The US Is Long-Term Insolvent | Lyn Alden

23:19Peter McCormack:Yeah, that's the issue. So I'll answer that question by starting with why that's the case, which is when people think of inflation, they immediately think of, if you raise rates, you can fix it. Because they think of Paul Vorker, he, you know, it's like, okay, we'd have to take the bitter medicine and we can do this. The problem is that the causes of inflation in the 70s and early 80s are different than the causes of inflation now. So in the 70s and 80s, you had actually low government debt to GDP because they already went through, you know, kind of the debasement cycle from the 40s into the 70s.

23:55Peter McCormack:Your bonds already got inflated away. So debt to GDP is pretty low. I mean, it bottomed at something like 35 % in the US. And inflation instead was coming from a couple major factors. One was that baby boomer generation, the biggest generation was entering their home buying gears, which means peak credit formation, so peak fractional reserve bank lending rates. And two, you had an energy shortage. So you have a tangible resource, geopolitical constraint, and then you have faster than average money supply growth. Then you add on guns and butter, and you have a problem. But the core of it was the energy and then the bank lending.

24:35Peter McCormack:And so when he raised rates super high, it did a couple simultaneous things. One is by raising rates super high, it strengthened the dollar, which killed emerging markets that were dollar indebted, which at the time is primarily Latin America. So it kind of put them into depressions and they reduced their oil consumption. So that was kind of the brutal, like we take demand out of the market by killing the economies that they got over indebted. in our currency so it keeps more for us that's kind of the the strongest wins uh so that's the brutal one but then domestically it so it slows down borrowing and lending because people can't can't afford uh as much borrowing as they could with lower rates so you slow it out in the money supply growth and then the other factor is that it does increase the deficit because you do blow out interest expense but it's less of a factor when you have 35 percent debt to gdp so you slow down bank lending, that's a bigger effect than blowing out the interest expense.

25:37Peter McCormack:Now, if you fast forward to today, bank lending rates are pretty normal, meaning that the growth of the money supply from bank lending is kind of standard at the current time. And instead, we have larger than average structural deficits that are going to Social Security, Medicare, defense. And then from there, trickles into the economy because the medicare worker like the you know the workers in the in the health care system the workers in the defense system the soldiers that that paycheck i mean that eventually kind of floods into the rest of the economy as well circulates around uh interest expense is very high that again also partially that circulates back in i mean some of that's expendable and the problem is when you say okay okay we have high inflation we got increased interest rates well when you have over 100 that did you pay uh you know we we do put some downward pressure on borrowing so for example because mortgage rates are so high it's it's it's pretty hard to afford a home there's there's not a lot of home turnover at the current time you do put some downward pressure which in a vacuum can be deflationary but you blow out the deficit interest expense by an even bigger absolute number uh so every time they increase interest rates people that are cash rich in their money market accounts get a raise and then go out and spend more which actually defeats your purpose of trying to quell inflation so when you when you go above a certain point it's like alice going through the looking glass everything all the rules just flip uh and it's not necessarily one-time thing but it's kind of there's like a transition phase where they start first they first they just kind of nullify so it's kind of like you know you go from industry rates being disinflationary to higher interest rates being kind of neutral and if you get far enough further enough in they actually can potentially get inflationary and so I don't think we're there yet but we're more in that neutral zone where you're not actually tacking the core issue which is the 7 % of GDP deficits, the$2 trillion deficits and interest rates only increases that they already have restrictive housing because interest rates are so high so that's the first issue and then the second issue is so if you're worse there, like when people say what do they do that's where I'm sympathetic because I wouldn't know what to do where the part that I'm unsympathetic is then why did you take that job?

27:54Peter McCormack:Because at least I wouldn't take the job if I didn't know what I could do. Now, so you have to either think you know what you're going to do or pretend that you know what you're going to do. So he has to, of course, as the Fed chair, he has to, part of it is perception management. You say, our target's 2%. We're going to get there. We have the tools to get there. But partially the market's losing confidence in him because, you know, his initial speech was fine. But then in subsequent, every time he talks again, he kind of doesn't say a lot because there's not a lot to say. And, you know, he can't come out and say, hey, actually, we don't really have the tools to deal with fiscal-driven inflation.

28:33Peter McCormack:Most of our tools are literally inherently designed around lending-driven inflation. It's just not the core of what's happening right now. You know, we don't have tools to deal with an energy crisis. We don't have tools to deal with 7 % of GDP deficits. But they can't really say that. uh and so he comes out says a lot and then doesn't raise rates the market circle why is not raising rates when we have above target inflation and then the deeper question is even if he did would that actually solve it and i would say probably probably not yeah it seems really hard because

29:00Lyn Alden:it's like there's sort of the question what should he do what can he actually do and then what will he do under pressure and and it sounds like you know what can he do there might not really be an

29:13Peter McCormack:answer pretty much yeah i mean so he can like i i've been on the record thinking that he'll probably raise zero to one times this year um uh it's still not clear i you know uh if he does one is probably symbolic um you know if he does two i wouldn't be utterly shocked if he does zero i'd be like yeah i mean that's this you know and the the bigger issue is that you know there's a lot of attention paid on how many 25 basis point changes if any he'll do whereas i i think that the band that matters is like anywhere, like 50 basis points is higher, 50 basis points lower, barely matters when you're running 7 % of GDP deficits and you have crack spreads at$100 a barrel.

