Bankless - Why Recessions Are Dead & How to Invest in The Debasement Era | Macro Investor Vincent Deluard

Episode Date: September 15, 2025

Why do recessions feel like a relic of the past? Macro strategist Vincent Deluard argues we’ve entered an era where fiscal dominance, structural inflation, and relentless asset debasement reshape how capital flows and how investors must position themselves. We cover the U.S. supercycle, the role of tech and energy, why the “2% inflation target” is dead, and what a portfolio looks like in the age of permanent stimulus. ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24  https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🎩DEGEN | JOIN THE COMMUNITY https://bankless.cc/degen ------ TIMESTAMPS 0:00 Intro 3:33 The Next 10 Years 5:47 The Mind of a Pension Fund Manager 8:25 US Dominance 26:17 Dominance Shift 37:21 AI Bubble? 41:19 Inflationary Forces 52:40 Inflationista Thesis 58:36 Fiscal Dominance 1:03:38 Trump vs The Fed 1:09:41 Are Debt Cycles Inevitable? 1:12:26 Are Recessions Dead? 1:20:27 Portfolio Construction 1:26:21 Emerging Markets 1:33:45 Gold 1:37:42 Closing & Disclaimers ------ RESOURCES Vincent Deluard https://x.com/vincentdeluard  StoneX https://www.stonex.com/en/  ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

If you think of recession as a 2,000-mile-like event where we'll see, you know, sub-1% inflation print, massive job losses, 10% of apartment trade, I really don't think it's going to happen. We have this kind of hyperactive policy making where the Fed cuts just because inflation might slow below the 2% target in 12 months based on some, you know, number that, you know, they made up. Welcome to Bankless, where we explore the frontier of internet money and internet finance. It's just me today. David's out, so I'm here to help you become.

more bankless. I came into this episode with, I think, one question. What is the ultimate portfolio for the debasement era? Aside from crypto, of course. Vincent Deloard is a macro investor. He's the guest today. He advises the big, big money, the sovereign wealth funds, the pension funds on what to buy and how to weather these storms. I think he shares a similar thesis to many of us in crypto, but he comes to a different conclusion on what to buy. A few things we discuss. We'll discuss persistent inflation, the 15-year dominance of U.S. capital markets and why he thinks that's peaked, investing in China and India, and why that's a good idea, fiscal dominance, why recessions are dead, the Meg 7 concentration, AI bubbles, gold all-time highs, and of course,

we discuss crypto. Stay tuned to the end for his takes on the debasement-resistant portfolio. Let's get to the episode, but before we do, I want to think of the sponsors that made this possible. a world where traditional finance meets the power of blockchain seamlessly. That's what Mantle is pioneering with blockchain for banking, a revolutionary new category at the intersection of TradFi and Web3. At the heart is U.R, the world's first money app built fully on chain. It gives you a Swiss I-Ban account blending fiat currencies like the Euro, the Swiss franc, the United States dollar, or the Rimbi with crypto, all in one place. Enjoy real world usability and blockchain's trust and

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three for new projects. And now the D-Gen app, the easiest way to connect, earn, and participate in decentralized social media with a built-in wallet and real token utility. In DGEN, the hat stays on. Join DGEN and get on the app waitlist at www.d-d-GEN dot tips. Bankless Nation, Vincent, Delaware is a macro strategist, and he's an investor over at StoneX Group. Vincent, welcome to bankless. Very happy to be here. So, Vincent, you know, we're trying to do over here is we're trying to make sense of the next 10 years and investing in life in general. And I always enjoy picking the brains of somebody who is studied in macro, because I feel like the discipline of macro causes you to look at this cross-section of all of the different areas

from geopolitical to investing to monetary policy. And macro guys always give me the most comprehensive interesting picture of the world. So that's why you're invited on this episode. We're hopeful you can help us out with that. Oh, you just raised the bar. I mean, what I can say is I'm going to try because that's, yeah, indeed, that is the job, especially in my case because I work a lot with pension funds.

And, you know, they often deride it as a slow money, right? The exciting guy, the guys who make a lot of commissions are typically the pot shops, not the pension funds. But for the pension funds, yeah, it is. questions such as, you know, in the next 10 years, what is the expected rate and return on equities? What is the expected correlation between stocks and bonds? And even a small number, I mean, that's the power of compounding, right? A very small change consistently up by over time leads you to very different outcomes. So I, and I think it's the right period, to be honest.

I mean, investing is one of these things where it's almost the opposite of eyesight, right? Eyeside, you see better, what's closer and the third is the harder it is to see, especially Actually now, given, you know, the, let's call it unusual political situation we have in the U.S. It's very hard day to day. I mean, what's going to happen to? I have no clue. You know, it's really going to tweet, whatever, right? But like, if you give me five, 10 years, like, yeah, I think it gets clearer and clearer

because these strands have been building on. I would argue since 30 2020s, I mean, much are the themes that people know me for on podcasts, things like secular inflation, things like the end of recession. And things like fiscal dominance, really the seeds were planted out of even before COVID. And they've been growing very steadily. And, yeah. Well, that's what we're hopeful to get is like the next five, ten years and kind of what that look is and how we can basically prepare for that. I am curious, though, since you talk to pension funds all the time, what's on the mind of a pension fund manager at this point in history?

Like, what keeps them up at night? there is the job answer and the marketing answer. I'm going to sell the job answer because at the end of the day, that's the one that matters, keeps a pension fund manager, an insurance manager, up at night is I don't want to get fired. That's the first thing. That is the supreme constraint on the investor.

At the end of the day, decisions about capital market allocation and made by people who don't want to get fired. The second part to this is I don't want to get in trouble. with my regulator. And that supersedes any sort of, you know, kind of capital market concern. And that really informs their behavior. Like, you, I think, you know, we kind of had this almost mechanistic view of markets at some sort of an impersonal machine, which was kind of the way economy is small, right,

the efficient market hypothesis, you know, it's kind of this godlike machine. And it's not. I mean, at the end of day, decisions about capital markets are made by humans. with very human constraints. They have mortgages to pay. They have private school to send their kids to. They have bills to pay. And boss is to answer to and regulators.

And then these people may not be irrational. The people themselves and the people, the answers who may not be irrational. So that's the first one. On now turning to, I think, what you are asking me about, I think right now the biggest question, especially the ones I talk to. I tend to speak mostly to pension funds in Latin America,

Canada and Europe is really the question about the U.S. Most people who are running portfolios today are running portfolios because they have been writing that max seven U.S. wave. You know, if you did anything else, no matter how good you wear, and then trust me, I mean, for 15 years before, I was covering Europe and mostly European banks. And, you know, I was super happy to get, generally I got the best bank. I was only done 10% a year, you know?

So no matter what you did before, you probably underperformed if you were not at least market weight U.S. and if you still have a drop today, it's because you've been overweight U.S. And the big question now is, what do I do with this? Can we talk about that, actually? There's so many different directions.

I want to pull this conversation in, but maybe we'll start there, which is just the last 10 to 15 years in America's capital markets have been fairly historic. Actually, you tell me, so most of what we do on bank lists is like we touch macro, but we also were laser focused on crypto. So most of the time we're looking at like crypto price charts, not necessarily how equities are doing. But as I understand, the dominance of the S&P and U.S. capital markets right now, maybe they're not all-time historic, but they have

certainly grown over the last 10 to 15 years. Can you provide some like data on this? that. So what's the American capital markets dominance right now? And what's been that story over the past 10 to 15 years? Why are all the pension funds? Why is everybody allocated to the U.S.? And why did you call this overweight? So to start with numbers, and let's do annual, annual. So we cut off on basically when Trump and does the White House, because I do believe this year is a break in that pattern. And I think that's the early cycle. But yeah, pretty much since, 2008, if you went along the MSCI U.S. index, which is kind of like the S&B 500, if you want, and sure, the same thing, X U.S., you would have made about 8% a year with almost no volatility.

This is like line goes up chart. Perfect. Wow. And so that means the U.S. basically outperformed all the other markets by 8% per year since 2008. Yeah. And there were like regional exceptions. For example, Chinese stocks had a weird spike. in 2015, that was, you know, briefly reversed.

They were, at times, Europe, you know, kind of tried to recover. Latam had like a couple, three, four months, bad bouts of reform. But if you look at the world in general, it's just relentless our performance of U.S. assets, which, I mean, it's unprecedented in size, I think, but not necessarily in its occurrence. These type of cycles are actually, if you look at that, that U.S. versus X. U.S. short over long periods of time, I mean, it was almost clockwise by very long decades. I mean, so if we start, let's start in the 70s, right? And the 70s is the opposite, right?

