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Ten31 Timestamp: Spirit of '63 · TFTC: A Bitcoin Podcast

0:00
Mr. Arnold meeting in the afternoon on a Monday.
0:04
Paper it for us.
0:05
You know, you just, you do what you can.
0:07
The situation always requires extensive monitoring
0:10
and sometimes that forces you into an afternoon rip
0:12
instead of a morning rip.
0:14
I mean, you don't have it in the slides,
0:18
which are beautiful, by the way.
0:19
I'm excited to share the slides with you guys
0:21
because it's a new design that John worked tirelessly on
0:24
for the last week.
0:26
Don't have the Anthropik S1 in.
0:28
How about some shoot from the hip reaction to the Anthropic S1?
0:33
It hit me, you know, it hit at what, like nine, right before market opened.
0:37
So we'll have a lot to talk about on it next week.
0:40
I haven't processed much of it.
0:42
I've not gotten the clankers on it yet sufficiently, but it definitely looks at first pass like a little more of a pathway to some kind of long term sustainable business there relative to what market was pricing in last week.
0:55
Last couple of weeks have been quite bleak for the AI trade.
0:58
as it seems like it's becoming increasing consensus that there is effectively no long-term
1:04
defensible business model for the labs. I think as, as is often the case in trades like this,
1:10
and especially, you know, you may argue like it's kind of getting late cycle. You're seeing a lot
1:13
more kind of amplitude on the positive side and the negative side. The narratives just get like
1:17
more extreme. It's, it's, it's more extremely over and we're more extremely back kind of every time
1:22
different headlines hit. So I think we maybe got a little negatively over positioned and oversold
1:27
last week, the last couple of weeks. But yeah, it's thus far looks a little better than I think
1:33
people had feared on a kind of unit economics basis and sustainability basis. And so I think
1:39
probably the trade lives to fight another day, even if we are getting somewhat late cycle here.
1:45
Yeah, I was pleasantly surprised at the upside. I think before we pull up your beautiful
1:50
new slides will pull up this. I think this is really the chart of the S1 is the increase in
1:57
revenue per dollar of compute. And it's gone up, I think, 26% since Q1 2025 or 26X, excuse me,
2:05
not 26X. That would be 5X, excuse me, since Q1 2025. So this 5.2X is here in the big numbers here.
2:15
I should just read the slide instead of trying to do the math myself.
2:19
But I think this is very promising if you can get more tokens per CapEx and monetize those pretty quickly or pretty efficiently.
2:31
That's a pretty bullish sign in my mind.
2:34
Yeah, and I mean, they've got some crazy stats on net dollar retention, too, and basically just the degree to which your existing users not only re-up but spend more on a per-account basis with them over time.
2:44
I forget what it is off the top of my head. Like I said, we'll definitely summarize this in more detail next week.
2:49
But it's, you know, blows typical kind of like SaaS metrics out of the water.
2:54
It's, you know, insane degree of scaling and they've seen so far.
2:58
And you've also, I believe there are some stats in there about the degree to which they've, you know, have penetration into Fortune 500 companies.
3:06
So kind of, you know, giving a little bit of complication to the narrative that this is all just kind of a VC runaround and the only big spenders on AI or VC funded companies.
3:16
There's some ramp data that was going around earlier last week that was kind of seeding this narrative.
3:21
And so they've got, you know, decent Fortune 500 footholds and penetration.
3:25
But there's also, you know, a lot of there's a stat in there about I believe the penetration kind of within any individual account is still quite low.
3:34
So, you know, the argument would be if you're going to be a bull that there's, you know, this massive amount of kind of runway in these, you know, legitimate cash flowing companies, you know, that are not that are well outside Silicon Valley.
3:47
And it's, you know, first inning basically for penetration, dollar penetration into those big kind of real, more mature companies.
3:54
So I think the bulls definitely have maybe a little more fodder this morning than they did last week.
4:00
But like I said, we'll definitely come back with more on it next week.
4:04
Yeah, can't wait for that. Now on to the slides, the beautiful slides, the most beautiful slides that we've ever presented on the show. I think they're the most beautiful slides ever, if you ask for my objective analysis. But I think this is a new format for the show here. We got a pretty dedicated show. We'll start in Res Media with the title, Spirit of 63. We'll get to what century 63 was towards the back half of the show.
4:33
with malice toward none, with T-bills for all.
4:36
But we're going to go through some of the geopolitical happenings of the last week.
4:42
But then I think a big chunk of the last half of the episode
4:46
will be playing around with this thesis that you laid forth
4:50
in this timestamp over the weekend.
4:52
Well, as always, it's all connected.
4:54
Get your Pepe Silvia diagrams out.
4:56
Get your tinfoil hats on because everything in the front end connects to the back end.
5:00
And starting on the front end, show me the money.
5:02
building on the A, trend in the trade,
5:07
diving into the financials of Meta specifically Show Me the Money is what you have this title but basically looking at the operating cashflow versus CapEx in I think Q3 of this year
5:18
was the first time that Meta posted a cashflow negative
5:22
to their financials because they are building out
5:25
the computer infrastructure
5:27
and putting a ton of CapEx into it.
5:30
Yeah, so this is kind of, you know,
5:32
we're going into hyperscaler earning season in general,
5:35
but then hyperscalers will all be this week
5:36
other than Meta, who was last week.
