We Fled the Country | Ep. 037 Lemonade Stand 🍋

33:09so he in 2016 is like i think ai is going to advance it's going to take over it's going to become the big thing and i want to raise a hundred billion dollars which is like the size of a country in order to uh invest into it massively so where do you get a hundred billion dollars from saudi arabia saudi arabia is the answer i was looking i accidentally looked at doug no doug's So I was like, that tracks. So there's a story. He goes, he gets on a plane. He gets on a plane and he's going to meet with investors for this plan. And they had originally$30 billion as their goal that they were going to raise.

33:48And on the flight over, he's reviewing the slides. And apparently he reaches over to the slide deck, deletes the three and replaces it with a 10. And he says, life is too short to do anything small. So just on the plane, he's like,$30 billion? No, no, no. hundred billion dollars so that's the kind of guy he is we're just on a flight he's like no no no let's go way way way way bigger like so unnecessarily large for no reason he goes to saudi arabia and he meets with uh mbs the uh crown prince of sauberks like there's a great youtuber coming up right now his name is mr beast yeah yeah you're gonna you're gonna want to build a theme park so it goes to and again i want to actually some quick numbers atrio can you throw out some numbers so we're talking about a hundred billion dollar fund it's easy to think oh that's a lot of money but like how do you ground that against a real business it's about airpods

34:46100 billion would put you at the size of nintendo oh my god nintendo is a hundred billion dollar company so that is uh that is the eighth largest company in japan is what that would be so and it's just for a like venture capital venture capital yeah i think mcdonald's globally makes like 17 billion dollars a year something like that i mean these are massive massive companies so he goes he meets with the crown prince of saudi arabia and tells him i'm gonna give you a gift of a trillion dollars and the guy says what and he says you just have to give me a hundred billion and then i'll turn it into a trillion dollars yeah and so he says that in 45 minutes he convinces the crown prince of saudi arabia to give him 45 billion dollars so they successfully raise about 100 billion dollars this is true and this is he said you did this on a talk show yeah he said he walked in and he said yeah he said he started he started by getting his eyes wide with the i'm gonna give you a trillion dollars a trillion that's like that'll cover 10 of the line yeah finally the line is on the line so you're starting to get a sense of this guy masayoshi and how he's just like the biggest gambler of all time and he just makes it unnecessarily huge for no reason he's the guy at the roulette table that's bets on red it hits red goes double down yeah it's red double down it's like walk away so he goes to saudi arabia in 45 minutes convinces them to give him 45 billion dollars again as context the biggest fund ever raised which is like by blackrock was like 25 billion dollars so just from saudi arabia he with as softbank agrees to put in 28 billion dollars abu dhabi gets them to agree to invest 15 billion dollars and the remaining 5 billion dollars is from normal companies like apple who give a billion so i just want to i just want to again reiterate this normal tech world is like you go and you raise you know a couple hundred million dollars from different companies he raises a hundred billion dollars almost entirely from two middle eastern countries and his own company and that's where the fun comes from this is vision fund 2017 it's just such an incomprehensible amount of money like i'm i'm doing well you know i have i have everything he also raised a few billion from and it's just it's so such an unfathomable amount of money apple the biggest company in the world i believe at the time in 2017 but regardless massive they only agreed to put in a billion and that was huge for them yeah only a billion from only getting saudi arabia casually drops 45 billion i mean saudi arabia has like a trillion dollars almost that they can throw around but still this is just this is insane and so they come back and they basically say all right we have a spend it.

37:34Okay. And for context, four of the biggest tech IPOs ever, Spotify, Lyft, Uber, and Slack, massive companies in their entire kind of like funding, they raised$24 billion combined. So the idea that you need a hundred billion dollars, it's not just an insane amount of money. It's like, how do you even spend that? That's an average of over the... Well, that's where the story gets... That's where... Right, exactly. The number I saw from this site is because they said it was going to be a five-year investment. They had to invest on average$55 million per day that they had to be. So they just go fucking crazy.

38:09So they basically send people out all over the world who were just throwing money at everybody. And there's articles about this in, for example, Bloomberg, where they're saying, look, up until this point, venture capital was like, you go and you make these small little speculative investments. You say to a company, we're going to help you grow a little bit. And these guys come in and just say, look, smallest deal is$100 million. All right, We want billions, though. They are trying to go into a category, and instead of finding a young company, they find one that's currently the leader, and they're like, we're just going to drop so much money into your pocket that you don't have to be profitable for a long period of time.

38:42We just want you to grow an insane amount, dominate the entire market. We'll figure it out later. So this drives valuations way up. It makes it way harder for normal venture capital. SoftBank, according to a partner at a major Silicon Valley firm, is a big stack bully, which is a poker term referring to a player with a pile of chips so huge that competitors are afraid to get in the game. I mean, it's so funny. The idea of being like a massive venture capital firm and having all this money available to you and be like, I'm getting stacked out. Yeah. Because this dude walks in from Japan and is offering billions of dollars to everybody.

