The Pomp Podcast - #983 Mark Yusko On Why Governments Can’t Print Unlimited Money

Episode Date: May 30, 2022

Mark Yusko is the Founder, CEO & CIO of Morgan Creek Capital Management In this conversation, we talk about how our economy got into this downward spiral, mistakes made by the Fed, what to expect for the rest of year & if interest rates will continue to rise, why China will become the next global reserve currency, and how we could potentially fix the current economic crises. ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Imagine coinmarketcap - decentralized. 3X in valuation is 15 billion dollars from the current price. Cryptotoday.com starts at zero, at fair launch on 7th of March. No VC. No pre-sale. Team tokens locked.  For the people, by the people. For decentralized crypto. Visit http://cryptotoday.com and read the whitepaper for the details.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Mark Yusko is the founder, CEO, and CIO at Morgan Creek Capital Management. In this conversation, we talk about the macro economy, the Federal Reserve, inflation, interest rates, geopolitics, and the supply chain. I really enjoyed this conversation with Mark, and I hope you do as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by BlockFi. BlockFi provides financial products for crypto investors. Those products include the BlockFi wallet, a US dollar loan collateralized by your

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All right, let's get in this episode. I hope you guys enjoyed this one. 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. All right, guys. Bang, bang. I've Got Mark here with me. Mark, super excited to talk about this. Nine months ago, it seemed like

everyone was in the froth. They were just FOMOing into every asset class. We saw everything from trading cards to stocks to, you know, literal NFTs all the way on down. Here we are nine months later and not so much FOMO, not so much froth. What happened and why exactly did this occur? The baby came, Pomp. You can relate, right? Leaning up to the baby, it's all excitement and everything's euphoric and you got all the presents coming in. And then, bang, no sleep and things are a lot tougher on the other side. Now, I think what it is, is the little boy who cried wolf, right? When the boy cries wolf and the wolf doesn't come, everybody says, oh, well, I won't listen the next time and cries wolf. And I think this time the Fed actually turned into the wolf.

You know, it's interesting. When Powell came in, you know, he was Jerome the hawk. You know, all the cartoons were him with the hawk body. And then he became Jay, J-A-Y, the dove, right? When Trump kind of put the needle in and said, hey, you got to help me with the market. And he backed off in 18 on his, hey, I'm going to raise interest rates. And the market rallied. Well, by 2020, I mean, he was J, just the letter J, the pusher in the hoodie on the corner passing out hits of steroids to everybody. So I don't think anyone thought Jerome the Hawk would come back. I don't think anybody thought the markets would also do his job for him in the sense that by the time he raised the second 50 basis points up to 75, the market had already tightened two and a half points. I mean, we had the greatest tightening of liquidity in the last hundred years. So I think

that's what changed. So this is a great point in that a lot of folks will argue that the way that we talk about inflation can create inflation. So if everyone starts yelling and screaming, inflation's coming, inflation's coming, then naturally some business owners, or maybe even many of them will raise prices in anticipation. And that in turn creates inflation. It seems like the fed tried to do the opposite and talk the market down and kind of talk tough and the longer that they did that without actually raising rates to your point there was a little bit of like the boy cried wolf do you think that there's any weight or ability for them to actually talk tough enough to get the market to move or does the market only care about actions it's the perfect

it's the perfect question here's here's what i've been saying for the last couple months is you know, the Fed didn't create the inflation that we're all feeling and they can't fix it. Right. How many basis points are going to restore the supply chains in China? How many basis points of tightening are going to get all those ships stranded off the ports to unload and reload to come back here. How many basis points is going to stop the craziness on people locking down and halting parts of the economy? No way. And so that's the first part. And I will also make the case that the inflation that we see isn't inflation the way most people are talking about it, trying to compare this to the 70s. This is nothing like the 70s, right? 70s was about demand

pull inflation, where there was excess demand and limited supplies. And then really a big problem with the Iran-Contra scandal and the Saudi pullback in oil, and oil prices spiked. And then on top of it, there was a built-in problem in the way they measured CPI back then, in that it double counted interest rates and house prices. And so Volcker, who everybody says, oh, he beat inflation. He was actually causing the problem. He was looking at bad data, raising interest rates, which was then feeding back into the data, raising. So he didn't really beat it per se. It was just, it got so high that people just said, oh, geez, I'm done. I won't do anything at 20% prime rate. The difference is this time, we don't have demand pull inflation.

