Episodes

Voice Over:                 Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour. Tune in each Thursday in 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 Kevin Duffy. Kevin Duffy is back. I love talking with Kevin. He's a great investor and he's also a very free market-minded guy, so he brings a whole new perspective to investing – and really to life, as far as I'm concerned. Great guy. It's going to be a great talk, I promise.

                                    This week in the mailbag, one of the best mailbags ever, listeners Dean, Wade S., Mark S., Coach Z., and an unprecedented two questions from listener Taylor S. And remember, the mailbag is a conversation, so talk to me. Call our listener feedback line, 800-381-2357, and hear your voice on the show.

                                    My opening rant this week will be very, very quick. And the topic is simply that the market has set another record. We'll talk about that and what I think it means, that and more right now on the Stansberry Investor Hour.

                                    There are actually two topics today. Let's get to the market record first. What's happened in the past few days here is that the S&P 500 is up 100% from the COVID panic bottom, March 23, 2020. This is the second-fastest ascent to a 100% gain, the second-fastest doubling in the index going all the way back to 1928. The index was created not very long ago at all, but they take the data all the way back to 1928. So, yeah, it's the second-fastest. What was the fastest? It was, what, '32? 1932? It's just breathtaking speed after a huge calamity in both cases, and not really – not a bad performance over the next few years in the '30s. But they did get 1937. That wasn't a very good year at all. And our circumstances are different here, aren't they, because while we do – we've had this huge bubble now, now we're exceeding the 1929 peak, so there are some common features and some uncommon features. So, I think the comparison is of limited value.

                                    However, the market has doubled in record time. And it's done it – so, several people on Twitter have pointed out to me, several really good folks like Jason Goepfert and Sven Heinrich, just a couple other folks have pointed out that the market, it lacks breadth. And what they mean by breadth is basically the number of – it's the difference between the number of new highs and the number of new lows. So, what these guys are all saying is that the market has – it's hitting new highs with very few companies actually in the index actually hitting new highs. It's like the number of companies hitting new highs is one of the lowest amounts, again, going back to 1928. It's some of the lowest breadth.

                                    So, if you think about the implications of that – so, in a bull market, hey, all the stocks are going up. Lots of companies making new highs. And the indexes are there for making new highs. It makes all the sense in the world. But then maybe as the bull market just weakens and weakens and weakens the bigger companies that can pull more of the index along. The indexes are market cap-weighted, so as long as enough big companies continue to rise and make new highs, the index can keep going up and making new highs. But fewer and fewer and fewer companies are making new highs, so the bull market is arguably possibly getting weaker and weaker as we go.    And this is one of the weakest moments going back to 1928, which is a long time. In 1928, if you recall, that was one of the best years in the stock market ever, and it was followed by 1929, right?

                                    So, as far as I'm concerned, this kind of supports why I'm – my concerns that we are heading into possibly a bear market, possibly some kind of a correction, somewhere between down 5% and down 70%. How about that for a range of possibilities? What do we say? Risk is the potential range of outcomes. A wide potential range of outcomes is high risk. A narrow potential range of outcomes is low risk. And as the market gets weaker and weaker and the valuation gets higher and higher I think we are looking at a potentially wider and wider range of outcomes. Therefore, the market is riskier and riskier. So, you've got to prepare for that. And you know what I always say… Hold plenty of cash, and if you don't mind losing money" – losing a little bit of money – "for the protection, you can buy some put options on the big indexes." But that's really all I had to say about that.

                                    The other thing that I want to point out is that I talked about – in a recent episode, I talked about this kind of – it's not necessarily my favorite trade but it's one of them, is the value growth trade. And I said that the value indexes were – had been outperforming since last fall, since October. The value indexes were outperforming the growth indexes. But there was a dip in early June, and I said, "Hey, man, this is a buyable dip in the value-growth divergence."

                                    Well, so far that's wrong because growth has come screaming back. And as long as you see the big indexes making new highs, as long as the S&P 500 even with all the technology and stuff that's in that, growth is probably outperforming. And it's come screaming back. So, if you bought that dip I still think the trade is a long-term trade. I thought that was a good entry point into it. But – and I still – I haven't given up. I still have my value fund in my 401(k) and I'm not giving up on it because I think, longer term, it's going to work out. And I don't want to be short in a 401(k). Shorting is really nasty, nasty business. It's very difficult. You're highly likely to lose money. So, I don't want to be short in a 401(k). It doesn't make sense to me. So, I'd rather buy a value fund, so that's what I've done. But so far, not great.

1. That's the rant. That's it.

                                    My quote of the week is less about investing and less about the market being horribly expensive and whether or not to buy it or sell it or hold it or whatever and it's more about how great capital allocators think about great businesses that they run and that they own. And the quote is by one of the all-time greats, Henry Singleton. Singleton co-founded and ran a company called Teledyne and he was the CEO – he was the founder of Teledyne. He was the CEO of it from 1960 to 1986. And he took the company through very distinct phases. In the beginning, he was a rapidly expanding conglomerate and he would acquire the company. Aggressively acquiring with really expensive shares was a really cool thing. He was one of the pioneers of that. And then the stock had fallen and the P/E ratio was really low and the stock was cheap, so he started buying it back. He was like the father of buybacks in a way. And later in his career, he said "People are doing all these buybacks, there's got to be something wrong with it." He knew it had gone too far but just aggressively bought back the stock, and it screamed, it roared, and did really great as he bought it back.

                                    And then, in a later period of the company, he spun out the lesser performers in the portfolio. Really a brilliant capital allocator. He's somebody who you'll hear – if you attend the Berkshire Hathaway annual meeting, you will regularly hear Charlie Munger and/or Warren Buffett talk about Henry Singleton.

                                    And so, the quote is from Henry Singleton and it's simply this, "We're subject to a tremendous number of outside influences, and the vast majority of them cannot be predicted. So, my idea is to stay flexible, to keep coming to work every day. I like to steer the boat each day rather than plan ahead way into the future." That's Henry Singleton, former CEO and founder of Teledyne. Great capital allocator.

