The Fed Is Trapped: Why Double-Digit Inflation Is Inevitable | Lawrence Lepard

23:38And, you know, okay, great. They're not paying as much. Now, you know, again, eventually, you know, what, what all of these moves will trigger and what they're trying to prevent is Gresham's law. Where, you know, I've studied hyperinflations. I wrote about them in my book. We all know how these monetary systems fail. Most of these other systems that fail were not the world's reserve currency in the most powerful country in the world. So we're not talking apples to apples. But a system, a monetary system fails when everyone knows they can't stop printing. When it becomes completely obvious to everyone that they can't stop printing the currency, they all abandon the currency.

24:14And the currency becomes worthless. There is no longer any demand for it. And so the question is, how close are we to that point? And I would say we're not that close, but we're closer today than we were before 08 and before 2020. And, you know, I think with every piece of debt and every, you know, program that they put in, we get closer still. And so at some point in time, you know, it's like, this is like a critical stage. There's a name for it, but it's like when something changes form, like, you know, water goes to ice or or it boils and goes to gas. I mean, it's like, or an avalanche or a volcano.

24:55I mean, it can stay a certain way for a long point in time. And then you get the last snowflake that falls and bang, you know, the avalanche releases and goes down. I mean, the same, or the same would be true with, you know, a volcano. I mean, the magma can be bubbling around and nothing's going on. And then suddenly enough pressure gets built up and wow, you know, you got, you know, on Mount St. Helen. I mean, it's like, and I kind of feel like there's a little bit of a parallel there with this monetary system. You know, they can keep piling on this debt and keep patching it up. They can keep doing all these various things.

25:23But at some point, you know, we could get to the point where, guess what? There just isn't enough money in the system. And if they don't cure it and cure it fast, you know, we got a correlation of one event. And we've seen them. We saw one in 08. We saw one in 2020. You know, nothing about the system has changed. So why wouldn't we see another one? That's kind of how I see it.

25:43Lawrence Lepard:Yeah. With you saying, like, this will fail when everyone realizes they can't stop printing. like you and i know they can't stop printing bitcoiners know gold bugs know like enough people know right now and if they do it again that sort of pool of people that know is just going to increase with each event it gets larger right oh eight created a bunch of gold bugs 2020 created a bunch of bitcoin bugs the next one will create i mean but you know i mean i don't know what percentage of the i mean i think most of the population knows that inflation is a problem i mean that's because they go to the grocery store we all know that but i also think most people in the population don't know what causes inflation.

26:17That's exactly right. That's the problem. I think there's probably 10 to 15 % that really understand that the fundamental issue is the printing money and the Fed and the government deficits and they've really connected all the dots, you know, and that's why I wrote my book was to try to help educate everybody else so that eventually, you know, as this continues, it keeps getting worse. Everyone keeps losing more and more money and having to live, you know, on less and less money on a relative purchasing power basis. you know we start voting for or advocating for sound money politicians i mean you know the two brightest things i've seen in the united states i don't know how familiar you are with either of these guys are guys named thomas massey and warren davidson i mean thomas massey's awesome yeah these these are sound money people you know i mean cynthia loomis is too but unfortunately she's retiring um and they're and they're in and so that's a start you know ron ron paul was a sound money person, but he aged out, sadly, you know, but, but there will be more because, you know, people will experience pain and realize that this is the cause of the pain.

27:18And, you know, eventually we'll, we'll get through the other side. I mean, one of the things that angers me the most, people call me a doomer and I'm not a doomer. I'm very optimistic in the human condition. I'm very optimistic at technology. I mean, our lives are getting better in so many ways, but in an unfair, we have an unfair system where the lives of people at the top are getting better. The lives of people at the bottom are getting worse. That's just tragically unfair. And it's what creates a lot of dysfunction. And, you know, we've got to get back to the sound money system if we want to solve that problem.

27:48And so, you know, having blue scream at red or having red scream at blue, that's just not doing anything. That's all just, that's unfortunate. That's a Hegelian. I mean, they want you to do that because it takes your eyes off of them, them being the Fed and the people, the bankers and the system and the politicians that are laughing all the way to the back, right?

28:10Lawrence Lepard:100%. It's funny, you know that I'm no macro guy. I'm a macro tourist. And I feel like over the last six months, I've been going down this path where I've been like, maybe the big print isn't coming. Maybe like reserve management, maybe they can find a new way out of this. And then if you imagine this as like the bell curve meme where on the left, it's like big print, on the right, it's big print. I was somewhere in the middle. And the thing that's pushed me back to the left is I was reading one of Luke Groman's pieces recently, and he was talking about this 8 trillion or 9 trillion in the next 12 months of debt that has to roll over.

28:42Lawrence Lepard:And it's rolling over into very high rates. And you look at that, there's so much stuff that's unsustainable, but you look at that and it's like, that is completely unsustainable. Like that cannot continue without something breaking. And I just think now, more than I have done in a little while, I just think a big print is inevitable. And I don't think we're that far away. Like I can't imagine it lasts 12 months at this rate. Well, you're singing my song, but honestly, I wrote the book and I'm afraid I might end up looking wrong. I don't know. I mean, Lynn, who I respect enormously, is much smarter than I am.

29:14I mean, thinks that they can gradually work their way through it and they may be able to. I just don't know. And I read Luke too and he's brilliant. I think he leans a little bit more on my side. There's going to be nuclear level of printing, but we just don't know. We don't know. There's so many moving pieces. There's politics. There's, you know, a ton of other things. I mean, I will say this in favor of the big print, my partner, David Foley, and I've done a lot of work on it. There's just a lot of leverage, a lot of bubbly shit in the economy. And so, you know, one of the things that leads to a monetary problem is when you have pumped up valuations that deflate because, you know, somebody made economic decisions based on those valuations and therefore they got to change their life and cut back.

