Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan talks with our colleague Dave Lashmet, editor of Stansberry Venture Technology.

Dan Ferris: For today's rant, consumers are piling up debt and they can't even pay it.

Corey McLaughlin: And remember, you can e-mail us at [email protected] and tell us what's on your mind.

Dan Ferris: That and more right now on the Stansberry Investor Hour. So yes, finally, finally things are starting to happen that are making it look like it's not going to be a good time for the next few years in our economy, namely consumer debt just hit a record – are you ready for this? – $16.9 trillion with a "T" in the fourth quarter of 2022, up how much? $1.3 trillion year on year. Consumers added, just threw on an extra $1.3 trillion of debt according to data from the Federal Reserve.

Corey McLaughlin: Ruh-roh.

Dan Ferris: Wow.

[Laughter]

Corey McLaughlin: Things are getting crazy now. Yeah, it's – I guess we shouldn't be too surprised, but it's – the numbers are getting up there. This is not a record you want to see keep happening. This is one record that you'd rather not see, or I would rather not see.

Dan Ferris: Yeah. Well, you know, we've become inured to the news from the government's debt balances. They just keep going up and up and up and up and, you know, Congress raises the ceiling and nobody cares because it's funny money. We're printing the money to pay it or whatever. But this is money people actually have to work for in order to pay this debt, and the biggest chunk in there I noticed was mortgage balances.

So I don't know, people bought a lot more homes or they took on a lot more, you know, variable rate debt and interest rates went up. But wow, just laid on an extra trill. Hey, Corey, you got an extra till handy? I need to borrow an extra trillion. I mean, it's just such a massive amount of money I can't even fathom it.

Corey McLaughlin: I don't, and I don't know anybody who does either. Maybe Jerome Powell can help out. Yeah, mortgage balances climbed to $11.9 trillion, and then also younger borrowers struggling with credit and auto loan repayments. Yeah, it's not surprising. I mean, we've been talking about this with the higher-interest-rate environment and people spending more on credit and delaying the inevitable, and then here it is.

You know, like on credit, it's fine in the short term, but then you get past a year or two and these things add up and interest payments add up and especially if – and this goes for consumers and companies too – if interest rates stay higher for another year or two and it comes time for these companies to refinance their debt, that's when you really get into trouble with the corporate defaults, and the same thing goes for individuals. I mean, this is going to be maybe worth talking about 2024 and 2025 as the real kind of where shit really hits the fan.

Dan Ferris: Although, Corey, you know, we recently had a guest on, Michael Gayed, who said he's expecting some kind of a credit event this year. I thought of him immediately as soon as I read the story about the auto loans, which is – and people with low credit scores were 30 or more days behind on payments at the end of the year. That's the highest amount since 2010, 9.3% of the auto loans to people with low credit scores. It just has that whiff of subprime to it, doesn't it? It's subprime auto.

And the word subprime is burned to our brains forever from the financial crisis, so every time the kind of lousier credit is in the economy, whether it's individuals or businesses or anything start having trouble, we all start wringing our hands a little bit more now than we would have before 2008, right? Really, 2007... I don't know. As soon as I say that I thought, oh, this is where it's going to start blowing up.

Corey McLaughlin: Yeah, yeah. That's a great point. And I saw a chart the other day. It was like every Fed rate-hike cycle in, I don't know, this was like the last 20, 30 years – I can't find it right now – but has had some sort of associated crisis with it that was not on anybody's radar beforehand or not largely expected – not being talked about in the mainstream.

So maybe something that cracks related to consumer debt is it. I think the conditions are obviously there. I mean, we don't know exactly what's going to happen, but I think it can't get through this record-high inflation without some consequences, and this is –

Dan Ferris: Right.

Corey McLaughlin: And unfortunately, this is what we're going to see, I think.

Dan Ferris: Yeah, and so I wish we had a better idea of this number, but I don't know if you remember last year, it was like last June it was reported that U.S. home equity hit the highest level on record, $27.8 trillion, which is a massive amount of money to be able to tap into, but I wonder how much it is now and I wonder how much has been tapped. I don't know. Maybe we have to wait till June before they compile all the statistics, but I have to believe that a move from, you know – I mean, I know we bought a house in 2021 and we have a less than 3% fixed mortgage for 30 years.

In the past, I've always wanted to pay off my house because I didn't like borrowing money at even 4% or 5% or something. Now I'm like, I will never pay this sucker off.

Corey McLaughlin: Yeah, me too. I was explaining that to my wife over the weekend. She was like, how is this working? I'm like, well, you know, it's not worth even throwing extra money at the mortgage at this point.

Dan Ferris: No. Nope. It's just like, wow. The payment's not that much, which is great.

Corey McLaughlin: The Treasury Department is paying my interest payments right now, you know, with the T-bill interest above the interest for the mortgage.

Dan Ferris: Yeah.

Corey McLaughlin: It's like, all right. Now, you know, I'm in business if I bought a house before – if you bought a house before this bubble, you know, the COVID bubble, you're OK. It's just a matter of timing. It's just – yeah, it kind of stinks for everybody.

Dan Ferris: But my point there, where I was headed with this, if you bought a house last year, you didn't get that deal, and they laid on an extra $1 trillion of mortgage according to the statistic that we just read, so U.S. home equity is not at $27.8 trillion anymore, and I wonder how much has been tapped. I can see, it's funny, because Gayed, he said, "I think there's a credit event coming," and he wasn't very specific, and I was like, where the hell is that going to come from, you know? I don't think it's going to come from housing, because I knew about this statistic, and here we are. People are behind on auto loan payments all of a sudden and they've laid on an extra $1 trillion of higher-interest-rate debt.

And we know – I've reported other things in the Digest, maybe you did too. I've been talking about they've run down their savings balances. They had extra savings from COVID. They've run that down and they've run up consumer debt, credit-card debt, and that's high-interest debt. So it's all coming together nicely for people who predict credit events, baby, but not for anybody else.

