Speaker 1When does the debt matter? My answer is it has been mattering. The Fed's tools are just not geared toward this type of inflation. Being bearish on stocks basically means you're bullish on fiat. I write sci-fi because it feels more normal than reality.
Speaker 2Hey, Lynn, great to see you. Thanks so much for joining us today. Thanks for having me. Happy to be here. Part of your core thesis right now is that commodities and scarce assets are in a bull market or the place to be.
Speaker 1Yeah, I think so. I've been bullish on gold. That's somewhat separate from commodities because that's more of a competing store of value with the treasury primarily. But I think that bull market got ahead of its skis for a period of time, but I think it's still over the longer term on track. I think silver is a long-term beneficiary from these trends, potentially platinum, copper, and I'm a long-term energy bull. And also just energy assets, even just assets that transfer energy, for example, I think are going to be in demand for a very long period of time. I invest in places like Brazil, for example, and sometimes it's not even a commodity trade. It's like one of the best, like my favorite trade in Brazil has been owning their biggest bank and it outperforms the index. And so there's kind of associated ways to kind of be adjacent to that whole trend. But it's the idea that capital was primarily going to like non-resource things, and now it is going toward resource things, and there's a broad way of playing it. And I do think that that need will exist for a long period of time.
Speaker 2We asked the experts closest to the real economy to make sense of it. The people who build, mine, and power real assets and put their own capital behind them. Then we connect the dots and tell you what it means for your money. Wealthion. So let's talk about that macroeconomic benefit. So we have CPI, PPI readings coming out. I mean, we've been above the Fed's target rate for like 66 months, right? Should the Fed officially abandon this? Like, what is the new norm for inflation? How are you thinking about that?
Speaker 1I don't think they should abandon it, but I think the challenge is that the Fed's tools are just not geared toward this type of inflation. And so, I mean, the point that I've made a lot in macro is that we're in fiscal dominance now, not monetary dominance. And basically what that means is so the Fed's primary tools. So the Fed's primary tools, especially interest rates, but also to some extent the balance sheet, are meant to encourage more bank lending or discourage bank lending and make it tighter. So, I mean, the obvious example is if interest rates get super high, fewer people are likely going to, you know, take out a really big mortgage and overpay for the next house, right? They're going to be more conservative with their housing decisions. And also that just throughout the economy, that'll trickle out in various ways. So their tools are primarily single cash. Okay, if things are running hot, if a lot of fractions are bank lendings happening, inflation is above target, let's try to slow down that bank lending and that broad money creation or vice versa. If you're in kind of a stagnation, they, in theory, they try to lower rates and say, go borrow more, go take out that bigger mortgage, buy that bigger house, which will take more resources and labor, you know, and do all that. And that can be effective in, for example, Paul Volcker's era where bank lending was. That was the key driver of the rate of money supply growth. It works far less when fiscal deficits are a bigger source of kind of just new money entering the economy than bank lending. And we've actually kind of reached a phase where annual deficits, so basically the amount of net new treasuries created in a given 12-month period is now bigger than the sum of net new bank loans and net new corporate bond issuance. And so the Fed can kind of focus all they want on trying to slow down that bank lending channel, but it's a smaller factor than the deficits. And then, ironically, higher rates makes the deficits higher now. So it actually, in some ways, like every time the Fed raises rates, I get a raise. Like any investor that has as much cash as like, you know, if you have a locked in mortgage, you've got a money market fund, you get a raise every time the Fed raises interest rates. Even at Orange Juice. When we raised our capital, you know, it's in interest-bearing like fiat, and we actually get, the Fed gave us a raise on a pretty large pool of capital, which actually slightly allows us to go out and buy slightly more companies or hire slightly more people around the margins, obviously. And so interest rates, when you're at 100% of debt to GDP, and the problem is more that deficit than the bank lending, they're just kind of solving a different problem. And so it's not. It's not that I would say, okay, here's what the Fed should do. It's more just like, how should they communicate that it's not really their purview in some sense. And yet the whole structure of a central bank is designed around the idea that they can solve this. And it's just, it's kind of an illusion that we have that we've created for ourselves, which is just kind of ultimately not the case.
Speaker 2Yeah, it's a sort of, you know, 800 pound gorilla that no one seems to be able to say anything about, whether it's the Fed or. Treasury, but you have this other narrative. And again, this goes back to what people hear that. And we've got the president up every day saying when the midterms are over, the war is going to be over. Fuel prices are going to go down. Inflation is going to be solved. The affordability crisis will will sort of, you know, improve drastically. And there are a lot of people. And sometimes when you look at the markets, it looks like they're pricing for the end of the war. And we're going to get the energy shock to go away. And, you know, inflation will will sort of reign back in. But you're saying this is all coming. This is all coming from fiscal. So that that is not the case. We are not we might get energy prices lower, but that will that do anything to to resolve the inflation problem?
