Episodes

Announcer:                 Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour. [Music plays] Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I’m your host, Dan Ferris. I’m also the editor of Extreme Value published by Stansberry Research. Today is global macro day, man. We're going to talk with Marko Papic who is a global macro investor and author of the book Geopolitical Alpha. We have a huge mailbag – two weeks of mailbags because I was out last week. Asset allocation, a ticker symbol request – that'll be an interesting one – and listener David says two of our guests in the past – Chris Camillo and Harris Kupperman – really have the same strategy. I don't think that's true, and we'll talk about the differences.

And remember, the mailbag is a conversation, so talk to me. Call us up and leave us a message on our listener feedback line, 800-381-2357, and hear your voice on the show. In my opening rant this week, I'll talk about a little global macro news item that may have been overlooked. That and more, right now, on the Stansberry Investor Hour. So what's this news item? Well, I'll tell you. It's an op-ed piece, an opinion piece, in the Financial Times. It's dated Monday, August 30 of this week and it's by none other than George Soros.

Now, before all the keyboard cowboys go crazy telling me how much they hate George Soros, this is about investing and economics and a little bit about politics. It's not about whatever George Soros does with his nonprofit organizations that you hate him for, OK? So, you know, I don't care about all that. That's not what we're talking about. We respect the guy because he's made some incredible – he's made a lot of money. He's made billions and billions of dollars in these kinds of global macro-type bets.

And this opinion piece that came out that I've hardly seen much discussion of on Twitter and other places and in the regular – just in the press in general – it basically says that investors in Chinese stocks are in for a rude awakening. And the reason for that is that, you know, Soros says that Xi Jinping, China's leader... he starts off this piece by saying, "Xi Jinping, China's leader, has collided with economic reality." So Xi has cracked down on various types of private enterprise, and Soros thinks it's going to be a huge drag on the economy, continue to be a huge drag on the economy – because the market has hated this so far this year.

If you just take a look at, for example, the iShares China ETF from late February, like February 17, to about August 20, the thing was down 32%. And this is, you know, not a brand-new story, OK? But there's been a slight rally in Chinese stocks in the past, you know... since August 20 because Xi has come out and – well, China's financial sort of authorities have come out and said, "No. No. No. Everything's going to be fine. We're just cracking down on this one industry." And a few years ago – like two, three years ago, I think it was 2018 – Xi kind of targeted these for-profit education companies, which were a big part of the sell-off.

And he said, "The for-profit education companies – they shouldn’t be for profit. They should be nonprofits." And then in March, he made what I consider kind of a classic communist criticism of private businesses. He said, "The industry was a mess." He called it a mess in March, and so it was a chronic industry that's very difficult to cure. And there's no cure needed, because the parents love it. The stuff that's provided by the Chinese government, like the nonprofit sort of daycare and day camps and things that... they cost like $9 or something. They're not serious. Like, they don't prepare students for these grueling university admission exams which, you know, little kids – they start them as little kids preparing for these competitive university admissions exams.

I think they call it the gaokao or something like that. My Chinese pronunciation stinks, OK? It's spelled gaokao in the anglicized version. You know, I don't read Chinese characters either. Sorry. So, you know, this gaokao examination is really difficult and is really difficult. And parents will like – they'll spend anything to prepare their kids. So they're happy to spend tons of money on serious academic tutoring. And the government doesn't really provide that. So the government programs, they're just not that popular, you know? It's like little – like I said, little day caps where kids are sitting around painting and playing badminton and just chatting with their friends. Right?

So it's totally different than what the parents really want, and the parents go to the private market for it. But now they've cracked down, "Nope. It's going to be" – we're going to crack down on the for-profit tutoring companies. They're banned. It's banned now in China. That's a big part of the sell-off, which Soros noted in his op-ed piece. And he just – Soros just generalized, you know? He fancies himself a guy who understands economies and markets, right? And he's got the money to prove it, OK? So who are we to say otherwise?

And he suggests that Xi simply does not understand how free markets operate. He just doesn't understand it. And he thinks that he can be the second coming of Mao Tse Tung, the famous communist Chinese leader, and crack down on things that he doesn't like and still have the market make everybody rich in China or something. And Soros takes issue with this, you know? He says, "Xi regards all Chinese companies as instruments of a one-party state." And he says Chinese financial authority is trying to reassure us. He says, "This is deception because Xi views all these companies as just, you know, tools for the one-party state. And so, there's a rally – there's a little bit of a recovery rally.

Like, we haven't made up – nearly made up that 32% drop, for example, in the iShares China ETF. And my thoughts on this are simply – I have more questions than answers. As usual, Dan has more questions than answers. I've always wondered about the intersection of Communism and a market economy. What does it even mean? I've been to China. I've seen it. I mean, it looks like these gleaming glass and steel towers and brand-new, big, wide highways and every Western brand of luxury brand and Apple and Nike and every fast food joint that you could think of – and it looks very modern and Western.

So you look at that and you say, "Huh. Well, whatever they're doing, it seems to be working." But don't you have to wonder about it? I mean, you're not allowed to own property. We talked about this with Rahul Saraogi, last week, in the interview. And Rahul of course is from India. He's a huge advocate of investing in Indian stocks and of the Indian economy, the Indian way in general. Which I have to say I understand a little better, right? They have entitlements. That is to say, you can title property in India – is what I meant to say. Not entitlements. You can title property there.

And I rode up and down the highways in India, in Southern India, and I was like, "What are all these little, white stones outlining" – you see them all up and down the highway. You see just tracks of empty land with these white stones outlining boxes of land. And that's just people saying, "OK. This is my property," because they own it and they have like British, you know, land entitlement." Just pretty much like we do. So when I look at that and I look at China, I think, "Why aren't people talking about India?" And there's reasons. There's been a lot of corruption, you know, they speak 20 different languages. You ride 50 miles up the highway and they're speaking a different language. So there's some issues there.

But, you know, the whole country speaks English. So I have wondered, simply put, about how far a communist country can go with a market economy. Can you really – is there really such a thing as communist capital [laughs]? What does this even mean? And all I have are questions. That's all I have. And Soros – the reason that this opinion piece is remarkable to me is because you never hear anyone say this. You never hear anyone say what I just said, which is, you can't be a communist country cracking down on private enterprise and expect the market economy to work for you, can you?

I mean, I don't know. Soros has his doubts. And he also points to the trillions of dollars that are invested passively in various indexes. He names the MSCI all-country world index as the most widely followed global equity asset index. And he says, "There's $5 trillion passively" – which meaning it replicates the index. It is in the index components. And then, there's multiples of that amount, many more trillions, that's actively managed that closely tracks it and resembles it. So there's trillions of dollars invested here, and what's going to happen if people start pulling that money? You know, if China going to crash? Is there going to be an economic crisis?

Because I'll tell you, you don't become an up-and-coming power, economic power, without stumbles. And, you know, the property market for example has just soared for two decades. When is that reckoning coming? We know there are like huge – these towns, a couple of them – you know, it's not as widespread as the media represents. But there's a couple of towns in China that are basically empty. I mean, they just built whole towns and there's, you know, nobody living in them. Or there wasn't the last time I checked.

