TFTC: A Bitcoin Podcast - #429: Is The Inflation Problem Really Solved? with Luke Gromen

Episode Date: June 28, 2023

Marty sits down with Luke Gromen to discuss inflation catching up with the world. Luke on Twitter: https://twitter.com/LukeGromen 0:00 - Intro 6:33 - UK inflation 11:02 - American banking crisis lull 18:12 - Structural problems in energy 25:56 - Liquidity issues with massive bank accounts 31:33 - Debt ceiling 33:13 - Retirement and target date funds 40:18 The Ukraine distraction 45:54 - Collapse in skilled labor and infrastructure 50:41 - Taking on troubled times 54:55 - Bitcoin’s interaction with energy 57:05 - Landing on the wrong side of stagflation 59:19 - Bitcoin eliminates banking BS 1:01:34 - Treasury bond duration risk 1:06:22 - 40 year bull market over, gold and Bitcoin win 1:13:51 - Wrapping Shoutout to our sponsors: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Unchained⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠River⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠CrowdHealth⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Bitcoin Talent Co⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TFTC Merch is Available: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Shop Now⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the TFTC Movement: Main ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YT Channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Clips ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YT Channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Website⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Follow Marty Bent: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Podcast⁠⁠⁠⁠

what's up freaks it's your boy marty here to introduce this rip with luke roman luke's back on the show better than ever wouldn't you agree logan i don't think i was here before you didn't do your research you didn't listen to every tftc episode before you joined no I'll go I'll go pick the switch always great catching up with Luke we're in a bit of a lull period

between chaos I don't know about chaos but great conversation think you guys are going to like it it was brought to you by good friends at River River is a Bitcoin company built by Bitcoiners for Bitcoiners

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if you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor I mean, that's part of the bull case for Bitcoin. If you're not paying attention, you probably should be. Alrighty, Luke Roman, welcome back. Thanks for having me back. It's great to be here, Marty. Well, a lot has happened since the last time we were here.

I was looking, the last time we recorded, it was pre-banking crisis, pre-the housing crisis, which we, or not housing, it seems like in parts of the world, Canada, the UK, There could be a housing crisis on the horizon as they have to change their interest rates on 30-year fixed mortgages like we do here in the U.S. Inflation's running rampant in the U.K. And I guess since we were just talking about that,

what the hell is going on in the United Kingdom right now? They just raised their interest rates by 50 bps. Rishi Sonak came out and said that if he hasn't solved inflation in six months, he'll consider himself a failure. things seem pretty bad over there yeah you know take take what i would say with a with a block of salt i'm i'm a i'm a tourist on uh the tourist is being generous i'm not even a tourist on uk politics um so i'm looking at it from just a very generalist hat but uh i watched the bank of england last week raise rate 50 basis points which was a surprise and the pound was flat to down

against the dollar you know very quietly 10-year guilt yields are almost all the way back to where they were in the middle of the guilt crisis last year and in September you've got this reset that you just referenced from a mortgage standpoint that looks set to severely curtail severely curtail disposable incomes uh and the economy probably becomes a political issue and sunek is caught between hey you know we need to fight inflation and hey we need to um you know he had a tweet out last week highlighting that you know we're gonna we're gonna fight inflation by handing more money out and you know in some cases to the to the most affected which while my sympathies go out to the most

affected that's usually a very inefficient way of fighting inflation uh last week the uk also came out and said we're going to guarantee like three billion pounds and in in maybe three billion dollars uh in ukrainian government debt so you're they're doing these like we're seeing in a lot of places around the world these um opposing things they say they want to win they say they want to fight inflation uh inflation's still out of control maybe worse there than here it would appear uh they're raising rates uh but at the same time like the real issue is fiscal um it's fiscal and it's energy and so um they do not appear yet to have been chastened enough to say you know what we can't afford to support the americans and the ukrainians in ukraine

we're pulling out um so that you know those types of difficult fiscal decisions um have not been made on either the foreign policy side or domestically um so to me it just seems like you're likely to continue to see elevated inflation uh you know something that's always left out too is as it relates to the energy for them is thatcher i was looking at it last week thatcher benefited uh you know she gets all the credit for the privatizations of fighting the inflation the 70s and understood clearly an important role working down deficits etc but everyone also leaves out that the uk north sea went from zero to like a million and a half barrels in like three years at the end of the 70s and then to two and a half million barrels by

the mid to late 80s which turned them into a net energy net oil exporter for a bit right so all of a sudden your trade your balance of trade shifts massively in favor of uk in favor of the pound so So there's that energy. It was basically an energy miracle. And I don't see one on the horizon for the UK in particular. So to me, it looks, you know, if you sort of took the name off the nameplate and said, OK, here's the stats, you go, that seems kind of ugly. Like they're acting to try to raise rates to defend the currency, like an emerging market to get inflation down. But, you know, to your point, in a highly financialized Western economy with resetting mortgage rates, you're in this sort of that EM trap. So they're in a tough spot. Yeah.

Yeah, it's a very precarious situation we find ourselves in globally. Here in the United States, it feels like we're in a bit of a lull period between the banking crisis that began to unfold in February and March. and what many seem to think may be a continuation of that crisis later this summer when Q2 financials are released to market. What are you seeing right here in the U.S.? Obviously, we have the debt ceiling debate and the kicking of that can down the road. We've got the Fed with their hawkish pause,

however they're defining it. And the real estate market here in the U.S., obviously, we have higher rates, And it seems like in terms of being able to sell an existing home, that's that's becoming very hard to do. Yeah, I think we're I think the sort of a bit of a lull is a good way of defining it. I think we came into the year. People, myself included, were too negative and you had a positioning squeeze basically in the first quarter. And then all of a sudden you had these banking strains and everyone sort of reversed and unwound that optimism, you know, that liquidity injection that we got in the fourth quarter of last year from, you know, weaker dollar in particular, you know, rolling over inflation from the highs.

So then we have the banking strains and then we have the debt ceiling that seemed like people got positioned very negative for banking strains, the passing of the debt, you know, the hedging of and then the passing of the debt crisis, right? basically they're gonna have to issue a bunch of bonds and squeeze uh you know dollar markets around the world um and then we had sort of this you know i know optimism around ai over the last eight weeks six eight weeks and it sort of squeezed everybody and you know they the you know okay well they're gonna maybe fund some of it out of the reverse repo so maybe you don't have to work bank reserves down immediately to finance you know rebuild the tga so basically to me the lull seems to be a little bit of a short squeeze of people that were positioned for this upcoming credit crunch that I think is going to hit in the back half.

