The Exponential Age Series: Part 4

27:02RAOUL PAL Yeah, these guys have got a totally clean sheet. RAOUL PAL Yeah. RAOUL PAL Well, here's the thing. You're right, but then the old economy and the household has a clean sheet too. So the debt for most individuals in this country that matter, and again, if you're a wealthy person and you have$100 million of net worth and you have$10 million of debt, it doesn't matter. If you're a person that buys a house and you have a lot of debt and your equity in the house doesn't change, you care about your monthly payments. And right now, the servicing of debt in the U.S. for a household for mortgages is at all-time lows.

27:44And the reason is because most people have fixed-rate mortgages. So their balance sheets are clean. And the amount of equity, and I just did a webinar yesterday or the day before, I don't think people realize how much equity has accrued in the real estate market in the U.S. over the last four years. It's astronomical. And so as long as the housing market is fine, it's another element of savings that, again, when people just look for what are the savings in the country? Well, your house has gone up. And if we don't have a recession, then the house price doesn't go down, even if it stays the same.

28:20There's a lot of equity in people's homes. For the corporate side, they still have a lot of debt, the American Airlines, the GEs, all these groups. Now, they've done a good job of restructuring it. And I think there's less than a trillion dollars maturing in the corporate debt market. You're not talking about numbers that matter that much. They've termed them out over the next 30 years. Corporates did a really good job. So who holds all the debt that matters? It's the government. And so I think this is another part of that left tail that makes it very unlikely to have the contagion that would normally happen because there's just not enough size in the debt market on a shelf that matters.

28:59And also, again, the Fed have shown that if it starts getting ugly, they'll get involved in that market too. That was the big, the Rubicon they crossed in 2000. We're saying, no, no, no, we'll go into the private credit markets too. We don't care. So it's like nobody is going bust. That's That's what they've told us. That's what the ECB have told us. That's what everybody's told us. That's what the Japanese have told us. There's another point that you raised, something I've been thinking about for several years now, is that the structure of the economy from about 1996, 97, 98 changed, which is people used to build businesses by going to the bank and borrowing money.

29:41Nobody starts a business with debt anymore. Nothing. None of these businesses, almost the entire business structure of the world changed. Well, not of the world. Really, the United States, more than any other country, had become an equity culture and not a debt-based culture. So you didn't. I mean, when I grew up, you'd go to the bank, you'd put on a suit and tie, and you'd go and beg the bank manager to give you a loan because you wanted to start a business. And now it's driven by equity. And that changes a real difference because it makes these companies less structurally problematic because the debt doesn't accumulate.

30:20It's just equity. Yeah. And something changed with the iPhone, too. And this is, I mean, I can use this as an example with Sultan, who I was on the show with you, and he just did our podcast again yesterday. But Sultan started a business in the last six months. really kind of infusing AI into businesses. And I mean, he already has 10-figure revenue. He took no debt and he's been offered money from VC and he's rejected it. And this is the new world. Now, he raised this money and built this business, not raised it to build it because he's doing this all with AI. So the cost structure of running it is being funded by the revenues.

31:12So he already has the revenues to cover the expenses. And the business is easily worth nine figures already, easily. So I've watched this and thought about this whole concept. And the reason this happened is because of the iPhone. And I want to use an example. So, you know, you'll have someone call up and say, I'm starting GoFundMe for a friend or whatever. Like the ability to raise money within a community which is what the crypto represents, which is why I think most small businesses will be done this way. Friends of friends, localized, and they'll fund the business because that's kind of the way everything started before.

31:51It's the way your kids, when they want to start a lemonade stand and you go through this. I believe more and more you don't have to go to this dispersed public market to raise money from these big institutions that you're going to have an enormous amount of business formations that are smaller. They're not going to take debt to start. They're going to fund it through revenues as long as they can do this. And even if they can't do it completely, you're talking about small loans. And if you can use AI, then you can scale the business not only without debt, but without people. And that's what Sultan has done.

32:20So I think people are underestimating how many businesses will be formed this way. And again, that disrupts the business cycle for sure. Yeah, it's just, yeah, I think this whole crowdfunding, we'll come into that when we to crypto. The whole crowdfunding model is a very different model. Even Real Vision, we never raised from VCs, we raised from the community only, the capital that we needed to build it. RAOUL PAL There you go. RAOUL PAL Yeah. Which is an extraordinary thing. Let's talk about the idea of rates at 5%. I do still a lot of analysis on this, and I just think inflation comes down, just because wages, prices never come down, as we know.

33:05It's very rare that you actually get a wholesale deflation in the economy. What you tend to get is the year-on-year rates of change slows down. And what I've been looking at is, obviously, the commodity part, the high-velocity part of inflation fell a lot this year, brought inflation down. And then And we find there's a significant lag of maybe between 15 and 24 months between wage growth going to year on year flat or negative and rents. So for me, forward looking, just extrapolating out just the year on year base effects, we get to zero in core inflation sometime in 2024. and headline inflation too a little bit earlier.

33:55So I don't think there's a world with which the central banks can keep, this is a core thesis of mine, that the central banks can keep rates at 5 % because the compounding effects of issuing new debt to pay the interest on the previous debt. And that if they keep rates at 5%, they have to do yield curve control and basically print it and put it on the balance sheet. There's no way of doing it. And we've seen the stresses in the bond market because of this very thing. And what I found is that there was a great debt reset in 2008. They said, nobody needs to pay the interest in the debt anymore. Don't worry about that.

34:34And so everybody, unlike the corporates, as you said, went slightly longer term in the structuring of the debt, the governments didn't. They did three to five years. And that four-year cycle is the cycle that we still see within the economy. me, and that I found that all quantitative easing basically equated to the interest payments from the last cycle. They just put the interest payments on because they can't keep accumulating it because that just goes exponential. So I think it's impossible to keep rates of 5%. So my hypothesis is that they are keeping rates higher for longer on purpose to undershoot inflation.

35:17I agree that their goal here, and they've made it public, and I don't think so. Let's say it's two separate points. So we both agree on that. RAOUL PAL, One other point is they either get inflation to undershoot, which is, whoopsie, sorry, let's get rates back down to trend rate of GDP growth, which is where it needs to be, or they blow up the banks and go, oops, sorry, rates, let's just print some more money. So two separate points. The first point I agree with, I believe they have rates at these levels, because inflation has already come down. And I think what you're describing has already happened to some degree, because we're now a year and change past the peak of year-over-year inflation.

36:02I mean, we're almost 18 months past the June peak. So those base effects, they're already happening. I mean, they haven't completely happened. But obviously, in the goods side, you're already kind of at negative in a lot of different goods prices. It's the service side. Most KPIs are negative all around the world. And in some places, I think it's Norway's like minus 20 something percent. It's crazy. Yeah. So I mean, we're both deflationistas. We both know where this is ending up because of AI. And I agree that Powell has made his bed and every central banker around the world has made their bed that they won't allow inflation to bob its head up again.

