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TILP #01: Macro, monetrary, and other ghoulish things w/ Preston Pysh
105 Plays1 year ago
Jim Crider is joined with/by Preston Pysh to discuss the current macro, fiscal, and monetary space, how we got here, and where they believe we are headed on the bright orange horizon.
Below are links to some of the things discussed in this episode:
Preston's X account: @PrestonPysh
The investor's Podcast: https://www.theinvestorspodcast.com/
Bitcoin Fundamentals: https://www.theinvestorspodcast.com/bitcoin-fundamentals/
"This time is different" book: https://press.princeton.edu/books/paperback/9780691152646/this-time-is-different
"How the conomic machine works" youtube video: https://youtu.be/PHe0bXAIuk0?si=TPA7oYNqmw0CicBB
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Transcript
Introduction to Intentional Living Podcast
00:00:00
Speaker
Hi, I'm Jim Kreider and this is the Intentional Living podcast where we have conversations about how to use your resources, your time, your money, your talents for what's important to you in life in an efficient and effective manner. I'm glad you're joining with us today and I look forward to this journey with you.
Guest Introduction: Preston Pisch
00:00:24
Speaker
In this episode, I'm joined with Preston Pisch. Preston is one of my favorites. He's the founder of buffetbooks.com, co-founder of the Investors Podcast. That's a podcast network with shows ranging from real estate investing to traditional stock investing and the show that Preston currently hosts, Bitcoin Fundamentals.
Discussion on Fiscal and Monetary Environment
00:00:44
Speaker
Now, Preston and I, in this conversation, we talk through the current fiscal and monetary environment, how in the world we got here, what might be down the line,
00:00:53
Speaker
Scooby-Doo, all sorts of fun stuff. If you want to learn more about Preston, you can follow him on Twitter at PrestonPish.com, or again, tune into his show over on the Investors podcast, specifically Bitcoin Fundamentals. All right. Well, thanks for being here. Let's get started. All right. Preston Pish, I appreciate you being here with me today. Awesome to be here. Awesome to hang out again, Jim.
00:01:17
Speaker
Yeah. I know it's been about a month since we last hung out. Yeah. You were my first podcast guest. So be gracious and patient with me. And I hope this is a great conversation. I'm sure it will be with you here to talk with. Yep. Can't wait. Can't wait.
00:01:33
Speaker
Hey, I'm excited to have you here. I wanted to just have an opportunity to talk with you and I've listened to you since about 2016. I've heard your voice on double speed for countless hours while doing dishes. It's hard for me to not be scrubbing some dishes right now while talking with you or helping me not road rage. So I appreciate this opportunity to actually have a dialogue with
Ray Dalio's Credit Cycles Explained
00:01:57
Speaker
you. So I'd love to have an opportunity just to talk with you and
00:02:02
Speaker
just go deeper on what you've seen as far as the fiscal, monetary, macroeconomic landscape that's leading up to this strange spot that we're at right now and what you think possible solutions would be and what's the end game of where we are right now. So we can, I know that's a lot, the whole can of worms we can unpack, but let's start off with, yeah, how did we arrive at where we are today?
00:02:29
Speaker
So I would frame this up, and I've talked a lot about this in Bitcoin community, but for your audience and maybe people that are coming from this from a much more traditional lens, I would first tell them to study Ray Dalio's long-term credit cycle.
00:02:50
Speaker
There's a 30-minute video. There's tons of writing. Ray has published multiple books about this idea of long-term credit cycles and short-term credit cycles. If you have show notes or you have links that people can kind of click on, I would highly recommend for you to have links to Ray's video, How the Economic Machine Works. This is a 30-minute video, and this is the gist of it.
00:03:17
Speaker
Most people that have money to invest they're accustomed to credit cycles these boom bus cycles they typically last or at least what they have in the last couple decades since we've been alive you see these eight year cycles.
00:03:33
Speaker
8 to 10 year to 5 year, somewhere in that mix where you go through a big credit event, the stock market melts down, bonds get bid and become really valuable, and then the system gets reset and we go through another cycle. That's what people are accustomed to.
00:03:50
Speaker
But what few people understand
Impact of Bond Yields on Economy
00:03:52
Speaker
is that there's also a much larger credit cycle that we have been a part of, whether you realize it or not, that's been playing out over about 80 years, since the Bretton Woods system was stood up in the 1940s.
00:04:08
Speaker
And if you could zoom out, if you wanted to graphically see this long-term credit cycle, it's actually quite simple. You can just go onto Google, type in long-term debt cycle or credit cycle, and then just look at the pictures that come up. And what you're gonna see is you're gonna see pictures of like the 10-year treasury, and you're gonna see the yield on the 10-year treasury go from the 1940s where it was really low, and you're gonna see that yield go really high into the 1980s.
00:04:35
Speaker
1970s, 1980s, where the tenure peaked out at about 16% in 1981. And then you're going to see the Tenure Treasury continue to go down for 40 years straight until we get to COVID. And it pegged at a half a percent or whatever it got down to. I think it was down to like 50 bips around COVID.
00:04:55
Speaker
on the 10-year treasury specifically. If you weren't just looking at the 10-year treasury, but you were looking at short duration or long duration bonds, you would see this long-term credit cycle that's playing out. Now, why is that important? It's important because
00:05:11
Speaker
Like the short-term credit cycles that we're all used to, where things go boom, and then things get built again after it goes boom, and everybody goes about their life, and things were bad there for a little bit. It was hard. People were losing jobs. And then all of a sudden, they're hiring again, and all these types of activities and everything reflates.
00:05:35
Speaker
that is going to play out, but on a much grander scale. And we are, we are in that endgame. I would argue we're in that endgame right now. And so for people that are like looking around qualitatively and saying, What's going wrong with the world? Why does everything feel like it's falling apart? Like everybody seems to be at each other's throats. Like what, why are all these wars happening? Like,
00:05:58
Speaker
it's all happening because of this long-term credit cycle and it transitioning into a new form of money as the settlement layer. So when we look at the second half of this long-term credit cycle, which, you know, my argument is this is from like the 1940s, post Great Depression, World War II to I would say COVID is probably a really good marker of where this is really starting to accelerate for the transition to wherever this is going next.
00:06:28
Speaker
We're obviously of the opinion that it's going towards Bitcoin next. And we'll get to that. So when we look at this, and we're just trying to wrap our heads around, why now? Why did COVID? Why are you saying that it's COVID? Because for the last, since I've been alive, it just seems like the Treasury market and the US dollar and
00:06:52
Speaker
the Euro and all these other currencies have always been really stable and secure, and everybody just seemed to get along quite fine with no issues. And what I would describe is when your credit markets, when bonds continue, when the yields continue to get compressed and go lower and lower, like they did from 1981 till COVID,
00:07:17
Speaker
What that is actually serving as is a bedrock to economic calculation
Currency Stability and Market Dynamics
00:07:23
Speaker
of every asset on the planet. And the reason why is because the value is going up. As those yields are going lower, the value of equity is going higher and higher reference to that.