It's a period when the dollar is being debased. We have sacration in the U.S. We end the decade with 16% tenure yield. We started with these very high multiples on 50-50s. We end up with, you know, the SNP traded at like 10 times earnings. At the same time, we are seeing massive outperformance by emerging markets. at the time, it's really Europe and Japan, especially emerging markets are not really a thing yet. I mean, you still have a, you know, Soviet Union, communist China. But yeah, we have massive

appreciation. I mean, the Swiss franc, especially the Deutsche Mark, Japanese, and so a big currency effect. And also the rise of, yeah, European and Japanese multinational. So 70s is kind of all about, all about emerging markets. Sorry, all about international markets. And then there's a period of Short of the period of U.S. outperformance in the early 80s, that ends with a, I think that's going to be relevant for the future,

the Plaza Accor, when basically the dollar gets too strong and we have this coordinating intervention, really force intervention, to lower the dollar, and that kickstart, another 10-year cycle of an outperformer

by international assets. That ends in the mid-90s. Mid-90s, the US takes the baton again. We have the Netscape IPO, the Internet bubble, and we get to get very similar, development so for about a decade. And then that gives way coming out of 9-11, 2000 to recession, emerging markets really take off. We had the fancy acronym of the time is the bricks. China is going

to buy everything. The Brazilian Real famously trade for, you know, $1.5 to the dollar. You see Brazilians all over Miami. Euro goes to 1.6. Giselle, the Brazilian top model, asked to be paid in euro. I think that was the absolute top for the year. And then, yeah, since basically 2008, we've been in this U.S. super cycle, which, again, I think, is exceptional in its regularity and in its size. And in terms of market gap, I think we're close to, maybe may have come down a little bit, but we're close to 70% of global market. Is this like all capital assets, basically, or 70%? Equity, equities. If you add the value of all stock indices, you get 70% of.

U.S. not keep in mind, we are, you know, about what, 5% of global population, I would think. Yeah, 300 million out of... Yeah. And... 20% of GDP at best, probably around 10 or 15, when you imagine purchasing power parity.

So it's somewhat, you know, odd. So it is odd. I think so being, like, I think many of our American listeners will have just like, this is sort of the, you know, the air that they breathe and the water they see. women, so they're not noticing that we've been in an American capital market super cycle since 2008 or so. And maybe they're not looking internationally. It seems very much like the S&P has

become kind of the benchmark for returns in general. But like why should that be the case? Well, it's because of this American capital market super cycle. Why did this happen? Because you started the date for starting this super cycle in 2008, which of course, that was a the like marquee year, it seemed at that time that America's financial infrastructure was crumbling, that the banks were failing, that it was the end of times. So what explains the past 15 years that we've had and the incredible like performance? The start date, it could either be too, I mean, so the reason why I picked 2008, because I looked at the outperformance and remember when you have a major risk off asset, you know, when the U.S.

Catches a cold. The Western world catches up pneumonia. So the U.S. actually outperformed during the subprime crisis, even though the U.S. was the cause of the crisis. But I think this is more kind of a beta effect like that. If I were to pick a real date, I would probably start around 2010, 2011. Okay. This is really where we saw the, so we had the Chinese stimulus going out of 2000.

The week, it pulled off the global economy and a recession. Commodity prices, you know, spiked again into 2010, 2011. And then that was kind of the, that prior cycle, the cycle of EM, commodity, China-driven, I think peaks in 2010. Now, what happens in the U.S. over the same time? I would really break it down to three main macro factors and then maybe a market factor that we can talk about later. On the macro side, it's really this invention of the iPhone in 2007 and the right. of this kind of what will eventually become

the Mac 7, US-dominated app-based technology growth sector that really has, with the possible exception of China, that has no equivalent. And that's, I think,

going back to this conversation about pension funds who are now trying to diversify the US. That's still the major pain point is they want to get out of the US because they don't like what they see with Trump. They don't like what they see with the debt.

But, like, they can't let go. of Microsoft, Apple, you know, it's the YouTube songs can't live with you, can't live without you. Because there's nothing else like it. There's nothing else. Like, you look at Europe,

like the best thing you got is S-Rap, which is kind of a boring German, you know, B2B cheap or a version of Oracle. That's it. That's the tech sector is Oracle. But there's China, though. But China is kind of its own ecosystem bubble. I mean, I don't think it's,

I really think investors should have exposure to it, but the consensus of course, price create narrative, right? Sure. Because China, I'll perform so long, everybody, a year ago, everybody's like, China is an investable, blah, blah, blah. And now, but, but, but, yeah, China is the only exception,

but you go to, you go to that time, you know, there's one company Mercado Libre and is, you know, listening to you. I mean, yeah, same, you go to Canada. I mean, Canada used to have, you know, there was research in motion and Northale, but all these things are gone. You know, Europe, we used to have, like,

Nokia and Siemens. So, okay, so let me go back to your question. So first is iPhone and everything that follows. The second is share. You know, we went from secular decline in U.S. conventional product or production, probably around, you know, four million barrel a day where we wear a major net energy importer. So when we're net energy and poorer, that means we're sending dollars abroad. So all else equal that, you know, that reduces the value of the dollar, right?

I mean, you have to pay to give money to the Saudis, the Russians, and so forth. And suddenly, the U.S. becomes the world largest energy producer. And if you look at the entire North American continent, you can throw Canada in there and you add gas, we are an energy exporter. I mean, a huge swing. If you get a current account balance of the U.S., I mean, half of the trade deficit was energy. And that, that fits into our surplus. I mean, this is really a historical. historical, and then one of the incendiary effect of the Shale revolution has been a surge in the

production of Nat gas. And Nat gas, all is a global market, right? I mean, there's some tiny variations between the price of Brent and the price you'll get out of Texas or Dubai, but, you know, to end dollars, right? It flows, you can send it. Nat gas, on the other hand, it's kind of harder to explore. You got to liquefy it, whatever, so it's a regional market. because we are finding so much shale oil as a byproduct,

we have too much gas that we can use it, that we can't export. That causes energy costs to fall in the US, especially relative to Europe. My good friend, Louie Gav, has this saying, which I love to quote, economic activities, energy transformed. And suddenly, once your cost of energy dropped,

you know, that of your competitor, yeah, good things happen. And then the third one on the macro side has been, I would argue, a willingness and an ability to pursue much more aggressive policies than the rest of the world. When Europe, when for fiscal consolidation, you know, if you compare, you know, Germany to the U.S.,

I mean, we've added close to 50% of GDP over the past 10 years in deficits when the German were basically flat. So we were willing to spend more money. And, you know, Canadian growth works. Like, I mean, if the government runs a big deficit, that's surplus for the private sector, that goes into corporate profits.

And these were the, I would think, the fundamental factors. Now, turning to market factors, I would suggest two. One is the one that you went over with a great episode with My Green is the unique structure of the U.S. stock market, where effectively the stock market is in charge of the pension system, which is a very odd idea. I mean, if you think back, you know, we've had old people since the beginning of time. And usually the way we deal with the people's, you know, when people get old, they're less able to take care of their needs. It's a young generation that takes care of them, either directly in the household or, you know, the government taxes the young people to give money to the old people. Somehow, you know, in the 80s, 90s, we did that switch in the U.S. moving from public funded, defined benefit to define contribution.

is going to be, okay, just give the money to stock market, wait 40 years, put it into an index fund, and then you'll be fine. So the stock market becomes the vehicle for which we do generational transfers. And once you set that up, you create massive demand for equities. I mean, typically the advice for people is what you should have about, what, 10% of our income in the 4.1K with a match by your company. So that's, yeah, that's about 10%. percent of all income, and most of that goes to stocks. Like if you're, even I, you know, I'm now unfortunately middle age. If I go by the target date fund that Vanguard recommends, it's going to be like 85%

stocks. So we're putting 1% of our GDP into our stock market every, every month. And that increasingly happens in a systematic valuation agnostic index fund driven way, which I'm not going to repeat the argument. Mike Reed makes this case better than anyone else, but it does have an impact on valuations. Even if you chose to ignore his point on the mechanism, passive versus, let's forget that.

Just the fact that we put 1% of GDP every month into the stock market is something that other countries don't do. So I think that's one reason why US valuations, the gap in valuation between the US as well. And then the last market reason for this would be a change in the, nature of the financial surplus of the U.S. So we keep talking about the current account deficit, right?

That's what Trump, you know, or the trade deficit, these are ripping itself. It's important to understand that, you know, a balance of payment is a mirror. There is the reality, if you will, or one side of the mirror, I mean, to say, one side of the mirror is the flows in goods and services, the trade side. And then it needs to be upset by capital, right?

