In This Episode

Porter’s nervous this week because he’s seeing two very specific and unusual things that have never happened in the markets before…and it’s “completely insane.” Porter and Buck welcome special guest Richard Maybury, editor of the U.S. & World Early Warning Report and author of the common-sense Uncle Eric book series. Richard enlightens listeners to the concept of “Chaostan” and reveals how this unpredictable part of the world has ironically led to one of the most predictable trends in investing. Porter opens the mailbag and tells a listener how to take advantage of record low market volatility and the inevitable reversion to the mean of the VIX once the bull market changes course.


Featured Guests

Richard Maybury
Richard Maybury
President of Henry Madison Research, Inc., Richard is a world-renowned author, lecturer and analyst who consults with business firms and individuals in the U.S. and Europe.
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Transcript

Male: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour.

[Music Playing]

Male: Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at www.investorhour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.

Buck Sexton: Welcome, everybody, to the Stansberry Investor Hour. I'm Buck Sexton and, of course, our fearless leader and CEO Porter Stansberry is with us now.

Porter Stansberry: Hi, everybody. Happy to be here. Got a great show for you; we get to introduce you to an old friend of mine, Richard Maybury. And got a couple of very controversial foreign policy topics to talk about with Buck.

Buck Sexton: Oh gosh, I'm looking forward to that. We also by the way ask you if you haven't already, please subscribe to the podcast you're listening to in iTunes. Subscribing is best because then you don't have to worry about it. It just pops up into your podcast box every week. You can also go on Google Play or wherever you find the podcast. Just subscribe, download, share, and also leaving reviews is a big help. So please do that for us if you get a chance. And you can let us know how to best serve you. And as always, you can write us at [email protected]

All right. Let's get right to it. Porter, what is on your mind today, sir?

Porter Stansberry: Well, we are seeing a very unusual and actually historic moment in the markets. And that has everyone feeling very euphoric. We are at new all-time highs in stocks. We're at new highs in the corporate-bond markets. But there are some really fishy things going on that have me nervous about where this bull market is headed. I think we have left now sort of the period of reasonable increases to stock prices and bond prices and we are now in that very dangerous area where there's very little oxygen, and something bad could seriously happen. And let me give you a great example.

This is something that has never happened before [laughs] and it's completely insane. So, Buck, I'm not saying that you're a financial novice, but I wouldn't describe you either as a multi-generational experienced investor.

Buck Sexton: That is fair to say.

Porter Stansberry: So – but you know a little bit; you know the difference between _____ and _____. So if I told you that you could buy a junk bond, or I told you you could buy a bond from a AA-rated, high-quality blue-chip company. Assuming the yields were the same, which one would you prefer to own?

Buck Sexton: I'd go with that blue chip.

Porter Stansberry: Sure. Why take a risk if you're not going to get paid more? Well, how about this. Would you take a risk if you were going to get paid less?

Buck Sexton: Well, no, of course not. That's a terrible idea. [Laughs] That was a trick question. No, that's bad.

Porter Stansberry: No. You're going to get paid less, Buck, not more. And you get to have a lot more risk.

Buck Sexton: That's bad.

Porter Stansberry: So I'm not going to get into explaining what all the jargon means. But there's something called option-adjusted yield. And all it means is – it's really not complex to understand. What it means is that junk bonds, high-risk corporate bonds, have a default rate. You know that over time, X amount of them are going to default. And what happens is you get paid more to cover that potential risk of default. So if you look at the average default rates, you put in the average recovery, and then you look at the current yield, you get what's called the option-adjusted interest rate, which is sort of like the real money after all the losses are calculated, you're going to be buying a basket of junk bonds.

Now this is not like a particular rate you can get for one particular bond but it's the idea that as the whole the market is going to end up paying out about this much. So obviously if you're an investor, you want to buy junk bonds when the option-adjusted rate is very high, meaning that even after you take your losses, you're still going to make 5% or 10% or sometimes even 15% on your money. Makes sense, doesn't it?

You take the same concept; you can apply it to high-grade – to high-quality corporate bonds. OK. So it's rare, but sometimes A-rated investment-grade bonds default and there's a recovery rate and all that stuff is known, the historical rates of all the stuff, blah, blah, blah. So you can come up with the option-adjusted rate for high-quality corporate bonds just like you can come up with the option-adjusted rate for low-quality corporate bonds. But you'd assume that you're never going to accept a lower amount of money buying lower-quality bonds. But, alas, today, [laughs] the option-adjusted rate on junk bonds is what they call 93 basis points, which means you're going to make less than 1% a year on average today buying junk bonds.

The option-adjusted rate on high-grade, on high-quality corporate debt is 103 basis points. So it's actually more. So you're only going to make a percent in either case buying bonds. So in other words, you're going to get paid less to own lower-quality bonds right now in the U.S. corporate-bond market. And if that was way too much explanation or too much jargon, I apologize. But this has never happened before. It's never even come close. So what I'm describing is a situation where there is so much demand for income, so much demand for yield that the market is behaving completely irrationally. And at some point, and I can't know when unfortunately, at some point people are going to come to their senses and they're not going to be so enamored with low-quality bonds. And on that day, you're not going to want to be a bond holder.

So there's a big risk. The other thing that is very unusual is that the market is trading – the stock market now is trading at multiples that are very high. And everyone already knows this, so everyone already knows that stocks are as expensive as they have ever been with the exception of 1929 and 2000. That's not news. You heard that from a lot of people. But what is really unusual is that if you look instead at the S&P 500, which is weighted according to how big companies are. So the big companies matter more to the index than the small companies. So the S&P is trading at around 25 times earnings. And so that's very expensive. But if you look at all the companies and you equal-weight them, the market's also trading at about 25 times earnings.

That's very unusual. Normally, the larger stocks have a higher multiple relative to the smaller stocks. So even during the 2000s mania, you could've gone to the smallest 100 stocks in the S&P 500 and found value. There was value out there. But in this market, the mania has been so powerful, there's been so much new money and credit created that there's no value anywhere. And investors are investing in a whole new way. There was a new survey out; JPMorgan says that less than 10% of the money going into the market today is actively managed. Everyone's using ETFs. Everyone's using index funds. So the money is being allocated into the stock market in a far more uniform way than we've ever seen before.

And that, in a way, is great. People are lowering their fees. They're reducing their risk because the volatility is much lower when you invest that way. But there's another down side, which people haven't thought of yet, which is that when all stocks are overvalued, the next time there's a bear market, people aren't going to sell tech stocks and rotate into banks. You see what I'm saying? This sets up a situation where there's so much froth in the market and every type of stock in every sector in every size market cap entity that when the next bear market comes there's not going to be a rotation. It's just going to be people selling everything, that the way the market has been built up is also the way the market's going to decline. So it's not going to be just tech stocks or just mortgage stocks. It's going to be the whole breadth of the market.

And I don't think that people are really ready for that yet. We've never seen a bull market like this which means when we have the bear market it's going to be something else like we have never seen before. So just a word of caution in this otherwise very euphoric time.

Buck Sexton: If somebody wanted to prepare for that, Porter, let's just assume that someone listening says, "You know what, I just – I want to get ready for this eventuality now that you're discussing." What would be a way to start or how could they get ready?

Porter Stansberry: Well, the easiest way is just go to cash, meaning you can go to 30-day T-bills, 60-day T-bills, 90-day T-bills. You can do so using an ETF, the short-term Treasury ETF is SHY. You can just – you can buffer yourself. You can move to your cash position. I think it's always a good idea to have between 10 and 20% of your portfolio in cash. You can move that up to 50% and obviously you're going to greatly reduce the volatility and you're greatly reducing your risk. Unfortunately, you're also going to give up a lot of the upside if the market keeps going higher. So how do you balance that?

