Speaker 1The fact that the volatility has come down both daily, weekly, monthly, annual, all volatilities are falling, makes it more likely that I want to own it. No one has a lot of confidence in our policymakers. They haven't had confidence for as long as I can remember. So it's not a new thing that suddenly central banks have a credibility concern. But it's getting worse. And the question is, what's next? Is it going to get worse or better? If it gets worse, that's good for Bitcoin. Some future point, we're not going to be able to afford what we are committed to providing our citizens. And inflation is going to drag down our purchasing power. That's inevitable. And as long as they continue to make choices like they've made, we're going to get the outcomes we're going to get. And frankly, that's a bull case for Bitcoin.
Speaker 2Andy, it is great to see you again. You're a star of one of the more controversial shows I've done that we did with Lynn Aldrich. And probably about a year ago now. But how have you been? Yeah, it was last
Speaker 1summer of 2025. I loved that one. It was so much fun. And I, you know, it turned out prescient at many levels. But I also learned a ton when we moved from DATs to stablecoins. So that's interesting. And it's becoming more topical regarding, you know, the need for the Treasury to do its financing. So it's lots of interesting stuff at this stage.
Speaker 2Yeah, absolutely. So we're going to get into some more macro stuff today. I've got a fun idea, a little thought experiment I want to run through with you. But for the audience, I think it's very relevant that they know your background before we do that. So do you want to just tell everyone, you know, what you've done for the last 30 years of your career? Sure. Well, I'll
Speaker 1start when I started, which is, gosh, it's now 40 years ago. Started at Salomon Brothers in 1986 as a corporate financial analyst, and then moved to the trading floor after I was assigned to work on the Brady Commission. That investigated the stock market of 1987. And that's when I fell in love with markets. And that anniversary is coming up. I guess it was a few years, a few months, a month. Anyway, I became a convertible bond trader, then became a, started to work in equity derivatives, then took on many management roles, and ultimately left Salomon as the head of the global equity derivatives. business, where I started my own hedge fund with some fixed income partners. We didn't work. It worked out great. We built a great company. But then our partnership sort of fractured. And by 2008, we had closed down ahead of the financial crisis. And I was starting to launch another fund. And that really never got off the ground. Because frankly, when you're trying to raise money in 2008, every allocator, institutional allocator, isn't really interested in giving out money. It just wants all its old money back from all the other hedge funds. Couldn't have been a worse time to try and do that. It was a bad fundraising environment. But I thought about retiring at that point. And then I realized that what had been missing in my career had been an understanding of macro. And I had the great fortune of joining Bridgewater Associates in 2010. Worked for them for a number of years in their research area, in their portfolio construction area, and contributed. Yeah. I had a great time learning macro from, I think, the best macro fund in the world. After that, I decided to go to another macro house that was, instead of entirely systematic, was entirely discretionary. And that was Brevin Howard. Brevin Howard actually became quite active in crypto during that period of time when I was there and still are. So I got some exposure to the things that we tend to talk about when you and I are together from those guys at that time. And that was very early on in the whole institutionalization of crypto. At the time, it was primarily Bitcoin. So I got some exposure to the things that we tend to talk about when we're together from those guys at that time. think about an allocation to the their savings. So I'll come back to that. That's one. That's investor one. Investor two, sorry, and what I mean by that, there's cash savings. It's to use their cash in a way that isn't necessarily for big returns, it's for safety. And so Microsoft has, math had, they're spending it now on AI, but had massive amounts of cash and they needed to manage that cash. They weren't benchmarked against the S&P 500 or anything like, not super risky. They just wanted to manage their cash in a good way. So there's that pool of institutions. There's a second pool that is. Because, hey, I want to manage my client's money in the best possible way to generate. I'm long only, I want to generate the best possible long only returns possible. And so to do that, you have to think about all the possible. Let me just get out of the sun a little bit. All the possible assets one can own with cash to generate. The best portfolio, okay? Then there's institutions that are in the business of. So that's two. Then there's institutions that are in the business of market timing, buying cheap, selling rich, short selling rich, buying cheap, and speculating on the direction of an asset. So that's three. And then four, there's arbitrageurs. That look at assets and say, I don't really have a view on the asset, but I think it's rich to that asset. And they use the two assets as a pair or part of a portfolio of things that they're trying to extract. They're not betting directionally on any one of the things, they're betting on a portfolio. So that's the sort of four seats that I see that you could explore. Is there one that you particularly want, or should I. Let's go through each.