We don't have good demographics. We don't have low levels of debt so people can lever up and start businesses. We have the exact opposite. We have crappy demographics. People turn 65 every single day, 10,000 of them in this country every single day for the next seven years. And 65 to 85-year-old people don't spend a lot. They're not as productive the way we measure productivity. We have way too much debt. Debt is deflationary, not inflationary. The real problem we have is currency debauchment. What happened two years ago is we had the buffoon move by whoever, the WEFites, to lock down the world. Absolute insanity. I mean, literal insanity. And because of that, the reaction from global central bankers was print, print, print, print, print, print,

because the cult of Kelton, right? The Stephanie Kelton, you know, modern monetary theory people, modern monetary madness people decided that, oh, we can print as much as we want and it won't matter. Well, no, of course it matters, right? You used to live down here in North Carolina where I am now.

Houses, houses are up 40, 4-0% in 12 months. My house did not grow. It did not get more efficient. It actually cost me money. I have to put money into the house to keep it a certain level, it's not worth 40% more. The currency in which I value it is worth 40% less. That's not inflation the way they want us to believe that inflation is good for us, that prices rise in a controlled way. That's just currency debasement.

When I think about this, what's so fascinating is if you just take it to the extreme, and I forget who I heard say this, but I thought it was just so articulate. If the debt doesn't matter if the printing of money doesn't matter then let's just print three quadrillion dollars right like if it literally doesn't matter then like let's just add a bunch more zeros to the end when we're printing and rather than have two trillion dollar uh you know stimulus bills let's literally just do a two quadrillion stimulus bill now obviously nobody who is sane or uh serious would ever actually argue to do that because it does matter to some degree and no come on if it was that easy, Pomp. We've talked about this when we first met. If creating wealth was as simple as

printing money, wouldn't everyone do that? Wouldn't every country just print money? That's not how wealth is created, right? I mean, I have in my office, I could go get it for you, a 100 trillion Zimbabwe dollar bill. Wouldn't buy a loaf of bread. $100 trillion, right, that I own. couldn't buy a loaf of bread in Zimbabwe. So how many bolivars does it take to buy a chicken in Venezuela? How many pesos in Argentina? You know, it's just this fallacy that debt and deficit, oh, but we're the world reserve currency. Well, for now, you know, the UK was the world reserve currency for 75 years. And they thought they could spend as much as they wanted, just like we do. And they thought they could invade anybody they wanted to, just like we do. And in 1913,

they invaded Mesopotamia, incurred a bunch of debt. The pound started to collapse. The dollar ascended. 30 years later, Bretton Woods, we became the world's reserve currency. Then coincidentally, we invaded Mesopotamia, incurred a bunch of debt. The dollar collapsed. The renminbi ascended. China became, oh wait, that hasn't happened yet. It will. You think that the Chinese renminbi will end up being the global reserve currency? Yep. Walk me through kind of what the thought process of where we are today to how we get there. Yeah. So profligate spending in the US, right? All empires fail the same way, whether it's the British empire, the Roman empire, the Ottoman empire, they all fail the same way through massive amounts of debt. When you become

massively indebted, you only got four choices. You can pay it back. Couldn't do that, right? You could tax the assets of all the people in the United States, their wealth, forget their income, tax all their wealth. You couldn't pay back the debt. All of it. You can't do it. So you can't pay it back. So then you can restructure it. Problem is if you structure it, someone's got to take the other side. No one's going to take the other side. Third, you can default on it. Emerging markets default all the time, but we can't do that because there's no IMF to bail us out. And oh, by the way, if you default, what happens? You get kicked out of power. And politicians like to stay in power. Fourth, you can devalue it. And that's what we will

do. So we will continue to devalue. Everyone says, oh, the dollar is so strong. The dollar is so strong. No, it's not. The dollar is down versus the renminbi over the last two years. Fact. The dollar only shows to be up because we compare it to toilet paper. I mean, we compare it to the yen, which is hilarious, and we compare it to the euro, which is just as bad. And because those went down more, DXY went up a little bit, not even a lot, but we are down versus the renminbi. Now, this is all but the last couple of weeks. Yeah, whatever. The Chinese are playing a different game. They, I believe, intentionally are creating this nonsense supply chain garbage to create a greater alignment with them. They started with Southeast Asia

and Africa. Now they've got Russia and they are creating this massive axis of alignment that all are going to move to use the renminbi. And over time, the petrodollar system will weaken and erode Without the petrodollar system, we're just a little country that does 8% of global trade. What is the U.S. response in that scenario? So let's say that they are successful in carrying out the plan you just outlined. What does the U.S. do, or do they not have any options? Great, great question. So part of it is what he said this morning, right?

