The Great Inversion: Why Central Banks Are Dumping U.S. Debt for Gold | Porter Stansberry
Summary
Market Outlook: The podcast highlights a shift from U.S. treasuries to gold as central banks and investors seek safer stores of value amid economic instability and high inflation.
Economic Concerns: The discussion emphasizes the U.S. consumer's record debt levels and the potential for a systemic breaking point, with inflation and weak investments exacerbating economic stress.
Corporate Governance: Porter Stansberry criticizes the influence of political activism in corporate boardrooms, citing Cracker Barrel as an example of how political ideologies can negatively impact company performance and shareholder value.
Social Security Risks: Stansberry warns of an impending Social Security crisis, arguing that the system is a Ponzi scheme with no real trust fund, predicting it will fail within four to six years due to unsustainable obligations.
Investment Strategy: The podcast suggests investing in gold, Bitcoin, and real assets like timber as hedges against inflation, while also advocating for ownership of great businesses at reasonable prices as a long-term strategy.
Gold and Mining Sector: The discussion highlights the potential of gold mining stocks and streaming companies like Agnico and Franco Nevada as attractive investments, given their management quality and cost control.
Technology Sector: Nvidia is identified as a key player in the AI boom, with its dominance in chips, software, and communications gear making it a must-own stock, albeit at the right valuation.
Insurance Companies: Stansberry recommends investing in well-managed insurance companies like WR Berkeley as a way to manage bond exposure and duration risk effectively.
Transcript
[Music] Welcome back. I'm Jeremy Saffron. A troubling picture of the US economy is emerging. The American consumer, the engine of growth, is now saddled with a record $18 trillion in debt and delinquencies have surged to a 15-year high, according to the New York Fed. Now, at the same time, the government reported today that the economy grew 3.3% in the second quarter, slightly better than expected, but cracks remain. Personal consumption is slowing, investment is still weak, and inflation is stuck at that 2.5% on the Fed's preferred core PCE measure. Now, this is precisely the kind of stress that should trigger a flight into US treasuries. Instead, long-term bond auctions are faltering with waning appetite from the world's largest creditors. So, where's the capital going? Well, it's also fleeing into one asset still acting like a true store of value. Gold still holding, you can see here, just above $3,400 an ounce on the spot side. Now, a consumer that's cracking a faltering bond market, a flight to hard money. Are we witnessing the great inversion? To help us make sense of all of this, we're joined by someone who's been warning about this shift for years. Porter Stanbury, founder of Porter and Co. Porter, welcome back to KCO News. Good to see you. Jeremy, great to be here with you. Thanks for having I got to I I got to ask you, man. I mean, you know, with the with both the consumer and the long end of the bond market flashing red, is is this the system finally making kind of its breaking point here? Yeah, you know, Jeremy, I think that you and and and I'm sure a lot of your viewers h have been watching these trends for a very long time. There is a a fundamental transition and happening around the world where people are moving out of treasuries into gold into Bitcoin into other assets that are a better store of value. So, I mean, the the latest thing is uh the stable coin idea. And you think about it, if there was a way to instantly move all of your money around the world where you would also get a fair rate of interest, every bank in America would shut its doors the next day. So people are slowly escaping the system and and people are very aware that the system is permanently broken. Yeah. Let's talk a little bit about the root cause, too. I mean, I read that recent letter that caught kind of a lot of attention. I mean, in your newsletter, you called Crackle Barrel's decline to diagnose what you called quote socialism in the boardroom. So for our audience, I mean, let's explain the idea here. Well, I think uh when you saw the all of the media and the attention that that went along with the the BLM riots and 2020, uh all of that I think was just a front uh that that allowed activists to really go further in gaining control of America's capital by gaining control of the boardrooms. And if you look, just Cracker Barrel is a great example. They replaced nine out of their 10 board members. The only board member who wasn't replaced was the chairman of the company. They replaced their entire board uh following uh the the BLM episode in 2020. And they of course they adopted all of the activist stuff. So the first new board member they brought in was the former head of diversity for Disney World. And you know all he is is a race grifter. And and everybody they picked thereafter was either a minority or a woman. And they were all of course liberal and they all had this view that Cracker Barrel as a brand and as a product is obsolete because it's fundamentally racist. And you know that's just completely ridiculous. Everybody likes a a good uh chicken and waffle whether whatever color they are. And you know most of these restaurants are along major highways. So they're getting plenty of minorities into their doors every day. Truck drivers, people working. This is a working-class restaurant. Why? Why on earth these people like Bud Light, another example, uh think that they they should um they should espouse a political ideology that is hateful uh to their core customer is bonkers. But the bigger issue is how are we going to run our economy? Should should corporations be run by their owners, by their shareholders, or should corporations be run by political activists? And of course, you know how we both feel about that answer to that question. Yeah. But as but as you see more and more of this in America in different areas like uh my my kid's private school here in Baltimore County was teaching the wheel of privilege and explaining that white people are inherently evil. I mean th this this stuff appeared all around our society at the same time. And it isn't just a theory of race. It's really a theory of who gets what, where, when, and how. And they have a socialist view about that. And that's been very harmful to many public companies and many institutions in our country. Yeah, it feels like a lot of things are being politicized. I mean, when companies chase politics instead of profits. I mean, who actually pays a price? Is it shareholders? Is it workers? Is it the consumers? Yeah, it's all the above. That's I mean, gez, just imagine the massive amount of intrinsic value that Disney has destroyed in the last decade. Um, look at what happened just to to Cracker Barrel. they started that board refresh and um 21 and since then the stock has gone from 160 all the way down to 40. So yeah, they're they're they're gaining control of other people's assets and then they're destroying them or liquidating them or or again just using all those resources to pursue a political goal instead of of course the goal that they should be pursuing which is better profits, better products uh and better services. Mhm. Yeah. It's wonder, you know, I saw this this email, Peter Teal, uh was writing Mark Zuckerberg and he was talking about young people. He said that they're kind of burdened with student debt and locked out of housing and that he feels that they have no, you know, stake in the system and because of that they're going to turn against it. Is is the corporate ideology you're describing simply the predictable result of maybe this broken economic promise? I think all that stuff is nonsense. I think that the whole woe is me generation, I mean, they're they're the biggest bunch of I've ever seen in my life. Look what look what happened to, you know, my grandparents, right? They they had to survive the Great Depression and then go fight World War II. Did you hear them complaining? Or or, you know, how about the people, how about my how about my parents who survived the inflation of the 1970s? And uh you know there was more there was more M2 inflation in the in the 25 years before 2000 than there has been in the 25 years post 2000. I'm not saying that the inflation is good for anybody. I'd much rather not it not exist. But it but it has been worse many times in our country's history. Yeah. And uh think about this for a second. If all you had done is just save uh $100 a week in Bitcoin and in gold for the last 25 years, you could buy any house in the whole country. Yeah. Yeah. You're not kidding on that. While you're talking about socialism though, I got to ask you. I mean, the US has just become Intel's largest shareholder with roughly a 10% passive stake in the exchange for previously allocated chips act and DoD funding. No new cash, but I mean, from a free market standpoint, what message does that send to the rest of corporate America? It's horrific. Um, one thing I just can't get my head around is why all these people who are supposedly conservatives are are cheering the