July 31, 2025 • 55 mins
Lyn Alden is a renowned macro strategist, the founder of LynAlden.com, and author of the best-selling book Broken Money. She offers in-depth research for both retail and institutional investors and also serves as a general partner at Ego Death Capital, a venture firm focused on early-stage Bitcoin infrastructure. In this episode, we explore how the U.S. financial system is unraveling from within—touching on everything from the collapse of American manufacturing, the hidden costs of maintaining dollar supremacy, and the inevitable trade-offs of reshoring production. Lyn breaks down the political and economic factions pushing for systemic change, why tariffs might be coming back in a big way, and how gold and Bitcoin could become neutral reserve assets in a multipolar world. Whether you’re a policy wonk or a curious investor, this conversation offers an unfiltered look at where the global financial system may be heading. https://www.lynalden.com/
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Speaker 1 (00:00):
We are gradually hollowing out on industrial base to maintain
our kind of global dollar empire. Nothing stops his train.
I refer to basically Walter White from Breaking Bad, where
you know, his allies trying to get him to stop
his drug empire and he's like, no, nothing stops his Trea.
You know, we're going to keep going, and we're just
getting started. And I think the US physical deficits are
the same that there are people in the demonstration even
(00:21):
talking about this is a shifting of the Overton window.
That's more of a break the glass type of decision,
and I think the more elegant approach is to let
that shift happen and make sure that we're kind of
benefiting from that shift rather than fighting it.
Speaker 2 (00:34):
So would you say that given you know, death to
GDPs of the US one twenty in Japan, what are
they had two forty? I mean, so huge debt to
GDP ratios, giant deficit spending percentages.
Speaker 3 (00:44):
And dollar amounts on that as well.
Speaker 2 (00:46):
Any recession that we would have in the future would
almost be a politicy decision. So we're sitting here and
what I think is maybe a historical moment, maybe books
one hundred years from now will be talking about this.
Dates like nineteen thirteen or thirty three or seventy one
are maybe framing this up. Maybe give us the historical
(01:07):
context of what you see going on right now.
Speaker 1 (01:11):
Yeah, it's a good question. I think that historically we
go through certain monetary changes. There are a couple of
different cycles that kind of overlap. One of them could
be considered the long term debt cycle. So debt builds
up in the private sector, then generally gets transferred more
toward the sovereign level, and then gets basically debased or
and flated away. That's kind of one big cycle that
(01:32):
developed economies go through in modern history on something like
an eighty year cadence, but you know, it can vary.
And then more broadly, there's this kind of imbalances that
build up in any sort of complex system the way
that these are currently constructed, Even between those say eighty
year periods, it's usually a midpoint where things change. So,
(01:53):
for example, the midpoint between the past kind of long
term debt cycle, which was the thirties and forties and
the current on was the early nineteen seventies. That was
a different type of default, a different type of monetary change,
and so I agree with you that this is kind
of historic moment. I don't know if there's a specific
date that's going to stand out quite the same way.
(02:14):
Maybe Liberation Day, maybe another time what we pick, maybe
the moment that Russia invade Ukraine and then there are all
these sanctions trigger that, you know, maybe it's maybe it's
just a pandemic itself that was kind of kind of
a catalyst for a lot of things as well physically speaking.
So I don't know exactly what date or period will
be highlighted as like the points, but I do think
(02:35):
that this era will be looked back upon much like
the seventies, much like the thirties and forties, as a
time of change in a way that the global monetary
systems constructed and the way that a lot of domestic
finances work.
Speaker 2 (02:50):
So looking at more of a period as opposed to
a specific date. Some of those dates, I think when
you were talking about like the midpoint, so you think
like nineteen forty four Bretonwoods Agreement, and that's a date
because everybody sort of came together and agreed on something
at that time. Seventy one, again was a date from
Richard Nixon, but maybe like nineteen eighty five was like
a midpoint when maybe the world sort of came back
(03:11):
together with the Plaza Cord and sort of agreed to
sort of repeg and devalue at the same time. It
seemed like maybe, you know, the big catalyst here to
your point, Liberation Day tariffs being the big thing that
you know, Moran's talking about, these Mara Lago accords and
seemingly to maybe have I guess, in reference to the
(03:33):
Plaza Chords, maybe a chance for the US or the
other currency of the world sort of repegged back to
the dollar and allow the dollar to devalue. I mean,
maybe there could be some sort of coordinate agreement coming
around that.
Speaker 1 (03:44):
Yeah, I think that's one of the aims of the
of the administration. I generally put something like the Plaza
Cord on a smaller level than these the bigger things
I mentioned, because that was more of like a pivot
point within a current structure. So that wasn't really like
the foundation shifting. That was more like a bunch of
entities agreeing to kind of keep that system going because
(04:05):
otherwise that's you know, the system that we've been in
since the seventies could have broken earlier had certain things
become totally inbounded, and that was one of the kind
of events that kind of kept it going, kept it
kind of sustainable, for lack of a better word, at
least longer, longer sustained. And I do think that something
like a mar Lago accord could absolutely occur here. If
(04:25):
you look back to the early nineteen seventies when this
current kind of floating exchange rate system really began, there's
really only been three dollar cycles, so major periods of
dollar strengthening compared to other currencies and the weakening compared
to other currencies. These have had very big investing implications
each time. Generally speaking, when you have this kind of
(04:47):
weaker dollar periods, you're looking at more inflationary periods, you're
looking at more value stock outperformance periods, you're looking at
more international stock outperformance periods, Whereas you're looking at the
stronger dollar periods, you're generally looking at more disinflation, you're
looking at more growth stock outperformance, you're looking at more
US stock outperformance. And so you know, we have been
(05:08):
in a strong dollar environment for quite a while now,
since about twenty fourteen, So We're something like eleven years
in what is a fairly strong dollar environment, and should
we get another leg lower in the dollar, either just
due to policy flow shifts, kind of like say the
early two thousands dollar bear cycle, or a more intentional
dollar bear cycle like nineteen eighty five, the Plaza cord.
(05:30):
We could have a more logo cord that has a
variety of major investing implications, but it's not necessarily a
structural change in how the system works. So I do
think that we could certainly be geared towards something more
than just that, because some of the things I've been
building up for a lot longer than just say a
dollar cycle. But that is kind of a one key
(05:52):
thing to watch for any of us that are involved
in markets or you know, follow the prices of assets
we own, So that is a certain a key thing.
Speaker 2 (06:00):
To watch something bigger geared up to happen. I'm definitely
going to ask you about that, but I want to
go back just to the dollar for a second, because
you're talking about these different cycles, and I'm curious you
mentioned since twenty fourteen. When I look at maybe a
longer chart, I mean, the dollar seems to be very
strong obviously not as high as it was in nineteen
eighty five, but from a historical basis, it seems to
(06:20):
be pretty overvalued, would you say that? And then does
it look like it if it retraced back to its
historical mean, maybe it drops twenty or thirty percent from here.
Speaker 1 (06:31):
That's why I do. I mean, if you look at
the three dollar cycles of modern history, each one is
kind of a lower high than the prior one thus far.
So even though, like you said, it's not as high
as nineteen eighty five, it's a different world than it
was back then, and so the system starts to kind
of break at a lower high than it used to
back in the nineteen eighties. There's both in the US
(06:53):
and elsewhere, there's a lot less debt in the system,
and so it could go a lot further before it
would run into problem, whereas now the feedback loop is
a lot tighter, and so it runs into issues sooner.
So yeah, Ever since, ever since twenty fourteen roughly coincided
with the end of QI three quantity of using three
the third round after the global financial crisis. When that ended,
(07:15):
we had a pretty strong dollar surge, and although it's
fluctuated you know, it goes up to it one hundred
one dollars indecks, you know, it's gotten as high as
like one fourteen, it's gotten down, So it goes to
these kind of these kind of waves in this period.
But during that eleven year stretch, it's all been pretty elevated,
and we look at on a trade balance basis, it's
very strong. When you look at its effects on you know,
(07:38):
what type of assets are doing well, what types of
economies are booming or not booming. It's all characteristic of
a stronger dollar environment. Gently, when you get a truly
weaker dollar move, you'll get something like an emerging markets
boom for maybe three to five years. You'll get probably
a round of inflation. You'll probably get a round of
kind of value stockout performance. We've not really seen any
(07:59):
of that at scale. Those you have individual years of
that happening. For example, twenty seventeen was a good kind
of rotation year for those types of assets. This year
so far has been somewhat of a rotation year. But
these are kind of smaller moves compared to what you
can get when you have a true, say twenty thirty
percent currency shift involving the dollars.
Speaker 2 (08:19):
And then when you see these big shifts happen in
the dollar going back into a weeker dollar, then that
tends to correlate with like global M two increasing, So
the money supply starts increasing when that goes down, and
that's also part of what pushes these other markets back up. Uh.
Speaker 1 (08:34):
Yes, indirectly because many cases Global M two will be
measured in dollars, because Global M two has a bunch
of different units, all the different units of the major currencies,
and so when you're kind of reporting what is the
value of this figure, it's normally reported dollar equivalents because
that's the major that's the globalserve currency. And the reason
(08:54):
it's really relevant is because out of all the major currencies,
the dollars by far the most important ass border funding currency.
So there's something like eighteen trillion dollars worth of dollars
dominated loans and bonds that are cross border in the world,
and so it's the unit of account for liabilities, which
is really important. So when the dollar is weakening, it
(09:16):
means various entities around the world their liabilities are weakening,
which is good for them. Whereas when the dollar's strengthening
their liabilities are hardening. It's like if you took if
you took out a mortgage in Swiss francs, but say
you're renting it out and all the cash flows are
in dollars. You're in a world of pain if the
Swiss franc doubles compared to the dollar, whereas you're doing
great if the Swiss franc gets cut in half relatively dollar.
(09:39):
And so that that's what happens kind of the whole world.
And so whenever you do get that weaker dollar environment, yeah,
you get a surgeon global into but it's mainly because
the denominators going down. But then also what that does
that allows emerging market central banks around the world to
kind of loosen a little bit because during strong dollar environments,
even if they encounter recession, they often have to be
(10:01):
pretty tight with their monetary policy to avoid currency crises.
And so when they do get that weeker dollar period,
they're able to kind of actually stimulate for a change.
And that's we tend to get that little bit of
a rotation.
Speaker 3 (10:13):
Yeah, I know that all too well.
Speaker 2 (10:15):
The last couple of years I was building a house
down in Mexico and trying to deal with multiple currencies
at the same time has been extremely difficult. The peso
has moved quite a bit, quite a bit against the
dollar over the last couple of years, and we're ordering supplies.
Some are coming from Europe, some are coming from Mexico,
some are coming from the US, and my vendors couldn't
give me any quotes, like it's all because we don't know.
Speaker 3 (10:33):
What the price will be at those different times.
Speaker 2 (10:35):
And then certainly you see these big moves and all
of sudden things get a lot more expensive for me.
So I can only imagine that on a much bigger
scale and living through that.
Speaker 3 (10:43):
You know, I haven't built a.
Speaker 2 (10:44):
House in another country before, and then you just start thinking, man,
how inevitable is something like bitcoin, because like, how can
the world work like this? Like it's it's madness that
people have to deal with that all the time.
Speaker 1 (10:55):
Yeah, we built a home in Egypt. We went through
similar issues over the past two years. And it's also
even when you're just in a country with high inflation.
For example, in Egypt, they're dealing with something like twenty
five percent annual money supply growth in that country, and
so imagine all contracts in that country, whether it's wage contracts,
(11:18):
whether it's supplier contracts, all those things have to kind
of adjust on a regular basis or someone's getting really
messed up. And it adds a overhead problem to every
entity trying to do business in the country and every worker.
Speaker 2 (11:33):
Yeah, and I didn't really think about it at this level.
But what it also does is it makes all of
those vendors become speculators because they're all now trying to
speculate on what the price changes will be on those currencies.
So like, I didn't really understand why at the gas
stations there's like one price for Mexican pesos and one
price for dollars, and it's like, well, because they can't
(11:53):
go exchange those dollars maybe till the end of the week,
and then we don't know what the exchange rates are
going to be, so they have to like make up
for that, And yeah, you just realize, like how how
broken the money is to your book, right before we
get into something bigger that I really want to get into.
The other thing sort of around this shift, or seems
to be maybe the catalyst for the shift, per Trump
(12:14):
is tariffs and resetting trade imbalances, and I think it's
bigger than just trade inbalances. But I'm curious in regards
to that. Seems like that's like a pretty big deal
shifting that back. So one, I mean, is it really
about trade, because I've seen you talking about this as well,
and it seems like in our society, like we don't
(12:36):
want to bring T shirts and sneakers back from Vietnam
one hundred years agoing to yes, we did that, we
did textiles, but we've moved on to higher things, and
so like bringing T shirts and sneakers back doesn't seem
to be the highest and best use case fixing those
trade inbalances. So I'm curious your take on that.
Speaker 1 (12:52):
Yeah, I think what they want more is like higher
capital goods. Even when we look at China, for example,
that's the trade boogeyman at the current time, they've moved
up the capital stack. So you know, we used to
think of China as the biggest producer of like plastic
goods for example, and textiles. A lot of that has
rotated toward less expensive manufacturing places than China, whereas they've
moved up the capitol stack. China is now the biggest
(13:14):
exporter of vehicles in the world. They've passed South Korea,
Germany and Japan as the biggest exporter. And it's not
just you know, like electric vehicles, it's actually mostly ice vehicles.
