The World's Best Investors See A Major Risk For US Economy

0:28Hello, everyone. and let's get into today's episode. Deflation is coming fast. At least that's the thought of a lot of the best investors in the world. My personal view is that tariffs, deportations, artificial intelligence, and robotics are all driving a very big risk on the horizon of the US economy. But don't take my word for it. First, I sat down with Jordy Visser and I asked him, what is his thought process around deflation and is AI driving this whole issue? Here's what he had to say. I have my own machine with AI agents now. And again, I'm old school. I didn't know how to do anything on a computer, honestly, a year ago, 18 months ago, other than the basic stuff.

1:07And now I have AI agents running on a Mac mini inside my apartment, and I'm using a Chinese model because it's free. So the problem with Google and all these places, and this does get to the deflation thing that Kathy mentioned, and it's something that you've talked about, it's really hard to avoid the deflationary aspect. And since most people, and I was just at a conference where 80-something percent of endowments and foundations thought inflation was going to be higher a year from now. So the reality is we have a deflationary situation that's happening, and the reason is because AI is driving that deflation as we speak.

1:40Do we actually get to deflation or is it just like this disinflationary where like we'll still have a little bit of inflation? It'll just be much tamer and, you know, kind of under control. Maybe it's half a percent, one percent, one and a half percent, but we don't actually go negative. Yeah. You highlight trueflation repeatedly, which is basically. Do you like it? Yeah. No, no. So the difference between trueflation and core CPI is pretty much all the shelter calculation. Well, one can count, the other can't, but yeah, go ahead. One uses 80 ,000 inputs. One uses what they say, 35 million inputs.

2:17So we'll go through what's better, what's not. But the shelter component and how you deal with shelter is the difference in the calculation. So if history serves well, unless we're going to see a bounce in the housing market, which I see zero chance of that happening, given the fact that people are under pressure at their work. I don't see that going on. If the stock market falls, you're definitely not going to have it. What would cause deflation is if the stock market falls off. And the reason I brought up the supersonic tsunami, if all of you raised your hand and I said, what's the largest position in your portfolio?

2:50And maybe you've got a trading account, but if you have a pension or you have anything, your biggest positions are software stocks, not because you chose them, but because you're in the S &P 500 or you're in some kind of ETF that has mainly software in it. So I advise all of you to check that and go through it because that's the stuff that's pulling the market. At some point, if you imagine trying to transfer all of the money in the world so quickly, and that's what Elon Musk said, there's a tsunami, which is structural, but there's supersonic, which was all about the fact it's going to happen so fast that individuals, companies, governments will not be able to move fast enough.

3:29And that's what's starting to happen. I'm worried by what I saw in the last week, mainly from Anthropic, because if you guys didn't see it, one of the lead researchers on their safety group resigned. And he talked about why he resigned. He's going to do poetry now. That's how scared he is of what's coming. Dario Modi wrote a paper on the negatives of AI. And the reason he's writing that is because he has models six months ahead. We're at the point now where they said, we had the model, Opus 4.6, go through our code. This is an AI company and see how many bugs they could find. They found 500 security places they could break into.

4:12That is the power of AI agents. That's the power of these models. If you can break into Anthropic, they can break into your bank account and everything else. So we've reached a point where the governments and everyone in the world just has to deal with the fact that this is no longer a game. We've reached the point that security is going to be an issue. And again, if I go back to the Bitcoin story, this makes cryptography much more important. Whenever I hear quantum, and quantum is not close to breaking anything there, we actually have something that will break things faster, which are agent swarms.

4:42And those are picking up now. And that's why go read about the safety person who resigned and went to go do poetry and go read Dario Moda. Now, Jordi made it pretty clear how he's thinking about AI and deflation. But Mike Novogratz, when I talked to him, he says that inflation comes down from the productivity gains that are driven by all the technology innovation. But he does think that there could be political ramifications for this. Take a listen to Mike's thoughts. And what we learned and what, quite frankly, Kevin Worsh believes, and I think Scott Besson believes, is that roughly you can grow money supply pretty quick.

5:15Not stupidly quick, but pretty quick. You can keep rates pretty low. And inflation comes down, consumer inflation, because there's so much productivity gains. There's so many businessmen saying, I can set this thing up in Mexico and be cheaper than in New York. Or now we've got AI. AI will literally be the single, everyone read that article that came around the last two days that should have scared us all. AI is going to crush inflation. And so what happens is you have consumer price inflation go relatively low. That drives asset prices up because you can keep rates low. And what's going to stop it at one point, and Mary Dalio has been aggressive talking about this, is a political revolution.

