Hey everybody, hey everybody. Before we drop this week's amazing episode, just some quick information for you. Saak and Chamath both had the week off, so we had two amazing friends of the pod on: Gavin Baker from Atreides and Joe Lonsdale from 8VC. What a treat to have them on the program. But there is some big news, huh, Friedberg?
Yeah, well, the news dropped after we recorded, so it's not going to be referenced and the show might feel a little stale. But here we go: our friend David Sacks is the White House AI and Crypto Czar of the United States of America. Congratulations to our boy. Amazing, super thrilled. That is a big reason why he wasn't able to join us for the show. He was in the middle of getting this news ramped up.
Yes, it came out. We had already recorded, yeah. Take that into account as we go into the show. Yes, and according to Trump's Truth Social post, Sacks will quote 'guide policy for the administration in artificial intelligence and cryptocurrency.' He will also lead the Presidential Council of Advisers for Science and Technology. How great is that, Friedberg?
Wow, science corner in the White House. Can't wait. It's going to be fun.
Pretty awesome. I have no announcements. The rumors about me becoming press secretary are obviously premature, but if asked to serve, I will serve my country. Okay, let's get to it. Don't worry, besties, All In isn't going anywhere. We'll be here every week for you, except maybe Thanksgiving or a holiday now and again. All right, let's start the show, huh, Friedberg? Great episode. Let's go.
All right, everybody, welcome to the All In podcast. I am your host, Jason Calacanis. How you doing, Friedberg?
I'm hanging in there. I'm waiting for the tsunami to hit. It's going to... we're about 40 minutes away. I'm a little anxious right now.
More anxious than normal is what you're saying? Like on a scale of one to Friedberg, this is like as anxious as you get with this tsunami?
I don't know what's gonna happen. This current warning shows a 5 foot water rise, or 5 meter, I can't tell. God, I really hope we don't... this episode and there's like a total disaster. We're not going to make light of it. We get warnings once in a while.
Just to give everybody a little perspective here, I'm at David Sacks' house. I've taken over. As you can see, I got my Moncler hat on. Friedberg, I found Sacks' robe. See this? It was Sacks' robe, but I got a red Sharpie and I just crossed it out and I put 'JCal' on it. And then I went down and I was talking to Chef.
Does Sacks know that you're staying at his house?
He knows I'm staying here. But does he though? He doesn't know that I found the actual caviar. Let your winners ride. We open source it to the fans and they've just gone crazy.
With us today, Chamath couldn't make it this week. He had surgery and now he looks like Gavin. Yes, yeah. And Sacks is taking a day off. He's got the day off today. I think he's just winning too much. With us, two substitutes to jump in here for the team. Cackling, you can hear the cackling. Joe Lonsdale, there's Joe. Take my Moncler hat off here. I'm also winning too much, but I'm happy to be here last minute as a sub for David. Joe Lonsdale, for people who don't know, is to the right of David Sacks. He is a venture capitalist and he started a couple of companies you might have heard of: Palantir. What are the other greatest hits? Addepar. Addepar, just across a trillion dollars reported on it this month. It's a good real company too. OpenGov sold this year. We saw the start of a bunch of good ones. Joe gets... he's a little bit lower profile than all these accomplishments. It's pretty incredible. Co-founded how many billion dollar companies have you co-founded now?
I don't know, maybe six or so.
Six or so. Also with us, Gavin Baker from Atreides. He is a hedge fund manager. He does private, he does public. One of the smartest guys I know, great analyst. Welcome to the program, Gavin. Friend of the pod.
Thank you, JCal. Happy to be here. Great to see everybody.
Yeah, we are experiencing a huge Trump bump. The election is over, the cabinet is being assembled, and we're seeing the Department of Government Efficiency, as well as maybe regulations being pulled down. We'll get to our first topic about our new SEC chair. But just generally speaking, Gavin, as a market participant for a living, what's your take on what we've seen over the last three weeks since the election results came in?