29:54Peter McCormack:So, you know, the energy crisis, you know, when you have refineries taken off the market, you know, we have high diesel prices, not necessarily because oil itself is super expensive. I mean, that's being intervened in various ways, but you do have really big spreads between oil and refined products. And so that fiscal deficits and a handful of other matters are, I think, much bigger macro variables than what the Fed does 25 basis points at a time when they're in that neutral zone where rate hikes, they do slow down some things, but then they actually run it. They accelerate other things that are roughly of magnitude or bigger than the things they slow down.

30:34Lyn Alden:Yeah, and when you say, like just earlier, you said they're not really tackling the core issue, which is the deficit. I mean, they know that that's the issue, I'm sure. Like, is it just that they can't tackle that? There's nothing to be done there?

30:46Peter McCormack:Well, pretty much. I mean, that's more Congress than the president. So, you know, you'd have to have Democrats and Republicans agree on some combination of tax increases or spending cuts, sign it, get through, you know, the House representatives and the Senate, and then have the president sign that. I mean, that's a huge thing. And then, because the US is so financialized, so many economies if they somehow got through that part they could actually potentially reduce their deficit the problem is that the u.s even if we somehow do that miracle you know they come out and say we have this big package uh we're actually it's a grand bargain like like obama was trying to get with his speaker at the time and they never you know they couldn't agree anything to make happen let's say there's a grand bargain today and they say okay we've agreed you know put aside our difference is we're going to reduce the deficit.

31:36Peter McCormack:The problem is that because, you know, stock market is something like 200 % of U.S. GDP, and we have such significant wealth concentration that a very significant percentage of tax receipts come from executives making a lot of money, executives getting a lot of stock compensation, and things like that. And then they, you know, they pay into the treasury um if you slow down the deficits uh you likely see negatively impact financial markets which on a lag starts to impact capital gains taxes executive compensation taxes and then therefore about a year later negatively affects your tax receipts uh so it actually it's like a gordian knot to try to untangle this in a way that that actually does it uh which is why i think that the chance of that happening is virtually zero.

32:27Peter McCormack:And why, out of all the things I say or do, the most confident one is nothing stops his train. They basically, in any sort of investable time horizon, meaning like from here well into the 2030s as a starter, they're just not really going to stop the deficit.

32:42Lyn Alden:And so when you say nothing stops his train, with the Treasury buybacks increasing and Scott Percent coming out and announcing that a couple of weeks ago, is that him essentially taking the wheel

32:54Peter McCormack:to some degree around the margins uh basically it's that the treasury does you know they can shorten the average duration of debt and for example if they find okay there's maybe not not a lot of demand for the longer end of our treasury market but if he has a view that hey stable coins are growing and they they like to hold t-bills and we can even mandate that they have to hold t-bills that's a source of demand uh and in general i mean you know there is demand for money markets there is demand by by banks for treasuries um and so they can you know there's just more demand for that you know we can issue more of that without getting punished severely than they will so yeah it's basically monetary policy is always a combination of of what the fed's doing what the treasury's doing and then more broadly what congress is doing uh so you have kind of these these three keys together that controls what does money supply look like what does the debt market look like and what are financial conditions like uh and yeah you have a somewhat interventionalist uh treasury at the moment for a layman like me what does all this

33:59Lyn Alden:mean does this mean things just continue to get harder throughout the next 10 years

34:05Peter McCormack:well harder i mean there's a lot of people a lot of different situations so harder harder can depend in general um if if things stay roughly as they are in the u.s we have like a k-shaped economy And that's certainly the case in many other countries as well, not all of them. Japan's kind of avoiding that problem. They have their own problems. But in the U.S., in some parts of Europe, we have a K-shaped economy, meaning that the deficits are primarily going, ironically, to wealthier people. So older people, on average, are wealthier than younger people. They're receiving the deficits. People in the defense industry, people in the healthcare industry, that's where the deficits are going.

34:43Peter McCormack:People that have money are earning interest, which gives them more money. And so it generally creates a top-heavy environment. And then when the Fed says, oh, because of all those deficits that's causing inflation, we have to raise rates. Well, that doesn't impact me who locked in a 30-year mortgage and has plenty of cash that actually goes up. I get more money when they raise interest rates. Like, I'm in that bucket. My liabilities don't go up. My assets actually pay me more. It impacts the new family looking to buy a starter home. Uh, and you know, it impacts, you know, when they also then have a hundred dollar diesel crack spreads, uh, which, which then translates to higher prices on store shelves because shipping is more expensive.

