We Study Billionaires - The Investor’s Podcast Network - BTC172: Macro Outlook Q1 2024 w/ Luke Gromen (Bitcoin Podcast)

Episode Date: March 6, 2024

In this episode, Luke Gromen navigates through Berkshire's $167.6B cash, his 2023 market optimism, US liquidity measures, and escalating real estate loan concerns. He discusses inflation's return, unemployment trends, interest rates, and Bitcoin's impact on energy. The dialogue also touches on the Fed's control illusion, CEO stock sales, Bitcoin's fiscal role, auction failures, QE's return, and treasury yield trends, providing a rich macroeconomic overview amidst evolving market dynamics. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 01:05 - How Berkshire Hathaway's substantial cash reserve positions it in the current economic landscape. 08:13 - The pivotal factors that flipped Luke Gromen from a bearish to a bullish market stance in early 2023. 12:20 - The implications of re-accelerating supercore inflation on the economy and monetary policy. 12:20 - How interest rates are expected to evolve through the rest of the year and their effect on investments. 46:08 - The specific liquidity levers the US is currently pulling to navigate through economic challenges. 46:08 - Predictions on unemployment trends and their impact on the broader economic recovery. 57:25 - Insights into the escalating crisis in commercial real estate loans surpassing loss reserves at major banks. 01:09:57 - The transformative potential of Bitcoin in changing the energy landscape and its broader economic implications. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Luke’s FFTT research. Luke’s Twitter account. Luke’s two books. Related Episode: Listen to BTC136: The FED Pause & Q2 Current Events w/ Luke Gromen, or watch the video. Related Episode: Listen to BTC101: 4th Quarter Macro Overview w/ Luke Gromen, or watch the video. Check out all the books mentioned and discussed in our podcast episodes here. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | | Instagram | Facebook | TikTok. Check out our Bitcoin Fundamentals Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: SimpleMining Hardblock AnchorWatch Human Rights Foundation Unchained Vanta Shopify Onramp Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. Today's guest needs no introduction as I've got the one and only Luke Roman back on the show to talk all things macro. During the show, we cover some interesting ideas like Berkshire Hathaway, squatting on 167 billion in cash, what the central bankers are doing to create so much liquidity into the global economy, and are we even going to see a quote-unquote recession, among many other, fascinating and interesting topics. So without further delay, here's my chat with Mr. Luke Groman. Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors

Podcast Network. Now for your host, Preston Pish. Hey, everyone. Welcome back to the show. I'm here with the one and only Luke Roman. Thrilled to have you. Thanks for having me back, Preston. I always enjoy our talks. I'm really looking forward to this one. So here's where I want to start this, Luke. Warren Buffett, Berkshire Hathaway, just came out with their shareholders letter. $167.6 billion in cash sitting on the balance sheet. What in the world is going on?

167 billion in cash. The reason I want to start with this question is because I think it just encapsulates the confusion that everybody has with what's going on in the market right now from a macro standpoint, right? You have, some would say, the best capital allocator that's ever lived squatting on just an absurd amount of cash. You have Jamie Diamond that has sold some JP Morgan stock to a pretty sizable amount. You have Jeff Bezos that just sold a bunch of Amazon stock, I think it was to the tune of $5 billion. What is your take on this?

Because I have some really strong opinions, especially on the Berkshire Hathaway one, but I want to hear what your takeaway is on some of this. To me, it's very interesting. Warren Buffett, even in this month's letter, or this month's year's annual letter, he references March of 1942 as being the first time he bought stock. and it's sort of been a straight lineup ever since, et cetera. And I always find it interesting that he has referenced this, 1942, I bought my first stock when I was 10,

it's been up until the right ever since, et cetera, et cetera. Like, he fails to ever mention as far as I'm aware what happened. You know, number one, it's a very lucky time, right? Was it the battle of Midway? Two months later, three months later was like the generational bottom and risk. We were going to win the war. It's just a question about long. up until like, okay, setting that aside. He fails to ever mention what happened to stocks and

financial assets from 1914 or 1900 or through 1942. And if he would have, if he ever mentioned that, he would have to say, I need to own some gold, I need to own some Bitcoin or I need to own. I need, there's the currencies in financial paper assets can decline massively on. real basis. And of course, he knows this. If you read some of his letters from the 70s, maybe the 60s, probably the 70s, talking about how there was a 10-year span where the book value of Berkshire Hathaway went up X percent and the price of gold went up X percent, which means we have created no value in real terms. It's all been inflation. So he clearly understands these concepts. But I think for the average investor, yes, I understand his message. And I think it's important for

the average investor to understand there's a long cycle. And he happened to have bottom ticked the long cycle with his first purchase of stock. And congratulations to him. That's great. Doesn't necessarily mean the next 77 years are going to go like the last 77 years. And so that's broadly speaking. Those are my thoughts. There's a lot of corporations with a lot of cash that is part of a broader theme. I look at that cash as Tinder for a Wisconsin. I look at that as a, as tender, as fuel for whoever rally in risk assets, broadly speaking. Obviously, you know, I like Bitcoin. I still like gold as well.

But that's how I think about that corporate cash. Well, so I agree. I think that when we're looking at the amount and what he's squatting on, it's basically signaling that he is waiting for equity to become much cheaper price than where it's at right now. And he's going to swoop in and gobble it all up. I mean, he's been squatting on a pretty, he's been squatting on over $100 billion. for what feels like a decade at this point, by the way.

Yeah, he's had a record high cash every year, other than, I think, 21 and 22 for like 10 or 12 years. And it's, it highlights the advantage of his structure, right? Because the reality is, is that if he was an investment manager sitting on record cash every year for the last 10 years, he'd have been out of a job like seven years ago. And that's the advantage of what he does. You know, I think it's also really interesting that he's playing for a correction,

clearly. I agree with you on that. And he testified or talked about, I don't think he testified, he talked about in 2020 that the Fed acted so fast because the Treasury market broke so fast that he didn't have time to deploy that cash. And like, that's the guy who's getting a first call from everybody. Yeah. He didn't have time to do it and has the man. mandate where he can be like, oh, yeah, that's a good deal. Here's 20 billion. And he didn't have time to do that last time. And so I question, A, will he have time? And B, will sort of like the average investor have the time to do it knowing, again, I think it's super critical because there's another way, let's turn the cash around the other way. Corporations have, you know, Buffett's got

whatever, 167 billion. One of my, one of my dear friends in the business highlighted to me last week, I didn't realize this number. He said that corporations in aggregate are sitting on somewhere between four and five trillion dollars in cash, I think, and I suspect it's highly concentrated at the top. But here's the point. If there's a downturn of any real magnitude or severity, corporations are sitting on somewhere between four and five trillion in cash and aggregate, and they turned out all their debt. So in the downturn, corporations are fine. They can go for a while. mom and pop are fine. They can go for a while.

