Episodes

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

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we talk with Marko Papic, chief strategist at Clocktower Group.

Dan Ferris: And today, Corey and I will talk about 10-cent nickels and, of course, the recent CPI report, and the Federal Reserve.

Corey McLaughlin: And remember, if you want to ask us a question, or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour. Well, only the government can lose money making money. Turning metal into money, and they still lose money on it. [Laughter] Is that called negative [crosstalk] –

Corey McLaughlin: Yeah, 10-cent nickels. This is an old story, kind of. Evidently, the government's been losing money making nickels, and pennies, since 2006. But the amount of money they could possibly be losing each year is up to $50 million a year. The Mint, the U.S. Mint, put out this report a couple of months ago toward the end of last year. And then, evidently, there's been some legislation in Congress, the last couple of years to address this issue. But, of course, it got stalled for other things. But now it's being renewed.

So I came across this, this week, while reading a different story about – I guess you could say precious metals – about some guy in Kentucky who found millions, millions of dollars' worth of Civil-War-era gold coins in his farm buried in the dirt, which goes along the same lines here of inflation. But yeah, this story is just bizarre. To me, it's the most kind of disheartening examples of fiat-currency system and government mismanagement. Like, literally, they are losing money making money.

Dan Ferris: Right. So you sent me this, this excerpt about it. It says people in Congress introduced legislation, like you were talking about. They suggested lowering the amount of nickel in a nickel –

Corey McLaughlin: Right. Right. [Laughter]

Dan Ferris: [Laughter] – and using more copper. And then it says pennies cost 2.7 cents to make. Well, that's three times what they're worth.

Corey McLaughlin: Yeah. I wasn't fully aware of that either. I know there's been a push to abolish the penny for these reasons. But I don't think, I didn't realize the amount of – I mean, $50 million a year is not like chump change. Excuse the pun.

Dan Ferris: Yeah, I guess, you know, when you think about like, they're probably, like, we could do a whole podcast based on ridiculous ways the government wastes money. And this would be, this would be an episode. We could flesh this out. And then the episode after that would be the whole, you know, $500,000 hammers to the Department of Defense or whatever. [Laughter]

Corey McLaughlin: Yeah, the bigger point [laughter] I was making about this. I just noted it in the Digest, one of the Digests last week. It was because it was in the context of the discussion about inflation in the PPI numbers, and the CPI numbers that came out, which we can talk about, too. But so that was the thing, like, you know, people are getting very excited about the pace of inflation coming in lower than these Wall Street expectations, which you could talk about those on their own. But the fact is inflation will always be around, obviously, and people won't notice it, to the point where it takes 10 cents to make a nickel. Like, it's you literally can't make this up.

Dan Ferris: Yeah. So yeah, let's talk about the numbers... 3% headline CPI growth in June, and 4.8% core. I mean, 3$ – the headline is good as far as it goes, but it only goes so far. And the Fed doesn't really care about it is kind of the important thing. So you know, it probably shouldn't be surprising that one of the Fed governors came out this week, Christopher Waller, and he said, look, actually the quote, I'll just read you the quote here from MarketWatch. He says, "I see two more 25-basis-point hikes in the target range over the four remaining meetings this year, as necessary to keep inflation moving toward our target."

So that's another 50 bps higher. That would be like, I guess, 5.5% to 5.75% in the target range for fed funds. And, you know, closer to 6% and 5% at that point on the top end anyway. And, you know, you and I've just been singing the same old song..."Higher for longer, higher than anyone thinks." I think this is going to happen. There's going to be hikes. And you and I will be right again. [Laughter]

Corey McLaughlin: Eventually.

Dan Ferris: Eventually, yeah.

Corey McLaughlin: What I do think is most likely to happen, and it doesn't mean it will happen, is they keep raising rates, and then it turns, you know, these numbers turn, suddenly turned deflationary. And then people kind of freak out over that, and then they're cutting rates. And then we get into this, still within a higher-rate era, but then I just think it gets a little bit more volatile – monetary policy – than it's been the last, you know, 15 years. And, you know, maybe we get into that '70s cycle of going up and down a lot on rates and having this discussion a lot. I don't know. We'll see.

Dan Ferris: We will see. My sense is that there is a certain – there's a resolve at the Fed that I think folks don't appreciate. I do appreciate the track record of constantly easier and easier monetary policy in the past couple, few decades here... basically since Alan Greenspan. And, you know, I certainly appreciate that. But I don't know. It's just, I guess it feels different to me. All these Fed policy statements, and all these statements, by the way, Powell answers questions at press conferences, you know, just like, we're not thinking about, you know, cutting rates. And it sure seems like there's no way they're going to do it this year.

Corey McLaughlin: Right. Yeah. Yeah.

Dan Ferris: You know, even if they're, yeah, I mean...

Corey McLaughlin: Yeah, I don't think it happens, I don't think it happens this year. But I don't know, I'm with you on the idea that we don't get out of like this giant bubble, you know, quote, unquote, this "easily You know, it doesn't, you know, you see the markets are just ripping right now, which can't, doesn't help the cause of inflation going down, or the pace of inflation going down. So I don't know, inevitably, I think there will be a point where the economy slows to a point, where unemployment gets high enough, where we are talking about all the things that a lot of people have been talking about, waiting for, for 18 months, happening. It just might take a little while. Probably next year would be my guess.

