Transcript of Gold, Crypto, the Debt Crisis, and How to Survive When the US Needs a Bailout

Do you remember this line from the night before Christmas? The children were nestled all snug in their beds while visions of sugar plums danced in their heads. It's the perfect winter slumber, but it's only possible if you can actually sleep. That's where Beam's Dream Powder comes in handy. Our friends at Beam, which is an American company, have made the perfect formula for the most effective sleep powder ever used. Unlike the junk you would buy from your pharmacy, Beam's Dream Powder is completely It's got no fillers or synthetic garbage, and it actually works. Lots of people here on our staff use it, and they can affirm that fact. When you use Dream, you fall asleep fast, you sleep through the night, and when you get up, you feel sharp, focused, and ready to dominate the day. It's already improved over 28 million nights of sleep. They've calculated it, and Christmas is the perfect time to try it. This winter, Beam is giving our listeners the Patriot discount. Visit shopbeam. Com/tucker. Use the code Tucker and get up to 40% off Beam's dream powder. But here's the catch. It's only available at this price until it sells out.

Go to shopbeam. Com/tucker. Use the code Tucker. We recommend it. So one of my midlife realizations is that people in my world, certainly me, ascribe too much to ideology and too little to money. The financial dynamics of the world drive a lot more than we acknowledge that they do. We look at things, we're like, Oh, these people believe this, and these people believe that, and that's why they're fighting, or that's why they're allies or whatever. But really, we should all remember that the love of money is the root of all evil, and money really is a huge effect on outcomes, but nobody says that. I miss it so often. You spent your life in the money business trading debt. Tell us, just to start, but You worked in Ukraine. You traded Ukrainian debt. What was that like?

I never worked in Ukraine. I've been to Ukraine on investor trip. I have traded Ukraine debt. I traded emerging markets debt my whole life until May of this year. I traded and sold it at a bunch of different banks, London and New York. Ukraine was certainly one of the instruments we traded, traded through the Russia crisis.

Can you explain, for the truly ignorant me among them, what is emerging markets debt?

Emerging markets debt, originally, the asset class grew out of the debt crisis in the 1980s. When money center banks were hung with primarily Latin America debt. After the '80s crisis, Nicolas braided, Treasury Secretary of the time, came up with a plan called the braided plan to restructure the debt, back it with collateral US Treasury strips that would make it more palatable to a broader base of investors to get it off the balance sheets of the money center banks and to create a more institutional uptake of the debt and retail uptake of the debt.

So American debt, American banks are left with loans from other countries that those countries can't repay. Correct. I'm just trying to put it in terms like I can understand. And so then the Treasury Secretary basically says to those banks, We'll bail you out by guaranteeing these loans with American treasuries?

It's one way to put it. It's a way to clean the balance sheet up and to create. I think there are two impacts. One, you clean up the bank's balance sheets, get it off their sheet, and create a marketplace and a dynamic that allows liquidity for this debt and then creates a whole new marketplace marketplace and ability to issue and clean up the country's balance. So you're doing good for the banks and you're doing good for the countries and theoretically doing good for a whole new investor base. And that started in the early '90s, and I walked into Wall Street in the early '90s out of college, and I just fell into this market that was starting and really boomed for a while.

And so what does that mean to attach a treasury to foreign debt? Can you tell us in layman's terms what that to treasury strips?

What is that? Treasury strips is zero coupon bonds, effectively. So you have collateral, you have risk-free collateral that's attached to the bond. So to get investors who would obviously wary of subinvestment-grade emerging market. At that time, it was called less developed countries, LDC. Then it evolved into emerging markets debt, which actually is a misnomer at this point because it characterizes almost everything outside of G7 from single-aid debt to defaulted debt. So it's grown over the last 30 years to incorporate sovereign debt, debt of countries, primarily issued in hard currency, dollars and euros, down to investment-grade corporates, government-owned debt, like oil companies, let's say, nationalized oil companies that would be called quasi-sovereigns, down to corporate debt, all the way down to default to debt. So it's all of credit. All credit products in a number of countries. It's balloon. But at the infancy, it was a evolving asset class to clean up the balance sheets and open access back to lending to these countries. And instead of just being relied on major money center banks for loans that really sat on their balance sheet and weren't that liquid, didn't trade much, let's open it up to a global investor base, trade Euro bonds, not necessarily put in your 401(k), but put in your pension funds, and then hedge funds traded it.

And from there, it evolved from dollar debt into the local currency debt became much more fashionable. So investors can buy, Turkish layer denominated debt or Kenyan Shilling denominated debt. And then obviously derivatives.

You can buy Kenyan debt in Kenyan currency?

You can. It's not that easy. But the harder it is to trade, the more the banks make money trading it. Certain countries are harder to access than others.

So all of this debt originates from the desire of countries to raise money from the world? Correct. So if I'm Kenya and I want to fund the operations of my government, I issue bonds?

Yeah, you issue locally, issue to local bills to local banks, primarily, local bank treasuries. Foreign investors can access that through typically plain vanilla derivatives, and they'll issue dollar-denominated Euro bonds that are open to the world to trade in dollars.

If you're the Treasury Secretary, that's a huge power that you have. You can bailing out other countries.

Certainly. I mean, I saw it. My first job. For about a year, I was an analyst on a trading desk, and six months in, they gave me a trading book, the Mexico Book. This is 1994. And they gave it to me because I was a kid and it was the safest book. You couldn't hurt yourself too much with it. About six months after that, the Mexican Peso crisis hit. So, yeah, that was Robert Rubin and friends. I lived through that whole experience of the bail. What did they do? What What did who do?

What did Ruben then, Treasury Secretary, what did under Clinton, what did he do with the Mexico crisis?

Well, what's interesting is, I don't know, it's a function of just how the human brain works. You look back and you're like, oh, yeah, we basically bailed Mexico out and cleaned it up and everything went on as it was. But you forget as you're going through that, these things all take a lot longer. Your memory shortens up. It took a lot longer and it took a few go-runs. And what I learned through that whole thing was, because I went through a bunch of these crises, there was the '94 Mexican peso, 97, the Asia crisis, Taibot, or if you remember Taibot crisis and Korea chai balls and all that. And then '98 was Russia, 2000 was Argentina peso crisis, and then we had the GFC. So there was a series of rolling crises, and all in the first 10 years of my career. So that definitely It wounds your ability to stay permabolish when you're going through a bunch of rolling crises. But what I learned through these series of crises is that what you have to start with is the bazooka. To go with the Moab of bailout. You have to go with way more than the market thinks you need.

Because in the Mexico Peso crisis, if my memory serves properly, they kept coming with not half measures, but just enough of what they thought would bring back market stability or market confidence. And just enough creates a bit of spike in confidence and then start to panic again and then come back again until finally they come back with the mega bazooka, swap lines, bailouts, all that stuff. So that was us early in the Washington consensus era of foreign policy. And there was a I guess the macro point I would make or the conclusion I'm reaching is this is a huge feature of our foreign policy. It is. And the IMF, it's funny. You mentioned Ukraine, and the trip I went to Ukraine was an investor trip. And part of the purpose of an investor trip is to go and to meet with their finance ministry, their debt liability people, meet with banks, meet with locals, get an assessment. And you always go to the IMF, the IMF there, and ask what the likelihood is of the next tranche being delivered. And perhaps it's a bit cynical, but 30 years of Trade and Merge markets will make it pretty cynical.

But I'd always go into those meetings and walk away from those meetings like, what are we talking about here? Of course, they're going to disperse the next tranche. That's what they're in the business of doing. They're in the business of lending money to these countries, because because that's what they do, and that's where they make their money. So it's very rare that they won't or they don't unless it's a real turn your nose up or thumb your nose at the IMF and And- Is the purpose of the IMF to bail out mismanaged countries? I think it's simple terms, yes. I don't think that's the most euphemistic way of putting it or how they describe it. But effectively, yes, I'd say backstop or to keep them afloat and to offer them guidance as to how to run austerity programs and get themselves back on the rails so that they can move towards prosperity, democracy, all this.

Does it work?

Typically, no.

Why?

Because, one, it's very politically unpopular as a domestic politician to be taking orders from any foreign power, but certainly the West. And those orders come with strict austerity because how did they get themselves in those problems in the first place? A distinct lack of austerity.

Living beyond their means. Correct.

So that's not particular to emerging markets countries. All sovereigns do that. Everyone And the West is doing that as well now, living beyond their means. But some of us, like the United States, are able to run what's called countercyclical monetary policy because we have a reserve currency. So we have a special privilege to be able to maybe be somewhat more profligate than others. But the money runs out a lot faster in emerging markets countries when you can't finance your debt and you have a dual crisis of both your currency and your interest rates running out of control. And at that point, you've got nowhere to go other than to your friends in DC or Brussels and ask for the backstop. But in return for the backstop, you need to make some promises about how you're going to conduct your business going forward. And as you can imagine, cutting expenses, raising interest rates, slowing the economy doesn't generally get people reelected.