5:39
So this is a rightfully so closely watched set of releases
5:43
for views on sustainability of the build-out.
5:48
And the Meta release last week was interesting
5:50
because on a lot of fronts, very impressive
5:53
and had a lot to show for it.
5:56
But notably, it was the first time in over a decade
5:59
that they posted a negative free cashflow quarter.
6:02
This has historically been,
6:03
this along with Google in particular,
6:05
has been one of the craziest cash-flowing businesses in history. The unit economics
6:13
are fantastic and requires very little incremental capital historically to get crazy growth.
6:20
That's driven crazy incremental profitability. That's been the case until the last couple of
6:25
years, of course, when the free cash-flow machines of these companies have started to reverse and get
6:30
more and more squeezed. And this is culminating finally in this quarter, this Q3 print where
6:36
CapEx finally went above operating cash flow. So effectively, definitionally negative free cash
6:40
flow. And additionally, Meta called out what they termed as an increasingly challenging environment
6:47
for raising capital given competition with Google and SpaceX and the labs and a variety of others.
6:55
And also released some filing that indicated that they would likely be raising equity soon
7:00
as well as a new share class to preserve Zuckerberg's control while issuing more equity.
7:07
And this morning, actually, it's not on here, but they announced a plan for, I believe,
7:11
up to $95 billion in equity issuance across a couple share classes.
7:15
So kind of interesting that we've seen good print with a lot of really positive news to point out.
7:22
This is the quarter that Muse launched.
7:26
And although maybe most of the benefit of that would have come in October,
7:29
So, you know, wouldn't have shown up in the September quarter. But in any case, a lot to fundamentally to be positive about. But stock was down 7% next day on the capital spending plans going up once again. And I think the market generally reckoning with the idea that this is, you know, the there will be recourse to, you know, the shareholders pockets to make these incremental investments if necessary. Right.
7:50
It's not just going to be, we're past the point where officially kind of, you know, crossing the
7:54
Rubicon, at least for now on this stuff being funded with free cashflow, which it basically
7:58
had been up until now, you know, debt had been, uh, debt issuances had, had been increasing,
8:03
but still like a, you know, the majority of this spin had been just the free cashflow of these
8:08
amazing engines that these companies had built, but now officially past the tipping point where
8:12
that's not the case. And, you know, it's going to mean both, uh, potentially more debt financing
8:18
in an increasingly challenging, as they said, environment,
8:20
but then also equity financing as well,
8:22
which is a very, very new thing for companies
8:24
that just a couple of years ago had been,
8:26
their primary kind of use of free cashflow
8:29
had been aggressive stock buybacks, right?
8:31
So kind of running the other direction.
8:33
But I think the one big piece to keep watching
8:35
with all this is really like,
8:37
it's maybe twofold that you're pointing to it
8:39
on the screen here,
8:40
but is what's operating cashflow doing, right?
8:42
So before you get into the CapEx piece,
8:45
which we all know is going up to some degree,
8:47
to some meaningful degree. And we can debate, you know, where that should go and what they're
8:51
ultimately going to do in any given year. But, you know, it's all a non-starter if that blue line,
8:57
that blue bar isn't kind of directionally rising meaningfully. And I think, you know,
9:01
it's interesting. The last, this Q3 number was a little above the prior two quarters,
9:06
below last Q4, but then decently above, much higher, you know, year over year. And then you've
9:11
seen just this kind of over the last couple of years, as the ramp has really started,
9:14
the CapEx ramp, you've also seen a ramp in operating cash flow. So you are getting,
9:18
you know, some level of kind of commensurate return. It's hard to say, like, you know,
9:22
just looking at this chart, what is actually attributable to the AI build. But if you kind
9:25
of decompose, you know, basically like finished data centers in service and what the, you know,
9:30
maybe the estimated kind of ROIC on those has been, generally seems like it's been quite high,
9:34
you know, in the 20%, 30% type range for finished capacity. Right now, a lot of this,
9:40
the numbers are getting swamped because what goes into a ton of this CapEx in any given quarter is
9:44
like work in progress capacity,
9:45
like it's going into data centers
9:47
that have not been completed.
9:49
And so you're getting somewhat labored with,
9:51
you know, nonproductive assets and these numbers,
9:53
but you really need to see for any of this to continue, right?
9:56
You really need to see operating cashflow
9:58
continue to go up and to the right
9:59
and probably hopefully in like an inflecting way.
10:03
So we're seeing that so far,
10:05
but I think everyone's waiting here on Knife's Edge
10:07
to actually see if that's gonna continue broadly
10:10
for the Hypers.
10:14
I think you're on mute.
10:20
I said I pulled this chart up as you were saying that because I think it is one of the stats that you want to look at if you willing to try to project whether or not that operating cash flow is going to continue to go up and to the right
10:31
And from what I understand, this 2.182 million daily active users, I believe this was 30 days, 60 days after Muse launched on October 5th.
10:44
If I recall correctly, it has faster DAU growth than ChatGPT when it initially launched.
10:52
And so, like you said, the Muse numbers won't show up in Q3 numbers.
10:58
We'll find out in January or February when Q4 numbers jump.
11:02
But this is what you would want to look for.
11:04
You have to imagine that they're monetizing this pretty well.
11:07
Yeah, I mean, I think that I agree.
