The Pomp Podcast - #1356 Kyle Bass | Bitcoin Could Explode On Global Chaos

Episode Date: May 6, 2024

Kyle Bass is the Founder & CIO of Hayman Capital Management. In this conversation, we talk about global conflict, why the traditional financial system incentives attacks on each other, China, Taiwan, Ukraine, Russia, Hamas, Israel, why inflationary pressures will continue to be a problem across the world, bitcoin, gold, and portfolio construction.  ======================= Introducing Espresso - the world’s most interactive portable display. They have a portable screen that is incredibly light, comes with a nice stand, and the user interface is very easy. Anyone who listens to this podcast can go to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠us.espres.so/pomp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. They have a brand new offer waiting for you.  ======================= BetOnline.ag is a proud sponsor of the the Pomp Podcast. Use crypto to bet on sports, play poker and enjoy casino games at BetOnline. Visit https://promotions.betonline.ag/pomp and use promo code POMP100 to receive a 100% matching bonus on any crypto deposit. BetOnline boasts no crypto transaction fees, and processing is anonymous, instantaneous and secure. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Kyle Bass. He is the founder and CIO at Hayman Capital Management. In this conversation, we talk about global conflict, why the traditional financial system is built to continue to incentivize people to

attack each other, what he thinks about China and Taiwan, Ukraine and Russia, Hamas and Israel, and why we should continue to see inflationary pressures all around the world. We also discuss things like Bitcoin and gold, and how he's thinking about various parts of the world, how to defensively position your portfolio to weather the storm that he sees on the horizon. Kyle is always full of original ideas, and I learned a ton in this conversation. I really hope that you all not only enjoy it, but you take away some lessons learned. I definitely did. Here is my conversation with Kyle Bass. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast

are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Espresso, the maker of the world's thinnest portable display. Now, listen up. If you're like me, you feel like you are at a command center when you sit down at your desk. I got a gazillion tabs open and different windows for different activities. There's my web browser, my text messages, I've Slack open, and I got a notes app. I normally work on a desktop and it can be very,

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Betonline.ag. Go check them out today. All right, guys. Bang, bang. I've got Kyle here. Kyle, it feels like conflict is a huge theme of this decade. We have had conflict in terms of competition.

We've had conflict in terms of violent wars. it just seems to be everywhere all at once. And I think a lot of people are trying to wrap their head around that. And so I know you've got some views on like why wars are happening, both from financial reasons and also kind of these inflationary pressures. So maybe you could unpack just like why on a global scale is war seemingly like the default position that we're in at the moment? That's a great question.

First of all, pleasure to be here. I think that, you know, there are already idiosyncrasies for, let's say why russia wants to put mother russia back together again why hamas wanted to disrupt the middle east peace process uh that was actually coming together so nicely after the abraham accords um and then you know again why why china um and and their militaristic belligerence is going to you know let's say cause a few global flash points in the philippines and taiwan and And those those are those are yet to come. But, you know, for the people that are protesting at universities, for the people that are screaming for a ceasefire, that are hoping to go back to this period of time in which we had a peace dividend for a long period of time. right uh i think you and i and all of us felt uh like you know post-1988 1989 when the wall fell

fell and kind of democracy somewhat overcame communism um back then and created this enormous you know several decades of prosperity um we all thought the great wars were over but unfortunately there's those things called human nature uh and long periods of prosperity create weak leadership and uh disproportionately i think allocate resources and then all of a sudden uh you're back in a conflict what makes conflict worse uh what makes conditions worse for um ever uh achieving some kind of denouement or some uh rapprochement of these these warring factions is is the financial architecture of the world and i think if you look back to 2008 i mean what are we uh uh we're 16 years past 2008 today and um i think we've got a scenario where you you

the feds balance sheet we just start with the us and and starting with the us is very important right we're we're four percent of the world's population we're 25 of gdp and we're 40 of the world's capital markets we are the financial foundation of the world the world's commodities everything that trades in the world is priced in dollars if if it's priced in a foreign currency it's priced in dollars and then converted to that currency as you think about it right global pricing is dollars cross-border settlements 85 plus happen in dollars today um again don't let any of the numbers from the imf or the world bank change that uh it's you you you deal with uh traffic guru you deal with any of these global import export businesses and

everything's priced in dollars so the dollar is the world's reserve currency and it will be for a very long period of time anyone that says it won't um just doesn't understand in my opinion the way that the world works um now can we do things to jeopardize that over time absolutely are we doing those things absolutely um but we're still the tallest midget by a long shot uh and and we can get into the different areas of the world different currencies and i know we'll probably get to crypto at some point in time today but the point the point being is the architecture of the world starts with the dollar and then it moves to the emerging markets it moves to the first for the rest of the developed world then the emerging markets and the fed's balance sheet going into

