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Transcript

#746: The Digital Euro Is A Trap with Matt Dines · TFTC: A Bitcoin Podcast

• 0:00
  You've had a dynamic where money has become freer than free.
• 0:10
  We talk about a Fed just gone nuts.
• 0:13
  All the central banks going nuts.
• 0:16
  So it's all acting like safe haven.
• 0:18
  I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins.
• 0:25
  In the world of fiat currencies, Bitcoin is the victor.
• 0:28
  I mean, that's part of the bull case for Bitcoin.
• 0:31
  If you're not paying attention, you probably should be.
• 0:36
  Matthew Dines, take two.
• 0:38
  We meet again a week later after our original two and a half hour recording had some technical difficulties and was unrecoverable, unfortunately.
• 0:48
  Yeah, that was terrible.
• 0:51
  It's kind of like, I don't know if this is before your time, but there's the Jack Black Band.
• 0:58
  tenacious d and their kind of their hit song the what's it called the most wonderful the most
• 1:04
  famous song in the world our best song in the world um but they lost it uh so you know the
• 1:10
  only thing they could do is give it a tribute so yeah we put down a good rip um two and a half
• 1:18
  hours but we'll hope we'll condense it here and you know make it better and then this will be
• 1:22
  the greatest song in the world.
• 1:25
  It will be.
• 1:27
  Well, let's jump right into it.
• 1:29
  We last recorded before last week,
• 1:33
  it was 18 months.
• 1:34
  And the last time we talked,
• 1:35
  it was about the debt restructuring
• 1:39
  that was coming to Ukraine.
• 1:43
  A lot has happened since then.
• 1:45
  We've got some charts.
• 1:46
  You've got enough space in your computer.
• 1:48
  We're going to pull them up eventually.
• 1:49
  But I think picking the ball up,
• 1:52
  where we left it in 2024, right before the presidential election. A lot has changed since
• 1:59
  then, particularly in Europe. Absolutely. So that's crazy to think about, like 18 months just
• 2:07
  goes by so quickly. It really does sink in with you, like looking back on what seems like yesterday,
• 2:15
  right? Our kids are growing up, time flies. So yeah, never take your time for granted,
• 2:21
  which is, I think, what Bitcoiners appreciate and understand out of their money.
• 2:26
  But yeah, to start with, one of the key things that had just happened when I think we recorded,
• 2:32
  it was like mid-September 2024.
• 2:35
  Ukraine had just technically defaulted on its sovereign debt,
• 2:40
  which was largely, I mean, entirely funded by the United States and Europe as well as UK.
• 2:48
  And, you know, the the way these wars go, it very quickly becomes a battle of attrition.
• 2:57
  We we all kind of understand in history, right? It's all about you. Do you have access to finance, access to, you know, money, gold historically, as it's been in these big European wars in history?
• 3:12
  But if you can keep funding your sovereign, keep the state provided with access to resources to not just keep the domestic economy going, chugging along, but to fund the war effort.
• 3:27
  As soon as you run out of funding, that's the moment you have to call it quits and a winner or loser is determined.
• 3:37
  And typically the way things go and the, you know, the European version of warfare that we've been in since 1648, the Treaty of Westphalia, you get these nation states meeting.
• 3:50
  And then whoever, you know, prevails on the military front.
• 3:54
  Which really, you know, is tied to the financial front, right?
• 3:57
  It's a capital war, as well as kind of a military war of attrition as the way these often go.
• 4:03
  So, but they get together at some palace in Versailles or Vienna, whatever, they'll negotiate
• 4:09
  a treaty and one side is going to look for reparations.
• 4:12
  On the other, there'll be some gold transfers or capital transfers, and that'll get a system,
• 4:18
  a one side system back to financial solvency.
• 4:23
  And then the other one, it's kind of a different game.
• 4:27
  You're in for a long-term slog because you've got to pay off this war debt to the other.
• 4:31
  And that's kind of, in a nutshell, the history of European conflict and where we are today in 2026 and the situation that's opened up with Ukraine.
• 4:41
  I think it's very much, if it's not exactly copy-paste, history definitely rhymes.
• 4:51
  So you can see this playing out in the capital markets.
• 4:54
  But to where we were last time we met, you know, we talk about Bitcoin and credit and its adoption as a as a collateral.
• 5:04
  What we just saw last time we recorded was Ukraine defaulted on audit sovereign debt obligations.
• 5:11
  They they suspended payment. So Fitch rated them a like technical default and the creditors had to come in and do a workout.
• 5:20
  And what it amounted to was one of the largest sovereign debt restructurings and write downs in modern history.
• 5:29
  Like there's only a few that come close.
• 5:31
  Argentina, some other IMF cases, Greece, for example, with the 2011, 2012 and that aftermath in the European debt crisis.
• 5:40
  But we saw September 2024, the creditors who were funding Ukraine.
• 5:45
  Right. They need that international capital inflows to support the war effort.
• 5:50
  Those creditors took a 60 percent write down in their loan. So part of it came from a reduction in principle. Part of the of that loss came from deferment of interest for multiple years into the future.
• 6:06
  So something like till the end of this decade, 2029, 2030, like the interest payments on Ukraine's debt are suspended.
• 6:13
  and then part of it was attaching like a higher discount rate to those sovereign bonds.
• 6:20
  But what it amounted to is those bonds, like billions of dollars of capital that's been
• 6:25
  thrown into that project, took losses and was traded at 40 cents on the dollar,
• 6:33
  effectively amounted to like they were paying 15% yields on the debt to fund this
• 6:37
  Ukraine project. And that's in dollar terms, right? It was dollar denominated debt,
• 6:41
  Which was very much apples to apples to where we were seeing traded or priced in market for Bitcoin-backed loans with, you know, credible guarantees of all structures for minimizing the rehypothecation risk of counterparties moving a collateral, doing something else, you know, throwing it into the crypto leverage D5 wood chipper, right?
• 7:09
  that whole black hole. But I think where we are, if you take the 18 months and what's transpired,
• 7:16
  we're now at another very interesting point in that process for things to get interesting there
• 7:21
  again in the sovereign debt markets. So if you think about, we talked about who was funding
• 7:28
  the Ukraine war effort. It was a kind of a joint exercise between the Biden administration was
• 7:35
  cooperating with the EU powers in place, the Ursa von der Leyen-led era of the European
• 7:42
  Commission, and then UK as well, although they've gone through multiple prime ministerships
• 7:46
  at this point, changeovers, all of that.
• 7:49
  So that's one of those things that just doesn't change right there in the middle of a potential
• 7:53
  PM shift right now with Starmer on the hot seat as well.
• 8:02
  But what happened here, the November elections happened in 2024, and we got a change of administration from, you know, what I'd call like Biden administration representing kind of kind of U.S. leadership that was willing to keep cooperating with the European order.
• 8:22
  And basically, if you think about it, it's like the entire structure of the globalization economy, WTO trade, and then cooperative kind of dealmaking and alignment on the capital markets front as well.
• 8:45
  So the Trump administration comes in and they very quickly take a tone.
• 8:50
  Well, like, I'll try to stay as politically out of this as possible.
• 8:54
  But at the very minimum, they had a mindset that, hey, we I mean, we have our own fiscal deficit, the debt situation in the United States.
• 9:02
  Everybody knows that at this point. But at the core of it.
• 9:06
  Right. Like the if you talk to any good investor, what they say is you don't keep throwing good money after bad.
• 9:13
  Right. So you just you know, these bonds, you just took a 60 percent haircut.
• 9:19
  And I think the Trump administration at a very minimum was saying, hey, let's like we're not going to keep dumping our capital markets resources into this.
• 9:27
  We're going to have to figure something else out or you're going to have to figure something else out.
• 9:31
  And that's kind of trickled over and escalated into.
• 9:33
  everything we've seen today with like by this point by davos 2026 right it was very clear that
• 9:40
  the u.s was going one route from its leadership structure and the 200 or 300 people it put in its
• 9:45
  party and sent to davos and announced on the world that uh on the world stage that
• 9:51
  some like the u.s role in these legacy institutions is going to change um at the very minimum uh and
• 9:59
  everybody else was just scrambling after that to pick up the pieces. Right. So what you've seen now
• 10:04
  with the U.S. pulling back, it's not going to continue to fund the Ukraine war effort from a
• 10:11
  financial standpoint, just money printing, all of that. The onus shifted over and it's got the
• 10:17
  problem's got to be solved now by the EU and its capital markets as the lead. And that means, you
• 10:21
  know, you're watching what Brussels and Frankfurt do to clean up their, you know, address this
• 10:27
  problem. Because at the end of the day, if you stop financing the logistics, the military effort,
• 10:35
  all of that at the front, the tip of the spear where the collision between these regional powers
• 10:43
  is actually a military-connected conflict, if your capital market stops funding that,
• 10:48
  that means you've lost. So EU has been in this situation where they've had to come up with some
• 10:55
  some way to keep this war effort going. And right about December this year, we got the
• 11:01
  make or break fork in the road. And there were two paths, and we've clearly chosen one.
• 11:06
  And the way I view this, the two paths, door number one was the existing custodians, Euroclear,
• 11:16
  who in the US markets framework, think of them like a major custodian, like Bank of New York.
• 11:22
  But then there are also the security settlement kind of mechanism and structure like the DTC corporation.
• 11:32
  It's both of those things like merged into one.
• 11:35
  But the bonds, the Russian reserve assets, right, their dollar reserves, their holdings, at the end of the day, they're just IOUs in this financial system.
• 11:44
  Those things were parked with the custodian at Euroclear.
• 11:47
  And the technocrats or the bureaucrats kind of game plan to keep the money flowing to the warfront in Ukraine was to get those custodians to essentially allow for those reserves to be used as collateral.
• 12:07
  And this is a deviation from past behavior, which was taking the interest accruals on those reserves and kind of stripping those out, leveraging them up and using that to ultimately backstop the money printing that was going on to fund the Ukraine war effort.
• 12:27
  At this point now, it was, hey, we got to go into the seed corn.
• 12:30
  We got to go into the principal, not just take the interest.
• 12:33
  The interest is already, you know, that's been consumed.
• 12:35
  That's spoken for.
• 12:36
  Take the principal, post it as collateral. That becomes essentially a one-to-one as the
• 12:43
  funding layer for the Euro-denominated money printing that's going to pay for the Ukraine
• 12:50
  war effort. So this is where the custodians had a potential problem because we talked about once
• 12:57
  this thing gets to the point where we're done fighting, and eventually there will be a day
• 13:02
  where we're back to peacetime, right?
• 13:05
  These European leaders, the Russian leaders,
• 13:08
  they'll show up at the, you know, the treaty of wherever.
• 13:11
  They'll negotiate with each other.
• 13:13
  Whichever side has the advantage, they're going to press.
• 13:16
  And there's a hypothetical probability.
• 13:21
  Like it's in the range of outcomes that this doesn't go the way that,
• 13:25
  you know, the EU wants.
• 13:27
  And in that case, the custodians would be on the hook for the,
• 13:31
  the potential credit claims or the money printing, it would come out of their equity.
• 13:38
  So you got the private business owners or their businesses, they concern themselves with their own
• 13:45
  balance sheet capital at risk. They stood up to the technocrats in December and said,
• 13:52
  no, we see legal risk here to the, you're a clear financial institution.
• 13:57
  You need to either force us to do this or we're just we're not going to go along with this funding scheme.
• 14:03
  So they called the the the EU's, you know, the the Frankfurt called the Brussels is bluff here.
• 14:11
  Essentially, I know that's not quite accurate because you're clear as a Belgian financial institution, but it's very similar.
• 14:18
  I say Frankfurt because that's the financial power structure within within Europe.
• 14:24
  So they called the bluff. They said, we're not going to be on the hook for this.
• 14:27
  Like they have, they have liability, they have risk.
• 14:31
  And so the EU didn't, when I say EU, the bureaucrats didn't issue that, that order,
• 14:37
  like directing them to do it because what you're actually encroaching on is property
• 14:41
  rights, rule of law, right?
• 14:43
  You're saying, all right, custodian, take this property that belongs to, you know, another
• 14:47
  counterparty.
• 14:47
  In this case, it is, you know, the, the opposition that we're up against in this war, but, but
• 14:55
  seize their assets and do this with it or confiscate property, do this with it.
• 14:59
  And that's where your custodians, they're concerned about the longevity of their
• 15:03
  financial business franchise. And these are operations like the people who run them. These
• 15:10
  are businesses that go like centuries. If you look at European banking, the Italian banks are
• 15:15
  like the oldest, longest standing in the world. I know the US dominates the market right now,
• 15:21
  But these executives think extremely long term. And so they don't just think about what's the most pressing, you know, easy way out of this, like very, very dear and intense situation, but they're thinking longer term.
• 15:37
  So they said, we're not going to go along with that.
• 15:40
  And that's where you got the the the Eurocrats or the EU's route to go down door number two, which is to find a way to essentially print the money and monetize this.
• 15:52
  So in the in the intermediate term, they found a way to arm wrangle all the, you know, EU parliament, all of that to fund the Ukraine war out of EU budget.
• 16:05
  So it's coming out of EU's fiscal headroom.
• 16:11
  But they know that is going to eventually run into a ceiling because background conditions in the European economy, it's slow growth.
• 16:21
  And we can talk about the AI trend, all of that.
• 16:24
  But it's behind in terms of growth potential, as well as energy grid, everything that TFTC listeners are very familiar with over the years.
• 16:33
  So this, in my mind, it's putting two and two together here. What's happening? Like, why is there this digital euro initiative? Right. And at the end of the day, it comes down to the EU technocrats need a new custodial solution that would allow them to centralize the savings built up from the EU private economy over, you could say, at least going back to World War Two.
• 17:01
  But it's like centuries of work, right? And the EU growth that's been or European growth that's been really on an upswing since 1492, essentially.
• 17:11
  And since the existing financial custodial banking institutions have said they're not going to go along with that confiscation of property or that risk in terms of what they're on the hook for potentially and the ultimate outcomes of this military conflict,
• 17:37
  the EU needs to find a way to monetize and print against the savings of the EU businesses,
• 17:45
  households, private sector. And so the answer to that is to build this digital euro that
• 17:51
  rides the tailwinds of what Satoshi unlocked and has showed us is kind of the path forward
• 17:59
  on moving custodial integrity, but also limiting the ability of one counterparty or, say, a cartel
• 18:09
  from manipulating money supply against other participants in the monetary network that Bitcoin
• 18:16
  is. And that's the light in my book. And I think the TFTC audience agrees.
• 18:21
  But the EU needs a solution built on the same crypto, you know, blockchain rails.
• 18:29
  But it it can't be Bitcoin because Bitcoin is anathema to what to the task in front of them.
• 18:36
  Right. And what is that task in front of them?
• 18:38
  It's to trap the savings of the local economy, print and monetize, you know, to the state's objectives.
• 18:46
  and Bitcoin, which is, you know, as everybody like why they know is once you take custody of that
• 18:55
  asset, right, you move it and you own the UTXOs, that that capital can then leave the borders and
• 19:03
  flee so that the ability of capital to leave and just walk out the door because, you know,
• 19:10
  smart money by definition can see the degradation of property rights or the potential
• 19:16
  debasement on behalf of the state's objectives. They see it coming. They're going to flee. So
• 19:21
  that's why in my mind, it's always been there. And we realize the EU has been the most antagonistic
• 19:28
  to Bitcoin. It's all starting to click with me exactly what's going on here. So yeah, that's how
• 19:34
  I kind of wrap my head around the digital euro, but also why it's so pressing. And you see from
• 19:41
  the project roadmap, they're like, oh, it's right on the corner. It's 2029. And then it's like, oh,
• 19:46
  it's 2028. We need to speed this up. So they're pulling this project forward out of a very intense
• 19:54
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• 21:35
  up because we wrote about it this morning in the newsletter but i'm not sure if you saw christine
• 21:38
  Christine Lagarde had some comments yesterday rejecting euro stablecoins and warning of digital dollarization.
• 21:47
  Christine Lagarde told reporters she is skeptical of euro-denominated stablecoins and warned that dollar stablecoins threatened to digitally dollarize the eurozone.
• 21:57
  The stablecoin market now sits at $310 billion combined with Tether and USDC and is overwhelmingly dollar-denominated.
• 22:03
  lagarde's response is not to compete but to reject the category and push the digital euro instead
• 22:09
  um so she recognizes these these stable coins is like external to her ability to control them
• 22:16
  yeah she i mean we're used to this from christine lagarde at this point like uh
• 22:20
  you know she's at the top of the list of uh central bankers or you know legacy monetary
• 22:27
  authority, you know, figures who are antagonistic to Bitcoin, full stop. But then you see here now
• 22:34
  to genius act, you know, stable coins. And what that implies, she doesn't ever say why, right?
• 22:40
  She doesn't tell you exactly why it is, but here's my view, right? All right. They've got
• 22:45
  this problem. They need to trap capital. It's confined, right? Which is a tough thing to do
• 22:52
  because everybody, if you can, if you're able, you have the means, you're going to get your
• 22:57
  capital out of the jurisdiction where it's going to be debased or treated improperly.
• 23:07
  All right. So think about this. In my framework, I think about there's really $3, but to start with,
• 23:14
  let's go with two. I could say there's four as well. The silver dollar, which is still the
• 23:18
  constitutional standard for money. It's on the books, but it doesn't matter at this point.
• 23:23
  Maybe it does.
• 23:24
  The silver bowls may end up winning.
• 23:27
  It's kind of like the Game of Thrones solution.
• 23:29
  Spoiler alert.
• 23:30
  It's none of the parties you think are going to walk away at the end.
• 23:32
  It's brand, right?
• 23:34
  If you've seen the show, maybe that's the silver dollar at the end of this.
• 23:37
  I was like, all right, guys, that was it.
• 23:41
  No, I'll leave the silver dollar aside.
• 23:42
  But the two dollars, the main ones from the legacy post-World War II order, you got the
• 23:47
  onshore dollar, which we're talking about fiat dollars here.
• 23:50
  They're credit IOU dollars.