We will protect Taiwan at all costs. Really? you want to provoke the other major nuclear superpower? Well, we already provoked Russia, so why not provoke China too? And look, you've been in the conference room in Chapel Hill, right? We have a map in the table. We have four conference rooms, Brazil, Russia, India, China, and then we have a global map in the boardroom. And they were made in China. And the global map, there's no UK, which is clearly intentional because they hate the UK because of Hong Kong. and the China map, Taiwan is part of China, right? There's no question that that map includes Taiwan.

So they view Taiwan as China and we view them as a separate country. So we'll continue to do stuff like that to antagonize a little bit. But at the end of the day, what can we do? We owe them a lot of money. They owe, they own over a trillion dollars of our debt. Technically, we have to pay them back. I don't know. It's crazy. Debtors usually lose. Over the long term, creditors win, debtors lose. Yeah. Another topic that I've seen people talking about is GDP and debt ratio. It's about, I don't know, 130%, you know, ballpark at the moment. And obviously, everyone always talks about paying back the debt, pay it back, pay it back, pay it back. And I think you're highlighting like that's probably not nearly as possible or realistic as maybe people want it to

be. But another thing that we could do to affect that number is to grow the economy. And it feels like the growth component, almost grow your way out, almost never gets discussed in any meaningful way. Some of that's because, you know, obviously in Q1 and kind of our hindsight bias or recency bias, negative 1.4% GDP annualized. So like if we're already negative, doesn't feel like we're going to start growing anytime soon. But what is the realistic nature? Is it possible for us just to do a 180 on growth of the GDP and on the economy, and that would help us at least alleviate some of the pain here? Again, really good idea. Really good idea. Short run, no chance. Here's why. So GDP growth is equal to working age population growth plus productivity. Working

age population growth, we know with precision for the next 30 years, because you can't make people age faster. I guess we could invent something to do that, but you can't. Well, actually, you can open up your borders and let a lot of older people in, not old people, but older, like 20s and 30s. That actually is a great thing to do. And it's how countries can, in fact, if it were up to me, I would send airplanes to Tsinghua University and IIT in India. And I'd say, all you PhDs, get on board. Come on. We got free land for you. Start a business. We'll give you loans. That's what I would do, but no one asked me. So yes, you can grow, but not in the next decade. Next decade, we're going to have sub 2% GDP growth because

we know working age population growth to the second decimal point is going to be sub 1%. We know productivity is going to hover around 1% because again, aging population, bad demographics. when the millennials, the echo boomers start to turn 45, that's when we might get a little more productivity back because 45 to 65-year-olds are actually really productive because they've learned their business and they're in their peak spending years. The other thing we could do, but we're not going to do it anytime soon, is we could focus on innovation. Innovation is how you create wealth. Innovation is how you grow. You and I talk about this all the time, right? There are four asset classes that people talk about that you talk about on the best

business show, right? Stocks, bonds, currencies, commodities. That's it. Everybody says, oh, what about hedge funds? Nope. Hedge funds, owns, stocks, bonds, currencies, commodities. Oh, what about private equity? Young, common stock, preferred stock, and verbal bond. What about real estate? I own equity, the debt, the equity, the deal, the debt of the deal, or the land, the commodity. There are four assets, but all of those come from innovation. Without innovation, we get no new companies, no new formation of assets, no new growth. And so we could, if we were smart like Singapore, what does Singapore do? They took their social security and they put it into an entity called Temasek and GIC, Government of Singapore, and then they invest

in the smartest growth businesses around the world. And so they don't have a massive unfunded hole in their liabilities. So we could do the same thing. In fact, again, if it were up to me, I would take a trillion dollars, literally a trillion dollars. They can print them all over the place. And I'd put it in a fund and I would hand it out as venture capital to the smartest entrepreneurs in the United States to build businesses. And then we would get a growth spurt, as you described, that would help. Now, it wouldn't totally fix because we got the aging population problem and the unfunded liabilities problem, Social Security and Medicare. We can fix Social Security. We just extend out the retirement age because people are working longer.

