Coming Great Depression - How To Survive & Thrive The Great Reset? | Arthur Hayes

I absolutely agree there's going to be a major financial crisis, probably as bad or worse than the Great Depression, sometime near the end of the decade. Before we get there, we're going to have, I think, the largest bull market in stocks, real estate, crypto, art, you name it, that we've ever seen since World War II. And the reason I believe that is if we back up to like 1945, essentially Europe blew itself up, China was destroyed by a civil war, and Japan, Russia essentially fought the war for everybody else, and you know, massive destruction. So if you look across the world, the only country that was left was the US, and you know, they had a manufacturing base that was unharmed from the war, and they essentially rebuilt the world and reaped enormous benefits. And we're still, you know, people who are American are still living off of those benefits today.

But at the end of the day, everybody started believing this thing called, you know, Keynesian economics, which basically is if something gets in trouble, the government should rush in, spend money. If they don't have the money, the central bank should print it. And you know, everybody collectively in the world, depending, no matter what ism you believe in, subscribe to this theory. And what that means is, you know, we all have collectively agreed that the government is there essentially to attempt to remove the business cycle. Like there should never be bad things that happen to the economy, and if there are, we want the government to come in and essentially destroy the free market.

So every time we've had a financial crisis over the last, you know, 80 years, what happens? The government rushes in and they essentially destroy some part of the free market because they want to, you know, save the system. And what does that mean? It's like whack-a-mole. So every time there's a disturbance, you know, the central banks, like the Federal Reserve in the US, they come in, they print money, they enact a bunch of regulations, and they basically say, okay, we don't want this sector to fail. We don't want, you know, the creative destruction that is so-called, you know, capitalism, if you actually believe in that. We don't want that. And every, you know, five, seven years, there's another sector of the economy that's essentially price-fixed. And so we've got to this point where, you know, globally, central banks have basically destroyed the free pricing mechanism in just about every single sector of the financial economy except one, which is the government bond markets, because they're so large, so unruly that it's practically impossible to essentially remove the market forces from this part of the market.

But the problem is right now we're going to try. We've, you know, gone from, I don't know, 100% debt to GDP globally to about 360%, as per the Royal Bank, and we are accelerating the amount of debt that we're adding onto the pile. Why? Because in the rich world, including China, Russia, and Brazil, we've stopped having enough kids, so the population is actually declining. So if you have all this debt and you don't have more humans being born to essentially do stuff to pay it back, the only way to ensure this system is solvent is for the governments and the central banks to start printing money.

And now we've gotten into the situation where we have all this debt that needs to be rolled over. We have a population that has been told that, hey, if anything ever happens, we, the government, are going to come in and we're going to make sure that, you know, you have enough food to eat, you got healthcare, we're going to protect you, blah, blah, blah, right? And all that's expensive, especially as you have less and less humans who are doing productive stuff. And so we're just going to keep adding on debt because that's the only way the government can stay in business.

And now we've gotten to the situation where there's so much debt that, and it's accelerating in an exponential fashion, that in order to save the market this time, right, so I think in the next three to six months there's going to be some sort of major market disturbance, and probably in the US Treasury or other large global bond markets. And the solution is going to be let's print the most money that we've ever printed to try to save essentially this fiat financial system that we've created since World War II, which is going to, in the first instance, create a massive bull market in anything, you know, like stocks, crypto, real estate, things that have a fixed supply, maybe they're productive, they have some earnings. And then after that, we're going to find out actually the government can't save everything. They can't just print as much money as they think to try to save themselves and fix the price of the yield of their bonds. And we're going to get a generational collapse. And hopefully that doesn't coincide with a major global conflict. Usually it does. I hope it doesn't, because I don't really want to live through World War III while I'm alive. But that's sort of my overarching macro cycle thesis. So, you know, massive top 2026 timeframe, and then, you know, some sort of Great Depression-like situation happening towards the end of the decade.

If we want to take a look at the progress of human civilization over the past 150, 200 years, it's all predicated on hydrocarbons. The moment we started extracting oil commercially out of the ground and turning it into thousands of different products that we all use every day, that basically powers our modern life, development supercharged. Right, you know, we went from, I don't know how many billions of people in the 1970s to today, a population more than doubled, right? And that's all because we were able to harness this particular type of potential energy of the earth that's underneath us.

Okay, and we've piled on all this debt, we've brought forward all this future growth, and we haven't really innovated on another form of energy that makes us that much more productive. You know, maybe if the world started adopting nuclear today immediately, like small nuclear reactors in our cars, our apartments powered by nuclear energy, maybe we'd have a chance at growing our way out of this debt. Or, you know, if there's some magical alien that comes down and gives us, you know, some basic resource that allows us to tap a new source of energy and like we can commercialize it instantaneously, yes, then we can pay back all this money. Or if the population doubled overnight, right, to 16 billion people, then okay, great, we've built all this stuff, there's more people that need to use it, okay, we can pay back this debt.

But barring any of these, you know, I like to say it takes 18 years to make an 18-year-old, so it's pretty much impossible to create humans on thin air, no matter what any politician tells you. And, you know, we're not really, you know, what we seem to be doing is in certain countries is saying, you know, hydrocarbons are worthless, we want to use these other forms of energy that are less dense, less productive, and somehow think that we're going to grow our way out of this debt, which is mathematically impossible. There's just no other way other than if the government wants to save itself by printing money. And printing money isn't growth, it's just a piece of paper out of thin air. And once the population thinks, hey, there's more and more of these pieces of paper floating around, there's only so many real goods, there's only, you know, there's only so much oil, there's only so much electricity, well, I guess I should be consuming everything I can now. That's not actually generating real growth.

If we could just print our money and generate real growth, then Rome would have survived, Zimbabwe would be the richest country in the world, same with Argentina. We've had, you know, the Weimar Republic in Germany. Like, if this was the answer, there's plenty of other, you know, societies that have tried this, and the result was always the same: massive inflation and then social unrest and collapse with the government. So I think we've proven over thousands of years of human history that printing money is not growth, it's a scheme. And the party lasts for only so long, and then, you know, it's bad news bears.

So for whatever reason, and I don't know why, Western Europe starting and then America following has it in for Russia. And I know if you read the, I think it's Mackinder, his global Heartland theory that he wrote, I want to say in the early 20th, end of the 19th century, whatever, he was a very famous war strategist. And he basically said that the Heartland is essentially Eurasia, right? So think of China, Russia, Western Europe, right? Whoever controls that portion of the world controls the world. And so if you think about the naval powers such as Great Britain and the US, let's talk about Great Britain first, right? What was the British foreign policy all about in the 19th century and early 20th century? Preventing a strong continent, whether it was France or Germany, they didn't care, they just don't want a unified Europe.

Now as Russia industrialized in the late 19th century, they started to worry about, okay, what about Russia, right? We can't have an alliance of strong Germany after Bismarck united Germany and Russia, because Russia has all these commodities. That would be the worst thing that could ever happen for us, Great Britain, a naval power. So what do they do? They, you know, a series of alliances that, you know, precipitated World War I, which was let's make sure that Germany and Russia are not friends. And essentially that was a strategy going into World War I. You know, obviously that blew up. What was the strategy in World War II? You know, if you take a look at the rise of Hitler and, you know, all the different, you know, Western powers that were okay with Hitler as long as he was going to turn his army and just fight Russia, right? You know, Hitler wrote about this. He said we want to create the space for the German people to eradicate the Slavs in Russia and go in there. And the Western world was perfectly happy about that because again, what do they want? They don't want a united Heartland, they don't want a united Eurasia, because that threatens the hegemon, you know, Great Britain at the time.

Obviously that didn't work out so well. Hitler turned his army on the other half of Europe, and then everybody started fighting again. And then we ended that war, and then what we were left with? We were left with the United States versus Russia again. And again, it was all about let's make sure that, you know, Russia and China aren't aligned, or Russia and Western Europe are in an alliance. That's why, you know, the US poured however many billions of dollars through the Marshall Plan into rebuilding Western Europe to make sure it was a bulwark against Russia and the virus of communism.

And, you know, I forgot, I was reading a recent book, it's called The Wars of Asia, 1911 to 1949, and the author made a very good point about why communism is so hated as a form of government to anything that's not communism. And the reason it is, because, you know, obviously communism has its flaws, but at its kernel of truth for lots of people is we're going to completely uproot the social system, we're going to replace the classes that are oppressing us. It's not like, okay, it's one class of elites that was running things, we're going to go over to this other class of elites, which is like socialism, fascism, you know, capitalism, it's just one group of elites versus the other. Communism is let's destroy the whole class of elites and bring the people up to power. Now, obviously that never actually happens, but in the beginning it does. And so if you're a bourgeois intellectual and you're in one of these other systems, you're like, I can't have communism take over, I can't have the actual workers rise up, replace me as an entire class and then try to rule, which is why they hate communism so much.

And so, you know, the Russian system and what they're trying to export in terms of an ideology is so hated in the, you know, liberal democratic or pseudo-fascist West. In any case, the US is now, you know, locked heads with Russia to make sure that a divided Eurasia, because a strong Eurasia will control the world, because it controls most of the natural resources of the world and most of the population. And that's been the US foreign policy since the end of World War II.