Like when I go bring up Egypt again, the streets
just have tons of Chinese cars on them. And that's
true for a lot of developed developing countries in the world.
We don't see them in the US. We see them
(13:35):
other than a lot of other places. And I think,
you know, several enties in the US kind of want
that for the US. They want to be a semiconductor
manufacturing area, we want to be leaders in a robotics,
We want to be a leader in all sorts of
kind of higher in capital goods, rather than kind of
having give that industry up to Europe and East Asia
and places like that. And I do think it's bigger
(13:57):
than just trade, because a point that I've been making
a lot is that the current issues with the US
trades specifically are heavily tied to the global monetary system
as it's structured. So go back to by point that
you know, every several decades, these things tend to change
pretty substantially. This is potentially more than just a trade cycle.
(14:18):
Part of why so many nies even talking about a
monetary change or a change in structure is because it's
so tied to trade. And a point that I've made
is that basically the other side of being the global
reserve currency is something in your economy is generally getting
hollowed out. There's some sort of imbalance that's kind of
embedded into the system, and you're kind of paying this
(14:40):
cost to maintain the privilege of being the globalserve currency.
So back in the Breton Woods era, the cost was
that we were draining our gold reserves. We had pegging
the dollar to gold, A bunch of other currencies pegged
themselves to the dollar, and then the dollar was the
primary global funding currency. So the combination of fractures or
banks and depth spending made it so that the number
(15:02):
of dollars kept increasing dramatically, but our gold reserves were not.
And so over time, as you get more foreign redemptions,
our gold reserves fell from twenty thousand tons to nine
thousand tons, and then they quickly defaulted on the ability
to redeem dollars for gold. And ever since then, when
we shifted more toward the euro dollar system, petit dollar system, instead.
(15:23):
Kind of the cost that we're paying is de industrialization.
We are gradually hollowing out on industrial base to maintain
our kind of global dollar empire. But this has cumulative imbalances.
We're basically we're constantly taking away from Michigan and Ohio
and Pennsylvania and the rust belt and making it get
the name rust Belt. It's going then international, and then
(15:45):
they're reinvesting their proceeds in US stocks, US bonds, private equity,
so that's going back into New York, back in the
Silicon Valley, and so kind of the net result is
we're taking out of the Midwest that we're sticking it
the value into the coasts. So you get both both
domestic political issues and then you get these kind of
global big imbalances where China has all these massive surpluses,
(16:07):
the US has all these massive deficits, and other countries
kind of sit somewhere in the middle. And that's kind
of an artifact of the system that we've structured. And
the challenge is that if you want to bring back
some to give manufacturing and industrial vibrancy, it generally comes
with the cost of giving up some degree of the
currency power that they.
Speaker 2 (16:26):
Have Why why does it? I mean, that's obviously Triven's dilemma,
which is the problem that we sort of get ourselves into,
and so having to supply the world with dollars in
exchange for giving those dollars for the goods that they
bring in. I'm guess that's what you're saying. But I mean,
is that why the world needs the dollars? I mean,
(16:47):
then the euro dollar system to create their own dollars. Now,
can't we just provide dollars another way? And then also
maybe a better question maybe that I'd like to ask specifically,
is like sort of in a capitalist's system, like the
goal is to move to higher levels and sort of
take care of those base needs and give those another
emerging market. So like one hundred years ago, we did
do textiles here, now.
Speaker 3 (17:08):
Vietnam dos does.
Speaker 2 (17:10):
But we now make digital products. We make Facebook and
social media platforms and financial products, and those get exported
to the world and the world imports those and that
doesn't show up in trade balance, does it?
Speaker 3 (17:22):
So?
Speaker 1 (17:22):
Yeah, so two questions, what is actually it does? So
there is a services component to trade balance, and our
trade balance has reported include services. We actually have a
services surplus to your point, and services can also include
things like tourism. You know, if a place doesn't really
export things, but everyone wants to go there to travel,
and they bring currency with them and they spend in
that economy, they're basically exporting tourism services, is the way
(17:45):
to think about it. So the US is exporting financial services,
software services, tourism services, things like that, and that is
taking away from some of our goods deficit, but we
still have a net deficit even after that's considered, and
it's pretty big. And to your you know, to your point,
like there special specialization matters, like the trade is is
(18:07):
a net good because it allows different areas to focus.
It only becomes an issue when it's not necessarily happening naturally.
It's happening because of an artifact of basically an intentional
system as designed. And two uh, there's usually a real
politic at some point that hits. There's natural security interests
that hit. And so for example, when a pandemic hits
and they're like, wait a second, we can't make ventilators.
(18:29):
Why can't we make ventilators or semic connectors is super important?
Why are all the semic conductors being made in like
Taiwan and South Korea, for example, that becomes an issue.
So people usually don't use use sleepover where shirts are made,
but they do lose sleep over where complex machinery is made,
especially if it's a handful of kind of places in
the warriant. So uh, and this is a weird thing
(18:50):
you don't think about, like pharmaceutical components, medical dies that
are needed in like imaging, the little little widgets here
and there that our industries just heavily reliant on. And
if so, if you do some sort of trade embargo,
you can have a national security issue and kind of
shortage and things like that.
Speaker 3 (19:10):
As we saw in twenty twenty.
Speaker 2 (19:11):
To your point, and I'm bullish on tariffs for the
most part, and I agree with you.
Speaker 3 (19:16):
They're strategic, they're not blanket.
Speaker 2 (19:17):
We're not trying to grow coconuts in the US, right,
we want to import those types of things. And also
tariffs also work for protecting certain industries, especially allowing industries
to grow. So for example, bringing back some of these
competitive things like microchips for example, and doing some tariffs
might make it more cost beneficial.
Speaker 1 (19:35):
Here.
Speaker 2 (19:35):
Also in the US, we've sort of shot ourselves in
the foot by doing a lot of environmental regulations against
rarest elements and certain minerals that we might need here
and bringing those things back just by loosing some of
those political I guess, if you'll call them, those political
regulations against that.
Speaker 3 (19:52):
So I guess those are all important pieces.
Speaker 2 (19:53):
And I think if I looked at sort of the plan,
it doesn't look like the goal was to bring sneakers
and T shirts back.
Speaker 3 (20:00):
That's like a media headline.
Speaker 2 (20:01):
I shouldn't probably repeat that, But I think maybe getting
back to fifteen percent manufacturing in the US, you know,
and then put in some of these tariffs will allow
us to sort of develop some of these automation technologies
that we need. Seems like a pretty good planned, at
least that's what I was seeing.
Speaker 1 (20:17):
Yeah, potentially, I think the problem is that so if
you look at, for example, that Stephen Myron paper, So
Stephen Myron is Trump's chair of the Council of Economic
Advisors to the President, and he kind of outlined that
the trade imbalances directly tied to the currency issue and
that there is somewhat of a trade off there. One
of the challenges that I think the administration as they're
(20:39):
approaching it is not really talking about that other side
of it. They want to retain every single benefit of
the dollar as the globals of currency, but then they
also want to fix the trade element, even though they're
kind of tied at the hip, right, And I think
that's where they potentially run into frictions because it's more
like you're treating a series of symptoms rather than talking
about the elephant in the room, which is kind of
the root cause, because it's it's very wonky to talk about,
(21:02):
you know, it's not something like that. All the stuff
I just said is terrible at a political route. It's
it's not no one's in a collap it's not fun,
it's it's not energizing, there's no enemy. It's like it's
it's it's a cumulative decisions that US and others have
made collaborative movie for decades. And so that's the challenge
and and there's no there's no kind of narrative political
(21:23):
gain from saying we're actually being harmed by being the
solvers of currency now that the downsides of it are
kind of equal or exceeding the benefits of being it.
And it's it's it's a whole wonky subject to talk about.
It's more about kind of a we're in a more
multipolar world now and there are reality is associated with that,
but yeah, none of that carries political capital to bring up.
(21:45):
And so it's a lot of the focus is on
the terear side, the trade side, but the challenge being
that's only one side of the coin.
Speaker 2 (21:51):
Yeah, and does that lead to something bigger that you
see kind of being geared up is maybe to change
that structure of the monetary system.
Speaker 1 (22:00):
We have seen that in elements of the administration. So
to go back to Stephen Myern for example, you know
he in his paper he leterally talked about the potential
of putting a fee on investing in US assets by
a foreign sector. Now, you wouldn't really think a politician
or an advisor to a politician would think, hey, we
want the world to invest less in our assets. But
that's that's one side of the coin that's happening. The
(22:22):
other side of basically a current account depths is which
we have is a capital account surplus, and by all
these entities around the world owning US assets, it overvalues
a dollar and therefore makes it harder for us to
compete on manufactured goods, and so to the extent that
that's you know, become very extreme, there are elements in
(22:43):
the administration that want to push back on that and say, well,
how can we kind of maybe balance this out a
little bit. But then that sort of focus on some
of those bigger things doesn't necessarily make it up to
things that Trump will say out loud, for example. So
I think, like any administration, there are kind of different
factions within the administration. We saw this for example, there
there was a more of a free trade contingent with
(23:04):
the administration and more of a protectionist and tariff contingent.
And then similarly you have a somewhat more academic bent
within the administration, you know, the Stephen Myrons uh, and
then you have the other faction. So I think that's
that's one of the challenges, kind of seeing which which
side's winning it at being given time. There was a
similar dynamic in his prior term, but that was more
(23:24):
of an establishment versus ant establishment contingent. Uh. Where is
this this term he put together? This administration is more
it's more fully into establishment, but then there's still different
factions within that.
Speaker 2 (23:38):
I guess what I was asking about is maybe some
fundamental transformation of the system getting away from the dollar
being that reserve currency that's always forced to an export
its manufacturing sector. So there's been hints, I mean, Luke
Grammin talks about quite often, but hints about, you know,
revaluing gold for example. Obviously there's strate a strategic Bitcoin
Reserve bill put forth, and so maybe doing something to
(23:59):
sort of of get away from that pure fiat you
know and US Treasury dollar system and going back to
something like the older bitcoin.
Speaker 3 (24:06):
Is that what you were talking.
Speaker 1 (24:07):
About, Well, yeah, that's what I mean by factions. So
for example, in Steven Myer's paper, he talked about how
if what he's saying he's basically as up happening, it'd
be beneficial for gold and cryptocurrencies, which would primarily be bitcoin.
He used the phrase cryptocurrencies, but basically golden bitcoin would
benefit from this more neutral reserve asset type of system
and a more multipolar system. Then there's you see a
(24:29):
little bit of pushback from within the same administration because
for example, Trump would say that if there's an attempt
to make a bricks currency, he would stop it or
try to you know, he was sanction it and things
like that, even though that would actually kind of play
into the Meyern playbook, uh to say, okay, let some
of that, you know, foreign trade happen in a different currency.
I think for separate reasons, the bricks currency doesn't make sense.
(24:52):
But basically one of the potential pass for reassuring some
of the higher end US manufacturing is to say, look,
I mean, if you want to do if China wants
to trade, they are already the biggest trading part of
most countries, they can do more of it in their
own currency. They can do more cross border funding in
their own currency, not have it always be the dollar,
and that actually allows some of the balances to shift
(25:12):
a little bit. So instead of the dollar being you know,
ninety percent of you know, currency exchange by far the
biggest cross border funding currency, bigger than all those combined,
you can have a potentially more multipolar world where the
dollar remains central in certain parts of the world and
other parts of the world it becomes you know, the
Chinese currency, and and that the biggest reserve assets become
(25:36):
you know, the neutral ones, ones that are not issued
by anyone country, so it's not as though another there's
no world where really another country becomes the global reserve
currency issuer, and the way that the States has been,
that's not that's not really in the cards for anyone.
It's more like, how quickly are we going to shift
toward a more multipolar system and one built around neutral
reserve assets, or to what extent we're going to fight
(25:57):
that shift? And I think the more elegant approach is
to let that shift happen and make sure that we're
kind of benefiting from that shift rather than fighting it.
It's kind of like if you realize you've you're the
Roman Empire, you've maybe spread your borders too thin, so
you're kind of too wide, and now you find yourself
doing tons of border skirmishes and realizing that you're facing
(26:19):
issues from such a big empire. The question is do
you keep fighting every every inch of the way to
keep your borders, which is probably not the best approach,
or do you kind of strategically assess, okay, which borders
don't make sense anymore? How can we come out of
this really strong from position of strength? And I think
you can do that with currencies.
Speaker 2 (26:36):
And do you think I mean, was it a couple
of years ago Jerome Powell had said something about potentially
having more than one reserve currency global currency, and it
seems like, you know, obviously with the Trump administration, there's
been a lot of talk about it. I think the
Scent has maybe tried to squash that a little bit
about revaluing goal. But I mean we've seen I think
to your point, Steve Myron talking about it. I mean,
(26:57):
do you think that's something that they're talking about potentially
sort of letting that happen, I mean within this term
or is that much longer further.
Speaker 1 (27:04):
Out the shortages. I don't know, but I will say
that this would have been a non starter in the
prior administration, for example. So the fact that like there
are people in the administration even talking about this is
a shifting of the Overton wind dial. So so like
this is, you know, that's more of a break the
glass type of decision, kind of an intentional major shift
(27:27):
in the global system. Much like how companies rarely disrupt themselves.