And so we're now in this period of time almost like where, okay, we had the squeeze, but the crunch is still coming. The credit crunch is still coming. The U.S. government still has to issue an enormous amount on a net basis in the back half of the year. There is not the private sector balance sheet globally available to absorb it with the current yields and or current dollar values, particularly if it strengthens the dollar, that balance sheet capacity shrinks because the rest of the world turns seller of treasuries, not buyer. And then you still have commercial real estate, venture capital needing to issue a bunch. And I think critically, it does remind me a little bit of like the second quarter of 08.

And that's not to say I necessarily think we're going to have a Lehman in the fall. um my point is more just directionally that there was sort of like this sitzkrieg right like fake war type of you know you had you had all of the headlines in winter of 07 into early 08 you had bear stearns fail and then it was like nothing the fed came in and then the u.s government did a stimulus if you remember they sent checks to everybody in the second quarter of 08 under bush and and there was a period of time where everybody said oh see that was it like every crisis a bank has to fail that's the denouement the maiden went in the volcano and now we're all good and i remember thinking at the time going yeah that doesn't make sense no and it and it you didn't

know what was going to be the catalyst but the you know so july july auger early august of that year you had fanny freddie go critical right and then you had hank we have to fire his bazooka and And then it went from there. So it reminds, the current period reminds me a lot of sort of that 6th Greek period of 2QOA where it's like, okay, well the Fed has, you know, they contain the banking strains. There's no more banking problems.

And the reality is like, they're massively upside down on the real estate. They're massively upside down on the treasuries. You know, the yield curve, the banking system is bleeding. You know, you can't have the 210 curve at wherever it is. I haven't checked it over the week, whatever, over negative 100 basis point, like they're bleeding. So when does that bleeding matter?

Is there a catalyst? And so I do think that this credit crunch is widely understood, expected. Everybody knows commercial real estate has a problem. Everybody knows venture capital has a problem. It's sort of like the shark and jaws. Nobody knows how big it is. They've just seen, you know,

we saw the girl get dragged back and forth and pulled under at the beginning of the movie. And that's all we've seen so far. And it was like, okay, well, that was scary and too bad for the girl. And like, no, no, no, the shark's still there. But I don't know what's going to be the catalyst to see the shark, right?

I mean, there's more headlines today about, only 10% of New York Manhattan real estate's in the money, which is really, I think it was basically, right? So in the FT was the headline. I think people know that. I don't think they know how big the shark is. And I don't know what the catalyst is gonna be. I think layered on top of that, the side that sort of nobody's prepared for, very few people are prepared for, is what's happening in the U.S. shale patch,

which is to say the Permian is getting very peaky in terms of oil production. And whether that happens later this year, early next year, we're getting into a situation where you could have this credit crunch in the financialized world So while oil is going 70, 75, 80, 85, the SPR is already drawn down to a large extent because of peak cheap oil that basically the U.S. shale patch, which has been 90 percent of global oil production growth over the last 10 years, is rolling over thanks to the SPR, thanks to the Fed rate hike. So that is the side of all of this, the overlay to the credit crunch that I think is relatively well understood. We're waiting for the catalyst on sort of the reacceleration of the credit crunch on the other side of this lull. But then the overlay on top of that that is just not being discussed by virtually anybody is, what happens if we get a credit crunch and oil goes back to $100? And that's a really, really ugly environment because there's, you know, bonds get killed, tech gets killed,

stocks get killed, real estate gets killed, you know, sort of everything but the dollar gets killed. And I think actually gold probably does really well in that environment too. Bitcoin probably does, I think, actually well in that as well, because with each successive cycle, in my view, we've seen it act more like gold as a counterparty risk-free asset and less like a high-beta tech stock. But that's, you know, let's watch and see. Yeah. Now, my Shell gas station indicator that I pass every day on the way to the office is going up. It's at like 308 today. It was at 294 last week, and it does seem, obviously, it's summer travel season, so more people are driving, and that will actually, that obviously drives up demand.

But the whole energy situation is something that was a big theme last year and the year before, but it seems like people have put it to the wayside this year, particularly. And I don't think any of the structural problems that existed in energy that we talked about last year and the year before have have changed significantly. No, and I would argue and I have argued, I've written that basically the U.S. and the West's gambit in dealing with Russia was, all right, we're going to run the SPR down. You know, right. So so let's go back in time. March of last year, oil spikes to whatever, 120 on the invasion. The U.S. has two choices. Leave oil where it is and let the bond market sell off and let shale respond on a lag. Let them ramp up production and bring oil down organically, which it was the the the pound smart penny, you know, politically foolish. Right. The opposite of penny wise, pound foolish. You know, the penny foolish, pound wise way of doing it, because then you would have had a bigger installed base of shale. You would have gained leverage. You know, you would have you would have prevented sort of the rollover that we're seeing in in shale.

But the you would have lost the bond market. Right. You would have, you know, 10 year probably doesn't stop it for and change or whatever the heck it went to last year in that world. It probably goes five, six. You have a sovereign credit crisis housing market. OK, so politically they make the decision they could choose. We can we can save the bond market or we can save the oil market. And they chose to try to kind of split the baby, which is we're going to save the bond market and try to kind of keep the oil market afloat, which is to say we're going to engage in what I've called oil swap lines with our allies. We're going to release the SPRs. We're going to dump SPR reserves into the market. We're going to bring the price of oil down. We're going to jack rates up fast.