fact that there are enormous new taxes being levied on our economy and and the fact that the government continues to grow at an even more rapid pace. The what's going to fix our economy and what's going to help create more wealth for everyone is if we have a more efficient government. The way you get a more efficient government is not by uh raising 25% tariffs for all imports. That's an enormous new tax. And what what happened to Doge? Weren't we going to get rid of a trillion dollars in spending or something? Spending is up about 15% over last year. So, I I'm just baffled that um that it seems like people are satisfied with Trump's performance to date. It seems to me he's done every single thing that he used to criticize Biden for doing, but he's done it even more aggressively and and and with even less regard for the Constitution. There's no question that the Constitution says in black and white that only Congress shall have the power to levy a tax or a tariff. It's the same thing. So, I expect all of these tariffs are going to eventually be ruled unc unconstitutional. And I suspect that uh the same thing will be true with all these deals that the president is making where he's he's essentially taxing uh you know publicly owned companies for portions of their revenues. He doesn't have the power to do that. Yeah. Yeah. I mean I wonder you know some of them say it's about national security but is it almost government just creeping deeper into corporate America? All that all those things are true. But but you know the thing that I think the thing that I hope people remember is we are a nation of laws and we have a constitution that is designed to protect us from an overreaching government. And by the way, just because you might happen to like the guy who's overreaching today does not mean you're going to like the guy who's in the office next time who takes those powers even further. We we have got to as a country, we have got to get government back in its corner. so that the private market can create more wealth. Otherwise, we're we're in a whole world of trouble. We've got a hundred trillion dollars coming due and social security obligations over the next 15 or 20 years and we have absolutely no way to pay those debts. So, either the Treasury will default or Social Security is going to default. Which one would you pick? Yeah. Are you What's your biggest concern on the Social Security front? I mean, I saw a little bit on your thesis, but break it down to the audience on that front. Well, I don't think the audience wants to hear this, but I know there is there is no such thing as the Social Security trust fund. There is none of that money was ever invested. It's just a tax and it the government lied to everybody saying that it was going to be invested. It wasn't invested. It there is no money there. It's always been in the general fund and it's and so going forward the receipts of the system will not be able to match the output of the system like any other Ponzi scheme. It's going to fail. And by the way, it's not going to fail in 20 years. It's not going to fail in 15 years. It's not going to fail in 10 years. It's going to fail in four to six years. Wow. This is this is a this will become the most urgent and important political issue in the country by the end of this decade. that will happen. It's just math. So I mean millions of Americans obviously have paid into social security their whole lives. Are you saying that the government has already lives? That's a lie. They haven't paid into social security. There is no such thing. They've paid into the general fund of the federal government who has spent all that money and more. And there is no there is no asset there. It's like it would be the same thing if for the last 50 years you were running up a credit card and you bought your own credit card receivables and called them assets. There's nothing there. Yeah. So, what was what happens when they can't make good on that promise? Well, my prediction is that we'll see a real civil war. I think you're going to see a situation where uh people finally realize that the government has been lying to them for decades and they're going to go bananas. I mean, you you you think that our politics are fireworks right now. You haven't seen anything yet. Uh let's tie this back to the markets. I mean, according to our friend and strategist Tavi Costa, foreign central banks now hold more gold than treasuries as a share of reserves. For the first time since 1996, I think we're showing a chart here. uh you know is this definitive proof that the global shift away from the treasuries is not really theory anymore but a mathematical reality here. Yeah, Jeremy, I don't know if you'll remember this because I might be dating myself here, but I wrote a very famous documentary in in 2010 2011 time frame called The End of America where I explained exactly why because of the bank bailouts that were going on around the world that there would be a flight from treasuries as the world's reserve assets back into gold. And that process, if you go and look at all the numbers, that process has been going on since 2011. and it dramatically accelerated at at COVID. So in 2020 2021 that's when it ramped up even more and I just don't think that uh the United States can hope to hold on to its world reserve currency status in the face of the technological innovation that we have with stable coins and bitcoin and of course with uh the the the fiscal condition of the federal government. Nobody wants to say these things out loud, but it's very clear that the federal government is completely bankrupt. And you know, they they they've been papering over that now for what 15 years. Um and and obviously our creditors are well aware that they're they're being repaid and and funny money. And so they're fleeing to gold. And that trend is not going to stop because our politics is not going to solve this problem. Let me just give you one more thing. I I this is kind of a rant and I don't want to lose you or your audience, but most people really don't understand the the risk that we have with the Social Security funding issue because there's a law that was passed in 1974 that requires it's mandatory. It's not a not a vote of Congress, happens every year where social security payments get indexed to inflation. So, as we print more money to to close our fiscal deficits, inflation will continue to grow. And that means that the balance that the social security system is unfunded continues to grow at that same rate. And that is a real um uh what does uh Len Alden say? Uh nothing stops this train. No, there is no way to unless Congress repeals the Social Security Act, which of course will not happen. uh where we're where every year our fiscal problems are going to become extremely dangerous and and possibly ignite a flight from treasuries globally much like you saw happen in the London guilt market about 3 years ago. Interesting. So, uh obviously if inflation stays elevated, you're saying that's just going to accelerate this whole trust funds insolveny. Yeah, I think a lot of people have taken um uh refuge or you know they they get um they feel okay about our fiscal problem because they figure we'll just we'll always just we can always just print money to pay our bills. But but they don't understand that the the automatic uh social security increase it's called the COLA the cost of living adjustment every year is mandated. It's law and it happens automatically. And so if we if we go ahead and print another 10% of our economy to pay our bills this year, it's going to take that hundred trillion dollars that we owe social security and it's going to increase it by 10%. Now that won't happen overnight, but it will certainly happen over the next 2 to 3 years. Those COLA increases are going to really become completely and absolutely unaffordable. And I I just can't even imagine what the fiscal situation in the United States is going to look like by the time Trump leaves office. People who think that raising 500 billion or something like that in tariffs are going to are going to balance our books are out of their minds. You know, we're we're we're we will have a fiscal deficit this year of very close to $2 trillion and we're already $37 trillion in debt. The none of this math makes any sense. Yeah. Yeah. And of course, we're looking at that stock market. I mean, it's taking a little bit of a breath today, but let's get back to I mean, if gold is replacing treasuries as the world's premier safe haven, doesn't that upend the entire pricing model for risk assets? I mean, if the so-called risk-free asset is no longer risk-free, how does anyone know what stocks, property, or even currencies are really worth? Well, look at any inflation in history. You know what happens at the beginning is that the easy money leads to much higher multiples for financial assets. But eventually the inflation actually harms the underlying economy to the point where it becomes very inefficient and that's when the value of the of the businesses and the stock markets collapse. So I think if you look and you do a lot of uh work in history um there's a couple good books uh about about these kinds of crisises but basically most economies can handle an inflation rate of between four