Hard to fix Medicare, but we could, again, it's a long answer to your- really figure something out though. Yeah. And I think a huge piece of this is, uh, it does feel like, uh, for the last couple of years, uh, the tech industry, uh, got built up, put on a pedestal, you know, literally movies, the social network, like all this stuff. And then the last, I don't know, three, four or five years, they've been taking a beating from the mainstream media. And all of a sudden now it's been, uh, look at the scams, look at the zeros, look at the stupid founders doing all these dumb things and like to be clear there was definitely zeros and scams and founders doing dumb things or whatever always but on a net basis it's like shouldn't we

want all of our children to be like these problem solvers right like like isn't that how we solve problems in our society so like i don't know you've been doing this longer than i have go we could go back to my you know my passion i know it's your passion too early childhood education We do it all wrong, right? Our whole education system is designed to create factory workers. We don't have factories anymore. We don't produce anything. What we need are kids who can problem solve, kids who can collaborate, kids who can, I'll

give you a true two-story. So my little guy, so you know, we have the two older kids and then the caboose. We took our little guy seven years ago to his tryout for kindergarten, for this nice private school here. And, uh, whole day, literally a whole day, four-year-olds in this, this room. And we had, we noticed some, some behaviors. I'm like, Oh, what? Well, you know, Will didn't like to sit on his square. I'm like, I don't want my four-year-old to ever sit on a square. Are you joking? Stop. Oh, well, what else? Oh, well, he was walking around the room, picking things up

and looking at them. Oh my God, he's creative. He's curious. Seriously? So obviously we don't go to that school. But the point is, if we teach problem solving, if we put people in positions to lead, if we put people in positions to create, they will create, they will lead. Unfortunately, to me were ruled by a political class. And that political class only cares about being in power. And so they cut anything. They cut head start, right? Number one indicator, whether you go to prison, score on the second grade reading test. Number one indicator of whether you spend time in prison is how low you score on the second grade. We can fix that. That's easy to fix. Maybe we can't create a whole bunch of great entrepreneurs, but we can fix those problems.

And once you fix the base level problems, then we can focus on this creativity, this innovation and growth. And maybe we can't grow our way completely out of it because the mess we're in, but we can certainly have a shot. And I'd rather take a shot. It feels like that's the only thing that we can control, right? Because to your point, the political class, the laptop class, you know, whatever you want to call these individuals, they're in control through elections or appointed positions. They're going to continue to play the game. If you've got a money printer, you're incentivized to print the money. And so what is the only thing that the, you know, average entrepreneur or investor can do? It's literally try to grow, right? And that is the only contribution that you can have. Well, and the other thing, and again, I don't want to go too far down this rabbit hole, but it's this whole backlash against the billionaire class and the wealthy. The wealthy are not the problem. The wealthy create businesses. They create jobs. They create livelihoods. They inspire. They lead. Our problem is the bureaucrats that feed off the wealthy. And like this latest thing where they're going to tax corporations to solve inflation. Are you kidding me? And it's just basic economics aside, that's just a stupid idea. First thing. You mean that raising the cost to run a business is actually going to make them lower their prices? Exactly. So look, the first thing is we should never tax income anyway, right? We should never tax wealth creation, innovation. We should tax consumption. Everyone should earn whatever they want to earn. And then when you consume, you get taxed. You can't cheat. There are no loopholes.

There are no special interest groups. When I bought this shirt, I paid tax. I didn't care about it. I just paid the tax. If I want to buy a fancy car, I pay more tax. If I want to drive my Kia, I pay less tax. I love my Kia. So the thing is, what we should have is a focus on creativity, creation, innovation. And by doing so, look at the massive fortunes that have been creative. He says, oh, you know, Bezos, he's so wealthy. He needs to pay his fair share. Are you kidding? He's paid way more than his fair share. And by the way, he employs 4 million people. And I love to tell a story. My two nephews both had to drop out of college, couldn't quite handle the rigor or the, not the rigor, they couldn't handle the environment, right? They're more free

spirit, big thinkers. Long story short, they, I know with their father-in-law, but they got some help, but they have created a business that Amazon uses to tape the floors of their warehouses so the robots know where to go. They're making millions of dollars a year in revenue. I love that. I love that story. That is real. That is tangible. And they are good citizens, and they are good contributors, and they are inspirational to other people that know them to, hey, wait a I can start a business. I can do something myself. I don't have to go to work for this, you know, nine to five thing. And not everybody can be an entrepreneur. That's not my point, but we can all aspire and we can all help and we can all contribute. We can all, you know,