Maybe if you know all about China and there's people living in them now, you can write in to [email protected]. But do that. Write in to [email protected] and send me your own questions or answers to mine. "How does this work out? Is Soros right? Is China in for a – China and the people investing in Chinese stock in for a major rude awakening and a major reckoning?" And I'll tell you, if they are and there is a rude awakening, a big reckoning, it could be like the last big buy signal on China. Last great dip to buy in China during our lifetime. But that's all I have to say about that.

And the quote of the week comes from our guest, Marko Papic, from his book Geopolitical Alpha. And it says simply, "Investors should focus on material constraints, not policymaker preferences. Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences." And that's very abstract, but I hope you can see the connection between that quote and Soros' concerns about the Chinese economy... the clash between communism and a market economy which Soros thinks will not go well for China and investors in Chinese stocks, right?

The Chinese policymaker Xi Jinping can have all the preference he wants for the Communist Party to be powerful and shut down industries it doesn't like, but markets are like living things. And they represent, I believe – we'll talk with Marko about this – a material constraint on that type of preference. But, you know, I've believed that for some time and China has just soared and become a major power and is on its way to becoming a bigger one, you know, by all appearances. So there's a lot to think about here. And there's a lot to talk about, and we should do that. let's talk about this and whatever else is on the mind of Marko Papic. Let's do it right now. [Music plays and stops]

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Today's guest is Marko Papic. Marko is a partner and chief strategist at Clocktower Group. He leads the firm's strategy team providing bespoke research to clients and partners on geopolitics, macroeconomics, and markets. Prior to joining the firm, Marko founded BCA Research's geopolitical strategy practice in 2012. Marko began his career as a senior analyst at Stratfor, a global intelligence agency, where he contributed to the firm's global geopolitical strategy as well as its analyst recruitment and training program. In his academic work, he helped create the Center for European Studies at the University of Texas at Austin. Marko holds an MA in political science from the University of Texas at Austin and an MA from the University of British Columbia. Sounds like we're talking to the right guy if we want to talk about global macro. Marko, welcome back to the show.

Marko Papic:              Thank you so much, Dan. Really appreciate it.

Dan Ferris:                 The first time we talked to you, we talked about how you got started in investing. So I'm going to refer listeners to that, and I want to dive into the deep end here. Because I feel like – there was a recent opinion piece by George Soros, the big billionaire speculator, in the Financial Times. And I thought it was kind of funny. I hardly saw anybody talking about it. And Soros raises this point that, you know, these people are communists and Xi Jinping is a communist dictator and might not understand the dynamics of. A market economy. And I have to tell you something, Marko. I've always wondered about this. Like, how compatible – is there such a thing as capitalism and – communist capitalism? It just doesn’t make sense to me. Like, how have they been so successful to date? And is Soros right? Chinese equity investors in for a massive rude awakening because of this?

Marko Papic:              Well, the joke of the month someone – I'm lifting this from someone. But the joke of the month is the following. "How do you become a millionaire?

Dan Ferris:                 How?

Marko Papic:              The easiest way to become a millionaire is to be a billionaire and then invest in Chinese tech stocks. [Laughs] So what I would say to you is, like – you were asking a question, but the answer has been already given. Obviously, Chinese ADRs have been absolutely like decimated. And so, yeah. I mean, this is the world of investing in countries where laissez-faire is not the economic, you know, policy du jour. But one problem I have with op-ed, though – and I of course respect Soros, and he's done a lot of interesting things in his career. But what I would say is, did he just wake up to the fact that China is an authoritarian country?

Because, like, I mean, it's obvious that it has been. The question for us as investors is whether or not that means that we should askew completely, investing in countries that do not adhere to a certain sort of standard of laissez-faire capitalism. And I would say that if you were honest with yourself and kind of thought about all the different emerging markets in particular that we're investing, most of them fall far short of the sort of ideal or standard that I would say is the ideal, which is kind of the Margaret Thatcher, Ronald Reagan laissez-faire capitalism that I think you and I would consider, you know, pure capitalism. Most countries in emerging markets face – including U.S. allies like Malaysia or Indonesia.

Certainly India, pre-Modi. Certainly India has a deep-status dirigiste component to it. And you can actually make an obscene amount of money following a non-market but more status approach. So, like, what does the state want? Oh, OK. They want hard tech. "Cool story. I'll invest in that." So what I would say is this. I would say that, yes, George Soros is right, China is an authoritarian regime. But I would actually flip it and I would say, "Do I have a problem with the Chinese Communist Party giving me my sectoral allocation?" No. If I have a fiduciary duty to my investors, if I have to generate alpha, then I do it. If Chinese state doesn’t like TMD sector but likes hard tech, OK. Cool. Got it. Act accordingly and you can still generate alpha.

So that's what I would say. I mean, I don't think – look. China's not going to go out and destroy every single sector. They've basically told us. They think – rightly or wrongly, but they think the American style, the developmental model that emphasizes tech. They just woke up to the fact that they hate it even though they loved it for the last decade. OK. And, you know, I mean, what basically happened I think in China is they realized that they're not going to win some sort of a proverbial theoretical geopolitical challenge with America because they have cool apps. They're going to need – they're going to need trains, planes, and automobiles, right? And so, they're like, "Oh, wait. We should probably be more like Germany or more like Japan." And that's what's happening. And so, I would actually temper some of the maybe skepticism that Soros has. I mean, if he was investing because he thought China was going to become Wisconsin, then I would say that was his mistake.

Dan Ferris:                 Right. So this raises an interesting point to me. And I'm sure that it's one that will sort of ruffle the feathers of our listeners, and I intend to do that. It sounds like, behind all of this, you're telling me, "Hey. Don't get married to your political views too much when you're looking at global equities because it can screw you up." If you just simply dismissed China because, "Well, they're communists and the guy appointed himself president for life. You know, you can't own property. You just buy the development rights," or whatever you do with property – you know, "I don't like that." And then, you miss... as you say, you miss the allocation to hard tech or whatever the party says it wants to shove money into.

Marko Papic:              Well, that would be the equivalent of not investing in Brazil because you're extremely liberal and you think that Bolsonaro is too Conservative, as an example. And I think we all live in a hyper-political age, Dan. You know? And I think that people get canceled for all sorts of reasons. And that's cool. Like, you can do whatever you want in your personal life. But I have this policy – and actually, my book that... I read a lot of fantasy stuff in my book. But fundamentally, my book could've been one paragraph. Which is, walk into your office, turn on your Bloomberg screen, and don't be a human being.

Dan Ferris:                 Don't be a human being.

Marko Papic:              Absolutely.

Dan Ferris:                 OK [laughs].

Marko Papic:              Don't be. Like, especially if you want to invest the way that I do, which is basically using politics and geopolitical as my methodical bias if you will, or framework. You cannot sit in front of a Bloomberg screen and say like, "Oh, I don't like this person. I don't like this policy. I think this guy's too liberal. I think this guy's too conservative. I think this country's going the wrong path." Look. At the end of the day, if I tell you the copper prices are going to go up 3,000% because everyone's bought into green tech and we're all going to be riding around in EVs, well then you're going to buy Peru's stock market even if it's run by a bunch of communists and Marxists, because copper prices are going to go up 300%.