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Speaker 1Long-term, long-only holders. Yeah. I think that's frankly where the value is. Like you can trade anything. And so just to put those aside, to trade something, you have to have an edge. I mean, casinos earn a lot of money. Betting, prediction markets earn money. DraftKings earns money. The people in those places, even if the casino wasn't extracting money from every bet that's placed, the people in that, they're just trading with each other. And, you know, some are sharp, some aren't sharp. Some are just there for the drinks and the entertainment. And so Bitcoin is one of those. Just like NVIDIA, the S&P, the 10-year treasury, they're just one of those. And you have to decide whether you have the ability to beat the people you're playing. And so that's a. By the way, if you do, then you include. If you're an institution like Brevin, institution believed they could beat the market and so became a long, short trader of that thing. But I think you're right. Most of us are in the business of long-term savings. And so you have to consider whether any asset you pick helps your portfolio. And so the way I think about that is in a framework I mostly learned from Bridgewater, but even that framework had stood on the shoulders of a lot of prior frameworks. In particular, Harry Brown's permanent portfolio framework that he wrote a book in the late 70s during the inflation scare, not scare, the inflation experience, about how to build a portfolio that is capable of earning returns throughout all environments. And then just holding it. And so when I think about that, I come from that framework and say, what is it about an asset that is capable of earning returns throughout all that makes me want to include it in that type of portfolio. So a couple of things. One, it should have a reason for it to have a long-term risk premium, meaning somebody who sold it to you wants your money and knows to get your money, they need to compete, and they have to compete with stocks and bonds and all the other assets in the world, businesses, anything, that generates a return, and they know they have to compensate you for your money because they want it now and you have it now. And everybody's competing for your cash, and no one has it. Nobody has cash. That's what they want. And so you
Speaker 3need a risk premium, ideally. I don't think
Speaker 1there exists a reason that Bitcoin has a risk, that pays a risk premium. Similarly, I don't think gold pays a risk premium. Can you explain why that is,
Speaker 3why you don't think it has a risk premium? Well, there's no person who is
Speaker 1selling you Bitcoin. There's only 21 million of them. Everybody who has them has them for the same reasons, by and large. And when they sell it, sure, they may need money, but it's not like an issuer who's taking that cash and putting it into a business project. A physical investment. It's just cash. Like, the euro doesn't have a risk premium versus the dollar. Because people don't really care about how they hold a cash-like asset. Right. um so anyway that doesn't mean i have to exclude it from my portfolio i own 10 10 of my portfolios in gold um i own it for the other reasons and those are twofold um one is and by far the most important one is diversification under vert under certain economic scenarios and so for instance one owns stocks and commodities because they do really well when the economy grows rapidly above expectations and they do really poorly when the economy doesn't do well um bonds which are doing terribly lately um bonds which are doing terribly lately because the economy is doing so great do really well when the economy does poorly both of those things so so owning both stocks and bonds allows me to own more stocks and have a risk and have a risky portfolio that's better than owning just stocks alone because i own some bonds and so that's general portfolio theory how diversification makes a higher risk adjusted return but so can i just
Speaker 2ask a quick question on that part because i i know sort of historically the 60 40 portfolio between um equities and bonds was was like the common thing is that still the case considering how badly bonds have done for the last six seven years however long
Speaker 1it's been i i mean i just wrote a a substack that is free on on substack that describes the case for 60 40 and i called it the empire the 60 40 strikes back with the empire strikes back meme um holy moly the 60 40 portfolio any portfolio that has held bonds since what i call the bond bubble of of summer of 2020 burst is a disaster just a disaster now wind back the clock we had another bond massive bond sell-off in the 80s late 70s 80s and we had another bond massive bond sell-off in the 80s late 70s 80s and we had another bond massive bond sell-off in the 80s late 70s um but even if you wind the clock back to the 70s early 70s where you experience that terrible outcome for bonds in the 80s um bonds basically matched the s&p 500 for 50 years leading up to that bond bubble and in fact on a risk adjusted basis which is you know if you um is on a sharp ratio basis outperformed stocks so a modestly leveraged bond portfolio outperformed stocks but even better a modestly leveraged combination of stocks and bonds out at the same risk level outperformed both of those things and so that's the proof now one thing i think the lesson is is so let's wind back the clock to 2000 the summer of 2020 the economy was closed the 10-year bond yield was at 65 basis points down from a peak of 16 percent and currently 5.2 percent 5.15 percent could be 5.2 by the end of this episode um that yield was a bubble if you looked at that bond at the time and we all did and said what is the potential for this bond to earn positive expected returns over its life had to be close to zero but people own them and financial advisors who are there's a wide range of the skill set of financial advisors um some are super sharp but even they are ill-equipped for some of these conversations but most are not super sharp they're just doing what they're told just read the script they just read that script and they didn't get anybody out of bonds and so yeah at this stage geez six years of terrible returns i can't imagine their the financial advisors are going to be um pitching to their clients hey you really should keep the bonds that have cost you all this money or and certainly the financial climate the the um investment um you know the sentiment out there is that bonds you can't own bonds and the fact is they're much better than they used to be they're nowhere near a bubble they have this is the most important thing when in 2020 if the economy had grown had instead of recovering from covet had continued to get