The biggest growth story of 2023 has been three years in the making. And today's Stansberry Investor Hour guest is at the forefront of it all...
Commodity Supercycles editor Brian Tycangco is Stansberry Research's resident expert in the energy and natural resources space. Before joining Stansberry in 2019, Brian was an editor of the Asian Growth Stocks newsletter for 17 years. And he has nearly three decades of research and investment experience regarding the Asian stock markets, including the biggest and brightest of the world's emerging markets: China...
After being shuttered behind strict COVID-19 policies for the past three years, China is finally open for business with the global markets again. Its residents – with trillions of dollars socked away during those long years – are itching to travel and spend. And the country's high-value manufacturing sites are set to lead a global bull market in electric vehicles.
At the same time, Brian says we're seeing an increased U.S. manufacturing presence in labor markets like India, Indonesia, and Thailand – which means incredible investing opportunities across Southeast Asia.
Also on today's podcast, Brian urges investors to not be so easily scared off by sensational headlines from Western media... like the furor over Chinese President Xi Jinping's power move to extend his term of leadership or the concerns over the wealthiest citizens leaving the country – and taking their money with them.
Thanks to his residency in Asia (the Philippines, to be exact), Brian has gotten a firsthand look at sentiment. He says, "Everything isn't as bad as it seems in China," and that most Chinese have a "back-to-business mentality."
Lastly, when it comes to adding this market to your portfolio, he says you still have to be practical...
You don't go all-in on China, but you don't also not have exposure to a place like this. There's always room for China in anyone's portfolio [...] It'd be crazy not to have exposure just because of geopolitics.
Editor and Investment Analyst, Stansberry Churchouse Research
Brian Tycangco is the editor of Commodity Supercycles. He has studied energy and commodity companies around the world. Based in Asia, where he has lived all his life, he has nearly three decades of understanding and research experience concerning the Asian stock markets.
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also 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're going to talk to Stansberry Research's Asia-based analyst, Brian Tycangco.
Dan Ferris: And for today's rant, retail investors are back. Cathie Wood's ARK ETF is the new Nasdaq and more.
Corey McLaughlin: Remember, you can e-mail us at [email protected] and tell us what's on your mind.
Dan Ferris: That and more right now on the Stansberry Investor Hour.
Corey McLaughlin: So who's back?
Dan Ferris: The headline for MarketWatch is "They're baaaaack." Retail participation in the stock market just surpassed the GameStop days.
Corey McLaughlin: Wow.
Dan Ferris: They're sounding like me in the Digest or something, calling them "the great unwashed."
Corey McLaughlin: Right, yeah. I did laugh at that as well.
Dan Ferris: Yeah. The tidbit here is, "Near the end of January" – this is a quote from the MarketWatch article, "Near the end of January, retail market orders as a percent of market value reached 23% on January 23, according to data from JPMorgan. To put that in perspective, it got to 22% a few times when GameStop first started surging in value and everyone was talking about Roaring Kitty and Reddit's WallStreetBets. I've never heard of Roaring Kitty I have to say.
Corey McLaughlin: I don't think I have either, so you're not alone. This is just – it kind of makes sense when you think of the start to 2023 that the markets have had. I was looking at some of the numbers yesterday. It was like the best January for the Nasdaq since 2001. The S&P was up 10% or 11%.
Yeah. People are eager to jump back in. I guess the retail investors, they are going on to say now it's the same popular stocks, Amazon and Apple. Interestingly, selling Tesla was up there in the data, too. What do you make of it? I don't know.
Dan Ferris: Well, retail investors being back, to me it's sort of – I've been looking for the blistering bear market rally and retail participation hitting at least a short-term record, and just all of these crappy companies like Carvana and – actually, Carvana is the main one. I can't believe it. But even GameStop and AMC, I mean they still have multibillion-dollar market caps, but they're zombies.
They're dying. Yet here they are, and oh, by the way, AMC has these two classes of stock that for all practical intents and purposes are – they're functionally identical. They're the exact same thing and one of them is six bucks a share, that's the regular AMC share, $6.50-ish just call it lately, and then the other one is like in the $2.70s, and they're the exact same thing.
Retail investors are doing that, I promise. It's ridiculous. The stupidity –
Corey McLaughlin: There's a meme ETF, MEME, and that's up 38%. I know Bed Bath & Beyond we've talked about a couple times. That was up and they're basically going out of business. They're having a going-out-of-business sale I guess every day.
Dan Ferris: Yeah.
Corey McLaughlin: Yeah. I don't really know what to make of it. I guess it just shows you that there's still froth there from people are who trying to just make up for last year most likely. I mean, bitcoin is up 40%. It seems like it was like the old days of the end of 2019 and 2020, and then 2021 it felt like in January of this year.
All I can say is beware of this rally. It's a pullback. I would be stunned if we don't see some kind of pullback from this. Just kind of know your time horizon there.
Dan Ferris: Yeah. It's a classic bear market rally. They're getting back into all the same crap that crushed them out of existence, including ARK, Cathie Wood's ARK, which she came out recently and said that ARK, which is still down 70%, up 40% year to date, but still down 70%, she says ARK is the new Nasdaq because back in the dot-com era, that was where you went in the '90s to invest in innovation.
Now she says you don't go there for innovation. It's dominated by these big-cap names that we all know, Amazon, Google, Meta, etc., and Apple of course, the biggest one, and if you want to really invest in disruptive innovation, you need to buy her ARK Innovation ETF.
