In This Episode

Porter gives you his latest thoughts and a stern warning on Bitcoin as the cryptocurrency briefly passes $17,000. Buck welcomes Grover Norquist, president of Americans for Tax Reform to help you understand exactly what’s happening with the current tax reform bill in the House and Senate, and what it could potentially mean for investors, businesses, and individuals. Porter and Buck talk about Saudi Arabia and the historical reality that it’s radical belief system, brutal governing tactics, and addiction to oil money will lead to a troubling civil war.

Porter has an extended discussion with international finance expert and former hedge fund manager, Eric Fry. Eric is currently a macro strategist and resident expert on global investment trends at the Oxford Club, where he writes Fry’s Pinnacle Portfolio (www.AmericasTopTrader.com). In 2016, Eric took first place in Wall Street’s biggest investment competition beating 650 investors including legends Bill Ackman, Joel Greenblatt, and David Tepper. Porter gives listeners a short recommendation and asks Eric to reveal his own short idea which is a huge bet against Warren Buffett.

Buck and Porter open the mailbag to answer a question from a listener in Russia on what will happen to the global economy when there’s a panic to get out of paper fiat currencies.


Featured Guests

Grover Norquist
Grover Norquist
Grover Norquist is president of Americans for Tax Reform (ATR), a taxpayer advocacy group he founded in 1985 at President Reagan’s request. ATR works to limit the size and cost of government and opposes higher taxes at the federal, state, and local levels and supports tax reform that moves towards taxing consumed income one time at one rate.
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Transcript

Announcer: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour.

[Music]

Announcer: Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show Buck Sexton and Porter Stansberry.

Buck Sexton: Okay, everybody, welcome to the Stansberry Investor Hour. I'm nationally syndicated radio host Buck Sexton and with me, as always, our fearless leader Porter Stansberry.

Porter Stansberry: Buck, I'm just jealous. You have something to say at the beginning of the show. I'm just the fearless leader which makes me sound like I should be living in North Korea or something.

Buck Sexton: Now that would be the Dear Leader, but we could work on that.

Porter Stansberry: The Dear Leader. I think that's what you should start referring to me as. The Dear Leader. But we have a great show. We've got a great guest or two. Are there two guests today, Buck?

Buck Sexton: Two guests, indeed.

Porter Stansberry: Well I know the financial guest is excellent so I'm looking forward to talking with Eric Fry and we've got some great topics. Let's get to it.

Buck Sexton: Today we're gonna talk to Grover Norquist, President of Americans for Tax Reform. Grover's here to help you understand exactly what's happening with the current tax reform bill in the House and Senate, where it goes for here, and what it could potentially mean for investors, businesses and individuals.

Also joining us will be international finance expert and former hedge fund manager, Eric Fry. Eric's a macro strategist and a resident expert on global investment trends at the Oxford Club where he writes Fry's Pinnacle Portfolio and contributes to the Energy and Resources Digest.

Eric took first place in Wall Street's biggest investment competition beating 650 investors including legends like Bill Ackman, Joel Greenblatt, and David Tepper. Eric's here today to tell you how he did it and what he's looking at in the global markets right now.

You can also read all about Eric's work with the Pinnacle Portfolio at www.americastoptrader.com. That's americastoptrader.com.

And we've got some mail from Russia for Porter in the mailbag today. So we'll see what that's all about in just a little bit.

We wanna send our thanks to all the listeners who've been writing into the show and leaving comments on the Stansberry Investor Hour iTunes page. If you haven't already, please give us a quick review and let us know how we're doing.

How'd we help you today, dear listener? What topics would you like to hear us cover? Who would you like to see us book as a guest? We need all that info from all of you listening. Just go to Stansberry Investor Hour's podcast page on the Apple iTunes store or just hit the "Review" button on your podcast app right now.

We wanna give a special shout out to Abba O., Carlin N., Tom G., from sea to shining sea, and Chari for tuning into the podcast and subscribing on YouTube. Check out the Stansberry Investor Hour YouTube channel at youtube.com/investorhour. You'll find each episode, along with comments and conversation from listeners just like you. Check it out and plug into the discussion.

Keep the comments and reviews coming, folks. We read them all and we love hearing from you.

Let's kick it off on the Investor Hour this week with what is on our fearless leader's mind. Mr. Porter Stansberry, what is it?

Porter Stansberry: Boy, I tell ya' what, there is a lot going on to talk about. I wanna get to the rebound in retail. I wanna talk about what's going on in Saudi Arabia. Buck, I bet you have some insights there on whether that impacts the oil market. And of course, I think we have to talk more about the bitcoin mania. Let's start there because I think it's really on people's minds.

I've gotten hammered. My mailbox has been on fire lately with folks who accuse me of speaking out of both sides of my mouth, which I do speak out of both sides of my mouth. It comes out past the tongue over the lips. Nothing wrong with that.

So on Friday I wrote a Digest. I noted that I explained the South Sea Bubble, the Mississippi Company, and John Law and the way that this financier in the 1700s, between 1716 and 1720, had saved the bankrupt French crown by convincing the French people that paper money was better than gold bullion.

The primary way he did so was he made it possible to buy stock in the Mississippi Company with only 10% down, but only if you first bought the French bonds with paper. So he created a mania for paper money by selling the idea that you were gonna own trade with Mississippi and then he added trade with Africa. So it was a fantastic stock promotion. It was the best stock promotion of all time and he created a huge bubble.

The share price of the company topped out at 10,000 paper French dollars. They were livres, but doesn't matter. It was 10,000 was the nominal top.

So when bitcoin hit $10,000 I thought it was an appropriate moment to reflect on the nature of this mania. I think that investors who buy bitcoin at $10,000 when it was recently trading at $1,000 and fairly recently trading at $100 and fairly recently trading at $50 and $10 and $2. I think folks who buy now are likely to be very disappointed because if for no other reason, the volatility is going to at some point invert. It won't always go straight up. At some point soon it's gonna come crashing down.

Kind of like, I think this is most analogous to remember Amazon.com back in the late '90s. I was actually a very early investor in Amazon. I bought Amazon at a split adjusted price of $3 a share and I put about $25,000 into it. I don't know if you can do the math, but that would be more money than anyone could ever need again if I had only held on.

But of course you can't hold on, because the things are just radically volatile.

So from top to bottom after the crash in 2000, Amazon fell more than 80%. It's unlikely that investors have the stamina to survive that kind of volatility, especially in an unproven, untested entity like virtual currency.

So my warning is that the price action of bitcoin and other virtual currencies is very, very dangerous in that most people dramatically overestimate their capacity to tolerate volatility and risk.

So if you wanna get involved in virtual currencies now, my advice has been the same for a very long time. You wanna do so with a very small part of your portfolio and you wanna do so in a way that it's not gonna impact how you sleep at night. You are past the point where you can make a 10,000 to 1 bet on virtual currencies. That's already come and gone.

However, I do think – this is the other side of my mouth – I do think that the capacity that virtual currencies have to reorder how people think about investing and how people organize corporations has only just begun.

So on the one hand, like Amazon.com in '99, I think it's way too expensive and it's not safe to buy, but on the other hand, like Amazon in 1999 or 2000, I'm sure that it's gonna have a profound impact on the investment landscape for a very, very long time.

Buck, you can see that can't you? It can be two things at once. It can be so expensive that it's no longer safe or cheap, but it can also be very powerful and something that we're gonna be dealing with for a very, very long time.

Buck Sexton: Yeah. I can see it as somebody who analyzes long-term political trends, it's gonna have a profound impact on a lot of things. I think governance as well, by the way. I think governments are gonna have to figure out down the line how they're gonna handle cryptocurrency, but as a novice minnow investor I see this stuff happening and I can't help but think, "I should have gotten in. Is it too late? I should've gotten in. Is it too late?" So I go back and forth on that.

Porter Stansberry: Well, okay. That's a great point. The answer is, yeah, it is too late. These prices will eventually come crashing down. I can't tell you when or how far it's gonna go before it does, but there's no question in my mind that price volatility like we've seen across the crypto landscape is not going to simply morph into some long-term, gently sloping rise. It's not gonna go from looking like an insane sign wave and someone having a heart attack to just suddenly chilling out and becoming a calm Mediterranean Sea.

That's not what's gonna happen. There is going to be an enormous shake out. I think it'll probably be a panic on the order of what we saw back at Amazon or back at the Mississippi Company.

