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Language: en
Ray Delio recently said the next 5 years
will be a period of radical disorder
money printing Rising inflation a
potential banking prices and a whole lot
of debt threatened to shock the global
markets and many people including
today's guests believe that something
approximating World War III has already
begun but even if that's all true we
can't control it whatever hand we're
dealt we have to figure out a way to
play it well so I bring you Arthur Hayes
the controversial macro investor who's
going to provide a master class on
navigating these difficult
times what are the signs that you see on
the horizon that a financial crisis
might be headed our way I absolutely
agree there's going to be a major
financial crisis probably as bad or
worse than the Great Depression sometime
near the end of the decade before we get
there we're going to have I think the
largest bull market in stocks real
estate crypto crypto art you name it um
that we've ever seen since World War II
and the reason I believe that is if we
back up to like
1945 essentially Europe blew itself up
China was destroyed by a Civil War and
and Japan uh Russia essentially fought
the War for everybody else and you know
massive destruction so if you look
across the world the only country that
was left was uh the US and you know they
had a manufacturing base that was
unharmed from the war and they
essentially rebuilt the war and reaped
them enormous benefits and we're still
you know people who American are still
living off of uh those benefits today
but at the end of the day everybody
started believing this thing called you
know Keynesian economics which basically
is if something gets in trouble the
government should rush in um spend money
if they don't have the money the Central
Bank should print it and you know
everybody collectively in the world
depending no matter if you're you know
what sort of ism you believe in
subscribe to this this Theory and what
that means is you know we all have
collectively agreed that the government
is there essentially to attempt to
remove the business cycle like there
should never be um bad things had
happened to the economy and if there are
we want the government to come in and
essentially destroy the free market so
every time we've had a financial crisis
over the last you know 80 years what
happens the government rushes in
and they essentially destroy some part
of the F of the free market because they
want to you know save the system and
what does that mean it's like
whack-a-mole so every time there's a
disturbance you know the central banks
like you know the Federal Reserve in the
US they come in they print money they
enact a bunch of regulations and they
basically say okay we don't want this
sector to fail we don't want you know
the creative destruction that is
so-called you know capitalism if you
actually believe in that um we don't
want that and every you know five seven
years there's another sector of the
economy that's essentially price fixed
and so we've gotten to this point where
you know globally central banks have
basically destroyed the free pricing
mechanism in just about every single
sector of the financial economy except
one which is the the Government Bond
markets because they're so large so
unruly that it's practically impossible
to essentially remove the market forces
from this part of the market but the
problem is right now we're going to try
we've you know gone from I know 100%
debt to GDP globally to about
360% um as per the roal bank and we are
accelerating the amount of debt that
we're adding onto the pile why because
in the rich world including China Russia
and Brazil we've stopped having enough
kids so the population is actually
declining so if you have all this debt
and you don't have more humans being
born to essentially do stuff to pay it
back um the only way to ensure this
system is solvent is for the governments
and the central banks to start printing
money uh and now we've gotten into the
situation where we have all this debt
that needs to be rolled over we have a
population that has been told that hey
you're good anything ever happens we the
government are going to come in and
we're going to make sure that you know
you have enough food to eat you got
Health Care um we're going to protect
you blah blah blah right and all that's
expensive especially as you have less
and less humans who are doing productive
stuff and so we're just going to keep
adding on debt because that's the only
way the government can stay in business
and now we've gotten to the situation
where there's so much debt that and it's
accelerating in an exponential fashion
that in order to save the market this
time right so I think in the next three
to six months there's going to be some
sort of Major Market disturbance and
probably in the US Treasury or other
large Global bond market markets and the
solution is going to be let's print the
most money that we've ever printed to
try to save essentially this Fiat
Financial system that we've created um
since World War II which is going to in
the first instance create a massive bull
market in anything you know like stocks
crypto real estate things that have a
fixed Supply um maybe they're productive
they have some earnings and then after
that we're going to find out actually
the government can't save everything
they can't just print as much money as
they think to try to save themselves and
um fix the price of the the yield of
their bonds and we're going to get a
generational collapse and hopefully that
doesn't coincide with a major global
conflict usually it does I hope it
doesn't uh because I don't really want
to live through World War III While I'm
Alive um but that's sort of the my
overarching like macro cycle thesis so
you know massive top 2026 time frame and
then um you know some sort of you know
Great Depression like situation
happening towards the end of the decade
if we want to take a look at the
progress of human civilization of the
past 150 200 years it's all predicated
on
hydrocarbons um the moment we started
extracting oil uh commercially out of
the ground and turning it into thousands
of different products that we all use
every day that basically Powers our
modern
life um development supercharged right
you know we went from I don't know how
many billions of people in the 1970s to
today a population more than doubled
right and that's all because we were
able to harness this particular type of
potential energy of the earth that's
underneath us okay and we we've piled on
all this debt we've brought forward all
this future growth and we haven't really
innovated on another form of energy that
makes us that much more productive you
know maybe if the world started adopting
nuclear um today immediately like small
nuclear reactors in our cars our
Apartments powered by nuclear energy
maybe we'd have a chance at growing our
way out of this debt or you know if
there's some magical alien that comes
down and gives us you know some basic
resource that allows us to tap a new
source of energy and like we can
commercialize it instantaneously yes
then we could pay back all this money or
if the population doubled overnight
right to 16 billion people then okay
great we've built all this stuff there's
more people that need to use it okay we
can pay back this debt but borrowing any
of these you know you know I like to say
it takes 18 years to make an 18year old
so it's pretty much impossible to create
humans on a thin air no matter what any
politician tells you and you know we're
not really you know what we've seem to
be doing is um in certain countries is
saying you know hydrocarbons are
worthless we want to use these other
forms of energy that are less dense less
productive and somehow think that we're
going to grow our way out of this debt
which is is mathematically impossible
there's just no other way other if the
government wants to save itself by it
than printing money and printing money
isn't growth it's just a piece of paper
out of fer and once the population
thinks hey there's more and more of
these pieces of paper floating around
there's only so many real Goods there's
only you know there's only so much oil
there's only so much electricity well I
guess I should be consuming everything I
can now that's not actually generating
real growth if we just print our money
in J real growth then Rome would have
survived Zimbabwe would be the richest
country in the world same with Argentina
we've had you know the the Yar Republic
in Germany like if this was the answer
there's plon of other you know societies
that have tried this and the sit the
result was always the same massive
inflation and then social unrest and
collapse with the government so I think
we've proven over thousands of years of
human history that printing money is not
growth it's a Shima and and at the party
lasts for only so long and then you know
it's Bad News
Bears this is the thing that really
freaks me out about what Ray alio is
talking about is the predictability of
this cycle and what I want to do you're
really good at explaining this I want to
go through the different things that
build up to this moment this this
inevitable moment and then one of the
things I want to make sure we talk about
later is getting the timing right on
this is next to Impossible and so uh
that's going to loom in the background
but first I wanna I just want to go
through the things now you said that you
hope that this doesn't all happen in a
moment of political instability but I
would like to quote Arthur Hayes to
Arthur Hayes here real fast uh this is
from th this is the opening line from
one of your recent articles you said
World War III has already begun whether
the mainstream media and political Elite
wish to acknowledge it or not
um so let's talk about the political
instability we're going to get to the
debt we're going to get to the banking
crisis inflation all of that um but set
the context for us right now what what's
happening right now that unnerves you
from a a political standpoint so for
whatever reason and I don't know why
Western Europe starting and then America
following has it in for Russia and I
know if you read the I think it's mender
um his um Global home Island theory that
he wrote want to see in the early 19
early 20th or end of the 19th century
whatever he was a very famous um War
strategist and he basically said that
the the home island is essentially EUR
Asia right so think of China
Russia um Western Europe right whoever
controls that portion of the world
controls the world and so if you think
about the naval Powers such as Great
Britain and the US let's talk about
Great Britain first right what was the
British foreign policy all about in the
19th century and early 20th
century preventing a strong continent
whether it was France or Germany they
didn't care they just don't want a
unified Europe now as Russia
industrialized in the late 19th century
they started to worry about okay what
about Russia right we can't have an
alliance of German strong Germany after
bismar uh United Germany and and Russia
because Russia has all these Commodities
that would be the worst thing that could
ever happen for us great Britain and
Naval power so what did they do that you
know a series of
alliances that you know precipitated
World War I which was let's make sure
that Germany and Russia are not friends
and
essentially that was a strategy going
into World War I you know obviously that
blew up what was the strategy in in
World War II you know if you take a look
at the rise of Hitler and you know all
the different you know Western powers
that were okay with Hitler as long as he
was going to turn his army and just
fight Russia right you know Hitler wrote
about this he said we want to create the
space for the the German people to ass
eradicate the Slavs in Russia and and go
in there and the Western n was perfectly
happy about that because again what do
they want they don't want a United Home
Island they don't want a United Eurasia
because that threatens the the hegemon
you know Great Britain out the time
obviously that didn't work out so well
Hitler turned his army on on the other
half of Europe um and then everybody
started fighting
again uh and then we ended that war and
then what we were left with we were left
to the United States versus Russia again
and again it was all about let's make
sure that you know Russia and China
aren't align or um Russia and the rest
of Russian Europe are in a line that's
why you know us poured however many
billions of dollars through the Marshall
Plan into rebuilding Western Europe to
make sure it was a Bull workk against
Russia and the virus of of Communism and
you know
I forgot I was reading a recent book it
was called the wars of
Asia um 1911 to
1949 and the author made a very good
point about why communism is so hated as
a form of government to anything that's
not communism and the reason it is
because you know obviously communism has
its flaws but at it's the kernel of
Truth for lots of people is we're going
to completely uproot the the social
system we're going to replace the
classes that are oppressing us it's not
like okay it's one class of who was
running things we're going to go over to
this other class of Elites which is like
socialism fascism you know capitalism
it's just one group of Elites versus the
other communism is let's destroy the
whole class of Elites and bring the
people up to power now obviously that
never actually happens but in the
beginning it does and so if you're a bua
intellectual and you know and one of
these other systems you're like I can't
have communism take over I can't have
the actual workers rise up replace me as
an entire class and then try to rule
which is why they hate communism so much
and so you know the Russian system and
what they're trying to export in terms
of an ideology is so is so hated in in
the you know liberal Democratic or
pseudo fascist
West and any case the the US is now you
know locked the heds with Russia to make
sure that a divided Eurasia because a
strong Eurasia um will control the world
because it controls most of the natural
resources of the world and most of the
population and that's been the US
foreign policy since the end of World
War
II fast forward to you know the 90s when
the Soviet Union collapses the US
response was not let's do another
Marshall Plan and rebuild Russia it was
let's um incentivize a bunch of former
gangsters now called oligarchs to come
in and take all the natural resources
impoverish their people and move their
wealth to London and New York right and
so that was the policy now out of that
came you know essentially Putin who was
all about about let's build a strong you
know revisionist the Russian ideal
believe it or not whether you think
that's good or bad but that's his appeal
to the Russian people is hey you guys
suffered through the end of the Soviet
Union the West was not your friend you
know they stole your I'm here to
rebuild the Russian for the Russian
people believe you that that's his
message to his his constituents you know
you can like it or not like it and so
now we're at the situation
where um Russia invades Ukraine
and the West pumping in resources to
essentially fight them using the blood
and the Blood and Tears of the Ukrainian
people it's not Americans fighting it's
not European you know NATO Europeans
fighting yet right so it's a it's a
proxy war between Russia and the West
obviously Russia is tacitly supported by
by China and the rest of the world is
like well we don't want to part of this
this we're trying to be nonaligned we
don't want to get involved in this thing
so we have this sort of the setup of all
over again of what was happening in in
the late 19th century of the West
aligning to create a divided Eurasia and
so you know we can call it a a conflict
or a skirmish or whatever but you have I
don't know how much how many billions of
dollars have been authorized by US
Congress to essentially ship weapons
into Ukraine you have NATO shipping in
weapons um different countries providing
intelligence so that the Ukrainian
forces can attempt to stymy the Russian
Advance now while yeah there's not boots
on the ground from from the West in
Russia to our knowledge maybe there are
I don't know it's it's basically a war
um and so you can you could make the
argument that World War II has already
started um it's just not this hot super
kinetic you know I'm gonna throw my
nukes at you kind of thing um that we
had in the last World
War now why do you think this matters is
this going to play out in Energy prices
is it going to play out as a a debt
problem um why does this become uh part
of the backdrop of uh the the context
that will lead to this coming financial
crisis so at the end of the day right
human civilization is a transformation
of the potential energy of the Sun and
the Earth into useful economic work
right so cheap Energy prices equals
Prosperity Russia is the largest
commodity exporter in the world um they
have oil they have natural gas they've
got you know Metals they've got food
right Ukraine the Ukrainian bed Bread
Basket was one of the largest wheat
exporters in the world sunflower seeds
oils all this stuff is is in this in
this region and now we've the West has
decided that we're no longer going to
trade with Russia on paper now if you
actually look at the details you know
India China some of these other
countries are basically just buying the
Russian stuff refining it selling it
back to the Europeans and the Americans
at a higher price right so the the the
result of this policy of let's ostracize
Russia is let's just raise prices on our
energy inputs globally and so there gu
the war is causing the inflation that
now the central banks have to fight by
raising interest rates which then
bankrupts the banking system because
they now have all these bonds you know
that are underwater so the this ideology
we need to fight Russia to you know keep
the Eurasian Island um fractured is the
proximate cause of the inflation that's
causing the financial crisis in the west
itself so it's a dumb policy but it is
the the natural result of what happens
when you say I'm not going to trade with
the largest commodity exporter in the
world I think it's important to break
down exactly the cocktail of things that
go into making a um an economy weak this
was something it took me a long time to
learn and for anybody that's been
watching the show for a while they
they've gotten to go on this journey
with me of figuring out how all this
works the debt cycle exactly what
happened with the banking crisis
inflation all of that um how does how
does this begin does it all start with
the money printing which leads to the
inflation which causes the banking
crisis what comes first how does this
ball get rolling so you know the
situation wouldn't be so bad if there
wasn't all the money picking prior so at
the end of the day you let's take the US
for an example because it's the largest
and richest country um in the world my
you know opinion is thesis is you know
back in the you know
1970s the US government made a tcid
promise to the Baby Boomers and they
said hey go out work spend your money
don't save we got you we're going to
make sure that when you get
old you're going to have health care
covered by the
government and don't
worry you can be as energy inefficient
as you want two cars in a garage driving
all you know all over the place not
supporting public transportation we're
going to make sure that where there's
Oil we're going to get it so our defense
budget is going to be
astronomical and so the baby boers are
great we're you know we're going to go
out there and live our lives and consume
the most that any generation ever has in
human history us baby
boomers and what's happened Health costs
