Latest / What Bitcoin Did / The US Is Long-Term Insolvent | Lyn Alden

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The US Is Long-Term Insolvent | Lyn Alden · What Bitcoin Did

• 0:00
  basically the u.s is like long-term insolvent not in like the sensationalist sense but in the sense
• 0:08
  that the obligations that they owe are basically untenable uh when when you also have bondholders
• 0:14
  expecting to get paid back their money on a real basis we don't really have the tools to deal with
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  fiscal driven inflation most of our tools are literally inherently designed around lending
• 0:23
  driven inflation it's just not the core what's happening right now you know we don't have tools
• 0:26
  deal with an energy crisis. We don't have tools to deal with 7% of GDP deficits, but they can't
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  really say that. And so he comes out, says a lot, and then doesn't raise rates. The market's like,
• 0:36
  why is it not raising rates when we have above target inflation? And then the deeper question
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  is, even if he did, would that actually solve it? Lynn Alden, good to see you. This is very high
• 0:48
  definition for you. You must have better webcams in Egypt than they do in the United States.
• 0:52
  Or just a different setup and it makes it look better, better lighting, I guess.
• 0:56
  It's looking good.
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  How's everything going?
• 0:58
  How are you doing?
• 0:59
  I'm doing well.
• 1:00
  How are you?
• 1:01
  I'm good.
• 1:02
  I'm confused.
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  There's a lot of crazy stuff going on right now.
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  And a lot of stuff that's really been playing into your nothing stops this train narrative.
• 1:11
  We've got to start on the treasury buybacks.
• 1:13
  I think that seems like the most obvious place to kick this off.
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  With them increasing, with Scott Percent increasing the treasury buybacks, is that the most clear indication that they know, we know, everyone knows that this is,
• 1:26
  fiscal dominance right now? I mean, I think that's the evidence of it. Yeah. I mean,
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  basically when a country gets deep enough into fiscal dominance, you start to get various types
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  of financial repression. Uh, this is one of the softer types of it. So on the far end of the,
• 1:39
  of the financial repression curve, you have yield curve control. That's kind of like the nuclear
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  option. Uh, and on the softer side, you have kind of, you know, just kind of moderate amounts of QE
• 1:51
  or, you know, Treasury buybacks and things like that.
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  And so the fact that they are doing it, you know, we're not in a recession.
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  They're not really trying to stimulate anything.
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  They just don't like where yields are.
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  And so we see that kind of intervention.
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  Now, the interesting thing is that it's not acutely needed.
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  So when we saw, you know, the Fed step in in 2020,
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  that's because the off-the-run Treasury market outright broke.
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  It just became illiquid, basically was going no bid.
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  and so you had all that for selling so they stepped in. In 2022 the treasury market got
• 2:26
  really wobbly. I mean the UK's treasury market you know the gilt market outright broke.
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  The Bank of England had to intervene. In 2022 for the US it just got really rough for a period of
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  time so the move index spiked, liquidity got really bad but it didn't outright break and what's
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  interesting here is that you know the move index is pretty modest so you don't really have unusually
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  high treasury volatility. You don't really have unusual signs of liquidity stress in the treasury
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  market. You just have yields going up fairly orderly to a level that they're not really
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  comfortable with while you're hitting certain kind of milestones, you know, 40 trillion in U.S.
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  public debt, over 5% yields on the long end. It's very uncomfortable for the administration.
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  And so we have this kind of intervention, which is not out of the ordinary for countries that are
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  in fiscal dominance. And I would say the only kind of interesting thing about it is that it
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  seems very premature. Like it didn't have to be this month, even though that these types of tools
• 3:28
  increasingly get used when there is an actual issue. So why did they step in now then? If it
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  wasn't a liquidity issue and if yields were moving up in an orderly fashion, why did they step in?
• 3:40
  Well, I think there's multiple reasons. I mean, there's stated reasons and then there's kind of
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  potentially underlying reasons that we can speculate on uh i think in general uh you know
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  the market like basically the u.s is like long-term insolvent in the sense that not in like the
• 3:56
  sensationalist sense but in the sense that the the obligations that they owe uh and are basically
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  untenable uh when when you also have bondholders expecting to get paid back their money on a real
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  basis, right? So basically debasement's going to happen and or entitlements are going to be
• 4:14
  restructured and or defense is going to have, you know, like multiple of these variables are going
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  to have to adjust at some point in the years and decades that follow, with most likely the bond
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  market taking the hit, the bond and the cash market, like they have been over the past, you
• 4:28
  know, five, six plus years. And the bond market kind of rests on a certain version of COPE,
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  basically that that you know it's it's not looking great but they'll get the things back on
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  on the track right uh and that you know that basically a you know a handful of rate hikes
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  might be able to help help slow down inflation might be able to help the long end or you know
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  maybe it's it's bad now but once we get the straight open again and you know deficit can
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  come down or maybe you know ai can you know boost tax receipts or something you'll get these kind of
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  various like there's always a narrative for what's on the horizon you know stable coins will absorb
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  treasuries whatever the direction is at the time And what they can really let happen is large of like large market participants that oversee you know trillion dollars of capital say wait a second like nothing stops
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  this trade. I got to reduce my exposure. So I think some of it's perception management,
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  that they just don't like where yields are. And of course, what's interesting is that,
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  I mean, the yield curve is not even that steep. So I mean, you'll see narratives like they're
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  losing control of the long end well compared to the short end long end's kind of roughly where it
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  should be i mean if you look at the yield curve i mean in you know it'll invert generally during
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  recessions uh when markets are booming you generally have a very steep yield curve you can
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  get you know 300 basis points like a three percent differential between long end and short end rates
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  uh even longer on like the very end of the spectrum uh and yet they have nothing like that
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  they have something like average yield curves uh so again like you know no major volatility issues
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  no major liquidity issues, and not an unreasonable steep yield curve.
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  And yet they have intervention just because the interest expense is super high.
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  The public perception around it is not great.
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  This is also a Treasury Secretary that kind of made getting the 10-year lower one of his initial goals,
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  explicit goals, which is not going the direction he wanted.
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  And so, you know, they're intervening.
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  I don't think they have to intervene right now, but they've made a choice to.
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  So you mentioned that Bessent coming in and wanting to control the short end. I saw you put a tweet out recently, which was Bessent equals Yellen. Does the market just not allow him to do what he wants to do? Is that why he's not managed to issue more at the short end?
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  i mean issue more at the long end sorry yeah that's yeah wrong way around yeah pretty much
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  i mean both yellen and and percent it's always easier when you're out of office to criticize
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  what's what's happening he was critical of them for not issuing more in the long end kind of
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  relying more on t-bills then he comes in office and and does does it even bigger like it's just
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  like even more explicitly we're in double buybacks even though we're not in any sort of
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  you know specific crisis at the moment um uh and so yeah he's acting just basically just like
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  his predecessor was um obviously there's other there's other differences but the kind of the
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  overall dovishness of duration is one of them uh and that's that's one of the kind of the softer
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  ends of financial oppression which is that they don't like where yields are uh if they if they
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  put too much of the long-end uh supply out there uh that's it drives yields up because the market
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  just only wants to absorb so much of those um and so they they you know they issue more t-bills
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  uh and if you know in an extreme sense like if you have brazil hyperinflating in the 1990s
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  you know something like 98 of the debt will be like overnight paper right that because like no
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  who who would lend you know more than uh longer than they have to uh now this obviously isn't
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  anywhere near that but it's kind of like these like emerging market-like characteristics but on
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  the lighter end of a developed market and that's basically what happens when a developed market
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  enters fiscal dominance is they take on characteristics that in in the past 40 years or so
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  financial pressure professionals would normally associate with emerging markets and so yes you have
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  a kind of light version of that and it just becomes full of contradictions because he has
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  to do things that are different than you know what he had initially proposed and then kind of go on
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  media and justify why he's doing it or why it's not a big deal or why it's all according to plan
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  And then, of course, that breaks down trust further.
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  And it kind of goes from there.
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  And so $4 billion in the grand scheme of things is not that much money.
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  When we're talking about, I think there's a trillion dollars in the Treasury General
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  account.
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  Has this been blown out of proportion?
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  Or is it just that this signifies something much bigger?
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  Good question.
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  So I would say nine times out of 10, Treasury buybacks get blown out of proportion.
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  I even had a tweet the other day.
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  I was like, here's the common things on financial Twitter that you can
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  usually ignore. And it's like just the things that are like routine operations, they get
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  just sensationalized because the gross number has a big headline on it. And one of those was
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  treasury buybacks. Like I think over the past couple of years, whenever you see someone talking
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  about treasury buybacks, they're often kind of like equating them with QE as though it's the same
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  thing. And they're really not. So routine treasury buybacks are not a giant deal because the routine
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  ones tend to be somewhat more duration neutral. You're basically, you know, if you issue a 10-year
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  treasury, it's a brand new fresh 10-year treasury. It's the benchmark security. It's very liquid.
