In this week's Stansberry Investor Hour, Dan welcomes Marko Papic back to the show. Marko is the chief strategist and head of GeoMacro at BCA Research, a global investment research firm.

Marko kicks things off by discussing the "second derivative of AI capex," which signals the beginning of the end of the AI boom. Due to tension in the Middle East potentially starting to ease up, the market is nearing the peak of the "Wall of Worry," and as a result, investors could lose a component that helps fuel the current rally. Additionally, Marko says that AI is inflationary. It takes labor, copper, and electricity to construct and run a data center, and with oil prices not likely to return to the levels they were at before the conflict at the Strait of Hormuz, that will just compound the inflation. Marko details what you can expect from the "endgame" of the Hormuz blockade...

It's pretty clear to me that both Iran and the U.S. don't have an interest in crashing the economy... [Iran] does not want to get the entire world to effectively hate them. So they have an interest in certainly raising gasoline prices in the U.S. and making life uncomfortable for President Trump... The reason they didn't destroy all of [the liquefied natural gas] facilities in Qatar, the reason that they haven't targeted every single piece of infrastructure in the Strait of Hormuz, the reason they didn't sink every ship they could have sunk... is that at the end of the day, every single thing that makes Iran a modern economy is imported from China or through other intermediaries. They need China on their side, not as an ally, but not as a pariah... Iran and the U.S. had so many opportunities to go to full war at this point. This is like two guys at a bar and you're watching it from the back.

Next, Marko delves into oil prices and demand. He says that the conflict is starting to give several impressions to other countries after this passes. The first is that the U.S. creates demand when it has a desire to obtain resources and seeks them out. Countries will then start hoarding them as a means of securing them. The second impression the conflict shows is that our allies might not be able to rely on us in a prolonged conflict. Marko says that the raid in Venezuela earlier this year and the Strait of Hormuz situation were both supposed to be short-term incidents. The U.S. did not intend for the blockade to last as long as it has. So in the event of a drawn-out conflict, our allies might have second thoughts about asking for aid. However, even if we are shut out, Marko says America is integrated into the global infrastructure...

Think of American hegemony as a global superpower, as a geopolitical hegemon. Think of that as software. That's software that was running the planet... And so everyone's decided that the U.S. is no longer a hegemon. So we're now running under a different operating system... But here's the interesting thing. The hardware that used to run this software [is] intimately interrelated with the software itself. So the physical infrastructure of planet Earth, the physical infrastructure is built for America... All of Canada's pipelines go to America... Australia imports refined kerosene from South Korea... Because America's got it... How is that possible? Because America.

Finally, Marko sums up the three main reasons why an "inflationary brew" is developing for data centers. The first is that Federal Reserve Chair Kevin Warsh might not be as dovish as hoped prior to entering the role. And it doesn't seem like President Donald Trump will do much to deter him from raising interest rates. That will make building data centers more expensive. The second is that the major AI IPOs are creating a massive supply with little liquidity. With many individual investors primarily having exposure to the S&P 500 Index, they'll be gaining exposure with their 401(k)s but won't be actively buying or selling them, resulting in stagnancy. And lastly, AI capex is slowing down since it's not feasible to build as many data centers as these companies desire...

You've got [the first ingredient], which is [that] inflation leads to higher interest rates. The second is the IPOs, which increase the supply of stocks. And then the third one is that our growth engine – the consumer – has not been spending for the past 18 months, 12 months. It's really just been this pace of AI data-center build-out. And I think that's going to normalize, which is negative.

Click on the image below to watch the video interview with Marko right now. For the audio version, click "Listen" above.

(Additional past episodes are located here.)

This Week's Guest

Marko Papic is the chief strategist and head of GeoMacro at BCA Research. Prior to his work at BCA Research, he was a partner at an alternative asset-management firm in California, where he provided his investors and clients with controversial market calls, bold views, and around-the-clock research. He helped seed global macro hedge funds and curate several funds across public and private markets. His work on incorporating geopolitics into the asset-management industry has become part of the Chartered Alternative Investment Analyst ("CAIA") curriculum. He has lectured at top universities and frequently appears in global news media. Marko is the author of Geopolitical Alpha: An Investment Framework for Predicting the Future.

Dan Ferris:              I think you should come to Las Vegas this September and see me and see some of our great speakers at the Stansberry Annual Vegas Conference. We do this every year. We've been doing it every year for, I don't know, 23, 24 years – something like that. I've been at every one of them. A good time is had by all. Lots of great speakers, including today's guest, Marko Papic, one of the, certainly one of my top two or three favorite geopolitical guys in the world. OK, and we've met dozens of them on this program over the past several years. So come to Stansberry Conference. You can sign up at stansberryconferencevegas.com. Stansberryconferencevegas.com. Go there, check it out, and come and see us in September, all right?

So, let's talk with my good friend Marko Papic. He is a geopolitical analyst. He looks at the investment landscape all around the world and thinks about stuff like the war in Ukraine and the war in the Middle East and what AI is doing here and abroad. All kinds of stuff that people are curious about, but most of us just don't have the time to put into it. Well, every time somebody talks about geopolitics, I say we got to talk to Marko. So let's do it right now. Let's talk to our guest, Marko Papic. Let's do it right now.

Marko, welcome back to the show. Always a pleasure.

Marko Papic:            It's a real pleasure, Dan. Thank you for having me.

Dan Ferris:              You bet. So, you're one of my two guys. When people start talking about geopolitical stuff, I always say, "Hang on, I know a guy. I'll check in with him." You and Peter Zeihan, who we're going to talk to in a few days, too. It seems like a moment in which your phone is ringing off the hook more than ever. It just seems like one of those moments to me.

Marko Papic:            It is, it is. There's – it's been nonstop, I would say, since, well, since like 2008, but also February 28. Yes.