continue to rise now they didn't rise so
much starting until maybe five or 10
years ago because these are they in the
productive years of their life but now
and I'm sure probably you've had some
guests on talking about they call us
sick care right right the the amount of
money you spent at the end last 10 years
of your life dwarfs all the money you
spent preceding and the way the
incentives work in the US Healthcare
System there's no incentive to actually
have preventative care it's you know
when you get sick let's stick you up in
the H hospital and like just go to town
on on the insurance company which
essentially is a US taxpayer because of
Medicare and Social Security now no us
politician and I don't care if you're a
Republican or Democrat or third party
whatever can stand up there and say I'm
going to reform the US healthare system
and guess what baby boomers who are the
richest cohort and the most politically
active your health benefits are going to
decline you will not get re-elected um
and so these two programs are s are sync
you also will not get re-elected saying
hey we're going to really tackle this
you know the this runaway us defense
budget we're not going to go around the
world bombing everybody to make sure
that you have enough oil so that you can
have the newest you know badass pickup
truck in your uh in your garage guzzling
oil you also will not get reelected so
Healthcare and defense these these line
items in the government budget cannot be
altered under the current political
system and what has been promised to the
people over the last 50 years which
basically means that as the population
gets older and as the world becomes more
multi-polar meaning there's other
Challengers namely China who are saying
hey this quote unquote rules based order
that's determined by 4% of the
population doesn't work for the rest of
the 96 of the population that never got
to say and what this order was we want a
new order we want to we want to have our
own Commodities we want to have our own
material wealth we also want to eat a
bunch of beef and and drive a car right
if you think about the per capita energy
uses of the world for it to match the
United States on the global level we
require an inordinate amount of energy
that we just don't have right that just
means inflation so what our country is
doing is say actually we're going to
keep our stff stuff for ourself will
only export finished products which
makes things more expensive and so this
is all happening before we even got to
what's going on today and as we've had
less and less kids because rich people
have less kids and when women have the
choice of contraception they choose not
to have as many
children the the Federal Reserve is like
well okay we don't have any growth of
humans we don't have any you know we
have an escalating cost of keeping the
political promises we made to our people
the only option is to print money to
make sure that the government can fund
itself at at an affordable level and
every time there's a financial crisis
instead of reforming the the the banking
system and allowing some people to fail
they it's print money to make sure that
the banking system is sound and the goal
of the banking system is to take the
people savings and hand it to the
government that is why the banking
system must always be saved from the
government perspective because that's
what it's there for um and different
countries use their banking systems in
different ways to essentially get to the
same goal of funding the government at a
cheap level and so that's why whenever
the banking system is threatened the
government or the Central Bank must come
in and save it by printing money so
we've gone through this situation you
know coming up in today where you know
the US went from I don't know 30% dead
to GDP in the 1980s to 130% today which
is you know a massive amount and if you
read U forgot the other other Professor
name rogoff wrote a piece about um debt
May 2011 the book came out I forgot what
um when sometime in the last 15 20 years
and the empirically showed that once a
country crosses about 130% debt to GDP
there is always a default and a default
could be massive currency depreciation
it could be massive Financial
repression or it could be some sort of
uh default in in the Government Bond
Market every single time no exceptions
right so they're at this level already
and now the comes and the inflation is
part and parts a result of there's less
humans doing productive things the war
on climate change and the rebuke of
hydrocarbons and then more players in
the world wanting getting assertive over
their natural resources saying it
shouldn't just all go to the United
States and Western Europe it should come
to our people we should enjoy the same
standard of living that we see in the
Hollywood
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today the idea that 130% debt to GDP has
always historically equal default I've
never heard that before um that's
troubling uh we'll come back to that so
the the idea of money printing this is
what I want to Anchor people around so
okay so you you you make all these
promises to a gigantic generation that
generation does not replenish themselves
so they're not more people to be
productive and take care of them and so
your only tool that you have is to start
um using debt the only way to manage the
debt is to print money to not default on
it and now walk us through uh this took
me a while to really get my head around
the idea that money printing is
inflation inflation is simply saying
that the the the amount of money is
inflating like a balloon compared to the
things you can buy with it so since
there are no additional things to buy
then people just start charging more for
the things that are on offer because
there's more money floating in the
system um how accurate is that that's
that that that's basically it right
there's the denominator I the amount of
money is just growing infinitely and
then the stuff the finance stuff and I
think about Finance stuff is energy
right we produce and that is in my
opinion hydrocarbons because that is the
thing that powers our entire Global
civilization I don't care what you
believe about the good or evil of oil
but your entire Modern Life is
predicated on oil whether you believe it
or whether you want to believe it or not
and so it's not as if we've gotten that
much more productive in pulling oil out
of the ground or have found or you know
decided to commercialize nuclear energy
energ which has been around since I
don't know the 1960s right for whatever
reason we as a civilization globally
decided to ignore this amazing energy
source and poo poo it now if we had
decided back in the day to commercialize
nuclear and spend the amount of energy
and money that we have spent on wind and
solar on making nuclear the safest
possible energy usage in the smallest
possible um delivery mechanism we might
not be in this situation but those are
the political choices we made as as a
ization so the energy the amount of
energy and how much energy we''re
producing every year is not growing an
actual fact like we hit peak oil you
know a while ago
meaning the entire growth of the the oil
industry has been predicated on us Shale
and the the number of new discoveries
and new wells being drilled is declining
precipitously because Shale depletes
itself very quickly but it's not like
we're finding a new Saudi Arabia every
10 years no you know these massive oil
discoveries um we're just not making
them like we were in the you know 60s
70s 80s and so more debt the amount of
energy we're producing is is is flattish
and so that's why we're going to have
energy inflation and when you have
energy inflation you have Goods
inflation because every single good we
use is a derivative of energy so this is
a unique take at least for me you're the
only person that I've heard anchor
everything around energy I've heard you
say and and this is really important for
people if they want to understand the um
point of inflation and why it becomes so
problematic is that uh what you're
really trying to do across time is
preserve your purchasing power uh as it
relates to the amount of energy so
energy is going to determine the cost of
a flight energy is going to determine
the cost of a car energy is certainly
going to determine the cost of gas uh
Plastics on and on and on like even when
it's not Plastics can be confused
because made of the same substance
roughly uh but even just to to do the
the creation all of that stuff requires
energy which right now obviously the
main um uh the main source of that
energy is still currently coming from
fossil fuels so understanding that that
you're in this race against that so now
you've got two problems problem number
one is what you just laid out that we're
flattish we're not finding new Saudi
arabas uh every 10 years which would be
lovely and would certainly um help make
that easier setting aside any obviously
potential um uh global warming issue but
just from an an energy cost standpoint
so then problem number two becomes that
we're inflating the money supply and so
now the cost of that is already going up
um so what I want to get into so if we
know that we have this magic mark of
130% debt to GDP is going to equal a
default we're already at 130% debt to
GDP but we have two promises help
Healthcare and that uh to keep the
prices where they are from an energy
perspective we're going to have to run
around the world uh defense um to make
sure that we have access to the flows of
oil um we're going to be doing more
money printing now walk me through what
are some of the things um that are other
than that because the crazy thing is is
you listed those two I wasn't even
really thinking about those two as being
something that's going to cause us to
inflate I was thinking about uh for
instance the btfp bank term funding
program so which is basically um stealth
money printing quantitative easing just
under a different name um it's actually
bigger than the coid stimulus which was
4.1 trillion so walk us through what are
some other things that you see on the
horizon that are going to lead to more
inflation um so that's sorted in the
past in the future we have
essentially the rest of the world and
you know call it the non-aligned
countries they don't subscribe to the
West I.E NATO or um the China sphere
right there go hey we're a bunch of
countries we've been impoverished ever
since pretty much forever um we have the
natural resources that are needed to
power the Green Revolution um we have
hydrocarbons uh we have people who will
come into the US and be your nurses um
we'll clean your toilets we'll take care
of your children right this is what we
have U we want to keep these resources
for oursel now we don't want to choose a
side China or the us we just want to get
wealthier ourselves how do we do that we
trade what do we trade we trade know
higher value Goods right so an example
would be um Indonesia a large producer
of of nickel one of the largest in the
world um Joko W Doo the the president of
the country has recently banned the
export of raw nickel he said You know
guys you want some nickel come down to
Indonesia build some sort of
manufacturing plant and Export the
refined
product um so I think if I read the
statistic recently they went from about
um uh a billion dollars of economy
around nickel when they were just
exporting um the raw stuff to something
about20 billion do of value added when
they were said guess what guys you need
to build stuff to employ our people to
elevate the standing of our country so
this is just one country the rest of the
of the world is like why the are we
letting these guys come down here own
our natural resources not give us jobs
and then send back the raw stuff and
then we import finished goods right
that's been the entire um structure
since since World War II and why stuff
is very cheap in the US and Western
Europe relative to how expensive things
are in in the rest of the world and so
they're fed up with this uh and now sort
of they've broken the the ideological
position you know conditioning you know
maybe some of the leaders who were on
the take from all these countries or the
longer power and they're like we want to
be like the Americans and the EUR
Western Europeans we've seen the movies
we want to be like them why can't we be
like them well we're going to stop
giving you guys all of our stuff
essentially almost for free and so this
is just a movement um resource
nationalism this is what it called um
koreal soala from 13d calls it the the
uh allegiance of the grieved the grieved
being anyone who suffered you know
postcolonial issues from essentially
being um an economic vassel of you know
some European nation or or America and
so they are saying they're they're
gaining their voice again and at a time
when the you know the appetite of the
western public to go and knock heads
against the wall is is declining and so
you have the situation where the the raw
stuff that powers the awesome standard
of living that's that's in Western
Europe and America is going to get more
expensive because it doesn't come from
those countries themselves and in the
case of America America has all the
stuff it ever needs it's just that the
companies in charge would rather ship
all the stuff out to you know third
world countries and have a cheaper labor
base than employ Americans who are
expensive right um Europe's not so lucky
uh but I think that is a s source of
inflation that's only going to grow as
the rest of the world says I want to
live the Hollywood movie
too okay
so the when I think about some of the
stealth liabilities that we have um the
number starts getting pretty scary when
you think about the um the buildup as
we're having this big party there's all
the stimulus coming in um one what do
you think is going to trigger that you
said in three to six months you expect
some sort of big disturbance what kind
of big disturbance are you looking for
what are things that you know the
government is going to um Pony up for is
it just the things you've listed so far
Healthcare defense um and then the
banking sector or are there other things
that people aren't thinking about in
terms of liabilities there's no way
they'd let go down yeah so at some point
I need to write an nessing on this but
essentially the over the last you know
40 to 50 years the financial ecosystem
um has been predicated on a scenario
where there's never been a a situation
where long end so it's call it 10 or 30y
year bond yields in the US um rise so
they go up but they go up faster than in
short-term yields it's called that's
never
happened for a sustained period of time
no over the last 40 50 years it's called
a bear steepener right so if I'm a bank
I'm an insurance company I'm a pension
company and I'm going to model what I
think the future's going to look like
I'm going to model the way the future's
looked for the past 30 40 years which is
every
time the there's an issue and uh yields
go up the government comes in and prints
money and squashes that down they squash
the volatility down in the markets
because they want to save the banking
system they don't want anything uh
anything to blow up but now because
we're in a situation at least in the US
Treasury Market where the US government
is the issuing the most amount of debt
ever right Federal deficits like seven
or eight% of of GDP it's it's as if
we're in a war this is you know the
largest longest sustained sort of
deficit since World War II but we're not
in a war you know at least not um an
over one uh you have 7 point I think
7.75 trillion US dollars worth of debt
must be rolled over by
2026 massive amount of debt that's just
on the US side so who's going to buy it
right the the traditional buyers were
one China Japan right China and Japan
are not buying any more us treasuries
China because it doesn't want to become
more tether to the dollar from a
geopolitical safety issue um Japan
because it's also facing an issue in
their bond market where their currency
is getting trash because they are also
trying to save their bond market Japan
thankfully to themselves have saved a
lot of money over the last 30 40 years
and so they're now starting to draw down
on that money they're not buying new
treasuries they're starting to sell
treasuries China's starting to not buy
new more treasuries they're starting to
sell treasuries and you can look at the
official data from the US Treasury you
can see the the balance of treasuries
owned by China and Japan are declining
on the the oil exporter side right
talking about OPEC you know Russia is a
big member of OPEC Russia is obviously
not buying any more treasuries they just
ban them from the the Western Financial
system um Saudi Arabia is not increasing
its treasury position it's also
decreasing so the oil exporting Nations
who previously would earn dollars
internationally and park those dollars
in the US banking system and buy
treasuries they're no longer buying
treasuries the US banking system the US
banking system is functionally insolvent
because The Regulators made the rules in
such a way that it was profitable from
an accounting perspective not an
economic perspective um to essentially
take in deposits and Buy Low yielding
treasuries and they could do it with
almost infinite leverage and a few basis
points difference in the in the change
in the price and everybody make a lot of
money and everybody gets a big bonus
right so the banks collectively bought
all these treasuries in 2021 and
obviously the prices went down a lot
since then and that's why we have the
the regional banking crisis so at a
structural level the US banking system
cannot buy more debt because it can't
afford to because it's functionally
insolvent and so and and you know that
leaves the Federal Reserve but the
Federal Reserve has committed to doing
quantitative tightening which means it's
letting the treasuries roll off of its
balance sheet it's not accumulating more
treasuries so the treasury has to issue
all this new debt it has to roll over
all this new debt but the major buyers
of this stuff for all their own you know
disperate reasons cannot purchase it and
so what we're seeing in the markets is
relationships that held clad are
breaking down if you take a look at the
the 10-year US Treasury versus gold you
would think as yields are rising in the
US Treasury Market that gold would be
getting clobbered that's how it's worked
um uh in in modern Financial history
because if the interest rate is high
money says I want to own that I want to
own the 4 and a half% treasury versus
owning gold which pays me nothing but
nowadays Gold's holding firm it's not
like Rising crazy in a crazy fashion but
it's not getting clobbered either as US
Treasury uh 10year yields are at you
know was 4 434 basis points last time I
checked um so hold on that that makes a
prediction uh at least as my mind grasps
it that people think think that the bank
is going to default because uh sorry the
government's going to default because if
you're getting whatever risk-free money
of it's right now it's like something
like 5% uh if you can have risk-free
money at 5% and people are not fleeing
gold to get into that risk-free money at
5% that says to my limited mind that the
market no longer believes that it's
risk-free is that an accurate uh
assumption the
market US debt is risk-free in a US
dollar persp perspective on a nominal
basis why would people stay in Gold
because they say I'm not getting paid
enough right um now I I use a term of
real yield and if you ask an economist
you get a different answer depending on
who you ask my definition of the real
yield is I take the government bond
yield and I subtract nominal GDP right
so if I'm lending money to the
government from a philosophical
standpoint I should receive at least the
yield of the the growth of the economy
