The Fed Can’t Let the AI Bubble Burst | Luke Gromen

26:10All I'm saying is, don't piss down my back and tell me it's raining and buy bonds because America's coming back as industrial power and we're going to be producing rare earths in two years and refining them. And we're going to be making all this stuff in two years. I think I wrote last week. There's an old saw in producing things, right? In manufacturing. You can have it fast, cheap, and done well. Pick two. Well, we need it done fast because we're losing to China. Or at the very least, our margin of, in certain areas, we are losing. But in some critical ones, our margin of winning is shrinking more than leaves us feeling comfortable.

26:51And we need it done cheaply because otherwise the bond market blows up. Well, we have to have it done well. there's no point in doing it at all because we'll still lose three right so we have a trilemma we need it done fast well and cheap and and it's not going to be done that way it's not especially when you look at sort of the 45 years of de-industrializing we don't have the labor we don't have the engineering we don't have any of these things we might and ai could certainly help that in some ways yep and it's going to cost a lot of money and so that to me from it's less than i'm bearish on that and I'm bullish on the ability to do it.

27:29I am bearish on the ability to do it fast and cheap. We're going to do it. It's going to take longer. We think it's going to be more expensive. Stay the heck away from long-term bonds because the real value of them, if you think America's going to compete, let alone win, let alone get back to making stuff, you can't be anywhere near long-term bonds. They're going to get destroyed on a real basis. They have to. So if this is going to take a long time, is the next few years, maybe that's up to a decade. I don't know your sort of timeline, but is that basically the most chaotic time we've ever gone into in terms of the economy?

28:01It's going to be right up there. It's going to be right up there. Cause it's

28:08it's hard because on some level you need to do some very Chinese things in a society that knows it needs to do Chinese, but is afraid to do them because it is, you know, it's like, it's like asking a hardcore Catholic to be Protestant and and realistically there's not that big a difference between the two you know to the I mean certainly like you know the Buddhist or the Muslim would say what's the difference I guess but if you're a hardcore believer and that's what you have you've got you know the free market people and they think this is all a free market this and that and we are not like China and then there's people like we need to build as fast as we can and whatever it takes.

28:51And that fight is happening as we speak all the time. What's the Chinese thing that America need to do? It's ironic because actually Chinese did the Hamiltonian thing, right? Which is, I wrote about this this week. Hamilton encouraged everyone to steal intellectual property from the Brits and the Europeans and bring it here. And they put up high tariffs and all that. And guess what the Chinese have done, right? They can IP and same thing. And then they improve upon it and what have you. Same thing. It was the same playbook. So yeah, what we need to do is essentially close the capital account except for gold, like the Chinese.

29:32The Chinese capital account is open on unlimited basis through gold. But think about what that means, right? I said this the other day. Everything is downstream of this capital account. Raja, he and I found each other on X. He had a great points. Like I just, I refuse. And this is a point that Brad Setzer and Michael Pettis in particular make over and over and over essentially that America is the victim of our open capital account, uh, from the Chinese. And Raj was like, I refuse to say the most powerful country in the world with an open capital account and the reserve currency is a victim because it can't control its own capital account.

30:10And he's exactly right. These are all choices. They're all trade-offs. In other words, if you don't like what the Chinese are doing, all you got to do is close your capital account. What does that mean, Luke? That means the whole world stops recycling their money into stocks and bonds. They have to go to gold. There's precedent for this. No less a U.S. eminent policymaker than Henry Kissinger in the 70s was discussing the same problem. They had a different version of the same problem. In the 70s, because oil had risen up so much because we had devalued the dollar and gone off gold. You had all these petrodollars, right?

30:50And they were being recycled in. Well, OPEC Arabs are no dummies. They're in there buying up companies of these valuable properties left and right. It's all free, right? It's cheap money. And so they had a problem of Arab, this is Kissinger's words, not mine, Arab control of European and Western European industry. where does this sound familiar west chinese control of u.s and european industry okay well one of the things was proposed is let's settle the oil deficits in gold at a floating price so the the basically it protects our industry from being controlled then by arabs now by chinese they get protected because they have absolute national control their words not mine of their reserves in physical gold in their borders and it's inflation protected their words not mine same problem same problem and so that's why i say like oh the chinese no they're just playing the game that's been dealt to them and the game is buy up american industry with the dollars Americans don't like it.

32:03Close your capital account. Why won't we do that? What would happen to stocks if you came out and said, everybody but Americans can't buy stocks anymore, can't buy US bonds anymore. They got to do it through gold. The gold to Dow ratio would go to one, like it did in 1980, like it did in 1933. And why do they care so much about saving? I understand the bond market, but why do they care so much about saving the stock market? Well, now because it's the economy, but also it's their source of wealth, right? This is ultimately a Game of Thrones. This is about corporate America loved China. They still love China.

32:37They even saw it last week. So we're in the midst of all this. So we've gotten to this point. Micron stock is soaring because of the AI boom, demand for memory. Prices of memory are going through the roof. What's Apple doing? Buy memory, I imagine. They are. But this week in Washington Post, they come out. they are actively lobbying Trump to let them buy Chinese memory. Because the price of memory is going up to an American company. God forbid an American company is making a lot of money in memory. And if they can buy from the Chinese, they can knock prices down for the American. And they can keep Apple's margins okay.