They turned out, you know, 60% of the mortgages have no mortgage and 60% of the house have no mortgage or 40% or whatever. And then, you know, another 60% with mortgages are under three and a half or something. So they turned out their debt. So who's the sucker at the card table? Who's going to go broke first? Treasury market's going to break first. Mortgage backs might break first.

Duration as a duration as a duration probably. Yeah. Like, this is a day where we're sitting here as we're doing this. The Treasury just issued 100. $127 billion in treasuries today. Both auctions were sloppy at the short end, two and at the belly, really, two and five year. After a ugly 20 year, which is again, a bit of a wonky duration last week, but still, it was fugly in terms of an auction. Yeah. So the last three auctions have been bad. Oh, by the way, the last three auctions when you total them up are equal to about the annual deficit that the U.S. ran in 2002 the year before we invented Iraq. And in 07 after a five-year housing bubble. So like, 15 years ago, 17 years ago, this was what we bought issued in the last three trading days, and four trading days, has been the size of the annual deficit. So the pointer is that corporations have staying power.

They're not going to go bus first. Households have staying power. They're not going to go bus first. Treasuries are where we're already seeing the dysfunction. We haven't even gotten into a slowdown, a real slowdown. And they have a printing press. They have a print loop. They're not going to anomaly default.

They can print the money. I say exactly. So this gets at the exact heart of the, of why I'm asking this question. Okay. Because what you're talking about is the speed at which they're going to respond and the magnitude that they're going to have to respond because, and these are your words from multiple times, you've said that each time they're intervening, they're turning it into an on-off switch

and not like this 2000, well, 2008 isn't even a good example, but all the bubbles at burst that took years to kind of play out, that the impairment that took place took place over a year. year, two years, and you got this reset, and then they reflated it. But in 2020, with COVID, the response was so fast, and I think it had to be that fast for them to deal with the unprecedented amount of impairment that they have created through all these years of manipulation and how fragile the whole thing has. This next, call it, cascading impairment that was trying to manifest itself with the Silicon Valley bank crisis that they completely plugged with the backstop facility and said, oh, that's not going to happen, right?

As soon as that tries to happen again, why would they do anything different, Luke? At this point, they have to plug these holes immediately. They have to flood this system with more and more Fiat in days because they know how fragile this system is, right? So if I'm Buffett and I'm sitting here on 167 billion dollars of cash, isn't he the patsy at the table? Because I think he is. I would argue with cash, he's okay, right? He's getting paid five and a quarter, right? Whatever he's getting five, five. Yeah, yeah, yeah. And he's taking no duration risk. So for me, true. That's very true. I don't think of going in five percent treasury is a bad, like if I'm him, that's exactly what I'm doing.

Now, whoever's holding whatever it is in duration, they're the Patsy, right? Yeah, yeah, yeah. Beyond kind of seven years and out, they're the suckers at the card table. Yeah. And, you know, it's really interesting. On day, we had a Larry McDonnell pointed out, we had a 20-year treasure auction that was Fugly, and there was a Cisco bond auction. I don't think it was a 20-year.

I don't know what the duration was, but the point is it was six times oversubscribed. So it's not a, it's a sovereign issue. It is a, we don't want infinite long. term paper. So to answer your question, yeah, to me, the variant perception is that the sucker at the card table is the long-term treasury market. Yes. And I think the other variant perception is that the bare case, a lot of things, we'll just say that, the bare case on stocks in particular, but Bitcoin, gold, blah, blah, is that we get a downturn in the economy, we quickly get another episode of Treasury dysfunction. And instead of BTFP in 1Q23, instead of

Yellen switching duration issuance up to the front end to tap the reverse repo and what was essentially synthetic QE in 3Q, we, the Treasury and Fed let a Treasury auction fail, and they stand aside. And they let another one fail. And they stand aside. People say, oh, they'll never have. Well, we had a five basis point tail in a third year in November. James Lavish has talked about that and highlight how bad and inconceivable that was at the time. We just had in a really good liquidity environment, 3.3 basis point tail on a 20 year, you know, I don't think you need to get, I mean, we're not that far from that point. So you, to me, the bare case on risk assets broadly is you start getting a series of failed treasure auctions and they stand aside. And then that illiquidity

starts to cascade and that starts to lead in some bank failures and they stand aside. And when I take a step back and say, okay, what are the odds that happens? You know, it's like, it's like Mark Baum or Steve Corel as Mark Baum, right, Steve Heisman and Big Short, right? Like, zero, that's the odds of that happening. Yeah. And so then if we work backward from that, you go, huh. Isn't it interesting that we saw Jamie Diamond say today that they should be allowed to buy some of the smaller banks or to merge the smaller banks, literally today.

Oh, really? Yeah. Yeah, yes. Yeah, J.P. Morgan's CEO says should allow some of the smaller banks to merge. I like your point, though, and I like your framing that he is in, like, very short duration cash position. So he's collecting his 5%. I would argue that any developed currency M2 is growing at 7 to 8 to 10% on an annualized

basis. So if he's collecting 5%, he's only getting chewed up by, let's say, 200 to 400 bips. and that's obviously smoothed out over the long haul. But it's almost like, well, what are you going to do with this? And so, like, I guess people are looking at the markets, right? And they're looking at the index and they're saying that this is the market. But the indexes are being driven by 10 companies. Ten companies are driving those indices.

But if you look at like the Russell 2000, and you look at the rest of the market, it's still down from the high from two years ago, right? Like it's still like. And so I think there's this there's this talking point. that, oh, everything's just booming along. And it's like, no, everything's being consolidated into like 10 companies. And they're just gobbling up everything. Everybody else is pretty much struggling.

You got, you know, legacy people just squatting on cash, thinking that there's going to be some type of correction. And I think that the string pullers, the 10 people sitting in the room, are going to continue to just swoop in in the snap of a finger. They're going to flood the liquidity. they might let something play out over a weekend, right? Like similar to the Silicon Valley Bank. Are they going to save them or not?

Well, they did save them on Sunday night. From Friday, Saturday, when the markets were closed, they let everybody think that there was going to be this free and open market only to find out Sunday that, oh, nope, we're going to save them after all. And there's, you know, Yellen keeps running out there and saying that there's not going to be any more crashes anymore, Luke. It's just going to be up and right forever for. Maybe there will be nominally.

Yeah, I think that that's the point, right? So if you're sitting on cash and you're watching all of this and you're saying, I'm going to get a chance to, like, maybe you won't. Maybe it is just up into the road. I think you have to at least consider that. I mean, I know I'm absolutely considering that because you get into this, we're into this really weird time where you can start gaming things out, right? So let's, you know, inflation is picking back up. You can see the super core has risen three straight months in a row. I have people who are trying to say, oh, higher for longer.