So if they execute on stated plans, and there are some of the world's greatest execution machines involved, Elon generally does what he says he is going to do. This is going to be awesome for America, for markets, for the world. And the analogy I keep coming back to is Satya Nadella taking over as CEO of Microsoft. Microsoft was a monopoly, incredibly advantaged, it had just been horribly mismanaged for years. All he had to do to start winning was stop doing really, really dumb things. And that's an incredible place to be. America, we're the greatest country. We've got oceans on two sides, peaceful neighbors, incredible natural resources, completely can produce our own food and energy. In many ways, the most privileged country on Earth. But sometimes with great privilege comes great stupidity. And California to me would be a leading example of that. In many ways, the most privileged state in America, and a predator away with bad policies. I do think one thing that everyone of all political stripes agrees on is there are too many regulations that result in far too many administrators, far too much complexity, and an inability to build things in America. It was used very effectively, as it should have been, against the Harris Administration, that they'd approved $42 billion for rural broadband, hadn't built anything. Approved $40 billion for EV chargers, hadn't done anything. And it's not that they didn't want to dig trenches and do broadband, they didn't want to make EV chargers. Their own regulations prevented them. So I just think deregulation and simplifying regulations and the tax code is going to lead to an immense amount of growth, which is something that all Americans should be happy about.
Joe, you want to maybe give us your take? I know obviously you're very vocal, you're obviously a conservative, run a think tank, and have strong feelings on all this. But there is consensus, I think, amongst all Americans that we don't like fraud, waste, abuse. Those items seem to be consensus building. Efficiency and paying lower taxes, all of that seems like something almost all Americans, most Americans, can get behind. So I guess maybe a little bit of your take on what we've seen in the markets and the plan, and then also are you going to be involved in this at all?
Well, listen, JCal, I think I do agree. I think almost all reasonable Americans can see that our growth is ridiculously constrained. I think Jeff Bezos was saying yesterday, like we need a growth-oriented mindset if we're going to get out of our debt problems, out of our deficit problems. So it's nice to see everyone kind of coming on the team and saying, yeah, we need to fix these things. I think what people don't understand is just how broken the government bureaucracies and regulations are. It's not like they're kind of sort of bad. It's almost like they're companies that went bankrupt. Think of the worst company in Silicon Valley that went bankrupt like 30 years ago, and imagine if someone just kept pumping money into that worst company over 30 years to keep hiring people. So like Yahoo or AOL, some legacy company was failing. Take the worst department there, and then the worst department gets the most money. So it's more than anything you've seen in a long time. And I think one of the important things is America used to have these really hard tests for 100 years. In 1883, we said, you know what, we shouldn't just hire our friends. If someone's going to run something in government, let's have these tough tests, kind of like China did for thousands of years. And for a hundred years, we had really hard tests. When we went to the moon, when we fought the world wars, we did them in-house. The people making those decisions and hiring people had to pass things that really only like 5-10% of people could pass who took them. And then in the late 70s, we said not only are these tests racist, so we can't test people anymore of any background, we also can't fire people anymore because we're going to give them tons of protections. So for the last 40 years, it just got dumber. And then 10 years ago, you started doing all the virtue signaling and hiring based on your identity versus based on anything else. So it's got even worse. And so now it's so broken that we're letting tens of billions of dollars on fire. So there's really two things here. One, you got to take a chainsaw, as Elon said, you got to take a chainsaw and just cut a ton of broken stuff. But then day two is you got to say, how do we make this not stupid in the future? And there's things like maybe you bring back tests, maybe you bring accountability. The thing I'm most passionate about is right now there's over a million rules at the federal level. It's stuff that everyone disagrees on. You can be the most left person trying to build solar or wind or whatever, and you're like, what, I have to do what study over how many years? This makes no sense. So we got to take these regulations and not only cut them, but we got to make a data-driven system that forces regulations to defend themselves. That way, instead of having a cancer that just grows forever out of control, you could actually have a process that naturally makes things fight for themselves, and that way it doesn't get as dumb ever again.
Why not just make them automatically sunsetting after five years if they're not renewed?
Exactly, but make the process to renew them difficult and data-driven. So if renewing them will take so much time that it will slow it down.
