 15 years to do without flipping out the market. But it's not OK anymore. And so I don't know, we might be getting to a point where stuff actually breaks as they say, and we'll get some more, I don't know. Maybe the Fed will come up with some new emergency measures coming up here soon that people aren't expecting. But I don't know what those would be.

 

Dan Ferris: Corey, I've heard people say, I've heard some folks say who've done some real work on this, they say you know, this move in Treasurys up to 4.8 recently, 4.8% on the 10 year, is that that move was totally like, new issuance hitting the market. And there was a quarter trillion in a day. You know? If you watch the national debt clock ticked up a quarter trillion in one day. Boy, you don't need a lot of those days to get interest rates moving up. You get that curve reverting. Wow.

 

Corey McLaughlin: Right. And so I think that's what's happening too. I mean, that part was expected because once that debt ceiling deal was reached, this was going to happen. Which again brings it back to, you try to ignore the politics of, well, not try to ignore. But you try to keep in perspective whether politics has an influence on the markets. And right here it does, right? It's clearly having an influence.

 

And we're seeing right now, whenever anybody tries to upset the applecart even slightly by cutting spending as some of these Republicans want to right now. Like no, there's no Speaker of the House because somebody wants to cut the budget. It's wild. It just shows you how debt addicted we all are. Times are changing, though, with the interest rates not at Zero anymore.

 

Dan Ferris: I like your take. Times, they are a-changing. And you mentioned that flip everything upside down idea that, we got it from Vitelli, Katz and Nelson and I just sort of adopted it. And I totally agree. Zero interest rates are inverted to higher for longer interest rates, is one of the main ones. And you know, no inflation is inverting to hm, some inflation persisting. And inflation is a more persistent phenomenon than most people think.

 

So yeah, I think we invert all of this stuff. And one of those things too has been covered by Ray Dalio, which you've just alluded to, which is internal conflict. Internal political conflict and internal societal conflict inside of countries is ramping up to levels that he says we haven't seen since maybe the 1930s or something. And then external conflicts between countries too influence one another.

 

And I just feel like I don't know, maybe there's a book here about the inversion of life, you know? From the last few decades to now. Feels like a major, major inflection point. And I think what's happening in the financial markets just kind of, it's an echo from all parts of our life. And you can just look in the stock market and it's like an analog for what's happening in all the rest of our life.

 

Corey McLaughlin: Agreed. Yeah, it's, there's a lot of different trends converging right now. You've got demographics, monetary policy, blunders of the past. Just kicking the can down the road. Is the road closed ahead? I don't know. But definitely 8% mortgage rates I think will get anybody's attention.

 

Dan Ferris: Yes. They will. But it's persistent, like I saw on Redfin recently how they were talking about yeah, mortgage rates are soaring toward 8% but new listings are holding up, in fact. I mean, elsewhere it's being reported that listings are way down, and purchase applications are way down, etc. But Redfin is kind of in the housing market for a living. And they're reporting the opposite, which makes sense to me with the kind of structural shortage of housing.

 

That's hard to put a dent in a market when you're that short on supply, for the reasons that we've discussed. People holding on to their existing homes because they have sub 3% or 3% mortgages. Or even sub 5%. Most of them are sub 5%. So it just keeps the market tight. And I 10 to think that housing prices will adjust to mortgage rates, and people will say you know, we've got to have a house. And historically speaking, 8% ain't that bad.

 

Corey McLaughlin: Right. I know people who were alive in the '70s and '80s will tell you, don't forget those times. And different, I got an e-mail from somebody this week about just he creative financing that was going on during that time, and how he believes the same could happen this time. And we see that with different financing deals right now, you know. That benchmark fixed rate may be nearing 8%, but there's different ways to get it down. So yes, people will adjust. I just think we're seeing the adjustments happening right now, I think. So see how far the world needs to adjust to this new environment.

 

Dan Ferris: I'm not saying it's easy or pleasant or whatever. But I don't think 8% mortgages are a killer for the housing market, I guess is the real point.

 

Corey McLaughlin: Right. Not with the structural, isn't going –

 

Dan Ferris: So it's not all bad news. And in my Stansberry Digest on Friday I was talking about how you know, 5% T-bills like the short end, the one to three monthers, like that's a good thing. You know? Because it gives you a hurdle rate. You've got something in your account where you can say OK, if you want me to take more risk, it's got to be more appealing than leaving my money in T-bills earning 5% pretty safely.

 

Corey McLaughlin: Yeah, love it. Especially if you're on a short timeline, like in retirement and have a huge nest egg. What's better than 5% virtually guaranteed?