30:03I mean, and, you know, there wasn't necessarily a big print around the dot-com bubble in 2000. But I mean, to tell you there, you know, they, the old, they, they started the housing bubble after that as a reaction to that. When that burst, there were a lot of pumped up valuations and dot-coms. And when that burst, the NASDAQ went down 82 % and stocks went down 50%. That was no fun for anybody. And, you know, they didn't print there. They, they took rates to 1 % and blew a housing bubble. But, you know, we can't blow another bubble because the next bubble would be on Mars. I mean, we're at the sovereign debt levels, but there's no more bubble left to blow.

30:39But I guess what I'm alluding to is when I look at a SpaceX or some of the, you know, the valuations of the chip stocks right now, I think they're going to say, OK, well, there's a lot of, you know, paper value in these things that at some point could deflate when, you know, if they don't come true the way people think they're going to come through. I'm not anti-AI. I love AI. I use it all the time. It's going to change the world. It's just like the internet. It's going to be enormously important. I totally agree. I was in the internet. I invested. I made money in it. I rode the bubble. I got hurt on the backside of it, although I did short some things too.

31:14but um but one of the things that was certainly true was that in 2000 and 2001 we didn't know exactly what was going to happen we didn't know you know i couldn't see that amazon would become amazon i couldn't see facebook i couldn't see all the they didn't exist or they weren't fully developed you know we we invested like crazy in a bunch of fiber all which got used but which got totally devalued i mean world account and all these other companies you know went went bankrupt after I had to get restructured because I took on too much debt to build too much fiber. And, you know, and I, I just feel like that same, you know, that same story is being played out in AI, right.

31:52That, you know, that it will change the world, no doubt, but you know, chasing the, it's, it's the new shiny thing. And by the way, actually, that's part of why Bitcoin is kind of punk right now. I mean, I know people in Bitcoin, Bitcoiners and tech guys who are kind of like, yeah, Bitcoin's old hat. I'm all in on AI. Okay. All right. Good luck with that. What are you paying for? What are the cash flows? How does that all work?

32:20Lawrence Lepard:And both of those things can be true. I'm with you. AI is clearly going to change everything, but the market can also be overvaluing them right now. Those both can be true. And this is a pattern as old as time. It's happened with railroads, canals i mean you name it the automobile radio you know rca i mean all of it so the thing that i think is interesting though is like when you talk about the u.s economy doing quite well like i don't know if it is outside of ai stocks like ai stocks is the economy right now it seems and well that's right yeah and do they let them fail if they let the bubble pop well the the you get into the strategic yeah the whole strategy we've got to win this versus china and you know you see the U.S.

33:01investing in Intel and so on and so forth. I mean, you're right. I mean, the U.S. GDP would not be doing very well without, you know, what is it? I think it's this year, it's 600 billion and it's trending towards a trillion of CapEx on AI, on data centers, chips, machines, et cetera. I mean, oh my God. I mean, look, I hope they know what they're doing. And I see, you know, I see really good companies, you know, um, taking on a lot of leverage to do it. And the one that I kind of respect a little bit is Apple. Cause they're not doing it. I think, you know, my partner and I've talked about this.

33:34They might be just sitting around waiting to see how it all shakes out. But even Google is, you know, they're all, they're all making an enormous CapEx bet that winning this race is important. And they may be right. They may be completely right. And I may be completely wrong, but i look at it and i also i just get the feeling that it has that dot com you know um we don't really know exactly how it's all going to work and you know and the other thing that i think is a threat there that i don't think enough people have focused on is that this deep seek thing in china i mean this stuff may not be as proprietary or as hard to replicate as everybody thinks and everyone's like well it's a race and we got to win it well is it or can somebody in china do it cheaper and easier and better and faster.

34:18I mean, we kind of saw a glimpse of that with DeepSeek. So, you know, I just don't know. It's, look, I'm excited by it because I do know, I look at my life and I look at how much my productivity goes up. You know, I mean, I want to understand something quickly. You know, I hop on Claude and chat and I can get my arms around it. You name it. It's just, it's stunning. And that's going to be replicated, you know, a thousand times over throughout the entire economy. So that's a really good thing. But, you know, is the capital being allocated correctly today? Doesn't feel like it to me. I'm skeptical.

34:56I mean, I look at space. I mean, you know, the satellite business, you know, the Starlink business, that is a fabulous business. I want to own that business. I don't want to own it at this price.

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37:21Lawrence Lepard:That's bitkey.world and use the code WBD. And I think the point you raise on AI is actually really interesting because I agree. I think one of the things I've been watching is the price of compute for these AI companies has gone up over 100 % in the last six months. or something. It's a number like that. And the sort of open source models that you can run on your own computer are like getting very, very good. They're not quite as good as the Frontier models, but they're very good for most things. And I just wonder when people stop paying for it and start using this sort of open source ones you could run at home.

37:54Lawrence Lepard:Like that might be too techie, that might be unrealistic, but it's a trend that I'm definitely going to be watching. Well, and also, I mean, I'm paying for Claude, I'm paying for chat. I'm just at the$20 a month level. I'm not paying for the big stuff, But, you know, but as I understand it, I haven't used them much. I mean, you know, Grok and Gemini, I mean, I think with Grok, you've got to be paying, you know, you've got to be a blue checkmark on Twitter. That's not terribly expensive. And I think, isn't Gemini free, the Google product? I don't know. I think it's very low cost, I think. Yeah, I actually don't know.

