Bitcoin is back in the news again...

The world's largest asset manager BlackRock – responsible for over $8 trillion in assets under management as of January 2021 – just announced they're "dabbling" in bitcoin due to increased demand from their clients.

Dan explores what that could mean for bitcoin's price long term if others follow suit.

Then on this week's interview, Dan invites Scott Helfstein onto the show for a conversation about the long-term rise of ETFs and passive investing as popular avenues for retail investors.

Scott joined ProShares and ProFunds as an executive director of Thematic Investing in 2020. He is responsible for product development, investment research, business strategy, and external engagement for the company's expanding lineup of thematic ETFs.

Scott explains how highly specialized ETFs allow retail investors to take advantage of megatrends in the market in ways that were not available to investors in the past.

Scott says he looks at changes in technology, consumer behavior, and demographics in order to identify areas of high growth and develop these ETFs.

Scott and Dan discuss some of the thematic ETFs offered by ProShares that take advantage of trends that are accelerating in high growth areas today... Plus a few useful nuggets about passive investing you may have never heard before.

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Announcer: Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.

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

And don't forget, Trish Regan is now part of the Stansberry family. Check out her podcast, American Consequences With Trish Regan. The link will be in the description of this episode.

Today we're going to talk with Scott Helfstein from ProShares, the ETF company. Hey, seems like a good time to talk to somebody about ETFs given the rise of passive investing.

This week in the mailbag it's bitcoin, bitcoin, bitcoin, and more bitcoin. In my opening rant this week I'll talk about the Amazon effect, bitcoin copycats, and the George Soros theory of reflexivity, whatever that might mean. That and more, right now, on the Stansberry Investor Hour.

All right, let's start with the George Soros theory of reflexivity. If you've ever read George Soros' The Alchemy of Finance – or I think a better source is Soros on Soros: Staying Ahead of the Curve, which is really a book-length interview with Soros on all kinds of stuff, not just investing.

So if you've ever read either one of those, this sounds familiar to you. I have to say The Alchemy of Finance is some of the worst writing I have ever tried to read. This theory of reflexivity, oddly enough Soros goes in circles trying to explain it.

So I'm just going to simplify it with my simple understanding, OK? My simple understanding is that the theory of reflexivity is at least in part about how market prices aren't just the effect of economic fundamentals or business fundamentals. It's a typical thing, right? A company comes out with good earnings, and the stock goes up. The fundamental is the earnings, and the effect is the stock price.

But the theory of reflexivity says, well, sometimes, maybe not all the time, but sometimes – especially in a bubble or a boom-bust sequence is how Soros would put it. In a boom-bust sequence, the market price becomes an influential fundamental in and of itself. So it influences the fundamentals of the business let's say if it's a stock price.

This fellow, Elliot Turner on Twitter, he put out this perfect tweet. That's why I'm discussing this, because Elliot Turner, who I follow on Twitter, he put out this perfect tweet, and he said, "MSTR," which is MicroStrategy, the company run by Michael Saylor that famously announced that it was buying bitcoin last August. The stock is like $900. It was $100 then. It's $900 now just because they bought bitcoin. And MSTR is the ticker symbol.

Elliot Turner said, "MSTR is the best example of Soros' reflexivity I have seen in markets." And then he lays out the sequence: "MSTR buys bitcoin. The stock goes up. The act of buying itself makes bitcoin go up."

Then the stock goes up more in relation to that. Then they issue equity, and they have recently issued debt as well, so they can buy more bitcoin, which makes bitcoin go up, which makes the stock go up.

It's just this circle, this reflexive circle. It's a virtuous circle until it becomes a vicious one, right? And they recently issued $600 million of senior notes, I think it was, some kind of debt, and they'll use it to buy bitcoin, I bet you.

Now I agree. That's a classic example of reflexivity, and I think this can go on in the overall stock market, too. People buy stocks, and the demand causes the stock prices to go up. Then the stock prices go up, and people feel wealthy.

So they spend more money and buy more stocks. Then they feel wealthier. It's back and forth. The wealth effect becomes reflexive, and you've probably heard of the wealth effect before.

So the reflexivity can work with any situation, and in fact, in Soros on Soros, he says that that's how you know when the boom-bust sequence has begun because you get this moment where the thing that's supposed to be the effect, the asset price, becomes a fundamental, and it becomes an increasingly important fundamental.

That certainly has happened with MicroStrategy. In fact, a Bloomberg article did this little breakdown. It's a recent Bloomberg article. I think it came out Wednesday.

They basically concluded – they looked at the number of bitcoins that the company already owns, that MicroStrategy already owns, and then they thought, "Well, if they issue this $600 million they can buy some more coins. Then they'll have this much, and there are this many shares, and it's this much of a share price." I don't want to go through the whole thing. You can read the article in Bloomberg.

But the bottom line here is that if you – and they admit it's kind of a crude analysis. They conclude crudely the difference between the value of the business and the value that people are attributing to bitcoin, attributing this difference to its new bitcoin business would mean an investor who bought the stock today would pay about $75,000 per bitcoin.

Bitcoin is $50,000 as I speak to you, $51,000, I think. So they're overpaying for bitcoin by buying this stock. All in one concentrated stock, MicroStrategy, ticker symbol MSTR, you have just all the classic signs, right? The reflexivity is in place where the stock goes up, bitcoin goes up, etc., and it changes the fundamentals of the business.

It makes them a better creditor. They're able to borrow this probably because the business is now worth seven or eight times what it used to be. It's crazy. The stock goes up. It makes them a better creditor. They can borrow more. They buy more bitcoin. It's crazy. I think it's something you need to get. You need to understand it.

Let me just move on a little bit. You can see a similar effect in the zombie companies. We talked about this before. I think it's still 18% of American corporations – and I think that's probably publicly traded, I'm going to guess – are zombie companies. They wouldn't exist if they couldn't get some kind of a bailout, usually in the form of another loan.

