Episodes

Intro:                           Broadcasting from the Investor Hour Studios, and all around the world, you're listening to the Stansberry Investor Hour.

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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 Peter Pham. Peter has a different way of looking at the world. We'll start by examining the meaning behind one of the funniest and best sentences I've read all year, and then Peter will share his ideas about the Omega Point. We'll explain that, and mathematics in financial markets, history of currencies, and what kind of portfolio he's holding today. This week in the mailbag, we'll talk about trailing stops, Cullen Roche, who we interviewed last week, bank stocks, and commodities – lots of good stuff. In my opening rant, this week, I'll talk about a day I'll never forget, August 31, 1998. Plus, I found it, the motto for 2020, a crazy year. That and more right now on the Stansberry Investor Hour.

The moto for 2020 is in. I found it. I found it in an article on – actually, npr.org, of all places. I never wind up on that website, and yet, here I am. And they link to a Wall Street Journal article on the same topic. The motto for 2020 has been established by the proprietors of a theme park in Japan, the Fuji-Q Highland amusement park near Tokyo. They have what NPR calls an unorthodox request for their rollercoaster riders: They've asked them not to scream while they ride this rollercoaster. And, you know, in the Wall Street Journal version of the article, people were complaining, they were, like, "How can you ride a rollercoaster without screaming?"

And of course, the reason is? They don't want you to spread the coronavirus, they don't want little droplets of, you know, coronavirus getting out from behind your mask, that you're required to wear in public, and getting on other riders or people below or whatever. So you're not allowed to scream. And there's a video, there's a crazy video – I hope this is not offensive – I mean it in the most – I kid because I love, OK? It's two kind of straitlaced-looking Japanese businessmen who work for this rollercoaster company, and the whole video is four minutes long. It's just the two of them riding the rollercoaster, to prove that you can ride a rollercoaster without screaming.

And at the very end of it, it's in Japanese on the screen, but it says, "Please scream inside your heart." And that's it. That's the motto for 2020, isn't it? "Please scream inside your heart." If you're stuck in your house and you're not allowed to go to work, please scream inside your heart. If you can't pay your bills because you're not allowed to go to work, please scream inside your heart. And just, you can fill it in with anything that's happened in 2020, you know, if your city is under siege for six straight weeks, at the hands of an organized armed mob – do you hear me, Portland, Oregon? – and the radical political leaders are practically egging them on, please scream inside your heart.

If you defend your home against one of these mobs, on your property, with weapons you legally purchased, and an armed angry mob breaks through the gate in your gated community, and the local district attorney files charges against you and not them – say it with me: Please scream inside your heart. I'm sure you can fill this in with your own list of crazy 2020 stuff, but that is what you must do: please scream inside your heart. What an insane year. And I just, I wanted to share another, like, insane news item that kind of, it captures this moment as well as anything, and it's actually a Bloomberg headline, and the headline says it all. This was from a couple days ago, July 13.

The headline is: "10,000 day traders an hour are buying Tesla shares" – 10,000 day traders an hour. I mean, does this sound familiar to anybody? As I'll tell you in a minute, I think it's 1998 all over again. And last time we talked, I don't know if you remember, I mentioned Tesla and I thought it was crazy, and it was, like, $1,300. Well, it's since been as high as $1,794.99. $1,700 – almost $1,800. Gold is $1,800 an ounce. There's something a little bit crazy about the two of those things happening right around the same time, you know? So, I couldn't help myself, I went on Twitter, and Elon Musk responded to this news, he said, "Wow," he just – somebody put up the Tesla share price, and Musk responded, "Wow."

So, I responded to him and I said something, like, you know, "So what do you think, there, Elon, sub-$200 within the next year?" Because, look, Tesla's market cap is now around $276 billion. And last time, I made a slight mistake: I said the Toyota Motor's market cap was $130 billion? It's actually, the share price is kind of pushing towards $130; it's in the mid-$120s. But the market cap – I misspoke – the market cap is almost $180 billion; it's, like, $179 or something. So, I think this is insane. Tesla has a market cap that's, like, bigger than BMW, GM, Honda, and Fiat Chrysler combined – combined. And, you know, they made less cars in the recent quarter than they did a year ago – I went over some of this stuff, before, but it's insane. We're living in an insane moment. And all you could do about it is what? Say it with me: Scream inside your heart.

So I want to talk about 1998, a little bit. I told Stansberry readers a little something in our Digest, and I'll just – the Stansberry Digest is just for Stansberry subscribers, but I'll share a little bit of it. I can't share, you know, the whole thing, but I want to share a little bit of the story I told, recently, because I remember it so vividly. It was August 31, 1998, and Porter Stansberry and Steve Sjuggerud and I – Porter and Steve worked up the stairs for me, and I worked – you know, I think they were on the third floor, I was on the second floor, or something like that. And, I mean, this was 1998 – I had my own ideas about things I wanted to invest in, and I was mostly into, like, mining stocks and gold and things. But I didn't know a whole lot, and these guys, you know, they studied, like, economics and finance and – and Steve had worked for a hedge fund and stuff – they knew a lot more than me, back then.

So, I'd go up there and I'd throw a few ideas around with them, and every day, we'd go and have lunch up the street. August 31, 1998, I remember, we were standing at the corner of Saint Paul and Preston, in Baltimore, getting ready to cross the street, and the market was in turmoil at that moment. The S&P 500 was in turmoil. I think the index was, like, 13% off its July 17 peak, and that day – that day – it fell, like, 7%, just that day. And that day just wiped out its year-to-date gain. And of course, the most famous thing that was happening then – it was kind of an emerging markets collapse, and a few other things were happening. But the most famous thing that happened, that day, was that the collapse of the hedge fund Long-Term Capital Management was hitting the news, right?

