You've had a dynamic where money has become freer than free.
We talk about a Fed just gone nuts.
All the central banks going nuts.
So it's all acting like safe haven.
I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins.
In the world of fiat currencies, Bitcoin is the victor.
I mean, that's part of the bull case for Bitcoin.
If you're not paying attention, you probably should be.
Mr. Broad, welcome back to the show.
Thanks, Marty. Great to be here.
What a week. What a week.
Thinking about I've had a lot of time to prepare for the show today because we thank you for the last minute agreeing in this morning where you are.
night where I am. We agreed to this recording early in the morning for me. You have since gone
to bed, woken up, gotten your day started, and here we go. And I think to start off,
this phrase has been in my mind for the last few days because my partner at 1031, John Arnold,
He writes our newsletter. And on Saturday, the sort of line he ran with was the Warren Buffett line, price is what you pay, value is what you get.
And I think we're in a market environment where people really need to dig into that first principle and understand where the value is, despite where prices may be, especially as it pertains to Bitcoin.
And you had that incredible tweet you sent out, I believe, yesterday or the day before about Bitcoin.
You've had some commentary on Warsh.
And I think this is a good sort of framing to jump into.
Well, where are prices and where's the actual value in your mind out there?
Yeah, so I think that's a key question for any investor.
So many people say to me, you know, where do you think the market is going?
Or where do you think gold is going?
Where do you think Bitcoin is going?
And and when they ask it, they mean the next move.
I mean, where's it going to be tomorrow?
Where's it going to be next week?
Where's it going to be next month?
And and the answer is, I don't know.
Nobody knows.
Like, I never know whether the next 10 or 20 percent is up or down.
And people who claim they know, you know, it's it's sort of like that old broker's trick
where they send, you know, half the people something saying buy the stock and the other
half sell the stock.
And then, you know, the half that it works with, they send them something else, buy the stock, sell the stock and they do it.
And, you know, at some point they've given two or three good recommendations in a row to somebody.
But it's not really predictive.
And so, you know, the question that I ask them with things like gold and silver and Bitcoin and these long term hard assets, I say to them, where do you think it's going to be five or 10 years from now?
Because I'm prepared to hold for a really long time.
And that's that's how you make a ton of money. That's how, you know, you start to make returns in the hundreds of percent rather than trying to scalp the next five or 10 percent.
And I think that's a key thing. And in the case of, you know, Bitcoin in particular, it reacted really badly to the Walsh nomination.
I mean, in fairness, gold and silver did, but they've recovered, you know, for the most part, Bitcoin hasn't yet.
And I think the Warsh nomination was really interesting.
First of all, the president surprised people.
They were expecting an ultra-dub with good reason.
I was too.
Based on his commentary, that's what you would expect.
The market generally doesn't like surprise, Marty.
I mean, you know, you've seen it.
When the market is surprised, even it's a good surprise,
and they don't like something they weren't expecting, right?
Right. And so there was this narrative, which I disagree with. But let's let's start with the narrative.
The narrative was Warsh is a hawk. He's going to raise rates. And in doing so, you have a higher yielding dollar against zero yield hard assets, gold, silver, Bitcoin that don't have a yield, but have a lot more value long term because they're not debased on an annual basis.
And so the thinking is, well, wait a minute, if Warsh is going to raise rates, he's going to be a hawk.
Then that's the place where fiat has an advantage over zero yield hard assets.
And it'll extend that advantage. And so you add people that were selling hard assets, again, gold, silver, Bitcoin and buying dollars.
Right. That's an effectively what they were doing. And I disagree.
So that is what was happening. And then you had rounds of deleveraging. So a lot of people had derivatives products where they were very, very leveraged. There's a huge paper silver market. There is a paper gold market. A lot of the people in Bitcoin now are using financial derivatives that effectively increases the tradable supply of Bitcoin and allows them to push the price around. But they're on margin too.
And so when prices drop, collateral is lower and margin requirements get tightened and people have forced selling.
They have non-discretionary selling.
And so when you're talking about price and value, you had people selling regardless of the value, regardless of the price.
It was you need to raise capital today.
And so they sell.
And then, you know, in what George Soros used to call reflexivity, that selling causes prices to drop.
and then people will in turn say, oh no, I have another round of margin calls. And so there's
more forced selling. And so the more forced selling and deleveraging there is, the lower
the price will drop, the more forced selling there will be. And that continues until there's either
capitulation where new money comes in, or you just like people are deleveraged enough that they don't
have to keep selling on a regular basis. And that's where you hit your bottoms.
Um, now the reason I think the, the Warsh take by the market was wrong, first of all,
Warsh is not a hawk.
He has come out publicly and said, Hey, I favor lower rates.
And as soon as he was nominated, I wrote a piece, I put it, you know, in our weekly five
things, I put it on the DKI blog.
But I basically said, look, Warsh wouldn't have gotten the job if he wouldn't have promised
President Trump lower rates.
because it wasn't going to happen.
And then it turns out last week,
the president spoke with NBC News and said,
yeah, Warsh told me lower rates.
I wouldn't have given the job otherwise.
And so somebody might say, well, of course,
of course he said that to the president.
He wanted the job, but he doesn't really mean it.
But Marty, what do you do in a situation
where somebody's public comments
match their private comments?
Like that's if their public comments
match their private comments,
you have a pretty good idea of where they stand. So that's point number one.
Point number two, Warsh may be sitting in the big chair, but he's not the whole Federal Reserve Open Market Committee.
He's got one vote. So if Warsh is a hawk and the other 11 members are pretty dovish, and they are, he can't outvote them.
He can only try to persuade them. He can't move the whole room. He just gets to sit in the big chair.
But at the end of the day, when they vote, he only has one vote.
And then the final thing, I don't know that there's a whole lot the Federal Reserve can do to really move long term rates.
You know, this is one area where I do disagree with the president.
President Trump is saying, hey, I want the Federal Reserve to lower rates.
But that that doesn't work.
The Fed only controls the overnight rate.
The bond market controls the rest of the yield curve, everything from one week to 30 years.
And so for people who don't follow this on a daily basis, let's just give the best, clearest, most recent example.
The Federal Reserve started cutting in September of 2024.
And over the last 16, 17 months, they've cut 175 basis points.
That's just a fancy finance way of saying 1.75%, just under 2% of overnight rate cuts.