00:07:35
Speaker
And if that doesn't make sense, I would strongly encourage a person to just understand the mechanics of bonds and understand how they're priced and also understand how equity is priced because stocks are priced based off of a quote unquote risk-free rate of bonds. So the 10-year treasury has really kind of been that benchmark. So generically speaking, if the 10-year treasury was yielding 5%,
00:08:05
Speaker
then stocks should give you a return of, let's just say, 200 basis points higher than that. Stocks should be priced at about a 7% return, okay? So that would equate to some PE ratio for a 7%. 10% is a PE of 10.
00:08:23
Speaker
When you go to a PE of 15, the multiples kind of compress and work in a very similar manner. So I would just, I would tell a person that your PE ratio, think of it almost like a bond yield. And if the PE ratio is a 10, then that's giving you a 10% return because it's one divided by 10, that gives you the percent. So if it was PE of 15, you'd take one divided by 15 and that gives you the percent.
00:08:51
Speaker
And that percent needs to be yielding higher than debt because you have more risk associated with equity. I know I'm getting into kind of the mathematics here a little bit, maybe a little too granular for this bigger overarching site picture. But the point I'm trying to make with all of this comes back to bonds, particularly US bonds, being the bedrock of economic calculation for the last 40 years.
00:09:18
Speaker
That works until you compress the yields to literally nothing. That continues to work as long as you can continue to hide the inflation that everyday participants think is their debasement rate in the price of getting food or gas or buying a house or things like that. As long as that appears like it's stable and that inflation isn't manifesting itself through debasement,
00:09:48
Speaker
people will continue to pile into this, retain their savings. I don't want to say pile into it. I would say retain their savings in these debt instruments, which were US Treasuries and bonds from Europe and the UK and Japan and whatnot, because those yields continue to compress and they can continue to become more valuable.
Inflation and Its Economic Impact
00:10:08
Speaker
What we found after we compressed all of that down to nothing. In fact, we, we got up to how high did it go? Jim, you might know it was like negative $20 billion or I'm sorry, trillion dollars worth of debt around the world. Negative yielding debt. Just, just absurd. Is how, is how compressed that spring
00:10:33
Speaker
because I'm talking about this really long-term credit cycle. That spring got compressed down to the point where negative $20 trillion worth of debt was issued on the market.
00:10:46
Speaker
Just to kind of quantify how insane that is, that's $20 trillion worth of contracts that guarantee the loss of capital, guarantee it, okay? And there were people buying it, because their opinion was that they were gonna make the rates even more negative, which would have made them more valuable, was the reason you had buyers to the tune of $20 trillion of these instruments.
00:11:11
Speaker
Professor Mike, could you talk through if the risk for your return is negative? It seems at that point that equities would just have to essentially return less negative or zero to be a better investment than equities or than this debt. Why does that relate to it seems that there's so...
00:11:32
Speaker
There is a lot of concentration in the market with just a few companies, but it seems like despite, heck, a few years ago when we had these negative interest rates, a lot of the markets were still firing off and doing phenomenally, especially even in backwards times like COVID when everything was shut down. So why do we have this decoupling of risk-freeze nothing? I should be happy with cash theoretically, yet equities are still running off in a place of just absolute nonsense.
00:12:00
Speaker
I love this question. This is actually a pretty advanced question that, uh, I think the reason you see so many people in the market today saying, I have no idea where to go or what to do is because of this question, because we have now, now that you're starting to have inflation manifest itself in every day, the prices of everyday things, desirable things. Okay. You're seeing the debt markets chase after a, a premium to that debasement rate or that inflation rate. Okay.
00:12:30
Speaker
So inflation, let's just say the inflation today is four or five percent, or at least that's what they're telling you it is. Right. And they did. Didn't you know that last week, Paul Krugman tweeted that we beat inflation. He's got it. As long as you as long as you take out housing and energy and food and transportation, we won. So if all you need is a bunch of televisions, you're in luck. It's hilarious.
00:12:57
Speaker
So you have the puppeteers that are trying to convince the populace that everything's A-OK, right? When it's totally not, the house is on fire, let me tell you. But to your question, why this is so tricky to understand. So you got these inflation rates that are being published. You have credit markets that are trying to sell off to provide some type of premium or yield above that inflation rate.
00:13:24
Speaker
I would tell people, you got to think of inflation as the benchmark of what you have to out beat or that you have to, that's your hurdle rate, right? So if inflation is 4%, you've seen the bond market sell off to a point that now it's yielding higher than 4% across the entire yield curve. Short duration, long duration is above that 4% rate. So you should be able to keep up with inflation, and I say should be because there's
00:13:55
Speaker
There's a lot more to this, but just in generic, in generic terms, right. I would say you're, you're outpacing that inflation rate by 1%. So you're making your real return is going to be 1%. Right. If we're really generically speaking here.
00:14:11
Speaker
And what you would expect is that that equities would also be selling off based off of a stable currency and stable market. Equities should also be selling off and providing a PE ratio that exceeds the return you're getting in fixed income, which is around 5%.
00:14:29
Speaker
I would expect that based off of past performance, that it would be around like 7% yield inequities to capture the risk premium, right? Which means your PE would have to be way lower than where you're at today, which I think the PE on most is, where is it at, Jim? Like 25 to 30, maybe even 35, depending on the type of company for PE ratios, which for people to understand what that equates to in yield, that's a call at a 3% yield.
00:14:59
Speaker
3% yield for equities. Now, you might be scratching your head. You're saying, okay, so debts give me 5%, fixed incomes give me 5%, inflation's 4, and equities, which should be the riskiest, is priced at 3%.
00:15:16
Speaker
That doesn't make any sense.
Currency Failures and Market Instability
00:15:18
Speaker
And this is to the crux of the question you're asking. So why is that? Why is the world completely upside down like that? It doesn't make any sense, Jim and Preston. Well, here's why. When the currency fails,
00:15:34
Speaker
Throughout history, there are tons of examples. There's a book called This Time is Different. If you want case study after case study throughout history of a currency failing and what happens during those periods of time, read that book. There's 200 examples or whatever in that book about what is playing out.
00:15:57
Speaker
And the reason that you see equities continuing to hold valuation at really high premiums relative to inflation or the debasement and relative to fixed income is because when the currency fails, what happens is that those debt markets and those credit markets aggressively reprice themselves. I sometimes refer to it as credit markets blowing up.
00:16:26
Speaker
And think about it, the reason why is that credit market is a contract to deliver fiat currency dollars back to that issuer. It's a contract and the contract specifications of repayment is in dollar terms.
00:16:46
Speaker
So if that dollar is getting debased at a breakneck pace, which it is, since COVID, what was the debasement rate? It was in excess of 25% annual, I think, if we would go from COVID to today. I think it's debasing at 20. According to the M2, if you took the M2 and you looked at the growth rate since COVID, it's getting debased at about a 25% annual debasement rate. Okay.