Dan Ferris: Right. At the earliest sometime next year.

Corey McLaughlin: Yeah.

Dan Ferris: We'll see. In the meantime, you know, we're in, I mean, investors ought to be in, like, you know, preparation mode. Don't predict any of it. We have our ideas about how it's going to play out, but you don't, when the rubber hits the road, you've got to put your hard-earned money to work. Like, it's, you don't bet on your predictions coming true. But you do prepare for them. And I think it's possible to prepare for various environments, you know, without having a portfolio that loses, you know, where half of it's losing while the other half is winning. And, you know, the core of that continues to be, as we talked about previously, like really good businesses. You just, you can't get away from the constant cash generation and reinvestment and high rates of return of a good business. There's just no substitute for it, I don't think in the world.

You know, if things go crazy, and there's rampant inflation or something like that, hey, that changes things, of course. But even in some of those environments, just the high return on capital, really good businesses... they're hard to beat. Well, we have a really interesting guest today. He's been on the show at least twice before. He's one of those folks that we just got to check in with. His name is Marko Papic. He works for the Clocktower Group. And he is a, I would call him a geopolitical – not just a macro – investor, I would call him a geopolitical macro investor. And I can't wait to check in with him and see what's on his mind. And so let's go ahead and do that right now. Let's talk with Marko Papic. Let's do it.

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All right. It's time for our interview. Today's guest is Marko Papic from Clocktower Group. I think this is your third time on the show, is it not?

Marko Papic: If you say it is, it is.

Dan Ferris: [Laughter] All right. It's been a little while, and you are someone that we definitely like to sort of keep in touch with, and check in with from time to time. I went to your Twitter feed.

Marko Papic: Hmm.

Dan Ferris: And it's already scary, right? I went to your Twitter feed. And I noticed your pinned tweet, which has been up there for like a year or something, but it's a paper that you published in 2014, a report about the apex of globalization. You wanted to call it "the end of globalization." But, basically, you said the war was not, you know, the end of globalization was not about the war, which continues in Ukraine. It was something else. I found that interesting. And more overarching than just sort of asking you what's going on in the world right now.

Marko Papic: Yeah, sure. Yeah. Let's start with that. I'm glad you asked that because there is a lot going on in the world, and it's nice to put it into a context first. And so, yeah, I mean, like, first of all, I joined Twitter a year ago. So I've been a holdout from all social media as much as I could. And then my PR team filled with millennials, young millennials, young millennials. It's like, look, dude, you have to be on Twitter. And I was like, OK, fine. So I broke down and [crosstalk] –

Dan Ferris: Welcome to the dark side.

Marko Papic: That's right. I broke down a year ago. And then I was sitting there, and I was like, OK, I need to pin something. You know, I don't want to pin a different tweet all the time. I just want to pin something that's timeless. And I think that we are in this world, right now, that's defined by a lack of clear and coherent leadership from any one superpower. You know, so Ian Bremmer of Eurasia Group has called us, "the GZERO world." Political scientists refer to it as "a multipolar world." There's multiple poles. So it's not a bipolar world, like Russia – sorry, Soviet Union versus the United States. That's a bipolar world. You have two bullies in the world. It's not a unipolar world, which is why we kind of exited, where the U.S. had this preponderance of power.

It's a world where it's not clear, you know, who's in charge. And that world is not really conducive to peak globalization, to this flawless, pure form of globalization, that really defined American hegemony, American superpower status. And by the way, it's not like an American thing. Whenever a country becomes a superpower, it globalizes the world. What does globalization mean? It means just that there's a coherent, and clear set of rules and norms of behavior that every country follows. Why do they follow it? Well, because there's a big bully that's going to slap you on the ears if you don't. Like that's simple, right? That's all it is.

You know, countries don't follow American rules because they're better. They follow them so they don't get bombed. They didn't follow, you know, they didn't follow British rules in the 19th century because Britain figured it out though. They didn't want to get bombed. You know, it's like, it's pretty simple. And that goes back to the Roman times. So the hegemon creates these rules, and norms, and behavior, and then you have a very clear globalized world. My point in 2014 was, you know, I started noticing certain anomalies in the way the world was working, namely in countries just kind of not listening to the U.S. anymore. And not just China.

And that's really important to my argument. The media out there obsesses about U.S.-China rivalry. But if we were in a bipolar world, that everybody on the American side would fall in line behind the U.S., everyone on the Chinese side would fall behind China. That's not happening. U.S. and China are fighting in a bar, and other folks are not joining. They're sipping their beer, and saying, like, "Cool, let's see who wins." And so that is one of the definitive features of this multipolar world. So on one hand, it means it's very difficult to have a coherent set of rules and norms that everyone follows.

But on the other hand, and this is kind of an interesting, you know, rift on this issue, globalization doesn't go from one to zero in a multipolar world. Because the rest of the world doesn't want to align with the U.S., because it's difficult to create a coherent coalition of the willing, you actually still have globalization. It's just not as efficient as we had it, when America was in charge and could impose its dominance. So it's something in between. And that's why when I tell investors is, look, don't expect globalization should just collapse. Think of it as a continuum from zero to 10. We're not at a 10 anymore, we're not a nine, we might be at a six or a seven, but we're not going down to one or a two.