33:19Whose side is Apple on? But it's an American company, ostensibly. But this is the fight. It is ultimately corporate elites have, what percentage of CEOs and execs have their money in the stock, you think? Their stock. It's a big number. Everyone. It's a big number. Yeah. So what happens the day you say foreign money's out? We're closing the capital account. Do you think they want that? Do you think they want their margins? Corporate profit margins are at all-time highs. Corporate profit margins would come down initially. Wages would come up initially. and then ultimately you begin to produce more of your own consumption.

34:00Now you build a consumer base that's in America, right? And that's not based on credit. Oh, by the way, you're taking away the need for credit. You're bolstering wages. You're bolstering inflation. Banks don't want that. Bond market doesn't want that, right? So what you end up with is Wall Street and multinational corporations hate that idea. So many of these questions come down to like what they should do and then what they're actually going to be able to do. Is this another thing that they should do? Well, forget about should. This is so similar to pre-Civil War. Do you know 60 % of the wealth in this country was in the South before the Civil War?

34:32I didn't. It was. They were the original globalists. They wanted open trade, no tariffs. Why? Slave labor. And they're selling cotton and tobacco and crops to Europe. Meanwhile, the North, the technologists, the producers at the time, or the manufacturers at the time, they needed protection because they're trying to compete with the globalist Brits and Europeans who were making stuff. And their fledgling industries couldn't produce without tariff protection. Well, we need a way to, you know, globalists against the nationalists. well no one's gonna go die for economics so we need a useful social issue any useful social issues we could highlight in the 1860s to get 600 ,000 americans to die oh slavery same the same fights happening right now nationalist globalist and it's interesting because you know the divisiveness of this country peter turchin who studies these things said that the, in his book End Times writes, you've got elite overproduction and wealth inequality are your two drivers to domestic political instability.

35:53They're the highest now in America since 1855. So should, what is the, should is a political question. Should, you know, what will they do? I don't know. I don't know. And it's a highly contentious political issue. As an American, I think what's best for America is to not have massive wealth inequality because I don't think that's politically stable. I think we end up in some sort of domestic, really ugly situation. And so that's where I shake out of like, hey, it makes more sense to control the capital account, redirect some of those flows away from the Plutarchs into domestic production, that makes more sense.

36:47What should they do? I'm not in government. You wouldn't reuse a Bitcoin address, so why does your phone broadcast the same identifier for life? Every SIM has a static ID and carriers, ad networks, and bad actors all use it to track you. The big carriers have been caught selling that data over and over again. CAPE is America's privacy first mobile carrier. Their identifier rotation feature changes your ID every 24 hours so you look like a different subscriber every single day. And SIM swaps are off the table. Your number can't move without a 24-word phrase that only you hold. There's also no name at sign up, no social security number, and there's no profile to build on you.

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39:06So make sure they can access in the future what you've built today. Anchor Watch is your custody, your way. Visit anchorwatch.com to get started. That's anchorwatch.com. And like the wealth inequality in America, I travel a lot. And in sort of the Western world, I think it's probably the highest that I see. and it seems like everything that they are doing and going to do is only going to create a bigger divide that is only going to lead down a really bad path and and i it's hard because like when we talk about these topics it's very hard to be optimistic about the future um and i'm a very optimistic person generally but it just seems like we're going down a really bad path

39:49these things happen i mean at the end of the day humans are you know humans are are products of nature right and you go through these cycles of you know look you go around here you know there's this beautiful we're here recording this here in cleveland there's beautiful we have metro parks right so there's a literally it's about a mile wide swath most of it has a river through it or much of it's on the west side certainly actually on the east side, different river. But you can literally mile wide swath parks, centuries old trees from the lake on this side, all the way around the west side, down south, back up through the east side, up to the lake on the other side.

40:29They call it the emerald necklace. And due to the development of this country or country, the state, most of the natural predators of deer were killed centuries ago. And so over a period of time, you know, when I was a kid, it's like, wow a deer and now you're like oh my god a deer like literally everywhere you drive you're trying not to hit a deer why why are there so many deer take away the natural predators they become victims of their own success they eat up everything and and now there's way too many deer and then you have a you know deer disease or they eat all the plants and they start whatever it's natural cycle of nature and i think these economic cycles unfortunately we're products of nature as well We're victims of our own success.

41:15And I'm optimistic about the future. I'm just realistic about it as well. Like where we are, what that implies, what that possibly implies, what are good things, what seem to be good moves, bad moves, what are good ways this can, and then accelerants, right? There are things that are accelerants. And I think, you know, technologists would tell you, oh, well, this technology bifurcates the economy into K-shaped anyway. yep it does they're right and that doesn't necessarily change the outcome right like some of them are saying well fine i'll just buy a bunker or i'll move to new zealand or whatever and i guess that's one way to deal with it but i think it's a little anti-social but i but i get it um so i don't know that's sort of a i don't know i don't know exactly that that tells us anything other than I just, I don't think there's any avoiding the natural cycle.

