Speaker 1People themselves can sense something's wrong. You're getting paid 5%, but the number of dollars in existence is going up by 6%. So you're getting a net negative 1% dilution rate. Fiscally kind of insolvent sovereign doesn't really go gentle into the good night.
Speaker 2This is the whole mindset that I learned through Bitcoin. Like you can't save, you have to invest.
Speaker 1That's invisible rug pull for why this works is that everybody around the world has this like invisible gradual debasement of their near-term savings. If anything's going to hold up, it's something, you know, like Bitcoin.
Speaker 2Bitwise put out a report. Their bear case is like $130,000.
Speaker 1$130,000 in 10 years would be pretty catastrophic. Either something really bad technically happened or the world kind of just didn't really want portable self-sovereign money.
Speaker 2What is Lynn Alden's bear, base, and bull case for Bitcoin for 2036? 2036. Lynn, it's so great to see you. Thank you so much for joining me. Thanks for having me again. Well, I want to start the conversation in sort of a different place. I'm curious to know what is a topic or a story out there that has you just completely fascinated and what's one that has you really frustrated?
Speaker 1Fascinating versus frustrating. I think fascinating, I have to probably just leave the industry behind and say I've been focused on sci-fi a lot as like kind of what keeps drawing my attention. Okay. There are times I'm way into macro or Bitcoin content and things like that. And there are times where it's like I just kind of am in a more creative mood. So I've been like kind of like listening to a lot of blogs on writing and things like that. So it's kind of like I guess work-life balance a little bit for once. Frustrating, like we were just talking right before we rolled about the algorithms, I think on social media, and how I can literally see people like drift almost certainly because of the algorithm over years. Like I see people fall into the algorithm. I see people fall into the algorithm over years. Like I see people fall into the algorithm over years. rabbit holes that I don't think they realize that they're quite in. Like basically that whenever you start getting into something, the algorithm makes you think that's the whole internet saying this. And you get kind of drawn into a tunnel and things kind of promote the more extreme takes. And I think that's been kind of frustrating to watch over the past, probably a couple years now, but it's kind of been a little bit more frustrating I think over the past several months.
Speaker 2I completely agree with you. On the sci-fi note, I feel like more and more people are interested in it because sci-fi is sort of entering our life now with AI and flying cars and all of that. I hope everyone gets The Stolgaard Incident. Your book is fantastic. And as far as the algorithms, I agree. One thing that I really love about your work, and I've shared this with you, is you managed to strike such a great tone in the middle, which these algorithms tend to pull us apart. We're so polarized. You're either super left or super right. But you sort of come in with these comments that are like just common sense. And I completely agree with them. And I wish that more of that was highlighted by the media, by X, by people in general, because I feel like more people have things in common rather than the things that divide us. You had that great post in response to the French riots where you're like, "Hey, you can be compassionate about people and wanting to help and make sure that the poverty is diminished or people are uplifted. But at the same time, you should protect cultures. You should have strong borders. Why can't we have more of that middle ground?" Yeah, I think that's a great point. I think that's a great point.
Speaker 1Well, I mean, part of it, I think, is because of the times we live in. And I've kind of highlighted this before. And I guess that's what kind of ties somewhat into macro again is that when you get into fiscal dominance and other kind of later stage, long-term cycle stuff that we're in now, this tends to emerge. Basically, a fiscally kind of insolvent sovereign doesn't really go gentle into the good night, right? Mm-hmm. They start getting either internationally sometimes more aggressive or domestically more aggressive. People themselves can sense something's wrong and then they disagree on where that's coming from. I think there are people that will intentionally try to get you to focus on something else, like squirrel. They go focus on this random issue instead of like the kind of the really big topics, especially when they touch, you know, money and, you know, kind of like the core issues. And so, I think it's a combination of it sort of happens naturally when you get this kind of divisive. And then two, there's some interest in kind of promoting it. And then unlike prior cycles, because we live in social media age now, like we were just talking about the algorithms, I think, fuel it. Whereas if that similar discourse was happening offline with facial reactions and other just kind of social cues, it potentially makes that smoother and maybe more realistic. And so, it's, yeah. And it's like, I mean, I don't try to be down the middle on things like that. I mean, like some of my positions would be outside of the norm. Like I'm pretty, like for example, my views on, you know, Bitcoin in general have always been compared to the mainstream population, kind of a, you know, outlier, for example. Mm-hmm. And like my views on any given thing could be all over the place, but it's more about the way I try to do it is like always be able to articulate what your most intelligent opponent would say, right? So, at least like understand the position and that kind of shape how you communicate yourself. I mean, that's what I try to do when I post, unless I'm just kind of messing around.
Speaker 2Well, you do a great job at it. Let's touch a little bit on macro. So, before we get into your last report, which had some really interesting takes and outlooks, just in general, it seems like we have this divide between the doomers and the AI boomers. Like everything's going to be great. There's going to be so much demand. The IPOs will work out. That's like one camp. And then the other camp is no, this is a giant debt bubble. I saw that the credit default swaps, those have been increasing and people don't know if the AI companies will be able to pay down the debt. Where do you kind of sit with that?
Speaker 1I think it really depends on what part of the industry you're talking about. So, I've been more in the bullish camp on semiconductors. I'm not very bullish on the frontier shops like the models themselves. I think that their valuations are hard to justify and their economic moats are thin, which is I think part of why they are kind of aiming for regulatory moats to kind of augment a pretty weaker like economic moat. So, when you're talking a trillion plus valuation, there's a lot of risk there. The hyperscalers, that would then put somewhere in the middle, because unlike the models, I mean, you know, they have these other business lines. They do have economic moats because hardware and scale is just, it's very expensive. And, you know, they all have their other businesses that have economic moats. And so, it's mostly a matter of how much are they over-committing. Or not. And like, I used to be bullish on Alphabet, for example. That was kind of a contrarian position at the time, because the view was like, who's going to search when, you know, you can just ask AI now. But I did kind of a deep dive into that. And I had the view that Alphabet was interesting. And of course, they did become part of an AI play themselves. But like, for example, I am less bullish on them after they had a big run up. And because they're so much of their cash flow now, it has to be reinvested. So, it's not that I think the hyperscalers crash per se. But they're just, I think they're less stellar investments compared to what they were in the 2010s and in the early 2020s, which was basically super profitable growth, you know, very kind of low reinvestment growth. And then they could plow all that money into like share buybacks or Fortress balance sheet. But now that they have to just aggressively invest. It kind of diminishes them. And the true bottlenecks that I think still win for a while, I mean, you have to be careful about valuation are the semiconductors. That's the part that I've been a little more comfortable with compared to some of the other spots in the market.