Dan Ferris: Got it. And this is something – what grabbed me about this immediately was you did this report in 2014, so you're saying that that trend was in place enough for you to collect data and give facts and evidence by 2014. It's not new at all.

Marko Papic: Yes. Yeah. It isn't, you know, and –

Dan Ferris: Marko, before you answer it, I'm sorry, can you – is it possible to like peg a moment of peak global, you know, peak U.S. hegemony? Is that like WWII or later?

Marko Papic: No, no, no, no, no, no, I think WWII was not at all. And if you think about, actually, it's a great question. You know, like World War II, immediate WWII era was peak American power, perhaps material. But it had a challenger, and it was the Soviet Union. It was a really formidable challenger until the '70s, you know?

Dan Ferris: Mm-hmm.

Marko Papic: That challenger collapsed in 1991. So even though American power, in relative terms to the rest of the world, was maybe not as great as of 1946, in 1991, U.S. power was suddenly without a challenger. So I would say the 1990s were clear American moments of hegemony. And it really started in '85 when Gorbachev came to power in Russia, and basically said, look, we're losing, we need to reform ourselves. You know, the taunt started, and Soviet Union went on this inexorable decline. I think 1990s were a great sign of American power.

The United States could pretty much do whatever it wanted. And he probably peaked somewhere around 2004 to 2005. And that was, you know, when it could basically invade a country, as sophisticated and as large as Iraq, with pretty much everyone opposing it, other than some little fusion allies. I mean, like, you know, countries like Canada and France, American allies opposed that intervention, and America was like, whatever, you know, cool. Cool story. Hold my beer.

Dan Ferris: [Laughter]

Marko Papic: Hold my beer. We got this.

Dan Ferris: [Laughter]

Marko Papic: And that is what I would say it was kind of preponderance of power. But, you know, like, how do we, I mean, I have a bunch of charts that, you know, prove this, but I'll give you an interesting anecdote from my life that I think is better for our listeners than a chart. I left Yugoslavia, which was crumbling in 1994 as a 12-year-old. And I moved, of all the countries in the world, I moved to Jordan in the Middle East in 1994. McDonald's came to Jordan, I think, in like '95 or '96.

And, you know, I was like a 14-year-old kid... I wanted a Big Mac. You know why we've got a McDonald's opening in Amman, the city I lived in, in Jordan, in the Middle East country, a Muslim country, an Arab country. And I told my parents like, "Hey, look, can we go out there?" So my dad drove me to the McDonald's. The Bedouin came from the desert and pitched their tents. And the lineup in the drive-thru was three days long.

Dan Ferris: [Laughter] Whoa.

Marko Papic: Now, listen, Jordanian food is amazing. All right? It's amazing. Much better than a Big Mac. Let's be very clear. Yeah, these people were not waiting for three days in that lineup for a taste of a Big Mac. They were there for taste of America. And that's, I would say, that kind of like cultural, military, economic dominance was a moment in the '90s. It was a snapshot of our time that's not going to be repeated. And then by 2004, '05, '06, '07, '08, 2008 being the great financial crisis, I think the U.S. power in relative terms went down.

Now, one of the things when you say that, especially in America, people get pissy. You know, well, America is still the greatest country in the world, blah, blah, blah, blah, blah. And then they start engaging in what I call "aircraft-carrier counting." Like, whoa, whoa, whoa, who is this kid from Yugoslavia who lived in the Middle East telling me America is not the greatest country in the world? We've got 11 aircraft carriers. Who has that? And my point is always like, look, it's not about being head and shoulders above everyone else. To have a unipolar superpower moment, you have to be head, shoulder, torso, hips, knees above everyone else. That is what creates that unipolar, hegemonic moment.

The U.S. remains the most powerful country in the world, I would say by far. It is head and shoulder, but it's just not enough to compel behavior. And so rather than doing aircraft-carrier counting, what folks should be doing is watching the behavior of other states. For example, Emmanuel Macron, the president of France, Emmanuel Macron went to Beijing, a month ago, with 40 CEOs of French industrials. He's basically telling China like, look, he's looks like you have beef with America. Buy Airbus. Don't buy Boeing. That would never happen in a world defined by American hegemony. And I can give you a litany of examples, you know, it's not just the French, a litany of examples of countries operating and behaving as if they're not afraid of America, or afraid of China.

Dan Ferris: Really?

Marko Papic: And I think this is really important for investors going forward to understand that.

Dan Ferris: OK. I'll take that. I mean, you don't have to do the whole litany, but, you know, one or two more would be interesting probably.

Marko Papic: Sure. Yeah. United Arab Emirates. You know, here's a country, whose borders are straight lines for a reason. They were drawn by French and British people drinking a bottle of wine. Let's be honest. The United Arab Emirates is a country that cannot defend itself. If Iran or Saudi Arabia decided to invade, like it's game over. So you would assume that this would be a country that listens to what America says. When President Biden came to power, you know, he went over one of the deals that Trump made with the UAE, the United Arab Emirates, and it was for F-35s.