08 had less than a trillion on it basically it was a very low sloping y equals mx plus b line that was fairly predictable um you know we would counter we spend into recessions but it was it was just very low standard deviations from the mean then 2008 happened we were at roughly 990 billion going into 08 and from 08 to 2018 uh we grew it from 990 billion to four and a half trillion it's hard to believe that we actually created that much money uh in actually a as timelines are concerned i'll say as history is concerned a pretty short period of time right um and then we started to try to wean ourselves off of that fed balance sheet uh went from four and a half to roughly four trillion and then the the uh the the disease started emanating from wuhan the virus

and we took the fed took its balance sheet from roughly four trillion to nine trillion in 18 months we increased the the money supply the broad money supply of the us by 40 percent in 18 months we've never done that before um that is sheer um i think it's recklessness i think that none of us knew how what what the mortality rate of of the uh covet was going to be it was a guess everybody was panicking we wanted to do plan after plan after plan even before the money was spent we were talking about new plans thank god joe manchin was alive for heaven's sakes we'd have another one and a half to two trillion uh of of fuel on this fire and we've seen more than 40 inflation so that inflation is really important to understand in the context of think about

countries around the world like argentina or lebanon or the gaza strip when the world's growing at let's say global gdp is growing three and a half percent inflation's at one and a half two percent the world's growing nicely finally and everybody's doing okay into no conflicts those countries are still poor and they're still mismanaged and are regions and the poor though they figure out how to live they figure out how to feed themselves they have some housing basically life can go on as they bounce along the bottom what we just did is we shocked the system with what I deem to be 40% to 45% inflation. And let me back that up with some numbers.

You look at the average price of milk, up 40% in three years. Look at the average price of soda, 45%, three years. You look at the average price of, use the government's own FHFA housing index that is not chain weighted, it's just the number. It's up 47 in three years. You know, they're all rhyming with about 40, which is about how much we expend in the money supply.

So if you can't tell I'm a monetarist at heart, yes, I'm an Austrian school acolyte, and it's something that I wish we could operate under. But unfortunately, the pattern was set a long time ago, and we're in a Keynesian system, and that's just the way life goes. But being a monetarist, I just believe that inflation is and always will be a monetary phenomenon. Then it becomes a psychological phenomenon. But if we push inflation like that to the rest of the world and those economies that we're just bouncing along, everything's priced in dollars. So the poor already didn't have disposable income. So inflation breaks them. It breaks them completely.

And the middle class that were barely kind of making it, now they have no upward mobility whatsoever. As you know, middle class can't reach and buy a home anymore because home prices are up 50. And you and I both know that wages are not up 50. right so uh in some places you can point oh minimum wage has moved up this or that but wages writ large in the united states and worldwide are not up 50 percent in the last three four years so um real rates of uh real wages are down pretty substantially um given inflation so when you push inflation like that to these places they hyper inflate so there's a negative convexity to the emerging world when the us shocks the system so we shocked

the system and we we there were already countries that were mismanaged financially and and militaristically and uh politically uh but what we just did is we just broke them and so when you look at lebanon or you look at turkey turkey's a large country with a huge number of people that let's just say may not have the same religious views as as the the developed world um turkey's hyperinflated argentina's hyperinflated lebanon's hyperinflated pakistan's on its way there i can go country after country after country iran iraq all of them have broken so for anyone that believes there's going to be a magic ceasefire because people are demanding it at like colleges in the United States, I have another thing coming. It is not happening. It can't happen. And it can't

happen because the financial architecture of the world is broken. And then you look to places like China and Hong Kong, who had a miracle in quotes of GDP, but that miracle was basically built on a foundation of sand. The foundation of sand was real estate. They let real estate go unchecked for basically a decade. And what did that do? It got to prices so high that median home price to median income in tier one cities in China got to over 25 times. Well, at the peak of our subprime greatness, we were like 6.6. We try to get it between three and five times. So what she figured out too late was that that's why their demographic curve hooked down and started collapsing because men in China, when they got out of universities,

couldn't afford an apartment. So they lived at home. They weren't having sex. They weren't having children. They weren't marrying. They were living with their parents. And so any of these statisticians and actuaries that were modeling the Chinese mortality curve, they were shocked when their model that was showing a decline to 2050 hooked down and collapsed. Well, Xi Jinping was shocked too. And remember, they've only been at financial markets for about 20 years since they entered the WTO, right? In 2001.