39:17We have to get to what happened because I think this is making it seem like this is the most genius play. It's not. Ludwig plays poker with us. Yeah. he shows up he has infinite money he doesn't care if he loses it doesn't mean he just punts his money and yeah hold on i wish that were the case because we got the last time he made out like a bandit which feels even worse because he doesn't mean it he had a lot of yeah employees that he basically robbed me so you're fine but masa yoshi sans poker play work uh no no it doesn't um so I mean, it has worked. You talk about the good time. No, no, we'll talk about both.

39:56Yeah, yeah, yeah. This Vision Fund, this$100 billion Vision Fund. So this Vision Fund. And they actually raise a second in 2019 Vision Fund 2. They raise another like$56 billion. That time, the Middle Eastern countries are like, no, we don't want to be a part of this because at this point, it's not. So as of June 2025, this is from SoftBank's own reports. They currently hold investments in over 400 companies. They have spent, since 2017, since it's an exception, about$164 billion. dollars. That is a ton of money. And they have some huge successes early on. Coupang, I'm not exactly sure how to say it, basically Korean Amazon delivery.

40:31They bought a 35 % stake for $3 billion. They end up with$33 billion gained in 2021. So huge gain,$33 billion, crazy amount of money. DoorDash, they bought a whole bunch of stock, about 680 million, ended up profiting 11 billion during the IPO in 2020. They actually, with NVIDIA, they bought 5 % of the company in 2018. and then in 2019 they sold it for three billion dollars or they made three billion dollars if they had held on to their five percent stake in nvidia right now it would be worth 230 billion dollars that would have single-handedly made them one of the most successful companies of all time that bet that they made they sold early and uh it's referred to as the fish that got away however there were some extremely notable failures so we work we don't have time to get into the whole story of WeWork, but essentially was this giant scam by the CEO who was going around just dumping money everywhere.

41:26And when that guy got together with Masayoshi-san, who was like, you want to spend money? You want to grow by burning billions of dollars? It was like a match made in heaven. The two just start burning more and more and more money. They try to IPO. It fails. So instead of letting it fail, SoftBank puts in another$10 billion. And like, surely$10 billion will prevent it from failing. But eventually, if a company really fucking sucks at the fundamentals and just burns cash. That doesn't work. You can't just throw money at the problem. Like Masayoshi Son had to pay the CEO a billion dollars to leave.

41:59Yeah. Which is the most crazy fuck. The guy was so bad, but he had so much entrenched control that they had to give him a billion dollars to leave. Yeah, he just got duped. It's such a sick idea to turn... They basically turned leasing office space into a tech company, like pitched it as a tech company. And it's just leasing. And it's just leasing office space. With a CEO who was kind of just scamming the investors of the company. And then, yeah, and then literally asked for a billion dollars to leave. So they, SoftBank, in total spent and lost$16 billion. And this is part of that vision fund.

42:33Chinese Uber, Didi, they invested$11 billion, which for a period was successful. And then China cracked down on tech companies. And that became a failure. Katerra is a U.S. construction tech company. They invested$2 billion. Whole company goes bankrupt. so the short version of this vision fund it came in as like this is the biggest fund of all time by far and they're just throwing money every around money around first two years they're just throwing the money everywhere but they have some like major major high profile losses they have a couple big high profile wins but for the most part in the last let's say seven years it's been huge huge failures like this is considered like one of the biggest highest profile failures ever.

43:12And they basically admitted like, we've really messed up here. We invested in some really, really stupid things at a scale that was just unbelievable. The fast few years finally starting to become profitable. So SoftBank, as of March of this year, posted their first profit in four years. Good for them. The company? Yeah. SoftBank, the company. So this year, finally, they're doing well. And actually, according to the report in this june their overall vision fund is now worth 170 billion dollars which means over the last whatever it is eight years now they have actually profited in total five billion dollars so even though yeah so even though at varying points over the last eight years they made some of the dumbest investments ever and lost big like more money on these investments than any other company ever because masayoshi-san just wants to fucking throw it all on red over and over and over technically now largely thanks to ai stocks they are in the green by five billion i think that's through vision fund too though my understanding is that vision fund one they got the hundred billion dollars mostly from the middle east and they punted about 33 of it by the end of it like it's down to 70 which is why they didn't want to invest in this one too sometimes you get crazy and you punt 33b so now it's back and this is according to their their thing so So in Vision Fund 1, they have actually...

44:30They profit it? Yeah, yeah. And that's kind of the thing, right? Like over time, this thing is doing well enough, right? At this point, it is no longer this massive failure, but it took years and years of it being a massive failure. It is crazy to look at like a$5.7 billion profit on the fund and be like, they did all right. Like that being... No, that is really good. I mean, what is the percentage return though on 100? No, that's what I mean. Contextually, with the amounts of money that are being thrown around, the amount of money raised it feels like such a it doesn't feel that big but it is success it is success yeah and all it took was destroying a lot of markets and creating some bubbles and disrupting everything and inflating valuations partially why i first like started looking into him is because in the all-in podcast which is let's say a tech business politics podcast earlier this year i was listening to it and they were like masayoshi-san this year they're posting incredible profits like soft bank group is doing super well this year yeah i think he's the goat he's the goat investor like he he you know he he went through all those hard times in the 2017 18 19 and now he's proven he was right the whole time and i'm like no he is fucking not dude like he was he's like so he just has these huge wins and these huge losses and that's his whole thing he is like this insane gambling dude so what does this all lead up to well there's two notable things that have happened recently.