11:09
I think the bears would come back and say, well, yeah, but the retention is so much worse than, you know, chat GPT.
11:13
And I think people will have their own opinions on that data and what it means for like the near term.
11:20
And like, I think as soon as anyone said you showed it, popped up a chart showing that retention wasn't as good, then everyone's like, oh, well, we're calling the top on, you know, agentic use cases.
11:27
because no one actually, the vast majority of people don't actually need an agent to do anything.
11:31
I think that's probably premature. It is fair to say like the retention maybe doesn't look as good
11:35
as I'm sure Zuck would like to see, at least if the public data is correct. But yeah, this is a
11:41
real pivot point here because as we'll talk about a little later, the financing capacity we talked
11:46
about last week too is getting tougher. And we're now at the point where the legacy, the free cash
11:52
of the legacy business is no longer enough to kind of cover up for kind of a multitude of sins in the
11:57
financing market. Yeah. And staying on the AI trend here, stocks are down, rents are up. And
12:04
another big question, like what is the value of the GPUs, the long-term value of the GPUs
12:09
that are being plugged in? And depending on who you ask, the answer to this question can go in
12:16
two very different directions, but we're looking at the numbers here. And if you're looking at
12:20
the cost per GPU hour over time across all the different models that NVIDIA has released,
12:30
it looks like it's going up and to the right still, as I guess demand for compute is outstripping
12:35
the supply of plugged in GPUs. Yeah, we've talked about Rorschach test charts on this show before,
12:45
and I think this is definitely one of them. And the typical thing to do is to,
12:50
The one on the right here, the A16Z, they have good charts on this and I think pulling a lot of it from Silicon Data and Oren.
12:56
But the other thing that people will do is overlay this with an index, like a weighted index of token pricing and how that's falling off a cliff.
13:04
And I think people will see kind of what they want to see in that.
13:07
And I think there are arguments you can make either way on which kind of wins out or what they mean in tandem.
13:14
But I think it's like we've referenced this before, at the very least, like the A100s.
13:19
So a six year old unit, multiple generations back, still being above where they were, you know, at the start of this year.
13:26
And I think even if you extend it back even further above where they were, like even a year before that, I don't remember what point is, like very old generation, multiple generations back that the strongest version of like the bear case on all this was that, you know, or a strongest version would be like the obsolescence cycle is just so quick that, you know, these hyperscalers and other companies are kind of booking these units.
13:49
on say like a five or six year or something appreciation schedule and actually it should be
13:53
like you know 18 months it's really like two years because the the innovation cycle is so fast that
13:57
these things just become obsolete and become like paperweights and you know just we're definitively
14:01
like not seeing that at all in the data yet and of course on the the the newer end you know the
14:06
the b200s i'm sure the the latest generation prior to kind of a full rollout of uh rubens and even
14:12
you know hoppers h100s h200s all kind of you know ripping or holding in very very well um you know
14:18
you know, again, despite being multiple generations back and having kind of a new product cycle coming
14:22
up, you know, I think it's at the very least, I think the most strident bearers have to look at
14:28
this and be like a little humble about the way that these trends are moving relative to what
14:32
they would have predicted, you know, a couple years ago. And yes, absolutely. It's the case
14:37
that some of this is influenced by just like the fact that, you know, you're in a shortage
14:41
environment, right, of pretty much everything that goes into the stuff, not just the units themselves,
14:45
but of course, like powered land and actual shell capacity that's up and operating. And
14:51
you know, that you could say like, well, these prices are getting artificially driven up by
14:55
that scarcity. But the reality is at the same time, like none of those bottlenecks like evaporate
14:59
quickly on any of the physical side of things, whether it's the land power and shell or whether
15:05
it's the actual, the chips and the racks themselves, you know, the fabs needed to build
15:10
out those those racks and those chips are highly constrained as well yes you can say like at the
15:16
you often see that at kind of the peak of a cycle so like i said people will see what they want to
15:21
see and say well this is perfect like kind of late cycle you know peak behavior which i think the
15:25
market is kind of telling you with where multiples are on a lot of these companies that that's the
15:29
scenario it kind of discounting but in any case i think we still seeing a lot of you know fundamental data points that are just completely not what we were being forecast 12 months ago 18 months ago by a lot of people who really wanted to aggressively fade this and have been kind of calling it a bubble since 2003
15:46
But the GPUs are in warehouses gathering dust.
15:49
They're not plugged in.
15:51
Yeah, we've got the Ed Zitron argument on that.
15:54
I think we'll have some work on that in the relatively near terms.
15:58
People should stay tuned for that.
15:59
I mean, none of this should be read as like complete, you know, starry eyed AI bullishness.
16:05
I think there are a lot of ways that things can blow up and things can go wrong.
16:08
But I just I think it's worth acknowledging that, you know, there are several fundamental realities that are flying in the face of what the bear case would have been a couple of years ago.
16:18
And I think you have to respect that and think about that as we move forward with the next things we're going to talk about.
16:23
And you think about the what that would mean if that's true, like what that would mean for the overall kind of geopolitical and macro strategy that that's being run right now and that we talk about on the show a lot.
16:33
Yeah. I mean, moving on to the geopolitical realm, not that AI isn't geopolitical realm, but the more direct geopolitical implications of everything going on as it pertains to war around the world and energy markets, to your point about things not being as terrible as many would have led you to believe in the beginning of the year, particularly as it pertains to the real market.