And President Biden, in an effort to show that he was tougher on China than Trump, added a condition to the sale of F-35s, which are very advanced stealth fifth-generation fighter jets, added a conditionality to the contract. He wanted to renegotiate the contract Trump originally made. And so President Biden added to the contract that the UAE would have to ban the use of Huawei for 5G development in the country. Huawei is the Chinese leader in 5G telecommunication technology. Honestly, not a big demand.

Honestly, UAE could go to China and say like, look, these Americans, they're obsessed with 5G. We got to do it. Like, we'll buy some other Chinese stuff. Just let us do this so we can get our F-35s. It's a simple demand. Again, in the 1990s, 1980s, no doubt UAE signs onto this. They didn't. They said, "Thanks a lot President Biden, we're going to buy French Rafales." Boom.

Dan Ferris: Interesting. Yeah.

Marko Papic: I'm not talking about France. I'm not talking about a NATO ally or a nuclear power. I'm talking about a country that needs guarantees from the U.S. for its security. Another example of this is, I mean, a litany of examples. I'll give you one more. You stop me when you don't want any more examples, by the way because [crosstalk] –

Dan Ferris: OK. [Laughter] All right.

Marko Papic: Another one was Indonesia. Indonesia, a longtime U.S. military ally in the region, for like decades, invited, you know, President Putin to the G20 Summit in Jakarta. The president of Indonesia Joko Widodo, JokoWi, basically told Americans who were trying to pressure him not to invite President Putin, like just watch me. What was the punishment? The punishment was the United States gave Indonesia $20 billion in grants, not even loans, for a green energy transition.

Dan Ferris: It doesn't sound like a punishment.

Marko Papic: Exactly. And this is what I'm getting at. Oh, another one is Philippines. Philippines had a contract with Russians for helicopters, like very heavy helicopters. Transportation helicopters, like not even attack helicopters. Philippines just wanted some helicopters to carry people. Americans came said, "Don't buy it from them." And the Philippines said, "What are you going to give us?" So the Americans said, "OK. Cool. Well, we'll give you some dollars, and you can use those dollars to buy American helicopters." Again, not a punishment at all.

What am I getting at here? What I'm getting at here is that countries right now, you know, Cold War was very tough. You have to pick a side. Very few countries, like India, my homeland of Yugoslavia that doesn't exist anymore, but, like, there were a few players in the world that had the luxury of not having to choose aside in a Cold War. And that's because America and Soviet Union was so powerful, and they would definitely pop you in the ear, if you, you know, try to play this very complicated game.

Today, countries are like children of divorced parents. They get two Christmases. They get two Hanukkahs. They get two birthdays. And they're over the grief of the divorce, let me tell you. And they're playing China and America against one another. And that's not a sign of a bipolar world, a world where China and America are the most powerful. That's a sign of a world where no one's in charge. And a country like Indonesia, or Turkey, or Saudi Arabia, or even UAE, are going off to Washington, and Beijing is saying, like, "You want my love? You're going to have to pay for it." And I think that's very positive world.

So if you are a U.S.-based investor, the first thing you should know, is that in the world, we're in a lot of emerging markets, which have performed very poorly for the last decade, you know, we're not talking China, we're talking non-China emerging markets, global equities, should do well in this world. Because they'll have this geopolitical condition in which they'll get lower interest rates on their loans. They'll have open access to markets, and they'll have China and America showering them with FDI to prove to them, that they're their friends. And that's happening in places like Indonesia, Vietnam, a lot of countries that I'm very bullish on. And you're starting to see this in their market.

Dan Ferris: That sounds like something that would have a huge effect on some European countries to me. [Laughter]

Marko Papic: Yes. European defense stocks have been one of my favorite calls, actually, even before the Ukraine War. I mean, they obviously went parabolic because of Ukraine. But I like European defense stocks, because if you're a country like Indonesia, Vietnam, Philippines, you know, you're sitting there, you're saying to yourself, well, I'm worried about China. But if I buy this stuff from Americans, they're going to walk in here, they're going to put conditionality. You know, Twitter is going to blow up because I killed some civilian somewhere. There's going to be all sorts of ESG issues. I'm just going to buy it from the French who don't care, you know.

Like, and that's where I see, you know, France, Germany, Sweden has a very, very prominent military industry, actually. You know, you want to buy it from smaller players. It's smarter than to buy it from someone as big as America. So yeah. And by the way, you don't need the most sophisticated weapons in any of these cases. I mean, what we're seeing in Ukraine, actually on the ground in Ukraine, is that it's not necessarily the most sophisticated technology that's relevant. It's a lot of drones. Like Turkey and Iran are huge producers are very sophisticated drones. Israel as well.

It's also shoulder-mounted, antiaircraft and antitank weapons. Now, we've heard a lot about American-built javelins, but the U.S. is not the only place in the world that produces these. So, you know, you can find a lot of heterogeneous suppliers of weapons as an example.