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  That's an on-the-run security. Now, if that 10-year treasury is, say, a year old, it's now a
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  nine-year treasury. That's like a kind of an awkward non-standard instrument now. It's a less
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  liquid market, you know. It's kind of like how every used car is different, you know, compared
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  to a new car. It's just a rougher market. It's kind of like that with like older treasuries that
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  have kind of just weird numbers of remaining years. And so they're less liquid. And so it's
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  not that unreasonable for them to say, okay, we're going to buy back some eight and a half year
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  treasuries or nine year treasuries and issue some fresh new 10 year treasuries. Now, part of why
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  they end up having to do that is because it still ties to fiscal dominance We have such a large stock of debt out there and relative to even compared to new issuance but it just a very large stock already out there So they have to kind of intervene in their own market to kind of keep it somewhat liquid
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  But the actual outcome of that is not really that significant.
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  Now, where it does get significant, you know, where it becomes the one out of 10 where treasury
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  buybacks are actually noteworthy is one of two things.
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  One is you buy back a ton of long-end debt by issuing extra T-bills.
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  so you shorten the duration that is actually that is a somewhat pro-liquidity move because
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  you're you're taking duration out of the market uh you know it's it's not the same thing as
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  quantitative easing but it's something like an operation twist by the treasury
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  so it is a relevant factor in markets and then to your point it then depends on size
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  you know four billion is not much but if you do four billion over and over and over again it can
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  start to add up yeah even in the macro sense but it's still not you know we're not talking like
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  2020 COVID level, like, stimulus bazookas or anything.
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  We're just talking about a around the margins
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  of pro-liquidity move.
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  And then the other notable thing
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  would be an unscheduled announcement of these things.
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  That basically, instead of, you know,
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  coming out every three months or so,
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  as the Treasury generally does and says,
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  okay, this is what the next three months look like
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  for our, you know, operations.
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  When they come out with unscheduled things,
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  just weeks after their prior scheduled announcement,
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  kind of like how when the Fed comes out
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  with a change between meetings, that's an event.
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  And so this one was notable
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  because they're upping buybacks
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  at an unscheduled time
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  with either T-bill issuance
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  or potentially draining the T-bill general account.
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  So the actual magnitude of the impact,
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  it's not zero, but it's not the biggest thing out there,
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  I would say.
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  But the signpost that they're doing that
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  is showing, you know, non-traditional methods
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  of operating the Treasury, which, of course, gets everyone's,
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  you know, the hair in the back of their neck stands up,
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  because it's suddenly like something's, you know,
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  there's a disturbance in the matrix that the black cat walks
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  and then it resets and walks by again,
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  and people are kind of like looking at that now.
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  Obviously, it was an unscheduled announcement.
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  And in terms of the duration, are they retiring longer-term bonds
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  and issuing T-bills? Is that how they're doing it?
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  it. Uh, so because they did not, they did not announce an increase in coupon auction, like, uh,
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  sizes, uh, the presumption, yeah, is that basically that they're, they're, they're still issuing the
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  same number of longer duration treasures that they were going to do, but then they're buying
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  some of those back, uh, which means that the difference has to be made up with either changes
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  in the TGA or T-bill issuance. And so I know that the sort of shorter,
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  shorter term debt is more cash-like in the economy, but what does that actually mean? Like what, what,
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  can people take away from that what changes uh so in general yeah it's more cash like it basically
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  means that uh they're funding more of their deficit with things that are more cash like
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  um uh it also means that they're more subject to short-term interest rates
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  um it generally means that there's there's less duration in the banking system uh in insurance
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  companies and foreign markets for them to have to absorb and compete with other longer-term savings
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  because, you know, a 10-year bond, in some sense,
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  competes with an equity because you're thinking,
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  okay, what do I want to own for 10 years?
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  Obviously, depending on the fund structure itself,
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  that's a different discussion,
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  but that's essentially what the instrument is,
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  whereas a T-bill is more like competing with a bank deposit,
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  you know, with other kind of short-term stuff.
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  So by taking out duration,
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  you're slightly easing the competition
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  for other longer-duration assets.
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  and one of the ironic aspects of it is that generally speaking the more t-bills they issue
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  like as a percentage of their debt the bigger their tga kind of has to be not in the short term
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  but part of the reason they have such a big tga i mean partially gives them a buffer against
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  government shutdowns you know basically refusals to increase the debt the debt limit they have
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  then a buffer but also the the bigger their amount of t-bills the more they have to roll over on a
• 14:32
  constant basis, which means they have to have more cash at hand to avoid disruptions. And so,
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  you know, one of the, like the Fed talked about potentially reducing their balance sheet.
• 14:43
  Well, one of the options to reduce their balance sheet is if the Treasury somehow could
• 14:47
  reduce its T-bill issuance, increase the long end of the curve, the Fed might be able to operate
• 14:53
  with a, you know, half a trillion TGA instead of a trillion TGA, right? But that, of course,
• 14:58
  has the uncomfortable thing of just putting more duration into the market.
• 15:01
  So again, it's not the end of the world that they're around the market.
• 15:05
  I mean, it's $40 trillion in debt, of which 30-something is publicly traded
• 15:10
  because you have intra-government debt as well,
• 15:12
  like Social Security owns debt from the government.
• 15:15
  But you have 30-some trillion in actual securities out there that trade.
• 15:22
  And we're talking about billions and billions of intervention.
• 15:26
  So again, it's not massive.
• 15:27
  It's just the fact that it's unscheduled
• 15:30
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• 17:42
  And how did the bond market react to this? Did it react in a positive way?
• 17:46
  Well, generally the knee-jerk reaction is to act positively. Maybe it's the algorithms,
• 17:50
  Maybe it's the initial human traders.
• 17:53
  But generally speaking, the treasury market has just shrugged off the intervention, which
• 17:57
  generally, I think, makes sense.
• 17:59
  Because again, it's not that, like, treasuries are kind of trading at a level that sort of
• 18:04
  makes sense relative to the short end of the curve and relative to where inflation is.
• 18:09
  And so, yeah, the treasury market just kind of said, okay, we hear you, but we're going
• 18:12
  to ignore you.
• 18:13
  So yields just kind of, they bounce right back.
• 18:16
  They even grind up a little higher.
• 18:18
  of international like japan was hitting three percent it's not just a u.s problem uh it's most
• 18:23
  countries uh with a notable exception of china uh and so like a lot of these countries are their
• 18:28
  bond markets are kind of grinding up in tandem and partially it's because i mean the world's
• 18:32
  kind of changing its perception of what inflation might look like over the next three five ten years
• 18:37
  they're they're looking out over uh they're changing their assumptions about whether or not
• 18:41
  any of these countries are going to get their deficits under control in any sort of investable
• 18:45
  time horizon. And then, you know, things like the AI trade, even, you know, when you have massive
• 18:51
  mega cap companies, like, you know, the hyperscalers issuing a ton of debt, that actually, in some
• 18:57
  sense, competes with the sovereign bond market. You have these really big credit worthy issuers
• 19:03
  issuing large liquid amounts of bonds, and they're willing to pay pretty high rates because they think
• 19:08
  they can get a better ROI on their AI build out. And so, you know, there's a spread that makes sense
• 19:14
  somewhere between, say, what Alphabet's issuing and what the U.S. government's issuing.
• 19:19
  And if Alphabet's yields are going up, it can drag U.S. government yields up, especially when
• 19:24
  you take multiple Alphabet's, when you have multiple large mega cap companies that collectively
• 19:29
  are worth many trillions issuing a substantial amount of debt to do what they're doing.
• 19:34
  So when you say that the world's waking up to what inflation is going to look like,
• 19:37
  is that obviously higher than 2%, probably lower than 10% for the rest of the decade,
• 19:43
  which is something you've been saying, I think, since like the early 2020s, you said this was
• 19:47
  going to be a decade of higher inflation. Yeah, I think that's what we're seeing. I mean,
• 19:50
  basically, you know, for a long time, like let's say in the US, you have 7% average money supply
• 19:57
  growth, but then you have various deflationary offsets. I mean, we had the, you know, 40 years
• 20:02
  of Moore's law, for example. So computers is getting cheaper, cheaper, cheaper. We did automation
• 20:07
  of manufacturing. We did offshoring. So you connect Western capital with Eastern labor,
• 20:12
  You know, when China opens up and the Soviet Union collapses, we have, you know, labor and resources and capital come together, kind of stamp out these inefficiencies that existed.
• 20:23
  Obviously, there's winners and losers from that trend, but it's a deflationary force.
• 20:27
  And the issue going forward is that that's kind of done, which is that you don't really have, like globalization, we're still a globalized world, but we're not like increasingly globalizing.
• 20:39
  Moore's Law is slowing down because of some kind of structural limits.
• 20:43
  We suddenly got a lot more demand for compute because of AI.
• 20:47
  So rather than just kind of like saving money
• 20:50
  on Moore's Law, it's like, well, okay, now we can actually just buy, we need kind of 10 times more
• 20:54
  of it and more electricity to run it all. And so for, and then, so when you have that kind of
• 20:59
  ongoing money supply growth, you don't really have the deflationary offsets anymore. So if you had,
• 21:05
  say, 7% money supply growth, but 3% a year in various productivity growth or things like that,
• 21:12
  then actual price inflation in aggregate might be 4%. But if you only have 1%, you know, savings,
• 21:20
  then you get more like 6% inflation.
• 21:22
  And obviously, you know, during periods like a war
• 21:25
  or a pandemic lockdown, you can get negative productivity.
• 21:28
  So it can actually, it can add to inflation.
• 21:31
  So there's multiple kind of factors here
• 21:33
  that are just headwinds for getting inflation
• 21:35
  down to a sub 2% target, even the way they measure it,
• 21:39
  which already has its own flaws,
• 21:40
  but let's even just take their measurement at face value.