And yet the yield on the 10-year rose.
Now, granted, it's come down a bit since then, but over that time, the yield on the 10-year treasury actually increased.
And so, you know, somebody might say, well, wait a minute.
Why is this happening?
The Wall Street Journal even said somehow, right, somehow we're getting higher rates.
It's not somehow.
The bond market is correctly pricing in higher long-term inflation.
That's exactly what's happening.
So the president can put Warsh in.
Warsh can say, I want to cut. Warsh can cut. The Federal Reserve can cut. But the bond market is saying, we don't believe you. And we're going to, you know, set the real borrowing rate where the five year is. That's where corporates get priced. The 10 year, that's where mortgages get priced. Right. That gets priced off of future inflation projections.
So there just isn't that level of control anymore. Now, the one place where I think the Bitcoin bears have made a valid point is they've said, yeah, but, you know, Warsh is in favor of QT. OK, fancy way of saying quantitative tightening, which, again, that's just a finance way of saying they're going to reduce the money supply.
So what happened was the Federal Reserve had a balance sheet of about $3 trillion.
They do need a certain amount for liquidity.
$2-3 trillion is what people generally think would be normal or reasonable.
Let's just accept that number is true.
During COVID, that number ballooned to $9 trillion, including trillions of dollars of mortgage-backed securities, which the Federal Reserve is not legally allowed to hold.
Anyone wants to know why housing prices are so expensive?
look to the Federal Reserve, right? It's not your greedy broker. They're not taking that much money.
So what happened then was Powell's Fed started to cut on a monthly basis. And I was skeptical
that they would cut very much. But to their credit, they took a good $2, $3 trillion
out of that total. And right now the Fed balance sheet is a little over $6 trillion.
Okay, that was real progress. Now, to the people who are saying, well, wait a minute,
Warsh is going to engage in quantitative tightening. He's going to tighten the money supply. That's bad for Bitcoin.
OK, fair enough. But over the last two years, Powell's Fed has cut almost three trillion dollars off the balance sheet.
We got record equity prices, record gold prices, record silver prices.
And just last October, which is only a few months ago, record Bitcoin prices.
Clearly, it's not everything. And then the final point I would make about that is let's say Warsh comes in and he cuts three trillion dollars.
off the Fed's balance sheet on day one. Now, that's a ridiculous example, and I'm deliberately
being extreme. But let's say that happens. OK, that's one year of congressional overspending.
Give it 12 months and M2 will be right back where it was. Right. So the most he can do
is offset one year of congressional overspending. And look, if you're trading Bitcoin, if you care
where the next 10 or 20%, which direction that's going to be, that matters. But if you're somebody
with a long-term timeframe, if you're looking out five, 10 years and you own Bitcoin because it's a
better option than constantly debased fiat, right? Or the dollar, the yen, right? Fiat is a government
currency. If that's why you own it, then wait 12 months. And for real Bitcoiners, that's nothing,
right we've we've been through worse than that together that is a blip on the radar in the the
yeah on the large scale of things and i wanted to um touch back on the 10 year and the fact that
you have the bond market pricing in uh inflation elevated inflation and obviously with qt if it's
still on the table. Many people are saying like, why does the market think that inflation is going
to be high? What do you think are the drivers of that inflation? Is it this mad dash for AI
infrastructure having an effect on electricity prices, which is the raw input, is this
re-industrialization, tariff regime, a sort of implicit acknowledgement that at some point
there may be a liquidity crisis that forces the Fed's hand and Treasury's hand to really
turn on the monetary spigots. What do you think the market's seeing right now in terms of inflation?
All right. So we've got the proposed ideas. Let's take them all here. Tariffs, AI, electricity.
What were the other things you mentioned?
um ai tariffs electricity re-industrialization um potential liquidity crisis that forces the feds hand
what do you what do you think the market's trying to say all right so i have an opinion on this but
let's take these things one at a time right let's let's approve or debunk each one of those um
So tariffs, it's clearly not that, right? You remember Liberation Day last April,
all the fiat economists went crazy. Oh, no, he's going to crash the global economy.
That didn't happen. Oh, no, he's going to crash the economy of the United States.
That didn't happen. Oh, no, we're going to have a huge resurgence of inflation. Now, listen,
I think inflation is too high. I think the CPI is understated. But when you look at the durable
goods numbers, inflation did not spike. None of this happened. And then, you know, to the credit
of the fiat economists, they came out over the summer and they said, well, there's supply chain
issues. It'll take some time. We really won't know until September or October. Okay. You know what?
That was a fair prime, right? Like to say, it'll take a while for this to work its way through the
system. You'll start to see higher prices. Well, guess what? That still hasn't happened. And it's
been almost a year. And if these fiat economists had any integrity at all, they would simply say,
I was wrong. But they haven't done that. Where's Paul Krugman coming out and saying,
I got it wrong. They don't do that. And listen, Marty, at Deep Knowledge Investing,
we don't get a lot of stock picks wrong. But when I do, you better believe I write to my
subscribers in very clear language. I was wrong. This is why I was wrong. I apologize for the error.
Right. We lost money. I screwed up. And and you have to own that mistake or you don't learn from it.
But these Keynesians, these fiat economists, like they haven't admitted they were wrong about tariffs.
And so, you know, we can talk about the reasons why tariffs haven't caused inflation.
And I have opinions on that. I actually think Pompliano put out a great piece on it last year.
Like there's there are reasons to believe that it wasn't going to cause a problem.
That was my opinion, and it didn't. And people should admit it on the electricity thing.
I think that's a really big deal to families. I think, you know, when you own a home and all of a sudden your electric bill is up three hundred, five hundred, six hundred dollars a month, you know, over where it was a year ago.
And it's because, you know, Amazon and Google have bought up all the power in your area because they don't care how much they pay.
And they have, you know, they have a bigger balance sheet than any of us do.
I think that's really hard.
I think that's brutal.
But I also don't think that's been an inflation driver.
And because take a look at overall energy prices.
They have been rising.
And, you know, gas is insanely cheap right now. Right. So a lot of these prices have come down. And so, yeah, it's unpleasant to have a high electric bill. But the gas bill for your car to commute to work is down as well.
So I don't know. I think long term, what we're going to have is a gigantic increase in energy production capacity.
I think we're entering a new golden age for nuclear power.
The president has done two things. One is allocated a billion dollars for 10 Gen 3 nuclear plants.