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Speaker 1interesting memory stocks uh have historically if anything they almost trade like commodity stocks okay because they go through these really big booms and busts over years so it's all the whole pre-ai period and uh i mean until memory became such a big topic recently a lot of people didn't know that three companies make almost all the the memory in the world like micron micron and then uh samsung uh and sk hynix so so two korean companies and an american company make 90 plus percent of of ram of memory um and you know i've at times been bullish on micron i mean even before uh this cycle um uh now so the interesting thing is and this is why they trade they kind of trade like commodity companies or producers because right now if you look at them they generally have pretty low valuations compared to like the amount of cash and earnings that they're generating they're actually like that surge you saw was not because of inflated valuations it's actually because their earnings their revenue just completely exploded um uh but anyone who who trades commodity producers knows that at the top of a cycle often valuations get compressed and the time you buy commodity stock is when it's actually kind of highly valued because the earnings dried up like a you know a copper producer or something like that because copper prices are low that and that's that's kind of often how memory stocks have traded i think what's different now to some extent is that is that there's just a a permanently new higher plateau for for memory demand i mean before there's just only so much memory that most people would want and now there's really no limit to what you can do if you haven't sold a ton more memory uh the business level and then to some extent the individual level uh or the small business level uh and so i think that it will still be cyclical but that the whole floor is just so much higher now um and so i i the way i've actually been trading them a little bit is i kind of sell some of their volatility like whenever they whenever they get lower i'll either buy or or sell options to potentially um you know the cash secured puts to potentially jump in and buy oh wow uh but then i fade the if they already have a really big move i kind of back up a little bit watch them let them kind of sag and then and then get back in a little bit so i've been um i'm not that bearish on them but i do treat them all as as cautious at these you know these pretty pretty high levels
Speaker 2do you agree with the analysts who say that there could be some sort of market correction after the midterms that they have to inject liquidity well
Speaker 1i might separate those two things uh you don't need to inject liquidity just because you have a correction uh you know have like needing to inject liquidity you use a pretty specific thing that usually means either the treasury market is getting a liquid and acutely broken which which happens very rarely um or that that repo is signaling uh that it that it needs uh support and i mean they already have standing facilities for the these types of issues uh which kind of gives the fed more time to uh potentially uh interact um and then it's just the fact that because of their prior rate of balance sheet reduction and now that they're they're kind of growing it like very slowly the gradual print that we've talked about before um bank cash levels are kind of on the slightly tighter side than they have been for a while uh they're not not at the kind of the bottom of the range like they were in say 2019 um but they are relative to their assets uh a little bit on the tighter side um which means looking forward enough months from now they either probably have to accelerate their balance sheet a little bit more or and the feds are talking about this potentially changing some regulations around kind of how much you know how they do certain policies and and how how banks can treat treasuries and things like that so we might we might be able to do that but i'm not sure if we might see some movements along those lines in 2027 but i wouldn't say that something like the stock market going down 10 or 15 you know in the coming months should that happen i wouldn't really be in the camp they would expect any sort of liquidity injection for that are you one of the
Speaker 2people who kind of follow the predictions of oh in a midterm year the stock market does this or in a election year it does this or in the year following a midterm year this is how it performs i mean some people even say this about bitcoin like traditionally after this i saw a funny chart the other day where it was like after the mcrib bitcoin tends to go up do you follow any of these
Speaker 1i personally don't um i mean the mcrib one interesting because it has to do with like pork prices in a sense um so there's actually there actually is some economic interest in that one which is it's not zero um uh but um in general i i fade that not because like so maybe someone specialized in that they have an edge you know it's kind of like um totally statistics or like you know you you're kind of placing certain bets certain times it can make sense um but if you have too many things you consider like if for me it's like mostly fundamentals and like individual company fundamentals and uh macro they're my two biggest inputs and if i add extra things to that it starts to become a kind of confusing mess on what to buy what to sell um you know how much to lean in so i leave that for others and then i'm like okay i'm gonna do this i'm gonna do this i'm gonna do this uh and just kind of focus more on what's happening now what because this is not this is not the same as you know election year from two years ago or or two years before that it's just everyone's
Speaker 2everyone's different in your last report you said that gold is looking shaky i mean it came down from its highs um why do you think the outlook is a little bit potentially more declined from here
Speaker 1well it's more like um should it hold kind of these key levels that it's at then i think that's really positive okay uh but it was starting to threaten that it might not hold those key levels so uh it has you know i think basically how it performs in the coming days and weeks can can potentially affect how it does longer the last time so you know gold's gold often takes longer than people think um and so for example like after it had their really big run-up into say 2021 i became more cautious on gold and thought you know in my newsletter stuff at the time i would say you know this might have to take like a year to kind of relax um you know i think it's gonna take a year to kind of relax um but i think it's gonna take a year to kind of go you know chop around for a bit and that actually understated it actually took two or three years before it you know kind of resumed its really big run in 2024 um and i mean that was so it was like longer than expected but then of course when it did move it was actually a pretty spectacular move um and i'm kind of in the view now that it could take a while but you know it's not something i trade too aggressively um but it's something i'm watching why
Speaker 2is that with gold considering that there's been such a demand from central banks um we've had analysts like luke roman be so bullish on it saying that potentially there's a plan to revalue the gold on our balance sheet um we just saw judy shelton join the treasury like what what's going on with gold why why is it kind of facing a consolidation well so
Speaker 1part of it is just that the market is so big i mean it's a tens of trillions of market cap uh estimated asset and it went
Speaker 2up to like what 30 trillion
Speaker 1yeah i mean there's their estimates but yeah because you know you have like the world gold council and others will have a rough idea of how much refined gold there is uh and then you multiply by the price and you you know in that it was in that ballpark i don't know the exact height that it reached um but the sheer scale that it moved in 2024 uh and 2025 and and earlier this year uh naturally when things explode that much that you know there's a there's a cooling off period a correction that either can happen in price so you can you know you can go down pretty significantly and then and then you know until you find a bottom or sometimes you just go sideways for a while or a little bit of both like you'll have a partial correction then you'll just go sideways for a year two years three years um and my view kind of has been that you know back when like i've been bullish on gold since 2018 uh in in this kind of structural cycle um and back then it was just so asymmetric uh in my view uh now after the kind of the size of a run it had it's not that i viewed as overvalued it's just that it's it's less asymmetric like it can you know go down for for a lengthier period of time now um or go up whereas before i had a much higher conviction on on which way it would go and the you know with the sovereign buying again it's still like a small percentage of the total gold market is the issue uh and just when you have you know this this like large of a market um it actually takes a ton of new inflows just to just to kind of retain where you are um and so i think it could take a while and one subject i touched on in in my recent report is kind of the treasury yield dilution rate it's a it's like a topic that is one way to think about what is an appropriate yield on money yeah uh and you can apply it to a handful of different assets right so uh and the way i kind of define this is say okay look let's say a 10-year treasury and it's yielding five percent well is that good or bad it's like well okay the underlying unit is dollars how quickly are dollars growing what is supply of dollars look like uh and that's currently around six percent a year so you're getting paid five percent and but the number of dollars in existence using broad money supply here is going up by six percent so you're getting a net negative one percent dilution rate like you have a slightly smaller share of all dollars uh after a year um uh and i mean you can augment this like like this uh calculation like you could add t bills and other money like things if you wanted you could add t bills and other money like things like things like things like you could add t bills to other nations like you want to look at egypt's you know what is their sovereign bond yielding and then what is their money supply doing? You can apply it to different monies. And the actual, the punchline is that negative 1% is not horrible as far as treasuries historically go. Like a really bad time to own treasuries compared to almost everything else was the 2010s because you were getting paid like 2.5% while the money supply was growing by 7%. So your net dilution rate was, you know, negative 4.5%, which is pretty terrible. And of course, the absolute worst was right before the COVID stimulus because your money supply is growing up by 40% in two years and you're holding something that's yielding almost zero. So getting paid 5% while being diluted at 6%, not the worst ever for bonds. Now the trick, of course, is that you pay tax on the interest. That's another way they get it back unless you have into certain types of retirement accounts. So, but that's, so, okay, okay. Put that baseline for a second. Gold has a dilution rate, but it's not. Yeah. It's slightly different. Obviously, it doesn't pay you interest, but you look and say, okay, you're getting paid zero. Your yield is zero, but then the supply growth rate, if you go back to the World Gold Council and other kind of credible estimates, you get something like 1.5% annual estimated total supply growth a year, which is obviously much slower than dollars. So your net dilution rate, that will put you somewhere around negative 1.5%. You're getting paid zero yield. You're getting very slowly diluted. In a way that historically is less than productivity growth. That's why a gold coin can still buy you as much or more than it could a long time ago. And so the actual treasury dilution rate and the gold dilution rate are not that different at the moment, whereas they were different in other periods of time. And so it's just one way to think about it. That basically, why the debasement trade is still what it is, but it's still the way it is. Yeah. But you have to kind of compare kind of the total return that the investors are getting. And probably a ton of people watching this aren't into bonds. I mean, everybody knows I've been a bond bear for years, but especially older or lower volatility investors that might be comparing gold versus treasuries, there was a time where it was just obvious. I would look at both and be like, why would anyone buy a treasury when you could own gold and put up a little bit more volatility for way more protection? Whereas at the current time, there are sensible cases to say, okay, if you were almost all in gold, owning some treasuries isn't crazy at the current time if you wanted to kind of de-risk to some extent. And that will change in the future. And then I think it'll be back firmly in gold's camp again. It always kind of is. It's kind of the history of fiat money. But I think that's one of the kind of the variables to consider at the current time that is, I think, putting some pressure on it.