Okay. Well, yeah, let's do hire for longer. What does that do? Hire for longer, starting from a point of five, five and a quarter, the average interest rate on the U.S. government's only 3.1% right now. It'll reset over the course of this year to call it four, four on 35 trillions, trillion four, which is real money. No, trillion four. So that's a trillion four in increase of the deficit.

Now, is the U.S. government going to cut the combination of defense and entitlement spending by a trillion four to offset the, you know, to offset the interest? And it's obviously able to cut it by $204. They have to cut it by, I don't know, it's up from $600 billion a couple years ago, right? So say it was 2% on, okay, so 600 billion when they started and now it's, it'll, you see you're up 800 billion. So I got to cut it, $800 billion cut to defense and entitlements. That's 20% cut forever to entitlements and defense. Well, that ain't going to happen.

So now your deficits are going up. Your deficits are going up. But your private sector is very sensitive to interest rates. been kind of masked for the moment, right? We're doing extended and pretend in commercial real estate. We can see the markdowns happening, but there's sort of this, you know, workout, hey, don't take the marks for the banks. Okay, great. Housing, we have this gigantic bid-esque spread that is opened up nationally between what people can afford and what people want to sell for. And so what that does when you raise higher for longer to fight inflation on the private sector, is a private

sector income falls. So now we're in a situation where deficits go up, have. Private sector income comes down. Nominal GDP stays flat or rises to some degree. And like, that's the exact same thing we didn't code. Deficits up. You know, this is just an interest stimmy, trillion four interest in me every year at that 4%. You know, raise rates to six.

Eventually you'll get, I don't know, assuming the curve isn't like wildly inverted or wildly inverted, excuse me, say you just go a flat curve at six. Flat curve at six on 35 trillion in debt, trillion a, two, two, two point one It's a lot of money here. 2.1 trillion on today's GDP is like 8% of GDP. Stimmy. That's just cash out. And yes, it's not to everybody. It's just to wealthy asset holders, but they'll spend it eventually, especially the boomers because they're not getting any younger and gets out in the economy. Meanwhile, private sector that's interest rate sensitive is going to reprice slowly, slowly, slowly all at once. So my point here is that higher for longer is not really going to fight inflation,

not going to really slow the economy. At the same time, if you're Warren Buffett, if you're corporate America with $4 or $5 trillion, what's Warren Buffett's pre-tax operating margin? Let's say they go to 6, 7%. Let's say rates go to 6. Let's say it's, I don't know what it's pre-taxes. I have no idea.

I'm assuming across a lot of his portfolio, it's probably 10, 12, right? A bunch of insurance companies, building products, oil companies. You know, this ain't friggin' apple and Google. If I'm Warren Buffett and rates are 6, because I hire for longer. And my pre-takes operating margin is 10.

And then I have to deal with, if I want to invest in CAPEX, I've got to do the planning, I've got to do the politics, I've got to do the, why would you ever spend capital spending risk-adjusted 10% pre-tax margin when the government's paying you six to sit still? I wouldn't. And I don't think anyone else is. I think corporate America will sit there and clip the coupon from the government.

Yeah. Now you're in real trouble because now your capacity is not going to grow. Your interest expense, your deficits are going to grow. Your private sector capacity to address those deficits is not going to rise. It's very secularly inflationary. And this all gets into what I've been kind of talking about for a long time, which is the Fed screwed up by not letting inflation run hotter for longer to get that the GDP down. Because now, great, go higher for longer.

We're going to get more inflation. Don't go higher for longer. We're going to get more inflation. And that's why I think the long end is the sucker at the card. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord,

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All right. Back to the show. One of the most interesting Berkshire shareholder letters that I've ever read that I think is actually more pertinent than the one he just wrote is the one from 1984. And when you look at the timing of this, this is like three years after we literally peaked out at interest rates here in the U.S., which peaked out in like 1981, he writes this shareholder's letter. And one of the things, and this has stayed with me for a very long time, one of the things he talks about, about how do you deal with inflation? What's the most opportunistic way that a company can deal with inflation? And he talks about having as much intangible assets as possible on your balance sheet as opposed to tangible assets.

And the reason why he's saying this is because he's saying the replenishment and the working capital and the CAPEX of replacing physical things on your balance sheet get really expensive when you're being, when the inflation just keeps running, right? But if you have, let's say, and I don't remember what example he used, because this was quite a few years ago that I read this, but like as an example, let's say you have a Disney DVD and you have like the Disney brand, right? It's a very powerful brand. A person goes to, you know, they're in Walmart and they're looking at movies that they want

to buy or they're surfing online to purchase a movie. They see Disney. They're like, okay, so that's probably a decent movie and not some like off the shelf like movie I've never heard of. So it has that intangibleness of the brand and the digital file that you can download off of the internet, right? You can adjust the price of that. and there's nothing physical that you have to do to have the person download that movie

for all intensive purposes, right? But let's say you're an apartment building owner, and you've got to replace the shingles on the roof every so many years, or you've got to put in new steps, or you've got to do all these. It's very capital intensive, and as the prices are going higher and higher, the price that you used to own it at is drastically different when you're dealing with inflation. So the one, when you look at the composition of the balance sheet, and I'm I'm saying all of this as I'm comparing and contrasting Berkshire Hathaway versus micro strategy. One has a ton of intangible assets on their balance. She probably the most intangible asset a person could ever hold.

Warren's trying to do it with, I guess, short duration treasuries is his play in contrast to what we think the new settlement layer might be. And everybody has their opinion on how this is going to shake out. But I find it really fascinating that when you're thinking about how to navigate this as best you can because it's it is going to be I think this coming 10 years is going to be wild from what we see from an inflation standpoint I just find that that shareholder letter is just so such good guidance if you employ it correctly sorry I just I that were there was no question there I'm just no no no it's interesting too right because if you think about like this one blew me away

I remember being in a meeting with a company up from Brazil this is a former life or two ago. And I remember it was after the 08 crisis, right? We had started QE and it's like, okay, well, help us understand inflation. And I said, well, you'd probably want to own buildings. And he goes, no, no, no, actually there's a point after which they actually fall rapidly in price. If inflation gets too high, and I'm like, wait, why? And he goes, because they are based, the marginal buyer is based on credit. And at some point, the banks stop lending against it. if the inflation gets too high, right? You know, no bank is going to give you a 30-year loan on a building or on your house

when inflation's 20. Bingo. Because so things start falling to cash value. Now, we've not seen that. What's really interesting is how much the housing market is like gone to a cash market. I don't think that's why it's happened. But it's just, it's interesting to me. But it's, but it speaks to the point of, the initial point speaks to the point of what

Buffett talked about, which is if you've got a bunch of hard. assets on the balance sheet that are where the marginal cost of replacement is based on a levered price, right? You've got to borrow the money to buy it. If inflation gets too high, the value of that falls sharply because you won't, the credit markets won't issue the credit any further than two years, five years, whatever. And we're talking about developed economies where most global citizens are dealing with exactly what we're describing because they They don't have, they're not living in the United States or Europe or wherever. They're dealing with this up close and personally.