I mean, if I buy more from, if I buy more from you than I sell to you to the rest of the world, somehow I must be financing that. So either I'm borrowing the money from the rest of the world, I'm selling my house, I'm central bank is accumulating the reserve somewhere, but at some point capital has to flow the other way because, again, we're paying goods, right? So if the U.S. has a deficit on the trade side, it has a surplus. on the capital side. We're importing capital

from the rest of the world. And I would say for most of the 2000s, when we had this international performance, we still had a big deficit, right? The U.S. has had a deficit since 1974 on the trade side. So we're still importing capital from the rest of the world.

But, and it was very large. You know, we talked about the twin deficits. That was a big thing in the first push terms. That was happening mostly on the fixed income side. It was the capital, So the capital that China was accumulated or Saudi Arabia or Russia would end up at the Chinese Central Bank quite often or at the monetary authority of Singapore or the Kingdom holdings in Saudi Arabia. And that would go into U.S. treasuries.

This was one of the reason why yields sell so much, especially the long term, is because we have this relentless bid. As the rest of the world had his massive capital surplus, so sorry, trade. surplus capital deficit with the U.S., it came back into the treasury market. And then what happened in 2014 was Russia and the Crimea, we put sanctions on Russia, seized a couple trillions in their assets and froze them. And there was this complete break in the pattern of, okay, we're no longer going to reinvest. Because the reason they were investing in U.S. treasuries because they thought, it was safe.

They thought, you know, that's the only reason why you have reserves is because it's in the name, reserve is in case you need them at an hour of need. Well, if, you know, it can be just taken away from you that that reserve is really no good. So, but at the same time, the U.S. trade deficits, capital surplus, remained as big. So the money kept coming. You just went into another asset. And that's where my story about the pension firm comes in. The U.S. equity market became the recipient of the, basically, the U.S. trade deficit,

which is our capital surplus. And we benefited from massive purchases from foreigners that really no other market experience like that. Like I, you know, whenever I visit a pension fund in Canada, in Europe, and in Australia, whatever, I spend 90% of a conversation about what goes on in the US. Now, when I go to a US pension fund, I don't talk about what's going on in Chile or,

You know, maybe one question about Europe making fun of them for being lazy and the French always being on strike. But that that's about it. I mean, no wonder Americans kind of think that they're at their center of the universe, right? But they are. Because, I mean, I'm American now. So we are the center of the world. We really are. Right.

Okay. So the reasons you gave, that was like very thorough. And I've never heard it laid out like this. But the reason for American capital markets overperformance over the last 15 years, the reason pension funds had to. have assets had to be over-allocated in the U.S. was because of tech, tech industry like no other, natural gas, a new energy, we basically discovered fracking, and that came online very quickly, and then coordinated government spending. That in combination with our stock market basically became our savings account and the U.S. pension fund, basically. And capital account

surpluses led to the continuation of treasuries being used as a World Reserve asset. and propped up treasuries as a store of value. I got to imagine strengthened the dollar on the back of that. And that accounts for the last 15 years. What's very interesting is when you were talking about the stock market, we had Michael Green on recently, and he was talking about the stock market being basically how Americans saved their money.

It's not just Americans, though. If you're telling me 70% of world equity capital is in the U.S., it's really the world's savings account, isn't it? It's the world's pension account at some level. And what's very interesting about this, too, as treasuries are an American product, their U.S. bonds, aren't they? The U.S. government debt, essentially. Well, they are a world store value. They're a world reserve asset. The dollar itself, as a payment tool, is a world currency. This has played out, I guess this has

happened over many decades. It wasn't just the last 15 years, but it's incredible how it's strengthened over the past 15 years at a time where I don't know that, Most Americans felt like America over the last 15 years was winning. I don't know if you'd turn to most Americans and they'd feel like, oh, yeah, we won the last decade. I think the average American doesn't really feel that way, actually. And yet, they have won the last decade. Now, are you starting to see some signs of that trend reversing?

You said this oscillates, right? You talked about the 1970s being very different than the 1990s being very different than the 2010s. So what is starting to change on this story? Yeah, these are all really interesting observation. I'll just going to second what you said about the gap between perception and reality. You know, it's kind of one of the story where the grass is always greener and you don't feel it when you're winning, but you do feel it when you're losing.

And I mean, as someone who moved from Europe to the U.S., I mean, you know, this has been the really the single best decision on my life was to move to the U.S. in 2006. And I remember in 2006, you know, this was kind of peak Europe moment. This was not far from that Giselle Brunch on top of the Euro. Yeah, I mean, I felt it. You know, I went to grad school in New York.

And yeah, of course, it was expensive. But it was manageable, you know. And my parents are, we're teachers, you know. And it's, I mean, the tuition was paid for. But, you know, it was manageable, which really would not be the. case today. You can see it, for example, in this, that was a popular hashtag on Twitter was a Euro poor. You got all these Americans kind of making fun of the Spaniards and the for, yeah, for being poor. You even see these revolt, right? In Barcelona, where the local population is

trying to break down Airbnb because they can't stand all these annoying, brady American tourists. you know, going on, you know, treating their, treating our millennial culture as their, at the background

for their Instagram accounts. Yeah. So, yeah, if you feel, the Americans feel that they haven't been winning, try, try having the same experience in Italy,

in Germany, or even worse, in Colombia, or Brazil, where really, you know, the pain has been real. I mean,

there's almost, There's almost Vincent, like, I'm kind of curious just like emotionally and psychologically. If you were in 2006, rather, for like peak Europe, does this feel a little bit like peak America? I don't want to say it, but like, you know, 70% of all capital markets. America's in a pretty good position. What do you go to 80% from there? Or are you more likely to go down to 60 or 50%? To what extent does this feel like peak America?

And like, what do you think the pendulum is going to start to shift back? And if so, how does that happen? Yeah, I'm going to give you another stuff that I find fascinating is. So the world largest investor is the Norwegian pension fund. So Norway is a fairly small country, fairly prosperous, and they have a lot of oil in the North Sea. And in order to prevent what's called the Dutch disease, which is a tendency for countries who are blessed with natural resource

to see very rapidly rising currencies and as a result, lose competitiveness in manufacturing output. What they do is they take the money they get from the royalty, they get from the oil fields, and then they invested for a government-run scheme that has grown. They all was discovered in three took off in the 50s, so it's almost 70 years now of surpluses. And yes, it's the world-largest investor.

At this point, if you add up their holding of the max seven, just seven stocks, right? Seven stocks. It's more than 100% of Norwegian GD. Wow. In their sovereign wealth fund, Norway's sovereign wealth fund has over 100% of their GDP just in the mag. Seven stocks. I remember reading the headlines, you know, when we're doing the whole Greenland stuff, you know, which was really, that was a lot of fun. I don't know. We don't talk so much about Greenland these days. I kind of miss this, you know, cherished 51st day, taking more than a pound of a kind of. I mean, it looks quaint now. It's like, oh my God, so you guys have, you know, 100% of you. GDP in seven stock of a country that's really talking about invading an island off your coast.

I mean, wow, mind-blow, you know. Another one for that would be the Swiss Central Bank. For somewhat similar reason, the Swiss franc tend to appreciate because they're basically the only well-run country in Europe. And Switzerland has a pretty big industrial base, so the Central Bank tries to offset that and the way you prevent your currency from rising,

by buying other countries' assets, which at this point includes pretty much everything. So they buy, you know, they buy stocks. They buy the Mac 7. If you go on the Bloomberg and you look at the biggest holders of the Mac 7 stocks, you know, you're going to see, of course, your BlackRock, your Vanguard and all pretty much for every U.S. stock. You're going to see the Swiss Central Bank.

I'm like, why? You know, why do you need hundreds of billions of dollars in U.S. tech stocks? I mean, your job is to clear the payments between, Swiss private banks and maintain, you know, stable prices in Switzerland. Like what part of the mandate requires you to own hundreds of billions of U.S. stocks? So long story short, all the none of those, yes, they do tell me that it's, we had the point where it's ridiculous. I do believe that the peak, peak U.S. was early January when we had kind of the Rose Garden

ceremony and we had this bout of triumphalism about the U.S. It was before we had a tariff, right? Or Trump is going to unleash the American beast and all the CEOs were lined up. And with that last bout of foreign inflows, I do think that was the peak. And then there was the cold shower of the tariff announcements when the world realized that,

oh, no, Trump is not this pre-market, the nine leader, but he's kind of an aggressive, nationalistic leader. And then I think a lot of the people think that that bout of selling is over, basically because the stock market has rallied, right? I mean, we had a bear market in March, April, and now we had an old-time high. So, yeah, yeah, okay, the foreigners did their thing,

you know, they sold, but now we sold the tariffs, you know, we kind of like had an awkward truce, right? We got these deals with Europe and Japan. It's behind us. It's not behind us. I mean, people who, who say that have never talked to a pension fund. Like pension funds, I go back to my earlier conversation,

are the slowest money on earth. And again, before they make any decision, they need to clear it with, one, will I get fired if I do that? And two, what are my regulators say? They do not, like the stock market declined in April was basically a matter of like five days. Like no pension fund changes their asset allocation in five days, okay?