Dan Ferris:              Right, since February 28 is, is what I'm alluding to. On top of that, there's, there's quite an overlay here though for the geopolitical and just like macro guys generally, right? Because we've got this AI boom in which I think we're about to see quite a bit of share issuance. And then six months down the road, lockups freeing up. And it looks like we might get into some hiking with the Fed here at some point. The Strait of Hormuz, I realized you recently wrote how it's kind of less like a blockade, more like a permeable membrane, and there's more and more traffic through it, but it's still way down. And I've noted quite a bit of actual destruction of refineries and [liquefied natural gas ("LNG")] trains and even just the oil wells. There's thousands of oil wells shut in. And when you do it that fast, some of it will incur extremely expensive, if not permanent, damage. So there's a – when I say there's a lot going on, that's what I'm looking at. And your latest, one of your latest pieces talked about the second derivative of AI capex, which sees – it looks like the beginning of the end of the boom. Do I read that right?

Marko Papic:            Yeah. Yes.

Dan Ferris:              So this is it.

Marko Papic:            Yeah. So where do you want to start? Where do you want to begin? It's funny – [crosstalk]

Dan Ferris:              Go ahead.

Marko Papic:            Yeah, I was just going to say it's funny because in a way, I think that the war in the Middle East is almost keeping the market hopeful. And I know that sounds crazy, but basically, Baron Rothschild said a really smart thing in the 19th century. "You buy on the sound of cannon, but you also sell on the sound of trumpets." Now, there's all sorts of technical reasons why you do sell on the sound of trumpets. For example, when the war between Russia and Ukraine ends, the Russian economy will collapse. When the war between Israel and its neighbors eventually ends over the next 12 to 18 months, the Israeli economy is going to suffer that kind of a fiscal cliff. You ramp up your economy to fight a war, but – and I think that's what Rothschild meant back in the 19th century. But in my view, there's something else. It's a perception. It's this idea that markets climb a "Wall of Worry." And when that Wall of Worry is gone, what else is there to look forward to?

Dan Ferris:              Right. Yeah, because when the wall is gone –

Marko Papic:            I had to sneeze there. My bad.

Dan Ferris:              That's fine, that's fine. When the wall is gone, that's the end of worry that could be not very far from the peak of optimism, right?

Marko Papic:            Right, because it's sort of – you've overcome this big issue that's been weighing down the market, but the market has climbed the proverbial Wall of Worry. And in my view, that's been correct. We can talk about why and we can discuss the points you raised about the shutting of oil production and so on. Those are serious issues. I think that they can be overcome. The problem is once – let's just theorize that President Trump does land the plane, gets an agreement in some way, shape, or form. My concern is that at that point, the market has no more positives to look forward to. Is the Fed going to cut? Is the AI capex going to exponentially keep increasing? Those are all the questions that the market then has to ask itself. And I think the answer at that point is almost "no" to all those kind of questions.

Dan Ferris:              Right. So the market kind of sighs with relief and recovers and maybe we get some kind of a rally, but then it says, "Oh no, maybe some quarterly report, the Mag Seven says we're not spending nearly as much as we were" or something – something of that nature is what it sounds like you're telling me.

Marko Papic:            Yeah, that's right. For example, ask yourself, right now, what are you looking forward to, Dan, over the next 12 months? Let's say that the geopolitical issues are not a concern. Let's take that off the horizon. All right, cool. So what do you think is the positive – what's the upside surprise to the stock market over the next 12 months?

Dan Ferris:              The upside surprise, I don't know what it would be. I can guess at, I don't know, maybe there's some productivity or something that surprises somehow, right? People are looking for that certainly like crazy.

Marko Papic:            So you're right. Yeah, that's actually what comes up in client meetings a lot. And the way that – so one of the reasons that I'm concerned after Hormuz sort of is no longer relevant – the problem at that point is that while Hormuz itself may not be relevant, while we may not have $200 oil, it's unlikely we're going to have $50 oil. So we're going to be in this kind of middle, which is actually unfortunate because it means that inflationary impact of the conflict itself will compound with other inflationary impacts, whether it is the deterioration in the deceleration of housing and rent costs... So that's actually one of the biggest reasons why we've had inflation come down. That is unlikely to continue. It would be very strange if it did, because we would then enter sort of like 2010s levels of disinflation in housing. So I don't expect that. AI capex is inflationary. It costs copper and electricity and labor to build. So the build-out phase in AI is actually inflationary. So that's going to continue.

Then you have this energy cost shock, which is going to be persistent, because even if Hormuz ends as a crisis, you still have to refill the SPR. You still have to refill all the storage that was drained in the attempt to alleviate the pressure on the economy. So when I list all these points, my clients say, "Yeah, yeah, yeah, but AI will lead to people getting fired. And so then the Fed will cut rates." And so that's to your point, like there's this upside, "Oh my God, we're going to get to fire everyone under the age of 30. Sick." And it's like, whoa, whoa, whoa, why are we celebrating that? How is that a reason to be long? And there's another issue there, Dan. And you can tell me if I'm wrong, but when I hear that, I'm like, OK, cool. But everyone has access to AI. So, the problem with this is that even if there is, and I don't think there will be, by the way, just for the record, for all those of you listening, I just don't think AI will be disinflationary over the next 12 to 18 months. Maybe in the future it will be. Right now, it's inflationary. It costs money to build. Therefore, it's adding to inflation. Not to mention, another little quirky thing, which is that it is effectively crowding out all other investment. So if you want to build more homes to drop the price of homes, well, guess what? You got to compete with the Magnificent Seven, with the hyperscalers, for credit, for capital. You're basically anything you want to build in the United States of America or anywhere else on the planet, you're competing with the U.S. government – which has to refinance its debt – and you're competing with hyperscalers. So we're also not adding supply.

But going back to this point about productivity boom, the problem with AI is that it's so ubiquitous now. Everybody's got access to it. So even if I at BCA Research was able to say to my, let's say, investors, "Hey, look, I'm expanding my profit margin," which is a polite way of saying I'm going to fire everyone under the age of 30, the problem with that is, will I be able to pass higher prices to the customer? Can I go to institutional investors around the world and tell them, "You're going to have to pay more for BCA Research because I'm about to use AI?" And they're going to laugh at me. And they're going to say – that would be like asking someone in the early 20th century to pay more because you're using electricity. And so, that's where I think, hoping that by the end of this year, a productivity boom saves us – that is the usual answer I get. And I just think that that may be the story of the 2020s, that may end up being the story of this decade when all is said and done. But for 2026, 2027, I don't think that we can really be bullish equities because people are going to get fired.