36:40And they're still overreacting to things like headline CPI was 0.6 two months ago, and it was 0.4. And look at the last three months. And the reason that's important is because the one thing you left out for our entire careers, we've never had wage growth. We have wage growth, and I don't see it stopping. And I will give you, you know, One of the most important things for there not being a business cycle, Ray Dalio in September is at the Milken Conference, and he says publicly, we're headed to a three-day work week. Jamie Dimon, in early October, goes on Bloomberg TV after his earnings or before his earnings and says, we're going to a three-and-a-half-day work week, and your kids are going to live to 100.

37:29The reason I bring that up and why it's important to this, I don't think the wage pressures, I think labor has an advantage right now in a big way. And I don't think that's going to change because I think if you believe in crypto, you have to believe that inflation is going to stay higher. I believe the two go hand in hand. And the reason I say that is it's going to be hard to keep the best people in the fiat system, especially the younger ones, from going to this other world. And that means that in the fiat world, they have to keep paying more money to keep the talent. They have no choice. And so what's Google going to have to do?

38:02What are they doing with AI people? So I believe wages have to stay higher as part of this. I'm leaving this country. And I've said crypto is a new country. It's America and the way people thought of it a long time ago. So forget the, you know, anything about it is where people want to go who want freedom. If they want to work less, if they want to not have a boss, if they are willing to work for less, whatever the case is, or if they have a great idea, which is what a great company is. It's what a great coin is. A great coin is an idea. It's no different from anything that's come up with Steve Jobs or anything.

38:36These are just ideas by human beings. I think it's going to be hard. But then the second thing is I don't like anecdotal stuff. I have not seen it at all. restaurant prices are ridiculous. They're insane. And I mean, I cook. I don't go out that much because I find it ridiculous to pay$30 for a salad at a decent restaurant in New York. Nick game, opening night last night. I don't have season tickets because there's none available. I went to go look at the prices. The cheapest seat to get into the game was$200 and change dollars. at the worst seat up there. There is absolutely no way. And I hate anecdotal stuff.

39:15So this is not an anecdotal thing. This is just, I don't believe with what was going on with Taylor Swift, minimum of$2 ,000 a seat. That is an indication that there is so much money out there that I don't think this is coming down as fast as you think. OK, on that point, I think there's lots of different things going on at the same time. On the point of the Taylor Swift, the Knicks game, what we saw in the Cayman Islands over Christmas as well is like the US economy was slowing down. We had record tourist season. And my thought process in this is, look, we live more and more of a world like this, you and I in this digital world.

39:54We speak to people digitally. We do stuff digitally. Now, you're in the office. I'm not even in the office. I barely go to the office. But I'm all day on Zoom and email and everything else. and I think that real world experiences, proper experiences traded a premium and they will continue to do so. And so even as a share of your household expenditure, your holiday becomes the most premium thing because you get to spend actual time with actual people. And it's the same with a concert experience. You know, there was nothing, I'm a big concert goer, I love music. And that was the one thing that we all missed over lockdown because there was no way to go to a concert.

40:39There were no concerts. But I could speak to my friends and everything else, but it just wasn't the same. So I just have a feeling that that's a structural shift. One of my other viewpoints is as we move towards this kind of metaversal universe is that nature trades at a premium. Yep. I agree. And we've seen people move out. People from New York moving to Hudson River Valley because nature is at a premium in a world where we're constantly digitally engaged. So I think we agree on this point, except for one thing, it's the timing of it. So I believe that inflation will stay above 2%. You believe it'll go below faster.

41:17That's where the difference is for everyone who wants to go through it. I think we will eventually go below 2%. And rather than think that maybe it happens in eight years, it could happen in three years. I just don't believe that I think it has to come from generative AI and three day work, we becoming more of reality. And I've learned with the iPhone and I've learned with any technology that even if LK99 was real right now, how long would it take to have an impact on the on prices? It would have an impact on the stock market way in advance. But for prices, I think it's going to take more time.

41:54And I'm going to drive with the fact that the number one thing people are going to have to convince me of is that wages aren't going to grow up 4%. So if I said to you, forget everything you believe about paying it, if wages are going to grow up 4 % a year, which I believe will happen, I don't think you can have core inflation below 2 % if wages are going at 4%. RAOUL PAL Yeah, my view on wages is there is going to be some scarcity within the labor force because of the demographic structure, and we're not yet ready to replace them with AI. I totally agree with that. The secular disinflation from AI in the exponential age comes later.

42:31I think past 2030, it becomes, that's the death of inflation exactly to your idea. In the interim, how I've thought about this is if I think of total economic output, and Then I think of the wage inflation of the people in the labor force is offset by no wage inflation from the retirees. I think you need to divide it by the total population. What you find is it's much less because the aggregate net demand doesn't go up as much. Because these guys, aggregate net demand, there's all the bullshit stuff about, oh, all of these retirees are going to be spending so much money. I'm like, no, no, they don't.

43:09Anybody who's seen their parents retire see that they become very frugal very fast because they don't know how long they're going to live for and will their money be enough. And it's a real psychological thing. And I think their expenditure goes down and offsets these guys. So I just don't see it, which is one of the reasons I think trend rate of GDP growth stays low. So here's a concept that will hurt that argument and you'll have to think about over time. So I agree with you in the way that dealing with my own parents, but I don't get phone calls anymore. You know what's changed? The Fed funds rate's a 5%, my friend.

43:46That's inflationary. So for retirees, and again, not everyone has money saved up, but as long as they have money - Median is only like 200 ,000. It's terrible. But again, they can all go get jobs too. So here's the issue that comes in. And if you break down the economy with 5.5 % money market funds, you just have money accruing. M2 grows normally by starting with how much is in the bank account. If you can get a job and you're getting paid 5.5%, then bank account deposits plus money market funds should be growing. And this year, you've got money market funds that are up over a trillion dollars.

44:23This year, you've got bank deposits which have stopped going down as of whatever, May, June, and they've gone sideways at this point. You've got household real estate, which has gone up dramatically. And I think the numbers are$12 trillion over the last four years. I mean, it's staggering numbers. You're talking 50 % of GDP in housing, and those retirees own houses. So they can do reverse mortgages. They can do things where they can take money out. So they have benefited significantly. And my mother, she doesn't call and worry about things the way she used to. So I think that combination of being able to get jobs and having a bank account, I think that's inflationary in both cases.

45:04Now, again, I don't think this is inflationary in a bad way, but you made the point that I agree with. And you can say whether you agree with this. If the economy is growing at 2 % and inflation in the country, PCE core is still growing at 2.5%, do you think they're going to cut rates? No. RAOUL PAL, I don't either. That's what I'm thinking is going to happen. I don't expect explosive growth. RAOUL PAL, They don't want such positive real rates. I am sympathetic to the view that rates may not come down as much as cyclical inflation comes down in my view. I'm sympathetic to that view. It's a wait and see, let's see, because there's a lot of unknowns out there, I get it.