• 21:44
  Getting below 2% when you have 6%, 7% money supply growth
• 21:48
  is a lot harder when the deflationary offsets are vanishing.
• 21:52
  And then basically, you know, in theory,
• 21:56
  certain types of fiscal deficits could, you know,
• 21:59
  potentially not be that inflationary
• 22:00
  if they were like extremely efficient.
• 22:02
  Like if you, if the government said,
• 22:04
  okay, we're going to run a big deficit
• 22:05
  or somehow very efficiently build out highways,
• 22:10
  power plants, and, you know, manufacturing facilities.
• 22:13
  Something like, you know, kind of the,
• 22:15
  like eisenhower in like the 50s for example they did like the interstate highway system it's if
• 22:20
  you're going to spend money it's one of the most efficient things you can spend money on for example
• 22:24
  uh whereas what we're primarily doing throughout the west and japan uh you know and elsewhere is
• 22:31
  that we have a demographics issue so we built these entitlement systems based on every generation
• 22:35
  being bigger than the prior one that's not happening anymore uh and so we have all this this just
• 22:42
  obligations going to pure consumption, basically just financing the older end of the age spectrum
• 22:51
  rather than building things, per se. And so it's just more inflationary because you have consumption
• 22:56
  without an increase in production, per se. I'm really interested to know what,
• 23:02
  let's say, Walsh does at this point. Because he, I think at Jackson Hole, he came out and said the
• 23:06
  2% inflation target was still very important to him. That's what he's aiming for. And he's kind
• 23:11
  kind of flirted with hiking rates again.
• 23:14
  But I know that, or I think that you think that, uh, hiking rates might not even fix inflation.
• 23:19
  Yeah, that's the issue.
• 23:20
  So I'll answer that question by starting with why that's the case, uh, which is when people
• 23:26
  think of inflation, they immediately think of, if you raise rates, you can fix it because
• 23:31
  they think of, of Paul Vorker.
• 23:33
  He, you know, it's like, okay, we'd have to take the bitter medicine and we can do this.
• 23:36
  the problem is that the the causes of inflation in in the 70s and early 80s are different than
• 23:42
  the causes of inflation now uh so in in the 70s and 80s you had actually low government debt to
• 23:48
  gdp they because they already went through you know kind of the the debasement cycle from the
• 23:53
  40s into the 70s their bonds already got inflated away uh so debt to gdp is pretty low i mean it
• 24:00
  bottom to something like 35% in the U.S. And inflation instead was coming from a couple major
• 24:06
  factors. One was that baby boomer generation, the biggest generation, was entering their home buying
• 24:10
  gears, which means peak credit formation, so peak fractional reserve bank lending rates.
• 24:16
  And two, you had an energy shortage. So you have a tangible resource, you know, geopolitical
• 24:21
  constraint, and then you have faster than average money supply growth. Then you add on guns and
• 24:26
  butter and you have a problem. But the core of it was the energy and then the bank lending.
• 24:36
  And so when he raised rates super high, it did a couple simultaneous things. One is,
• 24:41
  by raising rates super high, it strengthened the dollar, which killed emerging markets that were
• 24:46
  dollar indebted, which at the time is primarily Latin America. So it kind of put them into
• 24:51
  depressions and they reduced their oil consumption. So that was kind of the brutal
• 24:56
  like we take we take demand out of the market by by you know killing the economies of that they got
• 25:02
  over indebted uh in our currency uh so it keeps more for us that's kind of the the strongest wins
• 25:09
  uh so that's the brutal one but then domestically it so it slows down borrowing and lending because
• 25:16
  people can't afford uh as much borrowing as they could with lower rates so you slow it out in the
• 25:22
  money supply growth. And then the other factor is that it does increase the deficit because you do
• 25:26
  blow out interest expense, but it's less of a factor when you have 35% debt to GDP. So you slow
• 25:31
  down bank lending, that's a bigger effect than blowing out the interest expense. Now, if you
• 25:37
  fast forward to today, bank lending rates are pretty normal, meaning that the growth of the
• 25:43
  money supply from bank lending is kind of standard at the current time. And instead, we have larger
• 25:50
  than average
• 25:51
  structural deficits
• 25:52
  that are going to
• 25:53
  Social Security,
• 25:54
  Medicare,
• 25:55
  defense.
• 25:56
  And then from there it trickles into the economy because the Medicare worker like you know the workers in health care system the workers in the defense system the soldiers that that paycheck i mean that eventually kind of floods into the rest of the economy as well circulates around
• 26:10
  uh interest expense is very high that again also partially that circulates back in i mean some of
• 26:14
  that's expendable and the problem is when you say okay okay we have high inflation we got increased
• 26:20
  interest rates well when you have over 100 that did gdp uh you know we we do put some downward
• 26:26
  pressure on borrowing so for example because mortgage rates are so high it's it's it's pretty
• 26:32
  hard to afford a home there's there's not a lot of home turnover at the current time you do put
• 26:36
  some downward pressure which in a vacuum can be deflationary but you blow out the deficit
• 26:41
  interest expense by an even bigger absolute number uh so every time they increase interest rates
• 26:47
  people that are cash rich in their money market accounts get a raise and then go out and spend
• 26:51
  more which actually defeats your purpose of trying to quell inflation so when you when you go above a
• 26:56
  certain point it's like alice going through the looking glass everything all the rules just flip
• 27:02
  uh and it's not necessarily one-time thing but it's kind of there's like a transition phase
• 27:06
  where they start first they first they just kind of nullify so it's kind of like you know you go
• 27:12
  from industry rates being disinflationary to higher interest rates being kind of neutral
• 27:15
  and if you get far enough further enough in they actually can potentially get inflationary
• 27:20
  and so I don't think we're there yet
• 27:23
  but we're more in that neutral zone
• 27:24
  where you're not actually tackling the core issue
• 27:28
  which is the 7% of GDP deficits
• 27:30
  the $2 trillion deficits
• 27:31
  and interest rates only increases that
• 27:35
  they already have restrictive housing
• 27:38
  in terms of because interest rates are so high
• 27:40
  so that's the first issue
• 27:41
  and then the second issue is
• 27:42
  so if you're worse there
• 27:43
  like when people say what do they do
• 27:46
  that's where I'm sympathetic
• 27:47
  because I wouldn't know what to do
• 27:49
  where the part that I'm unsympathetic
• 27:52
  is then why did you take that job?
• 27:54
  Because at least I wouldn't take the job
• 27:56
  if I didn't know what I could do.
• 27:58
  Now, so you have to either think you know
• 28:01
  what you're going to do
• 28:02
  or pretend that you know what you're going to do.
• 28:04
  So he has to, of course, as the Fed share,
• 28:06
  he has to, part of it is perception management.
• 28:09
  You say, our target's 2%.
• 28:10
  We're going to get there.
• 28:12
  We have the tools to get there.
• 28:14
  But partially the market's losing confidence in him
• 28:17
  because, you know, his initial speech was fine.
• 28:20
  But then in subsequent, every time he talks again,
• 28:23
  he kind of doesn't say a lot
• 28:24
  because there's not a lot to say.
• 28:27
  And, you know, he can't come out and say,
• 28:29
  hey, actually, we don't really have the tools
• 28:31
  to deal with fiscal-driven inflation.
• 28:33
  Most of our tools are literally inherently designed
• 28:35
  around lending-driven inflation.
• 28:37
  It's just not the core of what's happening right now.
• 28:39
  You know, we don't have tools to deal with an energy crisis.
• 28:40
  We don't have tools to deal with 7% of GDP deficits.
• 28:44
  But they can't really say that.
• 28:45
  and so he comes out says a lot and then doesn't raise rates the market circle why is not raising
• 28:52
  rates when we have above target inflation and then the deeper question is even if he did
• 28:55
  would that actually solve it and i would say probably probably not yeah it seems really hard
• 29:00
  because it's like there's sort of the question what should he do what can he actually do and
• 29:05
  then what will he do under pressure and and it sounds like you know what can he do there might
• 29:11
  not really be an answer.
• 29:13
  Pretty much.
• 29:14
  Yeah.
• 29:14
  I mean, so he can, like, I've been on the record thinking that he'll probably raise zero to
• 29:18
  one times this year.
• 29:21
  It's still not clear.
• 29:22
  You know, if he does one, it's probably symbolic.
• 29:26
  You know, if he does two, I wouldn't be utterly shocked.
• 29:29
  If he does zero, I'd be like, yeah, I mean, that's this, you know, and the bigger issue
• 29:32
  is that, you know, there's a lot of attention paid on how many 25 basis point changes, if
• 29:37
  any, he'll do.