And you know something, Corey? I think she's right because just like the Nasdaq, I think the ARK Innovation ETF is going to go sideways for like 10 or 11 years and just do nothing, and be a brutal disaster, and take at least 15 years to make a new high, if it ever does again.
Corey McLaughlin: I agree 100% with you – and her I guess. That was my first thought when I saw that headline, was, yeah, it is the new Nasdaq because the Nasdaq imploded in the tech bubble, and that's what just happened. Now she thinks this is back – you know, this is a rally back – I don't know how many percent it is, but it's still down, what, 70% since the beginning of 2021.
Dan Ferris: Yeah.
Corey McLaughlin: Gosh, I am – here's a rant. I am sick of Cathie Wood. I would be happy never to think or hear from her again. However, I know that she is worth talking about, especially – and I think you agree for various reasons, but I would – I listened to a little bit of that interview and I turned it off literally after 10 seconds, the one where she made this headline. There's better ways to spend your time and money, I think, than with Cathie Wood.
Dan Ferris: Yeah, I completely agree with that. You don't want to own these companies. It's so clueless of her to say the new Nasdaq like a year after the bubble had burst because if she looked at a chart of the Nasdaq she would kind of notice what we just noticed. Then she said, "Well, maybe we're not the new Nasdaq. We're better than that, blah, blah, blah."
I don't know. She's so earnest. I really think she is completely genuine. I mean she's running a business. She's not going to come out and say, "You know, I'm sorry, but I bought a bunch of worthless garbage and I'm shutting down the company." She's never going to do that.
Nor is she going to tilt the portfolio toward quality, I don't think. She's going to persist with this idea of disruptive innovation, which was a fad and has always been a – spoiler alert – terrible investment. Disruptive innovation is a terrible investment. That's why the famous book by Clayton Christensen is called The Innovator's Dilemma, not "The Innovator's Pot of Gold at the End of the Rainbow." I don't know... Cathie Wood.
For a guy who writes the Digest once a week most weeks and likes to focus on the crazy people in this market, she's the gift that keeps on giving. Thank you, Cathie, thanks so much.
Corey McLaughlin: I think we have a theme of the week... The crazy bull market was back this week and in recent weeks. We're not sure what comes next, but –
Dan Ferris: Yeah. Another insane – well, I don't know if he's insane, but an insane thing investors do is sitting around waiting for Jerome Powell to speak, which he did last week, the usual presser. FOMC meeting... they raised interest rates a quarter point. The market loved it, etc. What the market didn't love as much was Friday's jobs report, which was like – somebody I saw in Twitter said it's like an 8 sigma, meaning eight standard deviations above normal –
Corey McLaughlin: That's a lot –
Dan Ferris: - because the economy added, I think it was like 516,000 new jobs and they were expecting 187,000. I mean that doesn't look like disinflation to me. Just top of my head, quick reaction, not disinflationary.
Corey McLaughlin: Yeah, that to me was – I mean when these reports miss by that much, it shows you there's some disjointed thoughts out there in the market. Yeah, to me, what's the end game here, with a strong job market that isn't getting any weaker. Disinflation at the moment, you know, in the past, but if there's a strong job market, what's the end game?
I think it's just higher wages and that wage-price spiral, right? I mean am I wrong there to think that what will happen ultimately, if the Fed does what it says and sticks to its plan, or they have to kill the jobs market even more?
Dan Ferris: Right. That's the problem. They're not getting all their goals. They're not getting a labor market that looks the way they think it ought to look. This doesn't look anything like how they want it to look. Therefore, you must conclude – and to a certain limited extent I suppose the stock market reflected that on Friday – but therefore, you must conclude that they're higher for longer. Rates are going to be higher for longer. I think people calling for pivots and cuts, rate cuts this year, I think they're going to be disappointed.
The other thing is if the cuts do come, it ain't going to be on good news, right?
Corey McLaughlin: Right.
Dan Ferris: The narrative some months ago was like the end of the world is the bull case because that's where you get your cuts from, and cuts don't come – they come before the bottom. They don't come after it.
Corey McLaughlin: Yeah. Cuts mean things are going wrong and not great, and the Fed thinks that the economy needs help.
Dan Ferris: Right. It's that moment in the action movie when somebody whips out an EpiPen and stabs them in the heart or something. You know what I'm saying? It's like, "Cut, cut, cut!"
Corey McLaughlin: Or the juice, right, the juice. Haven't you written in the past, the –
Dan Ferris: Yeah.
Corey McLaughlin: Sticking a steroid shot in your leg or your butt or whatever it is.
Dan Ferris: Juice in the market. That's exactly right, the juicing. I don't know.
Corey McLaughlin: That was a surprising thing to me, too. I'm guessing it wasn't something the Fed wanted to see, too, the jobs number, because it just makes their life a whole lot more complicated, I think, based on what you heard Powell saying last week. It sounded like he was just expecting the jobs market to get weaker at some point. That is what they're banking on and inflation going down at the same time, but the opposite is happening.
I don't know. People are I guess finally going back to work who haven't been working. Maybe that's a result of just getting finally past all the COVID stuff. Maybe that's inflation itself, people going back to work because they want to make money again or need to.
Dan Ferris: Yeah.
Corey McLaughlin: I haven't looked at the details of it. A lot of times the headline numbers don't tell the full story. It could be part-time jobs. It could be second jobs, that sort of thing, which a lot of people work multiple jobs. So it could be that sort of thing too. I don't know, but it definitely throws some uncertainty into the Fed story of it for sure.