                                    And I really like the quote because he actually uses a phrase of mine that I've used many times over the years. He says, "Keep coming to work every day." And that's one of the reasons why I tell people, "Don't sell your stocks and bonds." As long as all these great companies keep coming to work every day, they're great companies. And they're allocating capital to really great businesses, they're earning great returns on that capital, and it will compound over time no matter what's happening in the stock market over the short term.

                                    So, he kept coming to work every day, and he kept allocating to great businesses and doing the other things that I described, and it turned out really well for investors. It was a huge multibagger over the long term, Teledyne. Henry Singleton. Great quote.

                                    All right. Let's do it. Let's talk with Kevin Duffy. Let's do it right now.

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                                    Time for our interview once again. Really looking forward to this one. Today we're talking with Kevin Duffy. Kevin was a previous guest, and he's come back again to talk with us. Kevin Duffy is a battle-proven contrarian investor and veteran in the risky business of short-selling. He co-founded Bearing Asset Management in 2002. He was a vocal critic of the 2007 credit bubble, successfully shorting many of its most aggressive players, including Countrywide Financial and Bear Stearns. Kevin bought his first stock at the age of 13. He has a passion for Austrian economics. He's the author of the popular Notable and Quotable blog and The Coffee Can Portfolio. Kevin, welcome back. Great to have you back.

Kevin Duffy:               Great. Thanks for having me back, Dan.

Dan Ferris:                 The first time around, we talked about your background and stuff, and if anybody wants to go back and listen to that, it's on our website. So, this time I just want to dive in. And I'm looking at another recent interview you did, and there's just – there's a sentence that leaps off the page and demands some explanation. And you said, "In my mind, the next bear market has already started." And of course, the market's been making new highs, did so not very long ago at all as we speak. So, what do you mean by that "The next bear market has already started," even though it seems to be just going up and up and up?

Kevin Duffy:               [Laughs] Oh, my gosh. It's funny, you talk to somebody for an hour or so, and then it comes down to a catchy headline.

Dan Ferris:                 Right. That's right.

Kevin Duffy:               "Oh, well, you're predicting the next bear market." So, I assure you I was really not trying to do that. I know your mantra is "Don't predict, prepare," and I think I've learned some lessons over the years not to stick my neck out too far.

                                    But I think what I was trying to get at there is the idea that we've had this incredible swing from sort of this – I wouldn't say the depths of despair but certainly, the pessimism, the panic we went from, from March of last year to today where you've got all the exuberance and also sucking the retail investor back into the market. The craziness with the mean stocks. The IPOs that we've had. We've never seen this kind of froth in the IPO market since, really, 2000. And that kind of peaked in the middle of February.          And so, just that we've gone from one extreme to another and this seems to have all the hallmarks of a top.

                                    But also, the point that I was trying to make was that what you typically see at tops is a breakdown below the surface – which we've gotten – and you get this rotation that's taking place even though the averages are going to new highs. So, there's sort of a stealth bear market that seems to be taking place over the last four months.

Dan Ferris:                 Yeah, I've certainly – I've heard you say a lot more about it. I just had to pull that headline out, it sort of demanded an answer. But yeah, I've heard other folks say the same thing. And they're watching just sort of a narrower and narrower and narrower concentration of what is pulling the overall indexes higher. One guy said on Twitter it feels like he's on the Titanic shouting "iceberg" and everyone else is just inside dancing and having a good time. But yeah, I agree. I don't want to try to call a top. It's kind of a fool's errand, isn't it?

Kevin Duffy:               It is. But at the same time, I think we have to be cognizant of the risks that are out there and try to protect ourselves from that and try to sort of map out maybe not a precise prediction but different scenarios and how they could play out and what the risks are and how we protect ourselves. And I think one of the risks is – well, there are several. But one is the fact that you've had this massive leveraging taking place, margin debt going up to all-time highs. I think there's also this perception that we can throw trillions of dollars at the economy through stimulus and that somehow this will just magically all work out. I think that is a thesis that is going to be tested at some point. And so, I think we've got to be very aware that there is economic risk that is building in the system and ways to – we have to think about ways to protect ourselves.

Dan Ferris:                 I totally agree. Most – risk is the wider range of outcome. Higher risk means a wider range of outcome, so you have to prepare for that wider range falling short of saying, "This is the top and I'm going to just put all my money in put options." You don't have to do anything crazy like that. So, that kind of begs the question, then, Kevin, how does one prepare? What do you do? What does – maybe I should even just ask what does your portfolio look like by way of preparation?

Kevin Duffy:               Well, I think of this – in terms of preparation, there's a lot of preparation that takes place. There's a lot of sitting on your hands and not doing much. But there's also – while you're sitting on your hands you're learning, you're reading, you're preparing, you're trying to identify great companies... things that you want to invest in when opportunities present themselves. And I think in terms of sort of going to the supermarket every day or the marketplace or the grocery store, and there are different aisles to the grocery store. There is the, let's say, the inflation-hedge aisle and that risk. There is the big waves that are megatrends that are taking place and companies that are positioned ahead of those. There are defensive companies that are going to basically provide ballast in the portfolio. And so, really – and then there are special situations. There are companies that will do well, economically sensitive.

                                    And so, really what it is, is a lot of preparation, then kind of going down to the market and saying, "Well, what's on sale today?" And so – and typically what's on sale is where the crowd is not going. It's away from the crowd. So, I think that's all I'm trying to do is just, all right, take what the defense gives you. What's on sale? What am I looking for in my portfolio? And right now, as I've said, I think the economic risk is very high, so I want defensive stocks. I want, really, ballast in the portfolio – steady Eddies that I think will hold up during tough times. So, I think that's one of the things that we look at.

                                    Another – and those are on sale today. It's interesting... If we go back to last year, the panic in March of 2020, what was on sale were sort of the retailers and economically sensitive – the companies that had been – the retailers that had been basically shut down. I mean, that was what was on sale. And maybe in hindsight, that was a sign that the economy was not ready to be the front-and-center risk.

                                    I think today that economic risk is a lot closer. And by the way, last year, 15 months ago, defensive stocks were very expensive. I think today, we're seeing a lot more opportunities there as opposed to the economically sensitive stocks, which have really bounced back quite a bit.

Dan Ferris:                 OK. So, first of all, when I hear you talk about steady Eddies that don't suffer so much I feel like you're talking about the business and not the stock price. Do I have that right?

