Unchained - Bits + Bips: What Happens to Markets Now That the U.S. Has Struck Iran?

Starting point is 00:00:00 All right. Hi, everyone. Welcome to another episode of Bits and Bips, the interview. My name is Steve Ehrlich, head of research at Sharplink, and also your host. And I've got a really exciting guest for you today. We have Charles Myers, the founder and CEO of Cigna Global Advisors. Charles is an experienced foreign policy executive. He has a long bio, which I'll ask him to provide in a second, but he was a senior foreign policy advisor to Hillary Clinton in 2016, Joe Biden in 2020, and he also has had a distinguished banking career, among many things, he was the vice chairman of the Investment Bank, Evercore. So welcome, Charles.

Starting point is 00:00:39 Great. Thanks for having me. Yeah. I've actually, as you know, I've been wanting to have you on the show for a little while now because the intersection of geopolitics and the economy, it's always hard to ignore, but I wanted to wait for a time that really made sense. And with everything going on in the world today, both domestically in the U.S. And then around the world, there were high-stakes diplomacy in Geneva yesterday related to Iran, stuff going on in Venezuela. There's a summit in China next.

Starting point is 00:01:08 I think it's in April. And just everything in the U.S., again, like this seemed to be a perfect time to bring on someone with your type of expertise. So before we dive in, I just have to take a very quick break so that we can hear from the sponsors who make the show possible. All right. So, Charles, I mean, before we dive in, I mean, just. Just quickly, is there anything else in your bio? I didn't ask that you think is relative for the conversation. And I'd love for you to just spend 30 seconds

Starting point is 00:02:00 explaining what your firm does. Yeah, no, absolutely. So we are a geopolitical and macro risk firm, given what's been happening in the world for the last three to four years, we're spending a lot more time on the geopolitical risk part of the business. But we're 22 partners in seven offices around the world.

Starting point is 00:02:19 And we focus on all of the big, volatility events that are happening, whether it's what we're about to maybe do in Iran, whether it's leadership change in Venezuela, Cuba, Greenland, tariffs, elections, the midterms, anything that is driving volatility in markets, asset classes, or economies we cover and we focus on and help our clients try to figure out what's going to happen next. Yeah, and it's funny. I actually remember, I mean, almost a decade ago when you're first launching the firm with a mutual friend of ours, Angie Dalton, and the growth, I mean, that been following progress for for years on LinkedIn every it seems like every other year a new office

Starting point is 00:02:57 a new partner a new continent so the growth has been impressive all right so let's really kind of dive in here first i guess my first real question is how do you make sense of everything in my lead in i mentioned like five different hotspots and there's plenty of others i did not mention i mean there's all the issues in the u.s all the questions about what's going to happen with the fed i mean the supreme court overturning trump's tariffs and then we might be at war with ven i'm sorry in war with iran again i guess for the second time and less than the year. How do you make sense of all that as you're trying to understand the interplay with markets and provide advice to your clients? Yeah, well, I'd say, you know, each situation is

Starting point is 00:03:33 definitely different. The dynamics are different. The players typically are different and the outcomes can be very different. And so in geopolitical risk, there's a tendency because people like certainty, investors especially like certainty, to want to find patterns. It's also why, you know, we hear quite often from people, you know, you've got to figure out AI for your business. You've got to figure it out. The truth is, AI, as you know, ultimately just recognizes patterns. There are no patterns to answer your question. There really are no discernible patterns in geopolitical risk because, again, actors, motives,

Starting point is 00:04:11 objectives, and outcomes are always different. Yeah. Well, I guess, I mean, I don't know if challenge is the right word. But, I mean, I actually studied, we may have talked about this years and years ago. I actually studied geopolitics in graduate school. I worked for a political risk firm before I really got into crypto and spent years working at the Pentagon. I mean, you've studied this obviously extensively too. There are patterns, I mean, whether it's like realism or neocon, liberalism, and people are trying now to make sense of Trump's foreign policy.

