Latest / TFTC: A Bitcoin Podcast / #748: The Bond Market Says Tick Tock with Luke Gromen

Transcript

#748: The Bond Market Says Tick Tock with Luke Gromen · 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
  Mr. Groman, where do we even start?
• 0:39
  We had a big meeting in China last week.
• 0:41
  We have yield curves blowing out in Japan, in the UK, even here in the United States.
• 0:47
  And we have this backdrop of this re-industrialization and AI build out.
• 0:53
  And it's kind of hard to grasp what's going on.
• 0:56
  at the same time you have this supply chain disruption because of what's going on in Iran.
• 1:02
  And it's been harder than ever for me to figure out where the signal is because I've been playing
• 1:10
  with AI. It's incredibly powerful, made me way more productive. We're looking at yield curves.
• 1:16
  We've got a new Fed chairman transitioning in and you're looking at the yield curves. It's like
• 1:23
  There's so much potential here, but it feels like the the boogeyman of sovereign debt is going to throw a wrench in the plans of of this build out.
• 1:35
  Yeah, it's.
• 1:38
  If you ignore what's going on with sovereign debt, everything looks pretty good, which is sort of like other than that, how is the play, Mrs. Lincoln?
• 1:45
  um that really i think is the economic question of the moment which is
• 1:53
  when are they going to start printing money into an inflation spike to cap bond deals they're gonna
• 2:01
  uh they're gonna have to i think there is zero chance that that warsh etc trump at all are going
• 2:09
  to come in and go, you know what? 10-year yield and the bond market, they're Liz trumping us,
• 2:17
  Liz trusting us. And so we need to go. We said we're going to do a trillion and a half on defense,
• 2:23
  and we're going to cut it to $800 billion. And this year, we're set to spend almost $5 trillion
• 2:29
  in interest and entitlements alone, which is nearly all of receipts. Boomers, sorry, you lose.
• 2:36
  we're going to cut it by 30% so that we can pay our interest to foreigners. Good luck. That's
• 2:43
  never going to happen. And so if that's never going to happen, and by the way, to do the correct
• 2:49
  math on it, when you look at total receipts of the US, about 5.2 trillion, by the way,
• 2:55
  200 billion plus of which probably going away if tariffs go away, you're looking at, yeah,
• 3:03
  about $3.8 trillion in entitlements, health and human services plus Social Security annualized.
• 3:08
  And you're looking at about $1 trillion for interest annualized. So you're over 100% of
• 3:14
  receipts. So defense is another, call it $1.1 trillion annualized right now. To get down below,
• 3:24
  you know, if you look at, you know, to call it a 3% deficit, you know, from a GDP deficit from 6%,
• 3:31
  then you got to cut 3% of GDP, right? So you got to cut,
• 3:37
  you got to cut 3% of, I don't know, what is that? 3% of 28 trillions, 8.4, 840 billion,
• 3:46
  excuse me. So, right. So yeah, I think that's 840 billion. So you got to cut 840 billion out
• 3:52
  of the budget to get to a 3% deficit. Can't cut interest without cutting rates, which will make
• 3:56
  inflation worse. So the only thing that's big enough to cut are defense and entitlements. So
• 3:59
  defense and entitlements together are about $4.9 trillion. You got to cut $840 billion out of that.
• 4:06
  So it's just short of 20%. 20% cuts to defense, 20% cut to entitlements, and you can do it
• 4:14
  permanently and immediately. And then you got to basically suffer through the pain of the recession
• 4:19
  slash depression that follows and hope that it doesn't lead to the deficit going right back to
• 4:26
  6% because your receipts are going to decline because government spending is 25% plus of the
• 4:32
  people cut back on spending because they're not getting entitlements anymore. Defense
• 4:36
  lays people off, et cetera. So you're going to have a recession and deficits blow out by
• 4:42
  600 to 1,000 basis points, typically in a recession. So there's very possible you could,
• 4:47
  even if you went through all of the political pain of that, the math strongly, strongly,
• 4:53
  strongly suggests that if you even could do that politically, which you probably can't,
• 4:57
  you would end up cutting 3% to try to get the 3% and you would end up 12 months later with your
• 5:02
  deficit at somewhere between 9% and 13%. Thank you for playing. Game over. So when you run through
• 5:10
  that mental exercise, it leads you as players, okay, they are going to cap yields. And that's
• 5:16
  why I think this Iran thing was such a bad idea is, and why I don't think it was thought through
• 5:22
  from the point of the bond market in particular, which is you were going to have to do that at some
• 5:29
  point. And prior to this, you were able to, you know, forecasting rate cuts and inflation had
• 5:34
  fallen back down. And now, like, you're going to have to cut rates or you're going to have to print
• 5:40
  money to cap yields into an inflation spike. So look, maybe this is what needed to happen.
• 5:46
  I could argue that it does, but people need to be ready for double digit inflation and
• 5:51
  And then the question is, is when do they do that, right?
• 5:56
  They're going to do it.
• 5:58
  When?
• 5:59
  And if I'm them, I probably do prefer doing it after a bit of a twist in the wind, right?
• 6:06
  After you take the air out of some sales.
• 6:09
  So when you get to your 10%, 12%, 15% inflation, maybe it doesn't get there in two months' time
• 6:15
  because you've sort of let risk assets twist in the wind.
• 6:20
  Maybe I'm wrong.
• 6:20
  Maybe they'll do it faster than that. But that's the question of the day is, is.
• 6:27
  This Iran war has brought forward this bond market problem now.
• 6:33
  I think that's a big question for me is how are they going to cap yields?
• 6:37
  Because as we saw in like September 24, they lowered rates, 10 year, 30 year jumped on that.
• 6:44
  And that's what I worry about is their ability to cap yields limited, obviously, without going to yield curve control, which I think you've been saying for many years is what they're going to have to do.
• 6:59
  And then that begs the question, is it going to be viable?
• 7:03
  Is it actually going to work for people just calling BS on sovereign debt markets in general, looking at what's happening in Japan and playing out that process happening in other countries forward and pulling the pricing of that forward by calling BS on just sovereign debt in general.
• 7:22
  There's ways you can do it.
• 7:23
  I don't think they would ever want to do explicit yield curve control.
• 7:27
  They may not ultimately have a choice, but that's sort of the Hotel California.
• 7:30
  Once you check in, you can't check out.
• 7:35
  But, you know, the one way that I think is being discussed and like Wall Street sort of loves because it's their guy doing it is, you know, Kevin Warsh.
• 7:44
  Warsh cuts rates.
• 7:46
  Warsh shrinks the balance sheet, which means he's selling bond.
• 7:50
  Right. So the long end will rise further.
• 7:51
  So you're going to get a steepening in the yield curve.
• 7:53
  And then Warsh changes the regulations for banks so banks can buy more treasuries and that without reducing lending to Main Street.
• 8:04
  Right. And so that is like the grand.
• 8:07
  Then, you know, that's the that's the macro Fed.
• 8:10
  Yeah. These are not the droids you're looking for.
• 8:12
  It's the Jedi mind trick. Right. Like, hey, look, we're shrinking the balance sheet.
• 8:16
  Well, not really, because you're the regulator of the banks.
• 8:19
  You're cutting you're cutting rates. You're shrinking your balance sheet.
• 8:23
  but then you're just moving it over to their balance sheet and taking the regulations off
• 8:27
  so they can still lend to the federal government by treasuries and lend to Main Street at the same
• 8:34
  time. That's inflationary. That's basically just QE through the banks with better marketing.
• 8:41
  And that's fine. That's probably what needs to happen. That's one way you could do it because
• 8:46
  the banks ultimately don't care about real returns. They just care about spread,
• 8:49
  at least until inflation really gets extreme. At that point, they might start to care. But,
• 8:54
  you know, if the government tells the Fed, it tells the U.S. banks that, you know, listen,
• 8:59
  inflation is 4%, right? When it's actually 12, as long as they can make their 200 basis points,
• 9:05
  250 basis points front to back, they don't care. You know, now if inflation is frigging 20 or 25,
• 9:10
  not that I think that's what it's going to get, that's where you get into questions of, you know,
• 9:13
  listen, guys, we're not going to make a 30-year mortgage with inflation at 20% because it's gone
• 9:21
  in frigging five years, six years on a real basis. So there's ways you can do it that aren't
• 9:31
  explicit yield curve control. Markets won't care. And that's, at the end of the day,
• 9:38
  and inflation won't care. That will show up as what it is. So in the meantime,
• 9:43
  Like you said, we've got this emergent re-industrialization happening, this build out of AI, which is both very aggressive, but also, I think, fragile.
• 9:57
  Look, China could come out tomorrow and have a really attractive offering that blows up the economics of that.
