mil madison welcome back to the show sir well thank you for having me marty i appreciate it
yeah well we're going to talk about a lot of things today ai is it real is it hype
is a mixture of the two we got the fed obviously warsh has taken the helm since we last spoke
uh we've got some micro stuff to talk about in terms of individual memory stocks that that you're
following and then we can get into the fiscal side of things, how much debt the U.S. federal
government is and how they can sustain that debt and all the entitlement programs that they build
up and then probably ending it with Scott Bissent's call for a new economic regime at the
New York Economic Club a couple of weeks ago, which has been a hot topic in my circles.
We covered it this morning on the weekly show I do with my partner, John Arnold at 1031.
And I'd love to get your thoughts on that.
But I think just starting with the hottest chick in the room right now, which is AI.
How are you reading this?
Well, AI is definitely one of two main forces that I see driving markets, right?
I think it's AI.
And then what I want to just kind of encapsulate, because there's a lot of interplay, it's just kind of geo macro stuff.
And, you know, that's Iran.
That's Ukraine.
That's the Fed.
That's fiscal deficit.
And those are things that the reason I categorize those together is because they're not related to like earnings.
Right.
So another simple way to say it is what's going on in the broad market, like broad macro.
and what's going on with earnings and company specific.
And earnings are all about AI.
And I just cannot see a way that AI is going away.
Like, I think there's a lot of people out there
that are talking about, you know,
who's going to be the winners,
who's going to be the losers.
And I do agree, that's not the easiest game to play.
But I do think there are certain segments
that it's very hard to argue.
like for example why sk hynix at four times pe should be trading cheaper than it is like like
if you say mel what's what's the base case where micron at like seven times forward earnings is
just the earnings are going to fall off the cliff cliff between now and the end of the decade
and i just can't picture that case because it's like okay is it going to be open source or closed
source, who knows. But at the end of the day, if compute demand is going to just go up exponentially,
it's going to need memory unless you're stipulating that there's going to be some newfound
memory breakthrough. And I think if your hurdle rate for investing in something is that it's
impossible for some black swan new technology to take it out, then there's literally nothing to
invest in? Like, you know, I mean, are you going to invest in Bitcoin? Well, quantum could come in.
Are you going to invest in U.S. treasuries? Well, the government could collapse and all of a sudden
Congress could say we're not going to raise the debt ceiling. Are you going like if you literally
want to say there's no black swan impossible downside, then you can't invest in anything.
So I will grant you there could be some big memory breakthrough.
But absent that, you have companies like Micron signing a multi-year agreement, trading at six, seven times earning.
You have capacity growing at two, 300 percent a year, not capacity, demand of what people want growing at two, 300 percent a year.
While capacity is only growing at 20, 30 percent a year.
And you have companies like Apple saying we've got to raise prices.
You've got I mean, if if if there's not truly a memory shortage, if there's an Ed Zitron, you know, false narrative out there that this is all BS, then why is Apple raising prices?
Like because then there's no demand like there's no problem.
Why? Why would Apple want to raise prices if if this is all just going to collapse in the next three months?
And I just can't see it.
And I think Ken Griffin put out a post the other day about like the days of like hedge funds monitoring pocket or parking lots and saying I'm betting on this quarterly earnings.
Like that's the old alpha.
The new alpha is like looking at this stuff and taking longer term views.
And I don't know if Micron is going to be $800 or $1,200 a month from now, but I'll bet it hits $3,000 in the next 12 months.
I'll just bet it does because it's just too cheap.
It's just too cheap not to double or triple from here.
And I think people that think, oh, it can't do it.
You know, what has Bitcoin done?
What did gold do between 1980 and 19, excuse me, 1979, 1971, when it was, we were taken
off the gold standard in 1980, it went up 25 X.
And so I think people that think like these things have run their course, they have to
to look at the fundamentals and micron at seven times sk hynex at four times uh the korean stock
market which is collapsing in the last 24 hours and nine percent down is now trading at the cheapest
fee multiple it has in like the last 48 months like everything just keeps getting cheaper
and people just want to say you got to sell because it's all a big bubble and i just don't
yeah i mean the the ed zitron call out it's funny because i've seen his commentary and him
do the sort of the the cycle of going through cnbc bloomberg and getting clipped out on x and
he's saying there's nothing there nobody wants these things and then i'm juxtaposing that to my
usage of it which has gone up i think personally exponentially if you're just looking at all the
agents and subagents we're running here and then you project that forward of more people adopting
this, particularly agents. And we're definitely not even at the 1% adoption threshold of everyday
people. And then you think of like robotics and self-driving cars and all the computers.