Recently our friend Jason Goepfert and his team at SentimenTrader put out a chart on Twitter where they showed that profitless companies, companies losing money with no profits, in the Russell 2000 were just soaring out of sight. They're outperforming everything. The chart is ballistic. It's a ballistic missile, straight up.

Here again, you have the same effect because creditors like a big equity cushion, and the equity cushion gets bigger the higher the stock price goes, right? So they said, "Well, the equity is worth $1 billion and it was worth $100 million a year ago, and so let's lend them some money and see if they can pull these things out or whatever."

Part of that I have to admit is what I might call the Amazon effect. That's at work here, too. I want to talk about the Amazon effect for a minute because I think it's at work in bitcoin. I think bitcoin and Amazon have a similarity, and the similarity is this.

Amazon peaked – split-adjusted, if you just look at a historical chart, I think it peaked around $80 and it troughed out right around $6, just eyeballing a chart really quick this morning, back during the dot-com era. That's a huge drawdown. That's a major crash.

But let's face it. You could have paid $80 at the top, and you'd be doing OK, right? You'd have had a major winner. You'd be rich on Amazon alone. You could have bought at the top of the dot-com bubble, and you'd have been right on the money if you just held onto your shares. If you bought more down to $6, whoa, you're really rich.

So in other words, it was a huge bubble, and it crashed. But – and Soros points this out, too – there was a lot of truth in it. The Internet really did become a huge force in the world in every way, in our culture, in every human life, just about.

Even if you are a poor person in the remote – some remote part of the world, not having the Internet is a huge effect on your life. So the Internet affects every living human being, even if only negatively by not having it.

It really was the most amazing thing. The bubble kind of got it right. It just went way too far. Soros talks about that, too. He says it's the divergence between the reality. He says all bubbles are based on some reality. They don't happen by accident.

They happen because people are kind of right about something. They were right about the Internet, and they were right about Amazon being the greatest business ever, as time has proven beyond a shadow of all doubt.

And bitcoin looks that way to me. Bitcoin looks – it looks bubbly just because if you look at a chart, the thing has gone ballistic. I recommended a year ago – I recommended bitcoin just about a year ago almost to the day here in Extreme Value, and it's up 400-and-some percent. At $51,000 I think it's up exactly 400% from where we recommended it in Extreme Value.

Look, that's a ballistic chart, and ballistic charts don't level out and go sideways. They go ballistic straight up and ballistic straight back down. Am I recommending selling bitcoin? No, and the details of that are really for Extreme Value readers. But I think there's more upside here is I guess the shorthand.

But I think it's like Amazon because I think blockchain and bitcoin really are enormously huge innovations... Internet-sized, potentially relative to the financial world. What the price does from here... come on.

One guy, Mooch Scaramucci, went on CNBC earlier this week and said it's going to be $100,000 before the end of the year. Well, look, when a guy like him goes on TV and says it's going to be $100,000, that's kind of a sign of the end. That's not a sign of the beginning.

But another fellow argued to me today. He said, "You know, maybe bitcoin has already had its Amazon moment, because it peaked up around – in 2017 that was up around $19,000 or $20,000 or something, and then it crashed back to $3,000."

So maybe that was the Amazon dot-com-peak trough moment, and from here on out it's proven itself, so to speak. I don't think it has proven itself, but I think it's a really good bet. I think it's changed the world already, and it's going to continue doing so.

And BlackRock came out this week, BlackRock, the biggest asset manager in the world. They have like $7 trillion, with a "T," under management. Rick Rieder from BlackRock – "Reader" or "Rider," I don't know how you say his name – he says they're just dabbling in it now.

They're not recommending any percentage in a portfolio or anything like that, but they're dabbling. BlackRock clients want bitcoin, so they're giving it to them.

And you've seen other developments recently, right? Bank of New York Mellon, they're allowing bitcoin to enter their ecosystem, and even Elon Musk at Tesla saying they put $1.5 billion in cash into bitcoin.

There was this Financial Times article that said there aren't going to be any more of these copycats. I think that's not true. I think there will be more copycats of Elon Musk. There will be more corporate copycats allocating some of the treasury to bitcoin because that's just the way these things go.

I understand the argument in the article was, "Well, people want to put the corporate treasury in something stable and safe like cash or short-term Treasurys or something like that – cash and cash equivalents." If you read enough balance sheets, you know that's the phrase, "cash and cash equivalents" or "cash and short-term investments."

Bitcoin is all over the map. It's really volatile, so it doesn't really qualify. And yet it makes sense. These two companies, MicroStrategy and Tesla, have come out and said, "Yeah, we put a real serious chunk of the corporate treasury into bitcoin."

They're tech companies, so that makes more sense. And they're run by these I don't want to call them "crazy," but they're on the cutting edge. They want to be on the bleeding edge of financial technology as well as their own technology that they're selling. So that makes some sense that it would happen first in that kind of a company.

But I could certainly see maybe a Google putting a little money into bitcoin or any of the FAANGs, right? We could see that, and it wouldn't have to be some huge amount.

It could be we're putting 10% of the corporate treasury or 5% of the corporate treasury or 1% into bitcoin, and that would be enough, I bet you, to push it up another $5,000 or $10,000 or $2,000 or $3,000, whatever.

It would affect the price, wouldn't it? And the more of those announcements you've got, the higher it would go.

We've talked about a lot of things, but I really want you to think about that reflexivity idea because I was asked earlier this week in a meeting with the other Stansberry editors.

Austin Root, our head guy in Stansberry Research – he's the head research guy, anyway – he says to me, "Dan, what do you think causes this bull to turn into a bear or crash or correct or whatever?"

And I said, "You don't get to know that. But I don't think that the stock market has – it's gone past that boom-bust threshold where Soros would say 'Yeah, it's become a fundamental now.' "

The stock market has become a fundamental, and you've seen the stories, people trading on Robinhood and saying, "Yeah, I'm a day trader now, and I've quit my job." Some people who got involved in GameStop said that the fundamental went against them, right? They lost all their money, and they can't pay the rent.