Exactly. Hate to brag, but we're pretty confident this show is the most vehemently pro-Dog podcast you're ever going to see. We can take or leave some people, but dogs are non-negotiable. They are the best. They really are our best friends. For that reason, we're thrilled to have a new partner called Dutch Pet. It's the fastest-growing pet Telehealth service. Dutch. Com is on a mission to create what you need, what you actually need, affordable quality veterinary care anytime, no where you are. They will get your dog or cat, what you need immediately. It's offering an exclusive discount, Dutch is, for our listeners. You get 50 bucks off your vet care per year. Visit dutch. Com/tucker2learnmore. Use the code Tucker for $50 off. That is an unlimited vet visit, $82 a year, $82 a year. We actually use this. Dutch has vets who can handle any pet under any circumstance in a 10-minute call. It's pretty amazing, actually. You never have to leave your house. You don't have to throw the dog in the truck. No wasted time waiting for appointments, no wasted money on clinics or visit fees, unlimited visits and follow-ups for no extra cost, plus free shipping on all products for up to five pets.

It sounds amazing. It couldn't be real, but it actually is real. Visit dutch. Com/tucker to learn more. Use the code Tucker for 50 bucks off your veterinary care per year. Your dogs, your cats, and your wallet will thank you. Hate to brag, but we're pretty confident this show is the most vehemently pro-dog podcast you're ever going to see. We can take or leave some people, but dogs are non-negotiable. They are the best. They really are our best friends. For that reason, we're thrilled to have a new partner called Dutch Pet. It's the fastest-growing pet Telehealth service. Dutch. Com is on a mission to create what you need, what you actually need, affordable quality veterinary care anytime, no matter where you are. They will get your dog or cat, what you need immediately. It's offering an exclusive discount, Dutch is, for our listeners. You get 50 bucks off your vet care per year. Visit dutch. Com/tucker to learn more. Use the code Tucker for $50 off. That is an unlimited vet visit, $82 a year, $82 a year. We actually use this. Dutch has vets who can handle any pet under any circumstance in a 10-minute call.

It's pretty amazing, actually. You never have to leave your house. You don't have to throw the dog in the truck. No wasted time waiting for appointments, no wasted money on clinics or visit fees, unlimited visits and follow-ups for no extra cost, plus free shipping on all products for up to five pets. It sounds amazing. It couldn't be real, but it actually is real. Visit dutch. Com/tucker to learn more. Use the code Tucker for 50 bucks off your veterinary care per year. Your dogs, your cats, and your wallet will thank you.

With MasterCard You've got a democracy problem.

These countries overspend because they're democracies, and they're trying to meet the demands of their voters, and then it's impossible to fix because their democracy is trying to meet the demands of their voters.

That's probably a little more euphemistic than I would say. Yes, that's one factor, but there are other factors at play as well.

How many countries have been bailed out by the United States over the past 30 years that you're aware of?

There's hard bail Bailouts and soft bailouts, so I couldn't really put a number on it. How many are running an IMF program right now? It would have to be in the dozens. How many strict bailouts? I really don't know off the top of my I mean, we can go through, obviously, Mexico, excuse me, Argentina. In the Asian crisis, there were a whole host of Asian countries that had to post up. So there's the hard bailouts, and then there's the softer bailouts of coming back, staying on the teet, so to speak.

Who makes money from this?

Who makes money from this. So the IMF theoretically makes money from the interest on the loans, but it's typically below market loans. So it's not a real profit motive. Banks make money from this, from facilitating the debt, the trading of it, the issuing of it, the fee of issuing of it. Investors make money from higher interest rates, obviously. And then there's a subset of investors, like distressed debt investors that will buy a bunch of defaulted paper, sit on it, and then do workouts. The most probably stark examples recently would be Argentina. Right now, Ukraine will be pretty significant one as well. See what the workout is with that.

What would you do with Ukraine as a banker at this point? What's likely to happen to Ukraine? Not on a military level, but- Ukraine is a different one than, say, in Argentina because it has at the moment more of a geopolitical put, so to speak, than pick a random country, like Bolivia or Argentina.

Although now, under this administration, clearly, there's more with Monroe doctrine part two, there's more of a geopolitical put to Argentina. But Ukraine is a tricky one because there are, obviously, up until recently, you had the entire West behind them. This week alone, You've got Larry Fink, Wykoff and Kushner over there working on stage two, what's going to happen, the peace process, but also the rebuild. So it's an odd one. I think that's going to be a combination of public and private because there'll be so much rebuild to do, and there'll be a lot of money to be made in the rebuild.

What does a debt crisis look like? What is a debt crisis?

Well, a debt crisis typically is not a debt crisis alone. It's accompanied by a currency crisis, the debt crisis, the external debt, and then a local market interest rate crisis, which is also debt in itself. So the local Local T-bills, local interest rates will skyrocket at first to try to raise interest rates, to try to attract money to the currency, to stem the route on the currency. And that can work up until a point until you lose control of both. So what a debt crisis looks like is runaway currency devaluation, runaway higher interest rates, which clamps down the interest rates, clamps down any lending locally, clamps down any local growth, creates the defaults on domestic businesses, the currency running away depending on the country, but all countries, it causes inflation. But countries that rely on imports, certainly even more, everything you're bringing in is going to cost far more in your local currency. So it's really a spiral. And then typically what happens is bonds will drop to a level that's called recovery value. And recovery value is effectively what is a term really more from, I see the corporate credit markets where if you were to strip everything down and sell it for parts, what could you get?

What could you get for the cash value.

Interest rates spike, bond values drop. Collapse, yes. What does this have to do with debt? Why is it described as a debt crisis?

Because no one could function without without borrowing. No one can function without debt. So if you can't borrow, you can't exist.

And there's no country that's not true of?

There are countries that don't necessarily need to borrow as much as they do, but they still do.

Why?

Because, one, because they can cheaply. I would argue the GCC countries don't necessarily need to borrow as much as they have.

The Gulf, Persian Gulf countries.

But they have recently Saudi, for example, because they're going on a massive expansion to diversify themselves away from their core business, which is oil, which is actually a very wise thing to do, because if you look at countries, historically, Venezuela is probably the most extreme example. That had an... There was a single A-rated country in the '80s. I went there in the '90s, a gleaming infrastructure, incredible highways, beautiful hotels, amazing place. And they never took the oil wealth and diversified away from it in a meaningful way. And then when you have an oil shock and you've taken out too much debt against the... Let's make up a number, $100 oil price and oil drops to 30, you're all upside down. And so that's what MBS is looking at for a multi-decade plan to build these cities, technology, innovation centers and so forth, which is clearly learning from the past. But they're borrowing to do that. They're borrowing to do that, yeah. But they're borrowing at fairly cheap rates. There's also a concept that you want to borrow as the sovereign level to set a benchmark against which your companies can borrow in international markets. This would be the broader the investor base, theoretically, the cheaper the interest rate.

So they'll set a benchmark level, and then a corporation can borrow at that rate plus 20 basis points or 50 basis points.

Well, some Americans have become cut off from the things that once kept us grounded, our land, the skills that tied our families to nature. Told you he was getting his next spot. And to remind us, we made a new six-part series, American Game: tales from the Wild. We follow the sportsmen who are keeping these ancient traditions alive. We follow a formative name, The Seal, into the mountains of Texas. Donald Trump Jr. Crossed the ridges of Lanai. That's what we call from going from zero to hero. And wander with me through the quiet woods of Maine. I have just three dog commands, and then as I direct the dogs, find the bird. Find the bird. And then dead bird, obviously, which I don't use as much as I'd like to. We cast for Steelhead on the Deschutes River in Oregon. That's the first one I've caught in a while. Tracked mule deer in the Utah high country. Spearfish in the waters off Montauk, chasing striped bass and bluefin tuna. See you on the other side. It's called American Game, tales from the Wild Outdoor Series. Watch it at tuckercarlson. Com. Do you remember this line from the Night Before Christmas?