Starting point is 00:04:38 What does America first mean in a world where we're kidnapping Venezuelan leaders, launching, I guess, preemptive or preventive strikes in Iran? I know Marco Rubio, I guess a couple weeks ago in Europe was discussing sort of this new sort of like empire building type of strategy. Like how I'm sure your clients ask you to sort of provide your formulation of what the Trump foreign policy is and how that sort of relates to great power rivalries in this new century. So what do you say? Yeah, absolutely. So just to pick up on that first point that you made in the past, there were frameworks, historical frameworks that actually did work in geopolitical analysis. The problem is with, or the challenges with Trump being back, a lot of those frameworks you have to throw out the window because this is a president and an administration that doesn't follow rules, laws, convention, sometimes the Constitution, but also doesn't respect treaties necessarily. And I'd argue that even before Trump, or during Trump won, but since COVID and the invasion of Ukraine, the world has changed so fundamentally.

Starting point is 00:05:43 the United States today is engaged in classic industrial policy to help secure our supply change, reshore, protect American industry, we're engaged in extreme protectionism as well. So those historical frameworks or patterns actually it's very risky. I think you try to use those and apply those at your peril in a way. The one framework that we use that I think is very relevant. And it's one that's been really hard for, I'd say, a lot of people in the, the U.S. and especially people outside the U.S. to really get their heads around is something we've been saying for 13 months now, which is that America First was always going to be,

Starting point is 00:06:24 and has been now proven to be, but was always going to be about more than just domestic priorities. Most people assume because President Trump ran for a second time as an isolationist and on America First that he would focus primarily on domestic issues. The truth is America First was always also going to be about foreign policy. and within that, pretty aggressive protectionism, again, a tariff policy that's been very aggressively applied around the world. And secondly, a much more assertive, muscular, and I would argue expansionist slash imperialist foreign policy. I think looking back three years from now, we will probably have realized that we will realize that the Trump administration

Starting point is 00:07:06 has been the most imperialist expansionist and imperialist since George W. Bush. So on this broader question of frameworks or trying to analyze what's going to happen next keep in mind the one one constant is america first also includes foreign policy which also includes regime change and the use of military force if necessary yeah it certainly seems seems that way and we're going to get into a few of those hot button issues but before before we do i'm just curious i mean your client base it's a diverse it's across a diverse set of industries but i mean there's a few big trading trends that that i've been about and this cuts again this is mostly a crypto show but bits and bips is meant to be sort of crossover between broader macro tradfied trends and crypto uh i mean what are you seeing in terms

Starting point is 00:07:53 of the sort of defensive and offensive positioning among your clientele i mean we've been tracking i mean obviously gold precious metals surging what's going on with the dollar and treasuries clearly again because this is mostly a crypto show uh there's a bit of uh i guess disheartening among the crypto industry because Bitcoin and other assets have not quite moved in a, I guess in a commensurate way with precious metals, even though those assets are supposed to sort of fall along those lines. What are you saying? And how are, yeah, I mean, how are your clients really kind of approaching some of these

Starting point is 00:08:30 safe havens in a world of turmoil? Yeah, so I'd say at the moment and really for the last couple months, the two biggest trends that we're seeing with global investors, including U.S., but, you're U.S. and global investors is first this serious questioning about the safe haven status of the United States. And within that, it's everything from concerns about what we have an independent federal reserve through to election integrity, all the way through to, is Trump going to try to stay in office for a third term? And is democracy dead in America? The answer is no, of course. But really deep concern about some of the institutional damage that's being done by the Trump administration

Starting point is 00:09:10 and ultimately, you know, is that undermining the safe haven status of equities, U.S. equities, the dollar, and treasuries. And so that theme is now as a name, which is Sell America. I just got back from three weeks, literally, through the Middle East and seven cities in Europe. I've never seen sentiment this bearish towards the United States, really, and it's not just unique to Europe. It's much broader than that around the Sell America theme. And so we're not seeing it yet really in action. The data doesn't suggest yet that they're really, the investors are taking their US overweight down necessarily,

Starting point is 00:09:50 but I think there's a lot of concern. Yeah. Yeah. Oh, I'm sorry. I was going to just follow up on that because I remember Cell America was a really big deal during Liberation Day back in April. And then it kind of, I guess, fell away a little bit when I guess some of the deals started rolling out or, or,

Starting point is 00:10:06 or I guess the taco trade quote unquote sort of showed itself again. And people remain overweight to the U.S. in particular because of tech stocks. So I guess what you're saying is still that sentiment is there, but people are not quite ready to fully de-resk from the U.S. or? Yeah, I think, you know, any investors that took some of their U.S. overweight down, you know, a year ago into April, into Liberation Day, they did that, but still remained mostly overweight. And since then, that's been the right call because from the low in the U.S. equity market in April,

Starting point is 00:10:40 the markets had an incredible run. And so I think that what has changed, though, is that the concern about the U.S., there's been more perceived institutional damage since last April, and that in the governance part of ESG, the governance part of any investor's investment process in terms of looking at country risk, the perception is higher, it hasn't yet translated into actual selling or taking that overweight down. And if I can't really quickly, I think that the concerns I understand them, and I answer all of them, I spent a lot of time, you know, trying to answer them or address them. But I think those fears are overdone. We will have an independent Fed.