• 23:51
  backed by nothing other than the Fed's ability to step in as lender of last resort, but also these
• 23:57
  other kind of state run deposit insurance structures or just really at the end of the day,
• 24:05
  it's the balance sheet capacity of your United States commercial banking system that prints the
• 24:11
  treasuries. And that's the risk-free collateral in that systems concept and just rents repeat,
• 24:17
  Hence, my X-handle levered USTs, right? It's turtles all the way down. All right. There's
• 24:22
  the onshore dollar. That shows up, actually. We'll talk about the battle in a second between
• 24:27
  Warsh and Powell for control of the Fed and the massive change that I think is underway
• 24:33
  within that concept of the onshore dollar. All right. The, what do you call it? The
• 24:40
  complement of that, right, is the fiat dollar standard, but the offshore dollar or the euro
• 24:46
  dollar. And you've heard, you know, for the last 10 years, you know, this is deep in the mindset
• 24:52
  now. Everybody's become ramped up on the old, you know, non-US based financial, you know,
• 25:00
  banking system, all of that, who operate this offshore dollar as a legacy patchwork of
• 25:06
  IOUs, but they're not within the, within the kind of the confines, within the sandbox where
• 25:14
  US regulation applies or the Fed has control, all of that. All right. That offshore dollar is
• 25:21
  actually what's being kind of drained. And this is, you can go into the milkshake guy,
• 25:27
  all of that. But we've introduced since 2022, the genius stablecoin and what that is. So
• 25:36
  think about all these dollars. What they're at the end of the day trying to do is maintain
• 25:42
  HAR, which is 100 cents on the dollar for the IOU claim from the issuer of that dollar,
• 25:51
  whatever, entity, vehicle, they're imaginary things, right? So it's hard to nail them down
• 25:56
  versus silver dollar is easy, right? You just see the coin, you're like, no, it's got intrinsic
• 26:02
  value because it's got the metal in it. It's technically true. But these credit dollars,
• 26:09
  they're all Fugazi, right? At the end of the day, it's the Matthew McConaughey,
• 26:14
  you know, Fugazi, Fugazi, that type of thing.
• 26:17
  Fairy dust.
• 26:18
  Fairy dust. Yeah. So Fed and the onshore dollar, they have this kind of very robust mechanism
• 26:25
  on 1913 technology, right? Or actually, you know, say 1935 technology when the FOMC was
• 26:33
  was instituted in the New Deal era. They've got a good mechanism for enforcing the par
• 26:43
  integrity of their dollar IOU claim. And that allows, what it really enables is all of your
• 26:50
  banks, like my JP Morgan dollar is the same thing. It trades at par with my Wells Fargo dollar,
• 26:55
  trades at par with the smallest bank within the Fed wire system, that dollar. All right.
• 27:03
  Offshore dollar is a different beast because their counterparty claims that cross border, you know, you're ultimately your dollar is doesn't have that same kind of backstop or patchwork like to build this thing up or support that par integrity claim.
• 27:25
  And so this explains in my mind why from 1982 to 2020, right, the way that that system got supported, the par integrity of the offshore dollar, every time the global economy goes into recession, this WTO, globalization, trade order, all of that, every time that slows down, what happens?
• 27:49
  Well, settlement of dollars, financial activity kind of comes to a trickle.
• 27:55
  And then the international banking system goes into a crisis.
• 27:58
  And it took the Fed and the onshore economy increasingly costly actions to bail out that giant offshore dollar.
• 28:10
  Or you can say the same thing, onshore plus offshore, but the global dollar fiat credit bubble that everybody in Bitcoin is, you know,
• 28:18
  But at this point, probably they put in their 10,000 hours and would be like experts by the, was it the Malcolm Gladwell standard at this point, right?
• 28:28
  So what that required, though, if you think about it, you look at the secular bond bull market.
• 28:33
  Every time that system needed to be reflated, like you bail out the dollar and you get back to par by increasing dollars in the system, growing money supply.
• 28:43
  And what the system does, like in the 80s, you see it, the chart is moving in interest rates from, you know, lower highs to lower lows for 40 years of a secular bond bull market.
• 28:55
  But as the rate effect starts to diminish, you shift over into QE, right, which is central bank printing and injection of dollars.
• 29:04
  And that's where it starts with LTCM, in my mind, the Maiden Lane bailout package, which was very small in terms of scale and where these went in the successive rounds.
• 29:18
  Like that Maiden Lane doesn't even show up on the zoom out chart anymore.
• 29:21
  You get the immediate QE1, Bernanke years, you get some Yellen QE, and then you get the Powell QE.
• 29:31
  They all did it, right?
• 29:33
  But essentially, COVID was a key moment in my mind where because we saw the price inflation, right?
• 29:47
  I want to be very specific.
• 29:48
  I don't like inflation means my money supply expansion and my definition, but price increases CPI inflation that showed up in the the the massive money printer go for QE ZRB return.
• 30:02
  And I think in my mind, the policymakers at that point understood that you see it in Yellen's comments like, oh, we didn't get it then, but we get it now.
• 30:10
  We ran into the boundary constraint of resource capacity, supply chain production capacity of that post-World War II economic growth model.
• 30:25
  And so I think we've transitioned on to restructuring everything from global supply chains, commodity, supply and demand market linkages, and then money itself, like the dollar itself is going through.
• 30:41
  So what I view, I said $3, I ignored the metals definition.
• 30:46
  But now besides onshore and the legacy offshore euro dollar, you've got the Genius Act stablecoins.
• 30:52
  And built into that is a very strong mechanism for that stablecoin.
• 31:01
  Are they money good?
• 31:02
  In comparison to Bitcoin, we'd say no.
• 31:04
  But in the definition of this dollar liability kind of framework that dominates trade still and global finance, that T-bill backing, right, the one-to-one, 45 days or less, that itself is like a very strong mechanism to maintain the like par, 100 cents on the dollar of that system's IOUs.
• 31:34
  So you've got this big effect taking place. And I think what's going on, like Venezuela, Iran, there's going to be more. Cuba's around the corner. All of these regional spheres are fighting for kind of access to new, you know, supply, demand, you know, marketing and distribution relationships for resource access.
• 31:57
  And then on top of that now, you've got like a similar battle going on in the fiat currency space as well.
• 32:06
  And that's where these Genius Act stablecoins come in.
• 32:09
  U.S. has a policy where, think about it, it's like open adoption.
• 32:14
  Same as Bitcoin, but not as good, right?
• 32:16
  It's like Bitcoin, everybody's free to align around this solution to the Byzantine general's problem
• 32:23
  and coordinate trade through a sound and defensible money.
• 32:27
  the, the genius act stable coins, it's like, it's not those things, right. You're still going to
• 32:34
  other, um, you know, protocol designs or like, for lack of a better word on their crypto rails,
• 32:43
  stable coins. But in a sense, it is open. You can just be sanctioned all of that. We've seen
• 32:49
  this in Iran, right? They've gone after, you know, nine figures of IRGC linked, uh, you know,
• 32:55
  stablecoin balances tether i think there's been headlines on that like uh tfdc the bitcoin brief
• 33:00
  you've written on this um and i haven't followed it that closely i just saw they were there of fact
• 33:05
  sanctions are like if you follow uh treasury secretary uh best sense account it's like by
• 33:11
  the day you're getting like oh 12 new uh ofac uh irgc you know officials linked here and spans into
• 33:19
  like oil traders in iraq it's sanctions you know galore so it's not censorship resistant at all
• 33:25
  like Bitcoin is, but these GeniusX stablecoins offer something better. Like if you're Venezuela,
• 33:31
  right, you might settle your oil trade in dollars and tap into that broader liquidity pool.
• 33:38
  So the stablecoins themselves are kind of competing one-to-one as a challenger,
• 33:44
  gaining traction against this legacy offshore dollar market, which at the end of the day,
• 33:52
  central nexus there, it's spread across all these money centers. We know Hong Kong, Singapore,
• 33:59
  Caymans, et cetera, like secrecy jurisdictions, all of that, that aren't really that secret.
• 34:05
  The state has gained the ability to peer in and censor transactions. But that open expansion,
• 34:14
  I think, or the adoption of stable coins, dollar stable coins is a direct threat to
• 34:21
  the digital euro. And that's why Christine Lagarde, like it just like it's bad.
• 34:27
  U.S. stable coins, bad. Digital euro, good.
• 34:29
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• 36:28
  multi-sig vault that's tftc10 at unchained.com yeah i mean it's very obvious and i think
• 36:36
  even though they can be sanctioned, I think it's objective
• 36:39
  just having the free market be able to create these things
• 36:43
  than have them operate on a settlement network
• 36:47
  or settlement networks that are far superior to what exist
• 36:50
  traditionally is obviously a competitive advantage.
• 36:53
  And another thing, I think that's what Lagarde's going to find
• 36:56
  is the EU Parliament's not going to be able to compete
• 37:00
  from a tech level with this or a marketing level.
• 37:03
  And so I think they're already out of their depth.
• 37:07
  And the desperation to push the digital euro is very obvious.
• 37:12
  And it will be interesting to see if they expedite it, how they do it, and how we're willing to get at launch in terms of what they allow European citizens to interact with.
• 37:25
  So have you been following the Paxilica kind of project from Jacob Selber?
• 37:30
  Yeah, I think that's a really important.
• 37:32
  So you highlighted it last week with Norway.
• 37:35
  We just signed a deal with them, correct?
• 37:37
  Yeah.
• 37:37
  All right.
• 37:38
  So the way I think about this, right?
• 37:39
  What is my silica?
• 37:40
  Oh, go ahead.
• 37:41
  Before you get into that.
• 37:43
  Yeah.
• 37:43
  Because I thought it was really interesting in the lost recording, the parallels with Otto von Bismarck.
• 37:49
  Does it make sense to bring those in as well?
• 37:52
  Let's do it.
• 37:53
  Is that for another?
• 37:54
  Yeah.
• 37:55
  Yeah.
• 37:55
  So, all right.
• 37:57
  I've been reading this.
• 38:00
  What would you just call it?
• 38:02
  History. It's kind of a history book. And you go through one of the greats, Otto von Bismarck, at playing this geopolitical game through.
• 38:13
  Like we call this the foreturning, right? We get a sense, hey, the social upheaval is in play.
• 38:18
  The economic upheaval is taking place. And that's what we just we label it with.
• 38:24
  I think the thing that sticks with most people at this point to understand it is the foreturning, right?
• 38:31
  Like Bismarck was going through exactly one of those in the 1800s.
• 38:35
  And I picked up this book.
• 38:38
  And ultimately, like this leads back to AI.
• 38:40
  We can talk about that.
• 38:41
  You know, obviously it's important as everybody knows.
• 38:45
  But I actually went through like thinking through the fiscal deficit situation.
• 38:51
  You know, John Arnold actually kind of triggered this idea.
• 38:54
  When you're looking at the federal government, you know, deficits, where are the big line
• 38:59
  items?
• 39:00
  And there's like the big four or five spending lines, military, Social Security, health care, Medicaid, Medicare.
• 39:09
  And then I guess you could just say like anything else off budget. Right.
• 39:14
  But the Social Security front, like you look at pension schemes and at the end of the day, what are they?
• 39:20
  They're just you're getting the public to trust your government, your big structure, the state that you're you're what you're trying to do.
• 39:29
  And Bismarck realizes I'll get into it in a second.
• 39:32
  We're trying to do is get the adoption or the buy in from your population to contribute their time, resources, you know, trust their savings in this state run pension scheme.
• 39:45
  And what it's doing is it's actually allowing your you know, your nation state to scale.
• 39:50
  And in these times of war, and that's what he was in. And he was also at war domestically between different kind of like political factions. Like we measure on the left, right? Right. So you got the communists over here on the left and then over here on the right. Maybe the, if you believe in horseshoe theory, where they start to resemble themselves, you get the like the libertarian anarchists.
• 40:13
  At the extreme, they start to look more like each other. It turns into like a pole in the center is up there. So the horseshoe theory. Right. For those who ascribe in that simplification.
• 40:27
  But what he saw, like he did the same thing as FDR did in the 30s, launching Social Security.
• 40:35
  He was the first one who launched this modern state pension.
• 40:38
  And that pulled people away from both camps, but really from the Social Democrats, from taking over the reins of government.
• 40:46
  And Bismarck, go through here, make sure I say it on record.
• 40:49
  The reason I found this book was I asked, you know, my AI model for examples of, hey, when did Bismarck's pension scheme go broke?
• 41:01
  Because I know it's not it's not the same one alive today.
• 41:03
  And it was really the Weimar hyperinflation that that rinsed it.
• 41:07
  Right. So that was the pension failure.
• 41:10
  And so what I was trying to do is understand, all right, the Social Security problem, the fiscal deficits problem.
• 41:15
  How might this thing play out?
• 41:17
  because ultimately the monetary problems, the fiscal problems, they're going to work
• 41:25
  themselves out, right?
• 41:26
  Like what's unsustainable won't be sustained.
• 41:28
  So what I did, I found this book and I recommended it.
• 41:32
  It called Gold and Iron by Fritz Stern It written in 1970 And this book a gem It right up there on my favorites now with the prize by Daniel Yergin I like that one because it explains you know the state competition as you know framed as a resource battle like for oil and gas energy commodities that have really defined the global economic order with oil and energy
• 42:04
  as the base layer of our economies and our financial systems, you know, basically since,
• 42:11
  you know, Civil War time in the U.S. when we first demonstrated the ability to
• 42:18
  economically extract oil, you know, profitably with drilling wells, like drilling technologies.
• 42:27
  All right. So you get into Bismarck. You realize he's taking these actions because he's just
• 42:32
  navigating, um, into future uncertainty. You don't know how it's going to play out, but you can look
• 42:39
  to like the masters, um, to how they ultimately, uh, prevail and emerge victorious. Right. And
• 42:46
  like what started as, um, kind of the legacy order, you know, then as it is now looks like
• 42:54
  it's at risk. Society's going through one of these big upheavals. You, you figure out how do we get
• 43:01
  there to the other side. And one of the key things, the reason the book's called Golden Iron,
• 43:07
  right? Everybody, you know, in high school history, you know, maybe learned about Bismarck.
• 43:11
  What do you know him for? He united the German state under, you know, Prussian central rule,
• 43:16
  which is why modern day capital of Germany is still in Berlin, right? As that center of power.
• 43:22
  Um, he, his kind of, you know, famous line that, uh, that stuck out or one of many was, um, this,
• 43:33
  this German empire built on, you know, the Prussian monarchy as the, you know, base foundation,
• 43:39
  uh, will be accomplished through blood and iron. What he meant by blood was he would use the,
• 43:46
  the kind of the ethnic pull from the Germanic peoples or Aryan. I don't want to, I don't want
• 43:53
  to throw too hot of terms out there and, you know, get us blocked or anything, but he used that desire
• 43:58
  for these German people to unite and they were kind of scattered. They're in, they're in, you
• 44:03
  know, modern day Germany. They spread up like Switzerland is 70% German or something like that.
• 44:08
  Even today, Austria was German peoples. They spread into parts of Poland. And then, you know,
• 44:13
  on the main island of the UK, right?
• 44:17
  Those people are, you know, the same Germanic ancestry.
• 44:21
  So Bismarck saw that and this desire for those people,
• 44:25
  which were under the prior feudal order, kind of scattered rule.
• 44:30
  You know, you had these castles, you had the noble and the town,
• 44:34
  and everybody kind of pledged the serfs, pledged their allegiance to the feudal lord.
• 44:39
  He looked after them. He just, I don't know, kind of very primitive in our modern day understanding of a social structure, hierarchies, economic structure, all of that.
• 44:50
  But that that thing was all coming like undone, like it was on its last legs and everybody could see it.
• 44:59
  And there were these two forces that were really pushing that that whole model into the dustbin of history.
• 45:06
  And that was industrialization and then egalitarianism, which you saw start with like the French Revolution, where we're like, we're not going to be serfs anymore, guys.
• 45:15
  We're like the masses are going to demand a say in their governance or like their participation in society, the direction, the long term, you know, path of how their civilization is going to evolve.
• 45:32
  Right. So Bismarck saw those two things. But then he himself came from this political class of like the top of the top of society.
• 45:40
  They called him the Junker leader. Like it's spelled junker. It's terrible branding today.
• 45:46
  I guess they didn't think about the English translation of their words.
• 45:49
  But what it was is basically the landed gentry.
• 45:54
  And it was just like ancestrally passed from, you know, whenever these peoples first kind of expanded and, you know, won the land claim.
• 46:04
  Like these nobles had these huge tracts of land.
• 46:07
  And then these families were the, you know, the central authorities that all the serfs would just pledge their allegiance to.
• 46:14
  And like it showed up in the economics.
• 46:16
  These U-Curs were like their assets, their farmland, all their estates.
• 46:23
  They weren't economically profitable.
• 46:24
  They weren't earning high, you know, what we would think of as maybe a yield measure
• 46:28
  or cap rates on property for people involved in real estate or return on capital, right?
• 46:35
  That land asset.
• 46:36
  It was much lower.
• 46:37
  And they were getting outcompeted by this emergent class of industrialists and bankers
• 46:43
  who were becoming the new wealthy in society.
• 46:47
  So Bismarck saw the old way of life.
• 46:49
  It was very soon going to be gone with the wind.
• 46:52
  And the rest of his peer group could see that.
• 46:55
  But within his little group of the Junker elite,
• 46:59
  this dude was like the most competent.
• 47:02
  Like he goes, like if you're looking at figures
• 47:03
  who could navigate these bigger processes
• 47:08
  going on around them, the invisible forces, right?
• 47:11
  And we're in one of those today.
• 47:13
  I think studying him, it's like watching like the good chess players want to learn from the old masters.
• 47:19
  Right. So the reason I like this book is it took what Bismarck said and he said this thing was built on blood and iron.
• 47:30
  In hindsight, it was actually his banker, this figure Gerson von Bleichroder.
• 47:36
  who really funded his, you know, first his Prussian monarchy, but this thing that became
• 47:47
  the unified German state. I talked about the importance of, you know, keeping the
• 47:54
  checks cashing once you do find yourself in wartime. And there's a lot that rhymes in that
• 48:00
  book of what we see going on today. So this trend where we see the government taking, federal
• 48:07
  government taking stakes and private enterprise like Intel or MP materials or trilogy metals,
• 48:17
  right? What that's actually doing, the state is funding the resources it needs or it thinks it
• 48:24
  needs to win out in this kind of contest of civilizations where ultimately like its objectives
• 48:30
  are surviving onto the other side of this back in bismarck's day he had um you know similar assets
• 48:38
  on the government balance sheet he had this these shares and the cologne menden railroad that they
• 48:43
  were in the same budget pickle as well and i'll go into the military conflict but they needed to
• 48:48
  finance he knew that that it was going to go to the mats and it was going to hit uh military right
• 48:54
  Once, you know, politics by all other means exhausts itself, right?
