Episodes

[Music]

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

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we talk with geopolitical strategist and author Peter Zeihan.

Dan Ferris: And Corey and I will talk about the conference, what we like and what we absolutely love.

Corey McLaughlin: Remember, if you want to let us know what's on your mind, e-mail us at [email protected].

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

[Music ends]

[Music]

Dan Ferris: Well, here we are at the conference once again in Las Vegas, back in Vegas this year. We were in Boston last year. It's a lot of fun. So we do a conference for two days and then we do our Alliance meeting on the third day, and we get lots of great speakers, don't we? We got Lance Armstrong this year.

Corey McLaughlin: Yeah, Lance Armstrong, Morgan Housel, Porter Stansberry.

Dan Ferris: Porter is back in the house.

Corey McLaughlin: And a whole lot more. You. I listened to you today, and I've seen him up there too.

Dan Ferris: Yep, a little bit. [Inaudible]. I heard Joel Litman. I heard Rick Rule. I head a little bit of Danielle DiMartino Booth. Ben Mezrich was very interesting.

Corey McLaughlin: He was, yeah. I thought he was very interesting talking about the GameStop experience. For people who don't know, he wrote a book that became the movie Dumb Money. That's out right now, about the whole GameStop experience. Also his interesting background as a writer and how he got into everything too was a little fascinating, too.

Dan Ferris: He told good stories. He spoke right before me.

Corey McLaughlin: Right.

Dan Ferris: I was sitting backstage listening to him talk about the Russian oligarchs. He basically hung out with one of the oligarchs for a year. He told the story that he called the guy up and he's writing about him, and the guy knew that he was writing about him. He called him up and he said, "Hey, it sounds like you might have killed this one guy," and the oligarch says, "Yes, it does sound that way."

He was totally straight faced and then he told the rest of the story. He said, "You've got to understand. Russia in 1990 is not like – Russia in the '90s," I think he said, "is not like America. It's more like America in the 1890s, where if you disrespect me I'm going to kill you."

Corey McLaughlin: Yeah.

Dan Ferris: So that was exciting, not the usual thing that you hear at an investment conference.

Corey McLaughlin: Right. He said he's coming out with a new book on Elon Musk and the first six weeks of when he took over Twitter. He didn't talk to Elon Musk for the book. I guess he had communication with him, but didn't talk to him for the book. He actually said he thinks that will be a better telling of the story without him, and comparing it to Walter Isaacson's book on Elon. It just came out and it's kind of – he said when you spend a lot of time around the character you get sympathetic to them. You can't help it because you're flying around on private jets and whatever with the person.

So he didn't talk to Elon Musk for his book, but it's called Breaking Twitter. It's going to come out in November. Elon has broken Twitter. He also said it's how Twitter maybe broke Elon too.

Dan Ferris: Wow. That sounds interesting. Do you have a favorite speaker that you've heard, besides me of course?

Corey McLaughlin: You, of course. I was hanging on every detail of what you were saying.

Dan Ferris: Of course you were. Who else –?

Corey McLaughlin: It was a lot of stuff you've talked about before in the last – I mean we've talked about before.

Dan Ferris: It is. And while we're talking about me, I did want to make a point that I failed to make on stage, which was I've been really bearish in the Stansberry Digest and any stage presentation anywhere for pretty much two solid years. I'm still sort of there, but it's different now.

I'm saying investing is back and income is back, mostly because you've got this wonderful opportunity to put money into Treasurys yielding 5%, and you can sort of say, "Hey, make me a better proposition than that," and be a real investor again. I just wanted to make that point because I failed to make it anywhere else so far. It's not the same bearish song that it was. I'm singing a new song, Corey.

Corey McLaughlin: Good. Investing is back again.

Dan Ferris: So your favorite besides me?

Corey McLaughlin: Besides you, OK. You've got to pay attention to what Lance Armstrong was saying, given his name recognition and notoriety. "Doc" Eifrig interviewed him. I talked to Doc afterward and he said he took like a three-hour nap afterward because the adrenaline was pumping in him so much, that he was a little nervous during that interview.

They covered a lot. They talked about Lance Armstrong's growing up in Texas, how he got into cycling, and then everything that followed, obviously. It was interesting. He was talking about being sympathetic with the – I didn't get the sense that he is all that sorry about what happened, like he didn't do anything wrong still. They're still that part of him that says like –

Dan Ferris: No kidding?

Corey McLaughlin: Yeah, like everybody was blood doping in cycling at the time. So, you know, he was in that situation and just wasn't going to pull the plug on being the figure of American cycling at that time. It just wasn't in him. He said he's done a lot of work to figure out why that was, but ...

Dan Ferris: Yeah. Let's face it. If you're Lance Armstrong, it's got to be good when you're Lance Armstrong and you're winning all these things and everybody knows you. I mean a cyclist. Name five cyclists, you know, name two.

Corey McLaughlin: Right. People still associate cycling with him.

Dan Ferris: Yeah, name two. I can't name another one myself. Yeah, I understand that pressure, not that I've ever felt it, not that I've ever been anything like that, but I get it. What else you got, Lance Armstrong and –?