Well, of course, this is going to be different for everybody. But the way that I like to do it is I've set about 10% of my model portfolio, the total portfolio, I've set about 10% of it short the market. And those are companies that for a variety of reasons I believe are going to underperform. And if we were to go into a bear market, those stocks would get killed. So if I'm hedging with 10% of my portfolio, that gives me an option of continuing to let another 10 or 20% of my portfolio ride the bull market. The other thing you can do is you can look for companies that have a lot of yield. That'll help buffer you when there is an eventual downturn. So we've recommended mortgage REITs. There's a company like Blackstone, BX, which has now over a 6% dividend yield. There are ways of getting income into your portfolio that will also help buffer you.

So two things. First of all, make sure you have enough cash. Second thing, make sure you're hedging somewhat – whether you hedge with put options or whether you hedge by shorting. And third, make sure at least half your portfolio is providing a very good yield because that'll help buffer your account when the inevitable downturn occurs.

Buck Sexton: I know you want to talk about OPEC, Porter, and how things have changed pretty dramatically. Do you want to hit on OPEC now?

Porter Stansberry: Yeah, we can talk about OPEC. I think there's a fantastic situation happening. It's amazing for Americans. But OPEC has such big social commitments, they can't stop pumping oil. They can't meet their own reductions in production quotas. And so the oil price has not been able to get over $60 and can't stay over $50. And at that price, America's shale fields are very competitive with other sources of energy. And that's great for us and terrible [laughs] for a bunch of –

Buck Sexton: Bad for Venezuela.

Porter Stansberry: Yeah, terrible for a bunch of really corrupt regimes around the world that aren't really friendly for us. So I think that's very good. It's very hard on oil and gas investors because below $50, we're talking about breakeven results. And breakeven results aren't going to cover additional capital investments in new oil fields and new production. So sooner or later, this low price is going to hurt American production somewhat. But there's still a lot of fields that you can produce profitably; Eagle Ford – the Permian being the most important.

Buck Sexton: How much of – I remember just from being somebody who's on the Mideast politics and national security side of things now for many years and we would always talk about the possibility of a shock to the oil markets because of what occurs in my world, right; somebody – there's a military exchange in the Straits of Hormuz or there's something that happens over there that now all of a sudden we have gas lines like we did here in the '70s. Porter, no one even brings this up anymore; doesn't even get discussed. And is that because of the shale revolution here and because we're such a major oil power again? And it seems like people don't even realize that, that America is now an oil superpower again.

Porter Stansberry: Well, [laughs] it really always has been. Look, American oil production has doubled in the last 10 years from 5 million barrels a day to 10 million. And the last time we were able to double production it took 26 years, so it was from the end of World War II to about 1966. So that we've doubled production in 10 years is a remarkable revolution and I don't think – I still don't think anyone's gotten their head around what that really means. Also, people don't understand, these increases to production, there's a heck of a lot more to come. The amount of oil America is producing is purely predicated on price, not availability.

If the price was $100 a barrel again, America could produce 25 million barrels of oil a day within another five years. So this is not about – the amount of oil that has been discovered in America in the last decade is like discovering five new Persian Gulfs. That's going to change the global economy in a very powerful way for a very, very long time.

Buck Sexton: I think it's why people aren't as worried about what's going on in that part of the world. I think that that actually does factor into our foreign policy which I know that we'll be talking about more later on in the show.

Porter Stansberry: Yeah. I think it's led us to dictate a lot more terms to Saudi Arabia. I think that's what's behind the crackdown on Qatar as well.

Buck Sexton: That relationship has definitely changed.

Porter Stansberry: Yeah. I think we're back in the driver seat, which is where we should've been the whole time.

Buck Sexton: Totally agree. Before we get our guest going here, do you want to talk a little bit about one of the shortest tenures as a senior White House advisor of any kind –

Porter Stansberry: Oh geez. You're on the Mooch. That's your bailiwick.

Buck Sexton: The Mooch –

Porter Stansberry: I did see – my favorite part of the Mooch was The Onion's report about him leaving. Did you see The Onion?

Buck Sexton: The profane headline did catch my eye, yeah. [Laughs]

Porter Stansberry: So there was two things I love. I love The Onion. The Onion wrote a whole bunch of fake Tweets from his friends and e-mails of condolences that were filled with profanities in reference to Mooch's profanity-led tirade on national media. And then the other thing I really liked was there's this fantastic comic in the U.K. who does spoof e-mails to well-known figures and gets them to engage in dialogues with him pretending to be other people. And this guy spoofed him using three different other fake identities. [Laughs] And so you've got the Mooch, who's supposedly the White House's communications director, who can't tell a fake e-mail when he sees one. [Laughs]

Buck Sexton: Yeah. What was it? He lasted a total of 10 days. My story about the Mooch, by the way, is right after the Trump victory, right after Trump beats Hillary, in New York City, I mean you walked around here and it was like you were in some mausoleum. I mean people were just – they thought the world had ended. It was – it reminded me actually of the morning after the blackout over a lot of the city here when people were kind of dealing with that. You know, back after Hurricane Sandy, they were just wandering around in a daze.

I'm backstage at Fox News about to go on one of the news shows there and I hear this guy, and he's like, "'Ay, ladies. You know what's going on here? What's going on there?"

Porter Stansberry: It's the Mooch.

Buck Sexton: And he points at me and he goes, "Look at this guy over here. Hey." And it's really – I don't know if it's more Joe Pesci or the Fonz or whatever, but it's definitely a guy who has a certain bearing. And I didn't even know who he was and then someone says to me –

Porter Stansberry: It's the New Jersey beach scene.

Buck Sexton: [Laughs] And someone says to me, "That's the head of Trump's transition team." And I was like –

Porter Stansberry: Do you know he's dating JWoww now. Yeah.

Buck Sexton: Oh God.

Porter Stansberry: He's moving back to the MTV beach house. What was that show called?

Buck Sexton: The Jersey Shore. Yeah.

Porter Stansberry: The Jersey – yeah. Mooch is the new star of The Jersey Shore. He and JWoww are putting a new house together. [Laughs]

Buck Sexton: And I've got to be honest with you, usually also people [laughs]

Porter Stansberry: "Ay, _____ over here." [Laughs]

Buck Sexton: But he's a Wall Street guy, too, which I think is interesting. I mean he's – what was he running a fund of funds?

Porter Stansberry: I wonder what Huffingtonthinks of the Mooch.

Buck Sexton: [Speaking with an accent] The Mooch is very – he says the terrible things about the women and he makes the curses and we don't – when we have our yoga classes at the Huffington Post we do not like this Mooch energy. It's very bad when I'm on the board of Uber." That's what she thinks. [Laughs] We get her very honest. Amazing. We have her just call in. By the way, Porter's almost on the floor right now.

Porter Stansberry: [Laughs] I love when Huffingtondrops in. Old Arianna. We've got to – if we win the White Marlin Open next week, we'd have to have Arianna come to the banquet, the big party.

Buck Sexton: I think so.

Porter Stansberry: Oh my Lord. Oh. Gosh. She is really – she's very sharp. She's very astute, Arianna is.

Buck Sexton: She understands corporate culture, you know.

Porter Stansberry: She does. She's got a –

Buck Sexton: She new the Mooch was bad news, too, early on.

Porter Stansberry: But she's got her own Mooch. You've seen who she's brought in to save Uber.

Buck Sexton: This is a PR – what is it, corporate strategy PR person, right? Or some communications role? No, brand, I'm sorry, brand ambassador role.

Porter Stansberry: Right. So she found a new executive whose career was made because of her friendly relationship with Dr. Dre and the Beats cohort.

Buck Sexton: Apple bought it for $2 billion, right?

Porter Stansberry: Well, yes, I mean she – and I think she was clearly responsible for that. But she's got Dr. Dre, and then there's the other guy, the producer guy, Iovine – [background talking] – Iovine; I don't know how to pronounce his name. But what I like about all this is – it's hard to explain. But there are these people who get lucky in business and then therefore they're seen as savants. So for example, the guy who built the Apple Stores, OK, he got lucky. Steve Jobs gave him that job. The iPhone was the hottest product the world has ever seen. And so he built these glass boxes filled with cheap Scandinavian lumber and everyone bought iPhones.

