In this week's Stansberry Investor Hour, Dan welcomes Paul Podolsky back to the show. Paul is the founder of investment management firm Kate Capital. Paul believes that while the world is complex in how it functions, it can still be understood, and he reflects that in his investing and writing.

Paul kicks things off by explaining why bond yields are rising. He says there's an increased amount of borrowing caused by the U.S. government and the AI build-out. Normally, the U.S. government would run a budget deficit during a crisis. But amid the ongoing Middle East conflict, the economy is healthy and the spending is coming from the government creating supply. Additionally, AI companies are in a "cage fight" vying for supremacy, and they're spending heavily to beat out the competition. Paul believes that folks should understand how the bond market operates because it does impact their daily lives...

I think it's so wonderful because it makes the world real. You read some article [that says] "Republicans and Democrats are arguing over a budget impasse." How does this impact my life? And the answer is very mechanically. If there's more debt, there are higher interest rates. If there are higher interest rates, there's lower [price to earnings]. That is directly [impacting] your savings.

Next, Paul discusses the two sectors responsible for the majority of earnings in the S&P 500 Index: AI and oil. The conflict in the Middle East has driven the price of oil higher, resulting in the drilling companies profiting from obtaining more of it. And the bonds and debt that the AI companies are issuing will be reflected in the earnings of companies that they are servicing (i.e., a Meta Platforms bond creating earnings for Dell Technologies). Paul says that debt creates supply and the goal for the companies that take on debt is to illustrate what the future will look like. But they have to be careful that they get it right, especially when there's a lot of competition. Paul says investors need to be cautious in picking the right company and avoid taking a "basket approach" mentality...

If you look at car companies at the beginning of the 20th century, there were 30 car companies that were competing. If you invested in a basket of all 30 of them and said, "I don't know who's going to win, but somebody is going to win," your return was awful. Only one of all those companies, Ford, turned out to be profitable. So [that's] a 1-in-30 odd of picking the right stock... This is the tricky thing about the modern world. Why go into all this geeky stuff? Well, either you play or you get played... This system is Darwinian. You have to understand it.

Finally, Paul shares how he finds new investing opportunities. He looks at data for various countries and uses AI to synthesize the information. He then looks at all the moving parts of each country (real yield, price to earnings, bond earnings) to make sense of the data. That helps him avoid risky areas and find attractive sectors. But unlike most stock investors who see it as a chance to buy more shares, Paul tries to avoid massive drawdowns. And he'll also get out of a trade if he can't understand why its price is moving (down OR up)...

If prices move, I have to know why they're moving in my portfolio. And it can be that they're moving against me and I'm losing money and I don't like it, and I'll get out. Or it could be the opposite. But for me, it's symmetrical. [You] must understand why prices are moving. And if you don't, you're guessing... When I go to bed and I wake up in the morning, I should have a picture in my head of the way the world is operating before I flip on the screen.

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

(Additional past episodes are located here.)

The transcript is coming soon.

This Week's Guest

Paul Podolsky is the founder of Kate Capital, an investment management firm. For many years, he was a strategist and investor for Bridgewater Associates. Paul has published three books and hundreds of essays. His most recent book is called The Uncomfortable Truth About Money: How to Live with Uncertainty and Think for Yourself. He studied at Brown University, the Fletcher School of Law and Diplomacy, and the Maurice Thorez School of Foreign Languages.