And the memory demand there is like exponentially more. Like it's ridiculous. And Ed, I've listened
to, I'll be honest with you, I've probably listened to 30 to 40 hours of my podcast because I do not
want to listen to a bunch of bulls telling me how great AI is and just buy Micron. I want to listen
to the people that are saying, here's the problem with the story. And he has certain points.
But the thing about him is one thing I'll say about him, he's one of the cleverest
speakers I've ever heard. He is so quick and fast with the remark, but he's so quick and fast
with the remark that often you'll listen to him and you're not really processing what he's
logically saying because if you really break down logically what he's saying it really doesn't make
any sense like he basically says stuff like well anthropic and a open ai can never be profitable
that that's one of his key arguments that it it's all a subsidized good there'll never be the demand
for it it's never going to be profitable they're the only buyers of compute but then at the same
time he'll talk about how like open source models are much cheaper. People want to use them. Well,
if AI actually has a use case, even if it is open source models, it still requires compute.
It still requires the hardware. It still requires memory. Does that mean that open AI is going to be
a $4 trillion company. I honestly don't know. He might be right. OpenAI might not be the best buy
right now, right? I mean, like if I was a private investor and that's what I did for a number of
years was basically secondary market investments in large private companies, would I be telling
people go into OpenAI and Anthropic right now? No, I wouldn't. But does that mean that AI is
not going to happen? And I think if you go back and people love to compare it to the dot-com boom,
So let's compare it to dot com. Did pets dot com, you know, blow up? No. But did the Internet? I mean, blow up meaning become a huge success. But did the Internet become a huge success? Yes. And and and look at the top companies in the quote unquote Mac seven. You had Apple and went public in like the 80s. Microsoft, same thing. These things went through that. They had huge market caps. They came out of it.
You also had companies like Google that weren't even public until after the dot-com boom.
Tesla, same thing.
And so the internet and everything that happened there was real.
And it was a huge thing.
And it became a big deal.
Did we have a huge blow-up top and then a collapse?
And then even a slow but steady rise to even greater market?
I mean, what was the Nasdaq when it collapsed?
I think it was like 4,000, like 30,000 today.
Okay.
So like you're, you're telling me like, oh my God, look at the.com.
You could have bought the NASDAQ at the very top of the.com boom and left it in your IRA.
If you're a 30 year old guy and you're coming back and you're 50 right now, you still got
10 years before you can access it.
And it's up like, you know what?
Almost 10 X.
So I think if you zoom out and you look at what's going on, AI is not going away.
Crypto is not going away.
Bitcoin is not going away.
The fiscal mess we're in is not going away.
It's getting worse every day.
That debasement trade that was so hot last year that let gold get over $5,000 an ounce,
Bitcoin over $120,000, silver over $100,000, that's not going away.
it's just we're going through all these micro rotations and every time something happens like
meta says oh we're cutting back on compute and then it you know skyrockets you know 20 percent
in the next two trading days which is what meta did um you know it's it's it's the money's rotating
and the thing is is the money's got to go somewhere and the money just keeps building
It's the 401ks. It's now the Trump accounts. It's the fiscal deficit. It's the whole merry-go-round that has led the S&P to go from 666 in 2009 at the GFC lows to over 7,600.
today, it's going to keep happening. And if you let yourself get shaken out every time there's a
20, 20 or 15% pullback, I think you're just missing the big picture. Yeah. I mean, before we get in
the Trump accounts, which I know you want to cover with those passive flows that many people aren't
talking about. And I've said this multiple times over the last six months, like this seems like
there's like an equity market, not like a bailout, but like a mechanism to produce passive flows.
But before we get to that, the Ponzi needs more sources.
Yeah. And that's a good one.
Yeah. And that's a great.
We're going to keep doing it.
So yeah, fight it. Go ahead.
But like bring it back to like Zitron and some of his criticisms,
like one of which being a lot of these companies, particularly
the hyperscalers, have gone from buying back stock
to hitting the ATM, the issuing stock, raising equity
and even going into more debt.
So they're highlighting that as like, oh, this is the end.