And the gambit there was basically. We need to break Russia and we need to break inflation before U.S. shale rolls over, because if U.S. shale rolls over where it is, given where it is geologically, it's going to be years minimum and much higher prices to start setting new highs. just given the geology of the big four basins and that was the strategy the u.s the white house chose is let's bring down oil fight inflation support the bond market and hopefully russia rolls over and collapses and putin's out and uh you know inflation's all the way back to the fed's target before shale rolls over and that to me is like the biggie as we look out to the back half of the year is the gambit kind of worked for a bit but it's now it's now failed putin's still there shale's rolling over inflate headline inflation is 5.3 percent uh you're not you need to keep

tightening and now you're you're going to be moving into a period of time where spr has been drastically worked down uh shale's rolling over putin's still in power Or now your choices get uglier. Your choices now are basically shale is going to shrink the economy as shale rolls over to keep oil contained and to save the bond market. But with that as high as it is, that's like we had to destroy the village in order to save it. You know, that's that's that's a much uglier, a much uglier decision set they're facing than what they faced a year ago. So basically that gambit, I think, has failed and that sets up a situation where you get into an inflationary environment in the back half of this year, which I don't think a lot of people are positioned for. Yeah, it's only exacerbated by the fact that like OPEC doesn't seem to want to help out in any way either.

i'm i'm of two minds of that i and i can't figure i can't figure opec out i i think what saudi is trying to do is be the adult in the room like you've got the the white house energy policy staff seem like pollyannas right uh and that's being that's that's being politically nice uh Saudi's energy minister came out at the end of 2021 and said, look, we could be the world would be 30 percent short of oil supplies by the end of this decade. That's a catastrophic world. That is like bye bye bond market. You know, Fed's Fed's Fed, Europeans, everyone in the world is going to be doing yield curve control. And in that world, you need a complete reset of the currency system because no one in the world is going to sell their oil in return for currency. being yield curve controlled on the amount of debts we're we're we're we have so i actually

think the saudis are a acting as a adult in the room and i don't think the americans mind if you notice last summer when saudi cut production oh my god the white house screamed bloody murder this year saudi raises or cuts production and there wasn't a peep from the white house they didn't say a thing so i i think they are the saudis are trying to act as the adult in the room which is to say cutting production to keep oil prices above a threshold to keep shale from rolling over hard because if shale rolls over hard who's got who's got all the leverage in the oil market globally saudi and russia and if that's the case then you know it again it would be another penny wise palm foolish decision so i think they're trying to kind of keep oil above a level

that is that keeps shale in the game because if shale leaves the game like it's it's like putin's in the driver's seat um and and in terms of oil prices and if putin's in in the driver's seat in oil prices putin is in there in the driver's seat on western inflation and by extension western bond markets and it's it's sort of game over at that point in terms of you know okay run up the you know run up inflation run up oil bond market blah now what do you want to do fed you know do you want to cut defense spending do you want to cut entitlements do you want to cut like that's all you can cut congress uh or does the fed want to finance it with printed money and take it out of the dollar and that's so i think the south i may be ascribing

too much motive uh but i i think the south and the reason i am ascribing this motive is again white house screamed bloody murder a year ago and they haven't said anything about these production cuts by the saudis so i think they're okay with it because it's helping keep shale in the game which has important implications for the u.s bond market uh via u.s inflation rates yeah it is it's just a quagmire because again going back to like the fed and the options they have at their fingertips very few far between right now and going back to like the banking crisis i think a lot of people were focused on the duration mismatch that existed at silicon valley bank and first republic and signature with their reserve allocations but i think one thing that's

become abundantly clear over the last month and particularly the last few weeks is a big part of problem was just how massive some of the deposits were and some some of the accounts that individual customers were holding at these banks and that's um that creates a big problem because you have run people with billion dollar accounts just running uh again that's why i think we're in a low period that's the big question right now is how many deposits have fled in q2 which will only be surfaced when financials come out at the end of the month and then if you have that that situation arise where the banks continue to fall and you look at the magnitude of the banks that fell silicon valley bank first republic signature i mean those were two three four the five largest

bank failures in u.s history and so like what options does the fed have like i saw you tweeting the other day that they don't really have a dial anymore it's just a lever they choose between deflation and inflation at any given point in time yeah i mean to me this banking crisis has always been not a banking crisis it's been a symptom of the latest symptom of a u.s fiscal crisis right if we go back in time uh these banks were incented to buy treasuries remember we go back to april 2020 you know hey fed suspends the supplementary leverage ratios slrs uh on treasuries right so basically this is an oversimplification but the gist of it is basically treasuries counted against the capital ratios for these banks if these banks bought them in the securities portfolios

and in 2020 the fed is already buying gobs and gobs of treasuries and so they came out in april 20 and said hey we're suspending slr regulations these leverage calculations specifically for treasuries which is basically hey help us do qe in even bigger amounts without calling it qe because de facto what that meant is there was no reserve requirement for banks to buy treasury so if you can buy a 10-year treasury yielding whatever it was at the time one and a half two whatever uh but literally no reserve requirement you're literally allowed to like just i mean i would have done that right hey luke we're gonna suspend slr requirements for you okay so how many treasuries can i buy well there's no regulation okay i'll take a billion well you don't have a

billion but there's no rate reserve or great i'll buy a billion dollars of treasuries when my funding cost is zero because i just created the money out of thin air and there's no reserve requirement against it and now i'm making whatever a billion you know say it's 10 billion i'll take 10 billion great right so that's what 200 million a year in interest of two percent am i doing my math right 20 is yeah and 10 billion is two but yeah 200 200 million a year like literally free and clear so why did the fed change those regulations in 2020 because it was a u.s fiscal crisis it was the latest symptom this whole thing goes back 10 years to when foreign central banks stopped buying treasuries on that they haven't bought a treasury on net in 10 years

and it's been this emerging market playbook of okay well we'll regulate the banks into buying more and then we'll regulate the u.s money market funds into buying more and then we'll regulate u.s pensions into buying more they did that in 2018 under the trump tax cuts uh they will regulate this that okay great but the whole time the bet was well inflation will never pick up as long as inflation never picks up it's fine inflation picked up uh-oh now we got a rate you know we i we either we we you know people say what did they trick these banks i don't think the fed tricked these banks other than i think the fed really thought of you know they didn't they they were just putting on a fire so they weren't thinking about the second derivative of what if

inflation ever goes to five percent like the banking system was like in serious trouble why because we encourage them to buy all these treasuries at basically infinite leverage right If you suspend the regulatory capital requirement, they're buying treasuries at effectively infinite leverage. You're picking up nickels in front of a steamroller. Hey, buy all you want. You make 2% free unless inflation picks up, and then they get you on the back end. And so the entire time, to me, this banking strength has been a fiscal crisis. This is simply the latest iteration of in the primrose path between foreign central banks stop buying treasuries to the inevitable endgame, which is the Fed buys them or the Fed goes to yield curve control and buys them all effectively.