and 6% without really causing big problems to the underlying economy. But I think if we get over those levels I think that you'll see just a massive adjustment in uh the price of risk assets just really massive. you you know we we have seen this before in in our country's history. We saw this during the Great Depression. We saw this during the 1970s. If you if you see a run on treasuries, if the 10year goes up to seven or eight% I mean the stock market's going to trade at at seven or eight times earnings that implies a 75% correction. Now listen, I I'm not Nostradamus. I I can't tell you when that will happen, but I can tell you that it will happen. There is no way for us to escape the real world consequences of our government's bankruptcy. It's so interesting. I mean, the dollar remains a little bit stable, obviously quite low on this side, but investors are dumping those 30-year bonds. They're still pouring record amounts into short-term bills, money markets. Isn't this less of a rejection on the dollar and more of a maybe a smart trade against long-term inflation that you're talking about? You know, I I expect that short-term rates will go down in the short term, but I think that much like in the 1970s, the Fed is is cutting rates much too soon, and the the next wave of inflation, I expect, will be much much worse. So, where did inflation peak after the COVID debacle? Something around 10 11% something like that. And I think I think on the on the next leg up, you'll see inflation above 20%. And no one's prepared for that. That's not in anybody's uh dance card. But but you know, unfortunately, that's just that's just what the math is. If you if you try to plot out what our government's um costs will be in 2030 and you plot out what the reasonable amount of the economy they can capture in taxes is between here and there. There is no way to square that math. It's pretty wild to think about 20%. I mean, when was the last time that that happened? In the 70s. Yeah. I don't know how high the inflation rate got in off top of my head in the 1970s. I do know that um you know short-term interest rates at at the peak uh got to about 20%. And I know that long-term rates got to about 15%. So, you know, none of this stuff is actually unprecedented. And I'm I'm very surprised that there aren't more uh mainstream, if you will, uh financial uh leaders who are talking about these risks in concrete terms because all this stuff is very very easy to see. Uh you know, but I'll tell you, Jeremy, it's so funny uh how often um how often financial leaders avoid the plain truths. I was writing about GM's bankruptcy for probably 3 years before they filed and it was an absolute mathematical possibility. They they hadn't even earned enough money selling cars to pay interest on their obligations for 19 of the previous 20 years before they filed for bankruptcy. The I I don't there's no reason why you should treat the government's budgets any differently than any other institution's budgets. The the you know the the revenues what you take in have to match what what goes out. And if it doesn't for long enough, you're gonna have a big problem. Yeah, it's instant funding crisis in Washington. It could be. And I mean, the Fed can always stipen in by, but isn't the real danger not default, but this hyperinflation you're talking about at the central bank has to monetize that debt. Yeah. And I know I know everyone thinks that we can just run a little bit, we can print a little bit more money, we can run higher inflation rates, and everything will be okay. But they're forgetting about the enormity of the Social Security obligation, hundred trillion dollars. and they're forgetting about the annual cost of living adjustments. So, the size of that obligation goes up with every percentage point of inflation. Yeah. Scary uh scary moment. And obviously in this moment we have this investment blueprint and I'm wondering what yours is. I mean, if gold is kind of the premier asset, it must mean miners are critical here. Let's start with costs. I mean, this all in sustaining costs. Is that what's separating great companies from the weak ones right now? Any other metrics you're looking at? Where do we go? You know, I'm I'm a huge fan of Agneigo. Um and uh I think they're the best management team. Gold mining is just like any other business. It really comes down to uh you know, can you control your cost to maintain a gross margin and then how you do capital allocation. It's it's really I mean it is just a business. It's a very tough business. Uh and of course it's very important to people who are very interested in gold. But you know about what 6 or nine months ago probably was the cheapest I had ever seen the gold mining uh sector compared to uh the the cost of gold and their and their if you looked at the futures curves of of the value of their their current output they were they were the cheapest I'd ever seen them. So I'm not at all surprised that gold mining stocks have done very well. Personally, I'm I've always invested in gold streaming companies. Um, long-term long-term very happy shareholder of Franco Nevada. Uh, and and as far as how I'm managing all the risks of this market, you know, I really do believe that great businesses, just good businesses are the very best hedge against inflation. So when you can buy something like Hershey at 15 times earnings, you should because whether the Treasury market fails or whether they default on social security, people are still going to be eating Hershey's chocolate bars. You're still going to be drinking Coca-Cola. So just, you know, my my what I've taught my readers for 25 years in my newsletter is if you if you own a great business, you can sleep soundly at night pretty much no matter what happens. And then I of course I've always advocated owning gold and holding gold streamers as a a great hedge against the inevitability of the collapse of the dollar. Yeah. Yeah. Well said. Uh we obviously been watching the streamers and we had Sean Boy on. I mean Agnico is doing incredibly well here. One of the leaders in the space. Uh when we talk about this credibility problem, I mean the GDX ETF is still below its 2011 peak even though gold is up nearly 80% higher today and it is catching a bid. But I mean this industry has a reputation as a black hole for capital. Is this time different? Has has the industry, you know, learned some lessons from the tough days? This time is never different. Um, I I want to tread lightly here because uh nobody I live in a glass house and nobody likes anyone throwing stones, but I I would just say the management team at Agneo is almost singular in the industry and they would be world class in any business they were running. Um, so if you want to be in the gold mining business, if you want to be an investor in gold mines, my strong suggestion is that you get to personally know the management teams. Um, and you you you won't have a hard time getting to know all of the best ones. Yeah. Yeah. Well said. And management also geology some could say. I mean, at these prices, does deposit quality still matter or is it a worldclass or body kind of always the ultimate form of insurance? Of course, you know, the the or body really drives the gross margins, which is half the battle. The other half is the capital allocation. I I would say that historically the people who are really good at geology have been terrible at capital allocation and the people who are great at capital allocation uh usually don't really care anything about these geology. They just know the right time to buy it. Yeah. Yeah. And we've seen that uptick on the you know at least the larger caps. Do you think it's a crowded trade yet? I mean you said what eight month 10 months ago they were at a discount. Are they still No, I I don't I don't think Believe it or not I don't think that gold is a crowded trade yet. just go if you're in a, you know, if you're a member of a golf club or you you're a member of a a poker circle or I don't know where you hang out with with other investors. I would say that very few investors own any gold at all yet. Mhm. Yeah. So, I mean, you talked a little bit about, you know, a couple of those companies that are maybe getting the bid in this new environment, uh, that's outside of gold miners, but does this mean more of a heavy rotation back into the boring but essential, you know, defense, high quality manufacturing, some staples over this whole tech darling in the last decade? Listen, I I've I've made a lot of money investing in technology over the years. People forget this, but I I got into the financial business through the tech side. Um, I I I did very well in the original uh tech boom. Actually, my the uh what the first stock I ever bought was Coca-Cola in 1992. The second stock I ever bought was Amazon.com in 1997. So, I I've done pretty well as a tech investor. But I I just believe in buying great businesses, you know, at a reasonable price. So, I I put a very large uh allocation into Google earlier this year. At about the end of the first quarter, it was trading for around 19 times earnings. I think that Google is a premier technology development company. They're obviously leading the race in automotive uh automobiles, sorry, in um and um autonomous automobiles, right? And