35:30Peter McCormack:They're sitting there saying, why is beef so expensive? Why, why can't I buy a house? Why is insurance so expensive? Um, you know, it's like, why do I feel like I run in place? Like my raise, I got a raise this year, but the house I want to buy went up even more, uh, in proportion. and then so you get very disillusioned voters uh that that then usually veer to the sides of the horseshoe but you know the horseshoe theory you'll get more socialist or communist uh interests and you'll get more kind of fascist like kind of the the more dangerous end of extreme nationalism um and that's kind of that's kind of and it just keeps fueling that until it's until it's fixed and until it's kind of debased away enough and we get past this demographics bump.

36:16Peter McCormack:And I think it's unfortunate very, very long time away.

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38:31Lyn Alden:if you're a bitcoiner in america i honestly don't know why you'd use any other network you can head over to cape.co forward slash wbd and use the code wbd for 33 off your first six months that's c-a-p-e.co forward slash wbd by the way my daughter's just got home so if you hear a toddler singing a frozen song that's why um like obviously in the k-shaped economy you'd rather be in the top end of it but it still affects you in the sense that the societal decay is going to be real like it they can't you can't have just the rich getting richer and the poor getting poorer and expect to live in the same world that you grew up in like that's that's over um and it's just like it's not a world i want to live in but it's like it's just the reality of the situation it seems right now the thing that i find really hard lynn is like when you talk about all this stuff that's happening with the fiscal dominance there's war over oil in iran there's the AI play, which has become a national security issue.

39:31Lyn Alden:And who knows how that's going to play out, especially with, because that's both a national security issue and like an economic issue with the open weight models coming out of China. You have sort of the fracturing of the globalist world. Like compared to pre-2020, this is so complex. And this might be some recency bias, because I've only started paying attention to this stuff in the last, you know, six, seven, what people are meant to do to prepare themselves for that?

40:00Peter McCormack:Well, I mean, it's a really good question. I think certainly in a macro sense, I've described this as a macro-heavy decade and longer. So, I mean, back in the 2010s, you know, my first website was running like a dividend investing blog, right? I mean, my initial interest in investing was equities. And I grew up, you know, reading about value investing and Warren Buffett saying like, you know, if you spend two minutes on macro, you spend two minutes too much, right? because just buy good companies and you ignore what's happening around you. And that was really good advice when you had 40 years of declining interest rates, 40 years of rising valuations, occasional recession, but if you just, you know, the point was just hold through it and in the US markets, you did fine.

40:45Peter McCormack:Now, when you kind of get to the end of that 40-year period of declining interest rates and you get to the next kind of sovereign debt bubble, then we're back in a macro-heavy decade. And it feeds on itself. So when you have a sovereign debt crisis, even a slow motion one, you get more interventions by the sovereign. That's when you're more likely to get trade wars. You're more likely to get capital controls. You're more likely to get interventions in markets. You know, company owning pieces of companies. State capitalism, things like that. Industrial policy. That term sounds okay. Industrial is good and policy is okay, but it basically means more intervention by the government.

41:26the direction of industry uh especially physical industry um and so it you have it is a very kind

41:32Peter McCormack:of macro heavy period um uh and you know it's it's i mean the last period the last long-term death cycle the world was in was like the 1940s uh and so we're we're back macro speaking in that kind of environment uh hopefully nothing as extreme as that uh but yeah we have we have you You know, we have multiple wars that are active. We've got very eccentric decisions, you know, among leadership. You know, we're not in a world of Kennedys and Eisenhowers at the moment. You know, we're in the world of, yeah, we're in the world of presidents that can't kind of get either get out a full sentence properly or that are just grifting in public and or both.

42:14Peter McCormack:You know, it's just like, that's the, you know, that's the oscillation we're between, you know the the biden trump versus the you know the eisenhower kennedy's different world uh and so people i think rightly have lost trust in institutions whether it's government institutions whether it's media whether it's big corporations um uh you know and so it is i i you know i think it's people of course have recency bias is the joke of like you know you can go back in history uh in like old news articles and writings and like every generation you have the the the older generation complaining about the younger generation like the younger generation is not okay right so of course it always seems like that's the case but if you go back in history it's funny how reoccurring that is so some things are forever um and everything seems like an emergency and yet it that's that's just how things go uh but from macro perspective this decade is just quantifiably very different than anything we've seen uh in in any adult investing time horizon so we have to go back to basically what your great your great-grandparents were investing through to find anything that kind of remotely resembles this with the exception that if you look at emerging markets um you can find more situations so at least the developed world is going through a situation we haven't seen in call it 80 years uh whereas they're actually taking on some emerging market characteristics i mean i you know where i'm doing this interview from we our official inflation rate is 15 and it's just it's a normal thursday it's that's it's 15 what was it last year something like 15%.

43:45Peter McCormack:What was it, you know, a few years ago? Something like 15%. I mean, it peaked at 38 % officially, I think it was. And, you know, we were at dinner last night, and people are taking their kids to childcare and going to work, and it's a mess, but... The world chokes along. That's the world, that's where this place has adjusted to, unfortunately. And it's just, it's a different world. Is that coming to a place near us, do you think, then? I don't think 15 % inflation anytime soon, but I still hold that we're going to have above-target inflation for any sort of investable time horizon, and that holding kind of paper assets that don't pay you a yield that's above that are going to get debased.