Those are the big ones. We're also recommissioning three decommissioned reactors in the Midwest.
That's never been done before. And then I own a ton of uranium and also, you know, an SMR company, a small modular reactor company.
The ability to start to build small nuclear reactors very quickly and roll them out and start to produce a lot of power is there.
Now, is that going to happen right away? No.
But long term, I think, you know, as long as we keep building power generation and I'm hoping nuclear is the answer there, I think we'll be all right.
Industrialization, completely not worried about that.
And the reason is the economy that we've had over the last 40, 50 years has involved outsourcing everything.
In the United States, we no longer make things.
Except for Intel, we don't have the ability to make our own semiconductors.
We don't make our own pharmaceuticals.
We can't build ships. More and more cars are being built overseas.
Even the cars we are building in the United States, we're getting whole components, not just parts, like entire systems being shipped from overseas.
There's a lot we used to be able to make that we can't make anymore.
I think we need to reverse that.
I think having a country where you know we only export dollars in financial services that not going to work It not going to work for most of the country and it certainly not going to work
for the rest of our lives. That's not a long-term plan. You need to be able to produce things. So
listen, even if that creates inflation, you do have a situation where people will have better
wages because of it, and the quality of life won't drop. So the thing that I'm left with,
I do think we're facing a lot of inflation, but it's all related to congressional overspending. And unfortunately, that's not a partisan issue. We can't vote our way out of it. Both parties overspend. Democrats overspend and Republicans run for office saying, this is crazy. These Democrats are spending like crazy. We're the adults in the room. Elect us. We'll be fiscally responsible.
And Marty, do they ever cut spending or do they take the crazy Democrat budgets and say, oh, that's our baseline.
We're going to spend more money from here.
The latter, even if even if it becomes apparent that a lot of the spending is overt fraud, which has happened over the last few months.
And and I think people understand that it's wrong. But what I really like and what I'm trying to do is help people understand how that theft, that wasteful spending affects our quality of life.
And it's really easy to say, well, you know, we should have pensions and Social Security.
OK, yeah, fair.
OK, good.
Right.
But, you know, we also need to have free health care for everybody.
OK.
And now, you know, we're going to pay for everyone's housing and everybody's food and, you know, welfare payments.
And it's really easy for people to say, well, you heartless monster, you horrible, heartless monster.
Why?
You know, why are you against all of that?
And you don't have to be for it or against it.
What you have to do is tie it so that people understand that that spending and the government waste and the fraud and the theft.
You if you're listening to this, you are paying for that and you're paying for it through inflation.
You're paying for it through higher prices. You're paying for it through housing that's not affordable, which leads to a lower merit rate, which leads to a lower birth rate.
Right. Our whole society is experiencing cataclysmic changes simply because of this.
And if you want to say, well, hey, I'm still in favor of it. I still think we need all of these government programs and we need to spend six trillion dollars a year.
You know, I think it's five trillion on balance sheet and another three or four trillion off balance sheet.
Right. And we should take care of everybody and pay for everything. And you're a heartless monster if you disagree.
OK, cool. But then own it and explain to every young person, just so you know, you're not going to be able to buy a house because we're paying for these programs.
That's why everything is so expensive. And we're going to keep debasing the currency and make it impossible for people to save in dollars.
So now everybody needs, Marty, the same skill set that you and I have or in the absence of developing that skill set.
And in my case, you know, it came working 80, 90, 100 hours per week for years and years and years and working every weekend and studying and learning like that.
That financial education doesn't come cheap. Right.
And so, you know, what we have instead is all kinds of insane gambling behavior.
People say, why are these people throwing money at, you know, at crypto, not Bitcoin, crypto, right?
Why are they buying Dogecoin, which was set up as a joke?
Why are they all on, you know, sports betting or prediction market betting?
And the answer is because it's a casino, because people understand that the existing system doesn't work for them, that they're not able to build wealth in it.
They can't save in dollars.
and so you know it's kind of like you know win big or die trying and it's turned everybody into
a bunch of gamblers and that's that's not what you want you don't want a bunch of young people
who are gambling you want people who are working and building and saving and investing when i talk
about these things these are not just financial changes these are societal changes and again i
I can see it in the comments already.
Hey, you're a heartless monster.
No, I'm not.
But own the consequences.
Explain to people, your lives have changed for the worse because we think this is worth doing.
Explain it like there are tradeoffs because there are.
These are all tradeoffs.
You can't have guns, butter, bread, circuses, and sound currency.
Can't exist.
People need tough love.
Tough love is not a bad thing.
It is a form of love.
It's abrasive to some people, but it's all out of love.
You have to ask the hard questions.
And I had a good friend describe the economy you just articulated well, the high-velocity trash economy.
That is what we've gotten to, enabled by fiat, where I'm sure you've seen the meme.
But everybody and their mother, particularly, particularly if you're a younger millennial or Gen Z, they're all speed running to to escape the permanent underclass with the emergence of of A.I. taking over, taking over the world right now.
you know what marty i you're completely right and and let me like give you an example one of my
friends he is a you know talented guy in his 30s he's smart well educated has a really good
technical skill set very disciplined you know he's a regular at the gym he develops new skills he's
charismatic you know socially adept um this is somebody you know he's got a real job and he has
the whole thing together. But it's so hard for him to build wealth that he's busy buying zero
data expiration options. And I've spoken to him. He doesn't know anything about finance.
He took like a few thousand dollars. I think like five thousand dollars, ran it up to one hundred
sixty thousand dollars. Like, OK, wow, that that's that's incredible. That's impressive.
And I said, well, then what happened? He said, oh, yeah, I lost it all.
okay and and and he doesn't know why he doesn't know why he made money he doesn't know why he
lost money he just knows he was in the the financial market casino and he's not thinking
about how do i invest over the next 10 20 or in his case you know 50 years he's thinking about
how do i make you know 40 percent in the afternoon so freaks if you've been listening for a while
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It's very pervasive. You see now with the prediction markets,
in the open claw AI bot craze that's taken over the internet over the last few weeks,
people are immediately like first thing they go build is a trading bot that can scour poly market
for markets that have large arbitrage opportunities and trying to automatically flip these prediction market bets.
Oh, they're buying a pie market and selling on Kalshi, something like that?
Well, that is like, there's like weather markets.