Dan Ferris: OK. Wow. That, I feel like you just inspired me to want to like look at every emerging market country, that I've ever had any thought of maybe being bullish on, to see what's going on. So one of the things about, you know, hegemony is like currency. Right? I mean, people still, like people use dollars, like everywhere. I still feel, like, it's hard to get away from the U.S. dollar in this world. It's hard to find a place where you can't, you know, places that do have taxicabs, or you know, whatever they're doing, Lyft, or whatever. They'll take dollars, like, every time. You know, that's like my – oops, the taxicab driver takes dollars. And I feel like, you know, we're still there. And when I hear people talk about de-dollarization, I just kind of, yeah, I don't know about that.

And I guess so I've got this dissonance in my head. Right? I see the currency is still in great demand. Right? And yet, we're at this moment when every other aspect, you know, the culture and the political influence, the military influence are waning. You know, does one catch up to the other? Like, how does the currency, like we see all of these other trends that you're telling us about, and they have, you know, years of history at this point, it seems to me like the dollar would kind of have to crack or, or be taken less seriously by some very big important player, or, you know, a number of them. And that until that happens, isn't it's still very much a U.S. centric. No?

Marko Papic: So what I would say is, first of all, a multipolar world doesn't mean a collapse of America. And I think we have a problem in the United States, and I'm based in the U.S., we have a problem in this country, that when you start talking about American power, it's either America's the greatest country on the planet, or its crumbling in ruins. Right? And a multipolar world means that America doesn't have enough power to compel countries to do what it wants, but it doesn't mean it's not the most powerful country in the world.

You know, it's like, you know, your father, when you were 12 years old, was basically a demigod, and could compel you to do anything you, you know, he wanted. At 18 years old, maybe less. So at 24, well, you probably still need some money, occasionally. But then, like, 35 to 40, like, you know, you respect your dad, but like, yo, I'm going to do what I want. And that's kind of how the world is right now. And what's important, though, is that it does mean the dollar will continue to have stickiness as a predominant currency.

Now, there are three components, three, to a reserve currency status, we use the term "reserve currency," interchangeably, but we got to really define what we mean. The most basic level of reserve-currency status is what do central bank so other countries hold in their vaults, if you will... Is it dollars? Is it gold? Is it euros? Is it renminbi? I have zero doubts, zero doubts that the United States dollar, as used for reserves in central bank, quote, unquote, "vaults" will decline precipitously in the next 12 months. Absolutely.

Dan Ferris: Twelve months?

Marko Papic: Absolutely. It's already happened.

Dan Ferris: Wow.

Marko Papic: It's already happened. The United States dollar will probably settle at like 40% of global reserve currency from current 59% by the end of the decade in five years. Boom. Gone.

Dan Ferris: Wow.

Marko Papic: Now, it'll still be the first amongst, you know, 40% is still plurality. It just won't be majority. And that's fine. Who cares? And by the way, I think gold, gold will be increasingly a big component of central-bank reserve currency? Why I believe that in the thesis, that the U.S. sanctions against Russia were absolutely a critical moment when everybody out there is like, wait a minute, wait a minute. I better diversify away from the dollar. Now, look, Biden administration has punished Russia because Russia did something, like invaded Ukraine. Right?

But if you're running India, or Indonesia, or Malaysia, who knows what happens? Maybe one day American administration walks into doesn't like your policy toward the LGBTQ community. Maybe one day a U.S. administration comes in, and doesn't like your ESG policies to take the other side. You know? Maybe one day they don't like the way you treat a minority in your country. And so why would you expose yourself to the whims of the White House and Congress? Like, sorry, I'm going to be sovereign. I'm not going to put all my eggs in the American-dollar basket.

However, that is the least relevant, actually, component of reserve-currency status. And this is what confuses a lot of people. What banks keep in their vaults is like the stock. It's not the flow of use. The two much more important uses of the dollar are uses trade settlement – so like, if UAE sends a barrel of oil to China, they still use dollars – and the other one is financial-transaction settlements. Now, the trade settlement, again, I would posit that the dollar will absolutely decline over the rest of this decade. And it's already happening. China is telling other countries, "Hey, would you please use renminbi?" And they're saying, like, "Sure, cool."

Why? Because trade with China's increasing you also. So like having some renminbi in your account is not a bad thing, because you're probably going to buy some T-shirts, toaster ovens, and toys from China anyways. So if you sell them a barrel of oil, and they pay renminbi, it's no longer worthless. Yeah, sure, I'll buy some of your stock. So again, I see that.

However, so I just said a bunch of stuff. People are like lighting themselves on fire, like oh my God, the oil is going to zero. However, far more relevant to the use of dollar than reserve-currency status, and even trade, is financial transactions. Buying and selling bonds, equities, currencies, commodities on the global exchange. And I don't see the dollar moving away from that perhaps in the rest of the century. United States of America could decline in power massively, but network effects of using a dollar are going to keep the dollar the most preeminent financial-transaction currency. The way we use English language. I mean, I'm like a Serb who grew up in the Middle East, who has been educated in Switzerland. I spoke three different languages before I learned English.

You know why? Because of those network effects. It's like, it's just easy. Why would you – now we all have to transition from one currency to – eh, it's too complicated. So I think that there are these headwinds. There's these headwinds to using the dollar, you know, on the margin, I think that will matter. There will be definite diversification away from the dollar. I'm just not short the dollar today because of it. I am short the dollar because of other reasons. But it doesn't have anything to do with these grand, big, slow-moving glacial pace things that we're describing here.

