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The crisis kicks off the money printing continues. And I assume when you think about money printing an analogy to use would be a rubber band that's being pulled farther and farther back and every failure releases tension because we, those people they lose and we don't have to make them whole. And there's more printing. It's not inflationary and every time you print more there's more attention, more attention, more tension.
Is that how you look at that? You're waiting for the domino, the housing market or sorry the regional banking goes, the Fed decides we're going to bail them out. We pour a ton of money into the system and just waiting for that one where there's too much tension. Like is do you see a, when you say a big disturbance happens, do we just load out more attention on the rubber band or still who knows, 10, 20 years away from a real crisis or do you think it has to break?
And that's why we go into the great depression style problem. So I think we've moved the crisis upstairs to the sovereign debt markets. And so this crisis will be the buyers refuse to buy long end bonds of a particular government because every government seems to position different things and set it off. But again global debt GPC 260% why on earth would I am investor own a long end bond when I know that there's nobody getting born and there's not going to be energy productivity miracle there's just no way for me to get paid back in a real dollar, real yen or whatever it might be at a rate that's affordable for the government, for me to make money over time.
So then why on these bonds I'm perfectly happy to sit in like overnight, you know, Fed deposits or short end bonds. I know I can sell this pretty quickly and not suffer any sort of capital loss. But if I'm forced to sell a 10 year treasury or you know, a 10 year Chinese bond or a Japanese government bond, 10 to 20 years, because rates go up, I'm going to stuff a massive capital loss. So then why even own that stuff?
And if nobody wants to own the long end of the government bond market, the rates will go up a lot. And then the response is some form of either closing down the banking systems and making sure that depositors cannot flee to other asset classes and then forcing deposits to buy government bonds. This is called fiscal dominance as a theory or the next thing, it's called yield curt control, where the central bank says, okay, we know you all want to leave this market, so we're going to fix the price at a particular level, whatever is politically expedient, whatever affordable for the government, we're going to telegraph this and we're going to expand our balance sheet infinitely to make sure that we see that level. So in Japan, the Bank of Japan is doing this for almost a decade where they say they determine the band of yield and they say if the yield gets to a certain level, we'll go into the market and buy bonds by printing money to make sure the yields don't go up.
The United States did this back in the late 40s and early 50s to pay back the debt from World War II by capping long end treasury rates. 10 year rates at 10, 2.5%. The Fed was expanding balance sheet to make sure the rate is at level. So if we get a revolt from large asset holders who say I don't want to own these long bonds because I know mathematically there's no way for me to make money in a real basis.
I would rather own stocks, I would rather own crypto, I'd rather own oil field, I'd rather own gold, whatever it is, then the only response is to move to the end game. Which is, okay, we fix the yield and we just print money until as long as it's required to keep the yield at that level. And once you've gone to yield curve control or something similar in the US and it's already in Japan, something happens in Mary, in China and other places then the question is okay, can the authorities keep the money inside their banking systems or are there ways for us to people to get our money outside the system so that on a real basis we're able to maintain our energy purchasing power. And that becomes the real fulcrum of the crisis.
Because if polymers sing in banking system they can't leave. It's just been able to do prior to bitcoins and these other blockchain based cryptocurrencies then they get taxed us all. And over time government basically earned itself out of the situation. Yes, there's high inflation depending on how your country structure, maybe hyperinflation, maybe it's just high inflation and some governments fall, some governments stay the same.
But at the end of the day most of the government can survive. But if we the people can get our money into a type of money or type of asset that's outside the government control, outside the banking system, then the system collapses. Well, that is a very unnerving thing. So very calmly, Mr.
Hayes. So okay, how, give me, give me like the odds here. So if, if Japan has been doing yield curve control for a while, for a decade you said I've been to Japan, it's amazing. So is there really a problem?
Because it sounds bad, but having experience. If my time in Tokyo is what yield curve control looks like, it's not so bad. So what am I missing? Why is that something to be very wary of?
So I think people have mistaken the fact that we may have print so much money and not have an adverse effect. They're not looking at why. What has changed in the global economy over the past, let's call it 20 years. And what has changed is China.
China joined the WTO 2000 and essentially became the workshop of the world. If you've lowered the cost of goods across every single sector because of China and they're willing to, number one, degrade their environment to capture market share and allow the dirty processing for rare earths, different types of commodity refining that the west and Japan are not willing to do. They have had a growth of young people willing to go into factory work and do these things at a very cheap wage. And that is it.
We don't have China anymore. China number one is dying because everybody else, the population is like forecast to be half of what it is by the, you know, by the end of the century. China, the population of China has also decided that they do not want to live in a small filled factory. And they have told their government to prioritize protecting the environment, which basically means that China does no longer want to essentially pollute itself so that America, Western Europe and Japan, Korea don't have to.
Right. So we're going to make these things more expensive. And so there is no more big country that's going to join and essentially degrade themselves so that the rest of the world, the rest of the very developed rich world can enjoy a higher standard of living. All the while they're printing a bunch of money.
So there is no more. That's not going to happen again. And so I think that's what people miss about why we're able to print all this money over the last 20 years and not really have any sort of adverse effects. That's just not going to happen anymore.
Well, so I'll ask maybe the uncouth question, but the obvious question, so India is still growing, is there? Because the thing that I'm dancing around is being right about the concepts, but getting the timing wrong is the same as being wrong. And so what I don't want to do is get myself all worked up that, you know, the sky's falling, this is all going to be bad. I need to get my money out of the banking system.