Corey McLaughlin: Right. Yeah. Credit troubles. The next credit crisis is coming together nicely. Yeah, I mean it's easy to see, you know, and that snowballs into defaults from individuals, and we're talking about car loans and you're talking about subprime-type loans and it's, yeah, messy. That doesn't sound good to me.

Dan Ferris: So on top of that, we've got – and they mentioned this in the Wall Street Journal article about the auto loans, they started out saying, hey, we've got, you know, just practically – it is like record low, I mean, multidecade low unemployment, but there's this little thing with people not paying their car loans. And then I was on Twitter like maybe a couple hours later looking around, and a guy showed a chart of unemployment getting really, really low right before a recession. [Laughs]

Corey McLaughlin: Right. That's exactly what happens. That happens every single time if you look back at it.

Dan Ferris: Yeah.

Corey McLaughlin: That's the marker right before a recession, is unemployment bottoms, or hits a record low, so it's [laughs] getting lower, unemployment, a little bit, but yeah, these layoffs – I mean, we talk about – I don't want to get too off track, but the layoffs, you know, are adding up in the tech world still, and I just don't see – this is such – I hate saying – people say, "Oh, this is such a weird recession," but the layoffs are happening in certain areas and we see this consumer debt. Obviously, people aren't paying for things on credit cards because they necessarily want to, it's because they have to. It's so messy, the wages story, the inflation story, now we're going to get into the debt part of the story. It's just here we go. This is like the cycle happening literally before our eyes. And I think you're right, I don't think enough people are talking about it.

Dan Ferris: Yeah. Nobody's saying, "Hey, we're about to have a credit event," except for Michael Gayed. [Laughs] It's just like – you know, it's not in the headlines anywhere, and that's the way it goes. You're exactly right, every time something comes from a place where people don't expect it to –

Corey McLaughlin: Well, we're expecting it now.

Dan Ferris: [Laughs] Yeah, we're expecting it now so maybe it won't happen.

Corey McLaughlin: So if you're listening, you're expecting it now too. Don't be surprised.

Dan Ferris: Yeah, yeah. It's funny too, like there are so many data points. I'm not the guy who pulls in a million economic data points because it gets overwhelming and I have to believe most of it is noise, but [laughs] –

Corey McLaughlin: But. There's always a "but."

Dan Ferris: Yeah, but manufacturing numbers are down, like manufacturing is basically in a recession if you trust these – like PMI data if that's meaningful to you, and it's really meaningful to a lot of people. A lot of people think PMI just feeds right into GDP and that's the way it goes. I mean, that's below 50 and below 50 is bad. Below 50 is like – I don't know if it's recession, but it's bad. It's contraction.

Corey McLaughlin: Yeah. It's definitely an indicator at the very least, yeah.

Dan Ferris: Yeah. So, you know, if we do get to a recession this year, it will certainly be like one of the most widely predicted, which is weird. You know, mostly these things tend to surprise people. This one won't if it happens this year. People like myself who are looking at unemployment and thinking, well, unemployment, they added 500,000 jobs, and now I look at these other things and start thinking about Gayed's credit event prediction and I'm like, OK, well maybe this was like the blowoff unemployment bottom, like a top, before the big crash or something. I will certainly be surprised if that is the case. I know we just said, well, that's what happens before a recession, but when you see those numbers change really fast, it never – even if I predicted something and the number changes really fast, I'm going, whoa, you know?

Corey McLaughlin: Right.

Dan Ferris: Did you see that? I always say prepare, but emotionally are you ever prepared, right?

Corey McLaughlin: No. I mean, you can only prepare – you can prepare, but yeah, emotionally you don't not have emotions either. You've got to deal with them, unfortunately, you know, sometimes. But if you can tap into that part of your brain where you've prepared a bit before and say, oh yeah, this is what I remember thinking about six months ago and kind of trust yourself that it might be happening. You could sleep easier at night that way.

I don't want to sound too much like a psychologist, but I probably just did. [Laughs] That's what I find a lot of this stuff is too, is just like trying to make sense of all this firehose of information that we have like you were talking about with the economic data.

Dan Ferris: I was looking around while we were talking, and I finally found this chart that I knew I had seen of real home prices and mortgage demand, and so residential mortgage demand down more than 80% and U.S. home prices down more than 40%, and I can't quite say – I think that's on an annualized basis monthly or quarterly. I can't quite tell. But it looks like quarterly year over year. So yeah, I guess that's what happens when you slam interest rates, fed funds from zero to almost five, 4.75, and then mortgage rates are slammed from below three to, I don't know, whatever they are now, just six, seven-ish. Actually, I haven't checked that in a few days.

Corey McLaughlin: Yeah, around there. Yeah.

Dan Ferris: That's what happens. Yeah. You crush housing demand and you crush mortgage demand. And we've talked about this before too, like the fundamentals there were supportive, you know? Really very little inventory and, you know, people forming households, forming families and wanting to buy homes. I mean, I guess priced out is priced out.

I don't know. I don't pretend to predict any of this, and I know – you know, I'm not the kind of guy who tries to analyze every single data point because I think it just gets too noisy and you don't learn anything. But once you see one little thing that kind of surprises you, it just starts working on you.

Corey McLaughlin: Yeah. And in the spirit of finding what we were talking about before, I just found this chart that I was talking about before about how Fed tightening cycles always break something. It's from the Bank of America latest report. Yeah. We can go back to one, two, three, four, five, six, seven, eight, nine, 10, 11, 12 times since 1927. You know, it's got events associated with Fed tightening cycles from the crash in '29 to crash in '87, savings and loan and long-term capital management in '98, the tech bubble in 2000, subprime in '07.

Dan Ferris: Right.

Corey McLaughlin: You know, do you know something like that's going to happen? There's also been smaller peaks where things haven't happened, but you would think, hey, the conditions are certainly in place to pay attention.

Dan Ferris: They are. And I was saying in The Ferris Report, little free sneak peak of The Ferris Report in the next issue, which comes out just in a couple days here, I was saying how the Fed is reactive. So they tend to keep moving in one direction until they break something big. And I was looking back to 1980, and I didn't know this. I knew they had taken the fed-funds rate up to 20%, but it actually – he did it four times.