00:17:12
Speaker
how that influx of fiat enters the economy, it nests itself into areas that some is in the price of meat, some of it's in the price of equities, some of it's in the price of, you name it. And so it's not just 25% spread across every single asset and commodity on the planet.
00:17:35
Speaker
it nests itself into different areas. So if you were looking at real estate in downtown Manhattan or wherever, you name it, that inflation rate is going to be different than the inflation on the price of gas or the price of corn or the price of an S&P 500 share. That debasement enters itself into the economy in all different ways. But if you're going to generically look at what's the hurdle rate,
00:18:02
Speaker
OK, I think that the best way to think about inflation, and there's many of other very smart people out there that would echo this idea, I think the M2 growth rate is probably the real inflation that you need to outpace with respect to money itself. OK, that debasement rate, if we were going to say that that's what we're thinking about as inflation, like real inflation,
00:18:30
Speaker
I would say that if you took the past 10 years and you did a compound annual growth rate on that growth of the M2, you would probably be around like 7% or 8% annualized. So if you're not outperforming that with your savings, I would argue you are losing buying power.
00:18:54
Speaker
So if somebody invested in something and it was growing at 5%, I would say congratulations, you've underperformed just the debasement rate by 2%. Like you're losing 2% of your buying power based off of what you did with that savings. So when we answer your question, this is the real answer with all of that. And it's important for people to understand all that context so that they can understand what I'm about to say.
00:19:21
Speaker
When the currency melts down, the bonds blow up because they're denominated in said currency of the past system.
00:19:29
Speaker
What isn't specified as the denomination is equity, is stocks, okay? Because you have a stock certificate and that company is performing business and they can elect to be paid in whatever and retain their savings in anything that they want. Most companies actually retain their savings, not in dollars. A lot of them were using treasuries for a very long time when they kept appreciating in value.
00:19:57
Speaker
But those companies can, they can save in marketable securities. They can buy S&P 500 stock. They can buy individual companies and put them, you know, they're non-operational subsidiaries that are just sitting on their balance sheet. But that's how they can save. And so let's say the currency, let's say the world would start using Shrewt bucks, which is basically the dollar.
Bitcoin vs Traditional Currency
00:20:22
Speaker
But let's say the root box was like really it didn't the base at all and it was actually a wonderful currency that company can choose to do nominate their savings. And their unit of account inside that company and in true box if they want to.
00:20:39
Speaker
And obviously, what I'm getting at is companies, in my opinion, are going to decide to save in the hardest money as we continue to go through this transition of this legacy long-term credit cycle into this new financial system. And I think that they're going to choose to do it in a currency that's backed by energy.
00:21:00
Speaker
that is immediately saleable, that has near zero frictional cost to transact, that no entity or government can come in and screw with the amount of units that exist and has a terminal fixed number of units in it, which is Bitcoin.
00:21:19
Speaker
And I think that's what everybody's going to move to. So if you're looking at this market and you're owning equity, it's all going to be repriced. There's going to be different PE ratios on the other side of this event horizon.
00:21:33
Speaker
That's why I think you're seeing it already, that equities have a premium to debt. And that's why you're seeing the yields that they're at. And they're kind of holding their value is because once the eventual transition occurs, and this is why you go, you know, you go read the book, this time is different. You'll find that stock markets,
00:22:00
Speaker
in their local in their local fiat currency term denomination go parabolic through these events. They go way up. If you if you have a money that's infinitely debased, the assets that's being priced against go infinitely up.
00:22:17
Speaker
That's right. It's the same. Uh, I use this example sometimes to help people understand it. If we're playing monopoly and there's a fixed amount of equity on the board, right? And those are businesses. And let's say the banker comes in and they flood the game with all the money that there's, that they're squatting on and everybody's currency is going straight up. Okay. And there's five times as much currency in the game.
00:22:42
Speaker
What's going to happen to the scarce equity on the board? Yeah, you're going to be buying as many houses and hotels as you can because the money's no longer. Yeah, it's the only thing that's finite rather than this infinite flood.
00:22:58
Speaker
That's right. Anything that's scarce in that game is going to get bid. The value is going to go higher. And here's another thing to think about is if you borrowed money from one of the other players to buy the scarce thing, the equity, the stock,
00:23:14
Speaker
Right. You are the person who gets screwed in that deal is the lender because they're getting paid back at a remember they issued the debt when there was one fifth of the amount of currency in the game.
00:23:29
Speaker
The, the repayment was in, in currency terms, like the deal that you struck with the other player was I'm going to pay you back in the monopoly money and I'm going to pay you back this fixed amount. Okay. Then the banker steps in and they debased the, the Fiat in the game by five X, but that contract didn't between you and the person that lent you to money didn't change. But what you did with that money is you went and bought scarce equity off the board that now has appreciated in value tremendously.
00:23:57
Speaker
And so that's the game that's being played right now on a global level. And this is why, uh, you know, if I was going to add a little bit more realism to the, the monopoly example that I just provided with, uh, people basically using debt to buy scarce things, look at, look at who the U S is.
Global Power Shifts and Economic Leverage
00:24:17
Speaker
Uh,
00:24:19
Speaker
at war with everywhere in the world. It's people that are providing scarce commodity physical things and what they're trying to shove into their throat as payment are treasuries.
00:24:37
Speaker
They're saying you have to use the dollar, you have to use our treasury market as basically the backbone of payment for these physical things that you're delivering. Every enemy that the US has or Europe or UK, they're all trying to jam these paper nothings down their throat for physical things and they're just not having it. And I would argue that that's one of the main reasons you're seeing so much social unrest in the world from a nation sovereign state level.
00:25:08
Speaker
There's so many places I want to take this, but we'll camp on that right quick. It's where we're at. It's obviously where we are with oil right now is
00:25:19
Speaker
It's interesting. We haven't set ourselves up for an advantageous spot over the last several years. We've essentially drained our Strategic Petroleum Reserve. Meanwhile, last week, who was it that tweeted that they're going to mandate that we get the price of oil down to what, like 60 bucks a barrel? Yeah. I don't know how they think they're going to achieve this. You're trying to get something that has, again, there's a limited supply. And we don't, right now, we don't have access to that much of that limited supply, yet we're mandating or supposedly going to mandate that we get it for a
00:25:49
Speaker
a price when I would argue that a lot of other countries are starting to lose trust in the US dollar. So let's just go there right quick. What are your thoughts on oil? Will we be able to get $60 a barrel? How's that going to happen? Or I don't know how to even process that.