Speaker 1I mean, it'll do some. I mean, there's always more factors involved. For example, in the 70s, there was that combination of high levels of bank lending and then crisis in the Middle East, which gave us a real world constraint. And likewise, now, on one hand, we have the fiscal dominance that the fiscal deficits that are structural and then we have real world constraints. And right now, one of the biggest ones is energy and more specifically refined products. And so it is absolutely true that if, you know, if the war is over and if refineries stop being hit and all the all the transportation bottlenecks ease, that will contribute to lower energy prices, which then can contribute to mildly lower inflation. That that part is true. The problem is that's that's one factor among many. We already know we already had a two speed economy or K shaped economy and above target inflation. Before the war, this just kind of added, you know, the next layer of it from what otherwise might have slowly kind of not necessarily go down, but just kind of stop getting worse for a period of time as they got got mildly worse for a period of time. And so it's a factor. I mean, policies matter to say, you know, wars matter. But the other factors is that that fiscal side. And then, of course, even things like just A.I., when you're trying to you know, you're building out power, you're building you're using these resources. It takes away from, for example, building new homes, which makes it harder for home prices to go down despite higher rates. And so a lot of these factors come together. But a lot of it is still driven by that fiscal side, which is not going to be addressed in any sort of investable time horizon.
Speaker 2Yeah. And, you know, that's a lot of folks will say, you know, Besson's got his back up against the wall. What do you make of he's been appointing some interesting counselors to Treasury. Judy Shelton's one of them. You sort of known sound money, gold person. And there's it's fueled a lot of speculation that maybe Treasury's planning some sort of huge policy move to kind of try to address these high rates, high debt levels that that just stretch out and seem to be kind of unsolvable. Maybe revaluing revaluing U.S. gold holdings. Do you give any merit to that? Have you thought about that?
Speaker 1I mean, I think it's worth monitoring what reviving gold holdings is kind of like one of the break the glass mechanisms that they have. Where it's one of the few ways where you can you can create like the government can create new money without creating an associated amount of debt. So if they if they increase the official holdings of gold, it basically fills up their Treasury general account with cash, which they can then spend, which is kind of interesting effect in the economy. Now, that would be inflationary. That would be a very pro liquidity move. So if the intention is to weaken the dollar, for example, that that's a mechanism that they have. But they have to balance that with the concerns around inflation because that that weakens people's wages, that weakens a lot of things like that. So the problem is when when when we're this far along into the dollar system, into debts and things like that, all these decisions have tradeoffs. And there's some that might be better than others, but they all kind of in some ways screw one group and benefit another group. And so they have to kind of do a calculation to say in our term, is this? Is this a lever we want to pull hard or do you want to kick it to the next people to maybe consider doing that move?
Speaker 2And even though kick the can is really popular in Washington, you do have Besson who's. You know, everyone's thinking about legacy and one would think based on recent comments, he cares a lot about that. And you just had Hank Paulson say, like, this is a break the glass moment. Right. So there there is some support, perhaps for some sort of extraordinary measure. Who gets to go? Who who get who wins and and who suffers in the immediate? Aftermath of that, I mean, if you hold gold, are you super happy if they do that and. And who comes out on the losing end of that? The average worker?
Speaker 1I think it's more complicated than that. So if they revalue gold, they're basically just, it's mostly an accounting trick at first. So they're not necessarily changing the price of gold relative to oil or gold relative to houses or things like that. They're saying that the official bookkeeping for what the treasury holds their gold at is, you know, instead of, you know, 40 something an ounce, it'll be the current price, call it, you know, 4,000 something an ounce. And that basically fills up their treasury general account, which means they're able to then spend without issuing bonds to spend, at least until they use up that amount. And in theory, I mean, they could revalue gold even higher and give themselves even more cash. And the more they do that, the more that money flows out into the economy, which then can find itself into assets like gold, for example. So it can influence the gold price. It would be a shock. Generally shocking. Shocks around that nature are likely to lead people to buy something like gold. So I think as a gold holder, I certainly wouldn't mind that day. Same thing for equity holders or Bitcoin holders or kind of scarce asset holders in general probably would find that day interesting. But because you're creating more fiat that is spendable without debt issuance, you are, you know, that is like a surge for inflation to some extent. Or it's a surge. It's a surge in money creation. It'd be comparable to some of the post-COVID or during COVID stimulus that they did. And of course, it depends on magnitude where it can feel good in the moment. But then your wages have trouble keeping up years later. So in general, that would be probably good for asset holders and probably bad for wage holders. But that has to be tied with what they're doing in terms of fiscal policy. For example, if they're doing policies that are beneficial to wage earners. Then you could offset that in theory. So it's kind of the full mix of policies rather than any one policy.
Speaker 2Yeah. And again, I'm going to venture a guess that that's where people get concerned. Like how well has this been thought out and are they using that opportunity wisely since it's going to come with costs? I mean, I think that's where we have to take a really hard look when it comes to AI itself. Another big risk I hear people talking about is and, you know, there are sort of pieces circulating on this is that, you know, we're facing this. This reckoning coming, you mentioned before about the capital, you know, the inflationary impact of all of the capital that's being spent in the build out the data centers. And there's a lot of concern that that there's going to be a reckoning when it comes the way the AI companies have accounted for sales and that some of the obligations, the economic obligations that are not showing up as debt, but they're kind of these contractual obligations, sort of the outstanding rival or greater than subprime. I mean, I think there's a lot of concern that that there's going to be that there's going to be a kind of subprime crisis, that there's this reset, except it's not mortgages, it's these contracts when it actually comes to delivery. Is that something that you concern about or are concerned about in terms of systemic risk?