• 29:38
  whereas i i think that the the band that matters is like like anywhere and like 50 basis points is
• 29:45
  higher 50 basis points lower barely matters uh when you're running seven percent of gdp deficits
• 29:51
  and you have crack spreads uh at a hundred dollars a barrel so uh you know the the the energy crisis
• 29:57
  you know when you have refineries taken off the market you know we have we have high diesel prices
• 30:02
  not necessarily because oil itself super expensive i mean that's being intervened in in various ways
• 30:06
  but you do have really big spreads between oil and refined products and so that fiscal deficits
• 30:14
  and a handful of other matters are i think much bigger macro variables than what the fed does
• 30:19
  25 basis points at a time when they're in that neutral zone where rate hikes they do slow down
• 30:27
  some things but then they actually run it they accelerate other things that are roughly of
• 30:31
  magnitude or bigger than the things they slow down. Yeah. And when you say, like just earlier,
• 30:36
  you said they're not really tackling the core issue, which is the deficit. I mean, they know
• 30:41
  that that's the issue, I'm sure. Like, is it just that they can't tackle that? There's nothing to be
• 30:45
  done there? Well, pretty much. I mean, that's more Congress than the president. So, you know,
• 30:50
  you'd have to have Democrats and Republicans agree on some combination of tax increases or spending
• 30:56
  cuts, sign it, get through, you know, the House of Representatives and the Senate and then have
• 31:01
  the president signed that.
• 31:02
  I mean, that's a huge thing.
• 31:04
  And then, because the US is so financialized,
• 31:08
  so many economies if they somehow got through that part they could actually potentially reduce their deficit The problem is that the U even if we somehow do that miracle you know they come out and say we have this big package and we actually it a grand bargain like Obama was trying to
• 31:24
  get with his speaker at the time, and they never, you know, they couldn't agree on anything to make
• 31:28
  happen. Let's say there's a grand bargain today, and they say, okay, we've agreed, you know, put
• 31:33
  aside our differences, we're going to reduce the deficit. The problem is that because
• 31:39
  you know stock market something like 200 of u.s gdp uh and we have such significant wealth
• 31:46
  concentration that a very significant percentage of tax receipts come from uh executives making a
• 31:52
  lot of money executives getting a lot of stock compensation and things like that and then they
• 31:57
  you know they pay into the treasury um if you slow down the deficits uh you likely significantly
• 32:03
  impact financial markets, which on a lag starts to impact capital gains taxes, executive compensation
• 32:10
  taxes, and then therefore about a year later, negatively affects your tax receipts. So it
• 32:17
  actually, it's like a Gordian knot to try to untangle this in a way that actually does it,
• 32:23
  which is why I think that the chance of that happening is virtually zero. And why out of all
• 32:29
  the things I say or do, the most confident one is nothing stops his train. They basically
• 32:33
  any sort of investable time horizon, meaning like from here well into the 2030s as a starter,
• 32:40
  they're just not really going to stop the deficit.
• 32:43
  And so when you say nothing stops this train, with the Treasury buybacks increasing and
• 32:49
  Scott Percent coming out and announcing that a couple of weeks ago, is that him essentially
• 32:53
  taking the wheel to some degree?
• 32:56
  Around the margins. Basically, it's that the Treasury does, you know, they can shorten the
• 33:01
  average duration of debt and for example if they find okay there's maybe not not a lot of demand
• 33:07
  for the long end of our treasury market but if he has a view that hey stable coins are growing
• 33:12
  and they they like to hold t-bills and we can even mandate that they have to hold t-bills
• 33:17
  that's a source of demand uh and in general i mean you know there is demand for money markets
• 33:23
  there is demand by by banks for treasuries um and so they can you know there's just more demand for
• 33:28
  that. We can issue more of that without getting punished severely than they will. So yeah,
• 33:33
  it's basically monetary policy is always a combination of what the Fed's doing, what the
• 33:38
  Treasury's doing, and then more broadly, what Congress is doing. So you have kind of these
• 33:43
  three keys together that controls what does money supply look like, what does the debt market look
• 33:49
  like, and what are financial conditions like. And yeah, you have a somewhat interventionalist
• 33:54
  uh treasury at the moment for a layman like me what does all this mean does this mean things
• 34:00
  just continue to get harder throughout the next 10 years well harder i mean there's a lot of people
• 34:07
  a lot of different situations so harder harder can depend in general um if if things stay roughly
• 34:14
  as they are in the u.s we have like a k-shaped economy and that's that's that's certainly the
• 34:19
  case in in some many other countries as well not all of them uh japan's kind of avoiding that
• 34:24
  problem they have their own problems but in the u.s you have in some parts of europe we have a
• 34:27
  k-shaped economy meaning that the deficits are primarily going ironically to wealthier people
• 34:32
  so older people on average are wealthier than younger people uh they're receiving the deficits
• 34:37
  uh people in defense industry people in the healthcare industry um you know that's where
• 34:42
  the deficits are going people that have money are earning interest uh which which gives them more
• 34:46
  money um and so uh it generally it creates a top heavy environment and then when the fed says oh
• 34:54
  well, because of all those deficits that's causing inflation,
• 34:57
  we have to raise rates.
• 34:58
  Well, that doesn't impact me who locked in a 30-year mortgage
• 35:02
  and has plenty of cash that actually goes up.
• 35:06
  I get more money when they raise interest rates.
• 35:08
  Like, I'm in that bucket.
• 35:09
  My liabilities don't go up.
• 35:11
  My assets actually pay me more.
• 35:13
  It impacts the new family looking to buy a starter home.
• 35:18
  And, you know, it impacts, you know,
• 35:20
  when they also then have $100 diesel crack spreads
• 35:23
  which then translates to higher prices on store shelves
• 35:28
  because shipping is more expensive.
• 35:30
  They're sitting there saying,
• 35:31
  why is beef so expensive?
• 35:32
  Why can't I buy a house?
• 35:34
  Why is insurance so expensive?
• 35:37
  It's like, why do I feel like I run in place?
• 35:39
  I got a raise this year,
• 35:41
  but the house I want to buy went up even more in proportion.
• 35:46
  And then so you get very disillusioned voters
• 35:49
  that then usually veer to the sides of the horseshoe.
• 35:53
  you know, the horseshoe theory applies,
• 35:55
  you'll get more socialist or communist interests
• 35:58
  and you'll get more kind of fascist,
• 35:59
  like, kind of the more dangerous end of extreme nationalism.
• 36:06
  And that's kind of, and it just keeps fueling that
• 36:08
  until it's fixed,
• 36:10
  and until it's kind of debased away enough
• 36:12
  and we get past this demographics bump.
• 36:16
  And I think it's unfortunate very, very long time away.
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  by the way my daughter's just got home so if you hear a toddler singing a frozen song that's why
• 38:53
  um like obviously in the k-shaped economy you'd rather be in the top end of it but
• 38:58
  it still affects you in the sense that the societal decay is going to be real like it they can't you
• 39:04
  can't have just the rich getting richer and the poor getting poorer and expect to live in the
• 39:08
  same world that you grew up in like that's that's over um and it's just like it's not a world i want
• 39:14
  to live in but it's like it's just the reality of the situation it seems right now the thing that i
• 39:18
  find really hard lynn is like when you talk about all this stuff that's happening with the fiscal
• 39:23
  dominance there's war over oil in iran there's the ai play which like it's become a national security
• 39:30
  issue and who knows how that's going to play out especially with because that's both a national
• 39:35
  security issue and like an economic issue with the open weight models coming out of China.
• 39:39
  You have sort of the fracturing of the globalist world. Like compared to pre-2020, this is so
• 39:46
  complex. And this might be some recency bias because I've only started paying attention to
• 39:50
  this stuff in the last, you know, six, seven, eight years. But this is the biggest mess that
• 39:55
  I've seen. And I don't know what people are meant to do to prepare themselves for that.
• 39:59
  oh i mean it's really good question i think certainly in a macro sense uh i've described
• 40:05
  this as a macro heavy decade uh or and longer so i mean i mean back in the 2010s you know my first
• 40:12
  website was running like a dividend investing blog right i mean my initial interest in investing was
• 40:17
  equities uh and i i grew up you know reading about value investing and warren buffett saying like you
• 40:23
  know if you spend two minutes on macro you spend two minutes too much right because just buy good
• 40:27
  companies and you ignore what's happening around you and that was really good advice when you had
• 40:31
  40 years of declining interest rates uh 40 years of rising valuations uh occasional recession but
• 40:38
  if you just you know the the point was just hold through it and it's in the u.s markets you you got
• 40:43
  you did fine um uh now when you when you kind of get the end of that 40-year period of declining
• 40:49
  interest rates and you get to the the next kind of sovereign debt bubble uh then we're back in a
• 40:54
  macro-heavy decade. And it feeds on itself. So when you have a sovereign debt crisis,
• 40:59
  even a slow motion one, you get more interventions by the sovereign. That's when you're more likely
• 41:05
  to get trade wars. You're more likely to get capital controls. You're more likely to get
• 41:08
  interventions in markets, you know, company owning pieces of companies, state capitalism,
• 41:15
  things like that. Industrial policy, terms that, that the term sounds okay. Industrial is good and
• 41:22
  Policy is okay, but it basically means more intervention
• 41:25
  by the government in the direction of industry,
• 41:27
  especially physical industry.
• 41:30
  And so it is a very kind of macro-heavy period.
• 41:34
  And, you know, I mean, the last period
• 41:39
  The last long-term debt cycle the world was in was like the 1940s.
• 41:43
  And so we're back, macro speaking, in that kind of environment.
• 41:48
  Hopefully nothing as extreme as that.
• 41:51
  But yeah, we have multiple wars that are active.
• 41:55
  We've got very eccentric decisions among leadership.
• 42:01
  We're not in a world of Kennedys and Eisenhowers at the moment.