I think they have a really big edge that people don't understand yet also in quantum computing. So I, you know, I I'm I'm happy to buy a great business whether it's a gold mine or whether it's a tech company, but I really do want to buy it at the right price. I I personally can't get my head around buying uh you know a uh a Palunteer at 175 times earnings. Um you know I do understand that that that the PE reflects the growth and it it could it could easily be worth the price today, but that's just that's just something I'm really comfortable doing. I really like I like 6in hurdles that are really easy to step over. Interesting. Okay. Well, I mean I had to ask you about Nvidia. Obviously it's making headlines. They posted their record Q2 numbers up 56% year-over-year, 46.7 billion in revenue. I mean, EPS beat in a massive buyback, but still dropped postc close and I'm looking at it now, still down almost 2%. I mean, is the AI boom kind of losing its shine, especially with that data center miss and maybe China limbo. What are your thoughts? No, I I think we're still very much in the early stages of the AI boom. I'm sure there's going to be lots of peaks and valleys, but I have written uh I've written since 2017 that Nvidia is a must own. Uh and I would love to buy more of it. You you got a chance early this year. I think the multiple got below 30 at one point. Um you know, I would I would love to buy more Nvidia, but I I can't buy it at at 50 times earnings or I'm not sure exactly what the multiple is today, but I I think it's considerably out of my out of my price range right now. Yeah. But think about this for a second. Um, in the original internet boom, there were three companies that you sort of had to own if you wanted to capture that trend. And that was, of course, Intel, Microsoft, and Cisco. And Intel made the chips, Microsoft made the software, and um, Cisco made the networking gear. If you look at Nvidia, they own all three of those components of this next wave of technology. They build the best chips. They have the best uh software architecture and they have the best high-end communications gear for building all of these new data centers. So, it's it is really it is absolutely um dominant in this next phase of technology. We've gone from serial computing and now we are entering the parallel processing computing age. and and Nvidia has been very smart and is well ahead of their competition and leads in all three components of that tech trend. So, I definitely would recommend buying some Nvidia. Um, and I would look to do so, like I said, if it if it it drops below about 30 times earnings. Okay. Okay. Buy the dip. I got to ask you about real estate. Obviously, another battleground. Mortgage rates remain high. Commercial vacancies are really stubborn, but farmland values keep rising. I mean, how do you view residential versus commercial? And is farmland now the ultimate hard asset? Well, I think that timber and farmland have sort of always been a very important hard asset, especially for wealthy families. A lot of lot of very wealthy families have have safeguarded wealth in timber for years. And one thing I like to explain about the timber business to people is, you know, if you don't sell it, it doesn't mean it doesn't stop growing, you know. So you can you can if you have a good timber asset, you can selectively choose when you harvest according to price, which is something that you can't do if you're a corn farmer. So I I really I do I do tend to advise people to lean more into the timber asset if they're looking for asset protection as opposed to farmland, but that's maybe that's just me. Um, the other uh the other interesting thing I always thought was so cool about timber is if you want to know where the whole 2% interest rate thing comes from, it's because that's the growth that most um hardwood forests grow at. That's crazy. I had no idea. Well, I mean, Pal just pushed that 2% out. Maybe we're going to get a new data figure next week there, Porter. Um, our time our time's going go ahead. I just think it's fascinating. you look at where where this idea comes from of the real underlying rate of growth in the economy. Well, originally it was based on timber which I think is fascinating. Yeah. No, it is. And uh more thesis to that point on the farms on the real estate side and and I mean cash we saw that trade some say cash is trash but then we saw Buffett I mean take a big cash position. It's smart to keep some dry powder. In your view I mean what role do cash and bonds play in a world of this inflation and government deficits? Oh that's a great question. I think that's a really great question. Um, probably about uh 15 years ago now, I decided to spend a lot of time understanding property and casualty insurance companies because it occurred to me that B Birkshere is mostly a property and casualty insurance company and Buffett is the best investor of all time. Maybe he's on to something. Yeah. And so I've really shifted all of my fixed income investing uh to to to insurance companies because if you look at their balance sheets, what they really are big piles of bonds, but they have active management, so they can move their dur duration risk accordingly. And of course, they also, if they're good, they have an underwriting profit on top of that. And I would point to people to look at WR Berkeley. I I think that WR Berkeley outside of Birkshere is the best run insurance company in the world. And Bill Berkeley started this business at his his Harvard dorm room in 1968. He still owns 20% of all the stock. It's just an incredible business. And that way you let Bill Berkeley manage your bonds, manage your your duration risk. You don't have to anymore. Plus, you'll make a lot of money owning it. Usually, I I I would think that stock is going to continue to compound at at least 14 to 16% a year. Yeah. Interesting. Okay. Because I I mean I have to ask you then with this inflation rising and the bond market shaky, can insurance companies even meet their long-term promises or are they going to be the next domino effect after that social security and pensions fiasco? Well, listen, if there's a real flight out of treasuries, you know, if there's a real panic that they're certainly uh they're not immune from that risk. But if you look at what the best insurance companies do, they're very very savvy at managing duration risk. So during COVID for example, uh Bill Berkeley took W took that entire portfolio which is about $20 billion worth of bonds. He took the duration from where it usually sits between three and and six years. He took it all the way down all the way down to 90 days. Put the entire portfolio into T bills because he was not going to accept the duration risk with a 2% yield for you know for 15 or 10 years. No way. So they they they can actively manage the duration risk. Um and I think that I mean there's no question that they're really really good at it. Yeah. It's almost feels like the day of being just passive investor. Uh it's moving too quick. I don't know if you can you got to watch what you have around there. Yeah. Well, inflation is a a clear and present danger not only to your your monetary savings, but it's a real danger to the you know the underlying global financial system. And so I think it really pays to have a substantial portion of your portfolio into gold, into Bitcoin, and into real assets like timber. I that's that's always good advice and it's especially good advice today. Yeah. Well said. Uh before I let you go, I got to ask you about strategic materials, too. I mean, we got these new additions. We're talking copper, maybe silver being added to that strategic list. Uh we're talking uranium, copper. I mean, the these are critical for energy and technology supply chains. But where do you see the most compelling opportunity right now when you look at those strategics? That is a great question and I I have to plead ignorance. I have not yet made a real thorough study of of all those uh that metal complex. I I'm I'm old school. I figure if you if you if you can learn to buy copper at the right time, you'll probably do pretty well. Yeah. Well said, Porter. Okay. It's been a wide ranging discussion. Let me close with this. I mean, the next decade looks nothing like the last. I mean, what is the single most important personal trait an investor needs to kind of cultivate to succeed in this environment? Oh, I I think this environment isn't really any different than most of the environments that uh US investors have faced for the since since uh World War II, certainly since the end of Breton Woods. Um, I I I you know, it's it's it's so boring, but it's just it's simple. And that is you you really need to identify a dozen great businesses that you're happy to keep up with and happy to follow, and then you just need to learn to be disciplined about buying their shares when, for whatever reason, nobody else seems to want them. And I I know that that sounds so simple, but but look, just if if all you did the rest of your life was just buy John Deere when it's trading at 12 times earnings, I promise you will die a wealthy man. You know, we we we make this investment um game much much harder than it needs to be. You don't you don't actually need 50 great companies in in your lifetime. You know, you maybe need a dozen and you can probably do fine with just four. So, you know, own some gold. Uh own some great businesses and try not to worry. Uh what's what's uh what's the the the t-shirt slogan? Stay calm and carry on. Stay calm and carry on. Yeah, just that's that's Yeah, we we will we will find our way through it. Well said. Well, lots of noise in this market. Always interesting to have your perspective. Porter Stanbury, founder of Porter and Co. joining us. Thanks, my friend. We'll see you soon. Thanks very much, Jeremy. That was great, great conversation. Appreciate it, Porter. For all of us here at Kiko News, I'm Jeremy Safford. Thank you for watching. Be sure to subscribe and stay with us. We'll see you next time. [Music] Heat. Heat. [Music]