38:25Lawrence Lepard:I think if you have a Google account, you get like some usage for free, I think. But I don't exactly know. Or they try and uptrade you like, yeah, like chat. Yeah, no, I started using chat, but I quickly hit my question limit. and i was kind of like all right i'll pay you the 20 bucks i mean so it's going to be really interesting to see how it plays out though um because the one of the things i was talking to peter dunworth on the show recently um and he made a point that i think was actually very interesting in that there's a lot of people in this ai trade right now it's clearly taking the wind out the sales of bitcoin a little bit over the last sort of 12 months or so um but like when that trade does roll over and and at some point it will like i it could be in five years time who knows but at some point that trade will roll over a little bit like where do people put their money because like the bond market is not looking attractive like other equities outside of ai aren't looking particularly attractive like does that start flowing back into things like gold and bitcoin like these are people who are sort of tech savvy you'd imagine on the whole the ai investors like bitcoin looks pretty attractive then i think that's right i think that's absolutely right that bitcoin does look attractive and you know bitcoin is just it's um you got to be patient with this asset.

39:33You just, you really have to be patient. And, uh, and I've got people that I put into it last year that probably have average costs of a hundred, 105, 110, and they're calling me and they're scared. And I'm just like, look, I told you when you did it, you know, you gotta be prepared for a 50 % drawdown and think to yourself, if that happens, I'll buy more, not sell. And I don't think they're even close to the buy more. I'm trying to prevent them from selling. but those of us who've been around it a long time, you know, we just, we understand it. And it's just kind of like, okay, you know, it is what it is.

40:05I mean, this is, this is the nature. I mean, I, you know, go back and study the growth of Amazon. I mean, Howard Marks, you know, made a fortune. Um, I think it was Howard Marks. No, it was somebody else. Um, I'm getting my name, the names wrong, but there was a fellow who was an investor in Amazon from the beginning. And, uh, you know, he, he suffered big drawdowns and he just kept, you know, he'd buy the dip and did extremely well with it.

40:29Lawrence Lepard:Yeah, Bitcoin just looks more and more attractive. The thing that this kind of plays into, and one of the questions I had for you about the Fed meeting, I want you to try and clear this up for me, Larry, is the idea of getting rid of forward guidance, because that has been a thing for the last, I don't know how long. But when Powell was talking about hire for longer and things like that, they have given forward guidance, and Water wants to get rid of that entirely. And why do you think that is? Because is it the idea that they want to keep some optionality, keep some flexibility? They know that inflation is high.

41:02Lawrence Lepard:They know that the treasury market is not in great shape. And instead of telling the market what they're going to do, they want to kind of keep that flexibility. Or is it that they think the market is too fragile to have the forward guidance at this point? Well, that's a great question. And I, you know, I'm not quite sure. I think it, I think it just, in my mind, it just kind of falls into the let's change, let's continually change the rules of the game to keep the other side up. We're the other side, right? We're trying to figure out what the hell they're going to do. And so, you know, they'd gotten to the point where they had dot plots and projections and Nicky leaks and all kinds of stuff.

41:41and i can see where they kind of said you know what we're hamstrung by this we've got our you know got our arms tied behind our back because we're giving telling people shit we got to warn them of shit and you know all that kind of stuff and they they thought they were being responsible in doing that um and now they've they've they have decided they want to have optionality without any restraints and you know let it let it just you know let's let it rip and to me this takes us back to Greenspan. I mean, Greenspan did the same thing. I mean, he talked in total gobbledygook. I mean, he gave forward guidance, but you couldn't figure out what it was.

42:18And I mean, he even joked about it. You know, if you think you understood me, then obviously I didn't do my job very well. He said that once. And so, you know, the job, I mean, really the job is the job of a con man. I mean, they're supposed to sit there and convince us they've got inflation under control, and yet they don't, and they're doing things to inflate. That's really the whole job. I mean, in a nutshell, that describes what a Fed chairman has to do. He has to gaslight the public into thinking that the money is sound and the Fed has got 12 people. I mean, you know, I find it hysterical, Danny, that people say, well, you know, Warsh can't get the votes to cut rates.

42:58I mean, give me a break. The way this works is that the chairman bullies everybody else. I mean, And read the books about what Bernanke did to Thomas Honig or what Greenspan, I mean, or Yellen. I mean, the chairman sets the tone. And the dissents, even the dissents are somewhat planned. I mean, it's all kabuki theater to make it look like, oh, we've got these 12 wise people trying to figure out exactly what the monetary policy should be. And they're so thoughtful and deliberate. And they're going to get it absolutely right. and since 1913 they've done nothing but fuck it up i mean and it's kind of like you know jesus christ guys just stop gas i stopped with the fucking bullshit and admit that you're the department of inflation and your job is to inflate you know at a rate that we can all tolerate and you know basically keep this fucking game going in favor of the bankers and the politicians why don't you just say that i mean obviously i'm being facetious they can't say that but that To me, that's really what's going on here.

