Speaker 1The only way the Fed can get the U.S. out of fiscal dominance is if they cut rates to zero and they partner with Treasury so Treasury issues all the bond issuance at the front end at zero rates, which is a kissing cousin of printing money to finance a deficit. The AI thing unwinds. You're going to have a very big stock market problem. You're going to have a recession. You're going to have a rise in unemployment. You're going to have a significant rise in interest rates in a recession, which no American alive has really seen since probably the 70s. Fundamentally, I think what's happening with the fiscal situation is unfixable by anything other than significant devaluation of currency. Warsh isn't going to cut aggressively without a crisis. And I think the crisis could show up as Warsh cutting. Raising basis cut or raising 25 basis points. Look, if you have a long-term view, you should probably be buying Bitcoin now. I, you know, like I said, I'm probably being too cute. I think I can get it cheaper.
Speaker 2Right, Luke, I've got so much I want to get into with you today. Beautiful. I think we should start. We talked about this last time around the show on Bitcoin because you sold all your Bitcoin.
Speaker 1Almost all. Almost all your Bitcoin. I still have some.
Speaker 2Around 90 something thousand, was it?
Speaker 196, 95, 96 something.
Speaker 2And again, I told you this last time, but I think. I thought you'd made a mistake. You clearly hadn't. But the question is, when you buy back, like that's how you make this trade a full, like a good trade. And how are you looking at that now?
Speaker 1Sure. I am looking at it. So strategically, I want to buy it back. I still think it's an energy link, neutral reserve asset for the people. And very attractive because I still fundamentally think what's happening with the fiscal situation. Is unfixable by anything other than significant devaluation of the currency and really all fiat currencies, to be clear, when tactically I'm getting closer, but I still haven't bought it back yet. And the reason is few fold. Number one, you've got the Fed. And right now, if the Fed. Starts cutting rates aggressively, I'm going to have to chase it, I think. Yeah, to be to be blunt. So I but I that then feeds into where why I haven't started buying it back very aggressively at any yet, which is. Warsh seems like he will eventually do what Powell and Yellen and Bernanke did. But he needs. A crisis to do it. He needs political cover. And then I look tactically at the. What's going on in A.I. And particularly just in the last two, three weeks. Where you've got Chinese competition, you've got rising borrowing, you've got rising rates, you've got slowing collateral price appreciation there in terms of. You know, open. A.I. In particular, but others in terms of the valuations that the rate of growth are slowing. That's an issue for me as it relates to Bitcoin. OK, because I think a I think Warsh isn't going to cut aggressively without a crisis. And I think the crisis could show up as Warsh cutting basis cut or raising 25 basis points. And then Chinese competition beginning to raise questions about A.I. Because that's the thing. I'm. I don't have the. The the the training, the background, the intellectual chops, to be honest, to have a debate about is the Chinese low cost opening a model better. Is it going to overtake the U.S. Models? Is it not? I don't. But I have 30 years of experience in markets and investing. And what I can tell you is the U.S. A.I. Segment broadly is a debt financed and be valued like there are no issues. And can be no issues. And the very fact that we can actually have serious people who do have the intellectual chops to debate U.S. Versus Chinese A.I., et cetera, tells us the Chinese stuff's an issue. Maybe it's maybe technically it's not an issue immediately today. But the very fact there's a debate is there's an issue and this segment can't have issues and it's valued as if it's never going to have any issues. So this is an issue in a sector that's valued like it can't have issues, will never have issues. And thus far this year, part of the reason I sold most of my Bitcoin was it was increasingly trading like a tech stock and tech was making me increasingly nervous. And fast forward today, I've got a Fed chair who thinks he thinks that Powell, he could have done Powell's job better than Powell did. And I've been clear with you and others, I'm no huge apologist or I think Powell did fine. I don't think he did a bad job. I think he missed an opportunity. You just inflate stuff away and take, you know, take the pain and put the country in a better place. I've been very vocal about that. Warsh thinks he overinflated. And so to my eyes, Warsh thinks he can be inflation tough guy. He can raise rates 25 basis points or more. I don't have a strong view for this week, but and I think that could very well kick the legs out of what's happening in A.I. And when I then look at that as relative to Bitcoin. I think that could very well kick the legs out of what's happening in A.I. And when I then look at that as relative to Bitcoin. I think that could very well kick the legs out of what's happening in A.I. I think that could very well kick the legs out of what's happening in A.I. And when I then look at that as relative to Bitcoin. I think that could very well kick the legs out of what's happening in A.I. And when I then look at that as relative to Bitcoin. What I see this year is Bitcoin has led tech. And when I then look at that as relative to Bitcoin. What I see this year is Bitcoin has led tech. So it started down way more than tech in the first half of the year. What I see this year is Bitcoin has led tech. So it started down way more than tech in the first half of the year. In the last two, three, maybe four weeks, Bitcoin has actually outperformed tech on the downside. So it started down way more than tech in the first half of the year. In the last two, three, maybe four weeks, Bitcoin has actually outperformed tech on the downside. In the last two, three, maybe four weeks, Bitcoin has actually outperformed tech on the downside. In the last two, three, maybe four weeks, Bitcoin has actually outperformed tech on the downside. In other words, tech has kind of caught up a bit after running away from Bitcoin a little bit. In other words, tech has kind of caught up a bit after running away from Bitcoin a little bit. In other words, tech has kind of caught up a bit after running away from Bitcoin a little bit. Mainly by Bitcoin falling. But I'm still noticing on days where tech's down, Bitcoin's down. But I'm still noticing on days where tech's down, Bitcoin's down. On days where tech's up, Bitcoin's up. And so I just look at this. I might be being too cute by half. My view of it is that I think Warsh has put himself in a position where he has to tighten to try to establish his inflation-fighting credentials. My view of it is that I think Warsh has put himself in a position where he has to tighten to try to establish his inflation-fighting credentials. My view of it is that I think Warsh has put himself in a position where he has to tighten to try to establish his inflation-fighting credentials. My view of it is that I think Warsh has put himself in a position where he has to tighten to try to establish his inflation-fighting credentials. And by the way, he let himself in out last week to Congress. And by the way, he let himself in out last week to Congress. He's like, well, if we have a crisis, then we need to make sure to fix market prices or make sure to establish a fair market price. He's like, well, if we have a crisis, then we need to make sure to fix market prices or make sure to establish a fair market price. He's like, well, if we have a crisis, then we need to make sure to fix market prices or make sure to establish a fair market price. He's like, well, if we have a crisis, then we need to make sure to fix market prices or make sure to establish a fair market price. Which means print money. Which means print money. So he's the same. You're going to see from me at some point, spoiler alert, sometime in the next six to 12 months, you're going to get the Dennis Green meme from me on X. You're going to see from me at some point, spoiler alert, sometime in the next six to 12 months, you're going to get the Dennis Green meme from me on X. You're going to see from me at some point, spoiler alert, sometime in the next six to 12 months, you're going to get the Dennis Green meme from me on X. They are who we thought they were. So he is who we thought he is. So he is who we thought he is. But for now, I think he's going to try to tighten. But for now, I think he's going to try to tighten. But for now, I think he's going to try to tighten. I think he thinks he could use a political cover to do some of the things he wants to do. I think he thinks he could use a political cover to do some of the things he wants to do. I think he thinks he could use a political cover to do some of the things he wants to do. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that.
Speaker 2And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that.
Speaker 1And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that.
Speaker 2And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that.