And I've been thinking about this a lot, too, because
you do want to check your priors and be like, okay, where, where, where am I maybe having a
blind spot here? But like, when I see that, it's like, you could take that signal that way,
which is like, these companies are desperate. They're diluting equity holders to raise cash to
keep piling money into a loser is what Zitron would say. But the other one is like, well,
maybe there was just a period of time post 2008 where the allocation of capital warranted the sort
risk matrix that these companies have warranted like hey we just buy back stock try to choose eps
and now there's finally an opportunity to to deploy capital into not only deploy capital but
deploy capital at scales that we haven't seen that makes sense to do this so like just trying
to get in the mind of like the boardrooms of the hyperscalers specifically and that decision around buying stock back or hitting the ATM raising debts And does the opportunity of the AI infrastructure build out
Is it is it so large that it warrants these types of actions?
I mean, everybody used to complain when they were doing all these buybacks, like they have nothing to invest in.
And it's a bad sign because they're buying back stock.
And now it's like, oh, no, well, they're not buying back stock anymore.
And so, look, I mean, Apple, to me, just hitting new highs today and it's up over 50 percent in the last year.
I mean, like that's something I want to stay away from.
Like we just keep going through this micro rotation and it's like, OK.
Apple is going to have to raise prices.
It's up over 50 percent in the last 12 months.
It's at an all time high.
Like maybe I want to go into other things.
About a month ago, I basically said, I think this sell the suppliers narrative is overdone and look to buy Amazon, Meta, Google and Microsoft.
And they're breaking out. I mean, you know, these stocks have not made a new high since October.
They're still not at new highs. So I do a little tweet once in a while.
That's essentially just a basic basket of the four hyperscalers.
hyperscalers and look at where they're at. And they are up well over 10% from the lows just like
10 days ago. They are not yet breaking out. And I think that there's two things that I think
Zitron has wrong. And I think the market gets concerned about that they shouldn't.
One is debt. I did a post a few weeks ago where I basically said, how long would it take for each
of the hyperscalers to pay off all of their debt off of cash flows if they stopped AI spent.
And every single one of them could pay off every dollar of debt they've raised within two quarters
with free cash flow. Meaning if all of a sudden AI is a bubble, AI is stupid, it all sucks,
and we're going to essentially, we're Google, we're Amazon, Meta, we've raised some debt.
how long would it take from free cash flow, essentially our paycheck, if we were employees,
to pay off our credit card bill? The average is like 3.2 months. And they could all pay them off
within less than six months. Now, what happens after six months when they're now debt free?
Now they're going to trade at price to earnings. And then you look at a meta and you say, oh,
it's trading at 18 times, 20 times. And now they have no more AI spend to do. They have no more
debt to pay. They have no interest expense. And that's if AI fails. So if Zitron's right,
and AI is this big nothing burger, and the big, everybody's going to, he said things like,
we're going to look back in a few years and say, what the hell were we doing building all this
compute? Well, then number one, you got to take away the threat, right? You got to say, well,
there's no threat to Google because people might say, well, Google's, no, if AI is a nothing burger
and it's going away, then Google's going to still have its moat.
Amazon's going to have its moat.
Microsoft's going to have its enterprise software moat.
So if AI is truly a nothing burger, as Zitron says,
then there's no threat to the business model of the hyperscalers.
If AI is truly a nothing burger and they can literally pay off all their debt
and go back to these free cash flow monsters,
buying back their stock with both hands within six months,
then what is the risk buying meta below a market multiple like there is no risk then if that's the
narrative he paints now he doesn't really talk about another narrative which i actually think
could be the actual narrative that plays out which is that ai is going to become this ubiquitous
huge force greater than the internet greater than you know the typewriter the word processor a lot
of the recent big inventions, maybe even greater than radio or TV.
Going back to the railroads, I think is what a lot of people think is the best analogy.
If it really is the greatest technology since the 1800s in the railroads, and the railroads
became huge, and they became huge money makers, but there were boom towns, huge boom towns.
I was in Colorado hiking last month, and there are these ghost towns, and they spring up,
and they existed for like 10 years because you know the railroad went through they they mined
out all the silver or lead or copper that was there um and then they disappeared because it
was mined out or um you know the population just gave up of being there but during that 10-year
period i mean people made fortune and so do i think like you can just buy micron and hold it
for the next 40 years and retire?
No.