Like they're basically betting on the weather, what the actual temperature in Milan will be at 12 p.m. tomorrow.
And they have AI running the strategies for them.
But again, to your point, the economy and the individuals within the economy are forced to think like this.
And it's incredibly acidic to social cohesion and society at large.
And it's something that is becoming more and more apparent and more and more confusing.
Maybe the fact that this environment exists isn't more confusing, but the way out, a clear way out is becoming more and more confusing,
especially, again, once you layer on AI specifically and the potential job disruption that can come if it is successful at replacing humans for white collar jobs.
And that's one thing you wrote in your weekly letter this week was highlighting the CapEx spend that's planned for these hyperscalers specifically.
And it's funny, I was actually talking about it earlier today with John from our team.
And it's Meta, Microsoft, Google, or yeah, Google and Amazon.
Just the four of those based off their most recent earning calls from earlier this month,
600 plus billion in CapEx expenditure for this year alone.
Insane numbers.
Yeah, yeah, more than half a trillion dollars.
and you know here's the really interesting thing i i think help me out of this i think it was was
harrison kupperman cuppy um who pointed this out i think he was the one who called a bunch of people
running these ai data centers and said what's your business model how are you going to make
money on this and all of them said we have no idea this doesn't make sense to us but everybody's
doing it so we just figured somebody else had figured it out and this was the thing to do
and you know it reminds me you know it's weird that in general the hedge fund business tends to
be guys who do a ton of work they know their positions very well but every now and then i
find something where you know i talk to a bunch of you know hedge fund guys and they're all buying
something and the thesis is just wrong it doesn't make sense basic research would have uncovered
it doesn't work. And it's not what they thought it was, but they're all counting on each other.
It's basically Fund A is saying, well, I know we're good because Fund B bought it and they're
really smart. And they're saying, well, we bought it because Fund C bought it and they're really
smart. And Fund C is really smart. And then Fund D says, well, Fund A bought it and they're really
smart. And it ends up being a circular thing where if you basically research your way down
to the bottom of it, you find out that it was some like 23 year old analyst at one of these funds
who, you know, who's smart and hardworking, but misunderstood something. They got one wrong piece
of information out there and everybody is counting on everybody else to do the work.
And I find these situations on occasion and then you want to take the other side of it.
I think the same thing happened in the AI data center space where everybody's saying, well,
this doesn't make sense to me, but everybody else is doing it. They must be right.
Right. The people that matter are saying, well, Google's doing it. Google's saying Microsoft is
doing it. Right. That Microsoft is saying, well, it's working in Amazon, but is it really working?
You know, the thing that I find remarkable about this is these guys, they're not only spending
hundreds of billions of dollars without a business plan to earn a return on that.
it's not just that, Marty. It's that the spending has to keep going. It's, you know, back in the
90s, there was this really interesting thesis on the companies that built out the infrastructure
for the internet, like the cable companies running fiber everywhere. And the bulls were saying,
look, this is incredibly valuable. They own these assets. The bears were saying, yeah,
but they have to keep paying to roll it out. But the answer was, once you rolled out fiber to a
neighborhood, then you had that market, right? You owned the fiber to that neighborhood. You
didn't need to keep spending for it. The issue with AI is every six months, it's a completely
new product, right? Things move two, three months at a time. And so if you spend $500 billion,
dollars, half a trillion dollars on AI, you have to keep spending or your model is irrelevant
within six months, right? Anthropic will just take over. And the thing that really worries me
for the equity markets, and this I think is maybe the biggest risk to the equity markets today,
we've all seen how much of the stock market return has depended on six or seven companies
over the past few years. It's been our returns have been incredibly concentrated. So let's take
a look at what's going on at OpenAI. First of all, they came out and said that they expected to lose,
I think it was $125 billion over the next four years-ish. Okay. Well, they don't have $120
billion, but that's not really the problem because if somebody wants to say, well, come on,
They can do an equity raise. They can they can raise one hundred twenty five billion dollars.
My answer to that is sure. Yeah, I I believe that. I believe they can.
But, Marty, they have taken on one point four trillion dollars of of liabilities, of promises to Oracle, to NVIDIA, to Microsoft.
up out, right? So they need $1.4 trillion plus another $125 billion of losses. They need $1.5
trillion of cash to do what they've said they're going to do. And if they don't deliver,
then you're going to have slowing growth rates at places like NVIDIA, which could literally take
down the entire stock market. Or you have situations, Oracle right now, they're spending
real cash to build up data centers for open ai well if open ai doesn't have the money to pay oracle
that's going to be a problem right because the money is spent and so you know listen i i pay my
20 a month um for um for chat gpt but that's that's not going to get them 125 billion dollars
and it's certainly not going to get one and a half trillion dollars so i don't know where these guys
are going to earn a return on any of this.
It's like the numbers are insane.
Just thinking back to like TARP
and the bailout of 2008,
like what was it, 700 billion, 800 billion bailout
was unfathomable back then.
And then you have these private companies
that are 1.5 trillion in the hole.
It's like, yeah, we'll get to it.
And to your point about a workbook too.
Obama was talking,
He was talking about bailing out the whole economy with a trillion dollars of shovel-ready projects.
Right?
The trillion-dollar coin was a meme.
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It's insane, but to your point about these hyperscalers, specifically in Oracle, that's the one, because it's weird.
again it's like this like i said it's very unclear what the other side looks like because i can squint
and can see them maybe being able to thread the needle like i was telling you before we hit record
i've been using we've been using ai here at tftc and it's helped our productivity immensely but as
you said these models aren't perfect it can give you uh a objectively wrong answer with confidence
And what I come to find is if you like what makes we use Claude predominantly what makes it very efficient and product productive for us specifically is knowing how to feed a context to pull from Like when we doing things it like OK I want you to pull from this source this source and this source specifically Don deviate from these things
and help us do the work focused on these things.
And it's very productive there.
But I had a conversation with Mel Madison
talking about what could sort of perturb this AI wave.
And it's just people simply not knowing how to implement it.
And so I think that's a big problem that they have either not knowing how to implement it or just not trying to because they understand that if they do it successfully, it could replace their job at the end of the day.
So you have this sort of psychological and implementation problem on one side, too.
And if those are solved, could lead to the revenue that could get a return on invested capital for them.
But it seems like it is a needle that needs to be threaded, a very, very thin hole, too.