• 10:04
  And now a lot of this stuff is debt financed, and that could be problematic.
• 10:08
  You know, and, you know, if these. With valuations of of of it trading where they are, you know, not necessarily individual stocks, but look, tech is like record high percentage of the equity market.
• 10:20
  U.S. equity market is record high percentage of the world market. U.S. equity market is record high percentage of the GDP.
• 10:26
  So on sort of these these big picture valuations, like we're in friggin la la land, picturing and like no bad news, nothing's ever going to go wrong.
• 10:36
  And the economics of the model is going to make sense no matter what.
• 10:40
  Maybe. I don't know. But for the moment, it looks pretty good.
• 10:45
  Well, it does. Well, I wonder if the wrench is being thrown in the reindustrialization cog as we speak again, because of Iran.
• 10:52
  If you look at the supply chain disruption for things like helium, specialty gases, chemicals, motor oil.
• 11:00
  I mean, I think you were tweeting about it.
• 11:02
  We covered it as well.
• 11:03
  They have warnings going out that there's going to be a 40 percent supply reduction in motor oil by the middle of the summer.
• 11:10
  We have sulfur shortages, which is big for fertilizer production.
• 11:15
  freight brokers are having a liability shock with the insurance or the ambiguity of how to actually
• 11:24
  navigate the straight of her moves. And then on top of that, it looks like we have mother nature
• 11:29
  beginning to step in with a massive El Nino, likes of which hasn't been seen in this entry
• 11:35
  and a half, which will just exacerbate the supply side. So no matter or not, if the will to do this
• 11:43
  build out exists, the supply side may temporarily at least, or maybe it's more medium term,
• 11:51
  slow that down as well.
• 11:52
  What does that do for all of this as well?
• 11:56
  Yeah, and I think there's a real key question around that, I think, are sort of two things.
• 12:02
  The longer it lasts, the more these second derivatives happen, right?
• 12:05
  Where random idiots on the internet are like, oh, who cares about a 40% shortfall of motor
• 12:11
  oil?
• 12:11
  And you're like, dude, you understand like 70% of the dollar value of goods in this country move via truck.
• 12:20
  You just start randomly taking out sort of the ability of the reliability of internal combustion engines, be they.
• 12:29
  And I'm no expert on, you know, what, you know, diesel uses this motor oil.
• 12:33
  So just broadly speaking, though, I didn't realize it was as narrowly sourced motor oil.
• 12:37
  It is from one part of the world, but apparently it is.
• 12:40
  And that is there. So there's that sort of second derivative dynamics where there's something called Liebig's Law of the Minimum, which is if you're short one part, you know, it's a matter of scarcity.
• 12:54
  It's not a matter of, oh, this screws Europe before it screws America or this screws Southeast Asia before it screws America.
• 12:59
  It doesn't matter. Like one part, it goes down and then things start going on here.
• 13:03
  So that's sort of one of the questions around that.
• 13:07
  the other thing that I think is one of the most epic, I don't know whether it's denial or
• 13:14
  propaganda about this all, but like part of the reason Hormuz isn't open still is because Iran
• 13:20
  has more fire control over the Gulf than anyone wants to frigging admit. And, you know, when I
• 13:27
  first started saying this two months ago, people like you're crazy. And like, here we are, it's
• 13:33
  going to still be closed on June 1st. Like I had a conference call with, with, with, with the
• 13:38
  institutional investor prospect back like March 6th. And I said, listen, based on what I'm hearing,
• 13:43
  if I'm you, I would start stress testing your portfolio for Hormuz to still be closed on July
• 13:47
  4th. And it looked like I pissed in their Cheerios. It was like, wait, what? Like you understand
• 13:53
  you're saying hundreds of millions of people around the world would starve to death later in
• 13:56
  the year. I said, yeah, I understand exactly what I'm saying, but I'm telling you based on what I'm
• 13:59
  hearing, there's a very good likelihood that's the case. And, you know, at the time, no, nothing.
• 14:04
  But there's still this sort of denial around, well, it's just insurance. Well, yeah, it's
• 14:08
  insurance because insurance companies don't like their boats going kaboom. And we, you know,
• 14:17
  so I think that's kind of the, to me, as I look at, is it going to reopen? Is it not going to
• 14:24
  reopen, I still see a lot, at least here in the Western media and certainly on X, that gets our
• 14:31
  decision, like Liberation Day, right? Like, hey, when's things going to flow again? When's Trump
• 14:35
  going to change his mind? And he snapped his fingers after the Chinese did the rare earth thing.
• 14:39
  And, you know, the several big retailers went to the White House in April or early May of last year
• 14:45
  and said, dude, you're going to have frigging empty shelves by Christmas, knock it off. And he
• 14:49
  change his mind. He started a fight. He and the Israelis started a fight and they don't get to
• 14:57
  walk away from the street fight by going, okay, we're good now. New York Times report 90% of the
• 15:04
  missile locations along Hormuz are still active. And you've got the Russians resupplying them via
• 15:09
  the Caspian Sea and you get the Chinese are probably resupplying them on some level, if only
• 15:14
  humanitarian, but probably some other mixed use or dual use goods, you know, through these rail
• 15:21
  lines. And it's not enough to sort of replace what they're having taken out, but it's enough to buy
• 15:25
  time at a time where we don't have time. You know, the bond market saying, hey, you know,
• 15:31
  as the Samuel Jackson meme, right? Tick tock MF, right? Like here we are. So that to me is the
• 15:38
  wild card is I think in the next month, there's a moment that's coming where Western markets and go,
• 15:47
  oh, Iran actually does have a say in this. These are, the Hormuz is still closed in part because
• 15:55
  Iran still does have a very notable measure of fire control over Strait of Hormuz.
• 16:03
  And then people, I think, you know, that's going to be an interesting moment, right? And, you know,
• 16:07
  Are you seeing us by time? Right. We're talking about taking Russian oil sanctions off again today.
• 16:12
  There was a story that we were going to take Iranian oil sanctions back off, you know, reported in Iran, denied here.
• 16:18
  Who knows? It's fascinating. Maybe we're taking Iranian oil sanctions off on Monday and then we'll we're talking about maybe bombing them over Memorial Day weekend.
• 16:27
  So we can you know, we can do it with with a three day. So the three day weekend.
• 16:31
  So the markets are closed and, you know, the tenure doesn't sell off any worse than it already has.
• 16:35
  But anyway, I'm rambling a bit, but I really think this important within that, hey, the supply chain, the supply side, there's a day coming where markets are going to go, oh, Iran actually has a say in this.
• 16:49
  And it's not it's it's it's not significant say.
• 16:54
  And the Iranians know from here on out every day that follows like they've taken all their pain up front.
• 17:00
  their pain is going to be sort of linear especially getting supplied through the back door
• 17:07
  by a couple of allies western markets we're on the clock well that's what i mean i think it's
• 17:14
  becoming clear because i just observing it uh it was like whenever the 30 year was getting around
• 17:20
  five percent you'd have a true social post like hey ceasefire it's all going to be over don't worry
• 17:25
  And that's happened like two or three times. And now we're well over at a 5.127 on the 30 year.
• 17:32
  And there hasn't been any announcements. I think it'd be interesting to get your thoughts on the big meeting in China last week.
• 17:38
  I think many people were thinking that maybe the U.S. would go and talk to President Xi and say, hey, convince them to open up the strait.
• 17:46
  We'll make some concessions on our end. And I think my read on it is like not much was accomplished there.
• 17:52
  Maybe some chip deals, maybe some more clarity on Taiwan, whether or not we like that clarity, I think is another question.
• 18:02
  But I think it's pretty clear that Taiwan is a red line.
• 18:05
  The fact that that's the first thing they talked about.
• 18:09
  But yeah, what are your thoughts on China as it relates to not only the straighter her muse,
• 18:15
  but this time that we find ourselves in, this geopolitical frame in the multipolar world?
• 18:22
  expanding? Yeah, I, I, I, my understanding is that the meeting was a much bigger deal.
• 18:30
  Spun is a much bigger deal in the American press by the administration than it was to the Chinese.
• 18:39
  You know, the Chinese, you know, Trump, I didn't realize this till over the weekend,
• 18:42
  but Trump was just the latest leader of a parade that's gone through there.