Kevin Duffy:               Yes. Yes. And the business absolutely and – which comes first – and then it's a matter of "OK, what am I looking for? What fills the portfolio?" And – but we also have to marry that with – I would love to buy defensive stocks, but let's say we're in an environment where defensive stocks are insanely expensive. Well, just the fact that it's a great business and it's defensive, we're taking on price risk now, so it's not going to really do us a whole lot of good. So, you've got to have both of them, right?

Dan Ferris:                 OK. I see. But then, the next thing I heard, though, was that these are not terribly overpriced right now. They're decent deals.

Kevin Duffy:               Yeah, I think this is what is interesting about the environment. One of the rules that I have – I've come up with a bunch of rules in The Coffee Can Portfolio, and one of the rules is that it's a market of stocks, not a stock market. And I've learned a lot of these rules from kind of the school of hard knocks, and this environment – Jean-Marie Eveillard, the great value investor, he said that he's always able to find – it didn't matter – every bubble, he was always able to find opportunities, always able to find values. He said the only exception to that was the late-1980s Japan bubble. And so, I think that's one of the things – I believe we're in a bubble right now, but bubbles – you had a guest on, Diego Parrilla, the author of The Anti-Bubbles. And they present these pockets – bubbles always present pockets of anti-bubbles, and there's always – there's this funneling effect that takes place. But aside from that, there's also areas that kind of get abandoned.

                                    So, I think that's the beauty of the environment that we're in, is that even though there's risk, there is a sort of a natural way it's pointing us to, in terms of how to deal with that. And there are pockets – I think the defensive stocks are – so, let me just give you an example.

                                    I know you're familiar with the dollar-store space, and I know Dollar General has been a pick of yours for a while – for a long time, I believe. And – but Dollar Tree is a stock that we recently added to the portfolio, and basically – the problem with Dollar Tree was they bought Family Dollar in 2015 – and actually, Dollar General outbid them for Family Dollar. But because of antitrust concerns, Dollar Tree ended up buying the company.

                                    Well, it's been kind of a boat anchor and it's been really a long slog and a lot tougher to turn this company around. But if you separate the two chains, if you look at Dollar Tree and you compare them to, let's say, Dollar General, there's – they're pretty comparable. And yet, Dollar General has a much bigger valuation, a much bigger premium. And if you were to just give Dollar Tree, just for their part of the business, a haircut, the valuation, let's say 10%, you're basically getting Family Dollar for just about nothing right now, even though things are starting to turn around.

                                    So, there are just a lot of pockets of opportunity out there. And I'm seeing more of them in the – thankfully in the defensive area.

Dan Ferris:                 OK, great. You got another – and if you don't want to name a particular stock, that's fine. We understand. But do you got another industry or area for me that's – that you view as defensive and kind of reasonably priced these days?

Kevin Duffy:               There's – one of the things that we look at is owner-operators. We like to have skin in the game. And so, some of the – we own Cal-Maine Foods and – the egg producer. We own Sanfilippo in peanuts and nuts. And both companies have high insider ownership. They're just very steady businesses. They tend to be – the pricing of something like eggs is – and their costs tend to be cyclical, very much like the poultry business. And so, those are the types of businesses that we're looking for. They're food-related. But – and so, the cyclicality part is really more in pricing. It's not in terms of the demand for their product, the economic sensitivity.

Dan Ferris:                 Got you. So, you buy these defensive industries, but sooner or later – what do you – I'm curious. We've acknowledged that it's the industry that's defensive and that implies – of course, what I'm saying is the stock price could go anywhere and likely will go down if we see a bear market or a crash. Are you telling me that you're ready to hold straight through that even if we get – if we're down 40, 50%, or something like that?

Kevin Duffy:               Oh, sure. Absolutely. And what I've tried to do with the portfolio is there are a number of areas – it's not just defensive. I think – like I said, there are different aisles to the grocery store, and I think we're going to have an inflation problem at some point. I also think that – I've learned – another lesson over the years is the importance of balance. So, I don't want to have all of my eggs in the defensive basket. I want to be aware of some of the big trends that are going on out there.

                                    I think this is one of the things that happened last year. When you get a crisis you kind of flip the switch on a lot of these things. And you see the importance of – we've seen not just e-commerce has been accelerated but stay-at-home, work-at-home, the migration out of the cities to the suburbs. We saw with the vaccines this whole genomic revolution has really, really picked up steam. So, I don't want to give the impression that, oh, I'm just a grizzly bear and I'm just thinking about everything that could possibly go wrong. I'm also very much aware of the things that can go right. And I think that the overriding – I'm definitely a kind of a big picture, macro trend investor, and I'm trying to not just get so fixated on all the negatives but think about some of the positives that are taking place.

                                    And I think that we've got – the middle class is sort of being squeezed in the United States for a number of reasons. I think one of the trends that got turned on was this cultural Marxism that's been sort of simmering below the surface, and then the switch was flipped. So, you have the middle class being squeezed. That's another reason why I like the discount retailers like Dollar Tree.

                                    But on the other side of that is the emergence of the middle class in places like China. And so, that is going to be a big wave. So, I see some really powerful positive things going on as well, not just the negatives but the genomic revolution. And there were some recent trial-one results at Intellia Therapeutics with a rare liver disease that was – happened, I think, a couple weeks ago. And this is all happening.

                                    So, these are the – these are big waves. And when I look at – there's just – there's a lot of opportunity on, like I said, on both sides and I think you have to try to maintain balance. And this is something that I'm not just trying to think about everything that can go wrong but also things that can go right.

Dan Ferris:                 Yeah. It just – it's like – it's just dumb to be too bearish all the time, or really almost any amount of time. You make money in equities because good businesses produce more cash than they literally know what to do with. I mean, it's – being bearish is really, really a hard way to make a living.

Kevin Duffy:               I think you make a living in this business being a realist and being just dedicated to reality and just – and part of that is that I don't think you can be objective if you're so one-sided. And if you specialize in an area, you get blinded to everything else that's going on. So, I really think that you have to maintain this balance. That's really important.