• 48:59
  The diplomats leave and you send in the military men and they solve the problem.
• 49:04
  The key constraint was figuring out how to fund it.
• 49:08
  And his banker, like Roderick, both got him access.
• 49:11
  Like, this is actually another important hallmark, I think, that reflects well,
• 49:18
  or like on our own present times and our own situation in the United States.
• 49:24
  But in the same way today, we have an executive branch that is not on the same page with both Congress and the judiciary. And we all learned in our high school civics class, right? Those are the checks and balances.
• 49:38
  but they can't if they're not playing well together if you have a congress or you know
• 49:45
  similar government structures a parliament that is not cooperative or hostile to the executive
• 49:51
  you have a breakdown in political order and it falls at the like if it keeps going that way
• 49:59
  same way we're seeing in the u.s right congress um this is like one of the most uh what you say
• 50:06
  say it like least active congresses you've ever seen, uh, out of, uh, like, like how many have
• 50:13
  there been at this point? This is 250 years. I think 225 congresses, if they're all two year
• 50:17
  terms, right. I don't know if I'm exactly right on that, but when you go through these political,
• 50:24
  like these big social upheaval, these, these four turnings, if you will, or those things that
• 50:29
  history has been in, in the past, those, those things, the executive branch, uh, the actual,
• 50:34
  which is the actual government, right?
• 50:36
  They're at the end of the day,
• 50:37
  they're the one enforcing laws.
• 50:39
  You know, Congress is the one
• 50:41
  who gives them the power
• 50:42
  to do those things
• 50:44
  that the executive branch does.
• 50:46
  And then judiciary reviews
• 50:47
  and blocks, right?
• 50:50
  Bismarck was in the same boat, right?
• 50:52
  Because you had this parliament
• 50:54
  that sprung up in the 1800s
• 50:56
  as kind of a stopgap solution
• 50:58
  to this social upheaval going on,
• 51:01
  this political upheaval.
• 51:03
  And what he actually had
• 51:04
  was a government, like Bismarck was serving. He was the executive, if you will, for this monarchy,
• 51:14
  right? This old world or this prior political order, but parliament would not give him budget
• 51:22
  to do anything. So he had to be clever with financing, essentially what needed to be done,
• 51:31
  Right. From his point of view. So he used these railroad shares same way you're saying, oh, government, like marking up the Intel shares, like writing the AI, you know, semiconductor demand, all of that, writing the critical minerals initiative.
• 51:47
  So Bismarck did much of the same things. And this book shows you exactly how his banker, you know, not part of the administration, but the banker was key to the state accomplishing its ultimate objectives and surviving into the future.
• 52:05
  And then you get into the military, right? And this echoes what we're seeing today in Venezuela, but also now Iran, right?
• 52:11
  One more thing. Bismarck was also not popular with the people before 1864 to 1866, which were some it was like a gradually then suddenly where winning on the military front just shifted sentiment and popularity.
• 52:34
  and basically the population getting behind his government and the new order that he structured out.
• 52:41
  So what he did, like 1864, the key thing I talked about, he needed to raise funds to be able to pay the military to conduct these military operations.
• 52:53
  In the same way, you know, it feels like the U.S. was picking on kind of a small fry in Venezuela.
• 53:00
  not quite a small fry in Iran. That's definitely a bigger fish to go after. And we're seeing that
• 53:06
  that one's going to be a tougher one for us to wrangle to the ground. But Bismarck used these
• 53:11
  clever means with his banker to raise the funding to wage this war in Northwest, what's now Northwest
• 53:19
  Germany, these provinces of Schleswig and Holstein, which are now part of Germany.
• 53:26
  there, you know, for people locally, it's like northwest of Hamburg. But it was very close.
• 53:35
  It was within this Danish kingdom. Right. And there was some death of the prior monarch,
• 53:42
  not monarch, but lord, you know, what have you. And then which way these little territories were
• 53:47
  going to go became like it went under contest. And Bismarck used his diplomatic manipulations
• 53:55
  to convince what was going into this little turbulent window of history
• 54:01
  where everything happens gradually and suddenly.
• 54:04
  The number one power within at least the Germanic peoples,
• 54:08
  as far as they were concerned, was the Austrian Empire.
• 54:14
  Bismarck convinced them to back Prussia's claim to go in,
• 54:19
  settle this Schleswig and Holstein situation militarily.
• 54:24
  they cleaned up right it was like a 10-day war or something very similar to the way we just uh
• 54:30
  uh resolved the venezuela situation and you know it was a day right um hours of that yeah
• 54:38
  um but then in the aftermath there was this little 12 to 18 month period of all right what's
• 54:44
  what are these territories going to be integrated into from you know whose sovereignty whose sphere
• 54:50
  are they going to fall into? And eventually, this is where the financing becomes key and the bankers
• 54:56
  will tell you what to do next. Bismarck realized that the Austrian state and their monarch were on
• 55:07
  unsound financial footing, like dire. And so this thing that looked like a juggernaut, right?
• 55:13
  He realized, hey, if we push them into war or if we kind of, you know, slide into, say, I think it
• 55:20
  saxony right we work on integrating this little territory on the german or prussian austrian border
• 55:26
  uh that'll that'll pull them in they'll they'll overextend they'll make a mistake eventually he
• 55:32
  used this and he he um he got the austrian leaders like 1866 uh within two years of the schluss
• 55:41
  wick holstein wrap up and victory he gets austria to declare war on prussia and then prussia just
• 55:47
  goes in and cleans their clocks within days. It was a very short war. And it was like two years,
• 55:56
  1864 and 1866. Bismarck unified all of these Germanic peoples, essentially, into this Prussian
• 56:05
  Empire, this German state. And the people went along with it. The popular sentiment, it just
• 56:11
  shifted. And if you think about these four turnings, how do you get out of it? What's
• 56:17
  happening is everybody, all the stakeholders down to, you know, the people themselves,
• 56:23
  they're just pulled. There's divide. There's no, there's no consensus. Everybody's blocked. We
• 56:29
  can't move forward because no one can agree on what's the way forward. Right. But once it results,
• 56:35
  and you see it as well, like the popularity of the institutions will be like, everybody's like,
• 56:39
  yeah, they're all terrible. Like nothing's working. What do we do? Well, I don't know,
• 56:43
  but that guy is the bad guy or my opponent is the bad guy. Just know they can't win.
• 56:49
  Once you get to like once one side wins that tug of war, and that's what like Bismarck on the
• 56:55
  military victories was from 1864 to 1866, it just turns on a dime. Everybody gets on the same page
• 57:03
  and like, oh, we're out of it. And then you just, you know, the social systems, the economics,
• 57:07
  the finance, they just shoot. And then so everybody, all of these people get behind them.
• 57:12
  And you think about if you had a measure of his approval rating, I think it would look a lot like Trump's right from 2016 to even 2026, where no matter what he does, he can't get more than like 39 percent, 40 percent approval, according to these pollsters.
• 57:27
  Right. But once once the population sees what's working and ultimately.
• 57:35
  You know, I think of this. In sports analogies. Right.
• 57:39
  What what is the actual glue that gives teams good chemistry?
• 57:44
  Like it could be the underlying personalities in the locker room like that helps.
• 57:48
  But at the end of the day, winning. Right. You get the interview with the reporter.
• 57:52
  It's like, what was the secret ingredient here? What made this team, you know, let them to the whatever,
• 57:57
  the championship it's like uh like they have great chemistry right because of winning like they're on
• 58:04
  a you know 22 game win streak or something like that it's not hard uh to see here so winning is
• 58:10
  the key and that's why you get in this situation it's like all right you can see the similarities
• 58:15
  the the the the the the struggle and conflict between these other like external parties
• 58:23
  Prussia, Schleswig-Holstein, Austria. They start butting against each other. Military settles it.
• 58:30
  And what it's actually doing is you're establishing, same thing, supply chains. Who's going to trade
• 58:37
  with who? Like which bankers have terms? Who's going to be the central counterparty? Who has
• 58:43
  ultimate sovereignty or rule of law over a jurisdiction? We're fighting over those same
• 58:51
  things right now it started jan at a minimum it started jan 1 of 2026 or it was jim jan 2 with
• 58:58
  venezuela may even go before that you could say june 2025 the bombings of natanz fordow etc in
• 59:04
  iran but i think like you can see we're in this process the outcome is uncertain but i see what
• 59:11
  they're i i get a sense uh this is what the the us is now trying to do they're building this new um
• 59:19
  resource, you know, supply chain distributions, like down to the commodity layer. That's why we
• 59:26
  see gold, silver, oil, all these commodities are being repriced as kind of the settlement venues,
• 59:34
  the clearing houses are moving off of this offshore dollar, you know, system that was someone else's
• 59:41
  ultimately like taking place in their sovereign orbit, right? We're making that
• 59:48
  Bismarckian play today, I think is my way of interpreting what's going on. And the monetary
• 59:56
  layer is a big part of it. Now, I know everybody on TFDC has a lot of conviction that Bitcoin is a
• 1:00:04
  part of that. But right now, the way I see it, Bitcoin is taking a backseat. The resource
• 1:00:11
  constraint um looks like it's uh the the binding you know frontier right now and my interpretation
• 1:00:21
  so um you know we've been eager to call the bitcoin nasdaq decoupling you know we've called
• 1:00:29
  it a hundred of the last like two times it's actually taken place right you zoom out like it
• 1:00:36
  is there is outperformance there since you know 2009 genesis block um but in this specific like
• 1:00:43
  short-term window um and i'm talking like the bear market that's been underway in bitcoin since what
• 1:00:50
  october was the highs 124 125k and then if you look at treasury treasury codes it started earlier
• 1:00:57
  like july august um i think what the the market signal is telling us right now is all right we're
• 1:01:05
  We're not there yet where Bitcoin is ready to just enter the conversation here for where
• 1:01:13
  these big picture geopolitical players are.
• 1:01:17
  But what is the binding constraint is not just the base of their commodity resources,
• 1:01:22
  energy, metals like silver, gold.
• 1:01:25
  They're marking up and going through just this massive move.
• 1:01:32
  And then you see it in Iran after the ceasefire, right? The April 7th cessation that isn't really a ceasefire, right? There's still shots fired on both sides, right?
• 1:01:48
  But the market signal there was interpreted as bullish, right, that this situation was moving.
• 1:01:58
  The military phase was over and we were moving towards like negotiations to figure out what the next stage of Iran would look like, whose economic orbit it would enter.
• 1:02:09
  And I think if you zoom out, like, or not even zoom out, look at the chart of the triple
• 1:02:15
  Qs since April 7th, it is just a massive rally.
• 1:02:22
  Like they go vertical and like and then you looking at the drivers it your semiconductors But then if you get into individual names um you start to see this ai uh just capacity constraints showing up and you know stocks like micron and then uh
• 1:02:37
  like that's reflecting the uh the memory um or just just call it like us uh production capacity
• 1:02:46
  limitations just trying to keep up with demand it's very expensive and it takes a lot of time
• 1:02:52
  to put together a new fab. And these projects are, they're funded, they're planned, they're online,
• 1:03:01
  but they're going to take years to deliver. So right now, the limiting constraint is resources
• 1:03:08
  like memory, or you can see it too in equities like SanDisk, Western Digital, Seagate. It's
• 1:03:16
  storage as well. And that goes back to our video last week, right? You don't realize how much hard
• 1:03:22
  drive space this is actually taking up until your system runs into these issues. And we lost the
• 1:03:28
  video last week because we're recording so many massive 1080p or, you know, I don't think you
• 1:03:33
  recorded 4K, Logan, but like these files are huge. Like it takes a massive amount of resources to
• 1:03:41
  build up this kind of new economic model of, you know, where we see things going. So the same way,
• 1:03:47
  I think that analogy, what Bismarck was doing, how he used the financial system at the time,
• 1:03:52
  which by today's standards is like very quaint and antiquated. But back in those days, like
• 1:03:58
  railroad equities, using that, those shares to fund the government or its, you know, military
• 1:04:09
  operations. That was novel at the time. And so you see kind of, you know, if it doesn't exactly
• 1:04:15
  copy and paste over, it definitely rhymes what we're doing. This battle, not just for resources
• 1:04:20
  and access to, or like building out supply chains from the, you know, the rare earth,
• 1:04:27
  you know, critical minerals and the energy resources, like your base layer, most basic
• 1:04:32
  commodities, but all the way up to the semiconductors, you know, RAM, all of that
• 1:04:38
  stuff that are really the most sophisticated, complicated products that humans have ever
• 1:04:44
  figured out how to produce. That whole battle and what the U.S. is doing and setting it,
• 1:04:51
  like the Paxilica is the build out in my mind, Jacob Helzberg's kind of baby at the Department
• 1:04:56
  of State, bringing in all these nation states into supply chains to build out this new economy.
• 1:05:01
  Yeah, that's okay. Describe Paxilica for people.
• 1:05:03
  okay so this is a program if you want to follow like definitely follow him on on x jacob helsberg
• 1:05:10
  uh because go straight to the signal right and he'll tweet new developments as they come in um
• 1:05:17
  but uh yeah jacob so helsberg um as i understand it he's worked he's our age he's he's a young guy
• 1:05:25
  so that means like if you're thinking about movers and shakers in this kind of geopolitical
• 1:05:30
  game if they like who are the new Bismarck's um this guy's got the runway like you know he's 39
• 1:05:36
  he should have a good 30 40 years like Bismarck was in this game I want to say till like he got
• 1:05:42
  fired uh by the new monarch uh once his old sponsor uh William uh passed away and power
• 1:05:52
  transition to uh his son Wilhelm II um who who did not do a good job like spoiler alert
• 1:06:00
  walked the uh Prussian state or the German uh you know Prussian state into its end uh in World
• 1:06:07
  War I but um Bismarck was in the game until he was like old like 70 80. I don't remember the
• 1:06:15
  exact age but um he didn't exit stage left like he he was in the seat for a good three four decade
• 1:06:21
  run. And so if you're looking for figures with similar type of impact, all right, well, this
• 1:06:27
  figure, Jacob Helzberg, follow him because he may end up being the silica Bismarck, as what I'm
• 1:06:35
  throwing out there for his nickname. We'll see if it sticks. But Helzberg's program, he came up with
• 1:06:42
  this, I guess you'd call it an economic block. I don't know the right terms for it. But basically
• 1:06:51
  it's an open adoption framework for nation states to join led by you led by the u.s right it's it's
• 1:07:03
  at the end of the day the central authority or you know who's at the helm protocol design here
• 1:07:10
  it's in washington dc and new york from the capital markets front what it is is basically it's uh
• 1:07:18
  It's a peaceful, hence the word PACS, arrangement or economic order for these sovereign entities to join into and contribute their resources into this new economic framework,
• 1:07:34
  which is ultimately, think about the silica part of the Paxilica, focused on building out the 21st century economic model around the adoption of this big AI elephant in the room that we're all kind of seeing play out and just grow exponentially almost in terms of capability, like before our very eyes, right?
• 1:08:01
  So if you think about all the core trends in equity markets that show up as these charts that just, you know.
• 1:08:10
  Hockey stick.
• 1:08:11
  Hockey stick.
• 1:08:12
  Yeah, exactly.
• 1:08:13
  Thank you.
• 1:08:14
  Over the last three, four years, especially, the semiconductors, NVIDIA, AMD, Intel now, all of those.
• 1:08:22
  The resources, the gold miners, GDX, silver miners, copper miners.
• 1:08:29
  Think about the defense contractors.
• 1:08:31
  like energy now, like it's all playing into these are all the components, the economic supply chains that are ultimately part of the.
• 1:08:46
  The the the the new model where nation states focus their economic activities, what they're going to produce is going to plug into this, this A.I. build out.
• 1:08:58
  So I think this is why you see states like Argentina, now Venezuela, like you could, Japan is in, like, it's very clear that they're, they're friendly to this.
• 1:09:09
  And so there's a list of, I want to say 20 states now, Norway just joined there.
• 1:09:14
  You know, obviously everybody should, should know.
• 1:09:16
  Well, besides having a massive sovereign wealth fund and a hard balance sheet that can finance and capitalize these projects or help with it.
• 1:09:26
  Norway is rich in energy resources, as well as they've got some metals resources, some refinements.
• 1:09:34
  And this is where all these critical metals come into play, right? Your nickel, like your
• 1:09:38
  gallium, all of these, you know, critical resource minerals that everybody is after because they are a
• 1:09:45
  limiting resource, like for this process. So Norway joins in. You've got logistics hubs like
• 1:09:51
  Singapore, like some of those key bottlenecks coming in.
• 1:09:57
  You've got financial centers, UAE.
• 1:10:00
  You've got oil and gas, like same thing with UAE.
• 1:10:03
  They're coming in.
• 1:10:04
  But if you look at the list here, you can see at the nation state level,
• 1:10:10
  these like a new order emerging.
• 1:10:15
  And this is the thing in my mind that is competing with the old kind of
• 1:10:20
  continental European model of like WTO globalization, where we just, hey, we can just
• 1:10:28
  set up manufacturing anywhere in the world based on cheapest resources, cheapest labor,
• 1:10:35
  cheapest capital, cheapest land, et cetera. We'll arbitrage that away. That whole model has
• 1:10:41
  squeezed all the blood out of the rock, right? There's nothing left there. So that thing's
• 1:10:45
  slowly disintegrating. And this is the new. So if you think about it like the trapeze artist,
• 1:10:52
  the U.S. now has a real framework to go and show people at these state visits to get, you know,
• 1:11:00
  public buy-in and adoption into kind of a growth model that is, you know, there's always,
• 1:11:08
  you know, as you know, Marty and TFDC, you know, there's always a rose-colored glasses way to
• 1:11:16
  spend things. And then there's the dark pill, right? Or red pill, blue pill, all of that.
• 1:11:21
  And you could say, yeah, this is just leading to a technocratic authoritarian state.
• 1:11:26
  Or it could be, well, these technologies will actually enable people,
• 1:11:30
  you know, fund new businesses the same way, you know, 100 years ago or whenever they showed up
• 1:11:38
  washing machines meant we didn't have to spend, you know, three out of five, you know, days every
• 1:11:44
  week, uh, washing laundry by hand, you know, stuff like that. So, you know, as always is the case,
• 1:11:50
  I try to be, um, an optimist, not a pessimist, but this is, uh, this is what, this is the product,
• 1:11:56
  uh, that, that, you know, us diplomats and, and, uh, you know, the government is now selling
• 1:12:01
  on behalf of its own kind of business representation, its business community, but also
• 1:12:06
  financial community as well with where things are headed, stable coins, all of that.