45:51The first this year is that he is leading Stargate. We talked about it very briefly, but Stargate basically in January comes out with President Trump and says, we SoftBank, we're going to raise$500 billion and we're raising this so that we can invest into U.S. infrastructure for AI. We're going to start with$100 billion. We're going to raise$500 billion over four years. Again, sense of scale. Every video game made approximately$185 billion in 2024 they're trying to raise 500 billion dollars to make a bunch of power plants so this is partnered with open ai uh nvidia and oracle and microsoft are helping with the tech but basically softbank came in masa yoshi-san and said trump america i will find 500 billion dollars for you guys he said during the announcement mr president last month i came and i promised that we will invest 100 billion dollars and you told me oh masa go for 200 billion so i came back with 500 billion.

46:49So this guy told Trump, he was like, we'll, we'll find a hundred billion dollars, which again would be absolutely obscenely large for AI infrastructure. Trump's like, come on, go for 200, goes back with 500. That's so insane. But he hasn't raised the 500 yet. No, according to Elon, whose tweet said, um, SoftBank has well under$10 billion secured. I have that on good authority. So according to Elon, you know, who, who knows he's really annoyed at this whole thing. they've raised 10 billion of the 500 billion dollars then open ai uh ceo sam altman replies and says wrong as you surely know we're building the data centers right now um and so funny story and illustrative of this guy that he's now 68 i believe he still he says he wants to still head softbank forever he's still in control of all the reins and at this point he's coming into america and saying 500 billion dollars we're gonna raise all this money for ai the other thing that happened this week, which is interesting, OpenAI and SoftBank announced that they're partnering in Japan.

47:52So as we mentioned earlier, one of the things SoftBank has been good at is they go to tech companies and say, we're going to help you. We're going to invest a ton of money into you. We're going to own you or a large part of your company, but we'll also help you operationally run in Japan. Like we know how to run companies in Japan. We know how to integrate where this massive telecom company. So, um, this week they announced the, uh, crystal intelligence is, uh, they're going to be offering artificial intelligence together to companies in Japan, open AI and soft bank. They're creating this together.

48:22And so the idea is, you know, they're going to use open AI is current chat, BT and tech and all of that, but they're going to really market it for a Japanese audience and market specific marketplace specifically. They're going to really try to get integrated into Japanese businesses. And they announced a huge customer already that's buying this, which is SoftBank. So SoftBank, the investment vehicle, and OpenAI are partnering to create this new business to sell AI to Japanese companies. And the first customer is SoftBank, the telecom company. And so it's just another one of these funny little AI circles where the first and only customer of the AI is themselves.

49:01And so they're just a nice little circle of AI flowing around in between these companies. So they are essentially, to recap this whole thing, SoftBank's led by this, I would argue, crazy gambler, Masayoshi-san, who's had the biggest wins and the biggest losses ever. Right now, he is leading this obscenely, completely unrealistically large project for AI infrastructure, what maybe will work, who knows what's going to go on there. And at the same time, he's working with AI companies to try to essentially spread AI adoption in as much of Japan as he possibly can because they've put most of their investments recently into AI companies.

49:38It'd be crazy because the start of this guy's story is basically having an explosion in his success because of the dot-com bubble. Yeah. So it's an AI bubble. It'd be really funny. Let me pull up the graphic. It'd be so funny to see the thing pump up the other side. and then the bubble, like say this is a bubble and it pops again, right? Then he just goes through the exact same cycle. Yeah, that's the thing. Like right now, they're doing super well and right now you have people like the All In podcast saying he's the goat because right now it's up. And what's funny is like part of these bubbles is like he helps create them because if you go to every company and offer them billions of dollars, like that creates a bubble, right?

50:19It's like... Well, he's using... Yeah, it's... If you have this amount of money in a space like venture capital, and you start throwing around huge amounts of money, you force other people to follow suit to stay competitive with you, I imagine. Yeah, this is what happened in eSports for the eSports fans out here, which is that all these companies came in and started blowing tons of money onto eSports going, oh, this is going to be really big. Everybody's salaries went up. Everybody's expenses went up. The whole thing became unsustainable because everybody was trying to spend as much money as the really big guys who were spending unsustainable, insane amounts of money.