It was up to 20% and then back down, then they slammed it back down, then back to 20%, then back down. I think it was like they backed it off into the mid-teens or something and slammed it back up to 20% four times before they were satisfied that they had just broken the economy. So I'm trying to think through what a rational expectation is here. What they do is they pursue the status quo because actually we say Arthur Burns didn't do it right, but he did cause a recession.

He did cause a recession from November '73 to March '75. So he was like, "Hey, I broke something, it worked," and interest rates – you know, they took it back down. So, you know, we talk about the inflationary '70s, but it was punctuated by a recession. So, you know, we have no reason to believe that the same thing isn't going to happen. The status quo now is hiking and the status quo is beating inflation, so what's going to happen?

Well, you know, it looks like they're backing off on the rate hikes, right? They went from 75 to 50 to 25 now. But no, I'm convinced that even if they go flat and don't hike at all for a quarter or two, you know, a month or two, a meeting or two, whatever, you're going to see it. It's going to be changing the status quo only under duress, basically.

Corey McLaughlin: Yeah. That's something I've thought about too. Jerome Powell has wanted to be the cool kid in school and fight inflation for up until this point. Now what, you know? [Laughs] Now is the – what is it? – the prom king voting contest here. [Laughs]

Dan Ferris: Right.

Corey McLaughlin: They don't want the Fed – all they keep saying is we know the past, we don't want to repeat the '80s. Well, then that means that they will not be cutting interest rates for sure. They talk about pausing first, so you do that and then see what happens.

Dan Ferris: Right. Now that's one thing that maybe we differ on. I think you could actually see a cut because I was just looking at the history and the bias over the past, you know, certainly at least 20, 25 years has been – I mean, interest rates have been falling basically since that moment in 1981 really was the last time they slammed it up to 20%, so a long, strong bias toward easing, toward accommodative policy, and now we believe that they've changed the status quo, but they were there in 2018 too and they were, oh, whoa, the market's down 20%. We broke something, you know, we've got to fix this.

Corey McLaughlin: Right, right, right.

Dan Ferris: The threshold has risen, obviously. But I think you could see that. My conclusion from looking at the history is they're totally reactive and have no idea what they're doing. They're just blind and they're throwing darts at a wall, and the wall has a few balloons taped to it, and they're just throwing them until they hit a balloon, and they haven't hit a balloon yet. When they hear that pop, they're, oh, OK, hey, what do I win?

Corey McLaughlin: Spy balloon? Are they going for the spy balloon or what? [Laughs]

Dan Ferris: Yeah. [Laughs] That's right. Balloon, yeah.

Corey McLaughlin: No, I actually agree. I think they could cut, which is what I was – you know, should they though? And so it's like do they get to a point –

Dan Ferris: Who knows.

Corey McLaughlin: – where, you know, say there's a debt crisis or a debt crisis event. It's hard to think that they'll keep raising rates in that sort of situation.

Dan Ferris: Yeah.

Corey McLaughlin: So I guess at the end of the day this is why you cannot fully manipulate a giant economy and get – I mean, you're always playing catchup to something that comes up or trying to predict something that you have no idea about. Like they thought supply chains – they completely misread the supply chain disruptions around the world. And how do you do that? You're sitting here in your house and you're like, where's my stuff? You can kind of figure out where. [Laughs]

Something's not right here. And so my point is you can't – they're trying to – like you said, they're throwing darts and hoping to get somewhere. You know, hoping for a soft landing or hitting a spy balloon with a dart, you know?

Dan Ferris: Right. I'll give you another sneak peek at The Ferris Report. Electricity bills in Japan – speaking of people who are stressed out, speaking of consumers who are stressed out and having trouble paying bills, which is why I thought of this, they're having trouble paying their electricity bills as a result of the Ukraine war and the fact that they shut down all their nuclear plants back in 2011, and some people – they have restarted some nuclear plants, so some people, where it's all fossil fuels and the economy is 90% fossil fuels now, it's all imported – it's an island with no natural resources. It's a really rough situation.

Third-largest economy in the world, and it's just a unique situation. So folks in one region where it's all fossil fuels, they're paying 70% more than folks in another region where they are near a restarted nuke plant.

Corey McLaughlin: Wow.

Dan Ferris: It's like – you know, and yeah, that's like – they don't really riot in the streets in Japan. That's a French thing, that's not a Japan thing, but –

Corey McLaughlin: They might.

Dan Ferris: They might, yeah. I mean, it's crazy and it's directly a result of the Ukraine war, which is a roundabout way of sort of bringing in our guest, because we started talking about consumer debt and now we're talking about the Ukraine war and I'm being reminded of consumer stressed all over the world. But there is a tie in here with our guest today, Dave Lashmet, and he's got a few things to say about the Ukraine war, which I'm going to let him say. I won't give you a hint about that. But he's my old friend.

He and I have been around Stansberry for longer than just about anybody, and we've seen a lot and done a lot together, and I'm just looking forward to talking to him. So why don't we do that? Let's just do that right now. Let's talk with Dave Lashmet.

Many mainstream analysts are predicting that stocks will recover soon, but I say we'll instead witness a cash frenzy unlike we've experienced in 21 years before stocks recover, and I'm urging Americans not to buy a single stock until they see it. I predicted the Lehman Brothers crash in 2008 and I called the top of the Nasdaq in 2021, but this is the No. 1 most important thing to pay attention to for 2023. And I'm not talking about another market crash or politics or inflation or any of these other things. As all this unfolds, the financial consequences of what I'm talking about could last for several decades if you don't understand what's happening.

There will be winners and losers and now is the time to decide which one you'll be. This is why I strongly encourage you to read about my warning totally free today. It's all spelled out in a free report we've put together. Get the facts yourself. Go to www.StockDeadzone.com to get your free copy of this report.

You can learn how to get my four steps to prepare for what's coming. Again, that's www.StockDeadzone for a free copy of this new report.

It's time for our interview. I always look forward to talking with my friend Dave Lashmet. He is one of the most well-informed investors that I've ever met in my life and just an all-around good guy. He's my neighbor right up the road in the Pacific Northwest. Dave, welcome back to the show once again.