The Great Inversion: Why Central Banks Are Dumping U.S. Debt for Gold | Porter Stansberry
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Transcript
[Music] Welcome back. I'm Jeremy Saffron. A troubling picture of the US economy is emerging. The American consumer, the engine of growth, is now saddled with a record $18 trillion in debt and delinquencies have surged to a 15-year high, according to the New York Fed. Now, at the same time, the government reported today that the economy grew 3.3% in the second quarter, slightly better than expected, but cracks remain. Personal consumption is slowing, investment is still weak, and inflation is stuck at that 2.5% on the Fed's preferred core PCE measure. Now, this is precisely the kind of stress that should trigger a flight into US treasuries. Instead, long-term bond auctions are faltering with waning appetite from the world's largest creditors. So, where's the capital going? Well, it's also fleeing into one asset still acting like a true store of value. Gold still holding, you can see here, just above $3,400 an ounce on the spot side. Now, a consumer that's cracking a faltering bond market, a flight to hard money. Are we witnessing the great inversion? To help us make sense of all of this, we're joined by someone who's been warning about this shift for years. Porter Stanbury, founder of Porter and Co. Porter, welcome back to KCO News. Good to see you. Jeremy, great to be here with you. Thanks for having I got to I I got to ask you, man. I mean, you know, with the with both the consumer and the long end of the bond market flashing red, is is this the system finally making kind of its breaking point here? Yeah, you know, Jeremy, I think that you and and and I'm sure a lot of your viewers h have been watching these trends for a very long time. There is a a fundamental transition and happening around the world where people are moving out of treasuries into gold into Bitcoin into other assets that are a better store of value. So, I mean, the the latest thing is uh the stable coin idea. And you think about it, if there was a way to instantly move all of your money around the world where you would also get a fair rate of interest, every bank in America would shut its doors the next day. So people are slowly escaping the system and and people are very aware that the system is permanently broken. Yeah. Let's talk a little bit about the root cause, too. I mean, I read that recent letter that caught kind of a lot of attention. I mean, in your newsletter, you called Crackle Barrel's decline to diagnose what you called quote socialism in the boardroom. So for our audience, I mean, let's explain the idea here. Well, I think uh when you saw the all of the media and the attention that that went along with the the BLM riots and 2020, uh all of that I think was just a front uh that that allowed activists to really go further in gaining control of America's capital by gaining control of the boardrooms. And if you look, just Cracker Barrel is a great example. They replaced nine out of their 10 board members. The only board member who wasn't replaced was the chairman of the company. They replaced their entire board uh following uh the the BLM episode in 2020. And they of course they adopted all of the activist stuff. So the first new board member they brought in was the former head of diversity for Disney World. And you know all he is is a race grifter. And and everybody they picked thereafter was either a minority or a woman. And they were all of course liberal and they all had this view that Cracker Barrel as a brand and as a product is obsolete because it's fundamentally racist. And you know that's just completely ridiculous. Everybody likes a a good uh chicken and waffle whether whatever color they are. And you know most of these restaurants are along major highways. So they're getting plenty of minorities into their doors every day. Truck drivers, people working. This is a working-class restaurant. Why? Why on earth these people like Bud Light, another example, uh think that they they should um they should espouse a political ideology that is hateful uh to their core customer is bonkers. But the bigger issue is how are we going to run our economy? Should should corporations be run by their owners, by their shareholders, or should corporations be run by political activists? And of course, you know how we both feel about that answer to that question. Yeah. But as but as you see more and more of this in America in different areas like uh my my kid's private school here in Baltimore County was teaching the wheel of privilege and explaining that white people are inherently evil. I mean th this this stuff appeared all around our society at the same time. And it isn't just a theory of race. It's really a theory of who gets what, where, when, and how. And they have a socialist view about that. And that's been very harmful to many public companies and many institutions in our country. Yeah, it feels like a lot of things are being politicized. I mean, when companies chase politics instead of profits. I mean, who actually pays a price? Is it shareholders? Is it workers? Is it the consumers? Yeah, it's all the above. That's I mean, gez, just imagine the massive amount of intrinsic value that Disney has destroyed in the last decade. Um, look at what happened just to to Cracker Barrel. they started that board refresh and um 21 and since then the stock has gone from 160 all the way down to 40. So yeah, they're they're they're gaining control of other people's assets and then they're destroying them or liquidating them or or again just using all those resources to pursue a political goal instead of of course the goal that they should be pursuing which is better profits, better products uh and better services. Mhm. Yeah. It's wonder, you know, I saw this this email, Peter Teal, uh was writing Mark Zuckerberg and he was talking about young people. He said that they're kind of burdened with student debt and locked out of housing and that he feels that they have no, you know, stake in the system and because of that they're going to turn against it. Is is the corporate ideology you're describing simply the predictable result of maybe this broken economic promise? I think all that stuff is nonsense. I think that the whole woe is me generation, I mean, they're they're the biggest bunch of I've ever seen in my life. Look what look what happened to, you know, my grandparents, right? They they had to survive the Great Depression and then go fight World War II. Did you hear them complaining? Or or, you know, how about the people, how about my how about my parents who survived the inflation of the 1970s? And uh you know there was more there was more M2 inflation in the in the 25 years before 2000 than there has been in the 25 years post 2000. I'm not saying that the inflation is good for anybody. I'd much rather not it not exist. But it but it has been worse many times in our country's history. Yeah. And uh think about this for a second. If all you had done is just save uh $100 a week in Bitcoin and in gold for the last 25 years, you could buy any house in the whole country. Yeah. Yeah. You're not kidding on that. While you're talking about socialism though, I got to ask you. I mean, the US has just become Intel's largest shareholder with roughly a 10% passive stake in the exchange for previously allocated chips act and DoD funding. No new cash, but I mean, from a free market standpoint, what message does that send to the rest of corporate America? It's horrific. Um, one thing I just can't get my head around is why all these people who are supposedly conservatives are are cheering the fact that there are enormous new taxes being levied on our economy and and the fact that the government continues to grow at an even more rapid pace. The what's going to fix our economy and what's going to help create more wealth for everyone is if we have a more efficient government. The way you get a more efficient government is not by uh raising 25% tariffs for all imports. That's an enormous new tax. And what what happened to Doge? Weren't we going to get rid of a trillion dollars in spending or something? Spending is up about 15% over last year. So, I I'm just baffled that um that it seems like people are satisfied with Trump's performance to date. It seems to me he's done every single thing that he used to criticize Biden for doing, but he's done it even more aggressively and and and with even