Fast forward to, you know, the 90s when the Soviet Union collapses, the US response was not let's do another Marshall Plan and rebuild Russia. It was let's incentivize a bunch of former gangsters, now called oligarchs, to come in and take all the natural resources, impoverish their people, and move their wealth to London and New York, right? And so that was the policy. Now out of that came, you know, essentially Putin, who was all about let's build a strong, you know, revisionist Russian ideal, believe it or not, whether you think that's good or bad. But that's his appeal to the Russian people is, hey, you guys suffered through the end of the Soviet Union, the West was not your friend, you know, they stole your shit, I'm here to rebuild the Russian for the Russian people. Believe it or not, that's his message to his constituents. You know, you can like it or not like it.

And so now we're at the situation where Russia invades Ukraine, and the West pumping in resources to essentially fight them using the blood and tears of the Ukrainian people. It's not Americans fighting, it's not European, you know, NATO Europeans fighting yet, right? So it's a proxy war between Russia and the West. Obviously Russia is tacitly supported by China, and the rest of the world is like, well, we don't want a part of this, we're trying to be non-aligned, we don't want to get involved in this thing. So we have this sort of setup all over again of what was happening in the late 19th century of the West aligning to create a divided Eurasia.

And so, you know, we can call it a conflict or a skirmish or whatever, but you have, I don't know how many billions of dollars have been authorized by US Congress to essentially ship weapons into Ukraine. You have NATO shipping in weapons, different countries providing intelligence so that the Ukrainian forces can attempt to stymie the Russian advance. Now, while yeah, there's not boots on the ground from the West in Russia to our knowledge, maybe there are, I don't know, it's basically a war. And so you could make the argument that World War III has already started. It's just not this hot, super kinetic, you know, I'm going to throw my nukes at you kind of thing that we had in the last World War.

So at the end of the day, right, human civilization is a transformation of the potential energy of the sun and the earth into useful economic work, right? So cheap energy prices equals prosperity. Russia is the largest commodity exporter in the world. They have oil, they have natural gas, they've got, you know, metals, they've got food, right? Ukraine, the breadbasket, was one of the largest wheat exporters in the world, sunflower seeds, oils, all this stuff is in this region. And now the West has decided that we're no longer going to trade with Russia on paper. Now if you actually look at the details, you know, India, China, some of these other countries are basically buying the Russian stuff, refining it, selling it back to the Europeans and the Americans at a higher price, right? So the result of this policy of let's ostracize Russia is let's just raise prices on our energy inputs globally. And so the war is causing the inflation that now the central banks have to fight by raising interest rates, which then bankrupts the banking system because they now have all these bonds, you know, that are underwater. So this ideology we need to fight Russia to, you know, keep the Eurasian island fractured is the proximate cause of the inflation that's causing the financial crisis in the West itself. So it's a dumb policy, but it is the natural result of what happens when you say I'm not going to trade with the largest commodity exporter in the world.

So, you know, the situation wouldn't be so bad if there wasn't all the money printing prior. So at the end of the day, let's take the US for an example because it's the largest and richest country in the world. My, you know, opinion and thesis is, you know, back in the 1970s, the US government made a tacit promise to the baby boomers and they said, hey, go out, work, spend your money, don't save, we've got you. We're going to make sure that when you get old, you're going to have healthcare covered by the government. And don't worry, you can be as energy inefficient as you want, two cars in a garage, driving all over the place, not supporting public transportation. We're going to make sure that where there's oil, we're going to get it. So our defense budget is going to be astronomical.

And so the baby boomers are great, we're going to go out there and live our lives and consume the most that any generation ever has in human history, us baby boomers. And what's happened? Health costs continue to rise. Now they didn't rise so much starting until maybe five or ten years ago because they're in the productive years of their life. But now, and I'm sure probably you've had some guests on talking about it, they call it sick care, right? The amount of money you spend in the last ten years of your life dwarfs all the money you spent preceding. And the way the incentives work in the US healthcare system, there's no incentive to actually have preventative care. It's, you know, when you get sick, let's stick you up in the hospital and like just go to town on the insurance company, which essentially is the US taxpayer because of Medicare and Social Security.

Now, no US politician, and I don't care if you're a Republican or Democrat or third party, whatever, can stand up there and say I'm going to reform the US healthcare system and guess what, baby boomers who are the richest cohort and the most politically active, your health benefits are going to decline, you will not get re-elected. And so these two programs are sacrosanct. You also will not get re-elected saying, hey, we're going to really tackle this runaway US defense budget, we're not going to go around the world bombing everybody to make sure that you have enough oil so that you can have the newest badass pickup truck in your garage, go oil. You also will not get re-elected. So healthcare and defense, these line items in the government budget cannot be altered under the current political system and what has been promised to the people over the last 50 years.

Which basically means that as the population gets older and as the world becomes more multi-polar, meaning there's other challengers, namely China, who are saying, hey, this quote-unquote rules-based order that's determined by 4% of the population doesn't work for the rest of the 96% of the population that never got a say in what this order was. We want a new order. We want to have our own commodities, we want to have our own material wealth, we also want to eat a bunch of beef and drive a car, right? If you think about the per capita energy use of the world, for it to match the United States on the global level, we require an inordinate amount of energy that we just don't have, right? That just means inflation. So what our country is doing is saying, actually, we're going to keep our stuff for ourselves, we'll only export finished products, which makes things more expensive.

And so this is all happening before we even got to what's going on today. And as we've had less and less kids, because rich people have less kids and when women have the choice of contraception they choose not to have as many children, the Federal Reserve is like, well, okay, we don't have any growth of humans, we don't have any, you know, we have an escalating cost of keeping the political promises we made to our people, the only option is to print money to make sure that the government can fund itself at an affordable level. And every time there's a financial crisis, instead of reforming the banking system and allowing some people to fail, they just print money to make sure that the banking system is sound. And the goal of the banking system is to take the people's savings and hand it to the government. That is why the banking system must always be saved from the government perspective, because that's what it's there for.

And different countries use their banking systems in different ways to essentially get to the same goal of funding the government at a cheap level. And so that's why whenever the banking system is threatened, the government or the central bank must come in and save it by printing money. So we've gone through this situation, you know, coming up to today, where, you know, the US went from, I don't know, 30% debt to GDP in the 1980s to 130% today, which is, you know, a massive amount. And if you read, I forgot the other professor's name, Reinhart and Rogoff wrote a piece about debt, 2011 the book came out, I forgot when, sometime in the last 15, 20 years, and they empirically showed that once a country crosses about 130% debt to GDP, there is always a default. And a default could be massive currency depreciation, it could be massive financial repression, or it could be some sort of default in the government bond market. Every single time, no exceptions, right? So they're at this level already.

And now the inflation comes, and the inflation is part and parcel a result of there's less humans doing productive things, the war on climate change and the rebuke of hydrocarbons, and then more players in the world wanting, getting assertive over their natural resources, saying it shouldn't just all go to the United States and Western Europe, it should come to our people, we should enjoy the same standard of living that we see in the Hollywood movies.

That's basically it, right? There's the denominator, the amount of money, it's just growing infinitely. And then the stuff, the finite stuff, and I think about finite stuff as energy, right? We produce, and that is, in my opinion, hydrocarbons, because that is the thing that powers our entire global civilization. I don't care what you believe about the good or evil of oil, but your entire modern life is predicated on oil, whether you believe it or whether you want to believe it or not. And so it's not as if we've gotten that much more productive in pulling oil out of the ground, or have found, or, you know, decided to commercialize nuclear energy, which has been around since, I don't know, the 1960s, right? For whatever reason, we as a civilization globally decided to ignore this amazing energy source and poo-poo it.

Now if we had decided back in the day to commercialize nuclear and spend the amount of energy and money that we have spent on wind and solar on making nuclear the safest possible energy usage in the smallest possible delivery mechanism, we might not be in this situation. But those are the political choices we made as a civilization. So the energy and the amount of energy and how much energy we're producing every year is not growing. In actual fact, like we hit peak oil, you know, a while ago, meaning the entire growth of the oil industry has been predicated on US shale, and the number of new discoveries and new wells being drilled is declining precipitously because shale depletes itself very quickly. But it's not like we're finding a new Saudi Arabia every 10 years, no, you know, these massive oil discoveries, we're just not making them like we were in the 60s, 70s, 80s. And so more debt, the amount of energy we're producing is flattish. So that's why we're going to have energy inflation, and when you have energy inflation, you have goods inflation, because every single good we use is a derivative of energy.

So that's sort of in the past. In the future, we have essentially the rest of the world, and, you know, call it the non-aligned countries, they don't subscribe to the West, i.e., NATO, or the China sphere, right? They go, hey, we're a bunch of countries, we've been impoverished ever since pretty much forever. We have the natural resources that are needed to power the green revolution. We have hydrocarbons. We have people who will come into the US and be your nurses, we'll clean your toilets, who will take care of your children, right? This is what we have. We want to keep these resources for ourselves. Now we don't want to choose a side, China or the US, we just want to get wealthier ourselves. How do we do that? We trade. What do we trade? We trade the higher value goods, right? So an example would be Indonesia, a large producer of nickel, one of the largest in the world. Joko Widodo, the president of the country, has recently banned the export of raw nickel. He said, you know, guys, you want some nickel, come down to Indonesia, build some sort of manufacturing plant and export the refined product.