Dan Ferris: Yeah. The disconnect between the market and what the Fed had consistently said and what is still happening is profound I think at this point. People still buying – I'm sorry, I have to call them "sh-tcos." The worst garbage in the market is outperforming everything. It's like everything is OK. It's all-clear signal. And it's nothing like that.
I continue to believe that you don't get out of the biggest financial mega-bubble in all recorded history this easily. Powell said there will be pain. They're going to – maybe they'll pause at 5.5% or 5% or whatever it is that's been talked about, but there is not going to be cutting.
They're going to sit there and they're going to let it grind and grind and grind, and they're going to wait until it shows up in housing. Lag or not, they're going to wait until they see it with their – you know, the whites of housing's eyes, and they're going to wait until data says inflation is absolutely done. It's going to be an ugly time I feel.
Corey McLaughlin: We'll see if they actually do that, which they've indicated that the whole time. It's going to be a while. It's not going to be six months from now, I don't think. So I'm with you. My base case is like, yeah, they might do this to – maybe this number adds a couple more little rate hikes, if anything, but then they'll hold it there for as long as they deem necessary.
Then who knows? We haven't dealt with inflation like this in a long time. Who knows what happens, like how the world actually reacts to what's going on right now, what else happens in the world.
It's very easy for me to think of what you've talked about, flip the 20 years on its head. The rates are here right now. They stay here and then they go up again, and then we're on this cycle. We're off on this long journey that nobody has seen in a long time. We'll see.
Dan Ferris: Yep. And the whole world globally, like economically being on kind of war footing is also inflationary. Think in terms of economic war between East and West, between U.S. and its aligned countries, and then Russia, China, and their aligned countries. That's also inflationary.
Corey McLaughlin: Yeah. The Chinese spy balloon is inflationary.
Dan Ferris: Yeah, the Chinese spy balloon. There's some kind of writing on it. People on Twitter were asking, "Can anyone understand what that says?" I thought it said something like, "Eat at Chengdu's this week and get 20% off," or something. I don't know.
Corey McLaughlin: Well, hopefully I don't get an up-close look at it.
Dan Ferris: Yeah, we don't want an up-close look. All right. I'm happy to leave people on a lighter note with the Chinese spy balloon actually being an advertisement for Chinese food.
Corey McLaughlin: It actually fits with Brian's expertise, right?
Dan Ferris: That's right.
Corey McLaughlin: Speaking of China...
Dan Ferris: Speaking of China, let's talk to our good friend Brian Tycangco. Let's actually do that because Brian is based in Asia. So he has this on-the-ground viewpoint and we'll see what that gets us. He's a very insightful guy. He's been around Stansberry for years and years. He's been around the markets for decades. Let's hear what he has to say about China and other things. Let's do it right now.
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Prior to joining Stansberry Research, Brian was editor of the Asian Growth Stocks newsletter for 17 years. He brings with him nearly 25 years of understanding and research experience concerning the Asian stock markets, including China. So lots of good stuff to talk about.
Brian, welcome to the show.
Brian Tycangco: Hi, Dan. Thanks for having me on.
Dan Ferris: Also, I should tell our listeners I have of course my co-host, Corey McLaughlin here and we're going to gang up on Brian and see if we can wring some good stuff out of him.
Corey McLaughlin: That's right. Hey, Brian. How are you doing?
Brian Tycangco: Hey, Corey.
Dan Ferris: So, Brian, since you're new to the show, I thought I would sort of do my classic first question for new guests, which is: if you and I met in a bar and the conversation just turned to finance and I said, "Hey, what kind of investor are you?" what would you say? What kind of investor are you?
Brian Tycangco: [Inaudible]. That's a tough question to answer. I mean every investor I guess, and if I'm going to describe myself, should be an investor that really looks at how life has formed the way I look at investing. I look at my life as a journey.
I started out in the weirdest of markets. I started in the Philippine market, which was very speculative. But I have a background in economics and nothing seemed to make sense at first when I joined the equities market because everything I learned in college was about looking at things from a top-down perspective, looking at the economy, looking at public schooling, how this applies to everything that I do.
Then here I am in this small stock market in a small country in Asia, and everyone is asking me, "What stock is going to go up today?" How the hell should I know, right? How the hell should I know?
That's when I put a lot of things in perspective, especially when I joined at the peak, what I would say was just before the Asian financial crisis, when things were really doing well, just before things really hit the fan. How speculative the small markets have been brought me to realize that I wasn't doing things the way I wanted to do it. I wasn't learning from the industry the way I wanted to learn.
So I went into research. I decided to go into research for a big investment bank called BMP. From there I started learning how to do fundamental analysis. There I was finally able to use the things that I learned in my college education, which is economics.
So when you ask me what kind of investor I have become, I would say I'm more of a top-down kind of guy. I look at everything from a broader perspective, a macro perspective. I look at the growth in general. I look for the sectors that are going to benefit from that growth. Then I zero in on the companies that I think are going to do the best, and that timed just perfectly as I exited the financial crisis.
China had joined the World Trade Organization right around that time and it was just green fields. Everything was just so full of potential. Coming from where I am in Asia, you could feel the sense of excitement about China's opening, and that brought me to realize, hey, this a megatrend I have to keep an eye on and watch, and that sort of fit into my investment thesis where you look for the countries that are growing the fastest.