worse your bonds would have had limited to no appreciation potential which is why you owned them in the first place because you needed them to balance your bonds and you needed to balance your equity exposure today if interest rates could fall 200 basis points in the next year if the economy weakens you're going to make a piss load out of bonds in that case now that's not the current sentiment the current sentiment is growth is going to just go forever but that's already in the pricing so any disappointment you're going to see capital appreciation and so that's why i want to own bonds in my portfolio today not not because i don't want to own bonds because i don't want to backward looking, no, that was terrible to all of them. But today, looking forward, they actually provide a decent balance and let me hold equities at a desired risk target without being fearful that I'm going to get caught in a growth slowdown because my bonds will protect me. So I get to own equities and I don't have to puke them when the growth does disappoint, which it inevitably will. So anyway, circling all that back, gold is an interesting asset in that it does
Speaker 3very well when currencies are being debased, when cash
Speaker 1is trash, essentially. Now, a lot of people say, well, it's supposed to be an inflation hedge. Not entirely. It does help. But during inflation, interest rates tend to be lifted by central banks, and that can hurt the relative value of gold versus other things that are like gold, like tips. So it doesn't work as an inflation hedge, but it really works in a monetary debasement. So I want to have that. And so anyway, that's an asset I want to have because I have confidence in a debasement environment. It'll do. And so anyway, that's an asset I want to have because I have confidence in a monetary debasement environment. While other assets may not, particularly bonds in that case. And so what I'm trying to get at is that if you're a long-term investor and you have to consider all the assets, you need a reason to have at least one reason to have them. And the first reason is that they have a positive risk premium. The second reason is they offer a. balance to your portfolio. And gold had been, prior to Bitcoin, had been, and maybe Swiss francs and certain other currencies are like gold, but had been a unique asset that responds to something that no other asset responds to. And so, as I said, gold doesn't have a risk premium because there's nobody that. It's expensive. It's like a currency. It doesn't need a risk premium because people just swap it for goods and services and assets. That's what a currency does. They don't carry risk premiums. They're just a spot thing that people swap. And so. It doesn't carry a risk premium. I don't want it. But because of its unique properties and long history and relatively low. Volatility. And it really behaves the way it should. All of those things make it an essential
Speaker 2part of my portfolio. Because what you're talking about there, essentially, with gold, is that it's protection. It's the debasement trade. Would gold and Bitcoin not make more sense to have like a small. Maybe it's a smaller allocation for you, but a allocation to Bitcoin in that sense?
Speaker 1So, I am very excited to one day replace some of my gold with a diversifier like Bitcoin. And today is not that day. And not even at the margin. And I'll describe why. And listen, this is just my reason. And you asked me how I think about it. This is how I think about it. It's too volatile. It's too correlated to something I already own, which is NASDAQ. And it's not correlated to gold, which is the thing I want to replace it with. Like, I don't need any more NASDAQ. I just don't. I got plenty.
Speaker 2that it's that part it has a sense um like i do understand like it has been incredibly correlated to the nasdaq i i think at some point that will change who knows what the actual catalyst for
Speaker 1that is i think it's actually going in the right direction like the i'm when i look at bitcoin and the recent experience and i've paid a lot of attention to it the last few years particularly because of my interest in the debt companies but you know just just growing as a person and looking at these sort of things and i like the fact that it had this long period of low volatility and low correlation with the nasdaq so it's becoming less correlated to nasdaq which is a good thing for me and it's becoming lower vol which is a good thing for me yeah that's what i was going to ask you
Speaker 2about because this bear market like bitcoin dropped 50 whereas previously it's always been 80 and the difference like i i think people don't understand fully the difference between 50 drop and an 80 drop is another 50 after 50 drop um it's a huge difference like when you see that does that start making you a little more interested yeah
Speaker 1100 i you know i think it the vol is the fact that the volatility has come down both daily weekly monthly annual all volatilities are falling makes it more likely that i want to own it and the reason is the reason is is i don't think it's a good thing for me i don't think it's a good thing for me i don't think it's a good thing for me i don't think it has a risk premium because there's no fundamental need for anybody to part with bitcoin to get some other to get u.s dollar cash um beyond what normal currency exchanges do and meaning spot consumption um and because of that volatility idiosyncratic volatility on no expected return is a real disaster right so i don't think it's a good thing for me i don't think so you need the vol to come down it's coming down i think that's good the correlation has broken with nasdaq which is good unfortunately and this is a problem for me and as everything's going in the right direction for me to add bitcoin as a as a replacement to gold um except the fact that its correlation to gold is going down and that's and it's practically uncorrelated to gold over the last three years that's not a great fact pattern for me it makes me wonder whether so again let me step back and say i'm thinking about bitcoin as a debasement asset an alternative fiat a hard currency all of those sort of things that gold are like and that's my bias that's the only thing i see its value as if there's something that's going to happen to it i don't think it's going to happen to it it's going to happen to anything else it's possible it could have that for instance correlates well with growth or correlates well with inflation in either direction up or down i could find myself using it but no one's made a good case for me beyond hard money and so again that's my limitation that's why i'm comparing it to gold if you told me hey you should compare it something else and you could prove that it's better than gold i'm not going to compare it to gold i'm going to compare it to gold and you could prove that it's better than gold i'm not going to compare it to gold i'm not going to compare it to gold to prove that it's better than something else that it carries a higher risk premium so that it has a higher expected sharp ratio and behaves like something else that i already have in my portfolio i'd happily consider it but that's not where my head's at so i'm just comparing it to gold and for that it needs to act like gold at much lower volatility and then it'll go in my portfolio for