So, yes, the world will move away from the dollar slowly, and gently, not in financial transactions, in trade a little bit more in reserve currency, absolutely. But that's just not enough for you to have a view on the dollar in the next six months. Why am I short in the next six months? I think because the Fed has proven it doesn't have the guts to take us down to 2%, which is fine. I'm not saying it's an error. I'm just saying that's what they're doing. And because, in my view, fiscal policy of this country over the past three years will have to be paid for with something.

And since American policymakers and politicians don't have the guts for austerity, for prudence, for bankruptcies, for liquidation, for the natural flow of economy, something's going to have to give. Something will have to redistribute wealth, and that will be the dollar going down. So that has to do more with domestic policies in the U.S., with monetary and fiscal policies of this country, of the Biden Administration and the Jay Powell central bank, that's where I'm short the dollar. But, you know, not because of some grand policies of geopolitics.

And that's a very important and a nuanced perspective, because, usually, when you speak about geopolitics, people use geopolitics to be short the dollar. And I really cautioned that. In fact, do you know the last time we had a bear market in the dollar? It was 2001 to 2006. In 2001 to 2006, United States of America was bombing countries that George Bush would like throw a dart on the map on his wall, and they were like, "Let's bomb them." The U.S. had the preponderance of power from 2001 to 2006. And the dollar was in a bear market.

Why? Because the Fed kept interest rates low for too long. And there was an emerging market cycle, commodity cycle. You wanted to own commodities. You wanted to own Brazil. You wanted to own Indonesia. You wanted to own China. You wanted to own the BRICs. And that's what created a bear market in the dollar, not the decline of American geopolitical level. So what I would say to our listeners here is be wary of anyone telling you to buy or sell the dollar because of geopolitics. I mean, I'm a geopolitical guy. I love geopolitics. I can talk about it for hours. But you don't necessarily want to buy our own an asset based on geopolitics. It has to be that monetary and fiscal component to a currency call.

Dan Ferris: Yeah, I mean, for most people, like trying to trade or invest based on almost any macro concern is really, really difficult. I mean, the average individual investor is usually going to screw themselves up, because they're just, they're going to react to headlines, you know. It's not real research that they're doing. So they react to headlines, oh, the dollar is going down, the dollar is going, you know. They're just, they're never ahead of anything. So, you know, it winds up being better for them to take a kind of long-term view, feed the 401(k) and not think about it.

Marko Papic: For sure. And geopolitics can help with that. If you have a long-term horizon, you know, getting some of these longer geopolitical and macro stories, right, if you don't overtrade, it can be really lucrative.

Dan Ferris: All right. You have my attention. [Laughter] So yeah, let's talk about some of those things. So I mean, one of the things that we're talking about, and you said yourself, you know, I want to look at some of these emerging market economies, again, that I've been kind of, you know, bullish about in the past. So, I think that what's happening right now is we're ending a cycle of risk parity dominance. Risk parity is this term a lot of large pools of capital use for a world where you could hedge your equity exposure with U.S. bond exposure. So every time equities went up, you know, bonds were OK. But when equities went down, bonds were used as a hedge to that.

And so, basically, what happened over the last decade is investors, and I mean investors managing hundreds of billions of dollars, so the kind of people that I work with, CIOs have huge pension funds and sovereign wealth funds, they basically did three things. They bought the Nasdaq and U.S. tech companies. They hedged that exposure with bonds, U.S. bonds, long-dated bonds, and then they had to buy dollars to do both of those. Because if you're sitting in Australia, managing an Australian sovereign wealth fund, or in Singapore, managing a Singaporean one, or a UAE managing United Arab Emirates one, you've got to buy dollars to expose yourself to this strategy.

The hedge fund Bridgewater made a lot of its money with this risk parity. I mean, they kind of invented it. And, you know, it worked for a decade. In my view, this is ending, you know, and it's ending for a number of different uncorrelated reasons. But the main one, in my view, is that the United States of America responded to COVID with massive fiscal stimulus that was unnecessary. You know, you could argue that the Trump-Pelosi fiscal stimulus packages, there were three of them, were necessary in 2020. Although, I would still say, eh, I don't know, it seemed like a lot. But then when Joe Biden came as the president, and like in February of 2021, did that $2-trillion-plus, like an additional one, that probably was not necessary.

Now, we can quibble with like numbers, but I think we all kind of agree that $5.5 trillion was probably not necessary. Twenty-five percent of U.S. GDP of fiscal stimulus. Now, other countries did a lot less, I mean, as percent of their GDP. Mexico did nothing. They're supposedly socialist presidents that everybody doesn't like in the U.S., you know, AMLO, López Obrador, he said, "No. Hell no. We're not going to spend money willfully on this stuff," because he really likes austerity, which is weird, but he's a, you know, one of a kind guy. My point is the United States did what it did, and it's created distortions in our economy that I think will continue to be inflationary.