When you do that, it's not that difficult to find sectors that are going to do really well and companies that are going to do their best. I take that approach in anything that I do in investing because I do believe that if you really want to make money in the markets you have to go where the growth is. That is a time-tested formula for success.
Dan Ferris: OK. Let's talk about China today. The narrative today is reopening. It's like every time somebody says the word China, they say the word reopening within five seconds. Is that what you see?
Brian Tycangco: Yeah. China has basically shut itself off from the world for three years. It did well for the first year and then it did horribly for the next two years. 2022 was obviously a very bad year. I wouldn't be surprised if they went into a very deep recession in 2022.
Their hand was finally forced to reopen. I think a lot of that was influenced by the protests that came about in late '22. Just seeing everybody around the world maskless and living a normal life again, there was a big clamor for a return to normalcy in China.
So China has reopened and there is a lot to be hopeful for with this reopening. China accumulated – I mean the Chinese households themselves accumulated about $4 trillion in additional during this lockdown. You say: how the hell did they accumulate $4 trillion in savings, right?
Dan Ferris: Yeah.
Brian Tycangco: Well, China clamped down on real estate, which was the No. 1 go-to in assets for any Chinese family. They normally invest in real estate as a stable, safe way to grow their wealth. It's the same everywhere, even where I lived in the Philippines, wherever I go in Asia. Chinese families just invest in real estate. It's a no-brainer for them.
They buy more than one property, not just for themselves. They buy two, three, sometimes even four pieces of property, which they hand on to their kids and their daughters-to-be or sons-in-law-to-be. It's a sort of wealth and it's a sign that you've moved up into the middle class.
That's why when Beijing clamped down on real estate, it sort of shocked a lot of Chinese families into thinking, "Hey, this is no longer just a no-brainer safe way to invest." So a lot of them stopped buying real estate for the best part of the year, and that contributed to the growth in excess savings in China.
The other part from not being able to go out, not being able to travel. The Chinese are one of the biggest travelers and spenders all over the world, and they haven't done that for three years. They spend upward of I think around $60 billion a year internationally, just on spending. So that was bottled up in China.
So you have $4 trillion in accumulated savings now waiting to be unleashed into the world. That's going to impact everything, from tourism, travel, to luxury retail, hotels stocks, even casinos in Macau. The casino stocks in Macau have just been on fire lately. Macau used to generate up to six times the gaming revenues as Las Vegas itself at the height of the gambling craze.
After COVID, that almost went down to zero. I mean that's insane, right? So the snapback in these stocks is justified, and it just shows you the sheer magnitude of how much was lost and how much could be gained, again, once these mainlanders start flocking to Macau.
Dan Ferris: I've heard the long-term China story is a popular one. We've been telling it in a big way for 20 years or so. But another thing that I always wonder about with China – there's actually two things, two concerns. One is sort of a bottom-up – and this is Asia in general, the accounting. I have a whole book that's devoted to reading Asian financial statements. It's kind of hilarious actually. There's a, "Well, they print this, but they mean that," and it could be the opposite. So that's one thing. That's a bottom-up concern I have.
The other concern that I have is top down in China because when a guy declares himself president for life, it doesn't exactly sound like a great capitalistic free-market society. It sounds like he's going to do whatever the hell he wants, and if the Chinese government wants to take your money they'll take your money. It scares me a little bit. Am I being too paranoid?
Brian Tycangco: No, you're not. That's definitely a concern that's going to be around for a lot of foreign investors. When everyone deals with China, that's going to have to be factored into the risk. I can't sugarcoat it. That is really the case right now. Xi Jinping has really cemented his grip on power in China, whether for good or for worse.
The way that China works is not the same as America. It's just totally different. Are people OK with it in general? Yes. I would say yes, in China.
The way that the Chinese society works, even the government, is really very patriarchal. I was born and raised by a Chinese family. That's really how it is. You have a leader that you trust that will do the job for you, and as long as he's doing his job people are basically quiet and just let him do whatever he wants.
Most Chinese really just want to get on with their lives, being able to feed their family, send their kids to a good school, have the promise of a good life, not necessarily a wonderful life, but a good life, for most of the middle class.
That's why I see that something tipped a few years ago when there was a lot of inequality spreading throughout China. The cost of education was soaring. A lot of people were feeling like they were getting left behind. You had people spending too much money in things that are not priorities.
When I say that I mean look at online gaming, for instance, wherein you had kids that were spending hours and hours and nights on video games, which in a normal society, go ahead, you know? It's really up to the parents to discipline the kids, right?
But here, what happened was sort of like Beijing stepped in and became the parent, like, "OK. I'm going to have to be the big person here and step up and start implementing some rules here, so that you guys don't need to have control of your family. You can actually go back to some sort of normalcy in your life." So kids are no longer allowed to play video games 24 hours a day, seven days a week. They're only allowed to play video games from this hour to that hour. That sort of shocked a lot of people.
Dan Ferris: It's not the Western way, is it? It's shocking, but it's only shocking to a Western mentality. Was it shocking to the Chinese?
Brian Tycangco: It wasn't shocking to the Chinese. They kind of like wanted it. Nobody went into an uproar. There wasn't a society uproar when Beijing implemented these rules. There weren't families that were saying, "Hey, you can't do that." They actually wanted it, and when you had –
Corey McLaughlin: We all want it, Brian. Anybody with kids wants it, anywhere in the world, whether we admit it or not.