We've been at financial markets for over 100 years. And look at how bad we screwed it up going into 08. So I think it's important to understand that the architecture of the world was just shocked. It was already pretty bad. And we just broke it. uh and the fed has 18 unelected people running the fed that are all academics uh that answer to no one and that may sound conspiratorial to you it's just the truth they don't answer to anyone they if you go meet with them they believe that they saved the world from covid and they were

self-congratulatory about that and now they're self-congratulating themselves saying well we we have this kind of inflation dragon tamed when they're the ones that went so big on the front end that the only institution policed or tasked with policing inflation caused it. And now they're the ones trying to put the fire out. So I believe that understanding the architecture of the world is so integral

into trying to handicap geopolitics going forward. When you look at the United States, the Fed, to your point, they have immense influence, and they definitely helped cause it. They definitely are trying to put it out. Whether you think that they did a good or bad job, let everyone else decide that. But what I find interesting is the Fed pretty much since the end of 2021 has been verbally saying, hey, we're going to bring inflation down. We're going to create these tighter financial conditions. We're going to take all these actions that historically they've been able to pursue draining liquidity out of the system. the politicians didn't get the memo they continued to just pump tons of liquidity into the uh system

via all these bills and legislation etc so like how do you balance like who's actually in charge now yeah is the fed overwhelmed by the politicians and kind of this pursuit of just these spending bills all right let me give you one answer and it's just look at 2023 2023's fiscal year the U.S. government receipts were about $4.4 trillion. We spent $6.1 trillion. And a lot of people say, well, that's just 7% of GDP. It's a big number. But when you start characterizing things like that as percentages of GDP, it kind of is their way of throwing it into the ether because the average American has no idea what that means. And I bet many people on Wall Street have no idea what that means if you really think about it uh the way i think about it is

you know we ran a a deficit that was 40 percent higher than our risk than our income so if you made a hundred thousand dollars and you spent 140 it's really a tough thing right uh and that's basically what we did um and we did that at full employment so that is something never really been done before i i i'll i'll retract that statement it's been done one other time to my knowledge and that was going into world war ii and by the way that's when you do it right um that's when you go you you literally go for broke if you're headed into a big war you deficit spend as much as necessary to win and to the victor go the spoils until the loser goes defeat and default just about every time and so you know i worry that we're at a point where spending and congressional spending is

out of control at full employment and we're only spending three and a half percent of gdp on defense if you look at the at the uh call it distribution of low and high of spending on defense you know the lowest we've ever spent as a percentage of gdp on defense is three and we're at three and a half and the highest we've spent call it 1945 we spent 47 percent we repeat that 47 percent of gdp on defense you know why we had to win that goddamn war and we did right so in the cold war we spent six to nine percent of gdp on defense one could argue that if you try if you if you were to pin the tail on this donkey today you would say well there's a ground war in europe there is a war now that iran has entered and its proxies are fighting with israel and china's

threatening to invade uh basically take the second thomas show in the philippines and invade taiwan and one could argue that we're not at the peace dividend level of um defense spending nor should we be should we be somewhere in the cold war region absolutely should we maybe be spending even more than that anticipating a hot war i don't know maybe that's where i'd come out and you'd say well where do we get the money and i would say well we're gonna have to deficit spend so uh even more um so you know the the answers here are just not good uh but what they tell you is if you're thinking about investing around what i'm talking to you about you know if china invades uh this it takes the second thomas show in the philippines or starts a fight there um we have a mutual

defense treaty with philippines if it gets invoked we're in this fight japan has already said they'll be in the fight why china is pushing you know 700 miles from its coast big question mark um other than it's a big protein source and they're the us's number one longest lived ally in southeast asia but these things are happening and i think we go day to day you know yawning and oh yeah there's a headline it went by no we are at a hinge in history and this stuff's going to happen and i'm i'm certain that it's going to happen it's just a question of when and so when you get to that point what do you do about it how do you think about defensively positioning your portfolio or more importantly your net your your net worth you know not everything is public stocks right um i'm sure

some people are that way but some people probably have real estate they have some crypto they have stocks you know how do you position yourself so that you don't um you know deal with the the trials and tribulations of what the of what i think is coming geopolitically uh and the answer is in the world i just explained to you what i'm telling you is i think the fed is at a permanent seven trillion dollar balance sheet uh plus or minus some uh and going higher right um i think that conflict will not settle anytime soon it will only increase it tears at this the inflation we just pushed to the world tears the social fabric of the world even more it was already tearing because there were so many decades of prosperity uh and we and we had weak leadership uh and then

idiosyncratically there were reasons why again we're not why these these wars popped up uh but more wars are coming and i think you're going to see the fed expand the balance sheet and i think that um yeah if i'm right about this interest rates will head back down um and the fed will expand its balance sheet and that wealth gap between those that have assets and those that rent assets and those that can't afford them will continue to widen, which just means social conflict, both domestically and internationally, will increase even more. We're kind of on a path where we need a big reset. And in the past, let's take World War II, for example. The U.S. on-balance sheet debt to GDP got to 106 percent in 1947. We paid that down to 35 percent. You know

why we won we helped rebuild two continents post-war we ran trade surpluses with every single counterparty in the world that we traded with in 1950 just think about that right these things and and world war ii we were close to losing right there were a couple of events that changed the whole war and thank god those dominoes fell our way and not the german way and we'd be speaking german or japanese right or both today um so those those moments are pivotal we need proper leadership and we actually have to deficit spend i know that is something you don't like it's something i don't like but there are practical realities of the world between what we hope for versus what we know has to happen and those are two different things and by the way i don't hope