Like, you know, it's that simple in other words. I think we can't... you know, we can't really ignore the realities that underpin the market. And those realities are often... in fact, I would go as far as to say that one of the biggest sources of alpha in the market is when people invest too much based on their bias. And one of the examples I've always used is how Mexican currency has outperformed Brazilian even though Mexico is basically run by a left-wing socialist AMLO and Brazil was run by someone trying to pursue laissez-faire reforms. But from the election of AMLO and Bolsonaro to 2020, the peso outperformed the real as a good example of this dynamic.

Dan Ferris:                 That's a great juxtaposition. That last example of those currencies was great. I'm certain that somebody listening to this is going to go, "How can that be?" Right? How can it be? A lot of it has to do with where you're starting from, no?

Marko Papic:              Exactly. No, but that's cheap. But let me expand on that example for a little bit. I actually was super proud of this trade. And in 2018, I got super excited. I was like, "I'm going to be long peso versus real. And one of the reasons for this, by the way – at the time, peso had positive carry versus real for the first time since I could legally drink alcohol. OK? So for the first time ever, you would actually get paid to long the peso and short the real in like 30 years. And so, it wasn't just a political story. It was just macroeconomic. But exactly what you're saying.

Basically what happened in 2018 is, AMLO wins the election in Mexico, everybody gets super bearish because he's a socialist, Bolsonaro wins the election in Brazil and everybody gets super excited because he, you know, really wants to reform Brazil and pursue laissez-faire reforms. And so, the market priced in that capitalism would be better than socialism. Now, just so we're clear capitalism is better than socialism. But this is – you know, like duh. But here's the problem. Here's the problem, Dan. Here's the problem. This is like betting on NFL football games. OK? Like, the Patriots are better than the Bills. All right? The Patriots are better than the Bills. Fine. We all know that. But they can cover the spread. And that's the key. So, like, if the bookie – if Vegas tells you Patriots are going to win by three touchdowns and you're like, "Eh. I don't know. I don't think so" – and that's why your whole point is, like, it all depends on the starting points.

Well in 2018, we had this extreme concern about AMLO and this extreme optimism about Bolsonaro. And I'm like, "You know what? At the end of the day, Mexico is Mexico. And Mexico has not had a socialist President since the 1920s. The median Mexican voter is actually not left-wing. Actually, culturally speaking a lot of Mexico is very similar to Texas, Arizona. There's a kind of libertarian streak in northern Mexico. These people are not in favor of like property rights being out. But at the end, Brazil is Brazil.

So I'm going to need a lot of convincing that some dude who's like, you know, not all there is going to suddenly turn Brazil into 1980s Margaret Thatcher United Kingdom. So what had happened was, the market priced ideological bias. And I was like, "Yeah. Capitalism is better than socialism, but I don’t think it's winning by three touchdowns in this case, and I bet the other way." And so, yeah. Absolutely. China is a great example now where there's a lot of navel-gazing, a lot of moralizing, a lot of normative – like, "Oh, my goodness. They are communists." And it's like, "First of all, yeah, they've been communists for a very long time. The government of China has picked winners and losers in the sector space for 30 years."

But they're just telling you this right now. Like, "This is actually what's going on in China, is they're saying, "We don’t want our economic development to be dominated by tech stocks, tech companies. We wanted soft tech, like software apps. We wanted to be dominated by hard stuff," you know? And that government is going to favor one second or another. Like I said, you can totally leave the money off the table. You don't have to generate alpha in China. I'm not beating anyone over the heads to do that. But if you choose to do that, you're not an idiot. You're not a traitor. As long as you don’t invest in companies that are obviously illegal to invest in as American because they're related to Chinese military, you can pick up a lot of alpha. Because literally, it's probably the easiest place in the world right now to do sector asset allocation.

Dan Ferris:                 Wow. It sounds like a knowledge of history is really super important to you.

Marko Papic:              I think it gives you perspective, yes. And it gives perspective because it makes you realize that nothing is nailed to the ground.

Dan Ferris:                 Right. All right. I'm satisfied. I think we should try to continue to ruffle some feathers. Like, is there another - is there another situation in the world right now, another country, where most people look at it and say, "Ugh"? You know, every time someone mentions France to me I think, "Oh, man. No way. Socialist France? Are you kidding me? I don't want to own a French stock ever."

Marko Papic:              OK. Well, let's do France then.

Dan Ferris:                 All right. [Laughs] All right.

Marko Papic:              You brought up France. All right. So I'm going to make a cases for France. OK? For you.

Dan Ferris:                 All right.

Marko Papic:              I mean, it's not like something that I would necessarily carry in my chart bag, but let's extend this exercise further. So you are challenging to sell to your audience French equities.

Dan Ferris:                 All right. Yes.

Marko Papic:              Challenge accepted.

Dan Ferris:                 Go.

Marko Papic:              All right, Dan. Let's do it. All right. Here's what I would say. Here's what I would say. First of all, the market doesn't move because of what the reality is. The market moves when the reality changes. So in other words, France as a socialist country – and we can actually create an index. We can create an index, you and I, of left, right-wing economy, you know, and I've done this, by the way. And France is certainly on the left. Like, you know, you put a bunch of variables that determine – like for example. How flexible is your labor force? Can you fire people without worrying about it? Can you just fire someone because, you know, they suck? Yes. In America, yes.

So let's put it on the right-wing of this economic thing. In France, you can't, really. Although they're making these – and that's ultimately the key point here. The market is priced for where you are on this left/right index. If you're on the right, you should require higher multiple. If you're on the left, your evaluation should be impacted. But that's the reality. That's the coincident indicator. What matters to the market is whether you're moving on this kind of a measure of how, you know, free or capitalist you are. And what I would say is this: France is moving toward the right. Very, very gingerly. It's three steps forward, 2.75 steps back, you know, there's a lot of hesitancy.

But let's be very clear here. In 2017, France – socialist France – elected a 39-year-old former Russian banker. Now we can say, "Oh. Well, he's not that right-wing. He's not that, you know, laissez-faire," and blah, blah, blah. It happened. And let's be honest with ourselves now, Dan. Let's be honest. If I had told you at the depth of the euro area crisis – at the depth, like 2011. If I came on your show and said like, "Hey, Dan. Six years from now, France will elect a 39-year-old Russian" – you'd be like, "Yeah, no way." No way. That's not happening, right? OK. So that's the first thing. The second thing I would say is that I think we're entering a decade where tech stocks are going to underperform.

Now, we can talk about a number of reasons why I think that's going to be the case. I think the fangs had a great run. I think tech did really well. I think they really did extraordinarily well in a low-interest-rate, secular, stagnation, deflationary environment. I think that environment is going away. I think the next decade we'll see an outperformance by industrials and energy. OK. Well, you know, French equity index has a higher weighting of both than the U.S.