Dan Ferris:              Yeah, that reminds me of some time ago, not too long ago, when people were saying something like "the end of the world is the bull case" or something, because we all think that the Fed can save the market by cutting rates.

Marko Papic:            Right, that's exactly it. And eventually, I think they will. Eventually they will, but not – like then you get bullish, obviously.

Dan Ferris:              Yeah, at some point, there are plenty of – we can point to times when the market went up as they were hiking and, and it continued to go down as they were cutting. Down while cutting has kind of been the rule. So there's a reason why they're cutting, right? So, this idea that like cutting is really wonderful and makes everything go up. It's not rooted in nothing, but history suggests that it's not exactly a slam dunk.

Marko Papic:            No, sure.

Dan Ferris:              Yeah. So yeah.

Marko Papic:            But maybe I should – I'm sure that everybody who tuned into this also wants to know since I'm one of your geopolitical guys... Maybe we're putting the cart ahead of the horse. OK, how do we see the endgame to what's going on, I think, in Israel, Iran, and the U.S.? And all I would say is that, first of all, even if there is no endgame, it's pretty clear to me that both Iran and the U.S., they don't have an interest in crashing the economy. And my clients often ask like, well, how do you know that? Well, I know that because we're recording this on June 8, and the economy hasn't crashed. They've had plenty of opportunities to crash the economy.

And now we're not going to really discuss and debate the American position because it's pretty clear what President Trump wants. He's saying it literally every day, "We're going to get a deal. We're going to get a deal." What about Iran? Isn't it in Iran's interest to illustrate to the United States of America that they can in fact, cause a global recession? And the answer is yeah, that's correct. If we were doing a game theoretical exercise where there's only two actors, the United States and Iran, that would be correct. But we're not doing that. We live on planet Earth where there's 195 other countries. And many of those are either allies of Iran or they're acquaintances and friends. And Iran does not have the ability, does not want to get the entire world to effectively hate them. So, they have an interest in certainly raising gasoline prices in the U.S. and making life uncomfortable for President Trump – hey, all's fair in love and war. But the reason they haven't gone all the way, and what I mean is, the reason they didn't destroy all of LNG facilities in Qatar, the reason that they haven't targeted every single piece of infrastructure in the Strait of Hormuz, the reason they didn't sink every ship that they could have sunk, the reason for that is that at the end of the day, every single thing that makes Iran a modern economy is imported from China or through other intermediaries. They need China on their side, not as an ally, but not as a pariah. That's why they've hesitated throughout this entire period to actually go all the way. That's why they haven't targeted all the ships that were anchored for months, just sitting there like sitting ducks. That's why they only attacked LNG facilities in Qatar once on March 18 as a retaliation to Israeli attack on South Pars on March 17. And since then, that has not repeated itself.

It's because they do care. They care what India thinks, what Pakistan thinks, what China thinks. And these countries, they're not completely ignorant to what happens to oil prices. They care. But more importantly for China, it's about food prices. So this is a big problem that Iran has, which is that in order to get to U.S., which is their enemy, they're kind of throwing a beer bottle from one end of the bar to another, but there's all these other people in between. And so, I do think they're constrained as well. And I think that a lot of people who thought that oil prices would just go to $200 mistook that part. So what do I think is the endgame? I think the endgame, really, there's two options. Iran and the U.S. had so many opportunities to go to full war. At this point, this is like two guys at a bar, and you're watching it from the back, you and I, Dan, we're drinking beers, we're watching these guys. And they're circling each other. And at some point you're like, "All right, all right, guys, come on. We all know what you're doing. You're doing the 'hold me back.'"

Dan Ferris:              Yeah.

Marko Papic:            You know, "I got him. Hold me back." Yeah. All right. All right. You guys are done. Why don't you let me buy you guys a beer? So that's where we are. This is a fact. This is not me like making this up. It's again, maybe you could have challenged this in April or May, but it's June 8. It is what it is now. So there's really two ways to think about it. 1) we get a deal. And the deal is kind of meh. It's not great, but it reopens the straits. Or we don't get a deal, but the straits kind of quietly reopen anyways.

Dan Ferris:              Right.

Marko Papic:            You wake up one day and there's two very large crude carriers, VLCCs, transiting every day instead of one. Oh wow, that's 4 million barrels a day. Then it's three [VLCCs]. And so I think that the biggest misconception that people have is that these blockades are real, that it's a one or a zero. And meanwhile, what we know is that over the last three months, a quarter of all the tankers that were sitting there did get through. Well, how did it get through? Well, because we don't really have a full-on blockade. Things are slipping, and that slippage could increase. That's why I call it a permeable membrane. That's why I don't disagree with the market. I guess you could say I'm quite bullish and I have been over the last couple of months because I realized these two countries are not willing to go all the way. But that's the issue of the Hormuz blockade. That doesn't answer what comes after because the market's already priced this in. If there's a deal tomorrow, the market's not going to go up – maybe a little bit because the market's been going up this entire time, knowing I think correctly that there would be eventually a deal. So that's why I say let's forget about Hormuz. Let's ask ourselves if I'm right, if the market is right, what comes next? And I'm not sure that the answer to that question is a lot more bullish stuff.

Dan Ferris:              So let's get to that. Yeah. We're so now we're now we're beyond Hormuz, right?

Marko Papic:            Right.

Dan Ferris:              Whatever you think might follow a deal. Some people there was that leaked statement about it taking six months to get all the mines out of the Strait of Hormuz. And they denied it so quickly and so completely without complete – without saying that it had – the statement hadn't been made. In fact, the spokesman kind of verified that the statement had been made but said don't take it too seriously.

Marko Papic:            Yeah.