for war. I have three kids. I don't want my kids growing up in a wartime economy or in a world full of conflict. But unfortunately, you have to call the spade the spade. You have to call a ball or a strike. And it's obvious that it's going to happen. When you say that we need the deficit spending, how much of the deficit spending could be reduced if we stopped spending on dumb things? right i'll put dumb things it's a very kind of naive term that can be encompassing of many many things give me an example there's some things on the top of your head give me two well well let me give you a serious example uh that's not really a dumb thing but would fall under this thing of like probably needs to be addressed like there's entitlement spending which obviously i think

people say hey look we're kind of flying off a cliff here and we're gonna have to do something or we're just making empty promises and then if you get to like the really dumb things if you go back and um at one point uh we did a breakdown of like i think it was the infrastructure bill And in it, there was all kinds of crazy things. Like, you know, they were doing studies of like driving while high. And the joke was like, trust me, we've got plenty of people in the audience

that'll do it for free, right? You know, type thing. And so like, is there enough money that is quote unquote, like wasteful that could actually be pulled back and redirected to things that are like higher impact or towards defense? Or is it something where like, you know,

if you're running a business and you're losing a little bit of money, but you just need more revenue, like sometimes don't worry about saving, like just go in and get the additional revenue. And it's like, where are we as a country with that? Yeah. You hit on one that's actually, look, whether anyone wants to admit it or not on entitlement spending, I've spent a lot of time looking at it. There's something really easy to be done. Now, again, this may sound like I have a lack of humanity or compassion or empathy for

those that are uh now in their twilight years um but if you think about it um all you have to do and i'm just going to be a pure numbers guy for a second if you move the uh entitlements forward if you if you raise the retirement age into the curve of mortality you you can actually solve that problem if you do it slowly uh but certainly um you can actually get to a formulary that works because you cut the tail off uh the longer tail off if you follow me uh you know it's a terrible way to think about things but i i mean i could solve it um i wouldn't be anyone's favorite person but i could again like there's no easy button so anthony there isn't there isn't a button And we can press and magically fix everything.

But I think that you're not going to be... You're not going to be anyone's favorite person also if we keep the path that we're on and then you don't have money to give them in 12 years, 13 years. It's kind of like choose the worst position to be in, right? Right. I actually think that when you look back through history,

real leaders didn't have it easy. Real leaders got through some tough, tough times by making incredibly difficult decisions many under duress and that's why they're known as as true leaders today i mean do you think joe biden is a true leader i mean nobody does not even the democrats do uh right so um and i'm an independent for what it's worth and i don't want to bring politics into this um but the point being i think that there are a few things that can be solved there are a few things that just can't um the fact that we got to energy independence uh and then just turned it off and said we're going full climate crazy um it is clear to me

that there are certain positions of strength that we have number one uh we are the saudi arabia of natural gas and the only two byproducts of burning clean natural gas are co2 and water and we can figure out how to sequester the co2 we are the saudi arabia food we have we grow we have we are blessed with a land that is that that is uh defensible uh because of its its proximity to two oceans um it is a bread basket uh one of the bread baskets of the world um and we're energy independent if we actually choose to be um and we've got the nuclear technology and we've got best schools in the world we we still believe it or not live in the best country in the world despite what you're seeing with the weak um fragile i don't even know what to call them

ravelers that are that are pushing all of these different agendas at schools whether you know whether we're going to the right bathroom or not or our hair is the right color or not or whether we're forgetting about october 7th and saying pro hamas things it's like there's crazy stuff happening in our world but that's just because we've had it too easy too long you know at some point in time we're going to get to a point where we realize we still have the best country in the world to live in people vote with their money you see it's all here um it's not going anywhere else um so what we need is real leadership and i think we can solve some of these these fiscal problems but i say but you know when was the last time you heard the two words the tn party together

right um what the fed and the treasury just taught congress you said they didn't get the memo i actually think they got the memo the memo is we got you go for it yeah right that's what they just learned it just doesn't matter we can just spend and do this aoc mmt crazy because it's just going to work out now we all know that the very people it affects most are the poor and the lower middle class who supposedly these same people um you know who are extolling the benefits of modern monetary theory um are trying to in theory protect they're the ones destroying the poor which is just the ironies are so thick here uh that going forward again what i expect to happen is asset price inflation i expect you said you know can the fed arrest the inflation it's super easy to

understand where they get the word transitory if you and i are running the fed we drop 40 more money in the system in 18 months we create 40 50 inflation do you think if we raised rates 550 basis points that we could get an inflation print year over year at zero hell yes we could be a piece of cake however the price level would still be 150 right we took it from 100 to 150 could we get it to print 150 again year over year maybe 153 over 153 that's going to happen like wages are sticky because asset levels went up so much so fast but somewhere in here you're going to have deflationary forces fighting inflationary forces and you're going to get a year-over-year print and you're going to see the fed victory laughing and slapping five and

patting each other on the back but they just changed the price level 50 right that's that's That's the thing that maddens me here. So one of the things that I'm really interested in is we obviously have this southern border crisis. And I think a lot of times investors will look at demographics. And there's places around the world where people will point to and say, look, young demographics are in the favor of a country like Nigeria. It's fast growing.