• 18:46
  You've had Starmer, you've had Macron, you've had Merz, Trump, you've got literally,
• 18:52
  apparently trump was like wheels up barely and it was announced that putin's coming either this
• 18:56
  week or next week and my understanding is is that meetings in china don't get scheduled like you know
• 19:02
  it wasn't like she got off the phone with trump and called putin like that was already on the books
• 19:06
  um pakistan is going there uh as well in the next couple weeks and that i think is noteworthy even
• 19:14
  that pakistan is said to be the mediator to this whole thing so um
• 19:19
  i i'm sure they probably discussed the iranian situation i don't think it's as desperate a
• 19:28
  situation for china as it has been made out here by some people in the u.s um not least of which
• 19:35
  which is i think everyone and their mother is going okay we're done with this whole you know
• 19:40
  the u has been dicking around in the middle east for 25 years like i don know what their infatuation is with it but this is nonsense We moving away from it and we going to move to more EV solar battery getaway from
• 19:57
  fossil fuels. Who's that benefit? China. It plays right into China's hands. Nobody has the supply
• 20:06
  chain in EV batteries, solar that China does. So when Europe's like, fine, you want to try to choke
• 20:13
  us out? Great. They pick up the phone, they call China. And I wouldn't be surprised to see some
• 20:19
  massive trade deals around solar EV battery stuff into Europe. They can figure out the latency
• 20:26
  issues and the intermittency issues, not latency, but intermittency issues around
• 20:30
  you know, EV or around, sorry, solar and battery storage and balancing out grids. Like it's, that's,
• 20:37
  you know, that's just an engineering problem. And that engineering problem is getting much,
• 20:41
  much easier to your point earlier about AI. You know, you plug those problems into AI and let it
• 20:47
  run and it'll figure it out much faster than it used to, right? Then it's just a matter of pick up
• 20:52
  the phone, call China, say, we need this many solar panels. We need this many batteries. We
• 20:56
  even need this many, you know, transformers, you know, and here, you know, we'll sell you a bunch
• 21:01
  of airbucked jets or whatever the hell's on the other side of it, whatever. And I think you're
• 21:07
  gonna see that around the world. I think, you know, India, India's got a fossil fuel problem.
• 21:12
  Okay. So much so that they're talking about cutting fuel, you know, Modi, right. Got on the,
• 21:17
  got, got on the, on the wires last week and said, Hey, please stop buying so much fuel and please
• 21:22
  stop buying gold. Which are their two biggest import issues, putting them into a trade deficit?
• 21:27
  Well, you can fix the oil thing really quickly. Ring, ring. Hey, China, we want to buy a bunch of
• 21:33
  solar and battery stuff from you. And we're going to mandate that India go 80% EV or something,
• 21:41
  like now. Okay, great. Where are they going to buy the EVs from? I'll give you two guesses.
• 21:47
  First one doesn't count. They're going to call China. No one else has the manufacturing capacity.
• 21:52
  By the way, the BYD, et cetera, is the world are so dirt cheap. No one else can make them that cheap.
• 21:57
  So I'm coming around to the view that contrary to this, the initial view in the West at all, we've choked off China's oil.
• 22:05
  I think all we've done is like push the world into China's arms as it relates to the entire EV slash solar slash battery grid dynamic.
• 22:17
  And so I'm not sure China's in a great hurry to open this thing, number one.
• 22:26
  And I think that might have been a bit of a miscalculation in the West.
• 22:28
  Now, China is not the economy is like just treading water.
• 22:31
  So this just, you know, this just sort of keeps them afloat.
• 22:33
  But again, it keeps them afloat.
• 22:35
  So, you know, let's see.
• 22:37
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  unchained.com. Yeah, I discussed this last week on a show on Thursday, but again, talking about
• 24:18
  the Western press coverage of this massive meeting, Jensen Huang calling it probably the
• 24:24
  biggest meeting of two nation states and civilizational history. And just thinking of
• 24:29
  the optics again, I think the Trump administration was trying to show a strong hand with a lot of
• 24:37
  their, their cabinet heads and, uh, obviously CEOs of many of the largest businesses in the
• 24:43
  U S showing up. But I'm reading that I'm like, you're trying to flex hard going all the way
• 24:50
  across the world. And it doesn't seem like you have the leverage here as, as the way I read that.
• 24:55
  It's like you feel compelled to put on a big horse and pony show on Chinese soil to try to project strength.
• 25:04
  It's not.
• 25:05
  I don't know if you caught if you read it that way, too, but everybody in the media was wrong.
• 25:10
  But I'm like, if we have all the leverage, why do we need to do this?
• 25:14
  That's kind of where I'm at.
• 25:15
  Like, I've got a good relationship who made the point to me.
• 25:20
  this is years ago that I guess back in the original Gulf War, the U.S. had the Saudis
• 25:25
  fly all the way here to basically sort of press the flesh to sort of thank and help
• 25:31
  pay for the war. Right. So contrast that. Right. You know, they couldn't just wire the money.
• 25:38
  Wanted them to fly here for the optics. With this, which is, oh, by the way, the second straight
• 25:44
  time we've gone there. We went to Seoul, South Korea in October, if I recall correctly,
• 25:52
  nine months ago, eight months ago, and now we're going there again. That's not an easy flight.
• 26:00
  If we've got all the cards, my view of it was in agreement with you. If we have all the cards,
• 26:04
  why are we going there? By the way, everyone's going there. UK.
• 26:14
  France, Russia, Germany, Pakistan.
• 26:22
  Well, I think the last time we talked, I think AI, it was becoming much clearer than it was the six months prior when we had last caught up then.
• 26:39
  that this is real, it's happening,
• 26:44
  it's going to lead to a ton of reinvestment on American soil.
• 26:48
  It's deemed existential.
• 26:51
  And one way that people were positioning it six months ago,
• 26:55
  and I think still today, is if you're looking at the sovereign debt crisis
• 26:59
  and you're looking at all of our spending that we're doing,
• 27:02
  the one potential positive externality special variable
• 27:09
  is basically the ability to grow our way out of it with AI.
• 27:13
  And I think over the last three months specifically,
• 27:17
  or actually since the turn of the year when agents really took off,
• 27:20
  it's becoming clear that, yes, there's a real there there.
• 27:24
  But as we just mentioned, like the supply side could throw a wrench in the growth
• 27:28
  and the build out of the infrastructure.
• 27:30
  But then on top of that, like the effect on the jobs market,
• 27:32
  I think is becoming clearer to the point where you had Ken Griffin on stage last week.
• 27:39
  who was a bear on AI in January,
• 27:41
  saying that they're doing work that would take months
• 27:45
  on the research side at Citadel in a couple of days.
• 27:49
  And he was actually a little depressed learning about this,
• 27:52
  thinking about how many people are going to be necessary
• 27:57
  to run his business in the future.
• 28:00
  And so then you have that factor as well,
• 28:01
  the labor side of things come into the picture.
• 28:05
  You can paint a really grim picture
• 28:08
  in the next two years with all these things coalescing together.
• 28:14
  Yeah, I found the this I saw that clip.
• 28:17
  I thought it was a hugely important clip.
• 28:19
  I don't know if you saw it.
• 28:19
  Dan Loeb, third point, basically echoed the clip.
• 28:22
  He quote to it.
• 28:22
  And he's like, oh, yeah, we've been doing it, too.
• 28:24
  Right.
• 28:24
  So.
• 28:28
  There seems, you know, there's there's there's A.I.
• 28:32
  doomers and there's AI sort of champions, I guess, if you will, that we've seen out there.
• 28:41
  And one I saw recently, and it was actually Marc Andreessen, who's a brilliant guy and
• 28:47
  obviously a champion of it. And he's been pounding the table that it's not going to
• 28:51
  disrupt the labor market. And I think he's a brilliant guy. And I think he's talking his book
• 28:56
  and wrong. Somebody made the point and he quote tweeted it showing new slide rules, 1952,
• 29:07
  you know, IBM engineers, the advertisement, look, each one of these is like increases the number of
• 29:12
  engineers by like 50 because they can work so much faster with the new slide rule. And people
• 29:19
  like, it didn't destroy, you know, engineering. It didn't this. And it was kind of like, yes.
• 29:25
  And let's put this in its appropriate context. 1952 was just seven years after the end of a 30
• 29:32
  year period where literally 10 to 15% of the people alive in Eurasia in 1913 were dead.
• 29:39
  So you killed 10 to 15% of population in Eurasia from 1914 to 1945, two world wars,
• 29:46
  a variety of political revolutions, famines, et cetera. And you completely destroyed the
• 29:54
  industrial base of anybody who was competing with the Americans across Eurasia. And oh,
• 30:00
  by the way, much of those 10 to 15% that were killed were working age men.
• 30:06
  So yes, you introduced a slide rule in 1952, and it was all after you killed 10 to 15% of
• 30:14
  working age men or of overall population is probably closer to 20% of working age men
• 30:19
  across Eurasia, Eurasia, excuse me, and destroyed all the factories and industrial base, except for
• 30:26
  in America. Now, tell me how relevant that comparison is now versus then, like, and this
• 30:32
  isn't like doomers and this is just realism. And so now you're going to introduce something
• 30:37
  way more productive, you know, productivity driving than a slide rule.