6:04It's Mondami squared. It's wealth taxes, but not at a state level that don't make any sense, but at a national level. It's people just say enough because the criticism of the Trump economy, interestingly enough, is the exact same as the criticism of the Biden economy. right it's not working for 60 of the people he said wait but my stock market's on the high bam bonnie 50 000 dow yesterday come on you guys should forgive everything else 50 000 well biden had the same thought his stock market was the all-time high right he had inflation coming down he had inherited from a high level coming down because of covid right job he had the most job gains in the history no president on in our country ever had more job gains than joe biden right so if you're a bide and you're arguing i was i was a great steward same way trump is now if mike is worried about the political ramifications then we can go and we can look at what lynn alden believes she says that countries increasing their money supply are going to do that in order to counteract the deflation that's on the horizon take a listen to lynn's thought process here i think inflation is a spectrum uh because it doesn't show up evenly obviously and uh there's a pretty simple calculation, which is you have the debasement rate, basically money supply growth, and then you have some amount of productivity growth.

7:25Right now, obviously, AI is a big factor, but over time, it's automation, it's everything, all of our technology, all of our organization, we're, you know, billions of people every day are trying to make things cheaper, essentially, and finding new ways to make things cheaper. So you have that, you know, let's call it 7 % money supply growth over the long term, and then you might have 4 % productivity increases every year. So that difference, roughly speaking, that 3 % in a longer term pattern is the price increases. And around the world, central banks are basically doing their best to counteract the deflation that we would get from productivity growth with that money supply increases.

8:03But there are periods of time where we don't get much more productive in a given five-year stretch. It could be because there's energy shortages. It could be because there's war or something like that. And other times you're in that period where productivity is flowing. And then as that money supply growth happens, it doesn't show up everywhere equally because we're not, you know, we're not 4 % better at making gold this year. You know, we're always just marginally better at making that. We're not better at making Bitcoin this year, obviously. And then, you know, you go down the stack from there.

8:33So we're not, you know, every year, we're not way better at getting more oil out of the ground. We're a little better. We're not way better at making houses. We're a little better. But we are exponentially better, for example, making software. We're exponentially better over the several decades of making electronics. So when that happens, when you have that kind of longer term money supply growth, it shows up in the assets that we're not getting better at making. Same thing with like the best stocks in the world. We're not getting better at making NVIDIA stock, for example. And that's where all that debasement capital shows up.

9:02And then the long tail of things that we're way more abundant in, they get cheaper and then they weigh down the CPI basket. And that's what allows the central bank to be pretty dovish. I tend to agree with Lynn. I think that she's onto something there. But of course, we've got the goat, Cathie Wood. She says that deflation could actually be good for Bitcoin and other assets. Take a listen to her logic. If we get deflationary forces or get actual deflation, is that bad for Bitcoin in the short term? No, I don't think so. Bitcoin is a hedge against inflation and deflation because the chaotic part of this is, and it's ripping through the markets now, a lot of traditional industries and companies, you know, being brought, the whole SaaS space, the disaster, as they're calling it.

9:56We think there is merit to that particular one, But I think you're going to see disruption all over the place because the five innovation platforms that I mentioned are going to disrupt the existing world order. And what does that mean? If these technologies are so deflationary, it's going to be tough for the traditional world that's gotten used to sort of the, you know, the two to three percent inflation to adjust. They'll have to embrace some of these technologies faster than expected. So the idea of counterparty risk, I think, is beginning to surface. We've seen it with first brands. We've seen private equity and private credit, especially, is where there have been a lot of excesses.

10:49SaaS, they are too exposed to that. You know, are we going to see counterparty risk manifest more broadly? If so, Bitcoin doesn't have that problem. And so it is a good hedge against deflation as well as inflation. So there you have it. Jordy Visser, Mike Novogratz, Lynn Alden and Kathy Wood, all four of them believe that deflation is actually a risk that the U.S. economy is facing. they do see that the deflationary impact on this could have a profound impact on asset prices, and they're all trying to buckle up and prepare their portfolios for a potential deflationary type event. That's it for today's show.

11:30Thank you guys so much for watching. Please remember to subscribe on YouTube, and I'll see you all live tomorrow from the desk of Anthony Pompliano.