Dave Lashmet: Thanks, Dan.

Dan Ferris: So I always like it when guests reach out to me, guests who I've had on before and really like a lot, reach out to me. This has happened a couple times recently. Because I'm like, wow, we already know we like this person and they have something new on their mind, and that's pretty much where we are today. So my cohost Corey McLaughlin and I are going to pepper you with questions and beg you for insights about really what you explained to me before we hit the record button, was a really simple idea. But of course, Dave, nothing is totally simple to you.

You go into quite a bit of deep detail. All of your investment recommendations are deep dives. So give us like the simple thesis that you gave me and then we'll start on a classic Dave Lashmet deep dive.

Dave Lashmet: OK. So the simple thesis is that we don't know what 2023 will be like for investors, if it'll be a bear, a bull, or a sideways market. But what we do know is that the best way to play defense in 2023 is going to be to buy defense stocks, and I can explain why.

Dan Ferris: All right. I like it already. I like defense stocks myself. Yeah, we're on the same page. I want to hear your version.

Dave Lashmet: So the easiest entry point is something that happened in December when a plane that didn't get fly was rolled out to reporters under very strict circumstances, like the reporters couldn't get within 200 feet or they got shot, by which I mean they're literally going to get shot. So this new bomber from Northrop that was shown in 2022 in December has a new kind of coating, and the coating is a ceramic. And like China or porcelain, it's pretty tough stuff, but it's a stealth coating. It's twice as good as any stealth, but it's sand-proof, it's frost-proof, it's saltwater-proof, unlike any other stealth coating before.

So the promise of this technology is not only stealth that's twice as good but stealth that's literally bulletproof. And it's going to change the way that all aircraft are built in the next few years through the 2050s. So it's literally a top-secret military technology but one company owns it, and they don't just own the patents, they built a ginormous automotive spray paint machine to spray paint the new jets with ceramic. This kind of technology lockup is a monopoly, and other U.S. and NATO and Japanese stealth aircraft might end up with this coating, but they're all going to pay Northrop because it's Northrop's. What I like about the defense stocks that I picked is that they have very, very, very long tails and monopolies.

Dan Ferris: Oh, yeah.

Corey McLaughlin: And it seems just so timely too. You're talking about defense stocks and, you know, we just had a Chinese spy balloon accidentally drift over the United States, and now we're shooting down little tiny cars and things. It seems like this is a sector obviously that will get some mainstream kind of tailwinds behind it too, it seems like, but what do you think about that?

Dave Lashmet: You know, I tried to push the threat of China like two years ago and a year ago, and no one was really buying it. And then just about 350 days ago, Putin invaded Ukraine and the idea of war no longer seemed impossible.

Dan Ferris: Yeah. When you're a deep-dive, bottom-up guy, you're always coming up with this stuff – well not always, but sometimes coming up with these things like two years before anybody else, and you're like, OK, I guess I'm going to have to wait for this one too. Then, you know, eventually all the information you've dug up really, really did give you a better insight, you know? It can be frustrating. It's like being a value investor.

Dave Lashmet: Yeah. No, I think it's true for both of us.

Dan Ferris: Yeah, it is.

Dave Lashmet: One thing we did just in our most recent report cards was winning rate, and I'm supposed to lose year one because I found something that Wall Street didn't. And until they find it, it's going to look like it's a loser. Then over time, like my one-year performance at least on win rate always looks bogus, and over time it looks better and better and better. It's like, right, because I figure it out first.

Dan Ferris: Yeah. It's like what's the difference between being wrong and being early? You learn to appreciate that in our business, as do our readers. So I was going to say a moment ago you gave us Northrop. I mean, that sounds like a great one, of course. But I realize you've got other defense picks.

You're not going to give them all to us, but is there – you know, we've heard about this one technology that is very, very cool. Is there an overall thesis besides – defense stocks are great defense plays, oddly enough – is there anything that ties all these together or are they all technology-oriented, very specifically technology-oriented-type picks? So each is different, let's say.

Dave Lashmet: I think it's both. You know, when you look at the patents in a drug, there's two or three patents. There's what the drug does, how you made it, and now there's a new class of patents called what dose do you use in people to be effective, and there's only three patents that surround any drug. Even if it's a $100 billion franchise, it's built on three patents. If you look at a cellphone, there's something like 300,000 patents in a cellphone.

Well, if you want to build a bunch of systems that all talk to each other so that the jets can talk to the – fighters can talk to bombers which can talk to satellites, well there's ton of interaction that has to happen. So these companies often end up interacting that I cover, so in that sense they're connected, but really my secret decoder ring is epic scale programs that have a 25-year run rate that are brand new today or just emerging. And the advantage of that is exactly what I do when I pick drug stocks. I pick drug stocks when they've been tested in a few people and they work and they don't have side effects.

So they don't yet have total statistical efficacy to two decimal points, which they'll get in their final trials. But if it's already curing people and it's already not causing side effects in hundreds of people, we're pretty sure that it's going to work in thousands, even though the FDA hasn't approved it yet. So we tend to step in these military technologies at the prototype stage. If a prototype flies, or in the case of a submarine, sinks and comes up back, we're reasonably assured that it's going to do that again. It's this testing phase moment that's very valuable because it hasn't yet booked the order.

So it's all invisible backlog. And the way that fiscal years work for governments, all NATO governments and Japan, they're one-year budgets. There's been a tweak in the U.S. military budget so that they can order an aircraft carrier. Why? Because you can't build an aircraft carrier in 12 months. It takes more than 12 months to build an aircraft carrier, and half an aircraft carrier does not help you.

What are you going to do with half an aircraft carrier? Nothing. It would sink on its own. It doesn't have a flight deck, right? So there's a few exceptions where there's sort of like U.S. mega projects that have more than one-year budget, but largely if the air force wants to buy 2,000 planes, it's going to buy 200 at once, but it will buy 2,000. It'll only buy 200 at once.