• 1:12:13
  And then ultimately, you know, our hope as Bitcoiners is
• 1:12:16
  eventually that everybody comes to recognize Bitcoin as the best solution for,
• 1:12:25
  you know, a censorship resistant open, but I should call it state-resistant, neutral settlement
• 1:12:34
  layer. Yeah, for a money, for a base layer of money. So I think the Bitcoin process and all of
• 1:12:40
  this is still somewhere in the future. We're still overly focused on the resource wars,
• 1:12:44
  the military conflict. So yeah, I think, I mean, I'm hopeful, but I wouldn't be surprised if
• 1:12:52
  that moment for Bitcoin is maybe a year or two in the future for its role in this process to show
• 1:13:00
  on the scene. It's part of an order of operations. You get everybody aligned,
• 1:13:04
  you do some big tectonic shifts, and then you have the big whammy
• 1:13:07
  at the end. And guess what's the point here? We're going to lean into it.
• 1:13:12
  But I mean, and this is a good dovetail into
• 1:13:16
  the second part of the discussion, which is Warsh versus Pal
• 1:13:19
  and the interests
• 1:13:24
  that they both represent. And you think there's got to be a reframe
• 1:13:27
  in terms of Powell and who he's actually fighting against.
• 1:13:32
  It's obviously been Trump versus Powell in the headlines
• 1:13:36
  since before Trump was even elected.
• 1:13:38
  And I think you just want to slightly reframe that to it's really like Warsh
• 1:13:41
  and the interest that he represents versus Powell
• 1:13:44
  in the interest that he represents.
• 1:13:46
  And to your point about Bitcoin, maybe coming later down the line,
• 1:13:50
  Warsh going through the nomination process right now,
• 1:13:53
  just got through the first leg of the Senate yesterday.
• 1:13:57
  He's been vocally supportive of Bitcoin.
• 1:14:02
  He sits on the board of Avon, disclaimer sponsor of the show, or he's on the advisory board.
• 1:14:08
  At least he was before he was nominated for Fed chair.
• 1:14:12
  I don't know what that's going to look like moving forward.
• 1:14:14
  But long story short, seems to be an ally to Bitcoin.
• 1:14:18
  At least he postures that way.
• 1:14:21
  So let me talk about, I think everybody senses this in the media, but let me show you the frame, which is what I love that you do at TFTC. You look at how, what narrative, you know, maybe a legacy media power structure is trying to push. Do you still have my audio? I think I'm quiet.
• 1:14:43
  All right. Scroll down here. You see this Bloomberg headline. This hit Sunday. So this is part of the media narrative, like a push, right? Powell, the Fed chair who fought back, blah, blah, blah. So you kind of get the way I read this, right? The media is using this latest development in the Jerome Powell saga as the world turns. He focuses him as the main character, right?
• 1:15:10
  What was like the last FOMC meeting? It would have been roughly two weeks ago now. Right.
• 1:15:21
  The big development wasn't anything about monetary policy. Right. Everything was just here.
• 1:15:25
  We're going to hold things here. If anything, the amount of dissent in the FOMC vote was the shocking thing.
• 1:15:35
  I want to say there was four dissents recorded, if I remember correctly.
• 1:15:39
  There was one from Stephen Moran.
• 1:15:41
  We'll talk about his seat in a second.
• 1:15:44
  And then the FOMC is actually made up of seven board of governors members and then five presidents of the regional Fed branches who come into the FOMC on like a rotating basis.
• 1:15:58
  You've got the New York regional Fed who the president always sits there.
• 1:16:01
  He's always on the FOMC just because of New York's central role as the center of capital gravity in the U.S. economy.
• 1:16:11
  But then the other four just rotate over time.
• 1:16:14
  So you had three of those other four.
• 1:16:16
  So you had Kashkari, Beth Hammock, one other might have been Jefferson at Atlanta.
• 1:16:25
  I got to remember this.
• 1:16:25
  But three out of the five regional bank presidents dissented, not with policy, like it was language.
• 1:16:36
  And they specifically said in the snippet, the reason was they didn't like the easing bias in the two or three paragraph note that was, you know, they felt was hidden in how the sentence was written.
• 1:16:55
  Right. And you've seen in the in the week aftermath, Neil Kashkari wrote this expose, this long blog post of exactly what he meant there.
• 1:17:04
  So what you're seeing is the regional banks themselves speaking up, the president's they're speaking up in disagreement with the direction of policy.
• 1:17:18
  And then and then so that would have been in on the left right framing of dovish versus hawkish.
• 1:17:23
  that would have been like tilting towards, you know, the hawkish point of view,
• 1:17:30
  which I'm going to argue here in a second.
• 1:17:32
  I don't think the dovish and hawkish even applies anymore.
• 1:17:34
  Like it's a completely different game board at this point with Warsh coming in
• 1:17:39
  and what the actual proxy battle going on implies.
• 1:17:44
  But you also saw Steven Moran then as he's done since, you know,
• 1:17:48
  his first meeting and it was like November, December.
• 1:17:51
  he's been voting for cuts the entire time. So there's four dissents, three of them in one way,
• 1:17:59
  one or the other. You've got a board in total disarray. It's like the largest number of dissents
• 1:18:07
  on a policy memo since I went, it was the early nineties is what we saw. All right. So then we saw
• 1:18:17
  Jerome Powell at the press conference, and this was the payload of the last Fed meeting.
• 1:18:22
  This was the real development. He comes out and says he intends to stay on as a board of governor
• 1:18:32
  on the seven-member governor's seats that make up the majority of the 12-vote FOMC.
• 1:18:44
  Right. And so, you know, we we've heard over the last like four or five months as it became clear.
• 1:18:52
  First, it was Trump is going to appoint, you know, Kevin Hassett.
• 1:18:57
  Right. It was framed as a total political lackey, all of that.
• 1:19:02
  You know, that in my mind, that was just your your pawn you put up.
• 1:19:07
  Uh, and, and, uh, he takes all of the media scrutiny for two, three months in the DC political
• 1:19:15
  sound bites where you were really going to install Warsh, uh, like he was going to be
• 1:19:20
  your pick the entire time.
• 1:19:22
  But in the meantime, for a few months, Kevin Hassan just absorbs all the enemy fire as
• 1:19:27
  the human shield.
• 1:19:28
  All right.
• 1:19:29
  Jerome Powell comes out at FOMC meeting, um, two weeks ago and says he is not going to
• 1:19:36
  to vacate his seat on the Board of Governors, which are 14-year terms.
• 1:19:43
  So if you think about all these roles in the Beltway blob in Washington, DC, the best job
• 1:19:51
  security by far, like lifetime permanent employment, I think you can get impeached constitutionally,
• 1:19:58
  but I'm not sure if it's ever actually been done.
• 1:20:01
  I should know this, but I don't, but it's lifetime job security for a Supreme Court justice.
• 1:20:09
  14 year terms though, for a board of governor, like that'll get you home, right?
• 1:20:14
  If you're looking for job security, like apex type of role, that's these things.
• 1:20:21
  Once you're appointed by the president and approved, like you're there for a long time,
• 1:20:27
  14 years, you're going to see three, maybe four credit cycles play out from bottom to
• 1:20:34
  bottom, all of that.
• 1:20:36
  So the chair role, I think that's actually a five-year term, double check.
• 1:20:46
  It might be four, but the president renominates the chair of the FOMC.
• 1:20:52
  um you know it's once every four or five years that comes up for appointment and renewal but
• 1:20:57
  it has to be one of those seven board of governors seats which the president appoints and then uh the
• 1:21:04
  senate confirms uh and then once they're in that's a 14-year term right and so they're staggered so
• 1:21:11
  the the the the 12c board they won't they won't roll off the seven the seven board of governors
• 1:21:19
  You only get one rolling off and replacing every two years, which explains why.
• 1:21:26
  And I'll go I'll go into it in a second. The proxy war for control of the Fed itself from like a boardroom battle standpoint that's underway.
• 1:21:36
  And the reason you can see it like you can see it in the big developments in the board of governors appointees.
• 1:21:44
  number one, when you say these aren't like they're central bank independents,
• 1:21:49
  you know, that whole rallying cry, we got to protect central bank independence,
• 1:21:54
  doesn't really hold water when the majority of the board, seven of 12 votes, are literally
• 1:22:00
  political appointees. If you go on the board of governors website, they'll list the party
• 1:22:05
  of the governor, Republican or Democrat, the president that appointed them, et cetera. So
• 1:22:11
  They're literally party affiliated.
• 1:22:15
  And we're going through a big shakeup in the political parties themselves and how they
• 1:22:20
  align in terms of their base and their power factions.
• 1:22:23
  But just leave that aside for a second, zoom out and true.
• 1:22:28
  These are political animals.
• 1:22:30
  And you can see it in the power struggle now that's going on for control of the Fed to
• 1:22:36
  push it, to steer it in a different direction.
• 1:22:39
  And I'll get into explaining that.
• 1:22:40
  But this is showing up in the public headlines with things like the Lisa Cook removal for mortgage issues or lying on mortgage documentation or misrepresenting on mortgage application, stuff like that.
• 1:22:57
  So the thing that the prize is the board seats, the seven board of governors.
• 1:23:04
  Obviously, the Fed chair, like Trump's going to get that through.
• 1:23:07
  But the makeup of the board, those seven that give majority and allow the board to take
• 1:23:12
  a certain policy direction, that's why you see like this context.
• 1:23:19
  relating to the point where we're likely going to get a Supreme Court decision where we're
• 1:23:25
  going to find out if, you know, what these justices say, if the president has the authority
• 1:23:32
  under, I don't know what act, like Federal Reserve Act of 1913 or whatever the FOMC instantiation,
• 1:23:40
  like I think it was 1935, the FDR law.
• 1:23:44
  You could even get like the Humphrey Hawkins legislation.
• 1:23:47
  And I don't know what they'll say, but they're going to give their the court's interpretation of whether Trump has the right to fire a Fed governor for cause.
• 1:24:00
  And so the key thing, these seats take a long time to transition from one power base and political faction towards another.
• 1:24:08
  But this is why this thing is so hotly contested.
• 1:24:11
  And then you see the media framing now. Now you look into Jerome Powell and what his legacy will be.
• 1:24:17
  to like think about the wave he was riding on, right?
• 1:24:22
  The post-1982 secular bond bull market,
• 1:24:26
  this offshore dollar, you know, I talked about briefly
• 1:24:29
  where you had this rapid expansion
• 1:24:33
  and dollar IOUs around the globe
• 1:24:35
  that were funding from a financial standpoint
• 1:24:40
  the economic growth of this post-war economic structure
• 1:24:47
  that's now, you know, going, it's transitioning into something else, I think is very clear.
• 1:24:53
  As I've highlighted with Paxilica, those Fed governors, like you can say, going back to
• 1:24:59
  Greenspan, but Greenspan, Bernanke, Yellen, the way I view them is they are part of the
• 1:25:06
  legacy technocratic institutional establishment. We call them, you know, broadly, like New
• 1:25:15
  Keynesians or technocrats. And you can see this, like it's, it's everywhere in Washington, DC,
• 1:25:22
  where everything is just, you know, shifted towards, you know, expert management. You can
• 1:25:27
  see it in public health policy. You can see it. Like if you look at any one of these little
• 1:25:33
  pillars of this modern bureaucratic federal government state, they're all like the leadership,
• 1:25:41
  you know, the management, you know, at the helm of these organizations, they steer towards
• 1:25:45
  that kind of technocratic kind of framework.
• 1:25:50
  And it's like a PhD standard is maybe what you call it for the FOMC board.
• 1:25:53
  It's not being run primarily by men or women who come from the financial industry.
• 1:26:02
  They come from capital markets experience.
• 1:26:05
  It's usually going to be, if you see the people who have been appointed into these roles,
• 1:26:09
  it's academics.
• 1:26:10
  They come from the academic establishment.
• 1:26:11
  Or Powell is a bit of a hybrid. He's a lawyer, so he knows law. He comes from Wall Street in the private equity realm. He ran industrials for Carlyle Group around the time of the dot-com bubble, a little bit before and after.
• 1:26:32
  So he does come from Wall Street experience. But in his alignment, I think he represents a transitional figure who continued this whole technocratic kind of framework and management of monetary policy and U.S. capital markets.
• 1:26:49
  And what that was essentially allowing was the U.S. to maybe play nice at the best interpretation of its interaction with the rest of the world in a capital market sense.
• 1:27:04
  And the worst, you would say they're subservient to foreign interests in the capital markets arena.
• 1:27:10
  And so, you know, if you think about, like, he said he wants to be remembered in his legacy as a, like, Paul Volcker figure.
• 1:27:21
  And what was Volcker kind of, what is, like, the claim to fame that he can hang his hat on, right?
• 1:27:28
  It's, I think, to me, Volcker represents a willingness and tolerance to stomach the pain and do what needs to be done.
• 1:27:39
  Like what did Volcker actually do? He, yeah, the inflation, the inflation from the seventies, right? What that actually did is debase the dollar IOU after we broke the silver peg, the, the, the, the U S private economy where you and I like would have transacted with the dollar up until 1967, the silver certificate act, like the treasury bills, like, I'm sorry, like not a T bill, like those little IOU debt things.
• 1:28:07
  I mean, like your thing that you tucked into your wallet, it was not a Fed bank note.
• 1:28:13
  It was a silver certificate issued by the Treasury, redeemable for X ounces of silver.
• 1:28:21
  And so you would see like a window where these large financial institutions would be managing the arbitrage of the dollar IOUs
• 1:28:29
  and enforcing a peg on monetary inflation just based on silver prices and the arbitrage available just based on market pricing for your base metals.
• 1:28:41
  So we broke the silver like linkage hard peg on the consumer dollar where, you know, individuals, households, businesses, et cetera, would interact with money.
• 1:28:53
  And then at the bank layer for large cross-border capital transactions on Bretton Woods, that was still on a gold peg, broke that in 1971. We ran up both the monetary inflation in terms of money supply. We created more IOUs after that, but then we had CPI price inflation.
• 1:29:15
  What Volcker did, in my mind, his legacy is the willingness of the strong man who is willing to stomach pain and do what needs to be done.
• 1:29:27
  But it was really what he did was he jacked rates up to 19, 20 percent.
• 1:29:32
  The debt to GDP problem had already been debased by the 17 years of escalating bull off top inflation.
• 1:29:42
  You can see it in the charts. It starts in the 60s, Vietnam War. CPI runs hot. It ends by 1980, 82. Hikes rates up to 16 to 20% at the terminal rate.
• 1:29:56
  That squeezed out all of the, I guess, the price pressure of inflations now that we had a free-floating managed currency, not pegged it.
• 1:30:10
  Any other, you know, base, at that point, commodity, all we had was mining.
• 1:30:16
  We didn't have hashing, right?
• 1:30:18
  Satoshi hadn't showed us the solution for a cryptographically enforced monetary ledger.
• 1:30:29
  So at that time, we removed the monetary constraint.
• 1:30:31
  We blow off all the dollar claims.
• 1:30:34
  Volcker, by squeezing out that last bit of inflation, actually set the stage for this
• 1:30:40
  massive euro dollar, this offshore credit bubble expansion.
• 1:30:45
  that really we're now having to deal with that after effect today.
• 1:30:52
  So if you think about Volker, in my mind, as this figure,
• 1:30:55
  what does he actually represent?
• 1:30:57
  He got the system to a new point of stability.
• 1:31:00
  Was it like the true heroic reputation?
• 1:31:04
  Was he actually the hero?
• 1:31:05
  I don't know.
• 1:31:06
  He was just the guy who did what needed to be done at that point.
• 1:31:10
  The saltated Triffin's dilemma.
• 1:31:11
  Yeah.
• 1:31:13
  Yeah.
• 1:31:13
  What the roads for it to effectuate essentially.
• 1:31:17
  He took the system he had, the things that were outside of his control, and he just allowed the thing to carry over into the next thing.
• 1:31:26
  And essentially what it amounted to was a can kicking down the road.
• 1:31:30
  All right.
• 1:31:31
  But now, if you think about all the Fed chairs who followed him, right, Greenspan, then Bernanke, then Yellen, and then a bit Jerome Powell.
• 1:31:41
  talk about Powell as a complicated figure.
• 1:31:44
  Those three, in my mind,
• 1:31:47
  really fit this technocratic establishment.
• 1:31:51
  Greenspan would probably disagree
• 1:31:53
  with his characterization as a new Keynesian,
• 1:31:56
  but at the end of the day,
• 1:31:57
  I don't care what you say about being a follower of Ayn Rand,
• 1:32:04
  all this stuff.
• 1:32:05
  At the end of the day, you are what your record shows
• 1:32:07
  in famous Denny Greenspeak.
• 1:32:11
  And what he did is essentially like he just monetized and accommodated this credit bubble, right?
• 1:32:16
  Just cut rates whenever you need to come in.
• 1:32:20
  It was during his watch that LTCM happened.
• 1:32:24
  He led the, he oversaw that stage of the first, you know, like first, what do you just call them?
• 1:32:36
  like echoes kindlings of this QE phenomenon of just, you know, let's monetize it with the Fed,
• 1:32:43
  with the Fed's balance sheet. And then that led to the next, you know, his replacement,
• 1:32:48
  you know, this figure who sat in the seat for 20 years. And if you go back and read Walter
• 1:32:53
  Badgett's Lombard Street, who is the Bank of England's, you know, most famous central banker
• 1:32:59
  who all of these monetarists look up to as like the hallmark, they'll be like, that's your Bible.
• 1:33:05
  Even the MNTers will, you know, foot to him at the end of the day with the with like the chartless definition of money, where it's the state that determines what money is.
• 1:33:19
  They all will look up to like at the end of the day, like the the academic or the institutionalist approach.
• 1:33:28
  And that's where you get into like the trends.
• 1:33:30
  Oh, I was going to say that I brought up Lombard Street because he talks about the people leading this institution.
• 1:33:35
  If you read about them, like he specifically has a chapter of what type of individual is you should seek out for this role, which at the end of the day, when your monetary structure is dependent on centralized authority, and that's the best technology we had, right, or allegedly prior to 2008, who you put in charge of this institution, both as chairman, but also board members.