Speaker 2sure to be fair the the lack of correlation with gold over the last couple years has surprised me as well um you know obviously all the fast money has been in ai the last couple years so bitcoin didn't have the the crazy boom like it normally does in a bull market but at the same time gold was ripping bitcoin was sideways and down um do you have any theory on why that might be
Speaker 1yeah i'd just be i mean i know why i have a feeling why gold and um equities have behaved the way they are very strong growth and very easy monetary policy which are both good for equities and the monetary policy is good for gold and um suppressed long-term interest rates um and heavy fiscal all those things are pretty good for gold and pretty good for um really good for stocks and so those assets have acted the way the economic climate has developed so then you have to say why didn't bitcoin that's outside the box and then you have to say why didn't bitcoin that's outside my jurisdiction i don't know it's curious that it hasn't but if i had to guess it's because there's still a shitload of people who use the asset for things not what i just described for speculative trading for leveraged speculative trading not listen stocks are used that way gold is used that way but i don't know again outside my jurisdiction i think it's because it was a speculative frenzy for that started in or well there's been many but started in early 2021 and peaked by some by 2025 into this nonsense about trump you know oh you pick it there's lots of narratives it's outside of my jurisdiction it but it didn't act the way it should every
Speaker 2bitcoiner eventually has to answer one question if something happened to me could my family and my family be able to make a difference in my life if my family access my bitcoin would my children inherit what i've spent years stacking that's why anchor watch builds bitcoin custody solutions designed to protect you and your family against real life accidents errors kidnappings and even death every solution includes their inheritance protocol designed to help your bitcoin reach the people you intend it for and us-based customers can also add bitcoin insurance backed by lloyds of london whether you're a self-custody expert or want multi-institutional support your bitcoin estate plan should not be an afterthought bitcoin is only generational wealth if it can be passed down so make sure your family can access tomorrow what you've built today anchor watch is your custody your way so visit anchorwatch.com to get started that's anchorwatch.com you wouldn't reuse a bitcoin address so why does your phone broadcast the same identifier for life every sim has a static id and carriers ad networks and bad actors all use it to track you the big carriers have been caught selling that data over and over again cape is america's privacy first mobile carrier and it's the first mobile carrier to be able to track your data and you can use it to track your data and you can use it to track your data their identifier rotation feature changes your id every 24 hours so you look like a different subscriber every single day and sim swaps are off the table your number can't move without a 24 word phrase that only you hold there's also no name at sign up no social security number and there's no profile to build on you if you're a bitcoiner in america i honestly don't know why you'd use any other network you can head over to cape.co forward slash wbd and use the code wbd for 33 off your first six months that's cape.co forward slash wbd yeah it surprised me as well and i i think a big part of it is like bitcoin was always the fastest horse in any sort of bull market bitcoin was where that that hot money was going and that just became ai um and it kind of lost the narrative to ai in that sense i don't think it lost any narrative that's real to
Speaker 1bitcoin plus i think plus i think ai actually has a better fundamental story like the bitcoin fundamental story i buy i mean it's a it's a hard currency i buy the and look what's happening to the world but man ai is just fundamentally not only just hot money it's fundamentally a hotter a hotter um faster horse
Speaker 2yeah um just one last question on this uh how you would assess bitcoin before we get onto some macro stuff is you you said one of the reasons that you wouldn't do it is the volatility but can volatility not be solved by sort of position sizing
Speaker 1sure but the reason why i don't like volatility is because i don't like the expected return on the risk like i don't mind volatility i love volatility as long as i'm compensated for it i i don't see the the i don't see the compensation that i'd get for owning bitcoin but that gold doesn't provide at a much lower volatility now and i can lever my gold to have the same volatility as bit if i like if i like bitcoin volatility whatever it is 50 60 70 and gold's at 20 30 i can buy twice as much gold on leverage and have the same vol but i i'm more confident about the expected return on that risk and so vol to me is the numerator on this thing and the denominator sorry the denominator and the numerator just isn't great for the given the size of the denominator and so i want the if the unless the expected return increases dramatically which there's no reason for it too right because when you think about markets expected return is fully is what's priced like everyone expects a return some but they're not going to get it necessarily but the denominator if it comes down it makes the asset more attractive full stop it doesn't make it less attractive it only makes it more attractive and i think people miss that they think chase the thing with the high vol because it has the high return well does it or is it just vol that's not compensated for and for me bitcoin is vol that's not compensated for adequately
Speaker 2compensated for. So I don't understand that. And none of this is me trying to convince you. I'm just trying to understand the way you look at this. But over the last 10 years, Bitcoin's gone from $1,000 to right now, like $80-something thousand dollars. How is that not enough compensation? Because it's looking backward.