But do I think Micron's got a longer window
of seller returns than six months to a year?
Yes, I think it's got a multi-year time horizon
for outperformance.
And I think a lot of these AI names do.
I think a lot of these chip stocks do.
I think if you look at the Korean market,
which has been selling off, it does.
But you look at the Korean market,
It's 50% of the Korean market is two stocks.
It's SK Heineck and Samsung.
The average stock in the S&P 500 trades within a 50% band every year.
Well, if two stocks make up half of your index, and they're actually a little more volatile
than your average stock, they're going to trade in the 60, 70, 80% band over the course
of the year.
That's going to drive 30, 40% fluctuations in the index.
That should be expected.
but what do investors get in return for increased volatility and risk?
They get return.
And I think,
I think people that are looking at micron hitting the 50 day and buying it at
nine,
10,
they might not be happy.
They did that a week from now.
I think they're going to be very happy.
They did that six months now.
And so I'm not here to say,
look,
this is what's going to happen.
But if I had to do a short term bet,
I think what these stocks are waiting for is,
mega cap earnings coming in the next two weeks and they want to hear that but shy they want to
hear jassy they want to hear these people say we're still going to be spent and they are because
they'd be shooting themselves in the foot if they came out and said you know what this whole ai thing
was a waste but they might say things like look we're experiencing some supply constraints on
power or, you know, there's some pushback on data center build out. And so our CapEx might actually
not increase that much, might even decrease a little bit. Initial market reaction might be,
oh my gosh, it's all over. But I think what people are going to realize is this is just not going
away. Like it's the spending's not going away. They've been worried about it since 2022 when
this whole thing started. It goes through these micro rotation. And then all of a sudden,
it's like oh my gosh there's open claw oh my gosh there's you know anthropic is cash flow or
heading into profitability but oh no they're not because actually you know colossus they gave
i mean all this stuff keeps going on and it's just meanwhile the valuations keep going up the
The profits keep going up.
And I think waiting and trying to call the top has just been the dumbest thing you could
possibly do because it is going to top.
And I've had some thoughts that that's probably not too far away.
I don't think it's necessarily five years away.
It could be two, three years away.
I think it's going to have to do more with fiscal concerns than the AI thing.
But look, market's not going to be going up 25, 35% a year forever.
And there's probably going to be a 30, 40% pullback, I think, by the end of the decade.
But I just don't see it happening this year.
And I think the earliest it could possibly happen is going to be next year because the spending is just in place.
I mean, the gears are going and you can't stop the train to kind of borrow an Alden phrase.
You can't stop the AI train on a dime.
It could stop eventually, but you can't stop it next quarter.
It would be a multi-year phase out of it.
And I think, you know, in the meantime, earnings are just, you know, they're at unbelievable record paces.
We're going to do over $400 in earnings in the S&P 500.
The PE is cheaper now on the S&P than it was at the beginning of the year.
You've got companies like Samsung, which I know isn't in the S&P, but it's going to do over $200 billion in profit this year.
And people are saying, why is this a trillion dollar company?
Well, I mean, if I told you, look, I can make $100,000 a year the next five years in a row,
I will give every single dollar to you.
And then at the end of it, you're also going to own every single dollar I make after that
for the rest of my life.
I think a million dollars is, I mean, $500,000 is a pretty cheap price to pay.
And that's what people are paying.
I mean, I think some of the cheapest stocks I've ever seen in my life are these Korean memory names.
I mean, it's just I just don't understand.
How like three times earnings.
Growing at 65, 70 percent.
And that's what I mean, they've been growing well over that.
But this is what's forecast for fiscal year 27.
these peg ratios are ridiculous and people are selling it and saying it's a bubble because they
believe what that somebody's going to come out and there's going to be a memory fairy that figures
out or look anthropic and open ai can blow up that that's not going to hurt micron or sk hynix
samsung in the medium the long term in the short term yes open ai oh ai blew up it's going to hurt
it. But AI is not going away. It requires memory. That's like saying, you know, when I was a kid,
a big computer was the Commodore 64. If the Commodore 64 blows up and nobody wants to buy
another Commodore 64 or another Atari 2600, then the whole video game industry is dead.
It's like, I mean, no, that's not the case. These were the biggest two companies when I was a kid.
they dominated it. Commodore 64, Jungle Hunt, you know, Atari 2600, Pac-Man. I mean, these were the
games, the cartridges dominated video games. If you said those companies are going to be
jacked S, you know, within a matter of years, therefore get out of all the video game suppliers.
