Episodes

Intro:                           Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour.

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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, we'll talk with Simon Mikhailovich. I invited Simon on to talk about gold, and I promise you, he will not disappoint. Simon's been around for decades, he's had a very long career, and I really want you to hear his perspective on gold.

This week in the mailbag, Lodewijk H. asks if the loser in the upcoming presidential election will accept the outcome, and whether or not we'll see a civil war in the United States. There are also questions about gold and bitcoin – stick around for those. In my opening rant this week, we'll talk some more about Kodak, a business that was very clearly taken to Stephen King's Pet Sematary. I'll explain what I mean in a few minutes.

That, and more, right now on the Stansberry Investor Hour.

All right, you remember Pet Sematary, don't you? Yeah, the creepy movie based on the Stephen King book, where, basically, this guy – this doctor – moves out to the country, you know, he wants to get away from the city and start over and have a better family life. And they move into the country on this property that has this old pet cemetery on it. And the pet cemetery is weird... it's on this Indian burial ground, or something like that. And you can, you know, you could take your dog or your cat or, as in the film, you know, a person who was killed, who has recently died, and you take them and you bury them up there, beyond the pet – just past the pet cemetery, on the old Indian burial ground, and then they come back to life.

Except, the person who comes back to life, or the animal that comes back to life, they're completely creepy and weirded out, and they try to kill you. So, it's just... it's insane. Right? So, what I'm saying here is that Kodak, which we talked about last week, has been taken to the pet cemetery, right? They've tried to bring it back to life, and it's already getting completely creepy and weird, OK? So, let's just take this one thing at a time, all right?

Now, I made a couple little mistakes in the timing of the share-price movements and the dates, and I want to fix those. So, forget what I said about that last week. Here's what happened. Let's just get this right: The stock closed. Eastman Kodak share price closed Friday, July 24, at $2.10. The volume was like 75,000 shares, you know, it was just typical. The stock is down, like, 95% from its high of, like, six or seven years ago... something like that. And, you know, it's a shell of its former self, right? It's Kodak. It's on the way out, right? They managed it straight into the ground.

So then, Monday, July 27, the stock opens at $2.13, goes as high as $2.65, and closes at $2.62. And the volume is, like, 1.6 million, like, 20-something times Friday's volume, and the share price is up, like, you know, just call it 25%. So, all right, OK, hey, it's a bull market. Lots of people are stuck at home. Any stock can go up, not a big deal, right? Yeah, OK, big deal happens Tuesday. Well, on Tuesday, there's a big announcement, and, you know, the company is getting a big $765 million loan – that we'll talk about in a second – and they're going to get into the drug business.

And the purpose of this is, you know, President Trump invoked the Defense Production Act, which basically puts money in – it was really designed to put money into wartime efforts, you know, to direct money to things where – to businesses and services, in preparation for war. It was passed in the '50s, around the time of the Korean War. We talked about it, last week, right? So, Trump is just saying, well, we're going to invoke this thing, and we're going to get money to U.S.-based companies to try to manufacture more drugs in the United States because, you know, we've manufactured too many drugs in India and China, right?

Well, Kodak's a U.S. technology company, and they've worked with chemicals before, so, let's give them almost $800 million to get them into the drug business. Right? So, the stock goes up on – that announcement is made on Tuesday, July 28, and the stock opens – it closed at $2.62, the previous day – it opens at $9.63, and gets as high as $11.80, closes at $7.94. So just call it $8 on volume of 285 million shares now, right? We were at 75,000 on Friday, 1.6 million on Monday, and Tuesday, it's 285 million volume. Then the next day, the thing goes to $60, as high as $60, and closes at $33, and volume's 276 million.

So, this thing goes from, you know, it closes at $2.10 on Friday, and it's as high as $60 on Wednesday because of this announcement. And we talked about this last week, it's truly insane. So, why do I say that this thing has been taken to the pet cemetery? Well, you know, when you take things to the pet cemetery, they come back to life, but they come back in a corrupted form. So, there's a lot here. There's actually a great article at Substack by a guy who, as far as I can tell, his name is Mike – I don't see his last name. But his column at Substack is called "Non-GAAP Thoughts." Non-GAAP, you know, like GAAP account, G-A-A-P, Non-GAAP thoughts.

And he's got a whole bunch of stuff in there, right? But for my money, like, he covers all kinds of option grant activity and restricted stock unit grants in Kodak, starting in January of this year, and then again in May. And he says, you know, this is a little funny, right? But for me, like, I don't – once I find out what I'm about to tell you, I don't really need to know anything else to know that something seriously weird is going on here. And before I tell you that, let me just tell you that the Wall Street Journal came out with an article on Friday, July 31, like two days after the announcement, two days after the stock hit $60.

The article's headline is "Kodak Stock Surge Turns Insider Options Into Potential Windfall: Executive Chairman Jim Continenza stands to make more than $95 million from stock options granted as recently as – " this is it, folks – "Monday." Do you need to know anything else? I went to rochesterfirst.com, and Kodak is based in Rochester, so, you know, it's always in the Rochester news, right, when something happens at Kodak. And they interviewed Jim Continenza, executive chairman of Kodak, and he said, "We've been working on this thing every day for two months."