• 1:34:02
  He goes through things you want to look for. So number one would be independent means of wealth. Right. They come from enough wealth where they don't have to necessarily work. They're not dependent on the paycheck associated with this job.
• 1:34:18
  Um, so you're, you're attracting someone more out of like civic duty, like Ben Franklin spirit,
• 1:34:25
  as opposed to like power hungry or status hungry. And they're just after the role because
• 1:34:31
  it's top of society and you do this, you do what the system wants. And once you leave,
• 1:34:38
  you're going to be hired by Citadel to do every CPI conference call or whatever,
• 1:34:41
  once a quarter with their client base, or you're going to be given a book deal for your memoirs,
• 1:34:46
  all of that stuff. Badgett specifically warns when he's looking for it's like, don't go after
• 1:34:52
  that class of individual. Don't go after, you know, like, where do they store their wealth?
• 1:34:58
  Is it in speculative assets? Would a market drawdown if they had to tighten monetary policy
• 1:35:04
  lead to their fiscal ruling and stuff like that? Are they a speculator? All of this stuff.
• 1:35:09
  His answer is like, it very clearly gives a guide of like what type of person to look for in these
• 1:35:16
  important roles. And the most direct, I would say, like challenge to the whole Greenspan legacy,
• 1:35:28
  besides like he laid the conditions for this massive dollar credit bubble at the end of the
• 1:35:33
  day, his reputation hasn't really publicly taken a hit yet, but we'll see what history or how history
• 1:35:40
  treats them in 2020 hindsight as we start to absorb the long-term ramifications of these
• 1:35:48
  new Keynesians' monetary policies, right? As society finally has to come do and pay the bill
• 1:35:55
  where the actual costs don't show up for several generations into the future.
• 1:36:01
  But I think that the social climber kind of labeling that people address, and even Ayn Rand said it herself about Greenspan.
• 1:36:15
  He said that will be his Achilles heel.
• 1:36:17
  That's the problem.
• 1:36:19
  But very similar.
• 1:36:20
  You could say about Bernanke.
• 1:36:21
  Why was he brought into this role specifically?
• 1:36:23
  They specifically targeted him for FedShare in this era, like between the dot-com bubble collapse in 2001 and 2008.
• 1:36:34
  I think the people in D.C. and then the academic establishment, they knew from a system standpoint that they were going to have to go through this credit bubble digesting itself.
• 1:36:46
  itself. And this is where Ben Bernanke's kind of research, he was the foremost academic expert,
• 1:36:52
  except from an acceptance standpoint, on what they thought was going to be like a depression
• 1:37:00
  scenario. So he was the great studier for the Great Depression, how we would deal with it.
• 1:37:06
  And, you know, the saying in military affairs, right, it's like, the generals always, or the
• 1:37:11
  Losing generals always fight the last war.
• 1:37:14
  I think that kind of applies here.
• 1:37:16
  We took all these steps here.
• 1:37:17
  We had Bernanke, Yellen.
• 1:37:19
  They were trained to prevent the U.S. monetary system, by all means, from falling into another Great Depression.
• 1:37:29
  And you can literally see it.
• 1:37:30
  Go read the transcript of the speech that Bernanke gave at Greenspan's.
• 1:37:37
  It was like his 85th, 80th birthday, something like that.
• 1:37:41
  it's still alive. And he says, he's just hailing Greenspan. He's like, because of your work,
• 1:37:45
  because of what you've laid out, we will, you know, we will not fail again. Sorry,
• 1:37:49
  it wasn't Greenspan. It was Milton Friedman I'm thinking of. He's like, because of your work,
• 1:37:53
  Milton Friedman, we will not fall for this trap the second time we're out. It's like, meanwhile,
• 1:37:58
  you didn't fight the same war twice. You just lost like the actual war that was in front of you.
• 1:38:07
  Right. And so in my read of this situation, I may be wrong. This is just my opinion.
• 1:38:14
  You saw that academic establishment, this institutionalist, academic management of monetary policy, the PhD standard, the New Cadesians, et cetera.
• 1:38:26
  We've seen as Bitcoiners, like I think we know what like we know the Achilles heel of centralized money printing.
• 1:38:33
  they can't tell you in airs problems, all of that. And ultimately, like you can't
• 1:38:39
  you can't get your domestic economy to ramp up real capital, like property planning equipment,
• 1:38:48
  human capital, like just just name it like actual productive capacity through
• 1:38:55
  monetary expansion alone. Right. QE is not going to solve that. Cutting rates is not going to solve
• 1:39:01
  that. And so I think just to bring this home, went way too long explaining that, but hopefully
• 1:39:07
  I got it across to the audience. This battle right now, the framing, Powell versus Trump,
• 1:39:15
  that's in my mind, your media, what do you call it? Like it's a distraction. It's shiny keys to
• 1:39:22
  your cat, right? Hey, over here, over here, or your dog, right? The actual thing going on,
• 1:39:26
  There is there is a contest going on for boardroom control of the Fed as an institution within within the domestic U.S. economy.
• 1:39:36
  This is in America. There's a war abroad. Right. But this one, I'm focused on the domestic impact.
• 1:39:43
  And at the end of the day, what it amounts to is who has management authority and board control over these key institutions that this legacy economy, what we've inherited, like for better or for worse, this is what we have.
• 1:40:02
  you're going from one class of people, which is this technocratic establishment,
• 1:40:08
  which doesn't actually reward, you know, based on merit at the end of the day.
• 1:40:16
  We're in the problem we're in today because of what we did in the past, right? If it was up to
• 1:40:21
  if this was a job interview and you're looking at the Fed itself maintains this 2% CPI inflation
• 1:40:31
  target. And if you look back at the charts since 2020, it's like they've overshot that by a massive
• 1:40:37
  amount. Like the Jackson Hole August 2020 meeting, Jerome Powell comes out with this policy
• 1:40:43
  advancement. He says, instead of doing a 2%, always on target. So we're going to try to hit 2%
• 1:40:48
  every time. We know we're going to miss, but 2% is what we're always going for. He said, no,
• 1:40:53
  it's 2% average over the long run. And then you look at what that 2% averaged out. If it's 10
• 1:40:59
  years, you have 20 points of inflation, right? It's like, well, sorry, Fed, you've already used
• 1:41:03
  up all of those 20 and beyond that. And in five years, it's like you need deflation just to
• 1:41:10
  cast the checks on that new policy that you were up there on the pedestal in Jackson Hole,
• 1:41:17
  not even five years ago, right? So what's actually happening in my mind,
• 1:41:24
  You're getting this big swing in history where the class of people who have kind of control over these key institutions of society, and you can see it, like you look anywhere and it's showing up, right?
• 1:41:41
  Executive branch, right?
• 1:41:43
  Who has the power of the presidency, right?
• 1:41:46
  We've seen this tug and war ever since, you know, 2016.
• 1:41:49
  you swing from Trump, who I think represents like a deeper, like you could say there's some populist movement behind it,
• 1:41:58
  which just means you have angry people who want something different at the end of the day is what that label means,
• 1:42:05
  despite all the negative connotations.
• 1:42:08
  But I view Trump as kind of, he wouldn't be here if he didn't have a power base,
• 1:42:15
  both in capital markets and political markets.
• 1:42:19
  And I think what I view as his power base, it actually, if you drill down, it's actually like legacy families, like the family, like old stock, we use the term noblesse oblige, but same way we talked about Bismarck as this Junker class, where they have the legacy claims on land.
• 1:42:40
  they were the old guard maintaining like man like tasked with managing you know society the state
• 1:42:47
  keeping the train on the rails keeping the train schedules running on time all of that
• 1:42:52
  i think this transition we saw or this this back and forth and we view it as dims versus maga right
• 1:42:59
  or something like that i think what's actually going on is this legacy institutionalist order
• 1:43:03
  which is like technocratic establishment like you can see it everywhere if you look for it
• 1:43:09
  Those people are being exited from control of this system and its management, like they're losing the captain's wheel, like they're just, you're out.
• 1:43:22
  And we're replacing that with what I view is kind of these noblesse oblige trying to reassert control, right?
• 1:43:31
  So what I mean by that, look at this Warsh-Powell debate.
• 1:43:35
  And instead of this framing of the narrative that the clearly like your outlets like Bloomberg are trying to shift the Overton windows, no, no, no, no, no, no.
• 1:43:44
  This is Powell versus Trump.
• 1:43:46
  It's, you know, you got to resist.
• 1:43:48
  Right. And you got to hail Powell for resisting an autocrat or a potential autocrat.
• 1:43:55
  OK, I view this.
• 1:43:56
  It's actually worse.
• 1:43:57
  The thing they don't want to give up is that control of the board.
• 1:44:00
  and Warsh is your actual signal And then you dive deep because you were getting in the question that you asked 30 minutes ago at this point Warsh look at his background You talked about him being on the board of some I don know if Aave you mentioned them as a sponsor but he probably going to be a bit
• 1:44:18
  Okay.
• 1:44:19
  Yeah.
• 1:44:20
  Pro Bitcoin, I would say.
• 1:44:23
  Kind of pro crypto as well.
• 1:44:25
  Right.
• 1:44:27
  But what I do, focus on Warsh's background.
• 1:44:30
  Number one, he was previously a Fed board of governor.
• 1:44:33
  So he comes from the Fed. He specifically left. It was about 2011 or 2012. He was appointed
• 1:44:40
  in George W. Bush's second administration, I believe, and notably extremely young. He was
• 1:44:48
  in his late 30s, early 40s. To get to that role that young was something notable back when it
• 1:44:59
  happened, right? But his background, first, he comes from actual capital markets experience.
• 1:45:04
  Like Powell, he was a lawyer, but he was in M&A at Morgan Stanley. And what that means to me is
• 1:45:13
  he didn't get his credentials, his ticket to get in the door here to the Fed. He didn't earn his
• 1:45:20
  stripes writing a white paper sitting on campus and just modeling out like a DSGE equation.
• 1:45:29
  of how the economy works, how GDP works, how supply shocks work, all of that, just based on
• 1:45:34
  some equations that may or may not do a good job of actually explaining reality, right? The map is
• 1:45:41
  not the territory type of thing, right? He comes through a background of actually deal-making on
• 1:45:46
  Wall Street. So he's seen what it's like to actually raise capital, put it to work and risk
• 1:45:51
  projects, and then structure agreements between investors and, say, borrowers are the ultimate,
• 1:45:57
  like the entrepreneurs who are going to use that capital to hopefully deliver something productive
• 1:46:04
  with their intent. But he comes from that background. So he actually has an appreciation
• 1:46:09
  for what capital is versus I'd argue. So I was a PhD dropout at one point. I won't go into this,
• 1:46:17
  but you realize very quickly as a PhD in finance and economics,
• 1:46:23
  there's not a heavy focus on what money actually is. Like you just kind of take money as not
• 1:46:31
  important. It's, you know, it just, it's the water we swim in. Don't worry about that.
• 1:46:36
  And kind of my entire life since, you know, leaving and focusing on
• 1:46:41
  actual building, actual businesses, running my own business, but portfolio management and,
• 1:46:48
  you know, fixed income markets, stuff like that. I've just kind of come to appreciate that
• 1:46:54
  difference. The more I've zoomed out and there's a total night and day, we all know this between
• 1:46:58
  industry and, you know, academia, right? So that's one route where Powell or sorry,
• 1:47:06
  Warsh differs from this legacy establishment and then a second dimension. So Jerome Powell's
• 1:47:13
  background, he's definitely a man of wealth. You can look up his net worth. It's, I don't know,
• 1:47:17
  anywhere from $10 million to $100 million type of ballpark seems accurate. No one really knows for
• 1:47:23
  sure. I think he's had to file some reporting. But he's definitely what everybody would consider
• 1:47:29
  a man of means. But there is a difference in wealth if you've inherited it and built up your
• 1:47:40
  family's wealth, and then you're able to pass it on multiple generations. And in my reading of the
• 1:47:47
  situation, that's kind of what Kevin Warsh represents, right? So it's been highlighted in the
• 1:47:53
  Senate confirmation process. Like they've made a big deal. This man married into the estate
• 1:47:59
  Lauder fortune core. Like it's very obvious, like he's from a very significant means as a family.
• 1:48:08
  And this is where you see things like like AOC will come out and attack that as a bad thing.
• 1:48:13
  There's a different version of this, like the way to framework frame this.
• 1:48:17
  Think about like Bismarck, the Euker elite, their view of society.
• 1:48:21
  Like, I'm not going to sugarcoat it like they they clearly viewed themselves as like belonging to different strata of society.
• 1:48:32
  There's clearly an upper class and lower class or pseudo peasantry relationship.
• 1:48:36
  But there was some accepted responsibility that they would oversee and they're responsible for the management and well-being of the society or the ethnic group itself, the economy, all of that.
• 1:48:53
  And that's why that stewardship, I think, would be the right word for it.
• 1:48:56
  And I'm not saying these legacy technocrats from like the new Keynesian establishment don't approach things with stewardship.
• 1:49:08
  But if you go back and foot to the, you know, the Walter Badgett, you know, all of that, we're talking about aligning incentives here.
• 1:49:18
  One, you're you're you get a different type of person if you're just chasing status for the sake of chasing status.
• 1:49:24
  That leads to certain outcomes. It leads to certain decisions going along with, say, a bank bailout in 2008 or letting the whole thing develop and society go along that path in the first place.
• 1:49:37
  Or if your wealth is tied up in the land and maintaining your ownership claim on the land, it also means you're responsible for the end of the day, the businesses on that land.
• 1:49:48
  And so this book, Golden Iron, goes through Bismarck's book of business.
• 1:49:52
  And he had, you know, companies, people from his little, what do you just call it, territory or whatever, his estates, who were running businesses, timber production, miners, coal mining, manufacturing.
• 1:50:09
  And he knew, like these people knew, that they're only as strong as the community built from the bottom up in their businesses.
• 1:50:21
  So he'd say, like, well, if my timber producer is being outcompeted by foreign imports, that's destructive to all of society.
• 1:50:30
  And you pick up on things that you wouldn't see or you turn a blind eye to if you're just managing to a GDP chart or a GDP model.
• 1:50:40
  So it is a total different viewpoint in how you manage monetary policy from the ground up.
• 1:50:49
  And it also trickles over into how markets actually work, right?
• 1:50:54
  Old school efficient markets hypothesis, Markowitz theory, modern portfolio theory, all of that too.
• 1:50:59
  So which understands risk as standard deviation of asset returns versus, say, Kevin Walsh approach or the people he most directly connects to?
• 1:51:12
  I think who does he which kind of peer group does he which which tables would he sit with if Wall Street was a lunchroom?
• 1:51:19
  Well, he's Stan Druckenmiller, right?
• 1:51:21
  Like the big macro guys who understand markets from a standpoint of, you know, risk isn't standard deviation necessarily.
• 1:51:29
  It's, you know, the permanent impairment to capital, loss of purchasing power, that type of thing.
• 1:51:35
  So there's a big handoff.
• 1:51:38
  And when there's a handoff going on, there's a major transition.
• 1:51:43
  The direction of travel is the shift toward this class of people that I've called Kevin Warshout as their kind of proxy state.
• 1:51:51
  he would be their central banking champion that they've sent into the game to serve on this board
• 1:51:59
  on their behalf. Jerome Powell is, you could think about him as maybe a transitionary figure from
• 1:52:07
  one cartel of boardroom figure to the next. But he looks like a transitionary figure.
• 1:52:17
  But at the bare minimum, when I look at events, he's going along with the framing or like with the legacy institutionalist push and how they want to frame this narrative in terms of it's Trump versus Powell.
• 1:52:33
  This is all about standing up to orange man, dictator, no kings, that type of thing.
• 1:52:40
  So it definitely complicates Jerome Powell's legacy.
• 1:52:44
  We'll see how this plays out.
• 1:52:45
  But the way I see it, like once you see the power, like the transition and same thing as a stock chart, once you see the momentum building up, you see those waves, you know, higher highs, higher lows, that type of thing.
• 1:52:58
  This camp that Worst represents is making advances.
• 1:53:02
  It's going to be very difficult to stop that underlying wave.
• 1:53:07
  And the way this is going to work, it just muddies up the process.
• 1:53:09
  We're going to be dealing with more chaos at the Fed.
• 1:53:12
  And chaos is the latter, as Littlefinger said.
• 1:53:16
  So it allows, you know, certain like these factions to kind of conduct this war they're having with each other.
• 1:53:24
  But the way it's going to work. So Stephen Moran is sitting on a board of governors seat that actually expired at the end of January 2026 by FOMC policy.
• 1:53:35
  he's allowed to still sit and vote in that seat until someone else is nominated to take that chair.
• 1:53:44
  So there's one seat open right now since Jerome Powell didn't open up and exit stage left and walk into retirement.
• 1:53:53
  He chose to continue the fight.
• 1:53:55
  So it's going to happen. Warsh will be nominated into the seat that Stephen Moran is keeping warm.
• 1:54:03
  and that'll get washed onto the 107 board of governor seats.
• 1:54:10
  And then, assuming there's no hiccups in the Senate confirmation process,
• 1:54:15
  who knows at this point, right?
• 1:54:17
  Anybody and everybody could throw their stick into the bicycle wheel.
• 1:54:21
  But once he passes that, he would become the new Fed chair.
• 1:54:25
  And yeah, this big process, it's not done.
• 1:54:28
  there's still major uh changes coming i think to the to the fed and that onshore dollar
• 1:54:33
  represents that i first introduced what 90 minutes ago well what can we expect when he gets into
• 1:54:41
  the position of chair uh so i mean first start you're looking at a sovereign debt market that
• 1:54:48
  looks like it wants to uh challenge you know the charts the charts the charts are pretty astonishing
• 1:54:55
  Logan, do you want to pull, if you can find the 10-year guilt, I think that's the key one.
• 1:55:00
  Because we talk about, hey, the U.S. debt chart, like 10-year, you know, hey, even the 30-year
• 1:55:05
  looks like it may be running up on, you know, resistance levels on yields.
• 1:55:13
  But if you pull up the other sovereign debt, right, we talked about, or I've talked about
• 1:55:18
  before, like this concept of, think about the allied powers in World War II, the U.S.
• 1:55:25
  kind of being the central power structure, but it was a partnership with, say, UK, France,
• 1:55:32
  West Germany, like Western Europe itself. Japan was in there. The other partners in that alignment,
• 1:55:41
  their sovereign debt markets here, you're showing the guilt 30-year here, right?