The children were nestled all snug in their beds while visions of sugarplums danced in their heads. It's the perfect winter slum number, but it's only possible if you can actually sleep. That's where Beam's Dream Powder comes in handy. Our friends at Beam, which is an American company, have made the perfect formula for the most effective sleep powder ever used. Unlike the junk you would buy from your pharmacy, Beam's Dream Powder is completely clean. It's got no fillers or synthetic garbage, and it actually works. Lots of people here on our staff use it, and they can affirm that fact. When you use Dream, you fall asleep fast. You sleep through the night, and when you get up, you feel sharp, focused, and ready to dominate the day. It's already improved over 28 million nights of sleep. They've calculated it, and Christmas is the perfect time to try it. This winter, Beam is giving our listeners the Patriot discount. Visit shopbeam. Com/tucker. Use the code Tucker and get up to 40% off Beam's dream powder. But here's the catch. It's only available at this price until it sells out. Go to shopbeam. Com/tucker. Use the code Tucker.

We recommend it. If every country's indebted, I mean, debt decreases your sovereignty, your ability to make independent decisions.

That's correct.

Yeah. If every country's in debt, then there are no fully sovereign countries then, right? No country is free to do exactly what it thinks it should do in its own interest. They're all connected. No.

Again, back to US, I mean, Identically, we are or were, based on the fact that we have a global reserve currency, but there is a limit to everything at some point.

So what's the limit for the United States?

It's hard to say what the limit is. The limit is what loses the global reserve currency status, right? And as I alluded to before, these things don't happen quickly. They happen over a much longer period of time than anyone would think. So how do you... In simple terms, to me, let's look at some global reserve currencies historically. Dutch Gilder, British pound, US dollar, probably the most obvious examples in relatively recent history. And what did they all have in common? They ruled the seas, military dominance. And you'll see memes online where people are like, what pictures of fleets of aircraft carriers in the Gulf and displays a military power. That's what backs my currency. And that is true. But at some point, You got to ask yourself a question, also, how did empires from Rome to the Dutch to the Brits? Imperial overreach, to an extent, was what undid them, right? If If we continue to... What concerns me longer term of the potential to lose the reserve status is if we lose our military dominance. That's not happening, obviously, tomorrow, the next day. There's a few things that could, obviously. I mean, you're more versed than I am in this whole notion of modern day drone warfare, but that certainly levels the playing field very, very quickly.

You see what the hoodies we're able to do. Yeah. With not so sophisticated and not very expensive drone technology. But that's pervy for some military expert, not me. The other thing that concerns me- But the structure remains the same.

So the United States can continue being indebted to the degree that it is because it has the world's reserve currency, and it possesses that because of its military dominance.

It does. But if... Yes. I think what's a very important... Was a very important moment, however, was the seizing of the Russian reserves at the beginning of the Russia-Ukraine conflict.

I felt that. I think we So look- Can you tell us what happened?

Just for people who- Yeah. So quite simply, the Western power seized the Russian reserves that were sitting in the New York Fed. I believe it's 300 billion is the number that they seized. And the Europeans still want to use that for rebuild and so forth in Ukraine. Now, not to get into who's right and who's wrong in the Ukraine-Russia conflict. That's not the point in this. The point is it sets a precedent. That's a scary precedent. That is your money that sits in US treasuries or gold in our Federal Reserve is not safe if you run a foul of the powers that be. So there's a very obvious and natural reaction function to that, which is powers like India, China, and Russia, Stop buying treasures and start buying gold. The gold call was certainly we have inflationary pressures we can talk about. But even more to the point, it seemed obvious at that point that that's the trade. It's Yes, it's an inflationary hedge.

I bought gold that month. I remember. Yeah. And I've done better than the stock market's done.

Well, it's funny. If the move in gold this year, I won't get it right off the top of my head, but it's over the last 20 years Which I think now, gold has now beat S&P now when you compare the two. It's really effectively just the debacement trade when you look at it.

What's the debacement trade?

Debacement trade is that the currency that we all use and think about every day has been debased against gold, the value of the dollar. I think oftentimes people look at the dollar as a dollar strong or the dollar weak, and what people are looking at is effectively the DxY, the dollar index, and that's a basket of major currencies, or it's heavily weighted to the major currencies, Euro, Yen, Canadian dollar, Aussie dollar. And it's really, at this point, a ridiculous comparison because all of those countries are in a basket case with their debt issue and their growth. But if you look at the dollar versus Bitcoin, or if you look at it versus gold over the last 10 years, it's pretty clear that the currency has been debased in those terms. So if you look at it in that terms, the stock market returns don't really actually look quite as great, as wonderful if you're looking at it, and what a dollar would... How many dollars it took to buy an ounce of gold 10 or 15 years ago versus today.

And all of that or some of it is downstream from the decision by the Biden administration to freeze Russian assets because that scared the crap out of the rest of the world.

I think the gold move is for sure. The dollar weak, the dollar weakness against gold, yes, but there's also, I mean, I think the big move... If you look at... If If you look at what we did after the GFC in terms of interest rates and- Global financial crisis.

Yes.

What we did, bailout extraordinary measures, fiscal and monetary, keeping interest rates at zero. So emergency measures, keeping rates at zero that remained in place for a good 10 years. I don't know how you state emergency measures at zero interest rates when the stock market quadruples, over, turples, quadruples over 10 years. So I think-Why is that bad?

All those investors got rich. Everyone's happy with their 401(k)s. Why Why is that bad?

Well, it's bad for a number of reasons. One is if you believe in a free market capitalist system, you believe in the pricing mechanisms, the free market Pricing is everything. The price of meat at the farmer's market is set by the free market. Who is willing? Willing buyers, willing sellers at a fair price. Once you start to put in price controls, the Soviet Union, it's definitionally We don't have free market capitalism. At the core of free market capitalism is the price of money. So we artificially put price controls on the price of money. It's the way I look at it. We artificially kept interest rates way too low at zero when the market didn't necessarily demand the conditions. Maybe at the time, certainly five years hence, 2015, I don't really see why we needed to keep interest rates at zero for that long. So yes, I think the reason, in my opinion, the reason of the people at the Fed, the dozens and dozens of PhDs at the Fed making these decisions, probably to a man, to a woman, wrote their PhD on the Great Depression and what the Fed did wrong and the horrors of deflation.

So really, the depression was really a result of deflation. So that's the greatest boogie man of all. Anything you can do to fight deflation. Deflation is the real killer, especially when you have an excessive debt load.

I'm going to stick to the dumbest possible questions. I hope I don't offend you. What is deflation?

Deflation is prices going down. What you want is a gentle inflation to help inflate away the debt to show a gradual... The benchmark, the Fed target for a long, long time has been 2 % inflation. They soft up that to three recently, and as you know, just cut rates this week, even with core PC at 2. 8. So they've abandoned that 2 % target. But what I think in that time-Why wouldn't I want deflation because that makes the value of my paycheck higher. It depends on who I is, who the I asking that question is. Right. So if you're you and your wages are constant and you've paid off your house, certainly deflation would be great. Go to the store every day and things are cheaper. I mean, there's deflation in certain sectors. For For years, there's been deflation in all technological goods, right? You get a flat screen TV for $400. So for you, Tucker Carlson, it would be wonderful. For the economy as a whole, that's really run on hyperfinancialization in debt, if you have a deflationary spiral, you are going to be left with a bunch of defaulted debt. So where we are right now Now, to pivot, I guess, to where we are here with the US is, I think when this administration came in, they messaged pretty clearly that the move was going to be away from the Biden administration and more towards some austerity.

There would be some tax cuts, but it would be offset with spending cuts. Doge, Elon, et cetera. People got very excited about potential potential cuts. And then I don't know what happened shortly into the administration, but there was clearly a pivot that I didn't see coming. And it was around the time of the tariff tantrum and the big sell off in the stock market. But out of that, it seemed to come that there was a shift towards what people are now calling run it hot, which is, forget about tamping down spending, little tax cut. Maybe we'll take some slower growth, but we'll reduce the deficit. That'll be good for the long term. And instead, let's just run it both ways, fiscal and monetary. So let's cut rates and let's cut taxes and let's spend more. And I don't know what happened or if that was always the plan, or someone saw under the hood and said, look, the only way... Typically, there's two ways to get out of a debt problem. You grow your way out or you inflate your way out. And it seems to me we're going all gas, no breaks on growth.

We're going to grow and we're going to let some inflation go, and that's the way we're going to get out of this debt issue. I think Trump this week was saying, I could see 20, 25% GDP growth. I mean, that's a nice number, but that would certainly help our deficit issues.

Well, wasn't that long ago that many Americans thought they were inherently safe from the kinds of disasters you hear about all the time in third-world countries? A total power loss, for example, or people freezing to in their own homes. That could never happen here. Obviously, it's America. People are recalculating, unfortunately, because they have no choice. The last few years have taught us that. Remember when the power grid in Texas failed in the dead of winter? Yeah, it happened, and it could happen again. So the government is not actually as reliable as you'd hope they would be. And the truth is, the future is unforeseeable, and things do seem to be getting a little squirly. So if the grid does go down, you need power you can trust. Last country's supply's newest product is designed for exactly that. The GridDoctor is a 3,300-watt battery backup system that will power full-size appliances, medical devices, and tools with clean, reliable power. It's even EMP-protected. That means it's shielded from lightning, solar flares, or an actual electromagnetic pulse event. There's no gasoline, no noise, no emissions. You just plug it in, charge it from the wall from your vehicle, or from the included 200 watts solar panel, and keep going day after day, taking care of yourself and the people you love is solely up to you.