Either way, it's there. Those people have got us there. They've got us to the point where the stock price becomes a fundamental affecting real economic behavior. So I think we're there, and my answer to Austin was simply, "I can't predict, but it's begun."

How far away the ultimate top is and the crash is, I don't know, but if the market is down 40% a year from now, or two or three or whatever it is, it won't surprise me one bit. That's all I want to say about that.

I'm going to do a quick quote of the week here, and then we're going to talk with our guest, Scott Helfstein. And my quote is actually quoted in the book that I'm taking it from. So the author quoted this, and I'm quoting the author quoting this. It's sort of a double quote.

The book is essential reading especially given the time we're living in now. It's Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor.

It is absolutely hands-down without qualification the single best book on the history of financial speculation and one of the very best financial history books, period, that you will ever read. It is must, must, must reading.

Put it at the top of your list if you haven't read it. And you will enjoy it. It's really well written. It'll make you feel smarter, and you'll have things to say at cocktail parties. It's wonderful.

Right at the beginning of chapter one, which is called "This Bubble World: The Origins of Financial Speculation," Chancellor quotes the Satyricon of Petronius Arbiter, circa A.D. 50, so from the year 50.

Here is the quote: "And when dreams deceive our wandering eyes in the heavy slumber of night and under the spade the earth yields gold to the light of day, our greedy hands finger the spoil and snatch at the treasure. Sweat, too, runs down our face, and a deep fear grips our heart that maybe someone will shake out our laden bosom where he knows the gold is hidden.

Soon, when these pleasures flee from the brain they mocked and the true shape of things comes back, our mind is eager for what is lost and moves with all its force among the shadows of the past."

I really like that. I just like the poetic sound of it and the fact that you've got the boom and the bust all in one poetic little paragraph here. He says, "your laden bosom." You're clutching the gold to your chest. And then when it's all gone, your mind "moves with all its force among the shadows of the past." You'll never forget when you had it.

I think it's a good thought for the current moment. Think about boom-busts. Think about the history of finance and how many times this boom-bust thing has happened. I like it. I hope you liked it, too. Write in to feedback@investorhour.com either way. Let me know what you think.

Right now we're going to talk with Scott Helfstein. Let's do that right now.

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Today's guest is Scott Helfstein. Scott is a PhD. He joined ProShares and ProFunds as executive director of thematic investing in 2020. Wow, a cool year to change jobs, huh?

He is responsible for product development, investment research, business strategy, and external engagement for the company's expanding lineup of thematic ETFs. His work focuses on innovation and the evolving trends at the intersection of technological, economic, and social disruption.

Prior to joining ProShares, Scott was head of thematic portfolios and co-head of market research and strategy at Morgan Stanley Wealth Management, launching the firm's thematic research and portfolios, and managing a team that provided global multi-asset investment advice.

Scott earlier served as senior investment strategist and deputy to the chief marketing strategist at BNY Mellon Investment Management, responsible for global macro, relative value, and political analysis. He also worked at the Federal Reserve Board of Governors and was an investment banker at Credit Suisse First Boston.

Wow, hell of a résumé there, Scott. Welcome to the program.

Scott Helfstein: Thanks for having me. It's great to be with you.

Dan Ferris: Scott, I just saw that "Federal Reserve." I didn't notice that in your bio before. What'd you do at the Federal Reserve?

Scott Helfstein: I actually was a co-op analyst. I worked almost full-time, about 35 hours a week, for my last two years in college. I started with the research and statistics group, where I was writing computer code to check bank and regulatory filings.

Then after about a year, I moved into the financial analysis group within banking supervision and regulation. I kid you not, it was right around the time of the Financial [Services] Modernization Act. So I was writing memos with other analysts on the repeal of Glass-Steagall and the future of banking.

Subsequently, by the way, on your résumé you might see that after my PhD. I taught at West Point. I was a professor of social sciences. I felt like I needed to go back into public service because some of our conclusions around Glass-Steagall and the future of banking back in the late '90s might not have panned out so well.

Dan Ferris: I see. Let's see, was this during Alan Greenspan's tenure or Ben – Alan Greenspan, right?

Scott Helfstein: It was Greenspan. And as my parting gift, my boss, the section head, allowed me to present research to Alan in one of the board meetings, which he ended by saying, "And as soon as you get asked a question, if you would like to just defer to me, that's perfectly acceptable," which I actually opted into, in that moment.

Dan Ferris: I'm sorry, explain to me what that means. If you would like to defer to...

Scott Helfstein: If I wanted to defer to my boss to actually answer the question, because here I was, 20 years old, standing in front of Alan Greenspan while still in college and presenting a five-minute piece on subordinated banking debt spreads.

He of course had a couple follow-up questions. And I, as an intimidated 20-year-old sitting in front of the world's leading central banker, decided perhaps I should let my boss take it from there. Discretion in valor, Dan.

Dan Ferris: OK. Yeah, I guess I probably would have done the same thing. But it's cool. You had your moment with Alan Greenspan. And any impressions of him or no? He just kind of sat there and asked a few questions or what?

Scott Helfstein: I thought he was very, very smart. At the time, if you recall, throughout the '90s most of Wall Street viewed him as an oracle. It wasn't until 2008, 2009, that we went and we revised some of the history about his decisions around monetary policy at the time and the inflation of the asset bubble.

But I always thought he was absolutely extraordinary, and my time in the board meeting confirmed that view. I think he was a brilliant banker and an exceptional public servant.

Dan Ferris: I could probably pepper you with questions about this because the Fed is something everybody likes to think about and talk about. But we'll move on. It's cool. This is not where you spent your career, right?

But I remarked when I was reading your intro here that you changed jobs in 2020. When did you change jobs? What month did you change?

Scott Helfstein: I actually changed at the end of August, and at that time I had never either stepped into a ProShares office nor had I in person met any of the people that I was going to be working with. The entire interview process was done virtually. Everybody was remote at different locations. Onboarding virtually was a very unusual experience as well.

So you're spot on. 2020, an interesting time to make a move, but it's been great being at ProShares.