I don't want the government to close the exits. I don't want them to force me to buy things. I want to maintain my financial autonomy. I want to maintain my freedom.
I want to come go where I want. And certainly there are many, many, many horror stories throughout time of governments doing that. And if there is a way to keep this party going again, I'll just use Japan as an example. You know, my whole life I've heard Japan is in stagflation, but again, being in Japan, it's.
It's beautiful and lovely and there are wonderful restaurants and exceptional people. And for me as a storyteller, some of my favorite storytelling comes out of Japan. Like there just doesn't seem to be. Like, I've never lived there, but there doesn't seem to be downsides.
It's not like I'm like, oh my God, I would never want to be in Japan like this fucking amazing. So I hear your point about China and China, the just booming growth and the amount of things that we were all able to reap the benefits of is as the, you know, developed world a little bit ahead of them, we were able to reap the benefits of their transition period, which is just astonishing. To have been cognizant while it was happening was really something magnificent. And look, I was far removed, but still Had a sense of how extraordinary their growth was.
Are we not poised to see the same thing in India? So on the Japan thing, this is called the widowmaker trade. The. Oh my God, Japan's dying.
Oh my God, that gp, it only goes in one direction. Oh my God, the BOJ's balance sheet is going through the roof. So Japan is essentially just like China, Japan's more successful version of China. Both are from the exact same industrial playbook.
Japan had two nuclear bombs dropped on it by the United States, and the US Essentially made a colony for a bit. And so what did Japan do? They reoriented themselves to making shit for America. And essentially the Japanese government and large companies made essentially a pact and said, okay, we're gonna give all the people jobs for life.
You work really hard for the nation of Japan to make things, to grow the prosperity of the country and. But you're not gonna keep all of the productivity gains, right? That difference is going to go essentially to these large companies and they're gonna reinvest that profit back into the United States and Northern Europe, essentially. So if you look at Japan's country, the.
They're one of the richest countries in the world on a net investment portfolio perspective. They got one or two trillion dollars worth of assets. Where those assets, those are, that's essentially the productivity gains of their people over since World War II. So Japan has this buffer of money that can cushion itself.
They owe the money to themselves. It's not as if the money is owed to, you know, the foreigners out there. You really can't buy Japanese debt in large quantities. So, yes, Japan is a unique situation where, number one, they, they have a lot of assets.
Number two, their banking system is relatively closed, right? It's not as if, sorry really can go in there and buy the trillion dollars of Japanese bonds. These people let them do it, right? Because they don't want the, the, the situation that the United States is in where essentially capital holders determine the policy of, of the nation.
And number three, Japan has been very fortunate to use the labor of China and Southeast Asia to reduce the cost of labor. If you look at the major Japanese trading houses and manufacturers and you go around Southeast Asia, you see there's a lot of Japanese companies who have factories in all these countries employing all this labor that's very cheap versus their expensive labor in Japan. Japan's a very social case. Again, all that's running out because the countries that did not benefit from the last 80 years are like, well, why am I the donkey for Japan to make a Lot of money or the United States or some Europe.
I want high wages, I want to live in an Hollywood movie. I want more energy consumption. I'm not going to sell the resources to these other countries cheaply anymore. And so inflation in Japan is actually for the first time rising.
It's at 4 or 5% highs in four years. The Asahi for the first time 30 years, raised beer prices. Right. So the problem is when inflation shows up.
And so when you exhaust the cheap labor, when you exhaust the cheap energy, when you sell on all of your trillions of dollars of assets and inflation remains in a world where the United States is not able to dictate the flows of energy unilaterally, then your special circumstance, you know, since the collapse of your equity market, property market since the late 80s is no longer valid. And so I think people are making a mistake. When I understand why Japan is successful. Oh, it depended it, they can be successful.
Let's take a look at the United States. The United States owes the world something around 1 to 2 trillion dollars. The United States runs a current account deficit and a budget deficit. So it's a completely different financial situation in Japan.
The United States foreigners own a lot of the debt. The United States relies on the foreigners to buy the debt to fund itself at affordable levels. It's a completely opposite situation of Japan. So saying that Japan did it is okay if you work in the United States misses the differences fundamentally between the two situations.
Now I feel like, you know, don't freak out and go, you know, move all your money into gold or whatever or something and you know, suffer some capital losses. My, you know, how I structure my portfolio is to benefit from both situations. I have high nominal rates right now. Right.
I know I'm real basic, I'm losing money, but thankfully as a percentage of my net worth, the amount of money I consume on food and energy is very low. So even if I have a 5% rate and it's still a negative 38 on the amount of capital that I have, I'm still making more than I need to sustain myself. So keep some money in cash, put it in my market, making 5, 6% and take whatever you can afford, small amount and put it in something that's going to benefit. If money printing resumes, that could be Nvidia stock, it could be bitcoin, it could be productive farmland, whatever.
You want to have a barbell. You want to make sure that in the event that the money starts getting printed, I can easily move out of my short term money market fund driven Bond into the risky stuff for the fixed supply. And that way or if nothing happens, I'm still earning money. I'm starting to earn yield over here in my treasuries or whatever short term government bonds.
I can fund some of my expenses and I run a positive carry trade meaning I've structured my portfolio such that if shit really fucks up, I'm gonna make so much money on that situation. But as long as nothing is very calm, I'm still covering day to day expenses. And so you want to have an optionality portfolio that costs you little to nothing if not makes you money over time if you able to construct that. Then again timing doesn't matter because you're not paying for time.