And you remember Long-Term Capital, right? They were these genius guys, two of them won Nobel Prizes, and, you know, they were – they had been featured in books and stuff, and they were just – just well-known Wall Street genius types, right? And they had leveraged this fund, like, as much as 30 to 1, at various times, and they used mathematical models, they had, like, 100 different trading strategies, they had as many as 7,600 different positions, right? Just modern insanity, modern financial insanity. And yet, as complex and crazy and levered as this stupid thing was, they insisted that all their fancy math and degrees and whatever else meant that they were taking little if any risk, right? So, whatever, I think that's insane – anybody who listened to that and didn't walk away was crazy.

The fund did great, they made, like, 40% a year for a couple of years, and then, the dookie hit the fan, and the emerging markets collapse in the summer of 1998 hit them hard. They had started out doing these Treasury bond arbitrage type positions, then they got into all this other stuff, equities and Russian debt and all this stuff. And there was – I looked for it, I could not find it – there was a famous exchange that was – I don't even know if it was real or if the journalist made it up, but he said something, like, you know, could you imagine, like, the LTCM, the Long-Term Capital Management Trader, on the phone with his broker, talking about these Russian bonds.

You know, he'd get on the phone with the broker, he'd say, "Hey, what's going on?" and the guy said, "Well, you're bid at 70." And he said, "Wow, what happened?" and he said, "I don't know, but you're bid at 60." He said, "What's going on?" he said, "I don't know, but you're bid at 50," and 40, and 30 – I mean, it was just collapsing before their very eyes. And, you know, 100 is par, and anything below 90 means something's going on.

So, you know, it's just a funny kind of a moment. The thing blew up, the market was tanking, I'm standing there on the corner, and I swear to you, Steve Sjuggerud said, "The Fed's going to bail them out, and this is a great buying moment." And it was. Because the market just melted straight up from there, and it just really took off like a rocket ship, all the way through to, you know, March of 2000 – and Steve kind of called it.

He was right. He had a great feel for what was happening, and I'll just never forget standing on that corner – it was one of those things like, "Where were you on 9/11?" kind of a thing, for me it was. And I remember, that was, like, the first time I was, like, really, really impressed with these guys, with Steve and Porter, you know, Steve, especially, that day. But the point that I was trying to make recently, when I wrote this stuff in the Stansberry Digest last week, was, you know, people, including myself, are looking around and they're looking for analogs, right? So I'm telling you, hey, study the period from 1929 to 1945. I'm not predicting another Great Depression, but I think there's something there. Study it, OK?

And I think maybe this could be a 1998 moment. Maybe, in March, you know, our big COVID one-month bear market was the equivalent of the Long-Term Capital Management emerging markets crisis of 1998, and maybe Steve's Melt Up is coming next. Beause he's been predicting that same thing, another Melt Up, and I wouldn't doubt it, I wouldn't doubt it one bit. We're seeing unprecedented levels, absolutely unprecedented, off the charts levels of stimulus, multitrillion dollars from the government, you know, multitrillion dollars – the Fed has a $7 billion balance sheet now. Never happened, none of this has ever happened to this degree, before. And it was that way, by the way, you know, in the 1930s, that was all unprecedented, too.

And you could say the same thing about the financial crisis, they never did anything like that, you know, before that moment. So, who knows what the outcome will be? I just think it's going to be a wide range of outcomes, and that's why I keep talking about, certainly, buy stocks, because part of that range of outcomes is everything recovers and businesses do well and you make money owning equities. But also, hold plenty of cash, gold, and a little bit of bitcoin, because it's got, you know, multi-hundred-bagger upside, and you can take a 1% position and potentially double your net worth or something. Or, you know, your liquid assets, at least.

So, that's what I told them, I mean, there's a little more to it than that. I got into the whole idea of, like, how valuable is it to study history, at all, when we're talking about events that have never happened, before, you know? And I'm basically looking at the last time something kind of similar never happened, before, and saying, "Yeah, yeah, maybe something like that." But it's really hard, it's really hard, so, I think studying history is a good idea, and who can fault anyone for saying, "Hey, it's like 1929. It's like 1998"? But I think the real point for me is: Be ready for anything, man.

Be ready for anything. Prepare, don't predict. You try to predict and you get it wrong, ouch. What I'm saying is, you try to predict that the stock market is  going to go straight up for another five years, and you get that wrong and cash and gold turn out to be the things to have owned, and you didn't own enough of them, you know, ouch. That's what I'm talking about. And vice-versa, right? So, in other words, don't – when I say vice-versa, you don't sell out and go 100% to cash, or you don't own only cash and gold, I don't think, here. You gotta be truly diversified.

And I included, in my digest piece, I included a little bit of this Cormac McCarthy novel called The Road – I mentioned this, before – postapocalyptic novel. It looks like it was after some huge nuclear holocaust or something, because all the cities are burned and the planet is covered with ash, and there's hardly anybody alive, and there's, like, no food or anything – it's hellish. It's a hellscape, a postapocalyptic hellscape. And there's a moment, they come upon this old man who's just, like, he's not doing well, and they share some food with or something, and they have a little conversation with this guy. The main characters are a guy and his son, the man and the boy – they never tell you their names.

And the man says to the old man, he says, "You knew it was coming?" and the old man says, "Yeah, this or something like it, I always believed it." And the man says, "Did you try to get ready for it?" and the old man says, "No. What would you do?" And the man says, "I don't know," and the old man says, "People were always getting ready for tomorrow. I didn't believe in that. Tomorrow wasn't getting ready for them. It didn't even know they were there." That really caught my attention. I immediately, like, put a Post-it Note on that page, because I knew I'd be telling you about it, at some point: Tomorrow wasn't getting ready for them. It didn't even know they were there.

That's why you diversify right now, that's why you want to have the truly diversified portfolio. Your cash and stocks are still inside the financial system, and your gold and your bitcoin are outside the financial system. And I think there's probably a place for land, in there, too. But that exchange captured the sense of uncertainty and fear that a lot of people have right now, and which I think is justified. And manifests itself in this appreciation that a wide range of outcomes – we have a potential, right now, for a wide range of outcomes, in the next five or 10 years, and you'd better be ready for it.

All right, that's it, that what I have to say about that. Let's go ahead, right now, and talk with Peter Pham.