So it wasn't like the government showed up at the last minute and said, "Hey, uh, let's make an announcement, today, that you're signing for a $765 million loan." No, they talked about it for two months, right? And, you know, two months before, they had had their annual meeting in May, and they did a bunch of option grants then. Which is typical, like, they could fall back on saying, you know, okay, well, you know, we always do that, people always do this, so, you know, there's nothing unusual. But as Mike in his Substack article points out, there's still some suspicious stuff about that, even though they could say it was normal. He points out the strike prices on these options are just really wildly bullish. You know, with the stock in the, like, $2s and $3s per share, the strike price goes as high as $12. Like, you know, why would you do that? That's unusual.

And they have a lot of discretion. They think about those strike prices. You know, he didn't post the exact strike price, but he said it was similar to this and, you know, he cited some stuff. But the point is, when you grant somebody options on a Monday, and then make this huge announcement on a Tuesday that sends the stock to $60 on a Wednesday, you tell me, I mean, they knew, and they gave themselves a bunch of options, so they could cash in on it. I mean, period, right? Period.

And is this good for shareholders? I don't know, you tell me. This thing was as high as $60. As I speak to you, it is below $15. So, you tell me about all the people who got in between $15 and $60, how they feel about finding out that the executive chairman stood to make more than $95 million from stock options granted the day before the announcement. Now, there is a Wall Street Journal article from earlier this week that says, guess what, the Securities and Exchange Commission is investigating the circumstances around the announcement of this loan. And, you know, the article goes through the whole bit about how the stock went as high as $60, and, you know, there were some weird option grants, etc.

Are we shocked? I mean, to tell you the truth, I'm a little surprised the SEC got on this as quickly as they did, given their track record, right? But they're on it. And they should be on it because, you know, when you hold material information like that, that hasn't been announced, you're not supposed to do this kind of stuff. So, we'll see, we'll see how this turns out, but I think it's very clear that, basically, this – you could look at this $765 million loan as at least partially a redistribution of taxpayer money into the pockets of Eastman Kodak executives. You know, at this point, I have to look at it that way, right? Convince me otherwise. Write in. Convince me otherwise.

And in general – there was a great article about Jim Chanos, an interview with Jim Chanos, very famous short seller, in the Financial Times. It was a couple weeks ago, dated July 24. And he says, "We are in the golden age of fraud." And this doesn't just come from anybody, you know, he's not just any short seller. He's been around a long time. He actually teaches a course on the history of financial fraud at Yale – Yale University. And the syllabus for the course goes back to the 17th century, and he says we are in the golden age of fraud today. So, I think he knows whereof he speaks, when he says that.

And he said, in the Financial Times, he told them, he said the current environment is "a really fertile field for people to play fast and loose with the truth, and for corporate wrongdoers to get away with it for a long time." And then, he went through a list of the reasons why that's true. And it's, like, a 10-year bull market driven by central-bank intervention, level of retail participation in the markets reminiscent of the end of the dot-com boom – we've talked about that –  you know, all the Robinhood crowd and Davey Day Trader. "... Trumpian post-truth in politics where my facts are your fake news," Chanos said. I mean, OK, Silicon Valley's "fake it until you make it culture, which is compounded by FOMO, the fear of missing out" – not sure what he means exactly by that.

And he said, "All of this is exacerbated by lax oversight. Financial regulators and law enforcement," he says, "are the financial archeologists. They will tell you after the company has collapsed what the problem was, not what the problem is as it's happening." And he says it's all "a heady witch's brew for trouble." And I feel the same way. You know, I've been telling you about signs of the top – I'm going to tell you about signs of the top as long as I see them. Look, and I've said a million times, I don't know when the top is. I'm not predicting the top, I'm not calling the top.

I'm just saying that when stocks are more expensive than they've ever been in history, and you get, you know, companies like Kodak being taken to the pet cemetery and, you know, resurrected in this corrupted form, you know, and Davey Day Trader, and all the rest of it... it just doesn't look good. You know, and interest rates at, you know, diddly-squat, right, with the 10-year bond is, like, last time I looked at it, below 0.6% yield – 0.6%! Imagine lending somebody money for 10 years, and what do you get out of it? Well, you get your money back after 10 years, and in the intervening time, you get 0.6% yield per year. Not a good deal.

Which is not to say that, you know, bond prices can't go higher, that interest rates can't go much lower. They can go negative, we've seen it around the world: Japan, Europe, etc. So, I guess in short, the market can remain, you know, irrational longer than you can remain solvent. If you're trying to bet against it, it's a bad idea. Doesn't mean you have to participate, right? It doesn't mean you have to go chasing stocks around and chasing bonds around. I think, on the contrary, you need to be very aware of what's in your portfolio, and very aware of whether or not what's in your portfolio today is some, you know, bubblefied unprofitable, you know, tech speculation. Or if it's a real business that is likely going to be around in another five or 10 years.

And even if it's a great business, you know, we cite the example of Cisco all the time. I've cited it many times, and I said – I think I misspoke once because I said it had broken even from its dot-com-era high, but it has not yet broken even. I misspoke, if I said that. The stock is $47, and the high during the dot-com was $80. So it's $47 in the year 2020, and the high in March of 2000 was $80. OK? And Cisco is a great business, or, you know, it has been a great business at times. It's still a good one. And it gushes free cash flow, they sell plenty of products every year, and it's still around. It's got a $200 billion market cap.

