Episodes

Announcer:                 Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.

 

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value published by Stansberry Research. Today we'll talk with Kim Iskyan. He is Stansberry Research's international editor. We'll talk about Russia, Ukraine, Iran, Venezuela, and more. In the mailbag today, questions about inflation, inflation, and inflation. And remember, you can call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my opening rant this week, we'll talk about shareholder rewards, inflation and the CPI, and what it means to have skin in the game. That and more right now on the Stansberry Investor Hour.

All right, three things to talk about. We've been talking about the "Five Financial Clues." We've gotten through three of them, the things I look for that tell me I might be onto a really great business. The first one was gushing free cash flow. The second one was consistent margins. They could be thick or thin, but consistent is what I'm looking for. The third one was a good balance sheet, either a company that has more cash than debt or they could have more debt than cash, but it makes so much money that covering its interest payments is really easy. The fourth financial clue of the five is called shareholder rewards, and this is dividends and share repurchases. And it really is just something I like to know how the company handles it.

If a company like – you see a company like Procter & Gamble and they've raised their dividend every year for something like 50 or 60 years – I haven't kept track of it in a while. I think it was like 60 years. It was crazy. And there are a few of those around that have raised their dividend every year for decades, right, and then there are also companies who buy back lots of shares. And you put these two things together, and for me, the most important thing about this is that they acknowledge that they have so much cash they don't know what to do with it so they get rid of it through dividends and share repurchases. Because I'll tell you something, it's better if a company can reinvest all its money at a good high rate of return, but most businesses can't do that, right? The reason why Warren Buffett can get away with holding onto lots of cash and never paying a dividend and just buying back some shares now and then is that he's got over 100 businesses that can be reinvested, you know, where he can keep the money inside the business, reinvest it. So that is different than what most companies face. Most companies only have one or two businesses under the same roof, usually one, right? And so they have more limited opportunities for reinvestments, so if they're making so much money that they're generating plenty of free cash flow, they better be paying it out in dividends and/or share repurchases.

You know, I don't really have a preference either. Some people say, well, share repurchases are better because you don't pay income tax. Yeah, you also don't have the cash in your account if you hold the shares, right? You're not paid any cash. Sure, you own a little more of the company. The more shares they buy back, the more they reduce the share count. You own a bigger piece of the company, but that's different than having the cash in your pocket and having it taken out of the business, isn't it?

So yeah, I like to see how companies handle dividends and share repurchases because it can mean they're making so much extra cash they don't know what to do with it and that they're disciplined enough to get it out of their pockets because most management teams, you know, they're not – they're usually not founders of the company with some big stake like 20% or 30% or 40% of the company. They're usually like hired-gun management teams who get share options, you know, stock options as part of their compensation, right, so they don't really have a lot of skin in the game by my definition. So you've got to make sure they're doing the right thing for you as a shareholder and acknowledging that money burns a hole in their pocket the same way it does every other human being is a good thing. So we like to see them paying it out like that.

And share repurchases, most companies stink at this, frankly. They're terrible at it. They buy more at the top and they buy little or none at the bottom. When there's a recession, the stock market's down, their stock is down, they get all nervous and they want to hoard cash. They don't have enough confidence in their business to buy back a big chunk of the shares. But over time, a really great business can sort of grow out of bad share repurchasing. It just doesn't matter so much. So that's how I feel about that. So we have free cash flow, consistent margins, good balance sheet, and how the company handles what we call shareholder rewards.

The next thing I want to talk about is inflation because that's a real thing now with the CPI up 7.9% last month. So if you look at a chart of the year-over-year increases in Consumer Price Index – and that's what the CPI is. When they say it's 7.9%, means in the month of February, the Consumer Price Index rose 7.9% over February of the previous year, of 2021 in this case. That's what that means. And if you look at a chart of increases, that increase, that monthly percentage that is quoted, when people say the CPI is 7.9%, well, that's not the Consumer Price Index. That's the year-over-year month increase in the monthly CPI. And when you see a chart of that, of those percentage increases and decreases back to like 1914, or 1913 I have from Bloomberg, it's sideways. It is often negative before about 1955 or so, and it's very spiky. The spikes go in both directions really before the '50s, and mostly just upward after 1955. We get these two, of course, big familiar spikes, one in 1974, one in 1980 into double-digit territory, north of 10% increases in the CPI. But mostly between just call it 1955 and the present, you've mostly been between 0% and 5% just the overwhelming majority of the time.

And since let's call it 1982, again, mostly between 0% and 5%, little spike up to 6% in 1990. Little spike up to – well, actually 5%, just the limit there, 5% in 2008, but then you get a spike into negative territory in 2009, just barely in negative territory in 2015, but otherwise pretty much sideways. And as they say, spikes are normal. There are many fewer of them after the '50s, but they're very normal. So we have here a spike up to 7.9%, and indeed, if you look at – I saw a Deutsche Bank report today, I saw Wells Fargo Securities, and their forecasts have this spike right around 7.9% or 8%, and then that's the peak, and they say it's going to fall, the increases in the CPI are going to fall. But we're just talking about the increases.

If you take a look at a chart of the CPI index itself, the thing that they're measuring these increases in, it's just up and to the right. If you looked at it and you didn't know what it was, you'd say, geez, that's a raging bull market, it's never going to end. And that's probably true in a fiat currency system. Sure. We're always going to have some inflation, right, because they can always borrow new money into existence, lend new money into existence. The government can just create bonds out of thin air, and voila, new money is in existence. Of course, the overwhelming portion of our money is created by loans in the banking system.