• 30:43
  Yeah.
• 30:44
  and to everybody, by the way, and like, yet everyone has the industrial base.
• 30:55
  China's got too much industrial.
• 30:56
  We're trying to build industrial base.
• 30:57
  Europe has an industrial base that's being hollowed out as we speak.
• 31:01
  You know, I look at this and go, like, yes, you are going to drive massive productivity,
• 31:09
  but the amount of unemployment you're going to drive, right?
• 31:12
  Same argument.
• 31:13
  You can be mad like, well, you know, gosh, we, you know, the industrial revolution drove
• 31:17
  people off farms in the 18, you know, from 1850 to 1900.
• 31:20
  And they were fine.
• 31:21
  Like, yeah, because ultimately 10 to 15% of them were killed in the wars because they
• 31:27
  were trying to like adjust the, the, the economics of that world.
• 31:31
  You had, it was so technology was so disruptive.
• 31:34
  It blew up four empires, right?
• 31:36
  There were four empires in 1913 by 1918, three of them were gone.
• 31:39
  They were dead.
• 31:40
  One was mortally wounded that we took over for the UK.
• 31:43
  And so I look at this and go, I think AI is ultimately – I think it is massively productivity traffic.
• 31:51
  I think it is massively changing.
• 31:56
  And living in the Rust Belt, I think Mark Andreessen and these others are smoothing over.
• 32:03
  And I, you know, I think they're smoothing it over.
• 32:07
  And I don't think.
• 32:10
  I think they're being cynical in the way they're smoothing it over.
• 32:13
  They're way too smart not to understand this.
• 32:16
  And so if they come out and tell the truth about what's about to happen, guess what's
• 32:20
  going to happen?
• 32:20
  The politicians are going to get involved.
• 32:22
  They're going to actually have to pay some sort of, you know, tax into some sort of sovereign
• 32:26
  wealth fund or, you know, fund.
• 32:29
  And they don't want to do that.
• 32:30
  They want to put all the money in their pocket.
• 32:31
  And like, look, I suppose I get it.
• 32:36
  You know, if I was them, I actually wouldn't support that.
• 32:37
  I would support putting the money in a fund because I don't want a bunch of white collar
• 32:41
  workers outside my, you know, gated house with pitchforks and guns in two or three years,
• 32:47
  which, you know, has already started with Sam Altwin open AI out in San Francisco, by
• 32:51
  the way.
• 32:55
  But like, they're way too smart not to know that that's the case.
• 32:58
  And so I think they're cynically talking about, hey, there's not going to be a big job apocalypse.
• 33:02
  And because, you know, they don't want the politicians.
• 33:05
  Well, there's gonna be like, come on.
• 33:06
  Like, and well, people will just retrain.
• 33:09
  No, they won't.
• 33:10
  No, they won't.
• 33:11
  Million Americans kill themselves with opiates.
• 33:13
  That's what they do.
• 33:14
  Like, like, and I don't want to get like too like doomer, like depressing because it really is.
• 33:21
  But like, look, that's.
• 33:23
  It was one thing when Luke Groman says, oh, Luke's just a doomer.
• 33:26
  Well, is Ken Griffin a doomer, too?
• 33:27
  Because guess what?
• 33:28
  He sounds a lot like Luke Groman four months ago.
• 33:30
  And now he's like sort of catching up to what this is going to do.
• 33:36
  You know, I don't know the right answer.
• 33:38
  But that to me, again, I always take it back to the sovereign debt side.
• 33:44
  If we were an equity-based system, no debt, not debt-based, and if debt was really low,
• 33:52
  who cares?
• 33:52
  Like, you know, it's an issue to be dealt with, but it's not systemic.
• 33:57
  But with debt levels where they are, sovereign debt levels where they are, 50% of receipts coming from employment, heavily in the services type stuff that this is going to disintermediate, this being AI, it's absolutely a systemic threat.
• 34:10
  And to continue pretending it's not going to, it isn't doing anybody any good.
• 34:16
  No, I think it's already manifesting in many ways, the K-shaped economy meme that people have talked about.
• 34:24
  to your point about some like mark andreason sort of glossing over it you do have elon out there
• 34:29
  saying we need universal high income which is an oxymoron but we don't have to get it yeah i haven't
• 34:35
  figured out what he means by that but at least he gets the problem like i actually think he really
• 34:39
  does care or tries to care i really do um yeah what is that universal high income right i take
• 34:47
  him to me all i need to know about universal high income is you go back to the show the incredibles
• 34:52
  I know if your kids have watched The Incredible Jet, right, where the guy's like, if everybody's a super, then nobody is.
• 34:58
  Right. So if everybody's high, ultra high income. Great.
• 35:03
  Why not just do that now? If that's the solution, just do it now.
• 35:06
  And the answer is it ain't the solution. No, that's what I think there.
• 35:11
  Nobody really has one right now.
• 35:13
  But again, like the exacerbation of the inflation reemergence, I think it's going to force people to figure this out rather quickly.
• 35:22
  We're going to head into Memorial Day weekend with the highest price per gallon in recorded history.
• 35:30
  Again, I think you've covered it well, but the food inflation is beginning to creep up.
• 35:34
  but the brunt of that will not be felt until the fall of this year
• 35:40
  when you have a full crop cycle come and go
• 35:44
  and the sort of effects that it has on spending.
• 35:52
  And then you look at the financialized side of it, like the market.
• 35:55
  You look at where margin trading is, how much leverage is in the system,
• 35:59
  where things are trading.
• 36:01
  It looks like we're not at dot-com bubble levels yet in terms of multiples, but if you look at some ratios, something like the Shiller ratio is pretty inflated.
• 36:13
  And obviously, there is some dislocation between the whole of the S&P 500 and the few stocks that are actually tied to AI and the infrastructure build out.
• 36:26
  There's a dislocation there.
• 36:28
  and it's uh it makes you wonder and again then you have kevin warsh coming in saying
• 36:33
  i want to lower rates but not expand the balance sheet and it's just finding it really hard to see
• 36:40
  how he's not forced to do that and if inflation is creeping up and you have all these job market
• 36:49
  disruptions hitting at the same time i think what does that scenario look like is it the 1970s echo
• 36:55
  inflation with a different flavor and put on crack because of the speed of AI.
• 37:03
  I think it's Brazil 2000. That's what I think it is. Or maybe UK, you know, 1956,
• 37:13
  you know, Suez moment where, you know, inflation for the UK from 56 to 76,
• 37:18
  Tager was almost 7% a year.
• 37:23
  That's what I think, right?
• 37:25
  Because, you know, the other crazy thing about AI is, look, this is no longer just an American
• 37:30
  tool, right?
• 37:31
  This isn't the 1990s where America's got all this technology and then like everyone else
• 37:36
  is just trying to like survive in Eastern Europe and in the former Soviet Union.
• 37:39
  And, you know, China's still, you know, coming out of being a backwater and, you know, Southeast
• 37:47
  East Asia is just starting to really rip and grow with the tigers and what have you.
• 37:50
  Like Japan was on its keister still.
• 37:53
  Like South America was still, you know, third world, fully third world.
• 37:59
  You know, AI is like everyone can use it.
• 38:02
  It's distributed, right?
• 38:03
  So now you're competing around the world for the first time.
• 38:10
  So this isn't just going to be like, well, you know, so what does this mean?
• 38:15
  Well, you know, I think the deep seek moment of January 2025 is a perfect example is like.
• 38:24
  What happens if.
• 38:26
  You know, any day you could wake up and be like, oh, China just rolled this out.
• 38:29
  It's way better and it's cheaper and it blows up the economics of sort of everything they're doing over on this side of the world with AI.
• 38:36
  There's nothing, no reason that can't happen.
• 38:39
  You know, now the people in that world are will know much better how close they are to that.
• 38:47
  Assuming none of it's been classified by China, right?
• 38:50
  Like, you know, and who knows?
• 38:51
  We may have stuff that's way better than we have classified.
• 38:54
  I strongly suspect that's the case.
• 39:00
  But that's like the that's that's when you look at the valuations of tech today versus tech 2000, I agree with people.
• 39:07
  think, yeah, hey, these things are generating cash. They're not that expensive. The margins
• 39:10
  are enormous. You can justify the multiples for that. I agree. If you look at it in isolation.