Speaker 1And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. And I think Bitcoin will go lower if tech gets hit, which is a long-winded way of saying that. functioning. So it's really given a choice between inflation and treasury market functioning. The Fed has 100% of the time in the last seven years chosen inflation. Yeah. And I think he's
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Speaker 1I think I agree with her 100%. The US is in fiscal dominance. Which then significantly reduces the Fed's ability to adjust. The Fed really, the only way the Fed can get the US out of fiscal dominance is if they cut rates to zero and they partner with Treasury. So Treasury issues all the bond issuance at the front end at zero rates, which is a kissing cousin of printing money to finance a deficit. Then the Fed would have a high degree of influence. Because basically, if they did QE through that, that would basically, if you have the Fed buy the bonds by printing cash at zero while the government spends the money, the US will get out of fiscal dominance. Now, astute listeners will say, that's literally exactly what the Reichsbank did after World War I. You're exactly right. And it would be really tough because some of your obligations, like the entitlement portion of all of this, is cost adjusting. So the more you do that, the more cost of care is going to go up, the more you have to print. And so the Fed could get out of fiscal dominance by doing that for a period of time. And the proof of that is in what happened from 2020 to 2022. If we look at COVID happened, deficit blows out, Fed rates start going up in the worst recession, worst crisis in forever. That had never happened before. Fed comes in, starts buying, what was it, $600 billion a month in Treasury bonds, I think it was, off the top of my head. And then the government does stimmies, right? So you are doing fiscal stimulus. You're handing money to people and being financed, money financed, tax cut, as Bernanke called it. This was true helicopter money. And what happened? U.S. went from being in fiscal dominance, which is a rough guideline I use as the true interest expense as a percent of receipts. So gross interest plus entitlements in the heat of COVID or the depth of COVID was 120%. In other words, they had to print money or they were going to default. They didn't have the tax receipts to cover interest and entitlements. So they printed. Inflation takes off. Rates don't because the Fed's buying it all. Essentially helped by the banks. Yep. And what happens at true interest expense? It goes from 120% down to 85% by the end of '21. The dollar goes from whatever, 103, 105, wherever it was, down to 81, if I recall correctly. So the Fed can absolutely do something about fiscal dominance. Nobody likes to hear what it is, right? There's nothing a brief period of extremely high inflation and currency devalue can't get you out of.
Speaker 2And does it need to do that?
Speaker 1Yes. It's ultimately going to have to do that.
Speaker 2So I remember you coming on the show a long time ago when Peter was still doing it. And you're talking about a short period of very high inflation, talking maybe even triple-digit inflation. That's what would work. The more they delay, that's what's going to have to happen. It seems crazy to think about. Do you think that could realistically happen? What probability would you put on that happening at least in the next 20 years?
Speaker 1Well, let's take the alternatives. You have to slash defense spending by, I don't know, probably-- let's just say it's 3%, 4% of GDP. Let's just say it's 3% of GDP. That's a trillion dollars. So we need to cut defense, which was like a trillion one last year, by 90%. Never happening. Never happening. And by the way, it has to happen. And even if you did it, you take 3% of GDP out of a country that's growing, what, 1 and 1/2 real right now? You're in recession. The deficit's actually going to rise 600 to 1,000 basis points of GDP in any recession. You're done. So OK, take that off the table. Next option, boomers. Trillion dollars out of-- so they got to cut Medicare, Medicaid by 30% to 35% immediately, permanently, forever. Without a recession, without boomers then going, oh, well, we also have $70 trillion in stocks and bonds and real estate. We'll just start selling that. Well, what happens then? Stocks, the market is the economy via consumer spending, like receipts, boom, recession, same problem. If you could come up with some magic thing where the sickest half of the boomers all died by next Tuesday, that would fix the problem. I'm not hoping for that. But again, let's just-- it lays out. And option number four is cut rates to zero, run the stimulus, flake the heck out of it for six months, and that's it. Or the equivalent, which is you could do-- if you let gold really, really rip, yeah, and 20,000, 30,000 ounce, something like that, you can basically just take the yuan price of 30,000 and move it over to America, $30,000, and then have Besant instruct Warsh to revalue the gold, creates a TGA, deposit, buy back a ton of the debt. And now you're out of fiscal dominance. You can get out of fiscal dominance that way. You wouldn't have 100% inflation, triple-digit inflation. Then you would have significant inflation, but you would then have taken the debt to GDP from 120 to 80, 60, 50, depending on the gold price. And now the Fed's right back in the game. Now they can actually raise rates without adding to inflation, because everyone's getting more interest on their bond portfolio, and without pushing capital. And that's the way it's going to go. So I guess the odds, when you look at it through those options, the first three are not possible. And then you're left with either a brief period of really high, even triple-digit inflation, or some sort of gimmick. It's basically the platinum coin, except it's provided for in the financial accounting manual for Federal Reserve banks. That's clearly the best option. And now there's probably a sixth option, which is, hey, if we can-- go to war and, you know, that doesn't cost us a lot and happens really fast and doesn't kill many Americans and tips over Russia and China at the same time, and we get control of their resource and factories, then yeah, that's not going to happen either, right? So there's another option. So the only ways out are option A or option B, really high inflation for a brief period or run up gold, buy down the debt and get the Fed back in the game to get the US, which is just another way to devalue on the dollar.
Speaker 2But when you see the sort of pieces that Bessence and Walsh and Trump are putting into place, is that what you think they're doing?
Speaker 1I don't know. I think strategically, this administration has a pretty good idea of what it's doing. I think tactically, I think they are just like making a dog's breakfast of everything because they're getting pulled in a lot of different directions. And what I say strategically, this commentary by Walsh about Hamiltonian economics, excuse me, by Bessence about Hamiltonian economics, I thought was super interesting for a number of reasons. What does that mean? Hamiltonian economics is essentially high trade barriers, capital controls, subtle deficits in gold. And that's an oversimplification, but not that much. It's essentially we need to produce a lot more of our own stuff based on Alexander Hamilton, of course. And Bessence gave a speech at the New York Economic Club about five weeks ago, June 23rd. And just in case people thought, which sort of all of the big weeks there was a 250th America 250 gala, right? So anyone who was anyone from a policy standpoint is there. And he rolls this out. In case anyone thought he was just talking off the cuff or out of turn, he wrote an op-ed in the Wall Street Journal, same day published it, Trump's economic policies, or Hamilton drives, Hamiltonian economics drive Trump's statecraft, something like that. You can find it. That's what he believes. Go back to before this whole Iran debacle and U.S. Trade Representative Jameson Greer gave a speech at Davos this year. He flat out said America is moving to Hamiltonian economics, said that the brought up Bretton Woods, brought up that probably would have been a better idea if we had had a better economy. And he said, well, we're going to have a better economy if we had a neutral reserve currency, as Keynes advised. But because we were running surpluses at the time, we decided we didn't want that. And everyone else was flat on their backs. So they had no say. So that's interesting, especially with either the Times or the Journal saying that Greer is driving much more of the Trump administration's economic policy. They just wrote that two, three, four weeks ago. You go back to Trump sometime last year, I believe it was January. He said, I want to take us back to when America was richer and more powerful than ever before. Trump said over and over. Goes on to say 1870 to 1913, U.S. had the highest tariffs it's ever had protecting our industry. And he said we were taxing foreigners to pay for America's growth rather than taxing Americans to pay for foreigners' growth, Hamiltonian economics. And Trump's famous for that, right? He gets the concept. He sort of, you know, he talks about it differently in his own unique way. J.D. Vance, February last year in Europe. I think he referred to the stupid Washington consensus that deindustrialized America as being over, done with. And so the chapter and verse, you've got Hamiltonian economics, Hamiltonian. So what does that imply? Higher tariffs, protecting American industry, reshoring, inflationary, net settle in gold, right? What's been America's biggest export? Eight of the last 10 months, gold. Bigger than jet engines, bigger than oil, bigger than gas, bigger than pharmaceutical preparations. So it seems like some really, that leaves me really encouraged because that's a really good thing for America. It's terrible for bondholders. So what? Who holds the bonds? The boomers. Guess what? They have underpaid for everything their whole lives. Everything has been slanted to help them. And I have boomer parents. I love them dearly. I love the boomers of the generation. Most of them. And the reality is, is my children need a chance. My children's generation, like you need to do, and that is only fair, right? Yes, they paid into social security and they are using way more than they ever paid in. They are using way more in Medicare and Medicaid they ever paid in. You can't raise taxes on them. How do you get them to pay? You load them up with the bonds and then you devalue the crap out of them by implementing Hamiltonian economics, which is going to send inflation up. It's going to send wages up for the younger generation and so on and so forth. That's the encouraging thing. That's what I think
Speaker 2the economic plan is now. There've been a lot of distractions so far, but I think it's going to be a lot easier to date. There have. I mean, I don't know how many times the Iran war has stopped and started, but on the Hamiltonian economics thing, it sounds like, and I could be oversimplifying this, it is essentially going from the US being a hyper-financialized economy to being an industrial economy again. And I've read enough of your work that you're kind of bearish on the idea of reshoring actually working.
