The Biggest Lie in Economics | Peter St Onge

26:36You know, so if you look at sort of Ron Paul as a phenomenon, for example, he could have never really existed, or anyway, he would have been much, much smaller scale without the internet. The internet really blew that up. So, and, you know, whether it's on Twitter, on Reddit, you know, YouTube, you know, you've got all these videos now where people are explaining Austrian economics, they're explaining, you know, heterotics theories, how banks create money, like how they counterfeit as opposed to the sort of benign Keynesian story. So the story is getting out, but the trick is that you're up against 12 to 16 years of education.

27:16There's also a funny phenomenon where the more educated somebody is, the more closed-minded they tend to be on political issues. And I think this is counterintuitive. Like, people imagine this the other way around. You know, you go to school, you learn critical thinking, and then that's not how it works. They are utterly close-minded. And so ironically, the people who are sort of most able, you know, who might be interested in picking up, like, you know, a book about economics and just reading it for fun, like that's kind of the target market that you're talking about, but those people also tend to be the most ideological blind.

27:56So it's sort of trench warfare that, you know, you're fighting 16 years of indoctrination and it takes a long time. You can only get people one by one. The virus is spreading though. Okay, so when I do a normal macro show and I'm talking about things like interest rates, what the Fed's doing, what the Treasury's doing, do you look at all of that and just think it's all nonsense and it doesn't matter? It definitely matters. Yeah, they can destroy a ton. You know, if the Fed prints too much money or it doesn't literally print at all, right? But it minimizes interest rates and so on. It prints a certain amount of it and quantitative easing.

28:37But anyway, if the Fed prints too much, you know, if regulations get in the way, if the government borrows too much and then that pushes up interest rates and chases out, you know, useful, like building factories and things, all of these absolutely matter. I think the main point of distinction is, you know, first of all, what are the mechanisms? Like, you know, change thing, change thing X, what then comes out the other end. A lot of that Keynesians and Austrians agree on just because we're looking at the same reality. Right? So the empirical predictions of Keynesianism are not that bad. So it's kind of like they don't understand what set off the fire, but once the fire's burning, they're pretty good at predicting, right?

29:23So, you know, you've got gasoline all over your house, all down the driveway way to the neighbor's house. Okay, they don't understand what set it off, but they do understand how the fire is going to spread. So day to day, I mean, you know, they'll predict unemployment rates or inflation or GDP growth. They're not that far off. If they were, then, you know, more people would disbelieve it. They're originally decent on that. And the reason is that, you know, generally mainstream economics, the way it works is it puts statistics first, right? So they'll, they'll observe like 12 years of interest rates and, you know, they'll then look at inflation and they'll correlate them and they'll say, okay, so, you know, inflation does this with a 12-month lag and that's accurate.

30:09They don't understand why, right? It's monkeys on a keyboard, but they're reasonably good on the predictions. Okay. And so the thing that I'm interested in that I've never fully understood from an Austrian lens is interest rates. Walsh has obviously come in, everyone thought he was going to cut rates and instead he's hiked again. And what I'm interested in is what you think the correct cost of capital is. Like what should interest rates be and what shouldn't they be? Because like 0 % or 0.25%, whatever it got down to, makes no sense. And when you're looking at like a 5-ish percent cost of capital, that kind of makes sense to me.

30:45Do you think we're in the right zone? Yeah, so there's a beautiful piece of work that the Bank of England produced, of all people, where they looked at, I think it's 900 years of interest rates. And they looked at Britain, Holland, there were a number of countries, Venice. And the, you know, certain periods in there, you had fiat, short-lived fiat. But broadly speaking, those were gold systems where the government was not able to manipulate the interest rate. You've got at least 400 years before the Bank of England even existed on that data series. and the number there is roughly about two and three quarters percent, something like that.

31:28It depends a little bit, like when you've got wars, you know, people's, their time preference goes up because they're not sure that they'll be alive next year. You know, you've got, when you've got the Black Plague, right, things change. So, you know, you've got little bumps in there here and there, but if you sort of squint and average it out, it's something like, you know, call it 2.5 % to 3 % real interest rate. In other words, so translating that for non-economists, people prefer today to tomorrow by about 2.5 % or 3%. Or put differently, people would be willing to save if they got about 2.5 % to 3 % back on their money.

