In This Episode

Buck is joined by guest co-host PJ O’Rourke for an American Consequences takeover of the Stansberry Investor Hour. PJ is the rabble rousing best-selling author of titles like Eat the Rich, Give War a Chance, and How the Hell Did This Happen? Buck and PJ discuss Rex Tillerson’s great relief, doubts about growth in Asia, and the surveillance culture we now live in where everybody knows your name…and a whole lot more. PJ tells you why some people may even welcome the idea of unfettered spying on citizens by governments everywhere.

Stansberry Research analyst Bill Shaw joins the program to weigh in on gold and his recent article in American Consequences. It’s a first-person story about the state of subprime auto loans and late-night adventures with a repo man on the streets of Baltimore. Buck asks Bill which cars the midnight riders are towing away, and the answer is a tell-tale sign of a far too stretched consumer.

Turney Duff, author of the Buy Side and contributor to American Consequences, calls in to tell PJ and Buck about the discussions he just had with the smartest traders he knows on Wall Street to get their opinion on the China trade. Turney sheds some light as to why some of the most experienced people in finance have completely missed the big move in Asia.


Featured Guests

Bill Shaw
Bill Shaw
Since joining Stansberry Research in 2015, Bill has been traveling the globe searching for the best investment ideas in the commodities and natural resource space.
READ FULL BIO
P.J. O'Rourke
P.J. O'Rourke
P.J. O’Rourke was born and raised in Toledo, Ohio, and attended Miami University (Ohio) and Johns Hopkins University. He began writing funny things in 1960s “underground” newspapers, became editor-in-chief of National Lampoon, then spent 20 years reporting for Rolling Stone and the Atlantic Monthly as the world’s only trouble-spot humorist, going to wars, riots, rebellions, and other “Holidays in Hell” in more than 40 countries.
READ FULL BIO
Turney Duff
Turney Duff
Turney is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where their founder and several Galleon employees were found guilty of insider trading. Turney was an unlikely Wall Street trader as a “B” student from Ohio University but soon rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol and power. Encouraged to socialize with the sell-side and siphon from his new broker friends for as much information as possible, Turney chronicles his spectacular rise and fall in his book, The Buy Side; A Wall Street Trader’s Tale of Spectacular Excess.
READ FULL BIO

Transcript

[Prerecorded opening]

Announcer: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.

Buck Sexton:Hey everybody, welcome back to another episode of the Stansberry Investor Hour. I'm nationally syndicated radio host Buck Sexton and here with me today is none other than the rabble-rousing bestselling author and Stansberry contributor, Mr. P.J. O'Rourke. Hey P.J., how's it going?

P.J. O'Rourke:Well I think it's going okay. I'm a little surprised about this Tillerson thing. I mean not surprised, but as usual it's been "Fired by Twitter."

Buck Sexton:Yeah. He also called the boss, allegedly called the boss a moron, which in Trump world that's not just a no-no, that's a no-go. You're finished.

P.J. O'Rourke:Yeah, that was a deal-breaker, but still it didn't happen at the time that he did that. Also you probably know more about this than I do, what do you make of Tillerson's replacement?

Buck Sexton:I think Pompeo is actually an upgrade in a lot of ways, but why don't we hold that for one second, P.J., 'cause I just wanna tee up the rest of what we got here and then we will come back to it. Today is an American Consequences takeover, everybody, in case you didn't know. It's a takeover of the Stansberry Investor Hour. If you haven't heard, American Consequences is the new free magazine headed up by P.J. and a host of other leaders in business, finance, and politics. The American Consequences motto is "Ideas that matter."

In fact, today we'll be joined by author and American Consequences contributor Turney Duff as well as Bill Shaw, lead analyst of the Commodity Super Cycles newsletter at Stansberry Research. Turney is here to talk to us about the big move in China that most hedge funds completely missed out on and what he's been working on right now for the latest issue of American Consequences. Bill Shaw will join the show to tell us all about his boots on the ground research into subprime auto loans, and his recent adventures on the streets of Baltimore with one of the area's top repo men.

Armed with dozens of photos from a local bank, they went hunting for the remnants of America's debt-laden consumer. To start reading American Consequences for free, everybody, just go to AmericanConsequences.com. And with that, Mr. P.J. O'Rourke.

P.J. O'Rourke:Well thank you. Yeah, we're trying to put something out there that's fun to read, even fun to look at. I've got to mention Erica Wood, our creative director, has managed to create some web pages that don't look like they were created by web-page designers living in their mom's basement and wearing pajamas and acne cream.