00:26:07
Speaker
Well, the way the government would try to do it and just just for people to, if you think we're operating in free and open markets, we totally aren't like not even close. Um, and I could go into like the backstop facility and how basically yield curve control has been happening for banks since, uh, you know, they stood up that facility with the Silicon Valley bank and all this other stuff to kind of prove my point of like why we are not actually operating in free and open markets, which manipulates the cost of capital, blah, blah, blah. Right. But to your, to your,
00:26:36
Speaker
question about oil, if the government really wanted to try to keep the, keep the price down, they could just print a bunch of their shrewt bucks. They could go and, uh, if, and this is, this is becoming more of an if, uh, as the days go by, if they can find somebody to sell them oil,
00:26:56
Speaker
They don't care about the price because they're just printing the shrewt bucks. If they get the oil for $140 a barrel, they can just print the shrewt bucks, shove it into the hands of the person willing to accept the shrewt bucks, and then they get the oil, and then they drop it into the market through the SPR program to flood the market to try to push the price down to $60 is the play.
00:27:20
Speaker
So they're trying to lever the Shroopbox to create a false sense of price action in a physical market, and that is a total fool's errand. Now, what they think they can do, if you're going to jump into the mind of a person in government that's trying to play this game,
00:27:43
Speaker
they're trying to do is they're trying to create a recession through so much pain, interest rate pain, that they suck the demand for oil out of the market, which would also drop the price. And if they can do all of this through interest rates before they run out of oil to put into the market, then they get away with it, or at least they think they get away with it. There's all other types of
00:28:12
Speaker
maturation that kind of pops out of all these sinister market manipulation type activities that we're not even talking about, right? But in that short-term window, if we were analyzing in that short-term window, if they can do all of that before they run out of physical oil or a person willing to give it to them, then they kind of get away with it in the short-term, at least from like the psychology of the global or the citizens of that nation state.
00:28:42
Speaker
But boy, what a, what a game to play and what dice to roll because if they do run out of the, of the oil, which look at the SP or the strategic petroleum reserve right now, and I'm seeing it's tapped, right? It's tapped. So if we don't get the, the demand suffocation that naturally comes through a recession, uh, boy, it's going to get fascinating and you would see the price of oil just totally rip. And, uh,
00:29:09
Speaker
And now think about the ramifications of that into the Treasury market because the Treasury market is moving based off of the expectation of inflation itself.
00:29:21
Speaker
Yeah, man, we're in the end game. We are definitely, where we're at in the end game and how long that end game lasts, I don't know, but I think we're definitely in it. And we're probably in the start of it, but I don't know how long it takes to play out. And I think that for somebody listening to this, if that idea really makes you raise an eyebrow,
00:29:47
Speaker
What the heck is this guy talking about i would strongly encourage you do your own research and dig into this a whole lot more because for me this is just matter of fact like this isn't even like a question of whether this is actually in this endgame this transition to a new system.
00:30:02
Speaker
We are very much in that. But if that's if that's a shocking idea to you, go find somebody else and dig into this a whole lot more. And I would again go back to the Ray Dalio video because he gives such a great overview of of the beautiful deleveraging part there near the end. Maybe he's a little delusional as to like how these systems transition. But in general, the premise and the thesis is very strong and important for people to understand.
00:30:32
Speaker
You're seeing so many pieces lining up that would be indicative of this in-game situation. Even like, again, the SPR, you have the BRICS nations. You talked if we could find someone to give our shoot bucks to.
Monetary Policy and Financial System Vulnerabilities
00:30:48
Speaker
Most people only take a Stanley nickel for it. So, yeah.
00:30:54
Speaker
For a long time, we've been able to shove our debt as a country onto other nations because, hey, we were the big person on the block. But now, again, you're having other countries starting to rise up and recognize the abuse that we've leveraged over decades, and they're going to put their foot down, which is
00:31:13
Speaker
Well, I think it's healthy. I think a really easy way to think through where we where we're at now is thinking through like a forest fire. So like California, like Southern California, if you live out there, I know a lot of people in Southern California want to think it's like Hawaii. It's just tropical paradise. It's not it's really
00:31:32
Speaker
quite a desert. And you can plant some palm trees and everything, but it's still it's pretty deserty out there. Anyways, we've we've created this facade for what we think this atmosphere is like. And then we've built homes on places they shouldn't be built. So we've we've that's building up of assets in places that aren't very stable.
00:31:52
Speaker
And then with force fires, there's natural cycles with the burning of brush. And what we've done is we've put homes in places that probably shouldn't be, that's not natural for them. And the moment a spark hits, we put it out. We put it out.
00:32:11
Speaker
healthy thing to do over the long term will allow some of that underbrush to be burnt up. But we've allowed for anytime we see the smallest spark, we stomp it out with our big foot. And then over time, we just had this building up of pine needles. Now we have this society that's built around feet and feet of pine needles and leaves and undergrowth. And it's eventually a spark will hit that we can't with our giant foot come in and put out.
00:32:39
Speaker
And unfortunately, we've built so many homes around this, so many people's lives are intertwined with this undergrowth, and it's just become natural. It's just part of it's, it seems normal to us.
00:32:52
Speaker
And eventually when it goes up, it's gonna be really, most likely, I really hope it's not the case, but it'll probably be really painful. But eventually it will lead to a healthier place. And that's a few years ago, Kendra, my wife, she and I went on a hike. We were in Grand Tetons and there's a beautiful hike. It's right along, it's called Jenny Lake. And on your left, you've got this big lake. We're going up to the Grand Tetons and this,
00:33:18
Speaker
big waterfall up there, but on the right, there's a whole bunch of beautiful trees that are, you can tell they're not infants anymore, but they're young trees. They're just real vibrant. They look like the healthiest trees in the whole park. Well, the reason it's like that is because several years ago, they had a big fire right there.
00:33:33
Speaker
and that allowed things to get burned out, new nutrients to come in, and the dead and old to be taken away. And that is a natural state that we've suffocated out in a literal sense. Again, we don't like forced fires. It can be damaging to society in the short term, but we've also done that with our situation financially, monetarily, and it's
00:33:58
Speaker
Yeah, there's a place of unnatural habitation. People now going back to where do you put your money if inflation is this high and bonds are negative and where do you put your dollars? Well, that's led to this.
00:34:13
Speaker
monetization or financialization of everything. Suddenly, a few years ago, gosh, it was absurd during COVID. Remember how used cars were just skyrocketing in price. Everything went up massively. And that's because people are looking for anything to hold their value in. And it just led to these bizarro world of trying to retain value and worth in something that is relatively scarce, at least scarce compared to this one thing that can just be printed out.
00:34:43
Speaker
Yeah, I don't know what the match will be or the lightning strike will be, but it's inevitable that something will take place that will lead to all this underbrush that we've been accumulating for decades and decades to take a spark and then lead to
00:35:01
Speaker
Well, Jim, I would argue that the spark has already happened. I would argue that the fire is already raging. No, seriously, like the bond. If you sat at a billion dollar bond desk, you have experienced the deepest sell off in the history of the United States since COVID in fixed income.