16:56
It looks like we've got more barrels.
16:59
They are pricier, but there are more barrels of oil getting to market, coming out of the Gulf, and even higher than pre-war levels through Hormuz at more than 24 million barrels per day in the week of October 18th versus 23.3 million barrels pre-war.
17:18
but there is nuance here because not every barrel coming out of the Middle East is coming through
17:23
the straight and there are pricier routes that come with higher shipping costs and higher insurance
17:28
premiums that need to be paid. So the nuanced oil take from John Arnold, here it is.
17:33
I mean, nuanced oil take is what we've been saying for the last few months, right? That
17:37
there's, this is a Bork situation, but it's not nearly as Borked again, as I think the,
17:42
the average consensus view would have had you believe in February of this year. And we've been
17:47
seeing and pointing out data points to this effect for the last several months. But I think it's,
17:52
everyone should pause and think about how remarkable it is that the volumes are back to,
17:56
even Hormuz itself, I believe, is above pre-war levels now, which never, I mean,
18:01
the consensus mainstream view, like, never would have predicted that six months ago.
18:05
Of course, the flip side of that is, as we've said, it's, there are a lot of catches that come
18:10
with that. And what's needed to make that happen has added a lot of costs to the system that
18:16
are getting passed on and are showing up downstream. But the ability for, and it's also
18:22
interesting too, that you're still seeing volumes out of other non-Hormuz alternative
18:28
ports and sources, even as conflicts and kinetic strikes ramp up in other parts of the Gulf.
18:34
So again, just really, really resilient shipments here. And I think that's worth noting as you
18:40
consider where leverage shifts as the US and Iran and its proxies kind of
18:46
negotiate here in horse trade. The Qatar headline, I think, is really interesting here in the middle
18:51
of the slide that the U.S. will now export up to 4 million tons of LNG a year to Qatar, which
18:57
prior to the strikes on its facilities this year was a massive net exporter of LNG.
19:07
And I think just that's a long-term deal that exactly aligns with kind of the energy dominance
19:12
narrative that the administration has been pushing. And so again, just a real, I think,
19:17
highlights some underappreciated leverage that the U.S. has had increasingly throughout this
19:23
whole thing. And last piece here we were kind of talking about before the call or before the
19:28
podcast started is this potential peace deal between Russia and Ukraine that may or may not
19:35
play out. We'll see on that. Probably we'll have more to report on it next week. Whatever your view
19:40
is of Russia or Ukraine or the way that this should shake out, who should get what. It's obviously
19:46
very notable from a diesel perspective. And I think if you can get to a point where these two
19:51
countries are not trading drone strikes on each other's energy infrastructure, I think that's
19:55
probably only net positive for the diesel and the energy backdrop, which is, of course, a key unlock
20:01
for everything else that every player on this game board right now is trying to achieve.
20:06
yeah a couple comments here like on the guitar lng it's pretty insane that we're going to be
20:14
shipping this much to them we've got this deal lined up to ship this much to them starting in
20:18
2031 considering how much of a powerhouse that we're in the lng markets earlier this year but i
20:23
think the other note there is the fact this is priced off of henry hub i think if you're
20:29
an american i mean we've seen a lot of bitcoin miners trying to go to go to west texas and take
20:34
advantage of the relatively low Henry Hub prices.
20:36
I think it'll be interesting to keep an eye on that.
20:38
Does this put some, the increased demand for gas out of this region,
20:43
put some upward pressure on the Henry Hub price, which a lot of people are
20:47
banking on staying low for a long period of time.
20:50
And then number two, I'm not sure if you've been reading the farmer's almanacs for Europe, but it looks like it's going to be a pretty, pretty cold winter. And so I could see Nord Stream being pretty, pretty important from the European perspective, just saying, okay, if you guys are going to turn the gas back on, like we sort of desperately need it this winter.
21:09
And so that could definitely play a key part in any any peace talks that are going on as we as we turn the calendar next week from October to November.
21:19
So definitely things to look out for.
21:21
But I think overall, one of the other things that we've been really covering and basically trying to highlight through everything going on as it pertains to Russia and Ukraine and the U.S. and Israel and Iran is that it looks like if you believe in the Don Roe Doctrine, it's really trying to bifurcate the world and put the U.S. in a relative advantage compared to our geopolitical counterparts around the world.
21:47
And again, bringing prices back to this for LNG and natural gas specifically, it looks like if that was the goal, the administration has successfully threaded that needle.
22:00
Yeah. I mean, you're not going to, you know, I think it's always too soon to say that anything was successful or a failure with the Trump administration in particular.
22:08
They're always the fan of outcomes remains very wide at all times. And so I'm reluctant to wave any flags or declare victory.
22:16
But yeah, I do think this is these charts are really notable, both from Javier Blas at Bloomberg, just highlighting the relative kind of disparity between, you know, what is this key industrial input for basically every industrial process?
22:30
And certainly, you know, transportation or excuse me, not transportation, but factory production.
22:36
And I think like this is if you're going to do like a reshoring play, if you're going to do if you want to have some sort of industrial renaissance, whether you think because like you like manufacturing just as an industry or more or more significantly because you have realized that you can't geopolitically afford to have sensitive production assets tied to your main global rival.