Corey McLaughlin: I loved listening to Morgan Housel.

Dan Ferris: He's great.

Corey McLaughlin: Great, just great stories too.

Dan Ferris: I'm envious of him as a writer. I freely admit it.

Corey McLaughlin: Yeah, a great writer. I was happy to meet him for a minute. So that was nice. He had some great stories about this centuries-old sailing race. The guy was trying to fake out everybody that he was traveling around the world on a boat, when in reality he was just going around the Atlantic Ocean in a circle. He wanted to win this race so badly, but his boat had broken down. So he didn't – it's all this fascinating stuff.

Then the guy who was actually winning the race quit while he was ahead and didn't want to do the race anymore. The point was manage your expectations in investing. You won't be happy if you're always raising the expectation level for yourself or I guess your portfolio and that sort of thing. So yeah, Morgan Housel, he always brings some history and different stuff to the table that we haven't heard before.

Dan Ferris: Yes, always a good historical perspective. Like I said, I'm envious as a writer. When I read his stuff, I get to the end of it and I say, "Damn," because I wish I had done it and I wish I were that good at it.

Corey McLaughlin: Yeah, me too.

Dan Ferris: His latest book, I like the focus. There's a lot of books about changing, how rapidly times are changing, how rapidly technology changes, but this book is about things that don't change, which I think is cool. I haven't read it yet, but it's in the pile.

Corey McLaughlin: I haven't either. But one of his posts that I remember when I was getting into financial writing was just exactly that, it was about the things that don't change. It was a list of like 10 things that would always be appealing no matter what, like cutting costs and more efficiency, that sort of stuff.

He used the example of Amazon and Jeff Bezos. All that was making selling books easier, and it evolved into all kinds of different things, but the thing that didn't change was efficiency and making it easier for people to get what they wanted, which is simple, but those are the things that don't change that you can apply to different issues all over the place.

Dan Ferris: Nice. So my favorites are really almost self-serving. When Joel Litman put up these slides about Ben Graham, he had Ben Graham's two big books, Security Analysis and The Intelligent Investor, right up on the screen. I went, "Wow."

He was talking about the dot-com bubble, and how the equity market really needs to take a break because it's way ahead of the debt market and so forth, which is something I've written about in the Digest. I was thinking, "Am I competing with Joel now?"

Corey McLaughlin: Yeah. You and Joel are on the same page for a while, right?

Dan Ferris:  That's right. We're on the same page. I'm curious to see how long that lasts. When he moves on, I'll be really scratching my head, thinking should I move on too because he's a very smart guy. He puts up a lot of charts and data, and I know behind that is even more work. He's got 100 people working for him in his organization. It's pretty incredible.

Also, who did I like? Well, I always like Rick Rule. I've known Rick forever. He's the first person I met in this business, but outside of the business, if that makes sense. It was back in like 1998 or something like that.

I flew out to San Diego. He had an analyst who was working with him on these water companies. That's been one of his things for years, and we went around to visit a couple of them. It was quite educational for me because I didn't know anything. Like anything. So that was good fun.

I've known him forever. He and I have done presentations together. He sort of helped me put together the Commodity Hypercycle Portfolio that we have in Extreme Value, that's crushed the market. I'm so proud of this. Since we started it in February, it has crushed the market. I'm just like, "Wow. I hope this keeps up." It's funny because I make all these recommendations, and it still just tickles me to death when they go really well, after 20-odd years of doing this. "Hey, I was right!"

Corey McLaughlin: I'm sure, yeah. And Rick, in one of his presentations, he kind of made that case for the lack of investment over the last couple of decades in resources and copper. He mentioned your friend copper.

I just love listening to him talk. He has a very self-deprecating humor. He's always fun.

Dan Ferris: He is. I feel like Rick gives 25 different speeches, and I've heard them all numerous times over the years. But they get better and the material is updated and it's new.

One of my favorite ideas of his, and he said it again today, is basically buy the beta. So if you want to buy oil, buy ExxonMobil, Chevron, Occidental Petroleum, and that's it, and you're buying the beta in the oil market. You're not trying to ramp up and get extra return by buying some tiny little oil stock.

Basically, he made it broader into resources today when he was speaking. He said, "Buy the beta in mining. Buy the best quality mining companies." If you're buying uranium, you're buying Cameco. If you're buying copper, you're buying Freeport, etc. I think that's a wonderful idea. I have a whole portfolio of those, that Hyper-cycle Portfolio.

The amazing thing is you can buy those and make five or 10 times your money, off the blue chips, if you hold them through the whole cycle. I'm fascinated by that. I mean these are dividend-paying, cash-gushing, great companies. Usually, if you're making 10% or 12% a year off of something like that, you're happy. But with these, when the mine cycle gets going you can make, like I said, five or 10 times your money, which is incredible.

It's sort of like – in fact, it's exactly like what you could have done with Amazon. On the trip in Amazon and Apple and all of those, the trip from tens of billions in market cap to a trillion in market cap is pretty good for a lot of people. So the same thing here.