44:33Peter McCormack:And so you want to own scarcer things that are not in the bubble.

44:37Lyn Alden:Bitcoin. Bitcoin obviously rallied after the Treasury announcement. Do you think bear market's done? We're back in a bull market. What's your sort of big picture take on Bitcoin right now?

44:49Peter McCormack:Yeah, good question. So before then I was thinking, okay, I think that the bottom is looking closer. I don't try to time exact bottoms. I mean, I think it's like you can ask, is it euphoric or is it cheap? Is most fast money elsewhere or is fast money here? Those are the big questions I ask. and so for multiple metrics it was like no fast money's elsewhere sentiments in the gutter various on-chain indicators are kind of you know in their in their bottom you know 10-15 percent of what they typically get to in a bear market and so I was kind of looking for a bottoming formation and I mean this has kind of showed like this was like one of the biggest liquidations of shorts and in bitcoin terms it wasn't that big of a move um and it wasn't that big of a reason uh and it's just how bearishly things were positioned um and you know i i don't think we just go straight up from here or anything like that um but i i think there's a good case to make that the bottom's in uh if it's not and we retest a little bit lower i mean i think it's i i think my kind of framing here is that you know three years from now this will look like a great time to have bought, regardless of whether the 58K gang really has the bottom here, or if you managed to go a little lower.

46:09Peter McCormack:But I think Bitcoin's in a good position for the years ahead.

46:13Lyn Alden:Yeah. The interesting thing is the fast money being elsewhere, because it has been in the AI trade for the last couple of years. We really didn't see a euphoria last bull market in Bitcoin like we have done previously. And one of the narratives that's going around Bitcoin circles at the moment is when this say I trade eventually slows or rolls over or whatever happens there, that money has to look for a new home and Bitcoin is maybe one of those potential places. Do you think that's right? Do you think that's where money will flow?

46:41Peter McCormack:Well, I think it's partially right. You know, I would caution against narratives in general. But, you know, I do think that right now, so for a long time, Bitcoin was the fastest horse. And then with AI, that became the fastest horse. So any money that just says, I just want to own the fastest horse in nominal terms, goes there. Bitcoin is obviously still unique in the sense that you can self-custody it. It's an asset that you can actually own. You can pay with it permissionally. It's not a stock. And so it's got that gold-like aspect to it and obviously differences than gold, you know, several pros and some cons compared to gold.

47:21Peter McCormack:And I do think that, you know, once the AI trade gets exhausted, meaning that it's, you know, It's not to say that it's a bubble per se or that it's just going to roll over and get cut by two thirds or something. But if it stops going up at the rate that it does because it's already kind of priced in the next several years, it's already a big percentage of global GDP, then there will be money saying, OK, what's the next trade? um and you know one way of looking at things is like so i i keep using this example like during 2025 one of the best performing things out there was like latin american bank stocks like brazilia's brazil's biggest bank columbia's biggest bank and like the u.s was like putting like 50 percent tariffs on brazil like who would have added on their bingo card the year of the trade war that like latin american bank stocks are where you want to be uh and and yet that they did in general they did great and and the reason largely was just things stopped going badly for them that basically they were already like the money was already gone that any money that was already going to leave was already gone um uh you know brazil let's say brazil for example they had really high real rates meaning that their their their industry that they set was much higher than their inflation uh which eventually attracted capital and then all it takes is certain market participants to say hey there's like banks trading for like six times earnings over there that just they're just not going down anymore.

48:44Peter McCormack:It's like, I don't have a good reason why they should go up, but they're not going down and they're cheap. And why shouldn't I put 2 % of my portfolio in it? And then when that happens, then you have someone that looks at charts and they say, hey, that chart has like a technical, like a bottom looking, you know, squiggly on it. So then they hop in and then you're up, you know, 50%. And then you have momentum traders and their algorithms come in and say, hey, that thing is going up and our strategy is to buy things that are going up. so then that money goes in and i think that's that's essentially what you get bitcoin and it can be any number of reasons it could be that the ai trade gets exhausted it could be because you know that the market's sudden surprised by a dovish treasury pivot in the case it happened here uh that just money's washed out you know it's only held by by diamond hands um and just the first thing it just is not going down anymore uh and people say hey here's this like on-chain chart and every time it gets to this thing it ends up being a good buy so maybe i'll just i had zero percent i'll put two percent into it then the charges come in and say hey it looks that that chart doesn't look awful anymore so then they come in and if you get you know if you break 100k and start going up from there then you have momentum traders coming in so it just it just kind of it becomes self-feeding in a while and the biggest north star i have is just is the is bitcoin still the best in class at what it does uh and is what it does uh have a big enough total adjustable market compared to its current market cap and usage.

50:10Peter McCormack:And if those two things, they still have yeses, then it's an asset that I want to own when it's showing signs of being, you know, underappreciated. And I would say that all that is currently the case with, you know, there's always caveats for risk, but that's how I view things.