So just based on my kind of global sector allocation – based on interest rates, based on what technologies are coming down the pipeline – I think France will do well. And then finally, France has a lot of innovation in I think technologies that have been not really innovating for a long time that will do well with policymakers just sinking trillions of dollars down sustainability and green tech. I think that France will actually get benefits from that as well. And then, there's a final issue which is geopolitical. I think France is going to continue to be highly geopolitically promiscuous as it has been for literally millennia, and that will benefit French companies greatly.

Why? Because the U.S./China tensions will incur a cost for American capital goods companies – whether it's airplanes, trains, automobiles. Somebody will pick up the slack. And that somebody will definitely be France. France has been like a very promiscuous ally. Just ask any country on the history of mankind for a very long time. I don't think that France will have a problem picking up the slack that American companies leave in China.

Dan Ferris:                 Right. The promiscuity fits the historical sort of stereotype, doesn't it, of France?

Marko Papic:              Oh. Catholic France allied with the Ottoman Empire against Catholic Habsburg Austria. At the end of the day, you know, what was the famous statement? "Countries don't have allies. They have interests." Right? And I think that France is actually kind of in the sweet spot in many ways for the next decade. But it really starts with the first point that I said. Which is that it doesn’t matter where you are. It matters where you're going. I think that France is marginally reforming – marginally. I don't want your viewers to be like, "What is this guy talking about?" Marginally. Guys, marginally. Moving to the right – and I mean on the left/right spectrum. America. What do you think is America marginally moving on economic index? I would say it's marginally –

Marko Papic:              No. Not marginally at all.

Dan Ferris:                 It's moving to the left.

Marko Papic:              Left. Hard left. Exactly. And yet, do you think that evaluations of France and evaluations of American stock market reflect the directionality of the politics? And I would argue no. Absolutely no.

Dan Ferris:                 U.S. doesn't reflect it at all.

Marko Papic:              AT all. At all. And it's mainly because the fangs have continued to outperform, especially the last couple of months. As tenure has come down, tech has outperformed. You know, and I think that's why – I do think that over the next decade France will outperform the U.S. Obviously, we'll see where that goes. It can be wrong or whatever but, you know, I took your challenge and there you go. There's my defense of France.

Dan Ferris:                 I just pulled France out of midair as like a stereotypical example, but you nailed it for us. That's great. So I would address something – I do a quote of the week in every episode. And the quote of the week came from your book.

Marko Papic:              Oh, no way.

Dan Ferris:                 Geopolitical Alpha. Yeah. And I found it very interesting. And I pick my quotes because they get into my head and I keep turning them over and over and I can't ignore them. And the quote is from the introduction. And it says, "Investors should focus on material constraints, not policymaker preferences. Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences." Now, this to me is a very interesting – it's kind of abstract. But for example, can you apply this to the example of France that you just gave me? Like, what are the constraints? And it sounds to me like you're saying, "Well, the policymaker preference is headed to the right." But what's the material constraint? You understand what I'm – like, what's the difference in that example between...

Marko Papic:              Yeah. No, I think we know that Macron's preferences are to the right, actually. They're aligned. I think this was a much bigger – this was a much better example ahead of the election in 2017, where he defeated Marine Le Pen. And so, here's what I'm getting at here. First of all, let me explain the abstractness. That statement that constraints matter more than preferences – you know, a lot of people who read my book, they come back and they're like, "Yeah. Yeah. I mean, like, I knew this. This is how I invest. This is obvious." And I agree with this. It's not that necessarily profound. Like, you could argue, "OK, Marko. I get it. I should follow material facts, not what's in people's heads."

But the issue is that it's very, very difficult to remain disciplined. Very difficult because of our human, you know, bias. And by the way. It's not human bias toward ideology. It's human bias toward humans. We're the creatures of enlightenment, right? And, like, you're supposed to tell the preferences of policymakers don't matter? That means my preferences as a human being don't matter. And, by the way, they don't. By the way, they don't. Like, I have a preference to drive a baby-blue Bentley Coupe GT. My constraint is that my wife doesn't have the same preference. She's perfectly fine with me using my bicycle to the office, you know?

So that's really what this is. That's extrapolating. So let's use the French example. This was actually extremely useful for me, because from 2011 to 2017 – to the election, throughout the euro area crisis – what became inherently clear was that the French state is too expensive. The French social welfare state is too expensive. And the burden on financing that state is overwhelmingly carried not by the citizen, which most Americans think – which is true all the taxes are high in France. But it's actually also the corporates as well, you know? So businesses have to pay a lot of these taxes that are social – with a social welfare state.

So that’s the first issue. the second issue is that this creates a condition where France, which is a highly productive economy actually – this is a misnomer that they're unproductive. It's a highly productive economy. But the gains of that – those productivity gains are overwhelmingly passed on to labor. Now, obviously in America where the situation is the opposite we all wish that maybe more gains were passed on to labor, and that's something America is adjusting. In France, it's too much of the productivity gains have been going to labor for the last 20 years. And they're in a currency union with the country that has pursued extreme right-wing laissez-faire labor reforms – i.e., Germany – which has managed to stifle the sort of what goes to labor.

That's why Germany has managed to keep its labor costs very low. Germany has increased its expert share in the global economy. As we know, it has a current account surplus and is basically just kicking everyone's butt. That is because there's two countries are in a currency union. France cannot devalue its currency to become more competitive. So the only way for it to continue to defend its role in the global economy was to pursue structural reforms.

Now, I argued throughout 2015 that in France, the median voter had moved to accept this state of affairs. Because of the euro area crisis, because of the unproductivity of France, and because of its lots of economic advantage relative to Germany, the median voter in France was actually slowly moving toward acceptance of structural reforms. And so, ahead of the 2017 election where a lot of people were concerned about Marine Le Pen, my point was, "Like, it doesn’t matter what she wants. She's going to move to this middle ground." Anyways. And she did. Actually, her platform – ahead of the 2017 election – included cutting the size of the state. Which for a populace was unheard of. Even Marine Le Pen was like, "OK. Fine. I know what the voters want."

And ultimately, of course, she got completely destroyed by Macron, and it wasn't even close. The polls were never close. He crushed it. The French median voter basically elected somebody who is not just a 39-year-old washout banker but who clearly campaigned on a platform of structural reforms. So what I'm getting at here is this. The structural constraints that face France are something we can calculate, and we can measure that. This lack of competitiveness, what American listeners, especially of the show, will know as the stereotypical like French malaise, the French socialist economic system – had run the end of its course. The euro area crisis had clearly illustrated to France that they were an unproductive economy in requirement of some Thatcher/Reagan-type reforms.

And so, they elected ultimately a person who was the most likely to deliver that to them. The median voter preference became a material constraint to policymakers. And I would argue that if Marine Le Pen had gotten elected, she would've pursued... not all the reforms that Macron tried to do but certainly she would've not have ruled from a sort of populous left on the economic matters many people think. And so, ahead of the election like, "How did I articulate this in terms of a trade?" I went long French industrials relative to Germany... not necessarily because I think a Renault is better than a BMW. I mean, if I did you should just, you know, never invite me back on your show.