32:05Now, keep in mind those are real rates of return, right? So that's after inflation. So if, you know, you assume 2 % inflation for simplicity's sake, then it basically says that interest rates should be about five and a half to six percent. So that would say that the rates in the U.S. right now are actually perfectly neutral. Like, it's where they should be. It's not where Trump wants them to be, right? Because Trump wants interest rates to go to zero because being a real estate developer, he understands that zero interest rates makes investment boom and, you know, jobs boom. So he likes that sort of tissue fire side of low interest rates.

32:44But yeah, the current rate, I think in the US, it's essentially neutral. Most of the world is pretty close to that. They all got scared straight by the COVID, the post-COVID inflation, which was caused by massive central bank money printing. They printed up something like$9 trillion worldwide, which is a lot of money. And so that set off inflation. So pretty much everybody in the world is sort of scared straight. Even Japan is raising interest rates after, what, 30 years or something. It's such a mess right now. Because the problem the US government has, obviously, is every time they raise rates, it's raising their cost of rolling over the debt as well.

33:19What do you think will happen over the next, say, 12, 24 months? Do you think rates are now at their peak for this cycle? Do you think they're going to start dropping again? I think we've got another half point pretty much already in the works. And even that's going to depend on how long the Iran war goes. Trump had originally said 60 days. That was some time ago. And it's starting to look like Trump keeps trying to end the war, and like Iran keeps trying to keep it going, so I'm not sure that he can actually get out of it. It seems like Iran's enjoying it. So if the war keeps going, you know, if we sort of look at the situation before the war started, depending on the measure, inflation was down to something like 1.2 % annualized.

34:12I mean, it was very, very low before the war started. The war kicked up oil prices. Now, oil prices impacts inflation the short term. In the long term, though, it's like squeezing a balloon. So oil goes up, other things go down, and you sort of return to the level of water, and the level of water being the amount of money being created. So before the war, you had very low inflation. The war kicked that up. I think it was 4 % or 5 % annualized since the war has been going driven by energy. uh but the problem for the fed right now is they don't exactly know like they know that you know wartime energy prices are temporary they don't know what the underlying inflation is and i think you know people like me and you uh would be concerned that that the underlying inflation is actually quite high the reason being that you've got these massive deficits uh you've still got money creation.

35:07It's not at the same pace as it was during COVID. But, you know, you've got a massive AI investment boom, for example. There is a tremendous amount being invested. A lot of that money is being conjured out of thin air. It's growing the money supply, which is driving inflation. So I think that if the war were to end tomorrow, we'd probably be looking at another half point, meaning that race would be slightly constrictive, but not massively so in historical terms. If, however, the war keeps going, you know, we keep getting all of this investment money pouring in, then it could start creeping up durably into five, six percent.

35:45That's panic territory for any central bank. And so they will keep hiking if that's the case. I mean, they could keep hiking to six, seven percent, which raises, I think, the other point that you mentioned a moment ago, which is interest expense for the U.S. government. I mean, really, it's a worldwide issue, but U.S. deficits are actually, they're larger as a percent than Japan, than Europe. They're completely out of control, 6-7 % of GDP. So if the Fed can't get a handle on inflation, if it keeps getting away from them and they hike rates to 6-7%, then you would get to a point where, you know, the U.S.

36:22is paying out something like$2 trillion of interest, just simply interest. Absolute insanity. Yeah, you can get into kind of a doom loop. Keep in mind also that historically, so we haven't had a bona fide recession since 2008 on a worldwide basis. I think countries like Germany have sort of dipped in for just a second, but really, really small. We haven't had a sort of global slowdown for 17 years, right? COVID was kind of fiat. It was in, out. They, you know, dumped so much money that it didn't really leave a mark. not in terms of sort of standard recession metrics. So you could argue we are very, very long overdue for a recession.

37:07And historically, when you get a recession, deficits double. Tax revenue dries up. You get millions of people who need welfare or unemployment benefits and so on. Media tends to turn very, very sympathetic to those people. and so it's essentially impossible for even a conservative to say no. So if you look, you know, sort of extrapolating what's happened in the past couple of recessions in the U.S., and you ask, what if we had a recession, like, next year, the deficit would, just going by history, it would go to something like$4 trillion, which is comical. Absolutely intimidating. Yeah, that's 13 % of GDP.