 

Dan Ferris: Pretty darn good. So you know, T-bills, energy, housing. There are some things you can do. And our guest today. Has a thing that he loves to do, that I think you and I both totally agree with him on. His favorite trade, which I won't give it away. We'll talk about it in a minute with him. And our guest is Harris Kupperman. Kuppy, those of us who know him on Twitter know him as Kuppy. He's a great Twitter presence. Lots of good posts. And as you'll find out, a great talker. Just a good guy to talk to about markets. He speaks plain English and is very smart and very experienced. So let's talk with Kuppy, Harris Kupperman. Let's do it right now.

 

[Music plays]

 

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[Music plays]

 

Dan Ferris: Kuppy, welcome back to the show. Nice to see you again.

 

Harris Kupperman: Hey, thanks for having me on And just so we know, this is not investment advice here. It's just two guys chatting.

 

Dan Ferris: I second the motion. All right. With that out of the way. So I'm looking through your latest Kuppy's Korner, and sort of nodding along and thinking yeah, a lot of people seem to be, I feel like there's an implication in a lot of what I read in here that we just need to get things back to normal and get interest rates back down and everything's going to be fine and we're going to be back in a bull market and everything's going to be OK. OK? But I don't think anything like that is the case. We had a guest, Vitaliy Katsenelson on the show, a friend of mine. I'm sure you know who he is.

 

Harris Kupperman: Yeah.

 

Dan Ferris: And he said, just take the last 20 years or 30 or whatever you want, and invert it. And that's what we're going to get for the next 20. And I think, I mean I don't know if he still feels that way, but I definitely do. Absolutely.

 

Harris Kupperman: I think that's actually the best way to say it. Just invert the last 20, 30 years. It's this weird anomaly. No, I think the world's going to look very different for the next while, and I think everyone's playing from the old playbook. And I think they're all going to get run over. Look, I do a lot of macro investing. I do a lot of inflection investing. I think you know, for what I do, this is going to be incredible because the government bureaucrats around the world, they're going to play whack-a-mole as all these things pop up. And if I know anything about governments, they'll screw things up worse while trying to fix it which is going to create tons of opportunity. I'm super excited.

 

Dan Ferris: Yeah, I am too. And I feel like I don't know, I just feel like in a way, investing is back. It was kind of gone. When interest rates are zero and negative, it's gone, right? Investing is gone. Now it's back.

 

Harris Kupperman: Right. I mean for I don't know, the last couple of years, anyone who had a crazy idea could get funding for it. And there was no profit motive whatever. I mean, it was just revenue growth, and you give dollars away for 80 cents and you can grow your business, you can steal market share. These things have crazy values.

 

It was really tough for guys like me. I mean, I did very well. I'm not going to cry. But it was tough, because you look at the screen, you say what the hell are these people thinking? And I think it's finally coming to a different sort of world, a much more volatile world, which is something I love and something where you know, these could be great trends to play. You know, for a long time you just had to buy apple and do nothing. And I think it's a better world for guys like me that actually can add value.

 

Dan Ferris: Yeah, Apple's actually down double digits since late July. So yeah, let's talk about, I feel like we have to talk about the one topic, I don't even know if, you sound excited when I hear you talk about it. But you know, it's like oh, you're having Kupperman on the show? You've got to talk about uranium, right? I mean, it's like, I hope you understand that when you show up, we must talk about uranium.

 

Harris Kupperman: Yeah, let's talk about uranium.

 

Dan Ferris: My current view is sure, it's had a nice run here. But all the fundamentals are in place for this to continue. So it may be you missed the first leg up or whatever, but I think this continues. What do you think?

 

Harris Kupperman: Oh, I think it continues too, because nothing's changed. I mean, if you're running a 50-million-pound deficit each year on 210 of demand, and the deficit actually grows in 2025 from 2024, where do the pounds come from? And I don't know where the pounds come from, because there's that warehouse in the sky that seems to be feeding pounds, but it doesn't really exist. I mean, what's really happening is that everyone's drawing down inventory. You know? There's no magical warehouse where they just keep emptying it.

 

And you can only draw inventory so much until you can't run your reactor anymore. And at that point, you have to restock. And I think we're going to start seeing restocking. We are seeing restocking. This will be the first year in a bunch of years where contracting has actually kept pace with consumption. It's weird to think about, you can run a business where you use a pound, you don't buy a pound. That's how it's been working for many, many years. And this year we're going to actually tread water.