The people who are heroes today in the market will be seen later as villains and there will probably be a witch hunt. Someone will have to pay for all the losses that have occurred in crypto.

Another dangerous sign that I saw and, listen, I have not had time to verify this. Buck, as you may have heard I had a little bit of a family tragedy this week. My ten-year old son's black Lab was hit and killed by a car yesterday.

Buck Sexton: Oh God.

Porter Stansberry: So there's been a little bit of drama at my house and I've been a little distracted. So apologies that I'm not completely prepared today, but I saw in a piece that was circulated around my office, an e-mail thread, that YouTube has had a huge spike in the number of people searching for videos on how to buy stocks.

There's all these signs. Country Club Guy may have seen this around the office yesterday as well. The "How to Buy Stocks" video?

Country Club Guy: As you know, I used to work at Investment Bank, for those longtime listeners. I had a guy call me, a sales trader, from a former company of mine, who wanted to know if I had a how-to bitcoin guide for him.

Porter Stansberry: But with the YouTube video, how to buy stocks or was it how to buy cryptos?

Country Club Guy: I'm just talking about –

Porter Stansberry: Oh, just both.

Country Club Guy: Yes, exactly.

Porter Stansberry: So the YouTube thing was how to buy stocks. That's surging in search, but it's also all of a sudden now there are a lot of people all around the world wanting to know how to buy cryptos. Buck, I don't know if you've tried to do this or not, but it's not easy to buy cryptos.

Buck Sexton: I've spoken to friends about it. It takes a little doing.

Porter Stansberry: Yeah, and if you screw up you lose all your money. There's not a safety valve. With stocks, there's an Office of the Registrar. Someone has a record that you're a shareholder. If you lose your shares somehow, they can be replaced, but in crypto if you don't save something to the drive or the wallet or – I don't know what I'm talking about – it disappears. Poof. It's gone.

I've had a couple people, friends, who had serious amounts of money stolen from various exchanges, too, because they were hacked. Again, there's no recourse. It's just gone.

So mark my words, a couple things here. Within ten years most people raising capital will choose between doing a token capital plan or an equity capital plan. In other words, the idea that you can raise lots of capital and organize a new business around digital currencies will become very normal. Just another form of a stock market basically, but one that's less regulated, one that's more risky, one that has a lot more upside and downside.

Like the way penny stocks were years ago when they traded on the pink sheets. Country Club Guy will remember the pink sheets, the wild and wooly pink sheets. It'll be like that, but it'll be tokenized, if you understand what I'm saying.

Buck, do you know what I mean by "tokenized"? I don't know if any of the listeners ever heard of this before, but instead of selling shares you can sell tokens. Tokens convey through a system of contracts and agreements the same sort of rights that people normally think of as shares, but of course, there's a lot of wiggle room for this because there's not a uniform agreement. They're all different. It's very hairy. So you have to know the people that you're dealing with. That's the most important thing.

Whereas with the stock market, if it's on a major exchange and it's gone through the SEC and it's all been disclosed, it's much harder to organize a fraud. Not impossible. Just harder.

So in time these things are gonna be seen as being very, very much comparable. Are you gonna do an ICO or are you gonna do an IPO. That will occur, but long before we get there, long before it becomes normal, there is going to be a massive collapse in crypto pricing. Bitcoin will fall 80%. The lesser cryptos will fall more and there will be a witch hunt and there will be allegations that various of these coin-based things, I don't know what they're called but, Country Club Guy, help me out here. Where you trade these crypto currencies. Like coin base and –

Country Club Guy: It's just exchanges. They're just –

Porter Stansberry: Exchanges, yeah. It will be discovered that one or more of these exchanges was essentially operated by criminals and it's just a giant fraud. There will be investigations and people will go to jail over this.

Country Club Guy: Let's speak about the mania.

Porter Stansberry: All of this will occur, but that –

Country Club Guy: They had a breach in one of the exchanges and bitcoin, the cryptocurrency, it wasn't even a blip on the radar last night.

Porter Stansberry: Last night one of them got hacked or stolen –

Country Club Guy: Yeah, $70 million or whatever the denomination was –

Porter Stansberry: Boom. Right –

Country Club Guy: Stolen. It's just gone.

Porter Stansberry: So mark my words that this atmosphere, this mania will absolutely attract a ton of criminals and there will be a lot of people who are defrauded.

It's very expensive. It's ripe for fraud and crime and there will likely be a big pullback and a whole big rush to judgment and lots of problems, but in the meantime, bitcoin's at $15,000. There's no reason why it can't go higher.

If you're gonna be involved in it, most importantly, know what you're doing so that you don't inadvertently lose money by losing your password or by something like that. Stick with the largest, hopefully more reputable exchanges. We don't really know what their operating track record is 'cause they're all new.

Third, I would tell you avoid the super-volatile lesser currencies. Stick with the ether and the bitcoin and the things like that. If you are gonna by an ICO, then make sure that you personally know the people involved. Do not buy ICOs just trusting that the people in this space will be honorable and will do the right thing 'cause a lot of them will end up being crooks. Make sense, Buck?

Buck Sexton: Makes sense to me. So I'm gonna hold off for now. I was thinking about letting it all ride on bitcoin, but I got bills to pay.

Porter Stansberry: Personally what I'm trying to do is I'm just trying to be patient and wait for the wipeout. You could have bought a lot of tech stocks, Priceline, Amazon, eBay, all these things from 2002 to 2004 and you could have gotten them at very good prices and you could have seen that they had sustainable sales growth. That they had a real business.

I think you'll have the same opportunity eventually with cryptos, but it's unclear. Are we at 1999 in terms of the metaphor to the Internet stocks or are we at 1996. I don't know. It's impossible to say.

You just have to be patient and you have to avoid getting sucked into the crowd. I can tell you this. It is not smart to start buying stocks or cryptos when you see that Google searches and YouTube searches for "how to buy" is skyrocketing. That means the crowd is already there and you're too late. So it's better to wait.

Now let's talk about something where Buck knows a lot more than I do. What the heck's going on in Saudi Arabia? It seems like the government rounded up all the rich people and put them in a hotel and is now ransoming them. Is that fair to say?

Buck Sexton: So here's what's going on. You've got Mohammed bin Salman who's the guy running the show over there right now and he –

Porter Stansberry: Hey, let me interrupt you for one second. Let me just interrupt. Did you have to go to a special CIA class to learn how to pronounce all these names? 'Cause I see the names in the newspapers and I've gotten no shot at any of them.

Buck Sexton: I took two years of Arabic language instruction actually –

Porter Stansberry: Oh, Jesus Christ –

Buck Sexton: So there ya go.

Porter Stansberry: That's suffering for your country right there.

Buck Sexton: After a while, walking around and being able to point and say dijaj when you want some chicken or qahua when you want some coffee. It loses its luster for you and especially writing it is hard. I learned the script. I'm terrible. I have about 100-word vocabulary. Maybe more like 50 now, but I can pronounce most of the names somewhat. I'm like 70% of the way there with a lot of the names.

So okay. You got these different guys. By the way, they refer to Mohammed bin Salman as MBS mostly now. People are saying, "Okay. This is the point at which Saudi Arabia is finally modernizing." Which everyone's been talking about for a long time. In, I think it was Yergin's book, The Prize, about oil –

Porter Stansberry: Which is a fantastic book.

Buck Sexton: Fantastic book. One of the greatest parts of it is when in the earlier days of the – well, in the earliest days of the Saudi oil boom, you had members of the monarchy that were buying Mercedes-Benz, the absolute most expensive cars in the world you could at the time and they had literally no roads to drive them on. They had some gravel and then they'd end up in the sand. Even a Mercedes at the time did not work well in the sand.

So the Saudis and oil – and there's a whole long line of discussion we could have just on that, haven't really been going together. So you have this ultra-wealthy oil kingdom and for the last 100 years or so everyone's been saying, "When are they going to become less of a hardline theocracy?"

The origins of the Saudi state are between a warlord, which is the royal family now, and also a hardline theocrat named ibn Abd al-Wahhab from the 18th century. That's where you get Wahhabism from. It's from a guy named Wahhab.

Anyway, people have been waiting for this and they've been writing about it. Every few years I'd say it becomes an article of faith among the media that, "Here is it. They've had all this money and all this time to get it together. Women are gonna be able to drive. There's gonna be some freedom of worship."