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40:03You can head over to cape.co forward slash wbd and use the code wbd for 33 % off your first six months. That's C-A-P-E dot co forward slash W-B-D. Like you mentioned COVID there and obviously like like you said dipped in and out it was very quick because they just printed a ton of money to try and sort of right that ship. Is that the problem? Is it that the government won't let a recession happen anymore? They're just going to print the money to try and stimulate the economy quote-unquote stimulate the economy? Yeah well I mean the first problem is that they cause the recessions, right? So they manipulate interest rates down.

40:37That causes a tissue fire boom. Tissue fire boom leads to inflation because it's being driven by money printing. At that point, they jam on the brakes. So you get this, you know, go fast, slam on the brakes, go fast, slam on the brakes, which we call the business cycle. The business cycle, of course, is not part of nature. Businessmen don't all get stupid at one time and all their businesses fail. It's completely a central bank creation. Before central banks, governments did it as well. The specific way they did it was they would encourage banks to lend by telling them, look, if you run into trouble, you don't have to redeem your tickets for gold.

41:11So it's called suspension of specie redemption. So you've effectively had the central bank cycle. You had it going back even further in the U.S. case, essentially, since the beginning of the Constitution. But right, so governments caused this boom-bust in the first place. So, you know, sort of the first sin is not necessarily that they try to stop recessions, it's that they cause recessions in the first place. So that's the first problem. But then the second problem, as you say, is that having caused recessions, they try to stop them. When what they should do is, you know, what was called traditionally in economics, it's called liquidationism.

41:49The idea being, look, if you built a stupid business in the boom because money was cheap, fold it up, kiddo. Like, it's over. You're done. And, you know, that used to be the solution in the, in, in the 1800s. Exactly. And the last time that we did that in the U S anyway, uh, is a book by, um, James Grant called the forgotten depression. It's a fantastic book. And he talks about the, uh, recession we would now call it, but back then it was called depression that came out of, um, world war one, So all the companies were retooling. The U.S. economy was basically this giant export platform feeding into Europe, and Europe was selling the family heirlooms so they could kill each other.

42:37And when that war ended, you had, you know, not only did Europe stop buying because they could grow their own wheat now, but you had to, you know, turn everything from guns into butter. And that, you know, that revealed a massive amount of malinvestment. In other words, factories that needed to be shut down. So that was always going to be a problem, right? And the government just let it happen. And it was brutal for, you know, about 12 months. you know you had you had first very very extreme deflation i think it was 20 or 30 percent deflation within within less than a year uh you know you had a lot of layoffs but because the government stayed out of the way it very very quickly bounced right back uh unfortunately the next time that they did that uh that they essentially um put the economy into a tissue fire you know printed the prosperity and then it popped so the next time that happened was 1929 of course the government very much did not do that uh they did not uh allow companies to fire people uh literally hoover would sit them down in his office and threaten them uh saying you have to share the work with the men who are left uh don't fire anybody don't lower wages right well if you don't lower wages and you have 40 percent in 29 if you get 40 deflation then what you're basically telling companies is, look, I know you can't sell anything, but you got to pay everybody twice as much.

44:01So shockingly, they went out of business. So, I mean, it was, it was an absolute, you know, disaster. And of course it was bad enough that, you know, you could ultimately sell World War II to the American public because, you know, we got to do something. We got to, we got to get these young men back to work. But right. So this sort of original sin is causing the recession in the first place, the boom-bust cycle, and then the secondary is instead of just letting it liquidate, you know, they try to stop it. There's a great metaphor by Rothbard, and he talks about, so he uses the metaphor of locusts, right?

44:39So locusts show up every seven years, they eat everything, it's terrible. You need the locust man to come control the locusts. But he comes out and does this thing, and then what happens to locusts? Well, they don't come back for another six years, right? So this is terrible in the locust industry, right? You have a collapse in employment and you have all these locust trucks that aren't being used. Okay, so what's the solution, right? One solution is to say, well, I mean, that's life, kiddo. Go find something else to do for six years. Go build decks instead. That would be one thing to do. And then the other thing to do would be to pay them, come up, I don't know, have them study the, you know, mating pattern of cockroaches, like figure out some make work program to keep them employed for the six years to get them all the way through.