Buck Sexton:That's always a good thing.

P.J. O'Rourke:Always. Yeah. Not only do I hope – touch wood – that it's fun to read, but it's a visual delight.

Buck Sexton:So you mentioned, 'cause we got the big breaking news from this week so far at least, and you never know, some nights and some days it gets really crazy with the Trump situation. There are definitely news stories that –

P.J. O'Rourke:It's only Tuesday.

Buck Sexton:Yeah. In a previous era would have dominated the news cycle for days on end and they barely even get front page coverage now. But you have that big switch-up, the change-up with Pompeo replacing Tillerson as Secretary of State. I've got to tell you, P.J., from my contacts inside and outside of government, Pompeo has been very well respected. He's a patriot. He's not a Trumpist or a Trumpbot. That's not fair to say. He's actually deep on the issues, a very smart guy, and I think this is a good thing.

P.J. O'Rourke:Well I'm glad to hear you say that. I was sort of a neutral nation on whether this was a good thing. I'm not a huge fan of Tillerson, but he was a predictable element in a somewhat unpredictable administration and I think both in the world of finance and in the world of geopolitics, unpredictability is the thing that people fear most, that they fear more than success or failure. It's always nice to know what's gonna happen next and you never know what's gonna happen next with President Trump.

A lot of the things that have happened have been in my mind good, but the unpredictability factor... Tillerson turned out to be a very, may have come in from outside the government, but he turned out to be a very conventional Secretary of State, for good or for ill, really not too much different than John Kerry.

Buck Sexton:He's a grown-ups table member of this administration, P.J. I think we could agree on that. He sits at the same table so to speak at Thanksgiving that you'd have Mattis and McMaster and some of the other folks who in those cases actually have very, very long careers specifically in the areas they're serving in the administration, but I mean Tillerson was CEO of Exxon Mobile, clearly knows the game of international politics, intrigue, and is just a smart and savvy guy. I think he was too much of an alpha dog for this administration. I think part of the problem is that he wanted to serve his country, but he didn't wanna take too much crap, and I think he's fine with leaving.

P.J. O'Rourke:I wouldn't be surprised. It didn't pay like his last job, did it?

Buck Sexton:It did not.

P.J. O'Rourke:You know it's interesting how much time we spend on the psychology of this administration. You know every administration has some interesting psychological depths and dark spots, and every presidential administration probably needs to be psychoanalyzed, but this particular one seems to invite that. The fact that the split between President Trump and Secretary Tillerson may have had more to do with "Get off the porch and let the big dog eat" than it had with actual policy is telling to me.

Buck Sexton:I think in this case, P.J., there's a legitimate policy reason for the personnel change, but I also think that Trump was happy to exercise that option because of the personal friction if you know what I mean, you know? There was a file the HR department could use, but what spurred it on here was that the boss just got tired of it.

P.J. O'Rourke:Yeah. Sort of foot dragging solid conservative approach in a small "c" sense must annoy a guy who likes quick and big and splashy moves.

Buck Sexton:Can we use a bit of our time here, P.J., as an overview, a marketing mechanism if you will? I'll be shameless about it if you wanna join me for American Consequences, because I contributed to each edition, but this time around I've got a piece on security, but can you give us the 30,000-foot view of what's going on with this American Consequences edition?

P.J. O'Rourke:Well this particular issue that we'll be putting up on Saturday is devoted to security and surveillance. I mean we're coming to live in a world of total security and surveillance that really makes George Orwell's 1984 sort of pall by comparison. If you recall that book, Winston Smith was able to step around a corner and avoid his telescreen watching him. Ha! No such luck for the rest of us today. Combined in this issue, besides a certain amount of fear mongering – I think pretty well-grounded fear mongering – is also another kind of fear that I have as the editor, which is that in some ways we like being under surveillance.

We like a security state. Part of the modern tendency for everybody to think of themselves as the absolute center of the universe and their little quarrels and spats and injustices as being monumental in size... It magnifies us. The security and surveillance state magnifies our importance as individuals even while it gives forces beyond our control a chance to send us to the metaphorical, or even the real Gulag.

Buck Sexton:Well you know I have to say, P.J., I have a theory and I haven't really been able to do much of the deep-dive research on it because I've gotta do things that actually pay the rent, but I've been expounding on it for a while now. It's that the surveillance state that we live in has had profound changes on human behavior across the spectrum.