44:05They're just playing a game. And I'm just so annoyed by it and so fed up with it. And the sooner we can get rid of it and we get the entire world to realize that it's a sick joke on all of us, the better off we'll be. I mean, that was the whole Ron Paul movement. Just end the Fed. There should be no Federal Reserve. We should have a sound money unit that we all transact in. And the price of that money should be set by the free market. And that's called the interest rate, period. you nothing else there should be no bailouts if you fail you fail you know and you want to take on a bunch of leverage and swing for the moon great but if you blow it you know you lose everything and you're out of business you're not you know bailed out like lloyd blank fine was and you know when he was one on goldman sachs in 08 you know and now he you know lives in a mansion on long island and you know and holds forth on twitter about all kinds of policy issues just makes me sick it's like you know the guy shouldn't be bankrupt right a hundred percent i couldn't

44:59Lawrence Lepard:agree with that more it's um like what it says to me the lack of four guidance is they just don't know what they're going to do um like at least with paddle like he was saying higher for longer and and the market could kind of digest that and i i know it's kind of sucks that the market trades on the words of this one person but um it just screams to me that they they don't know they don't know what they're going to do they're stuck i do think like the fed looks trapped here um one of the things that i've been reading though it i like jeff ross's sub stack is brilliant i've been reading it a lot and he and he was he was um talking about like the fed don't actually set the rate the market sets the rate and it's the like the two-year bond and the overnight funding rate and i was looking at that recently and that now is signaling that rates need to go higher or will go higher do you do you think that is probably likely in the next meeting i know i know earlier you said do you think they're gonna cut at some point if gunlock thinks rates need to go higher same thing and and we've all we all know that the two-year you know really is the fed funds rate kind of in disguise.

45:59And Groman has a great chart where he just shows the two years been going higher, you know, over and above the rate by a significant amount. Yeah, I think that would be a great way to run it. But as a practical matter, I don't think that's how they are going to run it because I think they're political. And, you know, I think Vicente is in on all of this. And as much as said, I think expect to grow their way out of it. And how do you get growth? you drop interest rates so that you get more projects being taken on. I mean, you know, one of the problems right now is all these people have frozen in their houses.

46:33There are people who have 3 % mortgages that can't move because the new bigger house that they want would have a 7 % mortgage. They can't afford it. And so, you know, if they can get rates down substantially, you know, the housing market will pick up, you know, I mean, I mean, look, we, if what they're going to do, in my opinion, is this decade, and I've said this for a long time, this is going to be a decade of inflation. It started in 2020. We're six years into it. We're not anywhere close to the end of it. Before this is all over, we'll have double-digit inflation. We almost had it last time.

47:05We got to nine. We're going to get double-digit inflation. And the good news is, you know, the economy will probably be cooking and unemployment will be relatively low. Somebody's got to build those data centers. Somebody's got to do all this work. But the bad news is that, you know with with you know and somebody's got to do those housing you know all of it when we get interest rates low economic activity will pick up so we won't have an unemployment problem but what we will have is we'll have a red hot inflation problem because the money supply growth will start to pick up again i mean it's already running at four or five percent and it'll run it'll run significantly hotter and then that'll filter through to the economy and you know Heaven forbid that the stock or the bond market breaks.

47:48If either of those things break, that's what it will take to get the big print. The big print, if we just run it hot, we'll end up looking like Turkey or Argentina. We'll be kind of an emerging market economy with good nominal growth and high inflation. I can see that's actually a scenario that I think is reasonably likely that does not require a big print, but that leads to, you know,$10 ,000 gold and$400 ,000 Bitcoin. I mean, I, you know, and, and, you know,$10 gas or$15 gas and$25, you know, ground beef. I mean, I'm talking five years out or something. I mean, I, I guess one of the possible paths and, you know, I, I would guess that would kind of be more of Lynn's, you know, medium print.

48:34Um, you know, if something breaks, if, if this, if we get a leveraged unwind, you know, whether it be AI or, you know, private credit or who knows what. But if we get a leveraged unwind somewhere, the stock market breaks, the bond market breaks. Well, then then we're going to get a big print. And then then it's going to get really hairy, really fast. And, you know, 12 percent inflation is going to look like a good thing. I mean, it's going to be 20 percent. And I and I think in the next one, I mean, that that's the one that could lead to, you know, the reset, the monetary reform. I mean, if you use the fourth turning model, I'm modeling, we fix all this in the 2030 to 2033 time frame.

49:17And that's just a guess, but it's based on fourth turnings lasting a certain amount of time. And this one started in 08, right? So it lasts 20 to 30 years. I mean, let's say it lasts 30 years. That would take 2038. Maybe it will last that long. I don't know. But it appears like the pace is picking up. And certainly the size is picking up. I mean, Bernanke printed$3 trillion. It took him four years to do it. Powell printed$5 trillion in 18 months. So, you know, the next guy could print $8 or$9 trillion in six months or something. I mean, I'm just, you know, I'm spitballing here, but, you know, you never know, right?

49:53Lawrence Lepard:The scale of it's insane. I honestly, without Bitcoin, I don't know how you'd look at this with any kind of hope. Because, like, you were talking about people moving house at this point. Like, I'm looking at buying a house at some point. And, like, Bitcoin gives you that low time preference where I'm like, Bitcoin's at 60K right now. If I wait a year or two, I'll probably get a house at half price. I can wait for rates to come down. I mean, it can also put you in a kind of stasis where you don't do anything because you know you have the best performing asset. But it does give you time, which I just don't know what you'd be doing if you didn't have Bitcoin at this point.

50:22Well, that's the thing. I mean, you want to own assets where time is on your side. And, you know, impatience kills so many people. I mean, probably one of the biggest mistakes I see everybody, and particularly people in the younger categories make, and I've learned this lesson so many times the hard way, is you want to get there faster so you use leverage. Oh, boy. I mean, and that's, by the way, that's kind of what some of the treasury companies are doing. Do you know what I mean? Don't get me wrong. I'm a micro strategy holder, and I believe what Saylor's doing is fine. But I'm just, you know, leverage in an asset like Bitcoin can be a life-altering experience in a negative way.