I got this wrong many years ago. I thought fractional reserve banking meant that you have $100 of capital and 10 to one means that you can lend out basically 90%, right? So then one-tenth of all the money you've loaned is in reserves and then the other 90% really is in loans, but that's not what it means at all. It means if you have $100 of capital, you can do $1,000 in loans. That's the way it works. So our money is leant into existence mostly through the banking system. And you remember we had Hugh Hendry on the program and we talked about how we just didn't see the animal spirits in lending over the past several years and therefore we didn't get big inflation. And that is a much better explanation than the ones we usually get, I think.

So as I was saying, if you look at the CPI since 1971 when the Bretton Woods Agreement was ended and the connection between the dollar and gold was severed so that gold became a separate commodity and dollar became a free-floating abstraction, since that time people say, you know, oh, gold's broken, it doesn't work anymore. It's the dumbest thing I've ever heard in my life. Even at the bottom in 2001, since 1971, gold was up like 6 times versus the CPI up about 4.5 times. So you know, today gold is up since that time like 48 times or 49 times, and the CPI is up like 7 times, right? So 48 times in gold versus 7 times the CPI. And anybody says that gold doesn't protect you from inflation – it doesn't protect you? It's making you money from inflation. And so that's like the best kind of protection of all. So it works. It's been around for 5,000 years. It's probably going to keep working for another several thousand.

So inflation is spiky. The increases in it are spiky, so we get this – maybe this is the top. Maybe 8%-ish inflation is the top, and then the next print will come in at, you know, 7% and then 6%, 5%, 4% or something. I don't know. But remember what Peter Boockvar told us when we interviewed him a couple weeks ago. He said, you know, we don't need 7% or 8%. All we need is about 3% or 4%, and that's a lot higher than what we've had. So you really – you need to be thinking about protecting yourself from inflation as an investor. And of course, you know, people say gold is so dumb, it doesn't have a yield, it's a terrible investment. Warren Buffett is one of these people. Yeah, OK. Well, in the 20th century, stocks – the S&P 500 is about a triple, and gold is almost 8 times. It's like almost 8 times, almost eight times. So I don’t know what to tell you. Gold has vastly outperformed the stock market in the 21st century and vastly outperformed the CPI, which is not even a double. CPI's up about 62% in the 21st century. Stocks are up about 220% in the 21st century, and gold during that time is up about 600%, so it's no contest. Gold has done a great job. Anybody who says otherwise is just not paying attention. And if you're worried about why it doesn't perform over some short period like even like a year or two, it's just silly. And maybe gold is telling us that for now this is it. For now the spikes in the CPI are going to get smaller. Maybe. I don't know. I don't have to predict that. I just have to hold gold, OK.

The last thing – that's all I have to say about that, all right. The last thing I want to talk about before we get to our interview is the subject of skin in the game. and on Twitter, the hedge-fund manager Bill Ackman, really smart guy I've known for some really incredible short positions and getting crushed in Valeant Pharmaceuticals and a bunch of other things. He's had a really – he's had quite a storied career. He's done really well for himself and his investors. Anyway, he was on Twitter making all these hawkish comments like the U.S. should get involved in the Russia-Ukraine war and fight the Russians and stuff. And I thought that was really disingenuous because, you know, he has no skin in that game.

Then Elon Musk comes along, and Elon Musk goes on Twitter and challenges – like his tweet on Twitter, he said I hereby challenge Vladimir Putin to single combat. Stakes are Ukraine. OK, so he challenges Vladimir Putin to single combat. And then in a follow-up tweet, he said do you agree to this fight? So the guy's willing – that's skin in the game. That's his own real skin that he's willing to put in the game. So we have a rather stark contrast between these two. Bill Ackman, no skin in the game, says let's go to war. Elon Musk puts only his own skin in the game and says I'll fight you. I don't know to the death, but I'll fight you, and if I win, get out of Ukraine. That is the living, breathing definition of skin in the game. No matter what else you think of Elon Musk, the guy understands skin in the game, OK. That's my rant for today. Let's talk with my friend and colleague, Kim Iskyan. Let's do it right now.

 

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Dan Ferris:                 Forbes just predicted $3,000 gold, but I suspect that prediction is much too low. Did you see the February CPI numbers? 7.9% inflation. A fresh new 40-year record high. Meanwhile, the Senate just passed a $1.5 trillion spending bill. Folks, this is money we do not have. It's becoming painfully obvious that massive inflation is here to stay. Fed Chair Jerome Powell came out and admitted last week that we're going to see upward pressure on inflation at least for a while and that the supply-chain crisis is not as transitory as we had hoped. Gee, ya think? Yes, I called out this exact BS weeks ago and laid out a dead simple plan for what to do to protect your wealth.

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Dan Ferris:                 All right, it's time for our interview. Today's guest is Kim Iskyan. Kim Iskyan is a 25-plus-year veteran. I didn't know you were that old, man. A 25-plus-year veteran of the emerging and Asian financial markets. He spent nine years as a research analyst for several investment banks in Moscow, where he was also the portfolio manager of a $120 million hedge fund. He helped develop the capital markets of Kyrgyzstan and Armenia and pitched emerging market fund management products in Ireland. He launched and managed an investment research and publishing company in Singapore, and for nearly three years, he served as director for global political risk consulting firm Eurasia Group, advising Fortune 100 companies and global portfolio investors on the political dynamics of investing. Today, Kim is the international editor at Stansberry Research, helping readers discover safe investing opportunities in global markets that they would otherwise have perceived as high risk. Kim, welcome to the show. You've been a busy guy these many years.

