What Bitcoin Did - The Fed Can’t Let the AI Bubble Burst | Luke Gromen

Episode Date: August 3, 2026

“The companies are bubbles, but I don’t think the technology is a bubble.” Luke Gromen is back on the show to explain why the debt-fuelled AI boom may have become too big to fail, why slowing investment and valuations could threaten the wider financial system, and how even a small move from the Fed could trigger the unwind. Luke also explains why he still hasn’t bought back most of the Bitcoin he sold near $96,000. He believes Bitcoin could trade lower alongside tech over the next few months, but his long-term thesis has not changed: America’s fiscal position cannot be fixed without significant currency devaluation, and the Fed will eventually be forced to print. We also discuss Kevin Warsh’s attempt to establish his inflation-fighting credibility, the return of Hamiltonian economics, tariffs and reshoring, why long-term bondholders may be destroyed in real terms, the growing divide between Wall Street and the rest of America, and whether the country can remain the world’s dominant superpower. THANKS TO OUR SPONSORS: LEDN SWAN ANCHORWATCH BLOCKWARE BITKEY CAPE FOLLOW: Danny Knowles: https://x.com/\_DannyKnowles Luke Gromen: https://x.com/LukeGromen

The only way the Fed can get the U.S. out of fiscal dominance is if they cut rates to zero and they partner with Treasury. So Treasury issues all the bond issuance at the front end at zero rates, which is kissing cousin of printing money to finance a deficit. The AI thing on wines, you're a very big stock market problem. You're going to have a recession. You're going to have a rise in unemployment. You're going to have a significant rise in interest rates in a recession. in which no American alive has really seen since probably the 70s.

Fundamentally, I think what's happening with the fiscal situation is unfixable by anything other than significant devaluation of pricing. Warsh isn't going to cut aggressively without a crisis. And I think the crisis could show up as Warsh cutting basis, or raising 25 basis points. Look, if you have a long-term view, you're probably to be buying Bitcoin now. Like I said, I'm probably being too cute. I think I can get it cheaper. Right.

Luke, I've got so much I want to get into with you today. day. Beautiful. I think we should start. We talked about this last time around the show on Bitcoin, because you sold all your Bitcoin. Almost all your Bitcoin. Around 90-something thousand, was it? 96, 96, 96. And again, I told you this last time, but I thought you'd made a mistake. You clearly hadn't. But the question is, when you buy back, like, that's how you make this trade a full, like a good trade. And how are you looking at that now? Sure. I am looking at it. I am looking at it. So strategically, I want to buy it back. I still think it's an energy-linked neutral reserve asset for the people and very attractive

because I still fundamentally think what's happening with the fiscal situation is unfixable by anything other than significant devaluation of the currency. And really all fiat currencies, to be clear. When tactically, I'm getting closer, but I still haven't bought it back yet. And the reason is fewfold. Number one, you've got the Fed. And right now, if the Fed starts cutting rates aggressively, I'm going to have to chase it, I think.

Yeah, to be blunt. So I, but I, that then feeds into where, why I haven't started buying it back very aggressively. at any yet, which is Warsh seems like he will eventually do what Powell and Yellen and Bernanke did, but he needs a crisis to do it. He needs political cover. And then I look tactically at the what's going on in AI, and particularly just in the last two, three weeks. where you've got Chinese competition, you've got rising borrowing, you've got rising rates,

you've got slowing collateral price appreciation there in terms of, you know, open AI in particular, but others in terms of the valuations, the rate of growth are slowing. That's an issue for me as it relates to Bitcoin. Okay. Because I think, A, I think Warsh isn't going to cut aggressively without a. crisis, and I think the crisis could show up as war-cutting basis, or raising 25 basis points, and then Chinese competition beginning to raise questions about AI, because that's the thing. I don't have the training, the background, the intellectual chops, to be honest, to have a debate

about, is the Chinese low-cost open-A-I model better? Is it going to overtake the U.S. models? Is it not with, I don't. But I have 30 years of experience in markets and investing. And what I can tell you is the U.S. AI segment broadly is a debt financed and be valued like there are no issues and can be no issues. And the very fact that we can actually have serious people who do have the intellectual chops to debate U.S. versus Chinese AI, et cetera, tells us the Chinese stuff's an issue. Maybe it's maybe technically it's not an issue immediately.

today, but the very fact there's a debate is there's an issue. And this segment can't have issues. And it's valued as if it's never going to have any issues. So this is an issue in a sector that's valued like it can't have issues, we'll never have issues. And thus far this year, part of the reason I sold most of my Bitcoin was it was increasingly trading like a tech stock and tech was making me increasingly nervous. And fast forward today, I've got a Fed share who thinks he thinks that.

that Powell, he could have done Powell's job better than Powell did. And I've been clear with you and others. I'm no huge apologist or I think Powell did fine. I don't think he did a bad job. I think he missed an opportunity to just inflate stuff away and take, you know, take the pain and put the country in a better place. I've been very vocal about that. Warsh thinks he overinflated. And so to my eyes, Warsh thinks he can be inflation tough guy. He can raise rates, 25 basis points, or more. I don't have a strong view for this week. But and I think that could very well kick the legs out of what's happening in AI. And when I then look at that as relative to Bitcoin, what I see this year is Bitcoin has led tech.

So it is, it started down way more than tech in the first half of the year. In the last two, three, maybe four weeks, Bitcoin's actually outperformed tech on the downside. In other words, tech is kind of caught up a bit after running away from Bitcoin a little bit, mainly by Bitcoin falling. But I'm still noticing on days where tech's down, Bitcoin's down. On days where tech's up, Bitcoin's up. And so I just look at this, I might be being too cute by half. My view of it is that I think Warsh has put himself in a position where he has to tighten to try to establish his inflation-fighting credentials. I think he needs.

And by the way, he let himself and out last week to Congress. He's like, well, if things, if we have a crisis, then we need to make sure to, like he said, what did he say, fix market prices or make sure to establish a fair market price, which means print money, right? So he's the same. You're going to see from me at some point, spoiler alert, sometime in the next six to 12 months, you're going to get the Dennis Green meme from me on X, right? They are who they, they are who we thought they were.

So he is what we thought he is. But for now, I think he's going to try to Titan. I think he thinks he could use a political cover to do some of the things he wants to do. And I think Bitcoin will have a – I think Bitcoin will go lower if tech gets hit, which is a long-witted way of saying that. And so I think I can buy it back cheaper in two, three months, which would be right on schedule for like the four-year cycle for if you believe that or not. Yeah. So it's so much to unpack that. And just quickly, before we get into it, your long-term thesis on Bitcoin hasn't changed

that. No. Good. No, it's, I want to be long energy in dollar terms at the end of the day. And I want, right? So I've owned solar panels. I just bought new solar panels. I bought a lithium ion battery pack.

That's long energy in dollar terms. That's like a bond whose coupon is going to go up over time. And I look at Bitcoin as energy. It's essentially a lot of the things that Saylor and others have said about it as it relates to energy, a neutral reserve asset with an energy tie. I like that gold. It's a neutral reserve asset with an energy tie. That's what I want to be loan. And there's a lot of different ways you can do that.