They usually get disrupted by external startups, but every once
in a while a big company will disrupt itself and
then they're therefore, you know, kind of pivot from a
position of strength. It's certainly possible, the US could do it,
and the fact that these discussions are even happening is interesting.
Speaker 2 (27:48):
How does the sort of stable coin, the Genius Bill
that they're trying to get through, and Trump's executive orders
around that come into play, because on one hand, it
looks like the US is sort of trying to exert
the US dollar dominance as a currency at least throughout
the world. So we have all these currencies hyper inflating
or double digit inflation. The people want dollars, can't really
get them. The US wants people to buy treasuries, and
(28:10):
that stable coin sort of seems to be like that
perfect middleman. Is that a way that continues to keep
the dollar dominance going or not in the same regard,
because it's not a reserve, it's more of just a currency.
Speaker 1 (28:23):
So that is a way to keep dollar dominance going.
But then it goes to the prior point, do you
even want dollar dominance to keep? The point? And that's
where you could have different factions, because you could have
there's literally the Myron factional potentially talking about having a
fee to owning US assets, and another faction saying, how
can we get more empties outside of the US to
own US assets via stable coin, right right, So there's
a little bit of a potential conflict there. Also. One
(28:46):
of the things that Myron proposed was trying to get
foreign holders to turn out their debt, so basically to say,
hold fewer T bills and two year T notes and
things like that, and how to get them to buy
potension newly issued fifty year bonds or century bonds, for example.
Whereas stable coins need the opposite. They generally need pretty
short term collateral or you're potentially risking a pretty big
(29:08):
mismatch of assets versus liabilities. And so if anything, I
mean that that increases the appetite for TEA bills uh,
and maybe potentially other other fairly short term treasuries.
Speaker 2 (29:19):
Uh.
Speaker 1 (29:19):
It's not functionally that much different than reserve holdings. Uh.
You know, it's kind of the money of the people
rather than money the central banks. We do see kind
of a GRADUALDP top down slight dedollarization, whereas you don't
see that on the bottom up. Gentliet. You know, when
you go to the black market in Cairo looking for money,
it's the dollar, it's not the year, it isn't less
(29:40):
so the euro less so the Chinese want even though
China is the biggest trading party with Egypt compared to
the US, it's still dollars that that are desired, and
so there is a lot of bottom up demand for
stable coins by extension T bills. Uh. And but that's
it doesn't really conform with Myyern's plan of either getting
the four sector to invest less or to they sent
(30:03):
that they're going to invest to term out their liabilities
to potentially reduce long term magistrates for the US, Because.
Speaker 2 (30:09):
What you're saying is one is central bank demand which
has been going down, but then you have retail demand
picking up from the stable coins. But then the stable
coin companies turn around and buy the treasury debt. So
it's basically the.
Speaker 3 (30:19):
Same thing one way or another.
Speaker 2 (30:21):
But the demand from the stable coin companies would be
more in the short term on the bills versus at
least if central banks were buying it, they'd turn it
out a little bit further.
Speaker 1 (30:28):
I guess yeah, they settled back Sholey hold a mix
of both for different purposes, where stable coins primarily need
that shorter term.
Speaker 2 (30:36):
Now at the time of US are recording this here
May twenty one, we're seeing the Japanese long bond market
seemingly blowing out, which is looking very extreme when you
look at it on a chart. When I look at
the thirty years of the other developed world, the US,
in Germany and UK, they're also making new all time highs.
Speaker 3 (30:56):
What's going on with that?
Speaker 2 (30:57):
I mean, is Japan screaming something different then what the
rest of these developed world you know, long bonds are showing.
Speaker 1 (31:04):
So Japan's on somewhat of a different cycle. I think
for Europe, a somewhat of a shift there is that
they're you know, they've they've historically been reticent to do
fiscal stimulus of various types. Japan's kind of in a
constant state of physical dominance. The US runs pretty heavy
fiscal spending depth sits on a regular basis. Europe's generally
been more constrained, primarily because of Germany, but because of
(31:28):
their defense situation and other factors. They've been increasingly over
the past several months inclined to, you know, looking at
more fiscal in the future of the markets, kind of
front running that which potentially means hot you know, hotter
not nominal GDP growth and longer higher long term interest rates.
In Japan's case, I mean, they basically have such high
(31:51):
public that the GDP that their bond market is not
really a free market. Uh. And when they try to
things like quantitative tightening, uh, they try to get out
of things a yield curve control, they face pretty significant issues. UH.
And basically because there's there's no end in sight to
their ongoing deficits uh. And there's no realistic fix for
(32:12):
their public debt to GDP other than inflating part of
it away and letting it kind of run hot and
trying to keep nominal GDP growing in line with that debt.
You know, I'm blessed of a bear on Japan. Then
some of the doom saves would be because Japan has,
you know, for a lot of the problems they have
(32:33):
with their public debt. The other side of it is
they've they've run decades of trade surpluses and current account surpluses.
So they have a huge stockpile of sovereign assets and
private assets. And so as we saw, for example, you
know a couple of years ago, when their currentcy was
weakening sharply, Uh, they can sell treasury, so they can
sell dollars to backstop their currency UH potentially break short attempts,
(32:57):
so they have a they have a lot of ammo
UH to really raw this out and potentially have, for example,
make the FED go back to QBA because of potential
dislocations in the treasure market before they would run into
a true crisis. We've seen some comparisons between Japan and
Greece that came up in the news. Likely that japan
debath the GDP is now higher than Greece's was at
(33:18):
the high point. But a key difference is one Japan
is incredibly productive compared to Greece. They have much more
diverse productive economy. And two that the debt is in
their own currency, whereas Greece was subject to recurrency that
they didn't fully or even have substantial control over, whereas
Japan does. And so they have a lot of different
levers that they can pull to keep the wheels on
(33:41):
the track for a lot longer, I think than people expect.
Speaker 2 (33:44):
So you said it's sort of on a different cycle,
So like it's saying like it's showing the same thing.
It's the same fundamental thing as most of these developed countries,
but it's further ahead.
Speaker 3 (33:53):
A lot of times people would say.
Speaker 2 (33:54):
That Japan is twenty years ahead of US, so it's
like we'll get there, maybe the UK or Australia, Canada
get there eventually, but just Japan's a little bit further along.
But then also maybe like other compared to other countries,
it is more productive and has much more surplus, so
it could also sort of kind of hold it together longer.
Speaker 1 (34:11):
Yeah, I think there's two ways of meaning that. So
one I kind of meant the more tactical sense through
on a different cycle, which is like, for example, when
the rest of the world was raising industrates, Japan wasn't.
They were like those the only dove in the room basically,
and that's why the end was weakening so much relative
to dollar, because you had this really big ustrate differential
opening up. But then as the rest of the world
(34:32):
got into like okay, we've maybe peaked industrates for going
down a little bit, Japan was still gradually increasing, so
they were actually the kind of the hawk in the
room on a relative basis, like you know, they're still
lower indust rates, but the direction they were going in
was kind of the outlier. But yeah, then in the
longer term sense, like you said, they are kind of
ten to twenty years ahead of many other developed countries
(34:55):
in terms of demographics and the debt situation. And they
do have a lot of strengths though, Like they have,
they're highly productive, and a statistic I like to point
out is that they spend way less per capita on
healthcare than the US and many other countries, despite having
way longer longevity and on average being something like ten
(35:15):
years older. And also they spend a lot less on defense,
so things that are generally viewed as inefficient types of spending.
You know, if you build a warship and then you
never have a war, it's kind of wasted spending. Now,
obviously you need a certain amount of defense, but it's
like it's generally better to reinvest in your economy when
you can. So the fact that they've been kind of
under the US security umbrella and the fact that they're
(35:39):
very efficient with health care spending and other habits that
contribute to longevity and good health, they've been able to
kind of get around a lot of their shortcomings by
leading into their strengths.
Speaker 2 (35:50):
Okay, so maybe it's not as dire as a lot
of the doomsayers want to say, And as someone who
makes a ton of content. Man, does everybody want to
doom so bad? It's like it's like the only thing
that gets like views online anymore.
Speaker 3 (36:05):
You know.
Speaker 2 (36:05):
It's like you say anything positive, nobody wants to hear it.
But in regards to that, you know, something that you
talk a lot about is the nothing stops this train meme.
You've got that one going pretty well. And I think
when you're referring to the nothing stops his train, it's
basically what fiscal spending, government spending.
Speaker 3 (36:22):
Debt, debt creation, right, they're just going to keep printing.
Speaker 2 (36:26):
When I think about that, Like we saw like the
Trump administration come in, uh, fired up, ready to change
the world. We had Howard let Nick talking about getting
getting back onto a balanced budget, Elon Musk fired up
with Doge He's gonna, you know, find all this waste.
And now that seems to just like all have fizzled out.
Scott Assents on the news, I think a week ago
saying well, I think we're just going to try to
(36:48):
outgrow this thing.
Speaker 3 (36:50):
Is that all the nothing stuffs?
Speaker 1 (36:53):
Yeah, I think there's a few months of people thinking
they might slow down the train, and they're realizing that
they're not going to UH and now we're kind of
back on all steam ahead that you know, nothing stops
his train. I refer to basically Walter White from Breaking Bad,
where you know, his allies trying to get him to
stop his like drug empire, and he's like, no, nothing
stops his Trea. You know, we're gonna keep going, and
(37:15):
we're just getting started. And I think the US physical
deficits are the same. There's it's extremely low probability that
anytime in the next five to ten years that they're
going to meaningfully make reductions in the US fyscal depicit.
There's a bunch of reasons for that, and that has
all sorts of geopolitical implications, investing implications, economic implications, and
(37:37):
you know, sometimes people will phrase that as a doom
say anything to your prior point doom cells, but that's
actually not really how that's meant, because, for example, if
it was doomy, then the train would stop. As a
part of the nothing stops his train thesis is it's
kind of a balance between you know, it's basic on
saying on one hand, it's pessimistic because I'm saying they're
(37:57):
not going to meaningfully fix the depicit. Anytime soon. It's
very mathematically implausible that anyone's gonna be successful in that,
and as you've seen, has been pretty abrupt pfits and
even even the people that said they would now kind
of backtracking. But the other hand, it means that they're
going to keep the wheels on enough. And I think
that's true for the US. I think that's true for Japan,
(38:19):
where it's also not going to spiral to some crisis
the next year to three years and stop in that
way either. I think it's basically going to run hot
for any sort of investing time prising where we're looking
out two decades, that's a whole different world, right. I'm
not trying to make two decade predictionized. I'm not trying
to look five ten years ahead and basically that in
(38:39):
that timeframe, there's there's relatively low scenario probabilities for how
we're going to anything other than run hot for that period.
So would you.
Speaker 2 (38:48):
Say that, given you know, death to GDPs of US
one twenty in Japan, what are they had two forty?
I mean, so huge debt to GDP ratios, giant deficit
spending percentages and dollar amounts on that as well, and
to your point about them being able to keep the
train on the track. Then almost like any recession that
we would have in the future would almost be a
policy decision.
Speaker 1 (39:09):
In a way, Yes, when when another way of putting
it is that emerging market recessions and developed market processions
look different. So, for example, in an emerging market, you
often won't get an unemployment spike. I mean, it depends
on the type of recession they're having. But often what
happens is said is basically a currency crisis. It's kind
of like this inflation wave, and so everybody kind of
(39:33):
feels poor, and yet there's there's not really this big
leag labor cycle change. It's more just like imports more expensive,
they're getting less per hour work. There's an economic malays
that is happening, but the units are being treated differently.
If you look at a lot of numbers, in many ways,
twenty twenty two was a recession in the US. For example,
(39:55):
if you look at the misery index, which is unemployment
plus inflation, that was basically, you know, a recession level
misery index, but it was more from the inflation side
than the labor side. When you look at for example,
bank lending, so how many you know, what percentage of
banks are tightening credit availability versus loosening credit availability. That
(40:17):
twenty twenty two year was like the only time in
modern history where we hit something like forty percent of
banks tightening at once and without a recession on the record.
And again because that was kind of a I would
say that was basically a recession, Like most people were
worse off that year than six months or twelve months prior,
but it didn't show up in a big labor cycle
(40:38):
change instead showed up in this kind of inflation wave
where everybody's kind of a little worse off than they
were at the sugar high of the stimulus because that
delayed inflation hit and their wages were going up at
the same rate. Is so everybody's kind of taking this
kind of shared pain. So in a typical develop market
disinflation a recession, most people don't lose their jobs, but
(40:59):
those that do are greatly impacted, Whereas in a more inflationary,
emerging market style recession, fewer people lose their jobs, but
the pain is kind of spread through inflation, and so
it's a different type of pain. And I do think
that basically recessions going forward in the developed world are
more likely to have some of those characteristics where some
of the pain is felt more in monetary debasement rather
(41:24):
than these kind of typical cycles we've been through. And
part of that is because bank lending is less important
or less like a lower magnitude relative to fiscal deficits
than it used to be for most of the past
call it fifty years. In any given period of time,
net bank lending is a bigger dollar amount in a
given year than physical deficits with generally the only exceptions
(41:48):
were like, maybe you'll see a twelve month period during
recession where briefly physical deficits are bigger and lending has contracted.