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When my friend and colleague, Steve Sjuggerud, talks, I listen. Steve predicted the rise of gold in 2003, the top of the dot-com bubble in 2000, and he even called the bottom of the Great Recession in 2009. Steve is, once again, pounding the table on a new prediction: He believes that a mania will hit the U.S. stock market and take most investors by surprise. He said that thousands if not millions of dollars will change hands as a result of the anomalies he found in the market. If you want to find out how you can profit from Steve's prediction, he has laid everything out in a video that just went viral. Go to www.investorhourtruewealth.com, to watch the video and find out how you can profit in this roller coaster of a market. I watched it, and what Steve found is astonishing. Again, that's www.investorhourtruewealth.com.

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Today's guest is Peter Pham. He is the founder and chairman of Phoenix Capital, a bespoke advisory firm offering analysis, strategies, and insights on investment and finance. The firm's forte is in emerging markets, recently partnering with S&P Dow Jones, to construct the Socialist Republic of Vietnam's VN 30 equal weight index. His thoughts and opinions on finance have been featured in a variety of publications: The Motley Fool, Seeking Alpha, CNN Money, Bloomberg, Financial Times, Reuters, Dow Jones, the Wall Street Journal, and a whole bunch more. His podcast series has been featured on iTunes International, in the "New and Noteworthy" section. This series features numerous financial thought leaders, including Jim Rogers, Mark Mobius, James Altucher, Jack Schrager, Rick Rule, Marc Faber, Vitaliy Katsenelson, our own Porter Stansberry, Frank Curzio, and Richard Mayberry. They discuss market insights through casual, thought-provoking, and, at times, radical discussions. Peter has acquired more than 18 years of experience in capital markets and fund management. He is a force to be reckoned with.

Peter Pham, welcome to the program.

Peter Pham:                Dan, I am here, and we're  going to expose the Matrix for what it is.

Dan Ferris:                 All right, that sounds good. But I'm telling you, I have to begin – you sent me a bunch of articles, and you got a lot of ideas, a lot of them are very abstract, I'm not sure I understood it all. But then, the thing I love about you, Peter, is that, every now and then, you drop one of these bombs. And I hope you'll just indulge me for a moment, just to deal with this one specific little bomb you dropped, which I thought was one of the best sentences I've read all year, and I read a lot of stuff. You said, "Moore's law of mad science: Every 18 months, the minimum IQ necessary to destroy the world drops by one point." I cracked up.

It's hard to make me laugh by reading something, but I laughed out loud at that. And, you know, you did it in a discussion about, you know, financial alchemy and technocrats taking over the market and stuff, but where did you get that? Is that something you read? I've never heard that, before. Did you make that up?

Peter Pham:                It's an amalgamation of ideas, Dan, right, it's about Moore's law, which we're all familiar with, and it's just about basically what we're seeing in the news, the world over. And the decisions that are being made, that ultimately lack the wisdom of the world to assess the haves and the have-nots. So I felt like that line in one of my articles was just so relevant to everything that you're witnessing now. So, in a nutshell, that's the key thing: We're seeing experts that are providing a lot of information, but no one, especially when you take into account things like COVID, no one is really thinking about the big picture. And therefore, decisions based on experts, where their knowledge doesn't allow them to address the issue or identify a cure for what we have, forces them to make decisions that are basically extremely low-IQ.

Dan Ferris:                 I see, I see, that's good, that's good. So let's start here. You have an idea about the lifecycle of nations, which in and of itself is important to recognize. And you say that, you know, nations eventually reach something called the Omega Point in their history. And as I take what I've read in your articles, it sounds like the Omega Point is not a good moment to reach. What is the Omega Point? Is that simply when a nation falls apart? Tell me about the Omega Point.

Peter Pham:                The Omega Point could be understood as, like, the ultimate form of centralization, before the collapse of the country. So, in modern-day context, what are we seeing? We are seeing, basically, countries like the United States really push the limits of their debt ratios relative to GDP. And as a result, what many people don't understand is, it's nice that the bond market is going up, and people should be considering buying that relative to, you know, yields. But what's more important is that this is what I call debt bondage for the average individual, the average American, which now must bear the burden of debt. But ultimately, what that does is it allows the state to have that much more authority.

So when we talk about, you know, reaching the Omega Point through the centralization of the state, it's happening in financial markets, that people are ultimately not, like, the average individual is not cognizant of, is through the expansion of debt. And the people that have to be responsible for servicing the debt are ultimately the taxpayers and the citizens of the country. So, that's what you're seeing, and then, post, once, basically, a country defaults, then that leads to, ultimately, the possibility of creating a new country. And this, I think, should be core curriculum, as opposed to just learning history.

Dan Ferris:                 OK, so this is interesting, because I agree with you, governments seem to evolve – they just grow. We talked with, you know, John Stossel, we talked with Ron Paul, and we all agree, governments just grow. Thomas Jefferson knew it: The nature of government is just to grow over time. And over time, they become more and more involved in everyone's life, more centralized. And it sounds to me like you're saying, we hit a point of centralization where they're involved in way too many financial transactions, and way too many aspects of daily civic life. And it starts to get dicey, and it starts to endanger the health of the country, and the longevity – you're saying the longevity, at that point, is in question, are you not? That's what I'm taking from this.

Peter Pham:                Yes.

Dan Ferris:                 Right, so the longevity of the United States of America as we have known it, for one example, may be in question.

Peter Pham:                It could be, because typically, the average empire has a lifespan of, let's say, 250 years, and you're actually only, like, a decade away from that, if I'm not mistaken, as far as the United States is concerned. Remember, I'm using the word "empire." What does that imply about all other countries that have not reached the status of the United States, with basically a world reserve currency, you know, as a power in the global economy? This, effectively, implies, Dan, that countries that are vastly smaller than the United States, as seen through their credit rating, present a massive risk to potentially collapse or default. Because some of them have actually centralized much faster, or some of them have been founded under the premise of centralization as sold through the ideas of socialism.