so if the economy is growing at 10% I
should get paid 10% too because I'm
contributing to that right I'm lending
to the government the government is
doing its thing you know and the economy
is growing I should get paid the same
amount now from the government's
perspective you're like hold on I can
make a profit if I can somehow engineer
the economy to grow at 10% but I only
pay you 5% that's a negative yield I am
IE of the government and making a profit
or conversely if the yield is 10% and
the econom is growing in 5% than me the
bond holder is earning a profit but
right now the economy in the US if you
take a look at the latest um Atlanta fed
GDP nowcast and they have a real time
guesstimate on with GDP is running
nominal GP this quarter is running
around 9% the 10year yield is about
4.34% so I as a bond holder I'm getting
short changed now people are starting to
realize like hold on the US economy on
paper is growing like Gang Busters I
should be getting paid more money if I'm
not going to get paid more money then
I'm not going to own these bonds because
I can own something else that's going to
give me a better return whether that's
stocks gold crypto whatever right is
just to just to take a noncontroversial
one would gold ever outperform that
number in terms of the the yield yeah
because the way you're explaining it
sounds like people are cutting their
nose off despite their face like if
you're going to get 5% risk-free with a
treasury and you're going to get next to
nothing with gold then why on Earth
would you even if you could get 10% even
if you have a moral just you have moral
outrage at the government for keeping
half of that yield for themselves which
I admit if you loan the money to the
government it's pretty fishy that they
would keep that for themselves but if
you're getting a better yield then you
would get from gold what on Earth are
people doing um just saying I'd rather
get nothing because I'm angry I don't
understand so you know most people who
own bonds that hold them the bond is a
price right so as the yields rise the
bond price goes down um and so as yields
go from 5% to let's say 10% so the F
just keeps raising rates right as a
holder of the bond you've lost money
because the yields are they're Rising
the bond price goes down right so as
yields rise I lose money because I've
locked in the lower rate and it's going
higher the bond price goes down um
versus gold which you know could go up
right or just could stay flat at the end
of the day and I'm I'm fine so if you
take a look at returns of 10year bonds
starting in two end of 2021 when the FED
started raising rates you've gotten
absolutely killed it's been the worst
Bond bear markets in hundreds of years
right so owning bonds has been a
terrible terrible investment over the
last last two years because inflation is
going up and the bond market saying
actually I demand more yield and the g
keeps going higher and higher and higher
and higher to attract more and more
buyers now if the US government is
perfectly willing to put the 10- year
treasury yield up at 10% they'd have a
flood of money into the market that's
awesome I'm getting paid the same growth
as the US economy but right now I'm not
because the government can't afford it
right now the treasury is already
spending something like 30 4% of um the
budgets like interest payments on an
annual bas4
34% yes so it's a$1 trillion do
annualized right now is the interest
expense as of uh second quarter the last
time the Trey published statistics so
they're issuing more debt and they're
paying more money in the debt and that
number is just going like that um in
terms of the interest expense handed out
the people who own own bonds right but
on the long end and this is how bonds
work the the longer the maturity the
more risk more sensitive you are to
interest
rates especially if the bond the yield
starts at a low level going from 1% to
5% on a 10year treasury absolutely
destroys you as a long Bond holder which
is why a lot of these bond funds have
done terribly well have done terribly
over the last few years because of how
Bond math works and it's it's a
nonlinear change when you raise interest
rates and how the bond price performs
gold is pretty much help constant um
over that time you haven't made money
you haven't lost money but if you were
holding a long Bond at 1 2% and now it's
at five you've gotten crushed and that's
exactly what happened with the banking
system you know svb First
Republic uh silvergate signature you
know um this year they've gotten crushed
on Long Long bond
trading okay I want to walk people
through that uh so I when it comes to
math I have a very simple mind you're
going to correct me where I go wrong but
I think people at home some of them are
going to benefit from what I have
struggled over the last year or so to
put together in my mind again you're
going to when I go wrong you need to
jump in and and let people know uh but
here is how I understand bonds if you
hold a bond to maturity you're not going
to lose your principal so what you're
losing is potential earnings so you
would not be able to sell that Bond so
uh for those keeping score it goes like
this you buy a bond that bond has a a a
interest payment and that interest
payment let's say is 2% and if you buy
that bond for 10 years to get the 2% and
a year later a new Bond comes out for 10
years that pays 5% now if you try to
sell that bond in the secondary Market
people are going to go why on Earth
would I buy that when I can for the same
price I can get a better yield and so
you have sort of lost money in that you
can't sell it before the mature date you
are now going to have to hold it all 10
years in order to get all of your money
back but if you hold it for all 10 years
you will get your 2% and you will get
your uh money back assuming that this is
a Government Bond and they don't default
so that I I want to make sure people
understand the difference between you're
losing potential Revenue because if you
didn't have your money tied up in a
10-year bond and you could now put it
into that other 10-year bond that's
earning 5% obviously you would be better
off but you don't lose your money unless
you need to sell now that brings us and
you will notice he has not interrupted
me so I'll assume that's all well I'll
give it even more
a even closer to home example people who
have a mortgage on a house right I think
this is even more understandable like
everybody rushed bought houses in 2020
2021 and the yelds I don't know mortgage
30e mortgage rates in the US are around
three three and a half per. and now
there's another job and another location
or maybe you're living in a high tax
state you want to move to a low tax
state right and you need to buy another
house same value of the house the price
of the house is the same but you need to
get a new mortgage now the mortgage
rates are 7even eight% and you're like
holy I can't afford this house
anymore because my this mortgage this
this bond that I have at 3% is more
valuable than the bond or the mortgage
at
78% therefore I can't find another loan
that I can service with my income
because of the change in interest rates
and so that's I think a even more hits
home example the majority of the public
who own a house or an apartment or
whatever it's oh I had a mortgage at 3%
I can't in the same value of the house I
cannot afford that house in another
location because I'd have to get a new
mortgage at 78% that is Bond math that's
the exact and you can put the same thing
for you know treasuries mortgage is a
bit more complicated but at a high level
that that's that's exactly the
phenomenon you
describing now the mortgage though would
be completely inverse right so on a
mortgage I want my rate going down on a
bond I want my rate going up yeah makes
sense um okay so now let's take that so
we understand that I buy a a longterm
Bond and back in 21 when all the banks
gobbled up all this US debt they had to
go long to get a return which a bank is
incentivized to do so they're going to
take the deposits that they're getting
everybody's getting stimulus checks
everybody's depositing into a bank the
bank's like amazing I'm GNA invest the
first of all the FED is like we're not
going to raise rates oh my God it's
going to be like this basically forever
and so they buy all these long-term
Bonds on the word of the FED that
they're not going to be raising rates so
they think okay well if rates aren't
going to go up then I don't have to
worry about the value of this going down
this will get me a higher yield by me
taking a longer term which uh we need to
get back to because you were talking
about how it's very atypical for short
term to raise faster than longterm so
that's a sign that something weird is
happening but in 21 that hadn't happened
yet so a longterm was the way to get the
extra interest payment so the banks
gobble up these long-term uh treasuries
so they're buying debt
I'll add one little caveat here is you
can actually hedge this stuff so it's
not as if there isn't instruments to say
like okay I bought a bond at 2 3% I'm
worried about a future where the FED
raises rates let me go out in the market
and hedge that the banking system could
have easily hedged a lot of this risk
and some banks did um a lot of banks
didn't but that comes at a cost so I can
either have a higher bonus or a lower
bonus the FED says don't don't worry I
got this no inflation is transitory
never raising rates you know we we never
going above 2% inflation blah blah blah
why would I go out and hedge the long
end rates why would I go out and hedge
rates going up and reduce my bonus so
I'll stop there dude that's horrifying
if that and and look I'm sure it did I
don't want to play naive uh but that's
horrible okay so if that's right then to
get their bigger bonus they buy these
longer term uh treasuries they lock
themselves in now
the FED does raise the interest rate now
that Bond they can't sell it early and
therefore they're losing that potential
income wouldn't necessarily be a problem
except for the fact that people begin to
realize hold on a second now the
risk-free rate of a US Treasury that I
can get myself is 5% so I don't want to
leave it in the bank where they're
paying me next to nothing I want to go
get my 5% risk-free with the government
so hey svb I will take my money thank
you very much and now svb has to cover
that so that they can give you the money
back and now they're forced to sell
these long bonds at a loss and all hell
breaks
loose yep that's exactly it the US
government bankrupted the banking system
essentially that that is brutal when
said that plainly okay so now my
question is they create the uh
I just had it the btfp bank term funding
program which basically says hey
everybody don't worry your deposits are
safe uh but the problem is that puts
them on the hook for up to $4.4 trillion
dollar that they would have to print
their way out of so do we still have a
banking crisis or do we only have a
looming
potential inflation
crisis there is a political Choice there
there you know
either as people say again I don't I
haven't looked at the deposit rates yet
but if you are a non too big detail bank
there's eight of
them um it's very hard to attract
deposits and it's very hard for you to
raise your deposit rate because again
you have this this portfolio of stuff
and your your deposits are not
guaranteed so if I'm a GP Morgan a City
Bank a Wells Fargo I forgot the other
ones the big Banks they have an
unlimited deposit guarantee now they
have to pay a bunch of other charges for
that but if I'm a depositor in those
Banks I know I'm there is no question
the politicians have told me I will get
100% of my money back no limit if I'm
not in one of those Banks I have to
think to myself okay is this Bank going
to get saved is this going to be the
Leman brothers or is this going to be
the Goldman Sachs which one's gon which
one is it going to be right they let
Leman fail they didn't let Goldman fail
right and so it's the thought and so we
like well why even take the risk get me
the out of here I'm giving my money
to Jamie Diamond right and so that's the
issue people are fleeing because number
one the political Choice has been we are
not going to extend a blinket guarantee
to all these other smaller Banks because
of moral hazard and all these different
things we're only going to give it to
these Banks over here so then the
rational response of the public is well
I don't want to be in that bank I don't
want to have to take the risk that they
decide that this is the bank they're
going to believe in capitalism on I'm
going to go on over here let me go to
socialism I get my money back um and so
I think that's driving part of it and
then the other thing is the rates are
still going up right five and a half
percent you know maybe the FED raises a
couple more times it will be 6% I can
literally two clicks go online go to my
money market account deposit money with
the government essentially and get more
money than my bank can mathematically
pay me so yes there's a banking crisis
we it was smoothed out a bit with the
bank term funding program but it's not
of people have stopped noticing that in
less than five minutes they can you know
go from 0% to 6% interest income that
didn't stop so the bgy crisis is still
there the acute political choice that
the regulators and the government is
going to have to make is still there is
still looming who is going to pay for
these losses on the bond portfolios of
all these Banks I don't know what
they're going to decide but I think
they're going to decide to print the
money and make sure that the electric
gets their deposit back in nominal
dollar terms so that's just my my
opinion so the bank term funding program
does not cover Regional Banks I thought
it did no no it covers it covers banks
that have um eligible Securities so that
essentially means US Treasury bonds and
mortgage back mortgage back Securities
now the big thing that a lot of people
are now focusing on is the commercial
real estate right that's not included so
it's not as if I lent money to some real
estate developer and some Market who's
going to build Office Buildings I can't
take that loan right now and give it to
the fed and get back um 100% of my money
back and in dollars right I can take a
treasury I can take a mortgage back
security I can swap that for dollars I
can't swap commercial real estate which
is a problem because small Regional
Banks were the engine of commercial real
estate lending boom over the last you
know decades whatever you want to call
it so now as we're changing the way we
work and you know two to three days work
from home for a lot of folks these
Office Buildings are becoming kind of
irrelevant and the market has frozen so
now it's a question of okay what when
deals get done how big is the price
decline going to be and then our banks
going to have to write down this this
section of their balance sheet and oh
they're in solvent again or at
least we know they're in solvent again
or what's the FED going to do are they
going to expand the btfp to include
commercial real estate loans because
this was you know this is the thing
that's going down in price or they can
expand it to auto loans or are they
going to expand it to you know personal
loans like all these things that the
banks have been lending out where the
ability to pay or the asset value is
declining that aren't US Treasury bonds
and mortgage back Securities is the btfp
going to be expanded to cover those
because if those go down in price the
banking system still insolv them right
and so yes they've solved one portion of
the market the one they really really
care about which is mortgage back
Securities they want Americans to own a
house and us treasuries they want
Americans to invest in the government
now there all this other stuff they
would rather not have to bail it out but
again the banking system is choking on
all this stuff and they're going to have
to make the political choice at some
point either they're going to let the
non tubic defiled Banks actually fail
and a lot of you know Americans with
small deposits not get their money back
or they're going to come in and save the
day and bail everybody out and print
more
dollars okay I think this is the part uh
in our program where we point out
exactly what inflation is when it was
first described to me as an invisible
tax I was like it didn't make sense to
me and now understanding it better I
realize that what you're doing is you're
saying okay um we're going to make
everybody's money worth a little bit
less so by making more of it then the
value of any $1 just reduces a little
bit and so it becomes a way to spread
the taxation across everybody um so the
real question the government is asking
is okay this Bank whatever they did
something that isn't uh well so we
already know that mortgage back
Securities uh and treasuries those are
going to be one for one but if they have
something other than that they're asking
the question do we want everybody to
have to cover this thing that didn't end
up working out this investment that
didn't work out or are we just going to
let them roll over and die
um as you look at that and when you
think about this three to six month big
disturbance is that the thing that you
think happens that we get some something
triggers a run on these small Banks
could be commercial real estate
starts uh something kicks off and it
starts going down or are there other
things on your bingo card other than the
regional bank failures I mean usually
it's the problems are known it's a
question of whether or not we're
focusing on and we being the market
right so the market knows the commercial
real estates a problem but we haven't
really seen a
big price markdown because no one wants
to trade the sellers don't want to
realize a loss and then have to mark the
rest of their portfolio down and thus
being ins solvent and the buyers don't
want to buy at this price because they
know it's too high so nobody's trading
right so it's that calm situation where
okay well the price is still where it
was you know 12 months ago but there's
no transactions right so once there's a
few transactions when people have to
sell for whatever reason we don't know
what that that it's going to be then
we're going to go then it's the
fiduciary responsibility is okay well
there are these transactions in the
market and I now need to mark down my
portfolio report to my Regulators oh
my Capital buffer is declined
therefore I'm
insolvent and what usually happens is
you know because of the politics they'll
let somebody fail someone's gonna
there's going to be at least one failure
and then the Market's going to
throw a fit um shit's going to be
trading all sorts of up ways and
then you know on one weekend they're
like okay we can't let the next one fail
right they let uh uh silvergate fail in
in March of of this year but they didn't
let svb and by fail I mean silvergate
went bankrupt and the the depositors are
not guaranteed to get their money back
by the the um Federal Deposit Insurance
Company FDIC whereas with SCB and
signature and First Republic they were
bailed out they being the deposit were
bailed out now obviously the bank
management was replaced and Equity
holders lost money but the the
depositors were were bailed out so
usually one person fails there was a
Leman there was a bear before there was
Goldman Morgan Stanley everybody else
City G so they'll probably let somebody
fail first because the politics demand
it once the fear of um looming collapse
is instilled in in The Regulators
they're then going to say we have to
print the money because the system is
going to fail what that's going to be I
don't know I just see that for whatever
reason financial crisis happen in the
fall and in you know the winter in the