50:25Lyn Alden:So it doesn't sound like you're bearish at all, but maybe not incredibly bullish expecting a bull market right away. Is there something you'd have to see for you to sort of flip very bullish on Bitcoin for the shorter term? Is it like, is it breaking that 100k level again? What is it that you're looking for?

50:40Peter McCormack:So part of it is this, I just don't do a lot of short-term trading, unless I get a really, really high signal. It's pretty rare that I'll have a pretty high conviction short-term call. I mean, breaking well over 80 and staying there would be nice. I mean, right now, 80 is kind of serving as resistance. The chartists can point out kind of why. It's kind of visible in a chart why that's the case. So, you know, if you break over 80, you get somewhat of a higher high from kind of this bear market period that it's in. So that would look good. But other than that, I mean, it's just in general, I just don't really want to try to make six-month or three-month views.

51:19Peter McCormack:And instead, I want to constantly ask the question, does this look good on a multi-term basis? Which currently my answer is yes. And so that's kind of how I view things.

51:32Lyn Alden:Is there anything that could ever change that answer for you from being yes?

51:37Peter McCormack:Yeah, I mean, so I, you know, when I saw treasury markets, I mean, treasury companies trading it, you know, three times MNAP for the big ones or almost infinity for the small ones, that was concerning. When I saw altcoin treasury companies coming to market, it was concerning. So at least in the intermediate term, it's like, okay, this is, you know, fast monies here. longer term again it goes back to the two questions is bitcoin the best at what it does meaning that uh as far as you know cryptocurrency or as far as decentralized open source money is it the best one and because of network effects and because of decentralization and security and intentional simplicity and all that uh my answer continues to be that it is and that it has a very very high probability of continuing to be uh because those network effects and things like that feed on each other.

52:30Peter McCormack:So as long as that continues to be the case, as long as there's not some crazy security issue or other, you know, just major, just kill shot on the network. So as long as that continues to be the case. And then two, what do I think the total adjustment market is of decentralized portable money and capital? You know, money that you can bring around the world with you. I mean, we just talked, we had a whole almost hour long discussion of how kind of crazy the world is. And it's like, you know, in a world of capital controls and fiscal dominance and financial repression, there's a handful of tools that people have where they can actually self-custody their own money and be able to hand that money to another person without centralized intermediaries, like stocks or other things like that.

53:21Peter McCormack:Of course, one of them is precious metals, gold and silver, which that can work great if you don't really want to go across borders and, you know, subject to search and all that. So if you want to stay put and have some gold and silver, it can do great. I'm bullish on, especially on gold, precious metals in general. Now, for people, you know, in America, because our country is so big, it's a continent in and of itself. We often don't think about things like that, but in many other countries, I mean, smaller countries, more borders, more changing, more disruption on average, people do want to move around.

53:57Peter McCormack:And, you know, you can write down 12 words and even memorize 12 words and bring your wealth across the border. Or, you know, you can pay someone on the internet for a service and things like that. And so it's like, what is the value of that? And of course, it's undebasable as long as the technical details continue to hold up. And so what is that worth? I mean, it's currently something like 0.2 % of liquid assets in the world. and it's like you know if it's where if that is two percent that's a 10x from a year um you know if it's 20 that'd be 100x from a year which i think it's premature to call something like that but i think it's not out of the question to go from 0.2 percent to two percent of global liquid assets uh for something like that so as long as the kind of total adjustment market is still significantly bigger than the current market um i'm kind of long-term structurally bullish and

54:50Lyn Alden:You talked about the treasury companies there and they've had a rough year. And maybe let's forget about the smaller ones that, like you were saying, we're trading at essentially like, I think some of them got to like 30 times MNav. Like, forget about those, just the big ones. What do you think the next few years will look like for them? Because let's take strategy as the biggest. I'm sure they'll do very well in a Bitcoin bull market. Their stretch product is back to par or almost par. Things are looking fine there. um do you think we'll see them trade at 2x two and a half times and nav again or is that era over

55:24Peter McCormack:well i hate to say never um but i i do think that the total euphoria we saw in the treasure market will probably not be repeated meaning that you won't see like strategies at three times m nav i mean meta planet i think was eight times m nav i mean even earlier back in the really early period but when they were pretty sizable they were at eight times m nav for a period of time six times um you know i think that era is done uh now if you get you know if you get a crazy enough sovereign situation you know you could get you know another huge run um but in general um the way that like for example altcoin markets work is that you know you'll have like a a new a new thing uh that cycle and that's like that's where all the money goes and then that thing has a resurgence in the next cycle, but it's not really as big as like its first cycle.

56:13Peter McCormack:And I think that this was like the treasury market cycle. And people now know how that ends. And so I think that just capital is more going to be flighty with those things. It's going to care more about quality metrics. It's going to say, okay, we're fine with Bitcoin treasuries and preferred attached to it or convertible debt attached to it. But there's a certain limit of how much we want to pay for that. And so I do think that the big ones that are well capitalized will do well in the next cycle. But as a base case, I wouldn't expect them to be as euphorically priced as they were in this cycle ever again.