I wonder where we got to this place. Friedberg, I will bring you in on this. I think it was maybe two or three years ago you started to point out exactly the death spiral we're going to get into. I want to give you flowers here on the pod because from this pod, your obsession and harping on and on about this national debt problem, you saw it early, you talked about it constantly, you brought a lot of consensus on board. And now we're seeing it as the issue of the transition is the debt. And we were sitting here for the past year or two saying, when are politicians going to even pay attention to this? And now they are paying attention to it. So first, here's your virtual flowers. How are you feeling about the transition to date?
Well, I mean, I think first of all, there's like three layers of the problem which I've been trying to harp on for almost four years. Number one is the inefficiency and lack of accountability, which Joe and Gavin are obviously talking about, and that leads to excessive spending, and that leads to the debt problem. And the debt problem creates this kind of arithmetic debt death spiral, which is something you don't want to find yourself in. So that's the inevitability that I've been really worried about. I think that, look, there's the first derivative and second derivative can kind of get addressed, and then hopefully you don't get to the absolute point where you have this breaking point. I think right now everyone's banking on, number one, can we deregulate in a way that can unlock growth? And by unlocking growth, the arithmetic argument is grow GDP because you're not going to be able to shrink debt super fast. In order to grow GDP, there needs to be some unleashing happening. So if you can get GDP to grow 4-5% and you can minimize the excess spending, meaning you can minimize the deficit, the federal deficit, and therefore minimize the increment in the debt level, the debt-to-GDP ratio becomes more manageable because ultimately you can only tax so much of GDP. So yeah, I feel like this is important in both senses. One is just cut the inefficient wasteful spending, get rid of the regulations, and that'll unleash the necessary growth. One of the proxies I look to, and I think this is going to be the critical motivating factor for the United States whether it's this administration or the next or on a continuous basis, there's going to be this kind of moment where we're going to look across the water at what China has and you can see what China's getting, what China is making, what China is doing. I've talked about this a lot as well, and I do think this is the most critical metric that no one talks about as much as I think we should, which is the increment in electricity production capacity in China compared to the United States. So we are going from one terawatt to two terawatts. They're going from, I think, two to eight over the same time period.
And they're doing so... important for the people who are listening who think you're saying... I'll let Joe answer that. Joe, go ahead, just unpack it for the audience.
I mean, I obviously understand why this is important. But I want you to... the number one thing I'd say is it's usually correlated to how well the working class is doing in your country, to per capita GDP, to cost of goods. I mean, obviously I care about it because we want to scale AI for all the things we're doing and we want to be able to do it effectively. But if you just look over time, it's really clear the relationship between how well is your average working middle class person doing and their quality of life, their cost of life, and the cost of electricity and cost of power. And it's crazy we're not just ramping up and cutting things to do this more. More electricity means more automation, means more AI, means more things are being done for every person that are being done in factories or being done by machines, and that unlocks a new kind of level of living. And that's been a continuous process for humans. There's this guy that writes these books that Bill Gates always talks about, Vaclav Smil. He's got all these books on the history of the relationship between energy and prosperity. There's definitely correlation there, and there's definitely causation there. Gavin, there's even really simple ones. I don't know if you've ever seen Lee Kuan Yew, the founder of Singapore, essentially talk about just how air conditioning changed the country's fate. It raises average IQ by two or three points. It really matters. But look, at the end of the day, my key point was we have to make sure that this administration, and Joe can hear me on this and I know he believes this, but for me it has to be such a priority that we accelerate a nuclear energy rollout in the United States. Because that's what China's doing. They have dozens of Gen 4 reactors that are going to get built, each of which has a gigawatt of production capacity, and they're doing it at a cost that we can't compete with today. But fundamentally, they can do it in the US, we can't even do it. And regulations, it goes back to Joe. The regulatory structure prohibits our ability to actually expand energy capacity or electricity production capacity, which is a critical difference. And that ultimately leads to a situation where in 10 years, we're going to be looking across the water at a competitive country that has 3x, 4x the electricity production capacity of our country, and everything is cheaper, everything is faster. It gives them superiority in a lot of functions that we can't. This is a key national security thing too, because we need manufacturing here to be affordable and competitive in order for national security. David, when you texted me last minute to join this, I was actually in a meeting with our friend from Founders Fund who's building nuclear fuel again for the first time in the US. That's actually gone away too, so that needs to be approved. But I know Chris Wright, he's the nominee for the new Secretary of Energy, and he's super pro-liberty, but super pro-cheap energy guy, and he's pro-nuclear. So I think we have some really great people who care about this. We're going to be fighting hard for it.