Dan Ferris:                 OK. I agree. You maintain a balance. But actually, what I'm saying is – and agree or disagree. I'm not sure – I think we agree here but if we don't, that's cool. I have to maintain over the long term a kind of a bullish, optimistic viewpoint. I'm looking for businesses that I think will do well 99% of the time – 99% of the time, I'm not looking to buy puts and be terrified that the market's going to crash. Ninety-nine percent of the time, I just want to know what the good businesses are and are they priced for a good return.

                                    We recently talked to somebody in another interview that we're going to publish soon, and he was talking about short-selling. And being bearish all the time is just bad business, I guess, is the bottom line. And being too bearish – and there are businesses out there, there are more businesses out there that you should think about buying. It almost seems you should spend more time thinking about when you're going to buy them maybe or at what valuation than you should ever think about "Which ones do I want to short?" even. I mean, you see where I'm heading here?

Kevin Duffy:               Yes. Yeah. I think I do. And especially as somebody who has a lot of experience on the short side, the problem is you can only make 100% of your money. And then once the idea – if it works out perfectly well, you've spent all that time doing the research and then it's over. And that's the best-case scenario. The worst-case scenario, of course, is it just completely wipes you out and you're wrong, and it's sucking up an incredible amount of not only your capital but your energy... your time and your energy... and you're getting – and then you're forced into this short-term thinking. You're worried about what the stock market's going to do tomorrow, as opposed to freeing up your time and your energy to focus on the big picture... to focus on these long waves that are playing out, what's happening in China, what's happening with the digital revolution, what's happening with the genomic revolution. These things are going to be playing out over decades.

                                    So, knowledge is compound – it compounds. This is what Buffett and Munger talk about all the time. And so, I think if you are a short-seller, you're missing out on a lot of that. I think you really have to be thinking about some of these longer-term trends. And yeah, they tend to be positive. I think – look, ultimately, I am – in the long term, I'm an optimist. I'm a long-term optimist. I think the dominant trend that – if we're looking at economics, if we're looking at the economy, the long-term trend is the hockey stick of human prosperity. I think you have to understand that. I don't think you want to fight that.

                                    Now, there are corrections along the way, and there are – just as you have maybe China emerging and you have Russia that sort of went into the socialist abyss and they're coming back, you also have – and Chile had this really nice run and flirted with free market economics and limited government – well, then you have the Venezuelas out there that are going in the other direction.

                                    So, there are countervailing forces, and I think it's important not to put on blinders. And I get concerned – when you look at somebody like Warren Buffett, obviously there's a tremendous amount of skill involved in what he and Munger have accomplished. I'm not trying to take away from that. But you also have to wonder how much luck is involved, because I don't think I'd want to – I don't necessarily agree with his economics. And is he really prepared – what if the United States were to go down a similar path to Venezuela? Or is Buffett – does he have that in his toolkit? Is he really ready to adapt if the United States were to go down that road? And I think as an investor you have to be prepared for that. You can't just be an eternal optimist and be blind to reality.

Dan Ferris:                 I agree. And with Buffett and a lot of people who are insanely wealthy, billions and billions in wealth, they all strike me similarly in that they – their political or economic views – you mentioned his economics that you don't necessarily agree with – it's very status quo. And that makes a lot of sense because they have thrived like no one else in the status quo. So, it makes a little bit of sense is all I'm saying.

Kevin Duffy:               Sure. And this is the thing about intervention, government intervention, is it does reward the incumbents. It's portrayed a different way as being for the little guy and the underdog and all the rest of it, but the reality is just the opposite.

Dan Ferris:                 It is. It is. And I've discussed it on the podcast a couple of times in relation to – especially to banking and finance how we're always told that we're going to regulate this industry and it's going to improve things for the customer and all this stuff, but really the regulations have absolutely made it more difficult for the competition versus the incumbents. I mean, it's like – it's uncontroversial.

                                    And that happens in every industry, doesn't it? As soon as you put licensing, as soon as you say you've got to have a $25,000 cosmetology license to braid hair, what's going to happen? Anybody who's got the license has a huge advantage over anybody who doesn't. And my only question about all of this is why don't people see it? But I suppose it's human nature.

Kevin Duffy:               Yeah, I – it is. And it's funny, I remember – this was a few years ago – they had Mark Zuckerberg – they had pulled him in front of the Senate, I guess, for a hearing and of course they wanted to regulate him and his – and he was very eager to go along this road. I mean, he was so ready he was salivating at the idea of "Oh, you want to regulate me? This is great. This is great." So, and now you've got – there's a lot of talk about antitrust actions against the Big Tech companies and talk about repealing Section 230. And I think all these ideas are just – they're bad ideas. And I think they're just going to, if anything, just build a bigger competitive moat for the Big Tech companies.

                                    And I think we have to have a certain amount of faith in free markets and remember that the last time there was a big antitrust action, it was against Microsoft in, what, the late 1990s? And it's a contrarian indicator. It's like the bureaucrats out there have figured out that "Oh, this is just going to go on and on and on forever" and that these companies are going to get more and more and more dominant. And they're doing that exactly at the time that there's another technology wave that's coming along. The Internet had just come along at the same time and – surprise, surprise – Microsoft, here is a company that they thought was going to be dominant and Bill – there's a really funny quote by Bill Gates, and it was about the Google boys. And this was around that time, it was in the early 2000s. And he said, "Well, let's see what they think when they're trying to run a big company" or something like – it was something very sort of condescending, like "What happens when they grow up?" He didn't really take them seriously.

                                    So, the government is always – they have no faith in markets whatsoever and they're actually a pretty good contrarian indicator. I think maybe the fact that they're concerned – they want to break up some of these companies, these Big Tech companies, is maybe we should be going back to the late '90s and thinking about, OK, well, what's the next wave? And where are they vulnerable? And maybe these companies are not something that we really need to worry about and not hit the panic button and try to regulate them because it's going to have the negative – the law of unintended consequences, it's going to boomerang on us.

Dan Ferris:                 Yeah. I thought – as soon as you started talking about this, I thought of Microsoft. As soon as the Justice Department comes after you, you're solid. That's the moment. And the other thing, though, is I think of the Master Settlement Agreement for the tobacco companies.