I mean, how did that go for you? And that's what people are saying. That's what Citron saying.
open AI and Anthropic are shit companies. Those are the word he likes to use. He basically says
they're scams. He says they're never going to be able to make a profit and they're going to go away.
And because of that, the entire basically financial system is going to blow up
and all of this debt of the hyperscalers is going to go away. He even referenced in a recent podcast,
the possibility of NVIDIA going bankrupt. Like literally, like he's talking about NVIDIA
possibly going he said it was unlikely but he said it's possible nvidia is going to go bankrupt
i mean marty this amount of fear-mongering and then it's played into you listen to the kids
booing at college like there's this ai a lot of people have talked about sam aldman and dario
modai being like though you know it's like mussolini and hitler like they're they're very
bad spokesman. Nobody likes these guys. They come across as arrogant. They come across as
condescending. They're not relatable. And the stuff that they say a lot of the times,
it just puts people off the wrong way. And I think there's this whole thing where
This is not going to necessarily end in OpenAI being a trillion company I don know if it does But even if OpenAI eventually becomes a lucent technology that doesn mean that there not going to be
a Microsoft and an Amazon emerging from the internet slash now AI ecosystem. And I just
I just think trying to pick the exact time that this is going to happen, like, okay, next week,
you know, they're going to say CapEx is over and it's going to crash. I think you just want to,
you want to stay invested, stay for the long term. But I think you also want to really stay
diversified and not have everything in chips and AI. You want to have emerging market,
like not just Korea, but things like Brazil. You want to have Bitcoin, want to have gold.
you want to have a material sector you want it you don't want to put all your money in chips
it's number one it's too volatile you'll get blown out and number two the rotation is going to
continue and i think we're just you know probably on the verge of getting started uh back into the
whole gold basement well that's a good segue into the next topic which is the fed in macro
As you were discussing before we hit record, a lot of people are beginning to price in rate hikes later this month.
I think it's at 50-50 right now.
If you look at the probability of there being a rate hike or them holding it steady, what's your take on this, Warsh?
Again, coming in between now and our last interview, and how are you viewing all of this, Warsh, at the helm?
I do not think there's going to be any rate cuts.
Um, somebody who, you know, I respect, I've referenced many times, he's talked about a
potential for Warsh to hike actually in July and do a surprise hike.
This would essentially like cert fendent independence, but then talk it down and say,
that's it.
Um, so like a 25 basis hike possibly, but nobody is even talking about like a major
hiking site.
And if you listen to Warsh, I think he comes off a little conceited sometimes, too.
I think he probably needs a better haircut.
But he just does not strike me as someone who's oblivious to the broader macro concern.
As an example, in his first press conference, he was asked kind of a leading question about are financial conditions loose?
and it was kind of a left-leaning journalist that wanted him to somehow argue they're not.
And he basically came back right away. He said, look, in housing, no, financial conditions are
not. If you're a hyperscaler looking to borrow debt and spreads are at all-time height, then yeah,
financial conditions are, excuse me, financial conditions are not very light. It's pretty easy
to borrow right now. And so we have this tale of two economies. We have a housing market,
which has been the primary driver of the economy about half of the time, right? If you look at,
okay, what happened when the dot-com boom bust? Housing took over. And then we had like a five,
six year housing bubble. If you look at net worth of Americans, it's still mostly in real estate.
So the biggest market in this country for your average American is real estate. It's the house. And that has just done nothing in recent years. There have been certain markets that are extremely supply constrained with kind of blue political leanings where they like a New York where like, you know, they're just not building anything.
and, you know, rents are, I think rents are over $5,000 a month right now for an average bedroom.
And, you know, yeah, prices have gone up in places like that.
But if you live like where I do in North Carolina, I mean, you know,
a house has not moved up or down more or less for years.