00:35:25
Speaker
So like if you put a dollar amount on how much buying power has been destroyed since COVID in fixed income, it's unfathomable, like totally unfathom trillions upon tens of trillions in buying power has, has been evaporated and eviscerated from the market already. Now,
00:35:48
Speaker
For most people, they don't own that. Most people don't have savings. If you lined up a hundred people on the street, most don't even have any savings. So to them, they, they're not necessarily seeing that, but I would tell you the, the, the math or the spark has already happened. The, the fire is already raging.
00:36:09
Speaker
When you look at the reaction that we're having from policymakers from the countries that are in debt up to their eyeballs and are flooding the market with more Fiat, they're not dropping water on the fire.
Economic Transitions and Investment Strategies
00:36:25
Speaker
They're actually dropping gasoline on the fire.
00:36:29
Speaker
Okay. Um, so the process is already underway. It's already, it's already left the station. It's, it's nature going to your point about like the forest fire. What I think it makes us so hard for people to wrap their head around is it's never happened in their lifetime, especially if you're in a developed Western country, it's never happened in your lifetime. So when you're hearing this, you're saying there's no way.
00:36:54
Speaker
because we have a cog as humans, we have a cognitive bias that if, if you've never seen the, the, the black swan, well, the black swan doesn't exist. It's just a myth, right? But this is, this is like extremely obvious. It's all, it's just mathematics. Um, and it's, it's well underway. It's well underway and, and it's not something to fear.
00:37:18
Speaker
It's something that naturally happens. There is a way to prepare yourself and to protect yourself. You don't have to do anything like based on, let's say we're right about Bitcoin and that it becomes this new global settlement layer for the world to settle the exchange value.
00:37:40
Speaker
Based on where the price is today, if you have a million dollar net worth, I would argue you really just need about a 1% position size in Bitcoin from that million, so a $10,000 position on a million dollar portfolio to preserve the buying power of that portfolio based on the math.
00:38:02
Speaker
And I think I'm, and I'm not being, I think that's a pretty conservative estimate is like just a 1% position. So like people that are fearing this or are saying, Oh my God, like sure, there's going to be social unrest with that. There always is just like in the forest fire, like, Hey, there's things that are, that are burning. Like you got to get away. You gotta, you gotta be lean. You gotta be agile. Um,
00:38:25
Speaker
But you also have to have some, I would argue you really need to have some type of position size to preserve your buying power. The other thing that we've already talked about that's really counterintuitive is if you don't like Bitcoin or you don't think that it's going to be that as we migrate to a new system, well, the only thing that you're going to be able to really kind of preserve your buying power is inequities.
00:38:49
Speaker
And you're going to have to own high quality equity that you think is going to continue to be competitive on the other side of this event horizon. Um, because you definitely can't preserve it in debt because it's blowing up. So, uh, a moment ago you're talking about just this, the black swan, how we haven't experienced it. And there's a, there's a money manager that I run into often and he, uh, in town and, uh,
00:39:20
Speaker
I remember talking with him about probably like two or so years ago, two, two and a half years ago. And I overheard him in a conversation with a client. He was a coffee shop talking about their allocation, their bond and stock allocation. And I pulled him aside afterwards and was curious. And he said all of his clients are sitting in about 80% bonds, 20% stock portfolio. And I asked him, isn't this frightening for you? One, how are you achieving yield right now in this environment with such low rates? And two, what happens when the Fed pivots and starts raising rates?
00:39:50
Speaker
He said, he said, Hey, look here, son. I've been doing this since 1982. We've only made money and it's, it's this. What an egotistical response. Yeah. What an egotistical response. And, um, and, and ironic that he said 82, right? Cause yeah.
00:40:10
Speaker
me going back to talking about like how this long-term credit cycle has played out since 81, you could have been a ham sandwich and you would have crushed your performance if you just had a significant allocation to long-term bonds through that entire 40 year period of time.
00:40:26
Speaker
because it was, it's a massive, it was a massive 40 year bull cycle for long, long duration bonds. So yeah. And he was, his comment like literally marked the peak, um, you know, the low point in yields, but the peak in price. And, uh, boy, if, if something goes up for 40 years straight, which bonds, long duration bonds did, what do you think the correction on that's going to look like?
00:40:57
Speaker
Actually, I am curious. So I saw him recently, and he mentioned, I asked him all his portfolios doing. He mentioned they've mostly shifted to investment grade debt and trying to get some higher yield. And to me, that seems quite risky. Seems like you're trying to pick up pennies in front of a steamroller. But I am curious. I meant to ask you this in Telluride. I'm curious your thoughts. I'm under the inclination that the Fed,
00:41:24
Speaker
I want to go so many places. The Fed's obviously trying to bring pain. I think that's, that's, writing is on the wall there. I don't think the market and the economy has reacted as much as they would like to see. So I think they're going to keep putting their thumb down to bring more pain. But we have to keep in mind, you know, next fall, it's a voting year, an election year. And yeah, I think there'll be
00:41:46
Speaker
keep their thumb on the pain for a bit, but I would expect them to pivot probably around, I don't know, March, April is my guess. I'm probably way off here, but that's my guess. They're already trying to pivot. I think they're trying to pivot right now. I mean, you had what a multiple fed officials every single day for the last like two weeks come out and try to talk this thing down like that. We're, we're done. Yeah. Yeah. I think they are. They're already in pivot mode and what's, what's interesting,
00:42:15
Speaker
is as because any time they've done that in the past, you would have saw bonds just bidding like crazy in the yields coming down off of that that news of of, you know, a dozen and a half Fed officials coming out and pumping this narrative that we're pausing, we're pausing, we're pausing. You didn't see that.
00:42:38
Speaker
You didn't see that at all. In fact, you saw the bond market rage into a further sell off as they're saying, we're done. We're done. Why? Why? Well, it's because, because people can actually do the math and they can see that, uh, they've got to flood the system with more printing at this point in time.
00:43:03
Speaker
and those yields continue to go higher and higher and the prices continue to go lower and lower. So they're already trying to pivot, Jim. My next question was going to be actually related to that. If we follow normal
00:43:17
Speaker
bond values and interest rates. We would say that all right, the Fed pivots, interest rates begin dropping, so therefore existing bond values theoretically would go up. Do you think that's the case or is there just lack of trust in the system and a realization of the value of the underlying return of payment is just people are starting to wake up to this, so we won't see that.
00:43:44
Speaker
that seesaw go the other way as interest rates start to drop again, or should we see just a normal, oh yeah, interest rates go back down, therefore bond values. Should you be looking to buy the long duration stuff as they start to pivot? What are your thoughts there?
00:43:59
Speaker
So if you think that we are at peak yield and that the bond market is going to go into a bull cycle for the rest of the year, obviously you want to own duration because you make more money on the move.