Kevin Duffy:               Yes.

Dan Ferris:                 As soon as they say, "Well, you're going to have to pay this big penalty" or anything, it's almost like a huge buy recommendation because certainly nobody else is going to go into that business. And even with the secular decline in smoking those companies have been huge cash cows, just huge generators of excess cash.

Kevin Duffy:               Yeah. And it's interesting you bring that up because – so, two points, is – one is the fact that they basically made it illegal for anybody to advertise in print. Remember, they pulled that. And how do you – if you're an incumbent, what's – the best thing that can happen is you've already created your brand, and now nobody can compete with you through advertising. I mean, it's just a wonderful thing.

Dan Ferris:                 Some penalty.

Kevin Duffy:               Yeah. It's like –

Dan Ferris:                 Yeah, some penalty, huh?

Kevin Duffy:               Yeah, "Where do I sign up for this?" And I think the other thing is you mentioned – we were talking earlier about defensive companies. That's another area that we don't have any investments there, but I mean, they're not expensive, that's for sure. Companies like Altria Group.

Dan Ferris:                 Right. Definitely not expensive. Nobody wants that when they can have the thrill of buying AMC Entertainment or GameStop or whatever it is they're into now.

Kevin Duffy:               Yeah. Or they can buy – or they forego companies like that because they don't meet their ESG criteria.

Dan Ferris:                 Right, ESG. That's another perversion based on the government's ability to say, "OK, we're going to predict the weather, and the weather is based on energy, so we're against energy," and all the companies wind up being against energy companies and they do these other things. And that of course has the opposite effect, which I was also talking about recently with another guest, Harris Kupperman, who will be on in another couple episodes. And it has the opposite effect. So, people say, "OK, the government is coming after me," or whatever it is, we're not producing as much oil and gas, what happens to the price of oil, or by association, oil stocks and oil services companies? They become great bets because this ESG nonsense has artificially crimped the supply amidst rising demand because all that renewable stuff is like diddlysquat percent of the mix and we need oil and gas. For transportation we need them absolutely. We must have them. And now we're starting to move around more after the – as the pandemic lockdowns hopefully go away. Yeah.

Kevin Duffy:               Yeah. And as investors, I think of it as a game and that we look at the different players in the game. It's almost like playing poker, and if you don't know who the patsy is at the poker table it's you. So, I think it's important to know who the different players are in the game and what their biases are, what their blind spots are. And the fact that when you have a new crop of especially younger people and they're sort of ideologically wired to think a certain way – maybe they don't care about profit, maybe they're very critical of profit and they're motivated in different ways – that creates opportunity for us as players in this game. And so, I welcome the ESG movement. I think it's a great thing. I think it's going to be the gift that kind of keeps giving for a very long time. I think it's going to create a lot of opportunity for us. And again, I think it's all about dedication to reality, and if you've got competitors in this game that are basically dedicated to unreality, then that gives us an advantage. It gives us an edge.

Dan Ferris:                 I agree. By being so silly, it creates low-hanging fruit for the rest of us, doesn't it?

Kevin Duffy:               Absolutely. Yeah.

Dan Ferris:                 It's like "Go ahead, make it easier. Go ahead, chew up a bunch of capital and make things difficult for some commodity that we desperately need to function as a global economy. Go ahead and do that so that I can be long."

Kevin Duffy:               Yeah. Yeah. And I also – I like ideas that touch a lot of different areas like some of these bigger waves. And the commodities right now, if you think about China and the growing middle class in China, I think they're adding – the middle class, it's increasing every year. It's about at the population of Canada, I think I heard. It's just a huge number. And these people are – they're all going to be consuming more and more commodities, so even if we think that we can not consume commodities in this country, which of course is absurd, I think that there is going to be demand there over the next 10 years. And I think that's really what I'm trying to do is look out over – you know, what is the world going to look like 10 years from now, or maybe beyond that?

Dan Ferris:                 Let me ask you this, When you do that kind of an exercise, to me it makes sense, all the sense in the world – and I say the same thing… I say we want a business that we think will be around in five or 10 years, but that's a bottom-up assessment. It's not even an industry assessment except that we know that we're going to probably have somebody collecting our garbage, so maybe we want to still own Waste Management in five or 10 years, something really simple like that. But it feels to me like technological change, it's a difficult thing. And it's – I guess my only point here, Kevin – I don't know if there's a question – it's hard to really look ahead five or 10 years. So, when you say that, do you distinguish between the Waste Managements of the world and maybe constellation brands or a beer company or something versus even something like Google? Maybe search or online ad technology changes or something in 10 years. Is there a difference for you?

Kevin Duffy:               Yes. Yeah. That's a very interesting point. And I think it is – the way you frame it, it is kind of a barbell approach. It's – on the one hand you have businesses that you look at and you think "Well, these aren't necessarily disruptable." And then – but I think on the other hand, I don't want to – and so, I do want to pay attention to those businesses. But on the other hand I don't want to just turn off the other side of my brain that's not thinking about these long technology waves and the disruption that's going to take place and how that may change the future. Who is going to be disrupted by that?

                                    There's a really interesting interview that I just read and it was by Andy Grove in 2001, and I highly recommend it because here is a classic visionary, and I think it's always interesting to see because here we have the benefit of 20 years in knowing how things played out. And what I realize from looking at things like that – and I love looking at predictions and visionaries and sort of where they get it right and where they get it wrong. And typically, it's a matter of timing with these long waves. But there is a point where they reach an inflection point, and they become real.

                                    So, Andy Grove was talking about the genomic revolution 20 years ago, OK? But it's taken all this time for all the pieces to sort of come together. So, I think it's this classic S-curve, and where are you on the S-curve? And that's what you're trying to figure out. I think in terms of – so, I'm certainly looking at something like the genomic revolution. I think over the next 10 years, we're going to see amazing things taking place and I think there will be fortunes that are made.

                                    But when we think about these technology waves we also have to think about – it goes through certain phases. So, you have the beginning phase which is this – you're at the inflection point. You're at – OK, now it's become obvious this is going to be a big deal. And then everybody and his brother jumps in. And so, it's really impossible to figure out who the real companies are from the has-beens. And so, you get this – you kind of get the shakeout that takes place, that has to take place. You get the initial frenzy and then typically you'll get a shakeout and the pioneers take the arrows in the back. And then the next wave is where the settlers get rich.