If you're really in Argentina or you're wherever, right? Like you are dealing with these ramifications up close and personal. Before we started recording, you made the comment. The last three treasury auctions were a disaster. And I'm shocked at how well Bitcoin has just been ripping in the face of that because it normally you would think that it wouldn't. Explain what you mean by that. I know we're pivoting away from the conversation.

This is such a fascinating comment that you made early. Yeah, so the 20 year was really bad. Today's were, they weren't great. They weren't terrible. I wouldn't call them disaster, but they weren't great, particularly given where the dollar is. So the DXY, you tell me where the dollar is. I'll tell you how weak the auctions will be. Stronger the dollar, the weaker the auction.

So the dollar basically hasn't moved in three, four months, and yet the auctions keep getting weaker and weaker and weaker, which tells you if at some point we're going to get a really weak, well, they're going to need a weaker dollar. to speak directly to the question. Historically, you get an ugly auction like you had Thursday and these two today that are sought. Very clear reaction. Dollar up, gold flat, everything else down. And Bitcoin sort of being like a beta, a beta to the NASDAQ.

And instead, we're starting to see bad auctions, dollar flat, stocks flat to up. Gold up, or certainly outperforming the treasury, and Bitcoin up, up, which is, I want to be careful not to play five minute macro. If we see this continue, though, this is the market beginning to recognize, oh, long-term treasuries and cash are melting ice cubes. I have to go into every bad, you know, historically bad auction, bad for stocks. there is a point where you're going to go bad auction oh god bad auction means much weaker dollar they're not going to let auctions get too bad I need to own stocks I need to own Bitcoin I need to own

these you know I need go all these and you're my view on what I what I meant when I said that is it's early days like very early days but we're starting to see markets react like this and this is you know the guy in Cleveland can kind of figure this out about it's probably the market's priority there on some level. Does this keep playing out into the end of the year? Do you think that that scenario is going to continue to replicate itself, or do we get a little bit of a law and then maybe later on it, it picks back up again? Are we there?

I think it's such a political process, right? So like, let's caveat with that. You know, I think we have a government possible shutdown coming up right in the next few weeks or something, don't we? Do we have a death ceiling or some sort of thing coming up next you? I don't know, but that wouldn't surprise me. I said maybe I'm mistaken. At any rate, I'll put it this way.

I think the trend is in that direction now. Why wouldn't it be? The government has made it crystal clear. Fed Treasury made it crystal clear that treasury dysfunction will not be tolerated for very long. Full stop. And if that's the case, I just think that's, I think, you know, markets are forward-looking. And so I think we're, it may be an interesting inflection point of exactly that, where you move toward this, bad auctions have been bad for everything. Treasury dysfunction is bad for everything.

There will come a point maybe where bad auctions start to, it's like Pavlov's dinner bell, where it's like, okay, comes liquidity because they're not going to stay on this for very long. And so it's, it definitely caught my attention to see Bitcoin up, you know, my jump down today was up four or five percent on a day where you had, two auctions following an ugly auction last week. Today, we are seeing, and this is a month and a half after the Bitcoin ETFs launched, iBit, which is the BlackRock ETF, has done over a billion in volume just today, and we haven't even closed out the market today. What is the conversation that's happening inside of large banks and institutions on something like that? Is it even talked about? Is it the top talking point within institutions? Help us

understand for people that are that have never set foot in one of these large banks on Wall Street. What does that conversation look like or sound like or is there no conversation whatsoever? I talk about it a lot. So I'm probably not the best gauge of that. I talk about Bitcoin a lot. So it was certainly relative to most strategists. So I might not be the best read of it. But my sense of it is I don't think it's much of a conversation yet, even in the same way that gold isn't much of a conversation. So they're just, most of Wall Street, I think, still looks, the volatility of Bitcoin make it almost,

and make it very difficult to own for even those investors that could own it. And there's a lot of them that can't own it. And so I think the ETS probably are an important step in terms of making that easier to do. I'll phrase it as how somebody said it to me a few months ago as it relates to gold, which is, you know, what, if I'm, you know, if I own X percent my portfolio in long-term treasuries and I lose 30 percent, oh well, so did everybody else. And if I put 30, you know, I put that same percent in gold and I lose 30 percent, I get fired. And so my guess is it's probably a pretty similar view, at least yet as it relates to Bitcoin in terms of

if I put 5% of my client's portfolio or if I own here and it's there's, I think still a lot of career risk probably associated with being an early adopter on that front. And so I would be surprised if it's, if there's a lot going on in terms of, hey, okay, we need to own other than sort of, you know, forward thinking people with a mandate that allows them to go into the asset class and further with a mandate that allows them to absorb the type of volatility that Bitcoin has historically had, right? And we just did it is what it is. It's whatever, 80% annualized volatility.

So whatever it is, it's going to go down over time. It has gone down over time. But for most people, it's still way too high. So it's kind of stream of consciousness. I hadn't thought too much about it to this point, but that I think gives some framework around how I'm thinking of a stream of consciousness. There was a person on Twitter. I opened up questions on Twitter. There was a ton of responses of people wanting to ask you questions. There was a person who said in early 2023, what flipped you from a bear to a bull while the permadumers were out and completely missed probably one of the best market moves in this in in in 2022. What were you seeing at that moment that made you say the liquidity is coming back on? So it started in October of 2022.

You could clearly see the treasury auctions not doing well. Treasury volatility up, blah, blah, blah. There was an IMF meeting. The dollar was discussed for numerous media sources. Yellen runs down the TGA. The dollar starts weakening, rapidly, risk takes off. And so late October, mid-mid to late October and into early November, I was watching the dollar trade, market's trade going, okay.

Something happened here. What was it and how significant, how long lasting is it? That increase in liquidity, you know, the dollar weakening is basically de facto increase in liquidity. I think in February of last year was probably the first time I saw Warren Mosler, MMT, really MMT guru. I don't call a lot of people gurus. He's a guru. He's highlighting the dynamic that the rule.

are different for monetary policy when debt to GDP is over 100%. And I sort of had noticed those dynamics. I'd written a lot about those dynamics, right? I spent over and over, hey, true interest expense of raising rates, they're going to send interest in entitlements over receipt, that don't work and blah, blah, blah. And I had never thought about the opposite side of the same point until he had started saying a few things and kind of highlighting that there's a

stimulative aspect to that as well. And it was like a light bulb went off for me. And I kind of started, I basically rent teamed my own case and went, okay, we'll do this and this and this. And then so that kind of started the thought process or like, wait a second. This is important. Then March we had that sort of, it was a treasury crisis disguised as a bank crisis. What did they do? Treasury liquidity now.