It's not as much of a totalitarianism as North Korea, but it's in that same top 20 category around the world. When you look at a lot of the rules it's a pretty scary place. So people are saying now they're finally cleaning out their house and they're modernizing and they're getting rid of corruption.

I think what you have going on here is actually a power consolidation more along the lines of what you've seen in Russia. People will remember that early on – well, I shouldn't say early on, but when Putin was becoming the strongman of Russia there were some Alagots, very, very wealthy guys who ended up in prison, I think. Carter Kofski was one of them.

All of a sudden these very rich guys who had just pillaged the natural resources and formerly state-owned industries of Russia were getting in trouble. People were like, "Oh, well maybe it's because Russia wants to open itself up to free market capitalism and everything." No. That is false. That's not what happened as we know from the history of Putin circa 2000 to today.

I think something similar's happening in Saudi Arabia where you have Mohammed bin Salman. People call him MBS. He's the prince who's running the show right now. He is taking out rivals, but also establishing that he's the guy who's gonna be making all the calls.

Is he smart enough to know that addressing some issues like letting women drive – which I should note that yeah, it's important, but it's also a superficial thing that they can change back whenever they want to – that that makes it look like this is modernization and an anti-corruption measure to the rest of the world or at least gives them some cover? But I think this is a straight power play.

I don't think the Saudis are changing. In fact, the Saudis aren't what they used to be in terms of oil – which I know you know well about, Porter, because of the shale revolution – they don't have quite the same leverage that they used to. They're really just looking across the border at Iran and deciding how is this gonna go.

At some point they're getting ready for coming to blows with each other for a whole bunch of reasons. So that's what's happening in Saudi Arabia.

By the way, every journalist who covers the Middle East will laugh because you can go back and Thomas Friedman in 2000, Thomas Friedman and company in '95, in '90. You go back decade, decade, decade and they're always saying, "Oh, we're finally there. The Saudis are going to step into the 20th, now the 21st century." That's now what I see, Porter.

Porter Stansberry: I'm with you on that. I don't think that the vast majority of the Saudi public will be modernized. I do think that the Saudis are gonna mimic their cousins in Abu Dhabi and Dubai and build a really big, huge, planned free city on the Red Sea. I believe and they're gonna spend billions doing it and they're probably gonna borrow a lot of money to finance it.

But I have a theory about the Middle East. No one's likely to agree with me, but I just think that as the shale revolution grows globally, the idea of high margins and energy resources will become permanently a thing of the past and that we'll look back in time and say in 2050, we'll look back at the 1950s and we'll think of that era as the era of the desert energy boom and the global energy shortage.

That when you combine the growth and technology via wind and various kinds of turbines, solar and, of course, the boom in things like fracking, clean coal, lots of things that are now coming forward, we'll look back at the last 50 years and at the boom in the Middle East and it'll just be an aberration. It's not a permanent state.

Buck Sexton: You mentioned shale, Porter. I just wanna say that the shale revolution in this country has done more to box in, slow down, keep in check some of our enemy and opposition states around the world than really anything else other than maybe the threat of the U.S. military, Russia is a shadow of what it would be had oil stayed at the prices that it was 20 years ago.

Venezuela, people talk about the collapse. Yeah. It's incredibly mismanaged, but the Venezuelan government figured that they would have a whole lot more money to redistribute. So what's happened is the change in oil prices because of shale has meant that it's all accelerated. The bad governance, instead of taking 50 years to collapse, it took five.

Porter Stansberry: That's right. You think about Putin's military adventures in the Ukraine, they all started with the price of oil collapsing and him needing to do something to distract the population from the decline in living standards in Russia.

Venezuela was a petro puppet state and without the petro there's no one to hold up the puppet. Venezuela has the lowest quality oil in the world. So it's really at the bottom of the barrel. The prices you're getting on that kind of crude is just gone. It's disappeared.

So think about it for a second. If the power of the Saudi royal family and if the growth and their rigid view of Islam was powered by oil. Just imagine if you can. Go back to 1920 and pretend that there was never any oil discovered in Saudi Arabia. Saudi Arabia would be another Afghanistan. No one would care what happened there except for the fact that they're probably exporting radical terrorists.

Buck Sexton: Well they wouldn't have been able to export the radical terrorism without the oil money, which is also a very unfortunate historical reality when I've been in places – and some places that I can't talk about – but places all over the world and where you'd be shocked where there's tremendous poverty and radicalization. I mean well outside of the Middle East.

All of a sudden there'll be, Porter, out of nowhere it looks like it's a mirage or a fairytale, a huge, gleaming, white mosque in the most poor area imaginable. You'll walk up and you'll talk to some of the folks outside or maybe the Imad will come and chat with you, especially if you look like me. "What is this?" He goes, "Oh, it's Saudi money."

But the Saudi preachers and the Saudi instructed preachers that are teaching there, they're the ones that are putting out all the hardline radical stuff and they have been for a very long time.

So Saudi Arabia, unfortunately, in the 20th century because of their own money has been the central site of the infection of jihadization for the rest of the world.

Porter Stansberry: Think about it this way. I was actually trying to explain this to my 10-year-old the other night. Anytime you see people who have to use violence to oppose others with different ideas, that, whatever you call it, culture, religion, that belief system is going to fail.

It cannot compete in the modern world of globally accessible media, the Internet, Twitter, all of the things that drive humanity going forward that are gonna be successful, they all revolve around openness, honesty, rational thought, free markets, property rights, liberties for people

There's a reason why America has been the most successful nation state for 300 years. It's not because we beheaded anyone who disagreed with us. It's because we created a polity where there are competing common interests and there were civil rules of society.

The degree to which you are more like that – AKA, Singapore, Hong Kong, lots of British colonies, lots of places that used to be British colonies – those places have thrived.

The places that have adopted either radical religious views or radical political views, those places have struggled.

Now the exceptions to those rules have bene places that had giant reservoirs of energy. That's been the only exception. As a libertarian kind of person I always get the "What about Norway?" argument. "Well, what about Norway, Porter?"

Well yeah, you can finance a whole lot of social policy with giant oil reserves. Sure. And also if you have a very homogeneous population, you can probably get away with a lot more state directed policy because everyone is gonna be more or less of the same view, but you're not gonna be nearly as dynamic an economy, nearly dynamic of a place, you're not going to see radical wealth creation unless you have a competing common interest society governed by civil rules, which is what we have in America.

I have a very strong expectation that the current increase in radical politics and violence surrounding Saudi Arabia, and by that I mean the war in Yemen and the political battles going on for the crown are the first steps in what will become a very, very troubling civil war. It'll probably go on for 20 or 30 or 40 or 50 years because no one fights harder than over an empire in decline.

You think about the American Civil War. Slavery and the cotton business were out the door anyways. The gin mill was gonna put an end to slavery whether it had ever been outlawed or not. Who fought harder? The South because it was a dying empire. It was the opposite of modernity. It was a stop to the progressive move to a more liberal and free society.

The people in Saudi Arabia are in the same boat. The gin mill for them is shale. Their day in the sun is done. Of course, rather than realizing it and trying to move forward, they're going to fight tooth and nail to try to keep that status quo.

Buck, as you know as a political analyst, the one thing for sure that can't happen is status quo. Societies and politics are always changing. You cannot freeze time in a bottle. That's what the Saudis have tried to do since the 1950s.

Buck Sexton: One of the major indicators for revolution, which of course can also lead to a state of civil war, it's not deprivation which I always think is an interesting thing to point out to people. It's not that the people are having a tough time or that they're poor. It's actually that their expectations are unmet. It's all that what the people think that they should be getting that they're not getting. It's not about that they don't have enough.

Porter Stansberry: All right. It's all –

Buck Sexton: Very poor countries don't revolt usually. It's countries where, as you said, there is stagnation and frustration. That's where you tend to get revolt.

Porter Stansberry: Ya know Buck, the same thing is true with marriages. I'm not joking about that.

Buck Sexton: I'll have to take your word for it.

Porter Stansberry: Your marriage can survive a lot of tough times as long as both parties were expecting it. Where you get in trouble is when someone abruptly deviates from normative behavior. I'm not speaking from experience. I'm just speaking from observation. [Chuckles] So bear that in mind as your personal life matures.