If you're selling a bunch of stuff and you've got everything in the risky fuck it. Yes, I agree with you. Then you're like well when is it going to happen? It didn't happen last month and I'm down, I'm down 6% or I needed to buy, you know, go to the hospital because I had an emergency injury and I had to sell down some of my this portfolio that I'm like betting on this collapse and that was financially ruinous, right?
So it's all about trying to construct this portfolio where the cost of waiting, it's zero to making money versus you know, it's costing me money the longer this takes to happen. Okay, so I want to go a little bit deeper into exactly how you structure your portfolio from. So I heard we're going to do a barbell strategy. We want to make sure that we can move one way or the other depending on what's going on if something starts to pop off.
But you said risky stuff with a fixed supply. So hiding that are what I'll call two philosophical principles. Risky stuff. I'm guessing you mean high volatility.
And so explaining to people why volatility is a feature and not a bug I think may be surprising to somebody. And then why a fixed supply? So again we want to make the, we want basically participating upside to the maximum we can, right? So we want the high volatile stuff, we want the crypto, we want the tech stocks, right?
But when stuff doesn't happen then we want our brakes. So the car, right? You want to go as fast as you can straight away when you are racing and you want the best brakes possible so you can take those corners and not get wrecked, right? So the brakes are cash, short term cash, instruments that are earning yield that's paying you your grocery bill, you're Filling up your car tank, whatever it is that you need to do.
You want to be making sure you can cover those expenses with some cash in the bank or in the money market fund or something like that. And higher yielding instrument, so you can pay some expenses so that when shit's ready to go, oh, I'm over here, I'm ready to make as much money as possible. When they're printing money, I'm not in the safe, boring thing. Because this situation doesn't happen.
There's not very many straightaways. Right. I need to make as much money as I can and then making money as good and then put the brakes back on. Right.
As if you were a race driver. That's kind of how I think about it. Let's talk about what is going on in your closet this time of year. Most people realize half of what they own isn't even worth keeping.
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Okay, so knowing that these trades are excruciatingly difficult to pull off. So for people that don't know you, you manage your own money. You've often said you find it intellectually stimulating. It's fun.
I will ask the question that better be on everybody's mind. So lifetime, are you up or down? Okay, good. So we know at least your strategy has worked once.
That's very valuable. So how do we make the volatility work for us? Because the obviously the best advice. And people laugh at this, but I think they laugh at this at their own peril because they don't understand why it's become the phrase buy low, sell high.
Now, I got repeated so many times that it became funny because people think it's so self evident. But in reality it's the thing people never do. They almost always buy high and sell low. They buy high because it's hype, it's moving.
They finally pay attention, they starts trending down, they panic and they sell as it's lower than when they bought it. So let's assume that they're going to be emotionally cognizant. They're going to stay calm. They're not going to make that mistake.
But how do they know which of their risky assets to do? How do they know how to do volatility? Well, it's personal preference, right? Like obviously, I'm the crypto scare.
I love crypto. I understand it. Volatility doesn't scare me. For some people, they might know that's too much.
For me maybe. I'm going to stick with NASDAQ tech stocks. I understand that. I understand why this particular company could do well.
You know, I'm going to jump on the AI tech. It doesn't really matter what it is, right? But looking at whatever it is that you think is going to be your upside winner. So hold on, it.
Not only does it matter what it is, it's the only thing that matters. Because if they bet wrong, they either make no money or God forbid, they lose a lot of money. So it's not the upside, it's the break. The break is I own right now.
The break is I own cash in a five and a half, 6% yielding money or wherever you are in the world, whatever that is, like the short term, that's the break. That's paying your bills, that's, you know, paying your rent, that's earning you a little bit of income, right? Because at the end of the day, you want this portfolio to make you money while you wait. So, okay, so to turn that into, to turn it into a principle, you're saying basically you're going to move into high volatility, something that you have some reason to believe is going to do well, but you should not be putting more into high volatility than you can see.
Go to absolutely zero. You should have enough in the break category that even if all that goes to zero, that you're still going to be able to eat until you tank up. Exactly, because you're going to know when to move into high volume stuff. Market panics, everything's getting dumped.
Fed comes in overnight, says we are backstopping the financial system and we've created some Alphabet letters that essentially mean print money, right? And it could be, you know, pick your different central bank, wherever you're from. Then, you know, okay, cash is trash. I was earning 6% overnight.
Now zero. I'm out of this. And guess what? You're not going to suffer any capital loss versus if I were in some other type of instrument.
It needs a liquid or whatever, right? So I can get out of this thing very easily. And boom, I, maybe I had some already in My high volatility bucket. But now I'm fully in a high volatility bucket because I no longer earn anything on the cash.
So there's no. Why would I have anything in the other bucket? I wouldn't. Because I'm getting zero.
I'm getting nothing. So I have to go into that because I have to find something that's going to maintain purchasing power. Once the. When the denominator of fiat money expands infinitely.
So you'll know it'll be. It's not as if like the S and P went out three times the instant that Ben Bernanke unveiled quantitative easing in March 2009. It took many, many, many years. It's not like it's.
You have time. This isn't like, oh, shit, I gotta go, you know, sell this, buy this and admit it by day. And therefore it was my return for next year. No, you're gonna have time.
It'll be very clearly communicated. It's just. Are you listening to what I'm saying? Okay, so that makes investing sound easier than I have experienced it to be.
So the way. Again saying very clearly, nobody should take investing advice from me, and I mean nobody. I am still grappling to understand this stuff. But.