And I just wanted to share one quick thing is that, many people, once they become so disgruntled with the Deep State, they are told about a potential utopia that could exist. And that's kind of like what you're seeing the world over, at least within the Western world, people are looking for change in some capacity. They don't know what to do, but they want things to change and become better. That's the utopia that they're being presented with. Well, what happens, then, typically, is that, let's say an empire or a country were to collapse due to massive centralization, or, basically, achieving some form of, like, debt defaults, as far as a country is concerned, and these utopians achieve the objective that they wanted to achieve.

Well, what we can see is that countries that attempted to create a new utopia might achieve that for just a temporary period of time. Literally, when a country is founded, then basically, all the assets, such as the land, is confiscated back from the oppressive regime that was there previously, and then ultimately, explored in terms of how that could be redistributed. So, when I study socialist countries, you see that they hold a Gini coefficient, which is basically an indication of economic parity amongst all the citizens. It's very good for a period of time, but then as the state becomes more centralized, as driven by the central planners, which I call the technocrats, ultimately, you start to see the wealth divide, again.
So, it doesn't really matter is what I'm saying to you. If you create new countries under utopian ideas, then what will happen is a wealth divide will be created. Hence why I think this is so vital for the audience to understand, like, you know, ultimately, the duration of countries, the beginning and the end, all predicated around an Omega Point. And understanding that the idea of utopia and perfection is unattainable, because humans are involved.

Dan Ferris:                 OK, so it sounds like, Peter, all we're doing, there, is acknowledging the simple fact that not every country starts as a, what you might call, a free democratic republic, right? They could start in, you know, what we would consider the later phases of that republic, and then they'll, you know, probably accelerate their timeline, right? They'll have a shorter history, probably, I guess is what we're saying there, correct?

Peter Pham:                Yes, when you look at emerging markets, you can start to see that, that very few countries are actually able to become 250 years old. The nation of people, right, might be thousands of years, like China, but actually, China as a country is very young. And that's one of the advantages of studying these emerging markets. That's why Asia's young, but its nation of people are thousands of years old. So that's just the context to understand this.

Dan Ferris:                 So, before we move on to more of your ideas about how the world works, can you tell me, like, you know, your firm's forte is emerging markets, as we said in the introduction. Can you outline, for me, in a very concrete way, like, what is your portfolio? If we look at what you're doing, then what you're saying will mean more to us, I think.

Peter Pham:                Absolutely. So, let me share to you that everything, as you know, changed, this year, and as a result – I'll just share to you want I had in 2019, and I'll share to you what I have now as far as 2020 is concerned, because the whole world changed in 2020. 2019, I owned a lot of basically, like, music royalties, things like that, and other, like, you know, licensing products in which I could collect royalties based on that. And then, I owned a lot of precious metals, at that time. And then, I invested in some private equity investments. Ultimately, all of these things are sort of slightly, as far as private equity investments are concerned, slightly higher up on the risk curve.

So then, 2019, when equities were making all-time highs, that's not exactly the best portfolio. If you remember how precious metals had performed in 2019, it was OK, not the greatest, relative to all the other more sexier assets at the time. But what was interesting, Dan, is that, as soon as 2020 started to come around the corner, I decided to, basically, come up with this idea, this approach, called Vision 2020. Ironically, a certain person, individual running for president, now, is using that moniker, which is "Vision 2020" – it's just a great time to do so. And then, what I did with this portfolio is I looked at – I understood one thing, the most important thing is that, as demand was being sucked out of the economy as determined by the state the world over, what that indicated to me is you simply had to move much lower down the risk curve.

And what do I mean by that? I mean, as opposed to focusing on emerging markets, suddenly, you had to go into, like, big tech companies, for example. I suddenly needed to reassess maybe getting some exposure to some multinational players, maybe, like, even Boeing, for goodness sakes, based on all this uncertainty that had happened throughout most of this year, in 2020. And then, ultimately, what I wanted to do was, because I was in Asia, I also understood the threats of what an unknown virus coming out of China would have in the marketplace. Like, I was wearing masks then, and I was selling masks in the month of February, early-February, at that time. And as far as the States is concerned, I knew that happened much longer.

So, that kind of gave me – that was a great leading indicator of being close, near, in this region, I understand the variability that China had presented with this unknown virus, at the time. By the time it ultimately reached the Western world and hit, basically, the shores of the United States, it became kind of like old news to me. So, throughout the spread of corona, it created great opportunities and windows to understand the top of the market, which was, like, February. And it also got me to feel comfortable with basically starting to buy all these lower-risk curve assets during the end of March. And that's all indicated in my Twitter, like, I make the calls, like, live, it's all timestamped, so I'm not just saying that. Many people, as you know, in, like, late-March, were probably fearful of the market.

But at that time, I was, like, "OK, this is-" I was getting bored, in Asia, just thinking about this corona, because to me, it happened in January and February, as opposed to, like, late-March. But at that time, you had, you know, hedge-fund managers going on CNBC saying to everyone that the world is going to end. But to me, I was, like, "Wait a minute, this is an opportunity." And I kind of got excited about the fact that all of Wall Street, which rely on a lot of financial models and economic models, would totally be disrupted. And that provided just even an individual, let's say a retail investor, some parity amongst Wall Street. For the first time, it wasn't about guessing about EPS, because no one knew.

And for the first time, then, it wasn't even about guessing about GDP figures. No one really knew. You had to have intuition, wisdom, and knowledge, in confluence, to have identified all the greatest opportunities to invest in. So, I was telling you earlier, in 2019, what was I buying? I was into precious metals and I was into content. Ironically, as you know, precious metals are doing awesome – maybe not as exciting as the other asset that I was really into, which was content. Because while everyone was in isolation, basically, they were streaming Netflix like no tomorrow, they were listening to Spotify like there was no tomorrow. And the cash flow that could be derived off of those assets truly signified, to me, this idea that content is king.

And so, overall, that was kind of like a portfolio. And I'm building a portfolio towards tech companies, in both the United States and China, and my thesis for China is strictly about saving face, Dan.

Dan Ferris:                 Did you say "saving face," your thesis about China is about saving face? OK, I just wanted to clear that up.