Yeah, the other day, somebody asked me if I thought my job was going to be replaced by AI.
and look at you know everybody may be one day but um you know first of all the way i make money
is by taking the same information everybody else has and seeing it differently that that kind of
vision as of today is unique to human beings i mean could ai see patterns differently eventually
maybe you know but the key thing is it's all right to use it for analysis but you need to know
where to check. And this issue of giving wrong answers with confidence is it's a really big deal.
And, you know, I had a situation a few months ago. I was in Spain. I was in actually Ibiza and I
wanted it or Ibiza as they pronounce it, you know, and I was racing to get the ferry to Mallorca.
and, you know, I was running a little bit late
and the harbor is really large.
You know, it curves around.
You have to find the right spot.
And so I go to ChetGVT and I say,
hey, give me a Google map length.
Which direction is it?
Because that harbor is really big.
And it gives me a length and I'm following it.
And then like I take a look,
it's in the middle of the ocean.
I'm like, okay, I idiot.
I just told you I'm running late.
you like, I don't care how you got it wrong. But if you give me a map link in the middle of the
ocean, that's clearly not the right place to go, right? That's the boat is not loading passengers.
The port, the harbor is not in the middle of the ocean. So, you know, you get stuff like that. And
then you also get like weird things. There's a whole agentic issue, which hopefully will be solved
one day. But, you know, I'll say, hey, I'm looking for a place to stay. And I'm, you know,
I'm going to go to this place for the weekend.
And it'll say, well, here are the three or four places that I think are best.
OK, that sounds good.
And it'll say, would you like me to email each of those places and see if they have availability
and what their rates are for the weekend?
Yeah, that would be great.
And then it'll end up saying, OK, well, you know, or would you like me to call them?
Yeah, go ahead.
Call them.
Go do that.
And then it'll say, well, I can't actually do that.
But if you want, I can give you the phone number.
I can't actually send an email, but if you want, I'll give you the email address.
I'm like, that's not it.
It reminds me of that really old Seinfeld episode where Kramer's phone number ends up being very similar to the number people called like movie phone.
Right. You know, if you want this movie, press one.
If you want this movie, press two.
And then people would press the button and he wouldn't know what it was.
And he would end up saying, why don't you tell me the name of the movie you want to see?
like that's i feel like i'm in the middle of a 90s seinfeld episode when i'm talking to chet gpt
yeah i will say though the agentic stuff is getting better like i i spun up one of these
agents a few weeks ago i gave it its own email and it can successfully send emails on command or
i'll cc it on emails and it's able to basically um give me a synopsis i'll cc it on emails and
at the end of the day be like okay what do i need to respond to and it does a good job of highlighting
that so it is getting better into the point of threading the needle and the capex spend like
that's the thing they need to spend more to your point because these models are progressing at such
a rapid pace and i think that's the big question and everybody's buying like when do we get to a
point where the models are good enough to do everything and you can have confidence that
you can build out infrastructure and acquire a sort of GPUs, a number of GPUs with a certain
firmware, hardware, or a certain caliber, and have confidence that you'll be able to plug that in and
run it successfully and profitably into the long run. And I have no idea when we're going to reach
that point, but I think that's the big question that needs to be answered. But going back to your
point on Oracle, that is the one chart I've seen floating around that does give me pause and makes
me think that the potential for dot-com like blow up in this, um, this part of the market is, is,
um, a serious possibility is the, the CDS value of, uh, Oracle's, um, debt. So it looks like that
spike in the yields on that debt spiking pretty high, almost at dot-com levels as well, which is,
would not be good so i i agree with you and i actually think the problem is worse and here's why
if oracle has problems because they spent money building out data centers and open ai doesn't have
the money to pay for those data centers um that means open ai doesn't have the money to pay nvidia
for the next x number of you know blackwell processors or you know whichever one comes next
what happens to not only the valuation of NVIDIA, but the entire market index,
if the growth rate at NVIDIA slows and people have to start reducing estimates, you know,
we're used to these guys coming out like, yeah, we beat revenue from last year by, you know,
a hundred percent, we'd be revenue by last year by 90%. And we're raising estimates, right? Where,
you know, your guide, your numbers are too low. We're raising guidance. And that's, that's why
Nvidia has such an incredible market cabin to their credit. You know, they build incredible
product and they've identified a segment of the market where there's a ton of growth and they are
the unquestioned leader. It's an amazing company. But if all of a sudden they get on a conference
call and they say, you know, our growth rate is slowing to 45%, which would still be incredible.
and we're lowering guidance you know marty here's the question what happens to nvidia stock
and then microsoft and google and amazon and once that whole um pyramid collapses
what happens like at that point everything gets sold intel amd oracle um you know all of these
companies and the tech sector once that implodes you know everything but deep value is going to go
down with it now permanently no but that's going to be a really unpleasant two or three days
is that how long you think would last and then the fed would step in say hey we're gonna make sure
that's the other weird thing about this ai conversation too is that it um it seems to be
existentially important to the current administration um i think they've implicitly
single signaled like we will we will not spare any cost to make sure that we win this ai race
And so like a bailout of that sector seems very much on the table.
Yeah, so that's something that Alex McCrease has written about a lot.
And the two of you share the same opinion.
I agree with both of you.
The administration has said we've got one bet, right?
We don't we're getting killed on the industrialization side.
China makes a ton of things.
We're not making a whole lot here except for dollars.
there is that sense that the next thing is going to be AI. We have to win. And, you know,
in fairness right now, we have the best companies in the world designing here in the United States.
I think, you know, the U.S. companies are by far the best in the world. But, you know, China has
one gigantic advantage, which is they've built out their power infrastructure and are doing so
really quickly. And we're falling behind in that area. And I think that's a place where the Trump
administration is correctly throwing a lot of assets at, you know, wait a minute, you know,
we not only need to win this AI war, but to do it, we're going to need real infrastructure,
not just bits, right, but actual power plants, actual nuclear generators, things like that.
So I, you know, I think that's going to be a huge part of it. I also think your point,
on the Fed is really important. I was having a conversation with a friend of mine the other day,
really smart person, but not, you know, a finance person. And he said, you know, I can't figure out
if we're going to have, you know, when there's a problem, if we're going to have inflation,
or we're going to have basically so much debt wiped out of the system in a depression,
not a recession, a depression, that you end up with deflation, right? Kind of like the 1929,
you know, you can buy this, you know, brand new expensive car for $100, right? We've all seen
that picture, all right? $100, we'll buy this car. And I think, you know, the government,
the Federal Reserve, they've given us the answer long before we get to that point.