Did they let any depositors take a hit? No. Nobody took a hit. So that kind of highlighted. And then Dan Oliver at Mermican Capital had a really good missive in May. highlighting from a different angle, but directionally similar to what Warren Mosler was kind of highlighting in terms of the rules are different when you raise rates really aggressively on debt to GDP this high. And it was really, I think, just kind of that process of, okay, yes,

that makes sense to me. I'm seeing something in the markets. I don't know what I'm seeing, but something might have changed. Dr. Doe. And then, okay, February, March, when they reacted the way they reacted in March was like, okay, it's just, you know, I felt like Dennis Green, like they are who we thought they were. And, you know, and you could kind of continue to see that and see it play out in markets. And so that, at least up until the August timeframe, that really was what drove those changes, was just, you know, it was kind of like a punch to the chin. Like, wait a second. Oh, yeah, that actually makes sense. And then red teaming that case, you know, red teaming my own case. And just, look, when, when, when I,

I'm wrong. I just, I don't dilly-dally. I start to flip. So the backstop facility, the BTF, the, what is it, BTFD, is that right? BTF. B, yeah, sorry. So it's getting turned off here in March. When we look at the maneuver that they did last month, they basically closed the spread that the banks were basically getting this amazing free free money out of the facility. They closed that window because, Because I think as it was getting ready to close, the amount of participation in it was like starting to skyrocket. And I think they were like, all right, these last two months, like let's cut off the gravy train so it doesn't look like the thing goes parabolic into the close. And so they've done that. And surprise, it just like flatlined, like a dead patient as far as the use kind of ramping from here till the close in March.

My question is, it seems like that was a major source of how liquidity was getting into the system to reflate at least the top 10 performing equities in the equity market. But once this thing closed down in March, what mechanism are they going to use in order to keep this liquidity flowing into the market? Because there's no way that they can prevent that or cut it off at this point, especially with everything else that's brewing in the background. So what becomes that transmission mechanism for them to continue to apply liquidity into the system moving forward? I think of BTFP is almost like a counterfactual liquidity driver in some way, right? So like we know what it was. It was basically yield curve control for banks. Yep.

All right. So instead of you having to sell your treasury down 20%, you can flip it to us at par for, you know, so all right. So that's going away. I don't know what bank securities books have done to reposition. That's probably something to know. I think the bigger liquidity drivers in the last year, BTFP helped on the margin, but I think the biggest drivers are what the dollar did, right?

So it went from 115 in fall of 22 to, gosh, 100, 102 by like January, February of 23. That's a huge, I mean, a 5% move in a major currency is enormous. Like that was a 35% annualized move in like three, four months in the global funding currency. So I think that had huge. That was just like a bolus of liquidity that kind of worked through in fits and starts on evenly through last year. I think also it was then aided by this shift in liquidity. It was effectively QE, synthetic QE, what Yellen. did, right? When you do QE, the Fed, there's a reduced supply of duration, long-term bonds,

increase their loosening financial conditions, dollar goes down, stock prices go up. When Yellen shifted issuance from the long end to the front end, and bank reserves go up too, right? Bank reserves go up to create, they're created through QE. Those are the mechanical outcomes of QE. When Yellen did what she did, duration supplies were reduced, financial conditions solution, bank reserves went up, stock prices went up, and the dollar got weaker. So the reverse, the drain of the reverse repo, it was just going from one pocket to the other, right? The reverse repo was just QE we did and we sterilized and then we brought it back in when we needed it in the fourth quarter. I think that's gotten us to hear. I mean, you know, we've got whatever,

400, 500 billion left on that. I think that gets you there. You know, that gets you several months, at least. You can run TGA. down. I think the TGA last I checked was still, I don't know, $600, $700,000, something like that. So, right, so you can kind of run, you can run reverse repo down through the end of April. Then you can run TGA down through the end of third quarter. Then you can get an election and then you can figure it out. That they like basically you can sort of glide it through maybe you weaken the dollar, you know, from 104 down to 102. Those are all stop gaps. Now, so that's really That's why you're saying you think the dollar is going to go down into the end.

They have to. I think the dollar is going to be, they're going to continue to decline on an orderly basis through the course of this year. The big cahuna to me for liquidity is a dollar devaluation. If you can get the dollar from 104 to 92 by mid-2020, right? So you've got these stopgaps. You can get you through the election. On the other side of the election, let's say the dollars at 102 on election.

day. If you can get that from 102 down to 92 by 4th of July 2025, 3Q 2025, you're going to get a turbocharging liquidity. That will help a lot that will help stabilize treasury auctions. It will send inflation back higher again, but that's what you need. That's what I think is the next step. And what I think is so interesting as it relates to this, like, A, it needs to happen, Treasury needs it to happen, the economy needs it to happen, the world needs it to happen, China, everybody needs it to happen, is that we've had Biden and she meet in November, dollar all of a sudden get weekends away from that against C-1 in particular. We've had two or three, we've had two treasury meetings in Beijing, which is a pain

of the rear end to fly to, two treasury meetings high level in the last four weeks. No comment on what they're talking about other than sort of the generalities, with one exception that I thought was really interesting, which is they wanted to talk to China about making sure they do not dump product onto global markets. That's what they said after the first meeting. And then last week, Treasury openly warned China, again, do not dump product on global markets. So everybody thinks the dollar's going a lot higher, but Treasury's worn in China not to dump product on global markets. That's not higher dollar action. That's lower dollar action. want deflation, right? If they don't want you dumping product on markets, that's, that

would be higher dollar, all this equal, higher dollar against you want. That's literally what Treasury is saying don't do that. When we were warning the Japanese in the 80s, stop dumping in dollar markets in 1984 and 5. DXY was at 166. Two years later, after the Plaza Court, it was in 85. And so I think there's a real shot that Yellen and Treasury are negotiating right now an orderly weakening in the dollar between now and mid to late 2025. And if you do that, you'll have all the liquidity you would need. We know that because we sell the dollar around 20, 30% on an annualized basis, 10%, practically speaking, not even 8%.

115 to 104, 4Q into 1Q 22 into 1Q23. And you got what we got in 2023, which is like, first half of the year was like party on weighing, party on guard. So what does that conversation sound like? Hey, if you help us out, just let us debase the dollar here, let it go down to a DXY of call it 90, then you're not going to have to deal with the president that was in office prior to the current president. Is that like what the conversation sounds like to them to try to get them to buy in? I think the conversation is you let us weaken the dollar to 90. You help us.

You buy some treasuries. We let you buy oil from the Saudis in Yuan because that way, reality is as if the dollar weakens to 90 and oil goes to 120, that screws China too. And right, so they're like a strong dollar or strong oil when you're short oil. If you can only buy the oil in dollar, screw you either way. It's six of one, half dozen of the other.