northern hemispheric perspective and so
we haven't solved any of these problems
they're only getting worse um they're
getting exponentially worse and the
countries that would usually bail out
the American Financial system by buying
assets for their own reasons can't do so
and so as we progress further into this
season where traditionally Crisis happen
there's going to be something I don't
know what it's going to be that's just
my my my base case and I want to prepare
myself and make sure that I'm able to
make money and uh in a situation where
um sheit gets all up yeah okay I
didn't know that there's a preponderance
of problems in the fall and winter is
that the obvious guess for somebody
that's never heard that before would be
it has something to do with Energy
prices as people have to crank up their
usually so in the past it was
agricultural um issues right so um the
farmers uh the credit tightens in
certain parts of the Year depending on
when um the farmers need credit to you
know buy more equipment to do the winter
planting right they receive a bunch of
money now they need to to draw down on
credit and so that's why you get the
spikes in in uh in credit as we move
through the agricultural cycle and
that's part of the reason why you have
um different federal reserve banks in
different districts is to try to smooth
out that um the demand and supply of
credit between the banks in the East and
the the agricultural regions in sort of
the center of uh center of the country
um and you know every other country is
kind of the same right farmers are
always in debt and they're always borro
money and then receiving lots of money
depending on on how the Harvest goes and
I think that's part of the reason why we
usually experience crisis in harvest
season and then winter planting now you
said the problem is usually known but
it's a question of whether the Market's
paying attention to it or not not what
are some of the problems that you're
already aware of whether the markets
focus on them or not that could be those
um early dominoes that fall so we
already know that the US banking system
is insolvent from us perspective um we
already know that the the major buyers
of us treasury debt are not buying and
the treasury needs to issue a lot of it
that's known um we already know that
commercial real estate in the US is a
problem this is that nobody's trading
right now because of what I just
described you know globally we already
know that um China has this massive real
estate issue and is deleveraging which
means that China cannot contribute to
Global growth in the ways that it used
to meaning um doing massive government
stimulus and essentially buying stuff
from the rest of the world to build up
their country right China's been the
economic Powerhouse of global growth
which leads into the US and European
economies you know since the early 90s
they they have lost their capacity to
stimulate in the ways that they are used
to um Japan has has a problem either
they're going to save their government
bond market or they're going to save
their currency Japan holds is one of the
richest countries from an asset
perspective on their balance sheet are
they going to sell down their treasuries
their you know fancy us real estate um
their Equity positions to essentially
help fund the um uh the ability for
their Central to manage the depreciation
of a currency so these are all known
things there's nothing hiding which one
is the one that causes the spark for
everyone to start focusing on freaking
out I don't know so then as we um start
putting all of these pieces together
what becomes the the next step is there
um the crisis kicks off the money
printing continues and I assume when you
think about money printing an analogy to
use would be a rubber band that's being
pulled farther and farther back and
every failure releases tension because
we those people they lose and we don't
have to make them whole and there's no
more printing there's it's not
inflationary and every time we print
more there's more tension more tension
more tension um is that how you look at
that you're waiting for the Domino the
housing Mark or sorry the regional
banking goes uh the the FED decides
they're going to bail them out we pour a
ton of money into the system uh and
you're just waiting for that moment
where there's too much tension like is
do you see a um when you say a big
disturbance happens do we just load up
more tension on the rubber band but
we're still who knows 10 20 years away
from a real crisis or do you think it
has to break and that's why we go into
the a Great Depression style um problem
so so I think we've moved the crisis
upstairs to the the the sovereign debt
markets and so this crisis will
be the buyers
refuse to buy long-end bonds of a
particular government because we're all
every government's in the same sort of
position different things can set it off
but again Global debts GDP is
360% why on Earth would I as an investor
own a long-end bond when I know that
there's nobody getting
born and there's not going to be an
energy productivity miracle there's just
no way for me to get paid back in a real
dollar a real Yen a real
RB uh at a rate that's affordable for
the government for me to make money over
time so then why own these bonds I'm
perfectly happy to sit in like overnight
you know fed deposits or um short end
bonds of a particular country because I
know I can just sell those pretty
quickly and not suffer any sort of
capital loss but if I'm forced to sell a
10year treasury or or you know a 10e
Chinese Bond or a Japanese Government
Bond 10 30 20 years because rates have
gone up I'm going to suffer a massive
Capital loss so then why even own that
stuff and if nobody wants to own the
long end of the Government Bond
Market the rates will go up a lot and
then the response is some form of either
closing down the banking system so
making sure that depositors cannot flee
to other asset classes and then forcing
deposits to buy
um government bonds uh this is called
fiscal dominance this a theory or it's
the next thing is called yield curve
control where the the Central Bank says
okay we know you all want to leave this
market so we're going to fix the price
at a particular level whatever is
politically expedient whatever is
Affordable for the government we're
going to Telegraph this and we're going
to expand our balance sheet infinitely
to make sure that the rates sit out that
level so in Japan the bank of Japan is
doing this been doing this for almost a
decade where they say they determine a
band of the yield and they say if the if
the yield gets um to a certain level we
will go into the market and buy bonds by
printing money to make sure the yields
don't go up the United States did this
back in the late 40s and early 50s to
pay back the the debt from World War II
by capping long end treasury rates 10e
rates at two and a half perc the Fed was
expanded balance sheet to make sure the
rate is that level so if we get a Revolt
from large asset holders
who say I don't want to own these long
bounds because I know mathematically
there's no way for me to make money um
in a real basis I would rather own
stocks I would rather own crypto I'd
rather own oil field I'd rather own gold
whatever it is then the only response is
to move to the endgame which is okay we
fix the yield and we just print money
until uh as long as it's as it's
required to keep the yield at that level
and once you've gone to yield curve
control
in or something similar in in the US um
it's already in Japan um something might
happen similar in in China and other
places then the question is okay can the
authorities keep the money inside their
banking systems or are there ways for us
the people to get our money outside of
the system so that on a real basis we're
able to maintain our energy purchasing
power and that becomes the real fulcrum
of the crisis because if all the money
is sitting in the banking system and it
can't leave which has been able to do
prior to bitcoin and some of these other
um blockchainbased
cryptocurrencies then they just tax us
all and over time uh the government
basically earns itself out of the of the
situation yes there's High inflation um
depending on how your company your
country is structured maybe it's
hyperinflation maybe it's just you know
High inflation and some governments fall
some governments stay the same but at
the end of the day most The Government
Can Survive but if we the people can get
our money into a type of money or a type
of asset that's outside of the
government control out outside of the
banking system then the system collapses
well that is uh that is a very unnerving
thing said very calmly Mr hazes uh so
okay how give me give me like the odds
here so if if Japan has been doing yield
curve control for a while uh for a
decade you said um I've been to Japan
it's amazing so is there really a
problem because it sound sounds bad but
having experienced if if my time in
Tokyo is what yield curve control looks
like it's not so bad so what am I
missing why is that something to be very
wary of so I think people have mistaken
the fact that we've been able to print
so much money and not have an adverse
effect they're not looking at why what
has changed in the global economy over
the past um let's call it 20 years and
what has changed is China China joins in
the WTO in 2000 and essentially became
the workshop of the world and so you've
lowered the cost of goods across every
single sector because of China and
they're willing to number one degrade
their environment to capture market
share and a lot of the dirty processing
to rare Earths um different types of
commodity
refining um that the west and Japan are
not willing to do um they have had a
growth of young people willing to go
into factory work and do these things at
a very cheap wage um and that is it we
don't have China anymore China number
one is dying just like everybody else
their population is like forecast to be
half of what it is by the you know by
the end of the century China the
population in China has also decided
that they do not want to live in a small
fi Factory and they have told their
government to prioritize um protecting
the environment which basically means
that China does no longer want to
essentially pollute itself so that
America Western Europe and you know and
Japan and Korea don't have to right so
we're going to make these things more
expensive um and so there is no more big
country that's going to join and
essentially degrade themselves so that
the rest of the world the rest of the
very developed and Rich world can enjoy
a higher standard of living even all the
while they're printing a bunch of money
so there is no more that's that's not
going to happen again and so I think
that's what people miss about why we
were able to print all this money over
the last 20 years and not really have
any sort of adverse effects um that's
just not gonna happen
anymore well so I'll ask maybe the UNC
question but the obvious question so
India is still growing um is there
because the the thing that I'm dancing
around is being right about the concepts
but getting their timing wrong is the
same as being wrong and so what I don't
want to do is um get myself all worked
up that you know the sky is falling this
is all going to be bad uh I need to get
my money out of the banking system I
don't want the government to close the
exits I don't want them to force me to
buy things uh I want to maintain my
financial autonomy I want to maintain my
freedom I want to come and go where I
want uh and certainly there are many
many many horror stories throughout time
of governments doing that um and if
there is a way to keep this party going
again I'll just use Japan as an example
you know my whole life I've heard Japan
is in stag flation but again being in
Japan it's it's beautiful and lovely and
there are wonderful restaurants and
exceptional people and for me as a
Storyteller some of my favorite
storytelling comes out of Japan like
there just doesn't seem to be and look
I've never lived there but there doesn't
seem to be downsides it's not like I'm
like oh my God I would never want to be
in Japan I'm like this place is
amazing um so I hear your point about
China and China the just booming growth
and the amount of things that we were
all able to reap the benefits of is as
the you know developed World a little
bit ahead of them uh we were able to
reap the benefits of their transition
period which is just astonishing to have
been cognizant while it was happening
was really something magnificent and
look I was far removed but still had a
sense of how extraordinary their growth
was um are we not poised to see the same
thing in India
so on the Japan thing because this is
called the the Widowmaker trade the oh
my God Japan's dying oh my God Deb to
GDP just only goes in one direction oh
my God the boj's balance sheet is is
going through the roof so Japan is
essentially just like China Japan is a
more successful version of China they
both have run the exact same industrial
Playbook Japan had two nuclear bombs
dropped on it by the United States um
and the US essentially baited a colony
for a bit uh and so what did Japan do
they reoriented reoriented themselves to
making for America and essentially
the Japanese government and the large
companies made essentially a PCT which
said okay we're going to give all the
people jobs for life you work really
hard for the nation of Japan to make
things to you know the grow the
prosperity of the country and but you're
not going to keep all of the
productivity gains right that difference
uh is going to go essentially to these
large companies and they're going to
reinvest that profit back into the
United States and Western Europe
essentially so if you look at Japan as a
country they're one of the richest
countries in the world on a net
investment P um portfolio perspective
they've got like one or two trillion
dollars worth of assets what are those
assets those are that's essentially the
productivity gains of their people or
over you know since World War II so
Japan has this buffer of money that can
cushion themselves they owe the money to
themselves it's not as if um the the
money is owed to you know the the
foreigners out there you really can't
buy Japanese debt in in large quantities
so yes J Japan is a unique situation
where number one they they have a lot of
assets um number two their banking
system is relatively closed right it's
not as if Saudi Arabia can go in there
and buy a billion you know a trillion
dollars with the Japanese bonds they
just won't let them do it right because
they don't want the the the situation
that the United States is in where
essentially Capital holders determine
the the policy of of the nation and and
number three Japan has been you know
very fortunate to use the labor of China
and Southeast Asia to reduce the cost of
Labor if you look at the major Japanese
trading houses and manufacturers and if
you go around southeast Asia you see
there's a lot of Japanese companies who
have factories in all these countries
employing all this labor that's very
cheap versus the very expensive job
labor in in Japan Japan's a very special
case but again all that's running out
because the countries that did not
benefit from the last 80 years are like
well why am I the the donkey for Japan
to make a lot of money or the United
States or Western Europe I want High
wages I want to live in the Hollywood
movie
I want more energy consumption I'm not
going to sell my resources to these
other countries um cheaply anymore and
so inflation in Japan is actually for
the first time Rising it's at I don't
know four or five% highs in in 40 years
the isahi for the first time in 30 years
raise beer prices right so the problem
is when inflation shows up and so when
you exhaust a cheap labor when you
exhaust a cheap energy when you sell on
all of your trillions of dollars of
assets and inflation remains in a world
where the United States is not able to
dictate the flows of energy
unilaterally then your special
circumstance you know since the collapse
of your Equity market and property
Market since the late 80s is no longer
valid and so I think people are making a
mistake by not understanding why Japan
is successful to say oh if Japan did it
they they can be successful let's take a
look at the United States the United
States owes the world something around
$1 to2 trillion the United States runs a
current account deficit and
a budget deficit um so it's a completely
different financial situation than Japan
the United States foreigners own a lot
of the debt the United States relies on
the foreigners to buy the debt to fund
itself at affordable levels it's a
completely opposite situation of Japan
so saying that Japan did it and it's
okay it can work in the United States
misses the differences fundamentally
between the two um the two situations
now on to like you know don't freak out
and go you know move all your money into
gold or what or something and you know
suffer some Capital losses my you know
how I structure my portfolio is to
benefit from both situations I have high
nominal rates right now right I know in
a real basis I'm losing money but
thankfully um as a percentage of my uh
my net worth the amount of money I
consume on food and energy is very low
so even if I have a 5% rate and it's
still a negative real gate on the amount
of capital that I have I'm still making
more than I need to sustain myself so
keep some money in cash put it in a
money market fund you're making five
six% and take whatever you can afford a
small amount and put it in something
that's going to benefit if money
printing resumes that could be Nvidia
stock it could be Bitcoin it could be um
productive Farmland whatever you want to
have a barb you want to make sure that
in the event that the the money starts
getting printed I can easily move out of
my short-term you know money market fund
Government Bond into the risky stuff for
the fixed Supply and zoom up that way or
if nothing happens I'm still earning
money I'm starting earning yield over
here on my my uh my treasuries or
whatever short-term government bonds I
can fund some of my my expenses and I I
run a positive carry trade meaning I've
structured my portfolio such that if
really up I'm going to make
so much money on on the on in that
situation but as long as not it's very
calm I'm still covering day-to-day
expenses and so you want to have a a an
optionality portfolio that costs you
little to nothing if not makes you money
over time if you're able to construct
that then again timing doesn't matter
because you're not paying for time if
you're selling a bunch of stuff and
you've got everything in the risky
bucket yes I would agree with you then
you're like well when is it going to
happen it didn't happen last month and
I'm down I'm down such percent or I
needed to buy you know go to the
hospital because I had an emergency
injury and I had to sell down some of my
this portfolio that I'm like betting on
this collapse and that was financially
ruinous right so it's all about trying
to construct this portfolio where the
cost of waiting is zero to making money
versus you know it's costing me money
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okay so I want to go a little bit deeper
um into exactly how you structure your
portfolio from so I heard the we're
going to do a barbell strategy we want
to make sure that we can move one way or
the other depending on what's going on
um as something starts to pop off but
you said uh risky stuff with a fixed
Supply so hiding in that are are what
I'll call two philosophical principles
risky stuff I'm guessing you mean High
volatility and so explaining to people
why volatility is a feature and not a
bug I think may be surprising to
somebody and then why a fixed
Supply so again we want to make the we