If you had put up a tent and a burlap sack and you had iPhones in it it would've sold. But that doesn't make tents and burlap sacks the magic. So when this guy took over JCPenney, Wall Street expected him to turn JCPenney into Apple Stores, which he did, but guess what? JCPenney wasn't selling Apple phones. They were selling really crappy cargo shorts. [Laughs] So what happened? JCPenney lost billions of dollars. It's going bankrupt and he's out of a job. My point is that a business – what's the best way to explain this – a business with a reputation for poor economics, when it meets a business manager with a reputation for excellence, it's the business's reputation that will win. So Uber has done nothing but lose money and has a terrible problem with corporate culture and I don't know exactly how bad it is.

But I can tell you that Arianna Huffington has never built a real business. I can tell you that this new woman that they got to handle their communications, Bozoma I believe is her name is, she got really lucky because she got hired by Dr. Dre – who's a bona fide genius, by the way – and their new recruit. Maybe Arianna wants to tell us about the process going after GE's Jeffrey Immelt because this is a guy that ran GE straight into the ground. In 2014 when I was warning everybody that oil prices were going to collapse because of this new thing called shale, he decided to sell most of GE's medical businesses and buy a whole bunch of oil and gas businesses, which has cost the firm billions and billions of dollars.

So we've got – it's just – it's a perfect storm, and I believe that Arianna can pull it off because it would be really hard to destroy Uber but I think she can do it.

Buck Sexton: I have to say, I know a bit about the Huffington Post, which was a success for her but it has never been a successful business. And I just see these now celebrities that are getting – she's really a celebrity. I mean she's really not a business person. The stories, by the way, about her are incredible about her time there. She would move – people would get fired and then she wouldn't like that when she would walk into the office there were some empty chairs here and there. And so she would have people moved within the office just so along her corridor in her office she didn't have to see the results of running a business very poorly and having to fire people continuously. [Speaking with an accent] "It was so depressing. It made her sad, you know. She would walk and the empty chairs and this is like, you know, when you're blogging you can't be in a sad place."

And she would walk past, and it was – yeah, and she would – she did not like that. By the way, I knew somebody who worked at a very senior level at the Huffington Post and I did my Arianna once and she was like, "You can't do that around me. You can't do that." [Laughs] And I was like, "Why not?" I mean it's – she was very loyal. She was very loyal.

Porter Stansberry: On our podcast, Arianna is a star. She's always welcome.

Buck Sexton: That's right. Yeah. We'll have to invite her to Vegas.

Porter Stansberry: It's fun to watch Uber because just when you think it can't get any worse it does. It's just for me it's so much fun. It's this pop idea of what business is versus what businesses are really about. And when I said Arianna's never built a real business, what I meant was she was successful in selling this thing to AOL for hundreds of millions of dollars –

Buck Sexton: That's what I mean –

Porter Stansberry: which in most people's eyes that's business success. No, it's not because they turned around and had to write the entire investment off because it doesn't ever make any money.

Buck Sexton: That's right.

Porter Stansberry: Likewise, I probably shouldn't be critical of this guy because he's speaking at our event this year, but Mr. Wonderful on CNBC on Shark Tank, he's got a giant ego and he stalks around like he's the world's expert at business. But look what happened to Mattel after they bought his toy company for $3 billion; disaster. Mark Cuban, by the way, another character like this.

Buck Sexton: Made a ton of money but not a successful company.

Porter Stansberry: He made a ton of money by costing his partners a fortune. So he sold – what was it –

Buck Sexton: It was live events of some kind. I forget what the company was called, right. It was live streaming events.

Porter Stansberry: It was back early days of the Internet. It was something that allowed you to watch TV or listen to the radio or something on the Internet. [Background talking] But it was www.broadcast.com.

Buck Sexton: That's right.

Porter Stansberry: And he sold it for around $1 billion or so to Yahoo, which eventually wrote off the entire investment. And yet none of that stigma follows these guys. Just because they cashed out they're seen as winners. But I'm much more impressed with what Elon Musk has done at Tesla. That's building a real business. No one's built a car business in America for how many years – I mean decades and decades and decades. And whether or not the stock can maintain its price or whether or not he ends up selling out or – I mean still it's an amazing accomplishment what he's built. And so this is for me the difference.

There are these people who are these pop culture business people and then there are people who are real business people. And the differences in what they say about business and how they behave in their businesses is radically different. And that's why I get such a kick out of watching Uber because I know this is no way to run a business and I know that Arianna Huffington doesn't have any idea how to run a business. [Laughs] And so everything she does I find very comical. But I love having her on the podcast. I think she's very wise about commentary.

Buck Sexton: [Speaking with an accent] "She loves you, too." But, yeah, [laughs] she's good to pop by once in a while. With her, it was – there was a huge right place, right time phenomenon and also knowing a lot of the right people and being involved with a lot of the right people early on to get – I mean the fact that this website which does have big traffic but also had a lot of money pumped into it carried her name for a long time. It's an amazing story in that there could be the creation of this brand based around somebody who really had very little brand value beforehand and it was never clear to me how she really brought much to the party other than of course wise commentary. But the Huffington Post is not a durable brand I think in any real respect.

Porter Stansberry: Well, listen, Buck. That was a lot of fun. I'll talk about Arianna all day long. But why don't we get to our guest? Richard Maybury is standing by on the phone, and he's one of the more iconoclastic people you will ever meet.

[Music Playing]

Buck Sexton: All right, everybody. Time for the guest interview. We are joined on the Stansberry Investor Hour this week by Richard Maybury. He is the editor of the U.S. and World Early Warning Report, and has written several entry-level books on U.S. economics, law, and history from a libertarian perspective. His books are written in letter form usually as an uncle writing to his nephew. He has the Uncle Eric book series and also his newsletter is www.earlywarningreport.com. Mr. Maybury, great to have you.

Richard Maybury: Good to be here. Thank you, Mr. Sexton.

Porter Stansberry: Richard, Porter Stansberry here. Thanks for joining us. I know you don't do very many interviews and I'm glad you took the time to speak with us today. I wanted to have you on this podcast and I wanted to introduce you to a lot of the subscribers of my newsletter, and of course, also the folks who listen to the podcast, which is great. We like everybody listening. As I tell Buck all the time, like us or hate us, just don't ignore us. [Laughs]

Richard Maybury: Right.

Porter Stansberry: But, Richard, I wanted to bring our readers who may not be familiar with your work up-to-speed and I hope you'll pardon a brief soliloquy here. Richard Maybury, for those of you who don't know the name, is one of the real founders of what I talk about in terms of the independent media. So like me, he's had a newsletter but unlike me he started a long time ago. He's been around for a very long time. He's had subscribers for decades. And he has a very original take on world events and on world history. And I think it's in large measure because he's not depending upon the kindness of advertisers so it allows him to have opinions that are more independent and in my opinion far better thought out, but also sometimes radically contrarian to the current, if you will, zeitgeist or politically correct view in the world. And I'll start with one that I think will shock you. Richard has a belief that we should've never been involved in World War II, and that view of history is very contrarian. And that's part of his Uncle Eric series.

But before we get into those sort of views I think you're going to find pretty radical, I wanted to ask Richard to talk just for a minute about his core thesis, which is called "Chaostan." It's not only been a prediction but it's a whole way of understanding what's happening in the modern world and it's a way that you'll never hear from anywhere else – from anyone else. It certainly does not jive at all with the narrative that we get told from our politicians or from the mainstream media. So, Richard, can you talk about for a minute about Chaostan, about where you came up with that viewpoint, and about how it has colored your expectations of modern events?