Dan Ferris: I don't know, I have to – I feel like I have to know more about this. Last year was the year of distress and craziness, and the world changed in such a way. Nobody predicted it would change like this.

Did you go to ProShares – let me ask you it this way. Did the craziness of 2020 heavily impact your decision to move on it looks like from Morgan Stanley Wealth Management to ProShares?

Scott Helfstein: No, it didn't. I think it perhaps accelerated some decision-making around that process, but I believe that there is a really strong tailwind behind what we are now calling thematic investing, and I'm happy to dive into this more. I think about that as kind of an inside baseball term more than anything else that is getting a little bit of press attention.

But I really wanted to be on the product development side after founding and leading the thematic research effort for Morgan Stanley for three years. And so for me, it was really about finding that right, next step to move into going from the conceptual and the product analysis to the product development and the ETF strategy. When the opportunity arose to do it all and lead the charge, that was pretty appealing to me.

Dan Ferris: I see. Let's move on and talk about thematic investing and the intersection of technology and economics and social disruption and all that. But Scott, first of all, I have to – full disclosure here. I have come to think over the past, I don't know, several years that this Wall Street Machine – and ProShares, Morgan Stanley, you're a Wall Street guy, right?

I've come to think that Wall Street is just cranking out too many new products that kind of don't need to exist, and a lot of them are ETFs. I don't know, what do you think of that? There are more funds than stocks now, aren't there? I know there are many, many more indexes than stocks at this point, listed stocks. It seems like there is an ETF for every darn one of them, at least one, right?

How do you feel about this? There's been a huge proliferation of these products. Some of them, especially the ones that are based on futures, I don't know if they're doing anybody any good. Do you feel like talking about this at all?

Scott Helfstein: [Laughs] I think that ETFs are a great tool for investors to represent a wide variety of views. If you take a step back and you think about the evolution of the ETF industry, phase one, ETFs replicate the indexes. They provide a cost-efficient and operationally efficient for investors to gain liquidity – oftentimes at lower cost – and gain broad market exposure.

Phase two, they start to go into some of the specialty areas particularly around industries and sectors – I'm sorry, sectors and countries. And so this had been the purview of more specialized mutual funds or institutional investors, and it opens up that world for retail.

And then in phase three, it's about smart beta, quantitative factor investing, which had been again the purview of some mutual funds and many hedge funds and quantitative trading desks.

And so here we are where I think we're on phase four, and it's what we're going to talk about a little bit more with thematics. But I think when you consider the different set of flavors and the evolution of the industry, I don't think it's surprising that there are a number of products. I also think that provides a number of different options for the retail, or quite frankly, the institutional investor to express their views.

We decry markets or bemoan markets that have very few options. If it's one company, we call it a monopoly. Here we are looking at Big Tech and regulatory issues and whether there's enough competition and there's too much concentration.

And so I think on the other side we want to be careful about saying, "Well, there's too many choices over here," because the alternative, which I think we wouldn't be happy with, is if there were too few.

I would also point out that while there certainly were a number of launches in 2020 – I don't have the numbers directly in front of me, so you'll have to excuse me for that – there were also a number of closures in 2020 as well.

I think that the landscape just continues to evolve. Personally, I would rather see more players and more products competing in the marketplace than too few and higher fees and a monopolistic attitude and quite frankly, a lack of creativity of what's coming to the marketplace. I think that would be a shame.

Dan Ferris: Yeah, I hear you. So let's do this. Let's talk about thematic investing. What does this buzzword really mean, Scott?

Scott Helfstein: That is a great question, and it's been really fascinating in the last few months to see it pop up in the Wall Street Journal and Barron's and Bloomberg and Business Week and all these popular forums.

Thematics, to me, really started as kind of an umbrella concept that represents investing through ideas rather than established paradigms. And so the phrase I use is thematic investing, should break the style box... by which I mean traditionally, the style box looks at growth value, looks at the size of a company, and evaluates a mutual fund and ETF based on what it holds, in kind of a grid.

And so we traditionally take a growth value approach, and perhaps we take a sector approach where we're overweighting and underweighting certain sectors.

But thematics allows us to move away from these investment constructs that might not be relevant for the moment or as relevant into the future. For example, we can talk about sectors, but I would argue just about every company today better be a technology company because if they're not, then they're really going to struggle within their respective industry, and they're going to have trouble surviving the decade.

And yet we still have a tech sector, a specific sector that's called out as the tech sector, which I think masks the fact that there is all this technological innovation going on across many, if not all, parts of the economy.

I think thematic investment started as an inside baseball term for those of us who were trying to create pockets of opportunity that were outside of these traditional investing approaches, and it's interesting that it has kind of come out to the mainstream because I don't – or filtered its way out.

I don't think that many of us in the cottage industry, if you will, had really thought about that or intended it. We just used it as a way to bring together ideas around disruption and the future of the economy and some creative options for investors.

Dan Ferris: Well said. So that's our definition. Let's drill into this. I'm on the ProShares website, and the first thing right on the front page you can select ETFs by type, and thematic is one of the types. They've got some interesting names. As soon as you look at this list, it's easy to figure out what you mean by "thematic."

One of them is called Decline of the Retail Store ETF. Another one is called Long Online/Short Stores ETF. Another one is the Pet Care ETF, and then there's a separate Online Retail ETF, Ultra Nasdaq Cybersecurity, Ultra Nasdaq Cloud Computing. "Ultra" I assume means levered?

Scott Helfstein: That is correct. Those were launched last week.

Dan Ferris: So these are the current themes. Are you allowed to tell me what themes you're working on or do I have to wait until they get launched?

Scott Helfstein: I think we can talk about ideas. I would also add, by the way, we did in the back half of last year launch a multi-thematic fund called the Transformational Changes ETF, which looks at four ideas that we think were accelerated by COVID around the future of work, genomics and telehealth, digital consumer, and food revolution.

And then we also have a longstanding infrastructure product called TOLZ, which differentiates itself because it's the infrastructure owners rather than the construction companies. So it's the toll collectors, if you will, and the people who own the ports and who fund the airports. That is our suite as a whole.