Speaker 1Longer term, potentially. I don't think we're there yet. I think the people are right to bring that up. I just think we're still kind of in early to mid innings of this. And generally speaking, things that are that are less so in the banking system tend to be less catastrophic than something like subprime. And so I wouldn't put it quite in that camp. But it is true that, for example, the hyperscalers are taking on increasing lease obligations, because if you're building it, if you're doing all this capex for a data center, you're looking for a client that's willing to sign a very long term lease. And so that's all happening. And then you have even some of the semiconductor companies have kind of incestuous financing where it's like vendor financing. They'll like help funds. They'll be raised to build out data centers and buy chips. And they'll backstop some of that as the chip maker. Right. So you get kind of a circular complexity there. And then, of course, a lot of venture capital went into the the the the models themselves, OpenAI, Anthropic, and and they're being kind of chased by the open weight models. It's very hard to justify a trillion or two trillion dollar valuation when you're aggressively unprofitable and you're only months ahead of of like you're kind of your closest copiers. And so I do think a lot of this will run into a pretty big drawdown at certain points. But I think we're still we're still in the build out phase and we still have massive bottlenecks and semiconductors. We still have a key thing I watch is just kind of like our business spending more on AI or less than they were months ago. And we always see the occasional headline like, you know, this business. It's been so much they're pulling back and, you know, they were spending so much and now they're putting more safeguards in and those keep happening. And yet the overall spend keeps going up because we're kind of, again, my earlier point when a new technology unlocks is like a kind of a zero to one moment where everyone has to kind of get from not using it to some some baseline of using it. And there are tons of studies that show, for example, that just companies that are just higher adopters of AI tend to be winning and taking market share versus ones in their field that are not. And ironically, tend to increase headcount because you have you have this idea that it's like a zero sum. Like if you use AI, it means you're firing your employees. Sometimes it means that you're making each of your employees just do twice as much effectiveness with their time. And so your company is able to run on better margins and better pricing. And so you take market share from competitors and you can actually grow headcount despite using more AI. So I still think that this has room to run, even though like on any given thing. I think it's brought up, you know, the vendor financing, the massive AI capex, the shifting things from the corporate bond side to lease obligations, questions around depreciation. Like, you know, what is the what is the true useful life of a leading edge GPU, for example? These are all very valid questions. And I think it'll probably take more time before we kind of run into a little bit of a reckoning about them.
Speaker 2Everything we do on this channel has one goal to make you a sharper, better informed investor, someone who understands. The macro forces shaping your money before the mainstream catches on. But information is only half of it. The other half is acting on it. And that's what wealthy on membership is for. It's how you go from watching these conversations to putting them to work in your own portfolio. Membership opens three doors, access to advisors, helping build real assets into your portfolio. And for accredited investors, access to specialized funds. To learn more, the link to become a member is in the description box below. Commodities have been the safe way to play the AI trade for a lot of people or the desired way to play it. Given some of the some of the questions, if AI slows down, does that kill the demand for commodities? How much of that trade is related? They seem like they're opposite ends, right? Like the scarce real asset crowd is suspicious of the AI trade. And yet, are they connected in a way where that demand is what's fueling commodities?
Speaker 1I mean, I. I think the feeling part of commodities, I mean, like on the on the so on the margins, they matter in terms of just global commodity consumption. AI is still a very small share. Of course, certain commodities can be more in demand than others in a given area. What makes this different than, say, the 2010s Internet companies is they were they were very low on hardware. You know, they had to have data centers. But, you know, social media and search engines are not that computationally intensive. And it's more about. Basically, it's putting everything into mobile, you know, the cloud, pretty, pretty low physical costs, whereas now there are a lot there are a lot more physical costs. This type of computation is just inherently different, you know. And so I do think that the whole kind of structural need for compute does around the margins may mean we need more power. We need more just compute materials and things like that. So that's a real trade. But like total energy use is still primarily going, obviously, to not AI total commodity use like copper and things like that. I mean, it just in various types of construction is still a massive deal elsewhere. That's one thing I would consider. I mean, it's also just the increased kind of militarization of the world. You know, Europe spending more on defense. The U.S. Defense secretary asking for a one point five trillion dollar defense budget in the U.S. These things all have commodity implications as well. I mean, if you're if you're. Building more missiles, I mean, sadly, that is a source of commodity demand and then just other major factors. I mean, for example, the slowdown in China, kind of China reaching peak demographics is one of the biggest weights on commodities because they have all this oversupply, not just of buildings they've made, but also manufacturing output. So they can actually output more than they are currently without a ton of build out necessarily. So there's an overhang there. So there's like there's there's things that are. You know, AI is asking for more commodities and defense spending is asking for more commodities, whereas, like, say, China is asking for maybe not less, but like less growth of commodities, for example. And those have to be considered as competing things whenever whenever someone wants to have a macro argument for their commodity position.
Speaker 2I get this question a lot. I just got this in my inbox listening to you talk about gold and silver and the hard assets. And this was from from someone. I wonder. thoughts on this from someone called Peter. And he wrote, "I find it fascinating that just about every other financial podcast or has guests one after the other predicting doom and gloom for the stock market and gold is the savior. And yet markets continue to climb the wall of worry while gold struggles. Is this sensationalism to get the public to watch or listen, like what do you think is going on? And we get a version of that a lot. I wonder sort of when you're a bull on gold or hard assets, what do you say to folks like that who hear the argument, it makes sense to them, but they just watch that stock market and they're so conditioned to look at their 401 and equity positions and have a hard time kind of pulling away and think about diversifying out of it?