The amazing thing is with these new batteries, we use one at home, by the way, is they're super easy to use. There's no invertor you need to figure out on the front of it or anything like that. There's three buttons. It's very easy and totally reliable. Highly recommended. We literally use one, as I said. Visit lastcountrysupply. Com to shop the grid doctor for power you can trust this winter. Lastcountrysupply. Com. Have you ever seen any country try that?

No.

Really? In 35 years of watching?

Oh, 20, 25% GDP, no.

No. Have you ever seen any country approach a debt crisis with that?

Sure. I mean, Erdoğan is probably the most famous in Turkey.

Did it work? No. What happened?

He tried to keep cutting rates into an inflationary environment and put pressure on the central bank to cap rates, but the free market always... I think, I always say, you can suspend the laws of science, of physics, of gravity, of market economy for a time. But ultimately, the gravity always works. And the free market always works. So no, it didn't work. They have run away in inflation and extraordinarily high interest rates. And he's been under a lot of pressure domestically for re-election, obviously.

So what's the right way to approach it?

Well, as I think, was it Thomas Sowell says, there are no solutions, only trade offs? Yeah. There are no solutions when you're in this situation of $37 trillion dollar deficit.

Is that a lot?

Sounds like a big number to me. I'm not even sure how many commas are in there. It's a big number. It's hard. It's really hard to grasp. But I think you go back, you started with ideology. The answer is always going to depend to an extent on what your ideology is and what you're willing to sustain in terms of paying short term to long term. For me, I was more I was more a proponent of what I thought the plan was going to be, which is some deficit cutting through spending cuts. And from what was coming out of Doge early, it seemed like there was plenty of fat to cut that would have been politically rather popular, I think, especially with the right PR guys behind it. Guys were getting out there every week on Twitter and going on podcast and talking about the absurdities they were finding. Now, maybe it's a drop in the bucket overall, but I think it was a worthwhile exercise to go with. I don't know. Again, I don't know. I'm not on the inside, so I don't see what he's going to see.

Could it be that there... The idea always was that federal bureaucrats, public servants, as we call them, were serving, and they were making less than their private sector counterparts. There was suffering involved, but patriotism impelled them to do it, so they did. Now you look at the numbers and it's like, No, your federal employee on average makes way more than your private sector.

2x.

2x. They're the most privileged people. Okay, in the middle class.

And by far-That doesn't count their gilded pension plan. Is it really 2X? I think the number is average, medium, private sector Family income is 70K. I think it's 110 or 115 for federal employees.

Not including the benefits, which are ridiculous. Work from home for five years. But then, of course, the population of federal workers or federal contractors, which are, I mean, there are probably as many federal contractors. No one ever says that, but there are. Deloitte is a federal contractor, right? So there are so many of them now that we maybe have reached that tipping point where no administration can pivot against its own employees because they're voters.

Maybe, but I'm sure you've alluded to it many times. You can't have, what is it, seven of the 10 top zip codes in the United States are all in and around Washington, DC. I mean, I went to... You grew up there. I went to school there in the early '90s, and I hadn't been back for 15 years. It's night and day. It's a gleaming gleaming office towers, roads and roads. I remember having an internship two blocks from the White House, and you were passing... You had to pass bombed-out derelict buildings, and now it's just- From the 1968 riots.

They never were rebuilt.

1992, they were still there. Like, literally two or three blocks from the White House.

I remember.

And it's crazy. I mean, it's... And flash as a Roman Empire, right? You go to Rome to collect your tribute. So I don't know. I'm not as privy to that world as you are. I don't know what people see when they get into office and realize that there's potentially no way, there's no way around it. All our intentions are We're great, but this is the way it's going to be. I don't know.

Okay, but you're also suggesting that this is not a solution, that you can't spend your way out of a debt crisis.

I I haven't seen it done before.

Right. How much magic would that take?

To sense a very talented individual. He's a lot of experience in markets, very successful, the right guy to have at the helm. If he thinks this can be done, I guess we don't have any choice but to see how it plays out. But maybe that's the play. The play is this is our only way out. People on both sides, people I speak to, people I knew in the markets, friends of mine, people whose opinion I respect on both sides of the aisle. The one thing we all agree on is that this is not a tenable situation. This is not some MMT Elizabeth Warren people we're talking to. This is like normal people that say, okay, at this point, we're boxed at 37, 38 trillion. So maybe that's the issue. Maybe we're so boxed that we got to run this experiment experiment because it's our only way out. And hopefully, growth kicks in. But the growth scenario, the current growth scenario in the US is really hard to get your hands around. In one part, because it's such a polarized economy, people are calling it a K-shaped economy, which I think is a pretty accurate term.

K-shaped meaning the the lower end is hurting and continues to hurt more, and the upper end gains and continues to gain more. And we've seen throughout history, that's not a tenable situation.

No, it's actually what happened in Venezuela. It's how they got Hugo Chávez.

Yeah, it's a powder keg all ultimately. And it's also extraordinarily difficult to get a real handle on where the numbers are because we're not releasing any numbers right now because the government shutdown. So the feds flying blind to an extent. You can rely on certain private sector indicators that are shockingly bad, frankly. When you look at consumer loan defaults, credit card balances, credit card, the late credit card payments, auto loan defaults. I think October was 185,000 announced private sector layoffs, I think it was worse since '08. So you have a situation where you've got to... The US economy is 69, 70 % consumer-led. So if we're going to rely on the top 10 % to continue to spend on Gucci bags and trips to St. Bart's, I just don't know how sustainable that is when the lower end is swapping out New York strip for for pork loin. And Walmart numbers are great because middle and upper middle class is shifting from the Publix to Walmart shopping. Everyone's getting squeezed. So I don't know that the growth is there. The growth can come. Maybe the growth can come with these tax cuts, with interest rate cuts, certainly with deregulation will help, and all this promised foreign investment.

But there's a lag to all that, so we'll see.

It does seem from an from an ignorant outsider standpoint, which is mine, that there's an awful lot of emphasis on the public equities markets and the stock market is the measure of how we're doing. Whether or not that's a good measure, I don't know. Maybe not a perfect measure, it feels like to me. But how safe is the stock market in the United States as a place to put your money? I could tell this is an uncomfortable question. Be as diplomatic as you can be.

Well, it is the largest, most liquid stock market in the world. It does attract not just domestic savings, but huge foreign investment. For this expression that says capital goes where it's treated best, and we still do treat capital the best in this country. Extraordinary dynamic markets from venture cap to private equity to public markets. And that's something we should all be very proud of. And it helps grease the skids of global commerce, and that's great. There are some concerns, clearly concerns about the current valuation in the equity market and the structure, the economic structure of the flows. So one, there's a massive concentration risk. It was the fangs, now it's the Mag7. I think the top 10 companies in S&P 500, I think, have accounted for something like 42 % of the gains year to date. The big get bigger. You had new NVIDIA at one point, tipped over five trillion dollar market cap, which is, again, a hard number to really get your head around. At that point, I think it was larger in market cap than every market in the world, except for US and Japan, entire market cap of any other trade, any index in the world.

Wait, bigger than the entire index of any country in the world? Yes. Biger than the cumulative total of the value of all the companies traded on those indexes.

On a random exchange, yeah. Except for, I believe US for sure, and I think Japan. Again, I could be wrong, but something in that you get the idea of what I'm-So just one company dwarfed all these economies. That's right. We don't need to go into all the price to book and price to sales and expectations of future revenue, that thing. You get into a market psychology event where stocks that go up continue to go up because people chase momentum. I read something yesterday that the explosion in options trading, the volume of options trading The volume option rate is now three and a half trillion a day, which is larger than the entire market cap of the Russell 2000. So like the 2000 small mid-size companies, 300 million to 2 billion market cap companies in the United States. And that doubles, I think from 2022 and then doubled again. So you got an insane amount of leverage. You've got margin debt at all time high.

May I ask why What is it significant in the options market is huge?

Because it's not just the options market is huge, it's also the structure of the options. They've moved to zero day to expiry options. So it used to be weekly or monthly options, and now it's one same day option. So the retail With the gamification of-So an option, my understanding of an option is an option is a bet in what direction-In the direction, and you get an immense amount of leverage. Immense amount ofAverage.

How does that work? How do I...