 

But at some point they have to restock. And I don't know where those pounds come from, because this is no supply, and if you're going to draw down a million pounds a week, eventually someone's going to run out. And you know, when you run out you pay the market price. And if the market price is up a couple hundred from here, that's the price you pay. And so no, I love this trade, it's by far our largest position. And I think it's going to keep trending.

 

I think it's going to be very, very volatile. You have to remember that you know, the physical uranium market is really about a half dozen physical traders that trade most of it. There's another 10, 20 guys that trade little bits and pieces of it. But the physical market's about 10% of the total market, you know. It's about 20 million pounds a year. And so you know, it moves around a lot. It goes up a couple bucks, goes down a buck or two. It's going to be really volatile.

 

And then you have things like Sprott, which are going to have the amplified volatility on that. And then you have your juniors with even more volatility. And I don't think these things are for trading day to day, week to week. It's really for putting a position on and letting it play out.

 

Dan Ferris: Yes. So I've been sort of talking about this since I don't know, $50-ish uranium telling people you know, when you sell it, when you make something for $50 and it costs $60 or so to make it, that's kind of bad, you know. The whole world goes into liquidation. Mid-60s though, now, per pound on uranium, like 66 bucks. But that doesn't do it, does it. It just, six bucks to the good is not that –

 

Harris Kupperman: Well, I'm not sure if the production cost is 60. If the world wants 210 million pounds, I think it's more like 70 or maybe 75. And from there, you know, you're not going to do it for free. You have to earn a profit, and interest rates where they are, you know. You have to borrow the money to build your mine or turn your mine back on. I mean, I think you need 80 or 90 to really turn on mines. And I know we've seen a couple of mines like Langer Heinrich restart.

 

But those guys are going to come in way over budget. Just, I mean their production costs I think will be what the feasibility was a couple years ago. And now I think they're taking a lot of risk by turning their mine on early, but that's what they chose to do. But most mines aren't really turning on. And this can be a couple, like McArthur River turned on. But it doesn't get you 210 million pounds.

 

And no, I think you need much higher pricing. And look, if you could buy a commodity that's in deficit below the cost of producing it, most likely you're going to make a lot of money. That's the history. You just have to be patient. And I've been in this for two years. We got in, I started buying when physical was 31, and here we are in the low 60s. And you know, I think it's going a lot higher. It's a great trade so far for me, and we're only at double into it.

 

Dan Ferris: I agree, I think it is going a lot higher. I looked at copper also, and incentivization prices, which I'm putting incentivization at around five bucks a pound in copper now. But historically, historically I've noted that you need double incentivization to really get capital to move.

 

Harris Kupperman: Right.

 

Dan Ferris: There's no rational robot investor out there who says oop, incentivization price achieved. Massive capital goes into copper mining at five bucks. No. It's got to be 10. Which like, who's talking about $10 copper right now? Nobody.

 

Harris Kupperman: No, look copper's going much higher too I think. The only thing that holds back copper really is that I figure you're going to be in a really weird economic situation. And I don't know if GDP goes up or down from here. It's all up to a couple of politicians, really. But I could see a world where actual copper demand doesn't grow. I could see a world where it grows very fast. It's a lot, I think, more binary than something like uranium where look, you build a nuclear power plant and you're going to run it for 50 years.

 

And it doesn't turn off, it doesn't stop, it just keeps going. It's totally not price sensitive to what happens to the economy. There's other [inaudible] plants that turn off, like I just think it's an amazing trade. But no, I think copper's going to be great. I think there's definitely a floor under copper, and I'm not sure where the ceiling is. Depending on what you think happens in the economy. I think you get the same thing from a lot of commodities, honestly. Look, the global economy's really quite strong and demand is up, and 6 billion people want the same standard of living that I do.

 

And if you look at my copper intensity, you look at my oil intensity. Like, I'm sitting here in Puerto Rico. I'm boasting the air conditioner at 65 degrees here. I drive a truck to work. Like, think of the guys in India, you know. They're going to want the same stuff I have. And I think they'll get there in the next decade or three. I believe in human progress, and I don't know where the stuff all comes from.

 

Dan Ferris: Right. And I mean, there's 6 billion. And there's another billion or so who have zero access to electricity right now. Either zero or spotty access to electricity. So I 10 to believe that, and I want to get your take on this. I 10 to believe that just kind of normal, if you can call it that. Normal if you can call it that economic growth globally creates enough demand for things like uranium and copper and other things that you don't need for example, a green energy transition, which I don't think really happens anyway. Simply put.