• 1:55:48
  Someone's doing some construction also. Bullish for the economy, by the way, like American
• 1:55:53
  economy. It just looks red hot. So I'm glad to hear some construction going on.
• 1:56:00
  Yeah, 30-year gilt. This says 5.107, like the data here. If I pulled it up on Bloomberg,
• 1:56:07
  it's probably even north of that. But this looks like 30-year gilt. So you can even look at
• 1:56:13
  German boon yields, French oats. They want to break out. And you've heard statements from the
• 1:56:21
  you know, the wall street banking elite, Jamie. Oh, there we go. That's the one 5.795 on,
• 1:56:28
  on the 30 year kill. So we talk about, yeah. And if you go to all, it's like,
• 1:56:32
  this goes back to like 1998. Uh, yeah. Like these are the highest yields we've seen since, uh,
• 1:56:41
  9798. That was the British handover of, uh, Hong Kong back to, back to, uh, uh, mainland China
• 1:56:49
  at ccp right so so we're looking like we've we've filled in on the chart all of that ground
• 1:56:55
  we talk about the secular uh bull market and bond yields low lower uh obviously being bullish and
• 1:57:02
  bond yields um we've rolled back kind of 30 years and uh yeah you can just see the pressure showing
• 1:57:09
  up on on uh the sovereign states funding themselves which foots back to what i talked about
• 1:57:15
  in the bismarck analogy right once it goes military your only objective is
• 1:57:23
  from a financial standpoint maintaining your access to capital to continue running your war
• 1:57:30
  and that's kind of the state of play we see things in ukraine we see things with the us and iran um
• 1:57:36
  so i think yeah if you're looking at powell's first i don't know three months six months first
• 1:57:41
  hundred days type of thing um it looks like the financial it looks to me like the the financial
• 1:57:47
  markets the sovereign debt markets want to uh challenge him right out of the gate assuming he
• 1:57:53
  is approved into that uh cherry i see the french yields etc yeah this is so in the old school
• 1:58:01
  um in the secular bond market bond bull market 1982 to 2020 just roughly dating it you'd be looking
• 1:58:07
  for lower lows and lower highs on the chart. So if you zoomed out for 25 years, you would see the
• 1:58:17
  kind of secular decline in sovereign debt yields. Now you got to pay. But now if you're zooming out
• 1:58:26
  on the chart, it starts to look like yields now, the bias is they want to go higher as these
• 1:58:34
  governments, the monetary systems, the kind of the market structures that they would tap into
• 1:58:41
  to finance themselves, those old kind of liquidity pools are saturated. There's too much debt,
• 1:58:53
  not enough GDP, there's no more capacity. So to keep funding the state in this era where
• 1:59:02
  we've thrown off the gloves, you know, giving each other that polite slap, you know, the
• 1:59:08
  old chauvinism. I remember the Chappelle show. Is that before your time? You take it to the
• 1:59:14
  mats. It's like, it's time to duel in the old school approach. I think that's kind of where
• 1:59:21
  we are now. If you don't have new sources of capital to continue funding yourself as a state,
• 1:59:28
  you've got a problem, right? So from the U.S. standpoint, all right, number one,
• 1:59:33
  it starts with mark up your existing assets. So I'm not going to be a Fort Knox denier,
• 1:59:40
  just assuming the gold is in, it's in the military custody is where it's supposed to be.
• 1:59:43
  The treasury's gold is in Fort Knox and West Point and then another military facility in Colorado.
• 1:59:49
  You assume it's there, right? If not, we're definitely up Schitt's Creek. Sorry,
• 1:59:57
  Pardon my language. And then you look at the other assets on the Fed's balance or on the U.S. Treasury's balance sheet.
• 2:00:05
  You've got things like the Fannie Mae, Freddie Mac that the Treasury holds in conservatorship.
• 2:00:10
  You're looking at its purchases of equity stakes and Intel critical materials producers that we talked about earlier.
• 2:00:18
  Those are new sources of funding that the U.S. Treasury can monetize and tap to perpetuate its activity. As long as your soldiers' checks are cashing, they'll continue fighting. As soon as their checks bounce, they're not going to take up arms for you and go to the front lines and risk their lives and well-being when you can't pay them.
• 2:00:40
  So I think that's the key thing we're going to see the challenge on. And then we're going to see that collision here. EU's got their means and objectives. We talked about digital euro, what they see as their game plan. It's pretty clear at this point. They've telegraphed it hard. And in the last week, I think since we've rerecorded this episode, we saw some key developments.
• 2:01:04
  you know how we
• 2:01:06
  you can see Donald Trump from time to time
• 2:01:09
  he'll go on to
• 2:01:11
  like an expansionist
• 2:01:13
  talking point circuit
• 2:01:15
  in the media like we need Greenland
• 2:01:17
  we need Venezuela we need Cuba
• 2:01:19
  stuff like that
• 2:01:21
  EU quietly
• 2:01:23
  like under the radar did a lot of
• 2:01:25
  that just in the last week alone
• 2:01:27
  so three fronts
• 2:01:28
  number one you start off with this massive EU
• 2:01:31
  Armenia summit
• 2:01:32
  um which they didn't come out right and say it but you saw their president say yeah we want EU
• 2:01:40
  membership and if you zoom out and look at uh Armenia on the map it's um it's on the northern
• 2:01:46
  border of Iran um it doesn't look like Europe uh by any means so you see that push like they're
• 2:01:55
  trying to talk about this in terms of like the build out of the new silk roads land-based trade
• 2:02:01
  that are going to return to prominence as the U.S. pulls back the policing of the high seas and say
• 2:02:10
  the Indian Ocean, Persian Gulf, et cetera, and focuses on more so on Pacific Ocean for
• 2:02:17
  trade from its West Coast to, let's say, the growth markets in Southeast Asia,
• 2:02:24
  but also the Caribbean. Yeah, there's Armenia. So it's on the eastern border of Turkey.
• 2:02:31
  And so they push. Yeah, exactly. There's some big things going on here. It definitely plugs into the power, the balance of power in the region between Iran, Russia, Turkey, and then the EU, which Turkey kind of directionally aligns with.
• 2:02:50
  that's notably been wanting EU membership.
• 2:02:54
  It's been in process for like 20 years at this point.
• 2:02:58
  But you saw kind of an expansionist push from the EU in Armenia.
• 2:03:01
  You saw it showing up in Canada, like right after that EU-Armenia summit,
• 2:03:06
  which notably that summit in Armenia, Mark Carney attended,
• 2:03:12
  notably not an EU leader or a leader of an EU state.
• 2:03:18
  And then you saw NATO Secretary Mark Ruta there as well for the kind of the security guarantees element.
• 2:03:24
  So you saw the push from, you know, everybody aligned with that European regional sphere of influence.
• 2:03:31
  You saw another meeting in Canada at the end of last week between Mark Carney, Obama was there.
• 2:03:41
  Just, you know, same thing, same class of people on the globalists, right, at Davos.
• 2:03:48
  uh 2026 who were notably flustered with what they saw um but then you saw coming out of that like
• 2:03:55
  same same things leaking in the press like carney didn't come out directly and say that we want i
• 2:04:01
  mean maybe we should have canada in the eu uh but it was hinted at and then other people you know
• 2:04:07
  floated that idea and then in the social media sphere you can go in you know if you haven't done
• 2:04:12
  this yet tfdc you can tag the the eu uh kind of uh accounts where they're definitely promoting
• 2:04:21
  uh these these ideas of say canada integration into eu armenia integration into eu and then you
• 2:04:28
  saw the same thing uh with the uk on um sunday uh you can go through times of london a notable
• 2:04:37
  newspaper for the Bitcoin Genesis block, Chancellor's on second bailout of the bank, Chancellor's
• 2:04:43
  on brink of second bailout of banks.
• 2:04:45
  Yeah, there it is.
• 2:04:47
  For Bloomberg.
• 2:04:48
  So you kind of see the media agenda showing up here as well, like which power factions
• 2:04:53
  they align with or you know this is a proxy fight It interesting because you have the Albertan secession talks Yeah exactly So there a trap laid there
• 2:05:05
  Go in the first 100 days of the Fed.
• 2:05:06
  But let me finish up thoughts on the UK.
• 2:05:08
  So you saw in the Times of London an op-ed.
• 2:05:10
  So you noticed how Keir Starmer is on the hot seat now.
• 2:05:15
  There was an op-ed, if you can find this search.
• 2:05:19
  I don't know, Logan, if you can pull it up.
• 2:05:21
  saying or like arguing that to keep labor and power in UK, they needed to start pushing a rejoin EU agenda.
• 2:05:31
  So you started saying this. All right. So pack silico. Right. What is it? It's a competition for resources. Right.
• 2:05:37
  And it's the it's the U.S. version of an open network to, you know, integrate with the supply chains.
• 2:05:45
  manufactured, there it is, and plug into this 21st century American-led order.
• 2:05:54
  Well, the pushback to that started last week, in my mind, as I would interpret it, with
• 2:05:59
  these floating of, hey, we want to push our sphere into Armenia, which is like middle
• 2:06:06
  of the giant Asian landmass.
• 2:06:09
  I don't think many people would call it continental EU.
• 2:06:12
  um you just zoom out if you just look at a globe right uh uk back to rejoining they've always had
• 2:06:20
  that love-hate relationship with the continent and then canada which is definitely not you know
• 2:06:26
  continental europe so yeah marty you mentioned that alberta um all push that the way i see it
• 2:06:33
  these are the natural ebbs and flows it's the resistance it's not like with the american like
• 2:06:39
  star-spangled banner flavor of like you know that type of uh uh resistance to the uk or european
• 2:06:49
  uh you know integration it's their own you know flavor of uh patriots like i was in alberta
• 2:06:56
  at the cornerstone conference in like february march where they're talking about this thing
• 2:07:01
  and uh it's very like they're definitely like i grew up in the midwest uh calgary felt to me
• 2:07:07
  Like it looked like a Great Plains state economy.
• 2:07:11
  So they have oil resources, right?
• 2:07:13
  That where I grew up in Iowa and Missouri didn't really have minerals with the Rocky Mountains right on their border.
• 2:07:20
  But the culture felt very Midwest to me.
• 2:07:24
  But it's their own thing.
• 2:07:26
  Right.
• 2:07:26
  So that's like within Canada itself.
• 2:07:28
  They're going to have to deal with that pushback of the direction Mark Carney is.
• 2:07:33
  He was put in place to do this exact thing.
• 2:07:36
  So, yeah, I think that it's like October 19th is the referendum.
• 2:07:40
  We'll see what happens there, but they're serious about it.
• 2:07:45
  It was very clear to me when I was on the ground.
• 2:07:48
  Yeah, it seems so.
• 2:07:50
  It's so crazy.
• 2:07:52
  I mean, it felt like people actually standing up for their own,
• 2:07:57
  not just political sovereignty, but it comes down to economics.
• 2:08:00
  Like in the Canadian structure.
• 2:08:03
  They should be able to do what they want with the oil.
• 2:08:04
  I shouldn't be subsidizing the rest of Canada.
• 2:08:08
  I agree.
• 2:08:09
  And yeah, the economic extraction that is waged upon them, right?
• 2:08:15
  Like they have no say in it.
• 2:08:16
  And the structure of the financial system where their own economic output, like the base of their resource commodities, that's a lot of what this, like that's just where the system is, right?
• 2:08:29
  We've outgrown the system constraints as we've laid them out, the boundaries, the legal structures, all of that, that we sacrifice millions, hundreds of millions of lives to fight.
• 2:08:43
  And it wasn't just in World War I and World War II.
• 2:08:45
  The whole political upheaval in the first half of the 20th century, it's in China.
• 2:08:51
  Yeah, it's, you know, just we don't think about like Mao's.
• 2:08:56
  You know, civil war and how many extra tens, hundreds of millions were added on to the deaths that we think we think about in the West.
• 2:09:09
  We think about World War One, World War Two from like the European casualties.
• 2:09:13
  But it was global in scope.
• 2:09:15
  And my worry is if we keep pushing this thing towards war, who knows?
• 2:09:23
  Like it could result in some really heavy losses in terms of human lives, which at the end of the day, those are the most valuable things, right?
• 2:09:35
  I would hope the audience agrees.
• 2:09:39
  I think we believe that.
• 2:09:40
  Does everybody else you've been describing believe that is another question?
• 2:09:44
  yeah I don't know
• 2:09:46
  there are Malthusians out there
• 2:09:49
  I think we're a plague on this planet
• 2:09:51
  it's a
• 2:09:54
  very sick world view
• 2:09:55
  yeah
• 2:09:57
  so do you want to touch
• 2:09:59
  digital credit stuff or
• 2:10:01
  yeah let's do it
• 2:10:02
  let's do it really quick
• 2:10:03
  yeah so
• 2:10:04
  alright just zooming out
• 2:10:08
  we haven't talked too much about Bitcoin here
• 2:10:10
  and from my sense is
• 2:10:12
  like the market is showing
• 2:10:14
  like if you think about this as we're out in the ocean right anyways marty i know you surf right
• 2:10:19
  what do you do it's all it's a patience exercise right you got to wait until your wave shows up
• 2:10:23
  and uh the bear markets are hard because you do have to like it is a patience exercise and
• 2:10:30
  it's a get to work exercise and no nobody likes nobody likes to to write out an asset or like you
• 2:10:38
  when nominally in fiat terms, you're just being whittled down.
• 2:10:43
  So I think, yeah, the bear market that Bitcoin has been in at least since October,
• 2:10:49
  the Treasury Co's, you would say at least, if you actually look at it,
• 2:10:53
  the all-time high on strategy was November 2024.
• 2:10:58
  Their interpretation that the Trump second election was extremely bullish.
• 2:11:02
  They pushed it into a blow off top.
• 2:11:03
  And so you could say that that bear market, it's over a year.
• 2:11:09
  Like we're at almost a year and a half for the undisputed king of Bitcoin treasury codes, right?
• 2:11:18
  Okay, so what am I getting at here?
• 2:11:21
  All right, bear markets have a way of ending.
• 2:11:26
  Like you can bottom out and it'll be very clear if it's a notable bottom.
• 2:11:32
  It'll come at a point of full capitulation.
• 2:11:35
  So we're riding a little liquidity bump here, but talked about the Bitcoin NASDAQ decoupling
• 2:11:42
  that we've all been like hoping for eagerly on the Bitcoin Twitter community.
• 2:11:50
  We're not talking about it now, because if you look at like the Mag7s, like the semiconductors,
• 2:11:56
  the microns of the world, they're going vertical as the AI resources, everything going into
• 2:12:01
  that economy. Like those are the binding constraint at this point, the rally from where was the low
• 2:12:08
  we hit on Feb 5th? It was like 64 K, right? Something like that. We talked like 59. Yeah.
• 2:12:15
  We were down there for a little bit. Um, to bounce back to 85, it feels, feels good from
• 2:12:22
  bottom to top and everybody's bullish in the meantime. Um, but I think that underperformance
• 2:12:28
  versus those AI semis, all of that.
• 2:12:33
  That's a tell in my book that we're not the marginal dollar deployed
• 2:12:40
  is going into Micron or SanDisk or Samsung, not Bitcoin at this point.
• 2:12:47
  So that's a key sign.
• 2:12:49
  Now, I think what we're looking at here, like rates may want to go lower here,
• 2:12:53
  but on the zoom out view, we looked at all those bond yields.
• 2:12:57
  The long end of the yield curve wants to rise. It is very clearly a pressing problem for 10-year debt, 30-year debt. Yields want to go up. We're looking at this inflationary impulse in the CPI again today, a print that beat expectations for the April report that bond markets are factoring in.
• 2:13:20
  But so think about that. The long end wants to go up. Short term interest rates like SOFR, maybe we'll get a couple of more cuts. But eventually, I think the big picture trend isn't that bull market we had from 1982 to 2020, where it's like lower lows. Every time we hit a recession, it's cut rates.
• 2:13:42
  We started 16 to 20 with Volcker. You get to Greenspan. By the dot-com bubble, he took them down to 1%. And then you get into the Bernanke era, Yellen, Powell, they're cutting rates to zero.
• 2:13:57
  I don't think in this era, like the policymakers know at this point that if they want to do the same thing that they did in 1982 to 2020, they call it the great moderation is the central banking economist term they use for it.
• 2:14:15
  If we repeat the 2020 playbook and we cut rates to zero and QE another $6 trillion, it's going to show up in the supply chains, right?
• 2:14:27
  Because we know we have to totally rebuild the supply-demand relationships towards right now the best guiding light I think that we have to understand this is the PAC Silica framework.
• 2:14:41
  So we're in process of doing that. But if we just come out with some massive Bernanke-style, you know, March 2020-style policy approach, we're going to get like what we got in 2021, 2022.
• 2:14:59
  But it would, in my mind, probably be worse. So everybody is broadly aware of that.
• 2:15:05
  So I think what we're looking at here, I go into that.
• 2:15:07
  Long-term rates are rising.
• 2:15:10
  SOFR, we may be trending down, but I think as we look three years out, four years out,
• 2:15:15
  five years out, my kind of base case is we're looking at higher highs and higher lows.
• 2:15:20
  So right now SOFR pricing like right about three and a half.
• 2:15:24
  Let's say two years from now, SOFR is tacked on another 100 bps, 200 bps, 300 bps, whatever.
• 2:15:29
  All right.
• 2:15:30
  So that's your borrowing rate for treasury collateral.
• 2:15:34
  in this new software market that's replaced LIBOR since 2022.
• 2:15:40
  All right.
• 2:15:40
  The next thing, look at credit spreads for corporate borrowers.
• 2:15:44
  If you look at both high yield and investment grade, zoom out.
• 2:15:48
  You're not going to be able to find this chart, Morgan, or sorry, Logan, on Yahoo Finance or CNBC most likely.
• 2:15:55
  But if you look at those, you see credit spreads, the amount of yield between the treasury rate or, you know,
• 2:16:01
  risk-free in this old system context. I use that in air quotes for the people
• 2:16:06
  listening on audio. Because it's definitely not purchasing power debasement risk-free,
• 2:16:14
  and we all know that. But that credit spread is that extra yield that a corporate borrower has to
• 2:16:20
  pick up because they don't have a guarantee that the financial system, the banking system,
• 2:16:26
  will come in and just monetize, just print the debt, print the money to keep that issuer
• 2:16:32
  solvent, right? So your corporate bonds can default. So you have to have some extra spread.