Speaker 1So how does that play out? I'm bearish on the idea of it actually working. I'm bearish on this idea that we get sold by so many people that it's going to be fast and easy and cheap and buy bonds because America is going to reshore. Buy bonds? Are you high? No. I just have an interest in my clients not being the ones who get fleeced, as I do think we are moving inexorably in that direction. Martin Luther King, the arc of the arc of society over time moves towards justice. The arc of our economic policy is moving toward reshoring. And I say that because Trump started it with the trade war. Biden basically ran Trump's economic policy, except as a doddering old man, instead of as sort of a bombastic leader. So we're moving toward reshoring. All I'm saying is don't piss down my back and tell me it's raining and buy bonds, because America is coming back as industrial power and we're going to be producing rare earths in two years and refining them. And we're going to be making all this stuff in two years. I think I wrote last week, there's an old saw in producing things, right? In manufacturing. You can have it fast, cheap, and done well. Pick two. Well, we need it done fast because we're losing to China. Or at the very least, our margin of in certain areas we are losing. But in some critical ones, our margin of winning is shrinking than leaves us feeling comfortable. And we need it done cheaply, because otherwise the bond market blows up. Well, we have to have it done well. There's no point in doing it at all, because we'll still lose three, right? So we have a trilemma. We need it done fast, well, and cheap. And it's not going to be done that way. It's not. Especially when you look at sort of the 45 years of deindustrializing. We don't have the labor. We don't have the engineering. We don't have any of these things. We might, and AI could certainly help that in some ways. And it's going to cost a lot of money. And so that, to me, it's less that I'm bearish on that. And I'm bullish on the ability to do it. I am bearish on the ability to do it fast and cheap. We're going to do it. It's going to take longer, we think. It's going to be more expensive. Stay the heck away from long-term bonds, because the real value of them, if you think America's going to compete, let alone win, let alone get back to making stuff, you can't be anywhere near long-term bonds. They're going to get destroyed on a real basis. They have to.
Speaker 2So if this is going to take a long time, is the next few years, maybe that's up to a decade, I don't know your sort of timeline, but is that basically the most chaotic time we've ever gone into in terms of the economy? It's going to be right up there. It's going to be right up there,
Speaker 1because it's hard, because on some level, you need to do some very Chinese things in a society that knows it needs to do Chinese, but is afraid to do them. Because it is, you know, it's like, it's like, it's like asking a hardcore Catholic to be Protestant. And realistically, there's not that big a difference between the two, you know, to the, I mean, certainly like, you know, the Buddhist or the Muslim would say, oh, what's the difference? I guess. But if you're a hardcore believer and that's what you have, you've got, you know, the free market people and they think this is all a free market and this and that, and we are not like China. And there's people like, we need to build as fast as we can and whatever it takes. And
Speaker 2that fight is happening as we speak all the time. What's the Chinese thing that America need to do? It's ironic because actually Chinese did the Hamiltonian thing, right? Which is,
Speaker 1I wrote about this this week. Hamilton encouraged everyone to steal intellectual property from the Brits and the Europeans and bring it here. And he put up high tariffs and all that. And guess what the Chinese have done, right? They've taken IP and same thing. And then they improve upon it and what have you, same thing. It was the same playbook. So yeah, what we need to do is essentially close the capital account except for gold, like the Chinese, right? The Chinese capital account is open on an unlimited basis through gold. But think about what that means, right? I said this the other day, everything is downstream of this capital account. Raja, he and I followed each other on X. He had great points. I refuse. And this is a point that Brad Setzer and Michael Pettis in particular make over and over and over, essentially that America is the victim of our open capital account from the Chinese. And Raj was like, I refuse to say the most powerful country in the world with an open capital account and the reserve currency is a victim because it can't control its own capital account. And he's exactly right. These are all choices. They're all trade-offs. In other words, if you don't like what the Chinese are doing, all you got to do is close your capital account. What does that mean, Luke? That means the whole world stops recycling their money into stocks and bonds. They have to go to gold. There's precedent for this. No less a US eminent policymaker than Henry Kissinger in the 70s was discussing the same problem. They had a different version of the same problem. In the 70s, because oil had risen up so much because we had devalued the dollar and gone off gold, you had all these petrodollars, right? And they were being recycled in. Well, OPEC Arabs are no dummies. They're in there buying up companies of these valuable properties left and right. It's all free. Right. I cheat money. And so they had a problem of Arab. This is Kissinger's words, not mine. Arab control of European and Western European industry. Where does this sound familiar? West Chinese control of US and European industry. Okay. Well, one of the things that was proposed is let's settle the oil deficits in gold at a floating price. So the, the. The. Basically, it protects our industry from being controlled then by Arabs, now by Chinese. They get protected because they have absolute national control, their words, not mine, of their reserves in physical gold in their borders. And it's inflation protected, their words, not mine. Same problem, same problem. And so that's why I say like, oh, the Chinese, no, they're just playing the game that's been dealt to them. And the game is buy up American industry with the dollars. Americans don't like it. Close your capital account. Why won't we do that? What would happen to stocks if you came out and said, everybody but Americans can't buy stocks anymore, can't buy US bonds anymore. They got to do it through gold. The gold to Dow ratio would go to one, like it did in 1980, like it did in 1933.
Speaker 2And why do they care so much about saving? I understand the bond market, but why do they care so much about saving the stock market?
Speaker 1Well, now, because it's the economy, but also it's their source. It's their source of wealth, right? This is ultimately a game of thrones. This is about corporate America loved China. They still love China, right? Even saw it last week, right? So we're in the midst of all this, right? So we've gotten to this point. Micron stock is soaring because of the AI boom, the demand for memory. Prices of memory are going through the roof. What's Apple doing? Buy memory, I imagine. They are. But this week in Washington Post, they come out. They are actively lobbying Trump to let them buy Chinese memory. Because the price of memory is going up to an American company. God forbid an American company is making a lot of money in memory. And if they can buy from the Chinese, they can knock prices down for the American. And they can keep Apple's margins okay. Whose side is Apple on? But it's an American company, ostensibly. But this is the fight. It is ultimately corporate elites have... What percentage of CEOs and execs have their money in the stock, you think? Their stock. It's a big number. Everyone. It's a big number. Yeah. So what happens the day you say foreign money's out? We're closing the capital account. Do you think they want that? Do you think they want their margins? Corporate profit margins are at all-time highs. Corporate profit margins would come down initially. Wages would come up initially. And then ultimately, you begin to produce more of your own consumption. Now you build a consumer base that's in America, right? And that's not based on credit. Oh, by the way, you're taking away the need for credit. You're bolstering wages. You're bolstering inflation. Banks don't want that. Bond market doesn't want that, right? So what you end up with is Wall Street and multinational corporations hate that idea.