56:55Lyn Alden:The thing that I can't quite figure out with them is like strategy being a sort of more volatile version of Bitcoin, essentially, it goes up more when Bitcoin's going up, goes down more when it goes down, makes total sense to me. What I can't figure out is if it can ever be a longer term play where it might go up more in the bull market, go down slightly more in the bear market, but overall net out of being a positive. Do you think that's possible or will it always just be a higher volatility Bitcoin?

57:23Peter McCormack:I mean, I think the end game there would be basically establishing a core business. I mean, ironically, they had that, you know, They still have it with the software, but basically a core business with the Bitcoin. And I think basically what they have is optionality. I mean, they have a giant treasury. They have more assets than liabilities. Their assets are non-debasable, where their liabilities are debasable. And so I think that they're like, and even the way that Sealy has kind of described it is he'll use the reference of like Manhattan, like property, which is that over time with long arc of time the property just keeps increasing relative to the fiat currency so why wouldn't you go long and short the other with a caveat that you just have to make sure you don't blow up somewhere in the middle which which of course is a very big caveat um uh and so i think that that can get that can get them pretty far uh as long as they keep doing the no blow up part uh which now they've navigated for two cycles um now if you do get bitcoin closer to his total adjustable bull market um i mean that's where you start to say well why why should this trade at a premium you know or like if we expect less explosive growth in the future it's just bull markets are less explosive uh and basically what happens is you you have trouble kind of justifying the cost of capital at that point um and then it's like what are you going to do with all that bitcoin could you make acquisitions could you uh you know become the jp morgan of the new bitcoin economy whatever the case may be um that's kind of i think what market participants would expect to see happen at that point but i think that's still premature um and so yeah i think it's it's right now it's mostly just a gap between you know what bitcoin's going to do what fiat's currently going to do uh on the when i went on the prior earnest call my question was really about counter cyclicality uh which is that's you know historically uh you know the market wants to issue them a bunch of capital when Bitcoin's high.

59:22Peter McCormack:It doesn't want to issue them a bunch of capital when Bitcoin's low. And so they actually, they buy more Bitcoin when it's, when it's high and they buy less or even sell some, uh, when it's low. And it's like in the future, could they use their tools to ideally do that in reverse? Um, and because if you, if you say, why should this company have a premium? One of the answers, I think the most compelling answer would be, well they have a bigger tool set than anyone else you know they have public market access even compared to other ones they're bigger more liquid it's not easy to do preferred so i mean you need a certain scale to do preferreds they you know they're one of the couple companies that have hit that scale in that space and so they have tools to do various counter cyclical things which can accrue shareholder value and increase Bitcoin per share.

1:00:14Peter McCormack:And so I wouldn't pay three times MNAV, but you can justify above a one times MNAV if you determine that one, Bitcoin is going to keep going up relative to dollars and above their cost of capital. And two, that they're going to pull the levers in such a way that are accretive and that they have committed to try to be more counter-cyclical in the future. I mean, they've learned from two cycles now. So we'll see. We should talk about your treasury company.

1:00:41Lyn Alden:Do we even call it a treasury company? Tell everyone what Orange Juice is and how you sort of define it.

1:00:47Peter McCormack:Yeah, I would say it's a company that will have a Bitcoin treasury rather than a Bitcoin treasury company, meaning that it's not a pure play or nearly a pure play. So yeah, we founded Orange Juice, those of us at EgoDeath Capital, along with Ruben and Adrian as well, additional partners. and it's basically it's primarily it's tackling the private equity market it's basically a permanent capital vehicle which is a jargon way of saying a company rather than a fund that will seek to buy middle market and lower middle market private businesses that are cash flow positive that generally have nothing to do with bitcoin buy them hold them forever and accumulate some percentage of its of its income in a bitcoin treasury so They have a combination of cash flows with the Bitcoin treasury.

1:01:35Peter McCormack:And we intend to accumulate a lot of companies. And the kind of the reason for that is that we talked about the 40-year period of declining interest rates. And a really big unlock that did was financialize small to medium businesses. Basically, people in New York had really good access to cheap debt, cheaper than the Ma and Polly HVAC company. so they can go out and buy HVAC companies and buy them on really cheap debt. And then they can fire half the staff and optimize things. And they'll have a fund with an estimated life of, say, 10 years. And so they'll buy a company and then a few years later, they basically want to flip it.

1:02:18Peter McCormack:It depends on the company. They might want to go public with it. They might want to sell it to some other kind of larger strategic buyer. But they're in that more flipping mentality and it's largely an industry arbitrage game uh and now that you have a couple major things have changed we no longer have structures declining interest rates uh so you can't just kind of keep playing that same game over and over again uh and then two because the demographics you have a really big number of businesses owned by baby boomers uh that are looking for eventual exits uh and you know some of them would like to pass the business down to their kids but maybe their kid wants to be a doctor or an engineer doesn't want to run you know their their hvac business or you know that's the kind of the meme um uh and so they there's there's a handful of options one of the hardest things you can sell is a business um uh and so to private equities kind of credit um there is a market for it they create liquidity in businesses buying selling businesses.