want to basically participate in the
upside to the maximum we can um right so
we want the high volatile stuff we want
the crypto we want the the tech stocks
right um but on when stuff doesn't
happen then we want our brakes so like a
car right you want to go as fast as you
can in the straightaway when you are
racing and you want the best braks
possible so they can take those corners
and and not get wrecked right so the
breaks are cash short-term cash
instruments that are earning yield
that's that's paying you your grocery
bill you're you're filling up your car
tank whatever it is that you need to do
you want to be making sure you can cover
those expenses with some cash in the
bank or in a money market fund or
something like that and hire a yielding
instrument so you can pay some of those
expenses so that when shit's ready to go
oh I'm over here I'm ready to make as
much money as possible when they're
printing money I'm not in this safe
boring thing because this situation
doesn't happen there's not very many
straightaways right I need to make as
much money as I can when the making
money is good and then put the brakes
back on right as if you were a race car
driver that's kind of how I want think
about it okay so knowing that these
trades are excruciatingly difficult to
pull off so for people that don't know
you you manage your own money you've
often said you find it intellectually
stimulating it's fun uh I will ask the
question that better be on everybody's
mind so lifetime are you up or down up
okay good so we know at least your
strategy has worked once uh that's very
valuable so how do we make the
volatility work for us because the
obviously the best advice and and people
laugh at this but I think they laugh at
this at their own Peril because they
don't understand why it's become the
phrase Buy Low sell High got repeated so
many times that it became funny because
people think it's so self-evident but in
reality it's the thing people never do
they almost always buy high and sell low
they buy High because it's hype it's
moving they finally pay attention they
ape in and then it starts trending down
they panic and they sell as it's lower
than when they bought it so um let's
assume that they're going to be uh
emotionally cognizant they're going to
stay calm they're not going to make that
mistake but how do they know which of
the risky assets to do how do they know
how to do volatility
well um it's personal preference right
like obviously I'm in the cryptosphere I
love crypto I understand it um the
volatility doesn't scare me for some
people they might you know that that's
that's too much for me maybe I'm going
to stick with NASDAQ tech stocks I
understand that I get you know I
understand why this particular company
could do well you know I'm going to jump
on the AI Tech it doesn't really matter
what it is right but looking at whatever
it is that you think is going to be your
upside winner look at hold on it it not
only does it matter what it is it's the
only thing that matters because if they
bet wrong they either make no money or
God forbid they lose a lot of money so
the most important thing is not the
upside it's the break the break is I own
right now the break is I own cash and a
five and a half 6% yielding money Mar or
wherever you are in the world whatever
that is like the shortterm government
that's the break that's paying your
bills that's you know paying your rent
that's earning you a little bit of
income right because at the end of the
day you want this portfolio to make you
money while you're wait so if okay to
turn that into to turn it into a
principle you're saying basically you're
going to move into high volatility
something that you have some reason to
believe is going to do well but you
should not be putting more into the high
volatility than you can see go to
absolutely zero you should have enough
in the break category that even if all
of that goes to zero that you're still
going to be able to eat and fill your
tank up exactly because you're going to
know when to move into High Vol St fed
Market panics everything's getting
dumped fed comes in overnight says we
are back stopping the financial system
and we've created some alphabet letters
letters that essentially mean print
money right and it could be you know
pick your different Central Bank and
wherever you're from then you know okay
cash is trash I was earning 6% overnight
now it's zero I'm out of this and guess
what you're not going to suffer any
Capital loss versus if I were in some
other type of instrument May it's a
liquid or whatever right so I can get
out of this thing very easily and boom I
maybe I had some already in my high
volatility bucket but now I'm I'm fully
out that high volatility bucket because
I no longer earning anything on the cash
so there's no why would I have anything
in the other bucket I wouldn't because I
I'm getting zero I'm getting nothing so
I have to go into that because I have to
find something that's going to maintain
its purchasing power once the when the
denominator of Fiat money expands
infinitely so you'll know it'll be it's
not as if like the S&P you know went up
three times the instant that um Ben beri
unveiled quantitative easing in 20 in
March 2009 it took many many many years
it's not like it's
you have time this isn't like oh I
gotta go you know sell this buy this and
I miss it by a day and therefore goes my
return for the next year no you're going
to have time um it'll be very clearly
communicated it's just are you listening
to what they're saying okay so that
makes investing sound easier than I have
uh experienced it to be so the way again
saying very clearly nobody should take
investing advice from me and I mean
nobody I am still grappling to
understand this stuff but when people do
ask me hey Tom with your limited
understanding of investing what do you
advise that I do my thing is always uh
you're going to lose if you try to trade
so don't try to trade meaning actively
like I'm in there oh I got just right
and I'm trading in the morning and in
the afternoon like you're going to lose
guaranteed uh what I would tell them to
do is pick the most Diversified bundle
of whatever whatever uh so whether
that's the S&P or you said AI grow
stocks I don't know if you consider that
high volatility uh but something that
where it spreads your risk that is
commensurate with the amount of
knowledge that you have if you don't
have a lot of knowledge in it then I
would go very Broad and I would be very
careful and I'd be trying to get as
close to rayo's all weather fund as
humanly possible something that's going
to perform four or five% no matter what
happens um that's when you're ignorant
like me that is the the thing that I
would push people towards um
do you agree with that when people don't
know and do you agree if you're going to
get into something that's high
volatility you should only do it in an
area that you understand I think you
need to Define your time span I think a
lot of people think they're like wow I
see this person on TV or Tik Tok or
Instagram or whatever and they went from
Zero to Hero in you know five trading
days they made all this money so I
should do the same thing like if you're
not willing to dedicate 247 of Your Life
Energy looking at a screen then you
should not be trading on on short time
frames so what does that mean don't use
leverage um don't open up the the the
the options trading account or the
Futures Trading account if you're not
willing to put in the work to sit there
and trade now obviously I have a large
ownership in a Futures exchange I'm not
saying don't use my product I'm saying
if you are going to be a day trader then
be a day trader and dedicate yourself to
doing it don't work a day job think
you're going to come home at night for
two hours and just treade yourself into
you know quitting your job right it's
it's a profession it's a dedication you
can do it but be willing to put in the
work to do it if you're not willing to
put in the work to do it then you know
broad-based indices you know different
things whatever you understand
collectively okay I want to own stocks I
don't really know what okay well my
country has a particular Index right
everyone's gonna be a lot of people are
going to be on this buying the same
thing it's a question of taking that
index and combining it with the breaks
that's the the point to be able to both
participate in the general rise in an
asset price prices but not care when it
happens and if you can construct that
portfolio then you can sit at home and
you know not worry about
it not worry about it meaning you need
to have patience for when the moment is
actually right and if you've deployed
Capital into long-term things uh you're
not going to be able to take advantage
of the moment when it comes or if youve
if you've basically thought you're going
to day trade yourself out of this and
you staring at the screen all day and
you're not willing to put in the work to
actually be a good day trader then
you've you've squandered your
opportunity versus is saying okay I
don't know when the timing is going to
be but I know that I have thankfully to
these relatively higher interest rates I
have the ability to both earn some
income on my excess cash and Appo a
small amount of cash into highly what I
what I believe is highly volatile things
whatever that is for you and and that
can allow you to sit there and patiently
wait for the inevitable math to catch up
with the bad
politics okay so let's run through what
you said is is your uh likely scenario
that 3 to six months something bad is
going to happen uh it's going to cause a
ton of money printing but I'm guessing
in the money printing is when you're
saying we're going to have this sort of
jubilant moment uh where everybody is
feeling flush and um I forget the you
said it's G to be some huge moment I I
forget how big you were saying but it's
really going to be wonderful and then
it's all going to lead to uh something
like the Great Depression um how do we
ride that wave and that crash so that we
do well in both moments when the money
printing starts we want to go to High
volatility that's the play yeah so my my
my sort of mental mind cap now is I
think the the biggest Trend in so you
always want to own the new tech thing in
in the in the Bunty bing bull market so
if you look over history the new tech
thing it's been railroads it's been
radios it's been computers it's been the
internet right every single money
printing cycle has a new technology
that's going to fundamentally alter this
modern civilization that we've had since
the Industrial Revolution in the mid
19th century and therefore we all need
to be in that because the way we exist
as humans is going to fundamentally
change and yes that's true in a longer
term
perspective however there's a Mania that
happens so the mania this time around is
going to be AI right Chad GPT has been
the fastest growing technology adoption
ever in human history when from I don't
know Z to 100 million years in however
many days it was it's fast as ever uh so
we are all in on AI and you can look at
Nvidia and some of these other you know
AI related stocks and they do not give
two about this banking crisis
about the the debt overhang the
population issues they're going straight
to the roof right because everyone's
like okay I know AI on a on a long-term
basis fast forward today is going to
completely change what it means to be
human what the human e economy is or
isn't and I want to own the next Google
Facebook Amazon Alibaba bite dance right
I want to be in that company and so I'm
going to start trying to find anything
that's related to Ai and pumping money
into it so on one hand we have the most
amount of money that's ever going to be
printed in human history to try to save
the global Keynesian bond market of all
these governments and we have the newest
technology that has the fastest adoption
in ever in history of a technology
we're going to combine those two we're
going to get the biggest Tech boom Mania
that we've ever seen and it's going to
be predicated on anything related to Ai
and artificial intelligence so for me
personally I have a portion of my
portfolio that is predicated on AI I
actually am one of the largest
shareholders in one of the largest
sextile manufacturers in the US that has
robotic sex dos um and so I did not see
that
coming um the I think we actually plan
on going public at some point so that
stock uh that company I think is do very
well in this boom on the crypto side of
things I've been making the case that um
artificial intelligent economic
agents inherently need decentralization
and therefore they should be using
Bitcoin for money they should be using
ethereum for um smart contracts and
governance and Dows and they should be
using foul coin for decentralized
storage I own all three whether it's
mining companies and filecoin filecoin
itself lots of ethereum I have my family
office we're investing in decentralized
architecture technology that's going to
power the growth and decentralization in
the future and obviously have you know I
have a lot of Bitcoin right so I'm all
in on number one AI in the traditional
sense AI Robotics and I'm all in on the
intersection of AI and crypto on the
technology front because this is the
Mania that is going to Captivate invest
vors to take that money and to funnel it
somewhere because they're not going to
be buying companies like General Motors
I mean maybe it'll go up but that's not
going to be where the the Ze of the
world is it's what is AI the governments
appr printing all this money it's got to
go somewhere it's going to go
predominantly in my opinion to AI listed
companies Venture Capital funds doing AI
investment and so it's going to be
absolutely insane because we're
combining the most money amount of money
printed in human history with the most
destructive piece of technology to what
it is it means to actually be human and
interact in this universe and so it's
going to create fantasies of growth that
will never happen in the time frame that
they say it is but we're going to
believe it as a collective investment
public which is going to drive that so
that's my super
volatile um segment that I want to
participate in um and then on sort of
the the the boring side I will continue
to move money from the high interest
earning you know money Market funds and
stuff as rates start to come down but
I'm not going to do it beforehand I'm
going to wait for them to tell me uh and
usually unfortunately before right after
the fed or any other Central Bank is
printing money there's usually some sort
of financial crash because the reason
they're printing money is something bad
happened so it's not as if they start
printing money and things just keep
going up further things usually went
down a lot something happened they say
oh sh we need to print money they print
the money then things go they they
retake that level and then they go
higher than that so it's a mistake to
think that just because you're investing
now yes if you have a long enough time
frame you should make money if they
print enough of it however it's the p is
very path dependent so instead of trying
to time the market just wait for them to
tell you about it they're going to tell
you but why not just earn 6% of your
money market fund just chilling so I'm
not trying to time when it's going to
happen I have a mental model I'm getting
prepared I'm making sure that we're
ready to make investments and
identifying the things that I think are
going to do very well from a macro
perspective Ive and a thematic
perspective in terms of where I think
the investment public is going to focus
on but I cannot predict the timing and
nor do I want to lose money because I
try to be too cute and predict when you
know something's going to happen or
where exactly it's going to happen in
the financial
system and so when you say that they're
going to tell you meaning we're going to
print money we're raising rates we're
lowering rates whatever the case may be
yeah they're gonna they're gonna come
out say oh because something happened in
the financial system we have now lowered
rates to this we've introduced that
program uh whatever it is right it's
very transparent regardless of whether
it's the Federal Reserve it's the pboc
it's the European Central Bank it's the
bank of Japan Bank of England they're
going to tell you exactly what it is
because what do they want you to do the
Market's already fallen they want you
the investing public to gain confidence
to go and buy stuff so they need to be
very clear about what they're doing uh
and the question is whether you not you
believe them or you're just going to say
no no no I'm just going to stay in this
very very safe thing it's it's fine but
on on a a real basis you're probably not
going to make the money you would like
to make before we get you know Judgment
Day when things go down a
lot okay so if we know that the market
prices in the things that it already
knows um you have to be betting against
the consensus and being right so what
would a well-intentioned person who
disagrees with you say to what you're
saying right now because if it really
was that easy everybody watching this
video would just do that and they make
out like Bandits but of course it won't
play out like that the consensus says
that we're going to have a a a soft
Landing that um these these few men
mostly men very few women have somehow
divined the business cycle and thus can
print just enough money and raise rates
just enough and the inflation rate of
the world is going to come down just to
their level of 2% and the employment is
going to stay the same and we're just
going to go along and be nice and happy
right that's the consensus that these
guys know exactly what they're doing and
they got it so which
means you don't need you don't need to
sell your stocks you don't need to sell
your bonds you know need you just just
sit tight and keep adding more because
there's not going to be any Financial
disturbance because they have it right
and inflation is going to Trend down
right to their level exactly at 2% and
it's going to be amazing that's the
consensus so if you don't believe that
then you believe something on either
extrem is GNA happen either rat's going
to go up really really high or some
Financial disturbance is going to happen
because they keep raising rates and
force them to go right back down to zero
and so my thesis is that when you have
360% Global debt to GDP you no longer
have situations where things happen in a
calm fashion you go to the extremes very
quickly and so to think that all of a
sudden you know less than 100 people are
able to determine how this global
economy is going to somehow soft land
after printing the most money that we've
ever printed in human history and gone
from 5,000 year low of interest rates
Rising the fastest Pace ever um in in
financial markets then you're you know
that's a bet I'm not willing to take do
you know chth
poopaa yes I know chth okay I could be
misquoting but I'm almost certain this
is correct that he he was saying that
you know people make such a big deal out
of this 130% debt to GDP but he it's a
big nothing Burger it doesn't really
matter there's no law of physics that
says that we can't go over it so even
though historically uh that that's been
a sign that has led to collapse given
the modern economic theory and I'm so
this is how I remember it oh God forgive
me chth if I'm way off um but that that
was my take away um so other than it's
very compelling to me that we have all
the historical examples that say every
time that we do this it it leads to
collapse but what do you if you were to
take take his stance for a second um can
you see how maybe it is possible that we
get this soft Landing that they do get
it right that that isn't some magic you