Speaker 2So many of these questions come down to what they should do and then what they're actually going to be able to do. Is this another thing that they should do?
Speaker 1Well, forget about should. This is so similar to pre-World War. Or excuse me, pre-Civil War. Do you know 60% of the wealth in this country was in the South before the Civil War? I didn't. It was. They were the original globalists. They wanted open trade, no tariffs. Why? Slave labor. And they're selling cotton and tobacco and crops to Europe. Meanwhile, the North, the technologists, the producers at the time, or the manufacturers at the time, they needed protection. Because they're trying to compete with the globalist Brits and Europeans who are making stuff. And their fledgling industries couldn't produce without tariff protection. Well, we need a way to, you know, you get globalists against the nationalists. Well, no one's going to go die for economics. So we need a useful social issue. Any useful social issues we could highlight in the 1860s to get 600,000 Americans to die? Oh, slavery. The same fight's happening right now. Nationalist, globalist. And it's interesting because, you know, the divisiveness of this country, Peter Turchin, who studies these things, said that the, in his book End Times, writes, you've got elite overproduction and wealth inequality are your two drivers to domestic political instability. They're the highest now in America since 1855. So should, what is the, should is a political question. Should, you know, what, what will they do? I don't know. I don't know. That, and it's a highly, it's a highly contentious political issue. As an American, I think what's best for America is to not have massive wealth inequality because I don't think that's politically stable. I think we end up in. I think we end up in some sort of domestic, really ugly situation. Yep. And so that's where I shake out of like, hey, it makes more sense to control the capital account, redirect some of those flows away from the Plutarchs into domestic production. That makes more sense. What should they do? I'm not, I'm not in government.
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Speaker 1These things happen. I mean, at the end of the day, humans are products of nature, right? And you go through through these cycles of you know look you go around here you know there's this beautiful we're here recording this here in cleveland there's beautiful we have metro parks right so there's a literally it's about a mile wide swath most of it has a river through it or much of it's on the west side certainly actually on the east side different river but you can literally mile wide swath parks centuries old trees from the from the lake on this side all the way around the west side down south, back up through the east side, up to the lake on the other side. They call it the emerald necklace. And due to the development of this country or country, the state, most of the natural predators of deer were killed centuries ago. And so over a period of time, you know, when I was a kid, it's like, wow, a deer. And now you're like, oh, my God, a deer. Like literally everywhere you drive, you're trying not to hit a deer. Why? Why are there so many deer? Take away the natural predators. They become victims of their own success. They eat up everything. And now there's way too many deer. And then you have a deer disease or they eat all the plants and they start whatever. It's natural cycle of nature. And I think these economic cycles, unfortunately, are products of nature as well. We're victims of our own success. And I'm optimistic about the future. I'm just realistic about it as well, like where we are, what that implies, what that possibly implies, what are good things, what seem to be good moves, bad moves, what are good ways. And then accelerants, right? There are things that are accelerants. And I think technologists would tell you, oh, well, this technology bifurcates the economy into K-shaped anyway. It does. They're right. And that doesn't necessarily change the outcome, right? Like some of them are saying, well, fine, I'll just buy a bunker or I'll move to New Zealand or whatever. And I guess that's one way to deal with it. But I think it's a little antisocial. But I get it. So I don't know. That's sort of a, I don't know exactly that that tells us anything other than I just, I don't think there's any avoiding the natural cycle. Like you can delay it for a while, but you can't stop it. And so then if you can't stop something, then it's about preparation and understanding and trying to do what you can in your own little way to get us to a outcome that might otherwise have been achieved.
Speaker 2Buy Bitcoin and gold and think very carefully about where you're going to live. AI, like you say, is obviously going to be hugely instrumental over the next decades. But for now, do you think it's in a bubble? And what kind of bubble? Because like the obvious most recent examples are like, is this 2001 or is this 2008?
Speaker 1Yes, I think it's a bubble now. And I think it's going to be a situation where, you know, we're going to have to, you know, where the early bird gets the worm, but the second mouse gets the cheese. Which is to say, for a long while, myself included, I didn't really write or talk this way, but it was in my mind. Whether bubble, whether AI was a bubble and whether the AI companies were a bubble were inextricably linked. In other words, there was only, and now I think the companies are bubbles, but I don't think the technology is a bubble. I think we're in the early days of those things separating. And that's what I mean about the, you know, the early bird gets a worm and the second mouse gets the cheese. Rails were enormous bubble, railroads. And they were an enormously productive technology that changed this country and changed every country and are still in use today. I was at a conference 18 months ago. There was a guy there who was extremely wealthy, nice guy. Um, he made his money by buying up telecom fiber for pennies on the dollar. After 02, when it all went bankrupt, it's all still being used the internet wildly useful. And, and we saw that right now, the pets.com and all these crappy companies, they went away and the internet is every bit as big as we thought it would be. And I think we're in the early days of that being recognized. And that's one catalyst of the ball where there's just this recognition. But I think that, and that's being recognized, I think, because some of the financing stuff, some of the, you know, the same shenanigans that we saw in telecom and Enron and all that, the sort of circular vendor financing stuff that is being openly discussed and questioned for good reason. The thing that actually is different this time, as it relates to either, oh, 2000 or 2008 is the Chinese are competing. You know, we were talking about this earlier, which is we're having a debate. Are the Chinese better? They're not, it doesn't matter. They're there. They're only going to get better. And American technologists, they're going to get better. They're going to get better. And American technologists, they're going to get better. And American technologists, they're going to get better. And American technologists, they're going to get better. And American technologists, they're going to get better. And American technologists, they're going to get better. And American technologists, they're going to get better. And American technologists don't know what to do because they haven't, they haven't had to compete with another country's technology since probably what, 86, 87 with the Japanese. You know, they were, a lot of these guys weren't even born yet. You know, if they were, they were in diapers. And, you know, we were talking about before we, we, we, we went live, this is the Rust Belt. Like Cleveland had four of the seven richest cities in our, excuse me, Ohio had four of the seven richest cities in America in the early sixties. Maybe it was in, maybe it wasn't as late as early fifties, but the point stands like in one human life for the seven wealthiest cities in this entire country, the wealthiest in the history of the world, we're in this state. You know how many are now in the top 10? Zero. Zero. Zero as Steve Eisman said. I know how this can go. I've seen it. I watched it in my lifetime. The tech guys don't get it yet. The fact that the tech guys are going to Washington and asking for savior from, from, from China for protectionism. Not very American. Well, it isn't, it isn't. It's kind of Hamiltonian, but it's, it's definitely changing the rules versus before. And there's a different set of rules to that, but right. There's nothing more American Hamilton, right? It's been on Broadway for what? How many years now? What did he do? Hamilton did what the Chinese have done the last 20 years. It's all one big, you know, it all happens over and over.