They will go to, you know, they'll all become helicopter men and start just spraying stimulus into the economy.
We will end up with nominal growth, but real negative growth.
And in a situation like that, Marty, what do you want to own?
Right. Let's start with Bitcoin and then gold and then silver and then, you know, maybe a little bit of oil,
although energy prices will be down in that scenario.
But in a situation like that, you want to own hard assets.
Yeah.
And that's a good addition to the Warsh commentary too,
because that's another thing I think sort of flew under the radar of his nomination specifically
is that obviously Bissendt's been talking about being in this position of Secretary Treasury
because he wants to be sort of behind the wheel.
We were going through a monetary reordering,
and then in parallel you have Trump saber-rattling the Federal Reserve,
saying, I want more control over it.
I want the Treasury specifically to work in tandem with the Federal,
or vice versa.
I want the Federal Reserve to basically go along with what the Treasury says it wants to do.
And then you have Warsh, who is an acolyte of Stan Druckenmiller,
as is Scott Pesant. And there's this sort of theme emerging that people are getting put in
positions that have worked together in the past or are very similar or share very similar worldviews
on the economy and where it needs to go so that they will have that sort of conducive
cooperation between the Fed and the Treasury as well. And so I think Warsh is
uh basically being put there because it's like okay you and scott basically came up
uh through the ranks via um via the same route working with the same people with the same
perspective of market and so you're gonna get in here and you guys are gonna go to work together
yeah and i think that's right and the thing that's really interesting to me is all these
people saying, oh, no, you know, the White House is meddling at the Fed. The Fed has lost its
independence. You know, we've lost faith in the financial markets. OK, let's let's take that
apart. First of all, why anyone had faith in the financial markets a year ago is beyond me.
Why? Why would anyone have faith in the U.S. government or the dollar?
The dollar is being debased into oblivion as all fiat has been through history. No fiat has ever
survived, right? 775 of them in history, they all go to zero. This is the nature of the world.
You know, why anybody looked at a US government with now $38 trillion in on-balance sheet debt
and another $200 trillion of off-balance sheet? Let's do the math on that. We're talking about
almost a quarter of a quadrillion dollars of liabilities, right? And people were saying,
now we've lost faith in the system. Where were you last week, right? Why did you have faith in
this last week, nobody's paying a quarter of a quadrillion dollars. Zimbabwe wasn't paying a
quarter of a quadrillion, whatever they, you know. This is insane. The whole thing is completely
insane. Beyond that, right, people are saying, oh, no, President Trump, he was acting outside
of democratic norms. We've never seen meddling like this before. You know, we've lost faith in
the Fed. This is going to kill the markets. What are you kidding me? This has been going on since
the creation of the Federal Reserve, President Trump has done only one thing different, which is
he's had these arguments in public. He does it in a way that we can all see, right? That old
expression, you know, never look at how the sausage is made, right? Especially in regard to
legislation. The only difference is he's doing what had always been done behind closed doors
in public. That's it. That's the only difference. And people who are saying, oh, no, you know,
the White House wants control of the Fed. What do they think FDR had? Right. He literally insisted
that his Treasury secretary also be chairman of the Federal Reserve. And the whole country went
along with that for decades. You know, you had Lyndon Johnson slamming Arthur Burns into a wall,
literally picking him up, slamming him into a wall. And they're saying, oh, no, you know,
President Trump said mean things about Jerome Powell on social media. How will the Republic
it survived. Well, how did it survive the Fed chairman literally being strong armed and shoved
into a wall by the president saying, I want lower rates? President Nixon, you know, same thing. He
strong armed his, you know, again, it tried to put pressure on the Federal Reserve for lower rates.
That didn't work out well for the rest of the 1970s. Right. Janet Yellen shortened the duration
of Treasury securities. The reason we've had such large Treasury security auctions this year
is because Yellen was stacking the deck for her teeth, right? Saying we're going to take the lower
short-term rates and not do as much long-term financing, even though rates were relatively low.
That was to help the Democratic Party try to win the 2024 election. Okay. You know, I get that.
The point is, and again, I can see in the comments, somebody's going to say,
oh, he's OK with his meddling. No, I'm not OK with it. It's never been OK, but it is going to
continue until we get rid of the Federal Reserve. And if somebody wants to point out that's never
going to happen. OK, great. Got it. Then you should also expect that the meddling will never
stop either. This is the Federal Reserve was created for this exact purpose. So, you know,
if somebody wants to say, well, you know, the the Fed will never be eliminated. Stop whining about
it, okay, then the White House will never stop meddling with the Federal Reserve. Stop whining
about it. They were always tied together. The only difference is we're now getting the show
on social media instead of being reported a decade later by some staffer who happened to be in the
room at the time, and they write their memoirs. Yeah, and I think the FDR example is the best
because it just highlights the hypocrisy. He's vaunted as this hero of people that like social
welfare programs. And he was, I think, before Trump, probably the most egregious of with this
meddling specifically. He came in, said, here's what we're doing. You know, you're right. I also
think it's really interesting that, you know, Democrats spent the last two years of the Biden
administration screaming, we need lower rates. Elizabeth Warren, right? She was constantly saying
we need lower rates. The Federal Reserve has to lower rates. OK, well, now we have a president
who's trying to strong arm the Fed into lowering rates, which, by the way, I disagree with the
strong army and I disagree that, you know, that the Fed should lower rates. But the whole point is
Warren is now getting what she said she wanted, but she doesn't seem happy. Why does she never
seem happy, Marty? Yeah, because she's a miserable old woman. What are the people in Massachusetts
doing? That's what I want to know. That's my question with Elizabeth Warren. How can you keep
voting her back in, but I don't think we're going to solve that in this discussion.
I don't know. Right. But the point of all this is this was never about policy. It was about
partisan politics, you know, and and that's like that's fine. But then admit, you know,
you're cheering for Team Red or Team Blue and, you know, you're you're cheering for your team's
colors and that's fine. But, you know, if we're going to go to real policy, the Federal Reserve
has never been independent. It shouldn't exist. It's never going to be independent. I don't like
that, but that's the way it is. But nothing has really changed now. And the same people who two
years ago were screaming for lower rates. Now that you have a president who's agitating for lower
rates, again, something I disagree with, they're not happy with it. So I can only draw the conclusion
that this has nothing to do with policy. These are not people who understand finance and are
trying to make a good decision. They just want to score points for their team. And again,
they're entitled to do that, but I'm also not going to take them seriously.