 

Harris Kupperman: Yeah, I think there's tons of demand just as 6 billion people join the modern world that a billion of us live in. And I don't think you need a green energy transition. I'm not really even sure what that really means. I mean, it just basically is a bunch of bottlenecks, and reduced efficiency of everything. I don't know why you'd want to reduce efficiency. You want to improve efficiency. I don't know why you need green efficiency.

 

It doesn't make any sense to me. But politicians will do what they do to subsidize their buddies and steal from guys like me. It's just a fact of life, I guess. You know, there's always going to be roadblocks in the way. And this is the newest roadblock to civilization growing. But no I just think there's huge demand for this, the whole periodic table really. And it's been massive underinvestment, and there's going to be a catch up phase. And the catch up phase is going to have higher prices, and that's going to be very inflationary.

 

And the central banks will do what they can to slow it down. They'll probably make it worse, because that's what all government bureaucrats do. And I think you'll have a very inflationary cycle. I mean, people forget that when you raise interest rates, it's inflationary. It's not deflationary. It, you know, it maybe makes demand for homes go down. But it definitely also makes the cost of an oil well go up, because you have to finance it. So there's a push and pull, and people think it's all, you press a button and suddenly inflation slows because you raise rates and that's not how it works. You know, some things really needs to go up in price.

 

Dan Ferris: I'm glad you brought this up. I'm glad you brought inflation up. Because in that latest Kuppy's Korner that I was talking about, that I read, you made a real point of this. You said you know, you can read about it in books. But you don't understand it until you lie it and see it, and see the division that it creates. Some people make money off of it, and others suffer from it. And you're obviously squarely in the higher for longer camp there.

 

Again, as you just pointed out, it defies logic to me, this widespread belief that the Fed has these simple levers, these primitive levers, and they can push the button and adjust, tweak, whatever a $26-odd-trillion economy at their pleasure. And I think, I guess we're on the same page. Maybe you're a bad guest for me because we agree on everything. I need to get somebody I disagree with more. But you see inflation going longer. It's remaining higher for longer, so.

 

Harris Kupperman: Yeah, I figure it'll be a bunch of different sine waves. Inflation will come on really hot and then cool down a little. Then it will come on hot again, it will cool down again. And I think the trend is up and to the right, you know? I think we'll take out the prior CPI high that happened about 18 months ago. I think we'll take it out at some point in the next year or two. And then we'll just start making new highs again in inflation.

 

I think inflation is structural, and you know, what we learned I think needs to be unlearned. People think that Volcker took rates up, and that killed inflation. That didn't kill inflation. You had a demographic wave that kind of crested in the late '70s, early '80s. And then Reagan came in place and he passed a bunch of landmark legislation that broke the back of unions and it wasn't just wages, you know. By breaking unions, it was efficiency. I mean, the cost of transport, railroad you know, just like a shipping container.

 

I think it dropped by like two thirds or something within two years. Like, they deregulated aviation so that airlines would fight on ticket prices. What do you think happened to ticket prices? It collapsed. Which made the world a lot more efficient, because you had to be an efficient operator. Which also made business people more efficient, because you paid less and the planes showed up more likely on time. Like, all these deregulation things they did dramatically reduced inflation.

 

And because they started at such a high point, he looked brilliant. But Volcker got the credit, because no one ever wants to give Reagan credit for anything. But it was Reagan who did it. What we learned is that interest rates when you raise them, tends to be inflationary. When you lower them, all you do is make publicly traded CUSIPS go up, and some risk assets like housing and commercial real estate. But really, interest rates just are tied to asset prices. And QE/QT is tied to asset prices again. I don't think it actually has any transmission mechanism to the real world.

 

I mean, Jay Powell has raised rates now, 500 and change BPS. Like, what does it do to me, you know? I have a tiny little mortgage. It's still fixed for another decade. Like, I don't really care. I have three car loans. Like, they're termed out. I don't really care. I've got a tiny little bit of credit-card debt. Like, great. Charge me 500 BPS more. I don't care. I think the average middle class guy is in roughly the same spot I do.

 

Maybe the credit-card debt hits him a little harder. But I mean, we're talking about a couple hundred bucks a month. It's a nothing. All it does when you raise interest rates is it screws with banks and maybe the banks lend less. But the banks aren't lending less. They're actually accelerating their lending again because they have to catch up to all of the low interest loans they made. It's actually accelerating the economy.

 

It's a little bit of a lag. I don't think interest rates really do anything to the real economy, because there's no transmission mechanism really. And you know, if you don't have a transmission mechanism, all you do is you hurt some private equity guys and some VC guys, which is great. Go hurt them. They've had 30 good years. Like, go get them. But everyone else, I don't think it matters.