So I think if I read the statistic recently, they went from about a billion dollars of economy around nickel when they were just exporting the raw stuff to something about 20 billion dollars of value-added when they said, guess what guys, you need to build stuff to employ our people to elevate the standing of our country. So this is just one country. The rest of the world is like, why the fuck are we letting these guys come down here, own our natural resources, not give us jobs, and then send back the raw stuff, and then we import finished goods, right? That's been the entire structure since World War II, and why stuff is very cheap in the US and Western Europe relative to how expensive things are in the rest of the world. And so they're fed up with this. And now sort of they've broken the ideological position, you know, conditioning, maybe some of the leaders who were on the take from all these countries are no longer in power, and they're like, we want to be like the Americans and the Western Europeans. We've seen the movies, we want to be like them. Why can't we be like them? Well, we're going to stop giving you guys all of our stuff essentially almost for free. And so this is just a movement, resource nationalism, this is what it's called. Kyla Scanlon from 13D calls it the allegiance of the aggrieved, the aggrieved being anyone who suffered, you know, post-colonial issues from essentially being an economic vassal of, you know, some European nation or America. And so they are saying, they're gaining their voice again. And at a time when the appetite of the Western public to go and knock heads against the wall is declining. And so you have the situation where the raw stuff that powers the awesome standard of living that's in Western Europe and America is going to get more expensive because it doesn't come from those countries themselves. And in the case of America, America has all the stuff it ever needs, it's just that the companies in charge would rather ship all the stuff out to, you know, third world countries and have a cheaper labor base than employ Americans who are expensive, right? Europe's not so lucky. But I think that is a source of inflation that's only going to grow as the rest of the world says I want to live in the Hollywood movie too.

Yeah, so at some point I need to write an essay on this, but essentially over the last, you know, 40 to 50 years, the financial ecosystem has been predicated on a scenario where there's never been a situation where long-end, so let's call it 10 or 30-year bond yields in the US, rise, so they go up, but they go up faster than short-term yields. It's called, that's never happened for a sustained period of time over the last 40, 50 years. It's called a bear steepener. Right? So if I'm a bank, I'm an insurance company, I'm a pension company, and I'm going to model what I think the future's going to look like, I'm going to model the way the future's looked for the past 30, 40 years, which is every time there's an issue and yields go up, the government comes in and prints money and squashes that down. They squash the volatility down in the markets because they want to save the banking system, they don't want anything to blow up.

But now because we're in the situation, at least in the US Treasury market, where the US government is issuing the most amount of debt ever, right? Federal deficit's like seven or eight percent of GDP, it's as if we're in a war. This is, you know, the largest, longest sustained sort of deficit since World War II, but we're not in a war, you know, at least not an overt one. You have 7.75 trillion US dollars worth of debt must be rolled over by 2026. Massive amount of debt, that's just on the US side. So who's going to buy it, right? The traditional buyers were one, China, Japan. China and Japan are not buying any more US Treasuries. China because it doesn't want to become more tethered to the dollar from a geopolitical safety issue. Japan because it's also facing an issue in their bond market where their currency is getting trashed because they are also trying to save their bond market. Japan, thankfully to themselves, have saved a lot of money over the last 30, 40 years, and so they're now starting to draw down on that money. They're not buying new Treasuries, they're starting to sell Treasuries. China is starting to not buy any more Treasuries, they're starting to sell Treasuries. And you can look at the official data from the US Treasury, you can see the balance of Treasuries owned by China and Japan are declining.

On the oil exporter side, right, talking about OPEC, you know, Russia is a big member of OPEC. Russia is obviously not buying any more Treasuries, they just banned them from the Western financial system. Saudi Arabia is not increasing its Treasury position, it's also decreasing. So the oil exporting nations who previously would earn dollars internationally and park those dollars in the US banking system and buy Treasuries, they're no longer buying Treasuries. The US banking system, the US banking system is functionally insolvent because the regulators made the rules in such a way that it was profitable from an accounting perspective, not an economic perspective, to essentially take in deposits and buy low-yielding Treasuries. And they could do it with almost infinite leverage and a few basis points difference in the change in the price, and everybody make a lot of money and everybody gets a big bonus, right? So the banks collectively bought all these Treasuries in 2021, and obviously the prices went down a lot since then, and that's why we have the regional banking crisis. So at a structural level, the US banking system cannot buy more debt because it can't afford to, because it's functionally insolvent.

And so, and you know, that leaves the Federal Reserve, but the Federal Reserve has committed to doing quantitative tightening, which means it's letting the Treasuries roll off of its balance sheet, it's not accumulating more Treasuries. So the Treasury has to issue all this new debt, it has to roll over all this new debt, but the major buyers of this stuff, for all their own disparate reasons, cannot purchase it. And so what we're seeing in the markets is relationships that held clad are breaking down. If you take a look at the 10-year US Treasury versus gold, you would think as yields are rising in the US Treasury market, that gold would be getting clobbered. That's how it's worked in modern financial history, because if the interest is high, money says I want to own that, I want to own the 4.5% Treasury versus owning gold which pays me nothing. But nowadays, gold's holding firm. It's not rising in a crazy fashion, but it's not getting clobbered either, as US Treasury 10-year yields are at, you know, was 434 basis points last time I checked.

The market does view it as risk-free in a US dollar perspective, in a nominal. Why would people stay in gold? Because they say I'm not getting paid enough, right? Now I use a term of real yield, and if you ask an economist, you get a different answer depending on who you ask. My definition of the real yield is I take the government bond yield and I subtract nominal GDP, right? So if I'm lending money to the government, from a philosophical standpoint, I should receive at least the yield of the growth of the economy. So if the economy is growing at 10%, I should get...

Paid 10% too because I'm contributing to that, right? I'm lending to the government, the government is doing its thing, you know, and the economy is growing. I should get paid the same amount. Now from the government's perspective, you're like, hold on, I can make a profit if I can somehow engineer the economy to grow at 10% but I only pay you 5%. That's a negative yield I, the government, have and I'm making a profit. Or conversely, if the yield is 10% and the economy is growing at 5%, then the bondholder is earning a profit. But right now, the economy in the US, if you take a look at the latest Atlanta Fed GDP Nowcast, and they have a real-time guesstimate on what GDP is running, nominal GDP this quarter is running around 9%. The 10-year yield is about 4.34%. So I, as a bondholder, I'm getting shortchanged. Now people are starting to realize, like, hold on, the US economy on paper is growing like gangbusters. I should be getting paid more money. If I'm not going to get paid more money, then I'm not going to own these bonds because I can own something else that's going to give me a better return, whether that's stocks, gold, crypto, whatever.

So, you know, most people who own bonds that hold them, the bond is a price, right? So as the yields rise, the bond price goes down. And so as yields go from 5% to let's say 10%, so the Fed just keeps raising rates, right? As a holder of the bond, you've lost money because yields are rising, the bond price goes down, right? So as yields rise, I lose money because I've locked in the lower rate and it's going higher, the bond price goes down. Versus gold, which, you know, could go up, right, or just could stay flat at the end of the day, and I'm fine. So if you take a look at returns of 10-year bonds starting in the end of 2021 when the Fed started raising rates, you've gotten absolutely killed. It's been the worst bond market in hundreds of years, right? So owning bonds has been a terrible, terrible investment over the last two years because inflation is going up and the bond market is saying, actually, I demand more yield and the yield keeps going higher and higher and higher and higher to attract more and more buyers. Now, if the US government is perfectly willing to put the 10-year treasury yield up at 10%, they'd have a flood of money into the market. That's awesome, I'm getting paid the same growth as the US economy. But right now I'm not because the government can't afford it. Right now the treasury is already spending something like 34% of the budget, like interest payments on an annual basis.

Yes, so it's like $1 trillion annualized right now is the interest expense as of the second quarter, the last time the treasury published the statistic. So they're issuing more debt and they're paying more money in the debt, and that number is just going like that in terms of the interest expense handed out to people who own bonds, right? But on the long end, and this is how bonds work, the longer the maturity, the more risk, more sensitive you are to interest rates, especially if the bond, the yield starts at a low level. Going from 1% to 5% on a 10-year treasury absolutely destroys you as a long bondholder, which is why a lot of these bond funds have done terribly, well, have done terribly over the last few years because of how bond math works. And it's a nonlinear change when you raise interest rates and how the bond price performs. Gold has pretty much held constant over that time. You haven't made money, you haven't lost money, but if you were holding a long bond at 1%, 2% and now it's at 5%, you've gotten crushed. And that's exactly what happened with the banking system. You know, SVB, First Republic, Silvergate, Signature, you know, this year they've gotten crushed on long bond trading.

Now the mortgage though would be completely inverse, right? So on a mortgage, I want my rate going down. On a bond, I want my rate going up.

I'll add one little caveat here: is you can actually hedge this stuff. So it's not as if there isn't instruments to say like, 'Okay, I bought a bond at 2%, 3%, I'm worried about the future where the Fed raises rates, let me go out in the market and hedge that.' The banking system could have easily hedged a lot of this risk, and some banks did. A lot of banks didn't, but that comes at a cost. So I can either have a higher bonus or a lower bonus. The Fed says, 'Don't worry, I got this. Inflation is transitory, never raising rates, you know, we're never going above 2% inflation, blah, blah, blah.' Why would I go out and hedge the long-end rates? Why would I go out and hedge rates going up and reduce my bonus? So I'll stop there.

Yep, that's exactly it. The US government bankrupted the banking system, essentially.