push those entrepreneurs to do great things. I could not agree more. The last thing I want to talk to you about is during these market downturns, we obviously see stocks down, uh, crypto real estate bond. I mean, just everything is going down and, and, uh, you know, it, it, uh, goes back to this idea. It's all one trade, the feds in control, and they're going to drive this stuff down until they feel like, uh, people have capitulated. Uh, what are institutional investors thinking about right now when, when they're watching this play out, obviously they have some direct investing. They have probably much more, uh, kind of investing through general partners and through fund managers, but like what's going through the heads of these institutional

investors right now? So it's a great question that you have to answer it in pieces. There are really great institutional investors. I was just with the Fairfax folks that you and I know well last Thursday up in DC. So think about this. In the midst of all of this turmoil, markets crashing, you said every asset going down, they called together all of their private investors, venture capital, growth, equity, buyouts, energy, and put us all in a room together for a day on Thursday and just had a massive idea session. Genius, right? Take people you're paying lots of money to do smart things for you. And let's see if there's some opportunities that come out of all this turmoil. And they got some really good ideas. So the really smart ones,

like Catherine and Andy are going to do that kind of stuff. The less smart ones are going to do what human beings do. Human beings do two things really, really well. We buy what we wish we would have bought, and we sell what we're about to need. And you and I debated this this morning, actually. So the problem with most investors, and institutions a little bit less, but they're just as guilty as the individuals. The individuals are the worst about this, right? They constantly buy the top and then they sell the bottom. But the institutions also chase hot dots. And so there are some institutions that are looking around saying, well, there are no hot dots. So what do I do? So they are probably selling some things like all the nasty stuff

about the hedge funds and the tiger cubs and all that stuff. There are people that are going to try to redeem from those things. That's probably a mistake. One of the things about investing that I tried to live. I was actually decent at it, but not perfect. But what you should do, you should never buy something that has had a hot three-year period. You should sell that because it's going to mean revert. What you should do is find somebody who has a great 10-year track record, who's just had a terrible one, two, three-year run. And the worst, the better and give that person money. So there are some that are out there doing that. And those are the real geniuses. I think the last thing is, I think something that's being talked about at the

institutional level a lot right now is the same thing that's being talked about at the individual level, which is, well, wait a second, this is different. What about all these assets that were supposed to be uncorrelated? Why are they all going down at the same time? I thought bonds were supposed to not go down if stocks went down. They're supposed to be a safe haven. I thought gold was supposed to be a safe haven. I thought crypto is supposed to be a safe haven. I thought international stocks weren't supposed to be correlated with US stocks. Well, here's the problem. The everything bubble, which was the result of the excessive central bank liquidity around the world, caused all assets to move to stupid bill, right? You mentioned the market cap

to GDP, right? Worse than 2000, price to sales ratio, worse than 2000. So equities got to stupid Ville. Bonds, listen to Greg Foss on Twitter, right? Rail about this, got to Stupid Ville. And everything, commodities and all of it went up. And so what happened is when they cut off the liquidity, the first thing started to correct. Well, the problem this time was people didn't just buy with cash. They bought with margin. Everybody bought with margin. Even some of the institutions bought with margin because the Goldman Sachs and others were giving them margin. And so we had highest margin ever in history. Well, when you get a margin call, right? Your stock falls 20%. You get a margin call. You're supposed to put in more money. You don't get to sell what you want

to sell. You sell what you have to sell. You sell what's most liquid. So that's what causes everything to fall. You saw it in March of 2020, and you've seen it in the last two, three weeks here. And when that starts to happen, people start questioning the whole theory of diversification. Now, Markowitz won the Nobel Prize in it. I have a t-shirt that says Markowitz was right, and it does work. But in the short run, it gets temporarily suspended. And I think that does prompt some people to make bad decisions. So you've got to avoid that urge to make those bad decisions.

And I've said this to many others many other times, but investing, I think, literally is the only business I know, when things go on sale, people run out of the store. And the cheaper the price, the further they run. Think about any other business. You put wedding dresses on sale, they all run in the store. They don't run out of the store. They run in the store.