What's your read on it? Yeah, what's your read on energy and the blockers?
Yeah, I mean, more nuclear, more better. I agree with everything Joe said. And the only thing I would just add is it is the most environmentally friendly kind of energy source. Some way it's even more... I think it is highly likely that in my lifetime the world just runs on solar. If you just look at the rate at which photovoltaic cell efficiency is compounding, battery efficiency is compounding, and people make these balance of system arguments, but it will never be as cheap as nuclear, but it will likely approach coal. And I think a lot of the world will run on solar, but that's going to take 50 years. Nuclear is arguably just as environmentally friendly done right and carefully, and it is here now.
Yeah, I mean, it is unbelievable to watch not exactly Moore's law but this precipitous drop in the cost of just solar panels. Solar's very impressive, but in some ways to me it's a little dystopian to think about all these forests just covered with this stuff. It's rate limiting. You have to have many, many acres rolled out. And with nuclear, you can have a building that can power the equivalent of many acres. So the answer is both. But it is like Elon has tweeted many times about the tiny fraction of deserted desert areas of America that need to be covered with panels, and then you put in batteries. There's still a space limiting. Let's just fast forward 100 years on planet Earth. If you look at the past 100 years and the 100 years before that, energy demand, even on a per capita basis, has this nonlinear kind of scaling problem. And that means that land consumption will scale nonlinearly.
Now we have it. If we're going to say 100 years though, technology changes. It's very clear you could probably do it from space if you really wanted to. I mean, this sounds crazy, but you probably could have tons of these in space. 100 years is far. I mean, we have enough uranium in just the crust of the northern hemisphere to power everything. We're on the edge of unlimited energy for all time.
Just to wrap this up and move us on, if we can get out of our own way with a bunch of midwits who have put so much regulation in place and who are working from home for four hours a week, if we can just get them out of the way, then maybe we could approve some nuclear reactors and a little more solar battery.
Did you just call government workers midwits?
Just the ones who are blocking. If you're not blocking and you're working 50 hours a week, God bless. A lot of people working hard in the government. That's exactly my point. But there's some number of them who are just obviously do not see the forest through the trees.
By the way, on that point, JCal, it is interesting. Texas is the number one solar producer in the country, and it's not because everybody there is more environmentally conscious. No, we're not that liberal. It's just it's easy to build stuff in Texas. Build solar power plants. This is for the libs in cities who are so pro-solar and anti-natural gas or whatever. Look at Texas. They just build as much as you want. And where Joe and I live in Austin, home prices have gone down two years in a row, rent has gone down two years in a row. They are building like lunatics because you don't need to beg and bribe people to build stuff.
Joe, maybe some thoughts on what we've seen in regulation? Austin city council is not perfect. Austin, they called the blueberry and the tomato soup. So there may be a tiny bit of begging going on, but despite that, you're able to build there and everywhere else around you're building like mad. So it works. There's plenty of supply.
Speaking of regulation, Gary Gensler is out, Paul Atkins is in, and Bitcoin just cracked 100k. This is all obviously related. Atkins was previously SEC commissioner under Bush 2 in the early 2000s. In the 90s, he worked for both Bush 1 and Clinton at the SEC. According to the New York Times, Atkins is admired among DC legal circles and regulators. He's pro-crypto and he's been helping draft some best practices for crypto trading platforms. As you know, Gary Gensler's approach to crypto was, 'There's a rule set, follow the rule set. We're not here to change the rules, we're here to enforce them. Good luck.' And in some cases, I think maybe he was right with ICOs and a bunch of scams, but he also gave good actors no path to go forward. Anybody have strong feelings on this?
I love Paul Atkins. I think he's a fair guy. I've met him several times at conferences and groups, and he's a really smart guy. Cares about the rules, cares about helping innovators. The thing that really pissed off Gensler... I mean, I love... you've probably seen, I think Coinbase with Brian and the Winklevoss twins put something out. They won't even hire anyone who worked with Gary on any of this stuff. And the reason they're that angry at them is they were purposely not defining the rules in certain cases and then going after people after not having to, in order to play a gotcha game that was very dishonorable. And Paul sees all that, and there's no way he's going to allow that.