But when people do ask me, hey, Tom, what is your limited understanding of investing? What do you advise that I do? My thing is always, you're going to lose if you try to trade. So don't try to trade meaning actively.
Like, I'm in there. Oh, I got just right. I'm trading in the morning, in the afternoon, like, you're going to lose, guaranteed. What I would tell them to do is pick the most diversified bundle of whatever.
Whatever. So whether that's S and P or you said AI growth stocks, I don't know if you consider that high volatility, but something that. Where it spreads your risk that is commensurate with the amount of knowledge that you have. If you don't have a lot of knowledge in it, then I would go very broad and I would be very careful and I'd be trying to get as close to Radalio's All Weather fund as humanly possible.
Something that's going to perform 4 or 5% no matter what happens. That's when your ignorance, like me, that is the thing that I would push people towards. Do you agree with that when people don't know and do you agree if you're going to get into something that's high volatility, you should only do it in an area that you understand? I think you need to find your time span.
I think a lot of people think they're like wow, I see this person on TV or TikTok or spam or whatever and they went from zero to hero in five trading days and made all this money. So I should do the same thing. Like if you're not willing to dedicate 24. 7 of your life energy looking on a screen, then you should not be trading in short time frames.
So does that mean don't use leverage, don't open up the options trading account or the features trading account if you're not willing to put in the work to sit there and trade. Obviously I have a large ownership in future exchange. I'm not saying don't use my product. I'm saying if you are going to be a day trader, then be a day trader and dedicate yourself to doing it.
Don't work a day job if you got home at night for two hours and just treat yourself into know quitting your job, right? It's, it's a profession, it's a dedication. You can do it, but you will not put in the work to do it. If you're not willing to put in the work to do it, then you know, robust indices, you know, different things.
Review, understand collectively, okay, I want to own stocks. I don't really know what. Okay, well my country has a particular index, right? Everyone's gonna be done this, buying the same thing.
It's a question of taking that index and combining it with the brakes. That's the point. To be able to both participate in a general rise in asset prices but not care when it happens. And if you can construct that portfolio, then you can sit at home and you know, not worry about it.
Not worry about it. Meaning you need to have patience for when the moment is actually right. And if you've deployed capital in the long term things you're not gonna be able to take advantage of the moment when it comes to. Or if you, if you basically thought you've been day trade yourself on this and staring at screen all day and you're not willing to put in the work to actually be a day trader, then you've squandered your opportunity versus saying okay, I don't know when the timing is going to be, but I know that I have thankfully to these relatively higher interest rates.
I have the ability to both earn some income on my excess cash and put a small amount of cash into highly like what I believe is highly volatile things wherever it is for you and that can allow you to sit there and patiently wait for the inevitable math to catch up with the bad politics. Okay, so let's run through what you said. Is your likely scenario that three to six months something bad is going to happen. It's going to cause a ton of money printing.
But I'm guessing in the money printing is when you're saying we're going to have this sort of jubilant moment where everybody is feeling flush and I forget the, you said it's going to be some huge moment, I forget how big you were saying, but it's really going to be wonderful. And then it's all going to lead to something like the Great Depression. How do we ride that wave and that crash so that we do well in both moments? When the money printing starts, we want to go to high volatility.
That's the play. Yeah. So my, my, my sort of mental mind cap now is I think the, the biggest trend in. So you always want to own the new tech thing in the, and the bunch of bull market.
So if you look over history, the new tech thing, it's been railroads, it's been radios, it's been computers, it's been the Internet, right? Every single money printing cycle has a new technology that's going to fundamentally alter this modern civilization that we've had since the Industrial Revolution in the mid 19th century. And therefore we all need to be in that because the way we exist humans is going to fundamentally change. And yes, that's true in a longer term perspective.
However, there's a mania that happens. So the mania this time around is going to be AI, right? ChatGPT has been the fastest growing technology adoption ever in human history. Zero highlighting users and however many days it was as fast as ever.
So we are all in on AI. You can look at Nvidia and some of these other AI related stocks and NDI give two fucks about this staking crisis, about the debt overhang. The population issues are going straight to the roof, right? Because everyone's like okay, I know AI on a long term basis.
Fast forward today is going to completely change what it means to be human, what the human economy is or isn't. And I want to own the next Google, Facebook, Amazon, Alibaba, ByteDance, right? I'm going to be in that company. So I'm going to start trying to find anything that's really AI and pumping money into it.
So on one hand we have the most amount of money that ever been prepped in human history to try to save the global Keynesian bond market of all these Governments and we have the newest technology that has the fastest adoption ever in history of technology. We're going to combine those two. We're going to the biggest tech boom mania that we've ever seen. And it's going to be predicated on anything related to AI and artificial intelligence.
So for me personally, I have a portion of my portfolio that is predicated on AI. I actually am one of the largest shareholders in one of the largest sex cell manufacturers in the US as robotic sex dolls. And so I did not see that coming. I think we actually plan on going public at some point.
So that stock, that company I think is doing very well in this boom. On the crypto side of things, I've been making the case that artificial intelligent economic agents inherently need decentralization and therefore they should be using Bitcoin for money. They should be using Ethereum for smart contracts and governance and daos, and they should be using filecoin for decentralized storage. I own all three, whether it's my end company in filecoin, filecoin itself, lots of Ethereum.
I have my family office. We're investing in decentralized architecture technology that's going to power the growth of decentralization in the future and obviously have a lot of Bitcoin. Right. So I'm all in on number one, AI in the traditional sense, AI robotics.