But now in this kind of period of physical dominance,
even when you know we're not in a recession, physical
deficits are usually bigger than bank lending, and so this
is kind of this more background running hot. And so
it's actually pretty hard to have the type of recession
(42:11):
we've come to expect. But that doesn't mean you can't
have periods of economic weakness or people kind of correctly
off feeling that they're worse off than they were the
year before.
Speaker 2 (42:20):
I guess what you're saying is since we typically see
money supply go down, banks aren't lending as much, so
the money supply is not expanding through decreation. But now
that fiscal dominance, government spending has eclipse that whatever the
banks are doing from tightening and loosening their lending regulations
doesn't affect it as much as it did because now
we have this fiscal dominance.
Speaker 1 (42:40):
Yeah, it still affects part of the economy, like effects
small businesses that are either getting or not getting that
credit and what terms. But for example, the fact that
so security checks are still going out and medicare spending
still happening, and huge defense spending still happening, and interest
expense is still happening. Those are different vehicles where this
money is pouring into the economy, and so consumption stays
(43:01):
pretty strong, yeah, you know, for example. And so the
net result is that the thing runs hot compared to
what you normally expect in that type of environment.
Speaker 2 (43:10):
And then when and then it seems like you said yes,
sort of like a policy decision. So when you look
back from previous crashes in the seventies or nineties or
two thousand, like they it seemed like they policy decision
was to allow the sort of bubble to deleverage, and
maybe in two thousand and eight they also tried to
let it do leverage, and then it got too big
and too systemic. They launched QE levered this thing back up,
(43:32):
and now today the decision is there's no appetite for
that at all. In twenty twenty two, it kind of
was a recession. The Biden administration had to come out
and say technically it wasn't. But that also seemed to
be a policy decision because that was right after the
FED started QT and tightening things back down, so it
sort of was a decision looking back historically, it was
(43:54):
a pretty minor correction overall, that was a decision.
Speaker 3 (43:59):
By the FED to try to tighten things.
Speaker 2 (44:01):
I'm curious what your view is on these like more
like four or five year global liquidity cycles like Michael
Holle talks about, which seems to sort of maybe be
in the macro driver's seat, right. So you look at
like two thousand and eight, a response to the global
financial crisis, interest rates were dropped to zero, which sort
of synked up the term on all the debt. And
(44:21):
now every about four to five years we have these
cycles which happens to coincide with the four year bitcoin
having cycle, happens to coincide with the four year presidential
election cycle, and that hit right in twenty twenty two.
What do you think about those cycles?
Speaker 1 (44:36):
So I think those cycles are intact. I wouldn't say
what I think the specific timeframe is going to be.
On average, I think it's somewhat of like three year cycles,
but it varies, And you know, I do think they
tried a pretty pretty aggressive tightening cycle in twenty twenty two. Basically,
they decided that they kind of observed that the inflation
pain was worse than anything else, so they had to
(44:56):
get that under control, is try to, So they tightened policy,
they slowed down bank lending. There weren't any major new
fiscal bursts going on in twenty twenty two compared to
what we saw in the prior to years, and so
that was across the board a pretty contractionary year. But
then the pain became so much that the nthes started
to bend around it. So, for example, the UK guilt
(45:17):
crisis in twenty twenty two was an issue. At the
same time, the US treasure market didn't break the way
that the UK's did, but ours became wobbly like we
had like record high move index like meaning treasury volatility.
And over that year and then the next year, the
Treasure Department shifted toward kind of unprecedented issuance of tea
(45:38):
bills as a ratio of their debt, which they normally
only do in crises and recessions. But despite the fact
that there was no official crisis or recession, they were
shifting more and more toward t bills rather than issue
as much as they generally should have been doing on
the longer end. And so that was kind of a
softening of the you know, the treasury kind of offsetting
(45:58):
some of the FED tightening. And then in early twenty
and three, when the when the banks ran into issues,
uh they blinked, and so they you know, they gave
liquidity provisions and soon after they slowed down and then
stopped industrate increases. So they kind of ran into the
guardrails that they could do. And so some of these
(46:19):
background forces, like the big ongoing fiscal depths, it slowly
kind of overpowered some of those tightening attempts. So in
twenty twenty three and twenty twenty four we got this
we got this like other kind of kind of unintentional
loosening of a lot of things. And twenty twenty five
is obviously been a shaky year because of all this
terrif uncertainty, uh, currency volatility and things like that. But
(46:39):
I still think we're in a sustained period of you know,
oney supply running hot, nowmal GDP running hot. Attempts at
tightening are more about narratives and jawboning rather than anybody
meanifully cut into depicit doing anything that can really hurt banks.
And so the the the kind of the error tract
(47:00):
is normally toward when in doubt liquidity's okay, and things
tend to run hot rather than run into dissiflationary collaps.
Speaker 2 (47:09):
And now all that, you know, we did have a
rough first quarter, like you said, all the tariff stuff,
you know, the new administration, et cetera.
Speaker 3 (47:16):
Seems like we're on the other side of that.
Speaker 2 (47:18):
Like I said, maybe percent sort of throw in the
towel elon, threw in the towel on that Bitcoin's off
to the race has hit a new all time high
one hundred and nine thousand. The thing that I have
been completely absorbed by and I'm guessing you have as well.
Is the new bitcoin treasury strategy companies that are popping up,
and it seems like we sort of have like this
new financial asset, creating these new financial products and maybe
(47:39):
creating a new financial system in front of us. And
there's all these new metrics like bitcoin per share and
m NAB and things like that. I'm curious your take
on this bitcoin treasury strategy play. Is this building a
new financial system with a new financial asset or is
it sort of running the old playbook on a new asset.
Speaker 1 (47:57):
I think there are two things happening. Someone saneous to
I think on it just makes sense for balance sheets
to have the best money, and so I think that's
that's a more structural shift that basically, if you're a business,
instead of holding melting ice cubes, you know, fea currency,
or instead of decapitalizing yourself basically giving all your money
(48:18):
back to shareholders as share buybacks or dividends and purpose
taking on debt you don't need, Like Coca Cola has
like forty to fifty billion in debt despite being profitable
every year for like a century. And the reason they
do that is because why would you not take Why
would you not issue thirty your bonds to two percent
if you can. It's basically financial arbitrage, and so that's
been the name of the game. These big successful bluecher companies.
(48:40):
They take out debt they don't need because they can
and as cheap, and they you know, they basically shorten
the currency for thirty years at two percent, which is great.
They're buying back shares, they're paying dividends. So bitcoin introduces
another thing you can do, which is hold a scarce
asset on your balance sheet, so you're protecting yourself from debasement,
but you're also not you know, turing your whole balance
(49:01):
sheet into liabilities and basically decapitalizing yourself as much as possible.
When capital is not you know, kind of respected. All
these companies said, well, we don't want capital then, and
so this is a new tool to actually have capital.
The other strategy I think on top of that is arbitrage,
which is if this currency is going to keep weakening,
we're then going to try to issue debt in their
(49:22):
currency and buy this way better currency. You see this
to some extent whenever you have like an emerging market
currency crisis, there are companies there that say, well, we
could take out bank loans and are failing domestic currency
and buy dollars with it. That seems like a good trade.
And then sometimes you'll say, for example, like this is
happening in Turkey, where they would then come in and say, well,
(49:43):
if you're business, then holds dollars. You can't take out
a loan in the local currency because we don't want you,
you know, basically doing expective attack on our currency to
buy dollars. That's kind of what's happening with these leverage
bitcoin entities. They're kind of doing expecutive attack on the
dollar buying bitcoin. But of course the dollar can absorb
a lot bigger attack than a developing market currency, and
(50:07):
so there are I think arbitrages that are happening, and
rightly so because when when you know, when the opportunity
is there, their anties are going to take it, and
those that do it earlier get disproportionate gains. And then
the question is what percentage of them or which ones
will nail nail the turn like when this eventually gets
overdone excessive and dangerous, which ones will have the best
(50:30):
risk mitigation in play to get through a bear market
without having to liquidata at an inopportune time. Uh, and
otherwise just you know, knock it over their skis, right.
Speaker 2 (50:40):
So it's almost like, like you said, it gives gives
these public companies a new option as opposed to just
leveraging up with debt. So it's almost like maybe buying
bitcoin is like the new buy back your shares strategy.
Speaker 1 (50:52):
It's a it's a new tool in the toolbox. And
it's not necessarily that it's always a better choice, but
it's certainly a new variable. All the all the other choices,
it's just basically all decapitalization, and this is the first
one where you know you can retain value without decapitalization.
And I think that up to a point that makes
a ton of sense.
Speaker 2 (51:09):
When I look at like a company like micro Strategy,
you know, at the Bigger Opportunity Fund, we're.
Speaker 3 (51:13):
Looking at a lot of these deals.
Speaker 2 (51:14):
I'm sure you guys are where do you go death
as well, And we're looking at these deals and it's
always like, well, how do we value this thing?
Speaker 3 (51:19):
And it's like we have.
Speaker 2 (51:20):
These these new strategies, these new companies are building and
and and a lot of the defaults to this old
narrative is like, what's the underlying business model? When I
look at like micro strategy, it's like, well, there used
to be software, but now they're sort of just like
financial products. So at mstr strk strfter sort of like
financial products that they're bringing to market almost like maybe
(51:40):
like an ETF. And then I think of it like, well,
I mean, I guess the market could bear thousands of
financial products, So maybe it's not as bubble asque as
some people think it is right now, or do you
think it's sort of hitting that level.
Speaker 1 (51:53):
I don't think it's too bubbleishous yet I think they're
I mean, it goes to periods of micro bubbles. I
tend to you know, when big when MicroStrategy is hitting
like over three times NAF and every single person on
Twitter is talking about it, that's when it tends to
get temporarily overdone, and then it goes to period of consolidation.
The market digests that move and then you know, potentially
sets up a new round higher in the coming months.
(52:14):
There is somewhat of a network effect here, so liquidity
really matters, and having a liquid option market really matters.
So micro strategy is kind of in a unique position
where their equity is very liquid, uh, their options market
is very liquid, and so that is a pretty you know,
selfishinting network. It's it's hard for like another entity become
micro strategy and have you know, one hundred different micro
(52:36):
strategies on the market. But I do that that the
overall market size can absorb quite a bit of this.
I mean, you know that the FIA system is hundreds
of trillions of dollars globally and bitcoins are two trainon
dollar asset and so and then you know these leverage
bitcoin entities are still in the hundreds of billions. Most
of it's being micro strategy, but even though the long
tail of a lot of others is still not that big.
(52:58):
So I think that that over time, the market it
can absorb more of it, and even MicroStrategy. You know,
there was a pause during the bear market. They were
really you know, it was the cycle was temporarily over,
but then it came back once bitcoin entered another bull market.
So it can absolutely get overdone for periods of time.
It's like how much can the market absorb at once?
(53:20):
But then when the dust settles and anyone who did
it improperly, maybe gets washed out, a new base builds,
and then potentially there's another round of arbitrage, and this
can get pretty big because the mismatching size between the
Bitcoin ecosystem the fit ecosysm is huge.
Speaker 3 (53:34):
Yeah, that's what I was thinking.
Speaker 2 (53:35):
It's like, as long as they can continue to RB
that right, as long as the rate to borrow is
well below the rate of appreciation, which seems like it's
going to be that way for a very long time.
Speaker 3 (53:44):
But I guess then you have to decide how.
Speaker 2 (53:46):
Much liquidity will there be available for the for the debt.
But I think to your point, you know, if you
have a long enough timeframe and you believe in bitcoin,
then seems directionally correct.
Speaker 3 (53:56):
But yeah, who knows who's gonna get caught upside.
Speaker 2 (53:58):
Down when the type he is out as warm Buffet
say exactly.
Speaker 1 (54:02):
All right, well, uh and that and that and that
was the Berkshire playbook on the lesser scale. I mean,
part of why they're so successful is that basically what
what Buffett and Munger did was they bought a bunch
of blue chip equities, uh basically with debt uh, and
they just they managed it so they never blew up.
So the reason they basically bought insurance companies and operators
(54:23):
a big insurance company is that's a really cheap source
of leverage. That entire insurance float is basically their liabilities,
and so they're you know, in addition to issuing debt,
which which Berkshire would do, they would also just the
insurance float is a type of leverage. Uh. And so
they basically own a bunch of blue blue chip stuff
(54:44):
at moderate leverage, make sure they don't blow up during recessions,
and therefore compound at a at a good rate. And
so that if the best leverage bitcoin entities do essentially
the same thing with bitcoin, they can have similar long
term success. And just that the key is never getting
over your skis.
Speaker 2 (55:00):
Yeah, which is always hard to do human human nature.
Alice pleas to plash it too far. I saw this
quote from Elon he's talking about with Doze, and he
said something like, if you don't have to add back in,
you didn't cut enough.
Speaker 3 (55:13):
And it's kind of like the opposite.
Speaker 2 (55:14):
It's like if you if you don't have a couple
of collapsing, you didn't push far enough.
Speaker 3 (55:17):
I guess would be the opposite of that. Man, I
think that's a good place to stop. Lynn.