45:51The other thing that I wanted to touch on was, okay, the central banks have reduced the left tail, but what the left tail has done is create the 1 % versus the 99%.

46:06That's accelerated that whole process. As you said, we think that or you think there's power going back to the workers, but it's probably still not enough to offset. Even if you get 4 % wage inflation, the central bank balance sheets tend to grow faster than that. That net-net rich versus poor divide continues. No way. He who owns the assets is king. The only way is you got to the same conclusion. You need a fractionalized asset that everybody can own. Exactly. And put in 5 % of their paycheck in, regardless if you're a billionaire or you're a worker in a rice field in the philippines by taking out the left tail the distribution of wealth as we both know has been created by the fiat asset system going up to 500 trillion dollars plain and simple so for anyone who's trying to guess how did it go it's not because of incomes the wealthiest person jeff bezos did not get paid in the income that made him wealthy you get paid in your ideas and then they grow and you own a big portion of your business and it grows to some mega number However, I believe, and you and I are on the same page of this, the transfer of the fiat, I believe fiat assets are at an all-time peak and they will not go any higher.

47:23So I believe we are at the peak or last year was the peak, whatever it was, two years was the peak. We will not take out the peak in fiat assets. And that money will go through two mechanisms. One is the disruption of the public equity through non-public equity will take time. But this is the business formations and what we talked about. If you don't need debt and you don't use equity anymore, you're just community-based growing your business. Like your business is a real business. OK, if you don't have a VC fund in there and you don't have this, the people that are benefiting are the people that are using your service and you, your team.

48:05If you believe that that model, which I do, is going to continue to flourish and go well, well, then the money that's in these public companies, their business is being disrupted by people like you. AI companies will disrupt the big businesses. I think I mentioned, I definitely, we talked briefly, I'm not a believer in the mega cap tech companies being able to win going forward. I completely disagree with that whole AI argument. For a year or two, it might be, but I think we're at the peak of fiat assets. And I think if you look at MSCI World X the U.S., that peaked in 2006. It's unchanged, which is a scary thing for people to realize.

48:40And now you're on your way to the third negative bond performance for the Barclays Ag in a row. Three years of negative bonds at the same time. And if you go to IG in the U.S., it's basically unchanged since 2015 or 16. That's an unbelievable thing that you haven't made a dollar in IG really going back over the last seven years. and you haven't made a dollar at MSCI World X the US since 2006. And now we've got treasuries and everything that are underwater for anyone who has a duration bond past the next three months. So you're starting to have this loss go. And you and I both know that one thing will happen with human beings.

49:18They will remain greedy and they will migrate to assets that are working. And that's why this week was such a big deal. Not to pick on things, but I've used ARK, Cathie Wood's ETF, which is an innovation ETF versus Bitcoin as like a comparison of my thought that the public innovation, the public equity market will be transferred into the crypto world. And so if you look at a ratio of Bitcoin over ARK, it just broke out through all time highs. If you look at the correlation between the two, they both went down violently together. ARK was going up early. It's gone back down to the lows while Bitcoin's at the highs of the year.

49:58So I think we're starting that transfer of away from the fiat public asset market and into the fiat thing. And if so, you got a$500 trillion behemoth and you have a trillion and a quarter tiny little thing. You want to have at least 5 % to 10 % of your money in crypto. And if you want to be someone who's speculating a little more, you want to have more. And so once this thing starts to go, I think it's just going to keep going. RAOUL PAL Yeah, you and I agree that what we built is a parallel economy and also a parallel financial system. When people talk to me about the ETF that's coming, I explain to them is like, okay, if you understand that, in fact, I'm going to write an article about this for Global Macro Investor this weekend, is if you think of the crypto economy as an economy made up of sub economies or states like Ethereum and Bitcoin, what this ETF is, is a trade agreement between TradFi world and crypto world.

50:56It's just a trade agreement, and we can choose to use it or not. And what you're saying is what we both believe to be true is that the moment people perceive the superior returns, then that trade agreement is going to see a record amount of FDI coming into New World. And you know this well. One of the reasons that I enjoy talking to you, and I'm sure you enjoy talking to me, We're macro people that believe in something that the average age of the people who believe in it are in their 30s. And the TradFi world and the fiat world, assets are owned by people in their 50s, 60s, 70s. So forget the whole transfer of wealth argument, which is going to happen too.

51:40It doesn't really matter. The reality is the TradFi world has proven that they will invest in anything that they think they can make money in. And so you're going to migrate to what's working and what's going to be working. And I really do believe that I said this to someone who said, oh, Bitcoin is a safe haven. In fact, Palm tweeted it this week. Oh, Bitcoin is a safe haven asset this week. And I said, no, it's the only asset working this week. Like, it's the only asset right now. And I don't think people realize it's up 110 or 100 plus percent this year. And now the S &P at the lows today was only up 7 percent before dividends.

52:18and the bond market is down again. So 60-40 or risk parity was up 2 % at the lows today, 2 % year to date. It was down 16 % last year using a 10 vol instrument. Risk parity hadn't lost forever. Anthony Robbins wrote a book and I knew when Anthony Robbins wrote the book, we were close to the end of the fiat system. When he writes a book that risk parity will work forever and I'm like, hey, I like Anthony Robbins as a guru for certain things, but if he's telling me how to invest, we must be at the end of the fiat system. I got more interested in crypto at that point. The other thing is, when you think of crypto as an economy, as we talked about, economic growth is driven by population growth, productivity growth, and debt growth.

53:02Well, we just blew up all the debt growth in crypto, but population growth. If I look at the number of active addresses, it grew 42 % in a down 80 % year. Immigration is still massive. So there's this economy in recession, the crypto economy, yet it's still attracting population growth as people come into it. The other thing that you're talking about, which is also very true, it's a huge talent suck. Because there's such a connection between, it's like working in the mobile phone industry and getting paid for every single thing that happens on the network. That's what crypto is. So it just attracts more and more talent because the right tail is so much larger than anything else.

53:49Because there's another issue that I wanted to bring into that is that the right tail in traditional tech businesses, I had a friend of mine for dinner last night. And he's done a bunch of these. He was at HubSpot, and he was at Lattice, and he was a bunch of these kind of SaaS businesses. He's got equity in all of them. can't realize a fucking penny. Equity is meaningless because nobody IPOs anymore. So on paper, he's like, I'm worth millions and millions and millions of dollars. Reality is, I have to sell my house. So I think you and I both agree on this, but I'll give you the framework that has served me well for a long time.

54:35So as someone who grew up at the racetrack, when I was in Brazil, I knew that I had to find something from my experience in emerging markets, which are when you have something that can go from I'm worth 100 to I'm worth 20 in a matter of weeks, which cannot happen in the United States except for, you know, not even the crash in 87, which was a 20 % fall. In Brazil, you could lose 80 % quickly. And I watched it with Telebras and things like that. And I traded in Mexico because the currency could go down, the stocks could go down, the bonds could go down, countries could get eliminated during the 90s quickly.