Richard Maybury: Yeah, fine. I came up with that term "Chaostan," which means "the land of chaos," in 1992 and a few years ago, Newsweek magazine reported that the idea is used in the Pentagon and the CIA for strategic planning. What it refers to is the area from – imagine a world map here – the area from the Arctic Ocean to the Indian Ocean and Poland to the Pacific plus North Africa. Now that's the area where most of the chaos in the world happens and always has. And the reason is that – and we have back up a little bit and look at the American Revolution – the principles of liberty were developed under the old British common law. And the Americans who fought the Revolution were essentially fighting for those old British common law principles which make liberty and free markets possible and all the – pretty much all the prosperity that we experience today compared to everything that our ancestors had.

Well, after the American Revolution, the principles of liberty began to spread around the world. Other people saw this tremendous liberty and prosperity that was developing in America and they wanted it for themselves. And so revolutions began all over the world with Tom Paine being probably the main leader of a lot of it. And so this system of liberty began to be of interest to people all over and it just began to spread. Well, then in the 1800s, around the mid-1800s, the philosophy called socialism rose up and socialism believes in a large powerful government that controls everything and everybody and that it's OK to rob Peter to subsidize Paul.

So all the Pauls began to vote for the new system of socialism and socialism then began to sweep around the world, and it stopped the spread of liberty dead, I mean absolutely killed it dead. And the system of liberty has been in retreat ever since. The area that did get a lot of that system though is the area of Western Europe. And it was spreading across Europe for a while and socialism stopped it. And the key point here is the area I call Chaostan is the main area that never received those principles. And that is the area where most of the war and the hatreds and all the different kinds of violence and terrorism, that's where it always had been and it still is now because they never got the system of liberty. They don't have legal systems that are based on the principles of liberty.

Actually, they have practically none of that philosophy in their legal systems at all. And that is why I am always so vehement about the fact that the U.S. government has got to get out of that part of the world. We cannot fix it. Those people themselves have to fix it. And if they're not going to do it, it can't be done. All we can do is just keep spending blood and treasure over there for nothing. So that's the basic explanation of Chaostan.

Porter Stansberry: Richard, when did you first publish that synopsis?

Richard Maybury: That was in 1992.

Porter Stansberry: [Laughs] And if you look at that, folks, that was in 1992, and you look at the last almost 30 years of U.S. foreign policy, you'll see that his predictions about these events have just been exactly right and they've – just we keep returning back to this fundamental truth that our worldview, our ideas of human rights, civil liberties, free markets, they just don't translate at all into those foreign cultures. Buck, you spent a lot of time in Iraq and Afghanistan. Can you speak to the on-the-ground truth of what Richard sees in the history and the philosophy?

Buck Sexton: Absolutely. It actually reminds me as well of John Halford Mackinder who was a geostrategic theorist at the turn of the 20th century or in the early 1900s and he wrote about this part of – what he called the "Heartland" and the "Heartland Theory" – was that there was this part of the world that stretches from the Volga to the Yangzi and the Himalayas to the Arctic and that that's where essentially all of the conflict that determines the rest of history and the rest of what's going on in the world will happen. And if you were to draw those boundaries, you would see that in fact that's the case.

Now I know Richard's talking about it from a philosophical perspective. The only difference really is that Mackinder saw it from a purely – or not purely, but a largely – geographic perspective, just meaning that because of the geography, because of the land masses and all the rest of it, that would be the area of conflict. And I think what Richard wrote back in the early '90s is an expansion on that based on the ideological spread in the 20th century that that's where you're going to have conflict. As to why we have the problems we have in Iraq and Afghanistan, and I should note that in Afghanistan one of the big issues we keep running up into is that there is no binding ideology for the Afghan state. There's really nothing. And in fact, what binds together the various ethnicities in Afghanistan is Islam, and in fact, a pretty hardline interpretation of it, one of the most hardline interpretations of it you'll find anywhere else in the world.

So the ground truth is that we can't want it for people more than they want it for themselves, meaning liberty, individual rights, freedom. Interesting; actually just this week as we come online we see that the State Department is thinking about walking back democracy promotion as a core objective because you can promote it all day long but if people have other ideals or other principles that they elevate above what's just a political system you can't make them want it, you can't make them have it, and you can't make it work for them. And that's what we keep finding out time and time again.

Richard Maybury: Yeah. I would point out that in my opinion perhaps the greatest tragedy of the last couple of centuries, at least the last couple, is that – is this conflict between the Western world and Islam. If you look at the American Revolution, the foundation – the bedrock of the Revolution was that there is a higher law than any human law and humans must make their law conform to this higher law. And that higher law is the one from which come our rights to our life, liberty, and property.

Well, it was a natural fit for the Islamic world to join with the American philosophy, the American system because Islam, too, has this concept of a higher law than any human law. And it was like there was a time – if you read the books of Rose Wilder Lane who lived in the Islamic world for years, she could see that it was coming together, actually that there was – that Islam had arrived at quite a few philosophical points that were in the American Revolution before America was even here.

And what happened was I think the British government got into the whole mix in the Mideast and just blew away that natural connection between Islam and America and actually turned it into a war. So it was then the British influence I think that was a real killer for that – the advancement, both in terms of liberty and free markets that would've happened if the British had left it alone.

Porter Stansberry: Richard, if we could get back into the what you're seeing now, you've been right about these trends and these cultures and these philosophical problems for a very long time and I know you've followed these events on a daily basis for 30 years. Where are we now in this conflict? Obviously ISIS is the current version of our enemy in the Middle East but where do you think this will lead us? Will we see peace eventually here or will the violence continue to escalate until something really bad happens like a nuclear bomb?

Richard Maybury: Yeah. Well, we'll see peace but it'll be along the lines of what some Roman general said 2,000 years ago. They make a desert and they call it peace. That's what the kind of peace that we're likely headed for here in Chaostan because I can't see anything that's going to stop the wars that are going on there. And the U.S. government is making them worse. I mean it's just getting worse by the week because these people in Washington think they know how other people ought to live and they keep pushing their ideas which they call democracy onto other countries. And these people don't like that. They don't want to live with our system. And so this insistence that Washington has to be involved in other people's wars, who knows where it's going to lead.

Now as far as nuclear war is concerned, I've got an article coming up actually in my September issue of Early Warning Report where I address that. I don't think there's much of a chance that there will be what you would call a nuclear war. There may be some nuclear explosions of the terrorist form but they aren't likely to lead to war because there will be no way to know who did it. Well, just one possibility; you'll wake up one morning, you'll turn on the TV to get the news, and you'll be told that Washington, D.C. is gone. There's just nothing there but a radioactive crater and nobody knows any more than that and nobody ever will. I think that's a very high probability. But you see, that can't lead to war because we won't know who did it.

Porter Stansberry: That's probably not going to be very good for Baltimore I just want to note. [Laughs]

Richard Maybury: Yeah, don't buy real estate in that area. But who knows when it's going to happen. I thought it would've happened a long time ago. Right after the Soviet Union collapsed, there was a book written called One Point Safe that just gave you all the evidence that a lot of the Soviet nuclear material had gotten loose. And it's a very compelling book and it's practically – I mean for me – it's hard to argue with the conclusion that there's a lot of nuclear material out there that's unaccounted for because the Soviets didn't have good accounting. They didn't know how much nuclear material they had so there's no way to know how much got loose.

And so there's a lot of surprises waiting out there in the wings somewhere. And to try to predict where this is going to go, I don't know other than to say it will continue getting worse for America as long as America is entangled in that part of the world.

Porter Stansberry: And your newsletter talks more than about finance and economics, as well as politics and philosophy. How do investors profit and protect themselves from Chaostan, especially as those people end up fleeing into Europe and that unrest and that conflict spreads regionally? Are there investment angles that you've been recommending? And how have they been doing?

Richard Maybury: Well, yeah. I've always been a believer in gold and silver. And if you look back over the history, that's been really good advice. It's long-term advice. You can't make money on it day-to-day very easily. But as a long-term poll, war is the most expensive thing humans do. So governments will continue degrading their currencies in order to pay for the wars. And that means gold and silver will continue their long-term rise along with any raw materials or anything else that can't be created on a printing press. So you have that angle there with the precious metals, commodities, and other things that can't be counterfeited.