                                    That's what you – I think as investors we want to be constantly aware of, is where are we in this cycle? And then you get to the top of the S-curve and you get the more – the maturing phase of it. And there can still be plenty of money made during that phase. Don't get me wrong. So, I just try to be aware of where we are in all this. And we could – like I said, I think with genomics, we're probably at that – in that sweet spot. I'm thinking maybe something like, let's say, blockchain or cryptocurrency as being an application of that. That feels to me like that early pioneer phase. I think you have, what, something like 9,000 cryptocurrencies, and it seems to me like the blockchain technology – I don't profess to be an expert but it seems like it will have some real applications but we probably have to go through a shakeout first. Electric vehicles – in China, I think there are 120 electric-vehicle companies. This feels to me like the early days of the 1920s with the automobile industry.

                                    So, I think just being aware of where you are on the S-curve vaguely – this is not precise – is important. And so, yeah, back to your original point, it's kind of a barbell approach. Who is going to be disrupted? Who are the disrupters? And then industries like garbage collection where maybe they won't be disrupted, or maybe it's a secondary process where it will have – the technology itself will affect even the waste management business.

Dan Ferris:                 Yeah. Who knows? Who knows? I didn't mean to say I could predict waste management trends for 10 years. But the article I think you're talking about is Wired magazine, June 2001?

Kevin Duffy:               Yes. Yes.

Dan Ferris:                 It's called –

Kevin Duffy:               That's it.

Dan Ferris:                 "Andy Grove's Rational Exuberance" is what it's called.

Kevin Duffy:               Right.

Dan Ferris:                 But yeah. So, it's actually time for my final question. And I know you're a podcast listener, so you've heard this done many times, and you're a previous guest also. The final question is the same for every guest, and it is, simply, If you could leave our listener with a single thought today, what would it be?

Kevin Duffy:               It's funny, I was going to try to prepare and – because I knew this was coming, and so – and of course I'm not prepared as we've talked about so many different things. OK, so let's go back to one of your guests, Diego Parrilla, and he talked about bubbles and what constitutes a bubble. And he said it was a false belief system. It was a misconception. And so, I've thought about the various bubbles that we've had. The Japan bubble… The misconception was that Japan was on the rise and America was in decline. And then you had the tech bubble, and the misconception there wasn't – it wasn't the Internet. The Internet was very much real. But it was this idea of first-mover advantage, what we talked about earlier. And as it turned out, the pioneers took the arrows in the back. And then of course you had the credit bubble, and the misconception was that housing prices would keep going up.

                                    I think what makes this bubble – it's been called the everything bubble – I think what makes this bubble different is the magnitude of it. And I think it's really important to kind of get this right in terms of what the false belief is. And I think the false belief is the belief in government, that the government throwing trillions of dollars at things and government intervention is going to either solve the problem or is not going to have a lot of negative consequences. And so, that also leads to where the risk is. And I think the risk, today, if I think about it and where the malinvestment is – the Austrians like to use this term malinvestment – is – and to me it's government. It's in Washington, D.C. It's in the debt of Washington, D.C.. So, the risk today is if you look at something that's obvious – and if we're looking out over the next 10 years, do I want to own U.S. government bonds yielding 1 or 2%? And to me, I'm having a hard time seeing any scenario where that works out. So, that would be my nomination for kind of the no-brainer investment that you would want to avoid, let's say, over the next 10 years.

Dan Ferris:                 That's a great answer. Love it. Well, thanks for being here, man. I'm glad that we got another chance to talk with you and sort of update what you're thinking about.

Kevin Duffy:               Well, thanks for having me back. I'm honored. As you know, I've become a really big fan of the podcast and I think I've listened to most of them over the last 15 months. And it's great that you have a wide range of guests and getting different perspectives. It's really been terrific and helpful to me, so I appreciate that.

Dan Ferris:                 Oh, I'm really glad to hear that. Boy, that was great. That was the Kevin Duffy endorsement, man. Love it.

                                    [Laughter]

Kevin Duffy:               Good catching up with you. Take care.

                                    [Music plays]

Dan Ferris:                 For everyone listening, there's a breaking story making noise around our offices this week. All automobile manufacturers are getting on the electric bandwagon and it's not just Tesla. The reason why I mention this is because there's one stock that my colleague Bill Shaw recently identified that is uniquely set up to benefit from this new growing demand in electric vehicles. No, it's not lithium. It's another resource that's even more critical for electric vehicles. In fact, every Tesla Model 3 needs approximately 121 pounds of it, about five or six times more than the amount needed for gas-powered cars.

                                    Bill explains everything in a video he just released where he talks about the specific $4 resource stock in detail at 4dollarstock.com – the number 4, dollarstock.com. Check it out.

                                    [Music plays]

                                    Well, that was one of the widest-ranging discussions that we've ever had here on the podcast with a guest, and I thoroughly enjoyed it. I always talk – I enjoy talking and interacting with Kevin Duffy, talking with him, interacting on Twitter and over e-mails – we e-mail some – and he's always thoughtful, always insightful, and always from a different angle. And I think his passion for Austrian economics creates that. I think most people don't have that in their toolkit, so they don't see things the same way. It's great.

                                    But there's one thing I want you to notice about this discussion that went all over the place. We sort of weaved back and forth between the individual companies and the industries and then into the macro ideas that influence them and then kind of back to the companies. For example, the way we talked about regulation and we said that regulation favored the incumbents in a particular industry. And we talked about – I think Kevin mentioned Microsoft and we mentioned the tobacco companies. And exactly how when you say you're not allowed to advertise anymore and you're going to penalize these tobacco companies, it sort of cements your leadership in the marketplace and prevents new competition from coming in. And that was just one example. And we kind of went all over the place.