Starting point is 00:11:17 We will have free and fair elections. And the U.S. economy is in very good shape and probably going to grow up about 3% this year. So, but just to say, that's been one of the biggest trends. The other big trend is the AI displacement trend or fear of displacement, which is basically a very painful, but in a way, healthy, rolling correction. through the AI space that is primarily in software. It's made its way through parts of financial services. I think the AI infrastructure piece is next, which is going to be bigger and more painful.

Starting point is 00:11:47 But those are the two big themes that we're seeing from investors at the moment. And along those lines, I mean, right before we went live, you had Senator Rafael Warnock from Georgia, Democrat, in your office. And I know you mentioned that you guys were discussing some of these key issues. I would imagine a lot of people watching here would, I guess, be heartened to hear that there is going to remain a quote-unquote independent Fed. I guess perhaps that depends on if Kevin Warsh is, I guess, approved to replace Jerome Powell. And it seems like that may depend on what happens with the investigation into Jerome Powell. I mean, what is your sense on that?

Starting point is 00:12:25 And maybe you could just share a few other key insights that you got from Senator Warnock. Yeah, well, first just on the Fed, I think Kevin Warsh is an announcement. excellent choice. I think he's going to be a great Fed chair and the Fed will remain independent. It will remain data dependent and I feel very good about that. I think that the other kind of related question though, and it came up in our meeting with Senator Warnock, is the, and again, comes back to that key or central concern about governance in the U.S. and the safe haven status, which is why aren't more of the guardrails working in the U.S.? The only guardrail that's really working in the U.S. today and for the last 13 months has been the bond market. The Trump

Starting point is 00:13:07 put in Trump two is the 10-year yield. In Trump one, the Trump put was equities. Whenever equities corrected three or four percent, the Trump administration would course correct. Today, they care about equities, but what they really care about is the bond market. When the 10-year goes to four and a half, they will, they get nervous. At five, they will course-correct on almost anything. And so that's the guardrail that's working. A second guardrail kicked in just last Friday with the Supreme Court's decision on AIPA on tariffs ruling against the president. Again, the Supreme Court proving that on key issues, they are a guardrail. And then third, and it came up in our meeting with Senator Warnock, is the Democrats are very

Starting point is 00:13:44 likely to take the House and a Democratic House next year could serve as another guardrail. We'll see if the Senate's actually in play or not. So I think that, again, some of the most bearish assessments of the U.S. are overdone, and the guardrails are kicking in and will work. Okay. Well, that's good to hear. And I guess maybe then you kind of have an auspicious outlook for the U.S. Let's turn internationally in the time we have left because that's what I'm really interested in speaking with you about. There was a high-stakes meeting on Iran yesterday, I guess, between the U.S. and Iran and I believe Oman, Amani diplomats were in the middle because the U.S. and Iranian delegates didn't actually speak with each other.

Starting point is 00:14:26 And I'd love to just kind of get your sense of what's happening there. I know there's going to be more talks next week, but Trump certainly likes to surprise sometimes with attacks. It's the largest, I guess, military buildup in the region since the early 2000s. And I know some people are wondering if President Trump is really willing to theoretically walk away if he gets what he wants from negotiations with that much firepower in the region. Yeah, I would say on Iran, first the meeting yesterday in Geneva led to an engagement. agreement to continue talking and meeting again next week. So I don't there was no great breakthrough. There was no, you know, major moment. But the two sides are still talking and I've agreed to

Starting point is 00:15:12 continue. The broader question on Iran and whether the U.S. is going to strike militarily, I think just to first make a sort of important context point, which is President Trump, to his credit, in this situation, as in almost all situations, has defaulted to his primary objective or his primary MO, which is to negotiate. He always wants to negotiate first. He would like to get to a new nuclear deal with Iran. And again, to his credit, they are trying very hard the U.S. to get to a new deal to avert the alternative, which is a military strike. And I think that, you know, in the very short term, given that not much progress is being made diplomatically, there could be a smaller military strike to try to force Iran's hand a bit more. But if deployment, you know, if deployment,