So let's say that you want to buy a call, betting that NVIDIA is going to go up between now and the close. And at the money, NVIDIA call, meaning let's say it's trading at 177 right now, and you think it's going to go up. And the price of the at the money, the 177 call is, till now to the end of day, is 75 cents, let's just say. So you're betting that it's going to go up more than 75 cents. If it goes up a dollar fifty, you've doubled your money. You're not just making 75 cents on 177, which would be whatever, 31 %. You're making 100 % of your money. So you're getting... All you can lose is the premium, the 75 cents you pay for that option. But everything over 75 cents starts to run exponentially in terms of profitability. So people are making an insane amount of money in this run-up on options, zero-day options, and they're doing it from their phone. It's pretty easy with the-That's not really investing, though.

That's betting.

Yeah, that's gambling. But that's just one component of the structure of the market.

But it sounds like it's now a huge component.

It is a huge component. But again, with the gamification of crypto trading and options trading and Robin hood and with gambling, DraftKings and all that stuff, it's part of the culture. And it all started in COVID, people at home with extra stemmy money and not much to do, and the market was ripping and people got hooked on it, and people keep doing it. And generally, people are doing quite well. I think retail has done better than institutional, largely speaking, this year. But the other part of the structure of the market that's somewhat concerning is just this passive flow. Then there's a guy named Mike Green, who you should probably speak to, who's done the best work on this. And passive flow, basically 401(k), if you put your money in every two weeks, your money is automatically going to your 401(k), and you click to that, it's auto-invest. If you go and you look at most companies' 401(k) options, their options and what to invest. And then you break down each one of them. Basically, every single equity option fund you have, It has the same high concentration in the same five stocks. So Apple, Microsoft, NVIDIA, whatever.

So you don't know that necessarily. You don't really know what you're buying or what percentage of the fund is in those. It's very highly weighted because the higher the market cap go, the higher the weighting, the higher the weighting goes, and on and on and on. So it's just an automatic machine-like underlying bid to the market that continues to the big, the big get bigger and bigger and And you could say, okay, what's wrong with that? These are great companies. They're multinational. They have great business models that were low capital intensive and high margin. And they're basically a lot of them are monopolies in their space. Okay, well, two things can happen. If unemployment rises, if you lose your job, you're not putting your money in a 401(k). If you lose your job and inflation keeps ripping, you might have to withdraw from your 401(k), which creates a vicious cycle the other way.

It's too much concentration and too few.

It's too much concentration, and the structure of it perpetuates it. And then you add on the leverage of the option trading with the momentum that keeps this trade going and going and going to where you get to five trillion dollar market caps. Now, there'll be a whole coterie of Wall Street analysts that will justify why five trillion makes sense because of this, that, and the other thing. But I'm not sure.

What if there were of the 5, 8, 10 companies that have the bulk of the value, the plurality of the value of the entire S&P, If one or a couple of those companies dramatically reset in its value and its share price, what would happen?

Well, you're seeing it right now, as we speak, as the AI trade is starting to lose a little bit of favor. It's just going to be some questioning on the AI trade. And the market can't continue to trade up if one or two of the major components are falling out of bed. I mean, this week, It's been Oracle and last night, Broadcom took the market down. Nvidia is starting to weigh a little bit. So we're very tech sector heavy. And the other thing that concerns me to an extent about not just for public markets, but for private credit markets, is that with this AI build out and this data center build out, obviously an extraordinarily capital intensive. And what I was speaking about before about how a lot of these X, seven companies had a great model of being capital-like, they're now becoming quite capital-intensive.

It's not writing software, it's building physical things.

Exactly. You're building physical things and you're spending, you're borrowing a ton money. And this is what the problem with Oracle is right now, is they borrow a lot of money. And now they're borrowing a lot of money to build things and build things that depreciate in value over time. Like a chip that you buy. A lot of the financing that's been going on, too, has been people have been using collateral. These chips is collateral to borrow against. So there's borrowing and borrowing and borrowing. But you're borrowing against a chip that naturally is going to be replaced by the next evolution.

Of course.

So that's a bit of concern about the value of the collateral. And when that daisy chain unwinds, it could be ugly. The other thing is that there's so much there's so much borrowing in the private credit markets for these hyper scalers and these data centers that it crowds out. There's a finite amount of borrowing available, right? So it's crowding out, borrowing and investing in other areas of the economy. And that concentration risk concerns me to an extent as well. And the difference, a lot of people have made the analogy to the '99, 2000 tech bubble'. And the good news coming out of that down the line is that, Okay, we all got hyped up on the internet and we got carried away with pets. Com, things like that.

E-toys.

But the truth was, in retrospect, we weren't hyped up enough about the internet and what it would do and how it would change the world. But there's still a cycle that comes along where there's the euphoric cycle and then the crash cycle. And then on the back end of that, you have the winners that survive, like the Amazons, right? That you could have bought for practically nothing in 2002. And then there are companies like, they're similar to me to this, the Hyperscale data center, where the fiber company It's like, Global Crossing, WorldCom, right? And those were bubbles that crashed. But what were they doing? They were laying fiber cable for the Internet, which, okay, we had a malinvestment boom. The company's crashed, but the cable still exists, and the cables are in use today, and the cables were very valuable, and the cables didn't depreciate because the cables have a useful purpose. So people are I'm making the same argument now. Is it, okay, we may go through that cycle as well. It's maybe get a little fork. There'll be winners and losers out of this, and it'll be fine down the road, and AI is not going away.

I'm not here to disagree with that. But there's a slightly different component Where you're building these things that could... You're buying all these chips that could depreciate. It's not exactly the same tree.

No. And the nature of technology is hard to forecast, very hard to forecast. They were telling us six months ago that AGI was right around the corner. Nobody thinks that anymore. Just for example. And so all of these infrastructure bets are predicated on predictions about what the technology will require in 10 years.

The thing that we're really running up against. Do we know that? We don't. You're exactly right. And I think the worm's turning a little bit on the efficiency of a lot of these. Yes. And what they can and can't do. And people say, I saved a half an hour or I saved an hour coding something, but then it took me three hours to check to debug the work that the actual clot or whatever did. But the real thing that we're going to run into is we don't have enough power, we don't have an electric, we don't have enough water to heat and cool all these things. That's just point blank. And even the, Jensen and Altman and those guys will tell you that. And that's why they're going hat and hand to DC and trying to make the case that this is a critically important industry that may need some government backing. But even if you get that, the fact that matter is the only way you can really power these things without spiking electricity bills another 300 % and then creating a whole another political problem domestically is you need nuclear power And we have plenty of natural gas that can work as a stop gap, but you need nuclear power, and it's a 10-year buildout minimum to get the nuclear power that you need.

So when do we hit the... Somewhere between there, here in that 10 years, we hit the all in terms of our ability to get the electricity for these at this growth rate. Now, is this growth rate an accurate projection? Maybe it's not. And if it's not, then we need to see a lot of these companies come off in value.

Also, there are a lot of concerns about climate change. Yes. Oh, just kidding. That ended quickly, didn't it?

Yeah.

I haven't heard that phrase in months. Have you?

Climate change? No, I did see. I saw something that Nature magazine had to revoke a paper they did a few years ago that said that climate catastrophe was going to create a economic catastrophe, and that was all based on false premises. I think they did really good.

Yeah, I think the new idea is we're going to have an economic catastrophe if we think about the climate catastrophe in any way. I noticed Larry Fings not lecturing as much about the climate anymore.

Climate in ESG is not as fashionable as it was a couple of years ago, that's for sure.

How did that... As a guy who has dealt in markets, like Marging debt, it's pretty pure. It's like a... Debt trading is like a pretty pure market, right? Well...

Pure is an interesting choice of words.

No, I'm not saying unsullied.

It's pretty plain vanilla. Is that what you mean?

I mean, there's a willing seller, willing buyer. But what I really mean is the price is an organic price. It's like what people will pay. Correct. That is the You're not really going to get the definition of a market, right? How do you get to the price? Correct. As someone who spent his life in that world and who you're clearly committed to the idea of markets, you believe people should be able to decide what they're going to pay for something and what they're going to sell something for. How do you explain ESG?

I don't know that, funnily enough, I don't know that even the experts can actually define it. I'm I'm not joking when I say that. In my last job, we would do a conference every summer in Europe for investors, and we'd have a series of roundtable topics. And the one topic that was standing room only sold out every summer in Europe was the ESG, without question. It seems the US has definitely fated quickly from that, but Europe still seems very hooked in. It's not fated there at all. It's definitely a part of the investment process. But what's fascinating is if you go to 20 clients in London and you talk about ESG, you will get a different answer from each ESG specialist as to... And especially in emerging markets. It's a very difficult thing to work your way around the ESG constraints when most of what emerging markets are based on are hard commodities. And there's also, obviously, the governance component, the G component. It's not always maybe up to Western standards with the G.