Brian Tycangco: Exactly. We don't want to say they were right in doing it, but it's the right thing.
Dan Ferris: Brian, the thing that didn't like it though was the markets, right? That was 2022 and everybody kind of freaked out over the regulations and what was coming next. It's easy to forget about that now. Remember, the big story with China is the reopening, but I think the big story was you had the Evergrande, like you mentioned, the real estate. Then all these regulations coming in and nobody knowing when it was ending, and now you're talking about a rally getting started in Chinese equity.
Is that right? There's a lot of things that I think are – what I hear is all this savings spent up and maybe that regulation story is behind – you know, that was a risk to the American markets for sure. Is this rally getting started in China right now?
Brian Tycangco: Yeah. I think it's just getting started. Look, on the regulatory front we had two, maybe three years of real adjustment that went on. That rattled the markets. That made everyone run for cover because nobody knew what was going to be next. Nobody knew what kind of new regulation was going to come out next, especially with Ant Financial, the Ant IPO being pulled back in 2019, what would have been the world's largest IPO ever. That just set the tone for the next couple of years basically.
What appeared to the West or what appeared outside of China was basically, OK, you can no longer do business the way you were doing business before. Here are the new rules. And nobody knew if these companies were going to be able to adhere to these new rules. It was just a big question mark.
What is coming to be known now, slowly, is that, you know, one by one these companies are able to adhere to these rules, and these companies are finding new ways to grow their business within these new parameters. So that is one thing that people are going to be looking at going into 2023.
So you have this massive snapback rally in Chinese equities from the lows of October, and that was just to get us from down 90% to just down 80% or down 75%. So how do you get the next 75% and make up more from that?
It's really just proving that you can now grow again in this new environment. How fast companies are able to do that, we don't know yet. There's still a lot of questions left unanswered. I think we'll see that in the next couple of quarters. The reopening is going to be driving a lot of this growth. Like I said, a lot of these companies suffered not just from regulations, but also from the lockdowns, the COVID lockdowns.
So it's like a double whammy, even a triple whammy when you think about the general malaise in the economy. You had so much going against all of these Chinese companies before, and now slowly one thing and another thing is going in its favor, but that doesn't mean that we're going to go back to normal. That doesn't mean we're going to go back to the way things were in 2020 or 2019.
Dan Ferris: No. As a matter of fact, we've had guests on this show, like macro analysts who said, "Make sure you get all your people out of China because it's going to get bad." But, you know, it's a big world. There's plenty of room for lots of viewpoints.
But what I'm hearing with you, Brian, though is you've been focused on Asia for more than two decades. You're an Asia-focused top-down analyst, and still it sounds to me like you find a certain opaqueness about China. What you just expressed to me was some caution. You said, "Let's wait and see. Let's wait and see what the next set of rules is."
Let's see if it's pro-business and pro-middle-class free society in a Western kind of – at least in a way that the West can understand. They'll do it the way China does everything, but let's see if we can sort of get a good feeling about the direction that China is headed in.
So you're not willing to go out on a limb. I find that very interesting, and I have to say it kind of is a characteristic of the best top-down Asian analyst, even when they're located in Asia.
Brian Tycangco: Yeah. Look, it's hard to say, "Pack your things and get out of China," when you're like me, based in Asia, and you deal with a lot of people who deal with a lot of people in China every day. I talk to so many people who basically get 100% of their business from China.
Things are just normal back there. Nobody is packing. I don't hear about any businessman in China who wants to pack up their bags, any Chinese, rich Chinese who wants to get out of China as quickly as they can. That's not happening. A lot of people just want to get back to business, and they are now getting back to business.
As long as you can provide that environment in China, I think that it lends to the – it's something that we're just not used to in the West, but when you are here you don't get the same sense of foreboding that you do when you listen to all these crazy headlines in mainstream media, all these alarming headlines. I must say everything is not rosy, but everything is not as bad as it seems.
Here's something that's always stuck in my mind. Speaking with some of the biggest tycoons in the Philippines who have a lot of business in China, they've always had this great outlook for China. I mean this is the place to be. They don't look at it as, "Oh, this is a great place to be, just as long as blah, blah, blah." This is really the place to be because if you look at the Chinese people –
Dan Ferris: Oh, unconditionally. Just great –
Brian Tycangco: - if you look at how entrepreneurial they are, if you put a Chinese guy anywhere on the planet, they're going to find a way to make money.
I'm not saying it will be the best way, but they're just entrepreneurial and resourceful, and most of the Asian economies really are dominated by either Chinese families or families with Chinese linkage. They see the dynamic going on here and they see just how important China will continue to be, not just to business, but to both stability in the region and just the outlook itself. I'm not at all getting any signs of alarm from our end. It's just back to business.
Dan Ferris: In other words, people you know who have a lot of money to invest, they're as bullish on China for the long term as ever, and unconditionally they say, "Yeah, China is the place to be, period."
Brian Tycangco: Yeah.
Dan Ferris: Then reminded me, when you were talking about the headlines, the geopolitical headlines that we get over here in the U.S. about Asia, China, Taiwan. Everybody over here in the U.S. thinks they're an expert on Asian geopolitics. But to me, it seems like if you're an investor and you understand that, yeah, the risk of regulation and maybe unforeseen moves from the government is a risk to have, but if you actually understand what's going on in China like you do and the long-term opportunities here could be – like you said, the markets are down 90% over there. So it's like if you actually understand and go beyond the headlines a bit, even just a little bit, it seems like you could find the opportunities that you do.