Speaker 1It was a great trade at $1,000. Wow, fantastic. The risk-adjusted return on Bitcoin in the rear of your mirror was fantastic, full stop. Hasn't been for many other points. What is it going forward? What's the expected return? What drives the expected return on Bitcoin that gold doesn't provide? And why should I get a lot of investment return for going forward? And I think what you need to get more investment returns on Bitcoin is certain conditions to occur. And those conditions could occur. And you're going to make money on your Bitcoin if those things occur. The question is, is there a way to make more money on something that has the same vol? And for now, I think it's gold.
Speaker 2I could be wrong. When you say certain conditions need to occur, what are you talking about there? Are you talking about sort of slashing interest rates, money, like quantitative easing, yield curve control, like these kind of extreme. scenarios?
Speaker 1Well, I mean, it's a combination of things like just the expectation that the central banks are going to not fight inflation, for instance. Not that they cut rates. They just say, you know, if tomorrow they announced the inflation target went from 2% to 3%, I would expect Bitcoin to do very well, even though nothing happened. Nothing changed in the economy. But, you know, that would be good. If Besant. Sorry, not Besant. Warsh. Hard to distinguish who's who. Warsh had decided not to hike at the last meeting. I would expect Bitcoin to have done very well. If the Fed decides to use RMPs, which increased the size of the balance sheet, which they did in December. I bought gold. I didn't buy Bitcoin, but I was very bullish on Bitcoin. Gold did great. Bitcoin didn't. So you'd want. There are many conditions in which a hard currency should do well. I think we know all of them. Some of them are actual things, and some of them are confidence in our policymakers shifting. Let me just be clear. So it's not a new thing that suddenly central banks have. It's not a new thing that suddenly central banks have a credibility concern.
Speaker 2And what is your take there? What do you think is coming next? Do you think it is going to get worse?
Speaker 1I hope not. And I hope not for. Not because I am bearish or bullish on assets or Bitcoin or anything. I don't like inflation. I don't think it's good for society. And so I hope they. I don't think they. They haven't shown evidence that they're willing to. I think there's a lot of hope that inflation will magically come down. And all of the prior sins of money printing, easy financial conditions, asset prices, all the things that we know have happened, get reversed without any pain being felt, and somehow inflation comes down. And so I think it's been 66 months of that, and it's not coming down. And so I hope. I hope they do what's right. I don't think fiscal policymakers, both here and abroad, but particularly here, are trying to solve the inflation problem in a way that is a fundamental demand destruction. They want to solve it by capping diesel prices, which they chose not to do, or taco and pizza prices, which they chose not to do, or taco and pizza prices, which they chose not to do, or tacoing on tariffs or tacoing on the war in Iran, or manipulating treasury bond yields or buying mortgages. None of those are root causes, and many of them, many of the policies they've done, because the deficit continues to be 6%, are not helping the economy. because the deficit continues to be 6%, are not helping the economy. And that's inflationary. And so no one is willing to take the pain. And I think it's a shame. I think it's sad and shows no leadership in the country or the world to not have dealt with inflation, because it really does create outcomes that are difficult for people. While everybody's standard of living may have grown over the last few years, the pace at which they grow hasn't been great. and some have not grown. And so I think that's policymakers making choices.
Speaker 2And is that partly driven by the four-year political cycle? I mean, really, two years before you have midterms anyway. Is it just politically unpopular to do those things, therefore, they can't really risk their career on it?
Speaker 1I wish to say it was partisan or political. These guys, for as long. Ever since Richard Nixon decided to abandon Bretton Woods and get off the gold standard, every politician has done the same thing. Increase the deficit. Bill Clinton got lucky. Sorry, increase the national debt. Bill Clinton got lucky that he happened to be constrained by the Newt Gingrich and the Tea Party to reduce the deficit. Was that in 2001, the last time there was a surplus? Not the Tea Party. The Tea Party. Gingrich in 94. We had a surplus in 97 and 98. And the reason why we had a surplus is they slashed spending, and we had a productivity boom of the internet. And so we went from a deficit to a slight surplus. But every political party since then, certainly, has grown the deficit and grown the debt. And it's bipartisan. And it's not going to change. Gridlock keeps the status quo. It doesn't make any changes. And so the status quo is roughly 6% deficit to GDP. That's not going to go up or down in a particular way unless somebody leads and no leadership has said, we're going to do what it takes to get the deficit down. Besson came up with his 3-3-3 plan, 3% deficit target. They've done nothing. Doge didn't work. Tariffs were implemented in a way that made them illegal, and so they didn't work. And the reason why they couldn't be done legally is because the Congress was unwilling to legislate tariffs. Status quo is just going to get the same outcome, which is increasing our national debt.