So the only thing that hits backlog is an order for 200 planes. So the way that Wall Street computes things, which is the way that SEC computes things, you know, it has a fixed backlog and anything else is pure vapor. But that's just not true for highly successful, much-needed aircraft, and there's been some bombers that we started to buy and then stopped. Totally true. Budget cuts.

But right now with Ukraine and China flying balloons overhead, we're not going to get to a point where we suddenly claim a peace dividend. It's probably not going to happen in the next five years.

Dan Ferris: Gotcha. All right. So I guess what I really want to do, I know you can't give away the rest of the picks, but I just really want to know something about them, like I want to get excited about them. Because the thing you told me about Northrop is like, oh man, where's that stock today? I just really need to buy it right away. Is there anything else in there that is like that juicy?

Dave Lashmet: What's funny is –

Dan Ferris: Simply put. [Laughs]

Dave Lashmet: – we made a list in December about what we liked for 2023, and one of them already got bought out, so I can tell you about that because it already got bought out.

Dan Ferris: Oh, wow. Nice.

Dave Lashmet: So Maxar makes observation satellites, and they make observation satellites that work in the visual spectrum, so they tend to need daylight. They also tend to not like clouds very much. So there are other technologies, including from Maxar, that are based around space radar that punch right through clouds, but Maxar's fundamentally known for something called WorldView, and we see a lot of these images on the Ukrainian border, right?

The images that showed Russian tanks amassed on the Ukrainian border was a Maxar image, a satellite image that's commercially available, not just spooky level. Private equity just bought Maxar for a massive premium for us. We had a huge – I think the one-day spike was 127% and we had already doubled the stock, sold half at double. We were already up another 300%, and then it went up 125% more in a day.

Dan Ferris: Wow.

Dave Lashmet: Yeah, so I think we walked away with, you know –

Dan Ferris: That's – I'm looking at the chart.

Dave Lashmet: [Laughs]

Corey McLaughlin: Yeah. Dan, I'm actually looking at the chart too. I just popped it in and I was like, whoa, what's that big gap there on December 16^th? Yeah.

Dave Lashmet: Yeah.

Dan Ferris: It's amazing.

Corey McLaughlin: Pretty amazing.

Dan Ferris: It's like, you know, $23 the day before and then $51 the next day. It's cool.

Dave Lashmet: You know, I've only predicted a 10X gain twice out of the 300 stocks I've picked in my career. I've picked 10X gain twice, and the reason I picked it for Maxar, because it was one of the picks, is because it fell from a $60 stock to a $6 stock. So all I had to say was if it recovers its old share price, it's going to be a 10X gainer. It's a 10-bagger.

It's a 10-bagger in waiting, and it went from $6 where we bought it to like $50 and change, right? But because the future's unknowable, when it got to 100% gain, and we can completely de-risk the position, we do so. So we got all the money back for our subscribers, if they choose to follow our advice, by selling half at double. And then we still got like a 400% gain on average. [Laughs] Because it went from $6 to $50.

Dan Ferris: I know, nice. Sold half and still got a – yeah, that's great. Very cool. And cool technology too.

Dave Lashmet: Yeah. So I can tell you the tech side. Do you want to hear the tech side?

Dan Ferris: Oh, OK. Yeah, yeah, yeah.

Dave Lashmet: There's a really cool blogger who used to cover financial stuff, but he's a former Air Force officer, and then the Ukraine war broke out. His name's Jake Broe. Jake used some Maxar images a couple days ago on his podcast about Ukraine, and it showed Ukrainian territory occupied by the Ukrainian military, which was completely pockmarked and brown. And the reason these images come out is because Ukraine just had new snow.

So if a bomb falls, it's going to go through the snow and spew up a bunch of dirt, OK? This diagram of this small Ukrainian village looked like seven drunk people playing darts. There were pockmarks all over the place and with no particular order. You couldn't tell that there was a target. It was more or less, yeah, they sort of lobbed things – the Russians sort of lobbed things in the general direction of where they think there might be Ukrainians.

There's also pictures of farmers' fields with the pockmark everywhere, and it's like, right, but there was no position in that field. You're just wasting artillery shells because you have no accuracy at all. And then the other Maxar image that Jake Broe showed, showed a roadway that the Russians were using to try to get to Ukrainian territory, and that roadway was essentially painted on the map by shells that only hit the road and didn't hit the snow. [Laughs] Ukrainians have such accuracy that they're only hitting the road when the Russians are on it. And the next step that they're about to get is to only hit the tank on the road.

Dan Ferris: Wow.

Dave Lashmet: So they're going to go from about, you know, 50 feet of accuracy with a shell with a 150-foot blast radius, which technically is good enough, to a shell with five feet of accuracy. So the U.S. military reports about this tech, the artillery guys in the army, they report it back to the general contractor or the military contractor, we don't miss anymore. What do you mean by that? It's like, yeah, we don't miss. We don't miss.

Dan Ferris: Wow.

Dave Lashmet: So the next future tranche of equipment that's going to Ukraine – Ukraine's running out of shells on the Ukrainian side about what they can fire, and they're using shells faster than the rate that we can build them or faster than a replacement rate, so it's wiping out stores not only in the U.S. and all of NATO but also in South Korea. We're just sending pallets of shells and they're firing them because they're kind of missing, you know? They're not direct hits. But we're saying in the tranche that we're going to give them a way to spare shells.

Well, how do you spare shells? You make them even more accurate. So in the front of a 155-mm shell is a fuse about the size of your guys' microphones, OK? More or less that size. Northrop makes a GPS fuse for a 155-mm shell that you can fire out of a cannon from 20 miles away that will land on the spot that you choose.

Dan Ferris: Right. That is very cool. Wow.

Dave Lashmet: So we don't have to make more shells because the shells, they won't miss. It's like if you have a little drone, almost handheld drones that have a laser-guided – I'm sorry, a laser rangefinder and a GPS chip. They're basically a flying version of what you use in golf and the GPS chip that we make by the billions for smartphones. If you put that in a drone, these are commercially available for about $14,000 bucks, you can find out where your drone is and then the distance and direction to a Russian tank, and then hit that Russian tank with artillery from 20 miles away.