Speaker 1I say yes and, which is basically to say that one can be bullish on gold and stocks. And if one looks at the S&P 500 to gold, ratio, we are in kind of the fourth major bear market in stocks relative to gold over the past century, even though it's been pretty mild. So you can pick a point years ago and gold has outperformed stocks in that time. But of course, there are years where the opposite happens. And I mean, I like to own both assets. And this goes back to my whole kind of view on the fiscal dominance. And that's why I keep fading the equity bears. Which is to say, when we're running 7% of GDP deficits, as far as the eye can see, being bearish on stocks basically means you're bullish on fiat. Because you're seeing what stocks are going to go down versus the dollar. And certainly in a year, they can. I mean, that's the stocks are volatile. I mean, they went down in 2022, for example. They can get over their skis for a period of time. Gold can go down versus the dollar. I mean, when it goes from $2,000 to $5,000, it's going to be a lot of money. And I think that's a good thing. I think it's a good thing. And I think it's a good thing. As quickly as it did, as big of a market as it did, that needs time to take a breather. And so I do generally fade the doomer narratives of like, sell all your stocks, just own gold, the reckoning just around the corner. It's more like we're identifying that we're going to run in a hot environment, which has winners and losers. And generally speaking, hard assets have been the winners. So owning gold. Let's say since COVID. So for example, owning gold, owning Bitcoin, owning high quality equities, owning the best real estate with a fixed rate, like fiat debt attached to it. Those have all been generally good trades to do. And it's been one of the worst five or six year stretches to hold bonds. In our parents' and grandparents' lifetimes, it's been a massive bond bear market, both in nominal terms and especially in real terms. I think that the degree of that's probably over. I mean, when you go from almost zero rates to 5% on the 10-year, a lot of that move is over. But we're still in this kind of fiscal dominance phase, which does continue to some degree fueling equities. And so that's why I've been a long-term equity bull, despite raising concerns around various things. Because anyone who studies emerging markets, for example, when they're doing a lot of research, they're not going to be able to have a currency crisis. I mean, their stocks go up in their local currency terms. They might go down in dollar terms, they might go down in gold terms, but they're often going up in their local currency terms. So I've been a bull on equities and gold.
Speaker 2Yeah. Well said, because I think that in this sort of world of FinTwit, those people get in their tribes. And I think that's what makes it difficult when you're talking about diversification. By the way, Lynn puts a model portfolio up on her You're very transparent about it, which I think is awesome when you're explaining some of these things. You can see some of the areas that she's investing in. Profitable equities. In a digitized world where intelligence is going to be ubiquitous, what does a profitable moat look like? Is that still what we're looking for? Because it seems like it's hard to know now what that's going to be.
Speaker 1Well, good question. I mean, for example, the semiconductor companies are incredibly profitable. And the reason I put that there, and that's a phrase I've been using since like the 2010s, really. There's this long stretch of just owning unprofitable companies, because in a zero rate environment, people are saying, you know, I don't care when you have a profit, just focus everything on growth. There's the cost of capital is almost zero anyway. But now we live in a world where there is a cost of capital. Those kind of like unprofitable, grow at all costs things, that's not you optimize things anymore. That's not where I think most of the value add is. Instead, it's more like profitable growth. Obviously, there's I mean, in venture, for example, you know, we're investing in usually non profitable growth, because that's the whole point of a venture fund, you're getting scale before you profit. But in public markets, I generally want to see profitable companies, you know, if I want to get unprofitable, that's what I do venture for. I'll go into private markets. Whereas, you know, once a company is large enough to be public, I generally think that at least most of them should be optimizing toward being being profitable enterprises.
Speaker 2Yeah, balance sheets matter again. I just want to kind of finish up and reference back to that conversation, the conversations you've had with Jack Dorsey about open source. And, you know, in this kind of when we're looking at profit models and revenue, is there tension between equity investors, investors who want to benefit from profits, and walls and moats, and then sort of citizens who may be benefit from networks that are open. And it seems to be playing out very much in the AI space where, you know, open AI and anthropic want their models closed, and their investors likely want them to be able to monetize that. And then the all the other conversations we're having about open source, and should this be used differently? Well,
Speaker 1there's a couple phases there. There's this one is from your own company perspective, should your model be open or closed? And then there's the other one, which is, you know, there's the somewhat more nefarious one, which is, should you try to get government to ban your open competitors to preserve your closed decision? Right? That's where some of these companies I think have gotten to. And that's the, you know, companies can do with themselves what they want to do with their own code or their own, you know, systems. The question is, to what extent they want to lock that in with a regulatory moat. But I think the long term arc here is it's a losing game. I think just open weight models exist. And I think it's a losing game. And trying to put out those fires is just kind of like slowing down the inevitable. And I think open weight models just some degree have to be understood as existing now. It's like whack a mole trying to make them not exist. And they make it so that more than just a small number of companies, you know, can control the tech that we're all using and people can customize and run locally and run more privately. And I think all of that is valuable.
Speaker 2What economic trend worries you the most?