1:03:23Peter McCormack:But ideally, you know, if a company does not want to have it get chopped up and leveraged, you know, companies that emerge from the private equity process generally have a higher than average bankruptcy rate because they've been hollowed out and leveraged for kind of the short term optimization. You know, we instead say, OK, well, if you care about legacy and if you want to even keep participating in the company and, you know, have kind of equity upside, that's what we want to do we want to come in and buy a business uh help where we can i mean we can bring in world class ai experts to help you know with your administrative back end uh but we don't want to just carve up and and shitify the business itself uh and nor are we going to optimize for a three to five year flip uh we intend to hold it indefinitely and you know there have been a handful of companies that have kind of made that model work really well i mean the most famous example which is like it's almost a meme to compare yourself with it would be berkshire hathaway which is that in addition to their public stock portfolio they go out and buy whole businesses uh dozens of them and then they just hold them indefinitely and ideally they keep existing management in until you know they eventually want to retire and then they can bring in other people to run it um uh and other examples would be you know illinois toolworks for example is they They basically make various engineering tools and equipment, and they go out and buy other engineering and equipment companies.

1:04:49Peter McCormack:They roll that into their own product line, and they just keep repeating that process over and over again. And so Orange used to kind of go after the fact that there's a lot of business out there. A lot of private equity funds are already kind of stuffed to the gills. It's hard to find kind of the next buyer. And that kind of fiat arbitrage game is the engines. It's not dead, but it's kind of disrupted. And so we want to go out there, buy good businesses at low multiples, and then hold some of that in Bitcoin.

1:05:21Lyn Alden:So that's interesting because like the stereotype of private equity is they'll come in and they'll buy your local dental practice or whatever. Everything gets worse and then they'll obviously flip it five, seven years later, whatever it is. Can you flip that on the head because you don't need the liquidity from selling it because you're doing cash flows in Bitcoin? Is that the idea?

1:05:40Peter McCormack:yes uh basically that we so incentives matter a lot because it's not like these private equity guys i twirl their mustaches and say how can we make dentists worse right they it's always it's basically someone's like okay i get paid if if i give return to shareholders and the way i get i mean fund fund investors and the way that i do that because i have a time limit on my fund is i go out buy dentists fire some employees cross sell bad products whatever raise the prices and then get out. And I have to pay the fund investors back. It's not a permanent vehicle. So I have to get out somehow. I need a liquidity event.

1:06:16Peter McCormack:And so you make short-term decisions that optimize for three to five years. But then that dentist practice is going to have a higher than average failure rate after that because you kind of lost customer trust and employee waking up every day, liking the place they work at and all this. Now, if your incentive structure is to own it longer term, you're generally going to make different decisions, kind of like how the initial owner of that business made decisions to get it where it was. I mean, it's kind of the radical idea that it got to where it was for a reason. Maybe don't change all those reasons.

1:06:46Peter McCormack:You know, you can help around the margins. You can fix it if there's a problem, but don't just come in and optimize for the short term. One of the things is the treasury. The other thing is that if you intend to go public, which we do, the liquidity for investors is that, you know, at a certain point, they can sell their shares. um uh and so unlike a fund structure a public company has just inbuilt liquidity without having to sell the underlying uh and so that's the the longer term goal and intention with orange juice

1:07:17Lyn Alden:that's very cool and so with the conversations you've been having with companies that you're looking to acquire how do you try and explain that angle that this is going to be a bitcoin treasury company at the top and they're going to get equity in that like do these people understand like the longer term plan with this?

1:07:34Peter McCormack:They do. So, I mean, especially at this early phase, it's generally, you know, people from our audience, people that have seen our reach, that, you know, and those people tend to, on average, like Bitcoin. Some of them might already be Bitcoiners in their, you know, their personal accounts. Some of them were literally sitting on businesses saying, hey, I got private equity offers, but I didn't like the direction they were going to take that in. and I'm seeking an alternative. And so, you know, one of the early questions we got is like what industry are we going after? And initially we're pretty industry agnostic.

1:08:11Peter McCormack:I mean, we have certain characteristics, but like certain side characteristics we're looking for, certain traits that we're looking for, like, you know, not super cyclical, for example, cashflow positive, but we're kind of industry agnostic because we care more about that aligned owner or that aligned, you know, founder, seller that is basically a Bitcoiner or could be a Bitcoiner that appreciates the long-term value of the equity, which can also be more tax efficient. Because if you sell a business, you have capital gains taxes on it. If you exchange that business partially for equity, obviously every tax situation is unique, but you can defer those taxes until you eventually sell that equity and let that keep compounding.

1:08:52Peter McCormack:So basically there's certain types of business sellers that just find that, you know, it'd be a more interesting deal than what they can get elsewhere.

1:08:59Lyn Alden:It's very cool. It seems like the incentives are more aligned for everyone. So the plans to go public. Do you think that will take some time from here?