So I think the deal is help us weaken the dollar. You'll buy more treasuries and help us stabilize a treasury market. And we'll let you buy oil from the Saudis in yuan. As long as they do not recycle the yuan they end up with into Chinese government bonds. That's a no-no, in my opinion, because that's effectively financing the Chinese military. Semantics, but I think that's just, I just think that. So it'll get recycled into Chinese goods. It'll get recycled into gold.

Maybe someday it'll get recycled into Bitcoin. I think that's, you know, that would be down the road. But that's what I think, again, do you think of no inside government sources? This is speculation and form speculation. But that's what I think the deal is. Weak in the dollar. You buy more treasuries. You get the buy oil and you want.

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All right. Back to the show. So they won't have to start weakening the dollar until they, they kind of run out of these other mechanisms that they've been using to date. And so you're thinking around maybe early summer is when the, that, the dollar weakening would really kind of start kicking into high gear or what? All of Sequel wants to go higher, right? So they're kind of fighting it now. Yeah. And so it's a little bit of like how much, how quickly, you know, they've got, they're in a firefight against the dollar. And they've got 400 billion in bullets, 500 billion in bullets in the river.

Repo and they've got six, seven hundred billion in TGA, you total those up. Trillion, trillion two in bullets. It's not much when you're burning. Yeah, it's going to be close, right? Because you look at whatever, they're running a trillion seven deficit annualized rate. Now, I think tax receipts are probably going to be pretty good in April because

the market was so good last year. So again, if you get good tax receipts, that buys them a little more time. So it, like, yeah, maybe. My view of Janet Yellen has changed radically in the last, call it 18 to 24 months. Okay. Why's that? She's just very good. Like she's, she has demonstrated away from she, she's very good at the real politics, that she just seems to be, she seems to understand these dynamics of, okay, this lever here, I need to get the dollar down to make this auction work over here.

And then if I pull this and the Chinese want this and the Russians. And she seems to be she understands what the transmission mechanisms are. Exactly. And that's, I mean, and like I think her, what she did in November was shifting issuance forward, I think was a clear indication of that, right? It was like, okay, the treasury market is the way she was able to offset what Powell was doing, 3Q22. Everyone's like, aha, look at Powell.

He's the man. He's the man. And she's like, watch this with the TGA. Yeah. Run down the dollar. Okay. So then she comes in, you know, BTF P. I think she's very good in terms of understanding the real politic and the lever, the levers that she has available to herself. You heard it here first, folks. We break news all the time. Luke Roman really likes Janet Yellen. I got to get propractor, props for due. She's been very impressive. I mean, she is like juggling like 16 chainsaws. You know what? And she's so far so good.

I get your point. I think she does understand. the levers. But let's talk about like, so what really performs as Janet continues to pull all these levers and manipulate the legacy economy so well? And by so well, I'm using air quotes here. So what performs into the end of the year? I think... Say the obvious one. Bitcoin. I like Bitcoin. I said to somebody who asked the question on the thing, you know, Bitcoin's one of my biggest positions. And I think it, Bitcoin over TLT. Gold over TLT, SMP over TLT, SMP industrials in particular.

I prefer the industrials over the broader index for the reasons you cited earlier. Do you have a ticker for that? I think it's S5 INDU maybe or S5 INDU, something like that, the one I use. But I like the- Yes, that's right. And the reason I'm going over TLT, I mean, if you look at since 2014 when Global Central Bank stop growing their holdings of the treasury, stop growing FX reserves. S&P over TLT, gold over TLT, Bitcoin. Bitcoin over TLT has been more volatile.

So it's the same trend, just way more volatile. It looks like that gold in Vimar, German Reichsmarchs chart month and month. Which is really interesting because I think most would agree that the bedrock of the legacy system is long duration U.S. treasuries. And that's a TLT. Yeah. And the TLT is technically 20 plus. But it's exactly. That's how I think about it.

And it is to me, and you're, you've seen it. We've had three days, three soft auctions, gold has gone down less than treasuries, every single one of them, for example. Bitcoin has actually gone up, you know, so stocks have actually gone, you know, they've done well relative to them. So you can just see that to me, those are like the, the gauges. Those are the, those are sort of the position. I don't necessarily, other than trading, like, do I think the 10-year yield is going

higher, I do. I don't know how much higher, but to me, I think the better plays on this are understanding that liquidity has or will continue to be applied to manage the treasury market and keep it stable, that that is the bottleneck, right? Treasury market stability is job one and job two and job three in the bottleneck. And as a result, the release valves will be those other things going up. Yeah, you can see. Yeah. While Luke was talking, I pulled up the chart of the S&P 500 industrials. I have the chart, the timeline starting at the top right before COVID happened. And I'm comparing it to just the basic S&P 500. You can see that the performance over that period of time is about 6% higher for the industrials over just the S&P 500,

which I think is pretty interesting. About 7% lower, actually. The green is the industrial's there. Oh, I'm sorry. Yeah, yeah, yeah. Oh, that's okay. Yeah, yeah. Now, I'm just fast forwarding through time so people can kind of see how the performance.

It seems like right in here, it started to turn around the other way over. Yeah. Which is really interesting, right? Because you think about what we talked about before of higher for longer, more inflation. That's exactly what you'd expect to see. You should start to see stocks flat up. with the industrials outperforming the prior leaders that we had, that's also a weak dollar regime, right? If people get the sense that dollar is going to weaken, you're going to see

industrials go up and you're going to see big tech maybe not as strong relative to those industrials. Luke, if you were going to some, because I think for a lot of people that maybe listen to this conversation and maybe aren't intimately familiar with finance and the jargon and stuff, what would be your really simplified overview of what they can kind of expect point now till maybe the end of the year that just kind of provides just a general overview in really layman's terms? And feel free to make it really layman, like really step it down. I think inflation is going to pick back up.

I think stock prices are going to pick back up. I think you will get talk of rate cuts going away and possibly even rate hikes. and I think the surprise will come around mid-year when the rate hikes don't come. Boy, isn't that very contrary? Even when inflation picking up. That is super contrarian to what everybody's expectation is right now. Agreed. Everyone that is like, okay, they are managing this thing for inflation. That will be the moment where they go, oh, my God, they're manages this thing for deficit.

They're managing this thing for treasury functioning. Holy cow. That's when you're going to see fireworks. And then I think you actually get a really good back half of the year in terms of risk. assets, right? Because there's a whole lot of money not positions for them. You know, it's funny Larry Summers, everybody's favorite person, recently had a very similar tweet that he said that he thinks that they need to be looking at hiking and not lowering interest rates, which when I saw that, it was like, coming from this guy and the fact that he's

saying it tells me that there is some major cognitive dissidents between what everybody on Wall Street is saying is coming next versus what some of the elite parts. politicians and I'll leave it at that are saying or muttering. So it seems like you have a very similar opinion to what Larry. Or yeah, Larry was throwing out. Yes and no. I mean, he's talking about that. And I think markets are taking away the price.