Speaker 2Yeah. Yeah. The treasury dilution section of your last report was sort of depressing because when you think about even the money you have in, say, like a high yield savings account. And for me, I know I have one that's like three point something. If the dilution rate is 6%, it's like I'm sitting there losing money. And so then you think this is the whole mindset that I learned through Bitcoin. You can't save. You have to invest. Now you have to speculate. Now where can you get a better return, which has driven us into this frenzy of seeing what the stock market is right now. Yeah. Because that's basically what you've had to have your money in.
Speaker 1Yeah. And that's kind of that's that's invisible rug pull for why this works is that everybody around the world has has this like invisible kind of just gradual debasement. Yeah. Of their at least their near term savings. And then it's I mean, it's like in Egypt when you have the money supply growing at, say, 20%. And it's still kind of a cash basis side in a lot of times or, you know, and the dilution rate can be much higher. But then even in ours, the combination of taxable interest and the the money supply growth offsetting yields, obviously, it's you know, you have to invest.
Speaker 2OK, so back to gold for a minute. You're not one of the people predicting like 10,000 an ounce gold.
Speaker 1Well, so I've been the funny thing is, that's I mean, that's not that much more than a double. Right. So it's like. Would I be shocked to see gold double? I mean, probably if I mean, if it happened this year, sure. Yeah, it happens. I'd be like I wouldn't be on my bingo card for his gold and go up to two and a half X, you know, and given the size it already is. But it wouldn't be out of there. It wouldn't be like the market would be too big at that point, I don't think. I mean, if anything, I think longer term neutral reserve assets are going to kind of reassert themselves in global finance because there is decades of the global system kind of realigning towards the dollar and the Treasury. And then it kind of hit like a peak. Kind of the early 2000s and then, you know, kind of the early 2010s as well. Kind of there's a kind of a peak there. And now it's like gold is kind of reasserting itself into the global system. And I think that's that's a persistent issue. And I think that obviously the bigger the market is, the more it can it can fall into that role. So I mean, I think 10,000 is we can reach that eventually. And it's not that it's not as sensational as calling it would have been when gold was fifteen hundred. Yeah. You know, it's like that's it's different than saying it now versus saying it back then. So I don't because I don't wouldn't call that a non-credible claim in any way. I think it probably takes time to get there would be my base case.
Speaker 2This is kind of a weird question, but what's something really boring out there right now that's actually moving markets and maybe people aren't paying as much attention to it?
Speaker 1That's a good question. I think it's still not fully understood by the world. I think that's still that's still just a quiet background thing. And it keeps tripping up bears because it just it's not that things can't go down. Like we were talking about, you know, overvaluation in A.I., for example, we talked about that. We talked about how gold, you know, obviously got over its keys for a period of time. Assets can absolutely go down. But just when you're running seven percent of GDP deficits structurally, it's just it's a you have to compete when you say something to go down, you're like compared to what? I mean, it's just we're in a kind of a perpetually sort of leaning into a running hot environment. And the challenge, part of why it's boring is because it doesn't change. Like I go back to the same phrase I always use because it's like it's like, you know, quarter after quarter, year after year. It's like, nope, deficits are still there, still roughly the same size, not not exploding tomorrow and also not being fixed any time soon. And that's just a background macro force that it's never like the biggest thing that week, but it's always like the fifth biggest pressure out there, let's call it. It's always this background thing. And I think it's still it's still, I think, underestimated how powerful it is.
Speaker 2Is that what's contributing to the six percent dilution? Like there's just this constant flow of spending that's pumping things up and there really can't be a crash because they're always going to come in and like paper over it.
Speaker 1Well, I mean, crash is like if if stocks went down five percent in a day, people call it a crash. Yeah. And that that can happen. Yeah, that's I mean, you know, depending on what news, what crazy news headlines happen or, you know, going down 20 percent in a fairly short period of time. I mean, that can absolutely happen. The market can go sideways in a choppy pattern for quite a while. Of course, bigger corrections still can happen. It's just that the upward force is just is pretty significant. And, you know, in general, I think I'm trying to think how to put this. Basically, it's just, you know, when you're in a more kind of structurally deflationary environment, like let's say you have a private debt bubble that's kind of melting. That is a period where assets are more prone to go sideways or down. Whereas when the bubble itself is in the sovereign, it's basically in the currency. And that just works fundamentally different. I mean, a lot, you know, balance sheets, you know, obviously the recent A.I. investments complicating the picture. Yeah. But for example, just for two decades now, there's there's been deleveraging in housing. Corporate balance sheets are in reasonable shape for the most part. Banks are not nearly as levered as they were in the global financial crisis going into that. And instead, I mean, it's a lot of leverage has shifted from the private sector to the public sector. And that's just that just pushes more toward at least a mild run at hot. And I keep fading like the views that there's a lot of money printing happening soon. I continue to hold kind of a gradual print scenario. Obviously, there are certain tail risks that can occur that could represent new information that needs to change that. But I think things are going to basically, to be slower than what more sensationalist takes say, but just more persistent than anyone realizes. And when and when sometimes like a pool of capital will kind of realize like, oh, this is actually going to happen for a really long time. And that can change your investment outlook. I mean, people if you if you kind of realize something's going to just keep happening for like in years, they'll be like, wait, we can't be in this. We have to be in this other asset. We can't be in this. We have to be in this. Or that can just realign someone's take. And I think that as the fiscal dominance narrative gets gets just increasingly more understood that does shape how people perceive markets.
Speaker 2And so within fiscal dominance, I mean, that public spending is what it's not. It's not just the general budget. You have Social Security, you have veterans benefits, right? You have the military. And that's basically just that's where our deficit comes from, right? Like we're spending more than we're taking in. We have like a $2 trillion deficit and all those bills have to keep getting paid somehow. So we're continuing to borrow. Is that kind of like the simplified version of it?
Speaker 1Yeah, basically, yeah, the biggest pools of spending are it's Medicare, Medicaid, Social Security, the military, veterans benefits. That's the bulk of the pie chart. And a lot of that is pretty locked in. Yeah. And then, of course, because you have a polarized Congress, like generally major tax hikes are also kind of locked out as well. So you're kind of locked on both major cutting or major tax changes.
Speaker 2And we have the big interest expense now.