So, like I said, my favorites are people who say stuff I agree with. That's what it sounds like, right? But I'm only human.

Corey McLaughlin: Yes.

Dan Ferris: So overall, we're both on team Stansberry, so we're going to say overall a great conference, right?

Corey McLaughlin: Right. I'm not going to say anything else.

[Laughter]

Dan Ferris: You're right. We love it. We love what we do. We love everyone around us. We love all the speakers we get at our conference and you will too. If you haven't been to a Stansberry conference, I really, honestly, truly, deep in my soul believe you're missing something great.

Corey McLaughlin: Yeah. I will say after COVID and not seeing people in person for a while that we would normally see, I don't take these things for granted, and being around actual people and colleagues is nice to just see people. There's people I haven't seen in a year. So yes, it's good.

If you've never been to one of these and are one of our subscribers, I think you should try to come because you can talk to everybody, both the editors and analysts from Stansberry, and the speakers, and hear a lot of great ideas that we haven't even covered yet. So yeah, I'm excited about conferences. I'm a big conference guy, so I'm glad to be here, glad to be talking with you in person. Yeah, I'm just thankful to be here.

Dan Ferris: All right. If you'd have told me 10 years ago that we were going to have Lance Armstrong at our conference, I would have said, "Nooo," but here he is.

So with that, let's go ahead and talk with our guest today, whose name is Peter Zeihan. He is a brilliant geopolitical strategist. Of course, you know what – I'm not even going to tell you what we're going to talk about because if you know what's happening in geopolitics right now you already know what we're going to talk about.

We're also going to catch up with him on what we talked about the previous time that he was on, in December of 2022. So let's do that right now. Let's talk with Peter Zeihan. Let's do it right now.

[Music]

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[Music]

Dan Ferris: All right. Peter, welcome back to the show. It's been a little while.

Peter Zeihan: It has been.

Dan Ferris: Actually, I looked it up. It's been since December of 2022, when all a whole lot of people could talk about was the Ukraine War.

Peter Zeihan: Sure. It's still going on, by the way.

Dan Ferris: Yeah. I heard that. I heard it's still going on. There's this other little conflict that's popped up recently. Oh yeah, Israel. I feel like we should talk about that and we will eventually, but I think we should pick up with Ukraine. I know everybody wants to talk about Israel. I promise we will, but I think we should pick up with Ukraine.

Specifically, you were talking about what happened once they got past the muddy season. What happened?

Peter Zeihan: Sure. The issue is that we saw in 2022 that Ukrainians were able to launch a couple of relatively light attacks, and that the Russian logistical and training system was so abominable that the Ukrainians were able to capture very large chunks of their territory in a matter of days. We are definitely not seeing that this time.

The Russians used the intervening time, between October of last year and the spring of this year, to put into place massive fortifications that the world has not seen since at least the Second World War. While the casualty ratios have been horrific for the Russians, the Russians have proven to be willing to just throw more and more and more people.

Some of the estimates that are probably a little bit more realistic suggested the Russians are losing two people for every Ukrainian lost. When you're defending, that shouldn't be happening. It should be at most flipped. But the Ukrainians don't have nearly as many men to spare as the Russians do, and if the Russians keep doing these partial immobilizations, where they're pulling up 100,000 or so people at a time, they can keep up this pace of carnage for at least the next three or five years.

So we haven't seen the breakthrough on the scale of what we saw in 2022, and until we do – and I'm not saying it will happen – but until we do see that, this sort of long grinding fight is honestly what warfare has looked like in this part of the world for most of recorded history.

Dan Ferris: That doesn't sound good.

Peter Zeihan: It is not good for anyone.

Dan Ferris: So I wonder about – as an investor, I kind of wonder about countries like Poland.

Peter Zeihan: That's a reasonable concern.

Dan Ferris: Yeah, it's a reasonable concern. It's kind of nearby. But it's a decent economy and they are public companies. You can invest there. A regular guy like me can buy the Poland ETF.

Peter Zeihan: Let me underline a couple things. First of all, if the Russians are successful in Ukraine, that's not the end of the war. People forget that this is the ninth post-Soviet military conflict the Russians have initiated.

Dan Ferris: Ninth?

Peter Zeihan: Yeah. This is the most famous one. If the Russians are to get what they feel they need to rebuild their outer defensive perimeter, that includes the city of Warsaw. So if the Russians are successful here, we will have a military assault that will eventually consume five NATO countries.

So the smart play is to stop it here. Stop it firmly, so that that never happens. So keep that in mind, whatever your political views are on Ukraine, Russia and the rest. This is not the end of the story. We are only midway through the story.

Then second, there is a clock that is being run out. While the Russians have a lot more men than Ukraine does, the birth rate when the Russian system collapsed back in 1992, the Russians do have a lot more men than Ukrainians have, roughly 8 million men in their 20s.

But that's the last generation. The Russian birth rate collapsed with the post-Cold War era, and this is the last generation of fighters that the Russians can bring at scale to a conflict. So once they've gone through these people or once they reach their 30s, that is really the end of Russia's capacity to launch an offensive conflict.