Speaker 2It is interesting though, because obviously the news broke a couple of weeks ago about Kimmy K3 coming out and like, like you, I'm not deep in the world of AI, but you see some of the benchmarks is at least competitive with the biggest frontier labs and a fraction of the cost, I believe. So I can understand why those frontier models, those frontier labs are very, very paranoid about this. And they're trying to figure out how to, how to be saved essentially. But why, why save them? Like if they're, if their models are broken, why would the US save them?
Speaker 1Because otherwise I want to say this. So everybody hears it because if they don't, the whole system is at risk of coming unwound. There was a great sub stack. If you haven't read it yet and you you'll have seen it from, from my work. Um, I don't know who the guy is. Groundbreaker is the name of the sub stack. Go read it. It was published July 2nd. I read it and it was funny. I was reading it on our patio. My wife can always tell him this is FFT. He can always tell when something's blowing my mind because of this, I'm rubbing my head, I'm reading and I'm rubbing my, she's like, wow, what are you reading? And he lays out that the 08 crisis was not a, the popular understanding is once home prices turned down, everything came unwound. But when you look at the actual facts, which he puts right in front of you, it wasn't when home prices turned down year over year, it was when the rate of growth, the second derivative of growth of home prices, they were still rising. There was still demand when they slowed. That's when default started rising because it wasn't that home prices fell. It was that they just slowed so that the refinancing couldn't occur. And after that, everything came unwound. And he lays out that people are evaluating his cases, that people are evaluating the AI as a tech play, it's not, it's a real estate play. And he says, in real estate, you got boom bust because number one, they don't de-rate gently, they de-rate violently. And he's absolutely right. And he said, number two, real estate things don't blow up. They very rarely blow up with demand declining. It almost is always up. It's just that second derivative. And he runs through and he points out basically, chapter and verse, open AI is ground zero in this whole thing, in his view. And I have no reason to disagree after, it's a very, it's probably, it took me 45 minutes to read through and I read fast. And it just lays out the different cross-financings, the amount of debt, how they have gone from basically 0% of cash flows to 100% of cash flows going into new capacity, then borrowing, who's guaranteeing it, what's there in, what's happening with Oracle CDS, Microsoft CDS, all starting to rise. And that is why I think the government is nervous. And I, they should be nervous. The US government should be nervous about this because when you then tie it into capital flows, this huge inflow of capital from abroad, all heavily tied to AI. I lived through the 2000 bubble. I remember what happened. The dollar kind of went up a little bit more and then it fell like 40% in six years after the tech bubble burst. So yeah, they have those issues. The tax receipts. Oh my God. You know what happens to tax receipts if the tech bubble bursts? We're already at a hundred percent Right now, if you add interest expense plus entitlements plus veterans benefits, which are a cool 8% of receipts, $400 billion a year, you are over 100% of receipts with receipts and capital inflows inflated by this AI bubble. And the one thing underpinning, as this groundbreaker says, is open AI. If open AI just slows the next round. So they came out at the end of June and they delayed their IPO possibly. And then they also offered, remember about a week later, it was reported that they were floating, since denied, floating, possibly giving the Trump administration a 5% stake.
Speaker 2I saw that.
Speaker 1Now, how many of these tech billionaires have you seen offer out of the goodness of their hearts a government 5% stakes? Is that literally just, I mean, I don't want to use this word too liberally, but a bribe to be like keep us alive? Yes, I think it is. I mean, I heard credible rumbling six to nine months ago that the discussion around what does an, AI bailout look like had already been broached in Washington.
Speaker 2Do you think that's why China are pushing the open source AI so hard? Is it an attempt? Is it like essentially economic warfare?
Speaker 1Whether it's intentional or not, I don't know. I think they are absolutely aware of the implications of it. I think they're absolutely aware. They would have to be stupid not to. And they're very good at this. They're better at the second and third derivative thinking than our policymakers seem to be, in my opinion. For a number of reasons. For a number of different reasons. But that's why I think the government's worried about it. Open AI, can't price, boom, then this, then the debt. The debt starts, okay, who owns the debt? I don't know. Okay, sell them all. Okay, now, and oh, by the way, 80%, 90%, depending on who you read, 80%, 90% of GDP growth in this country over the last 12 to 18, 24 months has been driven by AI-related spend. Yep. Uh-oh. Now what? Now you're in a recession. Now what happens to the deficit? Remember we just said before, up 600 to 1,000 basis points of GDP. Well, GDP's 30 trillion for easy math. That's 1.8 to 3 trillion more on top of a 2 trillion deficit. Now your deficit is 3.8 to 5 trillion dollars. Receipts are down huge because stocks are down. And oh, by the way, yields are probably going to go up on this because in the dot-com bubble, we were running a surplus, a fiscal surplus. Yep. Not a 6% deficit.
Speaker 2I think that's the last time there was a surplus, right?
Speaker 1Right. And so now you've got, you know, it just came out last week, Google went cashless. It went cash flow negative, first time in its history. So you've got all these guys competing. They'd be competing more to borrow more money to keep things going. At the same time, U.S. deficit would be blowing out three. So you're going to have a, if the AI thing unwinds, you are going to have a recession and a stock market event where you're going to have a weak dollar. Probably not initially. Dollar will strengthen initially. So let me do it in order. You're going to have a very big stock market problem. You're going to have a recession. You're going to have a rise in unemployment. You're going to have a significant rise in interest rates in a recession, which no American alive has really seen since probably the 70s. And even then, it won't be, it'll be much more emerging market like, which the 70s was a sort of. So I guess that's probably the last time anyone would have seen it, right? But if you were 30 in 1974, you're 82 now. Yeah. Right? Not a lot of them around. Not a lot of people will have seen this. And oh, by the way, the rise in rates will then force. And that's where I think, you know, I think the dollar rises on that initially. But there, go back to Warsh. We started. What did he say? I'm not going to let the market set the price for treasury bonds in a crisis. Okay. What are you going to do? Check to you, buddy. And it might be as little as a 25 basis point hype that could trigger all this. But I think they are absolutely aware of it and concerned about it. And I think the Chinese are too. So now you go to the game theory. You're China. And you got a lot of tough guys saying we're going to choke off China's oil. What are they going to do about it? Oh, look, China didn't put troops on the ground anywhere in the Middle East to fight us. What are they going to do about it? Oh, we just seized Venezuela. China didn't do anything about it. They're crap. Knowing the Chinese mentality, which is turn the other cheek and wait and then do something very subtle. I'm like, oh, I'm so sorry. What happened? What happened to open AI? Oh, yeah, I think it's exactly what they're doing. It's what I would do if I was them.
Speaker 2But it's hard to know what they could even do to protect it. Because I mean, back to the question, is this 2001 or 2008? It sounds like it has sprinklings of both. Yeah. And and the problem is, like, if they do start to roll over and the growth slows, like, sure, Walsh can, you know, drop rates and he can start buying his own bonds. But like, does that get into the markets that he needs them to get into? Like, how do you protect it?
Speaker 1Well, this is why the Iran war was so dumb. If you're actually a multilevel thinker, you know, the people that are like, oh, this was such a good idea. No, it wasn't. If you're if you're if you can hold one thought in your head at one time. Yeah, it was a great idea. Because now where's oil? We started this little adventure. Ten year treasury yields are three point nine five percent. Oil was fifty five, sixty five, sixty two. Now this thing comes unwound. Yeah, this thing comes unwound. Walsh can Walsh can really aggressively. Cut. What's oil going to do? It goes seventy five because you're in a recession down. Great.
Speaker 2You start an oil from a standpoint of eighty five bucks. I see what you're saying. And I know you've said a number of times like oil. One hundred twenty. I think it was is like game over really for the economy.