Starting point is 00:16:00 diplomacy fails between now and say right after President Trump and President she's meeting in early April, again, because China doesn't like what we might be doing in Iran. I think we should expect a major military strike. So diplomacy is still very much on the table. Could see a smaller strike, but if we don't get to a deal where Iran essentially agrees to no enrichment and a much more limited ballistic missile program, expect a major strike, which will ultimately lead to decapitation. of the regime. Obviously, a few follow-ups there, and I wish I could honestly speak with you for hours about this topic because that's what I used to do for my previous job in grad school. But, I mean, what do you mean by, like, for instance, a limited strike versus a major strike? A lot of people are trying to draw parallels between what happened in Iran and then in Caracas, but Caracas, I think, is 10 miles from the ocean. Tehran is deep into the internal part of Iran. And then again, I mean, not to tie, we're going to get the Venas well next anyway, but the U.S. seemed to be pretty successful at getting President Maduro's, I believe, as vice president, to kind of play ball. Whereas in Iran, with decapitation, as we've both seen time and time again, that doesn't necessarily mean regime change.

Starting point is 00:17:20 It could just, Ayatollah Jimenei is 87 years old, something like that. So there has to be a successor plan in place. And it's not like the IRGC would just go away. So, I mean, what do you see there? And again, because this is a macro trading show, like, what are you seeing in the markets? How are clients reacting? And are there any, aside from just like the impact on oil, energy commodities, are there any sort of real takeaways that our listeners, viewers should keep in mind?

Starting point is 00:17:51 Yeah. So I'd say a couple things in there. First, you know, the very stark differences between what we did in Venezuela and what we are likely to do in Iran. Just highlight again that there are really no discernible patterns in foreign policy and geopolitical risk. Because they're very different situations and both our strategy and possible outcomes are very different. On Iran, limited strike, I think, means somewhat surgical ballistic missile strikes on key government buildings, nuclear sites and some military sites. to force Iran to move faster on getting to a nuclear deal. I don't think that's going to work in the end. So I think it probably leaves on the table a larger military strike in April. And what that looks like,

Starting point is 00:18:36 I think is to your question on, are the markets trading this correctly or how to trade it? I think the oil markets have been trading the situation in Iran so far very well or correctly, which is we have an elevated price of oil, meaning geopolitical risk is now there's a geopolitical, but of course premium in the price of oil and has been for the last two months because of the possibility of a strike. I think what was, and so I think oil is trading where it should based on the information we have. Now, if we get to a major military strike, which we think, again, would be more like April,

Starting point is 00:19:09 once Trump has exhausted, all diplomatic and other options, I think what's underestimated there is how big it will be. And I think it'll be two weeks, 10 days, two weeks of shock and awe, meaning hitting everything from nuclear government military sites combined with a huge surge in cyber and other asymmetric warfare, including a wave of assassinations, including the religious leadership. So the goal there, to just on the third party of question on decapitation, what that means is ultimately trying to identify a group of generals that will ultimately negotiate with the U.S. agree to what the U.S. wants and be much more outwardly engaged. The challenge here is identifying

Starting point is 00:19:57 who those people are. And so one last quick point, you know, decapitation of the regime is actually regime change, unlike in Venezuela. That was leadership change. The risk of it in Iran going incredibly wrong is much higher. And I think that's where looking out a month, month and a half, we could see a much bigger risk off move. And I think oil spiking probably higher than people expect. And it's, I was going to say, and it's, I mean, it's interesting too. I mean, America first and Trump has certainly shown a proclivity to U.S. military power. But at the same point, he tries to shock and all quick strikes, but so far has managed to avoid protracted conflicts. And to be perfectly honest, I mean, when he took out the head of the IRGC last year, I thought that was going to be

Starting point is 00:20:41 a big problem. I mean, even something like moving the U.S. embassy from, I think, it was Tel Aviv to Jerusalem during, I guess, his first administration. I thought that was going to create a huge problem and it didn't. So maybe some of us do overestimate the risk. I do want to ask you one, I guess, fun question, though. I'm curious what you think of polymarket and prediction markets, because as you were talking, I pulled it up on my screen, and there are dozens, literally dozens of different markets

Starting point is 00:21:08 where you can bet on U.S. strikes on Iran by March 15th. Next, U.S. strikes like today. We'll come in and be out as Supreme Leader by the end of the month. And there's lots of different examples there. I'm curious your thoughts on that. I mean, do any of your clients trade on these markets? Please. Well, let me just say, I personally, this is not a house view, but I personally am a big fan of the betting markets.