There is a political choice there. There, you know, either, as people say, again, I don't, I haven't looked at the deposit rates yet, but if you are a non-too-big-to-fail bank, there's eight of them, it's very hard to attract deposits, and it's very hard for you to raise your deposit rate because again, you have this portfolio of stuff and your deposits are not guaranteed. So if I'm a JP Morgan, a Citibank, a Wells Fargo, I forgot the other ones, the big banks, they have an unlimited deposit guarantee. Now they have to pay a bunch of other charges for that, but if I'm a depositor in those banks, I know I'm, there's no question, the politicians have told me I will get 100% of my money back, no limit. If I'm not in one of those banks, I have to think to myself, 'Okay, is this bank going to get saved? Is this going to be the Lehman Brothers or is this going to be the Goldman Sachs? Which one is going to be?' Right? They let Lehman fail, they didn't let Goldman fail, right? And so it's the thought, and so we're like, 'Well, why even take the risk? Get me the fuck out of here, I'm giving my money to Jamie Dimon,' right? And so that's the issue. People are fleeing because number one, the political choice has been we are not going to extend a blanket guarantee to all these other smaller banks because of moral hazard and all these different things. We're only going to give it to these banks over here. So then the rational response of the public is, 'Well, I don't want to be in that bank. I don't want to have to take the risk that they decide that this is the bank they're going to believe in capitalism on. I'm going to go over here, let me go to socialism, I get my money back.' And so I think that's driving part of it. And then the other thing is the rates are still going up, right? 5.5%, you know, maybe the Fed raises a couple more times, it will be 6%. I can literally, two clicks, go online, go to my money market account, deposit money with the government essentially, and get more money than my bank can mathematically pay me. So yes, there's a banking crisis. It was smoothed out a bit with the Bank Term Funding Program, but it's not as if people have stopped noticing that in less than five minutes they can, you know, go from 0% to 6% interest income. That didn't stop. So the big crisis is still there. The acute political choice that the regulators and the government is going to have to make is still there, is still looming. Who is going to pay for these losses on the bond portfolios of all these banks? I don't know what they're going to decide, but I think they're going to decide to print the money and make sure that the electorate gets their deposit back in nominal dollar terms. So that's just my opinion.

No, no, it covers banks that have eligible securities. So that essentially means US Treasury bonds and mortgage-backed securities. Now the big thing that a lot of people are now focusing on is the commercial real estate, right? That's not included. So it's not as if I lent money to some real estate developer in some market who's going to build office buildings, I can't take that loan right now and give it to the Fed and get back 100% of my money back in dollars, right? I can take a treasury, I can take a mortgage-backed security, I can swap that for dollars. I can't swap commercial real estate, which is a problem because small regional banks were the engine of commercial real estate lending boom over the last, you know, decades, whatever you want to call it. So now as we're changing the way we work and, you know, two to three days work from home for a lot of folks, these office buildings are becoming kind of irrelevant and the market has frozen. So now it's a question of, okay, when deals get done, how big is the price decline going to be? And then are banks going to have to write down this section of their balance sheet and, oh shit, they're insolvent again, or at least we know they're insolvent again? Or what's the Fed going to do? Are they going to expand the BTFP to include commercial real estate loans? Because this is, you know, this is the thing that's going down in price. Or they can expand it to auto loans, or they can expand it to, you know, personal loans, like all these things that the banks have been lending out where the ability to pay or the asset value is declining that aren't US Treasury bonds and mortgage-backed securities. Is the BTFP going to be expanded to cover those? Because if those go down in price, the banking system is still insolvent, right? So yes, they've solved one portion of the market, the one they really, really care about, which is mortgage-backed securities, they want Americans to own a house, and US Treasuries, they want Americans to invest in the government. Now there's all this other stuff they would rather not have to bail it out, but again, the banking system is choking on all this stuff and they're going to have to make the political choice at some point. Either they're going to let the non-too-big-to-fail banks actually fail and a lot of, you know, Americans with small deposits not get their money back, or they're going to come in and save the day and bail everybody out and print more dollars.

I mean, usually the problems are known. It's a question of whether or not we're focusing on, and we being the market, right? So the market knows the commercial real estate's a problem, but we haven't really seen a big price markdown because no one wants to trade. The sellers don't want to realize a loss and then have to mark the rest of their portfolio down and thus be insolvent, and the buyers don't want to buy at this price because they know it's too high. So nobody's trading, right? So it's that calm situation where, okay, well, the price is still where it was, you know, 12 months ago, but there's no transactions, right? So once there's a few transactions, when people have to sell for whatever reason, we don't know what that's going to be, then we're going to go, then it's the fiduciary responsibility is, 'Okay, well, there are these transactions in the market, I now need to mark down my portfolio, report to my regulators, oh shit, my capital buffer has declined, therefore I'm insolvent.' And what usually happens is, you know, because of the politics, they'll let somebody fail. Someone's going to, there's going to be at least one failure, and then the market's going to throw a fit, shit's going to be trading all sorts of fucked-up ways, and then, you know, on one weekend, they're like, 'Okay, we can't let the next one fail,' right? They let Silvergate fail in March of this year, but they didn't let SVB. And by fail, I mean Silvergate went bankrupt and the depositors are not guaranteed to get their money back by the Federal Deposit Insurance Company, FDIC. Whereas with SVB and Signature and First Republic, they were bailed out. They, being the depositors, were bailed out. Now obviously the bank management was replaced and equity holders lost money, but the depositors were bailed out. So usually one person fails. There was a Lehman, there was a Bear before, there was Goldman, Morgan Stanley, everybody else, Citi, GS. So they'll probably let somebody fail first because the politics demand it. Once the fear of looming collapse is instilled in the regulators, they're then going to say, 'We have to print the money because the system is going to fail.' What that's going to be, I don't know. I just see that for whatever reason, financial crises happen in the fall and in, you know, the winter in the northern hemispheric perspective. And so we haven't solved any of these problems, they're only getting worse. They're getting exponentially worse, and the countries that would usually bail out the American financial system by buying assets for their own reasons can't do so. And so as we progress further into this season where traditionally crisis happens, there's going to be something, I don't know what it's going to be, that's just my base case. And I want to prepare myself and make sure that I'm able to make money in a situation where shit gets all fucked up.

Usually, so in the past it was agricultural issues, right? So the farmers, the credit tightens in certain parts of the year depending on when the farmers need credit to, you know, buy more equipment to do the winter planting, right? They receive a bunch of money now, they need to draw down on credit, and so that's why you get the spikes in credit as we move through the agricultural cycle. And that's part of the reason why you have different Federal Reserve banks and different districts, is to try to smooth out the demand and supply of credit between the banks in the East and the agricultural regions in sort of the center of the country. And, you know, every other country is kind of the same, right? Farmers are always in debt and they're always borrowing money and then receiving lots of money depending on how the harvest goes. And I think that's part of the reason why we usually experience crisis in harvest season and then winter planting.

So we already know that the US banking system is insolvent from a mark-to-market perspective. We already know that the major buyers of US Treasury debt are not buying and the Treasury needs to issue a lot of it. That's known. We already know that commercial real estate in the US is a problem, it's just that nobody's trading right now because of what I just described. You know, globally, we already know that China has this massive real estate issue and is deleveraging, which means that China cannot contribute to global growth in the ways that it used to, meaning doing massive government stimulus and essentially buying stuff from the rest of the world to build up their country, right? China's been the economic powerhouse of global growth, which leads into the US and European economies, you know, since the early '90s. They have lost their capacity to stimulate in the ways that they are used to. Japan has a problem: either they're going to save their government bond market or they're going to save their currency. Japan holds, is one of the richest countries from an asset perspective on their balance sheet. Are they going to sell down their treasuries, their, you know, fancy US real estate, their equity positions to essentially help fund the ability for their central bank to manage the depreciation of their currency? So these are all known things. There's nothing hiding. Which one is the one that causes the spark for everyone to start focusing on, freaking out? I don't know.

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 we're all, every government's in the same sort of position. Different things can set it off, but again, global debt-to-GDP is 360%. Why on Earth would I, as an investor, own a long-end bond when I know that there's nobody getting born and there's not going to be an energy productivity miracle? There's just no way for me to get paid back in a real dollar, a real yen, a real real, at a rate that's affordable for the government for me to make money over time. So then why own these bonds? I'm perfectly happy to sit in, like, overnight, you know, Fed deposits or short-end bonds of a particular country because I know I can just sell those 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, 30, 20 years, because rates have gone up, I'm going to suffer 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 system, so making sure that depositors cannot flee to other asset classes and then forcing deposits to buy government bonds. This is called fiscal dominance. This is a theory. Or the next thing is called yield curve 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 is affordable for the government. We're going to telegraph this and we're going to expand our balance sheet infinitely to make sure that the rates sit at that level.' So in Japan, the Bank of Japan is doing this, been doing this for almost a decade, where they say they determine a band of the yield and they say if the yield gets to a certain level, we will 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 two and a half percent. The Fed would expand its balance sheet to make sure the rate is at that 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 fields, 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 might happen similar 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, the people, to get our money outside of the system so that on a real basis we're able to maintain our energy purchasing power?' And that becomes the real endgame of the crisis. Because if all the money is sitting in the banking system and it can't leave, which has been able to do prior to Bitcoin and some of these other blockchain-based cryptocurrencies, then they just tax us all and over time the government basically earns itself out of the situation. Yes, there's high inflation. Depending on how your country is structured, maybe it's hyperinflation, maybe it's just, you know, high inflation, and some governments fall, some governments stay the same. But at the end of the day, most governments can survive. But if we, the people, can get our money into a type of money or a type of asset that's outside of the government control, outside of the banking system, then the system collapses.