51:04and uh you know there's enough there's enough upside here that you don't need to use leverage i mean if you want to play around with you know five or ten percent of your money in a levered way fine you know if you if you blow up you blow up but you know you don't this is this is asymmetric enough that you don't need to use leverage 100 and can we talk a little bit about microstrategy

51:23Lawrence Lepard:because they sailors been getting some heat over the last few days about stretch and i saw today the price of stretch went down to$83, which is pretty insane. It really is. I was actually buying a little this morning. I mean, it makes sense. If you think it's going back to par, this is a great time to buy it. It will go back to par. I mean, it definitely will. I mean, Jesse Mayer, you probably saw it, had a good tweet on it. It felt like a leverage cascade, you know, like somebody was getting liquidated. I mean, somebody probably borrowed cheap and gone in there to get the 11 % and levered themselves up.

51:57And, you know, guess what? They just got a gut check, a big gut check. Yeah, I think it'll come back to par over time. I think, you know, the dividend is very well covered. I think all the strategy hate, I mean, it's sad to see. I mean, there are a lot of Bitcoiners that I know, like, respect, etc., who've gone negative on Saylor. I think they're mistaken. When people call him deceptive, I just don't think that's true. um you know i think he's been aggressive um but you know he wants to win and you know i think he's evolved the strategy no pun intended but he has evolved and uh you know um that's okay in in my way of seeing it conditions change it's a war you know you change i mean he's he's fighting the fiat lords and he's he's really running a speculative attack on the dollar he won't say that but he is and so you do what you got to do.

52:50My view is it's a$1 ,000 stock in a few years. The only way it doesn't work, I mean if Bitcoin adoption stops and Bitcoin ARR stops going up at a very nice rate, well then strategies leverage Bitcoin. It's going to fail before Bitcoin fails but I don't think Bitcoin is going to fail and I strongly believe that the ARR is going to continue it to be, you know, north of 20, you know, I mean, 30 or 40, very possibly. And so to pay, you know, to pay a boomer 11 % dividends on a preferred and strip out the volatility, some of the volatility, not all of it, because you can go down 20 % if you're not patient, but strip out some of the volatility, you know, that strikes me as not unintelligent, that strikes me as intelligent.

53:40Now, he's got to be careful not to get too far out over his skis. I mean, I think, you know, how far he pushes stretch is a question mark. And, you know, because as we do know, there are these drawdowns. But, I mean, my partner and I, David Pauly, we've battle-tested this thing. We've done all kinds of scenarios. I mean, you can't break this company. I mean, he's going to be totally fine. And all this sailor hate, to me, it's just a bear market phenomenon. And if I look at what he's done for the space overall, you know, this drawdown wouldn't have been just 50%. It would have been 70 % if we hadn't had, you know, the strategy purchases that have taken place.

54:21And, you know, his activities have encouraged others. And, I mean, look, it's becoming institutionalized. And for those who say, well, I'm a purist, I mean, I think you should just hodl and encourage others to hodl. And it's money and all this other stuff is noise. That's just not realistic. I mean, the fact of the matter is we have an existing fiat financial system and we need to, you know, the transition from a fiat financial system to a purely Bitcoin system, which I believe is taking place, but will probably, you know, take more than my remaining lifetime to complete. But, you know, I think in 10, 20, 30, 40 years, it will complete.

54:57You know, it's you've got to go through there. There have to be fiat related products that are that are Bitcoin backed like strategy. And to me, that's okay. That's a positive. So I'm not in the hate sailor camp. I respect sailor, and I think what he's doing is smart and correct, and the odds of him failing at it are quite low. So I'm a big strategy shareholder and comfortable being so.

55:25Lawrence Lepard:Yeah, I mean, I agree with the vast majority of that. I do think for most people, you're better just owning the asset rather than owning, you know, expounding to the asset by something else. I don't disagree. I mean, my actual cold storage Bitcoin holdings are much, much larger than my micro strategy holdings, but my micro strategy holdings are not trivial. I mean, it's a meaningful, it's a meaningful number. And because I think it can and will outperform Bitcoin. And by the way, I may trim it at some point in time. I mean, I think in an up cycle, you know, it may go back to an MNAP premium of, you know, I don't know, one, three, one, five, one, seven, one, eight.

56:01and you know there may come a time where okay bitcoin's up you know we're at the top of the power law you know microstrategy's way up you know we're trading at a big m nap and i might sell it because you know i know how these things work i mean it is cyclical and you know i i think one of the things i think that people were afraid right now i think one of the things they should do is they should go buy fred kruger's book on bitcoin one million and read it and understand And, um, how, and, and, and, and look, get on, get on X and look at Giovanni's work on the power law and just understand how powerful this power law thing is.

56:36Um, you know, it's, it's, it's perfectly marked all these bottoms. And if we're not at one right now, we're very, very close. And I, you know, could we work down into the fifties? Maybe, you know, maybe, but we won't stay there long. and you know my sense is that you know once this bottom is in place the next leg up takes us to kind of 180 minimum and maybe up into the twos hard to say but and that's what the power law predicts so

57:03Lawrence Lepard:yeah I mean with the like how strategy you perform in the next bull market I could believe it goes to 1.5, 1.6 something around there what I don't understand is people that think it's going to go back to like a 3xm nav Like there's no way that those shares don't get by Lucy before it gets there. Like that, I don't see that ever happening. Totally agree. Totally agree. I mean, those early days were kind of unique and we won't ever see that again, but, but you know, it, it should trade at an MNAP premium to the degree that he can access credit markets and, and, and source capital, you know, at well below the Bitcoin ARR.