Peter Pham:                So, China, as you know, being accused of being the origin point of where this virus is coming from, the Asian mindset will not allow them another, let's say, 100 years of humiliation, being an economic power that they are. So, if you notice, the Shanghai Index, throughout this whole duration, has actually held a lot of relative strength, but that's not based on fundamentals. There's the country's opening up, locking down, opening up locking down, it's – Dan, this is strictly based on not wanting to have a stock market that's underperforming. Beause imagine, how bad would it look like for China to basically say, because they've already taken GDP out of the equation, they're basically saying, "We're not providing any guidance towards GDP," for them to have the worst-performing stock market in the world. They can't afford to allow that to happen.

So, as part of this façade, an Asian perception of wanting to, you know, save face, hold some dignity, you want to have a good-performing stock market. Because you've got a president that's basically talking about markets making all-time highs.

Dan Ferris:                 OK, I just want our listener to know, Pham is an Asian name, it is not Anglo-Saxon. He's from Asia, folks. Peter Pham is allowed to talk about the Asian mindset, OK, because he's Asian, all right? I just wanted to put that out there, because I know some people are  going to say, "Who is this guy?" you know, he's racist, or whatever, because that's in the air today, right?

Peter Pham:                Oh, my gosh, yes.

Dan Ferris:                 But I hear you, your point is already well made. So, the saving face, it's a real thing, it affects decisions at all levels of Chinese government is what you're telling me.

Peter Pham:                Yes, and perhaps I should quantify it, so it's not even, this isn't  going to be just, like, you know, some anecdote, OK? The way to quantify it, as it relates to China, and even the United States, is, if you notice, throughout most of this year, when bad unemployment figures, or, let's say, low GDP figures came out, in both countries, you can see that their central banks were so eager to basically stimulate the economy or provide newswires that were so positive towards stimulus that it superseded the negative economic data that was coming out. So that is demonstration, to you, of this saving face theory. And what I mean by that is, when China was releasing GDP figures, what they did is, simultaneously, the PBOC was also talking about how they're going to bolster the economy through stimulus.

And the Fed did that, too, when you had, like, I think it was maybe a few months ago, there was, like, job figures with massive unemployment, and then basically it's, like, Fed come in and just drop money. So that happened, and it happened concurrently. So, you know, to say – one thing I can tell you, as far as China is concerned, is it's much more coordinated. The economic data is  going to come out, and I would assume the same for the United States, and then basically, your central banks say, "Hey, we're  going to be a backstop," and hence why equities have levitated to the levels that they have.

Dan Ferris:                 All right, I hear you. And by the way, I mean, we're two peas in a pod about moving down the risk curve, you know, trying to reduce overall risk in the portfolio. I'm at the same place, so, you know, people get there by different means. So, I want to talk, I want to shift gears a little bit, now, because I want to compare something that you wrote to something that Ben Graham said, and I'll read your thing first. You said, in one of the articles that you sent me, "Mathematics is not an abstraction. Numbers are real things. Mathematics is reality."

And then you said, "It comes down to this: the game of finance is designed mathematically. Only through using math, backward engineering, and today's computing systems can we have a chance to win this game of numbers. This feature of the market will outlive any fad model of the day. It is the very nature of the market itself." And I contrast that with Ben Graham – I think you probably know enough about Ben Graham to know where I'm headed. In The Intelligent Investor, Graham said: "Mathematics is ordinarily considered as producing precise and dependable results. But in the stock market, the more elaborate and abstruse the mathematics, the more uncertain and speculative are the conclusions we draw therefrom. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually, also, to give to speculation the deceptive guise of investment."

So, we have some contrasting views, here, between you and Ben Graham, and I want to try to make it, again, as concrete as possible for the listener. What do you mean when you say mathematics is real? Because I know a lot of people who are mathematicians and scientists, and they'll say, "Well, mathematics isn't really real. It's not the way nature necessarily behaves all the time, though quite a bit of the time." And you say, you know, mathematics is real, the game of finance is designed mathematically, you must do math to win this game of numbers. What are you telling me, here? Are you telling me I have to be a quant?

Peter Pham:                So, Dan, let's start off with a simple thought experiment, without going too crazy about it, but I think people will then suddenly start to understand the parallel. Is, imagine, Dan, whatever you're thinking about, or imagine if you had a dream, last night, and – now, anything as it relates to, like, words, descriptions, and feelings, that's almost irrelevant. But if you had this thought or idea or dream that has numbers, as, you know, numbers, that transitions, if you notice, very well into the rest of the world. So, imagine that, you have an idea that comes from the mind, it could be an image – that doesn't translate well. But if you notice, if you start thinking in numbers, then, it translates very well. And it is the only truth, in both the mind and, let's say, the real world.

Dan Ferris:                 To make it really simple, if I dream that two plus two equals four, and I feel terrible about it in the dream, the feeling terrible about it just doesn't mean anything, really, in the real world. It only means something subjectively to me. But two plus two is definitely four.

Peter Pham:                Yes.

Dan Ferris:                 That translates – OK, I'm with you.

Peter Pham:                OK, so, now that we've established that even ideas, as it relates to, like, math and numbers – let's say numbers, keep it even more simple – that translates very well into the real world. In fact, it really is probably part of our world. And I'll give you a great example: When we think about the economy, typically, economists divide the economy into two parts. One they call the "real economy," which is kind of like, you know, whatever you can see, sense, and touch, and it's related to, like, the common Joe and how he lives. And then we talk about this financial economy, whatever that means, right? The financial economy is why the stock market is reaching all-time highs, but the real economy is, like, why the average Joe on the street might be losing his job.

And what a lot of the talking heads are doing, and a lot of, probably, people you're interviewing are saying, is that, "Hey, this doesn't make any sense. I don't get why we have stock markets making all-time highs, while the average Joe is suffering, hence, why I want to revolt." But while they're being frustrated about what's happening, this financial economy, which is highly driven by numbers – because, you know, how do you measure finance? You measure it through numbers – is ultimately getting bigger. Hence, creating this wealth divide. That's why Mark Zuckerberg maybe is getting richer while everyone's becoming poorer, because he, through, let's say, this website, tech, social network company, using a bunch of technology, all encoded through numbers, is then listed on a stock market.