So if we can keep Ukraine alive and keep the military conflict sufficiently contained so no nukes fly, the end of Russia is in sight now, and we will never have to worry about anything like this ever again, if we can make it that far.

Dan Ferris: Peter, I certainly don't have your knowledge, but the end of Russia doesn't sound like a pleasant time for tens of millions if not hundreds of millions of people.

Peter Zeihan: Well, one of the many, many, many things we've seen in the Industrial Era is that as people industrialize and they move into cities, they just have fewer kids. So the Russian situation is certainly kind of an outlier in terms of just how bad it is because of Soviet mismanagement in the post-Soviet collapse. I don't mean to suggest that everybody is Russia, but everyone is dealing with some version of this.

Actually, I think the Russians will outlast, say, the Germans. The German birth rate collapsed almost a century ago, and a century on this is the final decade where they're going to have enough workers to even pretend to have an industrial system. So versions of this conversation need to be had for 50 countries this decade, and another hundred countries over the next two.

Dan Ferris: Totalitarian regimes seem to be really bad for demographics.

Peter Zeihan: Well, if you are going to have a positive demography that generates enough children to carry the system forward, your industrialization process can't be so fast and so brutal that it uproots people's lives completely, and they also have to have hope for the future.

Dan Ferris: You mean like sweeping through the countryside wholesale and forcing everyone to move into a city?

[Crosstalk]

Peter Zeihan: That would be a great example of what not to do. Yeah. So obviously the Russians did that. We're only now seeing the impact of Stalinization, but the Chinese did it faster. The Chinese have gone from a preindustrial population structure as recently as the '70s. So by the time we get to 2030, we will be well into an advanced post-industrial collapse, all in one human lifetime.

Dan Ferris: Gee, you're a fun guy.

Peter Zeihan: Whee.

Dan Ferris: Actually, it's funny. If I say, "Well, I interviewed Peter Zeihan," and they say, "Who is he?" I would say – [Mr. Zeihan laughs] – no, look, you're a famous guy, but nobody knows everybody. I would say, "He's the demography guy," because the United States, China, Russia – who else, every developed Western nation.

Peter Zeihan: Well, the countries that are in the thick of it and where this is probably their last decade. China is at the top of that list, but also on that list is Italy and Korea and Germany. Right around turn of the decade, going into the first half of the following decade, then you're talking maybe the Spanish. Thailand at the end of the 2030s.

Dan Ferris: Japan?

Peter Zeihan: Japan is a weird one. If you had asked me back 15 years ago, I probably would have put them in kind of the vanguard because they were the world's demographically oldest country, oldest age structure, and most rapidly aging.

But over the last 35 years, they had offloaded a lot of their industrial base, which kind of insulates them from the workforce collapse. They've really focused on the knowledge economy. They bring the money from their earnings overseas to maintain their tax base. But most of all, they've been able to bring up their birth rate bit by bit by bit.

They're still old. They haven't fixed this, but they've slowed it down. So no longer in the top 10 for most rapidly aging counties. They've managed to buy themselves a little bit of time.

Dan Ferris: So historically, is there an example where you can show me this is how bad it gets, this is how important demography is? You better be careful or you'll become who?

Peter Zeihan: The problem is we don't have a good historical analog. Most of this is directly or indirectly an outcome of industrialization.

Dan Ferris: I see. Because workforce has moved to radically, flooding into cities, etc., etc.

Peter Zeihan: And when you're on the farm, kids are free labor. You have a whole bunch of them. When you're in the city, kids are just really expensive pets. You have fewer of them. It's just math.

Dan Ferris: That's a little brutal, but I guess it is true to an extent. Everybody has children and lives even – you know, suburbs, cities, or whatever.

Peter Zeihan: I mean would you want eight kids living in a condo?

Dan Ferris: No.

Peter Zeihan: But on the farm, you want eight kids because that way you don't have to hire anyone.

Dan Ferris: Yeah. you need more kids if you're staying on the farm. Right. So we don't have an analog and –

[Crosstalk]

Peter Zeihan: – closest and they're poor. The end of the Roman Empire, the last couple of centuries, there were a series of plagues that went through all of the Mediterranean and wiped out half the population. That obviously contributed to the collapse of Rome. And the second one would be the Black Death, which gutted the middle part of the age pyramid, people in their 20s and their 30s.

That changed the labor structure. As horrific as it was, and it was, it actually set the stage for what we now recognize to be skilled labor because all of a sudden there was a labor shortage and every little unit of labor we had had to do better. So the countries that could adapt to that did very well over the centuries. The first few decades were a hot mess for everybody.

Dan Ferris: I see. OK. So we've got to talk about Israel. We can't not talk about Israel. Now I hardly know anything about this country and I just did some Googling around a little bit. It's really the second-biggest GDP in the region, second only to Saudi Arabia?

Peter Zeihan: Absolutely, as long as you don't consider Turkey part of the region, which a lot of people don't.