Speaker 2 (55:22):
Uh, what a wealth of information. I appreciate it. Like
I said earlier, Man, you're so in demand that obviously. Uh,
it's because of this wealth of information you have. I
subscribe to your newsletter Lynn Alden dot com. We'll link
to that down below. Obviously, your book Broken Money. I
have a copy of that as well.
Speaker 3 (55:36):
It's amazing. Anything else you want to point people to,
H No
Speaker 1 (55:39):
There's a two big things to check out Lindlon dot
com in the book and thanks for having Yeah, we'll
link that down below.
We are gradually hollowing out on industrial base to maintain
our kind of global dollar empire. Nothing stops his train.
I refer to basically Walter White from Breaking Bad, where
you know, his allies trying to get him to stop
his drug empire and he's like, no, nothing stops his Trea.
You know, we're going to keep going, and we're just
getting started. And I think the US physical deficits are
the same that there are people in the demonstration even
(00:21):
talking about this is a shifting of the Overton window.
That's more of a break the glass type of decision,
and I think the more elegant approach is to let
that shift happen and make sure that we're kind of
benefiting from that shift rather than fighting it.
Speaker 2 (00:34):
So would you say that given you know, death to
GDPs of the US one twenty in Japan, what are
they had two forty? I mean, so huge debt to
GDP ratios, giant deficit spending percentages.
Speaker 3 (00:44):
And dollar amounts on that as well.
Speaker 2 (00:46):
Any recession that we would have in the future would
almost be a politicy decision. So we're sitting here and
what I think is maybe a historical moment, maybe books
one hundred years from now will be talking about this.
Dates like nineteen thirteen or thirty three or seventy one
are maybe framing this up. Maybe give us the historical
(01:07):
context of what you see going on right now.
Speaker 1 (01:11):
Yeah, it's a good question. I think that historically we
go through certain monetary changes. There are a couple of
different cycles that kind of overlap. One of them could
be considered the long term debt cycle. So debt builds
up in the private sector, then generally gets transferred more
toward the sovereign level, and then gets basically debased or
and flated away. That's kind of one big cycle that
(01:32):
developed economies go through in modern history on something like
an eighty year cadence, but you know, it can vary.
And then more broadly, there's this kind of imbalances that
build up in any sort of complex system the way
that these are currently constructed, Even between those say eighty
year periods, it's usually a midpoint where things change. So,
(01:53):
for example, the midpoint between the past kind of long
term debt cycle, which was the thirties and forties and
the current on was the early nineteen seventies. That was
a different type of default, a different type of monetary change,
and so I agree with you that this is kind
of historic moment. I don't know if there's a specific
date that's going to stand out quite the same way.
(02:14):
Maybe Liberation Day, maybe another time what we pick, maybe
the moment that Russia invade Ukraine and then there are all
these sanctions trigger that, you know, maybe it's maybe it's
just a pandemic itself that was kind of kind of
a catalyst for a lot of things as well physically speaking.
So I don't know exactly what date or period will
be highlighted as like the points, but I do think
(02:35):
that this era will be looked back upon much like
the seventies, much like the thirties and forties, as a
time of change in a way that the global monetary
systems constructed and the way that a lot of domestic
finances work.
Speaker 2 (02:50):
So looking at more of a period as opposed to
a specific date. Some of those dates, I think when
you were talking about like the midpoint, so you think
like nineteen forty four Bretonwoods Agreement, and that's a date
because everybody sort of came together and agreed on something
at that time. Seventy one, again was a date from
Richard Nixon, but maybe like nineteen eighty five was like
a midpoint when maybe the world sort of came back
(03:11):
together with the Plaza Cord and sort of agreed to
sort of repeg and devalue at the same time. It
seemed like maybe, you know, the big catalyst here to
your point, Liberation Day tariffs being the big thing that
you know, Moran's talking about, these Mara Lago accords and
seemingly to maybe have I guess, in reference to the
(03:33):
Plaza Chords, maybe a chance for the US or the
other currency of the world sort of repegged back to
the dollar and allow the dollar to devalue. I mean,
maybe there could be some sort of coordinate agreement coming
around that.
Speaker 1 (03:44):
Yeah, I think that's one of the aims of the
of the administration. I generally put something like the Plaza
Cord on a smaller level than these the bigger things
I mentioned, because that was more of like a pivot
point within a current structure. So that wasn't really like
the foundation shifting. That was more like a bunch of
entities agreeing to kind of keep that system going because
(04:05):
otherwise that's you know, the system that we've been in
since the seventies could have broken earlier had certain things
become totally inbounded, and that was one of the kind
of events that kind of kept it going, kept it
kind of sustainable, for lack of a better word, at
least longer, longer sustained. And I do think that something
like a mar Lago accord could absolutely occur here. If
(04:25):
you look back to the early nineteen seventies when this
current kind of floating exchange rate system really began, there's
really only been three dollar cycles, so major periods of
dollar strengthening compared to other currencies and the weakening compared
to other currencies. These have had very big investing implications
each time. Generally speaking, when you have this kind of
(04:47):
weaker dollar periods, you're looking at more inflationary periods, you're
looking at more value stock outperformance periods, you're looking at
more international stock outperformance periods, Whereas you're looking at the
stronger dollar periods, you're generally looking at more disinflation, you're
looking at more growth stock outperformance, you're looking at more
US stock outperformance. And so you know, we have been
(05:08):
in a strong dollar environment for quite a while now,
since about twenty fourteen, So We're something like eleven years
in what is a fairly strong dollar environment, and should
we get another leg lower in the dollar, either just
due to policy flow shifts, kind of like say the
early two thousands dollar bear cycle, or a more intentional
dollar bear cycle like nineteen eighty five, the Plaza cord.
(05:30):
We could have a more logo cord that has a
variety of major investing implications, but it's not necessarily a
structural change in how the system works. So I do
think that we could certainly be geared towards something more
than just that, because some of the things I've been
building up for a lot longer than just say a
dollar cycle. But that is kind of a one key
(05:52):
thing to watch for any of us that are involved
in markets or you know, follow the prices of assets
we own, So that is a certain a key thing.
Speaker 2 (06:00):
To watch something bigger geared up to happen. I'm definitely
going to ask you about that, but I want to
go back just to the dollar for a second, because
you're talking about these different cycles, and I'm curious you
mentioned since twenty fourteen. When I look at maybe a
longer chart, I mean, the dollar seems to be very
strong obviously not as high as it was in nineteen
eighty five, but from a historical basis, it seems to
(06:20):
be pretty overvalued, would you say that? And then does
it look like it if it retraced back to its
historical mean, maybe it drops twenty or thirty percent from here.
Speaker 1 (06:31):
That's why I do. I mean, if you look at
the three dollar cycles of modern history, each one is
kind of a lower high than the prior one thus far.
So even though, like you said, it's not as high
as nineteen eighty five, it's a different world than it
was back then, and so the system starts to kind
of break at a lower high than it used to
back in the nineteen eighties. There's both in the US
(06:53):
and elsewhere, there's a lot less debt in the system,
and so it could go a lot further before it
would run into problem, whereas now the feedback loop is
a lot tighter, and so it runs into issues sooner.
So yeah, Ever since, ever since twenty fourteen roughly coincided
with the end of QI three quantity of using three
the third round after the global financial crisis. When that ended,
(07:15):
we had a pretty strong dollar surge, and although it's
fluctuated you know, it goes up to it one hundred
one dollars indecks, you know, it's gotten as high as
like one fourteen, it's gotten down, So it goes to
these kind of these kind of waves in this period.
But during that eleven year stretch, it's all been pretty elevated,
and we look at on a trade balance basis, it's
very strong. When you look at its effects on you know,
(07:38):
what type of assets are doing well, what types of
economies are booming or not booming. It's all characteristic of
a stronger dollar environment. Gently, when you get a truly
weaker dollar move, you'll get something like an emerging markets
boom for maybe three to five years. You'll get probably
a round of inflation. You'll probably get a round of
kind of value stockout performance. We've not really seen any
(07:59):
of that at scale. Those you have individual years of
that happening. For example, twenty seventeen was a good kind
of rotation year for those types of assets. This year
so far has been somewhat of a rotation year. But
these are kind of smaller moves compared to what you
can get when you have a true, say twenty thirty
percent currency shift involving the dollars.
Speaker 2 (08:19):
And then when you see these big shifts happen in
the dollar going back into a weeker dollar, then that
tends to correlate with like global M two increasing, So
the money supply starts increasing when that goes down, and
that's also part of what pushes these other markets back up. Uh.
Speaker 1 (08:34):
Yes, indirectly because many cases Global M two will be
measured in dollars, because Global M two has a bunch
of different units, all the different units of the major currencies,
and so when you're kind of reporting what is the
value of this figure, it's normally reported dollar equivalents because
that's the major that's the globalserve currency. And the reason
(08:54):
it's really relevant is because out of all the major currencies,
the dollars by far the most important ass border funding currency.
So there's something like eighteen trillion dollars worth of dollars
dominated loans and bonds that are cross border in the world,
and so it's the unit of account for liabilities, which
is really important. So when the dollar is weakening, it
(09:16):
means various entities around the world their liabilities are weakening,
which is good for them. Whereas when the dollar's strengthening
their liabilities are hardening. It's like if you took if
you took out a mortgage in Swiss francs, but say
you're renting it out and all the cash flows are
in dollars. You're in a world of pain if the
Swiss franc doubles compared to the dollar, whereas you're doing
great if the Swiss franc gets cut in half relatively dollar.
(09:39):
And so that that's what happens kind of the whole world.
And so whenever you do get that weaker dollar environment, yeah,
you get a surgeon global into but it's mainly because
the denominators going down. But then also what that does
that allows emerging market central banks around the world to
kind of loosen a little bit because during strong dollar environments,
even if they encounter recession, they often have to be
(10:01):
pretty tight with their monetary policy to avoid currency crises.
And so when they do get that weeker dollar period,
they're able to kind of actually stimulate for a change.
And that's we tend to get that little bit of
a rotation.
Speaker 3 (10:13):
Yeah, I know that all too well.
Speaker 2 (10:15):
The last couple of years I was building a house
down in Mexico and trying to deal with multiple currencies
at the same time has been extremely difficult. The peso
has moved quite a bit, quite a bit against the
dollar over the last couple of years, and we're ordering supplies.
Some are coming from Europe, some are coming from Mexico,
some are coming from the US, and my vendors couldn't
give me any quotes, like it's all because we don't know.
Speaker 3 (10:33):
What the price will be at those different times.
Speaker 2 (10:35):
And then certainly you see these big moves and all
of sudden things get a lot more expensive for me.
So I can only imagine that on a much bigger
scale and living through that.
Speaker 3 (10:43):
You know, I haven't built a.
Speaker 2 (10:44):
House in another country before, and then you just start thinking, man,
how inevitable is something like bitcoin, because like, how can
the world work like this? Like it's it's madness that
people have to deal with that all the time.
Speaker 1 (10:55):
Yeah, we built a home in Egypt. We went through
similar issues over the past two years. And it's also
even when you're just in a country with high inflation.
For example, in Egypt, they're dealing with something like twenty
five percent annual money supply growth in that country, and
so imagine all contracts in that country, whether it's wage contracts,
(11:18):
whether it's supplier contracts, all those things have to kind
of adjust on a regular basis or someone's getting really
messed up. And it adds a overhead problem to every
entity trying to do business in the country and every worker.
Speaker 2 (11:33):
Yeah, and I didn't really think about it at this level.
But what it also does is it makes all of
those vendors become speculators because they're all now trying to
speculate on what the price changes will be on those currencies.
So like, I didn't really understand why at the gas
stations there's like one price for Mexican pesos and one
price for dollars, and it's like, well, because they can't
(11:53):
go exchange those dollars maybe till the end of the week,
and then we don't know what the exchange rates are
going to be, so they have to like make up
for that, And yeah, you just realize, like how how
broken the money is to your book, right before we
get into something bigger that I really want to get into.
The other thing sort of around this shift, or seems
to be maybe the catalyst for the shift, per Trump
(12:14):
is tariffs and resetting trade imbalances, and I think it's
bigger than just trade inbalances. But I'm curious in regards
to that. Seems like that's like a pretty big deal
shifting that back. So one, I mean, is it really
about trade, because I've seen you talking about this as well,
and it seems like in our society, like we don't
(12:36):
want to bring T shirts and sneakers back from Vietnam
one hundred years agoing to yes, we did that, we
did textiles, but we've moved on to higher things, and
so like bringing T shirts and sneakers back doesn't seem
to be the highest and best use case fixing those
trade inbalances. So I'm curious your take on that.
Speaker 1 (12:52):
Yeah, I think what they want more is like higher
capital goods. Even when we look at China, for example,
that's the trade boogeyman at the current time, they've moved
up the capital stack. So you know, we used to
think of China as the biggest producer of like plastic
goods for example, and textiles. A lot of that has
rotated toward less expensive manufacturing places than China, whereas they've
moved up the capitol stack. China is now the biggest
(13:14):
exporter of vehicles in the world. They've passed South Korea,
Germany and Japan as the biggest exporter. And it's not
just you know, like electric vehicles, it's actually mostly ice vehicles.
Like when I go bring up Egypt again, the streets
just have tons of Chinese cars on them. And that's
true for a lot of developed developing countries in the world.