Companies take energy, converted into things, et cetera, et cetera. So these aren't the only two ways. a currency goes, I want my currency to have an energy tie. Yeah. Okay, good. So let's get into the Fed stuff then because I think Walsh has said a lot of interesting things. He probably came out more hawkish than I think everyone imagined. And I've kind of always thought that that's just because he doesn't want to look like a puppet

to Trump and just that he's going to do whatever he says. But you said he wants to be an inflation tough guy. Why do you think that's the case? Because he did come out and say he only really cares about the left-hand side of the decimal place, meaning like 2.7% inflation, I guess, means 2% to him. Do you not think he's given himself some leeway there? He probably has in the same way that his statement last week of, well, I want to fight inflation, unless there's a crisis, in which case, you know, then I'll do whatever it takes to,

and I think that ultimately, that I'll do whatever it takes is, or that, you know, to make sure there's fair prices or whatever, right? Which is he's referring to the treasury market. Yeah. And so I go, we've been saying for ever since Powell really coined the phrase for us, the treasury market functioning. Since 2021, the Fed's shadow third mandate, really since 2019 with the repo rate spike. But the Fed's shadow third mandate has been treasury market functioning.

Nothing can interfere with that. And if they have to inflate, then they inflate. If they have to, you know, well, cutting. cutting jobs, that doesn't really help with treasury market functioning. So it's really, given a choice between inflation and treasury market functioning, the Fed has 100% of the time in the last seven years chosen inflation. Yeah. And I think he's going to be the same thing. If you hold Bitcoin long enough, there's going to come a time when you need some dollars. It might be a tax bill, a business expense, life getting in the way, but whatever it is,

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Get started today at blockware solutions.com forward slash WBD and use code WBD for $100 off your first miner. That's blockware solutions.com forward slash WBD. How do you sort of weigh up how much the Fed matters in these decisions? Because like Lynn Alden, who's been on the show a ton of times, always talks about how we're just in fiscal dominance and the Fed is becoming less and less impactful. Like how do you weigh those two things up?

I think I agree with her 100%. The U.S. is in fiscal dominance, which then significantly reduces the Fed's ability to adjust. The Fed really, the only way the Fed can get the U.S. out of fiscal dominance is if they cut rates to zero and they partner with Treasury. So Treasury issues all the bond issuance at the front. end at zero rates, which is kissing cousin of printing money to finance a deficit. Then the Fed would have a high degree of influence because basically, you know, if they did QE through that, that would basically, if you have the Fed buy the bonds by printing cash at zero, while the government spends the money, the U.S. will get out of fiscal dominance.

Now, astute listeners will say that's literally exactly what the Rijks Bank did after World War I. You're exactly right. And it would be really tough because some of your obligations, like the entitlement portion of all of this, is cost adjusting. So the more you do that, the more cost of care is going to go up, the more you have to print. And so the Fed could get out of fiscal dominance by doing that for a period of time. And the proof of that is in what happened from 20. 2020 to 2022. If we look at COVID happened, deficit blows out. Feds, you know, rates start going up in the worst recession, worst crisis in forever. That had never happened before. Fed comes in, starts buying, what was it, $600 billion a month in treasury bonds, I think it was, off the top of my head. And then the government does Stimis, right? So you are doing fiscal stimulus. You're handing money to people and being financed, money financed tax cut, as Bernanke called it. This was true helicopter money. And what happened? U.S. went from

being in fiscal dominance, which is a rough guideline I use as the true interest expense as a percent of receipts. So gross interest plus entitlements in the heat of COVID or the depth of COVID was 120%. In other words, they had to print money or they were going to default. They didn't have the tax receipts to cover interest and entitlements. So they printed. inflation takes off, rates don't because the Fed's buying it all, essentially, helped by the banks. Yep. And what happens at true interest expense? It goes from 120% down to 85% by the end of 21.

The dollar goes from whatever, 103, 105, wherever it was, down to 81, if I recall correctly. So the Fed can absolutely do something about fiscal dominance. Nobody likes to hear what it is, right? There's nothing a brief period of extremely high inflation and currency to value can't get you out of. And does it need to do that? Yes. It's ultimately going to have to do that. So I remember you coming on the show a long time ago when Peter was still doing it.

And you're talking about a short period of very high inflation, talking maybe even triple-digit inflation. That's what would work. I don't know. It's the more they delay, that's what's going to have to happen. And but it seems crazy to think about. Like, do you think that could realistically happen? Like, what probability would you put on that happening in the next 20 years? Well, let's take the alternatives.

You have to slash defense spending by, I don't know, probably, let's just say it's three, four percent of GDP. Let's just say it's three percent of GDP. That's a trillion dollars. So we need to cut defense, which was like a trillion one last year, by 90 percent. Never happening. Never happening. And by the way. It has to happen.

And even if you did it, you take 3% of GDP out of a country that's growing, what, one and a half real right now? You're in recession. The deficit's actually going to rise 600 to 1,000 basis points of GDP in any recession. You're done. So, okay, take that off the table. Next option. Boomers.

Trillion dollars out of, so they got to cut Medicare Medicaid by 30 to 35% immediately, permanently forever, without. to recession without boomers then going, oh, well, we also have $70 trillion in stocks and bonds and real estate. We'll just start selling that. Well, what happens then? Stocks market is the economy, consumer via consumer spending link. Receipts, boom, recession.

Same problem. If you could come up with some magic thing where like the sickest half of the boomers all died by next Tuesday, that would fix the problem. I'm not hoping for that. But again, let's just, this lays out. And option number four is cut rates to zero, run the stimulus, flate the heck out of it for six months, and that's it. Or the equivalent, which is you could do, you know, if you let gold really, really rip. Yeah.

And 20,000, 30,000 ounce, something like that. You basically just take the yuan price of 30,000 and move it over to America, $30,000. And then have Bessent instruct Warsh to revalue the gold, creates a TGA deposit, buy back a ton of the debt. And now you're out of fiscal dominance. You can get a fiscal dominance that way without, you wouldn't have 100% inflation, triple digit inflation. And you would have significant inflation, but you would then have taken the debt to GDP from 120 to 80, 60, 50, depending on the gold price. And now the Fed's right back in the game. Now they can actually raise rates without adding to inflation because everyone's getting more interest on their bond

portfolio and without pushing interest over receipts. And so I guess the odds when you look at it through those options, the first three are not possible. And then you're left with either sort of a brief period of really high, even triple digit inflation or some sort of gimmick. It's basically the platinum coin, except that provided for in the financial accounting manual for Federal Reserve Banks. That's clearly the best option.

And now, there's probably a. six option, which is, hey, if we can go to war and, you know, that doesn't cost us a lot and happens really fast and doesn't kill many Americans and tips over Russia and China at the same time and we get control of their resource and factories and are able, then, yeah, that could, that's not going to happen either, right? So there's another option. So the only ways out are option A or option B. really high inflation for a brief period or run up gold, buy down the debt and get the Fed back in the game

to get the U.S., which is just another way at the value on the dollar. But when you see the sort of pieces that are besents and Walsh and Trump that are putting into place, is that what you think they're doing? I don't know. I think strategically,

this administration has a pretty good idea of what it's doing. I think tactically, I think they are just like making a dog's breakfast of everything because they're getting pulled in a lot of different directions. And what I say strategically, this commentary by Warsh about Hamiltonian, excuse me, by Besson, about Hamiltonian economics, I thought was super interesting for a number of reasons. What does that mean?

Hamiltonian economics is essentially high trade barriers, capital controls, subtle deficits in gold. Okay. And that's an oversimplification, but not that much. It's essentially we need to produce a lot more of our own stuff. based on Alexander Hamilton, of course. And Besson gave a speech at the New York Economic Club about five weeks ago, June 23rd. And just in case people thought, which sort of all of the big weeks there, it was a 250th, America 250 Gallo, right? So anyone who was anyone from a policy standpoint is there.