Speaker 1I would say it's a couple coming together. It's not one thing because these things tend to come in clusters. So one is just the really big demographic trend, right? So things are easier when you have six workers per retiree than three workers per retiree, for example. So as the world has aged, that's just a really big challenge. I mean, all of our kind of systems are kind of designed with the theory that every generation is going to be bigger than the prior one. And, you know, when that stopped happening and then decades passed, you know, it's just a really big challenge. I mean, all of our kind of systems are kind of in the paying for it moment now. So we have really big challenges ahead of like Social Security, Medicare in the U.S. And obviously Japan's going through it. Europe's going through it. These are very real challenges. China's going through it. So that's one just that's kind of the massive kind of like background thing that's happening. And then when you add, obviously, like breakdowns in international law compared to a kind of a we kind of went through this like, you know, multipolar stage toward a unipolar stage and then kind of going back toward a multipolar stage in terms of geopolitics, which is really the more natural stage of things. But that transition can be tumultuous. And then there's like this, the as we deal with the demographics and as we have these fiscal things locked in, I think the two speed economy that we have in the U.S. is I mean, to your point, that that's that's a huge factor in trust. Right. So people will ask me, like, when do fiscal deficits matter? Right. It's not it's not the moment of bond auction failed or something crazy, because that's that's not the point here. The point is that when you when you have these really structural fiscal deficits, there are recipients on some sides of them. And then there are others that are not on recipients, but they're kind of paying the cost, for example, higher rates and a new family looking to buy their first home. They're kind of indirect pay in the cost or some of the costs for these deficits. And so that's where you get, for example, record high stock prices and record low consumer sentiment, which we touched on for a period of time. And, you know, now we're off the ultimate lows, but it's you still have this unusually big divide between asset holders, deficit recipients and non-asset holders and, you know, not deficit recipients. And I think that's it's just it's a mess, I think. And it does concern me.
Speaker 2Yeah, it's a mess. And I feel like this is, you know, back to your point about sort of the the lack of information we're kind of going back down in information because if you are have any young people in your life like this is incredibly apparent to you you know i have i have college-aged kids and it's the the level and people like to say they're sort of anxious and no they're not like they're accurately looking at what's going on and the fact that they're getting screwed and they're very concerned about the future um but but you talk to other people and depending on what space you're in the media that they're getting directed at them and the messaging the campaign ads like this is this is not reality and i talked to mike green one time and one of his concerns was that we're rich people aren't even in shared spaces with other folks now like that that's a big change you know that sort of you're not even crossing over and seeing anyone else's reality so i i think that you know pointing that out i think is is really concerning but it's kind of like out there it's it's like right underneath and i'm wondering and worrying when that flips to anger when that anxiety flips to anger i think the midterms are going to be really interesting to see whether folks decide to vote on that or whether they just have given up on the systems and the and the process altogether which carries its own risk i think you're doing um you're doing something really interesting um so can we remain on that path first of all before i ask you about this can we remain on a path where the economy the consumer generationally things are so bifurcated um is that sustainable can we live in a way where we can live in a way where we can live in a way where we can live in this like sort of two two-tier economy for a long period of time or does this necessarily come to a head somewhere yeah it's a good
Speaker 1question i mean i think it can go on longer than people think i mean the kind of the entire political structure of aristocracy for example was able to sustain something like that for a very long period of time uh obviously that's a different era uh you know different different uh time and space um but you can absolutely have just just very different uh economic realities uh obviously political structures matter differently so for example people vote and and and things like that um but it you know i the risk is that it breaks one way or the other you get you get you get the the two kind of the horseshoe theory kind of the polls the the radical polls start to kind of gain power because people say well if the status quo is not working they're going to shift away from kind of anywhere near the center and they're going to either go hard right or hard left and that that means different things to different people but basically you get these more extreme decision-making points at some points or more extreme election outcomes uh and things like that and that that can start kind of fraying uh certain things um but i think it can it can often take a lot longer than people think and i also think that the the algorithms are a really big deal like you mentioned the anxiety that people have like in social media like just from a kind of a natural standpoint you know people being able to communicate with each other over long distances and and find their own groups and tribes is is in theory kind of a pretty good thing uh and one of the one of the kind of the the risks here is just that the the there's a handful of really big platforms and they have algorithms uh and they can tune how those algorithms work uh and their incentives are not necessarily to promote virtue among society or promote truth among society they're either to profit maximize uh or they're to kind of like be a funnel for something else um uh like to kind of change discourse around something that's not something that that that that might make profits in a kind of a jason area and actually i did an interview with jack dorsey about this a couple years ago uh uh you know the the the founder of twitter because we were kind of looking at decentralized social media's uh market like um that let you choose your own algorithm and stuff like that because he was arguing that it's not just because that was a whole like topic of obviously like social media censorship and things like that and he was arguing i agreed with him that it's not just about censorship it's not just about censorship it's not just about censorship it's not just about censorship it's about what the algorithm even has you look at in the first place so i've i've you know because i'm pretty active online um i i see i've seen specific cases people just kind of gradually fall into these like rabbit holes that are not not very not very healthy and it's kind of i can just see like this the step by step by step by step where them it seems normal but i can just see that person's like in a bubble now like that person used to be talking about this it's on now they just they're in a deep bubble and i think the into that. And going back to sci-fi, for example, that was one of the things I thought about a lot is like, what does the internet structure even look like decades out? And I kind of envision it as almost like a two, like one is like a very centralized, censored, geolocated, kind of like just fully wrapped up system. And then there's all this stuff happening on the edges. And I think that's kind of the direction we're going in. But it's something I think about a lot, that centralized algorithm feature. And it's quietly one of the most powerful things in society, in our lives.