Buck Sexton: Indeed sir, I will. We have a couple of fantastic guests this week whom I want to get to.

First up we have Grover Norquist.

[Music]

Grover Norquist is President of Americans for Tax Reform, ATR. That's a taxpayer advocacy group he founded in 1985 at President Reagan's request. ATR works to limit the size and cost of government and opposes higher taxes at the federal, state, and local levels.

Their position on tax reform is that the system should move toward taxing consumed income one time and at one rate. Mr. Norquist is here with us today to help us understand exactly what is happening with this current tax reform bill that's in the House and Senate and what it really means for you and the American economy.

How does the 2017 tax reform bill help American families keep and invest more of their income? How can we have tax reform but still add $1.5 trillion to the national deficit? Are there any changes that will encourage investors and businesses to be more active or take a back seat.

Mr. Norquist is also the author of Rock the House and Leave Us Alone: Getting the Government's Hands off Our Money, Our Guns, Our Lives.

Just some quotes here from folks who know him well. According to John Stossel, "No one in modern times has fought harder to shrink the state than Grover Norquist."

Our dear friend P.J. O'Rourke says, "Grover Norquist is Tom Payne crossed with Lee Atwater plus just a [bit] of Madame Defarge.

Ariana Huffington calls Norquist, "The dark wizard of the right's anti-tax code. He is a terrible man who hates the taxes."

Please welcome to the Stansberry Investor Hour, Mr. Grover Norquist.

Grover Norquist: Delighted to be with you.

Porter Stansberry: So just talk us through some of the big themes in this GOP version of the tax bill. What is the good of this and what are the best parts?

Grover Norquist: This is a pro-growth bill. It will create jobs and increase incomes.

Two, it is tax reform as well. It simplifies some tax does and makes it easier for people to do their taxes.

So you put both of those together, the corporate rate goes from 35% down to 20%. What does that mean? At 35% America has the highest corporate tax in the world. At 20% it puts us down towards the average, makes us competitive with most of the rest of the world. We're at 35% now. They're at 25% for socialist China. socialist China has a lower business tax than we do, as crazy as that sounds.

So we stop shooting ourselves in the shoot, step one, on corporate rate. We take the rates down for Subchapter S corporations. Those are called pass throughs. They're small businesses. There are 30 million small businesses that are pass throughs. You pay your personal income taxes rather than the business income tax rate. For years they've been ignored largely. This rate is brought down for them. This is something that we haven't done before. Very important to 30 million small businesses.

Takes individual rates down for all Americans. All rates come down whatever income bracket you're in and we take the first, if you're a married couple, right now the first $12,000 you earn is not taxed at the federal level. This takes that up to $24,000. So the first $24,000 a married couple earns is taxed at 0% rate. After that then there's a 12% rate. So the old 10% rate goes to 0%. The old 15% rate goes to 12%.

On simplification for businesses, instead of having long depreciation schedules, you buy a truck for your company or a computer. Instead of depreciating it over 5, 10, 20, 25 years, you expense it in year 1. It reduces the cost and certainly simplifies things.

Used to be that 30% of Americans would itemize for tax purposes. They'd keep all those little receipts from what you gave to charity or Goodwill or church. Now only 5% of Americans will have to do that. Why and how? Because going from 12 up to 24 takes so many people that you no longer have to itemize yourself. So it simplifies things. It makes it easier. It reduces taxes and it is strongly pro-growth. It will create millions of jobs in the next decade.

Porter Stansberry: That's what I wanna ask you about specifically, Grover. What kind of jobs are we talking about here? I know you have reported on how the Republican tax bill is an amazingly powerful job creation measure. How does that happen and what kind of jobs can we expect?

Grover Norquist: Well, all sorts of jobs because what it does is every business, whether you're a farmer, whether you mine coal or are in construction and build houses or skyscrapers or dig ditches or work as an accountant, everybody's tax rates go down. The taxes on all businesses go down. So all businesses making a decision, "Should we hire another person, should we invest in a new computer, in a new car for the business," those investment decisions become less expensive than they used to be And the reward –

When you earn a dollar, instead of having the government take 35 cents of your dollar, it only takes 20 cents. That means as a business trying to decide whether to expand, whenever you do something to earn a dollar, you get to keep 80 cents on the dollar that you earned; not 65. That is a 23% increase in the rate of return after cash.

Well, if every company in the country earns 23% more after tax than it used to, imagine all the decisions, all the investment decisions that used to not make sense. You go, "Should we do this? Well we don't make enough money." Well what if you were to add 23% to that. "Oh. Well now we could do it."

The number of projects that will make sense to do, economic sense, increases dramatically. So it's not one sector of the economy that will benefit. It's across the board.

Porter Stansberry: How will this bill affect investors? Things like dividend income and capital gain?

Grover Norquist: Well, it doesn't really change capital gains other than it cuts individual rates down. The capital gains tax, the dividend tax, those are too high. They were raised by Obama, but those will come down when we undo Obamacare.

This bill does one big thing towards abolishing, reforming, replacing Obamacare and that is it eliminates the tax, the penalty, the mandate which forces a lot of Americans to buy Obamacare that they don't want or if they really, really don't wanna buy it, they get a penalty tax for not buying it. So three million are forced to pay this penalty.

People say, "I don't want Obamacare. I'm not willing to buy Obamacare." They say, "Fine. Family of four. You gotta pay $2,000 fine tax."

Of the people that are damaged by the Obamacare tax 80% of them earn less than $50,000 a year. So this is a tax on lower income Americans and it's really unacceptable.

Porter Stansberry: he Senate version of the bill keeps the alternative minimum tax in place. It seems like double taxation to me, Grover. Why can't this thing go away?

Grover Norquist: Well, I think it will. In the Senate version it doesn't abolish it, but it reduces the number of people who'll get hit by it. It's progress, but it's not as good enough. It's not helpful.

I believe at the end of the day the House will win this fight and we will fully abolish the alternative minimum tax both for companies and for individuals.

Porter Stansberry: What about the focus on corporations instead of individual taxpayers here as really the tent pole of this entire bill? Why do you think they had to go in that direction?

Grover Norquist: Because a lot of countries have reduced their individual rates as the United States did under Reagan. We made some progress, but we didn't make much progress since '86. We've made no progress on reducing the tax on companies. We're at 35%. When we went to a 35% rate in 1986, we had one of the lowest taxes on business in the world, but other companies, which were up in the high 40s brought them down. The European average is now in the low 20s.

We used to have a lower business tax than the others. Now we have a higher business tax. It is on the tax on businesses that the United States is most damaging compared to other things. It is where we were most out of whack.

Porter Stansberry: Before I let you go, you have President Trump saying earlier today that he thinks 4% or 5%, maybe even 6% growth is possible if this tax cut goes through. Too rosy? Or you think that's feasible?

Grover Norquist: No. I think it's entirely feasible. If I were the President I would undersell it rather than oversell it, but he didn't get to be President by underselling anything.

He also has this habit of telling you exactly what he's thinking, which most politicians don't. So there's a little virtue there that what you see is what you get.

I think it is entirely possible that we could see 4%-plus growth. There will be times when it gets even better, but again, all we have to do is grow at 3% a year rather than 2% a year and we will actually increase revenue to the government by $2.5 trillion. We'll begin to pay down debt if we get to that point.

Porter Stansberry: Where can people listening to the podcast, Grover, read more of your work and the work that all the folks at Americans for Tax Reform are doing?

Grover Norquist: Sure. You can follow me at @grovernorquist. That's where I tweet. I tweet out much of our good stuff @grovernorquist or ATR, as in Americans for Tax Reform, atr.org is our website and we always try to keep people informed on what's happening on tax reform there.

Porter Stansberry: Grover Norquist, President of Americans for Tax Reform. Great to have you, Grover. Thanks so much and Merry Christmas. Happy New Year.

Grover Norquist: You, too. Have a great one.

[Music]

Buck Sexton: That's fascinating stuff from Grover. Really appreciate him joining us here on the Stansberry Investor Hour.

Next up we have financial expert Eric Fry. Eric is the Oxford Club's macro strategist and resident expert on global investment trends. He's the senior editor of Fry's Pinnacle Portfolio and a contributing editor of Oxford's Energy and Resources Digest, which covers oil, gas, metals and alternative energy investing.

Eric's an international finance expert and former hedge fund manager with 30 years of investment experience. He's regularly appeared on CNBC, Fox News, CNN, Russia Today, and ABC's Good Morning America.