Yeah. Another policy that I'm interested to get your thoughts on, shifting gears a bit, but
I was thinking about it earlier today the Trump children equities accounts or the investment accounts what are your thoughts on this this is like a is this like a sly like semi bailout of equity markets
or is this like a good um good product for american citizens that that we should be happy about
so you're you're talking about the um the idea that every newborn is going to get a
basically a stock market account paid for.
You know, he makes it seem like paid for by President Trump, but but it's not as paid for by the American taxpayers through inflation.
Right. That's. So, look, I have mixed feelings about this.
Big picture. I am against it. Everybody at first of all, he shouldn't act like the Trump account or like, you know, Obamacare.
Like these guys act like they're paying for it. You have your your, you know, 401k account or you have your kids trust fund account or your health care.
It's because of the guy. Right. It's the same thing. I'm in Thailand right now.
The first time I came here, somebody was telling me how much they love.
This is this is more than 20 years ago. They were telling me how much they love the king because he built them this wonderful highway.
okay you know um but but at any rate they act like i i personally have bequeathed to you
this you know this this wonderful largesse now it is being paid for by the rest of the country
through inflation in general i'm against these things now i know i said mixed feelings and
here's why I have mixed feelings. Almost all of our spending now is for consumption. And that is
a terrible thing. You know, Rudy Havenstein, the pseudonym for one of my favorite X or Twitter
accounts, constantly will write, where's our Hoover Dam? And what he means by that is the
government is spending, you know, $5 trillion a year. But where's the infrastructure for that?
Where's the investment? And the answer is we're not building infrastructure. We're not building investments.
We're spending it on consumption and pretending that's an investment.
And so the one thing, the only thing I like about this stuff is at least this spending is actually for long time duration investments.
And I think, listen, our government spends too much and acting like you per you, Marty, you're getting something because I, the president and bequeathing it to you, whether it's, you know, a Democratic president or Republican president.
I don't think that matters so much.
You know, I don't think that's the right way to go.
But at a minimum, at least this spending is for investment instead of for consumption.
So it's better than anything else they're doing with our money.
Yeah, that's a good point. As somebody with three young children, I mean, if they're going to offer it, I'm going to take it, I'm going to sign them up, fill out that form.
You might as well. You're going to pay for it.
Yeah, exactly. Might as well get some benefit from it, at least for my kids.
And speaking of that, oh, God, you know, just one other thought, too.
We were talking earlier about how our constantly debased, untrustworthy currency is leading young people to treat their financial lives like casinos.
And, you know, I want to be clear on something.
I don't blame them for it.
I think it's a bad decision, but they're facing pressures that don't make sense.
And they don't see a system that's working for them.
If these these basically trust fund accounts lead to less of that behavior 20 years from now and people say, OK, you know, I own stocks, I see the value of long term investing.
Then maybe we get less casino behavior from our young people because they'll see it through the course of their lives.
And maybe 20 years from now, we end up with people making better financial decisions.
You know, on a personal note, do I do I have time to tell you a personal story on why this matters?
Yeah. So years ago, I was starting a hedge fund called the Key to Capital with a partner.
And we agreed we wouldn't have any outside positions.
And I had, you know, Atlantic Richfield stock that my dad had bought me when I was six months old.
and um i went and i took a look and um you know i contacted atlantic richfield i said hey i need
like the history of this account and my dad had bought me 19 shares right this was you know six
months after i was born i looked at that that's really weird and i'm just staring at the screen
what what what really happened i would have understood 20 because it's a round number
You know, people think in terms of 10, I would have understood 18 because I'm Jewish and 18 corresponds to the letter high, which means life.
It's gifts are frequently multiples of 18.
Right. Like here's like something to celebrate life.
But 18, it was weird staring at it.
And then I saw it.
It was two hundred forty eight dollars.
and all of a sudden I saw my dad is 27 year old young man with the weight of the world on his
shoulders and a house and a young wife and a baby at home and he had 250 dollars he didn't have
enough money for that 20th share and I called my dad and I said dad this is what I saw and he's like
oh yeah that's exactly what it was he said I still remember where on the credenza behind my desk
that paperwork was sitting he's like I didn't have more than I didn't have enough money to buy that
20th share. But over time, that $248 investment when I sold it grew to $15,000. Holy crap.
Right. Okay. And by the way, this was Atlantic Richfield. It wasn't like my dad randomly fell
into Apple stock or Amazon at the beginning. It was just a normal energy stock. It was just an
oil and gas company. And so look, I am generally against government largesse. It doesn't go well.
But let's, you know, let's actually put on our compassionate hats for a minute and think about
the potential impact on young people who have thousand dollar accounts instead of $248 accounts
when they're two months old. And then two or three decades later, they take a look and they see,
oh wow this is fifty thousand dollars you know and like maybe that's a down payment on a house
or maybe that's the ability to pay rent um or at a minimum maybe it's just a really big reminder
right we're not talking about generational wealth and it's not like nobody's going to work
because they've got fifty thousand dollars but it certainly would be a generational reminder wait a
minute. If I invest and I'm patient, I can grow real wealth. If I think across decades,
I don't have to treat my financial life like a casino. And so there's a non crazy universe
where it actually leads to better decisions being made by young people because it forces them to see
the value of patient. I love that. And you can see it paying off to maybe I could start a business,
with the proceeds.
Hey, the guys at Hewlett Packers started with less.
Yeah.
I'm going to sign my kids up tomorrow.
I'm going to do it.
I know we've got to wrap up, but you said when we were talking about this,
you said long-duration investments.
It reminded me of something we missed during the ad conversation.
I'm not sure if you saw it today, but Google putting out there
that they're thinking about issuing a 100-year bond,
which is just another signal that may not be as well as being reported on the financial side for the AI hyperscalers specifically.
So in other words, the Google CFO department has figured out, one, inflation is going to be higher than people think it is.
and two, they may not get the return on all of that, you know, half trillion dollars or 200 billion dollars this year of AI spending.
And if their credit rating drops, it'll be more expensive to issue that the following year or five years from now.