It's most notable when looking at crime because people always try to come up with these ideas for why has violent crime in America dropped so drastically in the last few decades, and it comes up in the context of, "Well we got more guns than ever, but crime is way, way, way down" right? It comes up in a lot of different discussions.

I was just in Savannah, Georgia this past week visiting some work colleagues and friends and whatnot, and even in little Savannah, Georgia you walk around the streets, there are cameras on corners all over the place, surveillance cameras.

P.J. O'Rourke:Oh yeah. Buck, you can't not pick up after your dog and not have that caught on the evening news, you know? We got the tape from the convenience store on the corner that shows – and facial recognition shows that it's Mrs. XYZ from such-and-such street in Queens and her poodle.

Buck Sexton:But on the other side of this, so there's the upside of drops in crime, and as you said I think people like some of the aspects of the surveillance state. they like the notion that the state will keep them safe and warm at night if it knows everything that's going on. But clearly the downside of that as well is being seen now with what some at least believe, and I'm in that category, that the surveillance state was abused for explicitly political reasons in the last presidential election.

P.J. O'Rourke:I agree, and you know, what unnerves me much more is the potential for its abuse. Now as long as the surveillance state is devoted to lowering the murder rate, and I do think it's not only the cameras, it's also that the police have become much more wise about intelligence. Part of neighborhood community policing is not just being friendly to the locals, it's also getting to know the bad guys in the neighborhood and keeping an eye on them, which I think police forces are much better at now than they were 20 years ago or so.

But the thing that disturbs me, as long as you have basic liberties and decent laws and a sort of consensus among people about what should be illegal, like killing people and robbing them and so on, the surveillance state is sort of comforting in an odd way. But all those tools, that toolkit could be picked up and carried by bad people the way it is in China right now. If we get a really ugly government and there are people on the left who'd argue that we've got one now.

And there are people on the left if they get elected will cause me to argue that we'll have one next. The tools are neutral, but if the wrong people get a hold of these surveillance tools, and this applies not only to our private lives and our political beliefs and our religious beliefs, it also applies to our operations in the free market. We expect a certain amount of privacy about what we buy and sell, and that privacy is gone.

Buck Sexton:It's definitely the case, P.J., that the Internet is a turnkey totalitarian surveillance system, and people are starting to see – you mentioned China – what the real implications of that are for the whole world. But particularly for countries where things have been going down that path for some time.

I think it is troubling because it's not going away any time soon. In fact, once you have the government – and this is why the whole encryption debate is actually so much more interesting than it seems at first.

Once the government starts to say "We need access to things whenever we want it," then you're in a position where, okay, and then the government can just give itself the discretion, whether it's via FISA warrants or any number of other pretexts that are out there to look at your information and they've got so much more on you than people would've – the stuff that Facebook can give on a private citizen today, and Facebook is a private company, it's not government, but just in terms of the data collection that it has, P.J., this is way beyond what the Stasi with hundreds of thousands of informants would've had at their disposal in East Germany. I mean, we know what you're thinking while you're eating your breakfast, never mind just what you had for breakfast.

P.J. O'Rourke:That is exactly right. Tucker Carlson did an excellent series on his show about if you're connected to the Internet, particularly to Google with your cellphone, the cellphone knows everything you do. You can put it on airplane mode. It doesn't matter.

Tucker sent a reporter out around Washington. He had him go to the children's hospital, the National Cathedral, someplace else where you would expect privacy.

I don't remember what the third one was. Then they cracked the Google code and showed what his phone – he was carrying two phones, one on airplane mode, one regular, and actually the one on airplane mode knew even more about what he was doing when he got out of the car. "It Knows I'm Getting out of the Car," I think was sort of the headline on the piece they did.

Buck Sexton:And I would just note that for law enforcement, you mentioned this before, there are always two things that I think about during this discussion of surveillance: On the good side, and I completely agree it's not just about cameras everywhere, although that has an effect as well, and that's why you see some of this footage now of shootouts with cops or store owners, and you see it up close and personal because everything has cameras. But also the revolution in communications among law enforcement. You mentioned better information.

I worked for the intelligence division of the NYPD and it operates largely like the intelligence agency of a foreign government would in a sense or of our own government. It just operates within specific legal ramifications, but the number crunching and data crunching it can do and the amount of information it has access to is incredible, but even just on communication side of things, P.J., you remember the '70s. I do not, but back in the '70s if there was a guy who stabbed a lady on a street outside of a bar at midnight in downtown New York, if someone saw it they would have to run down the street, find a payphone, dial 911, hope that the cops get the call.