Speaker 2So what would you do, Andy? If you were to say tomorrow, you get the keys to the kingdom, you're in charge of the Treasury and the Fed at the same time, and you're not allowed to say you'd quit, what would you do?
Speaker 1So I've said this a number of times, and I think Warren Buffett said it before me, and Ray Dalio said it in some form. I heard him say it at work, and he's said it in the press. And I think it's right. I've raised taxes on every single dollar of revenue that we collect. I'd take $1.03 instead of a dollar. Just write on the tax code in some way, no, it's not a dollar, it's $1.03, and hand it over. So I'd raise taxes by 3%. I'd also cut spending on everything, every dollar that goes out of the Treasury, that dollar that goes to a poor Social Security elderly. Take $0.03 back from her. The same money that goes to building bombs. Take 3% back. The only thing I can't take 3% back is interest rates. But frankly, my plan, not my plan, Buffett, you know, this is not rocket science, would lower interest rates. So that would work. And so that's what I do. And it would be a disaster. Oh, my God.
Speaker 2Would this be full-blown recession, depression?
Speaker 1It would be very bad for the economy. very bad so it's not gonna happen yeah but you ask me what i'm gonna do oh by the way i'd cut interest rates to offset it if i were because i'd run the fed too um fantastic i do that i do
Speaker 3everything i can to offset it but it would be painful it the reason it's
Speaker 1painful is that every single person in america today at some point certainly anybody that's lived over more than 30 years i would say has had their assets go up and if they're an employee their company which is the overall employer base of america has done great which means their job has been more secure now obviously people lost jobs but in aggregate the massive levering up when you transfer 40 trillion dollars of debt to from savers to spenders you get an economic outcome a robust above trend outcome that's what debt does and so we've had a debt cycle of 50 years we thought it might be over in um the gfc and so after the gfc what did we get very mediocre growth and then covet and so that whole debt cycle the the what could have been a very long-term barely painful period post gfc that could could have lasted decades right back on the track and so here we are everybody every american no matter what place on the economy has probably gotten more money spent on them from government programs better wages more secure job and for anybody who had any capital unbelievable investment returns where did that come from
Speaker 3some future point
Speaker 1we're not going to be able to afford what we are committed to providing our citizens and inflation is going to drag down our purchasing power that's inevitable that bill will be paid it'll be paid by some future generation that doesn't vote that isn't even necessarily alive and it's inevitable it's inevitable now does that mean the world's going to be like so when whenever i talk about standard of living it's like okay so let's say our standard of living improves by three percent a year we could the pain and and should have improved by two percent a year so we're accruing a bill of one percent a year that somebody's gonna have to pay in the future well that doesn't have to happen all at once it's just the future standard of living improvement it's gonna be flatter than the past standard of living improvement and so to me i'm like man we released took advantage of this everybody today that votes took advantage of this future voters we should give a little back and so a little pain see let's just try something hey all i'm saying is three percent more taxes three percent less spending let's see how it goes let's get our house in order let's take a little pain ourselves instead of greedily just feed our you know feed ourselves and, you know, see what the outcome is. And of course, there's no party that represents me, nor most economists that would say that's a good idea. It's a terrible idea. It's going to be bad for a lot of people very quickly.
Speaker 2When did the world more broadly, but I guess America, as we're talking about specifically here, just forget about the idea that market cycles happen and you have to go through some periods of pain? Like, obviously, after the GFC, there was a lot of pain, but there was the TARP bailout, so there was a lot of money printed to try and paper over those cracks. COVID was that on steroids and who knows what really happened in COVID, but there was obviously a lot of people struggled, but they quite quickly tried to paper over that by, again, just printing an absolute shit ton of money. Why did they give up on the idea of you do have to go through periods of recession?