Speaker 2Yeah. And I think the stakes are getting higher with AI in the picture now too. We're sort of seeing that. You're doing a very interesting thing. So on this two-tier, and correct me if I'm wrong, but on this two-tier economy, we've been talking about age and demographics, but it's also sort of like so much money being centralized and directed. Yeah. And so I think that's a very interesting thing. And I think that's a very interesting thing. AI trade or big companies or mega cap tech, and then everything else seeming to struggle. And we have interest rates right now. Have we just reoriented our economy around mega, that they are now the driver? Or do we need those smaller, medium-sized businesses, those sort of startups, in order to have a healthy economy?
Speaker 1Well, I do think we need the startups and the smaller companies to have a healthy economy. And still, most employment is disproportionately smaller in medium-sized businesses. I think I would separate the current kind of rapid wave of AI capex from other things, because whenever you have a new technology unlock, naturally, there's like a surge toward that area. It doesn't mean that that rate is going to continue forever. It just kind of means you're going from zero to one, because some low-hanging fruit or some unlock has happened. Whether it's, for example, the tech finally coming into place to make railroads work, or once they had both aluminum and hydrocarbons, suddenly the entire field of aviation just opens up. Whereas you spent thousands of years going practically nowhere on flight. We made a little progress with balloons. But once you have hydrocarbons and aluminum, the runner weight for years and decades is really big, but then it levels out once you kind of get the benefits of that unlock. And so I think that, obviously, the combination of hardware and software has gotten good enough now. It has this new unlock, and it can do things that it couldn't do a few years ago. And so there's a massive temporary reorganization around where we put our resources. Now, the good news is, for example, in the 2010s, a lot of the rising tech companies, a lot of that kind of value concentrated in them. And I think the good news about AI, is that even though obviously the winners of that get very large, the end users still are a major benefit if they use it correctly. I mean, in some ways it's never been an easier time or better time to start a small business, because instead of asking someone else for capital, now some businesses still need capital, but just the amount of resources and things you can do with a very small team has never been better. So it's more like it's, more like it separates people that are willing and able to use those tools and understand how to get the benefits out of the tools without the drawbacks of those tools. Obviously, one of the drawbacks might be kind of like just AI brain, where you just don't think about anything, you just ask AI. But if someone is just, it's using it kind of to solve problems, it's, I think it's actually in some ways an equalizer.
Speaker 2Yeah. So you're doing this interesting thing with orange juice that you and the team at Ego Death Capital. And it's really fascinating because it seems to me that it's solving for a problem that not a lot of other people are addressing. So you're acquiring small to midsize businesses and then transitioning them into a Bitcoin treasury company. How does that solve for the challenge? Talk to me a little bit about why this idea came up, because it seems really unique to me.
Speaker 1Good question. I mean, it kind of came up when, because some of us are both Bitcoin bulls and value investors. And so the way we look at it is it's not a Bitcoin treasury company. It's a company that happens to have a Bitcoin treasury as part of its strategy. I think that the primary thing is that for, if you back up for a second, private equity solves a problem, which is that one of the hardest things you can sell as a business because it's large, illiquid, and everyone's unique, right? So that's inherently a very challenging illiquid market. And private equity comes in and says, well, we're willing to buy and sell businesses. And so for decades, that has been a useful service. The problem is, especially during this like 40-year period of declining interest rates that is now over, really the process there was buy a business, lever it up on ever cheaper debt, you have better cost of capital than the seller did, fire half the staff, and then flip the company in a few years. And, you know, you've maximized near-term profits and you've made money, but you kind of set that business up to not really be successful 10, 20 years down the line. You kind of pulled forward. some of the profits uh and so there's a you kind of rip the soul out of a company or the quality out of the company or the just and like you'll see all the time people are like oh i loved this veterinary clinic in my area before private equity took it over now they're just kind of trying to cross sell products and they're cutting services and raising prices and it's just it's it you know it's run by someone with a spreadsheet rather than someone who loves animals for example and and obviously you have to balance business with um you know the the the true passion of what you're doing um but a lot of private equity businesses have that outcome where it's geared more toward the spreadsheet and private equity companies have a larger than average failure rate uh because they get they get loaded up with debt and and have some of their kind of soul ripped out uh and so structurally a permanent capital vehicle is interesting and that's just a jargony way of saying a company so uh private equity investors i mean managers are not like evil they have an incentive structure they have like a you know say a 10-year uh fund life and they're not like evil they're not like evil they're not like evil they're not like evil and their mandate is to go buy businesses quote-unquote fix them up and then and then flip them out and build a return cash to to investors and they kind
Speaker 2of use the same blueprint right like they kind of like like take on debt fire some people squeeze the hell out of the rest of them that are left because i mean i know some folks who work you know end up working for something that's been acquired by private equity and like it's impossible you know the quotas are so much harder they're running they feel like they're running on a treadmill yeah because all