Eric's work has also been featured in Time, Barron's, the Wall Street Journal, Bloomberg, Businessweek and Money. Please welcome to the Stansberry Investor Hour, Mr. Eric Fry.

Porter Stansberry: Eric Fry, thank you for joining us this morning. Can you tell me where are you calling from?

Eric Fry: I'm in Southern California. Laguna Beach, California to be exact. Not near the fires, but they're blazing away out here.

Porter Stansberry: I wanna introduce you to the listeners by talking just about how we met each other. I met you probably 20 years ago now at the last big financial mania. We were in the midst of the Internet thing going crazy. People kept coming to see us at our publishing companies and telling us that we were in trouble because information "wanted to be free" and we were selling it and didn't we know that soon we would be out of business. As you know, most of those people were out of business long before we were.

Eric Fry: Exactly.

Porter Stansberry: But you at the time were working with our friend Jim Grant, and Jim had some kind of a new online business. I forget exactly what happened with all that. Then you spun off with a newsletter which had a very unusual name. I can't remember now what it was.

Eric Fry: It was called Apogee Research.

Porter Stansberry: Apogee Research. That's right. You worked there with those guys for some time. Then you ended up working with Bill Bonner at the Daily Reckoning for many, many years. Where are you now?

Eric Fry: Well now I'm with the Oxford Club. Still with the Agora family of companies. I publish investment research that's very similar to the old Apogee Research. It's called Fry's Pinnacle Portfolio. It's a big picture investment service dedicated to both long ideas and short ideas.

Porter Stansberry: I was reviewing your website this morning before our chat. I have to tell you, of course, I've always admired you as an investment analyst. Your knowledge of finance is encyclopedic, plus you know everybody in New York. You have access to all kinds of great information and I encourage anybody who likes reading newsletters to read yours. It's great.

But I also noted that your methodology sounds very familiar to me 'cause it's so much like what my friend Steve Sjuggerud does. You're looking for stuff that is a good value. So meaning it's cheap and typically it's out of favor, but you're not buying unless there is existing momentum. That seems like it was the formula that I was getting from the website.

First of all, do I have that right? Is it stuff that's cheap, hated in an uptrend as well or is there more to it?

Eric Fry: [Chuckles] Well, those are Steve Sjuggerud's words and yes, it's very close to his methodology. I've known Steve for 20 years as well and we kick around ideas together every once in a while. It's very similar to Steve's approach.

Most investors define themselves as either a value investor or a momentum investor. Very few people will think of themselves as both. In fact, I used to think of myself as a value investor. Always trying to find cheap stuff, beaten down, the whole Ben Graham idea of buying a dollar of assets for 50 cents, etc., but I learned through the School of Hard Knocks that you can't just have something cheap. You've gotta have something else for you. It has to be a catalyst. It has to be some kind of momentum.

The markets in general will tell you when catalysts are developing. They'll tell you that through the mechanism of price discovery. So as something is gaining momentum you've got a good shot at that thing continuing to gain momentum.

So you combine then as Sjuggerud calls it, "in an uptrend" as something that's beginning to gain momentum and you usually have the makings of a winning investment.

Porter Stansberry: As you know, as an investor I've had a broad range. I have been able to see value in areas where others didn't. Sometimes right; sometimes wrong, but I wondered how do you define value? I wanted to put it in a context of a couple stocks. You may not know these stocks. If you don't that's fine. You can come up with your own alternatives, but I'm wondering, for example, the offshore drilling space and basically oil services in general have been so beaten up over the last three or four years.

A lot of those companies would qualify and standard classic measure of value. With oil prices coming back those things are now maybe trending up again. Is that what you're doing? Does that sound familiar or are you also or and are you open to ideas like a Shake Shack where it's a very high multiple stock, but it hasn't gone anywhere for a long time and now seems to be gaining momentum and revenue and growth. So do you see value in both places or are you more classically value oriented?

Eric Fry: That's an excellent question, and the answer is both. It's easier to objectively recognize value in something like a beaten down oil services company because it checks all the boxes in terms of low valuations of whatever, EBITDA or book or sales or anything you wanna look at from a classic valuation standpoint.

Shake Shack wouldn't, as you point out. However, in determining value, I don't pay a lot of attention to those classic metrics in the first instance, like price to earnings or price-to-EBITDA. I look instead at revenue trends. Just revenue. In the first instance, are revenues gaining momentum or are they losing momentum? Because if you have a company that's generating rising sales, that covers a lot and that facilitates growth ultimately at the earnings level.

If you have a company that's not generating sales or sales growth, you've got nothing. You've just got a shrinking company. So on the fundamental side I look at that.

Porter Stansberry: I just wanna applaud what you just said and I want our listeners to really focus on what you just said. Being around equity markets for almost 25 years this lesson has been beaten into me again and again and again both with winning trades and losing trades.

If your business is not capable of sustaining double digit revenue growth annually, then you should never be in that stock under any circumstances.

If you wanna be investing in that thing, that entity, then buy the bonds. A lot of times these deep value stocks, the bonds will be trading at 60 or 70 cents. You can get a fine capital gain and you can have a double-digit yield even without revenue growth.

So the answer for me is if it's not a "growth company" and you know what I mean by that. I don't mean that it has enormous multiples. It's super expensive as Facebook. You can have a growth company that isn't recognized by the market as being a high-flyer.

My point is if there isn't revenue growth, don't buy the equity. There's no reason to do so. It's very unlikely that you're gonna be successful very often.

So I just wanted to applaud you. I think that is the true gold standard for understanding not only investing in growth, but just investing period. Whether you're a "value investor" or a "growth investor." If there isn't revenue growth, then you should never be in the equity. Period.

Eric Fry: Right. Well you said that this message has been hammered into you over the 25 years. And also into me. That's one of the I think enormous ironies about my investment methodology today is that I belong to or I'm brotherhood of short sellers, guys like Jim and others that are very, very granular in their research and have enormous research teams and are able to tell you every single thing about the balance sheet and income statement of a company and that's essential for what they do.

But at the end of the day, the one metric that is most valuable in determining a thumbs-up or a thumbs-down is revenue growth. That's the simplest thing to see at the very, very top of the income statement. In other words, you don't have to even know anything about accounting. Just look at the top line of an income statement and you can see revenue. It's so simple and yet so valuable.

Obviously it needs to be organic revenue growth. It can't be purchased. It can't be a company that's just buying companies and generating growth that way. It has to be self-generated. So yeah, that's a huge one.

Porter Stansberry: I wanna get the short song, but I wanted to ask you a couple more specific investment question. In part because I don't get to talk with you very often and it's actually interesting for me, too.

My research group is wrestling over the issue of retail. A lot of the retail stocks have been beaten down. Some of these things we think have very good businesses. Do you have a view? What's your opinion about retail in general and if you are taking a position long or short, how are you thinking about it?

Eric Fry: Also an excellent question. That's an area where I've been very active mostly on the short side, but with a large caveat. This is a great segue because a couple of the stocks that I recommended as short sales are great big, familiar names in the packaged food industry. So that's a kind of retail.

These companies are suffering from three, four-year revenue declines and large revenue declines that are persistent. So those are dying on the vine, those businesses. That's a kind of retail.

Then the other kinds of retail which we're very familiar we know as dying on the vine are the big-box retailers. Those stocks have been horrible for a long time. That's no secret, but now you're getting into an area where they are beaten down and so you probably have some situations where there's a baby being thrown out with the bathwater and there are opportunities to buy these things in two different ways.

One I know you are very familiar with, and that's the hedge funds are circling around a lot of companies because of their real estate. Thinking that the company as an operating retail business is poor, but the real estate is so valuable we're gonna buy it anyway. So there's a bunch of those plays going on.

But then there are selectively what's called the survivors. Companies that have been beaten down. They understand bricks and mortar isn't what is used to be and are reinventing themselves. So selectively I think there are opportunities there.

Porter Stansberry: This is the way we've been doing it. It sounds so simple, but it is very powerful. Wegman's is a grocery chain. I don't think they have any of them on the West Coast. Have you ever heard of Wegman's?

Eric Fry: No.

Porter Stansberry: So Wegman's is a middle- to high-end large grocer. So it's a huge store, like a big-box store, but half of the store is prepared foods. It's almost like a mall where you go in and there's different kiosks and lots of prepared foods.