Speaker 1Yeah, I mean, that's a good question. Part of that is, well, that's a good question. I don't have an answer to you. The first thing I heard when I heard that is, should we have done 2008 differently or should we have done 2020 differently? I think the answer is maybe, but not really. Those were legitimate, painful crises that were. Were worth offsetting. But once you've offset the pain, it's the removal of the accommodation in. Since after the GFC, you'd hear the Fed go up to Capitol Hill and say, you know, all the politicians would say, we're seeing mediocre growth. The Democrats would blame. The Republicans would blame Obama. The Democrats eventually would blame Trump. We're getting suboptimal returns. The fiscal has to do its part. And the central banker would say, well, we're doing our part. The fiscal isn't. And that's true. The fiscal was actually fairly responsible after the financial crisis. They didn't spend and increase the debt massively. You could argue whether the bailouts were a good idea. I think they probably were. I wish some more people had taken the heat for that. But, you know, saving the financial system, that was a. Good outcome, I think. And they didn't create massive inflation by doing all the spending. You can blame. I think most people rightly say the cusp of the overdoing of COVID was the Biden era stimulus. Like, that was just. That was $2 trillion you didn't need to do. Probably right. But, you know, the pork that went to the Republicans during the prior stimulus informed. There had to be some evenness to that, perhaps. Not a good reason, to be honest. And I think that was a mistake. But we overdid it. The Fed overdid it. Why did they buy mortgages? There was no housing crisis. It was the opposite. Lots of mistakes. But the big problem is since 2020, when. 2022, when we had this bond sell-off and stock market sell-off, there's been no willingness to buy either policy. Either party or the central bank to actually withdraw the stimulus. They think they had every. You know, you'd get a little wiggle down and they think they'd have solved the problem. Here we are today, same old problem. And it's just a matter of taking the pain. Why, since 2022, has. So, I think the simple answer to your question is it was going okay. It wasn't great. But there was pain in '87, in '91, in '94, '5, in '98, in 2000, in 2001, in 2004. I lived through a lot of pain. 2008, plenty of pain. And then there was mediocre growth for 10 years after the GFC. '22 is where we were ready to take some pain. We had overdone it. We were ready to take some pain. And both the central banks and the fiscal failed us. So, I think it's a much shorter story. And so, why is that? I don't know. Could be massive divisiveness. It could be a rise of populism. It could be a rise of nationalism. Listen, I think back in 2020, this whole idea of de-globalization, and which drove a tremendous amount of nationalism, those were relevant events. They changed society a little bit, and the politicians grabbed onto those things and used them as their political motivation to appeal to the populace.
Speaker 2I mean, it's such a mess, and it doesn't seem like there's a clear way out of it. Like you say, maybe there is a clear way out of it, but it doesn't seem like anyone's actually going to do that. In Bitcoin land, there's a lot of talk around debt crisis, and this is going to, at some point, whether that's in a decade, in 50 years, who knows, the debt is going to become totally unsustainable, the system is going to collapse. Do you think that is a potential outcome? Of course, it's an outcome.
Speaker 1A potential outcome? A potential outcome? Is it a likely outcome? No, it's an outcome. come it likely is the likely as we keep soldiering on and doing the same old thing what probability would you put on sort of full-blown collapse oh gosh i have no
Speaker 3idea i wouldn't it was less than 50 greater than five so you think
Speaker 2they're just going to be able to keep kicking this can down the road i presume you imagine debt's still going to continue to grow gets debt to gdp is going to continue to grow and they're just going to have to do more intervention to keep this system running
Speaker 1so i actually had this in a conversation um last night in a big macro dinner i had i think people um under either don't appreciate or underestimate or don't understand or whatever it is the levers that governments have um
Speaker 3um i think an important thing when you take all the world's national
Speaker 1debt the u.s has a lot of it and it's owned by a lot of some of its owned by foreigners it's sort of irrelevant most of the
Speaker 3debt is owned by americans right the government borrowed from americans
Speaker 1and the government borrowed from americans and the government borrowed from americans and the to pay back Americans. And so they can choose. So there are people that own the debt, and there are people that have benefited from the spending that the debt's paid for. And if you want to honor the debt, you're going to have a crisis where the people that don't have owned the debt have to live under austerity, because you're going to have to devote a lot of resources that you could otherwise use on spending to paying back the debt, to paying interest on the debt, to all those things. But you don't have to. You can inflate the currency. And that hurts the people that own the debt. That's a choice. That's a choice. And the government has all the levers it needs to make those choices. Because really-- so the government-- this is a topic that I find frustrating. People think of the government as a corporation. All the government does is two-- has two principal functions. One, it does certain things-- well, three, I guess. One, it does certain things that nobody else can do, that literally the private sector cannot do. And then two, it probably does a bunch of things that the private sector would do better, but, you know, that's where politics is. Politics-- that's all politics stuff. Like, you need the things done. Maybe the private sector would be doing better. Maybe they wouldn't. Different parties would think differently about those things. But the primary function that is to reallocate wealth, to tax from some sets of people, to spend on others, to inflate the economy at the cost of one cohort for the benefit of another cohort, to deflate the economy, presumably to the opposite, to grow labor, to grow capital, all of those things are the transferring of wealth amongst the cohorts of the society. And the government just has a lot of ability to do that through laws and policy. And so, yeah, I think they can kick this thing down the road for a long, long time and have outcomes that are not
Speaker 2the destruction of society. Which, like, no matter how well Bitcoin does, I don't want to see the destruction of society. And so, like, if there are two options-- Well, that's good. That's good. There are people-- there are people that do. Yeah, I think that's crazy, though. Like, no one's going to be proud of being really rich when the world's burning down around them, I don't think.