Speaker 1Yeah, that's actually, I shouldn't even mention that. That's another really big part of the pie chart now that it wasn't before. And with all that contributing, it's fueling because most of that deficit spending, it goes into the economy in various places, but then it circulates. So, for example, people who work for defense companies, they get money and they go and buy things. Or people that work in health care, they work and then they go buy things. So it can trickle into other areas. So security people receive it. And then they spend it. And someone's on the receiving side of that money as well. So either direct recipients or their major secondary spending areas are being kind of inflated to some extent by these deficits. Whereas the and this contributes, I think, to the polarization we kind of started started this conversation with, which is that for people that are kind of not really the recipients of the deficits, but they are kind of the recipients of the higher rates that are kind of partially tied to those deficits. They're kind of they're the ones getting the bill. So it's not it's not just it's obviously those paying taxes get get the bill, but then also people who are looking to buy their first home right now. Yeah, it's one of the worst positions we could be in. And it's just like and so you get that polarization where the the economy can feel very different depending on if you're, say, older and asset rich totally or, you know, you locked in all your long term like debts and you know. Or. If someone is more asset light, more looking to make that investment, you have just two, you know, polarized economies. And that's why, you know, for example, the stock market, you know, near record highs while you have consumer sentiment still historically very low levels. It looks like it looks like a pretty severe recession in terms of consumer sentiment. And it's because both of those are kind of right, depending on where you are in the market. And the main difference between so you asked before, what's what's fueling that that money supply growth? Back in something like the seventies, that the primary answer would have been bank lending. So fractions are bank lending increases the broad money supply compared to the base money supply. And that was a time of kind of peak credit formation. Whereas now bank lending is a kind of sluggish to medium. It's not really it's not super high. But when you do have monetized fiscal deficits, that can increase the money supply. Like we saw in COVID kind of an extreme example. And now the. Monetization side of that is low, which is why, you know, this money supply growth rate is, quote, unquote, only six percent. So it's still happening, but it's just it's persistent because it is fueled by the combination of lending is still happening and deficit spending is happening.
Speaker 2What do you think the chances are in this next decade that we'll see rates as lower somewhere around like the lows we got to with mortgage rates at like two point five percent in twenty twenty one? Do you think we'll ever see that again or is that like the the low watermark?
Speaker 1My expectation is that's probably the low watermark. I never say never. I mean, I can imagine scenarios we might try to retest that. I can certainly see. Like a higher low, meaning I think we can go down from here, but then still be at a level that doesn't quite get to the lows of before, because that that was kind of, again, peak kind of private debt bubble going on. Once in a lifetime. Yeah. Yeah. At least once in it. Once in decades. Maybe maybe twice in a lifetime. But I think, yeah, I think just looking out, I try to look if I go too far, then I'm in sci fi territory. So it's like looking through the twenty thirties or or as bad as far as I want to kind of go on any sort of macro topic. I would be surprised if we if we see kind of fresh lows in mortgages or treasuries.
Speaker 2I wish I could go back and take out a mortgage at that point and buy Bitcoin or do something because it's like free money. It's so crazy to think about right now, especially with rates. It's a seven percent. And it's funny, I put out a video and it actually got so many views. It was just about mortgage rates hitting the high that they did recently, which isn't an all time high, obviously, just high within the past two decades. But it's just it's so hard to make these payments on what the home values are now. It's like a million dollar house, seven percent. You're paying so much in interest and it's like unaffordable for a lot of people. And that's the main thing.
Speaker 1That's why that even though these aren't the highest ever. Yeah. They're actually kind of rivaling the. Unaffordability of when they were the highest ever because of the house to income ratio is also high is higher than it was back then. So that combination of high house to income average ratio and high mortgage rates is devastating for newer families looking to get it or anyone really looking to just that doesn't currently have property looking to get into the property market. And the only the only challenge with back when rates were low is that markets mattered. So someone's not very happy if they took. Out a mortgage and put it into a house that went down 30 percent, for example. But if they if they bought into the kind of a linear market or they bought at the right time and in one of those more cyclical markets, I mean, obviously, that's that's that's done well. And it's also it's part of why the equity market's done well because corporations are in on that trade, too. I mean, like, you know, a company like even just pick a random one like Coca-Cola has issued tens of billions of dollars of bonds at on average pretty long durations. And it's like you can ask, OK, this is I mean, it's like they've been profitable for like 100 years straight or less. Like this is like, why do they have debt? And it's because they choose to like they one of the best things they could do was during, say, the 2010s and the early 2020s would say, like, you're willing to lend us for 10 years or 20 years at 3 percent. OK, and so they're they're saying, well, we'll we'll sell debt and we'll pay 3 percent on it while money supply is getting diluted by an average annual rate of 7 percent. They took that trade and then they plowed it into share buybacks or they make acquisitions or, you know, the multiple things they can do with the money because they had that low cost of capital. So those who couldn't get it in the housing market have still been able to potentially get it in the in the equity market. But that's that's more of an investment, obviously, rather than fixing a problem of someone wanting to own property.
Speaker 2Coin Stories is powered by BitGo, the leading digital asset infrastructure company. BitGo now offers individuals free insured institutions. Great custody. Keep full control of your Bitcoin secured by a publicly traded, federally regulated digital asset bank. Sign up for free at BitGo dot com slash Natalie. What if one part of your Bitcoin custody setup has a problem? That's why Big Key uses three keys and it takes two of them to move your Bitcoin. Download Big Key today and use my promo code stories to get 10 percent off the second generation Big Key. This episode is sponsored by Big Key. Leaving your Bitcoin on an exchange puts your generational wealth at risk. To protect yourself properly, you need to learn multi-sig self-custody. My friends at the Bitcoin Way make that easy with expert one on one training delivered at your pace. Go to the Bitcoin Way dot com slash Natalie to get started. I remember my first news job. I was making like 20 something thousand. I didn't start putting away in my 401k when I should have. What's your argument for considering even having an IRA if you're a Bitcoiner?
Speaker 3Taxes. You're going to sell some Bitcoin and you're going to move it into dirty dollars or whatever currency survives the dollar. And there'll be a taxable event for that liquidation. If you do it in a Roth, you could turn five thousand dollars into a half million and you're going to take it all out entirely tax free.
Speaker 2As far as commercial real estate, have you seen these posts of these massive high rises that were bought for like hundreds of millions of dollars? And now they're being marked down to like literally single digit millions, like seven figures. How does that not create some sort of like cascading unwind within that sector? I'm just surprised how well it's been holding up. And it almost. It feels like someone's not marking something to market on the balance sheets.