They also specialize in these – I don't know how to explain it, but it's like a little tin can, sort of. You just pop it right in your oven. It's all fresh ingredients, all cut, all prepared for you so you can just go home and cook a meal very, very quickly. It's like a Blue Apron kind of thing, but you stop in the store to get it instead of having it be delivered, but it's real high-quality food.

They've got great fresh fish. They've got a great butcher; all that stuff. So it's sorta' high end, but it's also mainstream, large volume 'cause it's a big store. They're all over the Northeast. So they're all in New York State, Pennsylvania, Maryland, all around there. They're very competitive with your giants and your – geez, who's the other fancy grocery stores? Your Trader Joe's. They compete with Aldi. They compete in both the low end and the high end. They're very competitive around here.

So about three months ago Wegman's launched a delivery service where in two hours they will bring me my groceries. The delivery charge is $8. I have not visited another grocery store since that happened. There's a first member advantage there because I'm already registered with them. They already know when I need stuff. I can just point and click and it shows up at my house.

Now I have a trusting relationship with the delivery people. It's very powerful. So what I'm doing in retail is I'm looking to see how online sales and even more importantly, how many active app users does a retailer have. When I can just go on my phone and pop-up Ralph Lauren and order a new shirt or a new pair of pants and they already know my size, they already know my address and it's just one click, click, click, click, man, it's gonna be hard to get me to go anywhere else and I only need a couple providers. I need some work clothes. I need some dress clothes. I need some sports gear.

I thought Nike moving into Amazon was one of those watershed moments. There's just no going to Foot Locker anymore. Ever.

Eric Fry: Right.

Porter Stansberry: So when I'm reading these 10-Ks I'm looking for information on apps, information on online sales, information on anything direct to consumer. If you're not a direct to consumer company, in my mind, ultimately you're dead in the water.

Eric Fry: Right. That's part of the reinvention process that I'm talking about. That's the crux of it. So I think you have companies like Best Buy that have done a pretty good job of establishing a truly viable online retail channel. Then you have other companies that are still flailing away and haven't succeeded. That's a great way to look at it.

In general we're still over retail. So there are a lot of smaller companies that are not gonna survive, public companies.

Porter Stansberry: Let's talk for a minute about your newsletter and then the newsletter business as well. Give me the rundown. What's the pricing? What's the term? How are you guys marketing it? How many subscribers do you have? What's going on with your newsletter?

Eric Fry: The annual price is $2,195. So $2,200 I believe is the one-year subscription price at the moment. We have about 2,000 subscribers. It'll probably stay around that level. We don't wanna get too huge. Mostly I've been recommending very, very liquid ideas, but I don't wanna get an enormous list because then it limits what I can recommend.

Porter Stansberry: Have you seen the emphasis that we've been putting on the lifetime offers in our business and is there a lifetime offer for your product?

Eric Fry: Yes and yes. It's a growing facet of the newsletter business and we offer a lifetime subscription as well. I think it's $4,000. Actually, a very large percentage of my subscribers have taken that option.

Porter Stansberry: That's what I wanna encourage all my listeners to do as well. You can't imagine how much better it is for both the publisher and the customer if you take a lifetime offer. Let me just explain why.

It's impossible for an analyst as talented as Eric Fry is and, by the way, I wanna get to this, but he won a trading contest a year or two ago where every single major hedge fund guy in New York was competing against him. I think it was 650 people. He came in number one. So think about that for a second.

Americastoptrader.com is the website you wanna check out about that stuff.

So you're getting the very best performance that you can get out of an analyst. You're getting a guy who's got 30 years of experience in the business and you're getting him for peanuts. It's absolutely peanuts. $2,200 compared to what you'd pay in trading commissions or in direct fees from a JPMorgan or a Goldman. It's a tenth of the price, but it gets even better because instead of doing that, if you join on a lifetime, you're lowering your research costs enormously over a ten-year span, but what's better is that Eric now has certainty that you're gonna renew.

As a result, he can invest in hiring more analysts and producing better information for you. That exchange, that commitment on your part and reciprocity on his part is what makes the newsletter relationship for both the publisher and the subscriber work.

So I just wanna encourage everybody to do it. We're actually moving, Eric, my entire business to lifetime only offers because I've decided there's no point in me doing business for someone who's only gonna be around for 12 months. We're talking about investments that last three to five years. What's 12 months? I can't help you in 12 months. You're wasting your money and you're wasting my time.

If you don't want to be an investor that's fine. Go buy a mutual fund. Go buy an ETF. If you wanna be an investor you're gonna need research and you've got to fund my ability to provide it. It's that simple.

Eric Fry: That dynamic you're talking about is something I call the "tyranny of the immediate." The people. Investors. It's human nature. You can talk about the long term and you can say I'm a long-term investor and I care about what happens in 10 years and 20 years and so on, but I've never met anyone who still no matter how long term they were wasn't annoyed by, at least, by losing 10% over a three-month window.

All the great investors map out a very disciplined, long term strategy. None of them made their billions by streaming 3% here and there on the short-term trades. So it does take a dedicated approach and a disciplined approach to really generate the Warren Buffett-style returns.

Porter Stansberry: I've only been able to do it a couple times in my career. Luckily I was able to call it one time. I don't know if you remember my Hershey's recommendation from '07, but I told everybody, "We're never gonna sell this stock and if it goes down you should be grateful 'cause you'll be able to buy more." It's been a great investment.

What's so interesting is you only need five or six of those in your life and you will have outstanding returns. I'm sure you know the story about Graham about how over 80%, maybe 90% of his total returns as an investor came from one stock, Geico.

You just need a couple of great home runs in your career to really have exceptional performance. Now let's talk about this. You've had exceptional performance over a very long time. I've seen it. I know about it, but you actually entered a contest to prove it. How did all that happen?

Eric Fry: Well, my publisher, your former publisher, Julia, came to a few of us that work with her and said, "Hey, there's this great charitable competition run out of New York. Would you like to enter?" So several of us entered. You put the $1,000. Then select a portfolio that lasts for a 12-month period. At the end of that 12-month period the $1,000 that everyone contributes becomes the purse essentially. The winner takes 70% of that and gives it to their selected charity. The second place takes 20% and third place takes 10%. So that's how that came about.

I was fortunate to win. I was correct in calling essentially a turn in the commodity market. That was mostly what contributed to the win that year. I did have a couple of short ideas as part of the mix, but it was mostly the turn in commodities.

Porter Stansberry: Well, it's very impressive. I don't know how proud you are of that accomplishment, but that's the most remarkable thing I've seen anybody from the newsletter space achieve against notable competition.

Eric Fry: It was pretty fun to go to the awards ceremony last May, 'cause there were investment luminaries there. Guys like David Einhorn that I nosed out by about five percentage points. So it is fun to say you beat David Einhorn, but obviously those guys are fantastic investors and are brilliant year in and year out. So it was nice to be in their company for a bit.

Porter Stansberry: I've got two more questions for you, Eric. I know you've got better things to do than to talk to all of us today, like get out on the beach and play volleyball. I know it's a rough life in Laguna Beach. Eric actually is a phenomenal beach volleyball player. To help you maintain a much better physical shape than my poor, lousy self. So congrats on your California lifestyle.

Eric Fry: You gotta get away from the computer screen every once in a while and think about something else. So it is good for that.

Porter Stansberry: That's for sure. So two more questions for you. One, do you find it more intellectually satisfying to make a long recommendation that goes up 50% or a short recommendation that goes up 50%, meaning the stock went down 50%?

Eric Fry: Right. I forget who said this. I think it was Jim Grant. The line is something like the short sellers hold the intellectual high ground. The long side investors make all the money. So as a short seller it's extremely difficult to identify a truly flawed company and then make money on it. So there's no question that from a satisfaction standpoint, the challenge is so much greater to identify a successful short than a long. That's more fun let's say. It's more gratifying to do that.

But you make your money primarily on the long side. Long investing, buying things is an investment. Short selling is a trading discipline. There's no such thing as a short investor just because the market is biased to the upside over time and even horribly flawed companies have a bias to the upside. It's tough making money that way.

But as a hedge in an overall portfolio, it's great.

Porter Stansberry: There are very, very few wealthy short sellers. [Laughs]

Eric Fry: That's true. I know many who've gone out of business, but again, as a hedged component, I think short selling is one of the most valuable.