The rate markets are pricing that away. I don't think they're going to do it though. And that to me is the big surprise is that like, oh, okay. They should do it, but they won't do it. And when they don't do it, when they should do it, to me is, I think, going to be an aha moment for people, a lot of people that are positioned in terms of like like sitting on 167 billions in cash those people

and four to five trillion elsewhere and six trillion in money market funds like you know I think there's what six seven trillion in money market funds the fiscal situation is such so different than most of our careers that people just have a really hard time factoring in that it is dominating the dynamic because the long duration so like let's say that that scenario that you just described plays out. Anybody who's sitting in long duration is just going to be murdered, like on the spot. And this is the other side of the argument. And it's a very valid argument, which is the long end. Yeah, it takes off like a scalded cat. And now what do you do? And I think that's what Powell's worried about, rightfully so.

But again, like, okay, raise rates. Take them up to six. Take them up to six. Raise them. Raise rates, 300 basis, you know, 75 basis points. Now you're going to reprice more that like you're going to drive a private sector. You're going to drive a private sector sharp falls. When it falls off, it isn't going to be like, oh, it's going to go down 5, 10%. Again, because we've got this bid ask spread in commercial real estate. We've got this bid ask spread in in housing. You're going to go from the offer side to the bid side on a lot of stuff. When you do that, your receipts are going to drop non-linear. Yes. When your receipts non-linear drop non-linearly as your interest expenses repricing up non-linearly, Yellen's going to come back for the, you know, they could try

to raise rates. Maybe they do, right? Okay, whatever. She's going to come back for the July and go, ooh, receipts were way below expected. Expenses are way above expected. The deficit for the third quarter, calendar third quarter, is not 425 billion. It's 900 billion. And guess what's going to happen to the long end then? It's going to take off like a scalded cat. It's no matter what it's going to happen, yeah. So like that to me is really the very perception, which is Powell's choice is not inflation or deflation.

It's how does he want to make the long end take off like a scalded cat and sort of what timing and what sequence of events? Ultimately, I think you move to some sort of new QE or yield curve control or four-letter thing that isn't. the QE, that's a liquidity injection, blah, well, you got to get the dollar weaker. The liquidity's got to come one way or another. But that, to me, is really the variant perception. The patient's dying.

It's just the pace at which we kill the patient is really kind of the. Yeah, like this whole, the patient, you say patient, it brings to mine. I keep here, well, we need to tighten and fight, you know, get, get, finish the job on deflation. Or we need it. And to me, it's like a bunch of docs sitting around an 85 year old, 500 pounds, lifelong, smoker, stage four pancreatic cancer. And one doc's going, we need to, you know, we can save them. We can save them.

We just need to get him on a treadmill. And the other one's like, no, no, no, put him straight to CrossFit. And you're like, no, that's neither of those is the right answer. The right answer is you put the morphine in and you push the button and you let him keep pushing the button until he's dead. Like, that's it. And until he's dead in this case is now, you know, you've got to inflate the dead away. cap yields, basically get debt to GDP back to 70 to 80%, so that you can then run in the monetary

policy without doing what they're going to do by raising rates with debt to GDP at 120. Do you think that this, and I'm sorry to keep going on, because we're kind of at our hour, but do you think that these Bitcoin ETFs are somewhat of a saving grace and maybe something that can help this transition of this dying patient over to something that gives us hope and prosperity and actually solves this problem. Like, this is my biggest frustration, Luke. You can listen to nearly any macro conversation. And everybody is an expert at identifying the problem, but literally nobody can

identify the solution to the problem, right? When I look at the ETFs, sure, you're not holding the keys. And sure, the government could step in there and see that as a honeypot and take a 60102 like they did with gold back in the 30s, right? With all of that said, those are the risks, obviously, with the ETF and not self-custody in your coins, but there's a lot of people that just can't figure out the tech to hold their coins or whatever. And there's tons of arguments. But when I'm looking at this, it's providing something that can actually provide a store of value to this patient

that's just dying that you can port over to something else to try to bring sanity back to the world because it's not just the U.S. It's every central bank is dealing with this exact problem. That's why they're so coordinated is because they're all. collectively together all over the world trying to manage the death of this patient that they all know so well and can define so properly. But until now, there hasn't even been anything for them to ported over to, at least from a Wall Street, like I guess I'm envisioning sitting there, I trade a $5 billion bond tranche and like, what do I do to protect that buying power that's jammed

into that $5 billion melting ice cube, right? Especially if it's long duration. Like, what can they possibly do. And it seems like we have some hope in that at least some of this stuff is getting approved and hopefully there's competition globally for this. Is that how you see it? Is this hope and salvation for this dying system that appears to not have a solution according to so many? There's a solution. Like the solution is pretty straightforward. It just inflate the shit out of the system, cap rates for a little bit. And like, that's it. But it's a political question, right? bondholders have controlled this system for the last 40 years, and they don't want to get screwed on a real basis. But Luke, so I want to push back on that.

Okay. So when it's an individual country and they're having issues, like if you're not a G7, right, like that's the playbook that you just described. But what happens when it's literally every single country on the planet to include the G7s that are all trying to implement that playbook? It's a competition to the death. And at the end, there's no solution. Like, what's the solution for them? I do think it's a possible solution. I have found it very interesting that, number one, I know for a fact, I don't know how widespread

it is, but I know there are contingents in Washington who understand the math, as you and I have discussed the math. In other words, like, maybe it's six months, maybe it's two years, maybe it's five years, but it ain't 10. It ain't 20. I don't know how big that contingent is. I suspect over the last two years, the contingent has gotten notably bigger

for a number of different reasons. I also believe that push comes to shove America that will want to do the best thing for its citizens. It's in America's interest to do that. I'm also very interested in the timing of what I've seen transpire when I look at, I'll start again with gold, J.P. Morgan, for 18 years, the GLD had a single custodian, HSBC. And at the end of 2022, all of a sudden, J.P. Morgan says, we're going to be the second custodian. And then in the first half of 23, J.P. Morgan says, we're going to move some of the

gold out of London for the first time. 18 years this thing's been around. Never any interest before. never out of London before. And then in the first half of the golden GLD goes from HSBC's custodial vault to JPMorgans. Now, maybe he just want, I mean, does he, like, why bother? Why bother? To me, at the very least, the rake on the fees are going to be better, right? His price goes up, right? They're getting a fixed part on a bigger number.

Okay. So that was sort of strike one, if you will, in my mind of like, okay. why now, why? That was just odd to me. Then forever, they've been fighting these B, I mean, you know better me, chapter of first, they've been fighting these Bitcoin ETFs over and over and over and over. And to me at least as sort of, you know, I like Bitcoin. I'm involved with Bitcoin.