Speaker 1Trust me. I've always thought about this. And by the way, people ask me, do you own physical gold? Or, firstly, I'm not going to tell you. But secondly, in that dystopia, I don't have enough guns. Somebody is going to come and put a gun to my loved one's head and say, surrender your physical gold, or for that matter, your cold storage tokens. And I'm going to.
Speaker 2Yeah. Yeah, having Bitcoin and a zombie apocalypse is not the future I want. But-- Oh, yeah.
Speaker 1And then there's the electrical grid during that situation. So, you know, what I want to see-- so when I think about gold and Bitcoin, I don't think about the end game, disaster, dystopia. I think, which way are we heading? Are we heading to more debasement or less? Are we having-- are our central bankers trying to control-- or are they trying to expand the monetary supply? That's what I-- why I care about those things.
Speaker 2Dystopia. I don't have enough guns. Yeah. And I'm old. One of my good friends, Matt O'Dell, has been in Bitcoin for a long time. And he obviously stacks Bitcoin for every good scenario. But for the zombie apocalypse, he's stacking ammo, because that's more likely to be the currency in that situation.
Speaker 1That won't work either. There's always a bigger guy with more ammo. Oh, I think he's talking about trading with it, though. And by the way, by the way, by the way, it will be the government.
Speaker 2Mm-hmm. They will take all your stuff. Yeah. I mean, that's clear. They're going to do everything they can. So let's forget about the absolute worst case scenario. In the things that they can do, inflate the death's way being one, you know, 3% inflation or wherever we're at now, that's going to take a very long time. Do you think-- is it likely that we see inflation go a lot higher in the next sort of decade? Well, I don't think it's
Speaker 3going to be that high. I think it's going to be that much higher in the next decade.
Speaker 1I don't think it's going to be that much higher in the next decade. Mm-hmm. The horseshoe of populism that people talk about, this is way out of my jurisdiction, way, way out. And macro guys and options guys and guys who have no business talking to this talk about this all the time, and I'm uncomfortable talking about it. But it is true that populism from the left and the right has a lot of similarities. And so in order to get anything done, to get elected, you have to have these two things. Two guys fighting against each other on some unrelated issue to the things they actually care about. And our politicians have been very successful at doing that for the time being. One day they may not. And if they don't, that's a fairly dystopian sort of outcome. But you could have a very significant political revolution of some sort, either armed or not. So those are possibilities, again. We're way outside. We're way outside of where I spend my time.
Speaker 2Well, to maybe go back to more your wheelhouse, it seems like what they're trying to do at the moment, or looking to do, is grow their way out using AI. Like, AI is the big opportunity that's not been there in the past. Do you think they have any chance of doing that?
Speaker 1Yeah, so again, understanding the future of AI is something that is-- I can't claim expertise on.
Speaker 3I can tell you what does matter, which is there's going to be a impact on
Speaker 1labor, which, depending on how it goes, is going to have an impact on the way-- I think it's going to have an impact on the way that we do things. and its returns are uncertain. And at some point, and there are also other constraints, physical constraints like data centers. NIMBY is not something I care much about, but it's political. But energy consumption, all the resources, copper consumption, all the resources, you know, those are constraints. And I think we could have some bumps along the way to whatever outcome it is. And at the same time, gosh, I've been using algorithms, generally ones that are statistical algorithms from regressions to neural networks to machine learning for my whole career. And AI is just an extension of that and really, really good and cool. And I use it every day and it's really cool and it's fantastic and all. But it's not that new. It's just accelerating at a very rapid pace. And so to me, yeah, I think it's an incredible tool and is going to change the world and has changed the world and will change the world further. And along the way, in my very narrow window of how do I make money in markets, I suspect there's going to be some bumps along the way.
Speaker 2It's like everything you've laid out here, Andy, makes me think you need to own some bit, whatever that percentage might be. I think one day in the next few years, you'll come around and you'll be on TV.
Speaker 1I owned it briefly, you know, and I have a bid at, in this case, $420.69 with $420.69 is my new meme level. I think I may never get hit on that bid. Yeah. I may never get hit. It's actually, you know, it's actually going pretty well. I like the path it's going on.
Speaker 2Maybe. I do love that you just buy the memes. I don't think you'll get hit on that one, but I think when we have this conversation in a year's time, maybe things will change, but maybe not. But I really appreciate your perspective on all this. It's been super interesting. I'd love to do it again at some point in the future. And I'd actually, I'd really like to get someone, like the person that springs to mind is Parker Lewis to come on and have this discussion with you. Because I think he would be able to make the case for Bitcoin to you in a way that I couldn't. So maybe we should do that at some point. Really appreciate the time, Andy. And tell everyone where they can go to find your Substack, everything you do, your Twitter.
Speaker 1Sure. It's all at Damp Spring, Damp Spring Twitter, Damp Spring Substack, and dampspring.com if you're interested in a client relationship. Perfect. Thank you so much for the time.
Speaker 3Thanks, Danny. Thank you.
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