Porter Stansberry: I'd love to do an analysis of our relative portfolios to figure out what their sharp ratios are compared to other things, because I think the thing that shorting does for my portfolio is it really tramps down on volatility enormously. I don't think we get enough credit for how ridiculously low vol our portfolios are and I'm sure yours are the same way.

But the other question I wanted to ask you. I think that shorting is much more intellectually satisfying. As you mentioned, it's probably the only reason to do it beyond limiting volatility in your portfolio, but I wanted to know. Would you be willing to share a short idea with our audience?

Eric Fry: I would. I'll share one. I have a couple of brand-new ones that I've given to my subscribers so I can't share those even though I'm pretty enthusiastic about them.

So one that is a little bit older and I don't think I'll be giving anything away is Kraft Heinz, KHC.

Porter Stansberry: Large packaged foods. You're saying that there's a retail component in your thesis. Can you explain that?

Eric Fry: Well first of all I'm gonna say why it's dumb to short this. I'm gonna tell you right off the bat is that –

Porter Stansberry: [Laughs] Wait. You just said you should short to, but now you're saying it's dumb to. Wait a minute. Hold on.

Eric Fry: Right. So the dumb reason is that Warren Buffett owns a quarter of the stock. So there are precious few times in this last 50 years when it's been a good idea to wage any kind of bet against Warren Buffett. Maybe this is one of those times once again, but this is a company that carries a premium valuation I think because of Buffett's participation.

If you look at it, this is a company with absolutely zero organic growth. You have a four-year decline in revenues and that's across their entire product line. Then there's no cure. Other companies in their space have either just sat there and said, "Okay. Well we'll be good for as long as we can be good." Or they've tried to acquire growth through some other means.

Kraft has made efforts to tweak at the margin, but still is a large packaged food company with declining revenues, declining margins. Then intuitively you look at what they do. I call it it's a company that sells – whatever. Your grandmother's pantry. It's Velveeta cheese and Ore-Ida potatoes and things. This is the opposite of Wegman's that you mentioned earlier where you have fresh food. You have private label food. You don't have Velveeta cheese sitting on the counter.

So it's not a growth business. This is a diet that isn't part of the modern American diet. It's going away. So unless and until they are able to address that in a meaningful way that really moves the needle, they're gonna continue to suffer declining revenues.

Now it doesn't mean it's a short forever because it's a big company with a lot of resources and they could turn it around, but it hasn't yet. So that's one idea.

Porter Stansberry: I like it, too. That's a low-volatility short, but the one thing I don't like about it is it pays a really big dividend. My phone says it's yielding 3.1%. That's expensive.

Eric Fry: That's true. There's no free lunch.

Porter Stansberry: No, there's no free lunch. I'm not saying that's not a reason to do it. I just want the listeners to be aware of that. It's gonna cost you money to short that stock. That will reduce your returns, even if Eric is right. I'm not saying he's not right. I just want you to understand that.

I'll go tit for tat with ya'. I've been shorting in the newsletter for probably six months, shares of Sprint. I did not get scared out of the short by the supposed acquisition that was going to occur between SoftBank and Deutsche Telekom or whatever. You know what I'm talking about. Help me out with the name of that other cell phone company. T-Mobile. Sorry. T-Mobile.

On the promise of this supposed acquisition, Sprint stock ran up to about $8.50. What I could see is it was $30 billion in debt and hadn't earned any free cash flow in over a decade. [Chuckles] So I had a hard time believing that anybody's gonna buy that entire capital structure.

Of course, as you know, the deal fell apart and now Sprint is heading in the right direction, but I actually think the equity at Sprint is a zero. I say that because I know the bonds pretty well. To get the financing to keep it in business they've had to pledge all their spectrum. So there's nothing the bond holders don't own in the event of a default.

I don't see how you can go on with T-Mobile taking up all of the prepaid customers and Verizon getting all of the quality premium customers now that Verizon has an unlimited plan that's the same price as Sprint's.

Eric Fry: It's a good story. I'll say something educational for your readers about this. You look at the stock and it says it's 5 bucks, $5.50, which reminds me of something a short seller said to me once about one of his shorts. He said, "There's still $22 billion of market cap left. So even though it looks like a little $5 stock, Sprint, there's still $22 billion of equity and market cap left that cold go to zero. It looks like there's not much more to go to a downside, but there's a lot more to go on the downside.

Porter Stansberry: That's right. The beautiful thing about shorting is it's never too late because the downside is always 100%.

Eric Fry: Right. [Chuckles] Well, that's another lesson that relates directly to the earlier part of this conversation where I was talking about the value and momentum on the long side. Value and momentum also pertains to the short side. In particular, momentum. Momentum's actually more important than value on the short side.

You need to be shorting a stock that's already trending down or you're gonna get carried out, as the expression goes. You try to short something on valuation or on some thesis, but it's still trending higher. You're gonna lose a lot of money.

Porter Stansberry: That's true and I've done it. [Laughs]

Eric Fry: Yeah. That's how we learn, Porter.

Porter Stansberry: That's how we learn. Hey listen Eric, it was a great pleasure to have you on the show. Just a great pleasure to talk with you again. I hope I get to see you soon.

For the listeners out there, there is no higher endorsement than I can give you. Eric Fry has been the brightest, most honorable, best guy in our business for a very, very long time and I'm thrilled that he has a newsletter and I'm thrilled to see him making direct, concrete equity investments long and short. I'm certain he's gonna have a great track record and I know that anybody that sticks with him will do well.

So thank you very much, Eric. For our subscribers out there –

Eric Fry: Porter, thank you –

Porter Stansberry: Go to americastoptrader.com to learn more. Americastoptrader.com.

Eric Fry: Thanks a lot.

[Music]

Buck Sexton: All right everybody. It's time for the mailbag. Thanks to writing in this past week. People like Jose T., Craig R., Jim A., Daniel K., Rudolph M., Jake H., Matt B. and Rob G. just to name a few.

I really enjoy all your feedback and questions so keep them coming. Let's see what's in the mailbag this week.

First up. Number one, from Acatherina. "Dear Porter, I happen to live in Russia." Uh-oh. "I guess not many of us listening to Stansberry Investor Hour live here. Thanks a lot for all the efforts you put into educating your listeners and readers worldwide. You simply cannot imagine the level of financial ignorance and general lack of credible sources of information we face. It means a lot just to be able to listen to some reasonable, level-headed folks once in a while.

"I have a question for you if you don't mind extrapolating on it briefly." Ooh, some good usage of "extrapolating." "How will the end of America scenario affect emerging markets? What will be the immediate and long-term effects on countries such as Russia? What assets would you recommend for wealth protection besides gold and rentable real estate? Once again, thanks for your work and all your advice. Acatherina." Very astute question from Russia.

Porter Stansberry: I would love to meet Acatherina at a conference someday. I bet she has an interesting story. I always am fascinated when I meet people with their brains turned on in places where you know the education system wasn't what got them there. They had their own passion and curiosity to find out the truth for themselves. Those are always very interesting people to speak to.

But to answer the question, the "End of America" scenario is a financial calamity that could strike if there is a rejection, domestically and globally, of the dollar as the world's reserve currency. I think that's one of the things that's certain to happen. I think one of the reasons why it hasn't happened is because of America's energy boom.

Just as our internal finances fell apart in 2008-2009-2010, that's when our oil production soared. That has had a dramatic impact on our balances of trade and our current accounts because we're not exporting energy. That covers a lot of sense.

But you've still seen our debt increase by more than $10 trillion. I think most worrisome is you've seen private debt in America absolutely soar over the last six or seven years, which has pulled forward a lot of our consumption and suggests that we're gonna have weaker economic demand than anybody expects going forward.

However, whether it happens before 2020 or whether it happens in 2025, at some point all the promises that the American government has made to people both domestically and internationally, internationally in terms of security services and domestically in terms of transfer payments.

Sooner or later all those promises can't be met. It's impossible.

So what's gonna happen? We're either gonna default on our promises and see a political revolution or we're gonna default on our financial promises and see a financial revolution. Either way the paper money system we have today is going to be reformed.

How that will impact emerging markets is really very unclear, but I'll tell you what my guess is. My guess is that foreign currencies don't necessarily appreciate against the dollar. My bet is that as people move away from the dollar as a reserve currency, they also move away from other paper currencies that the entire system we have today of paper currencies goes away with the end of the dollar.