Dan Ferris:              Barring that, whatever, let's just say we're beyond all of it and oil is maybe lower, but I would guess not back to February 27 prices.

Marko Papic:            I think no way.

Dan Ferris:              Yeah, no way.

Marko Papic:            Let me hear your pitch for why does it go lower. Let's see if it's the same as mine.

Dan Ferris:              Well, I talked about the destruction of some of the –

Marko Papic:            Oh yeah.

Dan Ferris:              – supply. And I think that, you know, it could hit 2% of global production. We're talking – it's thousands of wells off line. And I have my whole rigmarole I probably shouldn't go through that says the machines stop turning, but basically the geology and the chemistry, they keep going. And paraffins kind of separate and gunk up the works and you get all kinds of other effects from shutting down oil wells, especially when you do it really fast. And that just – it can cost a couple tens of thousands or whatever per rig to fix some of this, maybe even more expensive workovers to fix some of it. And some of it, I think, is going to wind up being permanent, the compaction of the reservoir rock and the reservoirs, those layered reservoirs in the Middle East. There's a whole thing with just the supply there. That's part of it. And I don't think – I think the supply in Venezuela continues to fall off because that's not going to happen. I think it – last time I looked at anything, it seemed like it was actually below 900,000 barrels a day that they were talking about. And with Darren Woods saying it's uninvestable...

Marko Papic:            Yeah.

Dan Ferris:              For political reasons, let alone all – and again, I got my whole rigmarole about the refrigerated peanut butter that you're bringing out of the ground with heavy sour crude. It's a whole different operation. The infrastructure is crap. It's been neglected. All the good engineers have left the country, the good workers, a lot of them. The refining capacity in Venezuela is at 20% of what it was. It's just – people waiting in line overnight in their cars, taking a second job to fill up the tank. It's crazy. It's crazy in that country. So getting at that oil, which there's a lot of, is not a slam dunk, anything like it. It's unlikely, I think.

Marko Papic:            Well –

Dan Ferris:              I don't think you're going to build refining capacity in this country, either. That Brownsville thing, that America's First, that's not going to happen, I don't think. So from all the way upstream to all the way downstream, long story short, there's not like some big new supply coming on. Well, yeah.

Marko Papic:            Well, yeah, and I think on the demand side, the world has – the reason we didn't hit $150, $160, $200 oil is that we were well supplied. We were oversupplied.

Dan Ferris:              Yes.

Marko Papic:            And that's great. That's great. The problem is that whatever peace deal you get out of Middle East – let's just be very clear, President Trump is not meeting the supreme leader to ink a chain of hotels on the Persian Gulf. We're not – that's not the kind of a deal we're going to get. We're going to have one of those deals where like, "Hey, America, I really hate you I still think you're the great Satan, but China tells me I got to sign this deal." Now that doesn't sound great. That does not sound like a very solid deal. So if you are a leader of country any country any country like Peru. If you're the leader of Portugal or Peru, the moment the deal gets signed, you're probably thinking, "Hmm, I should dig some holes and stick some oil barrels in it." And so I think that it's going to be very difficult for oil prices to come down because inventory rebuild is going to be a big part of the story of the next 18 months. And we see that. If you look at the chart of SPR –

Dan Ferris:              Up and downstream. Yes.

Marko Papic:            In the American Strategic Petroleum Reserve, it's the lowest it's been like this century. Much of that is President Biden's fault because he drained it to manipulate prices after Russia invaded Ukraine, even though we didn't actually have any loss of supply in that geopolitical event. Which was kind of surprising. But we did not, we did not lose any supply. It just kind of like moved around the world. Russian oil went to China and then Europeans bought more Saudi oil. It didn't actually change anything. And yet, U.S. SPR was drained significantly. So when the war started this time around – President Trump did have 12 months to refill it. He did not. And then he walked into this conflict with SPR already low. Now it's even lower.

                             So just think about all the demand that's going to come in from just this kind of "just in case" inventory rebuild.

Dan Ferris:              Yeah, that's – it's hundreds of millions of barrels in the U.S. and lots of sovereigns have these strategic reserves that have been run down during this.

Marko Papic:            And if they don't, they're going to build them like that.

Dan Ferris:              That's right. That's right. They're sure as heck going to – if they can get a better price maybe after a deal is done, they sure as heck are going to say, "We're not doing this again." Yep. That's right.

Marko Papic:            Well, I think that's like the big picture here. What President Trump has done in six months is actually kind of extraordinary. On one hand, with Venezuela, which I do think is the greatest special forces operation since the Greeks entered the wooden horse. This is just a fact. President Trump basically said to the rest of the world, "We're America. We've got Delta Force. Rest in peace, Chuck Norris. But we still got it. And any natural resource that we want, we're going to get." So he did that.

Now, I'm sure a lot of viewers are going to be like, yes, this is awesome. This is exactly what we should have been doing, these short, clean operations. The problem is it creates demand. Like it creates this latent demand for those natural resources because you've just now signaled to the rest of the world – if we as Americans like a cobalt mine in the Congo, if we like Venezuela's large reserves, we're just going to go and get them. So that's the first thing. It creates this like, oh my God, the world is splitting into one of those computer games like Age of Empires. We all need to send our little villagers to go mine. So that's the first. The second thing, in the Middle East, the second operation that President Trump did this year, which did not go as well as Venezuela. That's the Iranian conflict. There, the president has basically illustrated to the rest of the world that America is not really interested in long military commitments. As he said initially, this is a short excursion. He hasn't really increased military presence in the region to follow up. And that's fine. It makes sense. The problem is that now if you're an ally of the U.S, you're also sitting there going like, "Hmm, I'm not sure how committed these guys are to these international forays." So, why does this matter? I think it matters because it raises the latent background geopolitical noise.

Dan Ferris:              Mm-hmm.