Now if someone sees something on the street they can actually video it in real time as they're speaking to the police on their phone, and there's probably gonna be 20 or 30 other people that could do the same thing. I mean it's just a completely – and that's all instantaneous. It's a totally changed world of communication.

P.J. O'Rourke:And thinking back to the '70s, which I not only remember, but I remember the '60s too, and Buck, even the '50s, I mean when we were smoking pot in college in Ohio, it was actually in theory, possession of marijuana was a felony with a penalty of up to ten years in jail for smoking pot. Not a fine, not a court appearance.

Then I also want to cast this in another light. Now, okay, I'm a 70-year-old middle-class white guy living in New Hampshire. I trust the police. I trust the police because it's a little town in New Hampshire. I know them.

But what if I'm somebody who doesn't trust the police? What if I'm a DACA Dreamer? What if I'm black and live in a place where I feel that the police are racially prejudiced? And let's not kid ourselves, there are such places. How is my attitude toward the government, towards society itself, changed, indeed corrupted by this constant surveillance if you don't trust the people in charge?

Buck Sexton:That clearly makes it even worse, and this is why I try to warn people about social media platforms because there is this assumption that they're going to operate largely like utilities do or without any politicized agenda,. And we're already seeing that start to fall apart, P.J. Facebook, Twitter, Instagram, SnapChat for the really cool young kids, they are taking explicitly political positions on issues like speech and what's allowed and what's not. They're run by people that are overwhelmingly left-wing and left of center, and as I've always told people, if your motto has to be "Don't be evil" there's a problem.

P.J. O'Rourke:Yeah. It's like what do you tell your kids? Do you tell your kids "Don't be evil"? I mean doesn't that sort of go without saying?

Buck Sexton:Yeah, I would think so.

P.J. O'Rourke:I mean I tell my kids things like "Buckle your seatbelt" which with all the beeps and bings in the car kind of goes without saying too, because they'll be driven mad before they're two miles down the road if they don't buckle their seatbelt. But nonetheless, don't be evil?

Buck Sexton:I was going to say, drawing us back to American Consequences for a second though, the Chinese, and speaking of not being evil, the Chinese surveillance state, I get the sense that as long as they're selling us a lot of cheap stuff and Walmart has got the shelves filled, we don't care that Xi Jinping has cleared the way to be dictator for life or president for life – which is really the same thing – that 1984 and George Orwell's Animal Farm are banned, that words like "dictator" have now been banned by Chinese Internet censors. As long as they're producing stuff cheaply, P.J., I feel like we're going to say, "Well that's all China's problem."

P.J. O'Rourke:Yeah and then all that cheap stuff that they're producing, what are the microchips in there doing? Just asking. I'm a tech idiot, but you know, the Chatty Cathy doll could be watching your every move.

Back to the '60s again, is that we were also all protesting the war and dodging the draft and so on and so forth. Lyndon Johnson, given his somewhat evil impulses, could've rounded us all up thrice with modern technology.

But back to American Consequences, we've got some great pieces. We've got a great piece from you on all this stuff. Christine Rosen did an absolutely terrific sort of overview of all this stuff. Alice B. Lloyd is a really talented writer, did a sort of personal story about – Alice tapes over the camera as many women do and probably all should and the rest of us too, tapes over the camera on her computer because that can be hacked.

Buck Sexton:I don't want to deprive somebody of a fantastic show though, you know what I mean? I try to be an open-minded guy here, P.J. If somebody really wants to see what's going on in Papa Buck's house that badly, maybe I should just let it rip.

P.J. O'Rourke:Well they're certainly gonna be bored if they tune in to me. I was saying to somebody, boy, if they're tracking my cellphone, which I almost never carry, what they're gonna be learning is he's in his cufflink drawer.

Buck Sexton:Yeah. What they're gonna learn about me if they were to hack my laptop is that I watch too much Netflix on the weekends, I like to wear sweats as often as I can, and my favorite cuisine is frozen chicken nuggets. I think I can live with that.

P.J. O'Rourke:You've spilled it all for us. But in a broader sense what we're trying to do with American Consequences is that we realize people are interested in finance, economics, and of course the politics that goes with those things. We have a lot of sources of information. The whole Stansberry Research provides at least a score of newsletters on everything from the basics of investing to pretty sophisticated strategies that I confess I don't understand, and of course there's the Wall Street Journal, there's The Economist, and other business publications.