And so we've been marching toward that endgame for 10 years. And to me, this banking strains are just a they're just a symptom of the latest symptom of that of that endgame. And between here and there, you know, you can go right to the end game or you could get a whoosh down and then the Fed responds like we did around COVID. That to me is unclear still, but I think it's been very much a symptom of the fiscal problems that have been ongoing and building for 10 years now. And speaking of the fiscal problems, what are your thoughts on how the debt ceiling debate was resolved or not resolved? depending on i think it's more of the same like i don't have a strong feeling on it either way it's sort of like not surprising they resolved it last second like yeah i just don't have a strong you know they didn't the only strong feeling i had on it was that if they had such a hard time

coming to an agreement to what was if I'm going to remember it wrong, but it was basically like it was like a 40% cut to like 15% of spending or something like that. The Democrats are screaming bloody murder about this 40% cut the Republicans wanted on like discretionary non-defense spending. and when you go okay discretionary non-defense you're like oh my god they're fighting over like if that's the fight we got from that little a cut they're never cutting entitlements they're never cutting defense they're never cutting anything that matters like they're gonna inflate like that's it and the rest of it's just you know it's just it's just sort of a distraction so all you know again path matters but that was my big takeaway is like oh my god that was the

fight over that little cut okay yeah they're gonna cut something sure yeah no it's uh two things i like to search like have they actually gotten inflation under control yes the cpi has come down they've had their their pause if you will um but it doesn't seem like like i'm seeing a lot of indicators actually had a friend went to get a haircut over the weekend took a picture at the barbershop where they're making the announcement come july 1st we're raising prices going through an explanation of how their costs have gone up as a company and they're forced to do this so that's like an anecdotal signal that that inflation problem may not be solved in the way that the the fed and um the the white house are tried to portray

then number two like going to like the retirement crisis and retirement funds with this bond situation going up like a conversation on this show and i've had recently is the concept of like target date funds um for for retirement that have shifted all the boomers portfolios to 80 20 bond stocks and you have 10 000 boomers retiring a day in this environment with with bonds it does not seem like an ideal situation and i guess that's the big question when is the fed going to reverse course if they are are they going to hold a hard line and keep raising rates or hold them higher for longer or are they going to be forced by essentially a retirement crisis uh to lower rates but then again you have the real inflation story which is i think that

they actually don't have inflation under control well i think too the longer this goes on right so there's fundamentally there's no difference at the base level between a 600 billion dollar stimmy that the government sends to everybody and a 600 billion dollar increase in interest expense because the fed raise rates the only difference is really who the money goes to um and the marginal propensity to consume of those uh that receive it so you hand a 600 billion stimmy to everybody and that money gets spent that's like heroin directed directly or injected directly into your you know into your jugular right like that's now the the 600 billion dollar interest stimmy is much more sort of like a iv drip drip drip drip drip drip and that stuff yeah it goes into assets but

ultimately that money ends up in the economy at some point um and so there in my opinion has not been enough work done by the economic mainstream uh about interest rate hikes and aggressive in particular aggressive interest rate hikes when debt the gdp is 130 per 120 when deficits are or 8% of GDP. They're inflationary. And the point being is, I think that's one reason that I think we're at sort of the maximum, we're getting to like the maximum deflation we can get without a crash. In other words, you know, if they let the system crash, yeah, we'll get deflation. I mean, the Fed could have ended inflation immediately in March. Oprah, you have 800 million at Signature bank or whatever she had, you get $250,000, have a good day. Venture capital A, you had a billion

two, you get $250,000. Oh, that means you need to lay off all the, oops, they lay off their people. Those people, oh, you can't afford a house in the Bay Area? Sorry, sell it. Oh, that means those banks fail? Sorry, oops, oops, oops. You could, if you just said, hey, we're not bailing out on secure depositors they would now you would have had we would be we would be at negative we'd probably be at negative cpi like like by now uh but paul it's political economy not just economy so the fed showed their hand a bit right so number one that's going to build on inflation this interest is i think the fact that interest increases deficits and deficits are inflationary over time that is the longer we go i think they're going to have a hard time getting core inflation

down to the levels they want to get to number two right now with headline cpi 5.3 percent a point of that roughly year over year is is energy deflation and like we just talked about before i think that's going to start going the other direction because 90 of the world's production growth in oil over the last 10 years is rolling over thanks to the SPR releases and the rate hikes. So, you know, I don't think we're too many months removed from oil 70, oil 75, oils 80. And then, hey, economist at XYZ says $80 oil means actually in the next CPI or print, oil is going to add a point to the headline, not detract a point, which puts us back in the sixes. So now you're looking at a world where wait a second I own what you know what do I own the economy's

slowing inflation's re-accelerating the SPRs run down why do I own the long end of the curve like like for safe like safety good luck with inflation accelerated like what what's so you're going to get into a stagflationary type environment so I think we're probably getting to like again How do you fix this? Like I could fix inflation tomorrow. I cut rates to zero. I raise tax rates by, I don't know, 30% across the board. And I go to Congress and I say, you've got to run a balanced budget. Gone. Inflation is dead tomorrow. um fed can't cut rates to zero well they could but if they cut rates to zero without doing the other two over which they have no control inflation will go nuts so it speaks to the intractability like the fed is like they're like fighting mike tyson in his prime with like i don't know one and a half arms tied behind their back right they're like sort of like

trying to reach like this with one arm tied at the elbow the other one completely behind their back and like they've done a nice job but they're gonna get killed uh in the end mike's gonna knock them out and there's no political will uh to do the other two things uh for any number of reasons so to me yeah is it this month next month next i don't know but i think we're getting close to like the maximum amount of deflation and when that starts going the other way that i think is going to be a real interesting time in markets i think that's i think that's not a good outlook for markets because you just nobody's position for it number one and it's not good for basically anything but like the dollar and energy and you know probably gold yeah how like

and it seems like it's talking about like the political uh quagmire and the insanity of it right now too it looks like they're gearing up to do something that the politicians are really good at is creating a distraction when things are going bad and they're not managing uh the government and their fiscal side of the house appropriately which is distract people with war and you had lindsey graham and senator blumenthal over uh in ukraine saying that they're willing to um initiate article 5 of nato to to really turn up things with with russia it's just like ah how, how far are they going to go on the distraction side of things to really try to paper over the, the economic turmoil that we're going through? Yeah, that's the $64,000 question.