42:09Like you can delay it for a while, but you can't stop it. And so then if you can't stop something, then it's about preparation and understanding and trying to do what you can in your own little way to get us to a better outcome that might otherwise have been achieved. Buy Bitcoin and gold and think very carefully about where you're going to live. AI, like you say, is obviously going to be hugely instrumental over the next decades. But for now, do you think it's in a bubble? And what kind of bubble? Because like the obvious most recent examples are like, is this 2001 or is this 2008? Yes, I think it's a bubble now.

42:53And I think it's going to be a situation where the early bird gets the worm, but the second mouse gets the cheese which is to say for a long while myself included i didn't i didn't really write or talk this way but it was in my mind whether bubble whether ai was a bubble and whether the ai companies were a bubble were in inextricably linked in other words there was only and now i think the companies are bubbles but i don't think the technology is a bubble i think we're in the early days of those things separating. And that's what I mean about the, you know, the early bird gets a worm and the second mouse gets the cheese.

43:32Rails were enormous bubble, railroads, and they were an enormously productive technology that changed this country and changed every country and are still in use today. I was at a conference 18 months ago. There was a guy there who was extremely wealthy, nice guy. He made his money by buying up telecom fiber for pennies on the dollar after 02 when it all went bankrupt it's all still being used the internet wildly useful and and we saw that right like the pets.com and all these crappy companies they went away and the internet is every bit as big as we thought it would be and i think we're in the early days of that being recognized

44:17and that's one catalyst of the ball where there's just this recognition like but i think that and that's being recognized i think because some of the financing stuff some of the same shenanigans that we saw in telecom and Enron and all that, the sort of circular vendor financing stuff, that is being openly discussed and questioned for good reason. The thing that actually is different this time as it relates to either 2000 or 2008 is the Chinese are competing. We were talking about this earlier, which is we're having a debate, are the Chinese better? They're not. It doesn't matter. They're there.

44:52They're only going to get better. And American technologists don't know what to do because they haven't had to compete with another country's technology since probably, what, 86, 87 with the Japanese? A lot of these guys weren't even born yet. If they were, they were diapers. And we were talking about before we went live, this is the Rust Belt. Cleveland had four of the seven richest cities in our, excuse me, Ohio had four of the seven richest cities in America in the early 60s. Maybe it was in, maybe it was as late as early 50s, but the point stands like in one human life, four of the seven wealthiest cities in this entire country, the wealthiest in the history of the world were in this state.

45:38You know how many are now in the top 10? Zero. Zero. Zero as Steve Eisenberg said. I know how this can go. I've seen it. I watched it in my lifetime. The tech guys don't get it yet. The fact that the tech guys are going to Washington and asking for a savior from China, for protectionism. Not very American. Well, it is and it isn't. It's kind of Hamiltonian, but it's definitely changing the rules versus before. And there's a different set of rules to that. But, right, there's nothing more American than Hamilton, right? It's been on Broadway for what? How many years now? What did he do? Hamilton did what the Chinese have done the last 20 years.

46:27It's all one big, you know, it all happens over and over. It is interesting, though, because obviously the news broke a couple of weeks ago about Kimi K3 coming out. And like you, I'm not deep in the world of AI, but you see some of the benchmarks. It's at least competitive with the biggest Frontier Labs and a fraction of the cost, I believe. So I can understand why those frontier models, those frontier labs are very paranoid about this and they're trying to figure out how to be saved essentially. But why save them? Like if their models are broken, why would the US save them? Because otherwise, I want to say this so everybody hears it.

47:03Because if they don't, the whole system is at risk of coming unwound. There was a great sub stack. If you haven't read it yet, and you'll have seen it from my work, I don't know who the guy is Groundbreaker is the name of the sub stack go read it it was published July 2nd I read it and it was funny I was reading it on our patio my wife can always tell this is FFTT can always tell when something's blowing my mind because I'm rubbing my head I'm reading and I'm rubbing my shit like wow what are you reading and he lays out that the 08 crisis was not a, the popular understanding is once home prices turned down, everything came unwound.

47:49But when you look at the actual facts, which he puts right in front of you, it wasn't when home prices turned down year over year. It was when the rate of growth, the second derivative of growth of home prices, they were still rising, there was still demand. When they slowed, that's when defaults started rising because it wasn't that home prices fell. It was that they just slowed so that the refinancings couldn't occur. And after that, everything came unwound. And he lays out that people are evaluating his cases that people are evaluating the AI as a tech play. It's not, it's a real estate play.

48:21And he says in real estate, you got boom bust because number one, they don't derate gently. They derate violently. And he's absolutely right. And he said, number two, real estate things don't blow up. They're very rarely blow up with demand declining. yep it almost is always up it's just that second derivative and he runs through and he points out basically chapter and verse open ai is ground zero in this whole thing in his view and i i have no reason to disagree after it's a very it's probably took me 45 minutes to read through and i read fast um and it just lays out the different cross financings the amount of debt how they have gone from basically 0 % of cash flows to 100 % of cash flows going into new capacity, then borrowing, who's guaranteeing it, what's therein, what's happening with Oracle CDS, Microsoft CDS all starting to rise.