Marko Papic:            It's going to weigh on leaders around the world. And so, of course, they're going to start hoarding. We're going to enter a world where physical assets are hoarded. That's where we are, because America's neither operating under the old elitist assumption that they're just going to be the world's policemen, so they're not interested in that. And in fact, in some ways, they're kind of interested in piracy. Like, oh, Venezuela, I like your oil. Yoink. And so what that creates is just – all I'm saying is like if you're not an American enemy, like if you're Peru or Portugal, as I said, if you're Poland, I'm just using alliteration, all the countries I can think of that start with letter P. It doesn't matter. You're going to sit there and be like, "I need to get my hands on some oil, on some cobalt, on some lithium, on some rare earths, and store them because I just –" this world is really messy, right?

Dan Ferris:              Is this like – I feel like I'm hearing like, post-COVID supply-chain concerns that were nonexistent basically. We all accepted that stuff comes from China, stuff comes from here and there, and that's the way it is. But now it's not that way at all. And this is just another – this is just more evidence. They're talking about building pipelines over in the Middle East, more pipelines to get around Hormuz.

Marko Papic:            Yes.

Dan Ferris:              So that they don't have this problem again.

Marko Papic:            See, that itself, that in itself is a physical manifestation of a geopolitical concern. So they're not hoarding something, but they are using steel to build a pipeline. So you can really simplify this even further. And I think this really matters for investors. And I think this is going to be the best and the most relevant investment thesis for the next five years or so. Basically, think of American hegemony as a global superpower, as a geopolitical hegemon. Think of that as software. That's software that was running the planet.

Dan Ferris:              Yeah.

Marko Papic:            The software was, you turn on planet Earth and it's the American flag. It's like Windows. That was your software. And suddenly, we all kind of decided, including Americans in particular, by voting for President Trump twice, some would say three times – so, Americans have basically signaled to the rest of the world they don't want that operating system anymore. And the rest of the world also doesn't like it because they think it's mean or it's not fair. And so everyone's decided that the U.S. is no longer a hegemon. So we're now running under a different operating system. And I've been saying to my clients that that's called multipolarity. No one's really in charge. It's kind of like a schoolyard with no bullies. It's just fights free for all, all over the place.

                             Now, OK, cool. We can talk about what that means and what you and I have and blah, blah, blah. But here's the interesting thing. The hardware that used to run this software, it's intimately interrelated with the software itself. So, the physical infrastructure of planet Earth, the physical infrastructure is built for America. It's like that old saying –

Dan Ferris:              Of everywhere, of outside of America everywhere.

Marko Papic:            Of everywhere. And let's be very specific so that clients know, the folks watching this know what I mean. All of Canada's pipelines go to America. Why? Why didn't they build a pipeline to China or Europe? Seems like they should have. Why not? America is a reliable ally. They will never consider annexing you, right? Right? Right? All right, here's another one. Here's another one. Australia, an island that unless you want to be on a ship for six weeks, you kind of use airplanes for, to get on and off, Australia imports refined kerosene from South Korea. Really? That's like half the planet away. It's two maritime choke points away. So why was Australia comfortable with this arrangement? Because America. America's got it. Don't worry about it. Saudi Arabia, UAE. Spending more on fake new islands that they put homes on, like Nepal, or Saudi Arabia paying Ronaldo. Why? Why not build pipelines to avoid a choke point on top of which sits 90 million people of the Islamic Republic of Iran? Why not? Well, because again, America. Germany, a country with a proud – well, maybe not proud, wrong word, but certainly a military tradition. Can't defend itself against Russia. How is that possible? Because America.

So as we go down the line of all these examples, you have all these quirky realities in planet Earth where you're like, "Hmm, that's weird." And the answer is always, yeah, but America's in charge. They got it. They'll make sure that kerosene gets to Australia. And then suddenly, not only does America not make sure that your kerosene gets to Australia, but it's actually the country that's causing it to be in peril. And so that's what I mean. I think the biggest thing that is going to drive markets over the next five years is this rebuilding of the physical infrastructure. Because what has to happen now? Australia needs to build a refinery that can refine kerosene. Obviously, Saudi Arabia and UAE have to build more pipeline infrastructure. Kuwait is actually the most exposed. They have to do it. Germany has to arm itself. Canada has to diversify. And this is kind of – there's that adage, all roads lead to Rome.

Dan Ferris:              Yeah.

Marko Papic:            That is literally what I'm talking about. Why do they say all roads lead to Rome? Because during the Roman Empire, obviously, all of the physical infrastructure was focused on delivering goods and services into Rome. That's the planet we live on. But both because of what other countries want and what Americans want, we no longer live in that planet. So all of this physical infrastructure cannot be levered to American empire. It needs to change dramatically. And I think that that's going to require a lot of copper, a lot of steel, a lot of iron ore, just a lot of physical stuff. It's not going to need an iPhone app. This isn't a world of software. This is a world of hardware. And by the way, I didn't mention AI once, but AI is, at least for the time being, a very physical thing because we need to build the infrastructure. So, when you add the AI build-out on top of what we're talking about, oh boy, just like a lot of stuff.

Dan Ferris:              Yeah. And I have and others not – before me in the past year or two or three – have generalized even further on top of this that like for the, certainly like in U.S. markets, Wall Street, the narrative for the past decade or more, more has been let's find the most capital-efficient business we can, and that's been software. It's been the digital economy, right? And now I feel like the data-center build-out has finally run the digital world smack dab straight into a cliff made of copper and steel and all kinds of other things.

Marko Papic:            Electrons, yeah.

Dan Ferris:              Yeah, yeah, yeah. That's right. It's atoms versus bits. I forget who put it that way. Somebody, smarter people than me have written complex-sounding papers about this. But it seems that we have finally run headlong into the idea that some of these capital-intensive things, they might be a little tough to own for 20 years, for the last 20 years, but for the next five or so, there's a lot of capital that's headed straight at them.

                             And you can even see, like, some folks I know have done work on commodity prices, and they focused on copper and said, well, at the time, a couple years ago, we believe the incentivization price that brings capital, that should bring capital into a copper mine, is about $5 a pound. And then they noted at the end, they said, but wait, history suggests the incentivization price has to go to $10. So the supply response, in other words, we should expect the supply response to be a little delayed. I do not believe we're going to suddenly start building lots of nuclear power plants in the U.S. We're talking about it. People are paying more lip service to it than they did 10 years ago. Refineries, same thing. We're closing them down. We're not building them. And you can permit one. I noticed this when I did recent research into the most recent one. You can permit a new full conversion, major 200,000 barrels a day or whatever, but you can't build one. You just can't.