Dan Ferris: Wow.

Corey McLaughlin: You know what this reminds me of? [Laughs] Dave, your knowledge here, this is stuff that we're lucky to hear all the time, like you mentioned, in healthcare with the patents and defense, same thing. But this reminds me of like at the beginning of this war, the Russia-Ukraine War, I was like, are we really fighting a tank war still here in 2022, 2023 now? And what you're saying is – I think people underestimate the amount of technology that the U.S. military complex has.

I think we understand it a little bit, most people understand it a little bit, but the stuff you're talking about – and we just shot down, what, the size of a car floating through the sky, like limiting the damage so it lands in the right spot so nobody gets hurts on the ground, like 20,000 feet in the air, it's pretty remarkable. I don't know. This is just I think reflective of the kind of stuff, the opportunities and the companies that you're talking about and that I assume you're talking about more with subscribers. There's so much here that people don't know about.

Dan Ferris: Right. It's like you think of defense stocks, oh yeah, they make planes and tanks and bombs and stuff. You know, there might be a little more to it, and you've got to talk to Dave to find out. But you've prepared a whole presentation for this that we want to tell everybody about. And they can go to MessageFromDave.com to check it out. Is there lots of sexy technology stuff in there or do we have to subscribe to the newsletter to get all that?

Dave Lashmet: You know, I don't think it's a very tech-heavy pitch. It kind of includes stories like these, right? We don't give our research away for free because it's expensive to generate. So I just went – we're going to add this brand-new pick to the report that we signed. I mean, although I first heard about this stuff in December, we wrote about it two weeks ago.

And I just toured a military-grade chipmaker and I had to fly to the cold and the snow and get a four-wheel truck to go do this stuff, and that was not free, and so we don't give it away because it's valuable. It's valuable to investors, but it also had a cost. You know, you get what you pay for, so that's how we plan these.

Dan Ferris: Right. That's fair. Absolutely fair. But if I go to MessageFromDave.com and I like what I'm hearing and I sign up for your newsletter, then I will be directed straight to a report of some kind that will have the sexy technology stuff in it, right?

Dave Lashmet: Exactly.

Dan Ferris: OK. See, that's what you get from Dave Lashmet, it's hot and sexy technology stuff. It's tech porn, right? It's like when Dave starts talking about this stuff, it's like I can't stop listening. I want another story. Tell me another sexy hot tech story now. But as he says, you know, we don't give them away for free.

Corey McLaughlin: I kind of want to know about you driving a truck through the snow to a chip factory.

Dan Ferris: I know.

Corey McLaughlin: That sounds interesting too.

[Laughter]

Dave Lashmet: Yeah, it was cool. We sort of underplayed it.

Corey McLaughlin: [Laughs] I remember you talking – this was probably a year or two ago – about just the next generation of military helicopters, and where is that at right now as far as – I don't know if this plays into it at all or it doesn't, which is fine, but I remember that being sort of a big deal that you were looking at.

Dave Lashmet: Yeah, that's a bit of an interesting story. So there's two kinds of helicopters that are being replaced. One's a little observation helicopter and one's bigger, what's called a medium helicopter. And the tech I like is probably going to win a small one, the light helicopter, but at least so far it hasn't won the medium helicopter, but it's under protest. The contract's under protest and it's still really early. I think that the tech we identified is pretty awesome and I think that we'll see it in the U.S. and Netherlands and UK repertoire soon, and then at some point it can try to defend us.

But yeah, that's in the report so I'm not going to tell you.

Corey McLaughlin: OK, cool.

[Laughter]

OK, good. It's in there. I didn't mean to put you on the –

Dan Ferris: It is in there though, great.

Corey McLaughlin: All right. Good.

Dan Ferris: Yeah.

Corey McLaughlin: I'm glad it is because I remember it being very compelling, so it made sense to me.

Dan Ferris: And I have to say, I take a little bit of – like I'm encouraged that Dave and I are on the same page from two completely different vantage points. Like for me, defense is one of my – you know, I have macro trends and micro trends in The Ferris Report, so I've chosen one of the big ETFs, which I guess we're going to have to reveal here because Dave has something to say about it, but for me, capturing a trend is important, and I've personally and partially professionally, but really personally been kind of screwed in the past by trying to capture a trend by picking just one or two stocks because individual company dynamics can change and I don't capture it the way I wanted to. So that's why I go the ETF route because I'm coming from the top down.

But Dave comes from the bottom up, and you're essentially – like the way you explained it to me before we hit the record button on this podcast today is that you're kind of building your own better, more focused ETF is what I got out of that.

Dave Lashmet: Yeah, I'm trying to not include the losers. So if it's somebody else's ETF, they're going to pick stocks I don't like, and I also have a bunch of stocks that literally no one's ever heard of. They're not penny stocks and they're not microcaps. They're legit companies, but they might not be from around here. So it's a global business, right?

What British Aerospace is up to – that's not one of the picks, but what British Aerospace is up to is headquartered in London but they have British Aerospace U.S. They call themselves BAE now so it doesn't look British, but it's still British Aerospace to me. You know, NATO companies all serve all the NATO and Japanese markets. And for obvious reasons, they don't work with the Chinese or the Russians. I consider that a plus.

Like, yeah, they're not exposed to the Chinese market, but it's like there's a reason for that. But they're also not exposed to – if there's trouble between China and Taiwan, these companies are not only not going to take a hit, but they're probably going to go up in value. Let's pick on Broadcom, shall we? So Broadcom's spending like $68 billion to buy VMware, and the reason it's doing that is because VMware makes software. Otherwise, 99.8% of Broadcom revenue comes out of Taiwan where it makes chips.

So if anything happens to Taiwan, there's no freaking Broadcom, and there won't be a Broadcom until it closes its deal with VMware. It's the only thing that would be left. So as opposed to 100% vulnerability, at one point the Chinese said we'd like to ban products from this major U.S. defense contractor. It's like, of course you would, but they don't sell to you so this is stupid. [Laughs] And they're not going to fly to your country either because they have secrets in their brain and they're not coming over and they're not going to let you attack their laptops while they go to dinner.