Speaker 1It will. It is. But even more like we've been very, you know, written it many times over the last four or five years that. Sixty to eighty oil is fine. Oil gets eighty five. The treasury market starts having problems. In fiscal dominance. We've seen this over and over and over. And is it at the moment? Oh, absolutely. I mean, the move index is down at fifty, but rates are at four, seven, right? Four, six, four, seven. Got the four, seven war off back to four, six. We're back out. Right. So that is the that's another tricky part of all this oil is at a price where what do you do if you're Walsh, if you start to A.I. need support. Some of its competitors. There's not a lot you can do. The financing side of it is going to be having a problem. Stocks are heading down. Meanwhile, you got the war going on. And so there, yeah, there's some element of downward pressure on oil. But ultimately, what do you think the Chinese are going to do? Right. They ran down all their oil. They ran down some unknown amount of a very large oil. SPR is the accurate way to say that. So say oil goes from eighty five to seven. Seventy. What do you think the Chinese would be doing? Put it right there, guys. Yeah. So oil is not going to come down that much, if at all, when Walsh is going to have to be printing money to figure this thing out. It was just an unnecessary complication that Iran war was relative to all this other stuff that was happening to the exclusion of everything else. Right. It was just it was hubris to think, well, if we do this, there's not going to be any fallout and to only think of retaliation in terms of boots on the ground or bombs or this or that. There's. Wait. Right. What did what did what did Besson say in his Q&A three weeks ago? Bond markets have taken down more governments than howitzers. He gets it. He gets it. Even if I don't think he has the ability to kind of say, hey, guys, the Iran war, let's not like I don't think that was his call.
Speaker 2Is it possible? This might be a silly question, but is it possible to think they might be as avert as doing money printing and actually stepping in to the stock market and do and keeping and propping up strategic markets?
Speaker 1Well, they're kind of already been doing that right when you're when you're making investments and just here, too. It's it's this this dichotomy of this to two faced, you know, the yin and yang of it. On some level, you need to do that. Right. I mean, that's what we're talking about. Hamiltonian economics is protecting your domestic industry that you've that you've been allowing to be hollowed out. So on some level, you need to. But you don't want to do it because in an. Emergency, you want to be strategic about it. This will be the antithesis of strategic. Yeah, it'll be because you're trying to put out a fire. So, yeah, I. They stepped in it, right?
Speaker 2It's it's there's almost like an ideological problem with some of this in that, like America is about supposedly about free markets and it feels like to beat China becoming more like China. It's it's a mistake. But are you saying you think that's what they're going to have to do?
Speaker 1I think the first step is admitting we don't have free markets. OK, you can't sit there and say, you know, we we can't do these policies because we need to have free markets when you have the Fed chair saying I will only allow a free market and Treasury bonds when I like the price, when the rate is not at a level that doesn't bankrupt my government. That is not a free market. And he said it last week to Congress. He stood up. He stood up and said, America does not have free markets. He just used words that, you know, because everyone's still enamored of him, you know, give it a give it a couple of years. He's going to be Powell. That to me is the first step you have to take. Like, let's be honest. What free markets? What was free about away? What was free about covid? What was right? So we need to actually decide, hey. These industries have strategic value beyond I can make money on it this quick. quarter. And that's the challenge, right? The Apple Micron example before. Micron's minting money. Stock's outperforming Apple. Memory prices are soaring. It's a commodity. It's no different than if coal prices or oil prices soar. And Apple doesn't like it. Where's Apple's margins relative to all time? So it's a mindset. You need to have the upper shape of the K, the upper leg of the K, both in corporate and as individuals, say, here's where I want my country to be. In 10 years, 15 years, we can be ripping each other apart, or the bottom half will have starved. One way or metaphorically or literally, and I won't have to deal with it because I will be in a walled garden of my own construction. Or I want my country to be thriving. And to get there, I need to take lower margins. And I need to somehow sell that to my shareholders with a K Schiller PE at 42, pricing no margin, nothing but margin expansion forevermore because unicorns, rainbows, and Skittles for everybody. That's the issue. That's the decision. And I see it from some people. I don't see it from others. And I definitely don't see agreement about it. And the challenge is that's not the mainstream discussion. It would be much more encouraging to me if that was the discussion we were having as a society. But instead, it's what's a boy? Can I date a tree? Can I wear a furry tail to class like some of the kids at university? With my kids, like, okay. Great, right? That's more Weimar vibes of like, you know.
Speaker 2I mean, that's insane. Your words, not mine. Is this like an existential threat to the US as a global superpower?
Speaker 1Oh, yeah. Absolutely. It already is. I mean, look at the headlines this weekend. We don't have the missiles. We don't have the air defense missiles. And so, right? So, we are the global superpower whose most powerful military in the history of the world ultimately backs the dollar along with the 13 aircraft carrier battle groups that we have, right? How often have we heard that? Except when the missiles started, those carriers in the Gulf went 1,000 kilometers further away because they knew what would happen if they stayed too close or could happen. We ran out of air defense missiles. Our naval base, we ran out of air defense missiles. Bahrain got trashed. We evacuated many of our people from the Middle East. Russians were helping target our guys, helping the Iranians target our guys. We can only go to war when the markets are closed and when the 10-year treasury yield is below 4.7%. So, we are still the global hegemon as terms and conditions apply. You want the guy at the end of it. We're still the global hegemon as long as the 10-year yield is below 4.7%, as long as the S&P is not down more than 5%, as long as oil is below 85%, as long as it's a weekend, and as long as we have enough Patriot missiles, which we are currently on backlog for two years. Talk to your
Speaker 2representative for further conditions. With those caveats, then, is it already over?
Speaker 1It's already in the state of change. We can always come back. We can always come back. Look, I agree with Warren Buffett. Hey, for 250 years, it's been a bad idea to bet against America. What I never hear Americans still say yet is that I bet you in 1850, there were people saying in Mandarin, "For 1,500 years, it's been a bad idea to bet against China." And yet, eventually, they made enough stupid decisions and had enough outside forces, one of which is a widespread opium addiction? Hmm. You know? You know? They have a... Name for it in certain areas around here. It's called Fentwalk. I don't know if you ever heard the phrase Fentwalk?
Speaker 2No, not Fent... Is this where people drooped over? Correct. Yeah.