Dan Ferris: I kind of wouldn't, would you?

Peter Zeihan: With the Middle East, everything is about where you draw the lines. Turkey has definitely an industrialized economy versus the rest of the region, which is resourced-based, versus Israel, which is tech-based. So if you do include Turkey, it's number three.

Dan Ferris: OK, but a sizeable economy and –

[Crosstalk]

Peter Zeihan: With 8 million people.

Dan Ferris: Yeah, with 8 million people was my next comment. I looked and I thought, well, Check Point Software is based in Haifa I think it is. Mobileye I believe is in Jerusalem. There's between the two of them tens of billions of market cap.

Peter Zeihan: Yeah. After 1990, the Israelis made a very cognitive decision that there was only so much that you could do with industry, if you didn't have the population skilled enough to develop the technology behind it. There was a lot of friction in the relationship between Israel and the United States and Israel and Europe because the Israelis, almost to a Chinese scale, were stealing tech.

So they decided to go in the business of making tech, and when your whole country gets behind something, industrial policy for a small country is not too difficult, and they were able really to get into software and high-tech development, and that has proven to have any number of applications for their broader economy and exportable products and software, which you don't have to worry about security, physical security when you're exporting software because it's all digitized.

You don't have to worry about ships coming out and maybe somebody cooking off a rocket. So they found a model that, to this point, has proven to be fairly successful.

Dan Ferris: Right. I was going to ask you about the geography too, of being what – is it a desert country? That's how I think of it.

Peter Zeihan: Yeah. You're thinking about it right. The only part of the country that gets any meaningful rain is the Golan, and nobody settles there because it's the Golan.

Dan Ferris: Right. So it's Nevada with technology instead of gambling. That's a joke.

Peter Zeihan: That's not too far off.

Dan Ferris: Tell me. My knee-jerk reaction, I'm a contrarian. I want to go where blood is running in the streets. I know it's horrible to talk like that.

Peter Zeihan: You're going to love Gaza then.

Dan Ferris: Yeah. It's terrible what's happening, so I don't want to be crass about it, but it is what we do here. George Gilder actually uses the term "innovation per capita." Innovation per capita off the charts, a sizable economy in the region, and if there's a war there and nobody wants to be there, I want to go there and I want to say, well, maybe I need to buy the Israeli ETF coming up here pretty soon.

To me, I'm not you, but when I look at something like this – I guess it's the same as with Russia/Ukraine. We all think the same thing if we're not you. We're saying, "Is it going to explode into a larger conflict?" What are the odds of that? What are those dynamics? Because if it is, I don't want to buy the Israeli ETF. If it isn't, this is they buying moment.

Peter Zeihan: Let me give you three things, one very positive and two more long-term negatives. So first the positive one. The only time the Palestinians have ever mattered from an economic point of view is when another country of size, typically Saudi Arabia, decides to get involved diplomatically.

In the past, in the '70s specifically, that gave us OPEC. So the capacity of Saudi Arabia, if it gets riled up on this topic, is not insignificant. But the Saudis have been edging away from the Palestinians ever since the formation of OPEC, especially since after 1979 and the rise of the ayatollah in Iran. Because as soon as the shah of Iran started to be kind of persnickety, the Saudis realized that they had much bigger fish to fry much closer to home.

So the government of Saudi Arabia over the last year has been edging closer and closer and closer at their own pace, at their own decision-making process toward a formal peace treaty with Israel.

Dan Ferris: Oh, that emanates from –

Peter Zeihan: That is not us. That is not Israel. That is Saudi Arabia was trying to make this happen. So Iran, it appears, has been nudging Hamas to throw some spanners into the works, and there's nothing like an invasion of an open-air prison with 2.3 million people in it to generate spanners.

So the Iranian hope here is this scraps the peace process, and they may get what they want. It's too soon to know. So the Saudis are having a generational fight over how important the Palestinians are to them mentally and culturally.

Dan Ferris: OK. I've heard you talk about this. The older generation –

Peter Zeihan: The older generation is very pro-Palestine. The younger generation couldn't care less. And sooner or later, the king, older generation, is going to die. Arguably, he's already a vegetable. So that leaves Mohammed bin Salman, the crown prince, who, if he's not assassinated, is probably going to be king for the next 40 or 50 years.

Dan Ferris: Excuse me. If he's not assassinated.

Peter Zeihan: Oh, it happens in royal families all the time. You've seen Game of Thrones, right?

Dan Ferris: Yes, I have. OK.

Peter Zeihan: Basically, Saudi Arabia is a dry Game of Thrones with fewer dragons.

Dan Ferris: OK. Well as soon as you mentioned it, I started thinking, well, the odds of this are greater just because that's the dynamic in that –

[Crosstalk]

Peter Zeihan: Even if the older generation intends to dominate today, I don't think we're going to have an economic war like we did with OPEC because the generation that's making all the actual operational decisions doesn't want it. So odds are, from an economic point of view, this is very tightly contained and limited.

Dan Ferris: OK. And the two long-term, negatives?