When you think about prices going up of assets, there's lots of talk about hold them, they're compounding, the Charlie Munger, Warren Buffett never interrupt compounding unnecessarily. Then there's another school of thought of rebalancing and kind of hitting your allocation target percentages, et cetera.

What do the institutions do on the way down? Are they rebalancing? Are they, uh, uh, trying to take, let's say a pension fund as an example, like, do they try to maybe not pay out as fast or what, what are like the tactical things that they do on the way down that maybe people aren't aware of, uh, where they're trying to essentially stop the bleeding maybe, or, or at least address the problem. Yep. Now, again, two really important points.

So one is, is the rebalancing, the good ones, right? The Swenson acolytes, et cetera, you know, rest in peace, David. Um, they do rebalance. And that was something that I was always really proud of the way we did that at Carolina and at Notre Dame is we were very active rebounders because when you're in the endowment business or the pension business, you're not in the get rich business. Concentration makes you rich. Diversification keeps you rich. And rebalancing keeps you richer because you're constantly buying cheap and selling dear. All great fortunes in the world came from concentration.

How do you create a small fortune? start with a large fortune and stay concentrated. So there will always be cycles. And if you can hold forever, right? In a tax deferred structure like Berkshire, you should do that. But, and you should lever up. That's what they do. But most people should just constantly rebalance with a good plan. They should have some get rich money. I would say you should have three buckets, liquidity bucket to fund your lifestyle, a get rich bucket to do all the fun stuff. The friends condo deal, the brother-in-law's venture deal, you're going to lose it all anyway. So just make small, and then the stay-rich bucket. Diversify that. And these institutions are looking at that

stay-rich bucket and saying, okay, my equity just fell a lot. My tech equity just fell more. Let's go buy some stuff that's on sale. Maybe buy some Chinese equities. Maybe buy some of these cloud companies. Oh, I think the cloud companies are still too expensive. Then on the flip side, they're looking at their private port. And here's the one problem. The very best of the very best, the yales the notre dames the you know unc's etc the very best of the very best in performance they have this lag problem the public markets adjust immediately and then you have a denominator problem because your private markets don't adjust and so you have a denominator problem that your total fund value went down so you're waiting in private went up but you can't really

sell unless you sell in the secondary market and you're going to take a massive haircut because there's very little liquidity. So doing that doesn't make any sense. So you have to actually talk to your GPs and say, well, how far are valuations actually going to fall? Because they're going to fall, but they'll be sticky down instead of immediate. Because in private, it's the escalator up. I mean, in public, it's the escalator up and the elevator down, right? In the private world, it's the escalator up and the escalator down. It just takes longer to come down what's your read on a lot of the major hedge funds so we've seen tiger global d1 you know a whole bunch of it's not just any one of them uh obviously the more tech oriented or

growth oriented they were the more their public losses uh seem to be uh but also they had started to push into the private market uh and you know i've heard some of them are pausing private investing some of them are drastically slowing some of them have even said hey we're getting out of that business. Just walk me through if one of these major hedge funds, what are some of the things that they're dealing with right now that maybe people aren't aware of? Lots of issues. One, some of these guys have been so incredibly successful. Tiger Global is a great example. They had a $30 billion hedge fund, but they also had $70 billion in private investments across 13 or 14 funds. I remember when we gave them $6 and $7 million when they were just starting as Tiger

Tech and they were teeny tiny. And that firm is one of the great investors of all time. And this year notwithstanding, they overstayed their welcome on the long side. Like a lot of hedge funds, they let their hedges down because for 10 years in the QE era, it didn't pay to hedge. right? If you shorted anything, they came after you and they squeezed you. And, you know, we've all seen the meme stocks, you know, stories and, and Melvin and all that stuff, but it was just really hard to short. And so what tends to happen, unfortunately, and we we've seen this now in two different cycles, we saw it in the 2008, nine cycle, and we're seeing it again now, unlike the 2000, 2001 cycle, which I'll talk about in a second, but this time what happened is, is the

pressure was so incredible against the short side is that hedge funds came into this deleveraging the largest net long they'd been a long time. So they're taking it on the chin there. Now, the good news is most of them, you can't get out, right? Literally, you can't get out for three, four, five years to get all your money back. So they'll be fine. On the private side, I think the good ones will continue. And I just saw KOTU just did another great deal today. I think the good ones will continue to do well. I think the ones that were tourists that were trying it because everyone else was doing it, they're done. I think they're going to be out because they reneged on some deals in the stress period or last six months and their reputation