Brian Tycangco: Yeah. I mean –
Dan Ferris: I still want to talk about something else here, Brian. A moment ago I said all the good Asian analysts seem to accept a certain inscrutability or opaqueness about China, and they're not willing generally to go out on a limb about it. It's always very "Wait and see when China is up to something that people aren't sure about." Then on the other hand, you just told me that wealthy investors who you know on the ground, in the Philippines, view it as the place to be... unconditionally.
None of us are billionaires. The three of us, are we being too paranoid and too Western in our thinking? Do we need to adopt some of that "Filipino tycoon" mentality?
Brian Tycangco: I think it's just being practical. I mean seeing what's happened over the past three years, you need to be open to the possibility that something like that could happen again, right?
Dan Ferris: Sure.
Brian Tycangco: That should be baked into your decision-making. You don't go all in on China, but you don't also not have exposure to a place like that this. So I would say there's always room for China in anyone's portfolio. It definitely is the second-largest country in the world – the second-largest economy in the world. It's probably going to be the fastest-growing economy in 2023, next to India maybe.
So there's definitely a lot of potential there. So it would be crazy not to have exposure just because of what you think are geopolitics, and what might be Xi Jinping's desire to control things once again. That's always a possibility, but the way things are headed now that tells us that, OK, Beijing has already set the ground rules for these tech companies.
They've taken small stakes. Here's one thing. There was this article about these golden shares of these Chinese companies, of the government in these Chinese companies. That rates a lot of concern, but for me I think that it's actually a positive since now that the government has taken a small, minor stake in these companies, it's now ready to just let them, "OK. Now that we've set the rules, you're now ready to grow. You understand what the rules are. We're here just to make sure we have a say in what goes on, but how you grow your business now based on these new parameters is really up to you."
That's what 2023 is going to be all about, whether it be JD.com, Alibaba, Tencent, Pinduoduo, we're going to see these companies now prove that they can grow in these new parameters. If they don't, they're going to be punished accordingly by the shareholders, by the market.
Dan Ferris: OK. So what I'm hearing – let's get back in Warren Buffett mentality. Like Buffett says, when you see a really high-quality business that's had kind of a one-time severe problem, you should buy it because the price is not going to be depressed for long. It sounds to me like between you and your Filipino tycoons, China is the high-quality business that you should buy on the dips for the long term.
Xi doesn't want to ruin this for people. He doesn't want to go back to the way things used to be. He wants people to be wealthy. He wants there to be a middle class, we assume. He also likes having control over other people's lives.
So there's a little conflict there, but it seems to me, what I'm getting out of everything you've said, Brian, is it's the Warren Buffett situation. When you see a situation in China where a rule comes out that the West just doesn't get or it looks like he's clamping down in a way we don't understand, it's not over. It's just different than you thought, and it's probably a good idea to buy those massive dips if you are truly a long-term investor in China, it sounds like. That's what I'm getting.
Brian Tycangco: Yeah. That's exactly the point there. Everyone needs to realize just how young China's stock market is. It's a very young stock market. So it's still evolving. There's still very low investor participation in the stock market. Just a tiny fraction of Chinese savings is actually invested in the stock market.
So as this evolves, you're going to see a lot more policy toward the development of the stock market. For instance, China just launched their first privately run pension fund. It's like the 401(k). This is going to be a major driving force for the stock market as the Chinese move away their savings from the traditional real estate investment and park it into the stock market.
What else? They are now slowing opening up their capital markets to foreign investors. They haven't stopped. They just keep on opening up one after another, new policy after another they're opening up, and the money is flowing in.
Second, they're starting to make foreign stocks more accessible to mainland investors through the Stock Connect. The Stock Connect, many people don't understand, is a – because mainlanders aren't really allowed to buy shares overseas, so it's one of their ways to control capital. But through the Stock Connect program, qualified investors in the mainland can buy Hong Kong-listed stocks through their mainland stockbroker.
This has actually been growing tremendously over the past few years, particularly this past year, where they started allowing some of the tech stocks to be included in this Stock Connect program. They even included ETFs in the Stock Connect program.
What I've been writing about on social media and Twitter is how the ETF is being used as a back door to invest in a lot of these U.S.-listed Chinese tech stocks. Companies like Alibaba, Bilibili, JD.com that aren't yet included in the Stock Connect, they're all part of this ETF called the Hang Seng TECH ETF. Although you cannot buy – if you were a mainland investor you cannot buy these shares through the Stock Connect. You can buy the ETF that holds these stocks. That's sort of like the back way.
Since October, the ownership in one of these ETFs that does this has gone from almost nothing, like 3%, to 25% as of today. So mainland investors now own one-fourth of this entire ETF through the Stock Connect. If you are going to be clamping down on companies again, why would you allow your own people to be buying shares in the very companies that would get hurt from these policies? It doesn't make sense.
Dan Ferris: Right.
Brian Tycangco: But of course, anything can happen. Control is paramount always, but then again, you look at these things and you have to take them into consideration and maybe say, hey, yes, there's a big fear out there, but then you have these conflicting developments. And I say are the valuations worth the risk that I'm taking?
Dan Ferris: Exactly, just normal investor considerations, in other words, and that's kind of a hint too, isn't it? If you can just think in a normal way about investing in China, maybe that tells you something.
Brian Tycangco: Yeah.