• 2:16:40
  Now, you look back on the chart, going back to the 1990s where these Bloomberg time series start,
• 2:16:47
  the, you got SOFR up here, credit spreads have, they're at like their 99th percentile right now
• 2:16:55
  for tightness, like the amount of extra yield pickup between a U.S. Treasury bond and a risky
• 2:17:02
  corporate buyer has basically been squeezed down to its all-time lows, right? So for those
• 2:17:10
  corporate spreads to continue to contract from here, history says markets are going to have a
• 2:17:18
  hard time pushing that much further than we've already gotten. So if you look at by individual
• 2:17:27
  sectors, the most, like the widest spreads, and this is what the bond market would, like the
• 2:17:34
  spreads is your measure of the borrower's creditworthiness or their risk of default as a
• 2:17:40
  You have to charge them more yield to get you the return on your capital that the market demands.
• 2:17:53
  The riskiest borrowers start with investment grade, which means your rating agencies give you a triple B minus or better.
• 2:18:01
  The widest spread issuers are going to be in your financial sector, not necessarily your big banks like JP Morgan, Citi, Bankroom Exit.
• 2:18:11
  Those guys will have like A minus A's for the most part, unless it's like a subordinate.
• 2:18:16
  Yeah.
• 2:18:17
  Here's the high yield.
• 2:18:18
  Okay.
• 2:18:19
  So if you subtract out treasuries, you can kind of see this, but this is the nominal yield.
• 2:18:23
  the the highest spread bonds in your corporate borrowers universe are going to be your financials
• 2:18:33
  at the frontier of risk so what do i mean by that investment grade you would think of something like
• 2:18:38
  ally financial like lending out to the like a middle or lower class like a type of uh middle
• 2:18:47
  or lower range of credit scores, those will be the bonds with the fattest spreads, like the most
• 2:18:54
  incremental basis points above Treasury, right? Now, Logan has the chart up for high yield.
• 2:19:02
  Notice, okay, if you can do a delta here, that'll be roughly the difference between short-term
• 2:19:07
  rates and high yield. But what you see is when spreads start to rise, and it's just a market,
• 2:19:14
  It's a market phenomenon. When they start to rise, they can go on a pretty big run.
• 2:19:22
  So if you were able to back out the differences here, and it's not quite a pure just straight subtraction because there's some optionality in here.
• 2:19:31
  The option adjusted spread is what you would look at in the Bloomberg charts.
• 2:19:36
  But when you see those spreads start to blow out, right, for the riskiest financial borrowers, they will go, right?
• 2:19:45
  They can increase 500 bps to 1,700 bps is what you see on the back test.
• 2:19:51
  The worst case, the 1,700 bps would be that big rhino horn on the chart you see for 2008.
• 2:19:57
  What's actually happening there is a pullback in liquidity.
• 2:20:03
  There's not enough dollar capacity in the broker-dealer market-making context or complex to put a bid under these credits.
• 2:20:18
  So when someone goes to sell, the bid drops off, and when transactions have to take place, and usually it's going to be a forced seller, they'll be at low bond prices or equivalently high yields.
• 2:20:32
  Right. And so when that liquidity drop off occurs, like you can see it, it's accelerating, it's building up, it's building up steam.
• 2:20:39
  Once it's like the snowball rolling down the hill, once it goes, it's going to go until bond prices readjust to find their new equilibrium.
• 2:20:49
  And then the time to buy, if you think about it, is like the top of that rhino horn where you're providing liquidity.
• 2:20:56
  This is like Badgett's famous quote about central banking.
• 2:21:01
  Be the lender of last resort.
• 2:21:03
  Lend against good collateral at a high penalty rate.
• 2:21:07
  What you're doing there is you're stepping in, you're buying low, and then providing secondary market liquidity into the credit space.
• 2:21:16
  And then you buy yields down.
• 2:21:18
  So I want to call out this chart here, the high yield index.
• 2:21:23
  If you think about when you lend your capital to a credit risky borrower, right?
• 2:21:30
  Typically, the more risky the borrower you're looking at, the shorter term you want to put on your bonds maturity.
• 2:21:42
  Why is that?
• 2:21:43
  because you don't necessarily trust management, that they'll have the cash to post back to you,
• 2:21:52
  like return your principal, like the whole goal of capital preservation, right?
• 2:21:59
  If they're going out lending into risky credit, say, tricolor auto lending, right? Things like
• 2:22:06
  that. Like we're lending used cars, used car loans to borrowers who may or may not be documented,
• 2:22:18
  you know, W-2 workers. They may not have a job or they may not even be legally, you know,
• 2:22:24
  authorized to work here in the United States. Like stuff like that. You would say, all right,
• 2:22:27
  the riskier you're lending as a lender or the riskier of a borrower you're lending into as a
• 2:22:34
  lender, your natural like protective mechanism is to tighten up your duration or the, you know,
• 2:22:39
  the bonds maturity equivalently. And so that's why you see in high yield, typically like the average
• 2:22:45
  duration of this index is like three to five years versus if you go into the investment corporate
• 2:22:50
  bond space, those are businesses that have a little bit more, uh, they're, they're less
• 2:22:56
  exposed to say like the economic cycle, they're higher, higher credit worthiness buyer or borrowers,
• 2:23:03
  business models stable. They have a long operating history, good management, all of that is what
• 2:23:10
  you're kind of looking for. That's how they earn the investment grade rating. And so they get a
• 2:23:14
  little bit more rope, like their average duration on like the LQD index might be somewhere like six
• 2:23:19
  to 10. And so when this liquidity drops off, the more duration you have on the bond, your duration
• 2:23:26
  being mathematically the amount, the percentage change in price based on a 1% directional movement
• 2:23:36
  in yield. So like the sixth duration on an IG corporate bonds, if rates move up 1%,
• 2:23:41
  your bond portfolio will go down 6% in value, right? The offset for higher risk
• 2:23:52
  issuers should naturally be, or the market generally says lower duration. All right. So
• 2:23:59
  getting into stretch, like let's start from this environment. I'm not going to like tackle the same
• 2:24:06
  things. Like everybody on X tends to focus, I think on management as well. Hey, if we have this
• 2:24:15
  much Bitcoin, I've heard the chief risk officer for Bitcoin Treasury Co. say, oh, we've run the
• 2:24:24
  Monte Carlo simulations. The one scenario that gets us is if Bitcoin price draws down 80% and
• 2:24:30
  stays there 10 years. I think the attack surface, like the open flank that everybody's not paying
• 2:24:39
  attention to is fiat money markets and credit spreads themselves. And what do I mean by that?
• 2:24:48
  First, I said, all right, for the bond, for a bond investment, if you're lending into
• 2:24:57
  a fixed income instrument, that is naturally the borrower has to give you your principal back at a
• 2:25:05
  certain date, you have a claim and you have like a natural game, like a natural kind of mechanism
• 2:25:14
  to get your principal back, right? And if the borrower can't do it, right, you'll go into a
• 2:25:22
  default situation. You'll go into bankruptcy court. You'll go into recovery. You'll force a capital
• 2:25:28
  restructuring, you know, and maybe equity is wiped out. The bondholders become the equity
• 2:25:35
  But either way like the debt itself the debt investor is there because they after like a safe positive return with their left tail risk mitigated right And as a bond investor
• 2:25:55
  your range of outcomes for potential return, it's not like what you invest in at 1031,
• 2:26:01
  right? Where you're after right tail, like you're going after, we want big hitters, right? We want
• 2:26:06
  that right tail risk. With a bond, there is no right tail. You're going to get coupon and yield,
• 2:26:12
  or you're going to get, you know, in the worst case, like a debt workout, you're going to take
• 2:26:18
  mark-to-market losses like those balance sheets that deployed into the Ukraine debt we talked
• 2:26:25
  about that took 40 cents on the dollar, right? And I was just really one of Ukraine. And there's
• 2:26:30
  going to be more money needed to go in to take that situation to victory. Okay. So with the
• 2:26:38
  stretch preferreds, what you're actually doing is you're giving up that. It's kind of like the
• 2:26:44
  airbags as the bond investor, instead of the company having like a natural window where they're
• 2:26:53
  going to have to show you their investments were good for it, or their management decisions were
• 2:26:57
  sound and value accretive. They never with these preferreds have to post your capital back to you,
• 2:27:07
  return your principal back to you and then re-up with new terms. We revisit now with the preferreds,
• 2:27:12
  the perpetuals, once they issue, once the primary issuance is out there, um, as an investor,
• 2:27:19
  your only route, if you do need to get principal back for whatever reason, you're dependent on
• 2:27:27
  secondary markets, right? And this is where that need for liquidity really starts to show up. So
• 2:27:34
  for a console or a perpetual instrument instead of a high yield.
• 2:27:40
  If spreads blow out and financials within both IG and high yield are the highest spread instruments usually,
• 2:27:49
  if short-term rates are rising, that's going to increase what the market's price you have for their required yield
• 2:27:56
  just from the rates impact.
• 2:27:59
  And when rates, like if you talk to bond guys, they mean treasuries, sovereign curves.
• 2:28:03
  But then from the spreads, if spreads start to rise and the market demands higher yields from corporate borrowers, you got to also attach that onto the infinite duration of the perpetual.
• 2:28:18
  So if this dislocation comes in liquidity and it will come from the fiat side, it has the Bitcoin USD spot exchange rate.
• 2:28:26
  Yes, it is attached to that and liquidity capacity.
• 2:28:29
  And it itself is a signal.
• 2:28:31
  But because the perpetuals are their interest rate instruments, like they're purely attached to going to be priced on the interest rates.
• 2:28:42
  This gets into my post about stretch.
• 2:28:46
  What you want to see as a stretch investor, you should actually want to see rates decline instead of this variable floating monthly adjustable rate having to price up.
• 2:29:00
  You're seeing slowly those spreads widen over time.
• 2:29:04
  And granted, everybody says it's still early.
• 2:29:06
  These things are less than a year old.
• 2:29:09
  True, right?
• 2:29:11
  I accept that.
• 2:29:13
  This is early.
• 2:29:14
  It's new.
• 2:29:16
  You know, we're floating this idea out there in the competitive arena for market adoption, right?
• 2:29:24
  But if we get into this environment and you're looking at it, you're seeing it. And what I focus on is sovereign debt rates, interest rates, corporate spreads, all of that. If the underlying conditions are saying liquidity wants to tighten, we're in this pullback. And this is where talk to the Michael Howells of the world. He has his, you know, the liquidity gurus will tell you they have a two to three year outlet. They're like, yeah, we're kind of in a liquidity pullback window.
• 2:29:51
  If you're dependent as a secondary market or as a perpetual investor, you're totally dependent on where the secondary market prices these instruments.
• 2:30:02
  And that's your only ability to sell out of your holding and re-obtain your principal.
• 2:30:13
  If that underlying market does materialize over the coming years where we see, say, SOFR wants to start inching up as the sovereigns or as the market just demands higher interest rates for, say, T-bills to not bleed their purchasing power with negative real returns over time.
• 2:30:36
  Same thing with credit spreads.
• 2:30:38
  This could lead, like, the infinite duration on the perpetuals.
• 2:30:41
  perpetuals. It could be a bigger price dislocation than most of us think if these liquidity
• 2:30:50
  circumstances do materialize. The other thing too, as a stretch investor, if I buy, so here's
• 2:30:56
  a good example, the El Salvador dollar bonds, right? Remember, they made the announcement at
• 2:31:01
  Bitcoin 2021, we're adopting Bitcoin as legal tender, we're going to grow a balance sheet.
• 2:31:05
  first market reaction was to sell the bonds like yields widened right and then going into the
• 2:31:12
  bitcoin bear market of 2022 i would say bottomed with the ftx uh implosion november 2022 i believe
• 2:31:21
  those el salvador bonds traded up like fat yields it was something like 30 percent all in you could
• 2:31:27
  buy those like pennies on the dollar they were they're not like 30 year 100 year bonds like you
• 2:31:34
  see some of these crazy fiat debt issuances out there. They were like 10-year bonds, but you could
• 2:31:41
  buy them for the pennies on the dollar. But then as the market realized like, oh, El Salvador's
• 2:31:47
  economic story is actually much more bullish than most of us think, those yields start to come down.
• 2:31:55
  And in the process, your two sources of total return on a bond are going to be your coupon
• 2:32:01
  bond yield, and then your price return, your appreciation. So if you bought those El Salvador
• 2:32:07
  bonds at, let's say, 50 cents on a dollar, wherever they traded, as they mature, they pay off in par.
• 2:32:13
  Like the borrower was successfully able to return its principal as the El Salvador growth story has
• 2:32:21
  been strong, right? Since at least 2021, the Bukele era. That duration carry pulled up your
• 2:32:31
  total return as a fixed income investor or credit investor, which with something like stretch,
• 2:32:38
  if you're buying at a hundred, a hundred is the best you're going to get, right? So let's say the
• 2:32:44
  spreads do come down and instead of like 11 and a half, 12 or whatever the monthly coupon is right
• 2:32:53
  now, or monthly distribution, they're not coupons, they're not dividends, they're return of capital
• 2:33:00
  distributions and I want to make sure I stick to that or I get that right. But let's say that
• 2:33:07
  number, that yield comes down over time as a market decides this spread shouldn't be that high.
• 2:33:17
  It shouldn't be SOFR plus 700. It should be SOFR plus 400, whatever. You're not actually going to
• 2:33:23
  pick up that price return tailwind. The best case, your stretch is just going to sit at 100
• 2:33:27
  versus if I went and did like with El Salvador,
• 2:33:29
  my total return was something like 30, 40%
• 2:33:32
  by buying when there was blood in the streets, right?
• 2:33:35
  So if you're buying right here at 100,
• 2:33:38
  your return is just gonna be
• 2:33:39
  whatever you clip and carry out with yield.
• 2:33:43
  And just because all credit,
• 2:33:45
  they are not convex payoff functions.
• 2:33:48
  They're the opposite.
• 2:33:50
  You're either gonna get coupon
• 2:33:51
  or you're gonna take some loss of principle.
• 2:33:53
  You've got that heavy negative skew.
• 2:33:55
  If that price dislocation comes, you're buying, if you buy at par like today, what is your actual margin of safety?
• 2:34:06
  And then I'm not talking about that from Bitcoin perspective.
• 2:34:12
  I'm talking on in terms of like fiat interest rates, money markets and credit spreads.
• 2:34:19
  So that's the risk I see.
• 2:34:22
  you can run your own scenario analysis. I, you know, put that together. Maybe I'll put it out on
• 2:34:29
  a, you know, separate thread as, as the stretch topic cools down, because anytime you post
• 2:34:34
  something it's just a hornet's nest. And I don't want to, I don't want to, I don't want to go there
• 2:34:39
  right now with, with the community. But then one more thing, when I see these big developments,
• 2:34:46
  like Bitcoin 2026 in Vegas,
• 2:34:51
  the big takeaway was management is looking to move
• 2:34:55
  the return of capital distribution
• 2:34:58
  from monthly to semi-monthly.
• 2:35:02
  The way I see it presented,
• 2:35:04
  it's like, why are you doing this?
• 2:35:05
  This is like, in the grand scheme of credit,
• 2:35:07
  this is arbitrary, right?
• 2:35:13
  As I've dove into this and tried to understand,
• 2:35:15
  and I've listened to management and I've asked people, why are you doing this?
• 2:35:20
  Where the question ends up after I get to the Toyota five whys, why, why, why, why?
• 2:35:28
  What it ends up as is we want to print a lower standard deviation on the chart at the end of the day.
• 2:35:36
  It's all about lowering the standard deviation the same way I talked about the legacy, academic, institutionalist,
• 2:35:45
  technocratic framework viewing standard deviation as risk, not permanent impairment of capital.
• 2:35:52
  And what lowering standard deviation does, say you're the broker-dealer's risk management
• 2:35:56
  department, they're probably running some industry software. They go ticker by ticker,
• 2:36:01
  and they have the broker-dealer's business. They don't make their money on commissions anymore.
• 2:36:08
  It's largely driven by securities lending. Same way in a fiat economy, everything is just every financial business model is we got to figure out a way to manufacture net income out of yield, right? Some way, some shape or form.
• 2:36:26
  And so in the broker-dealer world, their business model, so think about it.
• 2:36:30
  On one side, you have your securities account.
• 2:36:33
  You own your stretch.
• 2:36:35
  And I'm seeing this a lot on X.
• 2:36:39
  Both the influencers heard it from management as well.
• 2:36:43
  Hey, Robinhood's margin rate is 5%.
• 2:36:46
  Stretch is 11.5.
• 2:36:48
  Borrow against your stretch holdings at 5.
• 2:36:52
  Buy more 11.
• 2:36:53
  Capture the spread.
• 2:36:53
  What could go wrong?
• 2:36:54
  This is the best thing ever.
• 2:36:56
  digital credit. And so if you think about the broker-dealer's core business model,
• 2:37:02
  they need to create loans out of thin air. And what they do, literally they charge you a
• 2:37:10
  borrowing rate. Robinhood earns the 5% when you borrow dollars by stretch. That's a loan.
• 2:37:15
  They're going to carry that net income at five, but their skin is covered, right? They're going
• 2:37:20
  to have margin and maintenance requirements. So if you do see this left tail price dislocation,
• 2:37:28
  if it does appear, I'm not saying it's a guarantee, but with fiat interest rates,
• 2:37:32
  money markets, volatility within this fiat credit world, we are beholden to their base layer anchor.
• 2:37:41
  So what happens in fiat land is going to spill over into Bitcoin back lending, digital credit,
• 2:37:47
  at bitcoin price all the above all right so when your margin loan you post your stretch um
• 2:37:55
  you get your 11 and a half carry but if it draws down depending on how high you margin up uh the
• 2:38:03
  the broker dealer will set their maintenance requirements which means what like effectively
• 2:38:07
  how big of a drawdown you can take in your position but before they turn you into a four
• 2:38:12
  seller, by lowering the standard deviation, what you're trying to do is get the broker
• 2:38:19
  dealer's risk management software and ultimately their risk officers to ease their lending
• 2:38:28
  parameters to access.
• 2:38:32
  I mean, it's really money print or like just credit creation.
• 2:38:35
  There's no money printing per se because it's within the broker dealer there.
• 2:38:38
  It's not money in the sense that like the commercial banks have the monopoly cartel on money, but it's inflating with credit asset prices.
• 2:38:48
  And when you get the dislocation. So the more you build up the capital inflows on top of the carry trade, the riskier it becomes.