And then, of course, as you know I think I'm a really big believer in defense stocks. Those things have been wonderful for, oh, I don't know, almost 30 years. And my subscribers have just made fortunes on them. And they keep on climbing because the wars keep spreading. And as long as Washington's foreign policy continues to be insane, I think those defense stocks are going to keep on going up because the need for those weapons is going to keep going up.

Porter Stansberry: I saw that Boeing was up, I want to say, about 25% in the last 30 days. [Laughs]

Richard Maybury: Is that right? I haven't been watching it. [Laughs] That's great.

Porter Stansberry: Yeah. You're exactly right. The long-term bull trend in those defense stocks I'd say at any time since 2001 those have all been market-beating investments.

Richard Maybury: Yeah. Oh, easily, yes.

Buck Sexton: Boeing's selling some plans to Iran, by the way. Big deal there.

Porter Stansberry: They just sold some planes to Iran?

Buck Sexton: They're selling planes to Iran.

Porter Stansberry: Now they're going to arm both sides of the Chaostan.

Richard Maybury: [Laughs] That works. When it comes to making profits that works. The governments, all of them, not just the U.S. government but all of them, they're crazy. They think they know what's good for other people and they don't and they keep meddling in other countries and the wars just keep spreading. It's crazy. But for investors, the great thing about it is that it's so predictable. It's been going on all through the 20th century and now into the 21st century. The Federal government which leads NATO and other alliances, I mean these people all think that America has the solution for everybody, that there's a Thomas Jefferson out there somewhere in every country and all we have to do is put him in charge and everything's going to be OK. It's absolutely nuts. But it's predictable and that means you can make money off of it.

Porter Stansberry: Richard, I know you have your newsletter – which I've been a reader of for, I don't know, almost 20 years now – The Early Warning Report. And you have a fantastic series of books, the Uncle Eric series. Can you tell us a little bit about where the idea came from for the Uncle Eric series and the topics that you've written books about?

Richard Maybury: Well, I was a teacher for four years in the public schools and I realized that the kids are just not told how the real world works. And they just don't know. They come out of school thinking that they're educated but there's a huge amount of extremely important stuff that's left out, especially in regards to, for instance, the law and the history of the law, the principles on which America was founded, the economic system that made America the most prosperous place in the world. All of that is just ignored in the schools. And so I just decided to, as a teacher, while I was still a teacher, I decided to start writing books that would be very, very easy for anyone who is at a, let's say, 14-year-old reading level on up to handle, that they would be interesting, and they would give this stuff that the schools don't teach. And in many cases, the schools are legally prohibited from teaching this stuff.

So it came out to be 11 books. And it just gives you an alternative view of the world that you aren't likely to get anywhere else that has great respect for what the American founders were able to accomplish and what America used to mean to the world – doesn't anymore – but what it used to mean to the world. And that's about it. I mean it got really popular. We've sold more than a half million copies now. And they're used in the charter schools and in home schooling and any sort of alternative educational system to the public schools tends to use at least some of the Uncle Eric books.

Porter Stansberry: Folks, you may have never heard of Richard Maybury but trust me when I tell you he's a national treasure. It is extraordinarily difficult to sell a half a million copies of anything let alone a series of 11 books that extol the values of independence and freedom and liberty. And Richard has done that. He really – he deserves a big pat on the back for that and a big thank you for all of us who care about these ideas very deeply. So, Richard, thank you first of all for all your hard work. Could you tell the readers, please, where they can get a copy of that book series so they can share with their children or their grandchildren?

Richard Maybury: Sure. There's an 800 number. It's 800-509-5400. That's 800-509-5400.

Porter Stansberry: And if you haven't ever seen these books, trust me when I tell you they're great reads. They make the philosophy and the history, they make it fun and interesting. It's a story and they're great. And my favorite one is the Uncle Eric book about World War II and this is just – the view sounds so contrarian until you really hear him explain it, and for those of you who are not fans of history, you can feel free to fast-forward. But I'd love it, Richard, if you would tell us just a brief synopsis about your contrarian view of that conflict in particular.

Richard Maybury: OK, a brief synopsis of World War II. All right. [Laughs] What were taught is that the Germans were about to overrun the world with some help from Japanese and everybody was getting killed off. And the Americans had to jump in there and stop Hitler or we'd all be speaking German today. Well, actually, the problem as already solved before America got into the war. Hitler was a nut and he attacked Russia. First thing every second lieutenant learns when he goes through training is never attack Russia.

Porter Stansberry: No land wars in Asia, please.

Richard Maybury: Exactly. There is just – the place is just too big. The only person that ever successfully invaded Russia was Genghis Khan back in the Middle Ages.

Porter Stansberry: And no one's ever successfully invaded Afghanistan. [Laughs] No one.

Richard Maybury: Yes. That's right. That's right, yes. So Hitler invaded Russia in I think it was June 1941. That was before Pearl Harbor. But there was a deal between Roosevelt and Churchill in which they agreed that they would work together, and in Churchill's words, "If we can pull this off, we can control the world." So that left FDR with the question of, "How do I get into the war?" So he cut off the Japanese oil supply and he cut off the Japanese supply of iron ore and copper and tin, all sorts of other raw materials. Well, Japan is an island nation and it has practically no raw materials to speak of. So the Japanese economy was headed back to the Dark Ages, and the Japanese just had a choice. They could either go back to the Dark Ages or they could use what raw materials they had left to try to go out and steal more. So they chose – they made that second choice – and that's why you had the attack on Pearl Harbor and all the rest of it.

If Roosevelt had just stayed out of it and let the thing go then the best of all possible world would've happened. You would've had Hitler and Stalin, the two worst murderers in the history of the world, Hitler and Stalin at each other's throats in Central Europe. And I mean what better situation could you have? And yet Roosevelt went ahead and got into it and took sides with Stalin. Stalin was the worst of the two. He was a socialist so nobody in the public schools ever hears this, but Stalin's body count, innocent people killed, was just about double what Hitler's was. That Roosevelt took sides with Stalin and helped Stalin win and then we had the Cold War with Stalin and his followers eyeball-to-eyeball with Washington with thousands of nuclear weapons.

None of that ever needed to happen if Roosevelt had stayed out of it and let Hitler and Stalin go ahead and massacre each other. The Eastern Front where that battle was taking place was by far the most important part of the world. 75% of the war was that eastern front clash between Hitler and Stalin. And in my opinion, Roosevelt should've just let it go and yet he got into it on the side of the worst of the two murderers.

Porter Stansberry: That's a very different take on [laughs] the history. But I love how you make all your points with lots of facts and my favorite part of that argument because I've gone down that road with people before and it's upsetting to a lot of Americans, but I discuss it with them and I ask them some really basic questions like, "Do you know when the tide turned at Leningrad? When did the German advance stop? When was the greatest expansion of Hitler's armies in the east?" And the answer is they reverse course in about late October 1941, meaning Hitler had lost the war. He was never going to defeat the Russians. There was no chance. He was already in retreat before Pearl Harbor happened.

Richard Maybury: That's right.

Porter Stansberry: So this idea that if America hadn't entered the war Hitler would've won, that idea is completely bankrupt. They –

Buck Sexton: Well, we decided to go for the oil fields in Baku, which – and that's how they got jammed up at Stalingrad. They could've gone in a different direction there –

Porter Stansberry: Sorry, Stalingrad, right.

Buck Sexton: I mean whether Hitler could've beaten the Soviets, yeah, whether Hitler –

Porter Stansberry: Right, well, listen. I'm not saying the war would've been over in 1945. But there's no question that they – that Hitler – could not beat Stalin. If you look at the number of Stalin's troops, you look at the number of Stalin's casualties, they dwarf any other force. I think there was something like – Richard will correct me if I'm wrong – something like 20 million Russians died between 1940 and 1945.