Especially in Europe, we're in vacation half of the year, for example. Right. So, you know, you need the board. You need to talk to the politician. You need to talk to the regulator. You need to clear it. So that wave of selling by foreigners, I think is mostly 99% ahead of us. Maybe what we've seen has been on the currency side.

I think the reaction, because on the currency side, these kind of foreign managers have more leeway down on the allocation, like the decision on how much do we hedge versus not hedge, I think, because the dollar was so strong. And the dollar was also nicely, negatively correlated to stock prices. So typically when stock prices go down, the dollar would go up against the euro and other currencies. So if you're a foreign manager, it was great, right? Because you had that.

That was like having a put option, if you want. But now we saw the dollar fall after the tariff. So not only the U.S. underperform, but the dog. So from the perspective of foreign managers, it was, it was a double hammer. I think what they started doing is started hedging the currency. That was the first thing. And that's why now it's kind of a different correlation between the dollar and risk assets, because foreigners are more careful when it comes to the dollar.

But going back to this idea, can't leave with you, can't be without you. They did not sell their max seven. I mean. I was going to ask about that. So, I mean, some of the, what you're saying does seem to make sense with some of the price action we've seen over the past, since the beginning of this year, let's say, where we see gold up, which represents some hedging of, you know, maybe some currency, right? We also see the dollar down, which is somewhat interesting.

And yet we do see U.S. equities all-time highs and pretty much being propelled by AI. I mean, that's it. The Meg 7 is all about AI now. It's all about reinvesting all of their retained earnings and large data centers and scaling up to the next superintelligence that's going to change the world. it feels like that may have kept the energy in Meg7, as you said, they can't live without the Meg 7 because where else do you get AI, this transformational technology? It seems at some level that the entire kind of U.S. economy at this point in time rests in the hands of AI, which means there's a pretty, I'm not going to say it's an existential question,

but a very important question for investors is, is this AI thing real or not? I mean, are we going to get like a productivity S curve? Or is this sort of, you know, is it 1999 and we're kind of blowing up a bubble? Because if that explodes, then all of the forces you've just been talking about, Vincent, of foreign large institutional pension funds, we'll start to pull money out if the Meg 7 kind of disappears. And if that story becomes less rosy, let's say, what's your take on this? I don't know to what extent technology and like analyzing AI is a core factor as you think about macro. But I know technology has got to be a piece of, you know, how you analyze the world.

Well, I think there's a time to that answer, right? I mean, the answer could be it's both a bubble and real. It's a short term. I would guess it's a, there is certainly an aspect of short-term bubble. On growth, yeah. I think, don't have the exact number, but it was something insane. Basically, that CAPEX from the hyperscaler accounted for about a third of GDP growth last year. I mean, clearly, this is not sustainable, right?

You can have five companies. And then that built up is going to slow. So there is a one-time, very reminiscent of prior cycles, if you think about the canal boom, and then the railway boom, and then the TNTN. empty boom where when you lay out this infrastructure, it gives a kind of a one-time boost to GDP. And then, you know, after that big span, you have a given air pocket. So very true. Over the long-term in power of productivity, I tend to be quite optimistic on growth.

I think we are in an era of structurally higher growth. A lot of that is nominal because I believe the kind of inflation on target is drifting higher. But, yeah, real growth has been quite good. I mean, since for the past, since COVID, we've averaged about 3% with GP growth, which is significantly better than the prior decade. I mean, again, in the 90s, we think about this long cycle at the 90s

that was kind of higher trend growth, lower triangle growth in the 2010, I think maybe we've reset to high trend growth. And AI certainly will be part of the story. I mean, I, but again, typically as the stock market is a discounting mechanism, right? So, I mean, in 1999, people who are really smart could see that, you know, e-commerce was going to take over the world and that Amazon would be a trillion-dollar company.

And eventually they're a right, right, except the stock price went down by 85% along the way. So, Vincent, technology is often a deflationary force, but you see more inflationary forces ahead, I think. You've called yourself an inflationista, your self-proclaimed, I believe. And I think, I guess I take that to mean someone who believes in, like, persistent, unrelenting inflation of the dollar, maybe some other fiats too. Talk about this. Why are you an inflationista?

Because I love history. And, you know, show me the currency that has ended in a massive bout of deflation. Can you talk about maybe what you mean by inflation? So there's different definitions of inflation. let's say, and, you know, in the crypto world, we have a number of them. When you say you're an inflationista, do you mean, are you talking about CPI? Are you talking about, you know, real returns going negative? You've fed funds minus CPI. Are you talking about asset price inflation?

Is it all of the above? Let's get precise on what you mean by inflation. I'm going to disappoint you, but I will not be. I mean, we can go, okay, if we wanted to be precise if we want a numerical forecast. I'm going to go with the fact that the 2% target is dead as evidenced by the fact that it's been what since February of 2021, the last 2% reading. So if you should kind of miss the target for five years, kind of like, oh yeah, I'm going to, I'm going to quit drinking tomorrow type of situation. We see the Fed cutting rates, not once, but twice.

now with CoreCPI at 3%. That tells you that, you know, like it happened already last summer. I remember when they had a little Sam rule Jan rally panic and the Fed cut by 50 bits for no good reason. Core CPA's at 3%. Now, Core CPI is still at 3%.

Maybe even more. We'll see what happens next week. And the Fed, especially after a two-day job number, is going to cut in September. So. You're pretty confident of this given Powell's recent speed? I don't necessarily think they're going to cut as much as the market.

it thinks because I think invasion is going to surprise to the upside. And I think there'll still be a tendency made temptation for power to resist a bit more. What is it got to lose now? But yeah, and that tells you that 3% on core is the floor. So I don't know what the target is, but I can tell you what the floor is. It's 3%. So that that was kind of the nominal answer. And then in general, by inflation, I would argue that one, problem with my, I mean, any discipline really, but especially, I mean, what I see in economies is, you know, you can always break, you can go so deep into something that, that you end up, you know, kind of obsessing over, over the tree and kind of miss the forest. And on the CPI, I mean,

I've had this conversation for, you know, six years now and I'll meet someone and who bring, and someone who's usually very, very smart because it takes a lot of, intelligence to understand how that CPR report is constructed and look at the lead lag relation between owners equivalent rent and the imputed prices and what's happening to use car. And I mean, yeah, you can always break down in the same way. If you listen to a symphony, you can always say, no, that's this note and then this note and then this note. Okay, yeah, a symphony is nothing but a collection of note.

Same thing. Inflation is the symphony. It's the air we breathe. It's the water we swim. And yes, you're absolutely right to include asset price inflation into it. Inflation is not just the month or month change in a somewhat arbitrary defined index called CPI. It is a broad mentality, a mindset that has to do with political arrangements, that has to do with a level of stress that we have with one another, that has to do with relations between generation, that has to do with geopolitics. And because I believe inflation is all these things,

that's why I don't believe it's just, it was just a one-time accident, right? There's this kind of view that the Fed would love, like the transitory argument. Oh, it's just a one-time adjustment of price level because, you know, we closed on the economy and then we had some supply chain issues, but we know we're going back to the old world. No, the mindset has changed. We are now in a high inflation era. And then, of course, it happens in waves. Everything happens in waves.

I mean, if you look at just the past, just with the recent past in the U.S. You know, the 70s, you had these three ascending waves. 1971 as we get off the goal standard, 1973, the first old shock, and then the biggest wave, in 1979, the early revolution. If we go before in the late 40s, there is inflation spike as we demobilize and we have to retool the economy for peace. Then there is another inflationary wave after the Korean War. is another one in the mid-50s.

So it's always a wave-like pattern. Again, I'm yet to see a one-time inflation wave. So that's why I think it's going to come back. Because at the end of the day, the causes that led, if we go with a policy explanation, right, that inflation was caused by COVID, it was not COVID that caused inflation. It was our reaction to COVID, right?

I mean, COVID was deflationary in China. Policy. Policy, exactly. There's something in the air, right? That's why I talk about the psychology of permanent stimulus, that's the title of my heart. Something in the air that led, oh, my God, here is, I mean, I don't want to minimize it, but it was really a bad food at the end of the day. I need to double my monetary base.