It's big. It's internet penetration, et cetera. China at one point, I think, got people excited. Now, maybe not so much, et cetera. But in the United States, we just had one of the biggest population increases in a given year, mainly driven by these illegal kind of immigration trends. And so on one hand, I think that you, myself, many other people on Twitter, et cetera, are like, wait a minute. We're like basically watching an invasion of our country with no checks, no understanding of who these people are. And we jumped to the extreme level of like defense should come first.

You should have a porous border, et cetera. On the other hand, from an economic standpoint, there's a pretty strong argument, like we may need more people in the economy. And I don't know if that necessarily means the economic argument should trump the defense argument. Like, actually, I think the defense argument may be the single most important argument. And so therefore, even though you need more people, like you need to know who the people are, there should be legal immigration, there should be these pathways. So I think that's kind of like maybe one A of this theme. But then the second thing is like, maybe human demographics aren't going to matter as much in the future because robotics. And you see these like, you know, humanoids and all this stuff coming. And so like, are investors now going to have to watch immigration trends? And also like, what humanoid, you know, manufacturing facilities are pumping out in a given country? And like, that is going to be the new, you know, quote, unquote, investing behind demographics? Yeah, look, on the border side, it's really important. Have you been to the southern border? Not to go look at the actual crisis itself. So I would say I've probably been down there, I don't know, seven or eight times in the last three years. And I go with the state police.

I sit on the board of the Police Foundation. And so I've seen it firsthand. I think I understand what's going on. I think we have a completely open border, not porous. It's open. Anyone that wants to come across will help them in. I FOIAed CBP in October of 23, and I asked for two years of data on what we call what CBP calls special interest aliens.

Those are aliens that come from countries that are deemed to be supporters of terrorism and or known enemies of the United States. The number was 160,000 special interest aliens have been in in the last couple of years. It only took 19 guys to take the buildings down. So when I think about security, the enemy is already behind the gate and that's by design.

We have almost treasonously allowed people in. I would say it is treason to just open the border. So when you think about the economics of positive population growth vis-a-vis, or let's say as opposed to border security, look, the definition of sovereign is you control who comes in and out of your border. It's the basic definition of sovereignty, right? And so I believe that if we are looking for the right economic mixture, we set, I'm very pro-immigration, but I'm very, we need to build a wall.

We need to build a big wall, and then we need to decide what our immigration policy looks like, and then let's do it, right? Meaning let's let in a certain amount of skilled workers, highly skilled workers, skilled workers, and then basic immigrants that don't have any real skills that are just willing to work. But let's set forth a plan and let's execute a plan. A certain way to disaster is to have social welfare programs like we have and have an open border. it's a certain way to destroy our country it's absolutely certain economic suicide is doing what we're doing right now and so i believe that that security is is key number one number two i'm very pro-immigration but there should be a formulary uh in a plan uh and let's do that uh and let's have a proper border structure you want to call it a wall a fence whatever you want to call it

we must have a structure. And so it's vital that we do that. Unfortunately, here's the thing about this. We've allowed our country to just kind of follow some path of pure open borders and crazy ideological protests going on. We've basically, we've taken our eye completely off the ball of what got us to the level of greatness as to where our country once was. And I think we're going to get back there, but the way we're going to get back there is through crisis. So I guess I always say in our office that we're at a hinge in history right now. There's no doubt in my mind that we're at a hinge.

And in the last 20, 30 years have been driven by economics. The next 20 or 30 years will be driven by geopolitics. And you better change the way you view the world. And you better adapt quickly because those changes are coming and they're actually going to come much faster than you think they are. Yeah. Before the recent Iranian attack on Israel where they launched the missiles and drones, literally the day before, the attack was on Saturday. On Friday, I wrote this piece to investors and I said, hey, gold is running. Is somebody prepping for some sort of attack? and it was just a thought process of like bitcoin and gold seem to be like the alarm systems of you know kind of geopolitics at the moment and if gold is running this aggressively now on a dollar basis

it wasn't like it was going up hundreds of dollars but still it was hitting a new all-time high and you could see that it was definitely kind of breaking out um and the u.s has now shown their hand in being very quick to the financial sanction kind of trigger if you will with russia and going after so many people. How do you look at either gold or Bitcoin, you know, in the backdrop of geopolitics? And like, are these now going to become the assets where people will go and they'll buy them before they go and make these geopolitical moves? Yeah, so I, I view sanctions very differently, I think, than the crypto crowd. If you put me in the Treasury, if you if you put me a Secretary of Treasury, and China goes into tax, or Russia goes into tax, Ukraine, China goes into tax on