50:54It's so funny that you contextualize it that way because that's the exact same thing I did. Is League of Legends salaries is how I contextualize stuff like this? They're just chasing something that could never pan out, but everybody was forced to raise their salaries because the players at the top that had the most money were just throwing around so much. It's not that it could never pan out, though. I don't know if this could pan out. the league salaries were not gonna pan out yeah 100 and we like we work was not gonna pan out like that's the thing some because he again he has made some brilliant investments and and predictions and like buying arm was was really really smart and that has been a massive leverage point for his company at this point but also just does yeah his whole thing is is being like a big stack one of the one of the stories is that in 2015 sofi who does online lending wanted to raise a few 200 million dollars um and so this is like you know they're they're growing a lot as a company and there's like okay we want to raise some capital but not a lot we don't want to give up too much control of our company and masayoshi son meets with the sofi founder and says i'm going to invest a billion dollars into this into this ecosystem it can be with you and if not it's going to your competitors and so the sofi guy was like okay we'll take it like if he if the guy comes to you and says i want to invest a billion dollars and you're like i don't really want that much money is like well if you don't i will put that into your competitor it's like you're you're like forced to take and spend that much money it's crazy imagine someone came to us i was like i'm gonna invest a billion dollars and it's either the yard podcast we will put a billion dollars into the yard unless you take this wait a second our stats look at the white house but we're gonna have gold and then what's funny is like how in the fuck would we monetize that we make a billion I think that, yeah, that's a weird, intimidating scenario where you're not actually confident your business can take advantage of that amount of money.

52:49You don't always need that much money. It doesn't always make sense. And again, sometimes it does. And some of these have worked out well. Like, again, they have been able to dominate giant markets. But this company is just crazy. It's just this giant gambling firm led by this guy, Masayoshi, who's led the whole thing for, you know, for decades. And it's just, it's wild that he just is, the scale keeps going up. He's just going bigger every single year. Yeah, I think that was the thing that stuck with me was this is already such a leap to get to the stage where these funds had$100 billion to throw around.

53:22And now he's saying that he's going to somehow raise$500. Right. And it's like we could just – we could chill out. I mean, I think there's a lot of risk in this, specifically the fact that now this pump, this time around, he's got more debt than ever. SoftBank has raised so much debt this year to keep this going. So when you're doing it off funds from what your company makes, it's a lot different than when you're borrowing. And if it doesn't work out when you borrow, then there's like this real doom loop of having to pay back the debt on. Is that public information, like how much they're borrowing?

53:57Yeah, it is. Let's see. I think it's at, they're over$100 billion, I don't know, in debt. SoftBank continues jumbo debt spree this year. They just raised another$17.5 billion in debt. I'm trying to get their total amount. That's 100-something.

54:16But that's one of the risks. He seems to be – you see the theme here. He's early to the internet. He throws a gazillion dollars at it, tries to catch – He's early to mobile. He throws a gazillion dollars at it. He's early to AI. He throws a gazillion dollars at it. I mean, if you hit the right things, it works, right? It's just risky. I do, you know, he's such a gambler. He's like maybe the biggest gambler of all time. He might be. Like this guy might be the biggest gambler in human history. He keeps hitting red and we're on a generational run right now. Dude. I mean, he's hit black sometimes, but yeah, because he triples down, like it always ends up going back.

54:56He's Martingale betting. That's exactly what he is. He's Martingale betting with ever increasing amounts that are more relevant to the economy. I mean, but you know, in 2021, I was more of a, I mean, he's clearly bounced back with the AI stuff, but in 2022, I mean, after 21, cause he was the guy, you guys remember 21 when it was like, everything was getting funded. Startups were crazy. It was the WeWork era. He was the guy of that era making all that happen. Like he invested in mobile pizza delivery. That was a huge flop. He invested in Wirecard, which is the biggest fraud in German history. Like the giant, he had, he just, he wasn't checking anything.

55:29That was the true. They were just signing checks. They didn't care. and it was like a volume game, which is kind of what venture capital is. Like they always just write a lot of checks, but his checks were just a hundred times bigger than ever. They were just bigger checks. They're just way bigger. Very, very big checks. So it's interesting. I don't know. I think he adds risk to the system, but I also think he's doing the, he's got his gambling. I think I would, like up until researching this, I would have felt like, yeah, you know, giant kind of gambler and on net, he seems to make money and it's doing well and he keeps raising money.

56:01and even though it just it takes some absolutely massive failures i think the the part that really got me is reading more about how it affected the ecosystem which is just that it's and look i think there are businesses that it can be a really good thing to grow for a long time unprofitably and then you eventually figure out how to monetize and the the two big ones for me or actually the biggest is youtube right youtube for i don't know what a decade two decades a decade and a half was unprofitable unprofitable for an incredibly long time but i think it's a phenomenal business like it is i think it's an incredible asset for humanity i know not everybody agrees with that but like i to have this you know open accessible business that anybody can go put things online for free that's immediately accessible the entire rest of the world the amount of education and business that has grown around it obviously we have all our entire careers and every all almost all of our friends i mean literally like a hundred million people benefit from youtube in some way in terms of the economy.