The dollar and the paper currency we have today was put in place after World War II at a meeting called Bretton Woods. All of that system has been collapsing basically since. It started in the 1960s when America had to make a side deal to keep people from withdrawing all the bullion form America.

Then we officially closed that window where we basically reneged on our promises in the early '70s and we cut the tie of the dollar from gold completely so there was no commodity backing, gold backing of any paper currency anywhere in the world.

We've had that paper system since. So since about 1971. That system has had various rules and various ways of propping it up, but it continues to collapse. The two ways you can see it most clearly collapsing is, number one, the link between productivity and wages is broken.

Normally as a currency appreciate because of increases to technology and productivity, the real wages that everyone enjoys in the economy becomes more valuable and wealth grows relatively equally across the spectrum.

As you know in America, the bottom 60% of wage earners haven't seen a real increase in their wages in over 40 years. That is a function of the currency. It's not a function of increases to productivity, which have continued to grow.

The second way you see it falling apart is that without a tie to gold there is no fundamental limit to money or credit. That doesn't just lead to inflation in the way you normally think of it in terms of commodity prices, it also leads to vast financial inflations.

So going back to France in the South Sea Bubble and John Law. John Law engineered an enormous inflation in France where he increased the money supply dramatically by 20,000-fold. The money flowed into share prices. Not into commodities at first.

Later, of course, when people realized that the share price wasn't dependable, then all that inflation flowed into food prices and the price of food started going up at 25% a month and then accelerated from there.

The same thing will happen eventually to the global financial system we have today. Sooner or later the inflation that we have seen in money and credit that goes far beyond the capacity for it to be sustained. So debts in America are now about 400% of GDP. It's absurd. It can't be financed.

Sooner or later there'll be a panic out of paper money and things like cryptocurrencies, things like gold, things like reliable share prices, things like high-quality real estate, things like energy supplies even, all those things will go up in price as value flees the currency. That I suspect will happen for all currencies all around the world.

Now maybe something will change between now and then. For example, if the Chinese were to come out and say, "Hey, we're gonna back the yuan with gold." That could be a very powerful way of hedging your exposure to the dollar.

So I can't know all the different things that might happen, but I can give you the big picture, which is that value will flow out of paper currencies and into things that have far more permanence in value, whether it's high quality stocks, gold, high quality real estate, everything like that. Everything that has a fundamental, tangible backing of value either because of earnings or because of assets.

Buck Sexton: Next up on the mailbag or this week – and we'll leave it with this one, though we have so many great listeners sending us amazing insights, questions and thoughts – "Dear Porter, Buck and the crew. I'm a big fan of the show and current subscriber as well. Thank you for talking about the issues that everyone else seems to be ignorant of or too afraid to bring up.

"The current hot topic right now is the idea of a 'Debt Jubilee.' I work for a large institutional investment firm of which we manage a lot of fixed income assets. I find it funny, almost comical that no one seems to be humoring this issue that is the debt market bubble.

"But anyway I have two questions for you. The first is how would a Debt Jubilee specifically affect my personal debts, investments aside, i.e. credit card, mortgage, car loan, etc.

"Second question. I realize a Debt Jubilee is one theoretical path for history. I think we both know that it would just reset the problem, not solve it and, of course, create many, many more problems in its wake. What are the other possible scenarios both ideal and realistic? I know this may be a matter more of opinion. I would enjoy hearing yours." This from Tom.

Porter Stansberry: Well, the way that I see the jubilee, unfortunately I see it more as a political negative. I think that sooner or later the everyday common American working man is gonna realize that he got screwed. He is gonna see finally that no matter how hard he works and no matter how hard he saves he's never gonna get ahead in an economy that's dominated by a giant financial inflation.

I look at my parents. My parents are now in their mid-70s. My mom worked for the Coca-Cola Company. My mother was a schoolteacher. They worked hard every day of their lives. My dad was born in a log cabin. They didn't have running water in his house when he was born. He worked from that start in life through college into journalism, eventually became an executive at Coca-Cola Company managing their public image and working in public relations for the Coca-Cola Company.

Even so, if you just look at my dad's salary he would have never been able to make enough money to retire ever except for the fact that Coca-Cola had an employee stock buy program. So he was allowed to put a certain percentage of his salary into Coke stock and Coke matched those purchases again up to a certain level. My father was smart enough to maximize that investment choice year after year after year after year.

That became their nest egg. That's what enabled my dad to retire at 55 and that's what's afforded him a very, very nice retirement. They're not wealthy by any stretch of the imagination, but they have a very comfortable middle-class lifestyle.

Without that, absent that my dad wouldn't have retired until he was probably 70. He would probably have a very tough time making ends meet as a retired person because there is no income available for retired people. There is no way of making 6% or 7% in income in a way that's safe.

So sooner or later folks are gonna realize, holy heck. It's not just the poor who have suffered. It's the entire middle class in America that's been stuck for 40 years. There is going to be a lot of anger. You pair that with the fact that you have an entire generation of people, the millennials who just don't seem to know anything about financial solvency. These people have borrowed $1.5 trillion to pay for colleges that are almost completely worthless. That is gonna come back to haunt our country in ways we can't even imagine.

So here's my forecast for you. There's gonna be some political combination perhaps in the next Presidential election of people saying things like, "You shouldn't have to pay your college debts." Then ya know what? Some other candidate's gonna go, "And ya know what? You shouldn't have to pay your credit card debts and you shouldn't have to pay your mortgages and you shouldn't have to pay X and you shouldn't have to pay Y."

Like a lot of elections, it's gonna become an auction of stolen goods. That's what's gonna happen. There are gonna be enormous amounts of credit that simply does not have to be repaid. It just doesn't. It gets written off. It gets papered over. Leads to a huge problem with the Treasury. More government-backed debt. Perhaps a panic in the bond market.

I don't know how it's all gonna unfold and I don't know who's gonna have to pay, but the debts are so large that inevitably we will all pay. Inevitably the only way out of this is by some enormous inflation. That's what's going to happen. I can't tell you the timing and I can't tell you exactly how, but I can tell you it'll be a huge negative for stocks because as inflation increases so will interest rates and eventually the multiple market will come down and multiple's very high right now.

So the idea that you can just give people all this money and nothing bad will happen is wrong. You'll see an inflation. You'll see a collapse in stock prices and I think you have big risks if you own financial assets that are tied to consumer lending. So if you own asset-backed securities, if you own portfolios of credit-card debt, if you own portfolios of student loans and even if you own portfolios of what you think are relatively safe auto loans and mortgages, I think you're gonna see trouble.

As I'm sure you guys all know, that'll have a huge impact on our economy.

So I think it's big trouble for everybody except for those lucky enough to have their debts wiped out. I suspect it'll also be accompanied by a lot of other kinds of radical politics. Universal income. I wouldn't be surprised if you were to see some kind of a one-off tax on wealth. So hey, write your net worth down and send us a check for 10% of it or something like that. I just wouldn't be surprised by any of those things.

I think it's very important to note, Buck, that the biggest change in America's balance sheets have come from the bottom 60% of Americans. The top 40% haven't taken on any additional debts over the last 20 or 30 years. It's the bottom half of America, and in particular the lowest decile. So the bottom 20% has gone from having no debt to having 250% of their income in debt.

When poor people get that in debt they have very little to lose and it's very easy for them to become radicalized. If you've been wondering what all these people kneeling at football games. What does social justice mean? Well, what it means is that they are poor. They are never gonna get out of debt and they want justice. That's a very unstabilizing force for our country and our economy.

Buck Sexton: I just wanna make sure that I'm included on the invitations for the Stansberry yacht to get me down to the compound down in New Zealand that I know you guys are secretly building. So I'm expecting to be included.

That's gonna be it for this week, everybody, on the Stansberry Investor Hour. Write to [email protected] If we use your question we will send you some Stansberry shwag. Love us or hate us. Just don't ignore us.

Porter Stansberry: Don't ignore us.

Buck Sexton: Remember, if you wanna get access to transcripts from the show, all the highlights and receive the Investor Hour weekly update every Thursday, just go to investorhour.com and enter your e-mail.

That's it for this week, everybody. Mr. Stansberry, thank you sire.

Porter Stansberry: My pleasure.

Buck Sexton: We will see you all next time.

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