1:09:08Peter McCormack:We expect years. Yeah, we initially had a year target that we made public, but the lawyers didn't, we don't say that the exact target, but in a handful of years, the goal is to go public. Now, of course, it's all subject to risk and, you know, execution and all that, but that is the stated intention of the partners. And what's your actual role there? So I'm a partner, and I'm also on the investment committee for, as we buy companies. And the way we've structured it is that other than the partner we have running literally day-to-day operations, the rest of us take no salary, and we literally only get, you know, potential upside from this if it works out for investors.

1:09:53Peter McCormack:So, yeah, my primary role at the moment is making sure that our initial acquisitions are well selected and well integrated. You know, we just hired a CTO. We haven't quite announced him yet because he has to leave his current position. But we're really excited because, you know, we can go into these smaller businesses and say, hey, we have a leading AI expert, for example, that can help understand the business, help figure out where to trim costs without doing the whole like, you know, gutting the company thing or just kind of acting like you know how to run the company better than them. It's saying basically, how can we help you?

1:10:34Peter McCormack:And so it's kind of making sure all those tools to come together, make sure that the values keep kind of operating. As you said, that the incentives keep working for everyone. But the main thing is acquisitions and then making sure the integration goes smoothly.

1:10:46Lyn Alden:We've talked about so much there. I do have one complete tangent topic that I want to talk to you about quickly. But is there anything else before we move on to that that you want to cover that we've not? I think those are the big things. We've talked about the big things. I want to talk to you about your book, because last time you were on the show, it's been a little while. It's been nearly six months. I just started reading the book and I've obviously finished it since then. I thought it was absolutely brilliant. I really, really enjoyed it. How's it gone?

1:11:12Peter McCormack:it's going well so for people that know it's called the stolgard incident it's a sci-fi novel uh and it's uh it's action it's uh it's thinking you know it's it's a common combination of both i think uh and it's going well i mean uh you know i never expected to be like broken money you know where like i literally have a macro tech audience i write a book about you know macro and tech um uh but as far as kind of hitting them with this curveball uh it's been well received The ratings are good. The reviews are good. We have an audiobook by Walker and Carla, and that's actually currently the highest rated version of it, so is the audio, because we did something somewhat unusual.

1:11:53Peter McCormack:So most audiobooks are either read by one person, or if you do have like more than one, usually have someone read like a whole chapter, and then the next person read the whole next chapter, like let's say you have a male point of view or a female point of view, and they'll read all that chapter, including all dialogue from all characters in that chapter. for our audiobook we did full duet narration meaning that for example walker reads all the male narration but also reads every male dialogue line even in the female narration chapters and vice versa for carla so so all the dialogue just comes out feeling a lot more realistic um uh and of course they're both they especially carla but they're both amazing kind of actors uh and they both have like the radio voice and the acting uh abilities um and so uh yeah it's been it's been it's been kind of like um in a world of spreadsheets and mostly bad news and uh you know it's like i never can i never really come on a macro podcast and say yeah things have been great for the next 10 years uh kind of the the more creative outlet uh the more fun outlet is saying well if we're going to write about dystopias let's uh let's have some fun with it see i did

1:13:00Lyn Alden:old-fashioned thing and read the book, um, but I think I'm going to listen to the audiobook as well. Carla and Walker, awesome, so I should do that. Um, is there going to be a second one? Because it was kind of left open like there potentially could be.

1:13:13Peter McCormack:Uh, good question. So I wrote it, uh, as a standalone, meaning that as a book, uh, it is just a complete book. Uh, there's, there's no kind of intentional hooks left open or anything like that. The way that I approach it is that life is messy. You know, life is not just like one story, It's stories leading to other stories. So the way that I did it was I outlined a prequel and a sequel, meaning that I know kind of what happens in the world that led up to this. I know what happens after this. And not for sure that I'd ever write those or write this book as though those have to exist. But it makes the world feel more lived in and more realistic.

1:13:48Peter McCormack:So the first and foremost is just a standalone novel that I'm really happy with how it is. um uh but i am over time chipping away at prequel and sequel uh concepts uh the prequel is actually further ahead than the sequel so you'd actually find out kind of what we have before potentially um but yeah instead of i don't like those series where it's like you have a character and it's like let's save the world and then save the world seven more times you know and it's just like how many times how many times is ethan hunt going to save the world uh in mission impossible right it's not kind of the sequel situation I want to write.

1:14:23Peter McCormack:It's more like, uh, do I have a story to tell, uh, quality over quantity? Uh, and so, yeah, I have a idea of up to three novels with the world, uh, but each one kind of stands on its own. Well, I will look forward to it if it comes

1:14:37Lyn Alden:out. I thought it was brilliant. It's my favorite kind of genre, like relatively near future sci-fi is my thing. So I thought it was absolutely awesome. Um, everyone should go and read that book or actually listen to the audio book, listen to Walker and Carla do it. Um, thanks Lynn, this has been awesome. We should definitely speak again soon, but appreciate you. Thanks for having me.