But what they don't get is the sort of feature section side of this, which is instead of providing information that's instant, buy this, sell that, let's take a little overview, give ourselves a little education, get some good writers in to really explore some of these underlying themes. Like we've done central banking, we've done an issue devoted to government effects on economy. The issue that's out right now, and all the issues are archived so you can pull them up, and we try to make them not time sensitive. We've got an issue out now called "Asia Has Risen" that concentrates on all the Asian markets.

But at the same time we do Asian market analysis, we also do a piece, Vic Mattis did a wonderful piece on how to prevent yourself from being feasted to death when you're doing business in Asia – serious danger, as anybody who's been over there knows.

Buck Sexton:It's tough for me because soy sauce has gluten, and as I have celiac disease that just means that everybody is trying to poison me.

P.J. O'Rourke:Well I'm one of those people who can, will, and do eat anything, and I've had my boundaries stretched, and plus I love really hot and spicy food and I've had my tolerances tested. But it's actually more of a quantitative problem when people are really being hospitable, and Asians are very hospitable, and when they're being extra hospitable, there are like 10,000 courses and then there are all the beer, whiskey, wine, and maloti that you drink with each course. Of course it's rude not to empty your glass. Yeah, you have to be a long ball hitter.

Buck Sexton:P.J., one of the things we've laid out to discuss today are doubts on Asia. What do we mean by that and what's going on?

P.J. O'Rourke:Well, this is a piece that I wrote in the Asia issue. And I said that dynamic as the economies are over there and exciting as it is that they have so much room for growth, that there's so much upside, and that they're really getting their act together about technical skills and even making some progress on reducing corruption – which is endemic east of Suez – there are some things that worry me about Asia. And first and foremost is that it is a continent without a really solid tradition of rule by and for the people, of democratic values and individual rights.

India is better in this respect than China, but China has always been a highly centralized country. In fact, all of the major nations of Asia have always been highly centralized, and with a high degree of centralization, that goes with a low degree of individual liberty. You can kind of sneak some individual liberty. There's an old Chinese proverb, "The mountains are high, the emperor is far away." But as we know from our discussion of surveillance, the emperor isn't as far away as it used to be and the mountains are not quite so high. So the essence of the free market is freedom.

In fact, market freedoms are inseparable from human rights freedoms, something that I think both the left and the right tend to forget. Adam Smith is unequivocal about this. Our right to specialization, our right to free trade, our right to individual betterment, self-interest, are behind our rights to things like free speech and our civil rights and our legal rights. Asia – particularly China but some of the other countries in Asia, too – seem to be unclear about the connection between material rights and political and personal rights.

Buck Sexton:All right, let's get to one of our guests this week on the Stansberry Investor Hour. We have with us Bill Shaw. Bill is the editor of Commodity Supercycles and Stansberry's Gold & Silver Investor. Since joining Stansberry Research in 2015, Bill has been traveling the globe searching for the best investment ideas in the commodities and natural resource space.

Bill and his team analyze a broad range of sectors including oil and gas, base and precious metals, and agriculture equities. Bill is also a contributor to the Stansberry Investment Advisory and recently took on a project to look into the subprime auto loan space. He went on a wild ride with one of Baltimore's top repo men, and you're about to hear what he learned firsthand about the state of America's consumer. Please welcome to the show Mr. Bill Shaw.

Bill Shaw:Thanks, Buck.

Buck Sexton:Thanks so much for joining us. I want to hear about this wild ride in Baltimore, what you did, what you learned from the repo man, what's going on with all these subprime auto loans.

Bill Shaw:Sure. Just to start off, I'll point out that Porter and his team started talking about this subprime auto bubble back in 2014 four years ago. And we've got some great accountants on our team, and if they were here they would tell you all the different ways that these lenders can move the goalposts and try to fudge the numbers. A lot of this takes place, how they define delinquency rates and subprime lenders.

So we wanted to get out on the street and hear from the repo man how his business was doing, because a repo is final. You can't really hide that. That's the end. The loan was bad, they had to repo it. So we wanted to get out there and do that. I called around and we happened to find a guy that was familiar with our work and he gave us wide open access. So I spent a Sunday night about four hours riding around with one of his top guys and a lot of fun. It was a real eye-opener.

Buck Sexton:Yeah. So walk us through the first repossession you saw.

Bill Shaw:Sure. Let me start out by saying the thing that really opened my eyes was the sophistication of this operation. In my mind I would think about some blue-collar garage, "Joe's Garage, come out and pick up a car that was delinquent," but these guys, they've got state-of-the-art technology. They've got these blacked-out cars, black rims, black tinted windows. They've got cameras on 'em that are constantly snapping pictures. They've invented this technology themselves.