57:38I mean, you know, I mean, I mean, Hugo Stennis did this in Weimar, Germany, right? I mean, he borrowed money cheap and he used it to buy real stuff. And then when the currency hyperinflated, he paid back the debt with, you know, with paper, with hyperinflated currency. And that's all Saylor's doing. He's just he's just doing a financial arbitrage where he can borrow money at, you know, in the stretch case, you know, 11, 11 and a half. I mean, probably 12 soon. But he borrowed money, you know, relatively cheap, put it in an asset that's growing at 30. You know, it was at 40 now, probably trending towards 30.

58:10And the shareholders capture the difference. And so, you know, to me that works. So it's not, there's nothing more complicated about it than that. And, um, you know, look, if Bitcoin fails, he's screwed. You know, if Bitcoin ARR goes down, he's screwed. I mean, how does that happen? I was on another pod this morning. I said, there are only two ways that happens. One, if something technically occurs that just proves that, you know, 16 years and 900 and some odd thousand blocks, you know, it's not going to work or adoption really slows and people stop buying it. And there's just no no growth in the underlying adoption of the asset.

58:44And I just don't see that. I see more and more groups, entities, ETFs, et cetera. I mean, it's getting more and more broadly distributed and it'll continue to do so.

58:57Lawrence Lepard:Yeah, I don't see that happening either. I do wonder whether this sort of 20 % drawdown, I know he's had drawdowns from the$100 sort of path. Yeah, there were a couple of others. If I look back, let me just look at my screen here, I'll tell you. this is definitely the deepest one back in november it got down to like 90 yeah november got to 90 yep and then he had another one in uh february it got to 93 yeah no this is the worst one this is the worst one by far so you you know like the the real institutional investors far better than i i probably ever will do you think this will put people off like the big money looking at this off oh yeah oh yeah some of it'll put some of them off for sure i mean it uh you know it yeah i mean it's uh i mean heck it it you know it it put it put me off to an extent i mean i you know i own some um you know and i i i didn't sell it but then you know it went down to this i was like no this is ridiculous i mean this is you know he's got this covered and and i mean you mean to tell me you're going to pay me 11 % plus I get to buy this in the 80s, you know, and it could return to par so I could pick up another 15 % there.

1:00:09That's just too good a deal. So, um, but I, you know, I, I kind of, when I bought it originally, I always kind of knew that it was the sort of thing that if, if people got freaked out about Bitcoin, it could do this. I mean, this is a, you know, it was kind of a correlation to one event with Bitcoin and, and it's, it's a little bit of a sentiment indicator on Bitcoin. I don't think people fully understand it. And, you know, let's face it, Danny, I mean, the sentiment right now in our space, it's really bleak. I mean, it's really, really bleak, which historically, as a professional investor, having been doing this for 40 years, that's a very, very good time to be buying.

1:00:50But it also doesn't feel comfortable. You know, I mean, I know that, you know, buying this morning, I was kind of like, you know, shit, maybe it goes to 70, right? I don't know. but no, I got to nibble at this, right?

1:01:04Lawrence Lepard:I mean, in the 10 years I've been in Bitcoin, I think the sentiment is the worst it's ever been. And I've said this before on the podcast, but I think it's because there's nothing to point at. Not necessarily as tangible, at least. Like when they crashed in 2024 or whenever it was, 23 with FTX, like there was huge fraud in that space and you could point at why it was crashing and be like, it's Sam Bachman-Fried's fault, it's 3-Eros Capital, it's Luna. and it's not that anything's wrong with Bitcoin. I think now people are questioning whether like Bitcoin is going to do what we think it's going to do.

1:01:34Lawrence Lepard:Like I'm not questioning that, but I think maybe the broader market is. And I think that's one of the reasons why sentiment's so bad. But on the stretch thing, I've got one more question on this. I assume you can short stretch, right? I don't know. Yeah, I would imagine you could. Yeah, I mean, you've got to pay the dip band, right? Yeah, so like if you, obviously like funding rates might be high, it might not make a lot of sense to short it all the time at 100. But are these drawbacks always going to happen because people can short at 100? They know it's not going to go above that. All they have to do is pay the funding on the contract.

1:02:07Maybe. Maybe. I mean, yeah, you've got to pay the dividend, though, if you're short the stock. So you've got a negative 11%.

1:02:18Lawrence Lepard:It's very risky. Yeah, it's risky. But obviously, if you felt like you knew when we were going to have one of these cascading events where everyone kind of freaked out on Bitcoin, you know, or on strategy. Well, fine. I mean, it's, you know, it's interesting. I mean, the big money has gotten into this space. And, you know, my sense is that they're testing Sailor, you know, at a lot of different levels. They're testing him on Stretch. They're testing him on MSTR. You know, I think he's going to pass the test with flying colors. And I think there are going to be some people who are going to be on the wrong side of these trades.

1:02:56so you can get their faces ripped off. But, you know, there's a lot of capital out there that can, you know, play this game. And, you know, it's, you know, it is what it is. I mean, it's a very volatile asset. I mean, the way I look at it, we math it out. I mean,$120 ,000 Bitcoin, you know,$200 ,000 Bitcoin is an$800 stock. I mean, it's, you know, you can buy it right now for$116, $112 today. spend another four bucks. So, you know, to me, it's a very, very leveraged play. And, you know, do I think Bitcoin's going to go up 8x in this next run? No, I think it'll probably go up 4x. But, you know, you take Bitcoin from 60 or 3x.