Starting point is 00:21:33 I think that, you know, predicted's been very good. They've gotten better at predicting our election results. And now with Polymarket and Kalshi, you know, these betting markets have been, They were very precise and very good at the 2024 election and, you know, kind of a mixed bag on some of those other stuff, including probably some of the hits on Iran. But I'm a fan of it. I think, you know, I do think they're going to run into some regulatory headwinds on some insider trading issues. And that's a regulatory issue. But overall, you know, being able to make bets on political or other outcomes, not just sports, for example, I think is a good thing.

Starting point is 00:22:13 So no, I'm a fan. I'll give you one trade that I think is a really no-brainer on the market. Please. And it's political, but Don Jr. has a 1% on polymarket on Kulshi. I think it's 2%. But a 1% probability of being the Republican nominee in 2028, that is way too low. That's the same odds today on polymarket as Kim Kardashian has for president. And I'm here to tell you he's got a 10,000, at least a 10,000 higher percent probability.

Starting point is 00:22:43 So I would take that trade. Even if the contract goes from one cent to 10 cents, you've made money. Don Jr. is a very, very viable possibility for the Republican ticket, top of the ticket in 2028. So now I'm a fan of the betting markets. Again, it's not for everyone. I don't think gambling is good, but it needs some regulation. But I think it's been a really interesting indicator.

Starting point is 00:23:03 And to your question, a lot of our clients now follow the betting markets very closely. Yeah. I mean, the insider trading. Please, yeah. Yeah. I mean, it's funny. I think I remember the odds on Aaron Rogers being the vice president. Who was it for?

Starting point is 00:23:17 It was the vice presidential nominee for RFK Jr. Was that? I think there was a possibly. Anyway, but yeah, I'm curious. I mean, just the prediction markets. I don't know how deeply you studied them. I mean, insider trading is is obviously a concern, even though the laws on insider trading for something quote-of-quote regulated by the CFDC

Starting point is 00:23:38 is different than like traditional insider trading laws with the SEC. see. But yeah, I mean, according to polymarket, like Israel is going to strike Iran by March 31st. There's a 63% chance. 23% Hamine is out of Iran by March 31st. There is a 50-50 probability, basically, that U.S. is going to strike Iran by March 15th. Do you foresee any issues with, like, perhaps the tail wagging the dog here? Or like, or, I mean, there's been so many issues are examples of people front-warning certain trades and making a significant amount of money. And I wonder, too, sort of, I guess, like the morality of betting on things like this. Yeah, I think, you know, again, just whether it's our, you know, our firm or most, the vast majority of our

Starting point is 00:24:31 clients, to the extent that because we do follow the betting markets very closely, it's one input. And I think everyone understands that, right? It's one indicator. It's not an overarching indicator. It's not necessarily the most accurate. but it's a really interesting indicator and certainly should be looked at. Secondly, there's blatant insider trading. If you look at the one, there was one person that made a huge amount of money,

Starting point is 00:24:53 betting on Madura being out. Yeah, like hours before or something. Yeah. Yeah. And there's been some front running of some economic data. So there's clearly some need for a little more regulatory oversight, I would argue. But barring that, you know, on the morality question, look, financial markets, immorality have never really intersected.

Starting point is 00:25:13 I don't know to say that diplomatically, but, you know, at the end of the day, people are going to invest and bet mostly on where they're going to get the highest return. And I think the betting markets are kind of an extreme example of that. Yeah. So it's funny. I'll give me a funny example from a crypto point of view that you may not have seen. So there's kind of this online sleuth. He goes by Zach XPT.