• 39:19
  But take a look at employment in the 90s versus employment now, which is to say,
• 39:26
  in the 90s these were truly productivity drivers You were seeing productivity grow and employment grow You not seeing that now You not And so it accruing to the K And so essentially the difference this time or the
• 39:43
  bubble this time, A, U.S. federal debt to GDP in the 90s was maybe 40%, 50%. And the tech boom
• 39:52
  into the bubble was driving a productivity gain and an employment gain and supporting the tax
• 39:59
  receipts of the United States government. This is a bubble where the participants are not expensive,
• 40:06
  right? Like we just said, I mean, slightly, but not like nearly as stupid expensive as some of the,
• 40:11
  you know, Cisco's and Sun Microsystems of the world. So I'll call it from, you know, 96 to 2000
• 40:16
  levels. But these tech companies are actively borrowing money on net, right? Some of them are
• 40:26
  still cash flowing, but more and more, they're all getting close to having to borrow the money
• 40:30
  to spend on this stuff, the hyperscalers. And they're borrowing money to undermine
• 40:36
  the tax base of the United States government. And doing that at a time where debt to GDP is 120%,
• 40:44
  where true interest expense is 100% of receipts. That's where the bubble is this time.
• 40:49
  and the strains when that bubble starts to strain, what are you going to see first?
• 40:58
  Are you going to see crashing stocks first? Are you going to see spiking sovereign yields across
• 41:03
  the West? I would argue you're going to see the latter. You're going to see spiking sovereign
• 41:07
  yields. Now, what do you do? Take us back to our first discussion. Are you going to cap yields,
• 41:12
  print money to cap yields and do inflation spike? Are you going to let yields rip? Because I don't
• 41:16
  know what the number is on the 10-year in the U.S., but there's a 10-year number in the U.S. where
• 41:20
  everyone in tech is going to be like, I'm out. Why take all this risk when I can, you know,
• 41:26
  that China's going to disintermediate me or that, you know, these guys can't refinance at 7%
• 41:30
  because, you know, the 10-year is up to 5.5. I'm out. I'll just buy the 10-year at 5.5.
• 41:36
  And so to me, that's where the risk is in this. And that's where people, you know,
• 41:41
  people that are having this debate, well, it's not like the bubble last time. Well, yeah, I know it's
• 41:45
  not. And it doesn't mean it's not a bubble. It just means to me, it's almost like a second
• 41:52
  derivative bubble, right? Like if we saw job growth, if we saw tax receipts benefiting from
• 41:59
  this, it'd be one thing. You're talking about taking jobs that are paying multiple hundreds
• 42:04
  of thousands of dollars a year and replacing them with something that you can subscribe to for 20
• 42:08
  bucks a month. Like you're undermining the tax base of the United States at a time when the
• 42:16
  United States can not afford to have its tax base eroded at all. And that to me is like the,
• 42:25
  that's where the bubble is going to break. That's where we're seeing the strains already.
• 42:28
  Do you think percent has a grasp on all this?
• 42:38
  I would guess he's an extremely frustrated man right now.
• 42:44
  Because they were, you know, he laid out very clearly what he wanted to do as Treasury Secretary.
• 42:52
  Both from sort of like three arrows, right?
• 42:55
  3% real growth, 3% deficit, 3 million barrels a day of more oil production, bring oil prices down.
• 43:03
  He said, judge me by the 10 year, right?
• 43:06
  February last year. I just put a tweet up earlier today about that. February 25, judge us by,
• 43:10
  judge our economic policies by the 10-year yield, not by the front end of the curve,
• 43:14
  not by anything else. Well, the three arrows is now the 0 for three arrows, and they're going to
• 43:19
  be the 0 for three arrows. Inflation's ripping. 10-year yield is to, what, five-year highs or near
• 43:26
  it? Fail, fail, fail, fail. And this Iran war has completely taken the initiative out of his hands
• 43:35
  for a lot of different things. Number one, he talked about the possibility of a grand currency
• 43:42
  deal with the Chinese and others. And now we're not in the driver's seat anymore on that.
• 43:48
  We've given away the initiative on a currency deal to pursue this nonsense.
• 43:56
  and so I suspect he's extremely frustrated. He's a brilliant man. There's no question about that.
• 44:09
  He's also shown a tendency to get hyper-focused on a single thing to the detriment of all others
• 44:15
  and then being wrong because he was so focused on that one thing, whether that be China. I mean,
• 44:26
  he's been a China bear for a long time, whether that be some of the things we just discussed,
• 44:32
  whether that be energy, some of these other things. So I think he knows this,
• 44:41
  but I also think he's probably frustrated because, A, I think the Iran war throws a
• 44:46
  spanner in the works of all of what he was hoping to do. But I also think he's come to realize
• 44:50
  Washington is not Wall Street. You make a decision as a hedge fund manager, boom,
• 44:56
  you put it on you take the position it's just you know it chews up everybody right it chewed up elon
• 45:02
  right how often did we hear well it's it's gonna get fixed because elon's going there he's our best
• 45:06
  guy you know and elon's freaking brilliant like nothing stops that dude and washington shoot him
• 45:12
  up and spit him out in what two months three months four months maybe that's so like i suspect
• 45:20
  Besant knows a lot of this. And I suspect there's not a darn thing he can do about most of it.
• 45:27
  He's you know, they're getting overtaken by events as a result of the ill fated decision to go into
• 45:31
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• 47:36
  No, I think that's one of the things that many people are hoping for, Warsh, getting into position at the Fed, is that it's Druckenmiller's good old boys are back together.
• 47:47
  They're going to be able to work together to navigate these tumultuous times.
• 47:51
  And I don't know.
• 47:53
  It's just, to your point, I think Iran was a massive misstep.
• 47:59
  But then there's others that will point at like, oh, look at all the oil that's the oil deals that we're making and it's reinvigorating the American oil industry.
• 48:08
  And we're setting up all these these deals that are making the Middle East less systemically important than it was in the past.
• 48:15
  You have the UAE leaving OPEC a few weeks ago, basically signaling that they they want to let people drill more to help bring down oil prices, which should be good for the US.
• 48:28
  But it seems like there's a lot of balls in the air and trying to juggle them perfectly is getting harder and harder as each day passes.
• 48:37
  Yeah. And for me, again, you always take it back to the bond market.
• 48:40
  Like if we try to do this 30 years ago, low debt, we have the leeway.
• 48:46
  You know. Are we going to you know, are we going to give swap lines to everybody?
• 48:51
  Like I thought that was a huge moment. UAE coming out and saying, look, either you give us swap lines.
• 48:56
  or we're going to move over to China.
• 48:58
  We're going to start pricing oil and gas in Yuan.
• 49:01
  And boy, Besson and the team jumped right to that, right?
• 49:05
  Hey, swap lines, done.
• 49:11
  Which I thought was an interesting read on leverage.
• 49:13
  I think it's also an interesting read
• 49:14
  on the sensitive US asset markets.
• 49:16
  Look, the UAE is rich.
• 49:17
  They could sell dollar assets for a long time
• 49:19
  to finance their income shortfalls.
• 49:22
  Where do you think the 10-year would be
• 49:24
  if UAE and others started really dumping treasuries.
• 49:27
  I mean, already people are like, look at the dominance.
• 49:29
  Everyone flocked to treasuries.
• 49:31
  I don't know if you saw the chart.
• 49:32
  Japan sold more treasuries in the first quarter
• 49:34
  than they've sold in like four years,
• 49:38
  which, oh, by the way, was the last time oil spiked
• 49:40
  because of the Ukraine war, right?
• 49:42
  So I think we're about to get, what's today, the 18th?
• 49:45
  It'll probably come out today at the end of the market,
• 49:47
  at the close of the market,
• 49:48
  the foreign holdings of treasuries for March.
• 49:51
  That's gonna be a real interesting number.
• 49:52
  I would bet you a couple of my cars, my wife's car, my car, that it's going to show foreigners sold a lot of treasuries.
• 50:04
  It depends being forced to.
• 50:05
  They have to.
• 50:06
  They have to, right?
• 50:08
  People say, well, we'll sell them the oil.
• 50:10
  Well, yeah, but still.
• 50:13
  It's a double entry bookkeeping reality.
• 50:15
  Great.
• 50:15
  They need oil.
• 50:16
  We sell them oil.
• 50:17
  What do they buy it with?
• 50:18
  Dollars.
• 50:19
  Okay, great.
• 50:20
  Well, they're giving us the dollars for the oil.
• 50:22
  Where are they getting the dollars? Well, they have to sell something. They sell treasuries.
• 50:27
  They sell dollar assets. It's just a double-entry bookkeeping reality. So
• 50:30
  that has a policy trade-off to your prior point is, yes, we will send a lot more oil to other
• 50:38
  places, and foreigners oil-importing creditors of the United States will sell treasuries to buy oil.