Peter Zeihan: The long-term concerns are one demographic and one political.

Dan Ferris: One demographic. Why am I not surprised?

Peter Zeihan: Yeah, exactly. There is a political class, whose name escapes me at the moment, in Israel that's basically a bunch of religious, orthodox, ultra-orthodox folks, who are not employed in the traditional sense. They're a combination of religious scholars and keeping the faith alive. Their taxes are very low. Their subsidies are very high. It turns out that because of that, they are net beneficiaries from the state and they have lots and lots and lots of kids.

So they don't contribute much. They are not part of that tech story we discussed, and they are multiplying like rabbits. You play that forward 52 years and they are now, based on who is drawing the line, somewhere between 10% and 30% of the population. So from an economic point of view, absolute dead weight.

So the efficiency of the Israeli workforce is not going up. It's going down. It doesn't matter if you're economically dead weight or not, you can vote. So we're getting ever more disconnected, unprofessional, nontechnical governments in Israel, and you can easily make the argument today that the current government, where these folks are a huge chunk of it, are part of the reason why the Israelis missed everything because you now have people in all the ministries who have no idea of what they're doing.

Dan Ferris: Missed everything. Do you mean the big sort of intelligence –

Peter Zeihan: Israel supposedly is a platinum standard for intelligence gathering. Gaza is supposed to be the thing they watch the most, and they missed all of it.

Dan Ferris: Right. And there are of course batty theories coming out of the woodwork as to why that is.

Peter Zeihan: And they've got batty ministries, so some of them might actually be right. When you've got a system where the population is becoming less competent and the government is becoming less competent for structural reasons, but nothing to do with politics directly, that's a problem if you're a value-added economy.

Dan Ferris: OK. Was that both of them or was that one of them?

Peter Zeihan: Yeah.

Dan Ferris: That was demographic and –

Peter Zeihan: And the political one.

Dan Ferris: – political. Oh, I see. So really it's intertwined.

Peter Zeihan: And the only way that you could potentially [inaudible] is if you're not a taxpayer you don't vote. That's an interesting political innovation. Or we will no longer subsidize this class, so they don't all have six kids. But you have to get that through a vote.

Dan Ferris: One would think it would be easier to get that vote done now than later, 20 years from now.

Peter Zeihan: You may have seen some of the debates over judicial reforms and judicial coups. That's basically what's going on here. You've got this rising part of the population that is more and more a burden on the state. Then you've got the judicial system, that is still kind of a remnant of the old professional system, and the two are coming to clash. With every day that passes, that rising population is getting more and more power. So the question is: can the judicial process rein them in or is it the other way around? That's the core of the debate.

[Music]

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[Music]

Dan Ferris: So the one narrative that says we were so wrapped up with this judicial thing that we didn't see Gaza coming.

Peter Zeihan: I'd say it would be broader than that. It's just that ministers are so incompetent that they don't know how to run the institutions they've been put in charge of.

Dan Ferris: What do you really think of Israel's politicians? Don't hold back on us here. You know, we let it all hang out.

Peter Zeihan: Well, if you want to put an America analog to this, basically we have an Israeli government who was formed specifically to fight the culture war, and this is where it led.

Dan Ferris: Yeah. That isn't good. All right. Gosh, I don't know if you've left me wanting to buy the Israeli ETF right here. As a trade, I think as a short-term trade, if the world realizes that Palestine not being an economic power is probably not a big –

Peter Zeihan: Oil isn't produced. It's really not consumed there, and it's not transited through there. So it's only if someone on the outside decides to make it an issue.

Dan Ferris: All right. We're not going to hold you to anything here, just your thoughts about where this winds up. Where does this end up?

Peter Zeihan: What's happening right now is the Israelis are on the verge of a mass invasion of the Gaza Strip. Now the Gaza Strip is only like – I don't want to get the number wrong – 250 square miles. It's small, or is it kilometers, really small. It's like twice the size of the District of Columbia, but it's got 2.3 million people.

So you've got people living in an inner-city style compression, with no hinterlands, no power generation, no food production. Everything comes from the outside. The Israelis, as they've proven that their intelligence gathering is not as good as we thought it was, want to go in and liquidate, at a minimum, the faction that carried out the attacks.

The problem is if they knew where that faction was, the attacks would have never happened. So they're just going to go in and destroy all of Hamas. I don't mean to suggest these are nice people. They are not. But they are going to have to go house to house for 2.3 million people to destroy both the de facto government and then any factions associated with it. The human cost of that is going to be gargantuan.

I can see why some people are already starting to yell at the Israelis. But on the flip side, in terms of casualties per population, this is like 10 times as bad as what we went through with 9/11. I can tell you as an American who remembers this very, very well, we didn't give a flying [skips a word] what anyone else in the world thought. We thought we needed to go down and hunt down those people.

So what this does to the political system in Israel, that's actually the small story. What this does to the culture of Israel is something that is going to reverberate for decades.

Dan Ferris: It doesn't sound good. It doesn't sound like –

Peter Zeihan: There is no way that this gets clean.