less regard for the Constitution. There's no question that the Constitution says in black and white that only Congress shall have the power to levy a tax or a tariff. It's the same thing. So, I expect all of these tariffs are going to eventually be ruled unc unconstitutional. And I suspect that uh the same thing will be true with all these deals that the president is making where he's he's essentially taxing uh you know publicly owned companies for portions of their revenues. He doesn't have the power to do that. Yeah. Yeah. I mean I wonder you know some of them say it's about national security but is it almost government just creeping deeper into corporate America? All that all those things are true. But but you know the thing that I think the thing that I hope people remember is we are a nation of laws and we have a constitution that is designed to protect us from an overreaching government. And by the way, just because you might happen to like the guy who's overreaching today does not mean you're going to like the guy who's in the office next time who takes those powers even further. We we have got to as a country, we have got to get government back in its corner. so that the private market can create more wealth. Otherwise, we're we're in a whole world of trouble. We've got a hundred trillion dollars coming due and social security obligations over the next 15 or 20 years and we have absolutely no way to pay those debts. So, either the Treasury will default or Social Security is going to default. Which one would you pick? Yeah. Are you What's your biggest concern on the Social Security front? I mean, I saw a little bit on your thesis, but break it down to the audience on that front. Well, I don't think the audience wants to hear this, but I know there is there is no such thing as the Social Security trust fund. There is none of that money was ever invested. It's just a tax and it the government lied to everybody saying that it was going to be invested. It wasn't invested. It there is no money there. It's always been in the general fund and it's and so going forward the receipts of the system will not be able to match the output of the system like any other Ponzi scheme. It's going to fail. And by the way, it's not going to fail in 20 years. It's not going to fail in 15 years. It's not going to fail in 10 years. It's going to fail in four to six years. Wow. This is this is a this will become the most urgent and important political issue in the country by the end of this decade. that will happen. It's just math. So I mean millions of Americans obviously have paid into social security their whole lives. Are you saying that the government has already lives? That's a lie. They haven't paid into social security. There is no such thing. They've paid into the general fund of the federal government who has spent all that money and more. And there is no there is no asset there. It's like it would be the same thing if for the last 50 years you were running up a credit card and you bought your own credit card receivables and called them assets. There's nothing there. Yeah. So, what was what happens when they can't make good on that promise? Well, my prediction is that we'll see a real civil war. I think you're going to see a situation where uh people finally realize that the government has been lying to them for decades and they're going to go bananas. I mean, you you you think that our politics are fireworks right now. You haven't seen anything yet. Uh let's tie this back to the markets. I mean, according to our friend and strategist Tavi Costa, foreign central banks now hold more gold than treasuries as a share of reserves. For the first time since 1996, I think we're showing a chart here. uh you know is this definitive proof that the global shift away from the treasuries is not really theory anymore but a mathematical reality here. Yeah, Jeremy, I don't know if you'll remember this because I might be dating myself here, but I wrote a very famous documentary in in 2010 2011 time frame called The End of America where I explained exactly why because of the bank bailouts that were going on around the world that there would be a flight from treasuries as the world's reserve assets back into gold. And that process, if you go and look at all the numbers, that process has been going on since 2011. and it dramatically accelerated at at COVID. So in 2020 2021 that's when it ramped up even more and I just don't think that uh the United States can hope to hold on to its world reserve currency status in the face of the technological innovation that we have with stable coins and bitcoin and of course with uh the the the fiscal condition of the federal government. Nobody wants to say these things out loud, but it's very clear that the federal government is completely bankrupt. And you know, they they they've been papering over that now for what 15 years. Um and and obviously our creditors are well aware that they're they're being repaid and and funny money. And so they're fleeing to gold. And that trend is not going to stop because our politics is not going to solve this problem. Let me just give you one more thing. I I this is kind of a rant and I don't want to lose you or your audience, but most people really don't understand the the risk that we have with the Social Security funding issue because there's a law that was passed in 1974 that requires it's mandatory. It's not a not a vote of Congress, happens every year where social security payments get indexed to inflation. So, as we print more money to to close our fiscal deficits, inflation will continue to grow. And that means that the balance that the social security system is unfunded continues to grow at that same rate. And that is a real um uh what does uh Len Alden say? Uh nothing stops this train. No, there is no way to unless Congress repeals the Social Security Act, which of course will not happen. uh where we're where every year our fiscal problems are going to become extremely dangerous and and possibly ignite a flight from treasuries globally much like you saw happen in the London guilt market about 3 years ago. Interesting. So, uh obviously if inflation stays elevated, you're saying that's just going to accelerate this whole trust funds insolveny. Yeah, I think a lot of people have taken um uh refuge or you know they they get um they feel okay about our fiscal problem because they figure we'll just we'll always just we can always just print money to pay our bills. But but they don't understand that the the automatic uh social security increase it's called the COLA the cost of living adjustment every year is mandated. It's law and it happens automatically. And so if we if we go ahead and print another 10% of our economy to pay our bills this year, it's going to take that hundred trillion dollars that we owe social security and it's going to increase it by 10%. Now that won't happen overnight, but it will certainly happen over the next 2 to 3 years. Those COLA increases are going to really become completely and absolutely unaffordable. And I I just can't even imagine what the fiscal situation in the United States is going to look like by the time Trump leaves office. People who think that raising 500 billion or something like that in tariffs are going to are going to balance our books are out of their minds. You know, we're we're we're we will have a fiscal deficit this year of very close to $2 trillion and we're already $37 trillion in debt. The none of this math makes any sense. Yeah. Yeah. And of course, we're looking at that stock market. I mean, it's taking a little bit of a breath today, but let's get back to I mean, if gold is replacing treasuries as the world's premier safe haven, doesn't that upend the entire pricing model for risk assets? I mean, if the so-called risk-free asset is no longer risk-free, how does anyone know what stocks, property, or even currencies are really worth? Well, look at any inflation in history. You know what happens at the beginning is that the easy money leads to much higher multiples for financial assets. But eventually the inflation actually harms the underlying economy to the point where it becomes very inefficient and that's when the value of the of the businesses and the stock markets collapse. So I think if you look and you do a lot of uh work in history um there's a couple good books uh about about these kinds of crisises but basically most economies can handle an inflation rate of between four and 6% without really causing big problems to the underlying economy. But I think if we get over those levels I think that you'll see just a massive adjustment in uh the price of risk assets just really massive. you you know we we have seen this before in in our country's history. We saw this during the Great Depression. We saw this during the 1970s. If you if you see a run on treasuries, if the 10year goes up to seven or eight% I mean the stock market's going to trade at at seven or eight times earnings that implies a 75% correction. Now listen, I I'm not Nostradamus. I I can't tell you when that will happen, but I can tell you that it will happen. There is no way for us to escape the real world consequences of our government's bankruptcy. It's so interesting. I mean, the dollar remains a little