We don't see them in the US. We see them
(13:35):
other than a lot of other places. And I think,
you know, several enties in the US kind of want
that for the US. They want to be a semiconductor
manufacturing area, we want to be leaders in a robotics,
We want to be a leader in all sorts of
kind of higher in capital goods, rather than kind of
having give that industry up to Europe and East Asia
and places like that. And I do think it's bigger
(13:57):
than just trade, because a point that I've been making
a lot is that the current issues with the US
trades specifically are heavily tied to the global monetary system
as it's structured. So go back to by point that
you know, every several decades, these things tend to change
pretty substantially. This is potentially more than just a trade cycle.
(14:18):
Part of why so many nies even talking about a
monetary change or a change in structure is because it's
so tied to trade. And a point that I've made
is that basically the other side of being the global
reserve currency is something in your economy is generally getting
hollowed out. There's some sort of imbalance that's kind of
embedded into the system, and you're kind of paying this
(14:40):
cost to maintain the privilege of being the globalserve currency.
So back in the Breton Woods era, the cost was
that we were draining our gold reserves. We had pegging
the dollar to gold, A bunch of other currencies pegged
themselves to the dollar, and then the dollar was the
primary global funding currency. So the combination of fractures or
banks and depth spending made it so that the number
(15:02):
of dollars kept increasing dramatically, but our gold reserves were not.
And so over time, as you get more foreign redemptions,
our gold reserves fell from twenty thousand tons to nine
thousand tons, and then they quickly defaulted on the ability
to redeem dollars for gold. And ever since then, when
we shifted more toward the euro dollar system, petit dollar system, instead.
(15:23):
Kind of the cost that we're paying is de industrialization.
We are gradually hollowing out on industrial base to maintain
our kind of global dollar empire. But this has cumulative imbalances.
We're basically we're constantly taking away from Michigan and Ohio
and Pennsylvania and the rust belt and making it get
the name rust Belt. It's going then international, and then
(15:45):
they're reinvesting their proceeds in US stocks, US bonds, private equity,
so that's going back into New York, back in the
Silicon Valley, and so kind of the net result is
we're taking out of the Midwest that we're sticking it
the value into the coasts. So you get both both
domestic political issues and then you get these kind of
global big imbalances where China has all these massive surpluses,
(16:07):
the US has all these massive deficits, and other countries
kind of sit somewhere in the middle. And that's kind
of an artifact of the system that we've structured. And
the challenge is that if you want to bring back
some to give manufacturing and industrial vibrancy, it generally comes
with the cost of giving up some degree of the
currency power that they.
Speaker 2 (16:26):
Have Why why does it? I mean, that's obviously Triven's dilemma,
which is the problem that we sort of get ourselves into,
and so having to supply the world with dollars in
exchange for giving those dollars for the goods that they
bring in. I'm guess that's what you're saying. But I mean,
is that why the world needs the dollars? I mean,
(16:47):
then the euro dollar system to create their own dollars. Now,
can't we just provide dollars another way? And then also
maybe a better question maybe that I'd like to ask specifically,
is like sort of in a capitalist's system, like the
goal is to move to higher levels and sort of
take care of those base needs and give those another
emerging market. So like one hundred years ago, we did
do textiles here, now.
Speaker 3 (17:08):
Vietnam dos does.
Speaker 2 (17:10):
But we now make digital products. We make Facebook and
social media platforms and financial products, and those get exported
to the world and the world imports those and that
doesn't show up in trade balance, does it?
Speaker 3 (17:22):
So?
Speaker 1 (17:22):
Yeah, so two questions, what is actually it does? So
there is a services component to trade balance, and our
trade balance has reported include services. We actually have a
services surplus to your point, and services can also include
things like tourism. You know, if a place doesn't really
export things, but everyone wants to go there to travel,
and they bring currency with them and they spend in
that economy, they're basically exporting tourism services, is the way
(17:45):
to think about it. So the US is exporting financial services,
software services, tourism services, things like that, and that is
taking away from some of our goods deficit, but we
still have a net deficit even after that's considered, and
it's pretty big. And to your you know, to your point,
like there special specialization matters, like the trade is is
(18:07):
a net good because it allows different areas to focus.
It only becomes an issue when it's not necessarily happening naturally.
It's happening because of an artifact of basically an intentional
system as designed. And two uh, there's usually a real
politic at some point that hits. There's natural security interests
that hit. And so for example, when a pandemic hits
and they're like, wait a second, we can't make ventilators.
(18:29):
Why can't we make ventilators or semic connectors is super important?
Why are all the semic conductors being made in like
Taiwan and South Korea, for example, that becomes an issue.
So people usually don't use use sleepover where shirts are made,
but they do lose sleep over where complex machinery is made,
especially if it's a handful of kind of places in
the warriant. So uh, and this is a weird thing
(18:50):
you don't think about, like pharmaceutical components, medical dies that
are needed in like imaging, the little little widgets here
and there that our industries just heavily reliant on. And
if so, if you do some sort of trade embargo,
you can have a national security issue and kind of
shortage and things like that.
Speaker 3 (19:10):
As we saw in twenty twenty.
Speaker 2 (19:11):
To your point, and I'm bullish on tariffs for the
most part, and I agree with you.
Speaker 3 (19:16):
They're strategic, they're not blanket.
Speaker 2 (19:17):
We're not trying to grow coconuts in the US, right,
we want to import those types of things. And also
tariffs also work for protecting certain industries, especially allowing industries
to grow. So for example, bringing back some of these
competitive things like microchips for example, and doing some tariffs
might make it more cost beneficial.
Speaker 1 (19:35):
Here.
Speaker 2 (19:35):
Also in the US, we've sort of shot ourselves in
the foot by doing a lot of environmental regulations against
rarest elements and certain minerals that we might need here
and bringing those things back just by loosing some of
those political I guess, if you'll call them, those political
regulations against that.
Speaker 3 (19:52):
So I guess those are all important pieces.
Speaker 2 (19:53):
And I think if I looked at sort of the plan,
it doesn't look like the goal was to bring sneakers
and T shirts back.
Speaker 3 (20:00):
That's like a media headline.
Speaker 2 (20:01):
I shouldn't probably repeat that, But I think maybe getting
back to fifteen percent manufacturing in the US, you know,
and then put in some of these tariffs will allow
us to sort of develop some of these automation technologies
that we need. Seems like a pretty good planned, at
least that's what I was seeing.
Speaker 1 (20:17):
Yeah, potentially, I think the problem is that so if
you look at, for example, that Stephen Myron paper, So
Stephen Myron is Trump's chair of the Council of Economic
Advisors to the President, and he kind of outlined that
the trade imbalances directly tied to the currency issue and
that there is somewhat of a trade off there. One
of the challenges that I think the administration as they're
(20:39):
approaching it is not really talking about that other side
of it. They want to retain every single benefit of
the dollar as the globals of currency, but then they
also want to fix the trade element, even though they're
kind of tied at the hip, right, And I think
that's where they potentially run into frictions because it's more
like you're treating a series of symptoms rather than talking
about the elephant in the room, which is kind of
the root cause, because it's it's very wonky to talk about,
(21:02):
you know, it's not something like that. All the stuff
I just said is terrible at a political route. It's
it's not no one's in a collap it's not fun,
it's it's not energizing, there's no enemy. It's like it's
it's it's a cumulative decisions that US and others have
made collaborative movie for decades. And so that's the challenge
and and there's no there's no kind of narrative political
(21:23):
gain from saying we're actually being harmed by being the
solvers of currency now that the downsides of it are
kind of equal or exceeding the benefits of being it.
And it's it's it's a whole wonky subject to talk about.
It's more about kind of a we're in a more
multipolar world now and there are reality is associated with that,
but yeah, none of that carries political capital to bring up.
(21:45):
And so it's a lot of the focus is on
the terear side, the trade side, but the challenge being
that's only one side of the coin.
Speaker 2 (21:51):
Yeah, and does that lead to something bigger that you
see kind of being geared up is maybe to change
that structure of the monetary system.
Speaker 1 (22:00):
We have seen that in elements of the administration. So
to go back to Stephen Myern for example, you know
he in his paper he leterally talked about the potential
of putting a fee on investing in US assets by
a foreign sector. Now, you wouldn't really think a politician
or an advisor to a politician would think, hey, we
want the world to invest less in our assets. But
that's that's one side of the coin that's happening. The
(22:22):
other side of basically a current account depths is which
we have is a capital account surplus, and by all
these entities around the world owning US assets, it overvalues
a dollar and therefore makes it harder for us to
compete on manufactured goods, and so to the extent that
that's you know, become very extreme, there are elements in
(22:43):
the administration that want to push back on that and say, well,
how can we kind of maybe balance this out a
little bit. But then that sort of focus on some
of those bigger things doesn't necessarily make it up to
things that Trump will say out loud, for example. So
I think, like any administration, there are kind of different
factions within the administration. We saw this for example, there
there was a more of a free trade contingent with
(23:04):
the administration and more of a protectionist and tariff contingent.
And then similarly you have a somewhat more academic bent
within the administration, you know, the Stephen Myrons uh, and
then you have the other faction. So I think that's
that's one of the challenges, kind of seeing which which
side's winning it at being given time. There was a
similar dynamic in his prior term, but that was more
(23:24):
of an establishment versus ant establishment contingent. Uh. Where is
this this term he put together? This administration is more
it's more fully into establishment, but then there's still different
factions within that.
Speaker 2 (23:38):
I guess what I was asking about is maybe some
fundamental transformation of the system getting away from the dollar
being that reserve currency that's always forced to an export
its manufacturing sector. So there's been hints, I mean, Luke
Grammin talks about quite often, but hints about, you know,
revaluing gold for example. Obviously there's strate a strategic Bitcoin
Reserve bill put forth, and so maybe doing something to
(23:59):
sort of of get away from that pure fiat you
know and US Treasury dollar system and going back to
something like the older bitcoin.
Speaker 3 (24:06):
Is that what you were talking.
Speaker 1 (24:07):
About, Well, yeah, that's what I mean by factions. So
for example, in Steven Myer's paper, he talked about how
if what he's saying he's basically as up happening, it'd
be beneficial for gold and cryptocurrencies, which would primarily be bitcoin.
He used the phrase cryptocurrencies, but basically golden bitcoin would
benefit from this more neutral reserve asset type of system
and a more multipolar system. Then there's you see a
(24:29):
little bit of pushback from within the same administration because
for example, Trump would say that if there's an attempt
to make a bricks currency, he would stop it or
try to you know, he was sanction it and things
like that, even though that would actually kind of play
into the Meyern playbook, uh to say, okay, let some
of that, you know, foreign trade happen in a different currency.
I think for separate reasons, the bricks currency doesn't make sense.
(24:52):
But basically one of the potential pass for reassuring some
of the higher end US manufacturing is to say, look,
I mean, if you want to do if China wants
to trade, they are already the biggest trading part of
most countries, they can do more of it in their
own currency. They can do more cross border funding in
their own currency, not have it always be the dollar,
and that actually allows some of the balances to shift
(25:12):
a little bit. So instead of the dollar being you know,
ninety percent of you know, currency exchange by far the
biggest cross border funding currency, bigger than all those combined,
you can have a potentially more multipolar world where the
dollar remains central in certain parts of the world and
other parts of the world it becomes you know, the
Chinese currency, and and that the biggest reserve assets become
(25:36):
you know, the neutral ones, ones that are not issued
by anyone country, so it's not as though another there's
no world where really another country becomes the global reserve
currency issuer, and the way that the States has been,
that's not that's not really in the cards for anyone.
It's more like, how quickly are we going to shift
toward a more multipolar system and one built around neutral
reserve assets, or to what extent we're going to fight
(25:57):
that shift? And I think the more elegant approach is
to let that shift happen and make sure that we're
kind of benefiting from that shift rather than fighting it.
It's kind of like if you realize you've you're the
Roman Empire, you've maybe spread your borders too thin, so
you're kind of too wide, and now you find yourself
doing tons of border skirmishes and realizing that you're facing
(26:19):
issues from such a big empire. The question is do
you keep fighting every every inch of the way to
keep your borders, which is probably not the best approach,
or do you kind of strategically assess, okay, which borders
don't make sense anymore? How can we come out of
this really strong from position of strength? And I think
you can do that with currencies.
Speaker 2 (26:36):
And do you think I mean, was it a couple
of years ago Jerome Powell had said something about potentially
having more than one reserve currency global currency, and it
seems like, you know, obviously with the Trump administration, there's
been a lot of talk about it. I think the
Scent has maybe tried to squash that a little bit
about revaluing goal. But I mean we've seen I think
to your point, Steve Myron talking about it. I mean,
(26:57):
do you think that's something that they're talking about potentially
sort of letting that happen, I mean within this term
or is that much longer further.
Speaker 1 (27:04):
Out the shortages. I don't know, but I will say
that this would have been a non starter in the
prior administration, for example. So the fact that like there
are people in the administration even talking about this is
a shifting of the Overton wind dial. So so like
this is, you know, that's more of a break the
glass type of decision, kind of an intentional major shift
(27:27):
in the global system. Much like how companies rarely disrupt themselves.
They usually get disrupted by external startups, but every once
in a while a big company will disrupt itself and
then they're therefore, you know, kind of pivot from a
position of strength. It's certainly possible, the US could do it,
and the fact that these discussions are even happening is interesting.