suffered because of it. I don't think they'll be invited back. A deal that we did with someone who shall remain nameless, you know, referred to them as cap table hackers. You know, that's, Those are strong. The other piece I'll talk about is this idea that hedged with a D matters. So if you go back to 2000 to 2002, and I will argue that we're in 2001 again, I call it the 2001 redo. So we had the tech bubble and everybody forgot about hedging and the D got lost. And most hedge funds got whacked in 2001, 2002, but there were a handful, most of them tiger cubs and some Soros acolytes and a few others that actually had a capital D and they did great. And I think I'm probably most proud of in my whole career is from 2000 to 2002, when the markets were down 40%

and the average endowment was down 25, we at Carolina were dead flat. No, we didn't make any money. So I'll break my arm, pat myself on the back. We didn't make any money, but we didn't lose any money. And that goes to your second point, which is true. In downturns, endowments, foundations, well, foundations can't do it. Endowments can do it. Foundations have to spend 5% a year because of tax code.

But endowments have something called a rolling 12-quarter average of their market value. And so as the market value declines, they will pay out less to preserve capital so they can buy the cheaper stuff. And that does make sense. Now, again, it doesn't help. Like in 2002, I remember colleges having to cancel scholarships and cancel professorships. That's painful. So the thing, again, most proud of is we never had to cut spending at Carolina. So if you do constantly rebalance, which was one of the hardest things, I remember arguing with my board, you'll love this story. So March, February of 2000, I go in and say, guys, we need to rebalance. I'm like, what do you mean rebalance? I said, well, we're at 36% in domestic equity.

We're supposed to be at 25. Well, what do you mean? Supposed to be. So, well, the investment guideline, I mean, the investment policy. I call it the investment policy. The investment policy, oh, we're the board. You brought that investment policy. We don't even like the word policy. Change that word to guideline. Like, okay, fine. Change the guideline. Didn't get signing. Come back in May, market started to roll over. Like, all right, fine. You can take the allocation back to the

top end of the guidelines, but no more. Because these are our best managers. They did so great the last year in 2000. Like, okay. By September, they're like, get that shit out of here. And And remember that thing, change it back to policy. We like the word policy. It's incredible how you could literally be talking about right now, right? Oh, we are talking about right now. We are talking about right now. It is 2000 because what's happening right now, all the fraud, right?

All the corporate fraud, all the grift, all the stealing is being exposed. Just like in 2001, Enron, WorldCom, Cisco had to restate all their earnings. Just like they just, oh, well, maybe we overstated some inventory. And so the problem is people forget 2002 was the bad year. 2002 was the down 23% year. So I'm not saying we have to go there, but if we make policy decisions that exacerbate the problem, we could go there. So I think it's a good place to wrap up with my last question, which is, as of right now, give or take, the market is pricing in what will be 10 rate hikes in interest rates and that we will reach a 300 basis point interest rate by the end of the year. I don't think that you believe that that is going to happen, but you can confirm that. I take the under, take the way under. And so what do you think is likely to happen?

do we get five, three? Where do we end up as an interest rate at the end of the year? Look, I was correct in March when I said, no way, 50. Lucky if he does 25. I was incorrect in May. I said, no way, 50. No way, 75. No way, 75. And no way, 50. I thought maybe another 25. He did 50, surprisingly. If you put my feet to the fire pump, I'd say he's done. I think the Powell pivot is coming any day now. And there's just no way. I think he needs a couple prints on CPI to roll over. His oil prices stop going up and his used car prices start to ameliorate because that's really 75% of the CPI increase. I think if he gets two months of kind of flat to down, he can back off. I'll say five this year, half as many as the market expects. And I think

maybe we get to a buck and a quarter, maybe. I don't think there's any way, maybe get to a buck and a half, maybe half and half. So five and a buck and a half. So I'm biased in this last question because I think this is going to happen. But do you think we get an interest rate cut before the end of the year? I do. I do. Yeah. I think this fall is going to be bad.

I don't think you can go into a midterm election with any level of inflation would be bad. But the thing that's worse than that is a recession. Look, you're exactly right. I mean, we know for a fact that the number one indicator of success of the president's party is gasoline prices. Number one. I mean, inverse relationship. Low gas prices, they sweep.