Speaker 1Yeah, I mean, it's a natural question. This is something I've been focusing on for a while because I keep fading that that's going to be like a gigantic, like an economic scale bubble, even though obviously there is kind of localized disasters. And there's a couple of reasons for that. One is that the overall commercial real estate market is not as big as, for example, what would cause a global financial crisis. It wasn't as big as subprime. In that sense. And and then it's also the type of funding. Right. So and this is why I've been less worried about, say, private credit than others, even though I it's not that I'm not worried about private credit. It's that I've been less worried about contagion from private credit is because, I mean, a lot of that works ironically close to a full reserve bank, meaning that they're that they're, you know, their assets like their assets and their liabilities, kind of the whole the whole point of floors are banking. The whole thing that we criticize many modern banks for, is that they have an asset liability mismatch. They tell you you can get your money back anytime you want in business hours. And then they go out and put it into 30-year mortgages. And they hope, they play the odds that not too many people want their money back at one time. And that leads to money creation because you're making that liquidity mismatch promise. Whereas something like a private investment fund tells investors up front, we'll try to do quarterly redemptions, but we can't guarantee it because it depends on what our assets are doing and how many of you are asking for money back at the same time. So this is generally institutions and wealthy investors putting money in that is intended for longer-term savings. It's not, they're not paying payroll out of it. They're not, it's not their checking account. And so when something gets marked down significantly, that's an investment that's getting marked down. That's not this like highly levered thing falling. And then even, obviously there's some leverage attached because you'll, for example, some of those funds will then go borrow from a bank. But ironically, that's partially de-risked the banks because instead of the banks playing in that game directly, they'll say, well, okay, we'll lend you as a fund some money. You go out and make, you know, investments or lend yourself. And, you know, in the event that, you know, you have a problem, we get paid back first before your investors. Right. So the bank is, basically the losses would have to be so severe. Before the bank starts really taking a hit. It's not to say they never take a hit, but then they have to make sure that their own allocation is not too big. But so a lot of it is coming down to it's not the same as, you know, in, in the global financial crisis banks, like cash levels got down to about 3% of their assets, right? So they were heavily in, in real estate, especially, but also just all their, all their assets were a very significant part of their balance sheet compared to their base cash. It's crazy. Whereas it's not what we see. It's not what we see currently in, in kind of these other types of markets. And again, it's not to say that like, you know, would I want to be an owner of like a, you know, kind of a mid-tier high-rise office building in, in mid-tier city XYZ? No. Right. So but a lot of the lenders were somewhat careful about making sure that they're kind of over-collateralized and then the ones that are taking hits you know, they're taking hits within with investor capital or, with pension money or things like that, that, you know, obviously has kind of longer term implications, but it's not the same as like a kind of a cascading failure. So I watch for potential contagion risks and I keep fading so far once emerging from those types of markets, commercial real estate, private credit that type of thing.
Speaker 2It seems like we have a lot of commercial space available, but everyone's working from home. So you don't need these buildings, but they're not zoned for apartments. And what we really need is housing to drop down prices. And so it feels like a whole big mess.
Speaker 1It is. Yeah. I mean, obviously it's not an area that I want to be an active investor. Yeah. But it's a different category than viewing how bad it'll spill into the broader economy. So it's more of that contagion question versus it's not, it's certainly not an issue I'd want to just go into right now for example. And obviously a property expert could talk about this more. Like there are buildings that are doing great obviously, but it's more like if you're in kind of this older or like mid tier, type of structure that's also facing that kind of, you know, exodus from the, from the work environment and towards that, that more work from home environment that's kind of the first in line to take the hit. So it's not, it's not like the best building necessarily taking the hit cause there's still a demand for kind of prestige office and things like that. But if you're, if you just, if you don't have a super strong selling position compared to every other building in the city, that that's when you're having a really rough time. And you're one of the ones that gets marked down like 90% because you know, it's not like it's all. The materials are worth 90% less. It's just that it's just that there's literally almost nothing that can be used for the building. And so the value just collapses to some somewhere near zero.
Speaker 2Okay. Let's pivot to Bitcoin. Bitcoin's been doing okay. It's been sort of just chopping sideways, a little under 80, a little over 80. What's your take going forward? Cause we've seen some big voices in the last week. Choma now Jason tweeting that, oh, it's dead. It's going to zero another obituary which is surprising given that some of them were investors in the past or, I mean, I think Chamath once had a prediction of Bitcoin going to a million. Now he says it's going to be hacked. Like, how do you respond to that?
Speaker 1Well, I mean, I think if I, if I, I said before, you should articulate your intelligent opponents like position. I think to some of their credit, I mean, there is new information out there now. I mean, basically the rate of things getting hacked has obviously gone up quite a bit because the cost of hacking is now lower. Instead of having to hire the world's best hacker or a top tier hacker, we, you just kind of like how any other thing that AI can do it's drastically reduced to the cost. That's unfortunately true for hacking as well. So a lot of things that might've gone over, like not, not kind of seen are, are being attacked. And you know, when you have like irreversible transactions and a, and a, you know, public network, I think it's, it's rational that people are a little bit, a little bit unnerved by, by the hacking that can happen. You know, I was asked on our, on a recent podcast, what I thought about kind of the broad crypto space. And I was like, well, I mean, the more complex project you have, the more I'd be worried about it. I mean, if anything's going to hold up, it's something, you know, like Bitcoin, because you're kind of purposely reducing attack services by keeping a system simple. The further you go out on that complexity spectrum, the more attack surface there is, the more nervous I'd be about it. But so I can, I can take, I can see the view that people are concerned. And I think if anything in the near term, it's, it's, it's, you know, it's a bigger risk than quantum because quantum, at least there's a big hardware component that has to be done for, to make economic quantum computers. And there's still just questions on when will humanity ever get to that point? And there's still very open topics on, on pretty hard problems to solve. Whereas AI just kind of being able to figure out on like previously unsolved math problems in theory can happen overnight. Like it can just like a kind of a, thing that was kind of assumed impossible to solve, but no one's been able to prove a negative, you know, certain types of cryptography for example. I think that there are head, you could wake up to a kind of a scary headline about something kind of being partially solved or something like that. So I think that there is some rational risk in the market. But then if I, if I get more critical, I would say, well, one, the fact that we're talking about it right now is incentive for them to say things like that, right? So if you, you kind of a hot take, naturally people will be talking about it. And it's kind of that phrase, like all publicity is good publicity, which I'm not sure is true, but some people operate like that. So I think that coming out with a take like that, there's kind of incentives to do it sometimes. -
Speaker 2Engagement farming. Yeah.
Speaker 1And I mean, so it's, you know, they're, they're making waves. So I would separate the ones that, you know, they might have a position on something versus either overstating the confidence. Like it'd be one thing to say, Hey, you know, I used to think it'd be, you know, 1% chance of a critical bug, you know, causing a price drop versus maybe now it's 3% or whatever, you know, someone could, someone could maybe increase their odds based on new information compared to before all this was happening versus someone coming out with a confident take, like, Oh, it's going to get hacked or quantum is going to take it down and it's going to go to zero. Those types of overconfident takes generally don't, don't age super well. -
Speaker 2Well, as far as waking up and AI has figured out solving public key encryption or something like that, cracking it like what, where do you put the chances of something like that happening? Is it something that worries you or makes you reconsider your holdings? -
Speaker 1Um, the short answer is no, um, it is, I'm watching it. Um, uh, I think we're just, we're in the window where the technology has gotten good enough to solve really interesting math problems and to hack things really well. It's a, you know, that's a pretty toxic combination potentially. So certainly like, you know, a lot of this gets saturated. So it's like if, if Bitcoin can make it several more years and still be, you know, virtually untouched at any sort of like critical level, uh, then I think it gets through that kind of more dangerous period. Uh, and I think one of the challenges is that like, like neither of us, for example, are really qualified to, to answer that. Like neither of us are really math PhDs, right? So, uh, the, the number of people that are kind of qualified in the world to give a probability is very low, uh, which, which makes it hard for the rest of us. Um, my view has always been one toward diversification, uh, which is, which, which looks really dumb in bull markets and looks pretty smart in bear markets. Uh, and it just, it continues to be my, my view now that I like, I like to hold a bunch of assets. Uh, I mean, that's, that's been my fastest horse and that's the one that I've also kind of put a pretty big chunk of my career into as well. Um, but it's, you know, I, I try to position so that I'm never just utterly floored by a headline. Um, but I, I personally assume pretty low odds that, that kind of critical vulnerabilities show up any, any sort of investable time horizon.