                                    But that ability that he has to – and you heard him say – it's a conscious thing, he pays attention to the macro on purpose. But he also – when it came down to – in the beginning, sort of, we were talking about his portfolio he's very much a bottom-up guy who thinks about the industry and the type of business. Is it a steady Eddie business? He mentioned those and the economically sensitive businesses. It sounded to me like he wanted to have a really diversified kind of portfolio in equities, which of course you know I like that idea. And he's aware of individual business characteristics just as much as he's aware of macro factors influencing those businesses.          That's kind of rare, I think, to get somebody who's really good at that. And Kevin Duffy is very good at it. And I'm glad we had a chance to talk with him again. It was great.

                                    All right. That was wonderful. Let's take a look at the mailbag. Let's do it right now.

                                    [Music plays]

                                    On June 24, I invited Dr. David Eifrig on the show to discuss the greatest upset in the history of American retirement. If you missed the event, you still have another chance at Doc's thesis but in a different way. Dr. David Eifrig says what's coming next is a phase he calls financial lockdown. So, consider this your final wake-up call. He believes millions of Americans will be pushed down out of the middle class, out of private retirement and private health care, and out of a decent life based on independence and privacy. Visit www.messagefromdoc.com to find out what's happening, what's coming next, and most importantly, four steps Doc says you should take right now to protect your investments in the year to come. Again, that website is messagefromdoc.com.

                                    [Music plays]

                                    In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms to [email protected]. I read as many e-mails as time allows, and I respond to as many as possible. You can also call our listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show.

                                    Lots of great feedback this week. Lots of it, and from many of our regular correspondents and regular listeners. And the first one is actually a question from last week, and it's a question about crypto and quantum computing, and I sent the question to Eric Wade, Stansberry's crypto guru, who we're going to talk with soon on an upcoming episode. And he shot me back an answer and I'm going to read that answer. So, I'll read Stephen H.'s question first.

                                    Stephen H. says, "Hi, do you think that the dawn of quantum computing will be a Y2K-like event? From what I'm reading, quantum computers are developing at a rate where they will soon be able to crack standard public encryption systems. The potential consequences include personal loss, business losses, and even military and state losses. I have to believe our military leaders have their pulse on this threat and are planning accordingly. Should investors not be pressing management at the companies they invest in on how they are preparing for this threat? What about our brokerage companies? Thanks again for all your great work on the podcast. Stephen H."

                                    Right. So, you may recognize the question from a previous episode but that was my answer. This is Eric Wade's answer. This is a better answer. Eric Wade says, "Yes, absolutely. Half of what you're hearing will all be true. Now, the interesting part is, of course, which half? Just like oil pipelines, meat-packers, hospitals, and municipalities are constantly attacked with phishing attacks even though we have the technology to defeat them, I fully expect some computer systems to be successfully attacked by quantum computers. But I also fully expect that there will be as much innovation and new solutions, some of which already exist. They just don't sell paper so we don't hear about them. And they'll do a great job of protecting most systems against most quantum threats. Blockchains will fork. Banks will upgrade. Others will cross their fingers and hope for the best. So, yeah, what it boils down to is going to be who protects themselves versus who clicks on the harmless quantum cat, quantum video, quantum link, and wipes out everything linked to their computer? In a nutshell, the technology to attack and the technology to defend are both progressing. We wrote in depth about it for Crypto Capital a while back."

                                    Eric Wade's Crypto Capital is the newsletter that he writes for Stansberry, for crypto traders and investors, and that's his answer to that question. I think in the future, I'll just shoot them to Eric and wait until he gets back to me. I won't try to answer. But you notice that he did – he expanded on the same theme. If the technology advances, it's going to advance on both sides, the attacking and the defending.

                                    Next comes an unprecedented two questions from one listener because they were both just so darn good. And the listener is Taylor S., a regular correspondent, a regular listener. Taylor S.'s first question, "How do I set a foundation or framework for myself to navigate all the conflicting information out there?" And then Taylor gives the example of seeing signs of inflation, feeling like the purchasing power has declined significantly, and then not wanting to leave savings lying in a savings account but wanting to invest in stocks. But then on the other hand, there's so much information about the bubble and people like Michael Burry calling it the "mother of all bubbles." And then Taylor says, "So, I think to myself what the hell am I supposed to do? Am I damned if I do and damned if I don't? It has honestly pushed me toward being a passive investor and a total stock market index fund. I can't seem to make sense of all the information, so I think I would rather just place my money on general human progress, a set-it-and-forget-it kind of framework. Let me know your thoughts. Thanks. Taylor S."

                                    Taylor, I'm going to keep it short. You answered your own question. Did you hear yourself answer your own question? You answered your own question. I can't just spit out a framework for you. It's something you have to develop on your own. But in the meantime, as you learn to figure out what's important in the headlines, if anything – most of it's not – and what's not and how you ought to behave, you seem to have hit on a solution for yourself.

                                    To me, I think the core of the answer lies in what I call true diversification. I've said this over and over for a couple of years now. To me, a core, true, diversified portfolio is stocks and bonds, plenty of cash, gold and silver, and a little bitcoin. And maybe some real estate or some kind of – what most people would think of as a collectible, like art or Ferraris or vintage guitars or something, based on your personal knowledge of those things. You shouldn't buy them if you don't really know them intimately. But I don't know what you know intimately, so maybe they're a sensible place for you to store a little money.

                                    So, that's my answer. I'm going to get to your second question. Taylor S.'s second question, "Hey, Mr. Ferris, second question. Is this – is the 401(k) a scam? Recently I considered withdrawing my 401(k) completely for various reasons. I have since learned from Vanguard that I can't withdraw it even if I wanted to pay the tax and early withdrawal penalty based on my company's contract. I have to prove hardship. I have to be 59 and a half if they don't extend the age by my retirement. If I take a loan against it, I can only take half and then I will owe it back. I can't move it unless I leave my job. I can only contribute up to their limits. I can only buy into the funds available to me with fees that are not clearly displayed. With all these restrictions, it got me thinking: Is it even my money if I can't freely access it? I can't imagine wealthy people have or need 401(k)s, so I think it's safe to assume only the middle class does. Are we locked in just so we can stabilize the market? I feel like a pawn. Let me know your thoughts. Thanks. Taylor S."

                                    I know billionaires who have – I know at least one billionaire who has a 401(k), Taylor. It's a good tool, but as you point out in blistering detail, there are limits. And it's created by the government. I mean, it's a tax advantage thing. It's a way to get around taxes, so naturally, they're going to put all kinds of restrictions on it. But it's not a scam. And I think it's still worth doing for most people. Great question, though. Fantastic question.