We're focused on areas of high growth. There are really three, if you will, pillars that we rely on. One, we look at changes in technology and the impact that has on the economy, we look at changes in consumer behavior, and then finally, demographics.

That's a common element across all of them, and some products hit on one. Some hit on more than one. And we will continue to be looking at the more innovative and disruptive parts of the economy – I don't think that would come as much of a surprise – that bear on those three types of issues.

The question that we constantly grapple with is what structure we want to put around these and how narrow we want to be. For example, I would argue that the Pet Care ETF – which I think by the way is brilliant. Some people think it's sort of a cute idea.

Then when you point out that people are spending more money on pets than ever before, there are more households in the United States with pets than there are households with children, and that you get an element of consumer staples where people keep feeding their pet, as we saw, even during their pandemic.

Matter of fact, we saw pet adoption rise. And then there is also pet health care, which by the way isn't subject to regulatory risks the way the human health care sector is based on potential government policy.

That's an example that's pretty narrow in its focus, and then you look at something like Transformational Changes, which takes a wider purview of the economy.

And so as we're talking about developing products, whether it is in the cybersecurity space, institutional automation is one that we find really fascinating. The future of entertainment and the on-demand economy – whether it's gaming, e-sports, or virtual reality – is really interesting. Clean tech, future of mobility, all those types of issues are things that we focus on pretty closely.

And then the question is how can we wrap it in a way that we really think is delivering value and differentiation for investors.

Dan Ferris: I noticed that Pets has all the companies you would expect – IDEXX, Freshpet, Chewy, Zoetis, Trupanion. It also has Nestlé and Merck. Those two together are 8% of the assets... 70% in the top 10, that is a tight focus on a pretty small group of companies. And it's not a very big fund, is it? It's like $200 million in net assets.

But it's an interesting idea, and I get it. It's probably a pretty long-term trend, I would guess. It makes some sense to me. It does. It's narrow, but it makes some sense.

But the Transformational Changes is kind of more interesting to me, the motivation of – it sounds like it was really motivated by COVID. That's what you're telling me, right? It was motivated by this enormous transformation that happened.

Did somebody think that this is going to be a really – our society has changed permanently? That's what you're telling me, right?

Scott Helfstein: I do think society has changed permanently, but I want to be really careful that the fund – first of all, let me be clear. It's not a doom-and-gloom fund. It's not about things that are immediately impacted by COVID. It is really about the trends that were accelerated by the pandemic.

For example, take online retail. Take e-commerce. In 2009 about 5% of total retail was done online. By 2019 that number was up to about 15%. I'm sorry, it was 10% or 11% by 2019. So it took a decade to basically double from 5% to 11%.

It then shot up in 2020 during the pandemic from 11% to 17%. So that same 6% growth penetration that it took a decade to achieve... it then achieved in the course of a matter of months in 2020. I don't believe that that number is going to go down. I don't think we're going to see a return to e-commerce as 11% of the total retail. I think we're going to continue to move up towards 50.

And so that's an example of a trend that was accelerated. Remote work is another one that's kind of interesting where you had roughly 7% of the population working from home at the end of 2019. That number, according to Stanford by spring, was up at 42%.

That was a phenomenal – we're not going to grow at six, seven times from 42%... 250% of people can't be working from home, Dan. But I think that that represents the types of transformational changes.

I think saying that society is forever changed is perhaps a little bit more existential than I'm comfortable jumping into. But I do think that these trends in technology and how technology applies to our everyday life do matter.

I can tell you, by the way – it's fascinating – go and Google Trend the term "mRNA" for messenger RNA because genomics, while people kind of understood that there were some things going on in genomics, the whole idea that we would have a mass-scale use of genomic treatment at the end of 2019 – by 2021, I think, would have shocked most people. And yet here we are. We're using this messenger RNA. It's the baseline for the Pfizer and for the Moderna vaccines.

Not surprisingly, Google Trends, people are googling what mRNA is... which, by the way, it's the little slices of DNA that holds code – or RNA in particular – that holds genetic instructions for what your cells are to do. We're trying to get your body to produce antibodies to COVID without having to directly be exposed to the virus.

It would have been years, probably four to five years, before we would have seen RNA genomic vaccines used at mass scale. Yet that's been compressed, and I think we only go further.

So there have been all these things that are very tangible to people today, but what it represents for the future and opportunity we think is much bigger. To us, these are trends now that will play out over the next five or 10 years and that are accelerated as a byproduct.

Dan Ferris: What about the Long Online/Short Stores Fund? If I owned that, I'd always be – especially right now with stocks like GameStop and Express just getting – the shorts are getting murdered and the stocks are up 100% in one day and stuff. It's an insane moment.

But it's not a bad moment to think about the risks that might come along with owning this Long Online/Short Stores ETF. But for me, though, there's that. There's also just the long-term proposition. How long can you be short stores?

Scott Helfstein: Well, 2020 did see a record number of store closures. But before I dive into that, I think it's really important for investors to understand what they own and why they own it.

And so we actually have – and we call it the retail suite. We have the Short Stores ETF, we have the long-only Online Retail, and then we have the long/short combination.

All structures are not going to be right for all investors. It's really important to understand. People need to recognize that all ETFs are not built the same. Some of them are passive. Some of them are built on well-known indexes. Some of them are built on custom indexes.

Some of them are active, and some of them take a significant amount of active risk and can have very, very high concentrations in specific stocks and are quite frankly more like long-only hedge funds. When that runs great, it runs great.

I think that the long/short type of strategy is reflective of that. For a very long period of time, online retail was growing. Brick-and-mortar was shrinking. As I said, we saw record store closures and retail bankruptcies in 2020.

And so there is an argument to be made that perhaps during the peak of quarantine and economic lockdown that that was going to be the worst for retail, and if so then perhaps you wanted to hop out of the long/short strategy and move into the long-only.