 

Kim Iskyan:                 Thanks. Thanks, Dan. I think that last bit – otherwise perceived as high risk – I think we're seeing that come home to roost right now.

 

Dan Ferris:                 So it sort of begs a question. Is there some one glaring thing in particular that might be perceived as a lot riskier or substantially riskier than you think it really is? You know, related to Russia, Ukraine, etc.

 

Kim Iskyan:                 Something that is – I think one of the underappreciated elements of what we're seeing, Dan, is the – kind of the second-order effects of a lot of what's going on and what happens when Russia is cut off. I think – well, one thing that occurs to me just because I have a lot of experience in the area, a lot of countries in central Asia, for example, are incredibly dependent on remittances from family in Russia. So if Kyrgyzstan, Uzbekistan, I mean, a huge percent of GDP is accounted for in money sent back from Russia to Kyrgyzstan. Something like that, I mean, that's looking at a fairly specific area. Then you think, OK, what happens to government finances in those countries? I think probably bigger issue is what happens to a lot of other emerging markets that are highly oil and gas dependent. They're dependent on imports. What happens to their finances? What happens to their current account balances? What happens to their ability to meet sovereign debt payments? What happens to the corporates there? What happens to income? And then, you know, we've seen this sort of story play out in the past where countries that can't provide basic services for their citizens, they come under a lot of pressure.

And that's what Arab Spring was all about. Egypt is the largest importer of Russian and Ukrainian wheat. What happens when those prices go through the roof and availability plummets? That's a bit of a mouthful, Dan, but I think there are a lot of risks that people don't really – haven't really come home to roost yet, and I think they're going to be hitting hard because Russia – it was somewhat of a fortress economy, or at least it tried to be. The reality is that we're all connected in a big way, especially in the capital markets.

 

Dan Ferris:                 Right. So when the capital market of the – what is it, I've heard 11th and 12th largest economy in the world suddenly just cut off. I mean, the stock market is effectively – you know, the bid is gone, right? The international bid certainly seems to have evaporated. This could really – at first I thought, well, this'll be over in a week or something and Ukraine will have to deal with it or something, and then that'll be it. But now, I mean, even Putin's saying – what was it he was saying? Wasn't going to export uranium, I think, Russian uranium. And I thought, well, the sanctions are coming hot and heavy from both sides of the border there, and both sides of the conflict, so I feel like the more of these things happen, the worse it is for everybody. And it sounds like what you just told me is the risks have yet to come home to roost. I guess where I'm headed with all this is like how bad are we talking here? What are some of the worst-case scenarios that you think are kind of realistic to expect?

 

Kim Iskyan:                 I think it's almost without saying that inflation – I mean, if we're talking about this country, we're going to see – the U.S., a pretty stiff war tax, quote, unquote, just because prices were already going up. As you know, it's been a big theme, and now you just think of the world's largest producer of platinum, No. 2 palladium, No. 3 nickel, No. 4 uranium. If suddenly Russia can't export all of that to much of the rest of the world, well, what's going to happen to prices and what's going to happen to the prices of goods that require all those inputs – electronics, cars, I mean, so many things that we take for granted – phones are just – they have all these little ingredients, critical ingredients that Russia provides. And of course, we've seen commodity prices go up. I think they're going to go up a lot more.

I mean, in terms of worst-case scenario, or if we look at certainly on the war side, we have the Baltics right smack in the middle of all the action. The Baltics and Russia detest each other because the Baltics were taken over in part of the Soviet Union, and then as quickly as they could, they bolted the arms of NATO. That's sort of a historical thorn in the side of certainly Vladimir Putin.

 

Dan Ferris:                 And just for our listener, Kim, we're talking Lithuania, Latvia, Estonia, up there, up north of – sort of northeast of Poland, I guess.

 

Kim Iskyan:                 I think that from a war perspective, I think Russia encroaching NATO or whatever misunderstanding happens, it snowballs. I think that's a bad-case scenario, and that would just trigger even more sanctions. And Russia – it's kind of funny that Russia is prohibiting the export of some of its goods because it's kind of – what's that expression, you cut your nose to spite your face or whatever it is. They're shooting themselves in the foot because they need – the Russian government needs revenues. The – for years, it's been kind of understood that Russia's foreign reserves, which stand at about $630 billion, that was war chest. That was going to sustain Russia if everything went to hell in a handbasket. And I don't think the Russian central bank or most other people realize that all it took was a few keystrokes by the Fed, by the ECB to suddenly make a whole lot of those reserves completely inaccessible. And if Russia can't tap into that, what is it going to do? It still generates revenues from oil and gas which it's selling to China and selling to the EU, but how long is that going to be able to sustain, A, a war and B, the population and just keeping the lights on... doing normal things to keep Russians alive and happy.

 

Dan Ferris:                 Yeah, so you're right. One of the things that, you know, every now and then somebody will say, well, you know, such-and-so country is a big exporter of oil or wheat or whatever you like. They really have the world over a barrel, don't they? And my experience has shown me that the world has them over a barrel because they're usually debt for the revenues, and specifically usually like dollars, which is crazy if you think about you've got to have that fiat currency, but we have this very valuable commodity, you know, this physical thing the world needs. But that's sort of the way it is, and I wonder, you know, we've seen what happened to the ruble already.