Dan Ferris: Does Israel have enough people to do this, to go into Gaza and go house to house?

Peter Zeihan: If you're willing to take a very cold approach to causalities, yeah. They've got the skills to do it.

Dan Ferris: Wow. I almost wish I hadn't asked you that. I'm serious.

Peter Zeihan: Well, if you want to get really cold, this has already happened a hundred times in Ukraine. What I just described, that was the Russian war effort for the first year, going into cities and cleansing them.

Dan Ferris: Brutal.

Peter Zeihan: Yeah, very.

Dan Ferris: Will humanity ever get past this sort of thing?

Peter Zeihan: If one person is in charge, sure. [Crosstalk] China is a great example of how that goes to shit.

Dan Ferris: Yeah. Again, I think there are some folks in western China, in camps, that would –

Peter Zeihan: Yeah, very different opinions.

Dan Ferris: Different opinions about –

Peter Zeihan: The only way you get rid of opinions is to get rid of the people who have the opinions, and that's never pretty.

Dan Ferris: Right. Speaking of China – and thank you for –

Peter Zeihan: We haven't talked about China yet. That's right.

[Crosstalk]

Dan Ferris: Look, when you have Peter Zeihan near you, you talk about the current war, you update on the previous war, and then you talk about China. So now we've got to talk about China.

Peter Zeihan: Sure, so the very, very short version.

Dan Ferris: All right.

Peter Zeihan: Their industrial demographic experience is by far the most extreme that we've ever seen from any country ever. Their demographic decline now, by their own numbers, assuming their numbers are accurate, is already the most extreme in human record, and China will cease to exist as a unified industrialized nation-state within 10 years at this point, assuming nothing goes wrong, and assuming their government is very good at managing the decline.

But we have seen Chairman Xi basically gut the entire system of any source of information that might prove useful to a government. So he is now making decisions in a black box, blind.

Dan Ferris: When I talk to people like folks from Bridgewater and other global macro-investor types, I never, and I mean, Peter, never in the past like – [how long] have I been doing this podcast for? Maybe five years now, since 2018. No one talks about this. I mean absolutely no one. You have a monopoly on this topic of China.

Peter Zeihan: Yeah. Good for Peter. I hope it's worth something to you. I hope you can push the price on that monopoly.

Dan Ferris: But no one, I mean I never hear anyone say anything about China except, you know, it's usually some version of, "They'll figure this problem out, and they'll figure that problem out, and they'll figure that problem out, and they're going to be the next big power in the world," and that's all there is to it.

Peter Zeihan: Hard no. We are looking at national collapse within 10 years.

Dan Ferris: Is there another guy I can interview who will back you up with this?

Peter Zeihan: OK. You've been doing this for five years. Let me at least partially explain why this hasn't really popped up. A lot has gone down in the last five years.

We've had the Trump administration, which was like living inside of a bullhorn. Chairman Xi has created the world's most dramatic and tight cult of personality in human history, much more than Mao ever did. So information flow just isn't there. Then we had COVID, where all the numbers were scrambled, assuming we could get them at all.

So it's only really since about April of this year that we've been able to see through some of the fog, and what we're realizing is that China isn't peaking now. They're not just about to peak. They actually peaked before all of this noise.

Then we missed all the data revisions. We missed all the political shifts because all these other things were going on. Now we're on the back side of it.

Dan Ferris: If we can clarify, you're talking demographic peak?

Peter Zeihan: Yes. So we now know that China's population didn't peak in 2022. It probably peaked back in 2012. We now know that India didn't become the world's largest population last year. That was probably seven years previous. We now know that Americans didn't become, on average, younger than average Chinese. That probably happened 10 years ago as well.

So we're all in the process of reassessing. If you're one of those China bulls, to have this sort of a dramatic shift, it's only been six months since the data started getting kind of realized. So people will get there.

My biggest concern is that the cult of personality is now so tight that they've started to not even collect certain types of data that are really baseline economic indicators. So we might not know that we've had a hard crack in China until the product just stops arriving.

Do I think China is doomed? Absolutely. Will I live to see what's next? Absolutely. But every day that China is still there, that's a gift because it's one more day we have to prepare for a world without Chinese manufacturers, and I would really like us to have most of the stuff at least in the process of being up and running before we lose access to the world's workshop.

Dan Ferris: I heard a good story. Speaking of all these folks I've been talking to, one of them told me about a Chinese diplomat that he spoke with. The guy was talking about the economy and the productivity and the manufacturing and all of these things, and how great it was going to be and all the things they were going to do.

Then the fellow who I know was asking the questions. He said, "I hate to bring it up, but there are human rights issues here. People are disappearing in droves. People just disappear in that country and you never hear from them again." And the answer came, "No, no, no. You don't understand. That's not my department. That happens in another department."

My friend used the phrase "Sovietized." It's like, "We're not in charge of abducting people and making them disappear. We're just in charge of making the economy run."