And he rolls this out. In case, anyone thought he was just talking off the cuff or out of turn. He wrote an op-ed in the Wall Street Journal. Same day published it. Trump's economic policies or Hamiltonian economics drive Trump's statecraft, something like that. You can find it. That's what he believes. Go back to before this whole Iran debacle.

And U.S. trade representative Jameson Greer gave a speech at Davos this year. He flat out said America is moving to Hamiltonian economics, said that the brought up Brett and Woods brought up that probably would have been a better idea if we had had a neutral reserve currency as, as Keynes advised. But because we were running surpluses at the time, we decided we didn't want that. And everyone else was flat on their back, so they had no say. So that's interesting, especially with either the Times or the Journal saying that Greer is driving much more of the Trump administration's economic policy.

They just wrote that two, three, four weeks ago. You go back to Trump sometime last year, I believe it was January. He said, I want to take us back to when America was richer and more powerful than ever before. Something Trump said over and over. It goes on to say 1870 to 1913. U.S. had the highest tariffs it's ever had, protecting our industry. And he said we were taxing foreigners to pay for America's growth rather than taxing Americans to pay for foreigners' growth. Hamiltonian economics.

And Trump's famous for that, right? He gets the concept. He sort of, you know, he talks about it differently in his own unique way. J.D. Vance, February last year in Europe, referred to the stupid Washington consensus that deindustrialized America as being overdone with. And so the chapter and verse, you've got Hamiltonian economics, Hamiltonian. So what does that imply? Higher tariffs, protecting American industry, reshoring, inflationary, net settle in gold, right? What have we been, what's been America's biggest export, eight of the last 10 months, gold?

Bigger than jet engines, bigger than oil, bigger than gas, bigger than pharmaceutical preparations. So it seems like some really, that leaves me really encourage because that's a really good thing for America. It's terrible for bondholders. So what? Who holds the bonds? A boomers. Guess what? They have underpaid for everything their whole lives.

Yep. Everything has been slanted to help them. And I have boomer parents, a boomer. I love them dearly. I love the boomers of a generation. Most of them. And the reality is, is my children need. need a chance. My children's generation, like you need to do, and that is only fair, right?

Yes, they pay into Social Security. And they are using way more than they ever paid in. They are using way more in Medicare and Medicaid they ever paid in. You can't raise taxes on them. How do you get them to pay? You load them up with the bonds and then you need to value the crap out of them by implementing Hamiltonian economics, which is going to send inflation up, it's going to send wages up for the younger generation, so on and so forth. That's the encouraging thing. That's what I think the economic plan is. Now, there have been a lot of distractions so far year to date. There have.

I mean, I don't know how many times the Iran war has stopped and started. But on the Hamiltonian economics thing, it sounds like, and I could be oversimplifying this, it's essentially going from the U.S. being a hyper-financialized economy to being an industrial economy again. And I've read enough of your work that you're kind of bearish on the idea of reshoring actually working. So how does that play out? I wouldn't say I'm bearish on the idea of it actually working.

I'm bearish on this idea that we get sold by so many people that it's going to be fast and easy and cheap and buy bonds because America is going to reshore. Like, buy bonds? Are you high? Like, no. I just have an interest in my clients not being the ones who get fleeced. As I do think we are moving inexorably in that direction, right? Like the, you know, Martin Luther King, the arc of the arc of society over time moves towards justice. The arc of our economic policy is. is moving toward reshorring.

And I say that because Trump started it with the trade war. Biden basically ran, you know, Trump's economic policy, except as a doddering old man instead of as sort of a, you know, a bombastic, you know, leader. So we're moving toward reshoring. All I'm saying is, is don't piss down my back and tell me it's raining and buy bonds that because America's coming back as industrial power and we're going to be producing rare earths in two years. refining them. And we're going to be making all this stuff until, like, I think I wrote last week.

There's an old saw in producing things, right, in manufacturing. You can have it fast, cheap, and done well. Pick two. Well, we need it done fast because we're losing to China. Or at the very least, our margin of, in certain areas, we are losing. But in some critical ones, our margin of winning is shrinking more than leaves us feeling uncomfortable. And we need it done cheaply, otherwise the bond market blows up. Well, we have to have have it done well. There's no point in doing it at all. Because it will still lose three. Right. So we have a

trilemma. We need it done fast, well, and cheap. And it's not going to be done that way. It's not, especially when you look at sort of the 45 years of deindustrializing. We don't have the labor. We don't have the engineering. We don't have any of these things. We might. And AI could certainly help that in some ways. Yep. And it's going to cost a lot of money. And so that to me, it's less that I'm bearish on that. And I'm bullish on the ability to do it.

I am bearish on the ability to do it fast and cheap. We're going to do it. It's going to take longer we think. It's going to be more expensive. Stay the heck away from long-term bonds because the real value of them, if you think America is going to compete, let alone win, let alone get back to making stuff, you can't be anywhere near long-term bonds. they're going to get destroyed on a real basis.

They have to. So if this is going to take a long time, is the next few years, maybe that's up to a decade, I don't know your sort of timeline, but is that basically the most chaotic time we've ever gone into in terms of the economy? It's going to be right up there.

It's going to be right up there. Because it's hard because on some level, you need to do some very Chinese things in a society that knows it needs to do Chinese, but is afraid to do them. Because it is, you know, it's like asking a hardcore Catholic to be Protestant. And realistically, there's not that big a difference between the two.

You know, to the, I mean, certainly, like, you know, the Buddhist or the Muslim would say, what's a difference? I guess. But if you're a hardcore believer, and that's what you have, you've got, you know, the free market people, and they think this is all a free market and this and that, and we are not like China. And then there's people like, we need to build as fast as we can. whatever it takes. And that fight is happening as we speak all the time.

What's the Chinese things that America need to do? It's ironic because actually Chinese did the Hamiltonian thing, right? Which is, wrote about this this week. Hamilton encouraged everyone to steal intellectual property from the Brits and the Europeans and bring it here and they put up high tariffs and all that. And guess what the Chinese have done, right? They've taken IP. And same thing.

And then improve upon it and what have you, same thing. It was the same playbook. So, yeah, what we need to do is essentially close the capital account except for gold, like the Chinese. The Chinese capital account is open on a limited basis through gold. But think about what that means, right? I said this the other day. Everything is downstream of this capital account. Raja, he and I follow each other on X.

He had a great point. Like, I just, I refuse. And this is a point that Brad Setser and Michael Pettis in particular make over and over and over, essentially that America is the victim of our open capital account from the Chinese. And Raj was like, I refuse to say the most powerful country in the world with an open capital account and the reserve currency is a victim because it can't control its own capital account. And he's exactly right. These are all choices.

They're all tradeoffs. In other words, if you don't like what the Chinese. are doing, all you got to do is close your capital account. What does that mean, Luke? That means the whole world stops recycling their money into stocks and bonds. They have to go to gold. There's precedent for this. No less a U.S. eminent policymaker than Henry Kissinger in the 70s was discussing the same problem. They had a different version of the same problem. In the 70s, because oil had risen up, risen up so much because we had devalued the dollar and gone off gold, You had all these petro dollars, right?

And they were being recycled in. Well, OPEC Arabs are no dummies. They're in there, buying up companies of these valuable properties left and right. It's all free, right? I'd cheat money. And so they had a problem of Arab, this is Kissinger's words, not mine, Arab control of European and Western European industry. Where does this sound familiar? West Chinese control of U.S. and European industry.

Okay. Well, one of the things it was proposed is let's settle the oil deficits in gold at a floating price. So basically, it protects our industry from being controlled then by Arabs, now by Chinese. They get protected because they have absolute national control, their words, not mine, of their reserves in physical gold in their borders. And it's inflation protected. Their words, not mine. Same problem, same problem. And so that's why I say like, oh, the Chinese.