know thing like the speed of light it
can be crossed and people can still come
back from it um and I think you would
say that well I'm just gonna I'm gonna
listen to what they say anyway I'm not
going to make a move until I actually
see it happening
um yeah get could he be right so I would
say we're
investing is a game of probabilities and
expected values so if chatha saying okay
there's been other examples where this
has not been the case but this is going
to be the one example where the markets
just keep grinding a bit higher okay
then you're taking a this is this time
is different mental and every single
time there's been a this time is
different whatever aspect of the
financial markets right the problem is
you're not just getting you're not
getting paid enough for this time is
different this time is different
means um S&P goes up I don't know four
five% right I'm making 6% my money in
cash so why bet on this time is
different if I can earn the majority of
the excess return of Stocks by literally
just putting my money in a money market
fund and I have no risk the Federal
Reserve is going to pay me that money
why take the risk um this time is
different because usually it's not
different it's the same as every other
time but there so I'm not getting paid
enough to be this time is different that
the only way to get paid enough is to
add more leverage which increases your
risk I'd rather take okay well the
everyone believes this time is different
therefore I'm not getting paid enough
for it but the other alternative which
is it's the same as it's always been but
I get paid a lot more money to be in
that camp I want to go there and on an
expected value basis I'm going to make
more money over
time why not if you believe in shath
just put your money in a money market
fund don't buy any stocks why would like
the S&P apart from you know Nvidia and
Facebook and Google and those seven big
stocks has not beaten return on cash so
either put your money in cash and go in
AI stocks and believe this time is
different or just put your money in a
money market fund this there's no point
to take the risk on the General market
for this time is different because it's
never different it's always been you
know this time is different gets
clobbered other than the AI High
volatility stuff do you have anything
deployed in the stock market right now
uh uranium
so I believe that we finally going to
get our our together and somehow
believe in nuclear and there's been vast
underinvestment in uh uranium refining
capacity and as the world moves to
nuclear and maybe the the West decides
that they want to be dumb and not do it
fine but China's going nuclear India is
going nuclear Saudi Arabia is going
nuclear the rest of the world's going
nuclear um and there just not enough
refined yellow cake to go around so um
you know Uranian mining companies in
certain jurisdictions are going to do
very well and um I'm I'm a large well
not large it's my largest Equity
position is um kamiko mining ccj uh it's
up I don't know 80% this year uh so um
that's something that I I believe in as
a longer term Energy play okay so
understanding now then the way that
you're deployed I want to talk about
Euphoria so I never experienced what
Euphoria at the like Humanity level look
like until uh the 2021 2020 2021 crypto
uh rush it it was really fascinating to
watch it it was great and it felt a
certain way so I certainly know now what
to look out for in The Ether um how how
do you think about as a disciplined
investor how do you think about Euphoria
I know you're planning it into the AI
like hey I know people are going to get
their stimulus checks or you know the
bailout however we want to categorize it
uh they're going to put it in into
whatever is the hype thing of the moment
you're expecting that to be AI um how do
you know because I'm assuming you're
going to get in probably not try to time
the top perfectly but you're going to
get in you're going to get some level of
gain and then you're going to come back
out I would assume if we're talking
about Euphoria because Euphoria is I
would say quite irrational and we know
when that clicks over I would now uh be
fearful when others are greedy and
greedy when others are fearful my now
honed Instinct for that would kick in
so I think Euphoria in my perspective is
the the willingness to invest in eLiquid
things that have a beautiful long-term
future so the problem with AI is that to
get liquidity in my cycle time which is
the 2026 time frame you need to have
been investing three four five years ago
right because it takes if you're talking
about equities takes five to seven years
to go IPO for a company so if you're
putting money into a series a startup
today you're not going to see any
liquidity until 2003 you know time frame
well after the ball Market even though
on paper your thing might be up you
can't actually sell it um because it's
not it's not liquid now obviously I do a
lot of um cryptographic token investing
uh and stuff again if I'm signing a term
sheet today due to lockups and whatnot
I'm not getting my tokens until maybe
2027 which might be a little bit too
late for me on on the cycle timee of
perspective so to the extent that I can
I want to participate in my theme which
is AI and crypto in a way where I have
liquidity by 20125 and 2026 so that when
I get the feeling and you're going to
see something I don't know what that
something is whether it's just something
that looks mispriced like I don't know
um FTX has Tom Brady and a basketball
stadium right
that's this exchange that never existed
two years ago now now has our you know
has our logo on top of in Miami and you
know Tom Brady once some some would say
the biggest foot American football
player ever is now stumping for them on
on TV that looks about strange right
there's going to be something that looks
a bit strange that's going to tickle
your mind you're like huh that doesn't
make any sense maybe we've gone too far
when you get that sense you want to be
able to go to your portfolio and
liquidate things now the Euphoria is
that I believe that you know AI is going
be such a transformative thing that I'm
willing to give somebody some money and
not see it for a very very long time and
not be able to to liquidate it at all
and therefore you're going to get caught
off sides when the market all of a
sudden goes okay well show me the
growth show me how you're going to
generate enough earnings to pay me back
100 times earnings Nvidia show me all
the people willing to pay real money for
these AI Solutions show me how your
startup has any defensibility against
open AI or bar or any of these other um
large um initiatives that could
essentially just you know dis
intermediate your little plug-in on top
of their large language models show me
the money when the market starts saying
that and you can't liquidate you're
wrecked um because then the Market's
going to start asking the question
where's the revenue where are the users
U or where the user that are actually
willing to pay real money for for the
product and that's usually the end of
that particular bull market and things
just start falling to bed because
there's just no liquidity and people
just sell what they can and so and the
game is up now obviously out of the
wreckage comes your Amazon that was down
90 something per from high in 2000 in
2002 or whatever it was and then Rockets
up multiples of what it was worth but
the majority of us are not going to be
able to find the Amazon we're going to
be finding the pets.com um and so uh
that's the game so it's trying to trying
to invest in the theme and the liquid
Vehicles available and not getting
caught up in the hype and putting your
money into eLiquid things that you can't
sell when the mood
turns that's really interesting so uh
with your AI stuff you're planning to be
in a position where you are liquid by
the time that that Euphoria Peaks you
see the FTX moment and you exit so
you've this isn't something where uh
you're going to wait for that first
moment where they say okay we're
printing money and then you're in you're
already deployed in some of the places
that you're expecting to be ready to go
at that time of euphoria yeah so
thankfully I have the the capital
position to do that right I can pay my
bills um with my income from just stuff
right so I can actually be a little bit
more early and wrong on things because I
don't need the money but for someone who
does need the money you're not going to
have that opportunity to invested in in
AI startup or some crypto thing years
before and now receiving liquidity at
the top of the market you're you're
going to have to be very disciplined to
participating in the things that you
know you can buy and sell on a day's
notice and not get suckered into your
boy down the streets got this new AI
thing he's been cooking up and why don't
you lend him some money or invest in his
in his startup and in seven years he's
going to go IPO right that's what gets
you in
trouble yeah you can buy the liquid
stock and it goes on 90% but at least
you can try to sell it you can't sell
the term sheet it's that's where people
get in trouble it's buying you liquid
stuff
that's predicated on the theme
continuing
forever okay so that is the first part
of the wave everything goes up um looks
like it's going to last forever but then
we get the big explosion we lead to
something like the Great Depression um
how does that party end just all the
money got poured into um the new hype
thing let's say it's AI uh and what
makes the music stop well if we've
already bailed out if we've already
printed money to do yield curve control
and the system is still buckling whether
that's the price of oil is $1,000 avable
now or or something that it's G to be
some energy component of it that or you
know the cost of end of Life Care is
millions of dollars right you can't
print Healthcare you can't print oil
right so these are the things that are
going to go up massively in price and
then the system just breaks because
people are like holy hold on a second
like yes the government bond yield is 2
and a half% in the baking system is
solved on a nominal Fiat basis but it
cost me $10,000 to fill my my gas tank
just being obtuse here right and then
there's social unrest because I can't
get enough to eat or you've broken the
promise of the the lifestyle that I'm
supposed to live being in this country
but I was promised to vote for you and
I'm no longer going to be there and then
it's okay well if I don't have it
internally let me go out and get get it
somewhere else else right oh don't worry
everybody we're going to go over there
and take their and give it to you
so support me as a
politici right and trade no longer
becomes the way in which we acquire the
things we need we resort to force and
then that's unfortunately how we we lead
to
conflict okay
um
so is to when you look at that is this a
us China conflict do you see that going
um hot uh hopefully not I mean maybe
it's I think it's um I forgot I can't
pronounce her last name uh pipa M
something or other uh she let she coined
the phrase a um a hot War World War in
cold places cyberspace the Arctic Circle
space right there's Wars going on right
now in these different FS that are not
the same as boots on the ground in the
kinetic conflict what's more important
today owning territory or owning your
your citizens data right so there's
different things that we we consider
important and the the substrate to our
our Modern Life so if we are in this new
AI World your data is more important
than going out and acquiring your
territory so it might be that the war is
not to shoot them up on some border but
it's you know aggressive hacking between
different countries trying to ensure
that they have access to certain data or
their AIS are able to operate in certain
Fashions right so we don't it could be a
different type of War not exactly the
same war that that we're used to maybe
that's even more dystopian I don't know
um I'm hoping that we don't you know get
into I'm just going to go take your
and you know maybe get to the nuclear
situation but again whatever it is that
countries believe is the the good that
they need to provide to their people to
stay in power they're going to try to go
out and take it for somebody else all
right I'm going to set aside the most
diet
stuff uh largely just because I hope it
doesn't happen and two I don't know just
like the best thing so rarely ever
happens I think the worst thing so
rarely ever happens not that it doesn't
happen I'm certainly a student of
history and I'm well aware that things
do actually go off the rails um but
let's take a a scenario where we don't
end up in a hot War but we do get that
rubber band snap effect we just printed
too much money uh gas tank is way too
expensive to fill we do have the social
unrest uh government does lock things
down put in capital controls um we do
more silly things like sanctioning
countries and so they're terrified of
buying our debt and we just end up in a
position where um other countries are
incentivized to begin to break away from
the dollar do you see a real threat to
dollarization and if so how does that
impact the average person so
dollarization
um negatively impacts the financial
Elite of
America it could have zero if any impact
to the average American um
because I've argued in some essays that
the current system of you know the Fiat
Financial system that works in America
doesn't really benefit the average
American it
benefits New York and you know San
Francisco and LA right essentially the
coast people who are in finance people
who are in Tech right the average
America as a is a great you know land
mass right it has enough food to feed
itself it has enough oil I think us is
either number one or number two largest
oil producer in the world right I think
number one which I was surprised it's
it's protected by two oceans and Canada
and Mexico you might as well just call
part of America right and if you count
the Mexican population and growth in
terms of um their demographics America
actually um can hit the replacement rate
of like was it 2.05 kids per uh per
woman right so as a economic unit
America is unique in that it can become
um an notar and it basically was until
World War I uh and so it can go back to
that place but the current crop of
people who are in power uh would lose
standing in that sort of situation which
is why they continue on carrying about
what the value of the dollar is because
their wealth is international companies
where half the you know half the
business is abroad where the workforce
is in China Vietnam wherever right it's
not in America so dollarization is you
know pointed at this big thing and
America needs to protect the dollar but
for who it doesn't actually benefit the
manufacturing worker uh the UAW you know
union worker or the UPS truck driver
right I mean so it's it's a question of
what the political system is there to
benefit who is it there to benefit and
so America and the dollarization it's
you know Bing about it's a super bad
thing yes it's bad for for some people
who are tied to the Fiat Financial
system and that's where their wealth is
but if you want to think about it from
the average American person made in
America is great wages for the bottom
50% rise they have better purchasing
power yes stuff is more expensive but at
least they're able to get it there's
lots of parts of the world in Europe is
probably the most where they
don't have population growth they don't
have energy and they don't have enough
food that's where you proba could see a
big uh internal conflict again as the Ed
of the euro is crumbles where these
countries are like don't want to be tied
to a bunch of faceless bureaucrats in
Brussels who tell them what to do do you
see that as a real concern I didn't
realize that Europe was um higher risk
yeah I I see Europe is higher risk
because again it's dying like the rest
of the Wern World um it doesn't have
energy security it doesn't have food
security um I mean most of the
productive region of Germany was powered
by Russian gas right the the EUR
Ukrainian Bread Basket um helps feed a
lot of Europe right um North African oil
and natural gas helps keep things
running in in most of uh in most of
Europe and so removing those
things uh Europe's the Euro's
it's a poor it's a construct you
know this I'm quoting um paraphrasing uh
macro guide Felix zolof the Euro was
created to keep France strong and
Germany weak um and it's it's attempting
to paper over these differences in um e
econ economics with this structure that
just doesn't work and it'll come to a
head when all of a sudden there's just
not enough stuff to go around and
Europe's traditional trading partners
are like well you're you're if you're
going to be aligned with the us then
we're no longer going to sell you stuff
on a preferential basis there's no no
longer any Russian gas there's no longer
a bunch of West African countries
willing to sell you stuff cheap l u
we're just going to let you figure it
out yourself uh and what's the answer
print more money but again with the Euro
perspective you have a bunch of
countries that think that they you know
are some sort of democratic you know po
polies and the population might be why
we have this Euro anymore but there's
obviously an elite that likes the Euro
and that could come to blows okay so uh
I've talked to Ray Delio several times
and one of the things that I'm asking
him routinely is because he sees so much
disruption coming uh what do we do about
it where do we go and he keeps drumming
this idea that what matters is how
people treat each other and he said you
want to be somewhere where people are
treating each other well there's rule of
law that you can trade
um what what is the move and is this how
crypto enters your thesis what is the
move if the Western World does get
dramatically disrupted either uh uh hot
Wars and cold places um or Capital
controls so the government is um trying
to lock things down yield curve control
you know they're just doing all of those
things to continue to prop up the system
um what's the play is you obviously are
American but you do not live in America
um yeah how do you think about that step
and is cryptocurrency part of that so
the easiest thing right now is to
protect your your financial wealth right
for the first first time in human
history we have a financial system that
is not predicated on government violence
that is crypto it's an opt-in
violence-free Finance free coercion
system where I can opt into this this
Bitcoin blockchainbased Financial system
and now I have a way to transact with
anyone around the world on an honest um
transparent open- Source basis and I can
escape the Fiat system with as much or
as little wealth as I deem appropriate
right so now I have the ability to take
my wealth outside of the government
system and unlike gold nobody knows how
much crypto I have I can store my crypto
in my head I can memorize my private
Keys um and my my seed phrases and
restore any of my wallets and not that I
do this but you can do it if you if
you're good at that so you can hold as
much wealth that you could in Fort Knox
in your head that's absolutely
revolutionary um so that's had we have
the financial Freedom if you choose to
use it um and so once you've obtained
Financial Freedom then it's about as
bellagi says choose your tribe where're
is a place that has the same ethos as
you you know has a good food supply the
weather you like the weather but most
importantly you like the community of
people who are there and there's no
prescriptive of where that is that's
that's very personal maybe it's where
you are right now and the only thing you
need to do is obstain your Financial
Freedom such that if the board is closed
and whatever you're cool you're able to