00:44:17
Speaker
Today, right now, the three month is offering you 5.46%. Okay. The 30 year is offering you 5%. So you're getting approximately another 40 BIPs by owning three month
00:44:36
Speaker
money with, and this is really important, the optionality to plug it into anything that you think is going to provide more value into the future versus
00:44:50
Speaker
a gamble that you're perfectly timing the bottom of the bond market and you're going effectively levered long because you're using the duration to get an outsized performance that you know right now that it is the bottom of this bond sell off, right? And that the 30 year, even though it's giving you less yield and you can change your mind three months from now.
00:45:16
Speaker
Okay. You can change your minds three months from now, Jim, like, and collect 5.46 annualized as you wait three months. So like, I guess the question I throw back to anybody that's buying long duration right now.
00:45:35
Speaker
You, I would say, wow, you really are that good, huh? You, your time, your ability to pluck out the timing is so perfect. You can't even squat for three months and collect a 5.46% return because you're that good. Like it's ego. Like if somebody stepping into this right now and buying long duration and you know what, they could be dead, right?
Bitcoin's Role in Future Economy
00:46:00
Speaker
But boy, like,
00:46:02
Speaker
I'm sorry, like everything that I'm looking at from a geopolitical backdrop right now in this market.
00:46:11
Speaker
And I'm not even going to say like the wars. And I mean, it was just like Biden. You're like, hey, you know what? We're just going to pop out another hundred billion to these other countries in the world with nobody in Congress voting for anything. We're just going to throw this hundred billy their way. If you're in credit markets and you're buying the 30 year like long at this point, like I don't I can't understand it for the life of me for the life of me.
00:46:42
Speaker
That's why I think it's going to I think you're totally nuts. My personal opinion. It's where where we're at, though. I mean, going back. So you and I both, I think, would would agree that the end game for this would be Bitcoin. I think it's the most likely result.
00:47:02
Speaker
But there's so much argument against that. And it's mostly by the entrenched players here. And as we're talking, I have a bunch of young kids. So I think in their terms a lot of times. So what I'm what I'm picturing with this is it's like I'm I feel like we're living in an episode of Scooby Doo.
00:47:19
Speaker
And in Scooby-Doo, everyone's the same. It's every episode is the same. What happens? They're driving along and they, you know, they break down in a small town and there's this person. You always, as an adult, you know who the bad person is. It's the person who is trying to not have some sort of change or inconvenience in their life.
00:47:36
Speaker
It's old man Jenkins the whole time because old man Jenkins has lived in this place. He likes that. It's quiet. He likes that. He's easily making money and has his life sustained for him or whatever. You know, he's got his old in that he takes care of. But then suddenly there's this new thing on the block that's that's making a ruckus. And it's it's it's bringing on kids. No, it's darn kids.
00:48:00
Speaker
There's so much going on and suddenly like, oh, well, it's this it's this ghost. It's this this villain. They villainize something and that's the evil thing. And they paint this picture of this this terrible thing the whole time. That's hey, this should this is really the problem. We need to get rid of this problem and everything will be fine again.
00:48:19
Speaker
But in the end of the episode, they finally catch the ghost and the whole time, the bad problem was the one that was, the one that's been in church the whole time. Their whole stake here is keeping status quo. And they don't want to make sure that status quo was kept, but you had these darn kids who came in and revealed like, oh wait, it was old man Jenkins the whole time.
00:48:41
Speaker
And I really feel in my terrible, terrible analogy, I feel like that's where we're at. The U.S. government is sitting here like, oh, that it's this and it's that it's these other things. And these are bad. This is going to boil the like Bitcoin's going to boil the oceans and, you know, drug dealers use this thing. And it's quick. Look at that. That goes over there. And meanwhile, you have a bunch of Goobers on Twitter talking about Bitcoin and oh, wait, I think it's this thing. And we're the we're the darn kids. But I think the people trying to see the mass is getting pulled off.
00:49:11
Speaker
And who's it with BlackRock a couple days ago? I mean, stated that he thinks that this current price movement in Bitcoin is, yes, related to the false ETF, but even indicated he think it's also just the fact that people shouldn't wake up and realize that Bitcoin might be a relatively safe asset.
00:49:30
Speaker
And equality, I think, was the quality. That's it. I think the mask is going to get pulled off. And people should realize the villain this whole time was not this foreign thing. It was the the familiar thing we've been entrenched with the whole time that's been built up that it has the most to lose with with the changing of tides. The ultimate fool's errand is seeking order in a universe of disorder and change.
00:49:59
Speaker
Right. And what you just described is geriatric incumbents.
00:50:06
Speaker
that are living an extremely amazing life and they have all of the equity and they hold all the buying power. And we can see this in the manifestation of like just the amount that proportion wise, like percentage wise, how much of that buying power is stuffed into the top 1% or a 10th of a percent.
00:50:32
Speaker
And what they seek is order in a world that is always changing. And when we look at Bitcoin and we look at what it's changing, you are changing this idea that I can send you gold bars over a wire now.
00:50:58
Speaker
And to custody these gold bars, I don't need a vault. I don't need all this men with guns surrounding the vault. There's no middleman that's taking their cut to transport this, which happens instantaneously.
00:51:18
Speaker
And there's no, there's the miners aren't able to drop more supply onto the market when the price rages. And if a person doesn't want to wrap their head around that technology, they're, they're seeking the, the fool's errand, which is they're seeking order in a world which is constantly changing and improving itself.
00:51:45
Speaker
And it's just that simple. And I, and I actually liked the analogy a lot. I think it's hilarious because you're right that like, if you really do dissect those, those, uh, those shows, it is often some old fart that's like seeking order and doesn't want the pesky kids or the noises or whatever. And they're trying to scare them away and use, use illusions and use, um, fear tactics.
00:52:12
Speaker
to prevent chaos or disorder or change, it's really change, prevent change from happening. That's hilarious. My last thought for you here would be, why do you see Bitcoin as,
00:52:30
Speaker
a solution versus just fling to equities. Gosh, we're only talking about the US, right? Why don't we just go to an international market or an international currency? I love this book. Or housing. There's so much land. There's a finite number of houses, sort of. Why not real estate or equities or international markets, currencies or equities or debt or something else? Why this?
00:52:58
Speaker
I love this question. So I think what is a really hard concept for people to think about is what would a PE ratio look like in an economy with a money that's not being debased, the fiat. And when you think very deeply about that question, you will arrive at why I'm all in on Bitcoin versus stocks.
00:53:26
Speaker
Um, which is so bizarre because that's your, I mean, so that's my career in your life. Like that's how I found you was talking about the most traditional of investing, you know, you buffet books.com. Like you're the traditional investment guy. But here you are pivoting so much not out of hype or
00:53:45
Speaker
just general speculation. There's something there. It's based on math. So here's the math. So like, um, when, when I look at an equity and today it's priced and obviously I'm talking public, you know, large cap equity, if it's priced at at a 30 or somewhere in that ballpark, and we're saying that that's a yield that's equivalent to 3%,
00:54:05
Speaker
What happens when you move to a world and it was compressed to that 3% yield because credit was being compressed to a half a percent? So that's how it got there. And then as credit's unwinding, equity is staying at these really high premiums because there's nowhere else to go with your buying power. So it's continuing to be there. In fact, the multiples might even become higher.