No, they're just playing the game that's been dealt to them. And the game is buy up American industry with the dollars. Americans don't like it. Close a capital account. Why won't we do that? What would happen to stocks if you came out and said everybody, but Americans can't buy stocks anymore, can't buy U.S. bonds anymore. They got to do it through gold.

The gold to Dow ratio would go to one like it did in 1980, like it did in 1933. And why do they care so much about saving? I understand the bond market, but why do they care so much about saving the stock market? Well, now because it's the economy, but also it's their source of wealth, right? This is ultimately a game of thrones. This is about corporate America loved China. They still love China. Even saw it last week, right?

So we're in the midst of all this, right? So we've gotten to this point. Micron stock is soaring because of the AI boom, demand for memory. Prices of memory are going through the roof. What's Apple doing? Buy memory, I imagine. They are. But this week in Washington Post, they come out.

They are actively lobbying Trump to let them buy Chinese memory. Because the price of memory is going up to an American company. God forbid, an American company is making a lot of money in memory. And if they can buy from the Chinese, they can knock prices down for the American. And they can keep Apple's margins okay. Who's aside is Apple on? This is, but it's, it's an American company ostensibly, but this is the fight. The, the, it is ultimately corporate elites have, what percentage of CEOs and execs have

their money in their, in the stock, you think? Their stock. It's a big number. Everyone. It's a big number. Yeah. So what happens a day you say foreign money's out? We're closing the capital account.

Do you think they want that? You think they want their margins? Corporate profit margins are at all time highs. Corporate profit margins would come down initially. Wages would come up initially. And then ultimately, you begin to produce more of your own consumption. Now you build a consumer base that's in America, right, and that's not based on credit. Oh, by the way, you're taking away the need for credit.

You're bolstering wages. You're bolstering inflation. Banks don't want that. Bond market doesn't want that, right? So what you end up with is Wall Street and multinational corporations hate that idea. So many of these questions come down to, like, what they should do. and then what they're actually going to be able to do. Is this another thing that they should do?

Well, forget about should. This is so similar to pre-World war or excuse me, pre-Civil War. Do you know 60% of the wealth in this country was in the South before the Civil War? I didn't. It was. They were the original globalists. They wanted open trade, no tariffs. Why?

Slave labor and they're selling cotton and tobacco and crops to Europe. Meanwhile, the North, the technologists. the producers at the time, or the manufacturers at the time, they need a protection because they're trying to compete with the globalist Brits and Europeans who are making stuff, and their fledgling industries couldn't produce without tariff protection. Well, we need a way to, you know, globalists against the nationalists. Well, no one's going to go die for economics, so we need a useful social issue. Any useful social issues we could highlight?

1860s to get 600,000 Americans to die? Oh, slavery. The same fight's happening right now. Nationalist, globalist. And it's interesting because, you know, the divisiveness of this country, Peter Turchin, who studies these things, said that the, the, in his book, End Times, writes, you've got elite overproduction and wealth and equality are your two drivers to domestic political instability.

They're the highest now in America since 1855. So should, what is the should is a political question. Should, you know, what will they do? I don't know. I don't know. And it's a highly, it's a highly contentious political issue. As an American, I think what's best for America is to not have massive wealth inequality because I don't think that's politically stable.

I think we end up in some sort of domestic, really ugly situation. Yep. And so that's where I shake out of like, hey, it makes more sense to control the capital account, redirect some of those flows away from the Plutarchs into domestic production. That makes more sense. What should they do? I'm not in government.

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Visit anchorwatch.com to get started. That's anchorwatch.com. And like the wealth inequality in America, I travel a lot. And in sort of the Western world, I think it's probably the highest that I see. And it seems like everything that they are doing and going to do is only going to create a bigger divide. That is only going to lead down a really bad path. And I, it's hard because when we talk about these topics, it's very hard to be optimistic about the future. And I'm a very optimistic person generally, but it just seems like we're going down a really bad path.

these things happen. I mean, at the end of the day, humans are, you know, humans are products of nature, right? And you go through these cycles of, you know, look, you go around here, you know, there's this beautiful, we're here recording this here in Cleveland and there's beautiful, we have metro parks, right? So there's a literally, it's about a mile wide swath. Most of it has a river through it or much of it's on the west side, certainly, actually on the east side, different river. But you can literally, mile wide swath, parks, centuries-old trees from the lake on this side, all the way around, the west side, down south, back up, through the east side, up to the lake on the other side. They call it the emerald necklace. And due to the development of this country or country of the state, most of the natural predators of deer were killed centuries ago. And so over a period of time, you know, when I was a kid, it was like, wow, a deer. And now you're like, oh my God, a deer.

Like literally everywhere you drive, you're trying not to hit a deer. Why are there so many deer? Take away the natural predators. They become victims of their own success. They eat up everything and now there's way too many deer. And then you have a deer disease or they eat all the plants and they start, whatever. It's a natural cycle of nature. And I think these economic cycles, unfortunately, we're products of nature as well.

We're victims of our own success. And I'm optimistic about the future. I'm just realistic about it as well. Like where we are, what that implies, what that possibly implies, what are good things what seem to be good moves, bad moves, what are good ways this can. And then accelerants, right? There are things that are accelerants. And I think, you know, technologists would tell you, oh, well, this technology bifurcates

the economy into case-shaped anyway. Yep. Mm-hmm. It does. They're right. And that doesn't necessarily change the outcome, right? Like some of them are saying, well, fine, I'll just buy a bunker or I'll move to New Zealand or whatever. And I guess that's one way to deal with it.

But I think it's a little antisocial, but I get it. So I don't know. That's sort of a, I don't know, I don't know exactly that that tells us anything other than I just, I don't think there's any avoiding the natural cycle. Like you can delay it for a while, but you can't stop it. And so then if you can't stop something, then it's about preparation and understanding and trying to do what you can in your own little way to get us to a better outcome that might otherwise have been achieved. Buy Bitcoin and Gold and think very carefully about where you're going to live.

AI, like you say, is obviously going to be hugely instrumental over the next decades. But for now, do you think it's in a bubble? And what kind of bubble? Because like the obvious most recent examples are like, is this 2001 or is this 2008? Yes, I think it's a bubble now. And I think it's going to be a situation where the early bird gets the worm, but the second mouse gets the cheese. Which is to say, for a long while, myself included, I didn't really write or talk this way, but it was in my mind. whether bubble, whether AI was a bubble,

and whether the AI companies were a bubble, were inextricably linked. In other words, there was only, and now I think the companies are bubbles, but I don't think the technology is a bubble. I think we're in the early days of those things separating. And that's what I mean about the early burg gets a worm and the second mouse gets the cheese.

Rails were enormous bubble, railroads. And they were an enormously productive technology that changed this country and changed every country. and are still in use today. I was at a conference 18 months ago. There was a guy there who was extremely wealthy. Nice guy.

He made his money by buying up telecom fiber for pennies on the dollar after 02 when it all went bankrupt. It's all still being used. The internet, wildly useful. And we saw that, right? The Pets.com and all these crappy companies, they went away. And the internet is every bit as big as we thought it would be.

And I think we're in the early days of that being recognized, and that's one catalyst of the ball, where there's just this recognition. But I think that, and that's being recognized, I think because some of the financing stuff, some of the same shenanigans that we saw in telecom and Enron and all that, the sort of circular vendor financing stuff, that is being openly discussed in question for good reason. The thing that actually is different this time as it relates to either 2000 or 2008 is the Chinese are competing. You know, we were talking about this earlier, which is we're having a debate. Are the Chinese better or they're not? It doesn't matter. They're there. They're only going to get better.