And yet, if you bought in during the frenzy – and I think we're in a similar type of frenzy right now – you're still waiting to break even. So, just be careful out there. We're in the golden age of financial fraud, and they're taking companies out to the pet cemetery, all right?

OK, that's enough of that for today. Let's talk about gold, with Simon Mikhailovich. Let's do that right now...

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We have talked about gold a lot on this podcast. Right now, people are asking, "What are the chances gold could go to $2,500 an ounce?" Well, experts say that it may happen sooner than you think. With rock-bottom interest rates driving the price of gold to all-time highs, our top commodities expert, Bill Shaw, has a new prediction. He says he has found what he calls the single-best gold business on the planet. Bill thinks this stock has the most upside potential of any gold company, with an incredibly attractive ultra-low-risk profile. Check out the video Bill made explaining why he thinks this is the best moment, in decades, to get into gold. He also shares his No. 1 pick for 2020 – you won't want to miss this. Go to www.investorhourgold.com. Again, that's www.investorhour.gold.com.

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Dan Ferris:  Today's guest is Simon Mikhailovich. Simon Mikhailovich is a founder of the Bullion Reserve, a full-service gold solution for accredited investors. Mr. Mikhailovich is an entrepreneur and contrarian investor with 35 years of investment experience. Old guys rule. In 1998, he cofounded a structured credit hedge-fund firm that predicted and profited from the financial crises of 2000 and 2008. Since 2014, his firm has been focused on physical gold as a way to protect savings from the inevitable systemic crisis.

Simon Mikhailovich, welcome to the program.

Simon Mikhailovich:   Thank you for having me.

Dan Ferris:                 And I hope you don't mind that I said old guys rule. I'm pushing 60 myself, and I feel like having grey hair is an advantage, especially at this moment in time.

Simon Mikhailovich:   Well, I agree, because we are in a sort of historic time, and if we know anything from history, it's that people don't learn from history. So, I guess the older one gets, the more experience one gets, the more sense of history one gets. And so, there are just, not all the time, but there are times when the further back, to paraphrase Churchill, the further back you look, the farther forward you can see. So, I think we're in one of those times. So, yes, helps to have some experience.

Dan Ferris:                 And you have quite a bit of it. We chatted just a bit before we started recording, and I said that, to me, like, you're one of my favorite gold guys. But then, you said what – I'd like you to say that again, because I think it's really important.

Simon Mikhailovich:   Well, what I said was, it's not about gold. Gold is a solution to a problem. So, the question is what is the problem? So, people who don't see the problem are not looking for solutions. I've been a financial investor for the first – basically, out of 35 years – the first 20-some years, and I just founded it because I focused on the macro outlook, and history, and story of financial cycles and debt cycles, and I realized that the situation we were in was unsustainable. And so, in the world where financial assets, or the world that has been financialized and flooded with financial assets, the question was how does one protect purchasing power of one's savings, in a world where the money in which these financial assets are denominated is being debased and the debt is growing?

And so, I came to gold as a solution to a problem, not as a thing in and of itself. So, there's really no need to be an expert on gold because gold is just a hunk of metal. The expertise is the macro environment and understanding the conditions. Once every, I don't know, what is it, 80 to 100 years, there's a time when qualities and properties that gold has become extreme valuable. Whereas, at other times, they may not be quite as valuable. And so, that's really focused on, and that's what brought me to switch focus from credit and financial assets to physical gold.

Dan Ferris:                 I see. So, whenever someone talks about gold as a store of value and the alternative asset, inevitably, it's not usually me, but someone, somewhere, will push back and say, "But when there's a crisis and the price of everything is falling, the price of gold falls, too, doesn't it?"

Simon Mikhailovich:   People confuse price with value. And specifically, the biggest advantage or – there are a few qualities that gold has that no financial asset has. And these qualities are not of high interest during normal times, which is why financial investors make the arguments – a whole number of arguments, one of which you just cited. Gold, among other things, does not have risk of permanent impairment, which financial assets have. Permanent impairment is when price declines because the value is lost permanently, so the company goes bankrupt – or Argentina, for example, just restructured its debts. Three years ago, they issued 100-year bonds, over par.

And three years later, they adjusted an agreement with credit to haircut those bonds to 55 cents on the dollar. Now, it's not like the value of the bonds declined 50% and then went back. It can't go back. Fifty-five is the most you're going to get, and maybe less. So, what gold does not have, the financial assets have. What I just gave you is an example of permanent impairment, irretrievable loss of value. Gold is a currency, if you will, whose exchange rate fluctuates, but it never becomes worthless, or it never becomes worth less. And that's one of the reasons why it is such a store of value, through thick and thin. Yes, the price, in the moment, may drop, but if you own it in physical form without leverage, it will keep its purchasing power through the crisis, and then some.

And usually, actually, these price drops have been shorter and shorter because demand for gold is inversely correlated to confidence, and supply of gold is directly correlated to confidence. Let me unpack what I just said. When confidence in financial assets, property rights, political stability declines, investor demand for gold, for something safe that has no – well, in addition to having no risk of impairment, which all financial assets have, you know, plenty of – it is completely independent. It is the only tangible independent financial asset. Independent means it does not rely on banks, counterparties, does not need to be transacted to the financial system, and does not rely on the financial system or banks or financial markets. It's not issued by anybody or approved by anybody, specifically.