• 50:46
  And that's fine, but it also means there's going to be $9 trillion worldwide of foreign-held
• 50:51
  treasuries bidding for American oil. And what happens when that happens? It's simple. You pay
• 50:56
  $7 a gallon for gasoline, maybe eight. And not in California. California, we might be double digits.
• 51:04
  Now, is that the right thing to do? It's good for energy. It's good for stimulus of, look,
• 51:09
  more EVs, more solar panels, all that good stuff. Sure. Where's that going to come from?
• 51:15
  America ain't making that stuff. Come on. Tesla just got out of the frigging EV business.
• 51:21
  All but the little one, right?
• 51:23
  They're moving on to robots where most of the components are made in China.
• 51:27
  But we'll set that aside.
• 51:30
  China's going to do all that business.
• 51:32
  How's that hurting China?
• 51:35
  I don't know, but it sounds good, right?
• 51:37
  It's not true, but it sounds good.
• 51:41
  So I, you know, it's just such a...
• 51:47
  I think there are less chaotic ways it could have been done,
• 51:50
  But that's why I sit in the seat I sit in.
• 51:53
  Yeah.
• 51:54
  Well, I mean, this makes a point.
• 51:55
  Like, what do these nation states do for reserve assets moving forward?
• 52:03
  Obviously, we had gold spike into the end of last year, go above 5,000.
• 52:07
  I think it's sitting at 4,55 right now.
• 52:11
  It looks like it's sort of consolidating after coming off all-time highs.
• 52:16
  Obviously, silver ran, Bitcoin ran.
• 52:18
  at the end of last year, it's down, I think, anywhere between 35% and 40% right now from
• 52:24
  its all-time high. Do you think there is going to be a recognition that sovereign debt as
• 52:31
  reserve assets is, I mean, there already has been, if you look at, to your point,
• 52:38
  foreign nations selling U.S. Treasuries, what that nets out to on an ongoing basis, but
• 52:43
  is the mind share around alternative reserve assets going to going to get stronger moving
• 52:51
  forward? And if so, what does that mean for gold, Bitcoin, silver even moving forward?
• 52:57
  I think it's going to start at gold. Silver, because it's needed, ultimately,
• 53:07
  it's counterproductive if you really bid up silver. I mean, I think silver is going higher,
• 53:11
  Don't get me wrong. But half of it, half of its use being industrial use.
• 53:16
  It starts to be counterproductive if silver is used as a reserve asset.
• 53:20
  So I don't think silver is going to be a reserve asset in any real way.
• 53:23
  I think it's to start with gold. And I think it's I think it's started.
• 53:29
  I think it's accelerating. Obviously, gold's higher than treasuries and global FX reserves, as we speak, that surpassed that last year.
• 53:37
  I think it's going to continue simply because there's just trust is breaking down.
• 53:46
  And if you don't hold it, you don't own it.
• 53:48
  And the repeated weaponization of the dollar and treasuries and FX reserves, et cetera.
• 53:53
  So I think it'll start with gold.
• 53:56
  And I think you'll see trade net settle in gold.
• 54:02
  I think China has that framework completely set up.
• 54:06
  It continues to boggle my mind. It's like hiding in plain sight.
• 54:10
  There's a yuan clearing, offshore yuan clearing bank in every single major gold hub.
• 54:15
  London, Switzerland, Singapore, UAE, Hong Kong, and of course in Shanghai.
• 54:26
  Why? Well, because if China's paying more with yuan, particularly in commodities,
• 54:33
  there's going to be commodity producers ending up with some excess yuan and they're going to need to
• 54:39
  do something with it other than buy chinese goods with it solar panels and batteries and
• 54:43
  etc um and they're recycling into gold you can see it clear as day if you look at switzerland's
• 54:50
  gold exports to saudi arabia it's astonishing chart right so there's an offshore yuan clearing
• 54:56
  bank in switzerland and swiss gold exports to china they are like this over the last four years
• 55:02
  since we sanctioned Russian FX reserves,
• 55:06
  which is interesting because I had two different people
• 55:08
  that don't know each other,
• 55:09
  that are longtime veterans in the oil market,
• 55:11
  say to me, and I quote,
• 55:13
  the Saudis were horrified, quote horrified,
• 55:16
  by the US sanctions of Russian FX reserves.
• 55:22
  And so now it looks like you've got Saudi
• 55:24
  net settling some portion of their oil sales in gold.
• 55:28
  It's just a fact.
• 55:29
  You know, if you look at the trade flows,
• 55:30
  if Saudi purchases of gold from,
• 55:32
  So, you know, say Swiss exports of gold from Switzerland to Saudi are like that.
• 55:37
  Some portion of Saudi's oil exports are getting settled in gold.
• 55:43
  Why?
• 55:44
  Well, they're either converting dollars or yuan.
• 55:46
  It doesn't really matter.
• 55:47
  You know, it's which Chuck E. Cheese token you use to buy the gold.
• 55:49
  Doesn't really matter.
• 55:50
  But my point is the Chinese are facilitated to make it very easy to do that.
• 55:55
  And so that to me is the roadmap.
• 55:58
  I think that's going to continue.
• 56:00
  I think the Chinese are going to continue to do that.
• 56:02
  I think others in Asia will do that.
• 56:04
  And I think what we're seeing in, you know, if you call up a chart of the two-year Japanese government bond yield against gold over five years, like they're the same chart.
• 56:14
  Japanese people are very monetarily sophisticated.
• 56:17
  They're smart people.
• 56:18
  Like they know where this is going.
• 56:19
  They did the same math Kyle Bass did on Japan 15 years ago.
• 56:23
  Like once it gets to a certain number, they're screwed.
• 56:26
  There's no way out.
• 56:27
  So what do you buy when you buy gold?
• 56:30
  So now Bitcoin, I think, is ultimately, I think, going to serve that role as starting with sort of the people, if you will, rather than sort of the officialdom.
• 56:46
  But in the short run, it trades as sort of high beta tech.
• 56:50
  And if rates are going up on high beta tech, not good.
• 56:54
  Rates are going up on high, you know, on Bitcoin is not good for now.
• 56:59
  Now, ultimately, it's going to be really, really good because there's nothing more bullish for a neutral reserve asset than sovereign insolvency.
• 57:09
  But between here and there is the $64,000 question.
• 57:12
  Yeah, right.
• 57:13
  And to the point about weaponization of treasury assets against your geopolitical adversaries.
• 57:22
  I mean, we're seeing the headline over the weekend out of Iran is that they're going to use Bitcoin to settle this Hermuz safe insurance.
• 57:33
  I didn't see that.
• 57:35
  Yeah, I'm pretty sure it's legit.
• 57:36
  And this is two weeks after OFAC coordinated with Tether to freeze $344 million of Tether that was believed to be the IRGCs.
• 57:47
  I think the point, it's like a double whammy of an own goal, because I think the Genius Act and this leaning into stablecoin infrastructure by the current administration and the U.S. banking system is with the hope of like, hey, we need to drive demand for these treasuries, at least on the front end of the yield curve.
• 58:10
  and they're already weaponizing their ability to freeze these assets.
• 58:15
  And you're pushing people outside of the U.S. border away from it almost immediately.
• 58:22
  It reminds me of the scene in Naked Gun, right, where they slap their heads
• 58:26
  and everyone facepalms in the audience with Leslie Nielsen and OJ Simpson, what have you.
• 58:36
  Yeah, and there's another sort of contradiction in there that people aren't talking about yet.
• 58:40
  which is on one hand, stable coins are going to save us because we're going to be able to get all
• 58:44
  this demand. And on the other hand, Warsh is going to save us because he's going to cut rates at the
• 58:49
  front end and he's going to sell off the balance sheets to drive up the long end. And then he's
• 58:53
  going to remove regulations on banks and banks are going to buy a bunch of treasuries. But now
• 58:58
  with clarity, we're trying to also undermine the United States banking system by being able to pay
• 59:03
  interest on stable coins, which I had a very veteran banking analyst last week be like, dude,
• 59:08
  If they do this, you could see bank runs in places like this is, you know, as people take their money out of banks and put them in stable coins to get paid because it's backed by the guard.
• 59:16
  Like you don know what you creating So like what do you want Do you want stable coins to buy treasuries and T And or do you want banks to buy treasuries and T Because right now you two different
• 59:32
  hands in the same administration or sort of working at cross purposes to do that. And I
• 59:38
  don't know the right answer. And, and, and, and, oh, by the way, let me layer another one on there.
• 59:41
  all of the, you know, emerging market people are going to buy stable coins on their phones,
• 59:47
  right? And, you know, those are gonna be back. No, they're not. Because you want to know what,
• 59:51
  because in four months, they're not gonna be able to afford frigging food because you invaded Iran,
• 59:55
  you moron. And so now you attack Iran. So now food costs are up, energy costs are up. So you're,
• 1:00:01
  you're undermining the emerging market people that are supposed to be like stockpiling dollars
• 1:00:07
  to buy T-bills. They don't have any savings. It's going to go to buying them wheat.