And American technologists don't know what to do because they haven't had to compete with another country's technology since probably what, 86, 87 with the Japanese. you know, they were, a lot of these guys weren't even born yet. You know, if they were, they were in diapers. And, you know, we were talking about before we,

we went live. This is the Rust Belt. Cleveland had four of the seven richest cities in our, excuse me, Ohio had four of the seven richest cities in America in the early 60s. Maybe it wasn't,

maybe it wasn't as late as early 50s. But the point stands. Like in one human life four of the seven wealthiest cities in this entire country, the wealthiest in the history of the world, We're in the state.

You know how many are now in the top 10? Zero. Zero. Zero as Steve Eisenman said. I know how this can go. I've seen it. I watched it in my lifetime. The tech guys don't get it yet.

The fact that the tech guys are going to Washington and asking for savior from China, from protectionism. No very American. Well, it isn't. It's kind of Hamiltonian, but it's definitely changing the rules versus before. And there's a different set of rules to that. But, right, there's nothing more American Hamilton, right? It's been on Broadway for what?

How many years now? What did he do? Hamilton did what the Chinese have done the last 20 years. It's all one big, you know, it all happens over and over. It is interesting, though, because obviously the news broke a couple weeks ago about Kimmy K-3 coming out. And like you, I'm not deep in the world of AI. But you see some of the benchmarks. It's at least competitive with the biggest frontier labs

and a fraction of the cost, I believe. So I can understand why those frontier models, their frontier labs are very paranoid about this, and they're trying to figure out how to be saved, essentially. But why save them? Like, if their models are broken, why would the US save them? Because otherwise, I want to say this so everybody hears it. Because if they don't, the whole system is at risk of coming unwound.

There was a great substack. If you haven't read it yet, and you'll have seen it from my work. I don't know who the guy is. Groundbreaker is the name of the substack. Go read it. It was published July 2nd. I read it.

And it was funny. I was reading it on our patio. My wife can always tell him. This is FFTT. Can always tell when something's blowing my mind because I'm rubbing my head. I'm reading and I'm rubbing my shit. Wow, what are you reading? And he looks at, he,

lays out that the 08 crisis was not a, the popular understanding is once home prices turned down, everything came in well. But when you look at the actual facts, which he puts right in front of you, it wasn't when home prices turned down year over year. It was when the rate of growth, the second derivative of growth of home prices, they were still rising, there was still demand. When they slowed, that's when default started rising because it wasn't that home prices fell, it was that they just slowed so that the refinancings couldn't occur.

And after that, everything came unwound. And he lays out that people are evaluating his case is that people are evaluating the AI as a tech play. It's not, it's a real estate play. And he says, in real estate, you got boom bust. He goes, number one, they don't de-rate gently. They de-rate violently. And he's absolutely right.

And he said, number two, real estate things don't blow up. They very rarely blow up with demand declining. It almost is always up. It's just that second derivative. And he runs through and he points out basically chapter and verse, open AI is ground zero of this whole thing in his view. And I have no reason to disagree after it. It's a very, it's probably took me 45 minutes of read through and I read fast. And it just lays out the different cross-financings, the amount of debt, how they have gone from basically zero percent of cash flows to 100 percent of cash flows going into.

new capacity, then borrowing, who's guaranteeing it, what's therein, what's happening with Oracle, CDS, Microsoft CDS all starting to rise. And that is why I think the government is nervous. And they should be nervous. The U.S. government should be nervous about this because when you then tie it into capital flows, there's huge inflow of capital from abroad. all heavily tied to AI. I live through the 2000 bubble. I remember what happened. The dollar kind of went up a little bit more,

and then it fell like 40% in six years after the tech bubble burst. So they have those issues. The tax receipts, oh my God. You know what happens at tax receipts if the tech bubble bursts? We're already 100%. Right now, if you add interest expense,

plus entitlements, plus veterans benefits, which are a cool 8% of receipts, 400 billion a year, you are over 100% of receipts with receipts and capital inflated by this AI bubble. So if, and the one thing underpinning, as this groundbreaker says, is Open AI. If Open AI just slows the next round. So they came out at the end of June and they delayed their IPO possibly. And then they also offered, remember about a week later, they was reported that they were floating, since denied, floating possibly giving them.

the Trump administration a 5% stake. I saw that. Now, how many of these tech billionaires have you seen off or out of the goodness of their hearts, a government, 5% stakes? Is that literally just, I mean, I don't want to use this word too liberally, but a bribe to be like keep us alive?

Yes, I think it is. I mean, I heard credible rumbling six to nine months ago that the discussion around what does an AI bailout look like had already been broached in Washington. Do you think that's why China pushing the open source AI so hard? Is it an attempt, is it like essentially economic warfare?

Whether it's intentional or not, I don't know. I think they are absolutely aware of the implications of it. I think they're absolutely aware. They would have to be stupid not to. And they're very good at this. They're better at the second and third derivative thinking than our policymakers seem to be, in my opinion, for a number of different reasons. But that's why I think the government's worried about it.

Open AI, can't price. Boom, then this, then the debt. The debt starts, okay, who owns the debt? I don't know. Okay, sell them all. Okay, now, now, and oh, by the way, 80, 90 percent, depending on who you read, 80, 90 percent of GDP growth in this country of the last 12 to 18, 24 months has been driven by AI-related spend.

Yep. Uh-oh. Now what? Now you're in a recession. Now what happens to the deficit? Remember we just said before, up 600 to 1,000 basis points of GDP. Well, GDP's 30 trillion for easy math. That's 1.8 to 3 trillion more on top of a 2 trillion deficit.

Now your deficit is $3.8 to $5 trillion. Receipts are down huge because stocks are down. And oh, by the way, yields are probably going to go up on this. Because in the dot-com bubble, we were running a surplus, a fiscal surplus, not a 6% deficit. It's the last time there was a surplus, right? Right. And so now you've got, you know, it just came out last week. Google went cash flow negative first time in its history.

So you've got all these guys competing. They'd be competing more to borrow more money to keep thing going. at the same time, U.S. deficit would be blowing out three. So you're going to have a risk. If the AI thing unwinds, you are going to have a recession and a stock market event where you're going to have a weak dollar, probably not initially. Dollar will strengthen initially. So let me do it in order.

You're going to have a very big stock market problem. You're going to have a recession. You're going to have a rise in unemployment. You're going to have a significant rise in interest rates in a recession, which no American alive has really seen since probably the 70s. And even then, it won't be, it'll be much more emerging market like, which 70s was a sort of. So I guess that's probably the last time anyone would have seen it. Right. But if you were 30 in 1974, you're 82 now. Yeah. Right. Not a lot of them around. So not a lot of people will have seen this. And oh, by the way,

the rise in rates will then force. And that's where I think, you know, I think the dollar rises on that initially. But they're, go back to Warsh, we started. What did he say? I'm not going to let the market set the price for treasury bonds in a crisis. Okay. What are you going to do? Check to you, buddy. And it might be as little as a 25 basis point hype that could trigger all this. But I think they are absolutely aware of it and concerned about it. And I think the Chinese are too. So now you go to the game theory. You're China. And you got a lot of tough guys saying, we're going to choke off China's oil. What are they going to do about it? Oh, look, China didn't put troops on the ground anywhere in the Middle East to fight us. What are they going to do about it? Oh, we just seized Venezuela.