So, it's independent, it's lasting, it's virtually indestructible, and portable – and malleable and a lot of other things. So, all these qualities taken together is what makes it attractive in times when financial assets become unreliable... because people look for an independent store of value that doesn't rely on the banking system. So, demand for gold, when confidence declines, increases because investors are looking for safety. Now, supply of gold is highly in the lab. There's a portion of supply that comes from the mining companies. They would sell it in all ways. The marginal supply has to come from people who already own gold.

Well, they're willing to sell their gold at the right price, when they're confident that the money they're getting in return is money good, or value good, if you want to put it this way. So, what you have are situations where people who don't own gold suddenly urgently want to own it, and people who already own it are reluctant to sell it, for the same reason, because of loss of confidence. So, that's the asymmetry that gold has, which is similar to insurance, where it does nothing for a long time. And then when events start unfolding, it becomes obvious it suddenly starts behaving in a very strong way, sort of an asymmetric repricing.

Dan Ferris:                 So, Simon, with what you just said about gold demand increasing when people lack confidence, do you find it unusual that stocks, or the U.S. stocks especially, are doing rather well and are quite expensive and there's quite a bit of demand for them, at the same time that gold has made new all-time highs?

Simon Mikhailovich:   Gold is a much smaller market, particularly physical gold, than global stocks and bonds. So, it doesn't take as much pickup and demand there to create significant price changes. In fact, most investors don't own gold, Western investors. And so I think we're in the very early phases of this demand for gold. It's very, very early. Most institutions have nothing, don't have any gold. Now, stocks are a function – I mean, this is a bigger discussion. The question is, who is buy stocks? You know, everybody's buying – people who don't know anything about stocks are buying them because the price is going up.

The biggest, you know... managers of stocks are hired managers. They're in the asset gathering business, and they're in the client retention business. So, their behavior is not necessarily driven by fundamental outlook as to what to do: They cannot be outside of stocks that are going up because their clients will fire them. In other words, the wealth preservation over a long time of their clients is less important to them than job preservation in the short term. Which, I'm not passing judgment... It's the wrong incentives that beget wrong behaviors. I mean, that's really what it is. There is a mismatch of incentives between fiduciaries and their clients. And so, what we're seeing is everybody piling into stocks because they're going up.

That doesn't mean that that's a good idea. But if they underperform, the funds, managers of the funds, they'll lose their job today, so, why worry about what happens tomorrow? I mean, I'm sorry, but that's the reality as I see it.

Dan Ferris:                 Right, so, given what you just said about, you know, gold being a much smaller market, how important – I would assume, then, that the institutional bid is somewhat less important. And we've seen, recently, the chief investment officer of Goldman Sachs Private Wealth says there's no place for gold in client portfolios. And, you know, as you just indicated, everybody thinks that, you know, in the big institutions. How important is it for those people to change their mind, for gold to pick up a really good bid and move higher?

Simon Mikhailovich:   Those people will change their mind for the right reason or the wrong reason, but they will change their mind for the same reason their mind is made up about stocks. Stocks have been going up for a very long time. It's a big discussion as to why that's the case. It has a lot to do with money printing and debt creation. But the go-to place to get returns and compensation has been to overweight stock, you know, to have healthy exposure to stocks. Gold has not behaved very well from 2011 to 2015, and this sort of stealth bull market, if you will, hasn't really started picking up till about 12 months ago. So, higher prices, in a way, beget higher demand, for the same reason as with stocks.

And I'm not saying it's the right thing to do, but that's just the reality. As institutions watch gold price going up, you know, their clients start asking, "So, why am I not involved? Why am I underperforming? Because you're not in gold, but some other managers are," and it just forces people into it. That's a more – that's the wrong way why they're doing it. The more right way why they're doing it is, hopefully, people's eyes are going to start opening on the debasement, the horrible massive debasement that's being perpetrated on the money and on the capital.

Now, I know that people talk about there's no inflation, but they're talking about consumer goods. Which, by the way, one of the reasons there's no inflation is because we're in a credit bubble, and capacity across all consumer goods has been massively overextended beyond demand. And demand is being subsidized with debt, just like supply is being subsidized with debt. But look at financial assets, looking at the capital dollars, instead of consumer spending dollars. If somebody could retire with $1 million, you know, 10 to 12 years ago and, risk-free, derive $50,000 pension from that portfolio, what does it take today? $5 million?

Because, you know, if a washing machine doubles, we'll say, "Oh, that's inflation." Now, when stocks double in price without any increase in earnings or any other change, just like for the washing machine, they say, "Oh, it's a bull market," or, "It's multiple expansion." But it's inflation, it's the same thing. You're paying more for the same thing. And so capital is being debased. And a capitalist system without capital, it's like dinner without food, I mean, you know, it just – I think this is a massive problem. And as that problem continues past itself, which it has already started, the amount of stimulus the government has had to inject in the last few months, that will continue, probably, for as long as it's possible to continue.

But essentially, it's a confidence game. It's just based on confidence of the participant. It's a Ponzi scheme, but a more polite name is a confidence game. Every confidence game ever undertaken has ended with a loss of confidence, and that's where lack of confidence for gold and demand for alternative stores of value to financial assets and monetary instruments, that's where they think we're heading. It's not even a prediction, it's an observation based on what's already happening.

Dan Ferris:                 So, how do you feel about other alternative stores of value? Like, does Simon Mikhailovich own bitcoin, for example?