Starting point is 00:25:34 He's pseudonymous. And he published a big investigation yesterday into some serious insider trading allegations at a crypto exchange. And then apparently there was a poly, there was a polymarket market on which exchange was going to be made. And somebody made a very advantageous trade at the right time. So there was insider trading on the insider trading. Yeah. That is, it's fascinating. But I think by the way, the regulation will come or the oversight will come. Yeah. I do think that the future is very bright for these companies. Also, Don Jr. is a paid advisor to Kalshi and the Trump's actually are actually both he's on both he's on both boards I believe they own part of

Starting point is 00:26:13 polymarket so I would say for the next three years at a minimum the outlook is pretty bright okay I know we only have a few minutes left I want to turn to Venezuela quickly from last I heard you're going to be leading I believe the first foreign business delegation into the country next year just briefly kind of just talk about like what you're looking to accomplish and I think to again bring this back home to in my audience. I mean, the US is selling Venezuela and oil. How could all that sort of impact the US economy, the US deficit, especially in the world where Trump's tariffs were just, I guess, invalidated and the US could have to pay 100 billion plus back in tariff rebates?

Starting point is 00:26:54 Yeah, so first on Venezuela, let me just say at a broader level, part of the theme that I mentioned earlier that America first now absolutely, you know, applies to more than just domestic policy, it also incorporates foreign policy, including a much more assertive or aggressive one. And within that for our hemisphere, the Monroe Doctrine is back, and they've renamed it the Don Roe Doctrine, which I'm convinced the President named himself. But the Monroe Doctrine is back, which stipulates that the United States can use, has every imperative moral and other to dominate our hemisphere economically and militarily, including regime change, if there's any perceived threat to the national security threat.

Starting point is 00:27:36 on Maduro specifically or on Venezuela, the Monroe Doctrine was somewhat invoked. The other thing I would just say on Venezuela is, and this is somewhere again, where I give the Trump administration a lot of credit because any other US president would have really harped on what we needed to do or did in Venezuela by saying it was about democracy, human rights,

Starting point is 00:27:59 it was about drugs, it was about getting Cuba out and rush out of our hemisphere. It was about all of those things, but actually the Trump administration It's about oil. And let's be clear, Venezuela was about oil. And it's partly to your broader question of kind of how the markets might view this over time. But, you know, the Trump administration have had a very explicit and very clear strategy, energy policy to bring the price of oil down into the low 50s.

Starting point is 00:28:25 I think oil, once we get through what we do in Iran or don't do, but oil will be trading in the low 50s later this year. And part of that is bringing much more Venezuelan production. on stream, ultimately getting to a new nuclear deal with Iran, either this government or a different one, Iran can export more oil legally and a ceasefire in Ukraine, possibly by the end of this year, more Russian oil. The world is a washing oil. I think there's actually a lot more supply coming on, and that's an intentional part of the U.S. strategy to bring down the price of oil to address the number one issue in our midterm,

Starting point is 00:28:57 which is affordability. And the Trump administration has done a pretty good job of bringing down the price of gasoline because of the price of oil. So I think that Venezuela is central to that. Last quick thing on Venezuela, we are taking now 55 clients, and we turned it into a conference in Caracas, March 22nd, because of huge demand. Any crypto clients? Not crypto, interestingly.

Starting point is 00:29:22 I think it's just a bit early. There is use of stable coins in some crypto in Venezuela, but it's just a bit early. It's mainly oil and gas infrastructure, insurance, banks, chemicals. and asset managers that own the defaulted bonds. Well, there's rumors that the Venezuelan government's sitting on billions and billions worth of Bitcoin. So maybe you guys can find it while you're down there. I will ask. I will ask when I'm on the ground. But I think the outlet for Venezuela is incredibly bright, whether you agree or disagree with what we did. There is no scenario in which

Starting point is 00:29:52 the Venezuelan people would have been better off under Maduro. So I think the future from here on Venezuela is they have a guaranteed income stream, which is oil. The only question, and only variables how fast that income stream grows. I think it'll be faster than most estimates. A huge win for Venezuela. Cuba's next. There will be government or leadership or regime change in Cuba. We are going to get to a deal on Greenland.

Starting point is 00:30:17 And, you know, we will have regime change or leadership change in Iran. So a lot happening in geopolitics. And I think the one constant is keep in mind this is a much more imperialist and expansionist administration. I would argue the most expansionist since George W. Bush, and they're just getting started. I know we're just about a time. Do you have time for one or two more quick questions? Sure, sure, sure. Please, because, yeah, there were two other things I wanted to ask you before we'll wrap up. Sure. One, I mean, we're talking today on a day when Open AI just announced a $110 billion investment.