Speaker 2 (27:48):
How does the sort of stable coin, the Genius Bill
that they're trying to get through, and Trump's executive orders
around that come into play, because on one hand, it
looks like the US is sort of trying to exert
the US dollar dominance as a currency at least throughout
the world. So we have all these currencies hyper inflating
or double digit inflation. The people want dollars, can't really
get them. The US wants people to buy treasuries, and
(28:10):
that stable coin sort of seems to be like that
perfect middleman. Is that a way that continues to keep
the dollar dominance going or not in the same regard,
because it's not a reserve, it's more of just a currency.
Speaker 1 (28:23):
So that is a way to keep dollar dominance going.
But then it goes to the prior point, do you
even want dollar dominance to keep? The point? And that's
where you could have different factions, because you could have
there's literally the Myron factional potentially talking about having a
fee to owning US assets, and another faction saying, how
can we get more empties outside of the US to
own US assets via stable coin, right right, So there's
a little bit of a potential conflict there. Also. One
(28:46):
of the things that Myron proposed was trying to get
foreign holders to turn out their debt, so basically to say,
hold fewer T bills and two year T notes and
things like that, and how to get them to buy
potension newly issued fifty year bonds or century bonds, for example.
Whereas stable coins need the opposite. They generally need pretty
short term collateral or you're potentially risking a pretty big
(29:08):
mismatch of assets versus liabilities. And so if anything, I
mean that that increases the appetite for TEA bills uh,
and maybe potentially other other fairly short term treasuries.
Speaker 2 (29:19):
Uh.
Speaker 1 (29:19):
It's not functionally that much different than reserve holdings. Uh.
You know, it's kind of the money of the people
rather than money the central banks. We do see kind
of a GRADUALDP top down slight dedollarization, whereas you don't
see that on the bottom up. Gentliet. You know, when
you go to the black market in Cairo looking for money,
it's the dollar, it's not the year, it isn't less
(29:40):
so the euro less so the Chinese want even though
China is the biggest trading party with Egypt compared to
the US, it's still dollars that that are desired, and
so there is a lot of bottom up demand for
stable coins by extension T bills. Uh. And but that's
it doesn't really conform with Myyern's plan of either getting
the four sector to invest less or to they sent
(30:03):
that they're going to invest to term out their liabilities
to potentially reduce long term magistrates for the US, Because.
Speaker 2 (30:09):
What you're saying is one is central bank demand which
has been going down, but then you have retail demand
picking up from the stable coins. But then the stable
coin companies turn around and buy the treasury debt. So
it's basically the.
Speaker 3 (30:19):
Same thing one way or another.
Speaker 2 (30:21):
But the demand from the stable coin companies would be
more in the short term on the bills versus at
least if central banks were buying it, they'd turn it
out a little bit further.
Speaker 1 (30:28):
I guess yeah, they settled back Sholey hold a mix
of both for different purposes, where stable coins primarily need
that shorter term.
Speaker 2 (30:36):
Now at the time of US are recording this here
May twenty one, we're seeing the Japanese long bond market
seemingly blowing out, which is looking very extreme when you
look at it on a chart. When I look at
the thirty years of the other developed world, the US,
in Germany and UK, they're also making new all time highs.
Speaker 3 (30:56):
What's going on with that?
Speaker 2 (30:57):
I mean, is Japan screaming something different then what the
rest of these developed world you know, long bonds are showing.
Speaker 1 (31:04):
So Japan's on somewhat of a different cycle. I think
for Europe, a somewhat of a shift there is that
they're you know, they've they've historically been reticent to do
fiscal stimulus of various types. Japan's kind of in a
constant state of physical dominance. The US runs pretty heavy
fiscal spending depth sits on a regular basis. Europe's generally
been more constrained, primarily because of Germany, but because of
(31:28):
their defense situation and other factors. They've been increasingly over
the past several months inclined to, you know, looking at
more fiscal in the future of the markets, kind of
front running that which potentially means hot you know, hotter
not nominal GDP growth and longer higher long term interest rates.
In Japan's case, I mean, they basically have such high
(31:51):
public that the GDP that their bond market is not
really a free market. Uh. And when they try to
things like quantitative tightening, uh, they try to get out
of things a yield curve control, they face pretty significant issues. UH.
And basically because there's there's no end in sight to
their ongoing deficits uh. And there's no realistic fix for
(32:12):
their public debt to GDP other than inflating part of
it away and letting it kind of run hot and
trying to keep nominal GDP growing in line with that debt.
You know, I'm blessed of a bear on Japan. Then
some of the doom saves would be because Japan has,
you know, for a lot of the problems they have
(32:33):
with their public debt. The other side of it is
they've they've run decades of trade surpluses and current account surpluses.
So they have a huge stockpile of sovereign assets and
private assets. And so as we saw, for example, you
know a couple of years ago, when their currentcy was
weakening sharply, Uh, they can sell treasury, so they can
sell dollars to backstop their currency UH potentially break short attempts,
(32:57):
so they have a they have a lot of ammo
UH to really raw this out and potentially have, for example,
make the FED go back to QBA because of potential
dislocations in the treasure market before they would run into
a true crisis. We've seen some comparisons between Japan and
Greece that came up in the news. Likely that japan
debath the GDP is now higher than Greece's was at
(33:18):
the high point. But a key difference is one Japan
is incredibly productive compared to Greece. They have much more
diverse productive economy. And two that the debt is in
their own currency, whereas Greece was subject to recurrency that
they didn't fully or even have substantial control over, whereas
Japan does. And so they have a lot of different
levers that they can pull to keep the wheels on
(33:41):
the track for a lot longer, I think than people expect.
Speaker 2 (33:44):
So you said it's sort of on a different cycle,
So like it's saying like it's showing the same thing.
It's the same fundamental thing as most of these developed countries,
but it's further ahead.
Speaker 3 (33:53):
A lot of times people would say.
Speaker 2 (33:54):
That Japan is twenty years ahead of US, so it's
like we'll get there, maybe the UK or Australia, Canada
get there eventually, but just Japan's a little bit further along.
But then also maybe like other compared to other countries,
it is more productive and has much more surplus, so
it could also sort of kind of hold it together longer.
Speaker 1 (34:11):
Yeah, I think there's two ways of meaning that. So
one I kind of meant the more tactical sense through
on a different cycle, which is like, for example, when
the rest of the world was raising industrates, Japan wasn't.
They were like those the only dove in the room basically,
and that's why the end was weakening so much relative
to dollar, because you had this really big ustrate differential
opening up. But then as the rest of the world
(34:32):
got into like okay, we've maybe peaked industrates for going
down a little bit, Japan was still gradually increasing, so
they were actually the kind of the hawk in the
room on a relative basis, like you know, they're still
lower indust rates, but the direction they were going in
was kind of the outlier. But yeah, then in the
longer term sense, like you said, they are kind of
ten to twenty years ahead of many other developed countries
(34:55):
in terms of demographics and the debt situation. And they
do have a lot of strengths though, Like they have,
they're highly productive, and a statistic I like to point
out is that they spend way less per capita on
healthcare than the US and many other countries, despite having
way longer longevity and on average being something like ten
(35:15):
years older. And also they spend a lot less on defense,
so things that are generally viewed as inefficient types of spending.
You know, if you build a warship and then you
never have a war, it's kind of wasted spending. Now,
obviously you need a certain amount of defense, but it's
like it's generally better to reinvest in your economy when
you can. So the fact that they've been kind of
under the US security umbrella and the fact that they're
(35:39):
very efficient with health care spending and other habits that
contribute to longevity and good health, they've been able to
kind of get around a lot of their shortcomings by
leading into their strengths.
Speaker 2 (35:50):
Okay, so maybe it's not as dire as a lot
of the doomsayers want to say, And as someone who
makes a ton of content. Man, does everybody want to
doom so bad? It's like it's like the only thing
that gets like views online anymore.
Speaker 3 (36:05):
You know.
Speaker 2 (36:05):
It's like you say anything positive, nobody wants to hear it.
But in regards to that, you know, something that you
talk a lot about is the nothing stops this train meme.
You've got that one going pretty well. And I think
when you're referring to the nothing stops his train, it's
basically what fiscal spending, government spending.
Speaker 3 (36:22):
Debt, debt creation, right, they're just going to keep printing.
Speaker 2 (36:26):
When I think about that, Like we saw like the
Trump administration come in, uh, fired up, ready to change
the world. We had Howard let Nick talking about getting
getting back onto a balanced budget, Elon Musk fired up
with Doge He's gonna, you know, find all this waste.
And now that seems to just like all have fizzled out.
Scott Assents on the news, I think a week ago
saying well, I think we're just going to try to
(36:48):
outgrow this thing.
Speaker 3 (36:50):
Is that all the nothing stuffs?
Speaker 1 (36:53):
Yeah, I think there's a few months of people thinking
they might slow down the train, and they're realizing that
they're not going to UH and now we're kind of
back on all steam ahead that you know, nothing stops
his train. I refer to basically Walter White from Breaking Bad,
where you know, his allies trying to get him to
stop his like drug empire, and he's like, no, nothing
stops his Trea. You know, we're gonna keep going, and
(37:15):
we're just getting started. And I think the US physical
deficits are the same. There's it's extremely low probability that
anytime in the next five to ten years that they're
going to meaningfully make reductions in the US fyscal depicit.
There's a bunch of reasons for that, and that has
all sorts of geopolitical implications, investing implications, economic implications, and
(37:37):
you know, sometimes people will phrase that as a doom
say anything to your prior point doom cells, but that's
actually not really how that's meant, because, for example, if
it was doomy, then the train would stop. As a
part of the nothing stops his train thesis is it's
kind of a balance between you know, it's basic on
saying on one hand, it's pessimistic because I'm saying they're
(37:57):
not going to meaningfully fix the depicit. Anytime soon. It's
very mathematically implausible that anyone's gonna be successful in that,
and as you've seen, has been pretty abrupt pfits and
even even the people that said they would now kind
of backtracking. But the other hand, it means that they're
going to keep the wheels on enough. And I think
that's true for the US. I think that's true for Japan,
(38:19):
where it's also not going to spiral to some crisis
the next year to three years and stop in that
way either. I think it's basically going to run hot
for any sort of investing time prising where we're looking
out two decades, that's a whole different world, right. I'm
not trying to make two decade predictionized. I'm not trying
to look five ten years ahead and basically that in
(38:39):
that timeframe, there's there's relatively low scenario probabilities for how
we're going to anything other than run hot for that period.
So would you.
Speaker 2 (38:48):
Say that, given you know, death to GDPs of US
one twenty in Japan, what are they had two forty?
I mean, so huge debt to GDP ratios, giant deficit
spending percentages and dollar amounts on that as well, and
to your point about them being able to keep the
train on the track. Then almost like any recession that
we would have in the future would almost be a
policy decision.
Speaker 1 (39:09):
In a way, Yes, when when another way of putting
it is that emerging market recessions and developed market processions
look different. So, for example, in an emerging market, you
often won't get an unemployment spike. I mean, it depends
on the type of recession they're having. But often what
happens is said is basically a currency crisis. It's kind
of like this inflation wave, and so everybody kind of
(39:33):
feels poor, and yet there's there's not really this big
leag labor cycle change. It's more just like imports more expensive,
they're getting less per hour work. There's an economic malays
that is happening, but the units are being treated differently.
If you look at a lot of numbers, in many ways,
twenty twenty two was a recession in the US. For example,
(39:55):
if you look at the misery index, which is unemployment
plus inflation, that was basically, you know, a recession level
misery index, but it was more from the inflation side
than the labor side. When you look at for example,
bank lending, so how many you know, what percentage of
banks are tightening credit availability versus loosening credit availability. That
(40:17):
twenty twenty two year was like the only time in
modern history where we hit something like forty percent of
banks tightening at once and without a recession on the record.
And again because that was kind of a I would
say that was basically a recession, Like most people were
worse off that year than six months or twelve months prior,
but it didn't show up in a big labor cycle
(40:38):
change instead showed up in this kind of inflation wave
where everybody's kind of a little worse off than they
were at the sugar high of the stimulus because that
delayed inflation hit and their wages were going up at
the same rate. Is so everybody's kind of taking this
kind of shared pain. So in a typical develop market
disinflation a recession, most people don't lose their jobs, but
(40:59):
those that do are greatly impacted, Whereas in a more inflationary,
emerging market style recession, fewer people lose their jobs, but
the pain is kind of spread through inflation, and so
it's a different type of pain. And I do think
that basically recessions going forward in the developed world are
more likely to have some of those characteristics where some
of the pain is felt more in monetary debasement rather
(41:24):
than these kind of typical cycles we've been through. And
part of that is because bank lending is less important
or less like a lower magnitude relative to fiscal deficits
than it used to be for most of the past
call it fifty years. In any given period of time,
net bank lending is a bigger dollar amount in a
given year than physical deficits with generally the only exceptions
(41:48):
were like, maybe you'll see a twelve month period during
recession where briefly physical deficits are bigger and lending has contracted.
But now in this kind of period of physical dominance,
even when you know we're not in a recession, physical
deficits are usually bigger than bank lending, and so this
is kind of this more background running hot. And so
it's actually pretty hard to have the type of recession
(42:11):
we've come to expect. But that doesn't mean you can't
have periods of economic weakness or people kind of correctly
off feeling that they're worse off than they were the
year before.