Simon Mikhailovich:   I have a very small position in that. I don't think that bitcoin is – this is not an opinion on the bitcoin or the technology behind it. This is an opinion on the power of state and crises and how crises happen. I think this is an untested technology, I mean, it has never lived through a systemic crisis. It is a first-generation technology. It relies on the Internet and the networks and – for example, we're just watching right now as the Trump administration is threatening to ban an app, TikTok, right? Well, think about it, I mean, if a government can ban a particular app, why would it not ban, say, bitcoin wallets?

And if it has power to enforce that, which I believe it does, because it controls the Internet – the highway... so you can travel in the car with something elicit in the trunk, but the highway patrol still can see the car. The cameras are still watching your car moving, and they know your tags, and they know which ramp you took on and off, and where you came on... and so they may not know how many bitcoins you have, but they can see where you've been and what you've done, you know, with your travels on the Internet. Physical gold is completely disconnected from the system, in other words, it's like the war on drugs. I mean, I'm not comparing gold to drugs, I'm just saying it's, like, the reason the war on drugs has never been able to be won is because it's not feasible to track physical portable goods.

It's just not... because it's not subject to technology. It requires human tracking, and that's limited, you know, there are natural limitations. It's the same with physical gold, you know, one, it's not on the grid, if you will. It could be on the grid, but it could be taken off the grid. You know, digital assets can be taken off the grid into hard wallets, but in order to transact, they have to come back on the grid. Gold never needs to come back on the grid, and that's the difference.

Dan Ferris:                 I see. You know, while I have you here, on this topic of gold and being able to sort of take it out of the system, the National Bank of Netherlands made a funny statement, funny to me, last year. They said, "Gold is the anchor of trust for the financial system," and I immediately thought, "In whose eyes?" You know, certainly not in Goldman Sachs' eyes. And I suppose central banks have been buying some gold. But it just... it struck me as a funny statement because I tend to think of gold as the outside-of-the-financial-system asset. Maybe they were just using the term "financial system" in some generic way that I failed to appreciate, do you think?

Simon Mikhailovich:   I think that one needs to take the opposite view for a moment. Just try it on. People think that gold is a religion.

Dan Ferris:                 Yes, yes.

Simon Mikhailovich:   Well, people do. They think it's some sort of a religion, some sort of cult. I think it's all irrationally to want an asset, in an uncertain environment, that is, you know, independent, lasting, you know, replicated, like financial assets. So, in times of uncertainty, times of crisis, it is rational for people to look for safe harbors of some sort of uncorrelated, independent, portable, cyber-immune, by the way, asset. It's a perfectly rational thing. It's not necessarily needed, these qualities, during normal times, but in times of trouble, it's rational to seek those qualities.

On the other hand, I would say that financial assets are probably more of a religion because people believe in promises. See, gold is not a promise. It's just a physical element, atomic number 79, that's in limited supply. It is what it is, it's easy to test what it is, there's no... so people, in the meantime, have believed in structured credit, in promises of Argentina, in promises of countries that have defaulted multiple times, they're believing promises of the U.S. government that's creating money without end, that under no reasonable circumstance could pay back the debts that we have run up in the past, you know, 30 years... There's just no plausible scenario how these debts could be retired in real dollars.

So, I would say that that's more of a religion. So, when circumstances are such that there's incontrovertible proof that their beliefs have been faulty, then they will turn to rational thought. And in the rational thought, in a rational world, which is the opposite of the way it's perceived right now... actually, things like gold, you know, tangible stores of value, are much more sensible than somebody's promise. It's like, you know, Lehman Brothers was infallible, until it failed. And the important thing about gold is that you do not buy insurance against collapse of the insurance industry, from an insurance company.

In other words, trying to protect against some sort of debacle in the financial assets, the values of currencies, by using other financial instruments, is a non sequitur. Nobody would think to plug their backup generator into the wall socket – this is basic human knowledge. But when it comes to financial system and financial instruments, the reason I think it is more of a religion is because people lose sight of the fact that it's fallible. And if it's infallible, you know, we can buy hedge against everything going, you know, to hell in a handbasket from another bank who will probably also go to hell in a handbasket, right along with everything else. It's like buying protection from Lehman Brothers on some bonds: It didn't pay out, you know? So, you lost for winning.

So, that's where people are going to realize that it is independent. You need independent store of value in a world that's highly correlated, which is financial assets, they're very highly correlated. And that's when I think there will be reassessment of values, and the statement that you just quoted from the Dutch Central Bank will appear to be a self-evident truth. Which, by the way, for the previous 3,000 years, it has been held as self-evident truth. Fiat money is only since 1971. The world has never been on an unredeemable currency standard... ever. So, this is an experiment, which I believe is coming to an end.

Dan Ferris:                 When you say "coming to end," do you think – do you even care to speculate about time frames and what that looks like? Or do you not need to because you own gold and what happens will happen? How do feel about that?

Simon Mikhailovich:   I feel just like you said: What happens will happen. I mean, there's no way to see the future. All we have are the facts, and we have history. So, there are many historical precedents of situations similar to ours, although not as large in scope as ours. It's sort of like nuclear weapons. I mean, technology has created the ability to create financial leverage and money creation at a level never before attempted. So, we don't know how this new – it's like falling off a third floor versus off a 20th floor... I mean, it just, you know, that's different. So, we just don't know, but what we do know is that, you know, physical things don't go away. I mean, gold is simply, is sort of like common language. It's something that... it's one of the biggest brands in the world.