And I'm all in on the intersection of AI and crypto and the technology front. Because this is the mania that is going to captivate investors, take that money and funnel it somewhere because they're not going to be buying companies like General Motors. Meaning they'll go up, but that's not going to be where the zeitgeist of the world is. What is AI to get rid of printing all this money, it's got to go somewhere.
It's going to go predominantly, in my opinion, to AI listed companies, venture capital funds doing AI investment. So it's going to be absolutely insane because we're combining the most money amount of money printed in human history with the most destructive pieces of technology to what it is. It means to actually be human and interact in this universe. And so it's going to create fantasies of growth that will never happen in the time frame that they say it is, but we're going to believe it as a collective investment public is going to drive that.
So that's my super volatile segment that I want to participate in. And then on sort of the boring side, I will continue to move money from the high interest earning, you know, money market funds and stuff as rates start come down. But I'm not going to do it beforehand, I'm going to wait for them to tell me. And usually, unfortunately, before, right after the Fed or any other money, there's usually some sort of financial crash because the reason they're printing money is something bad happened.
So it's not as if they start printing money and things just keep going up further. Things usually went down a lot, something happened, they owe you money, they print the money, then things go big, we take that level and then go higher than that. So it's a mistake to think that just because you're investing now, yes, if you're a longer time frame, you should make money if they print enough of it. However, the patent is very path dependent.
So instead of trying to time the market, just wait for them to tell you about it. They're going to tell you, but why not just earn 6% of my microfund? Just chilling. So I'm not trying to time when it's going to happen.
I have a mental model, I'm getting prepared, I'm making sure that we're ready to make investments and identifying the things I think are going to do very well from a macro perspective and a thematic perspective in terms of where I think the investment public is going to focus on. But I cannot predict the timing and nor I want to lose money because I try to be too cute and predict when you know something's going to happen, where exactly is going to happen in the financial system. And so when you say that they're going to tell you, meaning we're going to print money, we're raising rates, we're lowering rates, whatever the case may be. Yeah, they're going to, oh, because something happened in the financial system, we have to lower rates of this.
We introduced that program, whatever it is. Right. It's very transparent. Regardless of whether it's the Federal Reserve, it's the pboc, it's the European Central bank, the bank of England, they're going to tell you exactly what it is because what they want you to do, the market's already fallen.
They want you, the investing public, to gain confidence to go and buy stuff. So they need to be very clear about what they're doing. And the question is whether or not you believe them or you're just going to say no, no, no, I'm just going to stay in this very, very safe thing, it's fine. But on a real basis you're probably not going to make the money we would like to make before we get, you know, Judgment day when things go down a lot.
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Like actually effortless. Simply press, brew and explore Nespresso. What else? Keep [email protected] okay, so if we know that the market prices in the things that it already knows, you have to be betting against the consensus and being right.
So what would a well intentioned person who disagrees with you say to what you're saying right now? Because if it really was that easy, everybody watching this video would just do that and they'd make out like bandits. But of course, it won't play out like that. The consensus says that we're going to have a soft landing.
That these, these few men, mostly men, very few women, have somehow divined the business cycle and thus can print just enough money and raise rates just enough. And the inflation rate of the world's gonna come down just to the level of 2% and the employment's gonna stay the same and we're just gonna go along and be nice and happy, right? That's the consensus, that these guys know exactly what they're doing and they got it. So which means you don't need to sell your stuff, you don't need to sell, just sit tight and keep adding more because there's not gonna be any faster disturbance because they have it right.
And inflation's gonna trend down right to their level exactly at 2% and it's gonna be amazing. That's the consensus. So if you don't believe that, then you leave something on e extremes hand, either rates gonna go really high or some financial services gonna happen because they keep raising rates and for them to go right back down to zero. And so my thesis is that when you have 360% global debt to GDP, you no longer have situations where things happen in a calm fashion.
You go to the extremes very quickly. And so to think that all of a sudden, you know, less than people are able to determine how this global economy is going to somehow soft land. After printing the most money they've ever been in human history and gone from 5000 year low interest rates rising the fastest pace ever in financial markets, then you're, you know, that's about the amount I want to take. Do you know chamath polihopitiya?
Yes, I know Chamath. Okay, I could be misquoting but I'm almost certain this is correct that he was saying that, you know, people make such a big deal out of this 130% debt to GDP, but it's a big nothing burger, it doesn't really matter. There's no law of physics that says that we can't go over it. So even though historically that that's been a sign that has led to collapse given the modern economic theory and I'm so this is how I remembered oh God, forgive me Shamath, if I'm way off, but that that was my takeaway.
So other than it's very compelling to me that we have all historical examples and say every time that we do this it leads to collapse. But what do you, if you were to take his stance for a second, can you see how maybe it is possible that we get this off landing that they do get it right, that that isn't some magic, you know, thing like the speed of light, it can be crossed and people can still come back from it. And I think he would say that. Well I'm just gonna, I'm gonna listen to what they say anyway.
I'm not gonna Make a move until I actually see it happening. Yeah. Could he be right? I would say we're investing as a game of probabilities and expected values.
So if Chamath is saying, okay, there's been a few other examples where this has not been the case, but this is gonna be the one example where the market just keeps. Keep running a bit higher. Okay, then you're taking a. This is.
This time's differentali and every single time, this time is different. Whatever aspect of the financial markets, right? The problem is you're not getting paid enough for this time is different. This time is different means S and P goes up, I don't know, 4, 5%, right.
I'm making 6% cash. So why bet on this time is different. If I can earn the majority of the excess return of stocks, I literally just put my money on my market fund. I have no risk.