• 1:00:12
  It's going to go to be buying them soybeans across the developing world, that these were going to be
• 1:00:17
  the people buying hundreds of billions of treasuries through stable coins because they
• 1:00:21
  want the American dollar. Yeah, they want the American dollar. You know what they want more
• 1:00:24
  than the American dollar? Friggin bread, friggin gasoline, friggin diesel. I'm getting worked up
• 1:00:30
  because I just watched the commentary relative to the actions of the government. And they're not
• 1:00:37
  equating to like, like, okay, see how these things interact with each other. So like
• 1:00:43
  the Trump administration says they want this. And then, yeah, you sanction tether and then you
• 1:00:47
  invade it or you attack Iran. You hurt your buyers of T-bills throughout the emerging world
• 1:00:52
  because they can't afford food. Thanks. Nice job, guys. Heck of a job, Brownie. And then,
• 1:00:57
  you know, you've got, you're trying to undermine the banks with clarity on one hand,
• 1:01:00
  while also getting the banks to buy more treasuries with what Warsh is doing.
• 1:01:05
  What? Like, what's the plan here, right? We love Modern Family, right? What's the plan, Phil?
• 1:01:13
  What's the plan? What are we doing? Because it looks to me like you're just effing it up as
• 1:01:18
  you're going along and just making it up and flying to sound. What's the strategy? I don't know.
• 1:01:23
  It doesn't make sense to me. I can't.
• 1:01:27
  and in the meantime what's the chinese plan trade whatever you want
• 1:01:31
  settling in gold here take the gold home
• 1:01:33
  that's to me like all right i'll just do the gold for now
• 1:01:38
  you know america call me when you're sober well to that point how do we get sober in your mind
• 1:01:45
  what needs to be done
• 1:01:46
  um what can we do to dry out here
• 1:01:57
  here too, it's cross purposes, right? Like people are like, look at how much China's producing.
• 1:02:04
  Yeah. What did China do to do that? Well, they crushed their housing market to drive speculative
• 1:02:09
  housing capital into manufacturing more. They crushed the consumer. Stock market's done crap.
• 1:02:17
  Like, well, great. So all we have to do is crush housing and crush the stock market. And then we
• 1:02:20
  can actually have non-inflationary reshoring of the American industrial base. And you're like,
• 1:02:24
  stock market backs the treasury market wrong next answer yeah well we can crush housing
• 1:02:32
  banks blow up now what wrong answer next and like so i
• 1:02:39
  i i think the answer is ultimately
• 1:02:47
  we
• 1:02:54
  effectively cap yields like we we just like just keep going like okay like if you're going through
• 1:03:04
  hell keep going you know all right fine the beautiful that's all right so you're you have
• 1:03:11
  Warsh come in, have Warsh cut rates. Here's what's probably going to happen. This will piss off
• 1:03:18
  everybody. Warsh is going to come in. He's going to cut rates. Inflation is going to soar, but
• 1:03:27
  they're going to lie about it. Inflation will be running 12% to 15% easy, but they're going to tell
• 1:03:31
  you it's four, four and a half. Warsh is going to sell bonds into that. So the long end will rise.
• 1:03:39
  banks will step in and buy those. He'll pull the regulations.
• 1:03:45
  Besant, et cetera, will try to cap gold and Bitcoin, despite them being pro-Bitcoin
• 1:03:52
  administration. We're the most pro-Bitcoin administration in history, and they are,
• 1:03:57
  except they won't be because they'll be capping it in price because they're going to want the
• 1:04:00
  funds to flow into the tech bubble to keep that going, to try to drive that. Unemployment is,
• 1:04:08
  We will go from a no hire, no fire market to a no hire and fire market in the job market.
• 1:04:19
  Gold will be capped where it is.
• 1:04:20
  The Chinese will just keep waving it in.
• 1:04:23
  Bitcoin will actually not rise despite the inflation.
• 1:04:25
  It will, you know, we'll have, we'll have, remember we had the 58K crowd, whatever it was for like two years.
• 1:04:31
  We'll have the whatever the the 58 to 72 K crowd for the next two to three years while they do this.
• 1:04:40
  How will they cap how they cap Bitcoin prices?
• 1:04:43
  I have no idea, but they will.
• 1:04:48
  And.
• 1:04:51
  Gold will trade 45 to 47, 42 to five, whatever, trying to drive the capital all in there.
• 1:05:01
  Meanwhile, industrial production will hum in this country.
• 1:05:05
  Inflation will rip in this country.
• 1:05:08
  The 10-year will trade no higher than 4.75%, maybe.
• 1:05:21
  Now, I could see something like that happening.
• 1:05:25
  My base case is that what we're going to get is stocks up huge in dollars,
• 1:05:30
  and stocks down in Bitcoin and stocks down in gold.
• 1:05:36
  I don't think they'll be able to control Bitcoin or gold ultimately.
• 1:05:41
  I think there's been some version of what I just described
• 1:05:44
  already sort of been happening slash underway.
• 1:05:46
  Can they continue to do that forever?
• 1:05:48
  No, because they don't control the supply chains China does.
• 1:05:53
  Yeah.
• 1:05:53
  Yeah. And it's out of all your years of analysis and following markets, how would you describe this environment?
• 1:06:07
  Unique. There are elements that rhyme with with the first quarter of 2000.
• 1:06:14
  Absolutely. Around some of the tech stuff and the breadth and what have you.
• 1:06:18
  but remember we were very low debt we were at peace like i i've told my boys mold you know my
• 1:06:25
  boys are 20 25 23 and 21 this year 20 this year um that that was peak america like 95 to like 01
• 1:06:39
  it was like that was peak America.
• 1:06:44
  Not to say we'll never get back there, but like that was, you know,
• 1:06:50
  just one darn thing after another since then, right?
• 1:06:54
  9-11, bond crisis, stock crisis, and the war, and the great financial crisis,
• 1:07:01
  Syria, like just one darn thing after another.
• 1:07:05
  and so this is happening this this bubble-esque type environment is happening into
• 1:07:14
  very different geopolitical we are no longer the only game in town we were the only game in town
• 1:07:19
  in 2000 like Russia was on its ass China was still nothing uh you know still coming back Europe was
• 1:07:27
  like eh right they just formed the euro they were figuring out what they wanted to do when they grew
• 1:07:32
  up or what they wanted to be when they grew up. The boomers hadn't sort of, the entitlements
• 1:07:44
  hadn't sort of blown up the fiscal side. The cereal, we still had free markets. The markets
• 1:07:50
  aren't free. Come on. We still had democracy. People are like, well, we're democratic, so
• 1:07:55
  we're going to win this great power competition. Are we? Are we really democratic?
• 1:08:02
  Like, do democracies have foreign powers dropping tens of millions of dollars into a House vote in Kentucky?
• 1:08:10
  We're a democracy asterisk.
• 1:08:12
  That's what I would say.
• 1:08:14
  You know, we're democracy-esque.
• 1:08:21
  All these things are different.
• 1:08:22
  That's why it's so unique.
• 1:08:23
  We've never had this transformational technology, which is both exciting and horrifying at the same time.
• 1:08:32
  We've never had the geopolitical sort of balance.
• 1:08:36
  We haven't had a great power competition, a real great power competition.
• 1:08:40
  Like, and don't tell me about Japan.
• 1:08:41
  Like we were militarily occupying Japan.
• 1:08:44
  China and Japan are apples and oranges.
• 1:08:46
  Soviet Union, in some ways, yes.
• 1:08:48
  But here too, the Chinese against the Soviets, it's not even close.
• 1:08:53
  The Soviet economy was never on a purchasing power parity basis close to the size of ours.
• 1:08:57
  The Chinese have already vastly surpassed ours on a PPP basis.
• 1:09:02
  Um, you've got the, you know, the sort of the entitlement side where, you know, which
• 1:09:08
  is leading to generational warfare, right?
• 1:09:10
  We've got the biggest, richest generation in human history is getting 80% of federal
• 1:09:15
  government spending to them, even though they're already the richest generation.
• 1:09:19
  Um, you know, we've got the first American generation where the kids are less going to
• 1:09:24
  be less well off than their parents.