Speaker 2I mean, is it sort of like a certain aspect of the math that would be the most concerning? Cause I mean, to your point again, this is like highly technical. A lot of people don't have a math expertise. I wouldn't even know who to think of in the Bitcoin space is like the ultimate expert on this. Um, I'm sure there, there are several, but I, like, I can't think of one person where I'm like, oh, that is a math person that I totally trust. Um, But where areas, it's not SHA-256, is it it's it's more of like the elliptic curves or other aspects of the cryptography that that's
Speaker 1yeah that's my understanding uh that basically that you know basically there are certain math problems that are kind of assumed to be unsolvable okay and so the only thing you can do is brute force them right you take guesses uh whereas if if you know a um uh you know like a a either brilliant human mind or a machine can say hey there's actually this like trick that if you do this uh you know you know maybe you solve it instantly or maybe you kind of reduce the the like your your guesses are now a thousand times more likely to hit or something like that there could be kind of little tweaks and that's also i mean that's also one of the risks of of kind of shifting too quickly to certain quantum resilient uh uh cryptography partially the size on the blockchain uh but also because until it's been around and proven enough uh you never you never want to use like new cryptography for example you want to have it seasoned for a while uh so there's a risk of kind of premature switching uh but that's always been kind of one of the challenges of cryptography is that you know you're kind of working on on math problems that are kind of assumed yeah
Speaker 2when we were walking in here i saw bitwise put out a report with their bear base and bull case for bitcoin over the next 10 years did you
Speaker 1see that i did
Speaker 2not know their bear case is like 130 000 their base case is like over a million and then it's several million for their bull case and i don't know i kind of chuckled because i was like if 10 years from now we're only at 130 i'm sorry i don't i don't know it's dead like i think that bitcoin might as well go to zero if it's at 130 in 10 years am i just looking at it wrong i i just feel like the people cannot handle the number not going up at some
Speaker 1point well i think that'd be a very bearish scenario because we were just talking about money supply growth rate before i mean if money supply grows it's going to be a very bearish seven percent a year yeah
Speaker 2it's like negative yielding
Speaker 1yeah then basically yeah you're owning something that's stagnating uh and the way to think about that is is not that bitcoin's getting diluted but that its share of global assets uh is shrinking uh in that scenario if that happens so yeah i'd be right with you that 130 000 in 10 years would be pretty catastrophic yeah that basically what would that would mean that i mean either something really bad technically happened um or the world kind of just a just didn't really want kind of portable self-sovereign money uh they kind of like that that that the demand for that was overestimated uh and then people just don't want it um or some sort of coordinated multi-government attack that kind of you know you know kind of puts extra pressure on it for a period of time uh so you know people say price don't matter and price is a type of signal absolutely yeah i think 12 month price doesn't really matter i mean bitcoin does bitcoin things um but longer term price uh matters i mean i think the network has to you know the network is still very small uh in the grand scheme of things uh and that smallness contributes to volatility and that volatility of course is is upside uh for those that are early uh but it also is a reasonable um disincentive for people using it as near-term savings uh or like you know their only type of money for example and not until bitcoin is much larger and more widely held would we reasonably expect that volatility to to reduce significantly um and so yeah i i think that 10 years from now if it's at 130 000 that's it's major disappointment may as well be zero
Speaker 2um if you could keep only one chart on your screen for the next year what would it be i mean probably
Speaker 1the bitcoin price like it's i mean it's the industry that i'm active in i mean like you know it's for yeah one one chart for a year i guess that one what do you
Speaker 2think about what's been happening with digital credit like what's been happening with digital credit like what's been like it's been several weeks that um strategy has been doing buybacks on stretch and it still hasn't reached a hundred well i
Speaker 1mean i and i brought this up on some of their earnings calls that they had a range for how much cash they were intending to hold in terms of the number of kind of months of dividend coverage uh they dipped to very low levels for a handful of reasons uh and also um and at one point i had asked about are they concerned about leverage potentially being built on top of it
Speaker 2yeah um that happened and
Speaker 1that happened right so in that combination of a smaller cash bubble with a kind of a leverage bubble on top of it popping uh i think this changed the perception uh and so i think that was a test that kind of it didn't have to happen but it's not surprising that it did happen um and i mean stretches as mostly recovered from that right um and i think that's i mean that's the bulk of it and i think part of it is you know right now there's not a ton of outside demand rushing into uh so back during the raging bull market of bitcoin there's you know tons of money willing to go into stretch uh whereas now when um you know there's not a ton of money going into bitcoin there's also not necessarily a ton of money going into the digital credit attached to it which really i mean it's just it's just credit for the most part it's not you know we call it digital credit but it's just credit um uh and um so i mean it's i think the the whole the structure is healthier now than it was before that crisis because generally speaking uh you know cash levels are higher uh balance sheets are in many ways more conservative um ideally you do that before you get that kind of issue um but it's still i mean like i'm less worried about it now than i was shortly before the issue happened do you
Speaker 2think these products are more for retail or for institutional or do you think there's there's an argument for both
Speaker 1um i think i mean from what i've seen the the marketing kind of lean is retail focused um and certainly like yield strategies have always been popular among retail investors um institutions um you know i think there's obviously a role for them um i think generally and generally speaking they're going to be the ones that probably want a more conservative position uh like they're the ones that would be that if if a company says you know we're going to aim for say two plus years of dividend coverage the institutions can be the one kind of looking at promise more closely whereas retail might be looking more at like how much yield can i get right like institutions think more in risk reduction for sure risk mitigation uh so i think that um for a while they seem kind of retail focused um now with these kind of more safeguards in place like for example i think that that can make it appeal a little bit more to institutions yep and partially what they're i mean obviously would have to be an institution that's at least somewhat bullish on bitcoin like because basically what these you know this is there's no free lunch right there's always kind of trade-offs so generally speaking if you want to hire yield in in markets you either have to usually take higher duration so you have to be willing to lock your money up for longer um or um and that comes of course even if you could sell that comes with price risks uh when volatility goes around um or you're taking on more chance of not getting your money back um which usually means a risk your income source or um or risk your balance sheet uh and in this case you're not going to be able to get your money back um you know these are generally not companies with very strong cash flows they're companies with very strong balance sheets um but it you know a lot of that balance is obviously in bitcoin so if someone looks at that and says well i'm bullish on bitcoin thing over a certain level for a sufficient long period of time and they'll say well i'm willing to take that much you know that that much higher yield compared to treasuries because they're confident in underlying bitcoin um but if someone is not right then those i mean that they're just basically junk grade debt and they're not going to be able to take that much higher yield compared to treasuries from their perspective they're saying okay here's a company with very little cash flow you know not a ton of cash flows relative to the size of the debt um an asset that that you know from a bitcoin bearish perspective like we're barely going to count that as an asset because it you know it's so volatile and who knows um so they wouldn't be that interested uh and then of course the tricky thing has been that if you are really bullish on bitcoin a lot of people would say well why not buy bitcoin or why not buy the common equity um and i think it's it's partially miscritication right kind of like how if we were talking earlier about memory stocks and it's like there are times where i would would sell a cash secured put which basically pays me uh up front to take on the obligation to buy it if it goes down to a certain price level um and that's what i do kind of when i'm moderately bullish right if i was super bullish i would just buy the memory stock uh but if it's like kind of chopping around i might say well i'm pretty confident it's not going to crash so i will sell options to kind of get paid to see if i'm right about that and if i'm not i'm going to buy it and if i'm not i'm going to buy it and that and that's actually kind of a similar strategy to digital credit because basically you don't need bitcoin to go up really you just have to not as something catastrophic happen so someone says well i'm pretty confident like you know i can cut off the bottom tail um and that's really who that's for whether they're retail or
Speaker 2institutional are you bullish on mstr i mean as far as equities go do you think it's just going to take another bull market for them to get back to that all-time high that we saw i mean basically a year ago a year and a half
Speaker 1well i think we i mean i think you definitely need a bull market to even potentially get back to that level i don't think it's just going to happen on its own in a in a sideways market um i you know i don't think i mean it got up to like three times mnav i mean some of the other ones obviously got higher um i don't think that's the optimal like i think that was overvalued like i think three times mnav at that scale uh was was quite pricey uh i think investors should be careful about paying that that much um uh i guess putting money where my mouth is i mean so in my for example, I have different portfolios in my research service. And one of them is called the No Limits Portfolio. And that one, you know, we were trimming MSTR at some of these higher levels. And I recently, not super recently, but some months back, I added a little bit to it for the first time in quite a while, just because after, you know, kind of during that whole sell-off period, it kind of got back to being interesting to me. And so I'm moderately bullish on it on a multi-year timeframe. But that's a little bit different than saying, I think we'll see three times MNAV or like, I think you probably need a higher Bitcoin price to get back up to the prior all-time high in MSTR would be my assumption.