Again. It's not because I thought that French industrials are going to produce better goods than Germany. It's not absolutely – it's about the marginal shift. And the argument I made was, "France will pursue reforms. They will make French industrials more competitive as they do. And therefore, this valuation advantage that German industrials have relative to France will be eroded in favor of France." And that was, I think in 2018, it was one of the best rates that I had. And I think it continues to do really well.

Dan Ferris:                 Yeah. Before, you mentioned it sort of outperforming for a decade.

Marko Papic:              Germany had outperformed France for a decade.

Dan Ferris:                 Right. But I thought you had said maybe that would flip for the next decade. No? Did I interpret that wrong?

Marko Papic:              Yeah. It's a decade view. It's a decade view. Absolutely.

Dan Ferris:                 OK.

Speaker 3:                   It's a decade view. Yeah. so that's right.

Dan Ferris:                 But does it trade –

Marko Papic:              And we should... yeah. As a trade, it worked. We'll see if it works for the next one. I don't know. But I guess the point of this also is, you know, I think quite often we imbue in the characteristic off countries today some sort of a sense of like a national espirit – a national culture. "Well, the United Kingdom is a great economy because, well, they just believe in this kind of free economics." The United Kingdom was a basket case. Before Margaret Thatcher, the United Kingdom was the most socialist country in the developed world. The most.

Except maybe some of its colonies like New Zealand or – like, not colonies but like members of the common world. The United Kingdom was a basket case riven with inefficiencies produced by high levels of unionization, ineffective industry and massive redistribution. United Kingdom redistributed wealth much more than France did throughout '50s, '60s, and '70s. And then, that came to an end because it was no longer sustainable. Because, you know, the material factors basically forced United Kingdom to change.

And you can actually read a slew of academic work done in the '80s where – and it's quite hilarious reading this – where they just say, "Like, there's no way that Thatcher can change this little island of shopkeepers. Like, we're just destined to be" – United Kingdom begged France, begged on its knees... begged France to let it into the EU just so that it could bathe itself in some of the glory of European continental capitalism. I'm saying this – it sounds ridiculous to a listener today. This is a fact. This is a historical fact. The United Kingdom begged Europe to enter the EU to shed itself of its socialist status economy.

Now, ultimately it ended up that it didn't need to do that. The EU is overstated as an actor, both by its attractors and those who like it. Ultimately what determines the trajectory of a country is not its membership in EU. What determines it is the politics of the day. And Margaret Thatcher obviously pursued reforms that led to the United Kingdom outperforming the rest of the European continent whether it was a member of the EU or not. But the point of the story is this. We have to think beyond stereotypes and cultural kind of norms because they can be flipped. If the United Kingdom can go from socialism to capitalism in basically 30 years, countries that are fully capitalist can go to some sort of a more socialist form of capitalism as well.

Dan Ferris:                 Right. So, Marko, you've destroyed the French challenge. You've destroyed it, and I appreciate that. You did a great job.

Marko Papic:              Awesome. Thank you.

Dan Ferris:                 And, you know, we talked about China as well. But I sort of threw those topics on you. If I had started this by saying, "Marko, you know, what do you like in the world today? Where are you invested? What's your favorite trade right. now," what would you have said?

Marko Papic:              You know, I think that – so right now, I think we're in the doldrums of the cycle. Real yields right now are telling us that we're destined for a decade of deflation. We're destined for a decade of secular stagnation. So if you look at the real yields, they're extremely negative – at levels that basically says like, "Holy crap. The world is ending." And I'm just like, "Dan, I don't think that's the case at all." You know, like at all. I'm not necessarily optimistic about the world, but I do think that there's a couple of factors we need to think about. I don't think this cycle is anything like the last.

First of all, the American household has the leverage. This is like – why did we have secular stagnation? Why did we have below-trend growth in the last cycle? And why did CEOs choose to buy back their shares instead of investing in capex?" Well, because the American consumer was like, "I'm out. I'm not going to play anymore." The American consumer took all their toys and went home, right? So for a decade, we had this household deleveraging in the U.S. That is over. The data shows it.

American households are not massively leveraging, and there's obviously problems. Consumer confidence has come down because prices have gone up because of supply issues. But fundamentally, American households are flush with cash and have above-average savings. I do not expect us to have a deleveraging. We can quibble. We can debate whether they'll be leveraging. Fine. But there won't be deleveraging. And quite frankly, that's all I need to know to say that this cycle is meaningfully different from the last. That's all I need. I just need the line to be flat. I don't need it to go back up. Just don't go back down in terms of leverages percentage. That's the first issue.

The second issue is austerity. Let's not forget the Tea Party forced President Obama to come to the table, negotiate and cut the budget deficit. So we had five years of self-imposed austerity in the U.S. We're not going to have five years of self-imposed austerity in the U.S. Let me just be clear on this. we're about to pass another like $4.5 trillion in net terms less, but we're at the point where it's like, "Eh." But in net terms, Marko, it's only $2 trillion." "It's only $2 trillion? What?" You know, we're so desensitized. "Yeah. But what's another trillion though?

Dan Ferris:                 I know [laughs]. But not austerity.

Marko Papic:              Exactly. Thank you. Thank you. No. Next year, there's a fiscal cliff. It's a product of math, blah, blah, blah. Look. Look. It's meaningfully different from last cycle where there was actual austerity. The G in the GDP equation, government was negative. It was headwind to growth. So you've got households not deleveraging, government not deleveraging, you've got monetary policy institution, which is trying to pretend its orthodox, but I would argue it's already behind the curve. And then finally, the big-picture issue is that in a lot of the rest of the world there aren't these current economy balances that caused the euro area crisis, that caused emerging market crisis and commodities are starting from a relatively low level. Last cycle, by the way – last cycle, the 2009, 2010 cycle started with commodities at very elevated levels.

Now, I know oil prices have risen like 100%. Fair. But they were like at 7. Last cycle, we started with oil prices above 100. And then, you had this deflation in costs of commodities. This time around I think there's more upside. So I think the No. 1 thing where I want to invest is this. I want to use any doldrum or interactome or hiccup to load up on reflation plays. Because I don't think that it's over, you know, I don't think that the reflation trade – which everything was so much consensus earlier this year on long commodities, long emerging markets, short dollar, short bonds, long cyclical plays, short tech.

And then since March, this has just been getting killed. I understand why it's getting killed. There's good reason it's getting killed. There's good reason to worry about growth – whether it's Delta, whether it's Fed being perhaps too hawkish, whether it's intracyclical, natural blipping growth. But I think that these are opportunities to load up on those cyclical plays. Now, I wouldn't do it right now. Just to be clear, I think for the next 30 days it's going to be iffy. Maybe 60 days, maybe the next month or two to Brazil. But at the end of the year, I think reflation gets reaccelerated. The other two things I will say – and I think zero of your listeners are going to like this. OK?

So I'm going to give you some – you say you want to stir the pot? Here's two tactical trades. So the first one is a macro investment outlook for the next several years. I think we should be long reflation – I think this cycle's like 2001 to 2009. But tactically speaking, for the next 30 days the two things that I really like are anything green – if it's green tech, load up on it. There's more upside to that because we are in this interactome where yields are low, tech plays are going to do well.