 

Kim Iskyan:                 The rest of the world finds other sources/the beauty of supply and demand. Demand stays more or less the same, supply drops, so what happens? Price goes up. So whether it's people eat less bread and they shift to rice or whatever it is, and economies adapt at a price, and that's the war tax we're going to see around the world. In the U.S., people are upset about gas prices rising. Gas prices almost everywhere else in the world, with some exceptions, are far higher than they are here. And United States is a huge agricultural producer, so it's not going to be affected by – certainly less affected by wheat, grain shortages, whereas other countries are really, for one thing, a much larger percentage of the income basket goes towards basic commodities, and those prices are just going to go up.

 

Dan Ferris:                 Kim, you lived in Moscow for years. Well, actually, let's see. I want to ask you about just the way Russians view Vladimir Putin. If you want to answer that, go ahead, but I also want to ask you if you have a sense of what kind of a long game is being played here. Like, in the Western media, you know, U.S. media, we keep hearing about the Russian economy's fallen apart. He'll never last. He'll never be able to keep up this military campaign, and it'll all fall apart. And I'm just curious to know how much of this narrative – is it like 90% hogwash, 100%? Do you have a sense for how long they can keep this up? How long Russia can keep up an invasion and a war?

 

Kim Iskyan:                 Well, I think the – when you go back, and one of the original – when Vladimir Putin came into power, it was the waning minutes, literally, of 1999, and Boris Yeltsin finally threw in the towel. I remember watching TV at the time in Moscow, and it was massive relief. And Putin's kind of big thing all along has been to try to get Russia back on the map and just the humiliation of the end of the Soviet Union and turning out that the emperor was wearing no clothes. The Russian – the Soviet economy was actually a complete disaster. And I think that it's almost in Vladimir Putin's DNA to kind of recuperate some of that status, and the only way – well, there are a few different ways to do that.

The first step really was to get the country's economy back on path, and Putin was benefited – was a huge beneficiary of the commodities boom of the 2000s. So GDP per capita increased 5.5 times from 2000 to 2007, and that bought Putin a huge amount of goodwill because, I mean, if this guy becomes president, and poof, commodities go through the roof, and now instead of going on vacation to a crappy post-Soviet resort in Crimea, they can go to Turkey. They can even go to Europe. That's a huge thing. Instead of driving an ancient [inaudible], they can buy a spiffy new Ford. I mean, the improvements in quality of life were enormous. That bought Putin a whole lot of runway for a lot of people.

Now, what's happened since 2009 is that Russia's GDP in constant terms has actually declined. GDP per capita has declined. And that's a long time. That's been 12-plus years, and so many of the Russians who I used to work with have long since left just because perception is there's so little opportunity. You know, a number have left and gone back. Some of them are still there, but Russia has for years experienced enormous brain drain. Now, that's sort of people who I worked with, and then you have sort of the Russians who are less Western-looking, who aren't connected on Telegram, who aren't watching videos on TikTok, but who go to state television for their news. And as we've seen, Vladimir Putin has made reporting – even calling the conflict a war, has made that a crime. So all of a sudden, normal people – a lot of normal people don't have access to the sort of insight about – any sort of insight about what's actually going on. So consequently, a lot of those people are still thinking, well, you know, we're still doing OK. We haven't really improved much economically over all this time, but we're doing OK, and we've got – Ukraine is part of Russia. Just like Vladimir Putin says, it's sort of Orwellian rewriting of history.

So I guess to go back to your question, a lot of people in Russia support Vladimir Putin, and he does have a whole lot of built-up goodwill. I think the interesting question is how long that's sustained because with these sanctions, it's just incredible to see from afar because I was there in the mid-'90s when all these changes were taking place, and the banking sector was developing, and the economy was finally all those – the economy was being reformed, and all the weird sort of cross-payments that defined the Soviet economy that was essentially different companies swapping services and there being no sort of notion of market price, so big industrial company ABC in Siberia would use gas to create bricks to send them across the country. Completely insane from a market perspective because it was so uneconomical. And then what was happening was that all those sorts of factories would close down. Gas prices slowly became market prices, and the entire economy became price driven as opposed to government driven, policy driven, Socialist economy driven. And so much of that is going to just be rolled back to the mid-'90s.

Now, when the propaganda television Russian citizen begins to experience that, what happens then? I think that's the big question. I think that the issue is that Putin has created such a police state, Russians don't protest because they get beaten up, they get thrown into jail, and they receive prison terms. That's an incredibly effective way of keeping people off the street, and any sort of political opposition, they're poisoned. That's the case with Alexei Navalny, who was sort of the main opposition leader. To even call him that is a bit of a stretch, but he was – he nearly died, and now he's in prison. So my money is on Putin slugging it out and – yeah, the forces of oppression at his fingertips, he can be there a while.

 

Dan Ferris:                 Certainly just the images that I've seen on Western TV from Russia have shown people in the streets and they're calling them protests, and they look like protests, and people are getting beat up and arrested and stuff, but the crowds that were in the streets apparently protesting, if it is as represented, I'm shocked because as you say, it's a crime. It's a crime just to be out there. Have you seen those images? Does that shock you?

 

Kim Iskyan:                 There are – I mean, there's some real Russian patriots who detest what is happening to their country, and yeah, it's a huge risk. I think that it is kind of interesting you see hundreds of thousands of people on the street elsewhere in the world protesting this, and then you see – you're right, you see some Russians, but I mean, Moscow has, what, 9 million people, and how many people do you see on the street? A rounding error at best, and that's why. And it is in some ways extraordinary that anybody's out on the streets.