You know, they're not going to China, they don't work with China, and if there's trouble with China they're not exposed.

Dan Ferris: Yeah. I was looking at the BAE chart and it's not a real volatile stock. It's interesting. But you're not in BAE.

Dave Lashmet: Not in BAE. And, you know –

Dan Ferris: So you're – go ahead.

Dave Lashmet: Well, I was going to talk about your fund, but you can start and then I'll say what I don't like in there.

Dan Ferris: No, go ahead. Just tell us – I mean, like I said, I want to capture trends like – somebody else called me out the other day. A reader wrote in and said, "You know, you recommended this particular fund" – I don't want to name any of it because, like you say, we don't give this stuff away for free, but he said, "You know, it's got meme stocks in it." I was like, well, I'm capturing a trend. And the stock he was talking about was like 0.6% of the fund, you know, it was like nothing, right?

So it goes to zero and the fund doesn't move, so not a problem. But it's a completely different exercise to try to capture an effect over a period of time, something that affects, in that particular case, at least hundreds, if not thousands, of stocks, and it's a completely different exercise what you're doing, coming from the bottom up, picking individual companies and, you know, focusing on technologies and things that, as you say, they're winners, right? You're excluding losers. It's a completely different exercise. But why don't you explain what you are eager to explain about this?

Dave Lashmet: It's that I don't like debt. So if I saw two major defense contractors and one had $9 billion in net debt and one had $28 billion in net debt, I'm going to lean toward the one that has less debt. Even if we think that these companies can sort of have price control, and if inflation hits 7%, they could pay a 7% dividend. Why? Because they have a monopoly.

If they're going to eat 7% on all their costs, they're going to charge 7% more or 10% more, so they spit out a 7% dividend so that they're not going to get wiped out in the face of inflation. But that's not true for defense contractors that have debt because they have to pay more and more against their debt as interest rates go up. So in some sense, I do respect and partially apply the value metrics that you like, right? Like a heavily indebted company is not as promising as one that isn't indebted.

There's a large Seattle-based plane maker that also has defense division and they have like ginormous amounts of debt, like $60 billion in net debt. That just doesn't appeal to me, because if there is a war dividend, they're going to pay it to the banks, not the shareholders.

Dan Ferris: No, it's actually a great point, because what you say is spot on. Objectively speaking, other things being equal, a lot more debt means more financial risk, and there is no way around it. You have to believe that a company's mote is so wide and so impenetrable and that individual company dynamics will never affect it so much that, you know, it's sort of impervious to this effect, but I don't think any business is impervious. I think you're right.

Even where you have a couple of big motes sitting right next to each other, the one with however much it is, six times more debt, is riskier by definition. You can't avoid it. I totally agree.

Corey McLaughlin: Yeah, and I think in addition to that, you just hit on the part about why defense stocks are appealing right now if you think that the global conflicts are going to be a thing for the foreseeable future or even just speculation about them, and that happens and that's inherently inflationary. We say all the time war, right? And so like you were talking about with that war dividend, and if inflation goes up because of these conflicts, you know, whatever they may be, like this is a way to kind of protect yourself or your portfolio against that a bit, have at least some exposure to defense. That's another reason for diversification and having kind of exposure to these ideas, it would seem like to me, especially the ones that have monopolies on kind of technology or will have it. You know, does that make too much sense to me? I don't know.

Dave Lashmet: Well, we have a bias not just on a monopoly but like on a lasting monopoly. So I've always liked hardware better than software in tech plays. We have some software plays in my model portfolio, but largely I'm better at understanding hardware. I know that hardware doesn't do much without software, but still I have a sort of bias toward manufacturability rather than press, step, and repeat because you've got another software as a system order.

I think I can bring things to the manufacturability equation that other analysts can't bring by going to fabs and looking at how they build things and who made the tools and what their output is, because there's strict limits. So you can only build to the rate that your assembly line will let you build. That's your max, right? And then you can do computations about, well, how much can they produce and at what price? That lets you see their baseline profitability.

But what I like about these stocks is how long the orders will go. So we're going to replace the B-52. Why? Because it's 75 years old. So, you know, we can kick it around, but at some point there's nothing left for your can to kick, so you have to replace the B-52s. But in Northrop's current order for B-21s, it's going to play out through 2040.

Find another stock that you know is going to have steady revenue on a single major program through 2040. If you find it, buy it, right? I mean, how many people have a 17-year investment horizon locked in?

Dan Ferris: Right, without being exposed to something like, you know, commodity prices, metals prices. Those are long-term projects, but God help you navigating that. They say they can mine this thing for 40 years. You know, OK, just tell me what the commodity price is going to do for all 40 of them and I'm in all day long. But price is not an issue here, so it really is quite wonderful what you're describing.

Dave Lashmet: You know, I've told Corey this I think, and I don't know if you know this, Dan, but defense contractors have a special deal with the SEC. They do not report their R&D budgets. So for Wall Street, this is a black box. Like they literally do not have an R&D budget. They have a profit line, but they don't have an R&D budget, so it's impossible to see what they're up to by looking at the SEC filings.

So I think that that plays into what I can do with my team, outside experts, inside experts, and sort of look at what they're up to technologically and with their hardware in a way that Wall Street literally cannot track because there's no evidence here. It's an empty set. You know how every SEC filing says mining risk, and unless it's a mining company they say we have no risk of a mine accident because we don't have any mines, right? Well, the R&D budget's gone in these defense contractors.

There's no R&D budget. It's just poof. It's like, so they magically produce profit and that looks what it looks like, but it's not that. It's that we don't want our enemies to know what we're spending on R&D.

Dan Ferris: Right. And I'm going to guess, Dave, that when you're out in the snow riding some sort of an exposed vehicle to get somewhere, whatever it is you're doing, that you were describing earlier, that you're not like running into another Wall Street analyst every 100 yards.