It's an important position for me. I'm not as in deep with all of the machinations in terms of getting these things approved as you were. To me as sort of a tourist, it was like, no, no, no, no, no. And then all of a sudden it was like, yes. Yes, yes, yes, yes, yes, yes, yes, yes, yes. and again, as a tourist, it seemed rushed. Why not?

Why finally? Why? Like, what changed? Maybe nothing. Maybe it's all- I think part of it might be like, okay, we know the dollar's got to be because, oh, by the way, this is all happening in the context of what I laid out before, which is, look, if the dollar goes up, the treasury market is going to break.

Full stop. Like, it is not even, it's like, but. barring like Martians coming down in some miracle. Like it is going to happen. It is a matter of national security for the U.S. dollar to go down quite a bit, 10, 15%, in an orderly manner, but in a fairly compressed time. If I told you the dollar is going to go down 10, 15%, you're running a bank. What are the first two assets?

You put a, you know, access to. No opposition. The two assets are just set. Yeah. You know, there's been a lot written about, okay, they're just going to grab the coins. blah, blah, blah, blah. Good luck.

And yeah, maybe, maybe. But, you know, we know, right, Jason Lowry, we know there has been at least a conversation with his book, Software. There has been a conversation in Washington amongst the defense establishment about Bitcoin as a reserve asset. We know that. I don't know if that was like two guys in a room like you and I talking about it,

or there were others. I don't know. I don't know. I also know that if we, like, and I can just tell you, like, My experience with DOD is that it's just all funny money. Like, hey, I need another billion to go buy this other toy that I'm working on. And it's just like magic. It's just like magic.

They're like Mario coins. Like it's not. Right. So like I can fix the debt problem tomorrow. Like it's, it's pretty easy, which is every five, every $4,000 of gold, Yellen can go to Fed, say, hey, remodetitize the goal. Every $4,000 a trillion bucks in the Ellen's TGA, no debt attached to it. Okay, $20,000 will give me $5 trillion.

I go into the market is yelling. I go buy back $5 trillion in debt. That takes debt to GDP from $120 to about $75 overnight. Thank you. Have a good day. Fed, you're separate again. You can take rates up to $8. You're not going to blow up the treasury market.

You can let the private sector do what it's going to do. Walla. Easy peasy. Now, that has geopolitical implications because guess who's sitting on a lot of gold? China, Russia. Do we want to do that? Do we have the gold we say? I don't know.

What is it? Okay, I don't know. Now, if I wanted to really be like, if I wanted to play 40 chess, do it with Bitcoin. You got, what, 120,000 Bitcoin sitting in the, you know, the dark Silk Road or whatever the hell it is, you know, that they grab? Add a zero to the back, add two zeros to the back. Say we're going to now us and the Canadians and the Saudis are now going to accept, you know, we're not going to settle in Bitcoin. I think the, it's the platinum coin trick, except sustainably going forward with a neutral settlement mechanism. The Bitcoin thing would be a lot, but the goal thing, like, everybody just, everyone just writes

that, recapst through the goal. I don't think that that actually poses a long-term solution. What I think is playing out, and I know you've your Jeff Booth's thesis about deflation, technological deflation. And we look at all this printing for all of these decades is just preventing this thing that's trying to birth itself, which is technological deflation, that they've been able to hide and mask because of all the printing collectively across the, across the G7 and beyond.

And I think that the more that they try to double down on gold or the platinum coin or whatever, right, it's still a mechanism that requires human trust to manage a ledger to some paper that rides on top of it that never allows technological deflation to actually manifest itself. And it's desperately trying to get out, like a monster that's like locked in a cage. like it's trying to get out. And I think the only thing that allows it to get out is something that's truly decentralized that does not have a human in the loop to manage the ledger. And it's tied to energy, right?

And that's tied to, thank you. Yes. If you came out, if Russia and China came out and said, hey, we now value gold in a thousand barrels of an ounce and every nation around the world. Yeah. And a thousand barrels of oil per ounce of gold, every nation can figure out how they want to manage their energy policy. Great. The price of goal is going to be X here. It's going to be cheaper there. It's going to be expensive here. Whatever based on your energy policy, your natural

endowment, blah, blah, blah, blah. That will incent the proper behaviors. Other than that, I agree with with you. Just printing it up and papering it over. Yeah, it's simply kicking the can. Now, doing, you know, that gets into the, okay, well, how do you settle it? Well, it's sort of a no tiki, no washi kind of thing, right? Like, if you don't settle in gold quarterly, oh, by the way, we used to send a flight of planes to Riyadh, either monthly or quarterly, full of bullion, you know, back in I think the 40s or 50s, maybe even into the 60s, wildly inefficient, you know, not more inefficient than shipping this stuff around, you know, water on trucks. But Bitcoin does the same thing.

Like, and it's much more efficient to do it. 10 minutes. It sense the right behaviors. 10 minutes. I saw this, just this past week, somebody sent $1.2 billion on chain, cleared in 10 minutes. And I think they paid $2 in fees. And they overpaid. They could have paid way less than $2 if they wanted to.

I don't know how you, from a test. It doesn't compete. It doesn't compete. And it's that energy tie that is so big because that's going to compensate for and incent the right behaviors. And when I say the right, I have no moral to it. The humanity advancing energy efficiency behaviors. It's nothing to do with it. That's, you know, nature wants to get more energy efficient.

That's how it evolves. And that's why I'm what I mean by right. I'm not vocalizing on anything other than that or implying on anything other than that. Just talking about nature, man. Luke, this is this is always a blast. You know, my wife, if she was here, she could attest to the fact that I have the FFTT weekly newsletter printed in just sporadically all over the house. If you came into my house, you'd find all these like reports all over the place. And you know I read them because I text you sometimes on Saturday when I'm sitting in a swim meet reading my FFTT weekly report.

I cannot speak highly enough. I mean, it is my go-to reading every week for sure. I always appreciate you making time and coming on. You're just a wealth. I learned so much from you. I don't know how you're able to parse all this together, but it is quite miraculous to just be a friend of yours and to be able to have these conversations with you. and I just want to truly thank you for always making time. Oh, thank you.

I feel the same way about you. So there's times where I'll ping you where I'm learning something about Bitcoin or whatever. And it's a, hey, I am a toddler in my understanding of it. And I'm really curious and really dumb. So it's a good way to learn. So I appreciate you always humoring me. I'm sure some of the time I'm pretty basic question. But at any rate, I appreciate it.

I really enjoy it. Anything else? We'll have links to your books. We'll have links to the FFTT website and your Twitter. Anything else that you want to highlight? No, I had it. No, it's perfect. People over to find me. I appreciate you having me out. I really enjoy our conversations. Thanks again, Luke. Absolutely. Thank you, my friend. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for we study billionaires. The Bitcoin-specific shows come out every Wednesday, and I'd love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it's something that helps others find

the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening, and I'll catch you again next week. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.