49:16And that is why I think the government is nervous. And they should be nervous. The US government should be nervous about this because when you then tie it into capital flows, there's huge inflow of capital from abroad, all heavily tied to AI. I lived through the 2000 bubble. I remember what happened. The dollar kind of went up a little bit more, and then it fell like 40 % in six years after the tech bubble burst. So they have those issues. the tax receipts oh my god you know what happens to tax receipts if the tech bubble bursts we're already at 100 right now if you add interest expense plus entitlements plus veterans benefits which are a cool eight percent receipts 400 billion a year you are over 100 of receipts with receipts and capital inflows inflated by this ai bubble so if and and the one thing underpinning as this groundbreaker says is open ai if open ai just slows the next round so they came out at the end of june and they delayed their ipo possibly and that was and then they also offered remember about a week later they it was reported that they were floating since denied floating possibly giving the trump administration a five percent stake i saw that now how many of these tech billionaires have you seen offer out of the goodness of their hearts a government five 5 % stakes.

50:44Is that literally just, I mean, I don't want to use this word too liberally, but a bribe to be like keepers alive. Yes, I think it is. I mean, I hear, I heard credible rumbling six to nine months ago that the discussion around what does an AI bail out look like had already been broached in Washington. Do you think that's why China are pushing the open source AI so hard? Is it an attempt? Is it like essentially economic warfare? that. Whether it's intentional or not, I don't know. I think they are absolutely aware of the implications of it. I think they're absolutely aware. They would have to be stupid not to.

51:19And they're very good at this. They're better at the second and third derivative thinking than our policymakers seem to be, in my opinion, for a number of different reasons. But that's why I think the government's worried about it. Open AI, can't price, boom, then this, then the debt. The debt starts with, okay, who owns the debt? I don't know. Okay, sell them all. Okay, now, Now, and oh, by the way, 80, 90%, depending on who you read, 80, 90 % of GDP growth in this country over the last 12 to 18, 24 months has been driven by AI-related spend. Uh-oh. Now what? Now you're in a recession. Now what happens to the deficit?

51:51Remember we just said before, up 600 to 1 ,000 basis points of GDP. Well, GDP is 30 trillion for easy math. That's 1.8 to to three trillion more on top of a two trillion deficit. Now your deficit is a 3.8 to$5 trillion. Receipts are down huge because stocks are down. And oh, by the way, yields are probably going to go up on this because in the dot-com bubble, we were running a surplus, a fiscal surplus, not a 6 % deficit. I think that's the last time there's a surplus, right? Right. And, and so now you've got, you know, it just came out last week, Google went cashflow negative first time in its history.

52:27So you've got all these guys competing they'd be competing more to borrow more money to keep things going at the same time u.s deficit would be blowing out three so you're going to have a risk if if the ai thing unwinds you are going to have a recession and a stock market event where you're going to have a weak dollar probably not initially dollar will strengthen initially so let me do it in order you're going a very big stock market problem you're going to have a recession you're going to have a rise in unemployment, you're going to have a significant rise in interest rates in a recession, which no American alive has really seen since probably the 70s.

53:07And even then, it won't be, it'll be much more emerging market, like which, which the 70s was a sort of, so I guess that's probably the last time anyone would have seen it, right? So, but if you were 30 in 1974, you're 82 now, right? Not a lot of them around. So not a lot of people have seen this. And oh, by the way, the rise in rates will then force, and that's where I think, you know, I think the dollar rises on that initially, but there go back to Warsh, we started, what did he say? I'm not going to let the market set the price for treasury bonds in a crisis. Okay. What are you going to do?

53:43Check to you, buddy. And it might be as little as a 25 basis point height that could trigger all this, but I think they are

53:51absolutely aware of it and concerned about it. And I think the Chinese are too. So now you go to the game theory, you're China. And you got a lot of tough guys saying, we're going to choke off China's oil. What are they going to do about it? Oh, look, China didn't put troops on the ground anywhere in the Middle East to fight us. What are they going to do about it? Oh, we just seized Venezuela. China didn't do anything about it. They're crap. knowing the Chinese mentality, which is turn the other cheek and wait and then do something very subtle. Like, oh, I'm so sorry. What happened? What happened?

54:27Open AI? Oh yeah. I think it's exactly what they're doing. It's what I would do if I was them. But it's hard to know what they could even do to protect it. Cause I mean, back to the question, is this 2001 or 2008? It sounds like it has sprinklings of both. And the problem is like, if they do start to roll over and the growth slows, like sure, Walsh can, you know, drop rates and he can start buying his own bonds. But like, does that get into the markets that he needs them to get into? Like, how do you protect it? And this is why the Iran war was so dumb. If you're actually a multi-level thinker, you know, the people that are like, oh, this was such a good idea.

55:02No, it wasn't. If you're, if you're, if you can hold one thought in your head at one time, yeah, it was a great idea. Because now, where's oil? We started this little adventure, 10-year treasury yields are 3.95%. Oil was 55, 65, 62. Now this thing comes unwound. Yeah, this thing comes unwound. Worsh can really aggressively cut. What's oil going to do? It goes 75, 80 because you're in a recession, down. Great. you're starting oil from a standpoint of 85 bucks. I see what you're saying. And I know you've said a number of times, like oil at 120, I think it was, is like game over really for the economy.

55:42It is, but even more, like we've been very, you know, written it many times over the last four or five years that 60 to 80, oil is fine. Oil gets 85, the treasury market starts having problems in fiscal dominance. We've seen this over and over and over and over. And is it at the moment? Oh, absolutely. I mean, the move index is down at 50, but rates are at 4.7, right? 4.6, 4.7. Got to 4.7, war off. Back to 4.6, war back on, right? So that is the, that's another tricky part of all this. Oil is at a price where, what do you do if you're worse? If you start to, AI needs support. Some of it's competitive.