1:03:42Take Bitcoin from 60 to 180 and you've got a three-bagger. You know, you take Bitcoin from 60 to 180 and I think MicroStrategy is a five to eight-bagger, depending upon what happens to MNAP. So, you know, that's what you're playing for. But in turn, you know, you've got the outside. Yeah.

1:04:01Lawrence Lepard:You could say Bitcoin's going to go up 2x or Bitcoin's going to go up 100x. And I'll agree with you. I just, the timeframe changes. Like at some point. Right. Look, I think the cycles will continue. This will be, you know, I mean, look, I'd like to have it go up 8x on the next uprun. But if you kind of look historically at the upruns, the multiple cuts has gotten progressively smaller. as it gets more widely distributed. And that makes sense, just like the drawdowns have gotten smaller. So it's totally logical, right? I do think, though, if this is a stress test for a sailor, that's got to be a good thing.

1:04:33Lawrence Lepard:Whether you love sailor, whether you hate sailor, someone holding that much Bitcoin, they need to be stress tested to the highest degree. And assuming he comes out of this well, which I think he probably will, that's good. That's a good thing. Absolutely. Absolutely. I mean, that's... Look, it's... it's amazing to me that more people don't see it and it's amazing to me how much hate there is out there and i just i don't get it uh you know i just don't get it um so i do think some of the hate comes from the position where maybe they don't necessarily hate say they don't necessarily hate what he's doing but i i think a lot of people don't like that retail is being dragged into buying micro strategy or or stretch over just buying the underlying asset and i think maybe some of the haters to try and address that i'm i'm sympathetic to that i'm sympathetic that i mean i think retail retail you know look if you really want to protect yourself financially your absolute first move has got to be to buy the native bitcoin and cold store it full stop because you know they could 6102 you with an etf and you know all the other stuff i mean you know you got it as a bitcoiner you got to start off owning native bitcoin in your own self custody that's that's I always believe and preach that.

1:05:46Now, if you then decide you want to do some other stuff, you know, for the obvious reasons that I've just talked about, you know, with a smaller percentage and okay, fine. I mean, I, you know, earlier I said, don't use leverage. And of course I'm here. I am advocating use a leverage. But, but I want to point out that, you know, my micro strategy position is probably less than 10 % of my Bitcoin position. So, you know, I'm, I'm playing around at the margin, not, not betting the farm on micro strategy.

1:06:13Lawrence Lepard:yeah exactly it's all about how you position but i mean and who who am i to tell anyone what they should do with their money i just think there's nothing more powerful than owning self-custody bitcoin that's what people should be striving for absolutely i mean it's it's it's it's what you know and we need to do it um and more people need to do it and yeah you know the etfs are good but they're not great and you know i mean i get a little worried and we haven't talked about this at all but i get a little worried about what happens if and when you know we get a blue team instead of a red team. And, you know, they start to, you know, tax the hell out of, I mean, just say Illinois put a tax, they're to tax it.

1:06:48They want to grab it. They want to, you know, outlaw. I mean, you know, they're not particularly, um, you know, friendly to this stuff. And, uh, and so, you know, I mean, they could grab the ETFs like they did with gold, et cetera, et cetera. So, you know, I like knowing that, you know, 12 words, I can go to any country in the world and live and tell the U.S. government to pound sand if they want all my money. So that's still the original and best use case for Bitcoin.

1:07:18Lawrence Lepard:I mean, 100 % agree. Why do you think SATA has done reasonably well while Stretch has been struggling? That's a great question. James Lavish, my partner at BOF, is on the board there, and I haven't talked to him about it. I think it might be they're not as big a target as a strategy. I think it also might be they're not as leveraged. I don't know. I haven't even looked at that. I could be wrong. Maybe they're more leveraged. But I think strategy, one of the things that I think this might be informing Michael about, too, is he might be looking at this and saying, okay, we probably push this just about as far as we can go for now.

1:07:54In other words, one, he doesn't want to sell it down this cheap. But the balance he's always trying to figure out is how leverage does he want to get right i mean he can always add leverage but in a very volatile asset there's a certain amount of danger to that and you know based on how stretches is performing right now market might be saying hey dude you kind of gotten to the point where you got enough leverage and we don't want you to get any more you know what i mean um and i think hey i think um uh strive you know their product you know they might not be quite as leveraged and that might be why it's holding out a little better i don't know it's just a that's a hypothesis i haven't checked that i don't for all i know they're more leverage i don't even know and i think they do have very

1:08:37Lawrence Lepard:low leverage but i i could be wrong on that as well to be honest um larry i always love talking to you man um what's the what's the key takeaway from this is it the the feds tracked they're going to print buy self-dust in bitcoin as easy as that i think i think the key takeaway is is you know let's go back to you know first principles 101 you know what safe adim taught us with a Bitcoin standard. You're in this shit. You got to have long time preference, full stop. Anybody who's complaining. And look, I mean, I know the feeling of wanting more money faster. We all, that's human nature. I mean, I manage a gold and silver fund.

1:09:14I mean, the fund was up 175 % last year, right? And this year we're kind of flat. And I'm like, geez, I want that to happen again. And it probably will, but not instantly. Do you know what I mean? And so, I mean, this is a decade-long trade, this monetary debasement trade. We will be proven wrong if the government becomes responsible. So that's what I'm watching for. I mean, you know, entitlement reform, cutting back on stuff, balancing the budget, all that kind of stuff. Hang on a second. We got to slow down here, but I don't see any of that. And so, you know, my view is just take a multi-year view of this thing, you know, we're in the right place.