bit stable, obviously quite low on this side, but investors are dumping those 30-year bonds. They're still pouring record amounts into short-term bills, money markets. Isn't this less of a rejection on the dollar and more of a maybe a smart trade against long-term inflation that you're talking about? You know, I I expect that short-term rates will go down in the short term, but I think that much like in the 1970s, the Fed is is cutting rates much too soon, and the the next wave of inflation, I expect, will be much much worse. So, where did inflation peak after the COVID debacle? Something around 10 11% something like that. And I think I think on the on the next leg up, you'll see inflation above 20%. And no one's prepared for that. That's not in anybody's uh dance card. But but you know, unfortunately, that's just that's just what the math is. If you if you try to plot out what our government's um costs will be in 2030 and you plot out what the reasonable amount of the economy they can capture in taxes is between here and there. There is no way to square that math. It's pretty wild to think about 20%. I mean, when was the last time that that happened? In the 70s. Yeah. I don't know how high the inflation rate got in off top of my head in the 1970s. I do know that um you know short-term interest rates at at the peak uh got to about 20%. And I know that long-term rates got to about 15%. So, you know, none of this stuff is actually unprecedented. And I'm I'm very surprised that there aren't more uh mainstream, if you will, uh financial uh leaders who are talking about these risks in concrete terms because all this stuff is very very easy to see. Uh you know, but I'll tell you, Jeremy, it's so funny uh how often um how often financial leaders avoid the plain truths. I was writing about GM's bankruptcy for probably 3 years before they filed and it was an absolute mathematical possibility. They they hadn't even earned enough money selling cars to pay interest on their obligations for 19 of the previous 20 years before they filed for bankruptcy. The I I don't there's no reason why you should treat the government's budgets any differently than any other institution's budgets. The the you know the the revenues what you take in have to match what what goes out. And if it doesn't for long enough, you're gonna have a big problem. Yeah, it's instant funding crisis in Washington. It could be. And I mean, the Fed can always stipen in by, but isn't the real danger not default, but this hyperinflation you're talking about at the central bank has to monetize that debt. Yeah. And I know I know everyone thinks that we can just run a little bit, we can print a little bit more money, we can run higher inflation rates, and everything will be okay. But they're forgetting about the enormity of the Social Security obligation, hundred trillion dollars. and they're forgetting about the annual cost of living adjustments. So, the size of that obligation goes up with every percentage point of inflation. Yeah. Scary uh scary moment. And obviously in this moment we have this investment blueprint and I'm wondering what yours is. I mean, if gold is kind of the premier asset, it must mean miners are critical here. Let's start with costs. I mean, this all in sustaining costs. Is that what's separating great companies from the weak ones right now? Any other metrics you're looking at? Where do we go? You know, I'm I'm a huge fan of Agneigo. Um and uh I think they're the best management team. Gold mining is just like any other business. It really comes down to uh you know, can you control your cost to maintain a gross margin and then how you do capital allocation. It's it's really I mean it is just a business. It's a very tough business. Uh and of course it's very important to people who are very interested in gold. But you know about what 6 or nine months ago probably was the cheapest I had ever seen the gold mining uh sector compared to uh the the cost of gold and their and their if you looked at the futures curves of of the value of their their current output they were they were the cheapest I'd ever seen them. So I'm not at all surprised that gold mining stocks have done very well. Personally, I'm I've always invested in gold streaming companies. Um, long-term long-term very happy shareholder of Franco Nevada. Uh, and and as far as how I'm managing all the risks of this market, you know, I really do believe that great businesses, just good businesses are the very best hedge against inflation. So when you can buy something like Hershey at 15 times earnings, you should because whether the Treasury market fails or whether they default on social security, people are still going to be eating Hershey's chocolate bars. You're still going to be drinking Coca-Cola. So just, you know, my my what I've taught my readers for 25 years in my newsletter is if you if you own a great business, you can sleep soundly at night pretty much no matter what happens. And then I of course I've always advocated owning gold and holding gold streamers as a a great hedge against the inevitability of the collapse of the dollar. Yeah. Yeah. Well said. Uh we obviously been watching the streamers and we had Sean Boy on. I mean Agnico is doing incredibly well here. One of the leaders in the space. Uh when we talk about this credibility problem, I mean the GDX ETF is still below its 2011 peak even though gold is up nearly 80% higher today and it is catching a bid. But I mean this industry has a reputation as a black hole for capital. Is this time different? Has has the industry, you know, learned some lessons from the tough days? This time is never different. Um, I I want to tread lightly here because uh nobody I live in a glass house and nobody likes anyone throwing stones, but I I would just say the management team at Agneo is almost singular in the industry and they would be world class in any business they were running. Um, so if you want to be in the gold mining business, if you want to be an investor in gold mines, my strong suggestion is that you get to personally know the management teams. Um, and you you you won't have a hard time getting to know all of the best ones. Yeah. Yeah. Well said. And management also geology some could say. I mean, at these prices, does deposit quality still matter or is it a worldclass or body kind of always the ultimate form of insurance? Of course, you know, the the or body really drives the gross margins, which is half the battle. The other half is the capital allocation. I I would say that historically the people who are really good at geology have been terrible at capital allocation and the people who are great at capital allocation uh usually don't really care anything about these geology. They just know the right time to buy it. Yeah. Yeah. And we've seen that uptick on the you know at least the larger caps. Do you think it's a crowded trade yet? I mean you said what eight month 10 months ago they were at a discount. Are they still No, I I don't I don't think Believe it or not I don't think that gold is a crowded trade yet. just go if you're in a, you know, if you're a member of a golf club or you you're a member of a a poker circle or I don't know where you hang out with with other investors. I would say that very few investors own any gold at all yet. Mhm. Yeah. So, I mean, you talked a little bit about, you know, a couple of those companies that are maybe getting the bid in this new environment, uh, that's outside of gold miners, but does this mean more of a heavy rotation back into the boring but essential, you know, defense, high quality manufacturing, some staples over this whole tech darling in the last decade? Listen, I I've I've made a lot of money investing in technology over the years. People forget this, but I I got into the financial business through the tech side. Um, I I I did very well in the original uh tech boom. Actually, my the uh what the first stock I ever bought was Coca-Cola in 1992. The second stock I ever bought was Amazon.com in 1997. So, I I've done pretty well as a tech investor. But I I just believe in buying great businesses, you know, at a reasonable price. So, I I put a very large uh allocation into Google earlier this year. At about the end of the first quarter, it was trading for around 19 times earnings. I think that Google is a premier technology development company. They're obviously leading the race in automotive uh automobiles, sorry, in um and um autonomous automobiles, right? And I think they have a really big edge that people don't understand yet also in quantum computing. So I, you know, I I'm I'm happy to buy a great business whether it's a gold mine or whether it's a tech company, but I really do want to buy it at the right price. I I personally can't get my head around buying uh you know a uh a Palunteer at 175 times earnings. Um you know I do understand that that that the PE reflects the growth and it it could it could easily be worth the price today, but that's just that's just something I'm really comfortable doing. I really like I like 6in hurdles that are really easy to step over. Interesting. Okay. Well, I mean I had to ask you about Nvidia. Obviously it's making headlines. They posted their record Q2 numbers up 56% year-over-year, 46.7 billion in