I mean, who knows? Um, they've made, they, and, and, you know, it's both sides of the aisle for 30 years. Like they have made collectively bad decision after bad decision after bad decision with borrowed money and they never thought the bill would come due and the bills do and the changes the things they're trying to stop from happening required changes 10 years ago and 20 years ago you know there was a great article recently uh last week in the ft um i guess it was at the paris air show that had ceo of raytheon said we can't fight a war without china well i would say that's a bit of a problem if you're going to try to fight china and you can't fight china without stuff from china now this is something i've been repeating ad nauseum for

10 years and you know it's interesting it went through the classic path of who's this idiot oh okay well you know first they ignore you then they laugh at you then they fight you and then you win and it's like now you have the ceo of raytheon in 2023 admitting this um the u.s defense department put out documents saying exactly this in 2018 chairman of the joint chiefs of staff said in 2011, we're borrowing money from China to build weapons to face down China. This is not a sustainable strategy. I've been saying for a decade or more, like, hey, we have de-industrialized the U.S. defense industrial base. And that's a problem as a national security imperative. At some point, somebody needs to pay attention to this. So, like, on one level, you can see

the attempts at distraction by Graham and others on another level it's not feasible they're bad decisions of the last 20 years it's not feasible yeah I actually had an ex-intelligence officer on the show a couple months ago and he was explaining like yeah we don't have the factory capacity to build the weaponry necessary if we decided to get into a ground war over in Ukraine or taiwan not only do we not have the capacity to to actually spin up the weaponry that would be necessary for that we haven't trained for these types of wars in decades like if we were to go over there and immerse ourselves in that type of war and get completely wrecked almost immediately because we don't have the the firepower or the strategic training to actually

pull it off which is yeah i would have to devolve it would have to devolve into basically nuclear very quickly because yeah you know and it's been an advantage i've had being based in cleveland for most of my career all my career which is like i saw the de-industrialization of america first right i mean we're sort of the the emerging market of you know the rust belt is america's emerging market and i just watched it get whittled away um you know and you don't see if you're in new york if you're in washington if you're in the coasts you don't see what has happened they're starting to see it now a little bit but like you know when you know i've been watching this for 20 25 years my father-in-law my late father-in-law was a teamster official so like i remember golf

one of he and a couple of his you know his union official buddies in the early 2000s after china went into the wto and it's so fascinating because like those those guys were seeing factory losses close down, go to China. And they all said, like, collectively, the three of them had not a single day of college education amongst them, right? Not a single post-high school day of education, but they were all super street smart. And they got it right away. Like, I get it. Okay, you're going to increase more profits. You're going to, you know, it's going to make the stock go up but then what what about 10 years from now what about 15 years from now what are you going to do and no one no one thought that far ahead it was just hey let's let's get profits up now let's get

the stock up now let's break labor now and now like you don't have the industrial the skilled industrial labor so it's like you got to get the facilities and you got to get the grid then you got to get the labor you got to get that like and the answer is like well let's just open up immigration what do you think like people are just waiting like like there's like welders like skilled welders looking to like like no no that's not how it works there's lead time to this stuff so there's been when you chronically manage short term on borrowed money over and over and over a reckoning comes at some point and the reckoning's here yeah that's actually one of the scariest parts of this crisis we find ourselves in is that lack of skilled labor

to actually maintain like obviously we had the uh the bridge collapse uh the railroad collapse in montana over the weekend there's more and more stories hitting the headlines of plane failures we had somebody on a tarmac i believe in dallas i forget which airport gets sucked into the engine Like we literally don't have the people to maintain the infrastructure or build modern day transportation technology like airplanes, which gets scary when you think about that late stage, the part of late stage where the infrastructure is crumbling, which is happening now. And then we used to do a lot of deaths because you don't have the people that can actually fix and maintain the things that run our modern day economy. And that's that is the challenge. It ties back to the challenge of the Fed. remember seeing you know in hindsight an early symptom of this i remember in a former life we

had a client um you know this is this is not fftt this was you know a pre-pre-fftt in my in a former life we had a client who was like i don't know if i remember he was like he was like like literally a brain surgeon and had trained for like 20 years or something to be a brain surgeon and found that like you could make more money making or being being a hedge fund analyst than than operating on the human brain and the person made the decision that was and oh by the way you don't have to deal with the you know the lawsuits and the the the uh um you know insurance that doctors have to pay and in internet so it was a high as a higher pay you know higher quality of life across the board so this person made the rational decision to switch professions and i i respect

it it's not a critique of that at all i simply look at it as a symptom an early symptom of this tragedy of the commons problem which was i mean i went through the same thing right like hey i could study to be an engineer or i could get a business degree which was a lot easier than my buddies in engineering and i could you know go into equity sales and i could make a lot more money to support my family doing equity sales than i could you know being an engineer making something and then you You know, there's a reference to this in the movie Margin Call, right? Stanley Tucci's character at the end in Margin Call. Same thing.

I used to build bridges, right? Now I'm selling the ribbons. Okay. You'd repeat that story enough over the course of the economy over a long enough period of time like we have. Then eventually you get to like, hey, we don't have the people to the welders to rebuild the bridges, keep things running, et cetera, et cetera, et cetera, which only. And then you get the two choices. You get to sort of a disorderly breakdown of your infrastructure or you get a disorderly breakdown of your bond markets, because what has we've gotten it to the point, in my view, that your only choice is pay the man, right? pay the man surely right pay pay me so like okay if we have a labor shortage we need a national imperative to say you go into welding you're gonna the government's gonna guarantee you're

gonna come out making 200 a year and by five years you'll be making 500 and you gotta do something to draw and it's not just welding it's welding engineering it's it's all of these things that have been sort of culturally shunned over the last 40 years. Because otherwise your whole, you know, Biden, I applaud him. He's basically running Trump's economic plan, right? Bringing factories back, investing, you know, printing money to put in semiconductor plants. Great. But without the labor, it's going to fail.