22:58
You really want to be in a position where you have cheap feedstock to bring that back home.
23:03
And I think, you know, this is for now, this this disparity is going to be really important and really notable and still not totally clear to me that consensus fully appreciates the the kind of the divergence here.
23:17
But this is, you know, I think we're moving past the days where, as the headline says, law of one price, we hardly knew, you know, the idea of like kind of the just in time world of the Thomas Friedman world is flat paradigm where, you know, spreads get get armed very tightly.
23:34
And all resources just kind of flow regardless of their sensitivity or their value just kind of flow to highest bidder.
23:40
And, you know, arbitrageurs can can move freely across markets.
23:44
Therefore, you get this kind of tight convergence and all these different prices.
23:47
I think that those days, at least for the time being, are very much done.
23:52
Yeah.
23:52
I mean, and just to really drive the point home about what you were saying just a couple of minutes ago,
23:58
is the importance, whether or not, whatever your intentions are for reshoring and bringing reindustrialization to the United States,
24:07
The trends that we're seeing on this particular slide would highlight that it is a goal for the United States, and not only that it is a goal, but why it should be a goal going left to right here.
24:19
Elon Musk with his tariff fab vowing or promising to cut out Chinese toolmakers and depending on South Korean toolmakers, and he's going to force them to compete on price with China.
24:33
Pentagon basically saying, hey, we need to bring back the supply chain for drug ingredients back home.
24:39
And then conversely, China saying that they're not going to buy our tunnel machinery, our boring machines.
24:47
they are on the export control list in China now. And so again, this bifurcation and sort of
24:53
isolation between the U S and China heating up. Yeah. I, you know, it's, you said it, said it all,
24:59
like, I feel like this is just something that we have to kind of like hit on every single week
25:02
because you just see more and more of these data points. I think there's still this view that like
25:05
among some circles that like Trump just wants, you know, iPhones to be manufactured here or
25:10
something, but there you're just seeing it really kind of expand out in concentric circles to all
25:15
these different industries and anything that's like even remotely sensitive on both sides,
25:20
right? It's like I just said, it's increasingly going to be reevaluated whether, you know,
25:23
the free flow of goods should be allowed and what kind of, you know, duplicative and backup
25:30
capacity do you need onshore for, you know, sensitive industries. You know, pharmaceutical
25:35
APIs are one that I think have been under discussed and it's the one in the middle there.
25:40
I think you probably see a lot more of that over the, you know, the coming year or two
25:44
with a desire to shore up all of these different sensitive industries that in correlations to one
25:51
non-linear volatility moment, things become unavailable for strategic reasons. And that can
25:55
really meaningfully hurt a population in a way that difficult to respond to in the moment So getting away from any situation where that could happen is I think clearly just going to continue to be priority number one And like you said it a dual issue right
26:08
It's not, both sides have cards to play,
26:11
and they're clearly just going to keep playing them.
26:13
Yeah. All right.
26:13
So we've hit frontier tech in the AI trade here in the United States.
26:18
We've hit energy markets across the world.
26:22
We're talking about supply chain now.
26:24
Like you said at the beginning of the episode,
26:26
it's all connected. And now we get to the juicy part of the show where we talk about John's great
26:31
thesis, what happened in 1863, what are the parallels to today? So I'm going to throw to you
26:37
to set this up and then we'll go through the last four slides, which really dig into this pretty
26:42
deep. Yeah. You know, we try to keep it to a tight half hour here, so we'll try to go relatively
26:46
quickly, but I don't know that I would call it a great thesis, more of just a set of interesting
26:51
observations and eyebrow raising observations. But, you know, as you said, the environment that
26:55
we're in is, I think you would call it, we've said on the show before, like effectively a wartime
26:59
environment, um, in a lot of ways, certainly I hope it doesn't actually come to any kind of
27:03
kinetic war. And I think a lot of the, hopefully every actor kind of on the stage here feels the
27:08
same way. It's too late for that brother. Well, let's say like a fully global kinetic conflict
27:13
that pulls in, you know, every, every actor who's, who's currently kind of working through
27:16
proxies right now. Right. But I think it's, it's fair to say that people in charge are viewing it
27:20
as a wartime or semi wartime environment. So you've got that. We've talked about that.
27:24
You've got the most capital intensive build out. We talked about that, that this country has ever seen on an absolute basis.
27:30
Maybe not yet as a percentage of GDP, but the the rival for it there would have been the railroad boom, which interestingly was occurring in the late 19th century, right in the 1860s, 1870s, 1880s.
27:44
And that's interesting. All of those parallels kind of coming together are interesting because this past week, the OCC finalized its implementation of the Genius Act.
27:53
There are various different things that they tweaked and changed and et cetera.
27:56
You can see it on the left side if you want.
27:58
The more interesting thing is kind of what's on the right side here with Scott Besant,
28:02
Treasury Secretary Scott Besant, taking to Twitter right after this was passed to say
28:06
just as he's celebrating it and he says, just as President Abraham Lincoln's National Currency
28:11
Act of 1863 established a national framework for bank issued currency.
28:15
The Genius Act establishes a federal framework for payment stable coins in the digital age.
28:18
Okay, so it's just extremely interesting to me that he calls out 1863 in particular. And this one bill, which if we flip to the next slide, you can kind of see some extremely interesting parallels, which is that you've got heavily indebted government in the middle of what is effectively an existential crisis, kind of a wartime environment, needing financing, needing new financing routes.