Which is all, you know, understood through numbers, that is being perpetuated through valuations that are not even part of the fundamental aspects of the valuation, but strictly based on, like, you know, excitement about the company as it relates to the multiple. So, I know that a lot of people look at finance and they focus on things like the underlining fundamentals, I get that. But you also know that there's a massive disconnect between the fundamentals and price, and that's what seems to be driving the economy right now. So, to go back to your statement about Ben Graham, let's take his greatest disciple, which is Warren Buffett.

What I wrote in one of those pieces, Dan, is interesting, and potentially very controversial. I'm willing to make the bet, Dan, is that Warren Buffett, in an economy not as developed and as successful as the United States, would not be Warren Buffett. And the primary reason to why Warren Buffett is a successful investor is because he basically went long U.S. equities, which is the most financialized economy. Or better yet, is the bellwether and the benchmark of, basically, global capitalism. That's why he's been able to hold some of these positions in stocks and have done well, better than maybe using some of the models that Graham has talked about.

Dan Ferris:                 I see where you are, here, OK, I get it, but I think – my thing with the Graham quote, the two sentences that really caught me, it's, you said, this feature, this mathematical feature that you're describing about markets, you said it will outlive any fad model of the day. Whereas, Graham was kind of saying that these mathematical models, and so forth, are probably more faddish. It seems to me like you're saying, you know, this higher math, maybe, this is a permanent feature, the stock market is always  going to be like this. And people like, you know, Jim Simons, who makes, like, whatever it is, 80% a year, for a while, there, by knowing this stuff, you know, they're always going to make more money than other people, because they know this stuff.

And when you talk about, like, these tech companies, like, to me, this is a cyclical thing, we go through this every 10 or 20 years, where people get really super excited and they're convinced that Facebook and Amazon and Google – we'll just stick with the really mathy ones, right – Facebook, Google, probably Microsoft, you know, that these businesses are great, they're going to be great forever, you can pay any price you want, and you'll make a great return. They said the same thing about Cisco Systems and other companies, in March of 2000, and of course they were all down 80% within two years. I'm actually kind of with you, though, because there are people like Jim Simons, out there.

Just as I think through this aloud with you, I think I can see what you're saying. But I also think there is a fad, if you agree with me, that there's a fad element, here. Help me separate that from what you say is the feature that will outlive the fad model. Like, what part is the fad and what part is the permanent feature?

Peter Pham:                OK, so, let's use an analogy, to make things very simple. So, let's think about the ocean, for a second, and understand that the fundamentals that Ben Graham is discussing about are kind of like the water molecules within the ocean. Now, you understand that, in an ocean, there's tons of waves. Or when we think about weather, for example, you notice that there's going to be, like, tornados and typhoons and hurricanes, and people build a whole profession out of monitoring those features in nature. But ultimately, what is it? It's basically water molecules, it's all basically matter.

But if you notice, a lot of these weather phenomenons seem to have a life of its own. Now, this is analogous to that of the stock market. The stock market has a fundamental underpinning to it, and then when we think about price, we think about, we could use analogy like waves, for example, that seem to have a life of its own. That's why we refer to it as the market, and, "Oh, the market has a life of its own." And ultimately, what is the market? The market is a bunch of participants that are buying and selling a stock, and then the stock is basically the price discovery that's happening on a millisecond level, like, for guys like Renaissance, they're basically buying and selling.

And ultimately, this is the juxtaposition between price and value. Now, what am I saying to you? I'm saying to you that the market mechanism, the mechanism of the stock market will outlive any method we think we can use to – like, for example, any kind of fundamental model, any technical analysis that we could use, we're  going to basically not  going to be able to be there. And the fundamental underpinning of the market mechanism will be there, because it was created as such, and it will continue to outlive any kind of model. So, in the case of Warren Buffett today, he's totally confused about what to do with airlines, because he cannot assess demand. And ultimately, demand is going to be one of the major inputs in his cashflow model, as far as forecasting the revenue of these businesses.

But if you notice, why are these stocks still being traded, even though they're missing a massive component towards his financial model? And maybe a technician might be dumbfounded by what's happening in the market. But at the end of the day, the stock market, which has been open throughout the whole time of the lockdown, is driven by the market mechanism, and it seems to have a life of its own, as you see these prices making higher highs. That's kind of like what I mean about this situation, Dan. And therefore, if you understand that about the market mechanism, you don't need to be an elaborate mathematician to understand what's happening.

What if you simply looked at, basically, bids and ask, and see – look for some kind of influx of buyers relative to sellers? Clearly, you're going to start to see the waves get higher, or the market price get higher. And again, that's the feature of the stock market, it's the market mechanism which I'm referring to.

Dan Ferris:                 OK, yeah, it sounds like you're saying, one way or another, you better speak the language, you better, you know, speak the language of accounting or the language of price, the language of bid-ask, the language of cashflow, you better speak some of this mathematical language, or you're going to get run over. That's what I'm taking. Is that what you're saying?

Peter Pham:                Yes, yes. And what I mean by the fads is that, if you only focused on maybe one, then you're going to be missing out on, let's say if demand was to be eradicated like it was in 2020, suddenly, the cashflow models make no sense, right? But there's other mechanisms that are working; you'd better be able to understand what's happening, or else you're going to miss, basically, a 30-40% recovery in equities. And that's what you notice has happened to a lot of fund managers.

Dan Ferris:                 Yeah, yeah, it has. So let's start trying to tie this together. We've got the lifecycle of nation states, you're starting to get concerned and you're holding a safer portfolio, because you see this Omega Point approaching, which is basically, it's based on governments financing their increased interferences and increased centralization. Which is, to me, that's a phenomenal insight, right there. You just paid your way, buddy. That is good stuff. And then you also – we've also made the point, here, that, you know, we darn well better speak the language of – some kind of mathematical language that goes along with investing. Whether it be the language of accounting, or technical analysis, or some, you know, quantitative analysis, something, you'd better speak this language, or you're going to get run over.