Dave Lashmet: You know, I don't think I've seen a Wall Street analyst in my travels. COVID might've been a part of this story, but we really like this diet pill, which you may have heard of because we've written about it a lot, and now it's on every single news channel.

Dan Ferris: Yep.

Dave Lashmet: But I saw it in Paris in 2019. In Paris in 2019 I learned about this drug, and I can assure you that there was no one in Wall Street garb was anywhere near me. They just don't track things the same way. But in the case of these defense contracts and these defense stocks, they can't track it because there's no R&D budget. They never see what's coming.

Dan Ferris: Very cool. All right, so I think it might be time for my final question. But one more time, I just wanted to tell you that if you love the insights that Dave has to offer and if you're as interested in buying these stocks as I am right now, which is very, go to MessageFromDave.com. Watch the presentation, listen to everything he says, and if you're as thrilled about it as I am you'll sign up for the newsletter and he'll give you the report that's got all this awesome stuff in it. But Dave, my final question which, I don't know, what's this, the third or fourth time that you'll be answering it, if you could leave our listeners with a single thought today, in addition to MessageFromDave.com, what might it be?

Dave Lashmet: The message is that when Putin rolls tanks to one border, if he was successful, he would move on to another border. So even if the conflict in Ukraine ends quickly under any sort of terms, under any terms, there's no way that Europe is not going to rearm. Under every scenario, Europe is not going to claim a peace dividend. They're going to start buying gear. And it's not going to stop.

I mean, it's going to take them a long time just to gear up their budgets, and then they're going to have to play out against the build cost of these major systems. They have to get in line and wait until they can get gear. So based on what's happening today through 2030, there's going to be hard orders from countries that didn't used to put in orders, and that's going to boy up these stocks for at least seven years.

Dan Ferris: Sounds good to me. Good answer. Again, right on the same page. So thanks for being here, Dave. Always a pleasure, man.

Dave Lashmet: Yeah.

Corey McLaughlin: Thanks, Dave.

Dave Lashmet: We should meet other than in small postage stamp sizes of ourselves like I can see you here, right?

Dan Ferris: [Laughs] That's right.

Dave Lashmet: But it was fun to see you at Alliance, and I get to see Corey more often because I don't compete with him like I compete with you, so he's a neutral arbiter.

[Laughter]

Corey McLaughlin: Yes, I'm fortunate not to compete with anybody, hopefully. [Laughs]

Dan Ferris: Now see, that's right. Corey's smarter than all of us.

Corey McLaughlin: Yes.

Dan Ferris: Don't compete.

Corey McLaughlin: Yeah. Well, you know, you've got to have some competitive muscle in you.

Dan Ferris: You do.

Dave Lashmet: It's more like the octopus head. He gets to watch all the tentacles and figure out which way to go next.

Dan Ferris: Exactly. Yeah. Yeah, he does that.

Corey McLaughlin: Which is useful, by the way, to do that and to kind of see all the different opinions. I always say when a few different editors or analysts land on the same idea from different techniques, like that's something you want to pay attention to. Like energy stocks a year or two ago, two years ago. Now there's like four or five different of our editors bullish on energy stocks for slightly different reasons, but that didn't really matter to me or the subscribers, I would think. So yes, that's my octopus job.

[Crosstalk]

Always a pleasure to talk with Dave Lashmet. I've known the guy for decades, and he's been that way the whole time.

Corey McLaughlin: OK. [Laughs]

Dan Ferris: He's been that – you know, just smart and inquisitive and energetic about technologies in all kinds of different areas the whole time I've known him, you know? He's an extremely reliable guy because he always has energy for finding out that kind of information. So I got two takeaways. The first one is, like you implied before, getting on the same page with Dave, knowing that my top-down idea about defense stocks, like Dave is on the same page with it from the bottom up, I love that all day long. That's my first takeaway.

The second one is – so we sort of mentioned this too during the interview, which is that when you think of defense stocks it's like, you know, tanks and bombs and guns and stuff, and it's never, you know, this – what he described was this spray paint technology that they're going to spray on the airplanes or whatever, and all kinds of other cool things. It's just like you forget – I mean, I guess the Internet started as a DARPA thing, you know?

Corey McLaughlin: Yeah.

Dan Ferris: A lot of technology. And in war over time this has always been the case, right? Wars and pandemics and all kinds of things bring out the let's create new technology. They strengthen the let's create new technology muscle in human beings. So that's all I got. What do you think?

Corey McLaughlin: Yeah. That's great. That was sort of what I was thinking too. I mean, when I started working at Stansberry Research and started interacting with Dave, the things I would get in a single e-mail from him on a certain topic just blew my mind. He's like one of the sharpest people I've ever come across in terms of just if you want to know something on the topic that he's writing about, you will know it by the end, you know?

Dan Ferris: Yeah.

Corey McLaughlin: You will have a good understanding of why this thing is important. So that's one thing. Then yeah, the technology. Yeah, we forget the military industrial complex, how big it is, and also the sort of special place it has in our economy. Like Dave was mentioning, they don't have certain things reported in their SEC filings. That doesn't mean they're not happening. That means they are happening.

Dan Ferris: Right.

Corey McLaughlin: And so it's just the defense stocks kind of get not forgotten but aren't really covered in the way like tech stocks have been for the past 10 years, but in a world where, God forbid, these wars escalate into something even worse than they are now, we will be talking about these companies, or a lot more people will be talking about them. And like you said, from the investment perspective, you know, you want to be ahead of these things, not trying to hop on board at the end of it when everybody else is talking about it.

Dan Ferris: Yeah. You're right, though. I mean, if you can overlay – you're right, these things are viewed as kind of cyclical or to be purchased under certain circumstances, but if you can make a credible case for this long-term, more secular kind of a trend and more secular kind of a development, as Dave pointed out, companies that are essentially – you know, it's an oligopoly at least – you can really have – so you can really make some money, not to put so fine a point on it. Really a cool idea, defense, I think. You know, you might feel like you missed it, but I don't think you missed anything. I think Dave's right, peace dividends are gone.

Forget about that. They're going to spend money on defense, like a lot of it for a long time starting right now.

All right. That's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy.

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