 

Dan Ferris:                 It's really something. Yeah.

 

Kim Iskyan:                 Yeah, it's so sad.

 

Dan Ferris:                 OK, so you know, you're betting on him slugging it out, which I don't know as much about it as you do, but that's the way I would have tended to go. I thought – like I said, I thought the issue of slugging it out wouldn't even come up. I'm surprised it's come up.

 

Kim Iskyan:                 I think, Dan, something interesting, a lot of the sanctions have focused on – well, some sanctions have focused on some of the oligarchs, and there is a – there's a 2011 book called The Dictator's Handbook written by two political scientists, and they say that behind – in every sort of system, whether it's political or whether it's a company, there are kind of three groups that support the leader. One of them is the sort of nominal group, and in the United States, that would be the voters, right? The president of the United States needs their support kind of, but they're not the key decision makers. The key decision makers in the Untied States are the electoral college. Now, the electoral college is kind of bound to fulfill the wishes of the nominal electorate, that is the people, but the people who really hold the power, they're called the essentials. And in the U.S., we all know that there is just a handful of states and a handful of counties that are swing counties and states, that over the past – most of the past several elections have really dictated who becomes president, and they are the ones who really make the decision. Everything else is kind of noise.

Now, when you look at an authoritarian environment, you have the nominal electorate. You have the people who they pretend to vote, but there's no real choice. Then you have the likes of the oligarchs who, it looks like from the outside, they're the ones who kind of call the shots. Because if oligarchs decide the head guy no longer can provide for them, no longer gives them the environment to make money, then they can knock him down. And then you have the essentials. They're like the inner core because if the defense secretary, the minister of defense, if the head of the FSB, if they decide Putin's really going out of control, things are getting out of hand, we've got to do something here. So according to that model, Putin really has little to be concerned about for the people. Now, the model kind of breaks down because Putin made the oligarchs, and the oligarchs know that it just takes one pen stroke and a lot of their assets could be nationalized. So it's – the oligarchs are terrified, and you've seen a few of them say, yeah, you know, we don't really like this. This war is a tragedy, but it's kind of milk toast and it doesn't change anything, and I don't think that will.

And then you look at the inner circle. A few weeks ago, Putin had his whole – I don't know if it was the cabinet, but a big team in this ornate hall – you might have seen this video – and he was sitting at this table far, far away, of course, as he has been doing. And he had all these guys lined up there, and each of them, one by one, went up to the podium and essentially said yes, this is a great idea, we should invade. And the one guy who kind of stumbled over his words was just verbally whipped. He was, again, [inaudible] of FSB. And if that's the sort of environment, who's going to ever challenge, how is he going to challenge, and how does Putin ever hear a perspective that's not a complete "yes man" sort of perspective?

 

Dan Ferris:                 So if that's all you told me, I would say, well, you know, this sounds like he's not going to be in power very long and he's going to go too far and somebody's going to assassinate him or otherwise violently get rid of him. But I suppose those things can go on for longer than you'd ever imagine, right? A guy like that can stay in power longer than you'd ever bet.

 

Kim Iskyan:                 Yeah, because he does have – the way the government is run, everything runs through Putin, and it's been that way for decades, so everyone in any sort of position of power owes that privileged position directly to Putin. And how quickly is that person going to turn on the hand that feeds him? Things have to get pretty freaking bad.

 

Dan Ferris:                 And what if Vladimir Putin suddenly goes away? I guess they've certainly had their share of peaceful transitions, you know, in modern times, but it doesn't – that doesn't mean the next one will be, and under the right circumstances, or perhaps the wrong circumstances, what follows a guy like Vladimir Putin could be 10 times worse.

 

Kim Iskyan:                 And there's no clear successor because he's – you know, what's the No. 1 rule of being a dictator, erase everybody who might potentially replace you. So – exactly. And if he vanishes tomorrow, then the next guy in line, which who knows who that would be, may well be even more hardline, which would be disastrous.

 

Dan Ferris:                 So you know, it's funny, I really didn't know that much about Russia, and before all this, if somebody had said Russia's going to invade Ukraine, I'd say so what. Ukraine's tiny. It's like Florida invading Nebraska or something. It's the other side of the world, and we can get all those commodities from somewhere else. But I've been proven phenomenally wrong already in that here with wheat going limit up I think it was five days in a row and $130 briefly oil, and all the rest – nickel just going up so far so fast that the Chinese-owned LME cancelled contracts to save their one Chinese client who was short nickel. It was just – it's a crazy, crazy state of affairs, and I don't know. I hope that you're – I hope you're not completely right. I hope it doesn't get so much worse because, you know, I keep thinking about historical episodes like, you know, Archduke Franz Ferdinand and Gavrilo Princip. I mean, this isn't an assassination, but who knows, it could be one. And it could be this thing that I thought was a minor thing, and then it turns into World War III. And you hear that thrown around a lot, don't you, World War III. What are your thoughts on every time you hear that? Do you cringe?

 

Kim Iskyan:                 I cringe because I think it's not – I think there's a chance because I have a difficult time – I mean, a guy like Putin – in Russian, he's a muzhik. Muzhik is like the macho man's man. He's the guy who fixes things with his hands, who jumps into the frozen lake, and he's not going to – he knows that if he backs down, it's probably curtains for him, metaphorically if not literally. So he's all in. I think the – I think that the one guy who Putin will listen to now is Xi Jinping, the president of China. I think so far China has been kind of neutral-ish, helping Russia and kind of – I mean, certainly more on the Russian side than on the Western side. But – and politically there are all sorts of reasons for that.