45:30That's functionally what governments do. I mean, it's stupid, right? Like, you know, you don't want to pay people to work at a company that's destroying value, right? It's better to let the company go bust, put the workers back on the market, and then somebody can hire the workers to do something useful. In the Great Depression, unfortunately, the government all but froze that, you know, some of it by threatening companies. Some of it, they had taxes where I think 80 % at some point, like you as an entrepreneur, you're not going to start a business if you got an 80 % tax rate, right? Because if you lose, you lose alone, right?

46:03If you gain 80 % of that goes to taxes, you're not going to do it. So they effectively outlawed economic growth. And it's similar to sort of the wildfire analogy where if you don't let the fire sweep through and burn off all the dead wood, eventually the entire world burns. And so that That would be the question. Like, do you think when we do eventually, because at some point we will go into a recession, it's going to be the mother of all recessions slash depression? That's the interesting question. So the question is how much deadwood did COVID clear out? And I've been very killed. It can't be a lot.

46:38It's hard to say. The bankruptcy numbers actually declined during COVID because governments were giving away so much money. And so we sort of don't know. So like, in other words, if you just naively interpret the bankruptcy numbers, you would say, no, COVID didn't clear out anything. In fact, if bankruptcy numbers went down, it probably built up more dead wood to burn. But, well, we know that the bankruptcy numbers went, you know, they were artificially pushed down because governments were handing out$9 trillion. dollars. The question is, you know, did that$9 trillion push them down a whole lot, but Deadwood clearing out pushed them back up so they're somewhere in between?

47:15I don't think we know. I haven't thought of a very good instrument for trying to measure exactly how much malinvestment got liquidated. It feels like a lot did because the world before and after COVID was very different, right? A whole lot of things shifted from the physical world to online. A lot of venues, You know, like, I think pubs, like, before and after COVID, I mean, it's just catastrophic. It was like a neutron bomb for a lot of physical-based industries. So I feel like a lot of deadwood got wiped out, but I haven't seen a good instrument for it. So that, I think, is the question, right?

47:50If COVID did wipe out a bunch of things, sort of metaphorically, it would be like if you've got a town with a bunch of bars that are kind of struggling, and then, you know, the government comes through and it says, hey, listen, I'll give you$10 ,000 to burn down your bar, which is effectively what they did in COVID, right? Well, you know, you're going to have fewer bankruptcies next time around, right? Because they've already gotten rid of it. So I don't know. You know, if COVID cleared out a lot of deadwood, then the next recession is going to be surprisingly mild. Maybe it already happened, right?

48:21There was a moment in 2023, I think it was, when in the U.S. we had a technical recession I know that they've had a couple of technical recessions, you know, again, across Europe. When you say technical, is that like two quarters of negative GDP growth? Yeah, two quarters of negative GDP growth. And there was some reason why the grand Keynesian Kubas decided in 2023 that it wasn't a real recession. But at any rate, so that's what's called technical recession. And they call it technical because they're differentiating from the kind of catastrophic recession where kind of everybody looks at it and says, yeah, yeah, that was bad, right?

48:59So everybody knows 2008 was bad. You just had to be there to see it, right? You don't need the statistics. So, right, you had a couple of technical recessions along the way. I think an interesting question would be, were those so mild because COVID cleared out so much deadwood, or did COVID merely, you know, sort of string us along so that we're due for some massively catastrophic one at some point? now if we do get one you know of course the uh sort of prime suspect is going to be uh ai right i mean the the quantity of money going to ai is you know i i cut my teeth with dot com that's kind of how i started in finance and i thought we would never ever see anything like that again like the internet the degree that it changed the world the amount of money that went into it the amount of money that was made out of it right how many trillion dollar companies I never thought we'd see anything.

49:57I didn't think we'd see any of that for a century. Never mind my life, my kid's life, my grandkids' life. So I am shocked at AI. I mean, it's literally, it's 5x what the internet was in every way. And so you think this bubble, if you think it is a bubble, is going to be bigger? Because it's probably quite hard to tell before the bubble pops how bad it's actually going to get. Yeah, that's what's tricky. So anytime something goes up, right? Like anytime the amount of investment going in the industry goes up, anytime a stock price goes up, there's, you know, it's like these knee-jerk pundits who are like, ah, it's a bubble.