I need to keep everyone locked up. I need to send checks. Like, something happened. And it's the same people. Like, you know, who was the president during COVID Trump, who was the head of the Fed power, LaGuard in Europe, macro-infranchised. I mean, is the same people. So the cause, and again, the causes,

what we call this inflationary mindset. They are still here. Okay, so this psychology of permanent stimulus, this idea that inflation is going to be maybe three to four percent, like that's the new normal. Is that a contrarian take in your circles, Vincent, among investors? In the crypto world, I ask this question because in the crypto world, it's not a contrarian take at all.

In fact, we're probably even more aggressive on where we think like fiat and, you know, like dollars are kind of going than many in your circles. But like, I guess I'm asking because do you think the market has priced these things in? Or are you still a profit in the wilderness when you say things like this? In the middle, I was a profit in the wilderness in definitely in 2020, 2021. At the time, the consensus in 2020 was that it was deflation. I mean, remember we had negative old prices, right?

I guess it's saying that the 10-year yield, I think went below 1%. And we had close to 20 trillion in debt that was trading at negative yields. I mean, the only way that these people would have made money other than a pure Ponzi financing and hoping that, you know, they would be sending to someone else at a higher price would be if the price level would fall.

I mean, we had negative years all the way to, I think it was almost 30 years in Switzerland. So there was like 30 year price. We had these Austrian, Austria issued a hundred year bond, even Peru did. So, and the years were absolutely, I mean, the US should have, by all means,

done it, but anyway. So that at the time was, yeah, profit in the desert. Now, of course, it's gaining a lot more traction. But if we, I mean, we can answer this numerically, right? I mean, you can see what inflation is from, you have two tools that people in almost trade from inflation. One is the CPA swap, which, you know, basically you want to an agreement of the bank and I'll pay you X and you'll pay me whatever the CPI does.

And that's probably, you know, if we look at it, at long-term inflation, probably pricing 2.8. And then, so a little bit above two, but still, you know, I mean, I would add, you know, at least still broadly consistent with a 2% target. And then the other tool is the break-even, which is a difference in yield between nominal treasuries, which will just pay a fixed rate coupon and tips, which will pay a fixed coupon, and then on top of that are adjusted by inflation. So that gives you, if you work out the math, you see the break-even inflation.

Now, because of liquidity reasons and whatever, it's a bit less than what CPS swaps right. But it's also broad, it's been going up. And I think it's, by the way, for investors who want, I think, kind of a boring, steady way to capitalize on this kind of higher drift of inflation and don't want the volatility that we see in crypto and gold. having a position in break-evens is a very good way to do that. It's a return about 6% a year since 2020. It has positive carry and it's negatively correlated with stock. So to me, that's kind of like the new bond, this to be long break-evens.

But my point is the process is not done yet. I mean, you certainly see more people talk about it. Now we have, you know, obviously this war on the Fed's independence. I mean, everything that the crazy, you know, crypto heads have been talking about is here. You know, we have 2 trillion deficit at full employment. We have a president that bullies the central bank. We have, you know, gold rallying by, you know, what, 35% so far this year. I mean, it is here.

What I still find stunning is that there is this kind of institutional inertia when it comes to the invasion target. that, you know, it's like a fossil almost, like a, or the townsall, you know, we still have Townsville, even though they don't serve a purpose in the body. The 2% targets kind of somehow survives in long-term bond pricing. So, no, I don't think I am, I don't think it's consensus yet. Not consensus yet. One thing maybe you can help me understand, Vincent, is it sounds like the way some of these large pensions and sovereign wealth funds tend to think through, you know, if they believe

inflation is going to be higher, they'll buy some of these, you know, break-even type products, you know, and you said that returned like 6%. Why don't they just buy gold or why don't they just buy cryptocurrency or why don't they just buy equities in dollar terms or something like that? To what extent, I guess, are we seeing those assets increase because of the same? the same underlying inflationista thesis, sorry, that you're talking about, which is just like, oh, another way to do this is you just sell bonds and you buy capital assets like equities or hard assets like gold, maybe for central banks and like cryptocurrencies, things with

fixed supplies, even commodities fits in there. Is that all part of the same trade? Is this the reason essentially we're seeing cryptocurrency prices at all time high and gold at all time high, is it the same thesis? Yeah, absolutely. I'm going to use the term of a good friend of mine who arenties of 314 research. I recently used the term the debasement mindset, which I like. Basically, we moved from a capital preservation mindset where after the 08, the whole idea

is like, how do I not lose money? was the driving psychological principle. And now you can almost say it's formal. It's like how do I preserve my purchasing power? And yeah, there are many different answers to that. I would argue that there is a clear loser in there. That loser is long-term government bonds. So who's buying them?

This is one thing I haven't been able to figure out, which is like why is there still appetite for long-duration government bonds? Like, who's buying this stuff? Is it still people who believe in the kind of the 60-40 type strategy? Yeah, there's a lot of that. Index fund, go back to my green, you know? I mean, Barclays ag. It's, you know, 20%.

You just say it's passive investors blindly, dollar cost averaging their 401ks inside these things. But that's a lot. Like I said, we put 1% of your GDP in there. And then you have a lot of regulatory demand. And again, going back to my earlier point on not getting fired and pleasing the regulator, usually buying government bonds is a good way to achieve both. Like, few people get fired. I mean, I guess the management of Silicon Valley Bank lost their job.

But until then, no one had lost a job for buying a U.S. treasury. And then, yeah, it's the regulatory incentive. I mean, if the government tells you there is no capital charge, sure. And then it could still do that, right? I mean, that's why we talk about all these, I don't know, it's maybe esoteric for the crypto crowd. but the SLR and standing repulphs, SRF, all these regulations on bank capital.

And a big debate right now is basically trick banks into providing that bid for long-term treasuries. And if the regulator tells them, hey, you don't have to put any capital on it. You don't have to mark them to market. As long as the yield is about zero, they'll make money. It doesn't matter. So you can always engineer demand for long-term treasuries.

I mean, that's kind of the financial repression route, which is typically something that happens when you have that crisis. It's part of the playbook, and you can create that demand. Even that, is that a form of soft capital control, would you say? Yeah, it's part of the financial repression toolbook. It's basically you direct savings ultimately that banks are playing with people's deposits and you force them into an asset that they would otherwise not buy based on its own merit by tilting the scale in its favor.

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Let's talk about this maybe new regime that we're in. I've heard you and others call it a fiscal dominance regime and a fiscal dominance era. So is fiscal dominance the root cause of this inflation? If not that, what is? And can you give us a working definition of fiscal dominance and what this era actually means? What I think is the fundamental paradox of the current framework. And I would say the fundamental lie of central bank independence, right?

It's the view that started, you know, after the great inflation of the 70s, that, okay, we're going to put this completely separate central banks. And then there will be this kind of like PhD in the ivory tower with a single, oh, well, two Mondays, but you really just, you know, keep in Europe only have one price stability. And it will be completely separate from politicians because we can't trust politicians and they'll always do stupid things. I think that was, that was never true. I mean, that was never.

But you're saying that, that independence, that was a mythology that came out of the 1970s? Yeah, I mean, historically. Historically, the role of the, it's a very new idea. Okay, like before the gold standard used to do that, right, to achieve that, that kind of disciplining factor. But the role of the central bank in any country has always been to finance the government. I know, I mean, go back to Jesus with the coin, you know, showing, you know, whose face do you see on the coin, right?

Cesar's, give back to Cesar's, what is Cesar's. That's the function of the treasury, right? It's to finance the government. And you'll always be, and then you cannot separate. I think that's the key inside from MMT, monetary theory, is that you cannot separate fiscal from monetary. It's something that only works in economic textbook

and you need to invent an economic history that never happened, right, where money is somehow like exogenous and it's not like that. It's never been like that. So to me, the system was always going to break because it's built, it's built on a lie. And the idea, like, you know, that there can only be one king.

They can only be one sovereign at the end of the day. Like if you have two things that are, you know, supposedly sovereign at one point, they will clash. And the question is someone is going to win the clash. Either the monetary dominance, the central bank is going to force the budget. So that's typically what we see in emerging markets because they can't really print currency or the IMF is there. It's like, well, interest rates has gone up.

You're paying more on servicing your debt now. So you're going to have to cut Social Security, immediately spending. I don't know how you do it, but an increase in interest rate will reduce the budget. So at the end of the day, fiscal policy subordinate it to the central bank. the central bank by its decision defines what fiscal policy is going to be. If the central bank height rates, it forces a tightening of fiscal policy. That used to be the, that would be the model around which the ECB was created, right? Because we have this 3% deficit target.