00:54:34
Speaker
which is probably crazy to even think about. But I think that's where it goes next, is I think the multiples don't go down to 25. I think they actually, in dollar terms, I think they actually start going to like 35 and 40 as debt continues to explode.
00:54:52
Speaker
because there's nowhere else to go to preserve your buying power. And most people aren't going to understand Bitcoin until you're at a price in excess of a million dollars per Bitcoin. And then they're going to have to understand it or have to learn it. And then that's when it really starts to get interesting because then you're going to be looking at what's the value of the equity in Bitcoin terms.
00:55:15
Speaker
So you have to come to, well, what in this new world is going to be the risk-free rate? I think the risk-free rate is going to be a lightning channel capacity and how much a person... So if a person has Bitcoin, they can take those Bitcoin, they still hold the keys, they can open channels. I think all this is going to be term key.
00:55:38
Speaker
for a person that's squatting on Bitcoin. They're going to be open channels on layer two for immediate payment settlement, and you're going to collect fees for that routing. I think that is going to be the new risk-free rate because what's so interesting about that is you're still holding the keys.
00:55:56
Speaker
What in the history of humanity have you been able to hold the keys while the underlying asset or physical asset is being routed back and forth? I would equate this if people are trying to wrap their head around it. Think about like if I had gold bars and I wanted to open up an IOU network with you, Jim,
00:56:21
Speaker
I can do that, but the gold bars are still sitting in my vault and I still hold the key to the vault, but we can still settle them back and forth amongst each other. And if there's another person, a third person, I can open a channel with them and they can, they can basically use these gold bars that continue to be in my vault. It's almost akin to quantum mechanics.
00:56:49
Speaker
is what I would describe this. It's almost like I have a gold bar that can be in multiple places at once, is how a person can maybe wrap their head around this. And with that, you've de-risked me lending it out, because I'm not lending it out. I still hold the keys.
00:57:14
Speaker
And nobody else does, right? So that's what makes this really fascinating. That's why I think it'll be the new risk-free rate. Now, what percent fee am I going to be able to collect on an annualized basis for, let's say, 10 Bitcoin that would be in a vault?
00:57:30
Speaker
Because whatever that percent is in fee routing, I think is your new risk-free rate. Then you have to think, the next thing that I would say that is going to be a different concept than what most are accustomed to is how much of a premium above that risk-free rate is equity worth?
00:57:53
Speaker
for the price. So let's use some generic numbers here. Let's say that the routing fees for this Lightning network is 3%. Historically, in this fiat world, we would slap 200 basis points above that and say that that's an appropriate risk premium for equity, which would mean 5, which would mean a PE of 20 for equity. I don't think that that's going to be enough.
00:58:21
Speaker
personally. I think it's going to have to be higher than that. And I think it might even be aggressively higher than that. And so I'm just ballparking it here because when I look at my own personal Bitcoin, I know what I would be willing to part with it for and what yield I would have to be collecting on it for the risk that's associated with owning equity and their ability to produce future free cash flows.
00:58:48
Speaker
I think that number is like maybe 10, a PE of 10, which is a return of 10%.
00:58:58
Speaker
And obviously it's business dependent and the prospects of that business and its competitive mode and blah, blah, blah. But I think that you're going to, and another thing that I think makes this really hard to wrap our head around is like, what does AI introduce? Because I think that that's kind of a landmark technology that's way different than anything we've experienced in our lifetimes. And where that's going and the pace that it's going is going to really change things a lot as well.
00:59:26
Speaker
Uh, going back to the initial question and why I'm saying all this, there is a point is if, if the PE today is 30 and I think the PE is going to 40 and it's just ridiculously out of control versus the, the free cash flows that it's kicking off and the risk that that's associated with that. When I reprice it in Bitcoin terms, the prices have to be drastically different than where they're at right now.
00:59:53
Speaker
And for how much I think Bitcoin is going to appreciate in value between now and whatever that moment is in the future, there's no way equity can compete with that after it's repriced in Bitcoin terms, like not even remotely, like 80% lower than where it's at right now would, would peak my interest.
01:00:12
Speaker
It's amazing. It should, again, going back to the wildfire analogy, this should bring health and equilibrium back. Again, it might bring some pain to get there, but it should bring health back to an investing standpoint.
Stable Currency and Financial Planning
01:00:27
Speaker
Right now, most people are not investing. We're buying the market. Well, why are we buying the market? Is it because you think that these companies are actually valuable and
01:00:34
Speaker
they have opportunity for risk, you know, risk adjusted return that makes sense. It's primarily speculation. Again, I will I live in this weird dichotomous world of like, Bitcoin, maxi, crazy people, and financial planner CFP. Yeah, almost all them.
01:00:50
Speaker
Most financial lenders bury their heads in the sand to anything macroeconomic. The moment you mention anything about macroeconomics or fiscal or monetary policy, they say that you're trying to time the market or whatever versus living in reality. And there's this place of like, look, just buy the index. That's the safest thing to do. But again, I would argue, is that safe or is that just what the masses are doing? And why is that perceived as being safe? And there's so many weird things there when it comes to investing. And ideally,
01:01:18
Speaker
Again, this comes to this financial or monetization of everything, and these indexes are no longer used as investing. Oh, does this make sense as an investment? It's basically a savings tool. You just got to do something out of desperation, try to at least reach, if not try to moderately outperform inflation, and the implications of having a money that's not debased
01:01:43
Speaker
is astounding. One of the hardest things I think is, especially when interest rates were nothing, was, hey, Jim, we want to buy, like a few years ago, I hated this question. Hey, Jim, we want to buy a house in one or two years. What should we do with our money between now and then?
01:01:58
Speaker
It's like, well, Charlie, like, what do you do? Do you keep it in cash? Like where I live in New Braunfels, Texas, little town in Austin, San Antonio area. A few years ago, I mean, houses went up by 20 percent and then my house appreciated by 33 percent in one year and then about 20 percent and 10 percent. Like so if you keep it in cash.
01:02:16
Speaker
I just lost 33% purchasing power on my home in 2022. Do you put it in bonds? At that point, money markets were yielding nothing. Do you put in equities and risk a pullback in the markets? Where do you park this? That's a terrible thing that we have to speculate on. Again, this is not because our house is becoming that more valuable. Are that more people moving to new brawnfuls that it's 33% more valuable? Or is it the dollar that we're denominating these things in is becoming worth less?