• 1:09:25
  there's all of these things that are that are different and unique in into this high debt
• 1:09:33
  situation america's never had 120 debt to gdp after world war ii here 110 and we got it down
• 1:09:38
  to 55 in five years um so it is it is historically unique yeah well to your point i know you're
• 1:09:49
  discussing uh your oldest son uh before we hit record and you don't have to expand on what we're
• 1:09:54
  talking about specifically but i'm just curious because something i think about a lot of gen z
• 1:09:58
  like what what are their their views on this life coming out of college being in college how are they
• 1:10:05
  viewing things they've i mean i'm sure because they're your sons they're they're a bit more
• 1:10:11
  optimistic because i i trust that you raised them the right way to think the right way to approach
• 1:10:15
  stuff but do they have commentary on their generation and what the uh what the vibe is
• 1:10:20
  yeah um
• 1:10:24
  You know, and it's hard to tell, right? Because a 25 year old, there's always some element of
• 1:10:32
  nihilism, right? And, you know, at that age, no matter what. So it's hard to tell like how much of
• 1:10:36
  it is that age versus this generation. They're acutely aware of, you know, sort of the relative,
• 1:10:49
  the generational stuff. Um, you know, their grandparents are rich and they're poor to be blunt.
• 1:10:57
  Um, they, and, and the internet is so powerful in that they can sort of like look up and say like,
• 1:11:07
  okay, where, where, how were you doing when I was this age and what have you? And yeah,
• 1:11:12
  every, every generation has its, as it's, has its challenges for sure. Um,
• 1:11:17
  I will tell you, I think there is a growing understanding and fear of AI.
• 1:11:27
  They understand that it's there.
• 1:11:29
  They understand it's coming.
• 1:11:32
  It's almost like, you know, like Jaws where you haven't seen the shark yet, but you've
• 1:11:36
  started to see the bodies wash up on the beaches and like, you know, that ain't a motorboating
• 1:11:40
  accident.
• 1:11:42
  Um, yeah.
• 1:11:47
  yeah, I mean, it's, it's,
• 1:11:52
  I don't want to put words in their mouth. You know, we talk about, you know,
• 1:11:57
  a lot of these serious things, right? Like, you know,
• 1:11:59
  three draft age boys, they've been concerned all year. Like you really,
• 1:12:02
  you know, do you think they could possibly do a draft? Like, you know,
• 1:12:05
  that kind of thing. I don't think they would.
• 1:12:10
  It's, it's just a,
• 1:12:11
  I think a pretty weird time for them because there's just,
• 1:12:13
  it's a period of for that generation.
• 1:12:15
  It's just such rapid change. You've got a lot of kids that went to college and are coming out.
• 1:12:22
  Like we know somebody, they got a economics degree at Yale and then they got an advanced degree in Yale.
• 1:12:29
  They speak three or four different languages. They can't find a job.
• 1:12:33
  That has never happened in the history of America.
• 1:12:35
  I would be willing to bet good money that somebody with two advanced degrees from Yale University, multilingual, three or four different languages, and they can't find a job.
• 1:12:47
  And there's a lot of them of their friends can't find jobs.
• 1:12:52
  Why?
• 1:12:54
  There's a whole bunch of what the American economy is.
• 1:12:57
  AI does better.
• 1:12:59
  Administration, math, science.
• 1:13:03
  you know it does a lot of it better a lot of it cheaper and so like yeah eventually it's gonna be
• 1:13:08
  great for everybody's gonna grow but like between here and there you know it's it's like lord farquat
• 1:13:13
  right some of you may have to die and that's a sacrifice i'm willing to make
• 1:13:18
  no that's why that's why i love talking to you especially about the kids because i'm
• 1:13:24
  i'm gonna be closer to the beginning of my journey with raising children my oldest is six
• 1:13:29
  now youngest is eight months so i've got some time to figure it out but something i think about
• 1:13:33
  constantly it's like okay like what should you be learning to be prepared for this this world when
• 1:13:39
  uh when you when you go out on your own 12 years from now i think it's all about just
• 1:13:45
  maintaining lines of communication with them you know when it was funny because right like when my
• 1:13:50
  when my oldest was seven we moved into this house and this was our pine box house and i signed the
• 1:13:58
  mortgage the week Lehman went under. And I didn't know I was going to have a job in six months.
• 1:14:02
  And so like they're running around loving the house. The second one was so seven, five and two.
• 1:14:08
  And they look back and they're like, God, the world was insane, dad. How did you like,
• 1:14:11
  we didn't know that. I said, I know your mom and I, you know, we didn't talk about it around you.
• 1:14:16
  I wasn't sure. I thought I just signed a mortgage. I wasn't able to pay back. I was not going to have
• 1:14:21
  a job. Who knows? World's crazy. But they never knew. So like there are things that kids need to
• 1:14:27
  know and things that kids don't need to know. So like that was one thing we did. And then as they
• 1:14:31
  got older, we started having more of these conversations. Hey, do you remember this,
• 1:14:35
  that, that vacation we went to in, you know, when I was getting ready to start FFTT,
• 1:14:39
  we went to this vacation up in Niagara Falls, which for us is like a three hour drive. And we
• 1:14:44
  rented this house on, and it was like $92 a night. And it was like, that's what fit in the budget
• 1:14:53
  because we were saving money. Cause I was not going to take outside money from investors.
• 1:14:57
  I wanted to be able to write what I wanted to write. And I said, remember that vacation? We did
• 1:15:01
  that because we were literally like scraping money together, putting it all away to get ready for me
• 1:15:05
  to leave my job, have my salary go to zero without taking you boys out of school, without taking
• 1:15:10
  money out of your college fund. And they're like, we didn't know that's why you did that. We just
• 1:15:13
  thought the arcade was awesome. And then there's like this shitty little arcade in this house
• 1:15:18
  with like two video games. And they thought it was like the greatest vacation history. So that's
• 1:15:22
  another thing I would tell parents is like what you view as like good or bad is not what they do.
• 1:15:31
  Like what they, they just want to feel loved. They want to be with you. They want to enjoy an
• 1:15:35
  experience and it doesn't have to cost a gazillion dollars. So, and then as they continue to get
• 1:15:41
  older, I just tell them like, look, like the only thing I ask of you, you just keep getting up.
• 1:15:47
  Like you're going to get knocked down. Well, now we're just brutally honest about like, listen, AI,
• 1:15:51
  this, that, the other. And, and like, and honest, like, I don't know, this could, I could be totally
• 1:15:57
  wrong. And this is all gonna be awesome. And, and, but I'm going to tell you what I think. And all
• 1:16:02
  I'm asking is just get up. You're gonna get knocked down, get up, you'll be fine. And if you can't get
• 1:16:08
  up, you call me and I'll help you get up. Like, that's, that's about it. So it's, I think just
• 1:16:14
  tell them what they need to know and then start telling them things and then openly share you
• 1:16:21
  develop that relationship you support it you show it you model it with your with your wife and your
• 1:16:27
  spouse whoever that might be and you know what communication looks like what a good relationship
• 1:16:34
  looks like you know with your parents you know with them and you teach them to empathize you
• 1:16:41
  you teach and be flexible. You teach him to critically think. And then like,
• 1:16:46
  you hope for the best. And it's scary as hell.
• 1:16:52
  It's scary. It is fun. There's a lot of fun. I think that's a good,
• 1:16:54
  Oh my God. It's, it's amazing. It's the best thing. Like it is,
• 1:16:57
  it's the best thing I will have ever done. It's the greatest honor of my life.
• 1:17:01
  And it's just like, you're like, well, when they're older, then I won't worry.
• 1:17:05
  Like people ask, someone asked me one time,
• 1:17:06
  when do you stop worrying about you? Cause I had, we had kids relatively young.
• 1:17:09
  when do you stop worrying about them? I said,
• 1:17:11
  you'll stop worrying about them when you're in your grave. That's it.
• 1:17:13
  Maybe that's it. The worries change. That's all, you know?
• 1:17:17
  Yeah. No, I think this is good.
• 1:17:20
  A good grounding topic to end the conversation on because that's really what
• 1:17:24
  matters at the end of the day.
• 1:17:27
  And trying to just keep,
• 1:17:29
  keep your sanity and anchor back to the family and make sure that you're being
• 1:17:33
  good, present father or mother and doing your best to make sure that your
• 1:17:38
  steward steward them in the right direction as we go through for sure these crazy changes in the
• 1:17:43
  world the world's going to change it always has changed it will always change but um i think uh
• 1:17:48
  understanding how it's changing is important that's why i love uh catching up with you
• 1:17:52
  well as soon as you figure it out you let me know i'm just like trying to hang on
• 1:17:57
  oh well oh well this was great um thank you again for your time i always appreciate it luke
• 1:18:03
  no thanks for having me on it's great great chat with you as always all right peace and love freaks
• 1:18:08
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• 1:18:11
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• 1:18:58
  And until next time.
• 1:18:59
  Okay.
• 1:19:03
  Thank you.