If you take a longer-term view and you think that there is still more to go in the secular reduction of stores – which by the way, the United States is massively over-retailed, right?

I think it's something like on a per-person basis we have one-and-a-half or two times the amount of retail space that they have in Western Europe. And so there's a perfectly reasonable argument to be made that that needed to come down over time and that e-commerce is just pushing it.

But the other element of this that I think is really important beyond just the long/short structure is people are using the long-only retail as actually a replacement for their sector bet in consumer discretionary because if you think about what sits in consumer discretionary, you get retail, both online and brick-and-mortar. You also get travel, and you get autos.

In 2020, let's face it, three areas that we thought were going to come under pressure – brick-and-mortar retail during lockdown... travel, as we all started staying home... and your auto didn't necessarily feel like it was a needed purchase when you weren't commuting as much. Now it turns out that last one had a much more complicated thesis than I think many predicted throughout the pandemic.

But what we saw is people abandon their sector bet in consumer discretionary and move into online retail with the simple logic, "Why do I want to own the whole sector when I believe that there are pieces of it that are going to face both challenges in the near term because of COVID and potentially secular challenges over a longer recovery?"

And so I think the long/short logic really just gets to what is the right structure to be delivering – that investors should choose? And that's part of what we should be thinking about as we're designing products on this side of the business.

Dan Ferris: Yeah, I get that everybody's different, and it's up to you to assess your risk tolerance and your time horizons and what's right for you. Maybe a long/short fund isn't right for you.

But I still have that question, though, Scott. I still wonder with any short fund, how long can you be short? It's an odd thing to me to be permanently short the way a fund like this implies that it will always be short stores to some extent. To me, it seems like a great idea for the moment, sure.

But I always wonder how long will this product last? Will it be managed such that one day, ProShares will say, "You know something, this has probably run its course"? Or will they just let it exist as long as anyone has a use for it? Which makes sense, right? Let the market determine it. I wonder what the thinking is from ProShares' perspective. You just let the market determine, I would assume, what it wants and needs.

Scott Helfstein: Well, we're constantly auditing the products to make sure that we think that there is a reasonable justification to have it in the marketplace. We do tremendous due diligence or relatively deep due diligence on everything we launch.

At least at ProShares I can tell you we don't just see something and oftentimes roll it right out. For us, it's a multi-month exploration and launch process. Similarly, we take it seriously whether we should keep products in market and for how long. I wouldn't want people to think that it's simply there just because it was already produced.

For us, I go back to that if online retail is currently 16 or 17% of total e-commerce – and by the way, the fastest-growing – the Washington Post published this the other day. The fastest-growing segment or cohort within the U.S. in online retail are those 65 and over. So for those of us who thought that some of these technologies were a young person's game, move over, youngsters.

Online grocery is booming, and I think I do intend that pun. We're seeing things that were never bought online before that are now moving online. More Americans have now bought groceries online than ever before, and the vast majority of them say they would do it again.

And so if we're only at 16 or 17% penetration of e-commerce, then that suggests to me that there is still a pretty long way to go on this short retail theme. If we were to turn around a couple years from now and e-commerce is 50%, maybe that's a threshold that we would turn around and reevaluate whether we thought that a long/short should stay in the market.

But also keep in mind the long/short offers two possibilities. One is that e-commerce continues to go up and brick-and-mortar goes down. So that's the best of both worlds. But it's also a hedge strategy where you're just buying the faster-growing of the two segments.

And so if you're really going for that double whammy, then that's one option. But you should already be recognizing that as the whole market goes up, brick-and-mortar retail and the reopening, which is the trade that's underway a little bit right now, could do well.

And then the question you want to ask yourself is, using that as your hedge, do you think e-commerce will continue to outpace? Which is really what a long/short strategy is really made for is to capture a differential, and that might be a double positive if one is up and the other is down, or it could just be a market hedge as one just outpaces the other.

Dan Ferris: Right. I'm not saying there's no place for it. I'm just saying I do have questions about any ETF that involves short selling because to me short selling is this highly opportunistic type of a strategy. Always being short strikes me as a little odd. But of course, there are wealthier people than me who have made a lot of money running long/short funds. So I get it.

Where do you want to take this? Are you always going to be the thematic guy? Is this just where you are for now? What is Scott Helfstein's vision? What's your big vision about what you're doing right now with ProShares?

Scott Helfstein: I think that innovation in the economy is tremendously important and finding ways to express those views and give investors a means to try and stay a half a step ahead of the game, and I say that recognizing there's been a lot of discussion lately about themes that are late. Something already pops, and then a product comes out.

And so everybody's going to be a little bit – depending on how you classify a theme, that's always going to be an issue. But I really think about long-term growth prospects, and that's been my approach to investing for a long time.

Then if you overlay the importance of secular change, secular technological and economic change, on top of that, I like the idea of just bringing creative ideas to the market. We call it conversational alpha. I talk about the power of narratives.

And so in my heart and in my soul, Dan, ultimately I'm a researcher. I started out with it. I've got a PhD in political economy and public policy. I was a professor for a number of years after working at the Fed and being a banker.

And so I love doing analysis and trying to come up with fresh ways to see the world and try, to the extent any meager mortal can forecast a little bit about what comes next.

And so whether it's in thematics or whether there's another umbrella ultimately that's put around it – you can call it megatrends, you can call it innovation – these are the types of ideas that really get me out of bed in the morning, other than my kids waking me up, which as they get older happens less and less, which is pretty great, by the way.

This is the space where I want to be both from a research and from an investment perspective. I think the ETF package is a really efficient way to deliver it. The market will continue to evolve, and we'll see where it goes from there.

Dan Ferris: I like the fact that you said the word "innovation" several times in that answer because that's the great, I think, in my humble opinion, unstoppable force. It's the reason why even though I'm kind of bearish – kind of bearish. I've been really bearish here on the podcast for some time now.

But I tell people don't sell all your stocks and bonds. Don't sell it all and go to cash and head for the hills. Keep your stocks and bonds because you always need exposure to the relentless ascent of man, to use Jacob Bronowski's expression, and that relentless innovation. So you're talking my language now. That's a great answer.