I'm biased toward green tech plays because I think money is just going to be sucked into fighting climate change. Now, again, if you don't like it, if you think climate change is a hoax, that's cool. Just telling you what's going to make you money. So, like, we got to separate those two things. The other thing I would say is, Chinese tech stocks [laughs]. No. For this – it's a trade. It's a grade. It's a trade. There's a bounce back. And you know how we know this? We know this because when Chinese government banned playing computer games two days, Tencent went up.

In other words, when like bad news is priced in and more bad news doesn't move the stock the way you think, we're due for a debt cap bounce. So, I mean, again. Not a long-term place. Not a place for your kids and grandkids to like make money. But next 30 days, I think there's going to be a kind of a debt cap bounce. So those are the like two 30-day ideas, which actually don't fit my big-picture narrative, which is very cyclical industrials, energy financials. The two tech plays I have are green tech in U.S. and then "tech" tech in China... 30-day trades.

Dan Ferris:                 Nice. Actually, that's great. I mean, we are ruffling feathers. But listeners love, you know, "Oh, 30-day trade? Green? Who the hell cares?" The green they want is money [laughs]. So yeah. It's just interesting. Like, the whole time we've been talking this thought is rattling around in the back of my head about the importance of understanding the difference between a static view and a dynamic view of things. And we've really – you addressed that repeatedly one way or another – directly or indirectly – in your book. And it's just your whole outlook, right? Sure, France is a socialist country. Sure, China is a communist county." But that's not enough. That's the static view.

Marko Papic:              Well, the markets should be pricing that. Or maybe not. But look. I'm open to the Soros view that the market has to wake up to like how communist China is. Fair.

Dan Ferris:                 Sure.

Marko Papic:              I'd probably quibble with it, but whatever.

Dan Ferris:                 And China is not great either.

Marko Papic:              Well, it's also – yeah, exactly. Its dynamic nature. It's where things are moving. Totally.

Dan Ferris:                 Yeah. That is very interesting. We've been talking for a long time, and I appreciate you being here. But I've got to ask you my final questions, which is the same for all the guests of our podcast. And the final question is – you've given us some great trades and things. But separate from that, if I could ask you to leave our listener with just one thought today, one takeaway, what might it be today?

Marko Papic:              You know, I think it's to put kind of everything in perspective, always, historical perspective and to think of everything in relative terms. So let's take – you know, one thing we didn't talk about today is what's happening in Afghanistan as an example and how that could impact the markets and the economy. And I think that one way to think about the world is that it's very dynamic. And most people when they think about the disaster in Afghanistan and the failure of the withdraw, they think, "Well, you know, somebody's going to come and fill the vacuum." And so, most of the way that I've seen analysts try to think about Afghanistan is who will directly replace America in terms of having influence in Afghanistan.

And I actually don't think that's an interesting question at all. And the reason I say that is because Afghanistan is precisely on the path to nowhere, you know? And so, I actually – you know, maybe Pakistan will maybe have more influence, India will be irked, blah, blah, blah, China has some issues on the border there that they're not really thrilled by. But fundamentally, I don't really think that's where the ultimate market and economic relevance of Afghanistan hold. I think the elements of Afghanistan is that it's quickly causing the Biden presidency to look like a failed presidency, you know? And so, what that means to me is that there is a real onus right now on the White House to speed up its domestic legislative agenda.

And so, I think that the kind of moderate deal-making Biden who's trying to make bipartisan deals is very quickly going to be replaced by a Biden that tells the moderates – the Democrat moderates in the Senate like Arizona Senator Sinema and, you know, Manchin – I think it will quickly be replaced by somebody who tells the moderates in the Senate and the progressives in the House to just shut up, make a deal, and blow up the budget deficit, right? Because ultimately, look. This is very clear. If they don't pass the signature legislation of his administration – which is the $3.5 trillion – what the Democrats call the Human Infrastructure Bill – then Afghanistan becomes an even bigger failure because it’s the only thing that any one of us are going to talk from now until the mid-terms. Like, in terms of, "What has the Biden administration done?"

And then, it's going to be like from, you know, September of 2021 until November of 2022 that will be it. Because Congress pretty much stops working in the mid-term year in like March/April [laughs] when they all go back to their own districts to start campaigning for the mid-terms. And so, you know, Biden has about a window of I would say four to six months. And I think that the odds of this legislation passing rises. Now, if you try to ram or push through a complicated fiscal package, what does it mean? The political path of least resistance leads to profligacy. Which is a fancy way of saying, "You're just going to throw money at the problem to smooth everyone's hurt feeling."

So the moderates in the Senate will get what they want, which is not to raise taxes. So the moderates in the Senate will ensure that the bill that Biden passes has fewer tax increases. But the progressives in the House will make sure that he has all the spending. And then, the net contribution to deficit will grow. And I think that is one way in which the markets should think about Afghanistan. Now, what does that concretely mean? Should you buy infrastructure stocks or whatever?

No. I think what it concretely means is that right now the immediate American investor is completely ignoring that we're still going to be blowing up budget deficits massively. I mean, the 10-year is at 1.3. Inflation I don’t think is transitory. I think it's much stickier than people think. I'm not in the hyper-inflation camp. Don't get me wrong, Dan. But with inflation higher and with fiscal policy about to prove itself, why it's profligate, I think the 10-year yield probably does have more room to run higher.

Dan Ferris:                 All right. Thank you for that. That's awesome. Marko, I love talking with you, I have to tell you.

Marko Papic:              Well, thank you. I really appreciate – I love talking to you too. This is great.

Dan Ferris:                 All right. Thanks a lot, man. I hope we'll talk to you really soon.

Marko Papic:              Anytime. Anytime. I really enjoy this. Thank you, Dan. [Music plays and stops]

Dan Ferris:                 Wow. I hope that you enjoy Marko's commentary as much as I do, because I think he's one of the – it's very hard to be a geopolitical sort of global macro guy these days. And what he might call his nihilist viewpoint where he just says, "You know, I don't care if they're communist or socialist or capitalist or whatever. It depends on what direction they're heading in" – if you just do nothing more than take that tidbit away with you and get that perspective that he was talking about in his final answer, I think you'll do a lot better especially on your sort of ex-U.S. international type of investments. Great stuff. Love Marko. Can't wait to have him back. All right. Let's do the mailbag. Let's do it right now. [Music plays and stops]

I want to share a quick story about a man named Ken Langone. The son of Italian immigrants, Langone describes himself as a dumb kid from Long Island that barely got out of high school and almost flunked out of college. Langone's dad was a plumber. His mom worked in a school cafeteria. But Langone lived the American Dream. He went from $82 a week to one of the richest people in the world. Langone's most famous move was an early investment in Home Depot, which enabled him to become a co-founder of what is now the biggest business of its kind in the world with 2,000-plus stores and 400,000 employees in North America.