• 2:39:00
  So you're actually like just what you're doing here with this management decision to move from monthly to semi-monthly.
• 2:39:09
  You're just encouraging more margin borrowing.
• 2:39:13
  You're adding blocks on top of the Jenga tower.
• 2:39:16
  Right.
• 2:39:17
  So that's the risk I'd call out.
• 2:39:19
  I hope everything works out well.
• 2:39:21
  But like for everybody involved, specifically Bitcoin, too.
• 2:39:27
  Like the hardcore, you know, manage your own keys, sovereign individuals, they're just going to be along for the ride, but along for this ride.
• 2:39:37
  But they're doing so without leverage, so they can't get forced out of their position.
• 2:39:43
  So, yeah, I just, you know, think it's smart at these times for everybody to understand the risk they're taking.
• 2:39:50
  And then hopefully we all come out on the other side of this.
• 2:39:53
  And sound condition, once that wave shows up that we talked about, Marty, when you're out on your surfboard, it's finally time to stand up.
• 2:39:59
  Let's all be out there on the ocean ready to arrive at when Bitcoin's time comes.
• 2:40:07
  Okay.
• 2:40:07
  So to summarize, it looks like, just looking at the credits, the Bank of America U.S. High Yield Index option adjusted spread.
• 2:40:17
  I mean, it looks like it's coiling up.
• 2:40:19
  And if I'm just looking at the charts, like, okay, we could have a 2008, maybe a 2020 scenario on the horizon, which would mean a liquidity crunch in the credit system.
• 2:40:33
  That'll blow yields out in other assets, which would create buying opportunities there, but also drive up yields associated with margin lending and stuff like that,
• 2:40:45
  which would compress that carry trade opportunity.
• 2:40:52
  But not only that, create optionality for investors to push dollars into
• 2:40:57
  and reduce demand for stretch at the end of the day.
• 2:41:00
  Is that correct?
• 2:41:01
  It will, yeah, your liquidity from just margin capacity,
• 2:41:05
  it will hit its natural constraint.
• 2:41:11
  And if and when that comes, because you talked about 2008, 2020,
• 2:41:15
  I don't think it's the same type of problem.
• 2:41:21
  Like 2008 was we, the banking system, this offshore dollar, all of that was incentivized to create this credit bubble on the back of what turned out to be just bad debt.
• 2:41:33
  It was nonproductive credit creation to subprime lending in the U.S.
• 2:41:38
  And that whole house of cards collapsed.
• 2:41:41
  2020 was a different story.
• 2:41:43
  We manufactured, like the system was going into slowdown.
• 2:41:45
  And some would argue that a global pandemic that shut down the entire economy and created the, what would you just call it, the backdrop or the reason for a massive liquidity print was like, that's a totally different situation even than 2008.
• 2:42:08
  what I'm saying here, I don't know for sure. Like we don't know to what extent is the bad debt
• 2:42:13
  problem existing in the system. I don't even think it may not even be corporate credit at this point.
• 2:42:19
  Like I, in my view, like the big picture, the historical developments, you talk about
• 2:42:24
  coiling markets. Exactly. Yeah. It's shifted to sovereign debt. And that's where you get into the
• 2:42:30
  capital wars where it's, it's last man standing. So we're going to do everything, you know, we can,
• 2:42:38
  from a United States standpoint, the Treasury standpoint, to continue being in the game.
• 2:42:46
  Europe, they're going to do the same thing.
• 2:42:48
  China, same thing.
• 2:42:49
  Japan, same thing, et cetera.
• 2:42:50
  But yeah, if rates do rise, and maybe it doesn't even have to be at 2008 or 2020,
• 2:42:58
  just what does it look like if your preferreds have to price that instead of 11 and a half?
• 2:43:03
  Well, price it to 15.
• 2:43:05
  What could happen?
• 2:43:06
  Price it to 20.
• 2:43:07
  What could happen?
• 2:43:07
  Price it to 25, what could happen?
• 2:43:09
  Because those scenarios, they're in the deck.
• 2:43:13
  I don't know if those cards will come into play, but you got to be prepared for them.
• 2:43:18
  And I know there's, you know, say, hey, what stretch?
• 2:43:20
  We'll just continue ratcheting up the interest rate higher.
• 2:43:24
  Well, eventually, like if you're paying a 25%, you know, annual effective yield, that's hard, right?
• 2:43:34
  You're looking like an emerging market issuer who's been cornered by the IMF at that standpoint.
• 2:43:40
  So, yeah, there are things that happen here.
• 2:43:44
  And I don't even know that we would need a 2008 or 2020 scenario to cause even like a minor problem.
• 2:43:57
  So, yeah, your stretch.
• 2:44:00
  Yeah, say you just keep jacking up rates, double digits or high 20, something like that.
• 2:44:07
  You can try to be Paul Volcker, but that itself will cause problems.
• 2:44:12
  It's like the balloon.
• 2:44:14
  You squeeze the pressure somewhere.
• 2:44:16
  It has to pop out somewhere else.
• 2:44:19
  So from a lender standpoint, what your CFO has to do to tackle this problem,
• 2:44:26
  it could just be a tough go for where this is going.
• 2:44:33
  So like, I just encourage everybody who is on the stretch bandwagon,
• 2:44:40
  the very least read up on, on credit spreads, put in your models,
• 2:44:44
  what happens with short-term interest rates rising, high yield, you know,
• 2:44:49
  especially financial credit spreads rising and then read about other
• 2:44:53
  issuers who used the perpetual debt instruments. There's famous case studies out there. British
• 2:45:03
  Consuls, ask your AI, it'll put together a good summary for you. Railroads use them. Banks have
• 2:45:10
  used them. This isn't something new. Financial markets have seen this before. There's a lot of
• 2:45:17
  historical case studies. So I'd encourage you, if you're an investor, looking at these things,
• 2:45:22
  Read history. Make sure you understand the risk. Credit and fixed income. It's all about covering your left tail. I just want to make sure everybody is doing that and understands where they are choosing to deploy their savings into, especially if it's their own, just nest egg, their built-up person power.
• 2:45:45
  But if you're using leverage and you're borrowing from Robinhood on margin or you're borrowing from interactive brokers on margin and you think you're clever and smarter than TradFi guy on Wall Street, just trust me.
• 2:46:01
  Read the history books.
• 2:46:04
  Wall Street bros have tripped over a lot of carry trades in their experience.
• 2:46:09
  If this was a graveyard, you'd have the whole thing filled up with every carry trade in modern capital markets history.
• 2:46:21
  Every time it was this time was different until it was not.
• 2:46:27
  Yeah.
• 2:46:29
  We somehow went longer than the original, which I love.
• 2:46:31
  But we're not done yet because I think one point that he made last week
• 2:46:36
  that we should make again is when you're thinking of...
• 2:46:39
  coin collateralized lending markets is what are you doing with those proceeds? And again,
• 2:46:44
  are you taking leverage or are you doing something productive with that in the real economy? Which is,
• 2:46:49
  I think, something we've bonded over the years because I think that's really important and is
• 2:46:54
  something that has gotten lost in the sauce of number go up and digital credit is like, why
• 2:46:59
  are you actually using this capital asset? What are you using it for in your everyday life or in
• 2:47:05
  the economy more broadly. Yeah. Okay. So there's different models of like political economy and how
• 2:47:12
  it ties into your real economy and financial policy. Like what are you, ultimately, what are
• 2:47:21
  you going to use your financial system to deliver at the end of the day? If you read into this,
• 2:47:29
  it's a very interesting topic, like the British model, the British framework, which I would view
• 2:47:33
  is kind of like a market-making framework.
• 2:47:36
  You take goods from some supply producer country.
• 2:47:41
  You show up in their port,
• 2:47:43
  you shoot your cannons at them,
• 2:47:44
  and you force their factories to load up your ships
• 2:47:48
  with goods at cheap prices,
• 2:47:49
  and you take those into Europe,
• 2:47:51
  and you essentially buy low, sell high.
• 2:47:54
  And that's one route of a financial system.
• 2:47:59
  It's credit-funded.
• 2:48:00
  You'll fund the ship's voyage.
• 2:48:04
  You'll insure it at Lloyd's of London.
• 2:48:06
  Your financial system will make money on the trade.
• 2:48:09
  But it's a very extractionist, financialist kind of model.
• 2:48:15
  I think if you go back and you look at kind of the history of the U.S.
• 2:48:23
  and what we decided to do up front as colonies, like the Revolutionary War,
• 2:48:29
  if you think about it it was it was a it was a war that was fought at its roots like the cause
• 2:48:35
  for war was it was economics number one the taxation without representation there's a reason
• 2:48:41
  the tea they threw out at the boston tea party was the uh was the british east indies you know tea
• 2:48:47
  company like they were rebelling against that british model the extraction the taxation without
• 2:48:53
  representation. And basically, the treatment of the colonies as like a feeder of resources and,
• 2:49:05
  you know, low-end economic goods that were ultimately forced into selling only into British
• 2:49:13
  ports and demand. So very similar context to how Alberta and their movement, like the things we saw
• 2:49:19
  and talking about at the conference back in February. But we started out as soon as we won
• 2:49:26
  the revolution, we figure out the political order, we get the constitution in place. You get the
• 2:49:31
  Hamilton, you know, first secretary of the treasury, setting up the first national bank
• 2:49:37
  to aggregate the, you know, the bad debt out there that was like Ukraine trading at pennies
• 2:49:43
  on the dollar after the action was won. But the approach there in this American system was
• 2:49:50
  to use our limited credit capacity towards the real economy. So instead of just buying yield
• 2:50:01
  for the sake of yield, and what you're getting is you're chasing the nominal income stream,
• 2:50:07
  and the credit is just purely a financial asset. You say at the end of the day, yeah,
• 2:50:10
  There's some connection to the real economy with Bitcoin itself, right?
• 2:50:15
  Because that anchors to the energy layer which is the base of the real economy Everything all value at the end of the day has to derive it boils down to energy input
• 2:50:32
  But ignoring that,
• 2:50:36
  if you're Bitcoin treasury companies,
• 2:50:40
  preferreds, that type of issuance,
• 2:50:42
  if we're using that limited credit capacity
• 2:50:44
  purely to markup assets at the broker-dealer layer, it's really, at the end of the day,
• 2:50:51
  just we're deriving yield from the financial markup as opposed to kind of in issuers that,
• 2:51:01
  you know, I've found most attractive and aligned with kind of philosophically for lending into,
• 2:51:07
  like Unchained, notably shifted over to commercial only lending. And I want to say 2023.
• 2:51:15
  It's a big policy update. The idea was instead of just lending to people to borrow against their
• 2:51:26
  Bitcoin, to lever up and buy more Bitcoin. And the economic rationale is, well, Bitcoin is going
• 2:51:33
  to grow at a kegger of whatever number you say, 30, 40, 50, 60. I am going to profit by borrowing
• 2:51:41
  at say 15 and capture the difference. You're chasing a financial asset markup. And at the end
• 2:51:52
  of the day, like you can see the same logical underpinnings, you're falling towards that same
• 2:51:57
  tractor babe that your Ben Bernanke's, Janet Yellen's, your Greenspans fell into,
• 2:52:04
  where you think the route out of this monetary problem on a debt-based system,
• 2:52:11
  where it's all about finding yield, manufacturing net income, and losing focus on the real economy.
• 2:52:20
  What you're doing with your always finite capacity for credit creation, you're funding financial asset markup rather than funding the entrepreneur, giving him or her your dollars so they can go out, invest in property, plant, and equipment, buy resources to make a good or service something of value so that humans can coordinate trade with each other.
• 2:52:50
  which is what money is all about at the end of the day. Solving the Byzantine Generals problem,
• 2:52:55
  you know, in my mind, what it equates to is you're like, that is what money is in effect
• 2:53:03
  doing as an economic good, right? You're providing that most liquid good in the economy that can be
• 2:53:12
  that one half universally accepted or most broadly as you can crank that meter up.
• 2:53:20
  to facilitate that human conducting of trade between otherwise non-cooperative counterparties, right?
• 2:53:30
  Money is that thing that helps us to cooperate, right?
• 2:53:33
  So if we use Bitcoin as the collateral there, you find the entrepreneurs who choose to adopt Bitcoin as their balance sheet reserve asset.
• 2:53:43
  They use that to interact with the fiat capital system,
• 2:53:48
  to pull in input, you know, goods, resources, whatever,
• 2:53:53
  to then create some new product, right, output value.
• 2:53:57
  I think that is kind of ultimately,
• 2:54:01
  if you looking at this from a political economy standpoint this is where you interact or you see the rubber meeting the road with the Hamiltonian model
• 2:54:13
  What it means is you use your credit for infrastructure projects, building out or focusing on industrial capacity.
• 2:54:21
  So in that age, like, you know, late 1700s, you can kind of see the echoes here today in terms of where this Treasury Department of State and Department of War want to organize capital like directionally.
• 2:54:38
  They're spinning up things like the Office of Strategic Capital at the Pentagon to plug in and basically get the resources, enable the entrepreneur to deliver the resources that really, at the end of the day, are the supply chains of this big picture PAC Silicon thing.
• 2:55:00
  So my point here, if we focus on lending into a real economy as opposed to the financial economy, and I heard this is why this version is longer than last week.
• 2:55:12
  We've added entropy.
• 2:55:13
  There's been events.
• 2:55:14
  But the chat between Jeff Walton, who I consider a friend, he's here with me in the Pacific Northwest.
• 2:55:19
  Good guy.
• 2:55:21
  He made a point, yeah, we're selling products, right?
• 2:55:25
  These preferreds are products, like we're selling an income stream.
• 2:55:28
  that's true but you're you're operating in that financial layer and you're losing focus on like
• 2:55:35
  the real economy which is i think um i'm not gonna say anybody's wrong but i want to encourage us
• 2:55:43
  within the bitcoin space uh to to focus there because ultimately at the end of the day all
• 2:55:50
  this big picture geopolitical stuff it's a it's a resource war that we're fighting over
• 2:55:55
  on top of like a geopolitical collision
• 2:56:01
  between these regional spheres of influence.
• 2:56:03
  So if we can fund the entrepreneur
• 2:56:04
  to solve the problem for us,
• 2:56:06
  I think that gets us out of this historical epoch
• 2:56:11
  on the other side intact without society
• 2:56:14
  having to potentially take a hard face plant,
• 2:56:18
  which is going to be tough,
• 2:56:19
  tough for our grandkids to recover from.
• 2:56:21
  And that's what I'm most concerned about us
• 2:56:23
  trying to steer out of and avoid.
• 2:56:27
  Yeah.
• 2:56:28
  And I mentioned it last week, and I'll mention it again,
• 2:56:30
  but if you're listening, if you're still here almost three hours in
• 2:56:33
  and you haven't listened to Richard Werner on Tucker
• 2:56:37
  basically explain how Japan, via their banking system,
• 2:56:44
  became the dominant force that they were in the 80s,
• 2:56:48
  it's exactly this.
• 2:56:50
  He highlighted lending was focused on business creation, not financial assets.
• 2:56:59
  It kind of is, but all of these things are a sliding scale.
• 2:57:04
  That's part of what I would call the German branch of financial and political economy.
• 2:57:14
  It is a bit different than the American.
• 2:57:17
  and like what it amounts to is spinning up the state resources,
• 2:57:22
  industrializing very quickly.
• 2:57:26
  Like if you want economic growth, that model, the German model
• 2:57:30
  and the Japanese model can force your economic input,
• 2:57:36
  like all of that to run hot, like very hot.
• 2:57:40
  If that's your objective, this full use of resources.
• 2:57:43
  It's different.
• 2:57:44
  I think the goals are different than the Hamiltonian Yeah go ahead Yeah I think regardless I think just the broad point is he making is that lending has a better effect on the overall economy when it is focused on the real
• 2:58:00
  economy and not financialization. That's accurate, but they're totally different. They lead to
• 2:58:05
  different places. We won't go another hour and talk about that maybe next time, but how you design
• 2:58:10
  this system where you focus your lending. Like what's the Charlie Munger quote? It's like,
• 2:58:17
  show me the incentives. I'll show you the outcome. It's kind of that. Like if you,
• 2:58:20
  the way you structure incentives, um, that'll be the output we get for our children and their
• 2:58:26
  grandchildren. So yeah, I just, you know, I'm focused on, um, you just put a bunch of money
• 2:58:32
  in the stretch and you hang by the pool and drink a pina coladas. That's a, it's a great incentive.
• 2:58:36
  No comment.
• 2:58:40
  All right.
• 2:58:41
  I wish it all could be that easy, but I just I don't.
• 2:58:46
  I don't think that's reality.
• 2:58:48
  That's like I mean, and I'll cosign everything you said.
• 2:58:51
  I like this people.
• 2:58:51
  I like a lot of the people involved in this.
• 2:58:54
  I like Michael Saylor.
• 2:58:56
  I have a lot of respect for many people doing this play,
• 2:59:01
  but it just left side the bell curve caveman like it just sounds too good to be true to me.
• 2:59:07
  That's that's where I'll leave it.
• 2:59:09
  Maybe I'm truly a caveman with an intellectual capacity that is not big enough to understand the galaxy brain hack that has been discovered.
• 2:59:24
  But just by gut feeling, it sounds too good to be true.
• 2:59:28
  I mean, I'll tell you.
• 2:59:30
  No way a little towards anybody, but that's honestly how I feel.
• 2:59:33
  I think there's one rule, and you and Matt O'Dell have summed it up well.
• 2:59:39
  You really can't go wrong following the advice, stay humble, sex ads.
• 2:59:45
  You can't.
• 2:59:47
  Or maybe you could.
• 2:59:48
  There's always, you know, cover my risk as a regulated finance professional.
• 2:59:53
  There's always risk involved.
• 2:59:55
  But I find Matt O'Dell's saying to be a good piece of guiding advice for my personal scenario.
• 3:00:08
  Same.
• 3:00:09
  Yeah. All right. We went longer. We covered a lot. Let's not wait 18 months, though. I feel like we'll have something else to talk about sooner than that.
• 3:00:17
  Sounds good. And hopefully hard drive storage space isn't a thousand dollars per terabyte a year from now.
• 3:00:26
  It might be.
• 3:00:27
  It may be the way things are going. All right. Thanks, Marty.
• 3:00:31
  All right. Peace and love, freaks.
• 3:00:32
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• 3:00:35
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• 3:01:33
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