And to get the labor, the bond market has to die on a real basis. The government's got to come out and say, we're going to invest a trillion dollars in the labor force to support this reshoring. and here's how we're going to do it. Like you want to go into skilled labor. You're going to come out in three years making 200 grand and you're going to go to 500 grand because right now in Cleveland, Ohio, plumbers are making 300 grand and no one wants to be a plumber. So you got to make it, you got to do something like that to spur and you need to do it like yesterday. And it's not happening yet because again, if you come out and do that, guess what the 10 year is going to do? You know, 10 year yield is going to six and now 10 year goes to

sick so crap the housing market craps on itself the the you know u.s government can't fund itself those rates without fed help so you're this is where you get to when you make repeated short-term bad decisions on borrowed money and here we are yeah it reminds me a newsletter i wrote last month that was referencing a thomas pain quote which is if there is going to be trouble let it be in my day so i can take it on so that my children have a better day paraphrased um but i think that's a decision we have to make i think if we are going to make a better world for our children we have to make like i think we have to let the bond market fail like focus on like getting more skilled labor into the workforce and really focusing on battening up the economy making

sure that it will actually work for our children when they enter the workforce and it's interesting too because i see microcosms there's like there's spats of it in the bitcoin mining industry particularly like i see it up in appalachia a mining company that i'm involved in like we actually uh very strategically target areas municipalities towns that have had manufacturing capacity move out and have declining populations because they have these large substations with excess excess capacity and if we're able to allow the utility to to get more power from tva to fill up that capacity and they get lower pricing and we get low mining costs.

And it's funny, it's almost paradoxical that the Elizabeth Warrens of the world and people that think Bitcoin mining is using too much energy and is a big waste, it's actually funny because what we're doing is actually solving the problem that globalization and reshoring of our manufacturing created in the first place. for actually making that energy infrastructure more efficient

and fixing the problems that they create in the first place. And I do think some people think it's a pipe dream or that it's wishful thinking or that it's idiotic, but I do think there is some signal there, particularly like in Bitcoin where... Oh, absolutely. You're also pushing the edge on engineering too from software side, firmware side.

Physical infrastructure miners have very strong incentive to make sure the infrastructure that we're leveraging is maintained properly and reliable. And it's very small right now, or not very small, smaller than most industries, but I do think if you just let that flourish, there could be somewhat of a natural healing process in the Rust Belt and other parts of the country that have had this. Absolutely. It was interesting.

I had a tweet last week where I retweeted or quote tweeted an article about Texas brownouts. brownouts you know they had the temperature was up to whatever 105 you guys are having down there whatever and right so there's the uh ercot said hey we're gonna have to shut down this or that and like i know for a fact there are spot you know it's still small but hey if if you build ahead of time especially if you can get the industry to grow so that as utilities plan capacity expansions you can then begin to build capacity closer to peak if you know you've got the bitcoin draw the balancing on the other side where you can say okay let's build this higher

capacity because we know those guys will take it because it's cheap and then we can pick up the phone when it gets to 105 across the state and say hey shut them down we need the capacity to address peak loads in the residential or the industrial market whatever it's a more efficient more balanced system and it was so interesting like it's not up for debate it's happening on a small level it will absolutely work and yet the pushback i got from a number of people like it was nasty like you're crazy this doesn't happen like no no it is happening like this isn't i'm not speculating it's yes is it niche still absolutely but it's happening and it could happen much greater it's actually is paradoxically like you said a fix to a lot of things but that just tells me how early

it is in the whole process the fact that p like they're still even arguing so vehemently they don't even realize that it's happening already i mean it just tells you how early it is in the whole process for for bitcoin yeah and last week i mean last week there was a material reduction in the current hash rate of bitcoin it fell from like three the average over the previous 30 days was 376 x a hash i believe tuesday or wednesday when it was really hot here in texas it fell to like 315 so it fell by like 17 percent as miners here in texas were embarking on demand response and then the other fascinating like it helps economically too if you looked at the ercot day ahead price estimates they were estimated to run up to a thousand dollars a megawatt hour

they only hit like 250 that day because miners were able to turn off and sell it back turn off the rigs yeah and so it's such it's such it makes so much sense yeah it's that's that's like the frustrating thing with the administration that not the administration the uniparty system that's taking the short term uh this made the short-term decisions for decades on end uh and have really put us in a pretty shitty spot economically uh and miners were out there actually solving problems in a free market fashion and it's working and yet they refuse to acknowledge the evidence and still want to paint us as these bad evil energy pirates yeah it's it is head-scratching and that you know i tie it back to like okay well if it's taken i'm still

this long to understand this unfortunately you go back to the initial point of all right it's got to get it's going to have to get worse before they really understand it unfortunately it's um yeah and that ultimately is okay inflation's going to get to some level but it's not going back to two all the way and then it's going to start picking back up again because they just they're not making the investments fast enough and wisely enough i think uh to avoid some of the supply chain infrastructure breakdown that will occur and as that happens it's inflationary you know structurally inflationary yeah so you mentioned earlier potential for stagflation on the back end of this year and

people are not positioned for it how are they not positioned and what they're going to look like when they catch themselves on the wrong side of this reality oh yeah i mean they're not positioned because you still hear people talking about wanting to own the long end of the treasury curve like that's you know a lot of people still hey that's let's own it we're going to go the fed's going to go higher for longer and push people push them into a recession and that's i want to own the 10-year treasury and the 10-year treasury you know wherever it is now three six 637. I don't know. Like that's not the right price. If we, if we wake up in four to eight months and oil's 85 and CPI headline has a six back in front of it, that 10 year treasury has got to have

at least four in front of it. And as that happens, that forces, I think a complete review of like, why am i bidding the nasdaq why you know why am i building the big six sort of you know negative real rate growth names um that's got to get reviewed so you know 10-year pricing's wrong nasdaq pricing is wrong you know the the whole ai efficiency margins up productivity gain from ai sort of view right now is wrong uh it's all wrong the doll you know the dollar's too low oils too low on down the line you know in that world you want to own dollar gold energy and I think probably Bitcoin too like I said before you know I that I wrestle with the Bitcoin because it has had that of course that high beta you