Speaker 2 (42:20):
I guess what you're saying is since we typically see
money supply go down, banks aren't lending as much, so
the money supply is not expanding through decreation. But now
that fiscal dominance, government spending has eclipse that whatever the
banks are doing from tightening and loosening their lending regulations
doesn't affect it as much as it did because now
we have this fiscal dominance.
Speaker 1 (42:40):
Yeah, it still affects part of the economy, like effects
small businesses that are either getting or not getting that
credit and what terms. But for example, the fact that
so security checks are still going out and medicare spending
still happening, and huge defense spending still happening, and interest
expense is still happening. Those are different vehicles where this
money is pouring into the economy, and so consumption stays
(43:01):
pretty strong, yeah, you know, for example. And so the
net result is that the thing runs hot compared to
what you normally expect in that type of environment.
Speaker 2 (43:10):
And then when and then it seems like you said yes,
sort of like a policy decision. So when you look
back from previous crashes in the seventies or nineties or
two thousand, like they it seemed like they policy decision
was to allow the sort of bubble to deleverage, and
maybe in two thousand and eight they also tried to
let it do leverage, and then it got too big
and too systemic. They launched QE levered this thing back up,
(43:32):
and now today the decision is there's no appetite for
that at all. In twenty twenty two, it kind of
was a recession. The Biden administration had to come out
and say technically it wasn't. But that also seemed to
be a policy decision because that was right after the
FED started QT and tightening things back down, so it
sort of was a decision looking back historically, it was
(43:54):
a pretty minor correction overall, that was a decision.
Speaker 3 (43:59):
By the FED to try to tighten things.
Speaker 2 (44:01):
I'm curious what your view is on these like more
like four or five year global liquidity cycles like Michael
Holle talks about, which seems to sort of maybe be
in the macro driver's seat, right. So you look at
like two thousand and eight, a response to the global
financial crisis, interest rates were dropped to zero, which sort
of synked up the term on all the debt. And
(44:21):
now every about four to five years we have these
cycles which happens to coincide with the four year bitcoin
having cycle, happens to coincide with the four year presidential
election cycle, and that hit right in twenty twenty two.
What do you think about those cycles?
Speaker 1 (44:36):
So I think those cycles are intact. I wouldn't say
what I think the specific timeframe is going to be.
On average, I think it's somewhat of like three year cycles,
but it varies, And you know, I do think they
tried a pretty pretty aggressive tightening cycle in twenty twenty two. Basically,
they decided that they kind of observed that the inflation
pain was worse than anything else, so they had to
(44:56):
get that under control, is try to, So they tightened policy,
they slowed down bank lending. There weren't any major new
fiscal bursts going on in twenty twenty two compared to
what we saw in the prior to years, and so
that was across the board a pretty contractionary year. But
then the pain became so much that the nthes started
to bend around it. So, for example, the UK guilt
(45:17):
crisis in twenty twenty two was an issue. At the
same time, the US treasure market didn't break the way
that the UK's did, but ours became wobbly like we
had like record high move index like meaning treasury volatility.
And over that year and then the next year, the
Treasure Department shifted toward kind of unprecedented issuance of tea
(45:38):
bills as a ratio of their debt, which they normally
only do in crises and recessions. But despite the fact
that there was no official crisis or recession, they were
shifting more and more toward t bills rather than issue
as much as they generally should have been doing on
the longer end. And so that was kind of a
softening of the you know, the treasury kind of offsetting
(45:58):
some of the FED tightening. And then in early twenty
and three, when the when the banks ran into issues,
uh they blinked, and so they you know, they gave
liquidity provisions and soon after they slowed down and then
stopped industrate increases. So they kind of ran into the
guardrails that they could do. And so some of these
(46:19):
background forces, like the big ongoing fiscal depths, it slowly
kind of overpowered some of those tightening attempts. So in
twenty twenty three and twenty twenty four we got this
we got this like other kind of kind of unintentional
loosening of a lot of things. And twenty twenty five
is obviously been a shaky year because of all this
terrif uncertainty, uh, currency volatility and things like that. But
(46:39):
I still think we're in a sustained period of you know,
oney supply running hot, nowmal GDP running hot. Attempts at
tightening are more about narratives and jawboning rather than anybody
meanifully cut into depicit doing anything that can really hurt banks.
And so the the the kind of the error tract
(47:00):
is normally toward when in doubt liquidity's okay, and things
tend to run hot rather than run into dissiflationary collaps.
Speaker 2 (47:09):
And now all that, you know, we did have a
rough first quarter, like you said, all the tariff stuff,
you know, the new administration, et cetera.
Speaker 3 (47:16):
Seems like we're on the other side of that.
Speaker 2 (47:18):
Like I said, maybe percent sort of throw in the
towel elon, threw in the towel on that Bitcoin's off
to the race has hit a new all time high
one hundred and nine thousand. The thing that I have
been completely absorbed by and I'm guessing you have as well.
Is the new bitcoin treasury strategy companies that are popping up,
and it seems like we sort of have like this
new financial asset, creating these new financial products and maybe
(47:39):
creating a new financial system in front of us. And
there's all these new metrics like bitcoin per share and
m NAB and things like that. I'm curious your take
on this bitcoin treasury strategy play. Is this building a
new financial system with a new financial asset or is
it sort of running the old playbook on a new asset.
Speaker 1 (47:57):
I think there are two things happening. Someone saneous to
I think on it just makes sense for balance sheets
to have the best money, and so I think that's
that's a more structural shift that basically, if you're a business,
instead of holding melting ice cubes, you know, fea currency,
or instead of decapitalizing yourself basically giving all your money
(48:18):
back to shareholders as share buybacks or dividends and purpose
taking on debt you don't need, Like Coca Cola has
like forty to fifty billion in debt despite being profitable
every year for like a century. And the reason they
do that is because why would you not take Why
would you not issue thirty your bonds to two percent
if you can. It's basically financial arbitrage, and so that's
been the name of the game. These big successful bluecher companies.
(48:40):
They take out debt they don't need because they can
and as cheap, and they you know, they basically shorten
the currency for thirty years at two percent, which is great.
They're buying back shares, they're paying dividends. So bitcoin introduces
another thing you can do, which is hold a scarce
asset on your balance sheet, so you're protecting yourself from debasement,
but you're also not you know, turing your whole balance
(49:01):
sheet into liabilities and basically decapitalizing yourself as much as possible.
When capital is not you know, kind of respected. All
these companies said, well, we don't want capital then, and
so this is a new tool to actually have capital.
The other strategy I think on top of that is arbitrage,
which is if this currency is going to keep weakening,
we're then going to try to issue debt in their
(49:22):
currency and buy this way better currency. You see this
to some extent whenever you have like an emerging market
currency crisis, there are companies there that say, well, we
could take out bank loans and are failing domestic currency
and buy dollars with it. That seems like a good trade.
And then sometimes you'll say, for example, like this is
happening in Turkey, where they would then come in and say, well,
(49:43):
if you're business, then holds dollars. You can't take out
a loan in the local currency because we don't want you,
you know, basically doing expective attack on our currency to
buy dollars. That's kind of what's happening with these leverage
bitcoin entities. They're kind of doing expecutive attack on the
dollar buying bitcoin. But of course the dollar can absorb
a lot bigger attack than a developing market currency, and
(50:07):
so there are I think arbitrages that are happening, and
rightly so because when when you know, when the opportunity
is there, their anties are going to take it, and
those that do it earlier get disproportionate gains. And then
the question is what percentage of them or which ones
will nail nail the turn like when this eventually gets
overdone excessive and dangerous, which ones will have the best
(50:30):
risk mitigation in play to get through a bear market
without having to liquidata at an inopportune time. Uh, and
otherwise just you know, knock it over their skis, right.
Speaker 2 (50:40):
So it's almost like, like you said, it gives gives
these public companies a new option as opposed to just
leveraging up with debt. So it's almost like maybe buying
bitcoin is like the new buy back your shares strategy.
Speaker 1 (50:52):
It's a it's a new tool in the toolbox. And
it's not necessarily that it's always a better choice, but
it's certainly a new variable. All the all the other choices,
it's just basically all decapitalization, and this is the first
one where you know you can retain value without decapitalization.
And I think that up to a point that makes
a ton of sense.
Speaker 2 (51:09):
When I look at like a company like micro Strategy,
you know, at the Bigger Opportunity Fund, we're.
Speaker 3 (51:13):
Looking at a lot of these deals.
Speaker 2 (51:14):
I'm sure you guys are where do you go death
as well, And we're looking at these deals and it's
always like, well, how do we value this thing?
Speaker 3 (51:19):
And it's like we have.
Speaker 2 (51:20):
These these new strategies, these new companies are building and
and and a lot of the defaults to this old
narrative is like, what's the underlying business model? When I
look at like micro strategy, it's like, well, there used
to be software, but now they're sort of just like
financial products. So at mstr strk strfter sort of like
financial products that they're bringing to market almost like maybe
(51:40):
like an ETF. And then I think of it like, well,
I mean, I guess the market could bear thousands of
financial products, So maybe it's not as bubble asque as
some people think it is right now, or do you
think it's sort of hitting that level.
Speaker 1 (51:53):
I don't think it's too bubbleishous yet I think they're
I mean, it goes to periods of micro bubbles. I
tend to you know, when big when MicroStrategy is hitting
like over three times NAF and every single person on
Twitter is talking about it, that's when it tends to
get temporarily overdone, and then it goes to period of consolidation.
The market digests that move and then you know, potentially
sets up a new round higher in the coming months.
(52:14):
There is somewhat of a network effect here, so liquidity
really matters, and having a liquid option market really matters.
So micro strategy is kind of in a unique position
where their equity is very liquid, uh, their options market
is very liquid, and so that is a pretty you know,
selfishinting network. It's it's hard for like another entity become
micro strategy and have you know, one hundred different micro
(52:36):
strategies on the market. But I do that that the
overall market size can absorb quite a bit of this.
I mean, you know that the FIA system is hundreds
of trillions of dollars globally and bitcoins are two trainon
dollar asset and so and then you know these leverage
bitcoin entities are still in the hundreds of billions. Most
of it's being micro strategy, but even though the long
tail of a lot of others is still not that big.
(52:58):
So I think that that over time, the market it
can absorb more of it, and even MicroStrategy. You know,
there was a pause during the bear market. They were
really you know, it was the cycle was temporarily over,
but then it came back once bitcoin entered another bull market.
So it can absolutely get overdone for periods of time.
It's like how much can the market absorb at once?
(53:20):
But then when the dust settles and anyone who did
it improperly, maybe gets washed out, a new base builds,
and then potentially there's another round of arbitrage, and this
can get pretty big because the mismatching size between the
Bitcoin ecosystem the fit ecosysm is huge.
Speaker 3 (53:34):
Yeah, that's what I was thinking.
Speaker 2 (53:35):
It's like, as long as they can continue to RB
that right, as long as the rate to borrow is
well below the rate of appreciation, which seems like it's
going to be that way for a very long time.
Speaker 3 (53:44):
But I guess then you have to decide how.
Speaker 2 (53:46):
Much liquidity will there be available for the for the debt.
But I think to your point, you know, if you
have a long enough timeframe and you believe in bitcoin,
then seems directionally correct.
Speaker 3 (53:56):
But yeah, who knows who's gonna get caught upside.
Speaker 2 (53:58):
Down when the type he is out as warm Buffet
say exactly.
Speaker 1 (54:02):
All right, well, uh and that and that and that
was the Berkshire playbook on the lesser scale. I mean,
part of why they're so successful is that basically what
what Buffett and Munger did was they bought a bunch
of blue chip equities, uh basically with debt uh, and
they just they managed it so they never blew up.
So the reason they basically bought insurance companies and operators
(54:23):
a big insurance company is that's a really cheap source
of leverage. That entire insurance float is basically their liabilities,
and so they're you know, in addition to issuing debt,
which which Berkshire would do, they would also just the
insurance float is a type of leverage. Uh. And so
they basically own a bunch of blue blue chip stuff
(54:44):
at moderate leverage, make sure they don't blow up during recessions,
and therefore compound at a at a good rate. And
so that if the best leverage bitcoin entities do essentially
the same thing with bitcoin, they can have similar long
term success. And just that the key is never getting
over your skis.
Speaker 2 (55:00):
Yeah, which is always hard to do human human nature.
Alice pleas to plash it too far. I saw this
quote from Elon he's talking about with Doze, and he
said something like, if you don't have to add back in,
you didn't cut enough.
Speaker 3 (55:13):
And it's kind of like the opposite.
Speaker 2 (55:14):
It's like if you if you don't have a couple
of collapsing, you didn't push far enough.
Speaker 3 (55:17):
I guess would be the opposite of that. Man, I
think that's a good place to stop. Lynn.
Speaker 2 (55:22):
Uh, what a wealth of information. I appreciate it. Like
I said earlier, Man, you're so in demand that obviously. Uh,
it's because of this wealth of information you have. I
subscribe to your newsletter Lynn Alden dot com. We'll link
to that down below. Obviously, your book Broken Money. I
have a copy of that as well.
Speaker 3 (55:36):
It's amazing. Anything else you want to point people to,
H No
Speaker 1 (55:39):
There's a two big things to check out Lindlon dot
com in the book and thanks for having Yeah, we'll
link that down below.
Host
Mark Moss
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