 

Dan Ferris: Really? What about new home buyers? First time home buyers?

 

Harris Kupperman: Well, I mean, the price of housing is going to drop. It's an asset tied to interest rates. I think it's going to be great for new home buyers. They just need to rate another year. Like, I think they're going to get some bargains. There's going to be a bunch of guys that are overleveraged speculators. And they're going to cough up homes. And I think if you're a new home buyer, this is great. I mean, you should be super happy about all of this. But there's no real transmission mechanism. So some guy has five Airbnb's and they cough up two of them. Like, who cares? It just doesn't really impact the real economy in my world.

 

Dan Ferris: That is not a view I hear very often. In fact, I would say at all.

 

Harris Kupperman: Well I mean, if you raise interest rates, it's obviously inflationary because you constrict supply of stuff. So the price of everything goes up. And then return on capital goes up, so it makes everything more profitable, which drives the economy. It's just like, I mean, think back on it. The 2010s, we had very slow economic growth and interest rates were zero, and they're doing QE the whole time. Maybe people should look at that and say maybe QE and low interest rates lead to low economic growth.

 

And here we are, and they keep raising rates, and nominal GDP is racing ahead. It's like 7%, 8% right now. Like, maybe high interest rates are really good for nominal. And nominal's the way you cure a budget deficit, and you cure pretty crazy government debt, because you just devalue the value against the GDP. So higher interest rates seem inflationary and good in many, many ways. I mean, I think what you have is, you have this weird 1% recession right now where, 1%, they don't usually make their money on salary.

 

I mean, they make their money on asset appreciation. And they usually somehow earn fees on their asset appreciation, or they just have assets that go up and they extract capital at low interest rates. And assets stopped going up two years ago. And so these guys are all whining and crying. And then all their cost of living went up, you know? Their nanny wants twice as much money and private school got more expensive. They're getting taxed, and all these other things are going on in their lives.

 

They're getting squeezed on both ends. And for the first time in 30 years, these guys are getting squeezed on both sides. They don't know what it is. So they're crying and calling it a depression. But the other 99% of people are getting huge wage increases. I mean, if you want a job, there's plenty of jobs. You can get a giant wage increase if you ask for it. No one's going to fire you. If you want 20% more, just ask for it. You'll get it.

 

And you know, we've seen huge growth in the other 99% of people. And I think the economy's doing quite well, actually. It's just assets that are suffering. And I think assets were in a crazy bubble for a very long period of time, and if assets dropped in half, I think they'd still be in a bubble. So I think it's just nature kind of healing in a way. Sorry, I didn't even know what the question was. I'm rambling.

 

Dan Ferris: No, that's OK. We bring you on for a good ramble. We like your rambles. So, what else do you like besides, I want to get a little more concrete for our listener here. You like uranium. You like copper. Is there anything else in this environment that jumps out at you?

 

Harris Kupperman: I love uranium. Let's put it straight.

 

Dan Ferris: Oh, you love uranium. OK.

 

Harris Kupperman: Copper I'm kind of ambivalent about. I could see, I could go either way. I think energy services are t place to be, and energy itself. You know, the way I think about energy services is that we've underspent now since 2014 in terms of CAPEX on long lead cycle projects. And there's a huge catch-up phase now needed, because global liquids demand rose about 2 million barrels a year every year. And to catch up, you need to catch up to prior levels.

 

Except for remember, inflation. So you get back to 2014 levels of spending, you're only really spending about half as much because it's been eight years of inflation. So you really need to take out 2014 levels. And you're looking at hundreds of billions, maybe even a trillion dollars a year incremental that needs to be spent to get oil out of the ground. And I want to be in the way of that spending, because it's going to last for many years.

 

So I own energy services offshore... wo names, Valaris and Tidewater. We own Valaris, largest owner of offshore drilling equipment in the world. And then Tidewater is the largest owner of OSBs in the world. They're both I think very well run. Very cheap. They've done well for me. I think they've got a lot more to go. I mentioned a company, Journey Energy, in Canada. It's sort of a smaller name, but you know, they have a bunch of late-cycle, low-decline assets.

 

And the money's already been spent. You don't have to worry about oilfield-services inflation, they've spent money already. Now it's just a question of getting the oil out of the ground. I mean, these are low to client sort of assets. And if you're bullish oil like I am, every dollar that oil goes up is incremental you know, a dollar in the pocket of the company. And I think oil goes up. It, you know, it's going to be volatile. But that cash flow is going to you as a shareholder.