China didn't do anything about it. They're crap. Knowing the Chinese mentality, which is turn the other cheek and wait and then do something very subtle. I'm like, oh, I'm so sorry. What happened? What happened, Open AI? Oh, yeah, I think it's exactly what they're doing. What I would do if I was them. But it's hard to know what they could even do to protect it. Because, I mean, back to the question is this 2001 or 2008, it sounds like it has sprinklings of both. Yeah.

And the problem is, like, if they do start to roll over and the growth slows, like, sure, Walsh can, you know, drop rates and he can start buying his own bonds. But, like, does that get into the markets that he needs them to get into? Like, how do you protect it? And this is why the Iran War was so dumb if you're actually a multi-level thinker. You know, the people that are like, oh, this was such a good idea. No, it wasn't. If you're, if you're, if you're, if you're, if you can hold one thought in your head at one time, yeah, it was a great idea.

Because now where's oil? We started this little adventure. Ten year treasury yields are three point nine five percent. Oil was 55, 65, 62. Now this thing comes unwound. Yeah, this thing comes unwound. Wors can worse can really aggressively cut. What's oil going to do?

It goes 75, 80 because you're in a recession down. Great. You start an oil from a standpoint of 85 bucks. I see what you're saying. And I know you've said a number of times like oil at 120, I think it was, is like game over really for the economy. Well, it is. But even more, like we've been very, you know, written it many times over the last four or five years that 60 to 80 oil is fine. Oil gets to 85. The Treasury market starts having problems in fiscal dominance. We've seen this over and over and over. And is it at the moment? Oh, absolutely. I mean, the move index is down at 50, but rates are at 4-7, right? 4-6-47.

We've got the 4-7, war off. Back to 4-6, war back out, right? So that is the, that's another tricky part of all this. Oil is at a price where what do you do if you're worse? If you start to hit AI need support, some of its competitors, there's not a lot you can do. The financing side of it is going to be having a problem. stocks are going to be heading down. Meanwhile, you've got the war going on.

And so, yeah, there's some element of downward pressure on oil. But ultimately, what do you think the Chinese are going to do, right? They ran down all their oil. They ran down some unknown amount of a very large oil SPR, is the accurate way to say that. So say oil goes from 85 to 70. What do you think the Chinese are going to be doing? Just put it right there, guys. Yep.

So oil's not going to come down that much, if at all. when worse is going to have to be printing money to figure this thing out, it was just an unnecessary complication that Iran War was relative to all this other stuff that was happening to the exclusion of everything else, right? It was just, it was hubris to think, well, if we do this, there's not going to be any fallout and to only think of retaliation in terms of boots on the ground or bombs or this or that. There's way, right, what did, what did Besson say in his Q&A three weeks ago? Bond markets have taken down more governments than how it serves.

He gets it. he gets it even if I don't think he has the ability to kind of say hey guys the Iran war let's not like I don't think that was his call is it possibly this might be a silly question but is it possible to think they might be as avert as doing money printing and actually stepping in to the stock market and doing and keeping and propping up strategic markets well they're kind of already been doing that right when you're when you're making investments and just here too it's it's this this dichotomy or this two two-faced you know the yin and yang of it on some level you need to do that right i mean that's what we're talking about hamiltonian economics is protecting your domestic

industry um that you that you've that you've been allowing to be hollowed out so on some level you need to but you don't want to do it because in an emergency you want to be strategic about it and this will be the antithesis of strategic yeah it'll be because you're trying to put out of fire um So, yeah, they stepped in it, right? There's almost like an ideological problem with some of this, in that America is supposedly about free markets. And it feels like to beat China, becoming more like China is a mistake.

But are you saying you think that's what they're going to have to do? I think the first step is admitting we don't have free markets. Okay. You can't sit there and say, you know, We can't do these policies because we need to have free markets when you have the Fed chair saying, I will only allow a free market and treasury bonds when I like the price, when the rate is not at a level that doesn't bankrupt my government. That is not a free market. And he said it last week to Congress.

He stood up and said, America does not have free markets. He just used words that, you know, because everyone's still enamored of him, you know, give it a couple years. He's going to be Powell. that to me is the first step you have to take. Like, let's be honest. What free markets? What was free about 08? What was free about COVID?

What was free? So we need to actually decide, hey, these industries have strategic value beyond I can make money on it this quarter. Right? Is it, and that's the challenge, right? the Apple Micron example before. Micron's minting money. Stock's outperforming Apple. Memory prices are soaring.

It's a commodity. It's no different than if coal prices or oil prices are sort. And Apple doesn't like it. Where's Apple's margins relative to all time? So like it's a mindset. You need to have the upper shape of the K, the upper leg of the K, both in corporate. And as individuals say,

here's where I want my country to be. In 10 years, 15 years, we can be ripping each other apart or the bottom half will have starved one way or metaphorically or literally and I won't have to deal with it because I will be in a walled garden of my own construction. Or I want my country to be thriving and to get there I need to take lower margins, and I need to somehow sell that to my shareholders with a K-Shill or PE at 42, pricing, no margin, nothing but margin expansion forever more because, you know, unicorns, rainbows, and skittles for everybody. That's the issue. That's the decision. And I see it from some people. I don't see it from others, and I definitely don't see agreement about it. And the challenge is, like, like,

that's not the mainstream discussion, right? Like, it would be much more encouraging to me if that was, that was the discussion we were having as a society, but instead it's, you know, what's a boy? Can I date a tree? You know, can I wear a furry tail to class? Like some of the kids at school at university with my kids, like, okay. Great, right?

That's more Vimar vibes of like, you know. I mean, that's insane. Your word's not mine. Is this like an existential threat to the U.S. as a global superpower? Oh, yeah, absolutely. It's already, it already is. I mean, look at the headlines this weekend. We don't have the missiles.

We don't have the air defense missiles. And so, right? So we are the global superpower whose most powerful military in the history of the world ultimately backs the dollar, along with the 13 aircraft carrier battle groups that we have. Right? How often have we heard that? Except when the missiles started, those carriers in the Gulf went 1,000 kilometers further away because they knew what would happen if they stayed too close or could happen.

We ran out of air defense missiles. Naval base at Bahrain got trashed. We evacuated many of our people from the Middle East. Russians were helping target our guys, helping the Iranians target our guys. We can only go to war when the markets are close. and when the 10-year treasury yield is below 4.7%. So we are still the global hegemon as terms and conditions apply. As long as a 10-year, you know, you want the guy at the end of it.

We're still the global hedger. As long as the 10-year yields below 4.7%, as long as the S&P is not down more than 5%, as long as oil is below 85, as long as it's a weekend, and as long as we have enough Patriot missiles, which we are currently on backlog for two years. Talk to your representative for further conditions. I mean, with those caveats, then, is it already over?

it's already in the state of change. We can always come back. We can always come back, right? And look, I agree with Warren Buffett. Hey, for 250 years, it's been a bad idea to bet against America. Yep. Right.

And what I never hear Americans still say yet is that I bet you in 1850, there were people saying in Mandarin for 1,500 years, it's been a bad idea to bet against China. And yet, eventually, they made enough stupid decisions and had enough outside forces, one of which is a widespread opium addiction. Hmm.

You know, they have a name for it in certain areas around here. It's called Fentlock. I don't know if you, you ever heard the phrase Fent Walk? No, not Femt. Is this why people like drooped over? Correct. Yeah. Yeah, we could take you to areas where there's Fent Walk around here.

So, it's not over yet. but, you know, it's getting later innings where we need to be having the discussion of do I as a Plutarch of this, not I metaphorically, not I specifically, as a Plutarch, as a CEO of a multinational as one of the wealthiest people in this country, as a member of the upper shape of the K, where do I want my country to be in 10 years, 20 years? And there's other like warning signs about it. You know, I have a friend of mine who has the monopoly contract, right? So he's the only provider for the medical examiner pickups into major second tier U.S. cities.