As they're driving down the road they can lock in on license plates, just the license plate. Snap a picture, note the location, the time, and this builds a database. So basically I just went out and we drive around. This guy is a spotter, and when an alarm goes off he goes around the corner and kills the lights. He needs to go out and verify by looking at the VIN number before he can call the wrecker because people switch their license plates, things like that.

P.J. O'Rourke:Bill, what kind of cars were you repossessing?

Bill Shaw:That's a great question because that surprised me quite a bit. You think about repos and you often think about back in the housing boom when people were taking out big home equity loans and buying boats and Corvettes and things like that, but these things were absolute junk. These are loans that people took out, $15,000 or $20,000 on a six- or eight-year-old car that already had 100,000 miles on, and they're giving them terms of like eight years at 20%.

They need to pay for five years before they get any equity at all in their car. So what happens is they break down, they can't make the payments, or they just decide not to make the payments because if it's broken and they don't have money to fix it. So this stuff is garbage. Some of it's sitting on blocks in people's yards when they go to get it.

P.J. O'Rourke:This is really interesting to me, Bill, because I grew up in the car business. We had a family Buick dealership and my dad was sales manager, my Uncle Joe ran the used cars, and we did our own financing back in the '50s. Car dealerships could do their own financing in those days and usually did, and I don't remember a – it may have happened, I'm sure it did – but I don't remember a case of repossession of a new or used car.

One of the reasons for that was A, we were risking our own money so we were doing due diligence. Second place, our loans were at a reasonable rate of return, probably something like mortgages were back in those days, 6%, and the third thing was we knew our customers. When Uncle Joe sold a junker off the used car lot he usually knew the guy that he was selling it to and he'd say, "Sam, are you gonna be able to make the payments on this?" and "Hadn't we better talk to your wife and make sure that you got enough household cash to pay this off?"

And Sam would say, "Oh, it's gonna be okay." stuff like that. Of course by the depersonalization and the predatory lending – I mean we were not in the business of lending, we were in the business of selling cars, and this changed, hasn't it?

Bill Shaw:Yeah, absolutely. I mean, they'll find a way to get anyone into a car by just lengthening the terms and jacking up the interest rates. You're right, and they know that a lot of these loans won't get paid back. It's a calculated risk. They're getting credit really cheap and they're making their money off the spread by charging these enormous 20% interest rates. These guys, their business is booming.

When I met with them they were setting up a new operation in Houston and the banks actually reached out to them and said, "We need you guys here. We'll help finance you to get you out here and get you rolling." And what's happening out there is of course the shale oil boom fueled a huge market in car sales growth, and when the oil patch dried up and all those guys got laid off, now all those loans are rolling over. So it's happening all over, not just Baltimore.

Buck Sexton:When does the music stop so to speak on all this stuff, Bill? If this continues on you have high rates of repossession after very high rates of default because they're making bad – we keep calling them subprime – they're making bad loans, right? They're making loans to people that are not going to be able to repay them. They've been doing this at a rate that is pretty breathtaking.

I think very few people have a sense of how big this debt really is that's being run off in the subprime auto loan sector. Aren't there a couple of big banks that this is really what they've been banking on – pardon the expression – for some years now? So this has become a systemic financial issue. Does it come to a stop at some point? When do we have to pay the piper?

Bill Shaw:I mean there's a couple main culprits that are doing a lot of the lending. One in particular is Santander Consumer.

Buck Sexton:That's what I was thinking of. Yeah.

Bill Shaw:We shorted them twice. The first time was back in, let me see here, I think September of 2015, and we did really good on that one, 49% return. When we did the ride with the repo man about a year ago we shorted it again. This time we thought they had more pain ahead, but the market went the other way and we stopped out for about a 22% loss, so averaged out we did pretty well with our thesis. But there has been some recent stats, and I don't know 'em off the top of my head, that they have slowed down on lending to subprime borrowers. But there's still I think $1.3 trillion out there in total auto loans in the U.S., and that's more than $6,000per driver.

P.J. O'Rourke:It's interesting, the subprime auto loans. Everybody knows by now about the student loan crisis. This strikes me as being – if the current market volatility leads to another big downturn or if there's some exogenous factor – that causes a systemic credit crisis; it sounds like next in line after the student loans will come these subprime auto loans.

Buck Sexton:Well Bill, anything else you want to let folks know about with the work you're doing at Stansberry? You want to talk about gold and silver, by the way? I'm always curious about that.