Because of Langone's Home Depot connection, he has unique insights into the current status of the U.S. economy. The labor shortages, supply chain issues, soaring prices, and increasing inflation. And that's why it was telling to see Ken Langone go public on CNBC recently with an alarming prediction. He also says the government is already creating major distortions and that the people they are trying to help are the ones who are going to get hurt the most. And my colleague, a former Goldman Sachs banker – Dr. David Eifrig – agrees. He says, "Most Americans are completely unprepared for what's about to take place in our country."

What exactly is going on and what has these successful and wealthy Americans so concerned? Go online to get the facts about this urgent warning by visiting www.loomingeconomywarning.com. That website, again, is www.loomingeconomywarning.com. [Music plays and stops] In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms to [email protected]. I read as many e-mails as time allows and I respond to as many as possible. You can also call our listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show.

OK. It's been two weeks. There's a huge mailbag. I've got lots of stuff. Let's dive in so we can get through it all. First one is from Julia T. And she was writing in about India, and she said, "Being a value investor, this looks interesting. Please send me Dan's thoughts on this market." Well, we're not going to send them to you, Julia. I'll just [laughs] answer your question. And the answer is simple. Rahul Saraogi knows 10 times more about investing in India than I ever would, so why not just go back and listen to last week's episode and take notes? And he also has a website called Atyant Capital. Atyant is atyantcapital.com. And he's got some information there as well and you can learn about Indian investing there.

So there you go. Rahul's your man. Check it out. Next is David. And David says, "Hi, Dan. I just finished listening to Episode 217 with Harris Kupperman regarding his strategy of looking for microtrends. This made me think about Episode 192 with Chris Camillo regarding his strategy of social arbitrage. It strikes me that these are the same strategies with different names. The biggest difference I discern is the length of the hold... Mr. Kupperman, years... Mr. Camillo, months. I would appreciate your thoughts. Possibly you could compare and contrast them. Kind regards, David."

David, I see them as totally different. Remember, Chris Camillo is the guy who is neither technical nor fundamental. And that "nor fundamental" is what distinguishes him from Harris Kupperman whose strategy is totally fundamental. It's fundamental regarding industries that he likes and regarding companies that he likes. And he is a deep – he will tell you he is a deep value guy all day long. And that is a pure fundamentally driven strategy. So he buys what's cheap and attractive to him based on company dynamics and industry dynamics. And the industry dynamics are things he calls microtrends. And microtrends, they're just trends in industries. OK?

Now, what Chris Camillo does is totally different. He doesn't care if there's a trend in the housing industry. He just wants to see people talking about housing stocks on social media. And you see the difference? Like, Harris Kupperman cares about the fundamentals. Chris doesn’t at all. He doesn't even care about the stock price or anything. He doesn’t care if they're making money. He just wants to see people talking about these things in social media. So to me, this is a huge difference. To me, Harris Kupperman is pretty much a classic deep value investor, and Chris Camillo is this weird neither – neither technical nor fundamental.

In the chapter in Jack Schwager's book about Chris Camillo, it's about unknown market wizards, and Chris Camillo is one of them. Chris Camillo's chapter is called Neither for the reason I just said. To those are my thoughts. Do with them what you will. Great question, though. I'm glad you asked. Grant S. says, "Hello, Dan. I'm a fairly new investor and viewer of your show. After watching last week's podcast, you recommended that most people should not short stocks. Why is that and who are the few people who can short stocks? Do you or have you ever shorted stocks?"

I'll take that last one first. I'm always short something. Right now, I've got put options on big indexes, and that's my short. But I'm always short something. And so, who are the few people who can short stocks? The people who can tolerate the risk. And that's why – you asked, "Why is that? Why should most people not" – because they can't tolerate the risk. And there's the other thing, which is that most of the time, in general, you want to have a bullish bias toward stocks. Period. Being long is the way to make a lot of money in stocks. You're buying equity in a real business. And if the business takes off and makes a lot of money over a long period of time, you're going to make a lot of money owning the stock.

Whereas, with shorting stocks the company could stink, it could be a – it could be a fraud, you could hate the accounting and the stock just goes up and up and up and murders your short position. That's why [laughs] hardly anybody should ever do it. You have to have the perfect timing in order to make money at it. I hope that is a good enough answer for you. Brett R. writes in and says, "Dear Dan. You've been a mainstay to my podcast library, have just been catching up. Just a couple things. You mention briefly when responding to a Social Security topic that our government is an allocator. I would tend to argue that it would be more accurate to think of them as a redistributor, especially with regards to Social Security."

Point taken, Brett. I totally agree. The government should be thought of as a redistributor. They wind up allocating to various industries in various ways, but you're right. They're a redistributor. and that is the effect, right? They're a wealth destroyer. They destroy wealth over here and they try to shove it over here and create it, and it just doesn't work. Brett continues. He says, "I've heard that asset allocation can be responsible for 30% of portfolio performance. I would argue it can be responsible for much more. Would you mind sharing how you think about asset allocation and any rules you follow for rebalancing?" Keep up the great work. It is most appreciated. Regards, Brett R."

Brett, I don't tend to rebalance. I just tend to throw a certain amount of money into stocks I like and not ever sell them. And they perform the way they perform. It's based on the coffee can portfolio idea. The coffee can story is a great tale. In brief, a fellow died and left an account to his wife and he and his wife had the same adviser. But his account was eight or 10 times the size of his wife's account even though they were doing the same thing and putting the same amount of money into the same stocks. The difference? He never sold. She took the adviser's sell advice. So that's what I do. And, you know, some of the stocks, they might go to zero. They go nowhere.

But some of them are going to do really well over the long term. As for allocation, I say allocate opportunistically. And right now, for me, the opportunity is to appreciate that there's more risk in financial markets than most people are willing to acknowledge, and I have to give a shout-out to Al M., a listener who writes in a lot that mentioned that I – he said, "You seem to feel that way, don't you?" I said, "Yeah, I really do, Al." So thanks for pointing that out. And that's part of why I say you have to be truly diversified. You need to hold plenty of cash, you need to hold some gold and silver and maybe a little bitcoin.

And maybe something else that kind of puts you outside the financial system... something priced in dollars, not something that is effectively dollars. So you have your dollars and your stocks and bonds in the financial system and maybe your gold and silver and bitcoin and real estate and whatever else outside of it. And maybe even outside the country physically. And so, that's what I consider being truly diversified. And to me, that's my asset allocation right now, right? So it may change dramatically. I may be fully – you know, if we get a big market crash here, if the market falls 50% or 70% or something crazy – I may have very little cash left, and I may be allocating lots and lots of money to stocks.

So I say allocate opportunistically. Porter Stansberry, the founder of our company, once said – I don't know if he still does this, but he once said, "You should allocate to value." Right? Allocate wherever the opportunity is, you know, based on whatever's cheap and attractive. Same idea. Allocate opportunistically, I would say. All right. And based on risk, too. You want to manage your risk. You want to find the opportunities and control your risk. It's a good question, though. And obviously, you could write a book. Many books have been written on it, so I'm not going to answer the whole thing in five minutes.