philippines or taiwan you have a couple of potential responses one is just keep shoveling basic munitions and advanced munitions and energetics um and just shovel tens of billions of dollars their way and hope they can win or hope they can even keep fighting which is what we're doing in ukraine um or we can take the the the tip uh the shiny tip of the spear on the financial side and institute crippling sanctions so when i look at russia you look back to what really brought the wall down it's important to think about what brought it down the russians didn't wake up one day and think you know what democracy is just a better thing you're right um communism is a terrible idea we're just going to relinquish power and we're going to

embrace democracy you guys were right what happened was we through it through our ourselves our allies over pumped crude crude is 60 to 65 percent of russia's gdp and we took crude to 11 bucks we broke russia and we did it intentionally and that's how we won the cold war now fast forward to china china's really economically integrated we have a certain amount of trade with china everyone says that we can't possibly be at war with china because of how how much money we have invested there and how economically intertwined we are well i've got news for those people they obviously haven't read history um they haven't read what happened going into world war one and world war ii because those same things were said about the world economy and our level

of interconnectedness um so uh when i think about sanctions we have not implemented sanctions that matter yet and what i mean by that is we have primary sanctions we have secondary sanctions primary sanctions if i were running our country if i were running treasury and i were actually able to be the wizard behind the curtain i would have sanctioned the entire russian banking system i'd have removed them all from swift i'd have sanctioned every russian energy company and every every state actor and i would have banned russian passports from the united states writ large no more so and i hope and i would hope our our allies in in western europe would have done the same if we could get them both to do it because today russia exports 8 million barrels

of crude what's 8 million times 80. everyone's pretty good at math they make half a billion dollars a day of state revenue um and we haven't touched it you know why we're too afraid of moving gasoline prices and being thrown out of office like so we have cowards running our country there is only one button to press well there were two i guess there's the easy button says we're going to sanction russia we didn't do shit we sanctioned a few people we sanctioned 10 percent of the oligarchs we didn't touch their banking system kind of writ large they can all still process payments for energy and international payments yeah we kind of went after some munitions and some drones and some bad guys but we didn't even implement secondary secondary sanctions right

secondary sanctions are for any other countries or people around the world that continue to trade with the primary sanction entities that is the tip of our economic spear if you want to shut someone down that's how you do it when i see friends i have friends that live in moscow that when i go to various locations in western europe or saint bart's or this or that they meet me there and i say so how's it going and they're like yeah it's fine i said that so how'd you get here i said well We just have to get to Istanbul. Then we can go anywhere we want. Cool.

That's awesome. So they're like, yeah. So, you know, I went to London and shopped a little bit, had some fun nights out. I went to New York. We're good. You're thinking, how are you ever going to like effectuate regime change with a madman if his people don't feel any of the pain? That's all it is at the military.

Right. So sanctions we get, in my opinion, I would give the administration a D minus, almost an F on sanctions. if china invades what we've got to do is one of the reasons the cold war never went hot is there was this concept of mutually assured destruction right that if we launch they launch if we if if we think there's a preemptive launch coming we preempt the preempt right and there was this belief that we both would get after it right um so today there is no real like china's been running an economic war against the united states since 2001. they've been running a

a cyber war against us since 2001. We just recently realized that our intelligence and military industrial complex and military realized that China is actually our mortal enemy about five years ago. Our leadership still hasn't called them that. We still call them a strategic competitor that we really need, that we want to grow with. They are the enemy, right, under this regime. Russia's the enemy. China's the enemy. Iran's the enemy. North Korea's the enemy. There are many more enemies, but those are the key four. And so if China were to attack Taiwan, what I'd be doing if I were leading our country, I would say, listen, I have this red button and it's not going to send, you know, five carrier strike groups to the Taiwan Strait. I'm just going to remove your

ability to move dollars around the world. You know, China imports 12 million barrels of crude every day. They import eight and a half BCF of LNG every day. They import 40 percent of their food every day and guess what they pay dollars for all of it imagine if we crippled china's economy by pressing that red button and we didn't have to send 300 000 men and women to fight like if you if you give me a or b and you say well oh well that would take the world gdp down you know three four percent that would kill us that kill china well i choose that button 10 out of 10 times over sending our men and women over there to fight and so do we have the greatest military in the world absolutely do we have the best infrastructure the world's ever seen with financial sanctions

we do i think they're our best weapon i don't view it as a negative now if we do so you know does that mean that the price of bitcoin and gold and everything will go up yeah it might but guys that's what we have to do it's the hard button leaders press the hard button but leaders also socialize the fact that they will press that button and we have people like Janet Yellen who doesn't engender one ounce of confidence with me I don't know about you she's a labor economist she's out of her league she doesn't know what she's doing and she's over there bowing to her Chinese counterparts you know we need someone that projects strength that lets the Chinese understand that we will play hardball, and we will play the hardest ball in a game that