Speaker 1Yeah. We could take you to areas where there's Fentwalk around here. So it's not over yet. But it's getting later innings, where we need to be having the discussion of, do I, as a Plutarch of this... Not I. I, metaphorically, not I, but I, metaphorically, not I, specifically, as a Plutarch, as a CEO of a multinational, as one of the wealthiest people in this country, as a member of the upper shape of the K, where do I want my country to be in 10 years, 20 years? And there's other warning signs about it. I have a friend of mine who has the monopoly contract, right? So he's the only provider for the medical examiner pickups in two major second tier US cities. And what that means, in plain English, is anybody who gets murdered, commits suicide, overdoses, accidental or otherwise, or suffers an accident, dies in an accident, he picks up. He's the only contract, right? So he's the only provider for the medical examiner pickups. He's the only one who gets his companies. And he said something a couple of weeks ago, he goes, "Man, we have never been this busy. We are busier now than we were at the depths of the COVID, when people in this country were killing themselves, overdosing themselves, drinking themselves to death when they were locked down." Wow. Bleak. Very bleak, right? So there's something happening, right, where in the context of this K discussion, that we need to be having, and look, maybe that's the plan. Maybe that's the plan for the upper half of the K, at least the ones that are controlling the strings, which is build a wall and just let
Speaker 2those ones overdose and kill themselves. It's the permanent underclass. And we spoke about this in Nashville. It's the economy of despair. If AI does end up replacing a number of jobs, what do you think is going to happen to those numbers? Bullish on his company in a horrible
Speaker 1way. It's enormous. It's enormous. I mean, there's actually a shortage of funeral directors in the state of Ohio right now. Do you know that? And a number of other states. Some of it's an age thing. There's very few young ones. But it's so much so that they are able to-- they've changed the rules. Before, you had to have at least an undergrad degree, and then you would have to go to mortuary school for two years. Or you could go right to mortuary school. Or you could get a degree and be an apprentice under an established senior funeral director for two years after your degree. They're in such dire straits, they actually have changed the rules so that as long as you will be done with your undergraduate degree by the time you are done-- by the time your apprenticeship is done, wait a minute. I mean, these are depressing signs. It is a-- it is a sign. It's just-- it's-- like, death's a part of life, right? Like Forrest Gump's mom said. So I think some of it is around how you feel about that for when they're young people. Yeah, it's horrible. And some of it is a demographic, right? Wherever the boomers have been, you cater to the boomers and you do well, right? And wherever they've been in their lifespan, right? When they went into the workforce, number of workforce went up, and then-- Yeah. you know, inflation picked up, when they're buying houses, when they-- you know, vacation houses, vacations, whatever. And what are the boomers doing now? Like, if you do high-end service, right? So pools, landscaping, high-end service and death care, boom. Some of it's just boomer. Some of it's just demographic. So I don't want to make you think it's all opiate and stuff related. But there is some signal there around a warning sign of this discussion we need to be, we should be having, of where we want to be. And that's where I think, look, I do think the Chinese do that better than us, right? People say, oh, China's housing is in the trash, yeah, or in the tank. It is. And Xi came out and said, houses are for living for, not for speculating. And that was like the absolute peak. Like, they basically went in the-- like, they tanked their own housing market. Why? Because then the capital flowed into investing. That was a plan. Now, that has its own offshoots, right? That's going to weigh on profitability of firms in that you've got to compete. Wait, high degrees of compete? Isn't that capitalist? It certainly sounds like it. Oh, interesting. But I think they have the structure, luxury, culture, history, ability to say, look, we would like to not be in a revolution in 10 years. And a good way to contribute to that, especially with AI taking jobs in our country and everywhere, is to jack the price of housing to the moon. So not only do young people not have jobs, but they can't afford houses, and their health care is up, and they're edu-- like, that's how you end up with Mamdani. You're going to end up with a Mamdani in every country in the city in this-- so like, what do you want?
Speaker 2So it's almost like the perverse incentives of crony capitalism. I think that's exactly
Speaker 1right. Once upon a time in this country, I think it was Nixon who said, hey, these guys are too big to fail. Nixon said, well, tell them to get smaller. Perfect response. Perfect response. Get smaller. Oh, wait, it was a very simple response. Break up the big banks, send the ones that committed crimes to jail, wipe out the equity, let the bondholders take over the company. Why
Speaker 2didn't we do that? Crony capitalism. And if the government in some form step in and try and protect these AI companies, that's maybe the most egregious form of crony capitalism.
Speaker 1Yeah. And it's, you know, it's going to, I've had people say it's going to be like the Soviet Union, right? Like I have a friend who lived in East Germany. He's like, that's, you know, you guys let markets work and you get all nice stuff. And, you know, we didn't, and we had all the crappy stuff. And so we're going to have, you know, expensive, crappier EVs and expensive, crappier solar panels and expensive, crappier electronic stuff. And the China, like there's electronics that I've had people show me over there. We don't even have access to way more than BYD cars. Like, I'm like, wait, what? And that's what happens. So it's, it's, it's a time to be asking what we want and where we want to be. And it's a time not to be using black and white labels, right? Right. Like Chinese are doing some very capitalist things and the Americans have done some very communist socialist things for certain classes of people, right? It's like animal farms. Some animals have been more equal than other animals and that's fine, but. You know, when you end up, you know, when you take a road somewhere, don't be surprised when you get to your destination.
Speaker 2So what should, like, if people are listening to this, what's the actionable advice? What should people be doing to prepare for this? Like, I agree we should do everything we can to try and change course, but assuming you follow the incentives and maybe that course is not going to be changed, like how do you protect yourself from this?
Speaker 1Look, I think it's about simultaneous protection and optimism, right? There's, there's, there's a yin and the yang to this. This can go really well. This can go really badly. And so, you know, it's a constant, you know, there are certain facets that are in place already there. It's going to be, makes it harder for it to go flawlessly, but there's going to be winners and losers at all times. So look, we're not going to be able to reshore fast enough. It's not going to happen. Okay. Well guess who's going to get a lot of that business? Japan. Okay. Well tell me about Japanese industrial equities. Okay. Electrical, you know, is, is we're going to reshore of something, you know, some degree we're going to have more electricity. It's easy because we, as a country, we're going to have more electricity. We're going to have more electricity. As a country, we have not grown our electric grid in 20 years. It's astonishing. It tells you a lot of the GDP growth is inflation. Fiction. Yeah. Fugazi. Great. Electrical infrastructure equities. We're going to devalue the currency. There's like, you know, unless we come up with some new math, that's going to happen. Great. Be overweight gold. I think, you know, look, if you have a long-term view, you should probably be buying Bitcoin now. I, you know, like I said, I'm probably being too cute. I think, you know, I'm probably being too cute. I think, you know, I'm probably being too cheap. I still do. I still have probably a three, 4% position in Bitcoin and Bitcoin related stuff. Right. So it's, I'm not, I'm not flying, you know, fully out. I'm not, I'm not, yeah, I'm not short. I'm just underweight. What I think, because I think ultimately they are going to have to get much more aggressive and much more obvious about devaluing printing. And I, Bitcoin has demonstrated an ability to be the fastest horse relative to, you know, I don't like playing any alt coins, anything like that. I just, you know, that's, that's my limit, right. Of,
Speaker 2of when, when the tide does turn and you're ready to get back into Bitcoin in a bigger way, what is your sort of ideal allocation?