So I think people have mistaken the fact that we've been able to 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 in 2000 and essentially became the workshop of the world. And so 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 a lot of the dirty processings of 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 just like everybody else. Their population is, like, forecast to be half of what it is by the end of the century. The population in China has also decided that they do not want to live in a small factory, and they have told their government to prioritize protecting the environment, which basically means that China no longer wants to essentially pollute itself so that America, Western Europe, and, you know, Japan and 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 and rich world, can enjoy a higher standard of living even all the while they're printing a bunch of money. So there is no more, that's just not going to happen again. And so I think that's what people miss about why we were 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.

So on the Japan thing, because this is called the widowmaker trade, the 'Oh my God, Japan's dying, oh my God, debt-to-GDP just 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 is a more successful version of China. They both have run the exact same industrial playbook. Japan had two nuclear bombs dropped on it by the United States, and the US essentially made it 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 the large companies made essentially a pact which said, 'Okay, we're going to give all the people jobs for life. You work really hard for the nation of Japan to make things, to, you know, to grow the prosperity of the country, but you're not going to keep all of the productivity gains, right? That difference is going to go essentially to these large companies and they're going to reinvest that profit back into the United States and in Western Europe, essentially.' So if you look at Japan as a country, they're one of the richest countries in the world on a net investment portfolio perspective. They've got like one or two trillion dollars worth of assets. What are those assets? That's essentially the productivity gains of their people over, you know, since World War II. So Japan has this buffer of money that can cushion themselves. 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 have a lot of assets. Number two, their banking system is relatively closed, right? It's not as if Saudi Arabia can go in there and buy a trillion dollars worth of Japanese bonds. They just won't let them do it, right? Because they don't want the situation that the United States is in, where essentially capital holders determine the policy of the nation. And number three, Japan has been, you know, 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 if 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 the very expensive labor in Japan. Japan's a very special case. But again, all that's running out because the countries that did not benefit from the last 80 years, they're like, 'Well, why am I the donkey for Japan to make a lot of money or the United States, Western Europe? I want high wages, I want to live in the Hollywood movie, I want more energy consumption. I'm not going to sell my resources to these other countries cheaply anymore.' And so inflation in Japan is actually, for the first time, rising. It's at, I don't know, 4% or 5%, highs in 40 years. The Asahi, for the first time in 30 years, raised beer prices, right? So the problem is when inflation shows up, it's when you exhaust a cheap labor, when you exhaust a cheap energy, when you sell 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 and property markets since the late '80s, is no longer valid. And so I think people are making a mistake by not understanding why Japan is successful to say, 'Oh, if Japan did it, they can be successful.' Let's take a look at the United States. The United States owes the world something around $12 trillion. The United States runs a current account deficit and a budget deficit. So it's a completely different financial situation than 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 and it's okay, it can work in the United States, misses the differences fundamentally between the two situations. Now, on to, like, you know, don't go and, you know, move all your money into gold 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 on a real basis 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 real rate 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 a money market fund, you're making 5%, 6%, and take whatever you can afford, a 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, you know, money market fund, government bonds, into the risky stuff for a fixed supply and zoom up that way. Or if nothing happens, I'm still earning money, I'm still earning yield over here on my treasuries or whatever short-term government bonds, I can fund some of my day-to-day expenses. And I run a positive carry trade, meaning I've structured my portfolio such that if shit really hits the fan, I'm going to make so much money in that situation. But as long as not, it's 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're 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 bucket, yes, I would agree with you, then you're like, 'Well, when is it going to happen? It didn't happen last month and I'm down such percent,' 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 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 is zero to making money versus, you know, it's costing me money the longer this takes to happen.

Why volatility is a feature and not a bug may be surprising to somebody, and then why a fixed supply. So again, we want to basically participate in the upside to the maximum we can. We want the high volatile stuff, we want the crypto, we want the tech stocks. But when stuff doesn't happen, then we want our brakes. So like a car, right? You want to go as fast as you can on the straightaway when you are racing, and you want the best brakes possible so you can take those corners and not get wrecked. The brakes are cash, short-term cash instruments that are earning yield. That's paying your grocery bill, 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 a money market fund or something like that, a higher yielding instrument so you can pay some of those expenses. So that when shit's ready to go, I'm over here, I'm ready to make as much money as possible when they're printing money. I'm not in this safe, boring thing because this situation doesn't happen. There's not very many straightaways. I need to make as much money as I can when the making money is good, and then put the brakes back on, as if you were a race car driver. That's kind of how I want to think about it.

Up.

Well, it's personal preference, right? Like obviously I'm in the crypto sphere, I love crypto, I understand it. The volatility doesn't scare me. For some people, they might like, you know, that's too much for me. Maybe I'm going to stick with NASDAQ tech stocks. I understand that, I get 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 if... okay, so to turn that 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 the high volatility than you can see go to absolutely zero. You should have enough in the brake category that even if all of that goes to zero, that you're still going to be able to eat and fill your tank up.

So you'll know, it's not as if the S&P went up three times the instant that Ben Bernanke unveiled quantitative easing in March 2009. It took many, many, many years. It's not like you have to go, 'Oh shit, I gotta go sell this, buy this,' and I miss it by a day and therefore goes my return for the next ten years. No, you're going to have time. It'll be very clearly communicated. It's just, are you listening to what they're saying?

I think you need to define your time span. I think a lot of people think they're like, 'Wow, I see this person on TV or TikTok or Instagram or whatever, and they went from zero to hero in five trading days, they 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 at a screen, then you should not be trading on short time frames. So what does that mean? Don't use leverage. Don't open up the options trading account or the futures trading account if you're not willing to put in the work to sit there and trade. Now obviously I have a large ownership in a futures 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, think you're going to come home at night for two hours and just trade yourself into quitting your job. It's a profession, it's a dedication. You can do it, but be willing to put in the work to do it. If you're not willing to put in the work to do it, then broad-based indices, different things, whatever you understand. Collectively, okay, I want to own stocks, I don't really know what. Okay, well my country has a particular index, right? A lot of people are going to be 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 the 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 not worry about it.

Okay, so let's run through what you said is your likely scenario: that 3 to 6 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 sort of mental mind map now is, I think the biggest trend in... so you always want to own the new tech thing in the bounty 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. 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 as 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. ChatGPT has been the fastest growing technology adoption ever in human history, went from zero to 100 million users in however many days it was, it's fast as ever. So we are all in on AI. And if you look at Nvidia and some of these other AI-related stocks, they do not give two shits about this banking crisis, about the debt overhang, the population issues. They're going straight to the roof 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. I want to be in that company.' And so I'm going to start trying to find anything that's related to AI and pumping money into it. So on one hand we have the most amount of money that's ever going to be printed 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 a technology. We're going to combine those two, we're going to get 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 doll manufacturers in the US that has 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 going to do 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 mining companies 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 and decentralization in the future. And obviously I have a lot of Bitcoin. 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 on the technology front because this is the mania that is going to captivate investors to take that money and to funnel it somewhere. Because they're not going to be buying companies like General Motors. I mean maybe it'll go up, but that's not going to be where the zeitgeist of the world is. It's what is AI. The governments are 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. And so it's going to be absolutely insane because we're combining the most money printed in human history with the most disruptive piece of technology to what it means to actually be 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, which is going to drive that. So that's my super volatile segment that I want to participate in. And then on the boring side, I will continue to move money from the high interest earning money market funds and stuff as rates start to come down, but I'm not going to do it beforehand. I'm going to wait for them to tell me. And usually unfortunately, right after the Fed or any other central bank is printing 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 said, 'Oh shit, we need to print money,' they put the money in, then things go, they retake that level and then they go higher than that. So it's a mistake to think that just because you're investing now, yes if you have a long enough time frame you should make money if they print enough of it. However, the path 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% in your money market fund 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 that 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 do I want to lose money because I try to be too cute and predict when something's going to happen and where exactly it's going to happen in the financial system.

Yeah, they're going to come out and say, 'Oh, because something happened in the financial system, we have now lowered rates to this, we've introduced that program,' whatever it is. It's very transparent regardless of whether it's the Federal Reserve, it's the PBOC, it's the European Central Bank, it's the Bank of Japan, Bank of England. They're going to tell you exactly what it is because what do 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 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 Judgment Day when things go down a lot.

Do you know Chatham House? Yes, I know Chatham House. I could be misquoting, but I'm almost certain this is correct, that he was saying that 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's been a sign that has led to collapse, given the modern economic theory... and this is how I remember it, oh God forgive me Chatham if I'm way off, but that was my takeaway.

Yeah, could he be right? So I would say, investing is a game of probabilities and expected values. So if Chatham is saying, 'Okay, there's been other examples where this has not been the case, but this is going to be the one example where the markets just keep grinding a bit higher,' okay, then you're taking a 'this time is different' mentality. And every single time there's been a 'this time is different' whatever aspect of the financial markets, the problem is you're not getting paid enough for 'this time is different.' 'This time is different' means S&P goes up, I don't know, four or five percent. I'm making six percent sitting my money in cash. So why bet on 'this time is different' if I can earn the majority of the excess return of stocks by literally just putting my money in a money market fund and I have no risk? The Federal Reserve is going to pay 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 I'm not getting paid enough to be 'this time is different.' The only way to get paid enough is to 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 Chatham, just put your money in a money market fund. Don't buy any stocks. Why would... the S&P, apart from Nvidia and Facebook and Google and those seven big stocks, has not beaten the return on cash. So either put your money in cash and go in AI stocks and believe 'this time is different,' or just put your money in a money market fund. There's no point to take the risk on the general market for 'this time is different' because it's never different. It's always been, you know, 'this time is different' gets clobbered.