• 42:05
  you know we're in the world of yeah we're in the world of of presidents that can't kind of get
• 42:10
  either get out a full sentence properly or they're just grifting in public and or both and you know
• 42:15
  it's just like that's the you know that's the the oscillation we're between you know the the biden
• 42:19
  trump versus the you know the eyes now are kennedy's different world uh and so people i think
• 42:25
  rightly have lost trust in institutions whether it's government institutions whether it's media
• 42:29
  whether it's big corporations um uh you know and so it it is i you know i think it's people of
• 42:37
  course have recency bias is the joke of like you know you can go back in history uh in like old
• 42:42
  news articles and writings and like every generation you have the the the older generation
• 42:47
  will play with the younger generation like the younger generation is not okay right so of course
• 42:52
  it always seems like that's the case but if you go back in history it's funny how reoccurring that
• 42:56
  is so some things are forever um and everything seems like an emergency and yet it that's that's
• 43:02
  just how things go uh but from macro perspective this decade is just quantifiably very different
• 43:09
  than anything we've seen uh in in any adult investing time horizon so we have to go back
• 43:15
  to basically what your great your great grandparents were investing through to find anything that kind
• 43:19
  of remotely resembles this with the exception that if you look at emerging markets um you can
• 43:25
  find more situations so at least the developed world is going through a situation we haven't
• 43:29
  seen in call it 80 years uh whereas they're actually taking on some emerging market characteristics
• 43:34
  i mean i you know where i'm doing this interview from we our official inflation rate is 15
• 43:39
  and it's just it's a normal thursday it's that's it's 15 what was it last year something like 15
• 43:45
  what was it you know a few years ago something like 15 i mean it peaked at 38 officially i think
• 43:50
  it was. And, you know, we were at dinner last night and people are taking their kids to childcare
• 43:58
  and going to work and it's a mess, but it's just that's where this place has adjusted to,
• 44:07
  unfortunately. And it's just, it's a different world. Is that coming to a place near us,
• 44:13
  do you think then? I don't think 15% inflation anytime soon,
• 44:17
  Um, but I still hold that, you know, we're going to have above target inflation for any sort of investable time horizon.
• 44:25
  Um, uh, and that holding kind of paper assets, uh, that don't pay you a yield that's above that are going to get debased.
• 44:33
  Um, and so you want to own scarcer things, uh, that are not in the bubble.
• 44:38
  Bitcoin.
• 44:38
  Um, Bitcoin obviously rallied after the treasury announcement.
• 44:42
  Do you think bear market's done?
• 44:45
  We're back in a bull market.
• 44:46
  What's your sort of big picture take on Bitcoin right now?
• 44:50
  Yeah, good question.
• 44:50
  So I've, you know, before then I was thinking,
• 44:53
  okay, I think that the bottom is looking closer.
• 44:55
  I don't try to time exact bottoms.
• 44:58
  I mean, like, you know, I think it's like you can ask,
• 45:01
  is it euphoric or is it cheap?
• 45:03
  Is most fast money elsewhere or is fast money here?
• 45:07
  Those are the big questions I ask.
• 45:09
  And so for multiple metrics, it was like,
• 45:11
  no, fast money's elsewhere, sentiments in the gutter,
• 45:14
  various on-chain indicators are kind of you know in their in their bottom you know 10-15 percent
• 45:20
  of what they typically get to in a bear market and so I was kind of looking for a bottoming
• 45:25
  formation and I mean this has kind of showed like this was like one of the biggest liquidations of
• 45:32
  shorts and in Bitcoin terms it wasn't that big of a move and it wasn't that big of a reason
• 45:39
  and it's just how bearishly things were positioned.
• 45:44
  And, you know, I don't think we just go straight up from here
• 45:47
  or anything like that.
• 45:48
  But I think there's a good case to make that the bottom's in.
• 45:52
  If it's not and we retest a little bit lower,
• 45:55
  I mean, I think my kind of framing here is that, you know,
• 45:59
  three years from now, this will look like a great time to have bought
• 46:01
  regardless of whether the 58K gang really has the bottom here
• 46:06
  or if you manage to go a little lower.
• 46:09
  But I think Bitcoin's in a good position for the years ahead.
• 46:13
  Yeah.
• 46:13
  The interesting thing is the fast money being elsewhere, because it has been in the AI trade
• 46:17
  for the last couple of years.
• 46:18
  We really didn't see a euphoria last time, last bull market in Bitcoin like we have done
• 46:23
  previously.
• 46:24
  And one of the narratives that's going around Bitcoin circles at the moment is when this
• 46:28
  AI trade eventually slows or rolls over or whatever happens there, that money has to look
• 46:33
  for a new home and Bitcoin is maybe one of those potential places.
• 46:37
  Do you think that's right?
• 46:38
  Do you think that's where money will flow?
• 46:41
  Well, I think it's partially right.
• 46:44
  You know, I would caution against narratives in general.
• 46:47
  But you know I do think that right now So for a long time Bitcoin was the fastest horse And then with AI that became the fastest horse So any money that just says
• 46:59
  I just want to own the fastest horse
• 47:00
  in nominal terms goes there.
• 47:03
  Bitcoin is obviously still unique
• 47:04
  in the sense that you can self-custody it.
• 47:06
  It's an asset that you can actually own.
• 47:08
  You can pay with it permissionally.
• 47:10
  It's not a stock.
• 47:12
  And so it's got that gold-like aspect to it.
• 47:14
  And obviously differences in gold,
• 47:16
  you know some several pros and some cons compared to gold um uh and i do think that you know once
• 47:22
  the ai trade gets exhausted meaning that it's you know it's not to say that it's a bubble per se or
• 47:29
  that it's just going to roll over and you know get cut by two-thirds or something uh but if it stops
• 47:33
  going up at the rate that it does because it's already kind of priced in the next several years
• 47:39
  it's already a big percentage of global gdp uh then there will be money saying okay what's the
• 47:45
  next trade um and you know one way of looking at things is like so i i keep using this example like
• 47:51
  during 2025 one of the best performing things out there was like latin american bank stocks
• 47:56
  like brazilia's brazil's biggest bank columbia's biggest bank and like the u.s was like putting
• 48:02
  like 50 percent tariffs on brazil like who would have added on their bingo card the year of the
• 48:07
  trade war that like latin american bank stocks are where you want to be uh and and yet that they did
• 48:13
  in general they did great and and the reason largely was just things stopped going badly for
• 48:19
  them that basically they were already like the money was already gone that any money that was
• 48:23
  already going to leave was already gone um uh you know brazil let's say brazil for example they had
• 48:28
  really high uh real rates meaning that their their their industry that they set was much higher than
• 48:33
  their inflation uh which eventually attracted capital and then all it takes is certain market
• 48:39
  participants to say hey there's like banks trading for like six times earnings over there they're
• 48:43
  They're just not going down anymore.
• 48:44
  It's like, I don't have a good reason why they should go up,
• 48:46
  but they're not going down and they're cheap.
• 48:49
  And why shouldn't I put 2% of my portfolio in it?
• 48:51
  And then when that happens,
• 48:53
  then you have someone that looks at charts
• 48:55
  and they say, hey, that chart has like a technical,
• 48:58
  like a bottom looking, you know, squiggly on it.
• 49:02
  So then they hop in and then you're up, you know, 50%.
• 49:06
  And then you have momentum traders
• 49:08
  and their algorithms come in and say,
• 49:09
  hey, that thing is going up
• 49:10
  and our strategy is to buy things that are going up.
• 49:13
  so then that money goes in and i think that's that's essentially what you get bitcoin and it
• 49:17
  can be any number of reasons it could be that the ai trade gets exhausted it could be because you
• 49:21
  know that the market's sudden surprised by a dovish treasury pivot in the case that happened here
• 49:25
  uh that just money's washed out you know it's only held by by diamond hands um and just the
• 49:33
  first thing it just is not going down anymore uh and people say hey here's this like on-chain chart
• 49:38
  and every time it gets to this thing,
• 49:39
  it ends up being a good buy.
• 49:41
  So maybe I'll just, I had 0%, I'll put 2% into it.
• 49:44
  Then the chart has come in and said,
• 49:45
  hey, that chart doesn't look awful anymore.
• 49:48
  So then they come in and if you get,
• 49:50
  you know, if you break 100K and start going up from there,
• 49:52
  then you have momentum traders coming in.
• 49:53
  So it just kind of, it becomes self-feeding in a while.
• 49:56
  And the biggest North Star I have is just,
• 49:58
  is Bitcoin still the best in class at what it does?
• 50:03
  And is what it does have a big enough total adjustable market
• 50:07
  compared to its current market cap and usage.
• 50:10
  And if those two things, I still have yeses,
• 50:13
  then it's an asset that I want to own
• 50:15
  when it's showing signs of being underappreciated.
• 50:19
  And I would say that all that is currently the case.
• 50:22
  There's always caveats for risk,
• 50:24
  but that's how I view things.
• 50:25
  So it doesn't sound like you're bearish at all,
• 50:27
  but maybe not incredibly bullish
• 50:29
  expecting a bull market right away.
• 50:31
  Is there something you'd have to see
• 50:32
  for you to sort of flip very bullish on Bitcoin
• 50:34
  for the shorter term?
• 50:35
  Is it breaking that 100K level again?
• 50:37
  What is it that you're looking for?