The Federal Reserve isn't paying me that money. Why take the risk? This time is different. Because usually it's not different.
It's the same as every other time. But this time I'm not getting paid enough to be. This time it's different. The only way to pay enough is add more leverage, which increases your risk.
I'd rather take. Okay, well everyone believes this time is different, therefore I'm not getting paid enough for it. But the other alternative, which is it's the same as it's always been, but I get paid a lot more money to be in that camp. I want to go there and on an expected value basis, I'm going to make more money over time.
Why not? If you believe in Chamath, just put your money in money. Don't buy any stocks. Why would the S and P part from, you know, Nvidia and Facebook and Google and those seven big stocks has not beaten return on cash.
So either put your money in cash and go AI stocks and believe this time is different or just put your money in the money fund. There's just no point to take a risk on the general market for this time it's different because it's never different. It's always been, you know, this time it's different. It's clobber.
Other than the AI high volatility stuff, do you have anything deployed in the stock market right now? Uranium. So I believe we're finally going to get our shit together and somehow blue Nuclear. And there's been vast underinvestment in uranium refining capacity.
And as the world moves nuclear and maybe the west decides that they want to dominate to it. Fine, but China's going nuclear, India is going nuclear, Saudi Arabia is going going nuclear, the rest of the world going nuclear. And it's just not enough to find yellow cake to go around. So you know, uranium mining companies in certain jurisdictions are going to do very well.
And I'm in a large, my largest equity position is Kamiko Mining ccj, it's up this year. So that's something that I believe has a long term energy plan. Okay, so understanding now then the way that you're deployed. I want to talk about euphoria.
So I never experienced what euphoria at the like humanity level look like until the 2021, 2020, 2021 crypto rush. It was really fascinating to watch, it was great and it felt a certain way. So I certainly know now what to look out for in the Ethereum. How do you think about as a disciplined investor, how do you think about euphoria?
I know you're planning it into the AI. Like hey, I know people are going to get their stimulus checks or you know, the bailout, however you want to categorize it, they're going to put it in whatever is the hype thing at the moment you're expecting that to be AI. How do you know? Because I'm assuming you're going to get in, probably not try to time the top perfectly, but you're going to get in, you're going to get some level of gain and then you're going to come back out.
I would assume if we're talking about euphoria, because euphoria is I would say quite irrational, we know when that clicks over. I would now be fearful when others agree and greedy when others are fearful. My now honed instinct for that would kick in. So I think euphoria in my perspective is the willingness to invest in illiquid things that have a beautiful long term future.
So the problem with AI is that to get liquidity in my cycle time, which is 2026 time frame, you need to have been investing three, four, five years ago. Right. It takes, if you're talking about equities, takes five to seven years to go IPO for a company. So if you're putting money into a series A startup today, you're not going to see any liquidity until 2003.
You know, time frame. Well after the bull market, even though I want paper, your thing might be up, you can't actually sell it because that is not liquid. Now obviously I do a lot of cryptographic token investing and stuff. Again, if I sign a charge today due to Lockups and whatnot.
I'm not getting my tokens until maybe 2026, 2027, which might be a little bit too late for me on a cycle time perspective. So to the extent that I can, I want to participate in my theme, which is AI and crypto in a way where I have liquidity by 2025 and 2026. So that when I get the feeling you're going to see something, I don't know what that something is, whether it's just something looks mispriced, like, I don't know, FTX has Tom Brady and the basketball seat right now has, you know, has a logo on top of in Miami and you know, Tom Brady. Someone said the biggest America folklore ever is now something for them on tv.
That looks a lot strange, right? This may be something that looks a bit strange. That's Mattel. Your mind, you're like, huh, doesn't make any sense.
Maybe we've gone too far. When you get that sense, you want to be able to grow your portfolio and liquidate things. Now the euphoria is a. I believe that, you know, AI, such as a transformative thing, I'm willing to give somebody some money and not see it for a very, very long time and not be able to liquidate it at all.
And therefore you're going to get caught off size when the market all of a sudden goes, okay, well show me the growth. Show me how you're going to generate enough earnings to pay me back 100 times earnings. Nvidia. Show me all the people willing to pay real money for these AI solutions.
Show me how your startup has any defensibility against OpenAI or Bard or any of these other large initiatives that can essentially just disintermediate your little plugin on top of their large language models. Show me the money. When the market starts saying that and you can't liquidate, you're wrecked because then the market's going to start asking the question, where's the revenue? Where are the users?
Or where the users are actually willing to pay real money for the products? And that's usually the end of that particular market and things just start falling to bed because there's no liquidity and people can sell what they can. And so the game is up now, obviously on the wreckage comes. Amazon was down 90 something percent from 9 2000, 2002, wherever it was and it rockets up multiples of what it was worth.
But the majority of us are not going to be able to find the Amazons. We're going to be finding the pets.com and so that's the game. So it's trying to invest in the theme and the liquid vehicles available and not getting caught up in the hype and putting your money into illiquid things that you can't sell when the mood turns. We are at the culmination of the post World War II period.
We have four generations since then, all the people who fought in the war pretty much dead. So we've lost that knowledge, that reticence to ever do something stupid and terrible like a total world war ever again. Now we have people around the world who are celebrating these leaders who are bombing indiscriminate civilians because it solves their particular issue, whatever that is, because we don't have this institutional knowledge of everyone wants to who participated in one World War II. So.
And we also have a situation where the United States did very well out of war to create a whole global system to preserve their hegemony. And now that's kind of done. And you know, when top dog is getting challenged by the dog at the bottom, there's always conflict. And so we're at that point in time, we have no institutional memory of how bad war is.