56:54It's massive, but the infrastructure of that is so obscenely complex that you're just not going to be profitable for a while. So I don't think it's fair to just say this system makes no sense. But looking at what he was doing specifically, there's a difference between allowing a company to run unprofitably for a while where you have this clear goal of we're growing in this way, we're trying to make it as sustainable as possible, and then we will slowly monetize it versus just throw money at it forever. I unironically think sports is the best way to contextualize this. In sports where there is no limit on spending, people have a criticism of how money erodes the integrity of the game and the even playing field of competition.

57:38People talk about that in baseball. People talk about that in the Premier League, these leagues where you can just spend as much as you want. Put clubs in a bad position. it puts the top clubs that have the money to spend or they they in quotes have the money to spend in bad spots it puts the clubs that don't have the money to spend in bad spots and it makes for a less compelling competitive environment uh unlike you know something like the nfl where they've done a lot of work to even the playing field between the teams which is a much better competitive system, right? And this is, I think that is a good analogy for this guy has chosen to take an obscene amount of money and his acceptance of an obscene amount of risk and it's starting to distort the game that all of these things exist in, which is, I think you can take this theme that we're talking about right now and you can apply it across a bunch of different industries of how maybe like inequality of spending or inequality of wealth corrodes the game that is being played.

58:49That's kind of the way I look at it. Well, funny stuff. It's crazy. And if you're thinking, Doug, why did you call him Masayoshi-san the entire time? Is it just because you're in Japan right now? No, I just learned this before this. His last name is S-O-N. Like, that's his full name that we've just been saying the whole time. And I didn't know that. I didn't know that up until us doing this segment on this episode. He's got a lot of names because he's Korean ancestry. But yeah, Masayoshi-san is how he's usually referred to. I just think this is, look, we've got a couple like ongoing stories that kind of weave over the months of us doing this podcast.

59:38For me now, I'm really curious about Stargate, which is him coming in being like this is the most money ever raised in human history we're doing it, we're going to be the ones that raised the money and right now he's betting crazy big on AI, like he's one of the people so as we talk about the AI bubble Masayoshi-san and SoftBank and arguably the United States as a result of Stargate we're going to see how this gamble plays out I'm curious to see if he lands on red you know? See how it plays What a guy Sorry, one last note why he's 68 why does everybody have to be 65 to 80 who's doing crazy shit why does everybody no it's like every time you hear about somebody like this they're we've talked about this they're all in the same band of generation and not only that they have the money well i know but not only that he's he just said he wants to run the company for 10 more years like why dude like let somebody else do it i i just i hope when i'm 68 i'm not like this eager to like keep gambling even bigger and run the world for 10 more years.

1:00:39It's crazy because he could, you know, if he stays in reasonable health, if you think about a Rupert Murdoch or a, why can I not think of Berkshire Hathaway? Warren Buffett. Warren Buffett. Warren Buffett, Rupert Murdoch, these people that ran their businesses until they're not in their 90s, right? He could be that guy too. He could go for another 25 years. 30 more years of the big gambler dude. Yes. Well, I mean, you know, theoretically, if this AI thing doesn't work out in the short term, that line goes, same as.com, and he has to do it all over again. And he has to do it all over again. And that's why he needs 30 more years.

1:01:14He needs 30 more years to run it back again. One last time. And that's the real trilogy of this story, is when we're doing Lemonade Stand 30 years from now, we're going to have another Masayoshi's Hurt episode. Dude, I can't wait to see what the next gamble is. What else we got? Okay, I wanted to talk about, do you want to jump into something? No. I wanted to talk about the yen carry trade, if you guys are familiar with that. And something interesting, because I think in the last few years, the couple stories that we may have heard or even talked about on the show this year have to do with the yen has declined in value.

1:01:55The Bank of Japan is printing a lot of money in order to suppress the interest rates on their debt. The little bits and pieces that we've talked about, right? within this is something I think is really interesting called the yen carry trade, which is maybe a free money printer, depending on how you look at it. Okay. That has existed. I mean, it's existed for a long time in some form of another because it comes from the fact that it's really cheap to borrow money in Japan historically. They've kept their interest rates basically at zero for decades. You know, when we look at American interest rates, we went through a long period of near zero percent interest rates in the wake of the 2008 financial crisis, right?

1:02:39Like a decade of really cheap, boring in the U.S. But if you look at the chart and line up U.S. interest rates with Japanese interest rates, you'll see that Japan's has been near zero for way, way, way longer, like I think more than 40 or 50 years. And it's just started to shift a little more recently. so because of this you could take you could borrow money in japan and then take that money and then invest it in something that you expect to be higher yield in a in a different type of currency right and this like e-sports like you could be you could be making a huge e-sports or we work investments with this money it took but honestly actually if you were timing it correctly um so but the the this came to a head more recently in like 2024 2023 time period because uh the the u.s interest rates were starting to climb to combat inflation right and generally what's the safest asset that people think they can invest in we work we work besides sorry besides we work silly me besides we work u.s treasuries historically the most reliable safest uh safest investment that you could put your money in uh and we went through a period where the interest rates on our six months treasuries were like four and a half to five percent it was like historically high right even just personally right i think all of us put some amount of savings in those treasuries for that time period because it was like i could i can put in an amount of money and get 5 % back in a period of six months with no consequence, of course I'll do that.