Now, not at an egregious level. So I'm not in the camp of like, oh my God, run for the hills and buy gold, although, I am bullish gold. But I do think that we will persistently miss the Fed mandate, which will mean that real rates in this country, real, real long-term rates, will have to remain either at these levels, or will even, you know, they won't depreciate anymore. They might even decline, which will be negative for the dollar. And if we get the dollar bear market correctly over the long-term, if we are in that 2001 to 2006 cycle, dollar being cheap is good for emerging markets, and it's really good for commodities.

So that's the first step of this. America has to pay for its profligacy. There is no free lunch in the world. And we will pay for it, well, you know, with a currency pair mark. And it's not the end of the world, by the way. Over the rest of this decade, if we have a cheap dollar, it kind of sucks, but you know, it will help with the manufacturing idea. You want to get those jobs back in Indiana, and Ohio, and Pennsylvania. Well, the cheap dollar will help our manufacturing. So it's not the end of the world. But I'm just saying, that's the first thing I want to bring up.

The second thing I want to bring up is that Americans decided basically yesterday, and I'm being hyperbolic, but not really, that China's evil. OK? I've been in this business for a long time. And a bunch of things that China was doing 10 years ago was OK. Now, it's not. It's not the Chinese that change. It's Americans. Americans suddenly woke up and said you know what? China's arrival. Now, we're going to be aggressive toward China. This is creating a rebalancing of supply chains around the world. You've heard of the terms "onshoring, reshoring, friend shoring." I'll introduce a new one "enemy shoring." It's China.

Yeah. So China is not stupid. China sees what America is doing. So what does China do? It sends FDI to Vietnam and Mexico to subvert American tariffs. But why is this important? It's not important about this or that. It's important because if we try to reformulate their supply chains, it's going to take a lot of excavators, a lot of copper, a lot of steel, a lot of iron. So we're building these factories around the world, including the United States, which are inefficient. They're not part of the old world, America created in '90s and 2000s. It's part of this new world, where everyone's afraid of their own shadow.

And while I think it's stupid, that's irrelevant, I'm going to invest based on it. This is very important because it creates a commodity bull market. It creates a demand for iron and steel and copper and excavators and Caterpillar and all these things that wouldn't be there otherwise. So that's the second thing I want to say. So there's – and the third thing is the green energy revolution, which I believe in. I think, policymakers have decided we're all going to get cooked in the next 10 years. Whether that's true or not, meh, it doesn't really matter. Everyone is convinced of it.

So we're, on top of everything I just described, also trying to rewire the whole planet for a completely different energy system. What I'm basically describing is a commodity-fueled capital investment cycle, capex, like the 2001 to 2007. And that's going to be beneficial for emerging markets. So a long-term way to play the geopolitical and macro views is to start getting exposure. If you're a, you know, an investor domiciled in the United States, you're predominantly holding American dollar assets. You're probably up to here with Nasdaq. I know you are.

I know, like, people listening to this, you probably have more Apple and Netflix than you probably should. Things are looking great. You're like, no, but the AI revolution is coming. That will make everything so much better. I want to be Nasdaq. Well, we can talk about that. By the way, let's put a pin on that. What I'm trying to tell you is like man get some exposure to non-U.S. currencies to non-U.S. assets, buy some global equities. Because in 2001 to 2007, the last time we were in a similar cycle, what worked were European and emerging market assets.

Now, I think Japan is also a winner now. We've seen the performance of Japanese equities as well, you want to hold some of that other stuff, you want to get exposure to that. And you don't have to do it through a specific company. I would encourage you not to. Don't buy a single stock. Buy some ETFs, some global ETFs that will give you an access to these non-U.S. dollar assets. Start building that position right now, not like five years from now, when you're in the middle of the cycle.

Dan Ferris: All right. Let's see if I can get you to go one level deeper. And you know, is there like one or two particular economies that you are particularly bullish on?

Marko Papic: Yeah, so I really like Indonesia. Why? They're playing geopolitics extremely, extremely well. They're playing both sides very well. They forced, you know, they, they created export controls on raw nickel, unprocessed nickel. And the main destination of this nickel is China. So Indonesia told China, "We're going to ban exports of nickel." And China was like, "Whoa." And Indonesia was like, "What's up? What you're going to do about it?" And what was up is China then sent $20 billion dollars to Indonesia to build their processing capabilities. And now Indonesia is already telling everyone in the world this. The next step is to ban process nickel exports.

So, basically, Indonesia strong-arms China into getting $20 billion, and now they're going to strong-arm them again and say like, oh, you thought we were going to send you the process nickel, you gave us money for. Hell, no. Now you're going to have to put your battery, EV-battery factories into Indonesia, and then we're going to ban that when you use your money to build them. And then you're going to have to build cars here. Now, normally 10 years ago, that's like a cause for an invasion. You know, but in this multipolar world, Indonesia is allowed to do this.

And everybody knows, like, they told people like, we're going to take your money, build a factory with it. Then we're going to ban export of the stuff that factory makes to make you give us more money to build more factories. And it's working flawlessly. So I really, really like Indonesia. It's the largest, it's one of the largest producers of nickel. There's a lot of destabilization in Russia, over the next two- to three-year horizon, like massive civilization collapse and regime, all that good stuff. They are the other producer of nickel. So you want to hold Indonesia long-term.