• 50:40
  So part of it is this,
• 50:41
  I just don't do a lot of short-term trading
• 50:43
  unless I get a really, really high signal.
• 50:47
  Like it's pretty rare
• 50:48
  that I'll have a pretty high conviction short-term call.
• 50:51
  I mean, breaking well over 80
• 50:53
  and staying there would be nice.
• 50:54
  I mean, right now, 80 is kind of serving as resistance.
• 50:57
  You know, the chartists can point out kind of why.
• 51:01
  It's kind of visible in a chart why that's the case.
• 51:03
  So, you know, if you break over 80,
• 51:05
  you get somewhat of a higher high
• 51:06
  from kind of this bear market period that it's in.
• 51:10
  So that would look good.
• 51:12
  But other than that, I mean, it's just in general,
• 51:15
  I just don't really want to try to make six-month
• 51:17
  or three-month views.
• 51:19
  And instead, I want to constantly ask the question,
• 51:23
  does this look good on a multi-term basis?
• 51:26
  Which currently my answer is yes.
• 51:29
  And so that's kind of how I view things.
• 51:33
  Is there anything that could ever change
• 51:34
  that answer for you from being yes?
• 51:36
  Yeah, I mean, so I, you know, when I saw treasury markets, I mean, treasury companies trading at, you know, three times MNAP for the big ones or almost infinity for the small ones, that was concerning.
• 51:48
  When I saw altcoin treasury companies coming to market, it was concerning.
• 51:54
  So at least in the intermediate term, it's like, okay, this is, you know, fast money's here.
• 52:01
  Longer term again it goes back to the two questions Is Bitcoin the best at what it does meaning that uh as far as you know cryptocurrency or as far as decentralized open source money
• 52:13
  is it the best one and because of network effects and because of decentralization and security and
• 52:19
  intentional simplicity and all that uh my answer continues to be that it is and that it has a very
• 52:25
  very high probability of continuing to be uh because those network effects and things like
• 52:29
  that feed on each other.
• 52:30
  So as long as that continues to be the case,
• 52:32
  as long as there's not some crazy security issue
• 52:35
  or other, you know, just major,
• 52:37
  just kill shot on the network.
• 52:40
  So as long as that continues to be the case.
• 52:42
  And then two,
• 52:43
  what do I think the total adjustment market
• 52:46
  is of decentralized portable money and capital?
• 52:50
  You know, money that you can bring
• 52:52
  around the world with you.
• 52:53
  I mean, we just talked,
• 52:54
  we had a whole almost hour long discussion
• 52:57
  of how kind of crazy the world is.
• 52:59
  And it's like, you know, in a world of capital controls and fiscal dominance and financial repression, there's a handful of tools that people have where they can actually self-custody their own money and be able to hand that money to another person without centralized intermediaries like stocks or other things like that.
• 53:21
  Of course, one of them is precious metals, gold and silver, which that can work great if you don't really want to go across borders and, you know, subject to search and all that.
• 53:32
  So if you want to stay put and have some gold and silver and it can do great.
• 53:36
  I'm bullish on especially on gold and precious metals in general.
• 53:40
  Now, for people, you know, in America, because our country is so big, it's a continent in and of itself.
• 53:46
  We often don't think about things like that.
• 53:48
  but in many other countries, I mean, smaller countries, more borders, more changing, more
• 53:52
  disruption on average, people do want to move around. And, you know, you can write down 12
• 53:59
  words and even memorize 12 words and bring your wealth across the border. Or, you know,
• 54:06
  you can pay someone on the internet for a service and things like that. And so it's like, what is
• 54:11
  the value of that? And of course, it's undebasable as long as the technical details continue to hold
• 54:17
  up and and so what is that worth i mean it's currently something like 0.2 percent of liquid
• 54:22
  assets in the world and it's like you know if it's where if that is two percent that's a 10x from a
• 54:28
  year um you know if it's 20 that'd be 100x from a year which i think it's premature to call it
• 54:33
  something like that but i think it's not out of the question to go from 0.2 percent to two percent
• 54:38
  of global liquid assets uh for something like that so as long as the kind of total adjustment
• 54:45
  market is still significantly bigger than the current market. I'm kind of long-term,
• 54:49
  structurally bullish. You talked about the treasury companies there, and they've had a rough year.
• 54:54
  And maybe let's forget about the smaller ones that, like you were saying, were trading at
• 54:57
  essentially, I think some of them got to like 30 times MNav. Forget about those, just the big ones.
• 55:02
  What do you think the next few years will look like for them? Because let's take strategy as the
• 55:07
  biggest. I'm sure they'll do very well in a Bitcoin bull market. Their stretch product is
• 55:14
  back to par or almost par, like things are looking fine there. Do you think we'll see them trade at
• 55:20
  2x, two and a half times MNAV again, or is that era over? Well, I hate to say never,
• 55:27
  but I do think that the total euphoria we saw in the treasury market will probably not be repeated,
• 55:33
  meaning that you won't see, like, strategies at three times MNAV, I mean, Metaplanet, I think,
• 55:38
  eight times MNAV, I mean, even earlier back in the really early period, but when they were pretty
• 55:42
  sizable they were at eight times mnet for a period of time six times um you know i think that era is
• 55:48
  done uh now if you get you know if you get a crazy enough sovereign situation you know you could get
• 55:54
  you know another huge run um but in general um the way that like for example altcoin markets work
• 56:02
  is that you know you'll have like a a new a new thing uh that cycle and that's like that's where
• 56:08
  all the money goes and then that thing has a resurgence in the next cycle but it's not really
• 56:12
  as big as like its first cycle.
• 56:13
  And I think that this was like the treasury market cycle.
• 56:16
  And people now know how that ends.
• 56:20
  And so I think that just capital is more going to be flighty with those things.
• 56:25
  It's going to care more about quality metrics.
• 56:27
  It's going to say, okay, we're fine with Bitcoin treasuries and preferred attached to it or
• 56:33
  convertible debt attached to it.
• 56:35
  But there's a certain limit of how much we want to pay for that.
• 56:40
  And so I do think that the big ones that are well capitalized will do well in the next cycle.
• 56:48
  But as a base case, I wouldn't expect them to be as euphorically priced as they were in this cycle ever again.
• 56:55
  The thing that I can't quite figure out with them is like strategy being a sort of more volatile version of Bitcoin.
• 57:01
  Essentially, it goes up more when Bitcoin is going up, goes down more when it goes down.
• 57:04
  Makes total sense to me.
• 57:06
  What I can figure out is if it can ever be a longer term play where it might go up more in the bull market go down slightly more in the bear market but overall net out of being a positive Do you think that possible or will it always just be a higher volatility Bitcoin
• 57:23
  I mean, I think the end game there would be...
• 57:28
  basically establishing a core business.
• 57:30
  I mean, ironically, they had that.
• 57:32
  You know, they still have it with the software,
• 57:34
  but basically a core business with the Bitcoin.
• 57:38
  And I think basically what they have is optionality.
• 57:41
  I mean, they have a giant treasury.
• 57:43
  They have more assets than liabilities.
• 57:45
  Their assets are non-debasable,
• 57:48
  where their liabilities are debasable.
• 57:51
  And so I think that they're,
• 57:54
  and even the way that Saylor's kind of described it
• 57:55
  is he'll use the reference of like Manhattan,
• 57:58
  like property,
• 57:59
  which is that over time,
• 58:01
  with a long arc of time,
• 58:02
  the property just keeps increasing
• 58:03
  relative to the fiat currency.
• 58:04
  So why wouldn't you go long and short the other
• 58:06
  with a caveat that you just have to make sure
• 58:08
  you don't blow up somewhere in the middle,
• 58:09
  which of course is a very big caveat.
• 58:12
  And so I think that can get them pretty far
• 58:16
  as long as they keep doing the no blow up part,
• 58:19
  which now they've navigated for two cycles.
• 58:23
  Now, if you do get Bitcoin closer
• 58:26
  to its total adjustable market,
• 58:29
  I mean, that's where you start to say,
• 58:31
  well, why should this trade at a premium?
• 58:35
  You know, or like if we expect
• 58:36
  less explosive growth in the future,
• 58:37
  it's just bull markets are less explosive.
• 58:39
  and basically what happens is you have trouble kind of justifying the cost of capital at that
• 58:44
  point um and then it's like what are you going to do with all that bitcoin could you make acquisitions
• 58:48
  could you uh you know become the jp morgan of the new bitcoin economy whatever the case may be
• 58:54
  um that's kind of i think what market participants would expect to see happen at that point but i
• 58:59
  think that's still premature um and so yeah i think it's it's right now it's mostly just a
• 59:05
  a gap between, you know, what Bitcoin's going to do,
• 59:09
  what fiat's currently going to do.
• 59:11
  When I went on the prior earnest call,
• 59:13
  my question was really about counter-cyclicality,
• 59:15
  which is that historically, you know,
• 59:19
  the market wants to issue them a bunch of capital
• 59:21
  when Bitcoin's high.
• 59:22
  It doesn't want to issue them a bunch of capital
• 59:24
  when Bitcoin's low.
• 59:25
  And so they actually, they buy more Bitcoin
• 59:26
  when it's high and they buy less
• 59:29
  or even sell some when it's low.
• 59:32
  And it's like in the future,
• 59:33
  could they use their tools to ideally do that in reverse?
• 59:37
  Yeah.