High gas prices, they get swept out. And right now, at $750 in California, they're out. I mean, like, they're all out. If they could, they'd get rid of the president in the midterm at $750. I mean, just done. And then the second thing we know is that they actually can control oil prices if they can get Saudi to play ball. Now, arguably, Saudi doesn't want to play ball because they won't return his call. But if they could get Saudi to pump, they could get oil prices to roll over. That would collapse CPI. And that would get people thinking that we'd be out of the woods on a recession. Remember, recession doesn't mean back-to-back quarters of negative GDP, okay? That's why I think we're in 2001. 2001, first quarter was down 1.3, kind of similar to this year.

Second quarter was actually positive. Third quarter was negative, exacerbated by 9-11. I'm not saying we're going to have a 9-11. And then fourth quarter was slightly positive. The year was 1%, but anything sub one and a half is a recession. And so I think we're going to have the same kind of mild recession, barring bad decisions, right? We put up more tariffs, it gets worse. We do lockdowns, much worse. So there could be some policy errors that make it worse, but I'm with you. I think we're going to it's going to be very clear that we're in a recession. I think we're already in. And whether it turns from a garden variety recession into a depression, I'll leave you with one depressing point.

In 1840, the government made a number of policy decisions that turned a garden variety recession into a depression. In the 1930s, government made two policy decisions, raising rates and Smoot-Hawley, that turned a garden variety recession into the Great Depression. Now we're 90 years late. There's a 90-year cycle. Go back and read about it, J.D. Gann. Um, and I, I don't think it necessarily has to happen, but the picture of the ships off the ports in China actually scared me. That was actually a frightening picture because I know how close we are in just the time inventory and how broken the system is. And then you throw on top of that, you know, wheat production problems and all the things you talk about in your daily newsletter again don't have to have a depression but it's not a zero probability yeah it's uh it's crazy to me i mean the the uh if you had said in 2020 when uh biden got elected if we would be here

in this situation i think very few people would have put a high probability on it but what's even crazier to me is regardless of your politics the sitting u.s president in the latest poll it's like two out of every 10 americans think we're headed in the right direction it's like forget who the president is forget political parties forget like to me it's just like yeah man that is a low low low number because usually you just expect kind of like partisan politics right it's like oh okay you know my person's in cool i'm cool with whatever we're doing oh the other person's in i'm not cool with it so you get kind of like a 50 50 maybe we get like a 60 40 in either direction but a 20 80 is not what you would expect not what you want

not what you expect and i'll leave i can't leave you with the other frightening thing uh i used to say when when w was proximate to the cheney presidency i knew who to be afraid of right I mean, Dick was in charge and we all knew and it was fine. And I love W. He's a great guy. That little faux pas recently was pretty wild. But I think he's an interesting guy. Now I don't know who to be afraid of because it ain't the guy sitting in the main seat and it ain't the woman in the back seat. So I just don't know who to be afraid of. And that makes me more afraid than ever because if I don't know who to be afraid of, I don't know what to expect. And if I don't know what to expect, I don't know how to prepare. And so I think, again, for people thinking about this or listening to it or watching it, the way to prepare is to have a lot of personal liquidity, right? Have more liquidity than you normally would. Have a little bit of kind of running money. uh and and and you know we made it the whole time pump without saying bitcoin i i am impressed we made the whole show without saying but but you got to own a little you just have to if uh people understand the problem the solution becomes more obvious my friend oh there we go at the beginning you said how you're gonna finish and you just did i love it

uh all right where can we send people to find you on the internet or learn more about what you guys are doing across all the different vehicles at Morgan Creek? Yeah. So, Morgan Creek Cap, CAP.com is the website, Morgan Creek Capital Management and Morgan Creek Digital. And then at Mark Yusko on Twitter. My DMs actually do work. I stink at most every other form of communication, but the DM, I am not too bad. Texting, I'm actually pretty good too, but I'm not going to give that number out. All right. Well, I appreciate you, uh, you coming on. Uh, I always enjoy talking to you about what's going on in the world because, uh, I think there's just more and more craziness, which leads to more and more complexity. And so as you unpack it, it becomes,

uh, uh, just fascinating to think about. Well, I, you know, we don't get to do it often enough when we talk all the time, but we don't get to do this nearly as often as, as I would like. I have loved our conversations over the many years and appreciate the invite tonight. Of course. Thanks so much. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams

across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period go to pompscryptocourse.com to learn more and i'll meet you guys for the next episode