50:36And, you know, you want to differentiate, okay, there are some things that go up because the underlying business is good. Like, for example, Netflix. Okay, Netflix went up a lot. If you invested in Netflix 20 years ago, you're rich, right? You don't look at restaurant prices anymore. Netflix was real, okay? Like, you know, we can verify. A lot of people like Netflix. they spend a lot of money, they have a lot of revenue, right? So not everything that goes up is fake, right? Now, having said, the sort of hallmark of that Fed-induced tissue fire economy is that everything overshoots, right? And so, you know, if we look at.com, for example, so people love to talk about the guy who bought, you know, Apple at the peak, or maybe Amazon or pets.com.

51:18But no, I think what's more interesting is, so I was around in the beginning, and I was one of the first people into the internet. Like when I bought in, uh, I mean, when it was in public markets, I wasn't a cool guy who like knew people in Silicon Valley or anything, but I bought in early enough that everybody in my entire life told me I was an absolute idiot to buy Yahoo. What the hell is Yahoo? What do they do? Um, and you know, I retired young on that, but the key is that in whatever it was, 1995 or six, when I bought into Yahoo, anybody could have done that, right? Like, and the vast majority of people didn't, right?

51:55They were like, no, this is fake. Even back then in like 1996, everybody was saying, you know, no, this is a bubble. There's nothing there. So I think, you know, the bigger risk, I think, of a real bubble is not buying at the peak. Almost nobody buys at the peak, realistically, right? Like, you know, when Yahoo Stop finally collapsed, the average person who had bought Yahoo did not buy at the absolute peak, right? The vast majority of them had, in fact, bought in 97, 96, and they came out making a whole ton of money. So I think that's the trick with the bubble, is that people, in their mind, they see the peak, they see the terrible thing that happens next, and they think, my God, I don't want to lose 90 % of my money.

52:37Well, okay, but statistically, you're not going to buy it on the Tuesday that it collapses, right? And so the question is always, okay, yes, AI, like.com, like, you know, any exciting technology, it's going to overshoot. The question is, you know, so if SMH, which is the AI picks and shovel ETF, if SMH is like 600 today, okay, so is it going to go to 900 and then drop to 300? Is it going to go to 1 ,500 and drop to 1 ,000? Right, because if it's going to end up at 1 ,000, then you should buy in. You should buy in rationally now. Is it going to pop at some point? Yes. Don't necessarily, you know, every time it goes up, don't like internalize the gain.

53:21And of course, you know, this is very, very similar to Bitcoin, right? So, you know, again, Bitcoin fluctuates, but the people who've been in Bitcoin a long time, right, you know, they've got the battle scars to prove it. And when a noob comes in, you know, they might sit them down and have a talk and say, okay, listen, you know, first off, don't buy it until you understand it, because if you don't understand it, you're going to panic sell at the wrong time. And secondly, yes, yes, it fluctuates. But you've got to zoom out. You've got to look where it's going. So I think without a doubt, there is going to be an AI bubble that pops.

53:54However, I think it's probably going to go up a whole bunch from here. We're not at the crazy stage yet. We don't have a company that was started last week worth$3 billion yet. We're getting close, but we don't have that yet. I think there's more crazy to go. And then, yes, it's going to come down from the crazy, but, you know, somebody who buys in today, I don't know, I can't say confidently if, you know, they're going to get wiped out or not. They might actually book a profit when the smoke clears. But in terms of the economy itself, yes, it'll eventually overshoot. The question is how big does it get from here to there?

54:29Because if you look at the numbers, I mean, they're like literally, I think investment-wise, there's something like 10x what dot-com was. The entire dot-com build-out was something like$120 billion inflation-adjusted. If you look at things like VC dominance, like, there's a tiny bit of VC money going into, like, biotech. Almost, I mean, it's just absolutely dominant to a degree that the internet never was. I think the internet at peak was, from memory, something like 30 % of VC money. A lot of it was going to software and other things. AI is like 70%, 80%. I mean, it's just, we probably haven't seen a technology this dominant since the railroad.

55:11Even though not everyone buys the top, obviously some people do, but everyone's looking on their brokerage account and seeing they're a gazillionaire at the top, and then they watch those paper gains disappear. But if you had to sort of compare this to the dot-com bubble, which you lived through, you were investing in, what year do you think we're in? Is this 96 or are we in 99? Yeah, I think it's 97, maybe coming to early 98. So I mean, of course, you know, So it's always tempting because when you say something like this, if you're completely wrong, you're going to be famous. But anyway, yeah, I mean, I would be really shocked if it pops in the next 12 months.