28:42
and you've got this emerging new technology that's going to come, that's just kind of coming out and
28:48
is about to kind of hit its stride that requires a massive amount of capital to actually be built
28:52
and to be seized upon. And lo and behold, at that time, the solution is, or a piece of the solution,
28:59
this is like, this is a reductive story and there's more going on here, but a piece of the
29:04
solution here is establishing a framework by which national banks are chartered to issue currency
29:10
that would be, that would displace the greenbacks, which were kind of unbacked paper currency issued
29:17
by the union. There were effectively promises to pay later, promises to settle up later. Those were,
29:22
as you would expect, very extremely inflationary. There were all sorts of problems that you would
29:26
expect with unfettered kind of currency printing. So a solution to arrest that issue is let's have
29:33
national banks get chartered. They can issue bank notes and those will be backed with treasury bonds.
29:39
as their collateral held at the treasury.
29:42
This was the act also that instituted the OCC.
29:45
So the opposite of the comptroller of the currency
29:47
is the institution that Besant is celebrating here in 2026
29:52
for passing their,
29:53
or for finalizing their Genius Act implementation rules.
29:56
And lo and behold, 1863,
29:58
the act that he's celebrating
29:59
is the one that actually instituted the OCC in the first place.
30:02
And it establishes this system
30:04
whereby banks, federally chartered banks,
30:06
can issue issue bank notes that are backed by and collateralized by treasury bonds. You can see,
30:14
if you're on the video, you can see some differences between these, the two scenarios,
30:18
but I think they also, these differences are also like equally interesting because in, in the,
30:24
the 1863 framework, the collateral was a long dated bonds. So it was a longer duration. Now
30:29
we're looking at, if you look at the OCC rules, it's sub, sub 93 days, which I think is, that's
30:34
in the Genius Act too. So the duration is very short and it's T-bills. The addressable market
30:39
effectively for these nodes was only domestic. Now we're in a situation where, as we've talked
30:45
about before, as everyone who's listening is aware, stable coins in whatever incarnation
30:49
they're going to exist in have an ability to be global, to be always available. They're digital.
30:54
And so the audience is theoretically much bigger. Also, interestingly, at the time,
30:58
the US is in the 1860s, the US is not the superpower that it is today. The dollar system
31:03
doesn't have the entrenchment that it does today.
31:05
I mean, a lot of ways Britain's still in the driver's seat
31:08
and other international financiers are as well I know Tom Momongo would argue that Britain is still in the driver seat but that a later story But so at the time you know this is one of the
31:20
reasons this is happening is to restore credibility and to restore the ability to get international
31:25
financing at reasonable rates. We'll talk about another lever for that in a second. But I think
31:30
that tells you like the US was in a position of not necessarily being top dog. And now, you know,
31:35
our position, I would say in 2006 is certainly waning, certainly has a lot of a lot of issues
31:39
and a lot of, you know, it's a leaky ship.
31:41
It's a leaky ship than it was before.
31:43
But, you know, you're running this kind of gambit against a,
31:46
from a backdrop of still being, you know, top monetary dog.
31:50
You know, I think no one can really argue that that's the case.
31:52
So you're creating a framework for potentially sopping up short-dated T-bills
31:59
against a global market where you're already effectively the, you know,
32:03
the monetary leader, the top of the food chain.
32:05
And I think that's, those are like, all should be, all be very, very interesting parallels to people.
32:12
And if you want to flip to the next slide, I think we can, and then I'll stop, stop ranting and you can maybe jump in.
32:18
But you basically, then the question from all of this would be like, okay, well, that's, that's great.
32:24
That's an interesting like set of, you know, harebrained ideas that they, that the treasury might have.
32:29
But, you know, what, what is the actual like utility of any of this or like the function by which it could, you know, could work.
32:34
and you know this is basically just a slide kind of sizing up the if you want to think of it as
32:39
effectively like the market opportunity right before i really frankly as i've told people
32:43
before i think i've told you before i've definitely told dynes before i really hate the term stable
32:46
coins i just think it's it carries so much like ridiculous defy and crypto baggage that's not
32:50
going to help anybody understand what's going on i think like digital dollars or you know digital
32:54
dollar units is like is way more interesting but in any case wherever that whole market goes
32:59
I think if you size it against the where it sits today, where the kind of deficit is today,
33:05
and that's kind of your bogey for, you know, what we need, what you would need to make a dent into.
33:10
And then you look at the euro dollar system, which is close to 15 trillion by certain estimates.
33:15
If you look at USM2, which is 23 trillion plus, you could even look at broader kind of dollar
33:22
money metrics and come up with bigger numbers. But the point is, you can start to envision a
33:27
world where if some of these dollar units are now, instead of being effectively either, you know,
33:33
euro dollars, these offshore kind of like shadow bank units that exist on, you know, some unaccountable
33:38
ledger, if those get sucked into a, if even, you know, some relatively small fraction of those get
33:43
sucked into a system that is a digital dollar that's backed by T-bills, you start to make an
33:49
interesting dent into the overall deficit picture. And you think even more so the, like the big kahuna
33:56
that we've talked about is like, what if you just replaced ultimately within the Indiana Jones style,
34:00
like the dollar base money as it exists today in some form or fashion, or at least some large
34:05
amount of it with these collateralized dollar units, collateralized digital dollar units.