Richard Maybury: Yeah, right. I think it's – yeah, 25 million I think. Go ahead.

Porter Stansberry: That number dwarfs every other body count by enormous factors. I mean it's – that's 40 times more Americans than died in the war. Our forces compared to the size of Stalin's were miniscule and the strategic area where Stalin was fighting was crucial like you said, the oil fields and the other assets in Central Asia. But my point is if we hadn't entered – if we had never entered that war, if we hadn't tried to restrict Japan's trade, if we had stayed out of it – eventually the Chinese would've defeated the Japanese and eventually the Russians would've defeated the Germans just because of the numbers.

Richard Maybury: I'm glad you brought up Stalingrad. Most Americans don't know anything about it. Stalingrad was the worst battle in all of world history. There were more people killed at Stalingrad than the U.S. has lost in all the wars we've ever fought. And the Germans lost the battle of Stalingrad. And that was the unequivocal endpoint for Germany. There was just no chance after Stalingrad that they were going to – they had a prayer of winning. And in fact, that was accepted all over Germany. The soldiers at Stalingrad were writing letters home saying, "This is it. This is the end." And everybody in Germany new it.

But then Roosevelt announces that he would only accept unconditional surrender. Well, what does unconditional surrender mean? It means that if you surrender, we can kill you. So the Germans suddenly – there was this tremendous change in the German psychology and they realized that there was just no way out of this. The leaders could only stay alive as long as they kept the war going, which is what they did [laughs] because they knew that the minute they surrendered they were going to be hung, which is exactly what happened. They finally did run out of the ability to fight and they were captured and hung.

Porter Stansberry: Well, there you have it, folks. That's a taste of the contrarian thinking and the expertise you get with Richard Maybury. And I want you guys all to know we have a special offer for you to get a free copy of his newsletter for a year. You can go to www.docwarning1.com. That's www.docwarning1.com. And by the way, compliments to my staff for creating URLs that are completely indecipherable over the radio. Fine job, boys. [Laughs] So doc – not dock, but doc – doc warning, the number one, not the world "one," dotcom. So, folks, let's think about what medium we're in when we're designing URLs and let's have words that don't have any different – what are those, antonyms?

Buck Sexton: Ampersands, whatever. [Laughs]

Porter Stansberry: Come on. Why not just www.richardwarning.com? How about that? There's an idea. No one can misspell that one, guys. Well, anyways, it is www.docwarning1.com. I can't even say it; www.docwarning1.com. And you'll see there's an offer there to get 12 months of Richard Maybury's newsletter for free. I also urge you to call and get your Uncle Eric books series. And if we can trouble you for that 800 number one more time, Richard.

Richard Maybury: Thank you. It's 800-509-5400. Again, that's 800-509-5400.

Porter Stansberry: Richard, it's a great pleasure and honor to speak with you. And I hope one of these days we can drag you out of your lair and get you to our conference in Las Vegas. So put that in the back of your mind somewhere to join us.

Richard Maybury: OK. This was great. This was really a lot of fun and I appreciate you having me on. It's a good way to start the day.

Porter Stansberry: Very good. All the best to you, Richard. We hope we'll speak to you soon.

Richard Maybury: Thank you, too, gentlemen.

Buck Sexton: Thanks, Richard.

Richard Maybury: Mm-hmm.

[Music Playing]

Buck Sexton: So now do I get to tell you, Porter, that I would like to sit down with Richard for about three or four hours maybe with some scotch – I mean for me it would probably be tequila – and to argue more or less everything that he says.

Porter Stansberry: Well, that's fine. That's fine.

Buck Sexton: And I mean that respectfully to him but there's everything that – especially when you get into the historical what-ifs, I mean look, Winston Churchill who's best known as a politician was actually a prolific author wrote about what would happen if we – if the South had won the Battle of Gettysburg, for example. So this is a fun thing to do. But you always got to look at what the other side is. I mean the idea that the Japanese were just hanging out and then all of a sudden we're so mean and cut off their trade so they attacked Pearl Harbor, there were Japanese submarines off the coast of the U.S. They actually seized an Alaskan island in the Aleutian chain.

Porter Stansberry: And they also bombed Santa Barbara, which most people don't know.

Buck Sexton: So this notion that the Japanese were not a – I mean the Japanese were – imperial Japan at the time of World War II was as virulently racist and as xenophobic and full of hatred as the Nazis.

Porter Stansberry: Agreed, agreed.

Buck Sexton: But they were just doing it against Asians instead of Europeans so they're much less known.

Porter Stansberry: Agreed. But the question is, is that what is in our strategic interest. It has nothing to do with what's right or wrong. What's in our strategic interest? Is it in our interest strategically for Japan and China to knock the shit out of each other for three decades?

Buck Sexton: But isn't it hard to argue that it wouldn't be – I mean that World War II, how it played out, isn't in our strategic interest when you have the Marshall Plan and the greatest expansion of U.S. –

Porter Stansberry: Well, no, because – hold on. Think about it though. There was a lot of things that we lost in World War II in part because of our partnership with Stalin. We lost all of Eastern Europe for 50 years. It wasn't a part of the world economy. We lost all of China for 50 years. Wasn't part of the world economy. There were a lot of outcomes of World War II that were very negative. And our partnership by the way with the colonial powers Britain and France led us to further wars and Vietnam among others. So it wasn't a clean victory.

Buck Sexton: I think you could argue – no, of course – I mean you have – 60 million people died.

Porter Stansberry: I'm happy to give you the last word because you spent a lot of time and effort fighting on behalf of our empire.

Buck Sexton: Oh, yeah. well, I was going to say, I mean Mr. Maybury when he talked about the British colonial expansionism and how that's been a problem in the Middle East, he also mentioned Jefferson. I just think it's interesting and worth noting that ideological clashes are inevitable even with – even if we took the most non-interventionist libertarian philosophy possible in this country. The reason we fought our first foreign war was because of Islamic states, the Barbary States as they were known at the time, enslaving our people because we were Christian. That is why Jefferson and Adams had to get it together, commission a navy, six frigates that we had to pay for, which at the time seemed ruinously expensive. You know, major ships of war. And we had to go over there and kick some butt and that's why we have the Marines to the shores of Tripoli. That was a war foisted on us entirely separate from any British colonial, anything else.

So I just think that – and look. I have a lot of friends who are libertarian. I'm sorry; this last word which you were kind enough to give me is going on too long. I have a lot of libertarian friends that take a very non-interventionist pose, and I respect it and I know that it comes from a place of intellectual honesty. But you've always got to keep in mind the other side. I mean this notion that these places would be – that the wars that are happening wouldn't be happening if it wasn't for the U.S. I think ignores more history than it takes into account a lot of the time. That's just my two cents.

Porter Stansberry: I can agree with that two cents. I can't speak for all libertarians but I can speak for myself which is thanks to the Atlantic and the Pacific Ocean, we have some terrific natural defense advantages and also now that we have a 5,000-plus nuclear warhead arsenal it's hard to imagine a couple of pirates from Tripoli bothering us.

Buck Sexton: No, yeah. It's been a long time since we've been worried about Algeria and Tunisia.

Porter Stansberry: But I just think – and oftentimes you get in debates with people about any of these issues, there's just such a huge world of difference between saying "I'm non-interventionist," meaning I wouldn't defend our country, which is not the case for me – I can't speak for all libertarians – and saying that I think it's a bad idea to have our troops in 120 countries because I don't think that we can be a global empire. I think it's going to bankrupt us and I think it's going to lead to a lot of unnecessary conflict. Now is it the only cause of conflict? Of course not. But what do I care if North Vietnam and South Vietnam are beating the shit out of each other for 40 years? I don't. It's not worth it to me. I'm not going to go over there and mess with them.