And we have a preeminent power that's being challenged by others who was one resort to violence to preserve their position. I think we are at the situation that has happened in the past. Many times empires have come and gone, but now we have, for the first time in human history, an ability to save in a currency. Bitcoin and the cryptocurrency situation in general that is globally owned by everyone.
And so the people own a new type of money. People around the world can still sell their fiat, whatever and buy bitcoin. It's not blocked or banned in most places yet. And so you're able to move wealth between this analog system that we've had for thousands of years into a new way of socially creating financial wealth, financial system, a new type of money.
This sort of situation is never going to happen again because we have all these fiat assets that are being depreciated and everyone knows it's happening. And now we have this little small door called bitcoin. And people are starting to go through this small door. And that's why the bitcoin price is up, I don't know, 50% or 60% this year already, as now we have the institutional investors saying, yeah, I understand this game is rigged.
I helped rig the game. Now I have a product where I can get out of the this mess that I Created. Get me the fuck out of government bonds. I want some of this bitcoin too.
And so now everyone's competing in this little door, and that's why the price is going up. So this is a once in a lifetime opportunity. We have a system we set, and we have a way to preserve wealth in the old system, to bring it into the new system. And that's what crypto is, all right?
That's powerful. So if we think of crypto as the arc that we can all get on before the rain comes, the catch is that you've got all kinds of different cryptocurrencies, all kinds of different pieces about which one we should be getting into. What's your take? How do you break down the world of crypto?
So bitcoin is the reserve currency, if you will, of crypto. It's the ultrasound money. It's crypto money. And it's proven that's that's what it cares about.
The community of bitcoin cares about security and immutability of the bitcoin blockchain, and it wants to make it the soundest crypto money. So if you're thinking about, okay, I don't know anything else about crypto, but I kind of believe in this whole inflation and changing global relations story, then just buy bitcoin, right? It's got the largest market cap, it's very conservative with the types of things that are added to the network, because everyone wants to make sure that bitcoin is always the hardest money. So the experimentation is much lower on bitcoin than other networks.
Next you go to, well, okay, can we build a new financial system within crypto that's decentralized finance? DeFi and Ethereum, in my worldview, is the best decentralized computer that has been built thus far. And so if you think, okay, I think we need a new financial system that's based on these crypto assets, that's decentralized, that's transparent, blah, blah, blah, Then Ethereum is where it's at. Then once you pass those two things, I'd say most other things in the encrypt are either some sort of application that rides on top of Ethereum, or a decentralized, like, computer, another blockchain trying to disrupt either being the best money or the best decentralized computer.
And then you sort of have to get into the weeds on understanding what it is these protocols are trying to do. So for those who just want to, like, close their eyes and buy something that's crypto safe, not saying that's, you know, there's no risk here. I would say bitcoin and ethereum are where you should start your journey. And once you say, okay, maybe there's something I think these protocols could do better, or I've been hearing some things about these exciting new very smart people building something, then you start going down the rabbit hole of other coins that do other things and obviously have more risk because they're experimenting more.
What do you advise people around volatility? I think one of the things that draws people to crypto specifically is the volatility. I'm actually very curious to see what happens to cultural energy around crypto once it's the tried and true thing. Volatility is your friend.
The reason why you're even thinking about crypto is because the price went up a lot and you heard about it. So you want volatility. The entire tradfi traditional government apparatus is trying to do something unnatural, which is remove volatility from the system. Entropy is always increasing.
It is unnatural to try to suppress volatility. Think about it like your lawn, if you have one at your house, right? Entropy says the grass keeps growing because that's what the grass does. What do you try to do?
You spend energy to cut the grass because you want it to look a certain way, a certain non volatile pleasant way. But it's unnatural if you don't have the energy to cut the grass. The grass grows. And the grass will grow long after you're gone because you can only do this so long.
And that's the same thing governments and central banks and banking systems are doing. They're trying to squash volatility. We don't want volatility. And they're trying to convince you that it's safe.
But there is no such thing as safe. There's chaos in the universe that's always increasing the duly unnatural thing by trying to remove it. And then at certain points they can't do it anymore and there's an explosion somewhere, whether it's a war, whether it's a financial crisis. So embrace the volatility.
This is the nature of the universe. And that's why bitcoin and crypto is a good thing, because there is none of this manipulation. It goes up, it goes down, but it's a true reflection of what the universe is. So I think volatility is a good thing.
Obviously that means if you use leverage, be very judicious about it. If you're a leverage, if leverage trading is your thing, that better be a full time job. Like you better eat, breathe and sleep. The thing that you're trading, because that's the only way that you're going to survive thinking that you're going to home from work, put on some highly leveraged crypto trade and just trade for a few hours and go to sleep.
You will lose all your money. Okay, volatility as a good thing. Do you think that crypto will lose some of its, its potency, its cultural energy when the volatility begins dying down or will like in a given cycle? The way that this traditionally goes is you've got bitcoin, which has massive volatility but is less volatile than some of the what people lovingly call shitcoins.
So people tend to go down the curve. So they'll start with bitcoin, they'll ride that up as that begins to stabilize and chop sideways and they're going to go to the next volatile. If that crashes or whatever, they go to the next, the next, next constantly chasing volatility. Will that forever be people will just keep introducing new and highly volatile things, or will it become more like gold where it's a far more stable entity?