And what that means in plain English is anybody who gets murdered, commits suicide, overdoses accidental or otherwise. or suffers an accident and dies in an accident, he picks up. He's the only one who gets his companies. And they said something a couple weeks ago. He goes, man, we have never been this busy. We are busier now than we were at the depths of the COVID. When people in this country were killing themselves,

overdosing themselves, drinking themselves to death when they were locked down. Wow. Bleak. Very bleak, right? So there's something happening, right, where in the context, context of this K discussion that we need to be having. And look, maybe that's the plan. Maybe that's a plan for the upper half of the K,

at least the ones that are controlling the strings, which is build a wall and just let those ones overdose and kill themselves. It's the permanent underclass. And we spoke about this in Nashville. It's like it's the economy of despair. Like if AI does end up replacing a number of jobs, like what do you think is going to happen to those numbers? Like bullish on his company in a horrible way.

It's enormous. It's enormous. I mean, there's actually a short. of funeral directors in the state of Ohio right now. Do you know that? And a number of other states. Some of it's an age thing. There's very few young ones, but it's so much so that they are able to, they've changed rules before you had to have at least an undergrad degree, and then you would have to go to mortuary school for two years. Or you could go right to mortuary school, or you could get a degree and apprentice under an established senior funeral director

for two years after your degree. They're in such dire straits. They actually have changed the rules so that as long as you will be done with your undergraduate degree by the time you are done, by the time your apprenticeship is done, wait a minute. I mean, these are depressing signs.

It is a sign. It's just, it's, it's, it. Like death's a part of life, right? Like Forrest Gump's mom said. So I think some of it is around how you feel about that for when they're young people. Yeah, it's horrible. And, you know, some of it is a demographic, right? Wherever the boomers have been, you cater to the boomers and you do well, right?

And wherever they've been in their lifespan, right? When they went into the workforce, the number of workforce went up and then, you know, inflation picked up when they were buying houses, when they, you know, vacation houses, vacations, whatever. And what are the boomers doing now? Like, if you do high-end service, right? So pools, landscaping, high-end service and death care, boom. Some of it's just boomer, some of it's just demographic.

So I don't want to make you think it's all opiate and stuff related. But there, but there is some signal there around a warning sign of this discussion we need to be having, we should be having of where do we want to be. And that's where I think, look, I do think the Chinese do that better than us, right? People say, oh, China's housing is in the trash, yeah, or in the tank. It is. And she came out and said, houses are for living for, not for speculating. And that was like the absolute peak.

Like they basically went in the, like, they tanked their own housing market. Why? Because then the capital flowed into investing. That was a plan. Now, that weighs that, that has its own offshoots, right? That's going to weigh on profitability of firms in that. you've got to compete. Wait, high degrees of compete. Isn't that capital? Capitalist certainly sounds like it. Oh, interesting. But I think they have the structure, luxury, culture, history, ability to say, look,

we would like to not be in a revolution in 10 years and a good way to contribute to that, especially with AI taking jobs in our country and everywhere, is to jack the price of housing to the moon. And so, you know, not only do young people not have jobs, but they can't afford houses and their health care is up and their education. Like, that's how you end up with Mamdani. You're going to end up with the Mamdani in every country in the city in this place. So, like, what do you want? So it's almost like the perverse incentives of crony capitalism. I think that's exactly right, right?

Like, once upon a time in this country, what did? I think it was Nixon. It said, right? Hey, these guys are too big to fail. Nixon said, we'll tell them to get smaller. Perfect response. Perfect response. Get smaller.

Oh, wait. was a very simple response. Break up the big banks, send the ones that committed crimes to jail, wipe out the equity, let the bondholders take over the company. Why didn't we do that? Crony capitalism. And if the government in some form step in and try and protect these AI companies, like that's maybe the most egregious form of crony capitalism. Yeah. And it's, you know, it's going to, I've had people say it's going to be like the Soviet Union. Right. Like I have a friend who lived in East Germany. He's like, you know, you guys let markets work. and you get all nice stuff.

And, you know, we didn't. And we had all the crappy stuff. And so we're going to have, you know, expensive, crappier EVs and expensive crappier solar panels and expensive, crappier electronic stuff. And the China, like, there's electronics that I've had people show me over there. We don't even have access to way more than BYD cars. Like, I'm like, wait, what? And that's what happens.

So it's, it's a time to be asking what we want. and where we want to be. And it's a time not to be using black and white labels, right? Yeah. Right. Like, Chinese are doing some very capitalist things. The Americans have done some very communist socialist things for certain classes of people, right?

It's like animal farms. Some animals have been more equal than other animals. And that's fine, but, you know, when you end up, you know, when you take a road somewhere, don't be surprised when you get to your destination. So what should, like, if people are listening to this, what's the actionable advice? What should people be doing to prepare for this? I agree we should do everything we can to try and change course, but assuming you follow the incentives and maybe that course is not going to be changed, like how do you protect yourself from this? Look, I think it's about simultaneous protection and optimism, right?

There's a yin and the yang to this. This can go really well. This can go really badly. And so it's a constant, you know, there are certain facets that are in place already. It's going to be makes it harder for it to go flawlessly. But there's going to be winners and losers at all time. So look, we're not going to be able to reshore fast enough. It's not going to happen.

Okay, well, guess who's going to get a lot of that business? Japan. Okay. Well, tell me about Japanese industrial equities. Okay. Electrical, you know, is, we're going to reshore of something, you know, some degree. We're going to have more electricity. It's easy because we, as a country, we have not grown our electric grid in 20 years.

It's astonishing. It tells you a lot of the GDP growth is inflation, fiction. Yeah. Fugazi. Great, electrical infrastructure equities. We're going to devalue the currency. Unless we come up with some new math, that's going to happen. Great.

Be overweight gold. I think, look, if you have a long-term view, you should probably be buying Bitcoin now. Like I said, I'm probably being too cute. I think I can get it cheaper. I still do. I still have probably a 3, 4% position in Bitcoin and Bitcoin-related stuff. Right. So I'm not flying.

You know, fully out of the trial. I'm not, yeah, I'm not short. I'm just underweight what I think, because I think ultimately they are going to have to get much more aggressive and much more obvious about devaluing printing. And Bitcoin has demonstrated an ability to be the fastest horse relative to, I don't like playing any alt coins, anything like that. I just, you know, that's my limit, right? When the tide does turn and you're ready to get back into Bitcoin in a bigger way,

what is your sort of ideal allocation? So the last time I was probably 10, 15%, and at the highs it was like 47, 48%. Oh, wow. Yeah. It was it was so big. It was occupying way too much of my mind space. And so. No such thing, Luke.

For me. So exactly. There's a lot of Maxis out there's going, see, that's why I hate him. No such thing. No. It's the same Nixon thing. Get smaller. Tell them to get smaller.

Get smaller. So I got smaller. But to answer the question, I think some of it depends on events. But look, I don't see any reason why I wouldn't want to be at least 25% gold and Bitcoin over the next five years on average aggregate. And I think it's very dependent. Look, I think you always want to have some gold. I think how you structure that is dependent on your age,

because, in fact, Bitcoin's way more volatile than gold. Yep. In the last two years, when you vol adjust the returns, gold is much more attractive. That should change when they print whenever that is, again. But that's something I'll be watching for. If Bitcoin and gold, if Bitcoin only gives me, you know, 50, you know, every percent gold goes up, Bitcoin goes up 150 basis points. That tells me, great.