55:08And so to not be in that position to get hurt, I had to start looking for leading indicators. And I started reading up on Jeffrey Moore and the whole thing of how were the leading economic indicators created. Then most people don't know that he created ECRI, which I'm sure you used at some point in your days. and I love their work. And the reason I loved it is because they had a leading index. They had a long leading index. And that's the way I built my framework. The only thing I did differently is I realized the best data goes back to my growing up at the racetrack with my father in the fact that the dollars being bet by people in the market are absolutely the best indicator of everything.

55:47If I want to know where the economy is going, I want to know where copper is going. I want to know where the S &P is going. I want to know where all these things are going. It helps me with the ism and everything along those lines. So what I believe is that the market tells you a story if you just look at what's happened. Now, you mentioned one important thing and two important things for arguing for crypto so people hear it. The first one is there were 300 million users in 2021. And then during a horrible bear market, there were 420 million users at the end of a year where it's down 80%. Like if you just want to start there and be like, what other thing do you know that you get more users when it goes down every day?

56:27And everyone's telling you that this is the end of crypto. It's dead. And yet there's more users. Secondly, when you go through the numbers, I don't think people realize that of the 420 million, 270 million are in Asia. MSCI World, which is the dominant benchmark for the fiat system, is 70 % the United States. The crypto world users, it's 16%, I think is the most recent number I saw, are US users. So now you're flipping the table in this new economy where, I say this, the rise of many are benefiting the most. Now let's segue to your other point, which I think is important too. I knew that WeWork was an important story when it came out because that reminded me of Brazil.

57:11Goldman's doing the roadshow. I'm hearing numbers like WeWork's going to IPO at$100 billion. and then lo and behold, weeks later, it's a zero. Now there's a TV series out with it. That happened before the pandemic. Now what we have is how many IPOs trade up a week after they come out? We're watching now the equity world and the VC world and all of this stuff go through and they can blame it on rates, they can blame it on whatever, but there's something changing that says there's a better way to monetize, there's a better way to come up with ideas there's a better way to raise your business. And I think it's what we talked about.

57:48No debt, use no people and find a different way to go through. And I think the crypto world offers a different solution. I think more people are going to take it. Hey, everyone, we can take another quick break and hear a word from our partners. We'll be right back.

58:04RAOUL PALAMARA, So here's something interesting. I started digging into Real Vision members, the demographics, stuff like that. And I had a hunch. So I went through and bought some research on the demographics of crypto. And I started going through brokerages, who's doing what in markets, everything else, to get an understanding of what the millennial cohort, which actually got financialized in 2020. They weren't involved at all beforehand. 2020, they became financialized. So here's some interesting stuff. The traditional online brokerage firms, the traditional brokerage firms, which basically have gotten rich off the back of the baby boomers and their 401ks and their mutual funds and all of that stuff.

58:46Their online brokerage apps, between 2 million and 4 million monthly active users, pretty small, because most of the older people use their RAAs and they've just got, they're just not as active in the same way. That's all dwarfed by Robinhood, which is 22 million customers, of which 12 million are monthly active users. And they trade two things and two things only, technology and crypto. And on technology, because it's not racy enough for them, they're using options. And I'll come on to why. And this is really interesting. But then I looked at Coinbase. It's 110 million accounts, of which currently, in the most subdued part of the crypto volume cycle, there are about 9 million actives.

59:46I was at Coinbase, I think, in fact, I left your office and went to Coinbase. And I was chatting to them. And they're like, Yeah, if volumes just equalize back to normality, we're at 35 million active users, which dwarfs everything. I went around the world and looked at all of the global brokerage accounts in all equities worldwide. It's about 500 million. There's 425 million active accounts in crypto. People haven't got their heads around the size of what is happening. You see it. I remember on my Twitter users, yes, I've been involved in crypto for a long time. But as the world really got into crypto, that acceleration of Twitter followers that I had was the crypto size.

1:00:33It's five times larger than anything else. That's the TD Ameritrade 2 million versus 12 million, right? Six times larger. And people don't understand this. And this is this young cohort. And the reason being is that they've been left behind. They can't afford a house. They're very good. They put money in 401ks, and it keeps driving those passive flows. But the rest of their money, they know they're never going to be what their parents are. So they've become speculators and rational, rational speculators, because they're speculating the things that have the right tail. Yeah. and they will have a chance.

1:01:17So I'll give you, so my son, who's a senior in high school, so during COVID, he put$700 into a Coinbase account. And by February of 2021, it was$80 ,000. Now, I'm sure everyone knows what happened after. or it went back to$700. Now, I think he told me it's$1 ,200. So that's a good rate of return over the last three years. During that time period, we had GameStop, okay? We had the recognition that retail options in the market were exploding, and people were like, well, this is a bubble in stocks. This stuff will go down. And then it was like, well, this is COVID. People are sitting at home. Baseball in the US shrinks.

1:02:11They do anything they can to make their game shorter. So they go through all of these changes. I start my son's like, oh, I hate baseball. I need to have something that's a little more fast paced. To your point of this is entertainment to them. And the thing is, they're going to make money. They know how to play games to win. Exactly. Play this game to win. And it's going to allow them to buy a house. They'll do it all day. He talked about this concept of pump and dump. He talked about how stocks were boring. Exactly what you said. And the problem is with people like not believing this. At the end of the day, you have to understand human beings will always have one thing.

1:02:49They're all he was greedy. He didn't get out of his stuff at 80 ,000. And I was at 40 ,000. Like, dude, just take half of it out, please, and put it into Bitcoin. Like, this is going to end badly. And he didn't do it. And then he started saying, I can't believe I'm now 18. I could have had a BMW right now. Instead, I don't have any money and I'm working a Dairy Queen. Like, I don't understand. And it literally is that story. And he wrote his college applications. And the crypto story is part of it, what he learned from it, what he went through. And now he's starting to get interested again. And I asked him why.

1:03:24And he's like, I'm hearing some things. Now, he was hanging out on Reddit where he was getting all this information. So he was informed. He could talk more about the tokens that he was invested in from a position of what seemed to be like any analyst talking to me about a stock. So I think people don't realize that kids are better at gathering information, putting together a story. And I agree with you that this is going to lead to positive things for people who get a dozen market. RAOUL PAL This is the power of the hive mind. I'm a passionate believer in this, is that I think GameStop proved.

1:03:57Now, yes, it was a risk-taking cycle, blah, blah, blah. But the underlying analysis that drove that whole madness was correct. and we see it time and time again that the power of the hive mind the more people get educated and understand this the less they need the wall street analyst the less they need the guy in the suit that they need to knock on the door and say please sir can i have your advice i'd love to pay you they're not going to do that anymore they don't trust them they don't speak the same language they're not interested they'd rather they're smart enough they'll figure it out as a crowd And I'm a passionate believer in that.