56:26There's not a lot you can do. the financing side of it is going to be having a problem. Stocks are going to be heading down. Meanwhile, you've got the war going on. And so there, yeah, there's some element of downward pressure on oil, but ultimately, what do you think the Chinese are going to do? Right? They ran down all their oil. They ran down some unknown amount of a very large oil SPR is the accurate way to say that. So say oil goes from 85 to 70. What do you think the Chinese are going to be doing? let's put it right there guys yep so oil's not going to come down that much if at all when worse is going to have to be printing money to figure this thing out it was just an unnecessary complication that iran war was relative to all this other stuff that was happening to the exclusion of everything else right it was just it was hubris to think well if we do this there's not going to be any fallout and to only think of retaliation in terms of boots on the ground or bombs or this or that.

57:25What did Besant say in his Q &A three weeks ago? Bond markets have taken down more governments than howitzers. He gets it. He gets it. Even if I don't think he has the ability to kind of say, hey guys, the Iran war, let's not. I don't think that was his call. This might be a silly question, but is it possible to think they might be as avert as doing money printing and actually stepping in to the stock market and propping up strategic markets. Well, they've already been doing that when you're making investments. And just here too, it's this dichotomy or this two-faced, the yin and yang of it. On some level, you need to do that.

58:09I mean, that's what we're talking about with Hamiltonian economics is protecting your domestic industry that you've been allowing to be hollowed out. So on some level, you need to, but you don't want to do it because in an emergency. You want to be strategic about it. And this will be the antithesis of strategic. It'll be because you're trying to put out a fire.

58:38So, yeah, they stepped in it, right? It's, it's, there's almost like an ideological problem with some of this in that like America's about supposedly about free markets and it feels like to beat China becoming more like China is a mistake. But are you saying you think that's what they're going to have to do? I think the first step is admitting we don't have free markets. Okay. You can't sit there and say, you know, we can't do these policies because we need to have free markets. When you have the Fed chair saying, I will only allow a free market in Treasury bonds when I like the price, when the rate is not at a level that doesn't bankrupt my government.

59:21That is not a free market. And he said it last week to Congress. He stood up and said, America does not have free markets. He just used words that, you know, because everyone's still enamored of him, you know, give it a couple of years. he's gonna be pal um that to me is the first step you have to take like let's be honest

59:44what free markets what was free about oh eight what was free about covid what was right so we need to actually decide hey these industries have strategic value beyond i can make money on it this quarter. And that's the challenge. The Apple Micron example before, Micron's minting money. Stock's outperforming Apple. Memory prices are soaring. It's a commodity. It's no different than if coal prices or oil prices are soaring. And Apple doesn't like it. Where's Apple's margins relative to all time where's right right so like it's a mindset you need to have the upper shape of the k the upper leg of the k both in corporate and as individuals say here's where i want my country to be in in 10 years 15 years we can be ripping each other apart

1:00:53or the bottom half will have starved one way or metaphorically or literally and I won't have to deal with it because I will be in a walled garden that of my own construction or I want my country to be thriving and to get there I need to take lower margins and I need to somehow sell that to my shareholders with a case shiller PE at 42 pricing no margin nothing but margin expansion forevermore because, you know, unicorns, rainbows, and Skittles for everybody. That's the issue. That's the decision. And I see it from some people. I don't see it from others. And I definitely don't see agreement about it.

1:01:35And the challenge is, like, that's not the mainstream discussion, right? Like, it would be much more encouraging to me if that was, that was the discussion we were having as a society but instead it's you know what's a boy can i date a tree you know can i wear a furry tail to class like some of the kids at school at university with with my kids like okay um great right that's that's more weimar vibes of like you know i mean that's insane it's it your words not mine is this um is this like an existential threat to the U.S. as a global superpower? Oh, yeah, absolutely. It already is. I mean, look at the headlines this weekend.

1:02:21We don't have the missiles. We don't have the air defense missiles. And so, right, so we are the global superpower whose most powerful military in the history of the world ultimately backs the dollar along with the 13 aircraft carrier battle groups that we have. Right? How often have we heard that? Except when the missiles started, those carriers in the Gulf went 1 ,000 kilometers further away because they knew what would happen if they stayed too close or could happen. We ran out of air defense missiles. The naval base at Bahrain got trashed. We evacuated many of our people from the Middle East.

1:03:00The Russians were helping target our guys, helping the Iranians target our guys. we can only go to war when the markets are closed and when the 10-year treasury yield is below 4.7%. So we are still the global hegemon as terms and conditions apply. As long as a 10-year, you know, you want the guy at the end of it. We're still the global hegemon. As long as a 10-year yield is below 4.7%, as long as the S &P is not down more than 5%, as long as oil is below 85%, as long as it's a weekend, and as long as we have enough Patriot missiles, which we are currently on backlog for two years. Talk to your representative for further conditions.