01:02:43
Speaker
Bingo. We introduce a money that cannot be manipulated, suddenly the communication methods. Again, money is just simply a means of communicating, storing, and transferring value across space and time. For the moment we remove this hijacking of communication, we're able to actually sit here and have a better
01:03:02
Speaker
dialogue. Okay, well, I can, Jim, I want to buy a house in a year. It's like, okay, well, how much do you think new brothel is going to go by? And like, yeah, there's some underlying things like what's wood going to do? Like, is there going to be a big forest fire that causes all the wood to be depleted and suddenly what's going to cost a lot? Like,
01:03:18
Speaker
we could probably get a better idea. We think that housing, because the amount of people moving to this area, houses will go up by X amount most likely, but we're not sitting here trying to speculate on what's going to happen with our monetary policy over the next two years. They'll make it, just put it in, keep it in money, money itself versus, again, gosh, there's so much to be
01:03:41
Speaker
So many questions being begged out. What is money? What are good stores of value? Why is our money suddenly not a good store of value? That seems bizarre that money itself is a terrible store of value. And I think most people, even the people who don't think about this at all are starting to recognize that, wow, the dollar's a bad store of value right now, which doesn't make any sense.
01:04:00
Speaker
So yeah, it is really fun to think through the implications of having money that can't be hijacked by a centralized party or debased on a, especially at someone's whim and the impacts it'll have on investing and the need to speculate is fantastic. I think it would be great for civilization.
01:04:23
Speaker
Yeah. People just need to think that there's going to be things as, as we go through this big event horizon that we've been talking about, there's going to be things that perform best and there's going to be things that perform horrible. And then there's going to be a whole multitude of things in between. It's a vector of many different arrays. And, um, for me, I just want to own the best performing thing and, uh,
01:04:52
Speaker
And when I think if I was going to just generically quantify things for folks, it would be, you know, Bitcoin is going to outperform everything. Then equities are in there next. And then, you know, commodities could actually outperform some equities and it could then underperform and it's going to be very volatile in between. And it's really hard to do that because you're using it through futures. And then there's a huge,
01:05:21
Speaker
So I think for most people and a lot of its timing and the frequency of that performance, outperformance and underperformance is a very tight frequency. So that's really challenging for people to navigate, but those are going to be in there with equities and sometimes it'll be better and sometimes it'll be worse.
01:05:40
Speaker
And then you have real estates in there, which I kind of treat like, uh, equity as well. And that's so dependent on location, uh, the, the growth in that location, um, the politics in that location. And so speaking to that is a little difficult as well because it's very nuanced,
Strategies for Preserving Economic Value
01:05:59
Speaker
but think of it like anything else. If it's scarce and desirable, uh, it should probably perform quite well.
01:06:07
Speaker
And if it's not scarce and not desirable and there's not some type of local ecosystem that's fueling growth, making that land and that property more valuable, uh, well, then it's going to suck and go back to the, you know, use monopoly. If you want to understand which properties, um, and then at the very bottom, at the very, very bottom is going to be long duration debt.
01:06:32
Speaker
Um, short duration debt might be actually not a bad place to sit here and there as you're trying to navigate this violent volatile storm. Um, but I would say very short duration, like under a year type duration. Um, so like that's how people need to think about this. And it's all about the preservation of your buying power. And, and if you select and you have the right composition of this to navigate it based off of your appetite of volatility,
01:07:01
Speaker
Because I know that that's a huge, for me, it's not a big deal. The volatility doesn't scare me. When I feel like I actually understand something, I actually prefer the volatility. But I know a lot of people aren't like that. And a lot of it comes down to just their understanding and their conviction of what they own is why they can't tolerate a lot of volatility.
01:07:20
Speaker
And so they have to come up with whatever composition of all these different types of asset classes as they can to allow them to navigate it and still sleep well at night based off of what they feel like they know and don't know.
01:07:37
Speaker
I would kind of leave it there for them. And going back to the comment that I said earlier, where we're at right now in this event horizon, like you don't really have to have a whole lot on this to protect yourself from what's about to happen.
01:07:52
Speaker
And this is going to be very difficult for people to comprehend. But the further we go across this event horizon and into this new world that we're moving towards, as the price of Bitcoin runs higher and higher, when the price is at $500,000, I think this is going to have to compose about 10% of their overall portfolio value in dollar terms. OK?
01:08:15
Speaker
When it goes to a million, it's going to have to be twice as much as that. It's a 20% of their portfolio will have to be in Bitcoin at that point just to preserve the portfolio value.
01:08:32
Speaker
the German marks. At first, it's like, all right. Obviously, that happens at a parabolic rate, but up front, you just have a fraction of your money kept in US dollars at the time, talking about early 20th century, just a little bit in the US dollar and mostly in German marks.
01:08:50
Speaker
Then as it went off, suddenly if you have 99% of your money in German marks and 1% of the US dollar, you just lost 99% of your purchasing power.
01:09:04
Speaker
switch takes place. Yeah. There's there, there is more risk associated with owning the legacy asset itself. And how do you, how do you navigate these? There's way into the portfolio. This is what's going to be really, really, really difficult for people because they're going to be looking at a chart and remember you got to remove your brain and put their brain in there. They're going to be looking at a chart that looks like a tool of Ponzi.
01:09:32
Speaker
And they're going to be told by this imaginary Mario coin that we have no idea who invented it. Cause this is how they're, this is how they're looking at it, right? You and I don't look at it that we know it's backed by energy and all the hashing and like, we know all that, but they're not going to know the, the, the everyday person off the street isn't going to understand that.
01:09:54
Speaker
All they're going to know is that there's this imaginary coin that somehow floats around on the internet that we have no idea who invented it. And, uh, it's gone from 500,000 to a million in the past four months or six months or whatever. And everybody's telling me I need to buy it right now.
01:10:17
Speaker
And it's going to feel like a total trap to a lot of people and they're going to continue to sit on their hands. And the crazy part is, is that person at a million is going to have to have 20% of their life savings, their buying power in that thing at that moment in time. And today where people sit, they only need to have 1% that have the same protection. So.
01:10:41
Speaker
Why I say that is don't go buy it because I'm telling you to buy it or that somebody, because I'm not, I'm telling you, do your homework, do your research now. The only way you're going to be able to actually handle what's about to come is through knowledge and nobody can perform that work for you other than yourself. So go out and
Podcast Closure and Disclaimer
01:11:01
Speaker
do the work. Yeah. Knowledge builds conviction and conviction builds strong hands. So we've got to be based in knowledge. Otherwise you're going to get shook out. So.
01:11:10
Speaker
Well, Preston, thanks for, uh, thanks for taking time and talking with me. I appreciate it. That was a, that was a lot of fun. It was a blast and thanks for having me.
01:11:19
Speaker
Hey, thanks for listening to the Intentional Living podcast. Now today's show is simply entertainment and educational in nature. Do not take this as tax, legal, or investment advice. If you are looking for tax, legal, or investment advice, you should go talk with a tax, legal, and or investment advisor. Again, this content is simply educational and entertainment purposes.
01:11:46
Speaker
Thanks again for listening. We look forward to you joining us on the next episode.