With the G, a little light on the G.

The E is not great. The S, no one really knows what that means, and the G is highly questionable. So it's funny. It's It's still, I guess, what I call a work in progress.

But just conceptually, the idea that factors that are not really relevant to your fiduciary responsibility, which is to maximize returns for shareholders or something related to that. I don't know. It's just an interesting concept. How did that happen? It's That my personal guilt as an educated Westerner supersedes your right to have me handle your money responsibly.

Well, it's straight government intervention is what it is. It's government, it's government, it's ideology. If you are of that mindset where you believe in control economy, it is the dream of all dreams to incorporate your ideological bent into the last thing that should be left alone, which is the free market. You now inculcate all of this ideology into every decision making process all the way down to setting the price of money, which to me, I know I've run a foul of plenty of people on this, but to me, that's a bridge too far. That's not the place for it. But once in, it's impossible to get out. Once you go into that's involved in all the investment processes, it's really hard to take it back out again.

Back to the AI infrastructure boom in the United States. If that slowed down or if people lost confidence in it, are you concerned about a cascade effect on public markets?

In the short term, yes. The question is, how quickly does the market rotate? How do the rotation trade? So we're starting to see that actually the last week or two, you're starting to see small caps really rally, Dow components really rally, old economy stuff really rally as tech is being soft. So there's theoretically a way you can thread the needle there. But with the concentration risk and with the size of just actual size of these companies, it's going to be a drag on the overall market as a whole, best case scenario.

One of the reasons the stock market, as my theory, is so big is because it's the easiest, and as you said, most liquid way to park your money with some hope of return. And I don't really think Americans are encouraged to think of other ways. I just have always noticed that.

Absolutely. And as an emerging markets guy who's been able to look into other countries, frontier markets, et cetera, and how they look at it, there's always If you're an Argentine or a Brazilian, or a Turkish, you're always looking outside of your domestic economy, domestic market for opportunities. And we really don't too much.

No. And it's so easy to participate in the public markets in the United States. As you said, you can do it on your phone. You can make bets on market movements from your phone, which it just seems like it might have unintended consequences, maybe.

Yeah, it crosses the line, as you said, from investing to straight gambling.

But okay, so it's ease of use is the key to any scale, I think. Sure. That was Amazon.

That was, yeah. There's a lot of applications to that.

Well, yes. That's true. Yes. Well, that's, by the way, why tobacco use went absolutely crazy as soon as someone figured out an automatic rolling machine for cigarettes. People used to have to smoke pipes, cigars, take snuff up their nose. The second you made it super easy to burn tobacco, the whole world became addicted to it.

It makes a lot of sense.

Right. That's what the stock market is in the United States, from my perspective. But if you're trying to be a little more creative or hedge a little bit, your future your family's security, where else do you put your money?

Again, it depends on who you are, networth, et cetera.

Let's say you have an extra 100 grand. What would be a good call?

Well, the problem is the great obvious trades run a lot already. Gold and silver is already a run a ton. So long term investing, try to look at stuff, the ideal cross of what fairly valued or cheap or distressed or out of favor that people haven't really gotten on to because you see a trend that's about to emerge. Right now, we're in full-throated recognition of the debacement trade and silver is breaking out. For not for that reason, but also there's a notion that there may not be as much physical silver out there as Tarata has been written against. So there's been a bit of a TV is going on. Two weeks ago, the Chicago Mercantile Exchange shut down for a cooling issue overnight, just as silver was spiking, which was convenient. So there's some technicals in that market.

Wait, so you think it's possible there's more paper against silver than there is silver?

Yes. So, yes, there are definitely more derivatives written against all commodities than exist. But no one ever asked, not no one, but typically, if you're an investor, you don't ask for physical delivery of the commodity. I do. I know you do. I know. I know you do. I know you do. And I'm going to find out where that stuff's buried, too. So you don't typically ask for the physical delivery of it when you're trading in tens and hundreds of millions of dollars of derivatives against. You cash settle your derivative against mine, cash settle. The loser pays the winner and you move on. So where do you go? At this point, given where valuations are, I think you go abroad. You look at multiples on US stock market where we are trading historically. Extremely high PE ratios for the index on historical basis and very high against the foreign markets. I think what this administration is doing in Latin America, particularly, as I mentioned earlier, Monroe Doctrine 2, there's clearly a movement afoot to to stabilize region and to partner with those that are critical to us. I would imagine that open up a ton of investment and growth there.

There are plenty of Latin American countries that offer pretty cheap historical PE ratios. So I think it's probably time to diversify a little bit out of the US and diversify out of tech-heavy stuff. That's where I would go, simply. I think you still have to own some gold and silver. You just have to own some, but just not as much as you wanted three years ago, given how far it's run.

But you're basically making a pitch for the Venezuelan stock market?

Not specifically, but there may be a catalyst coming there that could create a big move on one way or the other, it seems, in the next couple of weeks.

What about real estate land?

Real estate land, for sure. That's why I asked. It depends on who you are. I think productive agriculture, real estate, anywhere is always a good investment, a disaster hedge. But yes, land as a whole, yes. I don't think I'd want to be rushing into blue cities and paying high interest rates and taking out a bunch of debt on overpriced co-ops in New York City necessarily.

What about buying a '70s era office building on sixth Avenue in Midtown, New York?

If you can convert it to residential, perhaps and get a lot of tax breaks. I may want to see what our friend, Momdani, says the first couple of weeks.

You made the point that for a bunch of different reasons, Ukraine war, but other structural reasons, we are on the path to losing our privilege as the holders of the global reserve currency at some point, right? Because all empires are.

Yes.

We know that. The question is, when does that happen and what replaces it? My read is, as of now, there's no obvious national replace. We're not going to adopt the British pound or the Euro or the Yen or the Ruble. But in Instead, gold is the stop gap, as it has so often been. But crypto seems like the next global reserve currency. Is that fair to say?

I Yes. I would say this. I think people bundle together the notion of blockchain and cryptocurrencies. And what I'd say I can't necessarily make a pure prognostication on any one particular crypto. I mean, it's been a phenomenal exercise and wonderful to see. It's adhering to Austrian economics to see the experiment work. I don't think we want to get into the dynamics of individual cryptos. I think at some point, probably Bitcoin as a crypto will be usurbed just by a better technology. But put that aside, what to me unequivocally and the next venture I'm going into, It's related to blockchain is, blockchain is here and is not going away whatsoever. And blockchain is going to transform the financial services industry pretty much every Everything we do financially transaction-wise. And fortunately, we have the wind at our backs with administration and David Sacks and genius act, et cetera. And nobody Nobody who maybe was somewhat skeptical three, four years ago is it all. I mean, Larry Fink, as an example, I think he continues to say all assets are going to be tokenized. Just this week, DTCC said all assets are going to be tokenized and put on the chain.

And that's going to remove a lot of little frictions in the system, extra costs that don't need and extra time lags that don't need to exist. So the cryptocurrencies exist with the layer of the blockchain. You can't have crypto without the blockchain, but the two are somewhat distinct.

So a couple of questions. One, is it safe? I mean, it's reliant on electricity. Yes.

But so is every... And I guys mentioned the CME went dark, right? The other day.

Chicago Mercadegal.

So the Nasdaq had shut down, right? Everything we do is reliant on, except for you coming over in your golf car with a bag of gold coins for me is relying on energy to that extent. Is it safe? Is it hackable? The theory, one of the theories being proposed Bitcoin, I'm not really sure if this is... Bitcoin's had a pretty decent drop from high 120s to around 90. Part of the thing being floated is that with quantum computing making the leaps that it's making that Bitcoin might be able to be hacked at some point, perhaps. But again, I'll put that separate to the blockchain. The blockchain, deeply encrypted, safe. These are the rails on which everything's going to run.

Okay. Will it eliminate corruption or curtail it? I think- Because it's- I think the question coming from you is a funny question because you know that nothing will ever eradicate corruption in the human spirit. Unless it changes the human art. Right. No, of course.

Yes, it should eliminate corruption because what What the blockchain is going to do, what it does is it creates a permanent, electronic, unhackable ledger. So think about something as basic is like title insurance. I don't know if you've ever had to deal with that. But first of all, Why do we need to pay?

Have I ever had to deal with that? Yeah, I pay constantly for title insurance.