1:03:37I mean, with those caveats, then, is it already over? It's already in the state of change. We can always come back. We can always come back, right? And look, I agree with Warren Buffett. Hey, for 250 years, it's been a bad idea to bet against America. Yep. Right. And what I never hear Americans still say yet is that I bet you in 1850, there were people saying in Mandarin for 1 ,500 years, it's been a bad idea to bet against China. And yet, eventually, they made enough stupid decisions and had enough outside forces, one of which is a widespread opium addiction. Hmm. You know, they have a name for it in certain areas around here.

1:04:26It's called Fentwalk. I don't know if you ever heard the phrase Fentwalk? No, not Fentwalk. Is this where people like drooped over? Correct. Yeah. Yeah. We could take you to areas where there's Fentwalk around here. So it's not over yet.

1:04:40But, you know, it's getting later innings where we need to be having the discussion of

1:04:49do i as a plutarch of this not i i metaphorically not i specifically as a plutarch as a ceo of a multinational as one of the wealthiest people in this country as a member of the upper shape of the k want where do i want my country to be in 10 years 20 years like And there's other warning signs about it. I have a friend of mine who has the monopoly contract, right? So he's the only provider for the medical examiner pickups in two major second -tier US cities. and what that means in plain english is anybody who gets murdered commits suicide overdoses accidental or otherwise or suffers an accident dies in an accident he picks up he's the only one who gets his his his companies and they said something a couple weeks ago man we have never been this busy we are busier now than we were at the depths of the covid when people in this country were killing themselves, overdosing themselves, drinking themselves to death when they were locked down.

1:06:08Wow. Bleak. Very bleak, right? So there's something happening, right, where in the context of this K discussion that we need to be having, and look, maybe that's the plan. Maybe that's a plan for the upper half of the K, at least the ones that are controlling the strings, which is build a wall and just let those ones overdose and kill themselves. It's the permanent underclass. And we spoke about this in Nashville. It's like, it's the economy of despair. Like if AI does end up replacing a number of jobs, like what do you think is going to happen to those numbers? Like bullish on his company in a horrible way.

1:06:43It's an enormous, it's enormous. I mean, there's actually a shortage of funeral directors in the state of Ohio right now. Do you know that? And a number of other states. Some of it's an age thing. There's very few young ones, but it's so much so that they are able to, they've changed rules before you had to have at least an undergrad degree, and then you would have to go to mortuary school for two years, or you could go right to mortuary school, or you could get a degree and an apprentice under an established senior funeral director for two years after your degree. They're in such dire straits, they actually have changed the rules so that as long as you will be done with your undergraduate degree by the time you are done, by the time your apprenticeship is done.

1:07:36Wait a minute. I mean, these are depressing signs. It is a sign. It's just, like death's a part of life, right? Like Forrest Gump's mom said. So I think some of it is around how you feel about that for when they're young people. Yeah, it's horrible. and

1:08:01you know some of it is a demographic right wherever the boomers have been cater to the boomers and you do well right wherever they've been in their lifespan right when they went into the workforce number of workforce went up and then you know inflation picked up when they're buying houses vacation houses vacations whatever and what are the boomers doing now like if you do high end service right so pools, landscaping, high-end service, and death care, boom. Some of it's just boom or some of it's just demographics. So I don't want to make you think it's all opiate and stuff related, but there is some signal there around a warning sign of this discussion we need to be having, we should be having, of where do we want to be?

1:08:45And that's where I think, look, I do think the Chinese do that better than us, right? People say, oh, China's housing is in the trash, yeah, or in the tank. It is. And she came out and said, houses are for living for, not for speculating. And that was like the absolute peak. Like they basically went in the, like they tanked their own housing market. Why? Because then the capital flowed into investing. That was a plan. Now that weighs that, that has its own offshoots, right? That's going to weigh on profitability of, of firms in that you've got to compete. Wait, high degrees of cap of, of compete.

1:09:19Isn't that cap? Isn't that capitalism? It certainly sounds like it. Interesting. But I think they have the structure, luxury, culture, history ability to say, look, we would like to not be in a revolution in 10 years. And a good way to contribute to that, especially with AI taking jobs in our country and everywhere, is to jack the price of housing to the moon. So not only do young people not have jobs, but they can't afford houses and their health care is up. and they're educated. That's how you end up with Mamdani. You're gonna end up with a Mamdani in every country in the city. So like, what do you want?

1:09:55So it's almost like the perverse incentives of crony capitalism. I think that's exactly right, right? Like once upon a time in this country, I think it was Nixon who said, right? Hey, these guys are too big to fail. Nixon said, well, tell them to get smaller. Perfect response. Perfect response. Get smaller. Oh wait, it was a very simple response. Break up the big banks, send the ones that committed crimes to jail. wipe out the equity let the bondholders take over the company why didn't we do that crony capitalism and if the government in some form step in and try and protect these ai companies like that's maybe the most egregious form of crony capitalism yeah and it's you know it's gonna i've had people say it's gonna be like the soviet union right like i have a friend who lived in east germany he's like that's you know you you guys let markets work and you get all nice stuff and you know we didn't and we had all the crappy stuff and so we're gonna have you know expensive crappier evs and expensive crappier solar panels and expensive crappier electronic stuff and the china like there's electronics that i've had people show me over there we don't even have access to way more than byd cars like i'm like wait what and that's what happens so it's it's it's a time to be asking what we want and where we want to be and it's a time not to be using black and white labels right yeah right like chinese are doing some very capitalist things and americans have done some very communist socialist things for certain classes of people right it's like animal farms some animals have been more equal than other animals and that's fine but you know when you end up you know when you take a road somewhere don't be surprised when you get to your destination.