55:47I'd also be really shocked if it kept going another four or five years. So I think somewhere in there that we're looking at probably late 27, early 28. If you've been playing it, then you probably want to take money off the table. And I think probably a lot of Bitcoiners have been playing it because if you look at Bitcoin price, it started crab walking is exactly when ai took off so i know what you people are doing so yeah you know probably probably take some money off the table i think gradually over the course of 2027 if you're in the ai play it's definitely where all the fast money went um do you think these ai companies are going to be deemed too big to fail by the u.s government because because one of the interesting things that i've been watching is like when you look at 40 trillion of debt, they're not going to be able to rein in their spending and remove that debt.

56:35They're not going to default on the debt. Their only option is to try and grow their way out. And AI looks like the best shot to actually do that. And if this does look like a bubble that's going to burst, do you think that there may be a government backstop? Yeah, it's interesting to see this question. So AI is without a doubt the magic beans. You know, in the US, we just had the perfect storm to shrink government. Okay, we had Elon Musk, who's a force of nature, and very, very rich. Rich meaning that politicians listen to him. All right, so he was amazing. You had Trump is the most, he's instinctively hostile to the federal government.

57:13He's the best we've had since Reagan. Once in a lifetime in terms of an anti-government president. And we had unified small government control of Washington. So every, every duck was lined up. It was the moment. This was it. We were going to slash government and absolutely nothing, right? In fact, it's grown. And so you're right. At that point, they shifted and they were like, okay, you know what? Forget the spending thing. Let's just grow the economy. And AI is the magic beans to do that. You know, if you look historically, it's the impact on growth always turns out to be a lot slower than the new imagine because it takes time to be integrated.

57:53So one of my favorite examples is the first electrification of a factory. Okay, the first time that it was shown that rather than using steam to run a factory and having a bunch of guys with coal, you could hook it up to electricity, right? The first time they showed that that was a better way to run a factory, it was more efficient, lower cost, right? That was something like 1850s, right? And then it took 80 years for half of the factories to be electrified, right? Right. So like when people talk about AI and jobs, they tell you, you know, AI is going to do this. It's going to be a lot slower than you think.

58:31I mean, it's not going to be months. It's not going to be years. It's going to be decades. Look at the Internet itself, right? You know, when the Internet came out, people thought it was, you know, it's going to change everything. You won't recognize the world when it's done. Not that much has changed. It's distribution. It's changed a lot for people like us who, you know, make a living distributing information, essentially. But like in terms of the broad economy, it's changed a lot less than I think people expected 30 years in. So I do think that, you know, if they're counting on AI to deliver like 8 % Singapore level growth, it ain't going to happen.

59:07To get there, you would need massive deregulation. I mean, really, you'd have to kind of imitate Singapore, right? You have to massively shrink the government, you have to get rid of all the idiots. I'm going to avoid the R word because I don't know where you're distributing. Being careful. You're right. I mean, you would have to massively change how the U.S. government works. For Europe, of course, it's twice as challenging because of the massive bureaucracy that runs the economy. But yeah, I don't think they're going to get there, which then leads to your question, which is, are they going to be tempted to bail them out?

59:44So you've got two parts of the AI industry. You've got the part that builds the picks and shovels, and then you've got the ones who run the models, right? Like Anthropic, OpenAI, Grok. And, you know, you can compare this to also during the dot-com era. You had the guys who were building it, like Cisco and Lucent, and then you had the guys who were running applications on it, like Yahoo, Google, Netflix. In the internet, the guys building it, when the smoke cleared, they didn't make that much money. I mean, they had a really good couple of years, but they didn't fundamentally transform their business.

1:00:18In fact, most of them went bankrupt, ultimately. In the case of the consumer applications, that's where all the value ended up being, right? That's where the product differentiation is because they're sticky, right? So once somebody has Gmail, it's pretty hard to switch over onto another email. You know, this is true for, I mean, it's true for Netflix. is true for, you know, travel sites, for news sites. Just eyeballs are surprisingly sticky, and so the value ended up accruing to those consumers, to those consumer-facing applications. In AI, it almost feels like it's the opposite. But if we look at it so far, there's been a tremendous amount of value that has gone to the guys who are making the chips, the picks and shovels, so NVIDIA, Broadcom, guys like that.