 

They're going to do a bit of drilling. I think they're going to do quite a lot of acquisitions of other low to client assets. It's a well-run rollup by a guy that I think's a really smart operator. Fair disclosure, we own a ton of it. And I like things like that. I don't want to be on the wrong side of this oilfield-services inflation that I expect. I don't want to be the guy on the Permian drilling wells all over the place that you know, decline 80% in the first two years. I want to be the guy who's buying someone else's wells and trying to limp them into the sunset. But I really like energy a lot, I think that's a great place to be.

 

Dan Ferris: I see. So just for clarification, you don't like that those first whatever call it, year or two of decline, you want to come in after that in a longer lived property and just milk it until the cows come home?

 

Harris Kupperman: Yeah. I mean, everything I do is cash on cash investing. I like cash. And I don't want cash going into the ground, I want cash coming to me. And so the guys drilling holes in the ground, god bless them because they're helping my energy services companies. But I don't want to put my money in the ground. I want to put the money in my pocket. And so Journey Energy, they're buying other people's wells. In many cases what they're doing is they're buying wells that larger players have, that have asset retirement liabilities.

 

And the large players want to get the AROs off their balance sheet. And Journey's happy to take on those AROs, because there's still a lot of cash there. There's a lot of cash flow. And as oil prices go up, you know, when those wells finally end and they have to be remediated, it gets pushed out into the future. And so when you DCF that, you create a lot more value if you're bullish oil.

 

Obviously, it cuts the other direction, if you're bearish oil or the price of oil goes down. Those obligations become current much sooner. So if it's a highly levered opportunity to oil, though it's not levered with debt because I don't really care much for debt. I like operating leverage. And here you just have pure operating leverage.

 

Dan Ferris: Right. And again for our listeners sake, these are in Alberta. That's where the assets are.

 

Harris Kupperman: Yes, it's in Alberta and it's listed in Canada.

 

Dan Ferris: Yeah, but my point in mentioning Alberta was you know, you walk out the door blindfolded and throw a dart, and oil starts coming out of the ground. It's a great place to find these assets.

 

Harris Kupperman: Right, right. It's decent assets. It's not incredible assets. It's decent assets. But they're reasonable low cost, they're delineated, and they're producing.

 

Dan Ferris: And the region has been producing for a long time.

 

Harris Kupperman: Absolutely, absolutely. You know, outside of that, energy and oil fuel services and uranium, there's not much that gets me going right now. I think we're going to have a really weird volatile period. I think there's going to be a time at some point in the not so distant future where you're going to want to buy some gold and hold on to it. Not yet, but it's coming up.

 

You know, I have it on my radar. I've kind of nibbled a little and stopped out. I think that's going to be something that's really juicy. I think banks are in for a world of pain, especially Canadian banks. I think they just shoot them it he back all day long. I think a bunch of them are going to have to get zeroed.

 

Dan Ferris: Yeah, the Canadian banks, all five of them.

 

Harris Kupperman: Let's not pick favorites. But I think they're in a world of pain. But look, I think it's going to be a really volatile time. I think every year the narrative's going to change, the story's going to change. There will be different things to do. But for right now, uranium is just the best, you know? In terms of risk reward in my mind. Because the reward could be so monumental, and the risk seems kind of low. Things could happen. There could always be some sort of Black swan, and maybe there's an accident somewhere and it's a terrible trade. But outside that, you can't run a deficit below the cost of producing this stuff.

 

I guess one other thing I'd flag for you is, there's still a huge refugee crisis. Everyone's leaving the northeast. They're going to Florida. They 10 to be wealthier refugees, because they have the ability to leave. And you know, if you own land I n the state of Florida, you'll do very well. And we own a ton of St. Joe, it's another large position – we spoke about it last time. And you know, they keep selling lots. Interest rates went up, and it doesn't seem to have impacted them much. The demand is there, and it's mostly cash buyers.

 

Dan Ferris: God, St. Joe. That's a blast from the past for me. I owned a bunch of those land companies starting around 2002-3, and of course they just took off like rocket ships. St. Joe. Wow. St. Joe was a problem for a while, wasn't it? I mean, I remember, who was the big investor who got involved? I forget his name.

 

Harris Kupperman: Bruce Berkowitz. He's still in Berkowitz. He brought in new management and they fixed it. Took a while, but they really changed the business model dramatically, and it's a much better business now. Plus they didn't have the demographic wave like they have today. Now there's just huge demand to move down there. It's just a totally different opportunity. We didn't own anything in the past. We only got involved in 2020.

 

Dan Ferris: Yeah, it was like in the teens, you know, after the financial crisis. Everything sort of went bust, and then everybody, I remember listening to David Ahern's presentation, you know, why it was short. And of course, it went way down from its bubbly price. But now it's back in the 50s, which is amazing.