34:11
And you start to see like, okay, the math can maybe math. And I think the objection to this
34:16
would be like, well, okay, this is effectively just like, this is like wildly inflationary,
34:21
right? Like this is effectively just financing the government and like more or less printing
34:26
money at with your only collateral being, you know, the short end of, of the yield curve,
34:31
right? Like not even, not even the 10 year, not even the 30 year, but like a, you know,
34:35
90 day T bill. And I think that's, that's, that's right. Like it's absolutely the case as,
34:40
as the president told us a few weeks ago, you know, inflation can solve a lot of the problems,
34:44
like if fairly rapidly. I think this absolutely will be like, if, if anything like this were to
34:49
happen, I do think it has like clear implications for like where real inflation is going to go.
34:55
And, you know, I think there are questions that you'd also have to ask them like, well, can you really do this without the feds cooperation in some way on a variety of different fronts to kind of keep the system still spinning and keep you maybe the bond market from revolting, etc.
35:10
And that's a good question. And it's a particularly interesting question when the guy sitting at the head of the fed now is a former colleague of the guy sitting at the Treasury.
35:17
And they seem to agree on a lot of stuff. So I'll pause there. We have one more slide to hit. That's the real crazy moon math.
35:24
You know, tinfoil hat stuff.
35:25
But let me just stop ranting and let you jump in and do the honors as host.
35:31
I mean, I don't have much to add other than it seems like this is the plan.
35:34
And I think we said this when Clarity Act failed and Trump and Scott Besson said, go make the rules anyway.
35:41
I think this is very obviously the long con.
35:46
And I think the, maybe not the long con, maybe long con isn't the right way to frame it.
35:51
But I think if you do believe that, I know most of you out there, many, actually probably most of you listening are picking up what we're putting down.
35:58
Most people out there think it's just shoot from the hip, geopolitics, monetary maneuvering from the Trump administration, and more specifically, Scott Besant and the Federal Reserve.
36:10
But I think you'd have to be completely ignorant not to realize that Scott Besant is very well equipped to maneuver these.
36:18
As we said it many times he positioned himself to be the Secretary of the Treasury leading up to the 2024 election with a monetary reordering a global monetary reordering in mind and wanting to be at the helm And I think I mean an Easter egg like the one he puts in the tweet where he references the
36:36
President Abraham Lincoln's National Currency Act. I mean, I don't think you can get more
36:41
explicit than that. And then you just think of everything that's happened since the beginning
36:45
of 2025 as it pertains to tariffs. And most importantly, like the Genius Act being the
36:50
number one priority of the administration in terms of the quote unquote crypto related bills.
36:56
And they got that passed relatively quickly. Now we have the rules coming out.
37:01
You have AI providing some narrative cover to the agents are going to need money. Stable coins are
37:06
the most natural money is the narrative that's being out there. You can see them leaning into
37:09
it from that direction. And yeah, I mean, I think it is pretty insane how this is lining up. And I
37:19
think that the parallels to history, particularly Civil War era, history here in the United States
37:25
are pretty interesting. And again, I think Scott Besant is extremely well-read on economic history
37:33
and is probably pulling something out of the tool bag of U.S. economic history to
37:38
reorient today's economy. Yeah. Look, I mean, like, Besant's no saint. Besant's no, like,
37:44
I mean, maybe he is a genius. I don't know. That's not my contention, is that Besant's a genius or
37:48
Trump's a genius or anything more just like, I think all of this is like the framework on which
37:53
any of, of what's happening and like the headlines have to be analyzed. And, you know, I think maybe
37:57
in our like little corner of Twitter, some of this is like a more, more recognized now, but
38:01
it's, it's definitively not that, you know, consensus in, in kind of the broader, broader
38:05
circles. So it's, I think still very much worth thinking about all these parallels and like what
38:10
they mean. And the last, the last slide we have here, this is the real, like, you know, this is
38:14
highly speculative and not making any calls, but another like very interesting parallel this whole
38:20
episode is the, the way this, this played out from 63 to 79 is ultimately you end up in the bank
38:28
notes themselves being made redeemable in greenbacks, which are then themselves redeemable in gold to
38:35
re-anchor the system after a very speculative boom, primarily tied to the railroad railroad build
38:41
out that resulted in a crash in 73. And variety of metrics or variety of measures were taken,
38:48
ultimately resulting in 75, the resumption act to make the currency redeemable in gold. Again,
38:57
after the treasury built up a reserve of gold for a number of years ahead of that. And then I think
39:03
the convertibility actually formally restarted in 1879. So you've got this kind of like, if you're
39:10
kind of mapping the two historical episodes to each other. Again, like we're sitting here with
39:14
a need to an indebted government and a need to finance a variety of big industrial projects,
39:19
a need to finance essentially like something like a wartime effort, even if not an outright war,
39:26
or at least on the scale that maybe the government would have been facing at during the Civil War.
39:30
But in any case, and at the same time, you're looking at a similar kind of what appears to be
39:34
a similar kind of monetary reset to deal with all that. But you have an open question of, well,
39:38
is there a need for and is there a role for an anchoring mechanism ultimately for the the currency
39:46
units that are going to be within the you know operating within this new paradigm um and you can
39:51
kind of compare you know national bank notes to stable coins issued the payment stable coins issued
39:55
by different issuers fintechs maybe eventually banks and then you know you've got greenbacks
40:00
that you can compare to kind of standard you know dollars bank money or ultimately t-bills
40:04
that are kind of sitting there at that conversion layer.