Speaker 1the incentive is basically the next few years it's not about how do we build a foundation 10 years out um and so but with a permanent capital vehicle with with the most with the most famous example being berkshire hathaway they you know they buy companies and they just hold them for decades and so the incentive structure obviously they want the they want that company to be successful competitive uh you know to trim areas that need to be trimming and to do well but it's all incentivized toward being an indefinite holder that wants the decades of cash flows and growth from that company not short-term maximization so orange juice is a permanent capital company that seeks to buy companies and then hold them indefinitely so so decisions are geared toward that longer term rather than how can we maximize profit three years out and then permanent capital companies in general because they're not just flipping in near-term optimizing thing they need a kicker that kind of makes that long-term strategy work well for berkshire hathaway it's insurance they berkshire hathaway base has the lowest uh cost of capital in the world more or less uh the most stable source of capital so that that gives them a huge just advantage um for people that are bullish on bitcoin uh having bitcoin on the balance sheet can be rocket fuel uh as long as you manage it appropriately uh and it helps you build up a kind of a fortress of assets that uh are volatile but can't be debased um and so we've generally found that that synergy is interesting and also there's a market of just people that own businesses and like bitcoin uh and they'd rather sell their company to something with like you know for legacy in mind versus like something that'll flip it and rip it apart and then there's also a really big market of people that want to keep working for the business but for example you know they're they want more liquidity you know they might have be wealthy on paper but it's 95 in one business and they want to keep working on the business but they also could use liquidity uh de-risking uh and or just help with back end for example we hired a cto from a new business and they're like we're going to hire a cto from nvidia uh uh you know our new cto is from nvidia and and so we can come in with to these companies that wouldn't really have necessarily the best ai advice in the world and we can give them world-class ai advice not to come in and say okay we're going to fire all your back-end staff and and and just automate it but it's basically saying okay here's here's how we can help uh so that and it's not again it's not geared toward three-year outcome it's saying how can we make your competitive as streamlined as possible and reduce the busy work as much as possible so that you can get back to treating animals or whatever whatever the business might be for example
Speaker 2yeah it's it's fascinating you said that because when i was reading about it i was like this sounds like berkshire hathaway but with a with a different twist and maybe in an environment you know that requires something different than what warren buffett did you know for the modern day so it's fascinating to hear you bring that up um what is their pushback is there pushback from the modern day and what is the pushback from the modern day pushback from small companies because this solves for a problem i think that a lot of them based on the experience that they're hearing about seeing about uh private equity is not the fit for them for that reason um but but on the bitcoin part is there sort of a what's the biggest kind of hurdle is there explaining do you do you look for companies that already have a leaning toward bitcoin or do you find a good value company um and then say like hear me out listen to why this might work and be a better option yeah good question so i think that's a good question i think
Speaker 1that's a good question so our early batch of companies so we've had hundreds of companies reach out uh and and the funnel in this early stage tend to be company owners that like bitcoin yeah right because they've those of us that founded orange juice um some of us have pretty large audiences uh and people hear about it through us uh and then they they come to it now our view is that the you know if we execute the early acquisitions well uh and if we grow larger then probably some of the later acquisitions will be founders that don't care about bitcoin uh don't know about bitcoin just are just are they like the permanent capital structure kind of like how if you're selling your company to berkshire hathaway you don't really care about insurance necessarily yeah um uh and so that's that's kind of the way we're approaching it uh and basically it gives us just more avenues of things to do right so so we can ideally do things in a counter-cyclical way they're pure bitcoin treasury companies like strategy for example they investors tend to want to give them more capital during bitcoin bull markets so they go out and buy more bitcoin when it's high and then when bitcoin's in a bear market all the capital pulls away and then the company can't buy as much bitcoin so they end up often having pro-cyclical accumulation whereas with orange juice if we primarily focus on you know acquiring cash flow producing businesses that's our main focus and if our funnel is really good uh we can buy more businesses if at any given time we have a lot of money we can buy more businesses we can buy more assets we can buy more assets we can buy more assets we can buy more assets we can buy more assets we can buy more assets we can buy more assets we can buy more assets we can buy more assets we have this whole other avenue of what is bitcoin doing is it in a bear market is it surging you know um and you know so it gives us that whole second avenue of things that we can be doing with our capital uh in what is historically a volatile but but strongly performing asset
Speaker 2yeah and at the same time giving small businesses which are struggling and are facing an environment which is going to be really tough if you look at interest rates or you look at devaluation um and giving them an opportunity to do that so i think that's a really good way to do that other than private equity which for many people is not is not the answer so really really fascinating stuff it certainly feels that we're kind of living in a sci-fi movie right now i mean i just was reading all these headlines about ai agents and i think we all have this weird sensation when you were writing your novel because as most people know you are a published author of a sci-fi novel uh if if you describe it as that you tell us um when you were writing the stolgard incident did your macro view influence the book or did the process of writing the novel change? the book and sort of thinking about living in the future impact your macro thinking at all?