Just a few weeks – in early-February, Putin visited China, and they signed some sort of thing calling their friendship without limits. I think that the limit comes when prices go up like they have been, and the only person who's more afraid of people protesting in the street than Vladimir Putin is Xi Jinping. So friendship is nice, but as soon as people move into the streets because bread is so expensive, because they can't get things, because heating their homes because they're cold, I mean, that is serious. I think that's where every dictator is looking out, first of all, for No. 1.

And China can put down protests, but only so far, and I think this is an enormous opportunity for China to step up and say, you know what, we're going to help solve this, and maybe some arm twisting of Vladimir Putin to get him to sit down with NATO. China comes out looking like the master geopolitical power that it wants to be. Soft power, that's soft power through the roof, warding off World War III and also looking out for themselves. If this goes on long enough, people get really upset in China, and Xi Jinping is in trouble. And also all of the issues with genocide of the Uyghurs and [inaudible], that all goes away if all the whole COVID, everything, that vanishes from the memory if China steps in and saves the world, if you want to put it that way. So will that happen? Probably not, and there are all sorts of reasons why it wouldn't politically. Why would China kind of ally itself with the West? It could be framed like that. But I think that's the answer there.

 

Dan Ferris:                 I want to ask you about what the U.S. has done in banning Russian oil imports. First of all, there's the obvious irony, like poor Joe Biden. The poor old fool doesn't even know how to virtue signal because he wants to cut us off from Russian oil and then go negotiate with the Venezuelans. I mean, he doesn't even know how to virtue signal. He just can't get this thing right. But are there real implications for, I don't know, our relationship with Venezuela, the Venezuelan economy? Do you see the other side of these sanctions meaningfully impacting any other emerging market or any developing market – any market to the point where, hey, you're starting to get interested?

 

Kim Iskyan:                 Oh yeah, I think – I mean, between Iran and Venezuela, I don't know what the figures are, but that's a lot of oil, and I mean, from an American political perspective, we have midterms coming up. The price of gas is such a big issue, and then of course inflation, how that flows through to everything else. Being able to relieve some of that pressure by bringing Venezuelan oil, and then that's not instantaneous obviously. It's a very sort of heavy oil. It would take a long time to really bring up to scale. But Venezuela – I went to Venezuela six years ago. Fascinating and terrifying. And you could literally fill up your gas tank with a few pennies because oil is so subsidized. Just extraordinary. But the thing is they can't sell it anywhere. So I think it makes a whole lot of sense for the United States to do that, and it's lesser of evils, right?

And with Iran, all sorts of talk about the nuclear deal being brought back on. And Iran is – I also went there when – during the Obama period when it was OK for people with U.S. passports to travel without too much trouble. Iran is fascinating, and I think Iran opening up would be an enormous opportunity in the emerging markets. It's 80 million people, it is a young population, dynamic, beautiful country, smart, smart – to generalize, smart, smart people. I think it's – will be a while before that all unfolds, but Iran would be sort of the next – well, could potentially, I think, be a beneficiary of all this.

 

Dan Ferris:                 There's like Iran equities that Americans could buy?

 

Kim Iskyan:                 Not right now, but the Iranian stock market is big. It's big, it's liquid, and there are a few funds that I believe are U.K. domiciled that are invested. I don't think Americans can buy them, but there's a stock market that is thriving.

 

Dan Ferris:                 Actually I wanted to say real quick one of the things I worry about with a country like Venezuela, and I had this worry about Mexico too, was that they lean heavy on oil production and the state wants to run all these social programs, and so the capital investment is not necessarily great. Do you have any feel for that situation in Venezuela if the – we know the physical commodity is in the ground, but the ability to produce it is another thing entirely, right?

 

Kim Iskyan:                 Very much so. I don't know what the figures are, but I would be shocked if it is – I know that production has been steadily declining just because they haven't reinvested in it because who do they sell it to and what can they – and you know, if it's the difference between feeding your people and subsidizing gas and reinvesting in the field to make more oil to sell to whom. I don't know what that is, but I would be – if it were less than tens of billions of dollars to really get things going. And then you have the refining infrastructure. I don't know how that all works, but it's not a quick thing.

 

Dan Ferris:                 But Iran, on the other hand, I would guess that oil production there is thriving and well maintained.

 

Kim Iskyan:                 Iran has been able to sell to China for a long time, and that's been its lifeline to prevent things from really going downhill. But yeah, I think it's a whole lot more well developed. You don't just flip a few switches and spin a few spigots. It's a lot closer than Venezuela to being able to really add to global oil production.

 

Dan Ferris:                 What a weird series of events. Did you have any feel for any of this six to twelve months ago?

 

Kim Iskyan:                 You know, the – just because Russia has been busy around Ukraine for a while, you had to think there was a reason for that, and I think most people thought, well it's just Putin trying to get an advantage, and when he actually did invade –

 

Dan Ferris:                 Yeah, our guy on the ground, Bill Clinton, he – I mean, he was kind of poo-pooing this idea of invasion, you know, shortly before it happened, and it seems to me like they just got used to all this equipment being on the border and well, then there were people with the equipment, so you know, and they got used to it. They were the frog in boiling water, and they got cooked. It shocked me.