Starting point is 00:30:55 I saw plenty of this Dr. Evil means like $100 billion. But it did get me thinking, again, I mean, Last couple decades, they were dominated by the Googles and Facebooks, like those type the, the GAFA companies or whatever the acronym was, where they became state actors in their own right because of their power. Today it's AI companies, the voracious appetite for data centers, energy, etc. And they're going to be the new, the new GAFA companies. Like, how do you see them sort of playing in a world of now, like, great power, power rivalry?

Starting point is 00:31:28 And especially now, like Donald Trump, I think they, there were rumors they were going to um it was reported in the ft i think right before we came on that they're going to try to spin out truth social and kind of lead into nuclear energy so they're getting involved in and all this like how does that dynamic play out and then i guess just to again be considerate of your time the other thing i was going to ask too is in this world of like trump capitalism with u.s government has golden shares and things like like u.s steel and it's taking 10 percent of of intel and i think it's getting and royalties from Nvidia sales into China.

Starting point is 00:32:03 Like, how does all that play play? I apologize. I know it's a bit of a long question, but I just wanted to get this thing. It's a lot in there. Let me answer them in the reverse order because the second part is a shorter answer. But again, as I mentioned earlier, the United States today is engaged in classic industrial policy. It started under Biden with chips IRA and infrastructure.

Starting point is 00:32:22 Trump came in, kept most of that, and then has put industrial policy on steroids, which is protectionism, tariffs, and government taking states. stakes in companies. You mentioned a bunch of them. There's also the rare earths companies that the government's taking direct stakes in. And I think we will continue to do more of that. So again, it's very much a part of the industrial policy that began under Biden and is being accelerated by Trump, in part out of national security to secure our supply chains, encourage reshoring and reviving the manufacturing base of America, protecting American industry, protecting American jobs. So expect a lot more of it. It brings me to your first question, which is open.

Starting point is 00:33:01 open AI and AI companies generally. I have a very unpopular view of this controversial view. Open AI does not have the most advanced or sophisticated technology. And I think ultimately when the CFO last year in November said they may need a government backstop or they would get one, I think that if necessary, the government would take an equity stake in Open AI. They just raised the 110 billion, but from three existing shareholders, three shareholders that have the most to lose if things don't go well. And they also raised it at a lower valuation

Starting point is 00:33:35 that they initially had hoped to, which is $730 billion, not the $8.50 they were talking about a month ago. Not a good sign either. So, and they're preparing for an IPO. Maybe they do IPO. They'll buy even more time. This cap raise gives them time. We have a long history of U.S. companies IPOing that have no path to profitability. But on Open AI specifically, the math is just science fiction. There is no Mathematically, I'm willing to debate anyone, and I'll either be proven right or wrong in the next six to nine months. Mathematically, these open AI will not be able to deliver, forget about earnings. They're not going to be able to deliver on sales estimates to justify the valuation at which they're raising capital today. So I think that AI is so critical to everything we do and to national security.

Starting point is 00:34:20 I think you could see the government become a bigger player there, not in terms of regulation. This is a very regulation light administration, but probably needing to backstop. potentially take a stake in open AI, which would be very controversial, but they would do it. Although I think the markets would appreciate it because if AI goes down, the video goes down, the rest of the market goes down. So I guess... Oh, absolutely. Oh, no. The reason the U.S. will bail out, will backstop open AI is exactly what you said. And by the way, if open AI needs a backstop, ultimately, and that would be six to nine months from now, it's interesting would not be a

Starting point is 00:34:59 credit event for Open AI, they have almost no debt. It's the collateral damage to everyone else, Amazon, Microsoft, Oracle, you know, the collateral data centers, real estate developers, the collateral damage would be absolutely very painful. And secondly, Open AI is the centerpiece of Trump's AI moonshot, which is, you know, Stargate is Open AI and SoftBank. So it'll be bailed out for the right reasons, if necessary. Yeah. But yeah, so I, but, But overall, I'm incredibly optimistic, as most people are on AI. I think the displacement trade, which is playing out now, is a little overdone, meaning people are just selling everything first and then trying to ask questions.