Let's assume that people actually did it and it worked as a treaty intended. So we live in the mythical EU where everybody abides at a 3% target. Oh, the ECB has raised rates. We used to pay 2% on that. You know, now it's 3%. We have about 100% debt to GDP, so 1% of GDP goes to servicing the debt. We have to cut all of the spending. So monetary dominance there.

Now, fiscal dominance is the opposite. It's what we've seen in the U.S. Like we've seen that the central bank has been raising rate, right, from 0 to 5.5.25. And what happened at the same time, spending has increased even faster. The rest of, you know, we haven't cut social security. We've increased the Pentagon to trillion, $3 million. government spending has been growing by government spending X interest has been growing by 8, 9%, which eventually leads to the problem of the government then calling the central

banker, hey, you know, that, you know, extra $500 billion a year I pay on interest, I would very much like not to pay it, which is what, you know, Trump and Bessend are doing. And we use all sorts of tricks before we get there, like issuing at the front end, like like Yenan used to do it, but it's still the same idea. Like the government tries to constrain monetary policy in an age of fiscal dominance. When in a monetary dominance, it's the central bank that constrains fiscal policy. Is this your interpretation, Vincent, of all the kind of back and forth between, you know, Trump and Powell, basically? It's like one thing that, you know, even his critics maybe, maybe not, but some of his critics might appreciate about Trump is he just, he says what he's doing pretty explicitly.

And whereas in previous eras, it seems like there was kind of a, I don't know, a mask, this idea that no, like, federal, you know, Fed independence is a thing. And the president, the executive branch, Congress doesn't interfere where a separate entity entirely. Trump just comes out with it and says, you're like insulting things to Powell. You know, too late Powell, you know, you should be cutting rates already. like you're an idiot, you're incompetent. I'm trying to hire your replacement. Right now, I've got job applications, all of these things.

That's essentially what fiscal dominance looks like. That's what he's doing. He's setting rates as a president. I mean, this is what's going on. A lot of people pretend that's not what's happening, but you're saying this is actually what's happening. Oh, yeah. And like you said, I mean, Trump says it.

I mean, he literally says it. You know, I pay too much on the debt. And, you know, every basis point that 25 basis point cost us X hundred billions of dollars. And I, you know, he kind of has this weird argument where he thinks that the, the more powerful, the country, the lower the rate. Or so he said, look at the Swiss, right. They pay zero. So we should be below that, like almost that. I mean, there are some weird things on Trump's economic theories that they are parts like, you know, he, same on the trade side where it's very mercilist.

I mean, there are times, like, his arguments even from pure. My country is doing so well I should have low rates. I mean, every economist, you know, ears are bleeding when they hear. I'm like, no. But, yeah, at the end of the day, it's a core, yeah, it's a fiscal dominance argument. And he makes it in the open. Even with his back and forth, Vincent, there's this idea that, oh, you know, Powell is resisting him. Powell is kind of bravely resisting.

Trump, Trump is trying to destroy yet another institution. And we have to keep the Fed independent. What's sort of interesting is it feels like in Powell's last speech, there was, I don't know, some capitulation, something he is ultimately doing it. It's a shocking thing. Even, like, even for me, kind of expected it all along is the ease at which people cave in to brute force. And even, you know, like the Fed was at least perceived to be this, you know, kind of bastion

of independence and integrity. honesty and having, you know, academics. And man, it's like people who are really arguing the exact opposite of what they said, you know, three months ago. It's really shocking. And, you know, of course, they're all jockeying before the next position. I mean, you have, you have hawks that are now saying, we should cut, we should cut. Yeah, that's how power works.

I mean, people, people respect to power, respect power. They bend the knee in front of power. And that Trump, that's what Trump is really. good at in almost like a clownish, brutish way, like a mafia done type of thing, but he gets it done. Now, I mean, we can decry it and there's a part of me now that feels worried about this and I think most people do to some extent, a lot of people do to some extent, but on that specific topic of monetary policy, I mean, I think it's going to be, I think it's probably bad short term, but over the long term, I think it's a necessary clarification.

The old regime that was based on this lie, this myth, oh, the central bank does it, but we cannot do anything about it. And somehow money is this complicated thing that, you know, you should not, just don't worry about it. Trust me, I'm a doctor type of argument. It was wrong. And it should be part of the debate. The, the influence. The, the influence. For example, that 2% target, did you vote for the 2% target? The way you ever asked, no, where did it come from? Some press conference in New Zealand 30 years ago where, you know, literally young. And then an economist or minister of finance was interviewed in New Zealand had some issue,

I think, with meal prices, whatever, inflation was running hot. You know, what's the right level of inflation? The guy kind of stumbled. There's only 2%. You think more than that. And then they try to rationalize it with saying, well, it's because of the zero lower boundary and all bullshit. I mean, first of all, like, what price level is optimal at all times? I mean, my answer about the inflation targets probably depends.

There are times when 2% is too high, there are times when 2% is too low. And also, it has distributional consequences. I mean, inflating away your debt will may like it or not like it, but it's the way how it's always worth. one way we can walk, work around the debt crisis. And by putting that corset, by saying this God-given number is the truth, we are restricting our degrees of freedom. It should be part of the conversation. I mean, that's, yeah, do we want more inflation?

Do we want to pay less pensions? How do we deal with this debt crisis that we're having? Every option should be on the table. And the option that is taken should be the object of a, of a, of the, you know, the option that of a wide debate. So that's part to me that I find positive from this kind of trombescent takeover of the Fed is that it will make the truth emerge.

So this has always been kind of the argument. Like you, many people in crypto have been sort of early to this and they saw that fiscal and monetary were kind of the same thing. And the very simple story was all of this would lead to increased fiat debasement as all fiat's debase throughout history and have and, you know, assets that have previously held their position as reserve currency status. They're always destined to die. What's their

shelf life? You know, 60 to 70 years, something like that. And so that's all inevitable. And that is what is happening and going to happen to fiat's and the dollar. I mean, is it really that simple? Is that basically what's playing out? I mean, have the have the crypto people and maybe even the gold bugs, they've been right about this and it's just going to play out very matter-of-factly, Fiat will continue to debase, inflation will continue to run hot, the debt will be de levered through this process, we'll have, I don't know, years of this, maybe a decade of this, things will reset. But in the meantime, all of the monetary, non-sovereign monetary stores of value, they will

increase in relative price. Is that how this plays out? I mean, really big picture, I would agree with that. Now, there will be abs and flow. there will be cycles. There will be times when, you know, nothing moves in a straight line. There will be different winners and losers

at different times. For example, now I would argue stocks should be part of that debasement portfolio. Like in the 70s, they would have been pretty bad choice. And then I think that's one of the common mistakes. I think of the kind of crypto, gold bug, crowd has been to kind of...

It's too maximalist. Yeah, and for the stock. market into that that ponzi fake price basket when one in reality if what we're talking about is unconstrained public spending and constantly running the economy hot, a lot of that, I mean, the deficit of the public sector is the profit of the private sector. Ultimately, the government just buy services from the economy. So you increase profits. You financially repress, so you keep interest rate, which are costs for company lower. Yeah, stocks, stocks and also for the discount rate mechanism, asset prices are going to do well.

So it's not just, you know, buy, I mean, that's your thing, that's your thing. But like by crypto and nothing else is probably not the right position. Yeah, I think there's a fear. I want to get into what you recommend is kind of a, or like your thoughts on a fiscal dominance, inflationista type portfolio. But I think there's a fear among crypto people of, you know, things like recessions that could happen, job market, the stock market. Maybe there's this naive view that something like gold or cryptocurrency might be immune

to that. But I think you have a take that like in flush, recessions are dead, man. Like that's not a thing that's going to happen in the era of fiscal dominance. What do you believe about that? Well, first of all, it's kind of an observation. I mean, my early 40s. It's really been only one recession in my lifetime, in the U.S., at least. COVID was obviously a blip, right?

The only major recession we've had is 2009, right? Before that, 2000 was kind of rapid growth. You can argue maybe 2001 there was one, but, you know, depending on the definition, it was very shallow. Nineties, it was a great moderation. The 80s, it was the Reagan boom. So when it comes to portfolio construction, right, when we look at, again, I go back to this long-term treasuries

with 6040 portfolio. In the traditional 6040, basically it works because your stocks do well when growth is good, and your bonds do well when growth is a price. So the question is, are you going to put 40% of your portfolio to hedge against something that happens

only once every 40 years? That seems to be excessive. So there's that observation part. Now, I think that the drivers for this are many. I typically point to technology. One side I love is the tangible book value of the NASDAQ index is less than 3%. So you say you buy the NASDAQ, index, you have a lot of money.