If I could ask you to concisely kind of leave – you don't have to tie all that up, if you don't want to – I just wanted to restate it for the listener. So, if there's another point that you want to make, I always ask all my guests, at the end of the interview, you know, if there's one thing that you could leave our listeners with, what would that be? And if it's, you know, restating all this stuff, fine. If it's something completely different, what would that – if you could leave them with one simple thought that they could just grab onto, to understand the message that you are so passionately trying to tell them, what would that one thought be?

Peter Pham:                The one thought would be, is to study and understand the trajectory and cycle of a currency. And let's take the U.S. dollar as the example. Now, a lot of gold bugs, which are probably listening to this podcast, understand what the U.S. dollar currently is. They understand that it is fiat money. Basically, it's not real.

Now, imagine that the whole economy is predicated on the U.S. dollar. What does that mean? It then means that a lot of the economy must not be real. Hence, why I encourage the listener to understand the distinction between the financial economy and the real economy. The real economy is what the average Joe is doing. He was the essential worker working in the convenience store, that is disgruntled about everything that's happening.

And then you have this financial economy. The financial economy are the central bankers, for example, or they're the politicians, which I call, like, the technocrats that are running the economy. And they are perpetuating the wealth divide that is happening, using a fiat currency such as the U.S. dollar. Now, you have a choice, basically. The choice of everyone that is listening is, either you become dissatisfied and disheartened with what you're seeing, and then, you're just going to sit there and you're going to complain and you're going to whine. And maybe you're going to think you're going to buy gold or you're going to buy hard assets, as your counter-rebellion to, basically, the deepening of the state.

And what I am here to do is tell you that you are absolutely incorrect to think that, if you buy a hard asset, that you've completely hedged yourself from the state. Because it is the state that acknowledges the value of a lot of the hard assets that you own, such as real estate. Without, basically, land laws, land ownership, ownership rights, which are designed by the state, your hard asset would have no value. That would be point No. 1.

Then point No. 2 is that, understand that countries, they ultimately don't last that long. So this whole idea that maybe you're going to hold something for generation after generation, under very few circumstances do you see that happening. In fact, the oldest culture we see now is currently, the one that we're focused on, is currently the Western culture, which originated in the 17th century, and now we're getting close to that point in which empires tend to collapse. Is that to say that that's going to happen right away? No. But you should be cognizant of that faith and credit that the state has told you about, to think about when you're buying these kind of assets.

Dan Ferris:                 So, it sounds, to me, like your one thought – the way I'm interpreting this, your one thought is, really, if you're reasonably intelligent – which is probably everybody listening to this podcast – you can study the history of currencies, and you will wind up, one way or another, you'll wind up on the Peter Pham train. You'll get it, and you'll realize that being truly diversified is desirable, and a little more difficult and a little different than you would've thought before you studied that history.

Peter Pham:                You think you know, but you have no idea.

Dan Ferris:                 Right. I do want to leave it there. I know you have a lot more to say, and, you know, I encourage people to search you out on Twitter, and find out what all that is. But I have to tell you, Peter, I've been reading your stuff, and you and I have been talking, and I was, like, "Gosh, this is so abstract, but I know this guy, and I know there's good ideas in here." And I think we really sussed out some really great ones, and I just, I thank you for coming on and sharing them with us. You know, I hope you'll do it again, sometime.

Peter Pham:                Thank you very much, Dan. It was an honor to be on your podcast, and I hope that we can, like you said, do this sometime, and hopefully I'll have some more interesting things to say as it relates to investing in this climate.

Dan Ferris:                 Yeah, of that I have no doubt. Thanks a lot, Peter, you know, so long for now.

Peter Pham:                Thanks, Dan. Talk to you soon.

Dan Ferris:                 All right, I knew talking to Peter Pham would bring out some really just interesting viewpoints on what may even be familiar themes to you, but he just has a little different way of putting things, which I think is valuable. I'm glad we did this, man, I'm really glad we talked with him. So, let's go and see what's in the mailbag.

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Ron Paul:                    Hi, Ron Paul, here. Today, I have an urgent message for every American who's retired or thinking about retiring soon. You see our own government's disastrous policies have now put you, me, and everyone over the age of 50 at great risk. Sometime in the near future, we're going to have yet another financial crisis. This one won't be solved with bailouts, and it will hit seniors the hardest. I fear there will be civil unrest, a drop in stock prices, pension fund collapses, big changes to social security and Medicare, the erosion of personal liberties, bank and brokerage closings, and ultimately, a major crisis as the U.S. dollar is rejected for any almost non-paper alternative.

Male:                          Don't let this happen to your retirement. Dr. Ron Paul strongly believes, when the next crisis hits, there'll be no warning, and the government won't save you. Go to www.ronpaulwarning5.com, where you'll learn simple steps you can take to protect your retirement. Go online to www.ronpaulwarning5.com.

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Dan Ferris:                 In the mailbag, each week, you and I get to have an honest conversation about investing, or whatever is on your mind. Just send your questions, comments, and politely-worded criticisms to [email protected]. I read every word of every e-mail you send me, and I respond to as many as possible.

Today, the first one is from Al V. And Al V. says: "Regarding your Stansberry Investor Hour podcast, on 7/9/20, Episode 162, you discussed a question by Voitek C., who wrote that he tested many years of trailing stops, and found they are much inferior to simple random exists. But what you failed to mention in your response was that if you use the approach of TradeStops by TradeSmith, the point is that they get back in after a trailing stop gets hit, once the time is right to do so. I recall, vividly, the seminar put on by Porter, Steve, and Doc Eifrig, a year or so ago, where data were presented that showed, unequivocally, that if you use the TradeSmith to trailing stops, you would have made many times more profit, over the long haul, than simply exiting the trade and not getting back in at all. That's the great point about their approach to trailing stops, and it's the main reason I purchase their newsletter. I'd like to hear your thoughts about this, because I think the questioner was wrong about his conclusion. Thanks for your podcast. Regard, Al V."