Buck Sexton: Well, I think we're learning that right now. But your point, we're learning this in Afghanistan, a place that I know very, very well, and there's no way of getting around it. So there's no way of dealing with the reality that we can't actually enforce our will on these places. And I think the distinction you're making by the way, libertarians break it down into where people will say "isolationist," which is like "I'm not going to go fight anywhere anytime," versus "non-interventionist" just means – I think what your position is on this which is we shouldn't just go and try to make everyone else – make everything better for everybody else all over the world. So non-interventionist is usually taken a less hard line position than isolationism, for example. At least that's how – in contemporary libertarian discourse that's how they lay it out.

Porter Stansberry: I think that – I think you'll appreciate this. I think that we should just – there should be a lot of changes to governance in general. Now I'm not saying change our, now, I'm not saying change our government. I'm saying change the way that we govern. Change our policies of governance. Let me give you an example. It has nothing to do with war. Citigroup made in the late 1990s and during the 2000s, they made a series of absolutely horrendous financial decisions where they borrowed enormous sums of money from the bond market from private investors, and they bought up all kinds of crazy things like subprime mortgages in Poland, among other places.

And they made loans to people that had no business getting credit; dictators from – you could name 30 of the worst countries in the world and you know that Citigroup is their banker. It's pretty funny. The two things you'll find in every tin-pot dictatorship around the world is a Mercedes dealer and a Citigroup retail bank. It's everywhere in the world that those two things go together because every dictator wants a Mercedes and every dictator has a charge card from Citigroup. So my point is that they made all these horrendous decisions and the result of those decisions, as you know, was catastrophic. The stock went from the equivalent of $300 to $0.30. And now it's going – people are excited it's going back to – they say it's going back to $100 now. It's up to like $60 or so, $70. They say it's going to $100.

Well, what they don't realize is it reverse-split for like 300:1. So if gets back to $100, that's like it got to $10 instead of where it should've been. In other words, my point is that there was an enormous amount of wealth that's been lost from anyone foolish enough to own Citigroup's stock. What is unappreciated by most Americans is there was also an enormous bailout of Citigroup that came courtesy of the taxpayers. And it's hard to estimate exactly what it cost us, but it's in the range of several hundred billion dollars. So this is the size of the S&L bailout, but it went to one entity. It went to one group of bondholders, the Citigroup idiots. And, of course, by bailing them out, we haven't made them pay for anything. We haven't made them learn their lessons. In a way – and I just want you to get the metaphor – in a way, it's a lot like the Pentagon. The taxpayers keep underwriting all of their bad decisions, whether it's the Vietnam War or the Afghanistan War or the Iraq War. Their "bondholders" so to speak, the generals and the people whose careers are built by these efforts, never get called to task. They never suffer.

So here's my idea, and it's kind of simple. I think that there shouldn't be any kind of corporate veil for any entity that has either a de facto or an explicit insurance policy with the Treasury. So if you're on the board of Citigroup or you're one of the senior executives at Citigroup and you have to decide where that level should be cut off – but people who have real authority to make real decisions about the capital in that group – the idea is if there's a bailout that's fine, but your money goes first. Meaning every single asset that the board of directors owns personally, that the senior executives own personally, every single asset to where they're penniless gets taken before a single dollar of taxpayer money gets spent.

By the way, they have this rule in Brazil. How many bank failures have there been in Brazil? Zero. Brazil has one of the craziest economies. They've got runaway inflation from time to time. They've got terrible corruption. It's an amazingly complex and chaotic economy, but the banks don't ever fail. Why not? Because if a bank fails, the people in charge of the bank lose every single stinking penny they own. And as a result, guess what? The banks are managed very conservatively. It's not that it can't be done. It's that when you give people a free ticket, when you give people a free ride for all their mistakes, then all you're doing is incenting them to take risk, which is what Citibank did. And the same token, I think if we're going to have a military that is very expansionist, very aggressive, very internationalist, a very interventionalist, whatever the isms, words you want to use are – it's very simple. We should just make sure that, uh – a couple things.

First of all, the generals should be out there leading the troops as should the Congress and the Senate, or at the very least their children. I mean I don't know if we really want a 60-year-old woman out there driving a tank. But they should have something personally at risk, and more importantly if they can't run a war and have a balanced budget at the same time, then the costs should come out of their pockets. Because I promise you if the American people actually had to pay for these wars we wouldn't have them. And if the Congress had to pay the deficits out of their own pockets, we wouldn't have them. And so then we wouldn't have to have all these philosophical debates where there's – you know –what is it? It's like – having these debates is like trying to explain to a virgin what sex is like. It's just a waste of time.

Unless there's going to be real consequences for the people who decide the policies, the policies are not going to change. But the moment there are real-life consequences, then all this nonsense goes away. People start making hell of a lot better decisions. One more metaphor. If I told you – I said, "Buck, listen. It's a lot of fun. I'm going to blindfold you. You can't see anything. I'm going to put you in my new Ferrari and you're going to drive around the track. Go as fast as you want." You'd immediately say, "Absolutely not. I don't care if there's airbags. I don't care if there's safety belts. I don't care if it's not my Ferrari. I don't want to wreck a car at a high speed and I'm sure as hell going to wreck if I'm blindfolded." OK. Exactly.

But that is the equivalent of what we do with our banking system and with our foreign policy. We put people in charge of enormously powerful, expensive machines, and then we don't hold them responsible for the inevitable crashes. So you would never drive a car with your eyes closed. We should never depend on the board of directors of a bank to make the right decisions if their capital isn't at risk. We should never depend on the Pentagon to make the right decisions for what's going to go on in Iraq because they have nothing at stake. They only have upside. They get to buy a whole bunch more planes and tanks, and that means someday when they retire Boeing gives them a really nice, big job and a fat retirement. That's the game and everybody knows it. So why don't we do something that will actually change it instead of just talk about it?

Let's change the governance.

Buck Sexton: I like it. I like it.

Porter Stansberry: Buck, I think we have some time left. Why don't we get to the mail?

Buck Sexton: All right. Let's do it, Porter.

Dear Porter – our first one up for this week on Stansberry Investor Hour – Dear Porter, how do I get in on The Big Trade you talked about a couple of episodes ago. And this is from Kerry.

Porter Stansberry: Well, you know what, that's a great question. I'm not a very good marketer but I know that if you go to our website, www.stansberryresearch.com, and you search for one of our products which is actually called Stansberry's Big Trade, you can find out the details. The reason why I think the Big Trade is a good idea is as you may have noticed, volatility in the stock market has collapsed. But balance sheets are more extended than I've ever seen them. And so we have an interesting way of hedging against the eventual bear market by taking advantage of low volatility to buy very inexpensive put options on companies that have extremely weak balance sheets. Sooner or later, these companies are going to go bankrupt and if we can have an option on that process and we can buy it cheaply, we've got a good chance of making a lot of money.

And even if it doesn't work out, it's nice to have a hedge in place so you can take three or four or 5% of your portfolio and you can buy insurance against your entire portfolio, meaning if anything bad happens you're going to be covered. And if you just want one idea to take a look at as an example of this kind of strategy, I would point to the shares of Sprint. Sprint as you know is the lowest-quality – generally speaking, according to most consumers – cell phone company in America. And in fact, lately, they've been competing by offering their network for free to anyone who will switch from Verizon. [Laughs] Amazingly, even though they're offering their service for free, they still lost 40,000 subscribers in the last month.

So it's a business that's failing because it doesn't offer a very good or competitive product according to most opinion surveys. I don't want to get in trouble with Sprint. Meanwhile, they have borrowed a truly historic amount of money, something on the order of $40 billion. It's not clear to me how that debt can be financed. And if you've been reading the headlines, you've seen that they have – they've been around the block trying to sell themselves to every investor from Warren Buffett to cable companies and nobody wants it because of this huge debt pile. And so this is an opportunity for you to profit if Sprint were to in fact go bankrupt, which I think, by the way, is inevitable. That's just my opinion but I think it's very, very likely. You could make several times your money, maybe even up to 10 times your money if you were to purchase a put option, which is a derivative, on the Sprint shares.