Gavin, any thoughts here on how this might change regulations in our business? Also the fund business. Joe is a venture capitalist, you're in public markets and funds. I do pre-IPO. So yeah, what do you think in terms of funds and regulations there, and crypto, and the SEC may be becoming innovative as opposed to punitive? What's the word for, Friedberg? What's the word I'm looking for here?
Well, they are a regulator. They are a regulator. But they don't also seem... they seem to have gone beyond just regulating. They seem to have been aggressively adversarial.
Yeah, I mean, they're a regulatory enforcement agency. That's their job. So I don't know. But not giving a path or not even meeting with people, I think that was the thing that I felt was kind of weird. They'd meet with you if you were a big donor to the left. They wouldn't meet with you otherwise. That was part of it too. That was sketchy. That's why SBF got tons of meetings but Brian got none. Right? I mean, it's nonsense like that.
I do think cryptocurrencies at some level fundamentally reduce the power of nation states, and that is something that is professed by the true believers, but it is true. So if you are on the left and you are a devout believer in the power of the state to do good things, I get why you might not like cryptocurrencies. At the same time, we're very early in crypto. I read with interest all of the posts that David Marcus and his peers at Libra made about what happened to them. Libra was a Facebook project to embrace cryptocurrency at a very intrinsic level onto the identity level of every one of their billions of users. And I think you can argue it would have been really, really good for not just America but the entire world. There are a lot of immigrants in America who send remittances back to their home countries at extremely high, predatory rates. It would have made that free, and that would have been amazing for a lot of really hardworking people all over the world.
It would have... Visa, Mastercard, they do charge big fees. I mean, not Visa, Mastercard do not charge big fees, but the credit card complex in aggregate is a reasonably big fee. I mean, everybody... it's just two and a half percent to make it perfect and safe. I think Facebook had a sound argument that they could have done that cheaper, and that would have been an efficiency game for America. And it really did bum me out to read some of the letters that they sent. The way they killed Libra, if anyone doesn't know, and maybe we can pull up David Marcus's post, they just... all these politicians sent letters to participants in financial markets saying, 'We don't know if they are doing anything wrong, but we think they probably are, and we're going to look at this very closely, and we want to discourage you from participating.' It was worse than that. It was like a mafia letter. It was like, 'If you are to support this and help with this, we are going to look into everything else you are doing, and we may then find some issues.' It was like a mafia threat. 'We can't stop you legally, but watch out.' It was really sketchy. It was Sherrod Brown, who now is out of office, who led this. Senator from Ohio. But it was really bad. It was really bad what they were doing. I found it upsetting as an American.
And you kind of hinted at this, Gavin. The fear of governments is that they will lose control of money supply and monetary policy. Maybe unpack that a bit, and then Friedberg will go to you on the same thread.
Yeah, I mean, look, it is a rational fear. Controlling monetary supply, at some level the greatest powers we give the state are a monopoly on violence to keep us safe, and control over the money supply has a means of exchange, a unit of account. And those are great powers, particularly if you're America and your currency is the reserve currency. The only thing I would just say to balance this out, and I do think people are very positive on Paul Atkins. I've never met him, but the reaction from people who know him like Joe and who I respect has been very positive. It's important to remember we have the best capital markets in the world. The US equity and fixed income markets are the most trusted places on Earth. And we can always make them better, but you want to be very vigilant about keeping them fair and keeping out things like inside information, which makes people feel comfortable doing business here. Having investors have confidence in a company's financial statements. Those financial markets are one reason America is such a great country.
And Gavin, to put this in context, this was during a time period, this David Marcus Libra process, when they felt certain people in government... and I'm not saying I endorse this, but this is their position. Zuckerberg had too much power. Zuckerberg was censoring people. The right felt they were being censored. The left felt that Cambridge Analytica and people were using targeting. The general vibe, and even JD Vance was kind of in on this as well, was too much power specifically at Meta. Too much influence. Now they've got this many people, this penetration, and the algorithm. Plus we're going to give them money and they're going to have power over people's wallets. And then what does the government have? They can't censor people, they can't control the message, and they can't control the purse strings. That is the time period we're talking about here.