 

Kim Iskyan:                 There were – I actually wrote about this last year. There are good reasons for Russia to do this now. Demographically, Russia's population is steadily shrinking. Vladimir Putin is 69 years old. If this is part of his legacy, he wants – I think as you probably read, a lot of people thought it would just be Russia waltzing in there and Ukraines throwing flowers at the soldiers, and everybody joins hands in this happy family. Now, that would never happen, but I think that's certainly what – that was maybe the perception within certain arenas early, or at least maybe not if they thought all of Ukraine, parts of Ukraine. That has not happened. And that would have been Vladimir Putin's legacy to Russia. You know, dictators want to leave something that they changed in a big way, and Putin doesn't have – he might still have another decade, who knows, but the clock is running. And there were other reasons economically in terms of the trajectory of Russia's economy that it's not going to get any better, so now is the time.

 

Dan Ferris:                 Well, I guess if you're long commodities, you're looking pretty good right now. But let me ask you this then. Can you – besides being long commodities, is there anything else or are there specific commodities? Are you way long nickel and wheat and oil and, you know, without – give me as much detail as you want. Give me names, whatever, but what – are there one or two great ideas that you think everybody should be doing right now because it's kind of a no-brainer?

 

Kim Iskyan:                 I think the – before this all happened, I think that a kind of fanciful idea was that it was being built up by the U.S. military industrial complex, which was kind of fanning the flames because Afghanistan is done, the war on terror is – it's never going to be over, but military expenditures were pretty much done. So if I'm Pentagon, if I'm supposedly the puppet masters behind the scenes, I look around and say, OK, now what? Where's the next conflict? And now we have a next conflict. And it's even if tomorrow Vladimir Putin says, you know what, no mas, I'm out of here, how long is the military buildup in NATO going to last? It's going to last a long ass time. I think defense companies – I haven't looked at what they've done the past few months, but that's – they just have a whole new reason to exist, whether it's some European, whether it's U.S., that's going to be huge.

I think some of the – there are – this is a little bit obscure, but Ukraine is a big producer of sunflower oil, and the price of sunflower oil has gone through the roof. So a lot of people, especially in Asia, are shifting toward palm oil, and there are some listed – a handful of listed companies in Malaysia and Singapore that are big palm oil producers. Now, palm oil gets beaten about the head all the time because it's very poor on the ESG scale because it's environmentally destructive and everything else, but push comes to shove, guess what, now we need palm oil. So that's a little bit of a roundabout thing to look at, and there are probably a whole lot more obvious things.

In 1998 when I was in Russia and Russia defaulted on its debt, and that was sort of the first step of the 1998 crisis, which feels like so long ago now. And I was working in Moscow, and it felt like everything was done because there was the default and currency fell through the floor. You couldn't get money out of the ATMs. Russia had almost no form of reserves, and it felt like a big structural change, that Russia was gone, and it just had to kind of slip into the ocean. Now, of course, when you're in the midst of things, everything feels far more intense, whether it's capital markets or markets falling or all sorts of things in life. It feels so much more intense when you're in the middle of it, but then there is a certain cyclicality to it, and I think that the big question now is whether this is cyclical or structural.

And it may well just be part of a long cycle, and three years from now, we're going to talk about Lukoil, a big private Russian oil company that's on international capital markets going back to markets being relisted and Russia coming back. And I think there'll be some renationalizations, but I think at some point there will be a lot of vultures circling around Russian assets, and there are a lot of good assets that won't be renationalized that will be worth something. Buying them will be another matter because it's almost impossible to buy anything, any Russian securities now, but given enough time, Russia will be back.

 

Dan Ferris:                 OK. I guess it's time. I guess it's time for my final question, which is the same for every guest. And if you had to leave us with one thought about all this today, what might it be?

 

Kim Iskyan:                 I think the one thought is that – actually probably echoing what I just said, that nothing – that very rarely are things as bad as they appear in the here and now, and it's very easy to awfulize and kind of lay out the worst-case scenarios and say, dear God, what terrible things could be happening and how is my life going to change from all of this. Will I be able to buy XYZ thing? Will I be able to fill up my car with gas? And you know, what we always see is that, yes, there's an adjustment period, but human beings are incredibly resourceful and resilient and antifragile and flexible. So markets adjust, people adjust, and right now it feels pretty awful, and of course it's heartbreaking to see some of what's happening, but I think that three months from now, this will be like, yeah, that sucked. And maybe it's still going on, but it's nowhere near as –

 

Dan Ferris:                 Wow. Three months. OK. Well, thanks for that. That's probably – I probably needed to hear that at least as much as anyone listening to this, so I appreciate it. But great to talk to you, Kim. I always enjoy talking with you wherever we find ourselves in the world together. And I hope that we'll get to do it again soon.

 

Kim Iskyan:                 Thanks, Dan.

 

[Music playing]

 

Dan Ferris:                 Something strange is happening in the financial system, and it's prompted Dr. Steve Sjuggerud, a former hedge-fund manager and finance PhD and a friend and colleague of mine to issue an urgent new warning, especially during current market conditions. You see, Steve has built a reputation as one of the most trusted financial analysts in the world by sharing a series of eerie predictions, many of which have been proven correct. For instance, in January 2000, he wrote we are at the peak of most likely the greatest financial mania that will ever be seen in our lifetimes. Right after that, the Nasdaq fell more than 75%. But his latest prediction has caught many Americans completely off guard. He believes that over the next year or so, there's going to be a massive frenzy in the market but not the kind most people are expecting right now. It's got nothing to do with cryptocurrency, Russia, interest rates, or real estates. And history has shown this type of situation only plays out two or three times every century. I'll warn you, what Dr. Sjuggerud has to say is controversial and isn't being talked about in the mainstream media. His brand-new presentation is available to watch for a limited time online if you visit 2022prediction.com. again, that's 2022prediction.com.