revenue. I mean, EPS beat in a massive buyback, but still dropped postc close and I'm looking at it now, still down almost 2%. I mean, is the AI boom kind of losing its shine, especially with that data center miss and maybe China limbo. What are your thoughts? No, I I think we're still very much in the early stages of the AI boom. I'm sure there's going to be lots of peaks and valleys, but I have written uh I've written since 2017 that Nvidia is a must own. Uh and I would love to buy more of it. You you got a chance early this year. I think the multiple got below 30 at one point. Um you know, I would I would love to buy more Nvidia, but I I can't buy it at at 50 times earnings or I'm not sure exactly what the multiple is today, but I I think it's considerably out of my out of my price range right now. Yeah. But think about this for a second. Um, in the original internet boom, there were three companies that you sort of had to own if you wanted to capture that trend. And that was, of course, Intel, Microsoft, and Cisco. And Intel made the chips, Microsoft made the software, and um, Cisco made the networking gear. If you look at Nvidia, they own all three of those components of this next wave of technology. They build the best chips. They have the best uh software architecture and they have the best high-end communications gear for building all of these new data centers. So, it's it is really it is absolutely um dominant in this next phase of technology. We've gone from serial computing and now we are entering the parallel processing computing age. and and Nvidia has been very smart and is well ahead of their competition and leads in all three components of that tech trend. So, I definitely would recommend buying some Nvidia. Um, and I would look to do so, like I said, if it if it it drops below about 30 times earnings. Okay. Okay. Buy the dip. I got to ask you about real estate. Obviously, another battleground. Mortgage rates remain high. Commercial vacancies are really stubborn, but farmland values keep rising. I mean, how do you view residential versus commercial? And is farmland now the ultimate hard asset? Well, I think that timber and farmland have sort of always been a very important hard asset, especially for wealthy families. A lot of lot of very wealthy families have have safeguarded wealth in timber for years. And one thing I like to explain about the timber business to people is, you know, if you don't sell it, it doesn't mean it doesn't stop growing, you know. So you can you can if you have a good timber asset, you can selectively choose when you harvest according to price, which is something that you can't do if you're a corn farmer. So I I really I do I do tend to advise people to lean more into the timber asset if they're looking for asset protection as opposed to farmland, but that's maybe that's just me. Um, the other uh the other interesting thing I always thought was so cool about timber is if you want to know where the whole 2% interest rate thing comes from, it's because that's the growth that most um hardwood forests grow at. That's crazy. I had no idea. Well, I mean, Pal just pushed that 2% out. Maybe we're going to get a new data figure next week there, Porter. Um, our time our time's going go ahead. I just think it's fascinating. you look at where where this idea comes from of the real underlying rate of growth in the economy. Well, originally it was based on timber which I think is fascinating. Yeah. No, it is. And uh more thesis to that point on the farms on the real estate side and and I mean cash we saw that trade some say cash is trash but then we saw Buffett I mean take a big cash position. It's smart to keep some dry powder. In your view I mean what role do cash and bonds play in a world of this inflation and government deficits? Oh that's a great question. I think that's a really great question. Um, probably about uh 15 years ago now, I decided to spend a lot of time understanding property and casualty insurance companies because it occurred to me that B Birkshere is mostly a property and casualty insurance company and Buffett is the best investor of all time. Maybe he's on to something. Yeah. And so I've really shifted all of my fixed income investing uh to to to insurance companies because if you look at their balance sheets, what they really are big piles of bonds, but they have active management, so they can move their dur duration risk accordingly. And of course, they also, if they're good, they have an underwriting profit on top of that. And I would point to people to look at WR Berkeley. I I think that WR Berkeley outside of Birkshere is the best run insurance company in the world. And Bill Berkeley started this business at his his Harvard dorm room in 1968. He still owns 20% of all the stock. It's just an incredible business. And that way you let Bill Berkeley manage your bonds, manage your your duration risk. You don't have to anymore. Plus, you'll make a lot of money owning it. Usually, I I I would think that stock is going to continue to compound at at least 14 to 16% a year. Yeah. Interesting. Okay. Because I I mean I have to ask you then with this inflation rising and the bond market shaky, can insurance companies even meet their long-term promises or are they going to be the next domino effect after that social security and pensions fiasco? Well, listen, if there's a real flight out of treasuries, you know, if there's a real panic that they're certainly uh they're not immune from that risk. But if you look at what the best insurance companies do, they're very very savvy at managing duration risk. So during COVID for example, uh Bill Berkeley took W took that entire portfolio which is about $20 billion worth of bonds. He took the duration from where it usually sits between three and and six years. He took it all the way down all the way down to 90 days. Put the entire portfolio into T bills because he was not going to accept the duration risk with a 2% yield for you know for 15 or 10 years. No way. So they they they can actively manage the duration risk. Um and I think that I mean there's no question that they're really really good at it. Yeah. It's almost feels like the day of being just passive investor. Uh it's moving too quick. I don't know if you can you got to watch what you have around there. Yeah. Well, inflation is a a clear and present danger not only to your your monetary savings, but it's a real danger to the you know the underlying global financial system. And so I think it really pays to have a substantial portion of your portfolio into gold, into Bitcoin, and into real assets like timber. I that's that's always good advice and it's especially good advice today. Yeah. Well said. Uh before I let you go, I got to ask you about strategic materials, too. I mean, we got these new additions. We're talking copper, maybe silver being added to that strategic list. Uh we're talking uranium, copper. I mean, the these are critical for energy and technology supply chains. But where do you see the most compelling opportunity right now when you look at those strategics? That is a great question and I I have to plead ignorance. I have not yet made a real thorough study of of all those uh that metal complex. I I'm I'm old school. I figure if you if you if you can learn to buy copper at the right time, you'll probably do pretty well. Yeah. Well said, Porter. Okay. It's been a wide ranging discussion. Let me close with this. I mean, the next decade looks nothing like the last. I mean, what is the single most important personal trait an investor needs to kind of cultivate to succeed in this environment? Oh, I I think this environment isn't really any different than most of the environments that uh US investors have faced for the since since uh World War II, certainly since the end of Breton Woods. Um, I I I you know, it's it's it's so boring, but it's just it's simple. And that is you you really need to identify a dozen great businesses that you're happy to keep up with and happy to follow, and then you just need to learn to be disciplined about buying their shares when, for whatever reason, nobody else seems to want them. And I I know that that sounds so simple, but but look, just if if all you did the rest of your life was just buy John Deere when it's trading at 12 times earnings, I promise you will die a wealthy man. You know, we we we make this investment um game much much harder than it needs to be. You don't you don't actually need 50 great companies in in your lifetime. You know, you maybe need a dozen and you can probably do fine with just four. So, you know, own some gold. Uh own some great businesses and try not to worry. Uh what's what's uh what's the the the t-shirt slogan? Stay calm and carry on. Stay calm and carry on. Yeah, just that's that's Yeah, we we will we will find our way through it. Well said. Well, lots of noise in this market. Always interesting to have your perspective. Porter Stanbury, founder of Porter and Co. joining us. Thanks, my friend. We'll see you soon. Thanks very much, Jeremy. That was great, great conversation. Appreciate it, Porter. For all of us here at Kiko News, I'm Jeremy Safford. Thank you for watching. Be sure to subscribe and stay with us. We'll see you next time. [Music] Heat. Heat. [Music]