Well, bitcoin as a lot of large numbers, larger, gets less volatile to become. And as you mentioned, right, for people who are saying, I want to make big gains in a short period of time, bitcoin might not do it for them. They say, well, I need the next new, new, new thing. And so they start trading wherever the new shiny bubble is that's being sold out there in crypto, there's nothing wrong with that.
Just recognize what you're trying to do. If you're saying I want to save ultrasound money, then this volatility is not a good bad thing for bitcoin. It's, it will go down over time as the asset class gets bigger. If you're saying, I need a volatility, I'm a professional trader, this is what I'm here for.
Then there will always be a new thing to trade. Because the great thing about crypto is it's this, the only free market left where humans are expressing themselves and whatever it is we think is valuable. There's no manipulating force with an unlimited bag of fiat currency that's telling us what is a good and a bad investment. And so there will always be volatile things in the crypto ecosystem so long as there's human beings creating it anyway.
So the machines too soon, the AI operators in the ecosystem. It's really interesting. So I want to get to the essence of what crypto is I want to get to the essence of what markets are, why people play them. So I really want to be the contribution that I make to anything that I do, quite frankly, is helping people get to the essence of it.
To think from first principles, to build a thesis. Even though ultimately I think that only the simple spreads. I do want people to be able to understand the nature of this. Do you see markets as gambling?
Like, are they gambling at their very nature? I'd be even more fundamental. We are gamblers, everyone, all the time, constantly, because we don't know what the future holds. So let's take an example.
I wrote this in a previous essay. So imagine you're going to the building. You walk into the building. You can either take the stairs or take an elevator.
So taking the stairs, using your own feet, walking up is safer than the mechanical thing, which is an elevator. But walking upstairs takes more energy than riding up the elevator. So what do you do? Well, your brain, whether you're conscious of it or not, is constantly evaluating the probability that if I do one of these things, will there be harm that comes to me?
And is the probability of that harm outweighed by the gain, whether it's time or energy, by using one or the other modes of transportation? And so you're gambling. You wanna know, do you know if this elevator is going to break down and fall 30 flights in an instant? No.
But you believe that there has been a credible engineer that's designed this piece of technology, that there's a government building, codes that govern how it's been installed and how it's been maintained. So the risk of me taking this elevator, even though I don't know if it's going to fail when I get on it, is very, very low. Therefore, I will take the elevator because it's faster and less energy spent than walking up the stairs to the top of the building. So we gamble all day, every day, because the future is unknown.
So for people that say, oh, markets are bad because it's gambling. No, your whole life is a gamble. You do not know what's going to happen one moment to the next. You are constantly assigning your probability to the future.
And that's what the market is. The market is for a particular thing. What does the crowd say? The probability of the future of this company building, making this money or this asset being worth whatever it's worth in the future.
What do the crowd think? That's what the market is telling us. And the market gives us great signals as to what the crowd actually thinks because they're putting our money on the line. And what is money?
Money is just energy and our time in an abstracted form. That's why money is the most important thing in any society. Because if you degrade the value of money, you degrade someone's time and their effort and their energy and it's, you know, it's a fragile dignity. If you degrade the value of the money that they earn by doing work to, you know, earning, pay for food, blah, blah, blah.
Right. So markets are gambling, but your entire existence is a gamble as well. So I don't think there's a problem with that. Okay, this is really interesting.
It goes back to what I was talking about with the ability to save. From where I'm sitting, feels like it should be a human. Right. So, okay, let me just go back and recap what you said.
Money is energy and time in an abstracted form. So you go to work and some, you do a thing that the world says that they value, which is why somebody's willing to pay for that because they're able to create a thing that they sell to somebody. So you spend energy and time creating a thing that people want to buy. Now that allows you to do is proof of work.
So you have this unit of money that you've exchanged for your labor now when you are putting that into a system where they can socialize losses. So this is, it drives me crazy how complicated this all is. But let me just walk everybody through what ends up happening in the current Keynesian economic model that we have, which I'll give a brief summation of Keynesian economics. If you see that I've gone wrong anyway, please jump in.
Keynesian economics is basically, hey, the market left to its natural devices is going to swing wildly. There are going to be massive upsides, they're going to be massive downsides. And if you, if you get to one of the moments where the economy is not able to progress forward, part of the reason it may not be progressing for, and this is a break from the classical model, is that people are just poor. And so if you stimulate money into the system now, you can get the economy moving again.
And so you flatten the curves both on the upside and the downside. So you're squeezing the volatility by going back to your mowing the lawn analogy, you're injecting energy into the system. The government is putting this new money, which they're making up out of thin air, into the system in order to get people feeling like they have money again. It is very much A man made manipulation of the system.
But this is essentially what we've been doing since the Great Depression. So Keynes comes up with this idea in the Great Depression and he realizes, wait a second, there are people willing to work. There are factories here that are not capacity. There are even people willing to buy.
And if they just had money, then the economy would start moving again. So, hey, make up money. Okay, Sounds amazing until you put it together with what you just said and the fact that this is socializing losses. So, all right, something bad happens.
1929, we have an economic collapse. People got into a bubble. We just got into a bad situation for a whole host of reasons. I'm going to right now.
But anyway, bad thing happens. The government then says, oh, I'm going to print more money, which is now taking that loss and spreading it across everybody. That's what happens when you're printing money, because there's no new goods put into the system that anybody wants. There's no new labor that has gone into the system.
There's only the artifact, what should be the artifact of somebody's time and energy, but it's not. It's just made up. And so that ends up diluting across everybody. So you have individual losses that are spread across everybody to the benefit of only people that hold assets.