I have one final question for you today, Scott. It's the final question that I have for every guest that we ever – that I've ever interviewed on the podcast here. With all that you've taught us about thematic and ETFs and stuff today, if I were to ask you to leave our listener with just one thought, just one good nugget, if you could, what would it be?

Scott Helfstein: I think people should – and this is going to be really in line with what you just said, Dan. They should be trying to futureproof their portfolios because you are spot-on. We continue to advance. We continue to develop new technologies, push frontiers.

To think about where medicine could be 10 years from now, it could well make medicine today look almost like the Dark Ages in terms of health care and the innovations that are ahead. That to me is really important.

Investors try and break out of some of these traditional paradigms and really look under the hood, and I think something like a pandemic and a recession is really a great time to do it because people are getting new information. They're seeing the world a little differently.

I think it's really important for people to understand that leaders today might be leaders tomorrow and they might not, and to really focus on the power of ideas and try and make sure that they're invested not just for today, but for the things that are coming.

Dan Ferris: Good answer. I appreciate that, Scott. I agree. Times of crisis spur huge innovation. War, pandemic, Great Depression, what have you, those times spur lots of innovation and even ultimately lots of entrepreneurship.

Thank you for that, and thanks for being here, Scott. Maybe we'll be able to check with you and see how the world of thematic investing is going in the next six or 12 months or something.

Scott Helfstein: I'd love to be back, and I appreciate the time.

Dan Ferris: All right, that was really interesting. I really have seen thematic investing literally in two or three news articles and haven't even thought a lick about it, not anything. So having the guy whose job is thematic investing at ProShares is about as good as it gets.

It is interesting, and those funds – go to proshares.com, and the front page has ETFs by type. Then click on "Thematic," and the names of some of these things that I read off – the "Decline of the Retail Store ETF" – man, that's so specific. I wasn't expecting that.

It's pretty cool, actually, and it makes a lot of sense. It makes a lot more sense to me than, like Scott was saying, value, growth, quality, all these things that people have been making ETFs out of lately.

All right, let's look at the mailbag. In the mailbag each week you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms to feedback@investorhour.com.

I read as many e-mails as time allows, and I respond to as many as possible. If you don't want to write it, you can now give us a call. Yes, you can give us a call at the new listener feedback line. Just call us at 800-381-2357. That's 800-381-2375. Leave us a message. Tell us what's on your mind.

All right, we'll start this week with T.J. T.J. says, "Dan, this was very good, but I have a question about bitcoin that was not discussed, utility. I only hear bitcoin referred to as a store of value.

To be considered a store of value requires relative stability. Bitcoin is not stable. It appears to be orders of magnitude more volatile than gold. Stability may well come eventually, but its value seems to be tied strictly to its limited supply and what the next guy is willing to pay for it.

It's too slow to be used for financial transactions. It doesn't appear to have any utility except in those few areas of the market where it is accepted as payment. Gold is a store of value that has a 3,000- or 4,000-year history of having utility, and I can hold it in my hands.

Now having said that, I have made a small investment in Ethereum, Cardano, and Ripple. I picked those because they all seem to have utility or perhaps a better way to state it is future utility. Am I missing something in my utility analysis? Keep up the good work, T.J."

I don't know that you're missing something. Bitcoin is the same deal as the other stuff you're buying. Eric talked about that last week on the show when we talked with Eric Wade. You're buying a place in line, and we're not sure what you're going to get when you get up to the front of the line. It's the same thing. There's possible future utility. We're not sure exactly what.

As far as the store of value goes, I wonder. Is an 11-year-old store of value a burgeoning – it's still very new as a store of value. A lot older than gold, I'm sorry, a lot younger than gold, a lot younger than real estate, a lot younger than art and all these other things that people – silver and collectibles and whatever, just about anything I can think of. It's this brand-new thing. Eleven-years-old constitutes a brand-new, newborn store of value.

So maybe the volatility is – as you alluded to in your question. You said stability may well come eventually. If it really is a store of value, the initial extreme volatility might be OK.

I want to go on the record here, though. The volatility, it concerns me. I'm not saying there's not reason to be concerned. I keep telling people on Twitter and on this program and elsewhere bitcoin trades like a fricking biotech stock. It's just going straight up. It's going ballistic, and ballistic charts scare the hell out of me because they never correct by going sideways. They correct by crashing.

Maybe what we have here is it crashed – bitcoin crashed from whatever it was, just call it $19,000, to $3,000 back in the 2017. Maybe this time it goes to $100,000 and crashes back to $40,000 or $30,000. Higher highs and higher lows over a long period of time, that would keep the bull intact and keep bitcoin rising in value.

But I don't want to make anybody think that bitcoin is a slam-dunk and is just going to go to infinity from here. I don't think that, and the jury is still out on it. As long as the volatility is that extreme in any direction, up or down, the jury is still out. Thank you, T.J., for bringing all this up. It's worth keeping in mind.

Next comes Jonathan A., and Jonathan A. links to a Bloomberg article: "Peru Is Selling Century Bonds Just Days After Political Crisis." That's the name of the article. It was from November 2020.

He's got a quote here. It says, "Investors are looking past the political noise as the combination of low global interest rates, a weaker dollar, and large fiscal stimulus packages increase the appeal of some developing-nation assets.

Peru's sale included 12-year bonds priced at 100 basis points over U.S. Treasurys as well as 40-year notes and 100-year notes with spreads of 125 and 170 respectively, said a person familiar with the matter, who requested anonymity as the details are private."

And then his e-mail continues: "This sale was accomplished in the face of the following experience: 'Peru itself has seen eight external defaults and restructurings since its independence in 1821, according to the book This Time Is Different: Eight Centuries of Financial Folly.' "

And then he finishes by saying, "Need one say more to justify going to cash and waiting out the coming correction? The inherent contradiction being that this news is three months old. The market continued to rise sharply. Jonathan A."