40:09
But then there's a question of,
40:10
do you need something beneath that
40:11
for the ultimate long run kind of economic credibility
40:14
of that unit in what's going to be
40:17
a fundamentally kind of inflationary
40:20
and extractive arguably system, right?
40:22
You could say maybe the answer is no relative to 1879,
40:25
because again, we were not top dog then.
40:27
And part of the restoration of the gold convertibility
40:30
was the need to basically get cheaper
40:32
and a workable financing from Britain and others.
40:35
And so gold really served a role
40:38
of boosting credibility at the time
40:39
that maybe the dollar doesn't need in the same way now.
40:43
But it's extremely interesting.
40:45
I would just say that while all this is going on,
40:48
we have gold reserves that are sitting there
40:52
waiting to be marked up for a trillion dollar,
40:54
roughly paper gain.
40:56
Maybe we'll do that, maybe we won't.
40:57
But that's like a Chekhov's gun on the table
40:59
that I think because it's there,
41:01
it eventually has to be used.
41:02
Judy Sheldon, Judy Sheldon,
41:04
just brought into the Treasury.
41:06
You've got a Treasury Secretary who has called himself a gold bug in the past.
41:10
And interestingly as well, we've got a strategic Bitcoin reserve now.
41:14
You've got a Treasury Secretary who has said Bitcoin is acknowledged.
41:18
It's becoming a store of value on the Tucker Carlson interview
41:21
about a year and a half ago.
41:22
If you go back and watch that video, he did it proactively,
41:25
was not asked about it, brought it up.
41:26
Similarly, his statement this summer that we called out about
41:29
proceeding with all deliberate speed on the strategic Bitcoin reserve
41:33
and formalizing it and doing it right.
41:35
As we said in the summer, a lot of his comments were things
41:38
that he didn't have to say in context.
41:39
Um, and so I think like this, there's, again, there's a lot of, uh, there's a lot of Pepe
41:45
Sylvia here.
41:46
There's, I'm not going to make a call that the dollar is going to be convertible into
41:49
Bitcoin anytime soon.
41:50
That's not really my, my, my call.
41:52
I think what might be helpful is to just have effectively like more dollar denominated balance
41:57
sheet capacity at the government level and the private level too, since the U S has a,
42:01
you know, as we talked about a coin advantage relative to the rest of the world.
42:05
If you need to finance things like reshoring, if you need to finance things like this massive, you know, multi-trillion dollar CapEx cycle, that is basically everyone seems to believe is a geopolitical can't lose type of type of initiative, then it would help to have, you know, incremental dollar, dollar-denominated financing capacity at both the public and private level from a effectively a markup of these assets that the U.S. holds in a strategically advantaged way relative to the rest of the world.
42:33
that might be a useful thing to have. And it might be a useful thing to keep in mind.
42:39
You might want to get some just in case it catches on. I think that's what John's trying to say.
42:44
I believe it. I think this is what's happening. So, and this is what's happening where we're
42:48
going through it. I think, I mean, I'm saying this half and just, but we've been covering it
42:53
pretty extensively throughout the course of this year. I know you and I have talked to Dines.
42:58
I've talked to Luongo quite a bit about this.
43:01
And I think you have to be, it'd be naive to think that there isn't some strategic plan,
43:06
particularly at the treasury.
43:07
Yes, you can believe whatever.
43:09
For Trump specifically, I think he's a chaos agent intentionally.
43:13
I think he wants people to think he's dumber than he is.
43:16
I think his administration that he puts has put together likes it as well so that he can distract the market with headlines while they actually getting stuff done on the back end And again not saying I agree with it
43:29
not saying this is the way I would like the world to work, but if we're being objective and observing
43:33
everything that's happened since Trump was sworn in the office in 2025, the moves that have been
43:40
made since then are in this direction. And it's happening quicker than I think most people realize.
43:47
saying we're only, what, 18, 20 months into this second term.
43:53
So the fact that you're able to accomplish all this,
43:55
we've got rulemaking going on,
43:57
not only at the OCC, but at the SEC and the CFTC,
44:00
it's happening much faster, I think people realize.
44:03
And so to that point, we would not be shocked
44:04
if we wake up at the end of the second term
44:07
and a lot of this infrastructure is baked out
44:09
and some of the growth targets you put in here
44:12
are actually on trajectory.
44:17
Yeah, look, we'll see. As I've heard some people say elsewhere, you've heard it here first unless it doesn't happen. But I feel like we're getting more and more signs kind of in this direction. And, you know, whether at the risk of this all being called MAGA slop, like whether it is or not, I don't know. But as someone who's just trying to, you know, read the tea leaves and position his portfolio and, you know, his activities accordingly, I think you'd be remiss to dismiss all of this.
44:45
You heard it here first.
44:47
And yeah, this mega slap call it mega slap.
44:50
Don't care.
44:51
Just trying to observe, just trying to observe at the very least.
44:54
It's interesting and intriguing to run through these thought experiments.
44:57
Give it a try.
44:58
We'll see you guys next week.