It's as big a brand in the world as any. I mean, there's not a person in the world who doesn't know what it is. You know, 50% of gold is in jewelry. So, everybody pretty much owns jewelry, and they know that it's valuable. And it's probably on par with the U.S. dollar. So, if the U.S. dollar has a problem, that's probably the go-to barter item. So, no, I don't need to call the time. We haven't seen this happen in the West in our lifetimes, but it has happened many times. And so, if we take the history of what happened, you know that no fiat currency has ever survived more than a certain period of time. And gold is still here after thousands of times.

So, fiat currencies and excessive debts have, basically, a 100% track record of eventually failing and having to be restructured and reorganized. And gold has a 3,000-year track record of never failing, particularly not in financial crises. So, we just take it as it goes. And when you're in physical gold, there's no leverage. I mean, the carrying costs are very low, especially compared to negative, you know, real rates. And so, to me, it makes a lot of sense.

Dan Ferris:                 Makes a lot of sense to me, too, and I thought you were going to answer that way, but I asked the question because there are lots of retail investors among our listeners, and I'm afraid, too often, that they want to engage in predictive strategies. They want to forecast and predict and optimize toward that prediction, and I think that's a big mistake. And they're uncomfortable – most people are uncomfortable, aren't they, Simon, just kind of holding this asset for what it can get them if things don't work out so well. And they look at it and maybe it doesn't perform for several years, and they think, "Why am I doing this?" You know, they feel stupid, they don't understand what it can do for them. So, I'm glad you answered as you did.

Simon Mikhailovich:   Oh, sure. Well, to those who think every year, "What am I doing and why am I doing it?" let me recast that situation a different way. Does anybody sit down with their spouse at the end of the year and say, "Honey, we just blew $900 on car insurance, $1,200 in home insurance. The home didn't burn down, the cars didn't get totaled. Why do we have these insurances? Let's just cancel it. Let's just take the $2,000 and go on vacation." Does anybody do that? No. No, they don't, no. So, people ensure their cars, people ensure their furniture, but their savings, which are irreplaceable, lifetime savings, you can't replace that – I mean, maybe if you're 30 years old you can replace it. but if you're a Baby Boomer and you lose your nest egg on which you were going to retire, you have no runway left to replace.

And that they don't think to insure, and that's a function of recency bias, basically, because the past 35 to 40 years, we've been in this inflationary bubble, if you will. In 1971, we went off the gold standard. And if you look at all the charts with debt and leverage, they all start in the early '80s, and they all go just way but up. And now, we're traveling parabolically up. I mean, the amount of money and the amount of debt that's being created is just straight to the moon. And again, there's plenty of historic precedence for this type of a situation, but all these trends break in a bust. And so, it's just a matter of time and a matter of how that we don't know, but there will have to be a reorganization of all this, there's no question about that.

But tangible valuable assets will gain purchasing power relative to financial claims. On average, financial claims will lose purchasing power and money and bonds versus lasting tangible assets, gold being one of them. That would be – and I don't know what that means in price. Some people say $50,000 in gold. Well, what difference does it make if it's $50,000... if bananas are $10,000 a piece, you know what I'm saying? You're trying to measure it in some value of a unit that's being created without any limitation. So, what is the value of that unit?

Well, normally we know what the value is because we can take $5, we can go to the supermarket, and we know what that buys. But if suddenly that changes dramatically, then what? So, I don't measure gold price in dollars. I measure gold price in terms of purchasing power. And in terms of purchasing power, I think gold has a very long way to go from where it is today. So, I think we're in the very early phases of this move because the institutional money is not here yet, the retail money, at large, is not here yet. By the time everybody is in, that's when we're going to see the end of this trend.

Dan Ferris:                 Early innings, I see.

Simon Mikhailovich:   I believe so, yes.

Dan Ferris:                 Yeah, so, Simon, we're just about at the end of our time. If you could only leave our listeners with one thought today, what would that be?

Simon Mikhailovich:   Think for yourself. Think about your responsibilities to those people who have entrusted – your children, your spouses – for whom you're managing your savings, and whose life will depend on this. And be thoughtful and heed the lessons of history. You know, the time to prepare is when nobody thinks it's necessary. By the time it becomes obvious to everybody... it's too late. So, it's like buying insurance: You can't buy the day before the disaster. You have to buy it when the disaster is not apparent. And so, whether it's gold or whether people make other arrangements, just complacency is cancer, is a form of cancer. So, my one thought is it's the time to think for yourself and make contingency plans for the reorganization that's coming.

Dan Ferris:                 Excellent, thank you for that. That's a great message. I hope everybody listens well and heeds it. So, I hope that we will – this was fun. I love talking about gold, and I like talking about it with you especially. And maybe – who knows? A year from now, if gold is, you know, $3,000 or $4,000, we'll have you back on and see how you feel then.

Simon Mikhailovich:   Sure, happy to chat. Thank you, Dan. Take care. Bye-bye.