 

[Music playing]

 

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

Kind of a light mailbag this week. First up is Jerry, and Jerry says, "Dan, I would love to know your thoughts on whether or not the same stocks that did well during the inflation era of the '70s would do well over the next five to 10 years, and could you give some suggestions here or in your subscription newsletter?" Jerry, in my subscription newsletter called Extreme Value published by Stansberry Research, we have recently created the 10-Stock Inflation-Protection Portfolio. This consists of about half – five of the stocks are what you would call traditional inflation type protection – gold, silver, commodities, base metals, and royalties on those things. And there's also some energy in there, some renewable energy, which I think is a decent enough play. And the stock that we have for the renewable energy can't be beat. It's awesome.

Then the other five are less traditional inflation fare, including for example, an insurance company. Insurance on property is like a – it's almost like a royalty on property because especially this company deals with commercial insurance, so businesses have assets, they have to insure them, and the assets inflate over time, and so the insurance premiums inflate over time. The replacement cost of the assets inflates, and the insurance premiums go up. So it's a neat little way to play inflation. Then we have a few other things – infrastructure and some other things that are less traditionally thought of as inflation protection, but I think they'll do very well over the long term. I also think the portfolio would do really well even if inflation is kind of meh, you know, it spikes up here and then goes back down, it's not a big problem. I think one of the stocks in there is – it's already a, what, a double, almost a triple, and I think it's probably a 20-bagger from our original recommended price. So yeah, I've got plenty of ideas about that in the newsletter, but also, you know, I think gold and gold stocks – gold stocks are kind of still pretty cheap, and they're in better shape – the actual miners are in better shape financially than they've been in a long time, and I think silver is the same way. So they certainly did well during the 1970s. I think they'll do well again over the next five or ten years. Good question. Definitely something you should ask these days.

And our second and last question this week is from John A. And John A. says, "Hi, Dan, I'm confused about the idea that the Fed can't and didn't cause inflation after the great financial crisis with their monetary expansion. And that's usually followed up with quoting the official CPI from 2008 to COVID-19, which averaged a bit under 2%. It's my understanding that there's a constant deflationary pressure created by increased productivity and technological advancement, both of which we had after the great financial crisis. What was actually counteracting that, pushing it positive? You and many of your guests point out that the official CPI uses different metrics than it did in the '80s, and if today's CPI was measured by the '80s scale, it would not be 7.5% but 15%. That would mean the CPI from 2008 to COVID-19 would be understated. ShadowStats shows the inflation was between 9% and 11% during the time period using the '80s metrics." I know of ShadowStats. I don't necessarily think that they're doing anything great. I think they're just using government statistics and kind of manipulating them here and there and having different insights about them. All cards on the table, to me, ShadowStats doesn't mean anything, John. Anyway, the rest of John's question is, "A lot of this is way above my paygrade, but it seems to me like the Fed drove up the price of everything with the money printer go "brrr" and fiscal spending just sent it into orbit. I'm open to learning. Where did I go wrong?"

Well, if you're wrong – and I don't know that you are – if you're wrong, inflation is the result of new money creation, and our money isn't created by the Fed. Our money is created by the government when it issues new debt. And most of it is not even created then. That's sort of the seed, and the tree grows when it's leant through the banking system. So if there's decently robust economic activity, you should get a little bit. In a fiat currency system, you've got to get a little bit right because you're creating money, but it can get out of control if the government creates a bunch and then the economy gets all whipped up in a frenzy and starts bidding up assets by borrowing lots of money.

So what the Fed does, as Cullen Roche explained last week, what they do is the Fed creates that new debt. It's out there, right, and they're spending. They're the big spender. And the Fed just – they do print money, but it's not the money that gets spent at the grocery store. It just winds up in bank reserves. And we – I don't know if you remember, as I mentioned in my rant, we had Hugh Hendry on the program a while back, and he explained that we didn't get inflation for all this time because the animal spirits for lending weren't there. I forget exactly the phrase he used, but the commercial risk-taking entrepreneurial activity wasn't there to lend and spend and create more inflation out of those new dollars that were being borrowed – leant into existence by the government. Sort of borrowed by the government, leant by the bond market.

This is my understanding of things, and I get this understanding from people like Hugh Hendry and Cullen Roche and other guests that we've had on who are better at macro stuff than I am. So your question, I'm open to learning where did I go wrong, I hope that answer kind of satisfies you. That's just my understanding, and I would go back and listen to Cullen Roche if you want to get a clearer picture. I thought he did a better explanation of it than anybody, and also our interview with Hugh Hendry. You can find those at www.investorhour.com. Just go up and search for their name and scroll down, you'll find it.

So that' sit for the mailbag, and that's it for another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We 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. If you like this episode and know anybody who might also enjoy it, tell them to check it out on their podcast app or at investorhour.com. And do me a favor. Subscribe to the show in iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. You have a guest you want me to interview, drop me a note, [email protected], or call the listener feedback line, 800-381-2357. Tell me what's on your mind and hear your voice on the show. Till next week, I'm Dan Ferris. Thanks for listening.

 

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