Oh, no, I understand 100% why they did it. I just think as an American, at a minimum, the way that they did it was, to use one of Joe's phrases, dishonorable. If you want to say that we're going to kill this, then just let's have a debate as a nation. Absolutely don't do it in shadows. Rule of law is also another reason America is a great country.
Yes. Friedberg, your thoughts on David Marcus's comments and this SEC pick and just generally a more pro, less regulation kind of situation?
I think the SEC is one of the most important agencies we have, and I think they're one of the best federal agencies. I've worked with them and I've worked with other agencies, and there's all these issues with the SEC, but they play a very important job. If you've worked in foreign markets and you've dealt with foreign securities regulators, you're going to be like, 'Thank God for the SEC. Can't wait to go back.' This whole crypto thing, there's a distinction I think between Bitcoin and cryptocurrencies as speculative kind of assets, speculative trading.
What do you see those differences as?
Well, I definitely concur with Gavin. I think Bitcoin fundamentally is meant to be, supposed to be, ultimately will become a real threat to the US dollar. And it's kind of ironic that Trump had this declaration this week that he's going to put 100% tariff on all these BRICS nations that try to participate in an alternative currency to the US dollar, the greatest currency on earth, when he literally turns around and then says we're going to support Bitcoin. It felt like the biggest irony of the week to me, because I do think Bitcoin is the big threat to the US dollar. And I do think that at some point, whether it's this administration or the next, they're going to wake up to that fact. And maybe the Bitcoin network state concept does emerge and that's where we end up. But I do think we want to have and are going to have a strong federal government in the United States for quite some time that's going to play an important role in everyone's lives here. And I don't know if you can really just say let the dollar be supplanted by Bitcoin.
Bitcoin seems to be more of a safe haven asset, and that seems to be the trade that it's store value. Should be kind of store value and alternative. It's just going to take over gold. What do you think? Do you think the state has reasonable concerns about crypto competing with it? And then maybe specifically when you saw Trump talking about, 'Hey, congratulations on your Bitcoin, I did this for you on 100k,' and taking credit for it at the same time, which he should take credit for it. He did it. He did that last $40,000 per coin. And then you see him talking about the BRICS and then we have the US currency. So which is a bigger threat to American exceptionalism and supremacy on planet Earth: Bitcoin or BRICS?
So one represents a move towards liberty and one represents a move towards authoritarianism. If BRICS were to become dominant, if China and Russia were able to control global currency together and other players, that is terrible. It's bad for the US for so many reasons, bad for the US consumer for so many reasons. He's right to fight it. At the same time, having, to channel Balaji, having this pro-liberty network state-like forces in that direction. For example, I think rather than just Hong Kong and Singapore, Hong Kong's been lost. We should have more Hong Kongs and Singapores in the West to compete with the US. That'd be good for all of us who are on the pro-freedom side of the US and make the US wealthier. It would show examples of new experiments that create great wealth. And then that's kind of the side of Bitcoin is you want more experiments and competition from the liberty distributed side. You don't want competition from the authoritarian side. So to me, it was very consistent.
Yeah, well, I would just say Texas is the Singapore of America. And it is putting pressure on the rest of America. And I don't say that just because I grew up in Texas. It's just a fact. I do think long-term, Bitcoin... I do not think the BRICS will ever be able to replace the dollar. Just rule of law, even if it has occasionally been corrupted in America, is very, very powerful. Yes, as opposed to rule by law. But I do think Bitcoin will at some point be a serious threat to the US dollar. And that just is what it is. And we'll see how different administrations react.
Would that it's a check on the most aggressive mistakes. First of all, if the debt doesn't get under control, if our deficit is ridiculous, Bitcoin is a wonderful check on that. You actually want healthy competition from something good because you want to check the excesses and the craziness. You need someone coming from the outside to say, 'No, don't do that.' Let's just say at some point an AOC-like person gets in charge. It could happen in the next 20 years. You need some kind of check on the dollar, and it's much better to come from the liberty side than from the other side.