Marko Papic:            Well, yeah, it happened. I think what you're describing then is this inflationary kind of brute.

Dan Ferris:              Yes. Right. Exactly right. And that's why the longer rates are headed up partially. That impact is starting to be felt.

Marko Papic:            Yeah. And I think that it's simmering. The brew was just there simmering, cooking, cooking. And everyone's saying, well, AI is going to change the world. And it may, just like that refinery in Brownsville will eventually deliver 200,000 barrels a day of refined product. But to get to that, you need to build it. And so that's where the Hormuz conflict really comes at an inopportune time. We were on the back burner of the stove simmering, and then you threw some cayenne peppers into it and some jalapeños and poblanos. That's what we did. And now it's really kind of overflowing.

And that's why there's two forecasts here really. There's one for the rest of this decade, which I think owning industrial metals is just – even after they've gone up, that's been my favorite trade for the last two to three years. It's still going to be my favorite trade for the next two to three years. But what about the next six months? Well, in the next 6 months, the problem is that the central banks are going to fall into a trap, especially in the U.S. where I think the Fed has been the most dovish, probably of all central banks out there. We had the leadership change. Most of Wall Street expects Kevin Warsh to be dovish. Excuse me. Sorry, I just got a little bit of too much travel and talking to clients. So, Kevin Warsh. Yeah. Kevin Walsh came in. The expectation is he's going to cut rates. I just don't see how he does that. Look, I'm the geopolitics guy. I do not believe the Fed is independent. I don't think the Fed has ever been independent. However, the problem specifically after the midterms is that I can even see President Trump coming over to the side that – yeah, inflation is a problem. And this happened in late '21 when Joe Biden finally realized that that was the case. He did that primetime address at the end of '21. And then [Jerome] Powell basically started raising rates after that. The midterms are therefore an interesting moment when I think during the midterms, the Republicans are going to realize that this affordability thing is a real thing. And I'm not sure that they have any ideas how to fight it other than to give the Fed a mandate to raise rates. So I do worry about us restarting a hiking cycle.

Dan Ferris:              Yeah, I think that's more likely than – at this point, it's more likely than cuts. And if you look at the, well – but what do you think, like the Fed is, it's this backward-looking entity. So it's not like we're talking about it cutting in June, or sorry, hiking in June. Are we?

Marko Papic:            No, no, no. God, no. No, no. It's really December and beyond.

Dan Ferris:              OK. Right.

Marko Papic:            It happens.

Dan Ferris:              If it were to happen, build up some backward-looking data, right?

Marko Papic:            Oh, for sure. First of all, the labor market is strong. That's what all the indicators are showing. There are no cracks showing up. And that's what Kevin Warsh really needed. He needed some more weakness. Last year we had some weakness. There's actually a recovery now in the labor market, but not in wages, which is the worst kind of a situation because inflation has taken real income down significantly in the U.S. And so people have jobs, but they don't really have means with which to sustain consumption. And so that's on one end of the spectrum. On the other end of the spectrum, asset prices are going up. And inflation is going up. So I think by the end of the year, the S&P 500 could very easily be at 8,000, CPI approaching 4.5%. Were you going to cut? That's highly unlikely to happen. And again, I think the midterms are going to be a real problem because I do expect the Republican Party to get trashed in the midterms. There's almost no way for that to be averted.

Dan Ferris:              Yeah.

Marko Papic:            And so when you come out of it –

Dan Ferris:              That would be the expectation just historically, right?

Marko Papic:            Yes. Yes. That's just historically, the sitting president always loses the midterms anyways. But now I think it's going to be like a lot of things are compounding. We can see the popularity, we can see all that. So the reason that matters for investors is because the White House tends to kind of make a change after the midterms. They have to show that they're serious about something. And I think that it could be that Trump gives – he doesn't like call for higher rates, but kind of just says one of those things like, "Hey, I'm OK with Kevin Warsh doing whatever Kevin Warsh thinks he needs to do."

Dan Ferris:              Right.

Marko Papic:            Which he, by the way, said two weeks ago. It wasn't really picked up, but because people assumed he wasn't serious. Now, here's why I think this matters because of all the other things we're talking about. So as you said, Dan, just because the Fed is hiking doesn't mean it's a bad thing.

Dan Ferris:              Right.

Marko Papic:            But to be very clear, oftentimes the Fed is hiking because things are too good. So that's the first thing. My concern is that we've got a lot of IPOs coming onto the market. IPOs are not always a sign that it's over. They're not. Empirically speaking, that's not the case. But these are historically big IPOs. Like historically big.

Dan Ferris:              Biggest ever. Yeah.

Marko Papic:            And it's like three of them. And a lot of investors were investing in Magnificent Seven to give themselves exposure to AI. Now you can invest in AI. So you can sell your position in Mag Seven to finance your position in newly created AI. But my concern is that I'm not sure the global liquidity – not just American, but just globally – if the central banks are hiking, I'm not sure it's going to really match the supply. So you got to think about stocks like a product, like an iPhone or a cup. There's supply, there's demand. We're bringing a lot more supply to the market. There are headwinds to demand, higher interest rates, maybe higher dollar. And just the fact that a lot of sovereign wealth funds that were probably going to finance some of these IPO issues are going to be buying some Ukrainian drones and building some pipelines.

So you've got a lot of things happening at the same time that I think is creating a more pernicious supply-demand dynamic when it comes to stocks in 2027. It's not guaranteed that this leads to a bear market at all. Plenty of IPOs have happened like Facebook, like Alphabet, didn't do anything to the stock market, right? But I would say that that's the ones that people almost always bring up. The 2010s were a weird time in that there was a lot of cash on the sidelines. Bonds were yielding 1.5%. What do you think that tells you? It tells you that people were overinvested in bonds. It was post-[great financial crisis]. The default setting of the median investor was the world's going to end any minute now. And so there was plenty, plenty of supply. Sorry, there was plenty of demand for new, hot, interesting stocks.