Starting point is 00:35:40 It's going to create some really, if it hasn't already, interesting buying opportunities selectively within software, within parts of financial services that have been hit. And ultimately, like post the internet bubble, you know, what's going to emerge here through some of this somewhat painful correction will be two or three national champions. And Google, by the way, is absolutely one of them. They have incredible technology

Starting point is 00:36:03 and they have the resources to keep building. But there will be others. Anthropic is good. I worry about anthropics taking on the Department of Defense or Department of War. I understand why they're doing it. I admire them for their principal position on this. Taking on this administration, though,

Starting point is 00:36:18 is usually not been a great strategy. So we'll come to see how that plays out. Yeah. And actually, I think Open AI just, again, right before we came on, It was reported in the Wall Street Journal that they're having similar discussions now with the DOD so they can take on classified information. But Sam Altman seems to want the same types of restrictions. I'm not quite sure how that's going to fit.

Starting point is 00:36:36 Understandable. Yeah. But, yeah, I mean, otherwise Charles, me, thank you for joining. I mean, before I let you go, I just want to give you the chance to share any other final thoughts on what's going to happen in the rest of the year, either domestically or internationally. Or again, I know your firm doesn't primarily focus on crypto. So I didn't want to belabor that topic too much for you. But if you do have any thoughts on Bitcoin and how it sits alongside gold or other types of equities, I'd love to get your thoughts on that as well.

Starting point is 00:37:06 Absolutely. You know, I have, again, a very unpopular view on crypto generally. And, you know, if you're old like I am and you are remotely skeptical, everyone just assumes, you know, they say you're too old, you don't understand it. But let me just say on crypto, I think Bitcoin has a big future. I'm much more optimistic, by the way, on that. stable coins. I think the Genius Act was absolutely brilliant, absolutely incredibly important to ensure that the most liquid stable coins going forward will be dollar pegged, very positive

Starting point is 00:37:35 for the U.S. as a reserve currency, the dollar is a reserve currency. And I think stable coins will be, the overall adoption is only going to accelerate. On crypto itself, look, where I've come out on this is where I always do, which is, you know, it doesn't trade on fundamentals. It is not a risk hedge. It's not an inflation hedge. It is not a store of value, and it is not a medium of exchange. No one really buys anything with Bitcoin. The average person doesn't. Maybe many people in your audience do.

Starting point is 00:38:03 But these currencies do not trade on fundamentals. They have incredible moments of bullishness, and then they have incredibly painful periods of correction. I don't know what it's going to take to finally clear some of that out, but given the huge amount of retail and other. often speculative money that drives these, especially the bull runs, I'm not very optimistic on the outcome. It doesn't mean it can't be back up at 120,000 at some point, but it will not be on fundamentals. I'm very skeptical on these cryptocurrencies.

Starting point is 00:38:39 I mean, that's something that I think most responsible players in the industry would like to see change. I mean, speculation can be a good thing, but it also can have perverse incentives. and I think the goal is to find those real monetary premiums or use cases for different assets so that you can sort of build models and find out what those fundamentals are. I know that's something that people are working towards, but I do appreciate your honesty on this. Can I have one more thing on this? Because, again, I came from the cell side. There's a number of cell side, very smart saleside analysts that cover crypto.

Starting point is 00:39:14 The reports they've been putting out in this most recent correction have been trying to explain, why Bitcoin is sold off so much, have been things like, oh, because of Iran risk, or, oh, because you know, it's for all the reasons that Bitcoin was actually not supposed to correct, it should actually be going up. So, so, you know, I think that until the average American, not even the average, until, you know, a majority of Americans can use Bitcoin, for example, to go out and seamlessly buy something that they need every single day, it will continue to trade as a very speculative asset. Yeah. Again, I agree with that. I mean, Bitcoin's safe haven, but sometimes it's kind of like the doomsday haven. Like safe haven may not be a strong enough of word. And then again,

Starting point is 00:39:59 I mean, there's other assets, Ethereum, Salana, like other ones that are focused on other use cases that aren't meant to just be a safe haven. But it's early. And I do appreciate your candor on the subject. Anyway, Charles, I mean, thank you so much for joining. We'll have to have you back when there are other geopolitical factors at play, hopefully not war with Iran, because I think we both agree that there's going to be repercussions that no one can anticipate there.

Starting point is 00:40:25 But otherwise, again, thank you so much for the time. Thank you to everybody for watching and listening. And we'll be back next week with another episode of Bits and Bips, the interview. Great. Thanks for having me, Steve. Good to see you.

Unchained - Bits + Bips: What Happens to Markets Now That the U.S. Has Struck Iran?

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