1:04:21A bunch of normal people did that at the time with their savings. And because of that spread between the 5 % you could get with that and the 0 % that you could borrow money at in Japan, the yen carry trade is this idea of I could borrow as much money as I want from the Bank of Japan, take that yen, convert it into USD, and then buy something really safe and reliable like US treasuries, and then just get the spread on those two interest rates as profit. And then also, because we've went through this historic time period of the yen declining in value, when you pay back the debt, you owe effectively less money than you did before, right?

1:05:02If the yen is declining relative to the US dollar, it means that when you take the US dollars that you made from the treasury when it pays out, paying back the same amount of yen is less than when you bought it because the yen's been declining this whole time. So this trade was seeing historic volume through the past couple of years because the yen was on this terrible trajectory and you had this spike in US interest rates. So I can take basically free money from Japan, convert it into USD, take advantage of the most reliable, safest payout asset that's at historic interest rate highs, and then just keep paying it back over and over and over again.

1:05:48And massive... Real quick, was this not available in other countries? Because a lot of countries had zero interest rates, right? So is there a reason why Japan was like the go-to to go borrow money? Or is it like part of this fact, well, I assume one, just because it's a very developed country, but then two, because the yen kept going down in value is the idea? So I think, yeah, it's two things. So historically, this trade has existed for a long time because the interest rates have been near zero for a long time. The yen, and I think the institutions that you could borrow from, are seen as more stable or reliable than a lot of other countries around the world that you might be able to interface with, right?

1:06:25The yen is like this very developed, sorry, Japan is this very developed economy that has strong financial institutions. They're like a reliable country that I could go seek this money out from. I'm not expecting anything to go wrong. The yen, through a period like the 2008 financial crisis, is seen as a relatively stable store of value relative to the U.S. dollar. So because of that reliability, this trade has existed for a long time. But I think the scale at which it's being used is a little rockier over these decades. because the yen was more stable and it wasn't like crashing all the time, right?

1:07:11And you did have to take that money and put it into riskier investments to see the return. So normally, like if we were looking at the 2010s, right? The US interest rates were near zero. So if I was trying to do the yen carry trade, I would take a bunch of yen that I've borrowed and now I have all of this money to invest, but I would have to pick something riskier. Like maybe I put it into, I've invested into some type of American stock or some Turkish company with liras. And I have to gamble on the return of that investment. And that is more risky than just buying a U.S. treasury. But the volume of this trade expanded so much within 2023 to 2024 because you had this incredibly unique time period where the interest rate in Japan was still zero.

1:08:06And for reasons related to that and, and others, the, the value of the yen is consistently declining relative to the dollar, which is making the trade like even more profitable. And then you have a historically high return from the safest asset you can buy, which is us treasuries. So it's, it's as free, like free profit or free money as you could possibly get. no is there is there a like is this building to something is there no no i think this is just like fascinating because i think this kind of sits in the shadows of uh you know most people don't know this but this was something that a bunch of large financial financial institutions or companies were able to take advantage of for a really long period of time like a couple essentially a couple years where if you had the uh means and the connections to you know borrow money at this scale you could take advantage of the the free money printer and when this started to change is this year we finally saw kind of a spike or a stabilization in like the yen crashing and then also our interest rates declining so the trade is like now it's no longer as valuable as it was through like the past couple years it's not that you can't do it anymore but this special like insane crossroads of circumstances that were allowing people to take billions of dollars in Japanese yen and then get like literally a free 5 % on that amount of money for like a year and a half, two years.

1:09:37That was something a bunch of institutions took advantage of at the same time. Yeah, I'll just say like, you know, I think broader context, if you're not thinking about interest rates, it's just that the Japanese government has a lot of debt, like a lot, the most in the world of any developed country. They have a ton and ton of debt. So they have to artificially keep the interest rates, which is what you pay someone to borrow money, you have to keep it low. Because if those rise up, then the amount they're spending on interest for the government is more than their military, than their schooling, everything combined.

1:10:06If they had interest rates like us, they would not be able to afford a government. They have to artificially keep it low. Because borrowing in Japan is artificially kept low, this carry trade has existed for a while. And again, it got to an extremely example. But people can just borrow money here and spend it on anything because it's this great deal that happens to coincide with this established first world, big country, big banks, everything. There's no risk. There's a lot of risk. So I would say the yen carry trade is much, I think the example you're talking about is like when it hit the absolute extreme, because it's safe versus safe.

1:10:41When it gathered the most notoriety because of how it's like, this is the most egregious the abuse of it became. But it is underpinning a lot of risk assets worldwide because this big, infinite place to borrow money has allowed people to go and put it into tech stocks or whatever. I mean, it's just people have found this to be a good spot to get money and then somewhere else where to spend it, which by the way, is self-reinforcingly kind of bad for Japan. Because what you're doing is taking money out of Japan and putting it into US dollars or something else. So they have to, it is a kind of a doom loop on their part that they eventually have to get out of.