1:11:36So what should, like, if people are listening to this, what's the actionable advice? What should people be doing to prepare for this? Like, I agree we should do everything we can to try and change course, but assuming you follow the incentives and maybe that course is not going to be changed, like, how do you protect yourself from this? Look, I think it's about simultaneous protection and optimism, right? There's the yin and the yang to this. This can go really well. This can go really badly. And so it's a constant, you know, There are certain facets that are in place already that it's going to be, makes it harder for it to go flawlessly.

1:12:07But there's going to be winners and losers at all times. So, look, we're not going to be able to reshore it fast enough. It's not going to happen. Okay, well, guess who's going to get a lot of that business? Japan. Okay, well, tell me about Japanese industrial equities. Okay. Electrical, you know, is, we're going to reshore of something, you know, some degree. We're going to have more electricity. It's easy because we, as a country, we have not grown our electric grid in 20 years. It's astonishing. It tells you a lot of the GDP growth is inflation, fiction, fugazi.

1:12:43Great, electrical infrastructure equities. We're going to devalue the currency. Unless we come up with some new math, that's going to happen. Great. It'd be overweight gold. I think, look, if you have a long term view, you should probably be buying Bitcoin now. Like I said, I'm probably being too cute. I think I can get it cheaper. I still have probably a 3%, 4 % position in Bitcoin and Bitcoin related stuff. So I'm not flying fully out of the train. I'm not short. I'm just underweight what I think, because I think ultimately they are going to have to get much more aggressive and much more obvious about devaluing printing.

1:13:18And Bitcoin has demonstrated an ability to be the fastest horse relative to, I don't like playing any altcoins, anything like that. That's my limit, right? When the tide does turn and you're ready to get back into Bitcoin in a bigger way, what is your ideal allocation?

1:13:42so the last time i was probably 10 15 and at the highs it was like 47 48 percent oh wow yeah it was it was it was so big it was occupying way too much of my mind space and so no such thing for me so exactly there's a lot of maxis out there going see that's why i hate him no such thing um no it's the same nixon thing get smaller right yeah tell him to get smaller get smaller so i got smaller um but i to answer the question i think some of it depends on events. But look, I don't see any reason why I wouldn't want to be at least 25 % gold in Bitcoin over the next five years on average aggregate. And I think it's very dependent.

1:14:39Look, I think you always want to have some gold. I think how you structure that is dependent on your age because in fact bitcoin's way more volatile than gold yep in the last two years when you adjust when you vol adjust the returns gold is much more attractive that should change when they print whenever that is again but that's something i'll be watching for if bitcoin and gold if bitcoin only gives me you know 50 you know every percent gold goes up bitcoin goes up 150 basis points that tells me great i want to be a little bigger but that doesn't tell me go way bigger gold to get to me where it was that just tells me something's changing a number of things that could be uh but i i think i still really like especially i mean for myself i generally run with this, but for the average investor out there, 25 % cash, 25 % gold, Bitcoin, 25 % real estate, 25 % equities.

1:15:44And I think each of those, I'm over that now gold and Bitcoin. I'm slightly under that cash.

1:15:55I think the important thing as I sort of lay out some of these just sort of stream of consciousness of things we've talked about it's not doom or or not doom right the the optimists you know come you know the the pessimist complains about the win the optimist expects it to change the realist changes you know adjust the sales yeah and so it's just that you when you've got if you're laid out like that the jacob fuger portfolio and 25 25 25 25 it's easier to adjust the sales um nothing is going to kill you right you're you are from a financial standpoint, you make yourself very hard to kill. Hyperinflation doesn't kill you.

1:16:35Hyper deflation doesn't kill you. Okay. If those two things don't kill you, then like you're in a good spot. You're in a good spot. And, and the reason I lay all that out before with some of which is depressing is you don't hear about this stuff a lot. And I learned 30 years ago in this business. If you talk about the same stuff that everybody else talks about, your kids aren't going to eat. It's a fact, right? I've been on a straight commission my whole career. If I was the 30th guy calling a big hedge fund in New York to tell them about target earnings in 1998, my kids would have starved to death.

1:17:11My kids are never going to starve to death. So it's important to look at things differently than everybody else. And I do that, I think, most of the time, and at least a lot of the time. And so some of this stuff might be depressing, but it also is happening. It's also reality. and you can ignore reality, but you can't ignore the consequences of ignoring reality. And there's such a wide array of things that could happen. It ties back to the allocation of like, okay, where do I want to be? Look, like 45 % Bitcoin, like for me, that's a lot. Like I'm 51 year old man. You won't want to hit mine. You're a younger man than me.

1:17:51So you're younger. And the other thing, too, is understanding. You understand Bitcoin better than me. Like if I, position sizing is,

1:18:04one of the things that's a critical input is your understanding of it. I understand it well enough. Like you could have a thousand people sitting in this seat that I would dare not talk about Bitcoin with because they've forgotten more than I know. And it's probably more than a thousand. And I'm okay with that. That's ultimately just a position sizing thing, right? That is a, I'm at 45%. I'm up big. Okay. I, I'm going to get smaller. I either need to learn a lot more or I need to get smaller. And if I need to learn a lot more, I got to go all Bitcoin all the time. And I didn't want to do that.