                                    Next comes listener Dean, who actually called into our call-in line on a recent episode. And Dean sent me a quote. And the quote is from William Wrigley Jr., manufacturer and chewing gum industrialist. That Wrigley. The Wrigley's chewing gum guy. William Wrigley Jr. And the quote is "When two men always agree, one of them is unnecessary." And Dean says, "You're a smart guy. I'm sure you can see all kinds of meaning in that quote. I challenge you to figure out how to take that quote and bring it into your podcast in your usual manner of eloquence to make a great point. As you heard from my previous gushing, I love your show and can't wait for Thursday to roll around each week. I have converted three of four kids to listening. They got a kick out of hearing their old man on the show. Dean."

                                    So, the quote is fantastic. Dean, it speaks for itself, man. There's nothing to weave in. It's just brilliant. "When two men always agree, one of them is unnecessary." And – but the underlying point, though, is that two men don't – no two people always agree. It's ridiculous. And each of us – nobody's' unnecessary. Or maybe even to the extent that you are always in agreement with your colleagues or your boss or whoever, maybe rethink that because you could be talking yourself straight out of a job. Good quote. Thank you, Dean.

                                    Next comes Coach Z., another regular correspondent and listener. Coach Z. says, "Dan, love your show. Never miss it. While I agree with your assessment that a market correction is nearly imminent it feels a little like Waiting for Godot. While I see and agree the value of purchasing relatively cheap insurance with put options, I have lost a little more than I'd like the last few months. Is there a market signal or indicator that can be used that shows an increased probability of correction? The question is not if insurance should be bought but when. Thank you for all your wisdom. All the best. Coach Z."

                                    Coach Z., I don't bother. If you're losing too much you're putting too much in. That's all there is to it. My expectation is that my put options will go to zero. I expect to lose money for the same reason I buy insurance and don't expect my house to be hit by all the things that it's insured against. I just pay the insurance premium and I never see them again. And I kind of hope I never see them again. Do I really want the market to crash? I don't know. What will it do to the rest of the portfolio? So, if you can't take the expense, you're either doing it wrong and putting too much in or you shouldn't do it at all. And that's why I've counseled that just holding lots of cash is really the best way. It's the best way to diversify. It's the best way to protect yourself against a big drawdown if you're afraid one is imminent. That's all I've got, Coach Z. Good question, though.

                                    Wade S. is next. He says, "Hi, Dan. I recently found the following statistics. Almost one out of four of the companies in the Russell 3000 Index are not making enough money to pay even the interest on their debts. That's 44% more companies than last year, and last year those zombies owed about a trillion dollars. Now it's almost $2 trillion. Do you see a scenario where this risk-taking and debt will reduce gradually and see that ratio of zombie companies go down without some level of economic calamity? If I had to guess, statistics like that have the smart money with their hand ever-present over the panic sell button. Great show. It's the only podcast I never miss. Wade S."

                                    Thanks, Wade S. Thanks for the kudos. I'm going to read the next question, then I'm going to answer yours.

                                    The next question is from Mark S. and it's our final question of the week. Mark says, "I've been following your thoughts on the stock market being at the most expensive moment in history. While I admit that it does seem likely that things would resolve with a sell-off in some form or another, it occurs to me that another way prices could make sense is with a jump in sales. With the growth we're seeing in inflation and the pickup in demand from the relaxing of COVID-related restrictions, a significant jump in sales could appear over the next few years. I'm just curious what you think about this scenario? I'm not suggesting that one should bet one way or the other, but it seems to make sense to prepare for both scenarios, realizing there may be ways out of this mess that don't involve a large stock market crash. Thanks and take care. Mark S."

                                    Wade and Mark, you're both in the same ballpark here. Can we get out of this extreme overvaluation that I'm always gesticulating wildly about behind the microphone? And being downright hysterical about, sometimes, because it seems so egregious? Could we get out of this mess, this extremely overvalued moment, most extreme moment in history without a big drawdown in the S&P 500 and the other big indexes? And you both talk about ways that we get out of this without some level of economic calamity – or via inflation – and the relaxing of COVID restrictions.

                                    And I will answer you both the same way. I think about this all the time. What if we really do grow our way out of this high multiple? Some companies look expensive all the time, and yet, they just seem to keep growing and growing and growing. They grow their way out of their high multiple, so it doesn't seem like it was so high at all. You look at – you look back five years ago, and the multiple might have been 10 times earnings or less – current earnings. But to look forward five years and go, "Oh, we're probably 10 times five years from now," it seems a little dicey. But that's the way it is when you get a really great business that you want to hold for the long term. And you could argue, "Well, this is a really great economy to hold for the long term." And so, all these companies, yeah, they're expensive but aren't they going to grow their way out of it? And couldn't this all resolve without a crash?

                                    And the answer is sure, it could. But here's my – my only problem with that is that we're at a more expensive moment than the dot-com peak and the 1929 peak. It's the biggest bubble in history. Something about that – the folks at GMO, they've studied 330 of these bubbles and they never resolve this way that you're suggesting. Never. They always correct. Huge. Down 50% pretty quick. Like that.

                                    So, I'm going to say it's possible but I think it's less likely. I think it's more likely that we get a huge correction in the big stock indexes than that we grow our way out of it. But you're both so smart for knowing that that must cross your mind. You must deal with that scenario. Good for you. Excellent question. Excellent mailbag today. Good on all of you who wrote in. Great stuff.

                                    That's another mailbag and that's another episode of the Stansberry Investor Hour. Hope you enjoyed it as much as I did. We provide a transcript for every episode. Go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode, send someone else a link to the podcast so we can continue to grow. Anybody you know who might enjoy the show, just tell them to check it out on their podcast app or at investorhour.com. 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. Follow us on Twitter where our handle is @investor_hour. Have a guest you want me to interview? Drop me a note. [email protected]. Call the listener feedback line, 800-381-2357. Tell me what's on your mind and hear your voice on the show. Until next week, I'm Dan Ferris. Thanks for listening.

Voice Over:                 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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