Speaker 1uh good question i would say both to some degree so when i do investing because i i come from background that blends engineering and finance and so naturally when i when i think about the future i i think about the path of tech adoption in addition to all the financial considerations i'm doing uh but you know from an investing standpoint really kind of like three to five year time horizons or you know 10 year time horizons if you're doing venture or buying a whole business that's about as far as someone can realistically look out and have a thesis and that's really when the investment should should really have worked out or not yeah um uh and uh whereas when you want to think about much farther ahead i've generally found that that fiction is just a more interesting uh way to express that um uh and that can you know eventually come back and feed into the present which is okay if the world might look like this in 50 years what is it likely going to look like at the halfway point but what is it going to look like a quarter of the way there and then it's going to look like a quarter of the way there and then it's going to look like a quarter of the way there and that starts to inform certain things um and you know i i would separate i mean part of it is just entertainment right so i i previously wrote broken money that's non-fiction um uh and in this case i for a long time i just had a separate interest you know we all need hobbies and i had a separate interest in just certain uh narratives certain um concepts that i thought would just be fun to explore uh and so unlike a lot of like sci-fi sometimes is uh described as kind of like tech focused or you know like you know like you know like you know like you know like you know like you know like you know like you know like you know like you know like you know like you know idea focused and is usually weaker on character whereas i i generally actually wrote more toward character driven sci-fi so it's more about the characters and what they're going through than the tech um and so it's more like it was a fun thing to work on but in that world i did i did try to put realism as okay what is what is tech going to look like and call it you know 45 or 50 years what what political structures are likely going to still be relevant or have changed um and then of course i threw in some fantastical elements that are just you know on their own but the outside of like those specific categories for for the plot and for fun i did try to make that background context um what i think is is somewhat reasonable uh and to go from there yeah that
Speaker 2that that makes sense and i find it so fascinating it has to kind of be where your mind goes even if you're not really conscious of it if you know if you're living in that sort of decade experience i think that's i think it's natural that it would be where you speculate things might go you know i thought i'm really interested in this at the because I joked about feeling like we're all in a sci-fi movie. But I, with my friends, have said recently, like, how did they get it so right? Like, are they just seeing the future or, you know, folks in that genre? Or are we sort of mapping out the future based on what we've read? You know, it's sort of a really interesting kind of chicken and egg situation that feels very relevant right now. I don't know. Do you feel that when you see these headlines?
Speaker 1I do. And one of the jokes I've made is that I write sci-fi because it feels more normal than reality, which is not how it's supposed to be. And some things, like, you know, because even though the book came out earlier this year, I mean, it was in the works for a couple years, and the idea state goes back over a decade. And it's funny because my natural instinct is to kind of tune certain things down. Don't exaggerate things. And then you get to the present, it's like, if anything, I'm under-tuning things. Like, I should just be more direct, you know? And, you know, in sci-fi, for example, there will be dystopias. And more rarely, there's utopias. So something like Star Trek is actually closer to a utopia. Whereas, you know, obviously, there's no shortage of dystopian science fiction, generally speaking. Conflict creates stories. So people are more likely to write something closer to a dystopia. And my world is, like, intentionally messy. Like, it's our world just extrapolated in technology. And then, by extension, extrapolated some of the social trends around technology. Like a world where, for example, people just naturally distrust video. Or, like, they just, crazy things can happen. And they're just like, I don't know if that actually happened or not. And even in that world, like, there are safeguards against it. Like, you can, you know, for example, you can have a device that takes a photo and cryptographically signs the photo. So you can say, like, you know, this came from this Apple device with this serial number. It would be very hard to prove otherwise, like, to hack it and make that not the case. But the human brain still has just only so much kind of bandwidth to matter for all that. So, like, investing. I think it just might be able to look through and kind of pinpoint what happened. But a lot of people are just kind of like there's so much noise out there now that almost their world shrinks. And one of the kind of the sci-fi things I brought into reality is this idea that technology so far has given us almost like a bell curve of global awareness, which is obviously a long time ago before we had even, like, the telegraph or things like that. We were obviously very confined to our communities, our local areas. Traveling far was, like, a rare thing. Mm-hmm. Only a few people did. And even information arrived very slowly. And then I would say kind of like in the 20th century, obviously, when we have video and all this, we're suddenly in this, like, really connected world. And we're in a world where it's much easier to capture and share video than it is to, like, doctor videos, like fake videos. So we kind of had, like, a peak understanding of, like, what is actually happening in the world. And then we also had kind of like we had trust in media, trust in institutions. So, for example, the combination of, like, video. And, like, Walter Cronkite saying, here's things that are happening. We all kind of would agree on roughly what is happening and then disagree on certain kind of margins. Whereas we've kind of now when we get to the age of, like, AI and things like that, video as proof has gone down a ton. Trust in authorities has gone down a ton, institutions, governments, and all this. And so when things happen, people are kind of like, did that happen? And, like, if it did happen, is the narrative blocked? Is it, like, blowing it out of proportion or shrinking it compared to what's happening? Why is my, like, is the, out of 10 things that happened, why is the algorithm focusing on this one? Is this actually the biggest thing? Maybe it is. Or is it just that the algorithm wants me to look at this thing because it doesn't want me to look at this other thing? And so that clutter, in some ways, shrinks our world back down because people are just kind of like, that's all crazy and messy and sad. So I'm going to focus a little bit more locally. And I think that's actually kind of like a. Kind of a trend that technology has, has sort of contributed to.
Speaker 2Fantastic stuff. Lynn, such a great, fun conversation. Thank you for wearing so many different hats with us today. But, but it was great to get your thoughts on so many different subjects. So appreciate it.
Speaker 1Of course. Thank you for having me.
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