Peter Zeihan: Yeah, but even at the height of Stalinization, which was the most brutal the Soviet system was, there was still a decision-making apparatus at the top that that information flows. There were still people that Stalin would discuss things with and delegate to. That doesn't exist in China. It's just Xi.

Dan Ferris: I see. So everybody reports to Xi, in other words.

Peter Zeihan: Yeah, and he's closed off most lines of communication, so he's just broadly unaware. He's the only decision-maker and he doesn't have the information he needs to be any decision-maker. So things get stalled, things get dropped, and we're seeing these disconnects throughout the entire system now.

Dan Ferris: Wow. We need to get you back on here to just talk about China a whole lot.

Peter Zeihan: Well, we're running out of time, so chop-chop.

Dan Ferris: All right.

Peter Zeihan: I mean chop-chop on bringing me back.

[Crosstalk]

Dan Ferris: I got you, yeah. We're not going to wait five years, no. We'll definitely have you back within the year or within six or twelve months or something just to focus on that because again, I'm going to predict that even if I wait a year to get you back, no one who actually allocates tens of billions of dollars in that direction is going to be talking about it. I can feel it. I hear nothing. You're the one and only voice saying this.

Peter Zeihan: Well, the newest information out of the Shanghai Academy of Sciences, which is basically the people who interpret the data, the state data, they're not saying openly that the housing overbuild in China is enough units to put up somewhere between 1.5 and 3 billion people. A 100% to 200% overbuild in housing, and this is the primary source of savings for most of the population.

So the information is coming out in the aftermath of April, and it's going to be folded into decision-making at some point. The question is how soon can people disengage. I mean we're already seeing that FDI into China has now been negative for a couple of months. We are well past the start of a stampede.

Dan Ferris: I'm going to guess that there's not going to be a whole lot of immigration making up the difference in China.

Peter Zeihan: If they took every migrant available on the planet, it might buy them four years. It's a big mountain to move.

Dan Ferris: OK. The other thing I would tell somebody who said, "Who is Peter Zeihan?" is he's the end of globalization guy.

Peter Zeihan: Yeah, that's right.

Dan Ferris: The narrative I consistently hear is that the two-power narrative, with China and the United States, that's not what you're saying. You're saying the – I don't know, what do we call it? – the mini power, everybody grows their own food and manufactures their own cars.

Peter Zeihan: Some version of autarky?

Dan Ferris: Yeah.

Peter Zeihan: The problem with that theory is it assumes that everyone will be on their own, and they're not going to be. We're going to have a series of regional groupings that are more coherent than others, and the largest one, to oversimplify, is the Western hemisphere because the U.S. has a century and a half of experience of keeping outside powers out.

I'm not suggesting that all of Latin America [inaudible]. That's not what I'm saying. I'm saying that a lot of the security issues and a lot of the demographic issues don't punch into the Western hemisphere. The demographic structure for Latin America at large is broadly positive. Even in countries where it's starting to turn, say Brazil, they have a minimum of another 30 years. And if you don't have to worry about a war, that's another big plus.

The Western hemisphere on its own is a significant net exporter of both food and energy. So a lot of the inputs that we need to prepare for a post-China environment are regional. Then there are countries in the Eastern hemisphere that we're going to bring along for the ride.

The Japanese have found way to get along with both sides of the political aisle, the only country that's figured that out. Good for them. That was smart.

Southeast Asia looks pretty good. The Australians already have a free trade agreement with the United States. There are pieces, whether cultural or political or strategic reasons, that we find useful and we find to be partners. So that kind of extended friends and family network is something that is going to persist.

But if you're not part of that network, you either have to go it alone or you have to find your own local network, and those are much smaller. So I can see kind of a greater Turkey or a greater France doing reasonably well. But those are really the only extreme hemispheric zones where you might have a power that is stable enough themselves, that can manufacture stuff themselves, that can take care of energy and food themselves, that's worth attaching to, but you'll have to attach on their terms.

Dan Ferris: I see. All right. I think we're actually at the point where we can ask our final question. You've done this before and I hope you don't remember it.

Peter Zeihan: I don't.

Dan Ferris: Good. It works better that way. The same question for every guest no matter what the topic, even if it's not a financial topic. It is simply: if you could leave our listeners with a single thought today, what would you like to leave them with?

Peter Zeihan: China has spent the last 40 years becoming the workshop of the world, $35 trillion U.S. in sunk costs for the industrial plant. We don't move on from that overnight. We don't need to relocate the whole $35 trillion, but we do need to double the size of the industrial plant in North America.

That is simultaneously the greatest pulse of inflation in our history, and the greatest prospects for economic growth in our history. And doing that buildup, how we do that buildup, how we prioritize, how we pay for it, how we do it in a period of restricted labor supplies, that is going to define the economics of North America of the next 30 years, and it's going to define the human condition for the remainder of this century.

So again, every day that China lasts is a gift because it makes that adjustment process that much less painful and dramatic.

Dan Ferris: All right. It's always a pleasure to talk with you, Peter, always a lively, interesting discussion. Like I said, we're definitely going to get you back here before China collapses. All right, thanks again.

Peter Zeihan: No problem.

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