know tech field to it that's been shifting like I said but but that's that's why I say they're not positioned for is just watching where those assets are trading there's just no view toward hey what if we you know they're just kind of looking hey straight straight line it down and we're going to be at two percent by christmas and great i want to you know this i don't think that's how it's going to go they're just not paying attention to what's happening in the energy patch no i don't think so either in terms of bitcoin that's a big meme in the space is when you're going to get dislocation from this high beta tech play that many people have sort of pigeonholed it into. And I do think this year

has provided a lot of sort of themes that, that highlight Bitcoin's value prop, particularly the bank runs. You have a billion dollars in a bank and you have a run. You need the Fed to step in or the FDIC or the treasury, whatever it may be. And that really highlighted like, especially Silicon Valley bank. It was interesting seeing some of the tech VCs and tech companies begin to open up to bitcoin like oh this is why you want this asset with no counterparty risk that you can actually hold because you don't have to depend on the other people you're um that are clients of the bank that you use running with the money and creating a structural problem on top of that obviously i don't think people should buy it i don't think it's a great way

to get exposure to bitcoin but it is a strong signal that blackrock did file for a bitcoin etf at the very least i think it shows that they have demand from their clients it's like hey I want to get access to this asset. And then another thing that's really setting up for Bitcoin too is we have the supply, the subsidy having coming up next year that that narrative is beginning to grow strong. People are really beginning to realize how just how scarce Bitcoin is.

The subsidy is going to go from 6.25 to 3.125 next year. And I think that that jarring having of that subsidy really begins to steep in people's minds. And then, obviously, on the fiscal side of things, at the federal level, they don't have it under control. I mean, with the kicking of the can, with literally no ceiling until 2025, CBO coming out and estimating,

yeah, that'll probably get to like 37, 38 by then. People have to be wondering, all right, what is this Bitcoin thing? Then the energy side of things, that narrative, even though many people don't get it yet, the energy companies get it which is the most important thing i think absolutely yeah i think we'll get to a point where the like they'll come out and be like hey we're arguably the most important sector in the whole economy we make it run like this is working for us like you have to

get smarter on this yeah i agree entirely and it's the counterparty risk thing is still so early People, to me, the most mispriced narrative on the street, right? So we go back in time. The most mispriced narrative on the street today, let me finish my thought. The most mispriced narrative on the street today, by far, it's not even close in my view, is U.S. Treasury bonds, for the first time, they have risk. You either have credit risk, counterparty risk, or you have duration risk, inflation risk. But there is, in the absence of a tech or energy productivity miracle, and in particular energy productivity miracle, treasury bonds have risk and people just aren't thinking of it.

It reminds me of 03, 04, even into 05, where it's like, hey, those subprime mortgage bonds, these are looking a little iffy. And at the time, people said, look, they're AAA rated, Standard & Poor's, and Moody's say they're AAA rated, and no AAA rated bond has ever defaulted. Okay, great. Except we now know that Standard & Poor's and Moody's were not entirely objective in terms of how they went about rating those, number one. And number two, they were never AAA rated. They were, de facto, they were nominally, but de facto, they weren't, if you would have really looked at them on their merits. And so, hey, the government has regulated bonds, you know, U.S. Treasury bonds into being risk-free collateral and, you know, collateral trades. I get it. I get it.

And do I think the U.S. government's going to default? No, I think there's zero chance of that. They'll print every dollar they need. But that gets back to my point is, with the debt we have to GDP, with the deficits we have at this point of the cycle, The fact that we're running 8% of GDP deficits with unemployment at 3.6% is staggering, staggering. Jason Furman had a great tweet last week where he noted historically 3.6% unemployment has historically been akin to a balanced budget. Like the fact that we are running an 8% of deficit with 3.6% unemployment tells you the system is structurally broken. So with debt this high, with deficits this high, both as a percentage of GDP, when you layer on peak cheap energy, in particular the peak cheap oil, unless you have an energy productivity miracle, treasury bonds have risk, either credit risk, which I don't think is likely, or duration risk, inflation risk.

And we last year, I think, was just a warm up to that recognition, that realization. And I think as that realization hits by virtue of how things play out over the next year, as I see them again without an energy productivity miracle. Like that, I think is really, really good for. All of a sudden, oh, God, counter. I need an asset that both hedges treasury counterparty risk and credit and duration risk. What's what can I own? Gold, Bitcoin. What else? I mean, other hard assets, other things are going to do well. But, like, that's it. Like, it's a really short list.

And, you know, Hugh Hedry had a great point the other day on Bloomberg where he was like, gold's $13 trillion market cap. Bitcoin's half a trillion. So, like, if you wanted to play that with alpha, you know, could Bitcoin, you know, he said on Bloomberg, could Bitcoin go to a trillion and a half and be only the size of that? Like, I think it's already been there once, right? I mean, if not close. yeah you could triple it and and still only be half the size of apple so i like i said i think the most under appreciated narrative by far on the street is treasury bonds have risk credit risk or duration risk and it's not credit risk it's duration risk um and uh i think i think we're

going to see that play out over the next 12 months and i think it's really good for going bitcoin Yeah, that's funny. And it's not just treasuries. To be clear, it's not just treasuries. It's, you know, it's UK gilts. And that, you know, UK can go over the cliff first and all of a sudden, boom, the gilt market has a problem. Guess what? Like, first stop is a treasury market. But when the treasury, you know, some of that money is going to go into commodities and Bitcoin and gold and send an inflationary signal. And that's only going to make it, I mean, if anything goes wrong anywhere, it's going to go wrong everywhere on that front.