1:04:31And that's what crypto represents to me. It's like the very essence of that decentralization of finance, power, thinking, all of that stuff. Yeah. And so when we use, you and I know this, the power of the world community, like the word community, I don't think people have really thought about the concept of community that's really started to dominate things. And I'll even use Donald Trump as an example. He created a community that is rabid in love with him. Like it can't be broken. Taylor Swift has a rabid community that will go against you if you say anything bad about her. The Reddit world was attacking these hedge funds in this form.

1:05:15Like this power of community, which again, you have to think about the fact that what percentage of people own the net worth in this country? It is a game. When you say the genie coefficient is there, if you're in that crowd and you're fighting the many, it's really tough in this environment with communication and how quickly things spread. When you add a dollar amongst a billion people, it will move things very, very quickly. And the more users you have, and I don't, you know, maybe you have access to these numbers, but everyone talked about how crypto is owned by a few. And I agree with that, that the original people to benefit the most were hedge fund people and people that got in and they got in in size.

1:05:59And I've had this belief this year watching a lot of these hedge funds that I know the people running them have a lot of money in the crypto world and their businesses have no liquidity right now. That crypto is being used because it's the most liquid security in the world. It trades 24 hours a day, seven days a week. So if you need to get money to pay your people in a hedge fund that is a high watermark for the next seven years because your privates are not going to actually be coming out and being monetized and you want to keep your business, you're using the liquid part. You and I know how this works.

1:06:29You have to go to the liquid part of your portfolio. And if you've got a bunch of illiquid things and you can't sell the liquid securities, you go into the things that you can raise capital for. And I think that's been one of the overhangs in the crypto market has been this. And that's why I think this breakout is kind of suggestive that, number one, the ETF is coming and it's probably coming sooner than we all realize. It's a very, very big event because that'll just open it up to more. The retail that we're talking about using it is predominantly right now across Asia and other countries. It is not a U.S.

1:07:01thing. And I think you're going to when you get an ETF, it's going to bring in a lot of wealth money that's going to be looking for something. And if they bought ARK, no offense again to Cathie Wood's product, but just it's an innovation thing that had a high multiples. Well, if crypto is working and outperforming that, then there's going to be someone that comes through at BlackRock or wherever that's able to convince people that just put three to five percent. And then every year when they realize what I've seen with the analysis that's been done by Morningstar, and if you haven't seen it, I mean, they put together a portfolio and said, If you just had 3 % to 5 % in Bitcoin over the last whatever, you've outperformed everything just by having that little amount.

1:07:38I think this is going to become a bigger portion of people's portfolios. And I think next year is absolutely a year where you're getting more people, more dollars coming in. And I think the chase starts. I think you bring the boomer and Gen X population in. The millennials, I did a video several years ago, 2016, 17, called The Retirement Crisis that got watched like three and a half million times. And one of the key points I made for then was about this millennial population. I'm like, Bitcoin is your answer or crypto is your answer. It's the only thing that has a risk reward of this. That was back then.

1:08:17And it's proven itself out. There is no other asset. So I have gone through this many, many times. You and I are macro people. I've got my Bloomberg screen next to me. I've got commodity prices, copper prices, dollar, all the shit that I used to trade. I just do everything versus the chart of Bitcoin or ETH. And everything is pointless. It's like a supermassive black hole that eats everything. And the more people realize that, the faster the immigration rate comes, the faster the FDI comes, and it just keeps going. So here's a funny thing on this whole, like the importance of it possibly being an ETF and why it's so important to people.

1:09:01There's so much money now being managed in a model driven way, meaning you just you have a certain amount of bonds, certain amount of stocks and BlackRock's deciding or whomever is deciding. If there's an ETF, well, then doesn't it have to become part of people's portfolios? How many people in this country realize they own American? Like if you ask them, do you own American Airlines? No, I don't own the American Airlines. You sure? Because if you own the S &P 500, you do. The weighting, whatever it becomes, even at half a percent, the dollars are enormous if all of a sudden everyone goes, yeah, we're going to invest in it.

1:09:35And this was a thought, a conversation I'm sure you had with many pension funds, you know, in 21 when it was, or 20 into 21 when it was going higher. And then it became a, I don't even want to talk about it. But most of the issue with it, they said, well, I'm going to look for private companies. And I just said, if you believe in crypto, you really just want Bitcoin, Ethereum, or someone that manages the tokens. And my argument has always been, I want to have the benchmarks of the economy of crypto, not try to find the companies that are going to win, because I think they're all going to be localized.

1:10:06And so I just want that community to continue to grow assets and have the people continue, like my son, to put money into it. I don't want to be smarter than everyone and try to figure this out because I don't think these things are going to last as long. I think that pump and dump thing, hey, we're a token that's worth more. Axie Infinity goes up dramatically. Then it's not worth anything. I think there'll be a competitor for everything very quickly. So I think the ETF creation, which almost certainly will happen by the end of January from what I'm hearing, it's going to be a big moment for it.

1:10:35And I think now the sellers probably realize it who were sitting up there and they're like, well, I might as well sell on the news of the ETF. So maybe when the ETF gets announced, initially, it falls down again. But I think this is going to be a trigger point for asset allocation models, including it in their models. And even if it's a small number, again, a small number on a trillion dollars managed to a model in a market size that's only a trillion dollars is a huge number. And that's what's happening. RAOUL PAL, And considering the number of holders, so the actual liquidity is minuscule in crypto, minuscule.

1:11:07I mean, I've built an asset management business, a fund-upon business called Exponential Asset Management. We just allocate money to digital asset hedge funds. The traditional hedge fund world is$4 trillion. The crypto hedge fund industry,$6 billion. So there's no secondary market. So when you put in a bunch of FDI from TradFi land and put it into crypto land, it's just going to have a massively outsized impact. You know what I love about our conversations, and even what I'm doing with G3 on our podcast, is you guys will say TradFi. I have a weird brain in the fact that all I think about is this massive bubble of 500 trillion of fiat assets, which in my heart of heart, we're watching peak.

1:11:57And I believe they're peaking. Like, this is the peak. And so if that's the peak, then the crypto world is going to grow. And every time I say that, people will go, well, you think this is going to go down, then we're going to have a recession. I go, well, there's two ways for it to go down. One is for there to be a reallocation into this other world where this is growing faster than that one. And that one's growing so minuscule overall that all the profits are being recycled in there. And that's what I think will happen. If we get 5 % S &P returns over the next five years and bonds return five years, that money Money will recycle into this other world, and that'll be the peak in it.

1:12:32You won't have the accumulation. But then when you go further, do you think real estate's going to grow if rates are up at 5 %? No, I don't think real estate's going to grow. Is commercial real estate going to grow? No. When you add it up, it's real estate. Forget art and all that stuff because it's minuscule. You're talking about real estate globally. You're talking about stocks globally, and you're talking about bonds globally. That's the fiat world. The physical world is based on those. And I think it is the safest bet in the world that that dollar base has reached a peak because of the size of the debt and how much of the stock market and the assets are China, U.S., and Europe.