The second country that I really like is Vietnam. Vietnam is doing a similar thing, where they're basically used by Chinese manufacturers to subvert the American sanctions. Now, normally, this is a moment when like America would show up and say, like, hey, Vietnam, you're not allowed to reexport Chinese goods to this country. But American needs Vietnam. It's an important military ally against China. We don't want to anger them. And so the United States is turning a blind eye to all this Chinese FDI coming into Vietnam to basically export to the U.S.

Dan Ferris: Well, thanks for the ideas. I will certainly be looking into both of those. But it's time for the final question, which you've answered before. You might have forgotten it, so I'll repeat it. It's the same for every guest no matter what the topic, even if we don't talk about finance, everybody gets the same final question. And if you've already answered it, by all means, you know, you can repeat the answer. That's OK. And the question is simple. If you could leave our listener with one thought today, what might that be?

Marko Papic: I mean, today, it's July 5. That's when we're recording this. There is some chance that tonight, on July 5, there is an attack against an operational nuclear power plant. You know, and we didn't really talk a lot about the Ukraine conflict, which is fine. It's fine, because we're talking to investors. We're here to get the markets, right. That's the only thing we really are focusing on. And the Ukraine War has not mattered for financial markets for about six months. And so what I would say is that this could be a moment where markets care about the Ukraine conflict again.

But it's a great example of how the remaining discipline is relevant. I think that if the Russians attacked a nuclear power plant, or whatever happens, markets will move. But that will generate an opportunity to harvest alpha by fading those risks. Because they are secular reasons why the conflict has not mattered for the markets for the last six months, and even a nuclear disaster of epic proportions actually doesn't change those secular reasons. And that's a good way to, like I'm using this as a very specific example here on July 5. You know, it might not even happen. But I'm using it to explain how the framework that I employ really works. You want to think about secular long-term structural trends, and then fade any market reaction to them.

Dan Ferris: Nice. I like the way you put that at the end. Thank you. Great answer. And listen, Marko, thanks for being here at once again. Always great to hear from you.

Marko Papic: It's always a pleasure. And you know, folks can follow me on Twitter, if they want. It's @Geo_papic. And always a pleasure to speak with you, too. Thank you.

Dan Ferris: All right. Many mainstream analysts are predicting that stocks will recover soon. But I say we'll instead witness a cash frenzy unlike we've experienced in 21 years before stocks recover. And I'm urging Americans not to buy a single stock until they see it. I predicted the Lehman Brothers crash in 2008, and I called the top of the Nasdaq in 2021. But this, this is the No. 1 most important thing to pay attention to for 2023. And I'm not talking about another market crash, or politics, or inflation, or any of these other things. As all this unfolds, the financial consequences of what I'm talking about could last for several decades if you don't understand what's happening. There will be winners and losers, and now is the time to decide which one you'll be.

This is why I strongly encourage you to read about my warning, totally free today. It's all spelled out in a free report we've put together. Get the facts yourself. Go to www.stockdeadzone.com to get your free copy of this report. You can learn how to get my four steps to prepare for what's coming. Again, that's www.stockdeadzone for a free copy of this new report.

I thought that was a very interesting conversation. I'm glad we took the overarching view. I'm also glad that Marko alerted us to the possibility that the Ukraine War might matter to the markets again. And by the time you're hearing this, you know it, who knows, maybe that will have begun. If so, then I think he would say that well, the opportunity to fade those risks has begun. And, overall, I just, I found it really interesting. The idea that these, what do you call them de-hegemonizing forces affecting, you know, the global economy has just, they've been in place for some time.

And, you know, Marko pegged the moment of sort of peak U.S. hegemony in the '90s. Right? Their main competitor, Russia, was suddenly gone, and then there they were, and sort of at play in the world. And now, by the time 2014 had rolled around, and he published a paper that we discussed, the report, you know, the trends were in place to bring that to an end, and now they've gone even farther. And things like the Ukraine War, and COVID, of course, had a big effect on those two. Just they point out risks that people are less willing to take then, and maybe even weren't aware that they were taking.

And that's a really good way I think for folks, if you're going to think about geopolitical, if you're going to think about macro at all, you know, you do have to look kind of around corners, and look at risks that you're taking that you might have just kind of taken it for granted before. We took the global supply chain for granted. Let's face it, you know, many of us, up until the time of COVID. And then all of a sudden, none of us are taking it for granted anymore. So you have to look around and say, well, you know, how do I prepare for, how do I look around the corner in my portfolio, where the rubber meets the road.

And you know, you talked about Indonesia. You talked about Vietnam. And the whole idea of enemy shoring. I found really interesting. There was a lot in there. There's a lot in there, practical ideas, you know. You can go out and buy, I would presume you would say you go out and buy an Indonesian ETF, or a, you know, a Vietnam ETF, and you can dig into a lot of these ideas and sort of interpret them on your own, and act on your own. I think this was a great talk aimed, oddly enough, straight at investors.

But we mostly didn't talk about investing. We talked to about sort of the way the world is working right now. Fascinating stuff by a guy who's just one of the best in the business at it. All right. So that's another interview. And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did. We provide a transcript for every episode. Just go to InvestorHour.com. Click on the episode you want. Scroll all the way down, click on the word "transcript," and enjoy.

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