I want to be a little bigger. But that doesn't tell me go way bigger gold to get to me where it was. That just tells me something's changing. A number of things that could be. But I think I still really like, especially, I mean, for myself, I generally run with this. but for the average investor out there, 25% cash, 25% gold, Bitcoin, 25% real estate, 25% equities.

And I think each of those, you know, Bitcoin, I'm over that now gold and Bitcoin. I'm slightly under that cash. I think the important thing as I sort of lay out some of these just sort of stream of conscience, the things we've talked about, it's not duma or not duma, right? The optimist, you know, the pessimist,

complains about the win, the optimist expects it to change, the realist changes, you know, adjust the sales. Yeah. And so it's just that you, when you've got, if you're laid out like that, the Jacob Fugger portfolio, 25, 25, 25, 25 percent, it's easier to adjust the sales. Nothing is going to kill you, right? You are, from a financial standpoint, you make yourself very hard to kill. Hyperinflation doesn't kill you. Hyper deflation doesn't kill you. Okay, if those two things don't kill you, then like you're in a good spot. You're in a good spot. And the reason I lay all that out before,

with some of which is depressing, is you don't hear about this stuff a lot. And I learned 30 years ago in this business, if you talk about the same stuff that everybody else talks about, your kids aren't going to eat. It's a fact, right? I've been on a straight commission my whole career.

If I was the 30th guy calling a big hedge fund in New York to tell them about target earnings in 19, you know, in 1998, my kids would have starved death. My kids aren't ever going to starve to death. So it's important to look at things differently than everybody else. And I do that, I think, most of the time, at least a lot of the time. And so some of this stuff might be depressing, but it also is happening. It's also reality.

And, you know, you can ignore reality, but you can't ignore the consequences of ignoring reality. And there's such a wide array of things that could happen. It ties back to the allocation of like, okay, where do I want to be? Look, like, 45% Bitcoin, like, for me, that's a lot. Like, I'm 51-year-old man. You won't want to hit mine. You're a younger man than me.

So you're younger. And the other thing, too, is understanding. You understand Bitcoin better me. Like, if I position sizing is one of the things that's a critical input is your understanding of it. I understand it well enough. you could have a thousand people sitting in this seat that I would dare not talk about Bitcoin with because they've forgotten more than I know.

And it's probably more than a thousand. And I'm okay with that. That's ultimately just a position sizing thing, right? That is a I'm at 45 percent. I'm up big. Okay. I'm going to get smaller. I either need to learn a lot more or I need to get smaller.

And if I need to learn a lot more, I've got to go all Bitcoin all the time. And I didn't want to do that. Not for any reason other than it's not where my interests are. So it's just a decision. So, yeah, that's what I mean about, like, some of it's your age, right? Like, you get older, you can't take the ball or you don't want to take the fall. Some of it's your understanding. Some of it's your, like, some of us, you get people here and I'd be happy to have

debates of those people. They'd look at some of the things I'm looking at and like, well, I interpret what you're seeing as this or that. And that's fair. Like, there's two ways of looking at a lot of the things I'm describing. You know, we'll see. That's what, that's what markets are supposed to do. ultimately, right, is who's right, who's wrong or whose review of what's happening more accurate

or not relative to what was expected, which is the other thing, right? Where are expectations, right? That's pretty easy to tell the Bitcoin community. Yes, 100%. I think the thing we probably both agree on is zero is the wrong percentage. Zero is the wrong percentage. And like, someone asked me, like, when you sold, did you know you were going to be right? I'm like, yeah. They're like, how? I said, because one of the advantages of having a big X account is having a thousand randos get on and mother F you all day every day when it goes public that you sold. This is like if that's the reaction, knowing what I think I know, I'm going to be fine. I'm not going to have to buy it back at, you know, whatever.

Now, sentiment is changing quite a bit, right? We got sailor selling Bitcoin. We got a lot of Bitcoin treasury companies being forced to sell. These things get me interested. There's a lot of bottom signals right now. this is where, this is where I, you know, like, there's not blood in the water, but there's, you know, there's a few split lips. Yep.

And, okay, now I'm, that's what I say, I might be being too cute. Like, we might sit down and have another conversation, you know, when or whatever, and six, 12 months and, you know, Luke, you got too cute. I'd be like, that's okay. Like, well, it seems certain you're not going to buy back higher. It depends on, and it depends on events. Like, that's the thing is, is one of my mentors, one of my mentors, one of my, my mentors a long time ago, he that Luke, I've never seen someone change their mind as fast as

you. Like, I go back to when I, when I, you know, I had for a long time, I always own, I've owned Bitcoin since 2013, a little bit, not nearly enough. I know. Um, and in 2020, you know, I ran up, 2017, crash back down. It's like, okay, right? They launched futures. And I was I mean, you can find my old tweets. It was like, hey, having been experience in gold, Bitcoiners, I know you're excited about futures being launched, but this isn't a good thing for you guys. I was so excited then. And that was like marked the absolute top pretty much.

And sure enough, it was like, right? And I thought, okay, that was it. There was a bubble. I've seen this before. I saw this with gold and 11. I saw this NASDAQ. I saw it with this. And then 2019 picks up and whatever.

Okay. 2020. It takes off back through 20,000, like a hot knife through. butter. And I looked at my wife, I go, this is, this wasn't a bubble. This is a currency thing. We are like, I'm totally wrong. And I am buying everything back and then some. Even though I'd sold a bunch of it, you know, whatever. I had bought and traded around, right? So I'd bought a bunch and sold a bunch like 10, 12, probably sold some at 14 or something, whatever. Yeah. And I was like, I'm wrong. And I bought way more than I ever did at 20, 21, 24, 26, 30.

And, you know, I sold a bunch really well at like 52. And I started buying some back at like 60, 50, 40, 30. And I bought a ton under 30 and a ton under 20. So like if, if facts change, I will change my mind so fast, so fast. And facts as I interpret them. They should be facts. But, you know, the fundamentals as I see them and something, and I say that because there's There's sentiment.

There's what have you, right? And there's multi, this is a multi-pronged thing. Look, if sentiment completely gets wiped out, if, and there's a lot of different ways that can happen. Great.

Price. Price, there's numbers in my mind where if it were traded there, I would be a big buyer almost without question. You know, with the asterisk of like,

hey, as long as it wasn't like, you know, some crazy, you know. Of course. Quantum all. Yeah,

yeah, quantum is broken all of it. Right. Then, no, that's, but I don't think it's going to have. Anyway, that's that's I'm trying to just kind of share the thought process of just like this is what's going on up here

Basically every waking moment of my life. I love it. I'm excited for when you buy back Luke We've talked about a lot there is there anything we didn't talk about that you wanted to cover? No, I think I think that covers it. This has been awesome. Thank you for having me. Thank you. You made me come out to Cleveland and it's been nice. I'm not been here very long, but it's been good. Thank you for instance. It's a beautiful place. It is the nice weather capital of the world for about another 12 hours. No, it's beautiful this time of year. It's really even great, May to October. And then after October, we get into the winter stuff. And there's, you know, if you said, hey, can I come see you in February? I'd be like, no, don't. Don't. Don't do it to yourself. Don't. It's just, yeah, you just, it's like, it's like nuclear winter. It's great. It's cold. No fun. Well, I appreciate you. Thank you for doing

this. Always better to do in person. Oh, thanks. Thanks for, thanks for having me. All right. I'll put the newsletter in the show notes. It's one of the ones that I'd never miss. Thank you. I appreciate you, Luke. Thank you. Absolutely. Thank you.