1:13:06And how people are looking for an alternative in China, you know, not the entire country because a lot of them are poor. But when you add up everything, the Gini coefficient means there's very few winners. There's a lot of losers. So if you believe in the rise of communities, the rise of many, and that all of the educated kids that are coming out in Brazil and Africa and this, they're going to start their businesses in crypto, they're going to have Bitcoin because it's the currency of that environment. It's a global thing. It's just a no-brainer to me that this is going to have to go higher. I totally agree.

1:13:39There's another thing you talked about in crypto, which is we have a very fast innovation cycle. Things rise and fail. The ones that manage to rise will go down again, and then they'll rise further. Then the whole bunch just don't ever go there. It's a very Darwinian quick cycle, as your son says, pump and dump for some stuff, other stuff survives it. I want to go to a comment you made going back into the technology age that you don't think the Magnificent Seven or the large tech firms will capture because I think what you're saying is that AI allows the capital formation to be super fast and businesses to try to get escape velocity or fail very fast.

1:14:26And it's going to become more like crypto. So yes, of course, there'll be some new winners within that. The big technology companies will probably be okay. but actually this thing is going to look very different to what we understand. Talk me through what you're thinking. Yeah, well, and you and I got into this, and I found this to be the most interesting part of our podcast together.

1:14:51So AI lowers the barriers to entry, plain and simple. You have an idea. You want to start it. You can create something very quickly. So it obviously competes with software companies. It competes with a lot of different things. And you've seen those companies go down. The argument I hear on the technology side is, oh, well, we've got all the invested dollars. We have all the power that's necessary to run these things. But the question is, how are you going to generate the revenues? At the end of the day, these stocks have gone up because they've generated a tremendous amount of revenues. Now, if you break down their revenue growth, which from 2010, just after the iPhone, until today, you've gone from about$100 billion in revenues to$1.7 trillion or$1.6 trillion, somewhere in there, of revenues.

1:15:43That's an enormous amount of growth. A lot of that growth occurred outside the U.S. Google has over 90 % market share in Germany. I won't go through all of the numbers for all these things. If people don't realize that if you try, if you're a business like Microsoft, you go, we have AI and we're going to be putting AI in your, we're already watching what's happening with China and the US, which are battling over privacy issues and technology issues. Every country is going to be worried about artificial intelligence being inside their walls. They're going to want to have their own artificial intelligence.

1:16:18And if you look through the work from the EU, and even with the U.S. and the EU working together on this, AI is going to be a disruptive force to anyone that is a global country that gets a lot of their revenues outside of the U.S. There's just no way around it. So if you lose that benefit, which is why at the end of the day, you've got total MSCI world market cap. U.S. is 70 % of MSCI world. they can't be the winners. It's not possible. And plus, you've been through this too many times. How many bites of the Apple do you get? Do you really think when the iPhone was rejected by most people in 2010 because of the keyboard, most people didn't start buying the iPhone, honestly, until 2013, 2014.

1:17:04And that's when you started to see people really buy in. You watch the BlackBerry thing. Yes, they peaked, but no one wanted to make it. There were privacy issues, all these different things. They found a way for people to do it. I just believe that what AI is going to do is disrupt all businesses with inside the fiat system because of the lower barriers to entry, which will allow them to compete with different parts. But if you're an employee at Google and you're young and you're smart. And you come up with an idea looking at those walls, you're like, well, I can do that and I'll just go over here and do it.

1:17:36Generative AI allows you to do it without having all of the resources. Now, they can't maybe create a Microsoft co-pilot. They can't be embedded in every office system in the globe. I get that. And I do believe Microsoft has an edge just because of that. But I think thinking that these guys are going to be the winners of AI, I think it minimizes the fact that companies are going to start out of nowhere. And I'll just use Sultan as an example and know his business. He was able to start something which absolutely competes with Microsoft 100%. And I think we talked about the fact when you showed me what you were doing with your artificial intelligence, you also used a group like Sultan's group to help you with, hey, I want to have an LLM and a bot to make my user experience.

1:18:20You're not having to go through this whole thing with Microsoft. So I think the disruption is very obvious to me. RAOUL PAL, Although one of the things that is going to be very difficult for investors to deal with is because there's so many people able to build a business around or on top of LLMs, and there's so much innovation because it's happening so fast by so many people that it's very hard to plant a flag in where this is going as a business because you just literally don't know. You can't look at the playing field here. You can't ask people, hey, what do you see coming down the pipe? Because it's still being innovated away so fast that it's really difficult.

1:19:05Well, I say if you try to use the Web 2.0 playbook on the Web 3.0 world, and I'm including crypto and, as you know, AI together, and we didn't really get into this, but I don't think the Web 2.0 playbook works. I don't think you can find, and again, we'll use my son and this whole thing you said about how quick things move. Early stage, late stage, by definition, that's like a baseball game. It takes a long time. You go through this. Things are going to happen much faster. And I don't think this generation that is maybe in their 20s at this point, that will be the major drivers in these other countries, they're hungry to live.

1:19:46And I think that's the important message that I got from Axie Infinity. And people, they should watch the documentary. The important thing is not what we look at. In fact, hey, Axie Infinity, I should invest in that token. No, really, the story was one about an economy being born. It was a digital economy that created opportunity on a global playing field from the Philippines. Amazing. And the government had to deal with it. because it became so big as the percentage of what had gone on. And I use that as an example of it wasn't investable, but for the people in the community, they were benefiting by making a heck of a lot more money than they could have made getting a job because they couldn't get jobs.

1:20:32So they were actually making more money in there. Second thing was educational-wise, the part I loved is when there were sponsors and they were creating these teams and they were like, okay, we'll pay for you to go through it and we get a percentage of this. It's like it was an economy that people have to watch to really understand the power of kind of this community-based environment, which is not about a person getting super wealthy. It's about a distribution of everyone having a chance to make more money doing something they enjoy as opposed to going into a job where they work 50 hours a week and they kill themselves and they go through it.

1:21:06And when people ask me about what the hell we're going to do about income in a world of AI, I'm like, it's digital societies. It's working together as a community in like-minded projects, whatever it is. And if you can't see what is going on, you're blind. If you can't see what's happening in crypto, if you can't see what happened in Axie Infinity, which is not just crypto, if you can't see what's happening in Minecraft, if you can't see what's happening in GameStop, GameStop, these are people working together en masse in digital societies that are globalized. Nobody cares where you live, who you are, what you look like, they don't even care what your name is.