1:11:19It's what causes the yen to get weaker because people are selling yen to buy something else. So they have slowly but surely this year been trying to raise interest rates back up in Japan. Well, they have to balance that because if it gets too high, the government can't fund itself. And if it stays too low, people are constantly fleeing the country with money. So it is interesting. The yen carry trade is an interesting underpinning to what's going on. and you'll see on days when it kind of reverses or when the yen does well and people are spooked about their, you see massive movements because it causes things to be more brittle, more.

1:11:54Yeah, it's funny because on the subject of bubbles in the previous topic, right? This is the part of it I didn't really understand until recently about if you just see this upward, if you see a trend of upward movement in the yen for a period of time, you can see a reaction in things like the stock market because so much money from this method has been used to pump up various stocks or industries and i didn't i didn't know the weight that this had and i i don't even i don't have numbers to contextualize that honestly i i it's but i think it's because it's not super clear like how much money has been raised in total and used as investment like through this uh yen to usd on like google just and then go max again i think it's a good thing to like if you go max on this one and it just shows you uh you know just how how weak the currency really has become like it's it this is in part because of this i mean we've talked about this is why in the past few years there's been such a flood of tourism in japan i talked with the the barber i was talking about you know he was telling me um he said not he said you're one of the good ones but you know he's talking about how there's foreigners all coming and they're they're doing social media and it's a problem here in japan but i think that's the idea there's this there's this anti-foreigner backlash in japan because i don't know it's not any individual's fault but it's people are coming over vacation more and more because the deal is so good the deal is incredible you get your money goes farther and it's and it's because of these central bank decisions by japan which have made the currency slowly but surely get weaker and so it's causing all these later political effects that we'll talk to the expert you know on a future episode yeah but it's it is it all it's all connected it all it all plays out i guess let's tease it yeah i mean yeah uh we are gonna be talking with somebody who lives here and is like a really involved with the business and political side of japan and so yeah jeffrey hall jeffrey hall and really excited about that.

1:14:06So next week should be the episode where we're really going to dive into a lot of this with an expert who really lives here and has seen it all. Yeah, yeah. He has been a guest on BBC, Al Jazeera, CNN, all these media outlets to help explain kind of the political and economic developments in Japan. And he was someone we've gotten connected with recently and is kind of our main guest for this week. so i'm actually we're doing the same thing which is like help us understand what's going on in japan yeah because he's like a person who lives here who's just like deeply involved with it so the end carry trade reminds me of like whenever i learn more about wall street i'm always like they just live in this funny fantasy world oh yeah where you don't have to like it's not real you know like there's people who i mean there's presumably thousands of people who their main job has been buying money borrowing money from japan and then buying u.s treasuries and then holding it and making billions and billions and billions of dollars they haven't created anything no nothing nothing was added to the world they just they're just sitting there and then they buy one currency and then they hold it in another and then they make billions of dollars and it's just i i often think about if you had all the people dedicating all of their mental energy and talent and intellect to that if what if what if they like made what if they made things what if you built things what if you did anything so i i i don't know if you'll remember this there's a dutch writer uh or an author named rutger bregman and i brought him up as a potential guest a few months ago because he has these famous segments that have that have gone viral a couple times and you know he he has some books that have come out and i i think his most recent book is about exactly what you're saying.

1:15:54Basically that we financially, in society right now, we financially reward this type of path. Like we spend a lot of time and investment and money in like crafting careers that then make money in these ways instead of rewarding them for pursuing the biggest problems in like public policy or things that would help the everyday person. And I think this is a very, good question i i don't have an easy answer to that you know i i do i want an easy answer but i want to say like so the reason that that thing exists is because somebody somewhere politically wants a free lunch and it's in this case the japanese government but in our case sometimes it's we want they want to juice the economy for their own political benefit they want to have debt but not pay normal interest rates for their own benefit.

1:16:51And because of that, it creates these distortions that incentivize people to do these otherwise useless jobs. These shouldn't really exist. They don't provide benefit to society, but it is a counter effect of somebody trying to get something free. Someone's trying to get a political... And so that's why I think we've talked so much on the show about governments having to run some kind of fucking balanced budget. You have to collect taxes and spend those taxes and not try to do above and beyond that because it creates distortions that our kids will deal with that's what they've been saying for years and now the kids are dealing with important things that masayoshi song gets 10 more years to gamble and then the kids will deal with it dude they'll be fine yeah maybe they will but they don't seem fine they feel like they're not fine our kids are fine they're fine everything's gonna be fine all i know is i want chuck schumer Nancy Pelosi, Trump, Joe Biden, and Masayoshi for 10 more years.