1:18:34Not for any reason other than it's not where my interests are. And that's, so it's just, it's just a decision. So, um, yeah, that's what I mean about like, like some of it's your age, right? Like you get older, you can't take the vol or you don't want to take the vol. Yeah. Um, some of it's your understanding. Some of it, you get people here, and I'd be happy to have debates with those people. They'd look at some of the things I'm looking at, and I'm like, well, I interpret what you're seeing as this or that. And that's fair. There's two ways of looking at a lot of the things I'm describing. We'll see.

1:19:06That's what markets are supposed to do, ultimately, is who's right, who's wrong, or whose review of what's happening more accurate or not relative to what was expected, which is the other thing. Right? where are expectations right that's pretty easy to tell the bitcoin community yes 100 i think the thing we probably both agree on is zero is the wrong percentage zero is the wrong percentage and like someone asked me like when you sold did you know you were going to be right i'm like yeah they're like how i said because one of the advantages of having a big x account is having a thousand randos get on and mother f you all day every day when it goes public that you sold.

1:19:49This is like, if that's the reaction, knowing what I think I know, I'm going to be fine. I'm not going to, I'm not going to have to buy it back at, you know, whatever. Now, sentiment is changing quite a bit, right? We got sailors selling Bitcoin. We got a lot of Bitcoin treasury companies being forced to sell. These things get me interested. There's a lot of bomb signals right now. Yes. This is where, this is where I, you know, like there's not blood in the water, but there's, you know, there's a few split lips. Yep. And okay. Now I'm, that's why I say I might be being too cute. Like we might sit down and have another conversation, you know, when it whatever and six, 12 months and now Luke, you got too cute.

1:20:25I'd be like, that's okay. Like, well, it seems certain you're not going to buy back higher. It depends on, and it depends on events. Like that's the thing is, is one of my mentors, one of my mentors long time ago, he said, Luke, I've never seen someone change their mind as fast as you.

1:20:48Like, I go back to when I, when I, you know, I had already for a long time, I always own, I've owned Bitcoin since 2013, a little bit, not nearly enough. I know.

1:21:00And in 2020, you know, I ran up 2017, crashed back down. It's like, okay, right. They launched futures. And I was like, I mean, you can find my old tweets. It was like, hey, having been experienced in gold, Bitcoiners, I know you're excited about futures being launched, but this isn't a good thing for you guys. I was so excited then. And that was like marked the absolute top. Yeah. And sure enough, it was like, right. So and I thought, OK, that was it. There's a bubble. I've seen this before. I saw this with gold and 11. I saw this NASDAQ. I saw this. I saw it. And then 2019 picks up, whatever.

1:21:33OK, 2020. It takes off back through 20 ,000 like a hot knife through butter. and i looked at my wife i go this is this wasn't a bubble this is a currency thing we are like i'm totally wrong and i am buying everything back and then some even though i'd sold a bunch at you know whatever i had bought and traded around right so i'd bought a bunch and sold a bunch like 10 12 probably sold something 14 or something whatever yeah and i was like i'm wrong. And I bought way more than I ever did at 20, 21, 24, 26, 30. And I sold a bunch really well at like 52. And I started buying some back at like 60, 50, 40, 30.

1:22:17And I bought a ton under 30 and a ton under 20. So if facts change, I will change my mind so fast, so fast. Facts as I interpret them they should be facts but you know the the the fundamentals as i see them and something and i say that because there's there's sentiment there's what have you right and there's multi this is a multi-pronged thing look if sentiment completely gets wiped out if and there's a lot of different ways that can happen great price price there's numbers in my mind where if it were traded there i would be a big buyer almost without question um you know with the asterisk of like, hey, as long as it wasn't like, you know, some crazy, you know, of course quantum all.

1:23:03Yeah. Yeah. Quantum has broken all of it. Right. Then, then no, but I don't think it's going to happen. Um, anyway, that's, that's, I'm trying to just kind of share the thought process of just like, this is what's going on up here. Basically every waking moment of my life. I love it. I'm excited for when you buy back Luke. Um, we've talked about a lot there. Is anything we didn't talk about that you wanted to cover no i think i think that covers it it's been awesome thank you for having me thank you thank you you made me come out to cleveland and it's been nice i've not been here very long but it's been good thank you for insisting it's it's a beautiful place it is the nice weather capital of the world for about another 12 hours no it's beautiful this time of year it's cleveland's great may to october and then after october we get into the winter stuff and there's you know if you said hey can i come see you in february i'd be like, no, don't, don't, don't do it to yourself.

1:23:54Don't it's just, yeah, you just, it's, it's like, it's like nuclear winter. It's gray. It's cold. No fun. Well, I appreciate you. Thank you for doing this. Uh, always better to do in person. Oh, thanks. Uh, thanks for, uh, thanks for having me. All right. I'll, uh, I'll put the newsletter in the show notes. It's one of the ones that I'd never miss. Um, thank you. I appreciate you, Luke. Thank you. Absolutely. Thank you.

1:24:26Thank you.