1:09:58And, and, you know, I know there are a lot of people and I've got investors in my fund that I put into Bitcoin. They're like, God damn, man, it's at 60. I can't even bear it. And I know, you know, that two years from now, it'll be 180. And they'll be like, Oh God, it's 180. I should buy more. And I'm like, well, you could, but, you know, you really should have been buying it back at 60. You know what I mean? And so it's just, it's, it's, it's very hard. I mean, so, you know, dollar cost averaging, you know, Now, understanding the power law, I mean, compared in the power law model and compared to its 200 day moving average, Bitcoin has only been this cheap about 10 % of the time.

1:10:34So with that, if somebody came to me, when somebody comes to me and says, should I buy some Bitcoin? I generally say yes, but you can only buy what you're willing to have a 50 % drawdown on and DCA the rest. But actually, if somebody came to me and said, how much should I buy today? I'd say, you know, shoot your wad, shoot a big piece of your wad today because we're in that band where it's cheap. and that's what's hard for people to see i think 60 000 that's not cheap you bought it at 10 000 that would be cheap well it's never going there again okay so um so see you know and i i'll wait till it gets to 40 well you then you won't buy it because it's not going to 40 you know 60 000 using the models the sophisticated model that's got a 95 r-squared that giobani built and that fred krueger has elaborated on you know it tells you that it's cheap right now so buy it so you know, and then, I mean, the rest of it is just like, like go live your life.

1:11:23I mean, I'm, I've dialed back a little bit on these shows. I've dialed back on, you know, making appearances and stuff. I mean, I'm, I do the pods with people I really like like yourself and, you know, I mean, I'm focusing on, you know, my family and fitness, you know, cause I just want to make sure I want to be around to see the failure of the central bankers. Like I live for that. Okay. I mean, you follow my ex feed you know i hate central bankers absolutely hate it and and i want to i want to i want to be around to see them with egg on their face and yeah we need you around for that

1:11:58Lawrence Lepard:larry you gotta keep up the crossfit keep it going i'm telling you man i'm i'm aiming for my mom's in her mid 90s um i'm i'm turning 69 next week um you know god damn it i i you know i'm aiming for 100 and i think by then we'll see it so um you know let's hope let's hope i don't you know nothing happens and I can get there. But the point is that, you know, you got to dial out here, guys. I mean, it's going to be fine. This is all going to be fine. I mean, as early as December, we could be, you know, high-fiving each other. I mean, you know, six weeks from now, the Fed's going to meet again. You know, his task force is going to have some great report and he's going to blame it.

1:12:38He's going to follow it, maybe, and say, you know, we actually need to reduce or be thinking about reducing rates. They'll probably have a couple of good prints between now and then because housing is soft, particularly in Florida and Texas, and energy will be soft. And right now, the FedWatch site is saying there's like an 80 % chance of a hike this year. Well, when the market wakes up and realizes they're not going to hike, that in fact, they're going to cut, what do you think is going to happen to this ship? It's going to explode. you know we're gonna i mean you're gonna see bitcoin at 120 before you can blink your eye you're gonna see gold at 7 000 before you can blink your eyes so so you know am i willing to wait till december for that to happen sure yeah that's not you know i don't care what have i what have i got i got nothing but time i mean am i am i impatient and frustrated sure i am you know i i and i blew the call i really wish i thought he was going to be dollars and and i was wrong but but they're pretty smart and they decided to change the game.

1:13:41Oh, let's go to this no guidance and let's reiterate how serious we are about tackling inflation. And, oh, and we're going to, we're going to, and a new strategy. We've got a committee. We have a task force that's going to figure out how to solve this problem. And we're going to rely on them and you're going to believe in me. Good God. What a bunch of crap. You know what I'm saying? Can't people see through this shit? it's just it's just total horseshit danny you know it i know it so you know like let's let's all just chill and stop attacking each other because it's all going to work out great we're you know we're all going to be rich and and eventually we'll have a sound money system and we won't have to deal with these jokers anymore so so that's let's go i look forward to that future that's where i am

1:14:30Lawrence Lepard:you know what i mean they're hawkish now dovish later it's always the same and tell everyone where they can go and buy your oh yeah thanks for putting the book up yeah so um the book is available on amazon hardcover paperback uh audio um kindle all that stuff and you know i wrote it to try to help the average person understand how and why they're being screwed and how to solve it and i've gotten feedback that it's work it works not for everybody but for a lot of people it works and so if you like it, please pass it on to your friends. I mean, we got to develop, we need a sound money army in the world so that, you know, we, we vote for, push for, advocate for, make noise about, and eventually return to sound money.

1:15:15Because when we do, things will be so much better. I mean, so many of our problems will go away. That's, that's my strongly held belief. So hopefully

1:15:25Lawrence Lepard:we'll do it. That's some first turning shit right there. And I can't wait for the first turning. Let's go. You'll be married. You'll have kids. It's just going to be great, Danny. It's all going to be great. I'm still married and more kids, hopefully. Oh, I'm sorry. I didn't realize you were married. Do you have a child? Yeah, I've got a daughter. Oh, I didn't realize that. Oh, I'm out of date. I'm sorry. I didn't realize. That's all good. So more children. That's what I'm going for. Yeah, exactly. There you go. All right, Larry. I appreciate the time, man. You're one of my favorite people to speak to, and we'll do it again soon.

1:16:01Lawrence Lepard:Anytime. I love it, Danny. Thank you. Thank you.