Bill Shaw:I think it's always important to have a portion of your portfolio in gold. It's historically performed well during times of crisis, and with all the debt bubbles around the world, a nine-year bull run in the stock market, all the political chaos and unrest, I think it's just really smart to have some of your portfolio exposed to gold. At Stansberry Gold & Silver Investor we take a more conservative approach. We recommend 10 to 20% of your total portfolio go into gold, but rather than just buy a couple stocks, we spread it out. We put a portion of it in gold bouillon.

We buy some producers, some gold miners, some royalty in streaming stocks, and then a few highly speculative junior miners. By doing that, we spread the risk around and it's much lower volatility than say just buying the GDX or some type of a gold ETF. So if listeners want to hear more about it they can find more at StansberryResearch.com.

Buck Sexton:Bill Shaw, editor of Commodity Supercycles and Stansberry's Gold & Silver Investor. Great to have you, sir. Thank you for joining the Investor Hour.

Bill Shaw:Thanks, Buck. Thanks, P.J..

Buck Sexton:All right, everybody. Next up we have Turney Duff as our guest. Turney is the author of the New York Times bestseller The Buy Side, a torrid tale of a coming-of-age New York trader from Maine whose eagerness to please the Wall Street culture almost cost him his life. Now a consultant to hit TV shows like Billions, Turney is also a frequent contributor to American Consequences. Turney, welcome to the Stansberry Investor Hour, sir.

Turney Duff:Thank you, Buck. Thank you for having me.

P.J. O'Rourke:Turney and Buck are two of our key American Consequences contributors. It just isn't a real issue of American Consequences without Turney and Buck, and so thank you, Turney for all you've done. I was talking earlier about how the purpose of American Consequences is to give some depth and perspective to the world of finance and economics and I don't know what we'd do without you.

Turney Duff:Thank you. I appreciate the opportunity.

Buck Sexton:Turney, I want you to tell me if you would, please, and I'm going to avoid just asking you more questions about the next season of Billions because my girlfriend and I watch it all the time and I'll have to just send you an email. I don't want to take up your time with that now, although I'm looking forward to it. That said, what is the big move in China that most hedge funds have completely missed out on?

Turney Duff:So, it's interesting – I took a few moments this morning and I called 10 of the smartest people I know, and it came back two are super, super bullish, like extremely bullish. Two are super bearish, and the other six are on the sidelines. They're all looking at the same data. So it's very interesting, but the data is opaque, right? And it's weird.

Some people think it's fraudulent. So it's almost impossible to get an accurate or informative view of China. The move is impossible to predict. Some people think that they know what's going to happen next, but the majority of smart people I talked to are on the sidelines because whether it's a fiduciary responsibility or they just don't know, they're choosing not to partake in the market.

Buck Sexton:Well what do you think, Turney? What's the reality of China for investors who'd be getting in the game now or who already have holdings that they're looking to see whether they're going to continue to grow?

Turney Duff:Well it's the kind of thing where you almost feel like you need to be there in some way. I mean it's the number two market in the world, right? With the possibility of maybe a trade war and the slowing economy and their growing debt, it makes it hard for me personally to be bullish or to go all in. If I had to allocate money to China I would be underweight and I would be very specific with the names that I chose, the ones that I felt pretty confident I could do a deep dive and get a good analytical feel to the company. But personally China is a mystery to me, and so I would just avoid it entirely.

P.J. O'Rourke:It's interesting, Turney, that you say that, because one of the points, we've got this Asia has risen issue of American Consequences out right now and it encompasses both some very bullish arguments about China and some rather bearish. One of the things I said in my article about my doubts about Asia was my concern about the opacity of mainland China markets.

Turney Duff:Yeah, I mean that nails it right on the head. It's really hard to analyze, and when you're sitting over in the U.S. trying to get good information and solid backing for your thesis it creates a lot of questions. You just don't know. But I should also say I know people who made money off of Madoff, right? There is money to be made. It's just do you want to place that bet? The people I know who made money off Madoff put the money in early and got out before the financial collapse. Is that making money? Yes, but that came at a huge risk.

Buck Sexton:Turney, can I ask what you think about the possibility of a trade war with the U.S. given that Trump is talking about this now a lot? Do you think that's more of a political issue in dealing with China and maybe even long-term a national security one, or the economic ramifications going to be important enough that essentially Trump's steel and aluminum tariffs and whatever else he decides to put in place might have a real effect on China such that Americans thinking about investing in China should take notice.