Uranium. So I believe that finally we're going to get our shit together and somehow believe in nuclear. And there's been vast underinvestment in uranium refining capacity. And as the world moves to nuclear, and maybe the West decides that they want to be dumb and not do it, fine. But China's going nuclear, India's going nuclear, Saudi Arabia's going nuclear, the rest of the world's going nuclear. And there's just not enough refined yellow cake to go around. So uranium mining companies in certain jurisdictions are going to do very well. And my largest equity position is Cameco Mining, CCJ. It's up, I don't know, 80% this year. So that's something that I believe in as a longer-term energy play.

So I think euphoria, from 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 of time, which is 2026 timeframe, you need to have been investing three, four, five years ago. Because it takes, if you're talking about equities, it 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 2030 timeframe, well after the bull market, even though on paper your thing might be up, you can't actually sell it because it's not liquid. Now obviously I do a lot of cryptographic token investing and stuff. Again, if I'm signing a term sheet 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 the 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, and you're going to see something, I don't know what that something is, whether it's just something that looks mispriced, like I don't know, FTX has Tom Brady and a basketball stadium. It's this exchange that never existed two years ago now has our logo on top of in Miami and Tom Brady, one some would say the biggest American football player ever, is now stumping for them on TV. That looks a bit strange, right? There's going to be something that looks a bit strange. It's going to tickle your mind, you're like, 'Huh, that doesn't make any sense, maybe we've gone too far.' When you get that sense, you want to be able to go to your portfolio and liquidate things. Now the euphoria is that I believe that AI will be such a transformative thing that 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 sides 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 could 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 that are actually willing to pay real money for the product? And that's usually the end of that particular bull market and things just start falling apart because there's just no liquidity and people just sell what they can. And so the game is up. Now obviously out of the wreckage comes your Amazon that was down 90-something percent from high in 2000 to 2002 or whatever it was, and then rockets up multiples of what it was worth. But the majority of us are not going to be able to find the Amazon. We're going to be finding the pets.com. And so that's the game. 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.

Yeah. So thankfully I have the capital position to do that. I can pay my bills with my income from just stuff. So I can actually be a little bit more early and wrong on things because I don't need the money. But for someone who does need the money, you're not going to have that opportunity to have invested in an AI startup or some crypto thing years before and now receiving liquidity at the top of the market. You're going to have to be very disciplined to participating in the things that you know you can buy and sell on a day's notice and not get suckered into your boy down the street's got this new AI thing he's been cooking up and watch, don't you lend him some money or invest in his startup and in seven years he's going to go IPO. Right? That's what gets you in trouble. Yeah, you can buy the liquid stock and it goes down 90%, but at least you can try to sell it. You can't sell the term sheet. So that's where people get in trouble, it's buying illiquid stuff that's predicated on the theme continuing forever.

Well, if we've already bailed out, if we've already printed money to do yield curve control and the system is still buckling, whether that's the price of oil is $1,000 a barrel now, or something, it's going to be some energy component of it, or the cost of end-of-life care is millions of dollars. You can't print healthcare, you can't print oil. So these are the things that are going to go up massively in price and then the system just breaks because people are like, 'Holy, hold on a second, yes the government bond yield is two and a half percent and the banking system is solid on a nominal fiat basis, but it cost me $10,000 to fill my gas tank,' just being obtuse here. And then there's social unrest because I can't get enough to eat, or you've broken the promise of the life that I'm supposed to live being in this country, but I was promised to vote for you and I'm no longer going to be there. And then it's, 'Okay, well if I don't have it internally, let me go out and get it somewhere else.' 'Oh, don't worry everybody, we're going to go over there and take their shit and give it to you, so support me as a politician.' And trade no longer becomes the way in which we acquire the things we need, we resort to force. And then that's unfortunately how we lead to conflict.

Hopefully not. I think it's... I forgot, I can't pronounce your last name, Pippa M something or other. She coined the phrase a hot war in cold places: cyberspace, the Arctic Circle, space. There's wars going on right now in these different spheres that are not the same as boots on the ground in the kinetic conflict. What's more important today, owning territory or owning your citizens' data? So there's different things that we consider important and the substrate to our modern life. So if we are in this new AI world, your data is more important than going out and acquiring your territory. So it might be that the war is not shoot them up on some border, but it's aggressive hacking between different countries trying to ensure that they have access to certain data or their AIs are able to operate in certain fashions. So it could be a different type of war, not exactly the same war that we're used to. Maybe that's even more dystopian, I don't know. I'm hoping that we don't get into, 'I'm just going to go take your shit,' and maybe get to the nuclear situation. But again, whatever it is that countries believe is the good that they need to provide to their people to stay in power, they're going to try to go out and take it from somebody else.

So dollarization negatively impacts the financial elite of America. It could have zero, if any, impact to the average American. Because I've argued in some essays that the current system of the fiat financial system that works in America doesn't really benefit the average American. It benefits New York and San Francisco and LA, right? Essentially the coast, people who are in finance, people who are in tech. The average America as a place is a great land mass. It has enough food to feed itself. It has enough oil, I think US is either number one or number two largest oil producer in the world, which I was surprised. It's protected by two oceans and Canada and Mexico, you might as well call part of America. And if you count the Mexican population and growth in terms of their demographics, America actually can hit the replacement rate of like 2.05 kids per woman. So as an economic unit, America is unique in that it can become an autarky, and it basically was until World War I. And so it can go back to that place. But the current crop of people who are in power would lose standing in that sort of situation, which is why they continue on caring about what the value of the dollar is, because their wealth is international companies where half the business is abroad, where the workforce is in China, Vietnam, wherever, it's not in America. So dollarization is pointed at this big thing, 'America needs to protect the dollar,' but for who? It doesn't actually benefit the manufacturing worker, the UAW union worker, or the UPS truck driver. So it's a question of what the political system is there to benefit, who is it there to benefit. And so America and the dollarization, it's being talked about, it's a super bad thing. Yes, it's bad for some people who are tied to the fiat financial system and that's where their wealth is. But if you want to think about it from the average American person, made in America is great, wages for the bottom 50% rise, they have better purchasing power. Yes, stuff is more expensive, but at least they're able to get it. There's lots of parts of the world, and Europe is probably the most fucked, where they don't have population growth, they don't have energy, and they don't have enough food. That's where you probably could see a big internal conflict again as the edifice of the euro crumbles, where in these countries don't want to be tied to a bunch of faceless bureaucrats in Brussels who tell them what to do.

Yeah, I think Europe is higher risk because again, it's dying like the rest of the Western world. It doesn't have energy security, it doesn't have food security. I mean, most of the productive region of Germany was powered by Russian gas. The Ukrainian bread basket helps feed a lot of Europe. North African oil and natural gas helps keep things running in most of Europe. And so removing those things, Europe's fucked. The euro's fucked. It's a construct, you know, this, I'm quoting, paraphrasing macro guy Felix Zulauf: the euro was created to keep France strong and Germany weak. And it's attempting to paper over these differences in economics with this structure that just doesn't work. And it'll come to a head when all of a sudden there's just not enough stuff to go around and Europe's traditional trading partners are like, 'Well, if you're going to be aligned with the US, then we're no longer going to sell you stuff on a preferential basis. There's no longer any Russian gas, there's no longer a bunch of West African countries willing to sell you stuff cheaply. We're just going to let you figure it out yourself.' And what's the answer? Print more money. But again, with the euro perspective, you have a bunch of countries that think that they are some sort of democratic polities and the population might be, 'Why do we have this euro anymore?' But there's obviously an elite that likes the euro, and that could come to blows.

So the easiest thing right now is to protect your financial wealth. For the first time in human history, we have a financial system that is not predicated on government violence. That is crypto. It's an opt-in, violence-free, coercion-free system where I can opt into this Bitcoin blockchain-based financial system and now I have a way to transact with anyone around the world on an honest, transparent, open-source basis. And I can escape the fiat system with as much or little wealth as I deem appropriate. So now I have the ability to take my wealth outside of the government system. And unlike gold, nobody knows how much crypto I have. I can store my crypto in my head. I can memorize my private keys and my seed phrases and restore any of my wallets. Not that I do this, but you can do it if you're good at that. So you can hold as much wealth as you could in Fort Knox in your head. That's absolutely revolutionary. And so we have the financial freedom if you choose to use it. And so once you've obtained financial freedom, then it's about, as Balaji says, choose your tribe. Where is a place that has the same ethos as you, has a good food supply, the weather you like, but most importantly you like the community of people who are there. And there's no prescriptive of where that is, that's very personal. Maybe it's where you are right now, and the only thing you need to do is obtain your financial freedom such that if the borders close and whatever, you're cool, you're able to maintain purchasing power in energy terms, but you're around a community of people that you like and love. So I think, yeah, the community aspect...

Very personal one, there's no one right place. The financial aspect is if you have the ability to do so, get your financial freedom for the amount of capital that you wish from the fiat financial system. If you believe in the thesis of me and others and that the math is going to collide with bad politics, then you now have financial freedom which gives you the ability to move if you want to or not want to. So the thing I think a lot about with this is timing. I'm obviously a big believer in crypto, but I really don't want to leave where I'm at. And not only am I in America, which does not strike me as the most crypto-friendly place, I'm in California which has definitely done some legislative things that I have found questionable. But man, I don't want to leave.