You have like $30 trillion. And then you buy it. Okay, I'm going to, I need some cash. I'm going to sell the Microsoft office, the computers, the servers, and you get less than three cents on the dollar. So value, my point that I'm trying to make now is value is intangible. As opposed to, you know, back in the late 19th century, right, if you bought the Dowdrown industrial average road,

it's even in the name, right? I mean, you'd buy railway track, you'd buy plants. And these things behave very differently, right? When we had a physical, tangible economy, well, you need capital gets used, right? You need to replace it. Tracks get broken. So there is this capex cycle over time.

There is an inventory cycle because you need to move product instead of bits. There's a credit cycle because you need to finance these assets. So you have all these things that create. particularly galarine the economy, which we don't have when most of the value is in intangible assets that don't need to be financed, that don't get used, and that generate no inventory. So that's the technological aspect of it. Then there is the structure of the economy.

A fascinating stat. If you add the government sector, healthcare, share of people about 65, you have 50% of the U.S. population right there. So for these 50% of population, their income has nothing to do with the economy. I mean, it's not because even if there's a session, people are going to fall sick and they're going to draw on their Medicare

and they're going to visit a hospital. The government typically is counter-sickle even, right? Spends more recession and less. And then the retiree, you know, it's the cost of living adjustment. It's the only thing that matters to them. Conversely, the share, combined share of construction

and manufacturing is, I think, around 12, 13% in the U.S. So, and this is typically what we see, even today, like we had this, I don't know what, when it would publish, but we had this bad job report. You know, we had finally construction employment rolled over. It took way longer than people thought that we saw declining jobs in construction and manufacturing. We see a positive number.

Why? Because we had 50,000 jobs that were created in healthcare. And then there was. it's temporary drag from government because of the Doge staff, but I think that's going to flip back over. So again, my point is we still have a cycle. There's still a construction cycle. There's still a manufacturing cycle. They're still not big enough to get the economy going or rolling over.

So all that it does at most, which I think is where we are now, is that it kind of slows down. And because inflation remains high because of the kind of permanent similar story, we move from inflationary boom to stackation. But we kind of miss the part in the economic season where we have. deflationary busts, both inflation and output dropping at the same time. And that's what I mean by recessions that have been canceled. Like if you think of recession as a 2009-like event where we'll see, you know, sub 1% inflation print, massive drop losses, 10% of permanent rate, I really don't think it's going to happen.

And then the final reason for that is the policymaking, right? We have this kind of hyperactive policymaking where the Fed cuts just because inflation might slow below the 2% target in 12 months based on some, you know, number that, you know, they made up. And then we have this, yeah, I mean, the fiscal span. I mean, just one last stat.

So this year, we're getting about 30 billion a month now in tariff revenue. So that annualizes to about $300 billion a year. We've had some fate cuts, which on the margin should have helped with servicing. We had those, which, you know, according to it on must save a couple hundred billion dollars. we have extremely strong tax receipts.

I mean, that's the part I think people don't realize is tax receipts are growing by 10%. It's 10%. Wow. Which again, one reason why I don't believe in a recession story, but we put all that together and still the deficit today is bigger than ours last year. Incredible.

So that fiscal impulse is always going to be there. It's just the, yeah, it's almost a perpetual motion machine. So you put all that together and I think if you want to hedge against the risk it's things running too hot, not too cold. And yeah, as you mentioned, one area I think of where I kind of disagree with the crypto-maximilist gold bug is

or there's going to be this sort of apocalyptic, destructive moment where, you know, the economy will blow and the Ponzi will deflate. and like it's in some sort of like, there's almost like a religious view. It's a doomer. Yeah, millionaires.

First of all, if it does happen, I'm not so sure that micro strategy is going to be the best store of value for, for anything. I mean, even gold for that man. I mean,

gold in 08, lost, you know, lost a lot. But I don't think we need to worry about that because I don't think is going to happen. Again, going back on how do,

if the story is as simple as what we describe, which is debasement, fiscal dominance. There's two ways you can die. We can die by fire or we can die by cold. And I think it will be death by fire this way. This is typically the way it goes. I mean, one reason why I'm so passionate about this a lot of time in emerging markets.

And I can see a lot of similar dynamic between the US now and Brazil 15 years ago or Colombia. And name the emerging market that died by, you know, debt-driven deflation. Never happens. The one thing the U.S. does have that some of these emerging markets didn't have is the reserve currency, though. And that counts for something.

And you've got to wonder what's going to happen there. But as we get to the end of this conversation, Vincent, this has been very fascinating because I think a lot of our listener base probably shares your core thesis. Basically, you articulated it the way many of us probably would. And that's why I'm so curious to ask you this next question, which is like, okay, construct a portfolio. I think a lot of bankless listeners have a portfolio that might be like what we call crypto barbell where you have like a large portion of crypto assets, let's say, and then you have on one side and then on the other side you have something ultra low risk, something like U.S. treasuries, like short duration treasuries, okay?

Give us an alternative. So a portfolio that's like a fiscal dominance portfolio and inflationista portfolio, something that you would advise a friend or someone personally, not necessarily the pension fund portfolio, because we know those guys are a bit more risk adverse and they can't get fired and they can't do, you know, you can't get too crazy with them. But if you were to construct a portfolio for yourself or someone else,

based on everything that you know in 2025, what would be in it? I mean, the two things that you mentioned, I think should be, in there probably not in the same proportions as that's what you your question implied, but in general it, and again, it's a bit counterintuitive given my belief in high nominal growth

and debasement over time. I like cash. I think not necessarily because I think it's going to be the best way to preserve purchasing power. It won't, but it's not the worst, by the way. The really worst is the, it's a durationary. or if you look back even at the 70s,

like really you got, you got its duration that massacred you, whether it was expressed in bonds or in stock. But if you, the cash rates, you know, more or less photo inflation, more often than that we're above inflation, which if you believe the CPI at this point, we still have technically. I mean, it's going to come down, but we have like, you know, 4% rate and inflation is, let's call it 3. So it's not the worst deal.

Well, what I like about cash is the option to buy some. something else at a tripur price. It has this optionality value. And I do think that we are going to see there will be opportunities to buy assets. And then when this happened, you want to have some of that cash. I also think in general, diversification is going to be a lot harder to get in the North part because of what you said, you brought up this whole. It's all one trade, isn't it now?

I agreed with that, you know. Going back to crypto, in the early age, crypto had a negative correlation to to stocks. And now it's probably around 60, 70%. That makes sense. But every time that's a normal life cycle, right? It gets adopted and it gets adopted. Well, if everybody owns it and you lose money in stocks,

then you're going to sell, you know, something else. So cash, for virtue of being cash, has a correlation of zero, right? Be still the unit of account, right? So a correlation of zero is not so attractive when you could get negative correlation, which we used to get with long-term treasurer. or crypto, but long-term treasuries are not positively correlated with stocks. Crypto is also so that zero is on the margin better. I think going back to the, if your template is kind of your crypto maximilist,

I would argue for maybe more diversification, especially abroad. I would caution against, you know, trying to, you know, short stocks or even underweight stocks. I mean, I do think we're going to have a correction in September, October, like we may started today. I think it's, but over the, over the long term, I think this is still quite a good, good environment for stocks. Again, I go back to this idea that we're running the deficit that, you know, 70% of GDP and we're suppressing interest rates. So, yeah, it's not that hard to make money in stock market. And yes, evaluations are elevated. I get all of that, Shilope, all these things, but it's not that insane to me. So what I'm hoping will happen is we are seeing this,

you know, 10, 15% pull back September, October. If that happens, I would put money back into stocks. And then I would encourage. You think there's going to be a 10 to 15% pullback in September? Yeah, September, October, yeah, something like that. Okay, wow. Interesting. So that's what that may be some of that cash is clear.

Well, I mean, as a disclaimer, usually people go on these shows to show off their amazing track records and rewrite the pass. I'm going to be the opposite. I've been saying that since July. Okay. So I had to report that T. Correction may happen in August. The August correction may happen in September. I mean, if I keep pushing it out eventually, yeah.

You're going to be right, one of these days. But so you don't believe in recessions, but you do believe in dips. Yeah. In particular, stock market dip. But, okay, the portfolio that you're dreaming up here is just no long duration bonds here. You do like a healthy cash position, something in the duration bonds. And then so still market weight to overweight stocks and then we like the stocks. I really think people should look outside the U.S.

I mean, going back to the early part of the conversation, I think we will see, like we said, that that 70% figure on the market gap is probably the peak, and we will see that the most interesting opportunities over the next 10 years are going to be abroad. Do you like the emerging countries, like sort of the middling countries, like, you know, India, Indonesia, you know, Vietnam, those types of locations.