Speaker 2Okay. Yeah, no, I agree with you. Okay. We've done like a dozen shows together. And I'm curious if there's anything over the time that we've talked where you think back and you're like, hmm, like, I wish I had, I wish I had forecasted this differently, or I wish I had said something differently. Like, is there anything where things didn't pan out as you expected that maybe now you're like, oh, wow.
Speaker 1It's a good question. And it's hard. I mean, it's hard to say, okay, what did I say on an interview versus what did I write about? Because it's easy to apply it broadly than to apply it to
Speaker 2like. Because you've been pretty spot on. I mean, you've talked about the gradual print, you've talked about structurally higher inflation. You've been, you know, not the like, crazy gold bull saying it's going to 10k tomorrow. Like, you've been very kind of down the middle. So is there anything where you're like, you know what, no, actually this, like, I didn't see this coming?
Speaker 1I think, I think my kind of biggest errors on average are more in writing than verbal, I think, because I focus more on stocks in my writing. And I think a couple things that surprised me was one, the sheer scale of the AI move. It's caught me off guard. Like, I'm annoyed that I didn't catch memory stocks earlier, just because there's some things that you're not really qualified to catch. Sure. So you say, well, I mean, it would be nice to catch it, but it's like, why would I have caught it? Right. Whereas if you actually follow certain things, do you have some knowledge of that area and then still don't catch as much as you kind of think you should have? That's kind of disproportionately annoying. So for example, I feel like I should have caught the memory wave better than I did. And more broadly than that, I think that I've been generally surprised how good growth stocks have done compared to value stocks. I'm not in the, there's a lot of people out there that have just been like 15 years of any day now, value stocks are going to start doing good. But I have generally been a little bit more, I think, value biased in my investing. And it's kind of one of those things, like, I'm aware of that. So I try to, I try to push back on it. But it is, even when I push back on it, it's like, because my instinct, I started out as a value investor before I even got into macro. And so it's like a conch thing I have to push against. Yeah. And I think the continued strong performance of growth stocks and kind of the stagnation of value stocks, I think has been somewhat surprising.
Speaker 2Well, I knew it would be a hard question because you've been pretty accurate in terms of a.
Speaker 1I have plenty of individual bad calls. I mean, like there's, yeah, there's certain, like, you know, they usually involve the value space or, you know, certain things like that.
Speaker 2Give us an update on Orange.
Speaker 1So, yeah, for those that don't know. Orange Juice. Orange Juice. Yeah, we raised $40 million. And we, you know, have the goal of going out to acquire companies and to hold a Bitcoin treasury.
Speaker 2How many do you have now?
Speaker 1How many companies? Companies, yeah. So, no, we're still in the acquisition search phase because we raised the capital in the summer. Got it. And the diligence process that it takes to, you know, we have our updates are mainly around the pipeline. So, for example, we have this, you know, basically hundreds of companies coming into us looking to sell. And of course, you know, you have to filter through that and you get, you know, a smaller list of very credible ones. And so it's been this kind of long kind of parallel process of having multiple discussions with companies about the acquisition process and kind of going through their financials, checking everything. We hired our CTO from NVIDIA. Awesome. So that's been kind of our more recent news. So it kind of adds credibility to the AI strategy that we're looking to employ. I mean, no one's going to go to meet for their AI strategy or, you know, it's more finance. So we, you know, we hired a subject matter expert that we're really, you know, we're really bullish on. And so the behind the scenes stuff's all been great, but it takes time to, you know, go from raising capital to actually getting through a full diligence process on buying a pretty sizable
Speaker 2company. No, that makes sense. For people who didn't hear my interview with Nico Lechuga, do you want to give just a little bit of background on how you're sort of building the Berkshire Hathaway model? You're acquiring profitable businesses. There's going to be a Bitcoin component. But what I really like about it is it's sort of a contrast to the world of PE that we see that's become so like parasitic, extracting value, increasing prices. And then people like, you know, their beloved veterinary place or their beloved dentist all of a sudden feels like it's just like a profit machine.
Speaker 1Yeah, right. So it starts with the basic problem that one of the hardest things you can possibly sell in the world is a business because it's large, which, you know, if you're selling, you know, a gold coin, that's a really easy thing to sell. It's uniform, it's liquid, it's, you know, it's not that expensive. Selling a house is obviously a much bigger ordeal. And generally speaking, selling a multi-millionaire or higher business is just a much harder prospect. And so one of the kind of the challenges is, you know, you can't just add liquidity to that market, buying and selling businesses. The challenge is, I think, twofold. One is that a lot of that industry developed under this 40-year period of declining interest rates. So a lot of the incentive was, you know, compared to a smaller, medium-sized business owner, you know, private equity fund would have better sources of capital. And they can basically come in, lever the company up for, you know, at a lower level, like a lower rate level than the owner would. And then the other thing is, you know, and go from there. The other one is about incentives. So most PE operates in terms of a fund life, you know, called a 10-year fund life, where you have to, you get investor capital, you go out, you buy businesses, you change them, and then you have to do something, you have to get exits from them in a certain time period, because your investors are committed to get money back at that point, which puts you into a flipping mindset that, you know, you're not making a business decision that's going to be good for that business 10 or especially 20 years from now. You're saying, what is good for us in this kind of four-year holding period that we want to have that business for? Which might work for your own fund, but then that business is kind of left in potentially a weaker state. And so, and there's been studies that show the and it's partially because they're higher leverage now in many cases, or there's been so much cost cutting and the kind of the morale and the soul of the company is just weaker now. And, or, you know, let's say the classic string of veterinary clinics, instead of being run by an animal lover, which, you know, obviously you have to have a business mindset too. You want to have an animal lover and, you know, a money person. But if it's all money people, and it's like, well, we could cross sell. Basically trying to run a business that needs quality, just from kind of a spreadsheet standpoint, you're kind of setting yourself up for near-term optimization at the cost of longer term stagnation. And so the orange juice model is instead, it says, okay, we're not, we're not coming out and claiming that we're just magically the best investors in the world. We're saying we just, we just have a different incentive structure. So instead of a 10 year thing, we have to, you know, raise capital, go out, buy businesses and do that. We're not saying we're just going to be, we're going to be nicer PE. We're saying that our incentive structure is different, which is that we're going to be more competitive. We're going to be more, we're going to be more competitive. We're going to be more competitive. And it's, and the structure is that it's a, you know, it's a permanent capital vehicle, which is a jargony way of saying it's a company. So if investors want liquidity in a company, instead of getting paid back on a certain schedule, like what they do with a fund, they can sell shares of that company, assuming that that company eventually goes public, which is the longer term intention with orange juice. And Berkshire Hathaway has done this. Bending Spoons has been doing this. There are, you know, there are precedents out there. Obviously this is a Bitcoin flavored one. So it happens, you know, Berkshire Hathaway is kind of their, their secret sauce is insurance operations. We think ours is Bitcoin and just to, you know, some of us coming from a value investing standpoint as well, it doesn't hurt for once. And so the goal is basically to say, okay, we just, we're operating with a different incentive structure than private equity. Not to, there's no role for private equity. But I just think that having that be, virtually the only game in town, I think that can be kind of toxic. And I think having alternatives is really useful. Well, it really is
Speaker 2all about incentives. I love what you guys are doing. I know that not all PE is bad out there, but it is, it's just so interesting how much it has affected a lot of businesses. Like I have a crazy story. One time I've moved around to so many cities, I've had to find a new dentist so many times. And one time I'll never forget, I moved to a new town and I got a And I had like, pain, no issues. I was just going in for a checkup and a cleaning and they're like, oh, you have two cavities. I'm like, oh my gosh. Okay. Well, I obviously have to get them filled. I fill the cavities. And at that point I started to have pain. And it, I mean, the guy was like a super young guy and I come in and I'm like, I didn't have pain before when you said I had cavities. Now I'm in excruciating pain. And he's like, oh, you need a root canal. I'm like, what, what did I come in here for? I lo and behold, like I talked to some dentists. I know they're like, oh, this is owned by private equity. And I'm like, I'm never doing it again. Now I look for like a mom and pop family operation who I would assume has better incentives there to, you know, try to run their small business. And I, it just scared me away. And I'm like, I bet this happens in a lot of places and
Speaker 1industries. I think it does. Yeah. And I think it's, I mean, because incentives matter and it's like a lot of, you know, some, obviously there's, there's bad ethics, but then also just people, they, they, they get shaped by the incentives that they have to work around and they, they rationalize things. Yeah. And so I think, I think one of the, if you want to build on a strong foundation is to make sure you get the incentives right from the beginning. So, you know, in kind of compromised positions. Yeah.