No, I moved out of the US because it's just not a place that resonates with me personally. I love being in Asia, I love the people, I love the culture, just my place, the economic opportunity, all that kind of stuff. For some people America's great, that's fine, it's a very personal thing. But yes, there's a lot of inertia with people and money. They understand how this monetary system works. Bitcoin didn't exist 20 years ago. You're really going to take your hard-earned money and put it in magic internet money with a bunch of people with Pudgy Penguins and CryptoPunks as avatars who are debating macroeconomic policy on Twitter and other social media platforms? You might think we're a bunch of clowns over here, right? And so why would I trust this financial system versus the man or the woman in a navy suit with Hermes and a pair of Louboutins on? So it's all these things that factor into whether or not you trust the financial system or not. Again, very personal. But the unfortunate part is that most people aren't taught the math. They don't understand how a bond works, they don't understand how a bank creates and removes credit from the system. They don't understand why mathematically this cannot continue the way it's going and that there will be a reckoning. And history has told us the exact playbook they're going to use. It's not as if they're hiding it from us. There's paper upon paper written about exactly how to financially repress the population to make sure money doesn't leave the banking system, to use the banking system to purchase the government debt at a level the government can afford that is below the level of growth in the economy such that the government profits. This has all been written about, you can read it on the internet. But most people are too lazy or too distracted or they work a job and they're just too tired to open up a book and read. But it's all there for you to read and if you read it all you'll understand very quickly that this situation cannot continue and you have to do something. And that something depends on your financial position. Obviously I'm in the position to put a lot more of my wealth into crypto and not care so much where the price goes. Maybe you're not. The most insidious part of inflation is that the poorer you are, the more percentage of your income is spent on energy, therefore the more inclined you are to become a degenerate speculator because the little bit of money you're able to save you need to lever up so much just to make an impact on the depreciation of your wages versus the cost of food and fuel that you make bad choices. Especially if you're not educated about what these financial markets are, because that's been essentially government policy globally is to keep people in the dark about how money works so it gets blindly trusted, the supposed person in power.

Because I know I can't earn my way out of this. I can work as hard as I want, I can put as much overtime, but I'm only going to make so much money per hour, period. But I watch the TV and I see the successful, mostly men, driving the fancy car, has the nice clothes, whatever, and six months before he was on the street, whatever the story is, it's your Horatio Alger, you know, rags to riches. Very effort, there was this thing I did, it was trading stocks or whatever it is, right? Usually it's financial markets because things move so fast and you can apply leverage. And yes, there are people who have done that, but the majority of people who try that fail because it's very, very difficult to do. And so you're desperate. You're like, I know I need to uplift my economic earning potential, but working my job in my lane, I can't do it, it's just impossible. I see myself losing day after day after day. I see my family having a lower standard of living day after day after day. If I could only pick the right stock, if I could only predict where the yen crosses go on 200 times leverage, if I could only hit black five times in the roulette world, if I could only go to the casino and play craps, if I could only... and then you spiral out of control.

So you can speculate in crypto, absolutely. There is all different... you can speculate in Bitcoin itself, right? You know, you put a lot of your wealth in it, it's very volatile, it goes up and down a lot, right? So when you're moving yourself out of the speculator category, if you're putting a certain amount of money into crypto for example and you say I'm going to assume this goes to zero and I'm not going to care, then you're not speculating, right? You're speculating on a future, but again your lifestyle is not going to be impacted. The worst part about speculating is I need this to go up because I need to buy my dinner tonight, right? And so that is when you get into problems. But yes, speculating on humanity getting into a new system and that system being worth more because there's a bigger community, fine. But just choose the size, it's all about sizing. No one knows the future. We're speculating every second of every day, every step we take, right? We're speculating on things we have informed historical experience to say that this thing is less risky than the other, but none of us know what the future holds. We're always speculating. The question is the size and the risk, right? Don't put your whole net worth into crypto where if the price goes down a little bit you can't eat. That's not smart. Same as don't put your money in the S&P 500 or some other stock industry and go long too much where if it goes down 1% you can't eat, right? Again, it's all about creating a system that works for you and where your financial position is in life. And if you do want to go into the super leveraged speculating aspect, make sure it's a pot of money that you could afford to lose.

So it's a financial system that's gone from zero, right? First Genesis Block in 2009, to a system that has weathered multiple crises. In the most recent, we had one of the largest exchanges in the world, a bunch of the largest lenders, some of the largest hedge funds, massive amounts of fraud. All this happened in the span of six months. People lost hundreds of billions of dollars in value, yet blocks kept being produced every 10 minutes for Bitcoin, 10 seconds for Ethereum, and whatever the block times are for a lot of other currencies. The decentralized finance or DeFi movement, people were still trading on decentralized exchanges, people were still borrowing and lending different currencies on some of these lending platforms. The financial architecture worked even though we had one of the biggest losses of wealth and biggest amounts of financial malfeasance ever in the crypto ecosystem. And I mean if you want to compare the amount of money that Sam Bankman-Fried and his crew allegedly stole from their customers, it would rank as one of the largest thefts, financial frauds in human history, right? All this happened, there was no bailout, there was no central bank that said we need to preserve this system and therefore assuming they could print a bunch of Bitcoin or Ethereum or whatever and make sure these entities are made whole so that certain people don't lose any money. None of that happened. People lost a lot of money but the architecture of the system worked. The community was still there, people are still shipping code. I was just at Token2049 in Singapore, the energy, 11,000 tickets sold out, basically almost took over the whole of Marina Bay Sands Convention Center for this conference. People around the world believe in this system. There's some of the smartest people in the world who I've ever met who are building this system. You take a look at who are the smart people in the traditional financial fiat system, a bunch of Muppets, right? They're there because they've always been there, not because they're special, not because they're inspiring. So they're not building anything new, they're trying to keep the old thing relevant. And so that's why I believe this is going to have staying power because the math works, the cryptography works, but most importantly the people are so impressive and so dedicated and so enthusiastic about what they're building. And I've worked at a bank too, there was none of that energy working in the traditional financial system. We're there punching a clock, earning a paycheck and trying to take as much risk as possible so we make a little bit of money so we can get the out of there.

One thing to jump in there, FTX was regulated in I don't know however many jurisdictions around the world. They had licenses all around the world, right? So the notion that regulation would have stopped FTX is patently false. They were highly regulated, not as regulated as a bank I wouldn't say, but they did have regulators around the world that had given them licenses and they were supposed to do things in a certain way, right? If you want to take the other example, let's take a look at Credit Suisse. And they didn't steal anybody's money, right? But Credit Suisse was a global systemically important bank, right? And yet the most highly regulated of regulated industries in the world, banking, the most highly regulated of regulated banks, Credit Suisse in Switzerland, up and blew up and required the Swiss taxpayers to bail them out for billions of dollars, right? So financial regulation, when the incentive structure doesn't work, is useless. It doesn't solve anything. It makes you feel good at night, that's fine, you can get your money back on a nominal basis. But what happened? They printed more money and made us all poor in the result. So I would say that financial regulation, yes it's nice that a bank needs to be running in a certain way, but it doesn't prevent bad people from doing bad things. It just makes it, if someone's going to run a scam, it usually makes it bigger.

So I think most people don't care about privacy. And I know this because they have a mobile phone in their pocket, a smartphone. The smartphone is tracking you. We voluntarily have given the most amount of information about ourselves to Facebook, Google, Alibaba, WeChat, all these things, right? Because we want community, we want to communicate with each other, we want to look at thirst traps, whatever the reason is, right? We've done this. The government didn't force us to do this, these were private companies creating these products. Right? So most people, as you said, it's just too much to be financially independent, to actually be your own financial institution. For a lot of people it's just too much and they're going to stay in the system. And I like to say that there's a flood coming, this inflationary, maybe pseudo collapse of the fiat financial system. There's a Noah's Ark with Satoshi on there with Bitcoin. Unfortunately most people are going to drown because this isn't for them, right? And so when you move it up to the government aspect, crypto in itself isn't a problem. The problem is that the people own it and it's not the standard individuals and firms that are used to owning the new layers of technology. And that's their issue with it. And so now we're seeing that this experiment has worked so far. We have however many millions of wallets created, we have however many trillions of dollars worth of transaction that have been completed on these systems. They work. It's more sound than the traditional finances, it's faster, it's cheaper. Fine. Well let's not have a bunch of Muppets running around the world who are a bunch of old bald dudes sitting in New York, London and Paris and whatever owning this thing. We want to move it back to who should be owning this. So we're going to now allow the traditional financial players to launch things like ETFs, right? Which is a very easy way for everybody to own the financial return of Bitcoin. Very important, I say the financial return, not actual Bitcoin. As you said, I don't want to manage private keys, I don't want to worry about where I put my wallet, I just want to earn that inflationary protection aspect of Bitcoin but I don't necessarily care to really experience the real financial freedom of it, of owning my own financial system in my pocket, in my head, right? So I'll just put some fiat into the BlackRock ETF, the Fidelity ETF, or pick your large asset manager wherever you're from, ETF, right? You don't own Bitcoin, you don't care about custody, you're like oh the price goes up and down on the screen, I've beat inflation. But guess what, my money when I want to sell comes right back into fiat, right back into the banking system, right back ready to be financially repressed to make sure that bonds are purchased by the banking system to keep governments afloat. Now fine, Bitcoin is an open architecture, everyone should be able to build whatever financial products they want. The question then becomes, and I don't know the answer to this, is will so much value and currency be owned by these centralized asset managers who are essentially arms of the TradFi ecosystem that the underlying fundamentals of what Bitcoin is, the privacy, will those be altered? Will BlackRock support through maybe ownership in large mining companies different sorts of improvement protocols that detract from the immutability of the money or the censorship resistance or the decentralization? Right? So while we as TradFi are cheering yes ETF, ETF, ETF, that's going to bring all this money into the system because now people who want to escape inflation understand the value prop of fixed supply and all that but just don't want to deal with the technology aspect of being a cryptographically bearer asset because humans are bad with passwords and whatnot. People don't want to deal with that, they want to put their money in the ETF and we're like yes, great, more money in the system, number go up, everybody's rich. But are we inviting in something that's going to fundamentally change what Bitcoin is because now they're going to have a say through large ownership in mining pools or they're going to run a bunch of nodes or they're going to have control over the price? Right? It's an open question and this is going to be the real crucible we're going to have to face as an industry of determining what is Bitcoin when now we have TradFi who is a stakeholder in this system. How do we deal with them? How do we even maintain this ethos that makes Bitcoin invaluable, this immutability, this money, the hardest money ever existed, with a system that is basically trying to capture as much capital and sequester it so that it can pay the inflation tax to make sure that the governments stay afloat? I don't have the answer to that but that is the real crucible that we're going to have to face going forward. Because as you rightly point out, it's just a pain in the ass to be your own financial institution.