1:01:07the actual models, like, I think a lot of people listening have probably had the experience where, like, you might ask a question on ChatGPT, and then you might ask a different question on Grok, and after the fact, if somebody asks you, you know, where did you get that information, you can't remember which model it was, because the models are basically the same. Yeah. Which is kind of shocking, right? If you step back, everybody assumed that when AI arrived, it would be this godlike power where the man who controlled the AI, right? It would be like Wizard of Oz, and he would control the entire universe.

1:01:45And it turns out that, no, actually, it's almost a perfect commodity product, right? One's the same as the next, the same as the next. Now, if you're Goldman Sachs, and you're trying to, you know, shave points off a, you know, whatever, like a margin trade, okay, yes, then, you know, you're going to shell out the big bucks, you're going to get the latest model, so on. But for 99 % of applications, even for business applications, the free ones are good enough. So I think that's driving a lot of what's going on with the models now, where they're trying to encourage governments to regulate them. Regulate me harder, daddy.

1:02:17And I think what's pushing that is the realization that there's no margin in it. There's no money in AI. It's incredibly useful. Everybody uses it, but there's no money in it. It's a commodity business. Damn. just prime for a bubble pop. Yeah, I was going to say for the models, yes. But actually, none of the models are public yet. Grok is inside of SpaceX. That's the only one that's public. The others haven't even gone to IPO. So I think that's part of what's challenging for them is that they're considering these trillion-dollar IPOs when, you know, I mean, you look at their pricing. I think Anthropic and OpenAI just slashed their prices by 50 % again.

1:02:56There's no pricing power in there. Yeah, and I'm pretty sure Anthropic was pricing like$8 ,000 worth of compute for$200 a month. Yeah. Like makes no sense. But that's something I've always thought is the IPO of Anthropic and OpenAI is probably, that might be where the bubble pops. But time will tell. Yeah. I know you've got a hard stop coming up. I have to ask you about Bitcoin just quickly. Are you still as excited about Bitcoin as you were a few years ago? Because I know you were a gold bug before Bitcoin. Yeah. You're a Bitcoiner now. But like, how would you view the market? So I'm excited about it as a technology.

1:03:34I think it's very important to have sort of a backup plan when our current fiat elite, that's safety's expression, I love it, fiat elite, when they screw it up. You know, so in a sense, it's kind of like having a king with no power, right? Parliament's eventually going to screw it up. And then the king takes over, hopefully to be William, not Charles. But at any rate, it's sort of a similar idea, right? That you want this backup plan. Gold, I think, I mean, gold's, you know, fundamental flaw is that it needs to be centralized. Like, you can't pay the Netflix bill using gold. You know, you can't literally put the bars in an envelope.

1:04:13I mean, you can, but it's going to be expensive. And so gold sort of has this fatal flaw. So I think that in terms of a technology, I am as excited about Bitcoin as ever. I think it's critically important. A separate question is, do you invest in something? And I may be excoriated for this. The way that I've always treated gold is that if there is some bubble that I think is inflating, then I'm going to put my capital on that bubble because I'm greedy. And if I get nervous or if it looks like we're heading into a recession, then I'm going to pull it out and I'm going to park it in gold. and so for my entire investing career up until bitcoin has been uh buy the hot thing buy it when everybody says it's hot and when people say it's a bubble okay because i mean that's just you're like showing me what's going to happen next um and and you know as it goes up pull out of it a little bit so that's eventually house money um and what do you pull out of it into, you pull out of it into gold.

1:05:19So that's been my pattern since I was a wee lad. And now I treat Bitcoin that way, right? So if it's invested, then the vast majority of it is going to be like right now it's in AI picks and shovels. I think there's more dimes in front of that steamroller. But, you know, if you're starting to take money off the table and you don't have anything else to play that you're confident in, then rather than stashing it in the bank, like a normal human would do, stashing Bitcoin, where at least you know it's not going to get eroded, and you've got that upside, you know, either if inflation takes off, if deficits take off.