yeah it seems that everywhere i think they're being held with chewing gum and duct tape great the the seams are tearing uh it's a scary landscape you got to be optimistic we can fix this i think uh i think it'll get fixed like to me it's never about like oh god the world's ending it's just like the world changes the world changes and sometimes it changes a lot really fast and so it's really all about how are you positioned right i think it's we've got a 40-year bond bull market and people think the next 40 years are going to be another 40 years and forget it 40 years people think the next five years will be another bond bull market like may maybe but i think that's a really really low probability uh possibility like i look back

there was a great article in the ft um i don't know six months ago i guess now but it showed like going back to 1918 i guess it was 1912 man just what was this for 80 years bonds had negative real returns on average from like 1910 to like 1981 or two on average you lost money against inflation for 80 straight years and then you like you had this great 40-year stretch and people like oh that's the normal like well no no it would it's not so like i think everything's me everything always works out i just think it's about a position right i think we're going through a monetary system change monetary system changes tend to be good for commodities hard assets gold things with no counterparty risk and bad for bonds on a real basis yeah now and with the

the multi-polar theme growing and you have russia china saudi iran brazil all these countries teaming up like all right we're going to settle our trades and our native currencies but even that like that just seems like temporary like how could you trust china to manage yuan correctly how can you trust russia to manage ruble correctly oh absolutely absolutely and that's i think it's to me with these multi they're they're not going to set it it'll be gold it's it's your i think in the in the intermediate term and you're seeing this you know central bank gold buying was the highest in 100 years last year they've been buying for 10 years you're seeing i mean you know last month russia bought gold as the ruble weekend as like that's a huge narrative like if they're

running deficits because we're pinching them why are they buying gold where are they getting that money from where they did right so nobody trusts each other and there's a lot of foreign people don't trust the americans anymore after we seized you know russia's treasuries and for good cause when you don't trust anybody you go to gold you'll settle in gold and people say well that's unwieldy and it is absolutely i mean we ship a you know a million bottles of water around this country on the back of a truck every day so it's like you know it's not that much more unwieldy than that and it's easy enough to prove it's like okay it's the proof of work like the whole world's going back to proof of work because of that breakdown of trust that multi-polarity which is

you know russia says hey we'll sell in your currency but then we want gold we're going to settle in gold net at the central bank level well what happens if the gold doesn't ship then the next then the next tank or oil doesn't ship have fun you know is in in armageddon because you don't the oil your country's going to tear itself apart the gold will make its way there i mean we did it for the saudis after you know after world war ii for a couple decades so yeah send them gold and gold with wings bitcoin you know i think i think that's gonna it should be very yeah i mean when you look at it you know it's not held at the central bank level but but and that's why i think in the intermediate term you probably the first stop is probably gold but i think ultimately and

Quite honestly, I wrote about this a year and a half, almost two years ago, that like if the U.S. wanted to counterbalance or counter, you know, sort of leapfrog what Russia, China, Iran are doing with gold, they would go to Bitcoin. They would say, we're going to settle U.S. deficits in Bitcoin instantaneously at a market rate. Boom. Game, set, match, checkmate. it's over but there's a lot of political uh impediments between here and there yeah i mean lucky luckily for the u.s u.s citizens hold the most amount of bitcoin globally per capita i believe that status is all right yes okay and then the other thing like bitcoin has been talking about this for well over a decade the game theory of it all like if you're a nation state that's going to get into bitcoin you want to keep it under the radar for a little bit because once

a large domino falls that's going to incite like a mad dash that's going to significantly drive up the value of bitcoin and again this last 12 months has shown signs that this has happened like the kingdom of bhutan very small country up in the himalayas but due to celsius and block fi going bankrupt and it came out in those bankruptcy proceedings that the sovereign wealth fund of the kingdom of bhutan had exposure to those companies and they had to come out and like yeah we're actually mining bitcoin we have been since 2020 and we're actually going to double down on top of that you have russia essentially um using gamprom gazprom excuse me which is essentially a state-run company uh partnering with mining companies to mine bitcoin gazprom's

excess natural gas obviously we have el salvador um but i do think we are at that stage where countries are trying their best to accumulate bitcoin on the down low accumulate as much as they can before things get crazy um so that they have some power on the other side of the massive price appreciation um but yeah i wonder how how long that can be bottled because it just seems like more and more headlines are coming out every day we had abu dhabi come out and announce that they're doing a partnership with a publicly traded miner here in the u.s and i think that oh interesting that theme is just going to continue to to um get stronger throughout time and it all revolves around mining and any of these energy rich countries can just

use their energy sources to to mine bitcoin and get access to the network that way they don't even have to go out and market buy that's actually the best way for them to develop a stack under the radar just to mine it yeah you do it that way and then it ultimately i think on a first principle basis it comes down to two things it comes down to the counterparty risk and sovereign debt for the first time in 50 years and it comes down to peak cheap energy right like if you are an energy rich nation you cannot you know if the price of oil needs to rise eight to ten percent per year for the foreseeable future just to keep global supplies flat just to keep global sovereign debt piles from from you know the global sovereign debt market from beginning to to to go into a

deflationary debt default spiral then you can't put your surpluses in sovereign debt yielding three if oil needs to go up eight to ten you're just better off leaving the oil in the ground and that just feeds on the problem so yeah you there's this debt peak cheap oil problem and it feeds into this counterparty side you go okay gold or bitcoin like gold or bitcoin yeah and yeah i think that's right you partner with the miners i mean bitcoin does a lot of the things that gold does better than gold yeah it's fascinating time to be alive luke it is it's always a pleasure having you on thanks for having me i enjoyed our i always enjoy our conversations yeah it's uh it's gonna be fun yeah fun is a it's gonna be interesting

definitely i think uh it'll be very very interesting i hope it'll be fun but it's It's definitely going to be interesting. Yeah. I don't think, unfortunately, I think most people aren't aware of everything going on. So hopefully they begin to pay attention. And again, I am optimistic. I do have hope because we have things like Bitcoin and gold to fall back on. And it's really empowering, too.

Hopefully, that's the other thing. We have like a crisis in confidence in the institutions that got us to this place. And I think that's probably one of the most important things that can happen is confidence in the institutions that got us here collapses and people begin to realize like, oh, we can actually get out of this ourselves. We don't have to depend on these institutions to do it for us. Yeah, it's like what Will Rogers said in the Depression. It's almost been worth this depression to see how little our big men know. It's history's running, right? It's almost been worth all this to watch how little our big men know, our big men and women.

And they have demonstrated themselves of less 30 years to really, you know, they've, they've been weighed and come up wanting. Yeah. You have it in you freaks. You can get yourself out of this mess. The tools are there. Luke, thank you for coming on. Hope you, uh, have a great rest of your Monday and we'll do this again, maybe at the end

of the summer or something like that. Perfect. Yep. Have a great rest of your day as well. And we'll talk to you soon, my friend. All right. Peace and love, freaks.