 

Harris Kupperman: It's been quite – the company keeps putting up solid numbers. And you know, I think people are going to keep moving to Florida. Not every quarter's going to be good. But that land keeps appreciating down, about 170,000 acres of land. I think the book value keeps going up, and it trades at a huge discount to book value.

 

Dan Ferris: Like, adjusted, you know, if you look at the actual book value on the balance sheet, you're not talking about that. You're talking about adjusting to market.

 

Harris Kupperman: Right, right. I mean look, they bought the land in the 1930s. It's on the books for nothing, really. The book value is what the land is worth today. And I think those acres are worth quite a lot today.

 

Dan Ferris: Oh yeah.

 

Harris Kupperman: I wouldn't be surprised if book value is more like 200 to 300 a share versus you know, in the 50s where it's trading today. And anytime you can buy something really cheap with a strong tailwind, you do it. That's been the history of my life.

 

Dan Ferris: All right. You got any other of those land companies, or just that one?

 

Harris Kupperman: Just that one. I run a really concentrated portfolio. We try to buy the best. We don't buy second tier assets. You know, buy the cheapest thing with the strongest tailwind, and just let it happen. You know, it's always been what works best for me.

 

Dan Ferris: So I'm glad you used the phrase second tier, because another thing you said in your recent Kuppy's Korner was, I'm trying to find it. Didn't you say something like you look for second tier global macro trends?

 

Harris Kupperman: Correct.

 

Dan Ferris: So what's the first tier? Like, interest rates? Inflation? What are the first and second tiers?

 

Harris Kupperman: So I think first tier is currency, interest rates, what the S&P's going to do. I don't think I have much edge there. I mean, historically I've guessed right more often than I've gotten it wrong, you know. And I've actually done better than I would have expected to have done. But you know, all the smartest people in the world are competing with you. And you don't want to go into the big leagues. I want to go where no one's paying attention.

 

These second tier markets were, I don't want to say you're competing against idiots, because a lot of people are really smart. It's just that something happens in the sector and no one notices. And you can show up and buy a lot of stock, and you know, you're not competing with everyone else in Wall Street that's fixated on what's happened. And say you know, you already know you're right. It's different. If you want to bet on currencies, you're betting on what happens six months from now, because you're betting on one of my second tier things.

 

You already know you're right. You just got to buy it. Just press the buy button. It's easy. It's just I think a better strategy, a better place to go hunting, you know? Let's go back to uranium. There's no coverage of the sector. There's, no one covers it. A couple of banks on Wall Street picked up coverage in the last few weeks because the clients were asking about it, but they don't know anything about uranium. They just took some data that the industry association puts together, and it is, you know, cut and paste the data into their own letterhead. Like, that's not research. The industry association's gotten it wrong for decades now.

 

Whatever happens, they always kind of say it's roughly balanced. And it's not roughly balanced. It was a huge surplus for many years, and now a huge deficit. They've gotten it wrong. And so, all these banks aren't really covering it. Effectively, these two hedge fund buddies of mine that, they cover the sector. I'm kind of on their coattails. That's it. No one's paying attention. No one knows. A couple of weirdos on Twitter, but they don't have enough capital to influence the price, and that's it.

 

And you know, you go to places like that where you know, you just have to listen to someone. You say, that makes a ton of sense. You just go buy it. Like, I hate these hard situations. Copper I think is first tier. It's harder. You know, something happens in supply demand balances in copper, some guy at Glencore's going to figure it out a months before I figure it out. I don't want to go against Glencore. They're the smartest guys in the world. Glencore doesn't have a uranium desk. It's second tier, they don't care. I like that. You know, that's the trade for me.

 

Dan Ferris: OK, so what, is there a second tier trend that you're looking at that you're not involved with yet?

 

Harris Kupperman: There's a lot of them. I mean, we're following lots and lots of sectors, OK? We'll probably have a hundred sectors that are on our blotter that we're actively engaged in. But we rarely have more than five to eight on the books. So there's things we're watching. We're obviously aware of what's happening. And we're waiting for somebody to inflect. You know, I think the biggest mistake people make is they buy something cheap because it's cheap.

 

No one cares if it's cheap. People care if the first and second derivative are, you know, going in the right direction. And first derivatives, revenue obviously is the one that Wall Street cares about the most. And then earnings. I don't know why they care about revenue instead of earnings, but that's what they care about. And so if the rate of change is accelerating, the second derivative's up and the first derivative's up, and you buy it.