Dan Ferris: Overall, it sounds like if you've got a decade-plus, I'm going to say, timeline, sure, there's always a "wait and see" in a feeling. But it's like you said. At the very least, you can't afford not to have the exposure. I find that very, very compelling and interesting. I personally have maintained some consistent exposure, and right now I'm kind of glad that I did.
Brian, before I get to my final question, there's a whole topic that we haven't covered that I want to cover with you, and that is commodities, specifically like oil and gold and whatever else you see out there. I know you're interested in this. What are you seeing these days? Can you start with oil?
Brian Tycangco: Yeah. I helped write the Commodity Supercycles along with Bill McGilton. We've been very bullish on commodities for a while. We think we're entering a second phase in the commodities supercycle after last year's major selloff in a lot of these commodities, mostly being driven by the drive for – I mean being driven by the clean-energy revolution, copper, zinc. These are all inventories at almost record lows, but the demand is still surging.
Just look at the EV numbers coming out of China. You have an almost 30% EV penetration rate over there for every new car being sold. Globally we only have maybe less than 10% EV penetration. But then the average EV consumes or takes up almost 10 times as much copper as your normal internal combustion engine in a car.
So imagine EV is taking up 50% of every car being sold globally, and China plays into a lot of that because they are the ones that are leading the charge into lower-cost EVs. India I think is going to be the next bull market in terms of low-cost EVs, a company there called Private Motors. It's still a very small market, but their EVs are just flying out of the showrooms because of the low cost and the practicality there.
Anyway, commodities, there's still a lot of things going on in geopolitics, the Ukraine situation, which are underpinning the strength of the oil markets, the natural gas markets, despite the correction recently. You have China coming back online, opening up to the world with demand set to grow alongside its economy. So I'm thinking maybe 5% or 6% for China's economic growth this year, and that's going to figure a lot into oil consumption and natural gas consumption.
A recovery in their real estate market, which seems like they are hellbent on achieving, what you have to understand is most of the new homes or all the new homes – almost all of the new homes being sold in China are really condominiums, where you have natural gas piped into these condominiums, and that figured a lot into the growth in demand for natural gas throughout China over the past 10 years as a lot of these cities become connected to the gas network.
That's underpinning demand for gold. I mean you saw that gold demand among central banks skyrocketed last year, most notably from countries like China, Russia, the Middle East, and even emerging markets have been buying up gold, not because of a lack of faith in the dollar, but more of I think a worry about the geopolitics and where it's headed, especially with Ukraine and things happening between China and the U.S. over Taiwan.
Here's the thing. The commodities supercycle doesn't end just because you have one small correction. The commodities supercycle ends when you have a total disruption in demand, and that's not going to happen anytime soon. I don't see it happening. We don't see it happening. Emerging markets are roaring ahead. Countries like the Philippines, India, Latin America are all set to post significant growth. So you can't have a bad commodities market when you have these kinds of growth coming down the pike.
Dan Ferris: Brian, one of the things that I keep thinking about is, you know, whether you believe in the renewable-energy push or not, it's happening. So if you're moving from, whatever, the conventional energy sources to these new energy sources, I still don't think people are fully aware of what goes into those sources.
So I'm assuming that a lot of the places that you're familiar with and cover produce these sorts of metals and whatnot that can be used in these new battery systems, the electric vehicles, whatever it may be. Is that true? Do you see that sort of crossover between the commodities and the emerging markets right now?
Brian Tycangco: Yeah. Look, a lot of the materials used in the clean-energy industry are derived from emerging markets. So you have these markets benefitting from that demand. You have things like copper and zinc, nickel. I mean the Philippines is one of the three largest producers of nickel in the world and exporters.
Corey McLaughlin: I did not know that.
Brian Tycangco: So this tiny country in Southeast Asia is one of the biggest nickel producers in the world. It's going to benefit us immensely with this clean-energy revolution. Whether it's going to be a massive revolution or it's going to be slow but steady, I think it's a megatrend that is already set in stone.
Just like at China with its EV penetration. It's really just a matter of both policy and demand. There's a lot of demand. People are changing, trading in their ICE cars for EVs. The price has gotten low enough to make it practical. It's gotten even cheaper than some normal cars, and you have this massive infrastructure that supports the EV industry.
There are almost 2 million charging stations all over China. That's insane, right? When you have that kind of support, whether it's going to be a fast charging station or a battery-swapping station, there you have a lot of confidence to own an EV.
I wouldn't buy one, even if my life depended on it, here in the Philippines. I would wait. I had actually a neighbor who bought a Tesla Model Y. I asked him, "How the hell do you charge that thing?" and they say, "We hardly use it, but it's just parked at home and we charge it at home." I've only seen them use it once, going to the grocery. So it just doesn't make any sense.
Dan Ferris: My neighbor does the same thing here, yeah.
Brian Tycangco: But you have this thinking now that, yeah, it's acceptable. I want to now own an EV, but just make it practical for me to own one. So there is that thinking going on out there. It's surprising to see that happening in places like Asia.
I think that doesn't have to be full EV. Hybrid vehicles that run on both battery and gasoline are going to take off in a lot of emerging markets that don't have the financial capability to roll out these massive charging infrastructures. So I think that's going to go. And they consume a lot more copper and zinc and nickel than the average internal combustion engine. So you see it happening all over.
I think that that is real and that is tangible. That's why we believe that this commodity bull market is not yet over.