But those are the basics. Mitch V. is next. He says, "Many permanent life-insurance policies allow you to take collateralize loans against your policy's cash values and under great terms too. Keep in mind that inflation helps debtors wipe away debt. Just something to consider. Mitch V." We discussed life insurance on a recent episode, and I think Mitch is responding to that and he's just giving us an idea of why it might be good to have life insurance. And I'm pretty agnostic on it, but I tend not to care about it. As long as you have a huge net worth and you're going to leave something to your – you're going to leave it all to your spouse, let's say, or your kids or whoever would benefit from life insurance, I question the need for life insurance. I do have it [laughs]. You know, that's that.

Next is Curtis H. He says, "Dan, really enjoyed your podcast with Chris Mayer." Curtis says, "Research Evolution Gaming" – Evolution AB is the company's name – "and it's listed on the Stockholm Nasdaq. Can't seem to find the ADR. Ideas on how one would invest. Thanks, Curtis H." Yeah. There's two tickers that you can buy in the U.S. One is EVVTY and the other is EVGGF. I didn't look it up. I didn't research it. But I know from experience that F is the foreign share that – the Swiss share traded in the U.S., and Y is probably going to be the ADR. OK? EVVTY, EVVGF. And I found them just by typing Evolution AB into Yahoo. They were right there, readily available.

Joe Z. is next. He says, "Wow. You're an amazing writer, great interviewer, and I bet a great guy." Thank you, Joe. He says, "It made a lot of sense in the last podcast on India's opportunity. How can I invest with him? To do it myself would be impossible. Cherish your answer. Joe Z." It's not impossible You can buy an India ETF, INDA. And if you're interested in knowing more about Rahul, they do have a website, atyantcapital.com. You know, whether or not you want to invest, that's your business and I can neither recommend nor not recommend anything like that. So we get to Al M. and Al M. has been reading a book called The Price of Tomorrow.

And this author, Jeff Booth, seems to be saying that deflation – Al says, "Deflation is the key to an abundant future," according to Jeff Booth. "Very interesting and logical book on the economy studying the tech revolution and its effects economically. Obviously given the title, it is about how technology causes prices to fall so society gets more for their money." Yeah, Al. That's the way it's supposed to work, right? That's why over time commodity prices tend to fall in real terms and why commodity bear markets are kind of a big deal because, you know, it's like shorting stocks, right?

Most of the time, commodity prices are going to fall in real terms, but every now and then you get this – if you time it right, you get this big opportunity to make a lot of money. And Al goes on to say, "I just have this gut feeling that are and have been experiencing deflation over the last 20 years. I haven't done any measurements. I could put numbers to it, but it seems inappropriate and I have never actually done any calculations. It's just a gut feeling. I can't describe it much better than that. I really had this feeling that the last thing one should do is follow the advice of the Fed or politicians and hence putting maximum money into the stock market, as seems constantly suggested. Just wanted to express that feeling. Al M."

I hear you, Al. You know, I think some things get cheaper and some things have tracked inflation such as we've had, whatever we've had. Certainly rents have gone up, right? Motel 6 used to cost $6 a night when it debuted in the early-'60s was the founding of that company. And now, it's more like $100 a night. And it’s not [laughs] any – it's the same room, right? So rents have gone up. Ask anybody who pays rent. They're paying a lot more than they did a few years ago. When I was paying monthly health insurance when I was just an independent contractor, the price went from like – during Obama administration went from like – I swear it was something like $900 to $1,800 a month for my wife and I.

And it’s not like we even go to the doctor that much. So something's been getting [laughs] more expensive. And, you know, health is technology-driven. I don't understand why that's getting more expensive. I think I do, but that's for another day. Next and last comes Dave S. And Dave is a lifetime subscriber, and he listens to the Lawrence Lindsey interview again – which we did a couple weeks ago. Loved talking with Lawrence Lindsey about his book and his ideas and his time at the Federal Reserve.

Dave S. says, "I think the Federal Reserve raising interest rates is not as scary as it seems for the U.S. budget because the U.S. is reimbursed all the interest paid to the Fed. The Fed and Social Security now hold only about 25% of monies owed by the U.S., but it is rising rapidly. It seems to me that when the U.S. wants to have more trillions of quantitative easing, they will just borrow it from the Fed where it will be interest-free. Wait. That is what they're already doing, isn't it? Welcome to the world of MMT."

That stands for modern monetary theory. "And when all this largess makes the economy overheat as in the inflation – the current inflation scare according to MMT, we just raise taxes to cool it down. Wait. Again, tax hikes are already in the works. Welcome to the world of MMT. Soon we will run into the big unspoken problem of MMT. MMT economists say in theory taxes will cool the economy, but they aren't politicians. After the economy cools, where will the will be to reduce taxes? All that is likely to be done is more trillions of QE to help the most vulnerable and yet another recession and the cycle continues. Dave S." I hear you, Dave, and it is suspiciously like MMT.

Technically speaking, you know, the government is doing all the borrowing, right? So the Fed simply prints money and buys securities, and the Fed issues debt securities which the Fed goes into the market and buys. But it would have to sort of buy them directly from the Fed, technically speaking. Because when the Fed buys them in the market, they just create bank reserves. And unless the bank reserves are lent and spent, creating deposits in other banks which are then lent and spent in a multiplier effect that you get in a fiat currency, fractional reserve banking system like we have, you don't get the runaway kind of inflation that we saw in the '70s. But stuff costs more.

You know, none of this is easy and obvious. It seems like it is, but the folks – for example – Lacy Hunt is a fellow who's been talking about – he's basically a bond investor at Van Hoisington... Van Hoisington's asset management company, Hoisington. And he's been telling us in his, I believe – the quarterly pieces for years. You know? He's just been telling, "Nope. Nope. We're not going to get inflation. It's going to be deflation. That's the real reason why interest rates are falling." Right? You can say, "Well, the Fed has manipulated them lower," or you could say, "Hmm. Maybe the Fed doesn’t matter so much and we're getting deflation."

Therefore, that's why we have – the market is just signaling deflation, and that's why we have low, low interest rates. And certainly, Hunt is right. The more you borrow and try to goose economic activity, the less you get for your money, right? It's like pushing a string after a while. You just don't get the juice that you think you're going to get. And that makes sense, right? There's only so much that allocators can do with the dollar. And if you shove dollars at them, it doesn’t mean they have more to do, so those bank reserves just sit there. It's a conundrum because at some point you have to believe that all the Fed money printing is going to find its way into the economy and going to make things a lot more expensive.

But, you know, with the exceptions that we've noted, it doesn't necessarily seem to be the case. It's a conundrum and it's a great question, and I'm glad you asked it. And it's a great place to leave the mailbag for this week [laughs]. What a great mailbag. I wish we could do that all the time, but it just takes so much time. So that's another mailbag and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We provide a transcript for every episode. I got many e-mails about this the past two weeks. There's a transcript for every episode. To find that transcript go first to www.investorhour.com. Then click on the title of the episode that you want. Then scroll all the way down and click on the word "transcript" and enjoy yourself. If you liked this episode, send somebody a link to the podcast and help us continue to grow. Anybody you know who might enjoy the show, just tell them to check it out on their podcast app or at investorhour.com.

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