Speaker 1So the last time I was probably 10, 15% and at the highs, it was like 47, 48%. Yeah. It was, it was, it was so big. It was occupying way too much of my mind space. And so, no such thing, like for me. So exactly. There's a lot of maxis out there going, see, that's why I hate him. No such thing. Um, no, it's the same Nixon thing. Get smaller, right? Yeah. Tell him to get smaller, get smaller. So I got smaller. Um, but I, to answer the question, I think some of it depends on events, but look, I don't see any reason why I wouldn't want to be at least 25% of the time. I don't see any reason why I wouldn't want to be at least 25% of the time. I don't see any reason why I wouldn't want to be at least 25% gold and Bitcoin over the next five years on average aggregate. And I think it's very dependent. Look, I think you always want to have some gold. I think how you structure that is dependent on your age because fact Bitcoin's way more volatile than gold. Yep. In the last two years, when you adjust, when you vol adjust the returns, gold is much more volatile than gold. And so I think it's very dependent on your age. attractive. That should change when they print, whenever that is again, but that's something I'll be watching for. If Bitcoin and gold, if Bitcoin only gives me, you know, 50, you know, every percent gold goes up, Bitcoin goes up 150 basis points. That tells me, great. I want to be a little bigger, but that doesn't tell me go way bigger gold to get to me where it was. That just tells me something's changing. A number of things that could be, uh, but I, I, I think I still really like, especially if, I mean, for myself, I generally run with this, but for the average investor out there, 25% cash, 25% gold, Bitcoin, 25% real estate, 25% equities. And I think each of those, you know, Bitcoin I'm over that now, golden Bitcoin, I'm slightly under that cash. I, in, I think the important thing is I sort of, I don't want to lay out some of these just sort of stream of conscience, the things we've talked about. It's not doom or not doom, right? The, the optimists, you know, come, you know, the, the, the pessimist complains about the wind, the optimist expects it to change. The realist changes, you know, adjust the sales. Yeah. And so it's just that you, when you've got, if you're laid out like that, the Jacob Fugger portfolio at 25, 25, 25, 25%. It's easier to adjust the sales. Um, nothing is going to kill you, right? You're, you are, from a financial standpoint, you make yourself very hard to kill. Hyperinflation doesn't kill you. Hyperdeflation doesn't kill you. Okay. If those two things don't kill you, then like you're in a good spot. You're in a good spot. And, and the reason I lay all that out before with some of which is depressing is you don't hear about this stuff a lot. And I learned 30 years ago in this business, if you talk about the same stuff that everybody else talks about, your kids aren't going to eat. It's a fact, right? I mean, straight commission my whole career. If I was the 30th guy calling a big hedge fund in New York to tell them about target earnings in 19, you know, 1998, my kids would have starved to death. My kids aren't ever going to starve to death. So it's important to look at things differently than everybody else. And I do that, I think most of the time, and at least a lot of the time. And so some of this stuff might be depressing, but it also is happening. It's also reality. And, you know, you can't ignore the consequences of ignoring reality. And there's such a wide array of things that could happen. It ties back to the allocation of like, okay, where do I want to be? Look at like 45% Bitcoin. Like for me, that's a lot. Like I'm 51 year old man.
Speaker 2You don't want to hit mine.
Speaker 1You're a younger man than me. So you're, you're younger. And, and, and the other thing too, is understanding. You understand Bitcoin better than me. Like if I, position sizing is one of the things that's a critical input is, is your understanding of it. I understand it well enough. Like you could have a thousand people sitting in this seat that I would dare not talk about Bitcoin with because they, they've forgotten more than I know. And it's probably more than a thousand and I'm okay with that. That's ultimately just a position sizing thing, right? That is a, I'm at 45%. I'm up big. Okay. I, I'm going to get smaller. I either need to learn a lot more or I need to get smaller. And if I need to learn a lot more, I got to go all Bitcoin all the time. And I didn't want to do that. Not for any reason other than it's not where my interests are. And that's, so it's just, it's just a decision. So yeah, that's what I mean about like, like some of it's your age, right? Like you get older, you can't take the vol or you don't want to take the vol. Some of it's your understanding. Some, some of it's your, like some of us, you get people here and I'd be happy to have debates with those people. They'd look at some of the things I'm that's fair. Like there's, there's two ways of, of looking at a lot of the things I'm describing. You know, we'll see. That's what, that's what, that's what markets are supposed to do ultimately, right? Is who's right, who's wrong, or who's, who's review of what's happening more accurate or not relative to what was expected, which is, which is the other thing, right? Where are expectations, right? And that's pretty easy to tell the Bitcoin community.
Speaker 2Yes. A hundred percent. I think the thing we'd probably both agree on is zero is the wrong percentage.
Speaker 1Zero is the wrong percentage. And like, someone asked me like, when you sold, did you know you were going to be right? I'm like, yeah. They're like, how? I said, because one of the advantages of having a big X account is having a thousand randos get on and mother F you all day, every day, when it goes public that you sold. This is like, if that's the reaction, knowing what I think I know, I'm going to be fine. I'm not going to, I'm not going to have to buy it back at, you know, whatever. Now sentiment is changing. question. quite a bit, right? We got sailors selling Bitcoin. We got a lot of Bitcoin treasury companies being forced to sell. These things get me interested. There's a lot of bottom signals right now. Yes. This is where, this is where I, you know, like there's not blood in the water, but there's, you know, there's a few split lips. Yeah. And okay. Now I'm, that's what I say. I might be being too cute. Like we might sit down and we'll have another conversation, you know, when it, whatever, and six, 12 months and now Luke, you got too cute. I'd be like, that's okay. Like, well, it seems certain you're not going to buy back higher. It depends on, and it depends on events. Like that's the thing is, is one of my mentors, one of my mentors long time ago, he said, Luke, I've never seen someone change their mind as fast as you. Like I go back to when I, when I, you know, I had already for a long time, I always own Bitcoin. I've owned Bitcoin since 2013, a little bit, not nearly enough. I know. And in 2020, you know, I ran up 2017 crash back down. It's like, okay. Right. They launched futures. And I was like, I mean, you can find my old tweets. It was like, Hey, having been experienced in gold Bitcoiners, I know you're excited about futures being launched, but this isn't a good thing for you guys. I was so excited then. And that was like marked the absolute top. And sure enough, it was like, right. So, and I thought, okay, that was it. It was a bubble. I've seen this before. I saw this with golden 11. I saw this with, you know, I saw this with, you know, I saw this Nasdaq. I saw this. I saw it. And then 20, 2019 picks up and whatever. Okay. 2020, it takes off back through 20,000, like a hot knife through butter. And I looked at my wife, I go, this is, this wasn't a bubble. This is a currency thing. We are like, I'm totally wrong. And I am buying everything back. And then some, even though I'd sold a bunch of, you know, whatever I had bought and traded around. Right. So I'd bought a bunch of and sold a bunch like 10, 12 price old summit, 14 or something, whatever. Yeah. And I was like, I'm wrong. And I bought way more than I ever did. 20, 21, 24, 26, 30. And, you know, I sold a bunch really well at like 52 and I started buying some back at like 60, 50, 40, 30. And I bought a ton under 30 and a ton under 20. So like I, if, if, if, if facts change, I will change my mind so fast, so fast. Uh, facts as I interpret them, they should be facts, but you know, the, the, the fundamentals as I see them and something, and I say that because there's, there's sentiment, there's what have you. Right. And there's multi, this is a multi, uh, pronged thing. Look, if sentiment completely gets wiped out, if, and there's a lot of different ways that can happen. Great price price. There's numbers in my mind where if it were traded there, I would be a big buyer almost without question. Um, you know, with the asterisk of like, Hey, as long as it wasn't like, you know, some crazy, you know, of course, right. Quantum is broken all of it. Right. Then, then no, but I don't think it's going to happen. Um, anyway, that's, that's, I'm trying to just kind of share the thought process of just like, this is what's going on up here. Basically every waking
Speaker 2moment of my life. I love it. I'm excited for when you buy back Luke. Um, we've talked about a lot there. Is there anything we didn't talk about that you wanted to cover?
Speaker 1No, I think, I think that covers it.
Speaker 2It's been awesome. Thank you for having me. Thank you. You made me come out to Cleveland and it's been nice. I've not been here very long, but it's been good.
Speaker 1Thank you for insisting. It's a beautiful place. It is the nice weather capital of the world for about another 12 hours. No, it's beautiful this time of year. It's Cleveland's great May to October. And then after October, we get into the winter stuff and there's, you know, if you said, Hey, can I come see you in February? I'd be like, no, don't, don't, don't do it to yourself. Don't. Yeah. You just, it's, it's like, it's like nuclear winter. It's gray. It's cold. No fun.
Speaker 2Well, I appreciate you. Thank you for doing this. Uh, always better to do in person.
Speaker 1Oh, thanks. Thanks for, uh, thanks for having me.
Speaker 2All right. I'll, uh, I'll put the newsletter in the show notes. It's one of the ones that I'd never miss. Um, thank you. I appreciate you, Luke. Thank you. Absolutely. Thank you. Bye.
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