• 59:38
  Because if you say, why should this company have a premium?
• 59:42
  One of the answers, I think the most compelling answer would be,
• 59:46
  well, they have a bigger tool set than anyone else.
• 59:49
  You know, they have public market access.
• 59:52
  Even compared to other ones, they're bigger, more liquid.
• 59:55
  It's not easy to do preferreds.
• 59:57
  I mean, you need a certain scale to do preferreds.
• 59:59
  They're one of the couple of companies that have hit that scale.
• 1:00:03
  in that space.
• 1:00:05
  And so they have tools
• 1:00:07
  to do various counter-cyclical things
• 1:00:09
  which can accrue shareholder value
• 1:00:12
  and increase Bitcoin per share.
• 1:00:14
  And so I wouldn't pay three times MNAV,
• 1:00:17
  but you can justify above a one times MNAV
• 1:00:20
  if you determine that one,
• 1:00:23
  Bitcoin is going to keep going up relative to dollars
• 1:00:25
  and above their cost of capital.
• 1:00:27
  And two, that they're going to pull the levers
• 1:00:30
  in such a way that are accretive.
• 1:00:32
  and that, you know, they have committed
• 1:00:34
  to try to be more counter-cyclical in the future.
• 1:00:36
  I mean, they've learned from two cycles now,
• 1:00:38
  so we'll see.
• 1:00:40
  We should talk about your treasury company.
• 1:00:41
  Do we even call it a treasury company?
• 1:00:43
  Tell everyone what Orange Juice is
• 1:00:45
  and how you sort of define it.
• 1:00:47
  Yeah, I would say it's a company
• 1:00:48
  that will have a Bitcoin treasury
• 1:00:50
  rather than a Bitcoin treasury company,
• 1:00:52
  meaning that it's not a pure play
• 1:00:53
  or nearly a pure play.
• 1:00:55
  So yeah, we founded Orange Juice,
• 1:00:58
  those of us at EgoDeath Capital,
• 1:00:59
  along with Ruben and Adrian.
• 1:01:02
  as well, additional partners.
• 1:01:05
  And it's basically,
• 1:01:06
  it's primarily tackling the private equity market.
• 1:01:09
  It's basically a permanent capital vehicle,
• 1:01:12
  which is a jargon way of saying a company
• 1:01:14
  rather than a fund
• 1:01:16
  that will seek to buy middle market
• 1:01:19
  and lower middle market private businesses
• 1:01:21
  that are cashflow positive
• 1:01:22
  that generally have nothing to do with Bitcoin,
• 1:01:25
  buy them, hold them forever,
• 1:01:28
  and accumulate some percentage of its income
• 1:01:31
  in a Bitcoin treasury.
• 1:01:32
  So you have the combination of cash flows with the Bitcoin treasury, and we intend to accumulate a lot of companies.
• 1:01:39
  And kind of the reason for that is that we talked about the 40-year period of declining interest rates.
• 1:01:46
  And a really big unlock that did was financialize small to medium businesses.
• 1:01:52
  Basically, people in New York had really good access to cheap debt, cheaper than the Ma and Pauly HVAC company.
• 1:01:58
  so they can go out and buy HVAC companies
• 1:02:01
  and buy them on really cheap debt.
• 1:02:05
  And then they can fire half the staff
• 1:02:07
  and optimize things.
• 1:02:08
  And they'll have a fund
• 1:02:10
  with an estimated life of, say, 10 years.
• 1:02:13
  And so they'll buy a company
• 1:02:15
  and then a few years later,
• 1:02:16
  they basically want to flip it.
• 1:02:18
  It depends on the company.
• 1:02:19
  They might want to go public with it.
• 1:02:21
  They might want to sell it
• 1:02:22
  to some other kind of larger strategic buyer.
• 1:02:26
  But they're in that more flipping
• 1:02:27
  mentality.
• 1:02:29
  It's largely an industry arbitrage game.
• 1:02:34
  And now that you have a couple major things have changed,
• 1:02:38
  we no longer have structurally declining industry trades.
• 1:02:40
  So you can't just kind of keep playing that same game over and over again.
• 1:02:43
  And then two, because of demographics,
• 1:02:46
  you have a really big number of businesses owned by baby boomers
• 1:02:51
  that are looking for eventual exits.
• 1:02:54
  And, you know, some of them would like to pass the business down to their kids,
• 1:02:57
  but maybe their kid wants to be a doctor or an engineer.
• 1:02:59
  doesn't want to run their HVAC business.
• 1:03:03
  That's kind of the meme.
• 1:03:06
  And so there's a handful of options.
• 1:03:09
  One of the hardest things you can sell is a business.
• 1:03:13
  And so to private equity's kind of credit,
• 1:03:18
  there is a market for it.
• 1:03:19
  They create liquidity in businesses,
• 1:03:21
  buying and selling businesses.
• 1:03:23
  But ideally, if a company does not want to have it
• 1:03:26
  get chopped up and leveraged,
• 1:03:28
  You know, companies that emerge from the private equity process generally have a higher than average bankruptcy rate because they've been hollowed out and leveraged for kind of the short-term optimization.
• 1:03:40
  You know, we instead say, okay, well, if you care about legacy and if you want to even keep participating in the company and, you know, have kind of equity upside, that's what we want to do.
• 1:03:52
  We want to come in and buy a business, help where we can.
• 1:03:56
  I mean, we can bring in world-class AI experts to help, you know, with your administrative
• 1:03:59
  backend, but we don't want to just carve up and shittify the business itself.
• 1:04:06
  And nor are we going to optimize for a three to five year flip.
• 1:04:10
  We intend to hold it indefinitely.
• 1:04:12
  And, you know, there have been a handful of companies that have kind of made that model
• 1:04:15
  work really well.
• 1:04:16
  I mean, the most famous example, which is like, it's almost a meme to compare yourself
• 1:04:21
  with it, which would be Berkshire Hathaway, which is in addition to their public stock
• 1:04:24
  portfolio, they go out and buy whole businesses, dozens of them, and then they just hold them
• 1:04:29
  indefinitely. And ideally, they keep existing management in until, you know, they eventually
• 1:04:34
  want to retire and then they can bring in other people to run it. And other examples would be,
• 1:04:39
  you know, Illinois Toolworks, for example, is they basically make various engineering tools
• 1:04:44
  and equipment and they go out and buy other engineering and equipment companies. They roll
• 1:04:50
  that into their own product line. And they just keep repeating that process over and over again.
• 1:04:55
  And so Orange used to kind of go after the fact that there's a lot of business out there.
• 1:05:02
  A lot of private equity funds are already kind of stuffed to the gills. It's hard to find kind
• 1:05:06
  of the next buyer. And that kind of fiat arbitrage game is the engines. It's not dead, but it's kind
• 1:05:13
  of disrupted. And so we want to go out there, buy good businesses at low multiples, and then hold
• 1:05:19
  some of that in Bitcoin.
• 1:05:21
  So that's interesting because like the stereotype with private equity is they'll
• 1:05:25
  come in and they'll buy your local dental practice or whatever.
• 1:05:29
  Everything gets worse and then they'll obviously flip it five, seven years later,
• 1:05:32
  whatever it is.
• 1:05:34
  Can you flip that on the head because you don need the liquidity from selling it because you doing cash flows in Bitcoin Is that the idea Yes Basically so incentives matter a lot because it not like these private equity guys
• 1:05:46
  who twirl their mustaches and say,
• 1:05:48
  how can we make dentists worse?
• 1:05:51
  It's basically someone's like,
• 1:05:53
  okay, I get paid if I give return to shareholders
• 1:05:56
  and the way I get, I mean, fund investors.
• 1:05:59
  And the way that I do that
• 1:06:00
  because I have a time limit on my fund
• 1:06:02
  is I go out, buy dentists, fire some employees,
• 1:06:05
  cross-sell bad products, whatever, raise the prices, and then get out. And I have to pay the
• 1:06:11
  fund investors back. It's not a permanent vehicle, so I have to get out somehow. I need a liquidity
• 1:06:15
  event. And so you make short-term decisions that optimize for three to five years, but then that
• 1:06:21
  dentist practice is going to have a higher than average failure rate after that because you kind
• 1:06:24
  of lost customer trust and employee waking up every day, liking the place they work at and all
• 1:06:30
  this. Now, if your incentive structure is to own it longer term, you're generally going to make
• 1:06:35
  different decisions, kind of like how the initial owner of that business made decisions to get it
• 1:06:39
  where it was. I mean, it's kind of the radical idea that it got to where it was for a reason.
• 1:06:44
  Maybe don't change all those reasons. You know, you can help around the margins. You can fix it
• 1:06:49
  if there's a problem, but it's don't just come in and optimize for the short term. One of the
• 1:06:55
  things is the treasury. The other thing is that if you intend to go public, which we do,
• 1:07:00
  the liquidity for investors is that, you know, at a certain point, they can sell their shares.
• 1:07:05
  um uh and so unlike a fund structure a public company has just inbuilt liquidity without having
• 1:07:11
  to sell the underlying uh and so that's the the longer term goal and intention with orange juice
• 1:07:16
  that's very cool and so with the conversations you've been having with companies that you're
• 1:07:21
  looking to acquire how do you try and explain that angle that this is going to be a bitcoin
• 1:07:26
  treasury company at the top and they're going to get equity in that like do these people understand
• 1:07:30
  like the longer term plan with this?