they don't want to be in with us. And we're understanding that it will hurt us, but it will cripple them, and it could change the regime. And if we can change the regime, maybe we could actually have a positive relationship with them. But under Xi Jinping, who's the, he's now incarnate of 2024, every single person in the standing committee of the Politburo, the rest of the Politburo and the Communist Party, they all owe their lives to him. As you know, he's cleaned house. He has kicked out any opposition to his rule. And he holds all five tools of dictatorship firmly in his hand today. He's a madman. He's a madman, just like Putin is. And when madmen have a, quote, limitless partnership that they publicly announced and then reaffirmed several

times, that's not good, right? So, and you asked me about sanctions. Sanctions are, in my opinion, our best weapon. And the problem is we're just not using them or socializing them right now. Do you think that's why Trump was so effective geopolitically? It's just that, you know, there's all the jokes of, I think he tweeted once at the Ayatollah in Iran and said, basically, keep America out of your, you know, America's name out of your mouth. He tweeted at North Korea and was like, you know, somebody tell little rocket man that I've got a big red button on my desk and mine works, you know, he went and almost was, I would, I would categorize it as like unpredictable and put forward a show of strength where if you're another world leader, you kind

of don't want to mess with their erratic, you know, leader. And so by being unpredictable and showing that sign of strength, well, maybe people in America didn't like it because it felt chaotic. it actually was quite effective. Yeah, I agree with that statement. Now, it's a double-edged sword. He's not an expert in foreign policy. He listened to his advisors almost all the time, not all the time. He was unpredictable with his own staff, a little bit more difficult. So again, I'm not saying he's a perfect leader. Someone like Reagan is a great leader, right? A Thatcher, a Reagan, a Churchill. We need a highly educated, calculated, strong leader. But you're right about that level of unpredictability being an asset

without a doubt. The question is, if we get to a moment where we actually have to send our men and women to fight, I actually don't know where Trump stands on this. You go back and you carefully listen to him. Did he order the hit on Soleimani? Absolutely. Do I give him full credit for that along with Pompeo, the CIA and the team? Absolutely, I do. Was that much easier? A tactical strike on a suburban? I'm not going to say it was super easy. Much easier than sending a carrier strike group into the Taiwan Strait to actually be in a hot war with China. I don't know if he'd do it um and you know there's a lot of calculus on whether biden would do something like that um our military leadership transcends um political uh presidential administrations

our military leadership we're the best in the world at kinetic movement and we still are and we have the most advanced military in the world despite what you read china may outnumber us in votes but i can tell you this there is no one better integrated with the more you know again with the best warfighting capacity in the world than we are. I'm certain that we can fight and win. Do we want to? No. I definitely don't want to go to war. But guess what?

There are periods of time in which you're going whether you like it or not. Think about World War II and go back and read Churchill's first book in his six-book series called The Gathering Storm. it it will remind you that even with people like chamberlain and halifax who were begging for meetings with hitler after he invaded right after he took the rhineland back and after he was invading holland they were like please please please meet with us we want to maybe give you your advances and just stop invading right they were begging for meetings when what we should have been doing is fighting like a son of a bitch from day one and we needed strong leadership and

thank god churchill took over right i mean you think about the series of events that kept us on the right trajectory us meaning the the western alliance um moving forward today we have guys like secretary blinken we have people like janet yellen we have people like john kerry giving you know taking climate promises out to 2050 for action today we have people that i mean I don't know what else to call him, but somewhat retarded, you know, for for accepting 30 year promises for immediate action. Like, who does that? It's just crazy what kind of leadership we have right now. And and and would Trump be a better leader? I mean, you can't break your arm jumping out of the basement window is what I think about that. But is he the best leader? You know, probably not. Is someone like Pompeo better?

without a doubt. Let's hope that there is leadership at state and leadership at treasury that's actually wartime leadership, because that's what we need. We need a war cabinet. Yeah. People will be very upset with me if I don't give you two or three minutes to talk about your thoughts on Bitcoin and crypto in general. We've talked a lot about geopolitics, but there's also just the general financial markets, ETF approvals, regulation, et cetera. You are very well known for housing market bet, nickel, plenty of things that you've done over the years. So where are you kind of thinking on Bitcoin today? You know, if you've noticed, I've stayed out of that conversation as much as I can.

I know, but I also know everyone will be upset if I don't press you on it. You know, is total crypto today worth about $2.2, $2.3 trillion? Somewhere around there. And Bitcoin is still worth like $1.8 trillion or $1.6 trillion? somewhere in there it's like it's a big number oh wait no 50 53 of it okay trillion three something like that right yeah um so look it is the it's it is the bellwether you know it's the it's the it's the one uh that people really um you know gravitate towards i i've said it before and i'll say it again i'm not going to be like people are not going to like it uh but you know you can't