maintain purchasing power in in energy
terms and but you're around a community
of people that you like like and love uh
so um I think yeah the community aspect
a very personal one there's no one right
place the financial aspect is if you
have the ability to do so get your
financial freedom for the amount of
capital that you wish from the Fiat
Financial system if you believe you know
in the thesis of me and others and that
the math is going to collide with bad
politics then you now have Financial
Freedom which gives you the ability to
move if you want to or not want to so
the thing I think a lot about with this
is timing I'm obviously a big believer
in crypto um but I really don't want to
leave where I'm at and I'm not only am I
in America which does not strike me as
the most crypto-friendly place uh I'm in
California which is definitely done some
legislative things that I have found
questionable um but man I don't want to
leave
so is that is that how they get you like
that you just wait until it's a little
too late or um did that play into your
decision to move out of the US no I
moved out of the US because it's just
not a place that you know resonates with
me personally right I love being in asah
uh I love the people love the culture um
yeah just you know my place The Economic
Opportunity all that kind of stuff right
for some people America's great that's
fine it's it's a very um personal thing
but yes there's a lot of inertia right
with people in money they understand how
this monetary system works Bitcoin
didn't exist 20 years ago you're really
going to take your hard-earned money and
you're going to put it in Magic internet
money with a bunch of people with like P
py penguins and crypto punks as like
avatars who are like debating
macroeconomic policy on on Twitter and
other social media platforms you might
think these you know we're a bunch of
clowns over here right and so
you're like why would I why would I
trust this financial system versus the
man of the woman in a navy suit with a
Herz tie and a pair of lubaton on right
so it's all these things that factor
into whether or not you trust the
financial system or not um again very
personal but the unfortunate part is
that most people aren't taught the math
they don't understand how a bond Works
they don't understand how a bank creates
and removes credit from the system they
understand why mathematically this this
cannot continue the way it's it's going
and that there will be a reckoning and
history has told us the exact Playbook
they're going to use it's not as if
they're hiding it from us there's paper
upon paper written about exactly how to
financially repress the population to
make sure money doesn't leave the
banking system to use the banking system
to purchase the government debt at a
level the government can afford that is
below the level of growth in the economy
such that the government profits this
has all been written about you can read
it on the internet but most people are
too lazy or too distracted or they they
work a job and they just too tired to
open up a book and read um but it's all
there for you to read and if you read it
all you'll understand very quickly that
this situation cannot continue and you
have to do something and that something
depends on your financial position
obviously I'm in the position to put a
lot more of my wealth in crypto and not
care um to much where the price goes
maybe you're not the the most Insidious
part of inflation is that the poorer you
are the harder the more percentage of
your income is spent on energy therefore
the more inclined you are to become a
degenerate Speculator because the little
bit of money you're able to save you
need to lever up so much just to make an
impact uh on the depreciation of your
wages versus the cost of uh food and
fuel that you make bad choices
especially if you're not educated about
what these financial markets are because
that's been essentially government
policy globally is to keep people in the
dark about how money works so they gets
blindly trust the supposed person in
power yeah that's something that I heard
you say that uh really hit me which is
that inflation makes a Speculator out of
all of us uh speculation is the one
thing that really I find super unnerving
that I to me speculation and gambling
are basically the same thing like people
are just taking a guess uh how is it
though that people cannot understand the
system and yet still feel the force that
compels them to be a Speculator is it
that they're looking at their wife and
their kids and they're like I'm only
going to get a 2% raise but I can feel
that that's not enough like I don't even
know if they like it doesn't seem they
would think through all of that so what
is the Instinct that kicks in that makes
people
speculate because I want to I I know I
can't earn my way out of this I can work
as hard as I want I can put as much
overtime but I'm only going to make so
much money per hour period but I watch
the TV and I see the the successful
mostly guy mostly men driving the fancy
car has a nice clothes whatever and six
months before he was on the street
whatever the story is it's you know the
Horatio alar you know Rags of riches
very little effort there was this thing
I did it was trading stocks or whatever
it is right um usually as financial
markets because things move so fast and
you can apply leverage and yes there are
people who have done that but the
majority of people who try that
fail um because it's very very difficult
to do uh and so you're desperate you're
like I know I need to uplift my economic
earning potential but working my job in
my Lane I can't do it it's just
impossible I see myself losing day after
day after day I see my family having a
lower standard of living day after day
after day if I could only pick the right
stock if I could only predict where you
know the Yen Euro crosses go on 200
times leverage if I could only hit black
five times in the roulette Ro if I could
only you know go to the casino and play
CRP if I can
only and then you spiral a out of
control yeah it's interesting the idea
of creating a financial system that
people can and I'll use my words that
people can bet on uh to create Capital
to move Capital into the system so if
I'm a company and I'm trying to grow I
could say hey who would like a piece of
this I don't even have to offer a uh
dividend like dividend stocks I
understand because they actually you're
getting profits out of the company that
makes all the sense in the world to me
when I was first when I was in my is
trying to wrap my head around the stock
market I was like okay so wait a second
some of them are baseball cards and some
of them are dividend paying stocks that
that was like that just made sense to me
I was like okay well sure like if this
thing which does not pay me a dividend
but if I can get somebody to pay more
for it to own it for whatever reason uh
than I can which is that they think
somebody else is going to buy it from
them now all of a sudden that company
has access to Capital I see well that's
good I have a chance if I can actually
sell it to somebody then okay that makes
sense for me I'm able to make more money
it's really a genius system but hiding
inside of it is the greater fool theory
of well wait a second if the stock isn't
paying a dividend then if no one else is
willing to buy it for more and the
number is not always going to go up I
mean it's never always going to go up
but it can go up for some companies for
a very long period of time um but it's
really ingenious but yeah that the the
element of speculation the element of I
have to the element of um I don't know
what I'm doing but I'm going to YOLO in
anyway it all makes me very
nervous so one thing I hear people say a
lot is crypto is your exit from that
system where because it can't be
inflated and this is the thesis with
Bitcoin and again stop me if if I go Ary
uh Bitcoin has a finite Supply going
back to one of the things you said very
early on is that uh it's risky stuff but
it's a fixed Supply that idea of it's a
fixed Supply there's only 21 million of
them they're not going to be any more
made they can't be more made cry
cryptographically so um and therefore if
everyone agrees that it has value and I
put money in that then that money should
maintain its value because it's not
going to get inflated away um but is
that really an exit from the system of
having to
speculate or is it just another bit of
speculation so you can speculate in
crypto absolutely there is all different
you can speculate in Bitcoin itself
right you know you put a lot of your
wealth in it it it's very volatile it
goes up and down a lot right um so when
you're moving yourself out of the
Speculator category if you're putting a
you know a certain amount of money into
crypto for example and you say I'm going
to assume this goes a zero and I'm not
going to care then you're not specula
ating right you're speculating on a
future but again your lifestyle is not
going to be impacted like the the mo the
worst part about speculating is I need
this to go up because I need to buy my
dinner tonight right and and so that is
when you get into dealing into problems
but yes speculating on more human you
know Humanity getting into a new system
and that system being worth more because
there's a bigger Community fine but just
choose the size it's all about sizing no
one knows feature we're speculating
every second of every day every step we
take right we're speculating on things
we have
informed you know historical experience
to say that this thing is less risky
than the other but none of us know what
the future holds we're always
speculating the question is the size and
the risk right don't put your whole net
worth in into crypto where if the price
goes down a little bit you can't eat
that's that smart seems that don't put
your money in thep 500 or or you know
some other stock inoc SE um and go long
you know too much where if it goes down
1% you can't eat right again it's all
about you know creating a system that
works for you and where your financial
position is in life uh and if you do
want to go into the Super leverage
speckling aspect make sure it's a pot of
money that you could afford to
lose what's your thesis on crypto why do
you think that it's going to be here for
the long run it's been around for 12
years 13 years something like that uh
obviously it's done well but that's a
pretty short period of time what what is
the thing that gives you confidence that
it's going to keep
mattering so it's a financial system
that's gone from zero right you know
first jestice BL in 2009 to A system
that has weathered multiple crises right
in the most recent we had one of the
largest exchanges in the world bunch of
the largest lenders some of the largest
hedge funds massive amounts of fraud uh
all this happened in the span of six
months um people lost hundreds of
billions of dollars of value yet blocks
kept being produced every 10 minutes for
Bitcoin 10 seconds for ethereum and
whatever the block chains are for a lot
of other currencies the decentralized
finance or def5 movement people were
still trading uh on decentralized
exchanges um people were still borrowing
and sell borrowing and lending different
currencies on some of these lending
platforms the financial architecture
worked even though we had one of the
biggest losses of wealth and biggest
amounts of financial M feasant ever in
the crypto ecosystem and I mean if you
want to compare the amount of money that
um you know Sam bankman freed and his
crew allegedly stole from their
customers it would rank it one of the
largest thefts Financial frauds in in uh
in human history right all this happened
there was no bailout there was no
Central Bank that said we need to
preserve the system and therefore if
assuming they could print a bunch of
Bitcoin or ethereum or whatever and make
sure these entities are made whole so
that you know certain people don't lose
any money none of that happened people
lost a lot of money but the architecture
of the system worked the community was
still there people are still shipping
code I was just at token 249 in
Singapore the energy 11,000 tickets sold
sold out um you know basically almost
took over the whole of Marina Bay Sand
Convention Center uh for this conference
people around the world believe in this
system there're some of the smartest
people in the world who have ever met
who are building this system you know
you take a look at what's who are the
smart people in the The Scholar
Financial Fiat system bunch of
Muppets right they're there because
they've always been there not because
they're special not because they're um
uh inspiring uh so they're not building
anything new they're trying to keep the
old thing relevant and so that's why I
believe this is going to have staying
power because the math works the Crypt
the cryptography works but most
importantly the people are so impressive
and so um dedicated and so enthusiastic
about what they're building and I've
worked at a bank too there was none of
that energy working on uh working in the
traditional fin Financial sect we're
there punching a clock earning a
paycheck and trying to take as much risk
as possible so we make a little bit of
money so we can get the out of
there
okay but there is a question to be asked
which is there's regulation for a reason
and that the average person I mean look
at FTX the very thing that we're talking
about it it's very impressive to me and
and again I want to say I I am a big
believer in crypto for a different
reason than you which is interesting but
uh but at the same time I want to face
head on the things that strike me as
worrisome uh and this may be a feature
and not a bug and we may all just have
to wrap our heads around it but there
the uh amount of Regulation that's in
the trafi world is pretty extreme now I
will admit the first time I realized
that just because I had over a million
dollars that I was suddenly a um oh God
what's a qualified investor it's not the
term but um that I was now accredited I
was an accredited investor and I was
like but wait I don't know anything more
about investing money now I I know how
to make money I don't know how to invest
money uh and so I was very um shocked by
that just seems stupid that you couldn't
pass some sort of test and and be able
to do your thing um but at the same time
there are people get their wallets
drained constantly in uh crypto PE the
amount of
malfant uh just in FTX is just
absolutely bananas and either crypto
tends to attract those people or the
current lack of Regulation um just
creates the the incentive structure
where that's what's going to happen one
one thing to jump in there it says FTX
was regulated in I don't know however
many jurisdiction around the world they
had licenses all around the world right
so the the the notion that regulation
would have stopped the FTX is patently
false um they were highly regulated not
highly not as regulated as a bank
wouldn't say but they did have
Regulators around the world that had
given them licenses and they were
supposed to do things in a certain way
right if you want to take the other
example like let's take a look at credit
s and they didn't steal anybody's money
right but credit s was a Global
systemically important Bank Gip right
and yet the most highly regulated of
regulated Industries in the world
banking the most highly regulated
regulated banks credit SS in Switzerland
up and and blew up and require
the Swiss taxpayers to bail them out for
billions of dollars right so Financial
regulation when the incentive structure
doesn't work is useless it doesn't solve
anything it makes you feel good at night
that's fine F you can get your money
back on a nominal basis but what
happened they printed more money and
made us all poor in in the result so I
would say that Financial
regulation yes it's nice that a bank
needs to be run in in a certain way but
it doesn't prevent bad people from doing
bad things it just makes the if
someone's going to run a scam it usually
makes it bigger so what do you think how
does how does this all begin to settle
out and I'll give you my thesis the
reason that I think that um Bitcoin
specifically and crypto in general will
be here is I believe that tomorrow is
going to be more digital than today I
believe that every generation grows up
like a fish in water and when you're
born and crypto is just a thing and you
don't even think about it uh yeah you it
would not make sense to you that that is
somehow less valuable than uh Fiat money
especially when everything you do you
buy your skins and video games and to
you there those are as valuable as your
real clothes and you love them just as
much and um so you know when I think
about kids uh and v-bucks it's they're
just digital natives like through and
through so I think for them it will just
make all the sense in the world and so
once something is digital then why
wouldn't you want your money to be
digital as well then it becomes a
question of control because hey the
government will be more than happy to
come out with a
cbdc uh and the that then collides with
freedom so I don't know how humanity is
going to answer that question I'll be
completely honest when I think about I
think people like being taken care of I
think there is a Hu like when you read
the rhetoric from
1776 like those guys were ready to Die
For Freedom we're not there we're not
there like right now it is just a
different time man and so I think people
will want the convenience of something
digital I think money will be digital I
think people will live in digital worlds
I think they will buy digital Goods but
I don't know where we're going to settle
on uh a desire for protection like even
myself I it wasn't until um svb looked
like it was going to collapse that I
finally was like you know I should just
get I didn't have any direct exposure to
svb um but it it made me just take
everything off every exchange uh but
then when you look at the realities of
cold storing and you realize that you
have to store them in different places
and not at your house and it was like oh
God like I just felt so I still feel so
paranoid I'm going to forget where I put
something or half of my key which is in
you know this place like I forget which
one has what oh god like that kind of
stuff terrifies me and
so what do you think about that do you
think that people will truly while
they'll Embrace digital money I think
most people will agree to that do you
think they're going to care enough about
money privacy which is something I've
heard you talk a lot about with Bitcoin
will they care enough to make Bitcoin
which maybe trying to be choked by the
government and all that will they do it
or will they just take their
cbdc so I think most people don't care
about privacy and that's I I know this
because they have a mobile phone in
their pocket a smartphone the smartphone
is tracking you um we voluntarily have
given the most amount of information
about ourselves to Facebook Google
Alibaba WeChat all these things right
because we want Community we want to
communicate with each other um we want
to look at thirst traps whatever the
reason is right um uh we've done this no
the government didn't force us to do
this these were private companies
creating these products right so most
people as you said it's just too much to
be financially independent to actually
be your own financial institution for a
lot of people is is just too much and
they're going to stay in in the system
and I like to say that there's a there's
a flood coming this you know
inflationary uh maybe pseudo collapse
with the Fiat Financial system there's
an there's a Noah's got an arc of you
know Satoshi down there with Bitcoin
unfortunately most people are going to
drown because this isn't this isn't for
them right and so um when you move it up