Dan Ferris:                 Well, that was fun. I hope you do heed that final message because I think Simon his right on with that: You have to think about – you have to see around corners. It's like, we talk about Howards Marks all the time and having an imagination: You have to see around corners, have an imagination, take a look at what's going on in the world, and say, "You know something, if gold doesn't do anything for 10 years, I still need to own it." It's great advice, and I hope you'll check out his website, too, boullionreserve.com. Their business is for accredited investors only, but there's still some pretty cool stuff there, and I encourage you to look at it. I was looking there this morning and yesterday. There's lots of good stuff.

All right, let's check out the mailbag.

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When my friend and colleague Steve Sjuggerud talks, I listen. Steve predicted the rise of gold in 2003, the top of the dot-com bubble in 2000, and he even called the bottom of the Great Recession in 2009. Steve is once again pounding the table on a new prediction: He believes that a mania will hit the U.S. stock market and take most investors by surprise. He said that thousands if not millions of dollars will change hands as a result of the anomalies he found in the market. If you want to find out how you can profit from Steve's prediction, he has laid everything out in a video that just went viral. Go to www.investorhourtruewealth.com, to watch the video and find out how you can profit in this rollercoaster of a market. I watched it, and what Steve found is astonishing. Again, that's www.investorhourtruewealth.com.

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Dan Ferris:  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 every word of every e-mail you send me, and I respond to as many as possible.

And by the way, somebody wrote in and said I respond to them all, and I changed the way – I've always said that I respond to as many... I've never said I respond to them all, ever. And I will tell you, I'm going to have to start qualifying these because some of them are too long. And I do read every word of every e-mail you send me, but I'm starting to feel like some of them are so long that I'm going to kind of cut off reading every word of every e-mail. So, please, not too long, alright? Couple of paragraphs. That way, everybody gets read, and, you know, we're able to pull the best of the e-mails for this mailbag segment.

The other thing I won't do is address something that's, like, the dumbest thing I ever heard in my life, which I keep getting that from a couple of people, each week. So, if you're going to be crazy in the e-mail and just say crazy, crazy things, I can't address them because they're just too stupid and crazy. You know who you are, you know who I'm talking to.

OK, having said that, our first e-mail is from Aussie Stu, and, Aussie Stu, I won't read your whole thing – it says: "Good day, Dan. I am a lifetime subscriber to Stansberry, and have listened to every one of your podcasts. I love the show. I'm writing in to vent. I feel extremely frustrated. I had a solid portfolio at the start of the year, and when COVID-19 rocked the markets, I sold many of my holdings, not in panic but with the idea of buying later at cheaper prices. Like most people, the rally took me by surprise, and with every passing week, I thought it was just a matter of time before it came back down. Boy, was I wrong."

Then he says, "Now I want to buy – the urge to jump in and trade and play catch-up is overwhelming." Right? And then he says, "I even want to add to my gold and silver positions. It makes way more sense, but it's hard to buy when I could've bought so much more at the bottom. My portfolio is higher than it was before the crash, and I have some cash. I'm in a great position, really, but I feel awful. I feel I have missed a once-in-a-decade opportunity. Dan, I know what I'm supposed to do, yet, I seem to struggle to follow through. Any tips? Thanks heaps, Aussie Stu."

Stu, I hope you just listened to what I just read as if it were written by somebody else. Because I can't give you individual advice, but I'm going to read what I think is the important sentence, just one more time, where you say: "My portfolio is higher than it was before the crash, and I have some cash. I'm in a great position, really." OK? [Laughs] All right, Stu? That's all I can do for ya. I hope that helps you. You sound like you're doing great, to me.

All right, Ben B. is next. Ben B. says: "I'm a 21-year-old university student from Melbourne, Australia. I have only recently begun investing, since the end of last year, and found your podcast to be very helpful, especially during these uncertain times." You said: "I was wondering if you could please explain how to properly invest in bitcoin. To invest, would I just have to buy bitcoin from websites such as Coinbase? Furthermore, I was hoping you could please explain how bitcoin works as an investment rather than just a mechanism to store money. For instance, I buy 100 bitcoin, hold it for 20 years, and then sell it for a higher price? Or a lower price? Thank you for your time and keep up the good work. Cheers, Ben B."

The simple answer to your question is: yes. [Laughs] You just buy – I mean, 100, hey, if you got that kind of money, man, good for you. I didn't have that kind of money when I was 21 years old in college [laughs], to buy 100 bitcoin for, you know, $11,000 each, or whatever it is, lately. So, you're asking about how to properly invest in bitcoin? Yes, you just – we're just talking about buying it and owning it, the same way you would buy and own gold, Ben. It's not an investment like a bond or a stock, that has some associated cashflows or dividends or something. It's like a currency holding. It's like you're buying Swiss francs and holding onto them.

We have to admit, there's a speculative element to both of these things, to holding gold and to holding bitcoin, because, hey, what if the price goes, you know, from – if gold is $2,000 when you buy it, what if the price goes to $1,000 and stays there for 10 years. What I would say to you is that, it's insurance. It's just like we talked about with Simon Mikhailovich, on the program today, it's insurance. You don't buy it because you think it's going to go up every year or go up a whole lot. You buy it so that you have a truly diversified portfolio. And in the case of bitcoin, Ben, you could buy a tiny amount – you could buy, like, $50 or $100 worth of bitcoin, and just keep it and forget you own it.