It's an absurd notion. There's a title. You own the title. You put it on the blockchain. It's there forever. And I buy my house from you. The title gets transferred to me. It's registered on the box. The transaction is there. Now it's mine. It's there forever. We don't need to pay a couple grand or whatever. Sorry, one of my best friends runs a title company in Maryland. But he's my age, so he's probably almost done anyway. But that's just an example. Why do we need to pay five grand for title insurance? I just sold a house in Westchester, and I found out that from two owners ago, there was So according to the paperwork, there was a $650,000 mortgage still on the property and that never got expunged. But the brokers just waved it back and forth and everyone just stamped it. That stuff, that's just an example that everyone can relate to. But also why we'll be able to send money immediately with no... If I send money to you, you'll immediately get the money, get the care, get the interest on it. Why should I be paying $30 to send a wire from J.

P. Morgan? That's pure $30 of margin, all that little stuff. So the company that I'm going to be starting with Jan 1 is called liquidity. Io. And we have one of only six fully-registered licensed alternative trading systems, which is a trading system that's going to be able to trade all these tokenized and financial assets. And what we want to do is help democratize the financial markets and tokenize all kinds of assets. But we're working with our backer, just made some acquisitions with a couple of consumer loan businesses, auto loans in manufactured homes, mobile homes, for example. It's a great story. These two young guys in Dallas, they're working at JPMorgan. And with their fourth bonus, they said, We're not going to blow at this time. Let's buy some rental property. And they couldn't find any rental property. They were in Dallas. So they just cold-called 250 mobile home parks, and they found one, put in 50 grand, turned around. It was a six million dollar trade. They were going to do a bigger one. And what they realized they were better off doing was revolutionizing the lending business for mobile homes. Because guess who the biggest player in that is?

It was Warren Buffet. So great business, obviously, high margin business. But what I didn't learn until recently is that there is no refi on a mobile home, and there is no lending available on a secondary purchase. So if I take out a loan for my mobile home and then want to sell it to you, you can't get a loan. You have to buy it for cash. And if rates go down from eight to four, I can't refinance it. So with their business and tokenization, they're to eradicate all kinds of costs and create these two separate markets, which is a partial solution to the home affordability crisis. That's something everyone can get by.

How does this new technology figure into monetary policy?

Wow, that's a great question. So are you familiar with the stablecoins?

I am. But will you describe what they are?

Sure. So stablecoins, when we think about it this way, in simple terms, say crypto like a Bitcoin is a free floating currency. The market dictates. The stablecoin is more like a pegged currency. So pegged to fiat. In this case, like Tether, circle, they're pegged to the US dollar and try to keep it stable at parity one to one. So what they are is a- And there are national currencies like this.

There are countries like the Bahamas or whatever. Just pegged one to one.

Exactly. Yeah, Panama's dollarized. Stephen Henke was a big dollarization component. They tried to do it in Argentina. It didn't work. Hong Kong's got a dollar peg. So the stable coins, they try to keep parity with the dollar, and they're theoretically backed by treasury bills. So money comes in, the money gets invested in treasury bills, one for one, you're backed by, triple A rated, short dated, no risk. But these become a conduit for all these transactions on the chain, automatic through these. So it could go through the stablecoin and into other things from there as a conduit. Now, that's all good and well, as long as they We're sure that those stable coins are taking dollar for dollar investing in what they say they are without a lag or without moving too far away from that. Tether at the moment, it seems to be diversifying away from strict T-bills, and they've been moving into gold, which is working for now, but yet to be determined how that works out.

So does all this make the US dollar stronger or weaker?

Oh, sorry. Yeah. So that creates a natural bid for our treasury bills, which is a great thing for % and friends, because that creates a whole new demand vehicle for our treasury debt on the stablecoins. And what these stablecoins do allow for, again, a lot of emerging markets participants, is allows them to quickly access dollars and avoid the depreciation risk in their own country. So you're getting a lot of foreign money into stablecoins that will be bid for T-bills, which should hopefully help with our funding.

Is there any way for the US government to use stablecoins as a weapon in the way the Biden administration used Russian assets at the New York Fed as a weapon?

I don't know. I don't know. I imagine there is. I don't know what that mechanism would be. I don't think. I mean, in the Russia reserve instance, it was a bilateral seizure. This would be a seizure of untold amounts of investors. You're seizing that. I'm not sure what the purpose would be other than just stealing the money.

Well, we've seen that before. True. What do we know about global gold reserves since it's such a huge component now?

What we know, we don't know everything that we know because it's not fully transparent. But what we do know is the direction of travel, which is massive increases, particularly from India, China, Russia, that doesn't seem to be abating at any time.

That means they're importing gold?

That means they're buying gold. And there has been a lot of movement of physical gold, particularly over the summer. But the movement appeared to be more from the London vaults back to the United States rather than elsewhere. But we don't know. We don't have complete clarity on any of that stuff.

How and why? If you're going to have an ancient commodity that's a huge part of the global economic system, how can you not have transparency? Maybe I'm answering my own question. You're looking at me like I'm an I saw you answer it before you finished the sentence. In other words, if it's so important, why are people being honest about it? Because it's so important, that's why.

It's totally weird that the Chinese wouldn't tell us exactly how much bullion they have in the vaults. Yeah. Yeah, there's no reason they should or would or have to. I guess my question- Also, you don't actually show your hand and how much you're accumulating as you're trying to accumulate an asset.

Oh, is that true?

Well, yeah, typically.

It's been I'm learning a lot about markets from you. That's great.

I told you, I promised you stupid questions. I know. I said there are no stupid questions, but I was wrong.

Okay, then let me reframe the question this way. If we got somehow full transparency on global gold reserves, where they are, who has gold, how much? Would we be shocked? Is there a big spread between perception and reality?

I think so. We still don't have the audit of Fort Knox that we were supposed to get a few months ago.

Really?

Yeah, you might be shocked about that, too. I don't know.

Do you think Fort Knox just has a lot more gold than they're telling us?

They may have 10 times more. I don't know. I really don't. I don't want to speculate. I mean, I like to speculate, but I don't want to speculate on that.

I'm guessing if there is a spread between perception and reality, it's to the negative. But what do I know?

Not sure. There's talk about revaluing the gold as well.

What does that mean?

That means if you automatically revalue our gold reserves to market, we automatically have a higher effective capital base that should make us more creditworthy, for the lack of a better term.

So gold now, US US reserves are valued at under 100 bucks an ounce, something like that, something crazy, right?

I'm not sure exactly what it is.

But I mean, that's like 1933 levels or something. And of course, gold is over four grand an ounce. So why would we continue to value our own gold reserves thousands of dollars below what they're actually worth?

I have no idea.

That's weird, though, right? It is.

Yeah, especially when every other metric in the county, we have cost of living adjustments based on the CPI basket. I I don't know.

So how much... Just to go back to your career trajectory in emerging markets debt.

Yes, sir.

How much chicanery is there in that business? You're dealing with emerging markets. So some of those are solid, transparent, well-governed countries, and some of them are Nigeria. What's that like?

Well, I would say there's two components in the emerging markets trading business. There's the trading thereof in the big money centers like Hong Kong, London, New York, and then there's the domestic stuff that happens. Now, I could say in terms of chicanery, there's a clear AD, BC line at the global financial crisis on how we conducted business across the street in all products, pre-GFC, post-GFC. And all I could say, it was a lot more fun pre-GFC.

Was it fun?

It was a lot of fun. It was as much... It was as fun as you could have having a job. Really?

Job. What was so fun about it?

Every day was different. You're on trading floor. Every day is different. You have a front seat. You have a front seat, and you're participating in global events every day. Mark's moving up, moving down. You're working with a truly diverse bunch of people from all walks of life that was close probably to meritocracy on trading floors as you could get. And it was very clear what the motivator was. It was making as much money as he could every single day, and there was nowhere to hide from that. So as a young person, it couldn't be a better learning experience because Because every day, at the end of the day, there's a number next to your name. Whether it was through your good luck, bad luck, hard work, whatever, the number doesn't lie, and that's the number. It's just a great way to learn and to have to face yourself and improve upon yourself. The trading floor was guys like PhDs from Princeton to guys that dropped out of college. We were all in it as a team. It was really fun.

What were the personality traits that allowed people to be successful? What's the perfect profile of a trader?

You know, it's funny. I found that the best traders, there's investors and there's traders, right? It's a different mindset. The best traders I find were guys that like to think with thought more in two dimensions. So if you thought in three dimensions, you could outsmart yourself way too much. The what ifs, the no, but. And if you're in one dimension, you're just not at the IQ level to function. So the two dimension that took the factors of play, saw what the trend was, took it at face value, didn't overthink it, went with it, and wasn't too much... Had enough risk appetite, but wasn't too much of a cowboy, I guess, would be the perfect trader that I saw.

You're describing my dogs. Yes.

The worst traders I saw were oftentimes the smartest people. Really? Yeah.