I agree with all that. I will just say on AOC, I thought it was very interesting. I think if you're a Democrat, I think you're probably largely heartened by the intellectual leaders of that party's reaction to losing. It's focused around, 'Hey, we do need to deregulate. It is too hard to build.' Josh Shapiro's been tweeting every three days about how he's making it easier to do business in Pennsylvania. It used to take 20 days to get a hairdresser license, now it takes an hour. All that is good. But I actually thought AOC, who is a very talented politician, she's an extraordinary communicator, her reaction was like she posted this on Instagram: 'If you voted for Trump, I want to hear why. I want to hear the things you listened to that convinced you. I don't say this out of anything other than genuine curiosity. Clearly I am missing something, and I want to listen.' And I just thought that was a very interesting reaction.
That is the proper reaction.
View on Michael Saylor's convertible note issuances being used to buy Bitcoin, which this morning Bloomberg reported is the hottest trade in hedge funds right now. Nick, if you could pull up the article, and then JEL, I know you've been an outspoken opinion setter on Michael Saylor's promotion of his securities actions. We'd love your point of view.
At some point this does get too big. When it was smaller, you could support the debt. Could you explain it to everyone, Kevin?
Yeah, so what he is doing is issuing debt and buying Bitcoin with the premise that Bitcoin is always going to go up. He has made eloquent arguments why that is the case. No trees grow to the sky. I think the interest expense on his convertible notes is $75 million off the top of my head. By the way, I could care less about MicroStrategy. I'm not close to it, I'm not involved. I don't know any hedge funds who own it. No horse in the race. I think a lot of hedge funds are short MicroStrategy, but I have no horse in the race. The underlying business that pays the interest expense on the debt only does $400 million a year in revenue, and it's high gross margin revenue. Unless debt investors have absolute confidence in Bitcoin as collateral, and I don't think that's where fixed income markets are yet, it will get to a point where it is too big for the size of his company. Then maybe he can over-collateralize it and have $10 in Bitcoin for every dollar of debt, but then the magic money creation machine that I see discussed on X breaks down. That's very different than what is being discussed today.
Joe, do you have a point of view? Joe's got to run, by the way, so Joe, you want to close this out? Defense people down here in LA.
Listen, I am very bullish on Bitcoin. I love the energy of our society around it. I agree with what you said, Dave, that there needs to be some barriers for the public taking crazy risks. I think the risks around how he's accessing this is actually very unusual and does scare me a bit. People need to do their research. They shouldn't just throw money without studying it. It does scare me a little bit how boldly people are throwing money at this without knowing the kind of leverage he's taking.
Yeah, Joe, anything else you want to share that you're up to, that you're excited about before you head out?
Well, this weekend is the annual Defense Forum at the Reagan Library. I'm on the board. It's the biggest defense event of the year. Everyone's coming. I guess I'm really excited that America has woken up in assuming we can bring back more advanced manufacturing here. I think there are enough top companies now with Anduril, with Serco, we're going to be building thousands of these vessels for the Navy with AI. With Epirus, we're turning things off 10 miles away with microwave radiation. There's some really cool technology coming that actually is going to make us able to deter our enemies. If you asked me six or seven years ago, I was panicked we would get way behind China. I'm feeling really good about it now. I think the Pete Hegseth pick is someone I'm quite bullish on from everything I'm hearing. I think things are going the right direction.
Is there a wholesale upgrade happening in defense in the United States? Are all systems and all strategies being rethought right now, using technology and innovation and a performance-based product mindset leading a reinvention of everything? Is that what's going to happen in the next four years?
Warfare is fundamentally totally shifted. We're seeing some of this in Ukraine. There are all sorts of new ways to swarm things on the land, swarm things in the water, swarm things in the air. How do they coordinate, how do they work together, how do you manufacture enough of these things, and how do you use electronic warfare? It's a whole new way of doing things, and we are going that direction. Too much of the money, David, like 95% of the money, is still going towards wasteful legacy things we don't need plus maintenance. But enough is shifting, and there are enough good people fighting. As long as we keep allowing open competition to let the best things win, I think it's going the right way. I'm feeling very good about it.