Dan Ferris:              Right. And the overall share count number of issues has declined throughout that period.

Marko Papic:            And it also did that. And actually, if you look at it on a sort of comparison historically, the Facebook and Alphabet IPOs actually were not historically huge. Interestingly, this one is going to be. And so, I would compare this more to 2021, like SPAC craze, 2000, all the 2000s.

Dan Ferris:              Yeah, absolutely.

Marko Papic:            Although you had 400 companies, this is just three. I think – I don't want to put this as a silver bullet out there for why people should turn bearish at the end of '26. No, but it's one of the things that are kind of being tossed into this simmering brew that's on our back burner, and that might be brought up in the front.

Dan Ferris:              Right. And another thing about all the issuance in, like 1999, really into 2000 – at first, when it really started ramping up, the market kept rising.

Marko Papic:            Yes.

Dan Ferris:              And I've got this paper in front of me. Well, not quite in front of me, I guess. I've got your thing in front of me right now, but I've got another tab with a paper on it that said basically that retail was really, really, really in love with the Internet and helped drive this stuff higher. There were a lot of people shorting in institutions, but they maxed out their short capability and they didn't have any supply to short anymore. And then all of a sudden, all these IPOs started unlocking and then it was open season. And right now, there's a similar thing, I think, retail investors, I feel like, have come on strong since the advent of the meme stocks. And now there's like zero DTE. Wow, if you ever told me that this was going to be a thing, I never would have believed you. What? Zero days to expire? People buying options that are going to expire? That? No, that's – yeah, and they're crazy about it. So I feel like there's a similar – there's an analog there, too, somewhere. I'm not describing it very well, but I feel like there's an analog.

Marko Papic:            So, I think you're right. Look, most millennials and Gen Z investors, they, they're not saving for a house because they've given up on it. And so they're fully invested. And there's no – [crosstalk]

Dan Ferris:              Yep. And [crosstalk] it's gone, too. The Robinhood, no commissions. The friction is gone.

Marko Papic:            The friction is gone. Nobody's in cash. So I do think that when you think about all this new supply coming on line, what are people going to sell to buy? I think retail investors, the answer is nothing. They're fully invested.

Dan Ferris:              Mm-hmm.

Marko Papic:            So I think from just a supply-demand dynamic, I think that's an important point. And then at that point, you're really just hoping that the AI capex story continues to be growth, contributing to growth. The problem is that this is where this concept of the second derivative is so important. And most people just don't – they're not comfortable with the concept itself. I hear a lot of times my clients, sophisticated ones running hundreds of billions of dollars, they tell me, "Well, Marko, there's so much fiscal stimulus. U.S. budget deficit is at 6%." Well, that actually doesn't matter. Because that's not stimulative. If you have a budget deficit at 800% of GDP, but it's 800% every year, it doesn't matter. That's no contribution to growth because what GDP growth is, it's a rate of change. So the way that it gets impacted is by a change in a rate of change variable. So when we when we try to gauge whether the fiscal policy of a country is actually stimulative, you want to see it change in an ever-increasing amount of fiscal deficit. Similarly, the reason I make this prolonged intro is because AI capex is slowing down. Now, somebody will say, well, that's ridiculous. It was $650 billion last year. It's $700 billion this year. It's $800 billion next year, Marko. That's not slowing down. Yes, but it went from $200 to $400, from $400 to $800, and then to $900.

Dan Ferris:              Yeah.

Marko Papic:            That's a slowdown. It's a slowdown in the pace at which it's changing, in the rate of growth. That's the second derivative. And so, you've got potentially central banks raising interest rates. You've got all the supply of IPOs. And then our growth engine, which has been an exponential growth in AI capex, normalizes, slows down. It hits some limiting point of copper, electrons, steel, and labor. You cannot actually build $3 trillion worth of data centers. You can't. You cannot get – the picks and shovels and real estate and land and, and electricity to do it. You just cannot. So we're reaching that limit, and I think that that's the third bearish ingredient for our brew. You've got 1) which is inflation leads to higher interest rates. The second is the IPOs, which increase the supply of stocks. And then the third one is that our growth engine has not been the consumer, has not been spending for the past 18 months, 12 months. It's really just been this pace of AI data-center build-out. And I think that's going to normalize, which is negative.

Dan Ferris:              I kid you not, Marko, I'm sitting here writing the next issue of my newsletter and my notes are the IPO flood and rising interest rates. I just, I'm missing your – I'm missing the AI piece and I'm probably going to put it in there and say, "My friend Marko Papic pointed out a third thing," because that's where we are, isn't it? I'm– confirmation bias is whatever it is. But when certain people agree with me, I'm like, yep, I was thinking the very same thing. And it – if Warren Buffett agrees with you, you feel good about it, right? So it's like that for me.

Marko Papic:            Absolutely. Yeah. Well, I'm glad that you're writing about it, too, because That makes me feel good as well.

Dan Ferris:              Yeah.

Marko Papic:            But you know what that means, though? See, I said six months.

Dan Ferris:              OK. Yeah.

Marko Papic:            The problem is that I once wrote this report. It was actually one of the best reports I ever wrote. The title is "Maybe I'm Not That Smart." And what I meant by that is I had this elegant view. And I said to my clients, it's going to articulate itself over 18 months. So I wrote that in December. And by January, I was like, "Wait, I think this is happening right now." And so in February, I wrote that piece saying, look, quite often, guys like us – Dan, you and I, other strategists out there – we think we're seeing around the curve, but we're actually seeing something coming right at us. And so, when I hear that you're thinking along the same lines, and I know that I'm not getting that much pushback other than that, don't worry about it, people are going to get fired, so they're going to cut rates. But when you realize that there's not that much pushback, you start realizing, oh, wait a minute. And then that Friday action, we're recording this June 8, the Friday before this Monday, you had a pretty significant downturn in stock markets around the world – South Korea is down 15%. In two days. Granted that puts it back to like mid-May, huh? In terms of performance, but still, like you know, South Korea is trading like bitcoin. Like these are signs that there are, I think, problems beneath the surface that I think are far more serious than the Strait of Hormuz. That's – so I'm absolutely ignoring Strait of Hormuz. I have been for the last three months. I mean, that's not true. I'm not ignoring it. I'm writing about it every day. Obviously, clients want to talk about it. But to me, that has not been a reason to be bearish. I just think that we're going to be in a situation in a month, two, maybe six months, where people say, huh, that's weird. The war in Iran ended and that was actually kind of close to the peak.