everyone uh uh at every time look i think it's a sunny place for shady people i think it's a nest i actually see its use case and by the way that like parker lewis who runs unchained uh a capital down in in austin is still someone i admire and one of my close friends uh and will always be one we just have a differing opinion um and i just think about it if i were in the secretary of the u.s treasury how i would think about it so i try to put myself in different shoes now do i own a big stake in um blockchain.com i do um do i own stakes in in some crypto i do believe it or not but when i think about it writ large is it going to keep growing as a universe if the world heads in the direction i think it's going to head that i actually think it's going to keep growing am i

going to allocate a significant portion of my assets to crypto i will not now if it grows from here and it grows crazily again you know will i have a meaningful portion of assets there yep uh will i sell it absolutely i will sell it right um so i'm just i'm not i'm not the person that says you know i'm gonna hold it forever and we're riding things to the rocket moon or whatever these people say um the use cases like for places like for places like i discussed earlier where governments are call it they're poor they're poorly designed and poorly operated from the get-go and then inflation happens and they break so if you're turkish or if you're lebanese or if you're argentinian like there is an outlet you can get your money into dollars

you can get your money into bitcoin you get into bitcoin it's easier to hide um so i understand use cases for um populations that have horrible leadership i do i understand that um i don't understand why look i pay my taxes um i pay them every year happily do it uh what per let me ask you what percentage of people in the united states that own bitcoin declare 100 of their bitcoin or crypto holdings globally to the irs every year uh on on their on their tax statements i think five years ago my guess would be less than 10 yeah i think that today probably closer to like 50 and headed higher mainly because i think that um too many of them use kyc like uh crypto exchanges and those folks are reporting and so like you

kind of can't not report. Um, and then also I think that the IRS realizes along with politicians, like, Hey, this is kind of a honeypot of, uh, tax revenues. And so they're making a concerted effort. You see it showing up as a question on tax forms. You see the politicians, you know, putting it in bills and things like that. Um, to your point though, could we get to a hundred percent? I think that there will always be bad people who do bad things and, you know, people will try to avoid paying taxes. Um, I don't think that's an American, uh, thing. We're not, we're not so special. I think it's just around the world. But I guess I'll extend the question then and maybe we can end on this, which is given where you think the world is headed,

how are you allocated today? You know, kind of positioning yourself to weather whatever does come. Yeah. I just think this is a time to own real assets. Again, in your own mind, if crypto is a real asset, well, you know, that fits that category. For me, it has too much volatility. It scares me too much. Now, you know, what's going on out there today and, you know, in new ideas that have quick interchangeability and less latency, you know, there's some interesting things going on in certain cryptos out there. But when I think about real assets and call it real portfolio allocations meaningful to me, I actually think that if you look at the population demographic in the u.s you have high cost high tax mismanaged jurisdictions you happen

to live in one that doesn't indict you um it's just poorly managed fiscally politically uh and it's pushing people out uh and the whole west coast the northeast the west coast is and and those people that are moving businesses i'm not talking about rich people moving to aspen or palm beach like all the rich people who do what they want to do let's just talk about or America is moving to places like Florida, Tennessee, and Texas. Now, that's painting things with a broad brush, but that's actually what's happening. So if you're buying land or assets that will soon be developed, or if you're investing in things like what I'm doing is buying land and I'm actually offsetting environmental impacts, that sounds crazy, but it's a pretty

good business. So I think the land will appreciate faster than inflation will because of the population macro tailwinds. I think that anything that you can do to enhance those returns is great. So I have a huge allocation there. I have a huge allocation to energy, old energy, actually like hydrocarbon-based energy, because we've fat shamed so much money away from pure hydrocarbon-based energy. It takes 40 or 50 years to change energy sources. We've proven that over time. People in the current administration believe you can just snap your finger and say, we're going to go all alternatives. We're going to turn hydrocarbons off. I have news for them. That's not going to happen. We've only replaced about 18% of reserves

globally this year. We typically replace 85% to 90% of reserves annually. We are setting ourselves up for a massive hydrocarbon rally, both net gas and crude. If you think about it in real terms, you'll say inflation adjusted terms. Crude before COVID was about where it is now. And we've had 45%, 50% inflation in almost everything and crude still where it was pre-COVID. so in real terms crude's down like 40 or 50 percent right so if crude were to just move to 120 it'd probably be a break even from where it was pre-covid i think that's likely to happen so i have a call it 40 of my capital is allocated to hydrocarbon based energy because i think it's the golden i think the next decade is the golden decade for family

office investing in crude uh in hydrocarbons so i like i like productive assets hard assets so like apartments investing you know investing in things that can actually move with inflation um energy and then land where where the macro tailwinds are uh all right you're back um and i and i don't think that um in the environment i just described to you i don't think in that environment uh that you do poorly there is no foolproof way to never lose money uh but you can definitely allocate your assets in a way that um you you don't you know like you win over time and and with the macro environment the fed doing what we know it's going to do you're going to be safe investing the way that i that i'm invested so you know it's personal preference

I think you've done just a fine job investing over the years. So we'll leave it there. I appreciate the time today. I learned a lot as always, and I'll definitely do it again in the future. Yeah. Pleasure to be here with you.