And if what I think – I think there's potential for it to be, like, a hundred- or multihundred-bagger. I'm not saying I know it's going to do that: I don't know anything of the kind, do I, Ben, I don't know the future. I just think it's good to own a little bit of it, because there's huge upside potential, and you can limit the downside potential by limiting the amount that you own, OK? So, it's not technically an investment – it's like an insurance policy or a currency holding, OK? It's a great question, though. I'm glad you sent it in. Thank you.

Next is Tabish R. Tabish says: "Hi, Dan. Great show. Every week, I look forward to your show. Great work, man. Hope you carry on doing what you do, for a long time. I have a straightforward question. As gold is nearing all-time highs, do you believe it is still the right time to buy the gold? Or is it best to wait for another downturn in gold price, and buy it cheaper? I understand it may not happen in the next three or four years, but as I am a longtime investor, that may not be an issue. Look forward to your response. Regards, Tabish R."

Tabish, same answer: Yes, I do think it's still time to buy gold, and I do think you can buy gold for $2,000 an ounce, and hang on to it for five or 10 years, and you will be, how does one say, you will be well-insured, right? It will do the job for you, at $2,000 an ounce. Now, like I said, I don't know that it will be above $2,000 an ounce, in five or 10 years. Personally, I suspect that it will, but I don't know that. I hold it as an insurance policy against monetary and economic and other types of mayhem. Good question. Thank you.

Next, we go to Lodewijk H., OK? This is the moneymaker, this week, folks. Lodewijk, I love you for this question, man, keep writing in. Lodewijk writes in a lot, he's a really good correspondent. So, I'm not going to read your whole e-mail, sorry, but just, I have to read this first section: "Hi, Dan. Once again, thank you for the great show. I have a question for you when it comes to the USA elections. Will the loser recognize the result? Will the looting and rioting simply increase to a full civil war? Greetings from my holiday and likely new living location, Odessa, Ukraine. Best regards, Lodewijk H."

[Laughs] Wow. Here's what I think is the real answer to this question. I'm going to say I don't think we'll have a civil war in this country, and I think the loser will recognize the result. Why do I say that? Am I just keeping up with the status quo? You could say that I am. If you say that I am, I probably won't argue with you. But here's my thinking: the amazing thing about the United States having these elections every four years is that nobody's done it this long. Nobody's done it this long. We have peaceful transitions of power, every four years.

I mean, it's actually, it's incredible, when you look at the history of the world, a peaceful transition of power every four years. The military's not involved, you know, every now and then we have some, you know, hanging chads in the voter results or something, but overall, we've done a pretty amazing – the system has worked, right? No matter what you want to say about the brilliant men – they're great men, I don't care what any woke jackass says today, the people who founded this country were brilliant great men. Yes, they had slaves, and, yes, they were brilliant, and the system they created has been incredibly robust. I mean, I'm surprised as anyone.

And I think this is not a ridiculous question, Lodewijk. This is a good question: Will the loser recognize the result? We should ask that, and I think the answer is still going to be yes. Will looting and rioting simply increase to a full civil war? I think going longer – it's already gone on longer than I expected, you know, we've had more than 60 straight nights of this, in the Portland, Oregon area, so. But a full civil war? I don't think so. I don't think so. Great question, Lodewijk, great. Keep them coming, man.

Next is Paul E., he says: "I know that blockchain is at a whole new level of technology, but can it protect us from the manipulation of bitcoin? Or will the big banks push it around for their own profits, just like the stock market, via high-frequency trading, triggering people's stops, naked shorting, et cetera? Thanks, Paul E."

Hm, you know, Paul, I can't say that none of that will happen. My understanding of the situation is that the encryption around bitcoin is really great, and that's what makes it so secure, right? It's very secure, it's highly encrypted, and I suspect that it would be very difficult for, even for governments and for, you know, large financial institutions – let's face it, they're backed by the government, right, they're too big to fail – I think those people will have trouble messing with bitcoin. But you'll never catch me saying it's impossible. These are good questions, that's all I'm going to say about it. I still believe that bitcoin is really secure, but the question should be asked, Paul, you're right.

So, this question is from Gary D. Last question – I want to go out on a good note, this week. [Laughs] It says: "Hey, Dan, I always wonder where you find all these terrific guests, but then I remember that you spend all day on Twitter." Well, hopefully, not all day, but, sure. "Amity Shlaes was amazing, what a well of knowledge, I could've listened to her for hours. And so, I did the next best thing: I purchased the Great Society audiobook on my Audible account, and will listen to it next. I also added The Forgotten Man and Coolidge to my wish list, there. She's amazing."

I'm go stop you right there, Gary. I agree, I could've talked to her for hours. I'd love to go through, like, every chapter of The Forgotten Man with her – it would take hours, but it would be great. "Thanks, as always, for bringing such fascinating guests. I have learned so much from you and from them. I truly am grateful. Thanks for all your good work. Stay safe and stay well, Gary D." Thank you, Gary. Gary is also a great correspondent. I know I'll be hearing much more from him.

And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did, and I really did, this week, I really enjoyed this. Do me a favor? Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow, with a rate and a review. You can also follow us on Facebook and Instagram – our handle is @investorhour. On Twitter, our handle is @investor_hour. If you have a guest you want me to interview, drop us a note at [email protected]. I've been getting those e-mails, I just haven't been reading them. Thank you. Keep the suggestions for guests coming.

Till next week, I'm Dan Ferris. Thanks for listening.

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Outro:                         Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail: [email protected].

This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear.

Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.

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