Because they just overthink it.

You just overthink your way, you overtrade it, you overthink it. You're always looking at the You're always looking at, Oh, but this and that. And I have all this from the analysis, paralysis and or talking yourself out of a good trade.

How did it change after the financial crisis?

We were egregiously overregulated from all sides.

Did that make markets safer for retail investors?

I don't think so. Because the picture you painted over the last hour and a half is not one of impregnable safety.

No.

Let me just say that. I mean, there's obviously a lot of unintended consequences from the excess regulation, but it's funny. On Wall Street, I think we were actually at the vanguard of hyper regulation, hyper monitoring. I mean, they were monitoring every Bloomberg chat, every email, every phone call. Everything was taped. Then they ran algos against it for keywords. Just way more scrutiny in everyone.

So you lived in the panoptic home before everyone else.

Yeah, I did. And I think there's also a lot of... Going back to the global financial crisis, it's such a seminal moment in this country, and a in a lot of ways because it actually... We made this deal with the devil, and I'm a beneficiary of the bailout. I worked at a big bank that got bailed out, and I I'll never deny that. But in doing so, we let the Trojan horse in, and we married the government effectively, and they came in, and they basically wrote our policies. They wrote our policies for us, and from HR policies to recruiting policies to all the regulation and the stuff that I saw from a distance in terms of arbitrary fining for violations was gangster-like. And I saw a lot of good people thrown on the funeral pie or sacrificed, just tossed out. This guy was in violation. These guys weren't, but they were on the same Bloomberg chat. So let's give 10 bodies. Everyone's fired. Everyone's career is over. That was a bad time. It was a bad time. And so everyone started trading scared. People started trading scared, and it lost the joy, and it lost the-Famously, none of the CEO, the executive level, seemed pretty insulated from punishment.

Yes. If I were going to give a more generous take on it, the CEOs really didn't have much of a choice in some regard. It was like, look, here's the deal. You could keep your job and keep making $25 million a year. Or if you agree to this fine for mortgage-backed securities or whatever, live or rigging or whatever it is, this arbitrary number, you can keep your job and you can keep your salary or you can get fired and the next guy will agree to it. So And they kept it afloat. And they had to be in good stead with the government or the fines and the regulation would just come and come and come. But once you get bailed out, once you ask for the bailout, they own you. And that's what happened.

It always is what happened. They made the deal. Yeah.

And it was like the tobacco companies, right? They kept the tobacco companies alive just long enough to keep bleeding them for fees. Then they figured out there was money there to take, and they just kept coming back about it.

Yeah, and the country did not get healthier. Life expectancy went down. And if I can just be honest, I don't think the quality of the cigarettes improved at all. No, I'm serious. If you smoke a pre settlement Marlborough Red, not that they exist anymore or a current one, it's not even the same product.

I was a pre-settlement guy. I quit.

Yeah. Oh, me too. I'm just saying I've heard that. No, I don't really think anyone won except for politicians. Right. I don't think a lot of lung cancer patients.

A lot of nice new regulatory buildings were built. And I think also one of the great stories that hasn't really been, maybe this was for you, one of the great stories that should be investigated is, where did the proceeds from all those post-GOC fines go? Because I saw some stuff in around the time that was staggering as to where it went. And obviously, it went back into building more more of the regulatory bodies, more SEC regular, whatever. But I think some of the money flowed to some very specific political organizations.

There's no question about it. It went to the swamp. Meanwhile, the whole pretext for this, the justification for doing this was, I lived here then. I just saw my house that year, so I was a victim of all too, even though I never participated in it. But I lost my job along with a lot of other people because the economy contracted, so people lost their jobs, including those with four children. But the justification was, which I wasn't against. It was like, these people are totally reckless. They're completely reckless. What is a mortgage-back security? What's their derivative? No one outside your world has ever heard of any of that. I thought when I signed up for a mortgage, the bank I signed with held the mortgage. We We had no idea they sold the mortgage. Most people didn't know. Again, there's a lot of ignorance, including in my house, about this stuff. The idea was like, this is crazy, and we need to rein it in. You've just described the gamification Yeah.

Of markets.

And it's like, that doesn't seem like a decrease in recklessness.

It actually reminds me something for the part of the previous conversation, which is people say you never know when you're in a bubble until it's over. And that's entirely incorrect. I've been through a bunch and we all know. Really? Oh, yeah. We just didn't know when it was going to end.

Give me an example.

People were talking about the bubble in '05. No. If you fought it in '05, you were out of a job pretty quickly. It went on for a long time. I could tell you the reason I want to bring it up is, again, the perilous today is... So in '07, I had been on trading bonds for whatever, 13, 14 years. So not the smartest guy, not the most quantitative guy, but been around enough to trade enough stuff to understand how stuff works. And all this stuff they're coming through with CDO, Squared, CeeLo, and synthetic this and that. I didn't really understand it. I didn't have to trade it, but I didn't really understand it. I didn't really want to get into it because I didn't need to. But it's just thinking if I'm already in the whatever % of financial experts, just by nature of where I sit every day, and it doesn't smell right to me, something's not right.

And you trade Nigerian death.

Right. I'm taking credit derivatives on Bulgaria and stuff. So yeah, yes.

But if you're taking derivatives on Bulgaria, but you're like, This is too much for me.

It's just like, how many acronyms? Also, I'm substantially averse to any acronym. And then when you take the acronym and square it, you know you're in trouble. But then this latest go around the last couple of months with all this circular financing and hype with all the AI companies. Every day, somebody's buying chips from somebody who's going to lend the money to buy the chips, to invest in the scale, or who's going to do this. Every day, four companies are, you're like, I suppose I could figure that out. If I sat down and really tried to, but it gives me a headache just even thinking about it. And clearly, it smacks of some... It smacks of desperation or something. That's just my gut, is just having the sniff. Haven't been around a long time. It's like, dude, if it doesn't smell right, it doesn't smell.

Don't put it in your mouth.

Right.

You remember thinking, what about the tech bubble in '99, 2000?

Did you think Oh, I got blown out in personal training trying to short that. Like the fall of '99 a lot of other people. Yeah, I mean, everybody. Yeah, I was hilarious. I was with my wife in March of 2000, at a dinner, at a lunch with a guy who was chairman of a major broker dealer, famous broker dealer. And where she's 30 at the time, never invested in anything. And we're sitting next to him. He's like, so what do you use? She's like, oh, I've been day trading stocks. He's like, explain that What do you mean you've been day trading? She's like, Oh, yeah, I just buy whatever IPOs. If it comes out, I buy it. Do you remember that in 2000, all the IP in front? Everything just went up? She's like, yeah, I just buy it and then I sell it. It's awesome. And I saw it. I saw his eyes just go like this. That was like the Joe Kennedy shoeshine moment. It was literally February or something. I think it was probably within probably two days.

No, it's when your housekeeper is investing in condos in Clark County, Nevada, that you were like, I think maybe this is overheated. Just a little bit.

No, for real. Or you get your Uber divers trade crypto on one of the one.

Completely. Whenever people are going hard on Cape Coral, Florida, real estate, who don't know anything about real estate, not against Cape Coral, but you know what I mean? Yes. And those were the hardest hit zip codes. Yeah. So you think it's pretty obvious is what you're saying?

I just feel. There are like the Russian, like the letter that they wrote about the Hunter Biden laptop. It has all the hallmarks of Russian disinformation. It is all hallmarks of a late stage rally. Let's say that.

Yeah. Well, you're very diplomatic. I have to say, though, just like with the baseline fact that you spent your life trading emerging markets debt, I think if you're uncomfortable with something, it's fair for the rest of us to be uncomfortable with it. Appreciate that. Yeah. Last question. You've been through all these bubbles and bursts and debt crises and bailouts, and at the end of every story is the United States or US-aligned institutions like the IMF coming in and saving the day. That's the thread that runs through all these.

Yeah, in simple terms, sure.

I only deal in simple terms, Coleman. What happens if that happens in the United States?

Who bails out the Baylor? Who bails the Baylor? Nobody.

Okay, so then What happens?

I don't think... I hope you bought that agricultural land in Brazil at that point. Then what happens? I don't think we get to that point anytime soon.

But just theoretically.

As we mentioned before, there's no alternative right now. People still, as How does it get in the States? We're still the cleanest dirty shirt in the pile for the time being. We still have this free and open markets where capital flows and gets treated well. There's time. There's still time to course-correct. I'm not willing to go to who bails out the bailer. I'm not willing to go there. I'm not willing to go there. We'll be all right. We're still the United States of America, and we've got a lot. I got a lot of mental firepower and a lot of experience. We still got time.

Coleman Church, ladies and gentlemen. Thank you.

Thank you so much.