Speaker 2No, there were people literally who told me, they're like, you might not have needed fillings at all, but they need a report, a certain amount of services a year. And I'm like, that's just horrible. Yeah. All right. Well, as we start to wrap up, one of my last questions is what is like a consensus for you out there? Like the crowd all believes this, but you think it's wrong?
Speaker 1Well, the most recent one is I saw so much negative bond sentiment on Twitter. There's certain things that just like, I mean, back, back when gold, for example, is 5,000, that's all, all those people could talk about. Obviously when, when, you know, in, when treasury companies were at three times and never higher, that's all people talked about. Well, when, you know, 10 year yields broke above 5%, we had that kind of vertical move for a period of time. Yeah. Virtually all of financial Twitter was talking about bonds and how bad they were. And my, I went through that dilution math earlier, which is to say it's the closest I get to being a bond bull because I'm a destruction of bond bear, but it's like, I'm way less bullish on bonds than consensus suddenly became. Because one, the dilution math is not, not as bad anymore. And two, there are, there are other pools of capital that can come in and buy yields. Um, as, as they get to these levels, I mean, they're, they're like, people can, for example, choose to sell stocks or sell gold and buy yields if they could, they would go up for, you know, to a significant degree. Um, and it's not to say that like, for example, like, you know, the, I keep seeing reports that like, you know, they're, they're, they're losing the control, losing the long end, for example, the bond market. And I'm like, the yield curve is literally still kind of flat. Like it's just, yields are just kind of high across the board. There's nothing particularly wrong with the long end. If anything, the long end was too low yielding and it kind of rapidly kind of caught up to something closer to where it should be. Um, and as the market kind of realized that inflation's kind of sticky, um, and they kind of make sense where they are. And I'm not that bullish on bonds at the moment for conservative, you know, kind of like older investors, for example. Um, I would have been much more hesitant to recommend that older investors buy bonds at say 3% than at 5%. Uh, there's like, you know, so I, I think I'm fading the narrative. Of being super bearish on bonds, even, and that's from the mindset of someone who just like structure still doesn't like bonds.
Speaker 2Okay. What is Lynn Alden's bear base and bull case for Bitcoin for 2036?
Speaker 12036. Um, well, I mean, bear, bear probably also something like low. I mean, it basically means something really bad happened. Like zero. Yeah. Like zero or like, you know,
Speaker 2that's my bear case.
Speaker 1Yeah. I mean, yeah. Like some, something just catastrophic, like happened or, uh, if it stagnates, it just, you know, basically that, that, that it just kind of broke its bullish cycle, got a lot of delusion people, um, and is, is just chopping around in the, in say the low six figures or high five figures that that's, that's a pretty bearish scenario. Yeah. Um, I mean, my base would probably be, I mean, in 10 years, um, I think the assets, I would expect about a million, something like that. Um, you know, I think so far, like I was about 2030, which we're getting somewhat closer to. Um, I tend to, when I, whenever I'm asked, it tend to be kind of the more conservative one, but there's, we actually might not hit my conservative targets, uh, compared to what some of the more bullish ones were.
Speaker 2I chuckle at the predictions of a million by 2030. Like what a dream, but I don't think it's
Speaker 1happening. I don't think it's going to happen now. I think, I think like, it's not that those views were crazy because there's still implied diminishing returns to get to a million, just, just less diminishing than they have been. Um, I, I think generally speaking to get to a million, you probably need a broader view of like a fiscal crisis. Um, not like the Mad Max fiscal crisis, but there's, there's more understanding that it's, it's going to be a longer lasting thing than people anticipate. Um, I probably wouldn't have a gigantic divide between base and bull. I mean, I think there's kind of a speed limit for how high I can grow. Okay. So like if my base would be a million, my bull might be 2 million. It wouldn't be like 10 million or something. Okay. Um, I'd have to, yeah, I'd sit down and do math, I think to, to have a stronger, more strong answer. But I think, I think a million in 10 years is reasonable. Uh, half a million is reasonable. Um, if it, if it goes much slower than that, then it's kind of not, it's not really keeping up with global assets in a way. It's not like we want, we, we wanted to see gaining market share going from, you know, 0.02% to 0.2% of, of say global assets and then going, going 2%. You don't want it to see it treading water for more than say a five-year period. You want it to see it appreciating.
Speaker 2I've described myself as a bearish bull like you. So I would put my bear case at zero, like it died, something happened, which I don't think is the case, but, um, my base case would be closer to like half a million. Cause I'm, I just am so much more conservative than people. I think things just move slower than we like to see. And then I love to be surprised to the upside. And then my bull case would be, um, a million. So. Got a, got a little ways to go. Alain, it's always so great to have you. I recommend everyone get Stolgard Incident, the, um, sci-fi book and your macro newsletter, which is fantastic. I'm a longtime subscriber now. So thank you so much. Anywhere else you want to point people to or anything else you want to say?
Speaker 1Uh, for, for Orange Juice, people can check out orangejuice.com. It's always a fun domain name to say, cause we got the domain orangejuice.com. Love it. Uh, just, you know, we have some articles there for what we're doing and people can check that out if they want. And, uh, yeah, I think it's a great place to start. I think it's a great place to start. I Yeah. Thank you so much, Lynn.
Speaker 2It's great to see you. Thank you for having me. And read Broken Money. Thank you so much for checking out this episode. If you haven't already, make sure to subscribe and hit that notifications button. So you never miss new content. This show is for entertainment and educational purposes only. Nothing should constitute as official investment advice and you should always do your own research. If you haven't already subscribed to my free newsletter, thenewsblock.substack.com. And make sure to grab a copy of my new Bitcoin and Money 101 book, Bitcoin is for Everyone. My inbox is open. If you want to share feedback or guest suggestions, just reach out to us at infoattalkingbitcoin.com. I'll see you next time.
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