Dan Ferris:              Yeah.

Marko Papic:            I think that that's what's building up.

Dan Ferris:              Yeah, for me, it's not – Hormuz isn't a reason to be bearish, but it is a reason to think about that supply chain we talked about.

Marko Papic:            Yeah. For sure.

Dan Ferris:              And capital going into all kinds of physical stuff that it hasn't gone into, you know, some chemicals and other things.

Marko Papic:            Fertilizer.

Dan Ferris:              Yep, fertilizer. So, yeah, I – same page there, too. We got to find something we disagree on.

Marko Papic:            I like big dogs. I see you have a very cute – look at that.

Dan Ferris:              He's small. I had to grab him because he's had surgery and I had to keep him – I have to keep him still and he was moving around too much. So –

Marko Papic:            If I– if that happened to my dog, I wouldn't be able to – I would have to curl into the bed with him because he's a 150-pound Great Pyrenees.

Dan Ferris:              Yeah. Yep. Very lucky that he's only like 10 pounds. So, we are actually – this is actually a good place. We've landed at an ideal spot for me to ask our final question, which is the same for every guest, no matter what the topic. Even if it's a nonfinancial topic, it's the identical question. I hope you don't remember. You've answered it a couple of times before, but it works better if you don't remember it. And it's a simple idea. It's for our listeners' benefit. If you could just give them a single takeaway, a single thought today, what is it you'd like to leave them with?

Marko Papic:            Yeah, I think that adage we mentioned, all roads lead to Rome. Well, what if Rome is no longer there or doesn't want you to come to it? You've got to rebuild those roads.

Dan Ferris:              Yep.

Marko Papic:            That's it. That's it. That's the world we're in. America was Rome. And it's not like there's another Rome. It's not like there's China. No. It's not like Europe. No, no, no, no. The planet Earth doesn't always operate under a single country or two countries leading it. That's a fallacy of our recent history. So all of us in our brains, all we can really remember, all our parents, and quite frankly our grandparents, can remember is either a world where one country was in charge or Cold War. That's it.

Dan Ferris:              Right.

Marko Papic:            Like who remembers the '20s that's still alive or '30s or the 19th century? But the interesting thing is the default setting, default setting of planet Earth is a multipolar world. We're in it or it's not going away, but all roads still lead to Rome, which makes no sense given the kind of world we're in. That's what I would want to leave everyone then, just like, that's it. So you want to invest in, I don't know, probably road building, right? That's the point.

Dan Ferris:              That's right. One of our better picks has been Construction Partners, R-O-A-D.

Marko Papic:            Oh yeah, there you go. That makes sense. You got to build a bunch of stuff for this new world we're in.

Dan Ferris:              Yes, you do. Thanks a lot for that. And thanks for being here, Marko. It is always a pleasure to see you. And I look forward to seeing you again in Vegas too this September.

Marko Papic:            Yes. And I hope that by Vegas, my cold is going to be away so I'm not like coughing and sneezing on stage with all of the great clients of Stansberry. I apologize a little bit today. I've been a little raspy in my throat, but it worked out.

Dan Ferris:              It sure did. It sure did. Thanks again.

Hey, who doesn't love it when a smart guy agrees with you, huh? And so, Marko and I agree that there are some headwinds that will probably appear. I'm thinking and he's thinking in 2027, right? Lots of IPO issuance that's unlocking. Higher interest rates likely due to more persistent inflation over the next several months. And the Fed will need to get – they'll look back at the data and they won't see it until December. And then they'll start hiking rates. So yeah, plus AI sort of – the capex boom sort of running out of steam, continuing to rise, but at a much slower pace, which it already is, as he pointed out. So there's real reasons to sort of expect things to be kind of OK for the rest of the year. And then maybe the market will really kind of correct, if not experience quite a drawdown, maybe starting in spring, mid-2027. I don't know. I don't know when, but next year sometime. If he and I are right about this – and if we're not, hey – he's picked plenty of stocks that'll go up. I've picked plenty of stocks that'll go up. So you take these warnings for whatever they're worth, but it is good to hear them at certain times. The one time when they turn out to be right, you want to have heard it recently. So that was great.

I always love talking with Marko. He's one of the people I feel like we shouldn't do one hour, we should do three hours, because we didn't even really get into China. We didn't get into that. And we didn't get too deep even into AI, like the impact in industries. We talked about the global supply chain. I've got probably 15 to 20 different industries that I think are going to be impacted by that building that he talked about. All roads lead to Rome. All roads lead to the U.S. these days. And those roads need to be built because not everybody wants to come to the U.S. anymore, so to speak.

                             So yeah, there's a lot to talk about with a guy like this, and we'll have to have him back soon and talk about a lot more of it. And he's going to be – you should come to the Stansberry Conference in Las Vegas if you're not already planning on doing so. Marko has been there before. He's a great speaker. He's got great ideas. He gives you plenty of ideas to – real stocks to buy and things to think about. And I'll be there and lots of folks will be there as usual every year. All the Stansberry folks are there and it's a good time had by all. It's in Las Vegas. Of course we have a good time. Stansberryconferencevegas.com is where you can find out more and sign up for the conference. So do that, stansberryconferencevegas.com.

So that was another interview and another great episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I really truly did. And remember, hit like, hit subscribe, and sign up for our free daily e-mail.

Announcer:             Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company, or affiliates.

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