Thank you, Al. Thank you for reminding me of that. They did, they did a big presentation and discussed it just as you laid it out. And, look, I'll go even farther, Al: If there is one product that every Stansberry subscriber ought to have, it's TradeStops. I've said that before. Maybe I haven't said it enough, but I'll say it again. Given the proclivities and just the normal – the normal human tendency of most people, I think TradeStops can be a big help. For the reasons I discussed last week, it keeps you from having, you know, catastrophic losses, right? And for the reasons that you reminded me of today, there's a system for getting back in, that does well over time. Thank you, Al for the reminder.

Next comes Derick, and Derick is an Alliance member, and he says: "Hi, Dan. Cullen Roche," who we interviewed last week, "Cullen Roche said the U.S. has not had inflation, despite Fed actions, by referring to the CPI in goods and services prices. Why didn't he refer to the increase in asset prices, like stocks, metals, and real estate, instead of the government-fabricated CPI? He tried to explain, over and over, how complicated QE money printing, treasury, and Fed actions all are, 'It's really complex,' was his mantra, we are confused and misconceive what is going on. Maybe so, but if I personally tried any of the actions closely similar, I'd be arrested for counterfeiting. The government would not say it was too complicated to prove. If it quacks like a duck... Alliance member, Derick."

I think you make a reasonable point about the difference between, you know, the CPI versus asset prices. It's clear that somebody somewhere thinks that stocks are worth more than almost their all-time highest valuation, which is where they are today, they're almost at their all-time highest valuation. Not price. Valuation. Valuation is like price times sales, price times earnings, that kind of stuff. And by the way, for the S&P 500, the number is price times sales. That's the one, historically, that has correlated the best, the most negatively, actually, with subsequent 10- and 12-year returns, meaning, when it's high, subsequent 10- and 12-year returns in stocks are low.

When it's low, returns are high. And it's up around 2.3 again, and its all-time high was, like, 2.4, so, really expensive and obviously elevated, so, I hear you. I didn't hit Cullen Roche up with this. You can go on Twitter and ask him about it, and he responded – he's responded to a couple of things on Twitter. And his last name is R-O-C-H-E – you had it spelled like the insect, here. Just go look him up on Twitter and ask him – I'm curious to see what he might say.

The next one is from Mark P.: "In the last four or five years, banks – " and then he's got a bunch of ticker symbols and names, Fifth Third, State Street, BOA – he says, "banks have done well. Facing the current economic pinch from COVID is the outlook for banks not good? Is it time to put money elsewhere? Thanks for your show. The guests are great. Mark P."

Mark P., I do have some ideas about banks. My basic idea is, take a look at Europe: They went all-in, and Mario Draghi famously said he'd do whatever it takes, and they pushed interest rates into negative territory. And take a look at the price chart of Deutsche Bank, as that happened, you know, it's straight down. When you cave in the yield curve like that and it gets very flat, they have a harder time making money.

OK, next comes TJ S., and TJ says: "I have to say, while I haven't been listening long, only a few months, this was the best guest so far," he's talking about last week, Cullen Roche. "I've read books on the Fed, modern monetary theory, and I even have a degree in economics. So, while I have a putative understanding of our how our banking system works, I never heard the effects of that system delivered in such an understandable way. Banking is a dark art to most people. Cullen Roche helped remove some of the darkness. Thank you very much."

Thank you, TJ. I'm  going to let that stand on its own – it says it all.

Finally, this week, Jason W. says: "Hello. If someone thought commodities were undervalued, and they are not a professional trader or short-term market timer, is there an index ETF that you would recommend to express that idea? Maybe not a single commodity, but something that would mirror the direction of commodity prices as a whole? Or is there a better investment to express the thesis of commodities' undervalue? Thanks for all you do, Jason W."

Jason, I hate to say this, but I got nothing for you in the way of a single ETF. And also, I wanted to address this question, because there's something about the idea of all commodities. I mean, my experience is that throwing them all together like that, if you really are going to hang on for the long term and you think there will be inflation or, you know, some other type of, you know, induced shortage of some kind, over the long-term, maybe. But there's just something about a long-term bet on commodity prices in general that bothers me a little bit. Because I know, in inflation-adjusted terms over the very long-term, you know, commodity prices can and should and do fall. They should fall. That's the definition of progress.

My bet is more about gold and silver, because of their monetary value and their value as a store of value for the last several thousand years, and I think they'll probably be a store of value for another few thousand, at least. But this idea of betting on the whole commodity complex, I know people do it – it's not a crazy idea, I know people do this and think this way, and I see charts, you know, that show the commodities cycling, right, rising, falling, rising, falling, it makes sense. But my comment to you would simply be, be careful with this. Just be careful with it. I'm bullish on gold, I'm bullish on silver, I might even be bullish on copper, given, you know, all its various uses and the fact that it's sort of one of the green-oriented metals. You know, if all the environmentalists get their way, we'll probably be using more copper.

And in general, you know, Dr. Copper is supposed to be an indicator – they call copper Dr. Copper, because it's supposed to be an indicator of general economic activity. So, if you think general economic activity is going to pick up over the next several years, or that there's going to be inflation of any decent amount, you know, copper is one way to express that. And there are copper ETFs, there are gold ETFs, there are silver ETFs, so, you might look at whole complexes of commodities: precious metals, agriculture, other things. And there are ETFs for all of that stuff, so you could easily – you cold go onto Yahoo and find them easily, and put together a little portfolio that expresses your view about all commodities. Just wanted to share those thoughts with you, Jason – it's a great question and I had some things on my mind, and I thank you for giving me a chance to express them.

And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did.

Do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow, with a rate and a review. You can also follow us on Facebook and Instagram. Our handle is @investorhour. Also, follow us on Twitter, where our handle is @investor_hour. Have a guest you want me to interview, drop us a note at [email protected].

Till next week, I'm Dan Ferris. Thanks for listening.

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Outro:                         Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com, and enter your e-mail. Have a question for Dan? Send him an e-mail: [email protected].

This broadcast is for entertainment purposes only, and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear.

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