1:21:44You're just part of this big game. The game can be money, the game could be something else. This rise of digital nation states, well, digital nation states are ones with currencies, and we're seeing that, Ethereum, Bitcoin, others. Axie Infinity was a digital nation state, ended up being a failed state, as did GME, GameStop. But these are the incremental things that get built on top of each other before something really big breaks out here, something really big. Yeah. And these things, like I said, about the way I learned about how to kind of look at assets to judge, these are real things that are happening.

1:22:19And so I look to collect a lot of dots and then see if what I think is happening is happening. We didn't get into the authenticity part, But I think AI directly has an impact on the need for the blockchain as a parallel thing. I mean, if you have the inability of and you've talked about this in a very, very clear manner, which I'm sure you've done. And I want you to have to go through it again. But I think the election in particular and just what's going on in the U.S. next year serves as another point for how authenticity is really critical. When we have a Middle East conflict going on and photos are coming out in Twitter and people don't know what's real, what's not real, because it can be generated by AI, there's really no more news.

1:23:02And so your point about, you know, blue check marks don't mean anything. That's not really anything authenticated. That eventually the blockchain will be used for authenticity for sure. So if you believe that we're going to need more authenticity, then that by definition means you're going to need more blockchain approaches, which by definition correlates into crypto, again, being another place that you grow. RAOUL PAL And it also allows you to have a passport to different digital societies because you've got your online identity. It gets rid of the idea of passport, which is your single nation state.

1:23:36You'll have a passport that gives you rights into the other nation states that you have. Yeah, sure, you might need another token to allow you access, but people don't see this. But this is a whole world growing up in a whole different way where national borders are just about resources and resource allocation, physical resource allocation, and everything else happens digitally. So here's the funny thing, Raul. And I think for everyone who's listening, who's either not completely bought into crypto or even a skeptic. I started my journey towards really trying to figure out how this would fit in my knowledge of macro.

1:24:17Like, where does this fit? And I had spent, like I said, the prior kind of seven years before 2020 when I really got interested in it as an asset. Because I started seeing a change and I saw the money printing that just said, oh, my God, we're exploding money. this has to be a big thing. I wanted to see how it fit. And I went to learn a lot. And then in 2022, I guess, no, 2021 is when I started really getting on Real Vision a lot when you were offering the free thing. And I was watching all the interviews. And I hate listening to people who talk about crypto in this religious zealot way. And it didn't interest me.

1:24:55And I would get off of all of them. I was trying to fit it in the context of a world that still works, where it's not these guys lose dramatically, we win dramatically, which is what I was hearing a lot. I also didn't believe that the greed coming out was going to work out that way. So I thought from an Elliott Wave perspective, we were near a bubble phase where everyone who had already made money and was highly educated in the crypto world had to go through a shakeout. And the Axie Infinity story was the one I migrated to. I really thought it was a powerful story. And then I started figuring out, well, this fits in the world in how overvalued fiat systems are.

1:25:29And the Gini coefficient has to come down. And the only way for it to come down is for the 8 billion people that have not participated in the fiat system to have something that goes up in value where they're gradually gaining some power. And so it made sense to me from a macro perspective. And I enjoyed listening to you. Marco Papich wrote a great paper who I know you've had on on the metaverse and the end of countries. And I thought it was brilliant. And I really do think people should read that. But he's a macro person, too. So I wanted to find, as you say, tradify people who could speak about the economy, the Fed, where this all fits, but also could talk about the crypto world.

1:26:07And the part that I think I migrated to when I started to piss people off was to say to pension funds, OK, I don't think VC is coming back. If crypto is what I think it is, this concept of early stage, late stage, it's not going to happen. There's going to be for every billion dollar company, there's going to be a thousand hundred, you know, ten million dollar companies or like there's going to be too many because they're all going to be local. They never go public. And the people that benefit are the idea creators, but then the community who made the idea go up. And that's why Taylor Swift is kind of running this mini crypto community world.

1:26:44And if people spent time on it and actually understood what she did with her songs to disintermediate that, it really is a lot of blockchain crypto thinking. And I don't know if it's intentional by her or not, but that's like a microcosm of what I see happening. She knows she's an economy. I think that's the point. Yeah. She knows. I mean, she literally drove US GDP. Yeah. And she never goes against her group. She spends time with them. She knows how to make sure they feel like they're welcome in terms of what they do. Now, a woman's made a lot of money and she's sold a lot of tickets to things.

1:27:21But everyone who's gone to them that paid the money and went through it, I asked my daughter when I was writing a paper on Taylor Swift to compare her to the crypto world what Taylor Swift meant to her. And a 21-year-old girl wrote me this incredible thing about how her life changed because it was like she was writing things that she felt. And it was all community-based. So I'm a big believer that instead of crypto being a web 2.0, let's find the winners thing, it's about the community. And that doesn't make it the same playbook. And that may make it harder. Bitcoin is the easiest way for people to participate because I think it goes up.

1:28:00It just doesn't have a story that people can migrate to because there's no story for Bitcoin. Really, what it is, is the entire market cap of the space goes up. That was one of the reasons I started the asset management firm. I'm going to leave it to a bunch of hedge funds to figure out what those tokens are, because that's hard. You've got to do a lot of picking, a lot of trading, a lot of figuring it out. But overall, the market cap, my view, I think it's the same as your view, is that we go from$1 trillion, which is ludicrously undervalued, And it will be priced like an overall asset class, like equities, global equities,$200 trillion, or global bonds,$200 trillion, that kind of thing.

1:28:40So that's a 200-fold increase in market cap that's going to happen over the next decade or so. RAOUL PAL Yeah. And if you believe in the power of community, and I said to you, so what is the currency or like in this economy that Taylor Swift has created, if you read about the merch that she sells and the way she's kind of created this, that there's certain items that she only has a few of and those get sold on the open economy. And then they've got bracelets that they're all exchanging. It is experiential. Like the fans will be outside. It's a really powerful thing. And if you don't believe that there's something going on there that's transformative, that's happening, I think people are missing it because this is far bigger than people realize from what's happening to the way people think about an economy, how they think about experiences, as you said, how they think about what's of value to them.

1:29:39It's just all changing. It fits in with NFTs in the same way. And that's the way I think about it. Yeah, it's all the same. We're going through a transformation of society, whether people like it or not. And my view on this is you might as well invest in it. as opposed to fear it. Because when you invest in it, it clears your head a bit, and you fear it less, and you focus on it more. You can reject some parts of it, but what you'll be is more open-minded, because it's not going away. You can call the GameStop people as stupid as you want. You can call the people in the Philippines who started Axie Infinity dumb, but it's not going away, because this is the new digital society, and this is the way people can make a living in the future.

1:30:27Or more importantly, as you said, sometimes you need to make capital gains because income's not enough. Yeah, and if you're really worried about it, this year, if you were to put 95 % of your money in a money market fund and you put 5 % of your money in Bitcoin, well, you're up close to 10%. That's better than the S &P. It's better in bonds. And guess what? Worst case scenario, you lose 5 % if Bitcoin goes to zero. You don't lose anything because you're getting your 5%. But if people finance it that way, and they really think about it, you're getting paid now to invest, to take the risk in Bitcoin.