1:17:45And then, dude, the next generation will deal with it. The next generation should be five years younger. That's it. You know, someone's finally out of the game. Of all those people you just mentioned, as of today, Warren Buffett announced he is, quote, going silent. He's no longer writing his shareholder letter that he does every year. He's no longer doing public speaking. I don't know what age. He's like 90 fucking something. but Warren Buffett is essentially out of the game. He has passed on the reins. He's fine. He was never making policy. He's just investing in stuff. I don't have a problem with Warren Buffett.

1:18:17I'm just saying he's out of the game. He's just... No, I know. I know. He's 95. 95, okay. A little too soon to be out of the game. I've had this thought too, is with a... Maybe it's a little more understandable with like a Zuckerberg who's like still relatively young. But maybe this is the reason that I'm not the guy at the helm of any of these companies. But I just can't imagine the world where I'm 80 fucking years old and I have 50 plus billion dollars and I want to keep doing that job. You could just go enjoy life. And I think that... Okay, you're telling me that if you were Masayoshi-san and you had bet$20 million and you got 70 billion, one of the biggest returns on investment ever, you're not going to chase that high for the rest of your life.

1:19:06You're telling me you're going to go like wake up in the morning and have a coffee and look at nature with your beautiful wife? No, you're going to think about like, what if I put$100 billion and I get$18 trillion? I think it's the rush. And I think that people like, you know, if you're Trump, really, you like being important. I have an answer to this. I have an answer. Because you're talking to the guy. You're talking to the guy who, when he sits down at the blackjack table, he sets a little goal of, what if I hit like, if I get to turn this$100 into$500? I'll walk so I can buy my Nintendo Switch.

1:19:37Yeah. And then I do that. But then because I do that, I'll never be the guy who has a billion in the first place. Like maybe you just never reach that mark if you're kind of a normal person. Yeah, you have to be a psycho. I feel this way about YouTubers and content creators. Like whenever people are like, why are YouTubers and content creators so weird? It's like you wouldn't be in this position if you weren't kind of fucked up. Like all of us. No, no, I think this, I wouldn't. I don't mean this in an insulting way. this is exactly okay when we met mr beast and we went to this facility this if you weren't fucked up yeah we had mr beast on the yard a few years ago and i realized that he dude he is obsessed he is a man who is whatever you think of him he is truly obsessed with making youtube videos it is what drives his every movement from every day and it was extremely apparent to me in the short period of time I met with him.

1:20:33I don't think he was putting on. I think I saw everything going on at the facility, like the staff, how he even lives, like the room at the warehouse that he would sleep in overnight if he needed to. Shit like that. And I'm like, you're kind of a weird guy. You're a weird guy, but you wouldn't be in this position unless you were a version of that guy. Like, I do so maybe this is a stupid question in the sense that any, it's like when we were talking about people that seek power in general. Like no, the guy who's probably the best person functionally for being the president or the best senator is likely never gonna run because he's just not, that doesn't match up.

1:21:22And I think this is kind of a cliche conclusion to come to, but I do have an increasing feeling of it being real. When I have this, like I'm a normal person. If I was in their shoes, I just wouldn't do the job anymore. And seeing these guys obsessively run it down until their eighties or nineties or running it up, running it up. Yeah. Or running it up. And they're just, their brains just seek something differently than mine does. Gotta be a hell of a high dude. It must be. It must be. no desire to be Masayoshi-san, but goddamn, I can't even imagine. This is like the thread of Faker winning worlds again.

1:22:01And there's like this just nail-biter team fight that he comes, that T1 comes out of. And Faker like smiles and laughs to himself at the end of the team fight. And the top comment was like, man, he just lives with this shit. And then somebody else was like, I think it's the only way he can feel anything anymore. Right. Like dude, Faker needs to go to game five of the world championship to like feel something. dude i'll be honest from my bov look like he it was a tuesday for him he clocked in he didn't even but that's the problem it's like the high is not so good anymore and it's like what do i do besides maybe ssr point you can't get any higher at least with gambling he's running it out yeah i know you can you can just keep putting more money in as a gambler you know trump can go for term three i guess or whatever the fuck he's gonna go for but okay well i think we're uh we're pretty much out of time here we have two more episodes we're recording in japan a special one with uh two youtubers that i think we don't want to spoil yet because it's not going to come out for a while we're going to release it at the end of the year around christmas and then this upcoming one with jeffrey hall uh a university professor in japan also a special guest on a bunch of uh news and media networks as an expert uh as to what's going on in politics and economics in japan that i'm really excited we're going to get to put out next week we should do a little anime talk to hit the set right at the end here.

1:23:23What do you guys think about Luffy and I don't know. Thoughts on Luffy, Doug? I think he's sagoy. Well said. That's an episode. We have to pay penance or something. We can't use the studio and then also... I'll say a genuine opinion. I heard they don't even talk about anime on Trash Taste anymore. That's what real fans told me. The streets are saying it's not even anime. Oh, they're saying it's true. Okay. Connor's upstairs. I didn't even realize Connor came in. Streets are saying, Connor. All right. All right. We'll see you guys next week. Bye, everybody.