1:06:00I mean, both of those are very, very good bets. You kind of can't go wrong with that one. So I treat it as a great place to park money. So obviously over the last year or two, AI has massively outperformed Bitcoin, but Bitcoin looks like the bottom is in now. It's had a good couple of weeks. Do you think in the next year, AI will continue to outperform Bitcoin? I mean, yeah. So I don't think AI is going to be going up the way that it has in the past year.

1:06:33You get these massive price rises, whether it's an AI or Bitcoin, you get it when a bunch of people either didn't know about the asset or were skeptical about it and they changed their mind. And that moment, I think, already occurred for AI. Like, there's not a huge percent of people in the investment community who think that AI is fake. Two years ago, there were. There were a lot of guys who were like, no, no, this is so stupid. You know, it hallucinates. It's racist. You know, whatever. Exact same things that they said early in the internet. People said, no, this is goofy. What if people put cameras showing their coffee makers of dancing babies?

1:07:11What the hell is this thing good for? I think that moment is done. So I don't think AI, like at most, you might squeeze 2x out of it, 2, 3x, 2.5x. You're not going to get 10x like we had over the past couple of years. So that's one side of it. And, you know, I think that, like, within Bitcoin, if you sort of break up the Bitcoin holders, you've got some people who are there for the technology, and then you've always got sort of the tourists here, therefore number goes up. So, as, you know, AI, I think, is going to start moving into a relative crab walk. It could have boosts, like, when the war's over, you know, and then people think that inflation's going to come down, rates are going to come down, that's then good because these are capital-heavy industries.

1:07:55There could be little movements here and there that make it pop. But I think that, you know, AI's 10X is probably behind us. I could be completely wrong, but best guess. And so that's going to, you know, some of that number go up. Refugees, some of them are going to come back. You know, a small number of the really degenerates are going to, like, chase AMCs and stonks. But they do that anyway. And, you know, like in the grand scheme, you know, there's sort of a Darwinian process there where they sort of drop out anyway in terms of impact. on the market. But yeah, so I think that, you know, some of the Bitcoiners who are, who have been playing in AI are going to come back.

1:08:36And then, you know, and then the other part of it is what's actually happening with Bitcoin itself. And I think the main driver there is just the inflation and the deficits, right? So when you're getting to the point where bonds, for example, are starting to pick up a premium because investors are getting nervous about governments not being able to pay back. Well, the traditional way that governments don't pay back is that they run inflation, they let inflation run hot. Because inflation melts away the debt, plus you can use it for goods and prizes, right? Like, you know, the government can effectively, they can borrow the extra money.

1:09:13And so this is a twofer for them. So I think that, you know, that as AI, as sort of the air runs out of that, or as it gets less exciting, a certain number of people are going to come back. That's then going to meet this current of ongoing deflation, or I'm sorry, ongoing inflation through deficits that I think people are going to start getting more excited about Bitcoin. So I think we're going to see some transfer back and we'll start to see a little bit pickup in Bitcoin. I don't think Bitcoin is necessarily going to hit another 5 or 10x also until something happens that convinces a large number of people.

1:09:51Now, in the case of AI, I think the vast majority of money that could be deployed in the AI already knows what it is, right? They're not skeptical. There's not, like, a huge audience waiting to be convinced. I think in Bitcoin, there still is, right? So we could see a return to the go-go days, 5, 10xs, but we would need something really, really big that can convince people. The most likely candidate would be some sort of default, right, something to do with the national debt that would refocus people, put banks back in danger, and then people start looking at Bitcoin again. Or something like massive yield curve control, big print type event.

1:10:32Bingo. Yep. Yeah. I agree with that. I think you're right. I do think if you've been in the AI trade trying to squeeze as much Bitcoin out of it as possible, maybe that's passed. But who knows? That could age like milk. But Peter, this has been awesome. Next time in florida will have to do one in person but really appreciate you coming on the show yeah of course and tell everyone where they can go and follow you and see your show and and all that stuff uh let's see i do weekly videos on uh x the artist formerly known as twitter so profst onge p-r-o-f-s-t-o-n-g-e and i also do a monthly investment newsletter uh where uh i talk about ai stocks and also the guys who are going down which are all of these loser companies that are been disrupted.

1:11:16So check those out. That's over on Substack, all linked on the X. Perfect. Thank you so much. This has been great. And I'm looking forward to doing it in person with you at some point in the future. Absolutely. Thanks, Danny.