1:31:06You don't have to invest in the S &P, and you don't have to invest in bonds. RAOUL PAL, And people are greedy, and they're driven by profit motive. And however many Many people say in the media world with rates of 5.5%, nobody is going to buy any other assets because you can just sit there. I'm like, well, the moment you point out that Bitcoin is up 110%, you feel like a moron for getting 5.5%. And as you said, you can structure it that you can actually take very little risk and get huge returns. And that's the penny that comes with the ETF and the recovery out of, let's call it the soft patch.

1:31:50The moment that that happens, then the spigots reopen. Yeah. Because to open up, I mean, it's kind of shocking that there's 400, honestly, 400 million plus accounts out of 8 billion people on the planet, 7.5 billion. When you have to open up a wallet and you have to go through the process, which how many people in the US above the age of 50 are going to go do that? But if there's an ETF, I mean, again, now all of a sudden, you can go invest in it through a BlackRock ETF. It changes everything. That's right. Because now, you don't have to open a new account. It's as simple as that. It's like paying.

1:32:30I need to open a Coinbase account, KYC. It's painful. Here, you can just go, press my button. I'll buy some of that instead of buying whatever it was I was buying before, QQQs. I'll buy some Bitcoin instead. Yeah. And I think it's helped that in the press, everyone knows that it hasn't been an ETF. When it becomes an ETF, it's like going through FDA drug approval. I mean, it's like, OK, it's safe now. Now the government has OK'd it so I can invest in it. I just think we haven't seen anything like this before. That's why it's such a big event. And I think it matters a lot more than what people realize.

1:33:09Just because we haven't, if you believe in a new economy and a new situation, this is the overlap between them. The future is not enough because most people can't invest in futures. So to actually straddle the TradFi and the crypto economy and actually create a bridge of investors for where most people have their money, you need this. And I think once they add it into the models for what your portfolio model allocation should be, which is going to happen from all the banks because they can't not be involved in them if it's the only asset going up. And that's the thing that I think is going to happen is that that asset, and this gets back at the beginning.

1:33:47If you believe in no business cycles, if you believe that rates are going to stay around 5%, IG yields are now at 635. The earnings yield on the S &P is around 5.25%. So you've got IG yields above S &P, which is going to act as a really big, it's going to act as a governor on the market going up that much because we haven't been in this situation since 2002, where you were at least 100 basis points higher than the earnings yield. So IG bonds are comparable. You're not going to have as many buybacks going forward because rates are up at higher levels. So they can't be using the buybacks issuing debt to go through it.

1:34:24I just think the equity market is going to have a really hard time getting any kind of fast start without a recession happening to where we go through the same story we've gone through. And that's one of the reasons why I don't think we're going to have a recession, too. And also, when I did the work on the debasement and just divided all assets by the Fed balance sheet, make it simple. Yeah. The S &P had gone nowhere since 2008. Real estate had gone nowhere since 2008. Gold had gone nowhere since 2008. nothing had gone anywhere. They all looked like the European stock market. I'm like, that's interesting.

1:35:00There was only two assets that went up, technology stocks and crypto. That is it. There is no other generator of wealth. Everything else is standing still against the debasement. If you look at those charts, when you get a chance on your Bloomberg, just do the S &P, blah, blah, blah, divided by the Fed balance sheet. It was shocking to me. That's what I found the exponential age thesis from, was by doing that and going, just sitting back thinking, shit, this is telling me something much bigger than I quite understand. And I went down that rabbit hole. RAOUL PAL Yeah, and it's interesting. RAOUL PAL Which is your death of fear is there, but it's being hidden by the denominator.

1:35:37That's my point. RAOUL PAL And if you, so again, if you go back now and you say, okay, well, if we don't have a recession, how is the balance sheet ever going to expand again? But if the balance sheet doesn't expand again, then do we think we're going to get stocks and everything to outperform it? So it gets back to the point that the fiat system then on that metric fits in the same thing. RAOUL PAL, Ph.D.: Either way, it's the same thing, right? If you don't increase the balance sheet, they go nowhere. If you increase the balance sheet, in balance sheet adjusted terms, they've gone nowhere. So nobody's getting wealthier.

1:36:09There's only two things that trend. And they're the two things that we both came to the conclusion from. Exactly. So there we go. It's all going to be the same thing too. Yeah. Amazing conversation as ever. I didn't think it was going to be this much about crypto. We didn't even get to biotech and other stuff. We'll get into all of that another time because we could just talk for hours and hours and hours. In fact, we have. We can. That was a fabulous conversation. I loved it and I hope people found it very useful. Thanks a lot for having me on, Raul. I've enjoyed doing this now for the third time between the two of us.

1:36:42Let's keep doing it, especially as crypto continues to go. And yeah, the biotech side is going to be the next thing that I'm sure. Yeah, I don't know enough about this. I'm going to expect you to teach me. Or find somebody to bring onto Real Vision that we can talk to. We'll do. We'll do. Because it's a hard thing to get up another learning curve, but we have to. We'll do it. We'll do it. I'll find someone because it's actually kind of hard. And I don't want to go down any rabbit holes. But I'll spend some time on it because G3 and I have talked about the same thing for the podcast. We're actually going to do another one on Ozempic because we did one and it was the most listened to podcast.

1:37:20So the reason you should be spending time on it is because it's in everyone's head because they've seen it on the news. But now because of what's happened to Staples companies, what's happening with the dialysis companies over the last three, what's happened with small biotech companies, the fact that Eli Lilly and Novo Nordisk are using the Web 2.0 playbook, and they're buying up all other weight loss drug companies, just like the mega caps did. This is a much bigger story because of the debt we have, the health care expenditures, and we just went on that. So I'm going to get you back. We're going to talk about the whole health thing, because it's something I'm really interested in.

1:37:58I'm looking at the book, the lifespan behind you. We've got lots to talk and guts. I've read zero to one. I think Darwin's a good one, yes. I spent a lot of time on it. Good. All right, my friend. Great to see you. Thank you. You too, Raul. Thanks, man.

1:38:19People are going to lose their minds. This is a moment in history unlike anything humanity's gone through. It's a very different world for humans to come. Take a step back and see the broad picture, which is the way all these technologies are interlinked. Because this This is all about exponentiality and humans can't think in exponential terms. How consequential do you want to say machine intelligence is? It's almost certainly as consequential as writing. How long did writing take to disseminate through the human population? You know, hundreds, thousands of years. And we're dealing with it now on a scale of months.

1:38:52But in this kind of world, you're compounding 100 % growth every year and the numbers become astronomical. AI is going to spot patterns in the world that were just completely invisible to us. Even if you think that the AI and the robots are your demise, you might as well bloody invest in them and make some money out of it. If not, you're just going to be angry man shaking your fists at the clouds.

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