Jonathan, thank you for pointing this out. I'm very happy to have read that to our listeners. I thank you for sending it. It is crazy. A hundred-year bond from Peru, first of all, a 100-year bond from Peru is a little too optimistic for me. You're right about that.

And then at 170 basis points over U.S. Treasurys, which I guess that's a 10-year or a 30-year. I don't know. But there's no corresponding Treasury. It's crazy. It's insane. But there's nothing else that needs to be said.

Next comes David A. David A. says, "Love your podcast. I have learned so many useful things about investing and the economy in general since I started listening. I do own bitcoin, but here's one of my greatest concerns.

As bitcoin grows in value and if I sell it for dollars, I have to pay taxes. I want to be able to use my bitcoin/Ethereum as a typical nest egg where I earn passive income from my holdings. Then I only owe taxes on income that I pull out for use in the dollar economy.

It seems that I have to give up the safety of a cold wallet in order to do that. Once out of the cold wallet, I am exposed to hackers, government intervention, etc. What are your thoughts? Thank you, David A."

Dan Ferris: You're absolutely right. You put it in the cold wallet, which cuts it off from all connections to the Internet. Or you have to interact with others, and you do expose.

Now I don't know what the odds are of getting hacked, and the government intervention, you understand that could affect the value of what's in your cold wallet, right, David? I just want to throw that in there.

Eric has actually written about ways to get income from bitcoin, but the last I heard he felt that it was a – it sounded to me like he was starting to say, "Well, it's played out a little bit, so I'm not as excited about it."

But you'd have to read Crypto Capital, his newsletter, to get more information about that. And that's not me trying to sell the newsletter. That's me saying, "I don't know."

Our next question is from Michael K. Michael, thank you for the brevity of your question and your whole e-mail. The entire e-mail says, "Dan, what do you think about shorting the S&P 500 as portfolio insurance? You're awesome. The show is awesome. Done with compliments." Oh, I see. He says he's done with the compliments now because he just gave me two of them. "Michael K."

Michael K., thank you for the compliments. It's OK if you're done with them when you give me two in a row like that. "What do you think about shorting the S&P 500 as portfolio insurance?" Well, I must think it's a good idea because I have been buying put options on the S&P 500 periodically, not all the time, for like three years.

I bought them in September of 2018. That worked out great. It worked out better than I actually profited from it. I got out too early. And I own some right now at various strikes and various maturities. I think at May, June, and then September, and then December.

There are times when it makes a lot of sense, and there are times when I know people who never dabble in this stuff have bought them. I think that moment in 2018 was one when Vitaliy Katsenelson, who I know just wants nothing to do with options most of the time, I think they bought them at that time, too. I know he bought them at some time or other.

It makes sense to me as long as you spend a small amount of money doing it. The point is you can spend a percent or a half a percent of your portfolio or whatever, and if you get a real horrendous drawdown in the market, that thing that you hopefully bought at a really cheap price could be worth 10, 20, 30, 50, 100 times. And here you are cashed up and ready to go with the market down whatever it is, 20, 30, or 40% or more.

So when it works out, it works out great. But most of the time, the overwhelming majority of the time, if you continue to hold to expiration, you're just going to lose every penny you put into it.

Next comes Vicente, and Vicente says, "Two subjects. On bitcoin, if an entity goes and buys all or almost all of it, and if that entity is the Fed, it's only $890 billion. In other words, bitcoin's market cap is only $890 billion. In these days, it's kind of easy. They just print the money. If out of 21 million bitcoin there are only 1,000 or so bitcoin, does that kill the market? Would it be kind of over?"

I think the odds of the Fed doing that are nil and almost nil. But look, what would happen if they bought almost all the Treasurys? Well, Treasurys would be negative interest rates because the prices would be triple what they are now.

You might have trouble selling into a market that illiquid, but if the Fed keeps buying, then you sell it to them. I don't know, if the Fed is printing money and buying the daylights out of bitcoin, sell to the Fed, man. Just sell to the Fed. I don't think that would be a terrible thing after all. That would be the inflation moment.

Of course, then what do you do when you're in cash, right? That would be the real question. If you sold to the Fed because you didn't want to be in a market where there was like 1,000 effective float of bitcoin, then the real question becomes what do you do with the money now that you've sold out to the Fed at 10x whatever you paid for it, because they would – if they tried to do something like that, bitcoin wouldn't be $50,000. It would be $500,000 or $5 million or something or $50 million. It would be insane.

Number two, Vicente says, "Please help to understand this consciousness on investing." I'm not sure what that means. He says, "If I stop buying Altria," the company that's famous for owning the Marlboro cigarette brand, "will that affect something or anyone? Who cares? If we stop buying, the price will drop, and someone will buy it based on cash flow and profit.

So does all this new movement make any sense? Stop buying sugary water companies like Coke and oil companies due to climate change. Does that make any sense? Can we vote with our dollars? Thanks, great show. Vicente."

Thanks for saying it's a great show. I appreciate it. So the question here that you're asking on No. 2, Vicente, is could we all get together and vote with our dollars and cause the prices of these companies to go down? Certainly, if people don't want them anymore, their share prices will fall.

I think these motivations are silly, but what I think is silly doesn't matter to all the other investors. If you don't want to buy Coca-Cola stock or oil company stock for whatever reason, even if it's something as stupid as climate change, which is a really stupid reason not to buy an oil company, or if you don't want to buy Altria because you think cigarette smoking is really evil – it's evil to sell cigarettes. Again, absolutely stupid, in my opinion. Again, what I think is stupid doesn't even figure in here.

You can certainly vote with your dollars. You can vote with your dollars on any company, but that's all you get to do, I think. If you and 10 other people do it, you're not going to affect anything. But if over time lots of people don't want to own these stocks for these reasons, they could have a problem.

It's that reflexive thing. If the share price keeps going down and down and down and the business is still OK, other things being equal they won't be as good of a creditor as they used to be. That's my answer. I'm going to stop right there.

That's another mailbag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. I enjoyed it immensely.

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

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