 

And so we're watching these things. We're saying, yeah, it's a really cheap sector. It's bombed out, it's destroyed capital for a really long period of time. It's been miserable, everyone hates it. It doesn't mean anything. I don't have to get to the bottom. I don't even have to get near the bottom. I have to just get the piece that I move where things are getting better. And obviously the closer to the bottom I am, the less risk I'm going to take. But I just have to catch the piece where it's inflecting.

 

Dan Ferris: I wonder if Wall Street isn't going to learn to appreciate earnings a lot more the next 10 years.

 

Harris Kupperman: I think they will. I really think they will. You know, revenue's just been such a big driver of portfolio returns. And I don't see why it matters. I mean, you can create revenue. You can't create earnings. So no, I think people are really going to care a lot more about earnings. I'm very cash flow focused, because earnings don't mean anything if you don't put cash in your pocket. I mean, that's what we learned with shell companies. They put the cash in the ground. So what, if you have a bunch of earnings. It doesn't mean anything. I want cash. I'm in the cash business.

 

So I'm just really saying what are the reinvestment opportunities? What's the rate of return on the capital deployed? And does that capital have to get deployed back in the business, or can it go back to me, and buy back some dividends? In the end, what I've learned with a lot of these smaller companies. Wall Street likes growth. But small companies below 10 billion market cap, Wall Street doesn't really care. So you need something to make Wall Street care. And if you buy back a couple percent of the company each quarter, and you do it for long periods of time, and you accelerate it when there's a pullback so you put a floor under the thing, Wall Street notices.

 

Because suddenly the chart starts looking right. It's up and to the right. Because every time there's a pullback, you step up the buyback. And Wall Street likes that. And then the computers are always just looking at relative strength and earnings growth. They like it. And so much of the world is run by computers these days, and that gets it added to the ETFs. The ETFs buy it. And you know, it gets added to indexes and they buy it. It's all very reflexive.

 

And if you have one of these companies that's not buying back its stock, it gets left for dead. It trades at three times earnings forever. I mean, you know, some of them, they buy back a ton of stock and it still trades at three times earnings. I mean, look at all the coal companies. They shrink the share count like 10% every quarter and no one cares. But at least the stocks are up. If they'd just given you dividends the stocks would have never gone anywhere. Buyback's very important, I think. I don't think enough small companies use the buybacks.

 

Dan Ferris: Noted. All right, I think we're actually sort of near the end of our time here. I want to get your take on my final question, which you've answered it before. I hope you don't remember it because it works better that way. It's the exact same question for every guest no matter what the topic, even if it's a non-financial topic. Exact same question. And that is simply, if you could leave our listeners with a single thought today, what would it be?

 

Harris Kupperman: Oh, it would be, be very, very cynical and skeptical of everything. Everyone's trying to sell you something. And even if you don't think they're trying to sell you something, they are. Everyone has an agenda. And just be cynical. Read everything there is to read. Learn it, everything there is to, you know, this is a game of knowledge. Whoever knows more makes the money. And just be really cynical.

 

Dan Ferris: Cynical, skeptical, knowledgeable. All right. Hey Kuppy, thanks for being here. Thanks for doing this. I really appreciate it.

 

Harris Kupperman: Happy to.

 

Dan Ferris: All right, well you're definitely going to get a call from us in another six or 12 months. I hope you're still doing podcasts by then.

 

Harris Kupperman: Great. Let's do it again.

 

Dan Ferris: Yeah, good. We will.

 

Harris Kupperman: All right, cool.

 

Dan Ferris: Cool, thank you.

 

[Music plays]

 

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[Music Plays]

 

Dan Ferris: Well Kuppy obviously is one of my favorite voices in the financial universe today. And I had to have him on if for no other reason, just to hear him talk about uranium, because you know he obviously loves uranium. And I'm glad to hear the way, you probably noticed the way he distinguished his conviction on the uranium trade versus copper, right? And the way he also described the oil and gas services trade I thought was really valuable. The lack of investment that we've seen in that sector since 2014, etc. And needing to get back to 2014 levels, but in inflation adjusted terms, I think that was really valuable too.

 

It's always a good time talking with Kuppy. So you can follow him on Twitter, I think. Yeah, he's still on Twitter. I haven't seen much of him lately. But yeah, good talk. Always a good talk with him. And there's always a good idea. I don't know if you go back through the archives, you can see previous episodes where we've had him as a guest. And he's always got a good solid idea, and throws out some names of stocks that he likes too. And I know you like that. I know I do too. Yeah, it's always a good time talking with him.

Well, that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did.

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