to the government aspect crypto in
itself isn't a problem the problem is
that the people own it and it's not the
standard individuals and firms that are
used to owning the new lovers of
technology and that's their issue with
it uh and so now we're seeing that this
the experiment has worked so far we have
however many millions of wallets created
we have however many trillions of
dollars worth of transaction that have
been completed on these systems they
work it's more sound than the
traditional finances it's faster it's
cheaper fine well let's not have a bunch
of Muppets running around the world who
uh aren't a bunch of old bald dudes sing
in New York London and Paris and
whatever uh owning this thing we want to
move it back to who should be owning
this so we're going to now allow the
traditional Financial players to launch
things like ETFs right which is a very
easy way for everybody to own the
financial return of Bitcoin very
important I say the financial return not
actual Bitcoin as you said I don't want
to M private keys I don't want to worry
about where I put my wallet I just want
to earn that inflationary protection
aspect of Bitcoin but I don't
necessarily care to really experience
the real Financial Freedom of it of
owning my own Financial system in my
pocket in my head right so I'll just put
some Fe got into the Black Rock ETF the
Fidelity ETF or the pick your large
asset manager wherever you're from ETF
right you don't own Bitcoin you don't
you don't care about custody you like oh
the price goes up and down on the screen
I've beat inflation but guess what my
money when I want to sell comes right
back into Fiat right back in the banking
system right back ready to be
financially repressed to make sure that
bonds are purchased by the banking
system to keep governments afloat now
fine fine Bitcoin is an open
architecture everyone should be able to
build whatever Financial products they
want the question then becomes and I
don't know the answer to this is Will so
much value and currency be owned by
these centralized asset managers who are
essentially arms of the the trafi
ecosystem that the underlying
fundamentals of what Bitcoin is the
Privacy will those be altered will you
know a black rock support through maybe
ownership and large mining companies
different sorts of improvement protocols
that detract from the mutability of the
money or the censorship resistance or
the the
decentralization right so while we as
Traders re are cheering yes ETF ETF ETF
that's going to bring all this money
into the system because now people who
want to escape inflation understand the
the value prop of fixed Supply and all
that but just don't want to deal with
the the technology aspect of a be a
cryptographically bearer asset because
cul is bad with passwords and whatnot
people don't want to deal with that they
want to put their money in the ETF and
we're yes great more money in the in the
system number go up everybody's rich but
are we inviting in something that's
going to fundamentally change what
Bitcoin is because now they're going to
have a say through large ownership and
Mining pools or they're going to run a
bunch of nodes or they're going to have
control over the price right it's an
open question and this is going to be
the real
Crucible we're going to have to face as
an industry of determining what is
bitcoin when now we have trefi who is a
stakeholder in this system how do we
deal with them how do we maintain this
ethos that makes Bitcoin invaluable this
immutability this money this the hardest
monor ever existed with a system that is
basically trying to capture as much
capital and sequester it so that I can
pay the inflation tax to make sure that
the government stay afloat I don't have
the answer to that but that is the real
you know crucible that we're going to
have to face in in going forward because
as you rightly point out it's just pain
in the ass to be your own financial
institution it's interesting that one
feels easy to me I don't uh I I if if
the money really stands for Freedom then
you have to let people do what they're
going to do I saw this in web 3 a lot
and there was a sense of like uh we the
vanguards of web 3 are going to decide
who is web 3 enough and uh if you don't
pass the purity test then you know we
don't want you in here and it's like
you're never going to be able to to get
something to scale by trying to impose
culture top down culture is always and I
mean always going to arise from the
bottom and you can manipulate it through
media and stuff like that but at the end
of the day man that what what people
internalize is going to become the
culture the youth will always get uh
whatever culture they decide they want
like it it is is just an Unstoppable
force and yeah to me it's like Satoshi
created the thing and then the thing's
going to become what the thing becomes
and if if there is a way to control it
then it will become no better than the
thing that it's trying to replace which
is already something that's being
controlled and the whole point is you
think you want to be able to control it
because you think you have all the
answers and you're going to do
everything right and the reality is as
soon as somebody can control it then
they will control it and use it against
you which is the whole point like I mean
just to get myself in hot water here
when I saw what was going on with the
Canadian trucker Convoy I was like yo
they are freezing people's assets that
donated to a cause like that's crazy I
couldn't believe it that that really got
me way more interested in having
something that I could control now I'm
not convinced the government can't um
use Force to get what they want at a
crypto because at the end of the day
look if the government puts a big enough
gun in my face here here's my crypto
so you know I get it it's easier and if
I leave before they start breaking out
the guns then fair enough but God I
don't want to I don't even want to
contemplate a world that
gnarly yeah I hope it never comes to
pass you and me both so I have to ask
where do you think Bitcoin is going is
this something that you know uh breaks
100,000 is it something that breaks a
million is Michael sailor going to be a
or the world's biggest L what do you
think so my my working model is that you
know we're going to continue chopping
around 25 20 30,000 this year um as we
get to some sort of financial
disturbance and people recognize that
real rates are negative if you know if
Government are growing if the economy is
growing at nominal rate of 10% but I'm
only getting 5% 6% even though it's high
people are on the margin going to start
buying other stuff crypto being one of
those things so coming into 2024 either
we get a financial crisis rates go to
zero or we keep raising rates but not as
not fast not as fast as governments are
spending money because they're just
trying to keep people doing things and
the rates are negative that we get to
crypto around 70,000 uh by the end of
2024 and that's combination of the
crypto happing event right um maybe
there's going to be you know a few ETFs
launched by large asset managers in the
US and Europe and China maybe Hong Kong
to be spe specific so we regain the
all-time high in by end of 2024 and
that's when the real fund starts right
that's when the real bull market starts
and so my mental model for where we
could go I think we're going to go
somewhere between you know 750,000 to a
million dollars in Bitcoin on the upside
right and we're going to whatever the
level is there's going to be a round
number be focusing on it guess like
Bitcoin hit
$69,999 didn't hit 70,000 and then it's
going to go and just crash you know 75 8
90% whatever it is right doesn't matter
but yeah some my upside Target ises so
the 75
750,000 million doll level
2026 um time frame just because again I
believe this is going to be the largest
market in financial bull marketting
Financial assets we have ever seen in
human history so not only will Bitcoin
be at a ridiculous price you know NASDAQ
will be at a ridiculous price S&P will
be at a ridiculous price you know pick
your you know stock Indy wherever you're
if you're not in one of in the Europe or
the us that'll be at a ridiculous price
right certain types of property
ridiculous prices um so we're gonna have
a lot of ridiculous prices out there and
not just in in
crypto yeah that that will be a weird
moment and with people thinking that the
party is never going to end uh of course
it always does um let me ask you so that
I can help better understand the sort of
way that this all plays out at the
global level what what is with Hong Kong
and crypto China clamped down really
hard it seemed like that was a really
bad sign for me I was like
whoa this was the thing that I was
concerned about that a government would
be able to effectively eliminate it from
its country uh not that they be one
China never eliminated crypto they never
eliminated crypto from China tell me
more so the the you know if you want to
think about from the Chinese government
perspective the thing that they most
they care most about is social stability
right and so as everyone becomes a
Speculator because they're desperate
right the last thing they want is a
bunch of Mom and Pops rolling up uh in
gathering in groups with a communal
grievance it could be crypto could be
anything right we know all this stories
you know uh has played out over Chinese
history they do not like this and so
seeing that you know that could cause
disturbance in China and also you have
the energy aspect of Bitcoin mining
consuming a lot of electricity that
could be used to do other things um they
basically made it very hard to trade it
so the exchanges all left you know
Chinese people still own Bitcoin that
hasn't changed you can't mine it there's
no exchanges fine they can't really
acquire it but at the end of the day I
think the Chinese government sees that
this is is a technologically sound
thing um and they want more of it in the
Chinese diaspora that they can control
it doesn't necessarily need to be in a
government Coffer but the Chinese
government thinks if you are Chinese we
own you as a person you are Chinese we
are the Chinese government therefore you
are our subject no matter where you live
around the world ethically speaking and
so if you think about Hong Kong which is
part of China now and always was but now
it's very explicitly part of China um
but it's has this Western Capital
western eastern Capital meeting point if
they want to experiment in allowing a
more General um ownership of crypto or
if they want to allow certain types of
Chinese individuals to own crypto
through Hong Kong regulated financial
institutions which essentially means
that they're controlled by the Chinese
government in the same way that black
rock is controlled by the US government
it's no
different um
then they're going to allow these
companies to buy and hold crypto because
at the end of the day as long as the
crypto is inside of China they believe
that they can control it so why not let
a part of the country experiment with
this thing let people own it let people
buy it um by controlling it in in terms
of the way firms are able to acquire
users and let those users own crypto so
that's why there's been licenses issued
um the Hong Kong government's very
positive on bitcoin the Hong Kong
government is part part of China
therefore they would never do this if it
was not blessed by uh blessed in Beijing
as part of a national prerogative for
this particular part of China to be
positive on crypto so it's similar sort
of situation to how I describe the Black
Rock ETF right Larry thinkink and blra
having a trillion dollars of Bitcoin
under his custody is the same thing as
you know Bank of China launching an ETF
on the Hong Kong Stock Exchange and
having a trillion dollars of crypto
they're both essentially in the orbit of
either the United States or China and
that's the goal if this technology is as
transformative if it is the hardest
money that's ever existed wouldn't you
rather your citizens have it rather than
someone else's and so as the American
political establishment decides what
they want to do with crypto and that
uncertainty drives companies out of
America out to the rest of the world
China's already gone through that
they've already purged the exchanges you
know starting in 2017 culminating in
like you know with I think 2020 right
now they've gone the other direction
okay let's try to control this let's try
to permit certain types of ownership
through firms that we can control in
Hong Kong which is our test bed region
for sort of you know Financial
Innovation and give the Hong Kong
economy something to um draw in
expertise foreign Capital because you
know Chinese government believes in
technology crypto is a Forefront of
financial technology why not bring these
smart people here let them experiment
and we think we can control what they do
right so that's in my opinion what's
behind the Hong Kong story we're going
to see how that progresses I obviously
live in Hong Kong I love Hong Kong um I
hope that there is a vibrant
cryptocurrency ecosystem there and that
people are able to experiment with
different things because there is you
know a task of government support for
the technology we'll see what happens
you at the extreme if you know all of a
sudden there's all these firms with you
know trillions of dollars wor crypto I
don't know but but at least there are
some people who are given the space to
at least experiment and try it versus
other places in the world where they're
being pushed out and shun yeah I'll be
very interested to see how it plays out
I was super intrigued when China opened
that back up in Hong Kong it made me
realize okay maybe they're not as
negative as I thought they were and like
you said this is really an element of
control uh which does make me super
uneasy in terms of uh just governments
having more control than I am
comfortable with but but uh I fully
recognize uh that the way that it's
looked at and as somebody who lives
there you can certainly speak to this
better than I can that it's not
necessarily one is better than the other
they are just different but man from my
perspective it just seems better uh to
be free but I I won't try to export my
values um so one thing that I want to
get a better understanding of is um I
had Peter shiff on the show and in the
comments cuz he was like right down my
alley in terms of all my fears like he
was right there uh everything that if
I'm honest he comes very close to
articulating exactly what I think is
going to happen when I just objectively
look at the math of all this uh and then
one of the comments in the feed was uh
Peter Schiff has predicted nine of the
last two recessions and uh I had to
laugh at that so you know we the
backdrop to our whole conversation has
been a sort of mutual acceptance that
yeah all hell is probably going to break
loose uh that we think we have a pretty
good handle on just the physics of the
math and that it can't go up forever
that you using my analogy you will pull
this rubber band back until it snaps uh
there's just no way around it what if
we're
wrong so what if we're wrong well if
we're wrong if there is a energy Miracle
like we discover some form of energy we
instantly commercialize it like think of
how long it took for us to get to a car
me every household in the US think of
how long it took us to Electrify the ru
even though these Technologies were
created in the 19th century mid that
already assumes we can't have a soft
Landing what if we just they get it
right if they get it right then you earn
you could you ear what you earn now
right the S&P is up I don't know let's
remove the tech stocks right it's up I
don't know six seven % this year
whatever it is right I could made the
same am you say could I could make the
same amount I can make the same amount
in bonds and in Liv literally overnight
lending to the Federal Reserve zero
Financial Risk I get paid five and a
half six% why take the risk if they get
it all right
great I'm taking I'm getting two-thirds
if not 75% of the return of in the US
Stocks with taking none of the Mark to
Market risk so it's actually makes zero
sense to own stocks if you believe
they're going to get it right because
stocks aren't returning enough it's not
like the SV is up 25% and cash yield six
right so from a risk adj risk adjusted
perspective if they get everything right
then okay maybe the only stock I should
know is an Nvidia fine the rest of the
market is dog why even why even why
even play the game put your money in a
money market fund take your money out of
your 0% yearly bank account put it in a
money market fund there's just no point
to trading stocks if they have it all
right what would have to be true for you
to say yeah I no longer think there's
anything looming on the horizon there's
no financial crisis coming they'd have
to get I assume the uh debt to GDP down
below 130 I assume they'd need to start
uh pulling some money out of the uh
economy without it causing any sort of
secondary knock on effect um um what
else well so the US government right now
is running the The Playbook they should
be running right which is nominal GDP is
at 9% but the government debt yields
four and a half call it right so the
government's making money it's if it can
continue to keep money in the bond
market in the banking system at these
rates and at this growth level then the
US government at least for them will
deleverage themselves over time the
problem is that Capital can move so
making the assumption that Capital
doesn't move so if for my for the you
know go goie lock scenario number one no
Capital leaves a long-term bond market
when they have a negative real yield
right number two there there is a energy
Miracle or we decide that nuclear as the
next thing and we run out to invest in
all sorts of different types of startups
to basically miniaturize nuclear
reactors such that instead of pumping
oil into our car we have a small little
U nuclear reactor and that powers our
our vehicles or we're going to build all
these different power plants like that
needs to happen right
immediately that those are the things
that would say okay maybe I'm wrong and
we're going to have sort of an
acceleration in energy productivities
therefore I should own a company that
makes real stuff apart from you know
semiconductors otherwise I'm
put overnight bonds because at the the
second they cut the rates cool I don't
care I didn't lose any money I just take
my money of the bonds and I go buy stuff
right but I'm definitely not going to
own long-term long end bonds that that
trade is negative EV negative expected
value in my perspective I don't see how
they get all these things right before
money leaves the system saying this
I want 9% not four and a half U so why
own the long end just put all your money
in short-term bonds if you believe that
they are going to get S everything just
put your money in short-term bonds and
take no
risk Arthur Hayes this has been a
wonderful conversation where can people
follow you
um so on Twitter crypto haaz I have a a
substack as well same handle crypto
Hayes um and I write essays probably you
know twice a month on macro geopolitics
obviously there's always a a crypto
angle but um yeah that's where you can
find me and I speak globally at
conferences around the
world all true brother thank you so much
for joining me today everybody if you
haven't already be sure to subscribe and
until next time my friends be legendary
take care
peace if you really want to understand
the complex Financial landscape we all
face watch this conversation with bology
shr vason the problems go all the way to
the Bedrock of the financial system in
terms of treasuries being the new toxic
waste it's going to be at least as bad
as 2008 but probably worse than
that