So this is a – it's kind of a complex trade and the only reason why this opportunity exists right now is because the central banks have generated so much liquidity that volatility in the stock market has gone essentially to zero. The VIX, which is a measure of volatility, is below 10 for the first time ever, and options even on companies like Sprint are incredibly cheap as a result. So it's kind of an advanced strategy but if you have a lot of money in the market, if you've got an account, $100,000 stock account, $500,000 stock account, $1 million stock account, I think it makes a lot of sense to take a little bit of your money, 1%, 2%, 3%, maybe up to 5%, and buy a handful of these hedges. If we wake up on Monday morning and it turns out it's another Black Monday, you're going to recoup all of your other losses and perhaps even more by having exposure to these very weak balance sheet businesses.

Buck Sexton: All right. We've got Faisal coming in with the number-two question here in our Stansberry Investor Hour.

Porter Stansberry: Faisal?

Buck Sexton: Faisal.

Porter Stansberry: Faisal. Interesting.

Buck Sexton: Yeah, yeah.

Porter and Buck, I'm looking at the VIX and options. Has the market for options become permanently distorted? Porter mentioned something about this with risk becoming severely underpriced. I'm considering getting into your options offerings but I'm concerned that clever bankers and traders have messed this up. That sounds about right. Has the game with options lost its edge or somehow changed for the long term? Will your options newsletter still make sense in this perhaps new environment?

Porter Stansberry: Well, we talked about this earlier in the show. But there is a very strange and unusual series of events happening in the equity markets, and I don't want to repeat everything we've already said, but volatility, is being in my opinion, artificially depressed and it's this trend of ETF investing, of non-active investing. Basically, imagine if you went to a horse race. This is the best way I can explain it. And if you went to a horse race and instead of trying to handicap the horses and pick the winners, the entire crowd just bet evenly on each horse. If you did that, nobody would win and nobody would lose because all of the betting would basically even out. And as a result, there would be no volatility on the track.

All the horses would have the same odds because everyone was putting exactly the same amount of money on each horse. That's the only way I can really describe what's happened in the stock market. And what's happened in the stock market is instead of handicapping the horses, instead of handicapping each individual stock, investors have just come in and begun to buy the entire market, and they're buying the market evenly. And that trend has resulted in a complete collapse in volatility. There is no difference in outcomes because there is no difference in odds, because there is no differences in the bets that people are making.

Now, in my opinion, that's not going to last very long. Very soon investors are going to learn a very painful lesson that you can't go to the track and bet on all the horses, because only a couple of horses are going to win, place, and show. I don't know when that moment will arrive but I'm certain that it will. There is no trend in human behavior greater than reversion to the mean. [Laughs] So sooner or later, volatility will return to the market.

Buck Sexton: Have a question, everybody? Well, you can let us know and you can write at [email protected] Let us know if we have delighted or inspired you today. And, Porter, what's that thing you like to say about no ignoring; no ignoring?

Porter Stansberry: Yeah. Love us or hate us, just let us hear from you especially if you have a strong opinion about something Buck has said.

Buck Sexton: There you go.

Porter Stansberry: All the compliments are accepted here on the Porter side of the table but the criticisms we'll reserve for Buck.

Buck Sexton: Yeah. If anyone out there listening to this podcast wants to argue with me by all means throw some steak into the lion's den here on Investor Hour. Send us a belligerent question if you want and we can talk about libertarian foreign policy as well as markets and everything else. By the way, next week we've got Porter at the White Marlin Open, so it's just going to be Buck doing a solo show. I've already got some fantastic guests in mind. It's going to be a surprise for right now. But it'll be a fun show next week. We might get PJ O'Rourke back on to co-host if we can coax him out of wherever he's hanging out for August I'm sure. PJ strikes me as a Nantucket guy.

Porter Stansberry: I agree. Yeah, he's all Nantucket. That's right.

Buck Sexton: [Laughs] I bet he wears bright orange or bright blue socks with little whales on them.

Porter Stansberry: By the way, a sign of the top here. So the White Marlin Open is the world's most expensive fishing tournament, which is why I find it irresistible. I've actually – I've caught the second-largest fish twice.

Buck Sexton: Really?

Porter Stansberry: Yeah. And you know what the prize for second place is at the White Marlin Open?

Buck Sexton: Is it zero?

Porter Stansberry: It's in the ladies' room. [Laughs] It's zero. The winner –

Buck Sexton: What is first prize then?

Porter Stansberry: The winner makes about $3 million.

Buck Sexton: What?

Porter Stansberry: The second place guy, in my case, got nothing. And it's kind of – it's more complex than just that. The two white marlin I caught in the two years I fished it previously, they didn't place once because it was three pounds too light and once because it was an inch too short. But in either case, it was the second-largest fish. So anyways, technicalities kept me from the money. But I do think we have a good chance to win and I'm looking forward to fishing there. But a sign of the top, the White Marlin Open is the most expensive fishing tournament in the world. If you go and you enter all the different categories, it costs you about $50,000 just to compete. And that's where the big prize money comes from. So normally, there's 200 boats in the tournament. Last year, I think there were 300 boats in the tournament. This year, new all-time record; more than 400 boats expected to register for the tournament. The last time there was more than 300 boats in the tournament was 2007. So –

Buck Sexton: What do you think if I had to ask you, Porter, for the percentages of what – what percentage of being a great marlin fisherman is skill versus luck, what would you say?

Porter Stansberry: It's all skill because the same boats win again and again and again. So like the fisherman from North Carolina, there's a group of guys out of the Hatteras area that build these boats, the Bayliss Family, the Spencer Family. They've probably won it 50% of the time. And then there's a boat like mine that has a pretty talented crew, right. We've come in second twice. We've fished it twice. There is – there are captains who know how to find these fish and know how to hook them, and that is not an easy skill to learn, and that's not easy information to acquire. It takes a lot of time on the water to figure out the secrets of things. For example, it's a little thing, but the amount of pressure you have on the drag that will – enough pressure that will enable you to hook the fish but not so much pressure that you rip the hook out of his mouth. Knowing that number of pressure to put on the drag is incredibly important and you have no chance to win unless you know that number. And that number changes based on the sea conditions, based on the speed of the boat, based on the type of lure you're using. There's a lot of different variables and combinations that the captains have to put together. I know it looks like we're just out there driving in circles but there's actually a lot more to it.

The other thing that's really important and also very expensive is satellite information. You have to know the water temperatures across 50 miles of ocean. And getting that information and deciphering it and having it in real-time is very important to who wins.

Buck Sexton: Well, that's going to be fantastic to hear how it goes. We're hoping you win this year so we're looking forward to the stories for sure. But I think – I smell first place here. [Laughs] And I think that you're going to treat the entire Stansberry team to, I don't know, a trip to somewhere. I don't care what we get to catch there. But, you know, Porter's taking us all if you get first place.

Porter Stansberry: Well, there certainly will be lots of by-catch, which in this case is yellow fin tuna, so we should have some sushi at the office next week. But meanwhile, I just want you to know, right, this is going to be my third year fishing and so far no money in the bank yet. So let's not spend the money until we earn it.

Buck Sexton: We're not popping open the champagne just yet. But everybody keep it chilled because I smell victory this year for Porter. So that's our Stansberry Investor Hour for this week, everybody. Like I said, [email protected] Also if you want to listen to my daily political show, which is actually a three-hour nationally syndicated radio show, look on iTunes for Buck Sexton with America Now. You can download it there. Please do. Listen at your leisure. And this is, of course, Porter Stansberry, our fearless leader and CEO.

Porter Stansberry: Hey, everybody, have a great summer week next week. I'm going to be fishing. You do the same.

[Music Playing]

Buck Sexton: All right. See you next week, everybody.

Male: Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to www.investorhour.com and enter your e-mail. Have a question for Porter and Buck?

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