Right. Like if you were a Google CFO and the market would buy a hundred year paper, wouldn't you?
Wouldn't you vomit that out? Yeah.
It's not a great sign, though.
no no the del position we're thinking long term this is uh this is a humanity scale project a
technology that will shift the the tide of humanity if we need to make this long-term
investment and i want to be clear like i'm very bullish on ai whether or not um the spending and
the capital outlay that we've seen over the last few years is sustainable i think it's the biggest
question out there yeah i it's they're gonna need to earn a return at some point um you know one
thing one thing where i did disagree with people a couple years ago and i'm not sure i was right
i'm not sure they were wrong people were overlaying the nvidia chart over the 1990s 2000
cisco chart and saying boy these look similar and i said you know i'm not buying that comparison
because, you know, Cisco was selling to pets.com
and, you know, other internet companies
that had negative free cashflow
where NVIDIA is selling to, you know,
Google and Amazon and Microsoft.
And, you know, listen,
if these companies waste a trillion dollars,
then they're not going out of business.
And so I said, this is completely different.
And then, you know, we get to this last year
and you start to see these, you know,
1990s style circular deals
where, you know, NVIDIA says, OK, well, we're going to invest in OpenAI.
And OpenAI says, oh, we're going to take NVIDIA's investment and buy NVIDIA GPUs.
And I'm thinking, OK, so you're buying GPUs with your own money and marking that as revenue.
And that does look really similar.
So somebody is going to have to figure out an actual business model at some point.
you know and and maybe it'll help when the market shifts more from training to inference that is
cheaper but you know we're not there yet yeah i think i i mean i feel blessed being able to
basically run these models ragged on the inference side for as cheap as they're offering them it's
like i mean it's it's very manageable i would pay more for it and that's i think that's the
big question out there is like you're gonna have to charge for the compute the cost of the compute
at least that's actually um that people are actually using because it's highly subsidized
right now so marty you're right and and can i just insert one additional thing that people should be
concerned about on that so the place where this stuff is going to the ai is really going to have
an impact on people isn't just like the vibe coding that you're talking about which i do think
matters. I think the ability of non-technical people to design their own apps, their own
websites is huge. Where people are really going to use it is agentic AI. Like you talked earlier
about, can it send emails for you? Right. I talked earlier about, can it, you know,
make a hotel reservation for me or, you know, contact somebody or do something like that.
And the issue with that is that is going to be the thing that will cause people to say,
yeah, I'll pay $20 a month for this or $50 a month for this or, you know, order my groceries for me.
But you're also going to run into huge issues with potential bad behavior. And, you know,
you could have bad actors using those agents to run up credit card bills on other people to buy
things, to send malicious code or send, you know, malicious photos or, you know, things like that.
And so what we're going to need to make all of that work is some sort of security that will authenticate those AI agents.
And when we talk about security, like right now, you know, everybody's thinking, OK, username, password, the better actors are starting to use biometric security.
Right. Think about like face ID, but working at a much higher level, much, much more accurate instead of one in one hundred thousand error rate.
one in a billion error rate, which is what you need for that.
But now they're also going to have to authenticate these AI agents
because if they have access to your email, your contacts, your photos,
your text messages, your credit card, oh boy, you know,
like somebody takes control of that, something bad really can happen.
Yeah.
It's almost like they need a digital identity built on an open protocol
that runs on private public key cryptography to authenticate.
No, it's crazy.
And I think Bitcoin plays into it here, bringing it back,
wrapping up with a callback to the beginning of the episode,
where's the value for Bitcoin specifically.
I thought it was extremely poetic that the price was dumping
as hard as it was last week as I was exploring
how far I could push my agent that I spun up a few weeks ago.
I was literally in the process of seeing if it could spin up its own Bitcoin wallets.
And then to your point about authentication, there's a protocol on Bitcoin's lightning network called LNURL auth.
So it's basically like a sign in with Google or sign in with Apple, sign in with GitHub.
But you sign in with the private key attached to your lightning node.
So I was successfully able to get my agent to figure out how to spin up a Bitcoin node, attach it to the lightning network or understand that it has a private key and then sign into a website using the private key in its lightning server.
And then I topped up a balance with a little bit of Bitcoin.
And so there's a Bitcoin trading website called LN Markets that lets you authenticate with LN URL auth.
I was like, all right, send Bitcoin to this and put in a trade.
Let me see if you can do this.
And it did it successfully.
It worked?
It worked.
Yeah.
I'll show you when we're done recording.
I'll show you what this thing's doing.
But I am Marty.
That's amazing.
But I got to ask you, right?
Were you able to use it to buy coffee?
Because as everybody knows, that is the trigger test of any currency.
It's not a currency unless you can buy coffee with it.
I bought I bought I bought a beer with it last week in New York at PubQ.
Did you really?
Yeah.
All right, that counts.
It does.
So Bitcoin is a currency.
It is.
It's money.
But the point being is like price is crashing.
Price is the way you pay.
Where's the value?
And it's like, oh, the agentic economy is emerging.
Like Bitcoin is a good currency for that.
And not only is it a good currency for it, but the private, the nature of the private public, he pairs.
It actually does set it up for interesting authentication credentials in the sogenanatic world.
Interesting.
That's great. It's phenomenal. You were able to do that.
And now, like, think about the expertise and the different ways you had to cobble that together.
you know somebody who's like the the more technically advanced version of us is going to
find a way to wrap that up like in one api one you know one package where somebody says okay
here's my sign in here's my wallet and it it does that for them right it you built it piece by piece
somebody's going to piece it together where it'll just be a download this app and it'll work kind of
Yeah, it's a brave new world.
Gary, thank you for your time.
It's been a pleasure as always, sir.
Thank you.
I appreciate it.
I always like filming these with you.
The conversation is always entertaining for me.
Well, like we said before we hit record, we'll have to do it more often.
So we'll check in in a couple of months.
Happy to.
And by the way, for your viewers who are interested in deep knowledge investing,
we've got a coupon for your people um tftc we'll get them 25 off of a deep knowledge of
sda subscription go check it out i've been reading every week and uh it is deep knowledge and your
analysis is um very very much appreciated by me personally because i think it is uh
not like contrarian for contrarian sake but when you see the market like warsh particularly um
misreading something. You're not afraid to call it out.
Thank you. All right. Peace of love, freaks.
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