• 1:07:33
  They do.
• 1:07:34
  So, I mean, especially at this early phase,
• 1:07:37
  it's generally, you know, people from our audience,
• 1:07:41
  people that have seen our reach,
• 1:07:43
  that, you know, and those people tend to,
• 1:07:46
  on average, like Bitcoin.
• 1:07:48
  Some of them might already be Bitcoiners
• 1:07:50
  in their, you know, their personal accounts.
• 1:07:52
  Some of them were literally sitting on businesses saying,
• 1:07:56
  hey, I got private equity offers,
• 1:07:57
  but I didn't like the direction
• 1:07:58
  they were going to take that in.
• 1:08:00
  and I'm seeking an alternative.
• 1:08:04
  And so, you know, one of the early questions we got
• 1:08:06
  is like what industry are we going after?
• 1:08:08
  And initially we're pretty industry agnostic.
• 1:08:11
  I mean, we have certain characteristics,
• 1:08:12
  but like certain side characteristics we're looking for,
• 1:08:15
  certain traits that we're looking for,
• 1:08:16
  like, you know, not super cyclical, for example,
• 1:08:19
  cashflow positive, but we're kind of industry agnostic
• 1:08:23
  because we care more about that aligned owner
• 1:08:25
  or that aligned, you know, founder, seller
• 1:08:27
  that is basically a Bitcoiner
• 1:08:30
  or could be a Bitcoiner
• 1:08:32
  that appreciates the long-term value of the equity,
• 1:08:35
  which can also be more tax efficient.
• 1:08:37
  Because if you sell a business,
• 1:08:39
  you have capital gains taxes on it.
• 1:08:41
  If you exchange that business partially for equity,
• 1:08:43
  obviously every tax situation is unique,
• 1:08:45
  but you can defer those taxes until you eventually sell that equity and let that keep compounding So basically there certain types of business sellers that just find that you know be a more interesting deal than what they can get elsewhere
• 1:08:59
  It's very cool. It seems like the incentives are more aligned for everyone.
• 1:09:03
  So the plans go public. Do you think that will take some time from here?
• 1:09:08
  We expect years. Yeah, we initially had a year target that we made public, but the lawyers
• 1:09:12
  didn't, we don't say that the exact target, but in a handful of years, the goal is to go public.
• 1:09:19
  Now, of course, it's all subject to risk and, you know, execution and all that, but that is the
• 1:09:25
  stated intention of the partners. And what's your actual role there?
• 1:09:31
  So I'm a partner and I'm also on the investment committee for, as we buy companies. And the way
• 1:09:37
  we structured it is that other than the partner we have running literally day-to-day operations,
• 1:09:45
  the rest of us take no salary and we literally only get potential upside from this if it works
• 1:09:52
  out for investors. So yeah, my primary role at the moment is making sure that our initial
• 1:09:58
  acquisitions are well selected and then well integrated. We just hired a CTO.
• 1:10:05
  we haven't quite announced him yet
• 1:10:08
  because he has to leave his current position
• 1:10:11
  but we're really excited
• 1:10:12
  because we can go into these smaller businesses
• 1:10:16
  and say hey we have a leading AI expert
• 1:10:20
  for example that can help understand the business
• 1:10:22
  help figure out where to trim costs
• 1:10:25
  without doing the whole like gutting the company thing
• 1:10:27
  or just kind of acting like you know how to run the company
• 1:10:29
  better than them
• 1:10:29
  it's saying basically how can we help you
• 1:10:32
  Um, uh, and so it's kind of making sure all those tools to come together, make sure that
• 1:10:37
  the values keep kind of operating.
• 1:10:39
  As you said, that the incentives keep working for everyone.
• 1:10:42
  Uh, but the main thing is, is acquisitions and then making sure the integration goes
• 1:10:46
  smoothly.
• 1:10:46
  We've talked about so much there.
• 1:10:48
  I do have one complete tangent topic that I want to talk to you about quickly, but is
• 1:10:51
  there anything else before we move on to that, that you want to cover that we've not?
• 1:10:54
  I think those are the big things.
• 1:10:56
  We've talked about the big things.
• 1:10:57
  I want to talk to you about your book because last time you were on the show, it's been
• 1:11:00
  over a little while.
• 1:11:01
  It's been nearly six months.
• 1:11:02
  I just started reading the book and I've obviously finished it since then.
• 1:11:05
  I thought it was absolutely brilliant.
• 1:11:07
  I really, really enjoyed it.
• 1:11:09
  Um, how's it gone?
• 1:11:12
  It's going well.
• 1:11:12
  So for people that don't know, it's called The Stolgard Incident.
• 1:11:15
  It's a sci-fi novel, uh, and it's, uh, it's action.
• 1:11:19
  It's, uh, it's thinking, you know, it's, it's a common combination of both, I think.
• 1:11:23
  Uh, and it's going well.
• 1:11:25
  I mean, uh, you know, I never expected to be like broken money, you know, where I like,
• 1:11:28
  I literally have a macro tech audience.
• 1:11:30
  I write a book about, you know, macro and tech.
• 1:11:34
  But as far as kind of hitting them with this curveball,
• 1:11:38
  it's been well-received.
• 1:11:40
  The ratings are good.
• 1:11:41
  The reviews are good.
• 1:11:42
  We have an audiobook by Walker and Carla.
• 1:11:46
  And that's actually currently the highest rated version of it.
• 1:11:49
  So is the audio because we did something somewhat unusual.
• 1:11:53
  So most audiobooks are either read by one person
• 1:11:56
  or if you do have like more than one usually have someone read like a whole chapter and then the next person read the whole next chapter Like let say you have a male point of view or a female point of view and they read all that chapter including all dialogue from all characters in that chapter
• 1:12:08
  for our audiobook we did full duet narration meaning that for example walker reads all the
• 1:12:14
  male narration but also reads every male dialogue line even in the female narration chapters and
• 1:12:21
  vice versa for carlos so all the dialogue just comes out feeling a lot more realistic
• 1:12:25
  um uh and of course they're both they especially carla but they're both amazing kind of actors
• 1:12:31
  uh and they both have like the radio voice and the acting uh abilities um and so uh yeah it's been
• 1:12:38
  it's been it's been kind of like um in a world of spreadsheets and mostly bad news and uh you know
• 1:12:45
  it's like i never can i never really come on a macro podcast and say yeah things have been great
• 1:12:49
  for the next 10 years uh kind of the the more creative outlet uh the more fun outlet is saying
• 1:12:54
  well, if we're going to write about dystopias,
• 1:12:57
  let's have some fun with it.
• 1:12:59
  See, I did the old-fashioned thing and read the book,
• 1:13:01
  but I think I'm going to listen to the audiobook as well.
• 1:13:04
  Carla and Walker, awesome, so I should do that.
• 1:13:08
  Is there going to be a second one?
• 1:13:09
  Because it was kind of left open like there potentially could be.
• 1:13:14
  Good question.
• 1:13:14
  So I wrote it as a standalone,
• 1:13:16
  meaning that as a book, it is just a complete book.
• 1:13:20
  There's no kind of intentional hooks left open or anything like that.
• 1:13:23
  the way that I approach it is that life is messy.
• 1:13:26
  You know, life is not just like one story.
• 1:13:28
  It's stories leading to other stories.
• 1:13:29
  So the way that I did it was I outlined a prequel and a sequel,
• 1:13:34
  meaning that I know kind of what happens in the world that led up to this.
• 1:13:37
  I know what happens after this.
• 1:13:39
  And not for sure that I'd ever write those
• 1:13:41
  or write this book as though those have to exist,
• 1:13:45
  but it makes the world feel more lived in and more realistic.
• 1:13:48
  So the first and foremost is just a standalone novel
• 1:13:52
  that I'm really happy with how it is.
• 1:13:55
  But I am, over time, chipping away
• 1:13:57
  at prequel and sequel concepts.
• 1:14:01
  The prequel is actually further ahead than the sequel.
• 1:14:03
  So you'd actually find out kind of what we have
• 1:14:04
  before, potentially.
• 1:14:07
  But yeah, instead of...
• 1:14:09
  I don't like those series where it's like
• 1:14:10
  you have a character and it's like,
• 1:14:12
  let's save the world and then save the world
• 1:14:13
  seven more times, you know?
• 1:14:14
  And it's just like, how many times is Ethan Hunt
• 1:14:17
  going to save the world in Mission Impossible, right?
• 1:14:20
  It's not kind of the sequel situation I want to write.
• 1:14:23
  It's more like, uh, do I have a story to tell, uh, quality over quantity?
• 1:14:29
  And so, yeah, I have an idea of up to three novels with the world,
• 1:14:33
  but each one kind of stands on its own.
• 1:14:36
  Well, I will look forward to it if it comes out.
• 1:14:38
  I thought it was brilliant. It's my favorite kind of genre.
• 1:14:39
  Like relatively near future sci-fi is my thing.
• 1:14:43
  So I thought it was absolutely awesome.
• 1:14:45
  Um, everyone should go and read that book.
• 1:14:47
  Or actually listen to the audio book, listen to Walker and Carla do it.
• 1:14:49
  Um, thanks Lynn, this has been awesome.
• 1:14:52
  We should definitely speak again soon, but appreciate you.
• 1:14:55
  Thanks for having me.