Yeah, I hope it never comes to pass.

So my working model is that we're going to continue chopping around 25, 20, 30,000 this year. As we get to some sort of financial disturbance and people recognize that real rates are negative, if the economy is growing at a nominal rate of 10% but I'm only getting 5%, 6%, even though it's high, people are on the margin going to start buying other stuff, crypto being one of those things. So coming into 2024, either we get a financial crisis, rates go to zero, or we keep raising rates but not as fast as governments are spending money because they're just trying to keep people doing things and the rates are negative, that we get to crypto around 70,000 by the end of 2024. And that's a combination of the crypto halving event, maybe there's going to be a few ETFs launched by large asset managers in the US and Europe and China, maybe Hong Kong to be specific. So we regain the all-time high by end of 2024 and that's when the real fun starts, right? That's when the real bull market starts. And so my mental model for where we could go, I think we're going to go somewhere between 750,000 to a million dollars in Bitcoin on the upside, right? And we're going to, whatever the level is, there's going to be a round number everybody's going to be focusing on, I guess like Bitcoin hit $69,999, didn't hit 70,000, and then it's going to go and just crash, you know, 75, 80, 90%, whatever it is, right? Doesn't matter. But yeah, so my upside target is sort of the 750,000 to a million dollar level, 2026 timeframe, just because again I believe this is going to be the largest market in financial bull market in financial assets we have ever seen in human history. So not only will Bitcoin be at a ridiculous price, NASDAQ will be at a ridiculous price, S&P will be at a ridiculous price, pick your stock index wherever you're from, if you're not in Europe or the US, that'll be at a ridiculous price, right? Certain types of property, ridiculous prices. So we're going to have a lot of ridiculous prices out there and not just in crypto.

China never eliminated crypto. They never eliminated crypto from China.

So if you want to think about it from the Chinese government perspective, the thing that they care most about is social stability, right? And so as everyone becomes a speculator because they're desperate, right? The last thing they want is a bunch of mom and pops rolling up and gathering in groups with a communal grievance. It could be crypto, it could be anything, right? We know this story has played out over Chinese history. They do not like this. And so seeing that, that could cause disturbance in China and also have the energy aspect of Bitcoin mining consuming a lot of electricity that could be used to do other things. They basically made it very hard to trade it. So the exchanges all left. Chinese people still own Bitcoin, that hasn't changed. You can't mine it, there's no exchanges, fine, they can't really acquire it. But at the end of the day, I think the Chinese government sees that this is a technologically sound thing and they want more of it in the Chinese diaspora that they can control. It doesn't necessarily need to be in a government coffer, but the Chinese government thinks if you are Chinese, we own you as a person, you are Chinese, we are the Chinese government, therefore you are our subject no matter where you live around the world, ethically speaking. And so if you think about Hong Kong, which is part of China now and always was but now it's very explicitly part of China, but it has this Western-Eastern capital meeting point. If they want to experiment in allowing a more general ownership of crypto or if they want to allow certain types of Chinese individuals to own crypto through Hong Kong regulated financial institutions, which essentially means that they're controlled by the Chinese government in the same way that BlackRock is controlled by the US government, it's no different. Then they're going to allow these companies to buy and hold crypto because at the end of the day as long as the crypto is inside of China, they believe that they can control it. So why not let a part of the country experiment with this thing, let people own it, let people buy it, by controlling it in terms of the way firms are able to acquire users and let those users own crypto. So that's why there's been licenses issued. The Hong Kong government's very positive on Bitcoin. The Hong Kong government is part of China, therefore they would never do this if it was not blessed by Beijing as part of a national prerogative for this particular part of China to be positive on crypto. So it's a similar sort of situation to how I describe the BlackRock ETF, right? Larry Fink and BlackRock having a trillion dollars of Bitcoin under his custody is the same thing as Bank of China launching an ETF on the Hong Kong Stock Exchange and having a trillion dollars of crypto. They're both essentially in the orbit of either the United States or China. And that's the goal. If this technology is as transformative, if it is the hardest money that's ever existed, wouldn't you rather your citizens have it rather than someone else's? And so as the American political establishment decides what they want to do with crypto and that uncertainty drives companies out of America, out to the rest of the world, China's already gone through that. They've already purged the exchanges starting in 2017 and culminating in 2020. Right now they've gone the other direction. Okay, let's try to control this, let's try to permit certain types of ownership through firms that we can control in Hong Kong, which is our test bed region for financial innovation, and give the Hong Kong economy something to draw in, expertise, foreign capital, because the Chinese government believes in technology, crypto is a forefront financial technology, why not bring these smart people here, let them experiment, and we think we can control what they do, right? So that's in my opinion what's behind the Hong Kong story. We're going to see how that progresses. I obviously live in Hong Kong, I love Hong Kong. I hope that there is a vibrant cryptocurrency ecosystem there and that people are able to experiment with different things because there is a tacit government support for the technology. We'll see what happens. At the extreme, if all of a sudden there's all these firms with trillions of dollars with crypto, I don't know, but at least there are some people who are given the space to at least experiment, try, versus other places in the world where they're being pushed out and shunned.

So what if we're wrong? Well, if we're wrong, if there is an energy miracle, like we discover some form of energy, we instantly commercialize it. Like think of how long it took for us to get a car in every household in the US, think of how long it took us to electrify the world even though these technologies were created in the 19th century. But that already assumes we can't have a soft landing. What if they just get it right? If they get it right, then you earn what you earn now, right? The S&P is up, let's remove the tech stocks, right? It's up I don't know, six, seven, eight percent this year, whatever it is. I can make the same amount in bonds and in literally overnight lending to the Federal Reserve, zero financial risk, I get paid five and a half, six percent. Why take the risk? If they get it all right, great. I'm getting two-thirds if not 75% of the return in US stocks with taking none of the mark-to-market risk. So it actually makes zero sense to own stock if you believe they're going to get it right, because stocks aren't returning enough. It's not like the S&P is up 25% and cash yields six, right? So from a risk-adjusted perspective, if they get everything right, then okay, maybe the only stock I own is Nvidia, fine. The rest of the market is dog. Why even play the game? Put your money in a money market fund, take your money out of your 0% yielding bank account, put it in a money market fund. There's just no point to trading stocks if they have it all right.

They'd have to get the debt to GDP down below 130. I assume they'd need to start pulling some money out of the economy without it causing any sort of secondary knock-on effect. What else? Well, so the US government right now is running the playbook they should be running, right? Which is nominal GDP is at 9% but the government debt yields four and a half, call it, right? So the government's making money. If it can continue to keep money in the bond market, in the banking system at these rates and at this growth level, then the US government, at least for them, will deleverage themselves over time. The problem is that capital can move. So we're making the assumption that capital doesn't move. So for my Goldilocks scenario, number one, no capital leaves the long-term bond market when they have a negative real yield. Number two, there is an energy miracle or we decide that nuclear is the next thing and we run out to invest in all sorts of different types of startups to basically miniaturize nuclear reactors such that instead of pumping oil into our car we have a small little nuclear reactor and that powers our vehicles, or we're going to build all these different power plants. Like that needs to happen, right? Immediately. Those are the things that would say okay maybe I'm wrong and we're going to have sort of an acceleration in energy productivity, therefore I should own a company that makes real stuff apart from semiconductors. Otherwise I'm going to put money in overnight bonds because at the second they cut the rates, cool, I don't care, I didn't lose any money, I just take my money out of the bonds and I go buy stuff, right? But I'm definitely not going to own long-term, long-end bonds. That trade is negative EV, negative expected value in my perspective. I don't see how they get all these things right before money leaves the system saying this, I want 9% not four and a half. So why own the long end? Just put all your money in short-term bonds. If you believe that they are going to get everything right, just put your money in short-term bonds and take no risk.

So on Twitter, CryptoHayes. I have a Substack as well, same handle, at CryptoHayes. And I write essays probably twice a month on macro, geopolitics, obviously there's always a crypto angle. But yeah, that's where you can find me and I speak globally at conferences around the world.