So specifically, yeah, I would actually favor China. India has been one of the favorites, and it's done very, very well. It used to be that India trade a discount to a broader emerging markets because of governance, because of productivity issues. And now it's about twice as expensive as other emerging markets. I think that that story has really been told, the political stability, the larger democracy.

And then what we see, I think also just peace between Russia and Ukraine is going to hurt one huge thing for it. I mean, India is a billion-four country that basically has no energy besides coal. So, and again, keep in mind for emerging markets, you know, the biggest problem, how do I provide food and energy to my people? Because that's if you don't do that, you get beheaded, right? So that's all the same concern.

Even in China, this is a concern, food and energy. That's why they need a dollar because you need the dollar to buy food and energy. And that's why they need to explore, right? For India, it's really on the food side, depend which province, but they're getting better. But on energy side, there's not much it can do. except that when you have something as wonderful as these city sanctions that would put on Russia

where the Europeans have a self-imposed gap on what they can pay and then India can just buy it and then because Russia has no buyer they take in rupees which is great for India because they can print rupees not dollars they buy 30% below spot they can heat, feed power their industry

and then they have some left over that can export back to Europe at the market price I mean this is really Yeah, I mean, this is, this is not going to go on forever, right? I mean, if we have peace between Russia and Ukraine, that anomaly is going to go away. And I think that that had quite a bit to do with the massive rally of Indian equities. So within the I'm complex, I mean, I would actually favor, you know, China where we see kind of that policy shift. Certainly the best performing major stock market this year, that's the weird thing about, you know, you always won bull markets that no one talks about.

And China has been, I mean, it's been volatile, but pretty much since they had a big stimulus announcement about a year and a half ago, Chinese equities have outperform. I mean, look at the chart of Alibaba. I mean, you certainly seen the technological advancement on display with the big parade. And so, and I understand that the argument, you know, the India versus China is basically a growth versus a growth argument. It's like, well, long term, you want to invest in the high growth country, a high growth country is India because it's got better demographic, but China is screwed because of the one-child

policy. I would advise against this kind of fallacy of buying the highest growth. Because economic growth and stock market returns are different things. What matters for, you know, international investing is not so much the growth. It's the valuation at which you buy at. I mean, for any asset, the primary driver of your long-term return is the price you paid. You know, you can buy a wonderful asset at a crazy price. You'll still lose money. So cheap valuation, cheap currency, hard to argue. I mean, to me, the biggest economic and macroeconomic imbalance,

the biggest fake price in the world for since the late 90s has been the undervaluation, the suppression of Asian currencies. And we can go into why it happened with 1998 East Asian crisis and then the reserve. But basically, we had an entire continent. you know, covering more than half of the world population that decided to repress the currency and then, and I think it's like a string that's, you know, accumulating momentum and I think it's kind of an unwinding now. So, and then margins, margin is really the big one. I mean, one, one big reason for this, when you're talking about the performance of the U.S. market, is the profit

margin of U.S. companies went from 7% to close to 15. That's really powerful, right? If you can double the amount of profits, you squeeze out of the dollar. It doesn't even matter that you're not wearing that fast. It seems to me that China is in a similar position where the profit margin has been suppressed because of this excessive competition. Coming out of, you know, the real estate bubble started to deflate in 2017, 2018,

and then the government directs all this money to the big four, the new industry, EVs, solar panel, batteries, and I'm blanking on the forefront. And basically every province, every city, starts its EV company and then you have this massive attrition. But it worked.

It worked. Now we have amazing electric EV that are complete world leader. I mean, competition work and we kind of forgot that in the US because we have this kind of very illegal policy tendency. But like, that's it. Now the winners have emerged and also the policy is changing. You see now that anti-involution, right?

The government is saying, you know, we want companies to make profits. So I would see margins potential for margin expansion. So, yeah, China would be one. Brazil is another one that I think is interesting because there the, it's not being the margins have been held back by interest rate. I mean, the CILIC, which is a benchmark rate in Brazil, is 15%. 15% overnight.

The inflation rate is 5%. You have 10% of your rate. I mean, you can't make money in this. You can't invest in the stock market. I mean, why would you? but if you could make, you know, 1% a month just by being in cash. Again, at some point this is going to normalize.

When that normalizes, you'll see profit margins explode. It's also a weak dollar trade. You know, I think a lot of this kind of crypto world, you know, believes in, you know, kind of secular dollar, loss of resource status, which maybe I think eventually it will happen, yes, but maybe not in the time that they think. Well, if you believe that, buy international equities with both hands.

Because, you know, for most emerging markets, there is this original sin where they cannot borrow at least long-term in long-term currency. So if you want to build a cement factory in Nigeria or a car plant in Brazil, you're going to borrow in dollars. And if you have something like what we're seeing this year where the dollar is down 15%, this is insane amount of stimulus for you.

I mean, suddenly the value of it, has dropped by 15%, you haven't done anything. So as the dollar falls, it stimulates growth in emerging markets, emerging markets as they have higher growth. The central bank has room to cut rates. The currency strength and it creates these self-reinforcing loop, which going back to our earlier conversation explains why these trends last for 10 years, because it is self-reinforcing.

Once you make the switch to a weak dollar environment, it feeds on itself. And I still think we're in the very early innings of that. That's so fascinating. You're almost causing me, Vincent, to want to do an entire episode just on emerging markets and the story there in the context of everything we talked about. Just one last category in the portfolio. We don't have to talk about crypto because, you know, bankless listeners goes without saying, how about gold?

You were saying, you know, the most important thing is the price you pay. Well, gold is now all-time high price you pay for this asset. Do you think gold is still in that portfolio right now? I mean, I've been kind of a strategic, you know, gold bowl for pretty much since I started, the writing about these secular inflation, physical dominance theme in six years ago now.

So it's kind of, I may have a little bit of an emotional attachment to it, you know, once you're going back to this whole like max seven, can't let go type of thing. Yeah,

and you look at the chart, it's really going parabolic. So you think at some point it's going to break. Maybe I would still recommend, again, it's part of that debasement trade. One thing that does help gold

is your, you have this kind of central bank bid, right, to your earlier point on who's buying this stuff, you know, central banks are not buying crypto, right? So we have this movement. So far, I mean, maybe it will change in the future, but if we are seeing a decline in dollar share of reserve, I mean, so far the one that has declined is really euro.

So what we've seen if you look at the composition of reserve is the dollar has actually been stable, but the euro has gone down and then gold and to money. much less than the Rambia, the Chinese Iran have gone up, it's going to go into gold. And you still see, like, the share of, for example, you look at People Bank of China, they probably have like 4% of their reserves.

Is that the net new reserve buying is going into primarily? So if the- Yeah, no, no, look at the report, the World Gold Council, like, tracks, because they have to disclose this stuff. And of course, you can say they lie about, you know, the gold bars are fake or whatever, but, I don't know. Yeah, the buying, I think lately the central banks have been major, major buyers.

Not just China. I mean, Kazakhstan, as well, Russia, obviously, because they can't get treasury.

So that's true. But even like Poland, Turkey, it's really a broad trend, which stands in contrast with the ETF market where despite,

going back to this idea of the, you know, the bull market in silence, right? You look at the shares outstanding in GLD

or even GDX, the gold miners. I mean, it's insane. Again, good friend of And Rob Mullin, I don't know if you've heard of it, Marathon Advisor, you know, he goes back and, you know, it's never happened to see bull market at the magnitude of what we're seeing in gold with net investor outflow, at least in the U.S. So, yeah, maybe, I mean, one play is, you know, you may want to switch between gold and the miners, for example.

Sure. Because, I mean, gold could drop by 20%. Oh, yes, for sure. But the goal mighters will still be minting money at these levels. So maybe that's, you know, you take some profit from gold, you get back into the common but I still think it should be an overweight in, again, I don't think the market has fully priced this story. I think this story is going to play out on a very long, on a long timeline.

And going back to your point on the dollar has, the U.S. is the reserve currency. It's not like any other emerging market. I agree with that. Now, what does that mean? It means that the journey is going to be a lot longer. You know, we're not Turkey. We're not Brazil. And yes, if we had these policies in Turkey or in Brazil, maybe it would be a couple of years. Could be a decade or more in the U.S. We have many tools we can wield before we get to the end. So it's still early. Vincent, I have thoroughly enjoyed this conversation. It's been exceptional. Thank you so much for joining us today. It's just like a wealth of knowledge. It was awesome. I hope to be back. Talk to you soon.

Bankless listener, got to let you know, none of this has been financial advice, of course. All this stuff, financial markets, crypto, it's all risky. You could lose what you put in, but we're headed west. This is the frontier. Not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.