Like I said, back to inventories, they are still really crazy and – I won't say record lows, but five-year lows on the LME, copper, aluminum, zinc, lead. Most of these are near-record lows, and you have continuing growth in demand for clean energy, solar-powered installations, wind-powered installations, hydro-powered installations are all growing, and these consume enormous amounts of these materials.
Dan Ferris: What I wonder about in the clean energy – and I think the thesis is right. It's also a reason to own oil, frankly, but what I wonder about with the clean-energy thesis is how soon are we going to acknowledge that it's not clean. It's horribly inefficient technology. Solar panels are terrible. You can't invent a worse way to generate electricity.
Windmills are – they literally mowed down forests to put up windmills in some places. They have come with their own environment problems, not to mention the fact that they are made of massive quantities of steel, and the internal organs are bathed in this extraordinarily expensive fossil fuel oil.
Energy density for electric vehicles, it's not even close with internal combustion. The amount of fuel it takes to go 20 miles is tiny compared to like 400 kilograms of batteries. You know what I'm saying? It's not even close.
So technologically, this stuff sucks. It's terrible. I wonder when that reality, like when is that reality going to hit? For me, the commodity supercycle, if it's real, and I believe it just might be – I don't necessarily think it's only about clean energy. It's just about the world opening up and growing more, and the narrative right now is the end of globalization, and that kind of masks the reality. Anyway, my two cents.
Corey McLaughlin: Dan, to answer your sort of rhetorical question, I think when the prices for all of these things keep going up and up is when that will hit some people over the head. That's what Brian is talking about with the commodities supercycle and the price of oil going up, as we all talk about, too, at the same time because of these things. In all seriousness, I think the prices going up will make people realize that.
Brian Tycangco: That's true.
Dan Ferris: I think Brian hit this spot on. You must have exposure to these things because sooner or later we're going to run into the fact that we don't have enough of any of them to get to any of the climate goals. The physical supply is – the capex is down and to the right. The supply is down and to the right. It's just that we're going to run into really spiky, nasty action, like what happened on the LME with nickel a while back. That's like when you get a whole bunch of that price action –
Brian Tycangco: Yeah.
Dan Ferris: – and Brian will be saying, "Take profits," and he'll – yeah.
Brian Tycangco: I agree. That is a likelihood, yeah.
Dan Ferris: All right, Brian. We've arrived at the moment when I ask my final question. It's the same question for every guest no matter what the topic, even if it's nonfinancial. It doesn't matter, the same question.
The question is simply: if you could leave our listeners with a single thought, what would it be?
Brian Tycangco: Everyone needs to not just listen to the news. I think you have to be able to be willing to step out of your comfort zone. I mean a lot of us just want to listen to the news and be told what to do. We have to be able to step out of our comfort zone and look at what's really going on in the world. Just doing that simple thing is going to help us, any reader, any investor, make better investment decisions.
Dan Ferris: Boom. Perfect. I love it. It takes work.
Brian Tycangco: Yeah.
Dan Ferris: Investing takes work. Yeah, I hear you. I love that message. I wish I heard it more often.
So thanks for being here and we will definitely be talking to you again, hopefully sooner rather than later.
Brian Tycangco: Thanks for having me on. Great talking to you both.
Dan Ferris: 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. 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 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 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.com for a free copy of this new report.
Corey, I'm going to go to you first. What are your takeaways from talking with Brian. He covered a lot there. I felt like we could have talked to him – or he could have talked forever there and we would have kept learning things, or at least I would have.
I guess the first thing, it feels like when he was talking about the excess savings that the Chinese people have gathered over the last year or so, $4 trillion, to me that sounds like the U.S. stimulus package from two years ago. If that's true and the Chinese people have really saved up and haven't been buying second, third, and fourth homes, and they're getting through their first real serious bout with COVID, you could basically map the timeline from the U.S. onto China two years later and there you go. That's one thing.
There's just a lot of the other cultural aspects with China and Asia. It was great to hear from somebody who is there and understands these things a lot better than I do, and his take on commodities too.
Brian does some great work. You don't get a lot in this industry from people are based in Asia writing to a U.S. audience. So I really think – no matter your thoughts on China or Asia, I think he's a valuable guy to follow.
Corey McLaughlin: Oh, yeah, I agree with that. I'm adding him to my – my two takeaways, the impression I got from Brian and his Filipino-tycoon posse is if you have a lot of money and a long timeline, China is a no-brainer. Whenever they do something or whenever they go through one of these huge drawdowns, you should just buy it like a high-quality stock, like Warren Buffett says to buy a high-quality stock.
At the same time, the other takeaway for me is that I'm adding Brian to my growing list of Asian analysts based in Asia. Most of them are working for big banks and stuff, but the idea of having some boots on the ground in Asia to me has kind of diluted over the years because all I hear is, "Be very careful. Be very careful with China. Be very careful with Asian accounting."
They're just confirming the sense of caution that you ought to have anyway. There are people who practically made their careers out of shorting Chinese frauds and things. So it's all adding up. It's all starting to add up and I think one day this will not be true. I think there will be some more transparency in just Chinese financial markets, and Chinese people will eventually get more confidence in their own financial assets, and put more of their savings in it sort of American style. But we'll see, won't we.
Dan Ferris: We will see. I did think he painted a good picture of what the current environment is over there. So it was nice to hear.
Corey McLaughlin: Yeah. I'm encouraged. I'm happy to have my Chinese exposure.
Dan Ferris: All right. That's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy.
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