Turney Duff:Yeah. That's an interesting question, right? I mean, a trade war actually could be a positive or a reason to invest in China. Typically my friends are the kind of run it fast and loose operate under a sort of ready, fire, aim, right? So the first hint of a problem we might see a 5 to 10% selloff here in the U.S. depending on how heated it gets, but a trade war is scary. Most people that I talk to in finance do not want to talk about a trade war.

P.J. O'Rourke:Back to the problem of opacity, which would just aggravate any sort of move one would make to go short or go long in case of trade war, do you feel that Chinese market opacity is intentional or is it a secondary result of heavy Chinese government involvement in the market?

Turney Duff:I believe, and maybe this is just rooted in me from a decade ago, but it feels like you're walking into a rigged casino. It feels like the Chinese government is literally operating behind the curtain. And that could be a good thing, right? If you feel like the market is bulletproof and will never go down then you're good, but that only lasts so long. I feel like it is heavily manipulated and controlled.

Buck Sexton:Well, that's always the justification from people that even understand the economics for taking some action against China, which is that they have been manipulating their currency and they've become the world's export superpower, and those who say that this is a terrible idea for us. It's always interesting to say, well, the Chinese have done this to great economic effect, meaning that they have a protectionist system in place and even more than that. They're trying to play games with their currency, and then, Turney, as people say, the U.S. also plays games with its currencies, and that's a little bit more unsettling.

Turney Duff:Yeah, no, it's true. You can draw the line in the sand anywhere and it moves the goalposts, but yeah. I'm sure a lot of people are guilty of kind of playing those games with their own currency, and that's the thing with currency. You can wake up one day and be much wealthier or a lot less wealthy depending on the moves.

That's one of the things before a couple of years ago where they made some changes to the rules, we used to actually buy companies overseas and get the move right, but we would lose or break even because of the currency. And it really became hard to predict because not only are you picking the company, but you're also trying to get the currency move right also, which is just another factor. It's almost like trying to hit a parlay.

P.J. O'Rourke:Yeah, I'm just thinking. Let's do a little compare and contrast. My friends in Hong Kong echo what Turney has to say about the mainland markets, particularly Shanghai. But then let's look at the markets around the rest of Asia in Tokyo, in Hong Kong itself, in India, and Singapore. Do you see greater transparency there?

Turney Duff:Yeah, I believe it's closer to New York and London. It appears at least from my past experience and the people that I speak to there's more of a comfort with investing in those companies. The downside is sometimes your exposure to let's say some of those countries is all in one or two stocks, right?

That also becomes a little more difficult because if your portfolio is 80 or 90% U.S. and something happens here and it's a market move and it affects every stock, it's easier to hedge and it's easier to kind of make money if you pick the right stocks. If you owned stock A and short stock B and that whole sector or industry is down, you can still make money. But when you're micro invested in certain countries and it's a handful of stocks, it sometimes becomes more difficult.

Buck Sexton:Well all right. Turney, I appreciate you joining us here on the Stansberry Investor Hour. Where should folks go to read your latest, other than in American Consequences to which you are a fabulous contributor?

Turney Duff:Thank you. I've got a website, TurneyDuff.com. I've actually been in L.A. a few times this year already. I'm working with a new manager, Management 360, so I'm exploring the film and television side a little bit more, so we'll see how that goes.

Buck Sexton:Before we let you go: Is bitcoin dead, Turney?

Turney Duff:Most of my friends are very wary of bitcoin. I don't know if it's dead, but it sort of reminds me of the dot-com boom back in the late '90s where 90% of them are in some ether cemetery.

P.J. O'Rourke:My own opinion is it's the currency of the future and it always will be.

Turney Duff:I like that. That's good stuff.

Buck Sexton:All right, everybody, check out Turney's latest and thank you so much, Turney Duff for joining us.

Turney Duff:Thanks, Buck. Thanks, P.J..

Buck Sexton:All right, have a question for us, everybody? Please write to us at [email protected] If we use your question on the show we'll send some Stansberry Research goodies. Next week, Porter will be back in action with guest Arez Khalir of Stansberry Asset Management. Love us or hate us, just don't ignore us. I want give a special thanks to the editor-in-chief of American Consequences, which you should go read for free at AmericanConsequences.com, but the EIC is Mr. P.J. O'Rourke.

P.J. O'Rourke:Thank you, Buck.

Buck Sexton:And with that, my friends, we appreciate you listening. We will all see you next time.

[End of Audio]