You know, you got to go back to the last World Cup, you know, to see, you know,
house prices cheaper or more expensive than they are right now. I mean, like housing just has not
moved. And at the same time during that period, earnings, nominal earnings, and I'm using nominal
because housing prices that move are up like over 20%. So for your average American, if you want to
buy a house in Durham, it's 20% cheaper now than it was four years ago. People say, well, what are
talking about 20% cheaper because houses have not moved. Nominal earnings are up that
compounded over the last four years. And I can, I can go down my street and look at Zillow and look
at like, what did a house sell for in like September, 2022? And you put a house on the
market right now, it's going to sell for the same thing. And then if you look at what is the average,
you know hourly earnings increase nominal terms not real um it's up over 20 percent
compounded over the last i mean that's a 20 reduction in housing and that's basically the
biggest segment of wealth in the entire economy and the most directly interest rate sensitive
segment. So if you're Warsh and you're saying, okay, if I raise rates, what am I going to do?
I'm going to hurt housing. That's going to hurt construction spending. That's going to hurt
Josh Mo American where most of their wealth is in housing. Is it going to stop OpenAI from spending?
Is it going to stop ETA from borrowing because their interest rate on their, it just went up 25 basis points?
No, it's not.
And so I think Walsh recognizes that the Fed's interest rate tool is a very blunt tool.
And that by raising rates, he's not going to stop, you know, electricity inflation because of AI.
Like that's on a course that's absolutely separate from whatever, you know, the two year yield is.
And so all he's going to do is hurt the average person and also stymie bank lending, which I think he wants to stimulate.
And that and that goes into Besson and Besson's speech about, you know, tokenization, about deregulation.
And so there's this big strategic narrative that I think the Trump administration has right.
And then at the same time, we're fighting this big tactical narrative that I think the Trump administration has wrong.
So they keep making these tactical mistakes, these fumbles, but their long-term strategic vision of embracing digital assets, embracing deregulation, letting AI, letting America compete, bringing back manufacturing, all these broad strategic goals, you know, one big beautiful build, appreciation, tax cuts, all these are huge strategic tailwinds.
but then at the same time we keep getting these huge tactical headwinds whether it's tariffs
brand war whatever and this is the wall of worry the market keeps fighting and we keep getting the
ups and downs we keep getting the rotations and then at the end of the day you look back and you
say oh my gosh apple's up 50 in the last 12 months yeah well let's talk about the big strategy from
dissent and trump administration what they're getting right long term and then follow that up
with what they're getting wrong and how they can maybe right course there yeah i think you know
what like i said what they're getting right is you know deregulation i think one thing that has not
been understood enough is um the relationship of the balance sheet to interest rates what works
effect. So I think this is where the market has been getting it wrong. The market looked at Warsh.
They see him as a hawk. They think he's going to decrease the balance sheet. That's going to
decrease money supply. The inflation and inflationary aspects are primarily driven by money supply.
Money supply does not necessarily need to be increased by the Fed balance. It can be increased
by bank lending. It can be increased by the velocity of money. And those are the things
that Warsh really wants. He wants to start, and this is already starting, move back more lending
from banks and less from private credit. Why is that important? If I'm a millionaire and I've got
$100,000 I want to put into a bond issue. And I do it through private credit. I take that $100,000.
It essentially gets withdrawn from the economy and it lends it to the company. Net-net, it's zero.
I had $100,000 spending power. I now lose that $100,000 spending power. I loaned it to a company.
they got $100,000 of spending power.
If a bank says, I want to loan you $100,000,
they credit your account, $100,000,
and then they debit their liabilities, $100,000,
there's no decrease.
It's money printing.
There have been so many people fed,
you know, I'm a big central bank guy.
The biggest printers of money are not central banks,
commercial banks.
The commercial banks, the reason they're regulated the way they are, the reason there's the OCC, the reason there's the FDIC, the reason there's the Fed is they can literally make credits on their balance sheet, excuse me, debits on their balance sheet for their own liabilities and credit you with an asset.
That's money printing, money creation.
We had so much money being created through private credit.
That's essentially, you know, putting a ceiling on M2, right?
And so we don't need the Fed's balance sheet to expand if commercial banks start lending.
This is what wars, the deregulation.
This is all part of the investment plan.
This is, you know, we don't need to raise interest rates every time growth comes up.
We don't need to have a huge Fed balance sheet.
We can absorb treasury supply through stable coins or tokenization.
We can.
So there is this big broad strategic plan that I believe is out there that I think is going to be necessary.
Because if you do not address, and we're already at over $800 billion, that interest expense this fiscal year, and we still got the rest of July, August, and September fiscal year.
People are worried about $80 billion in Google equity raise.
I mean, like, look, this net interest expense is over 10 times that already this year.
And it's just growing.
And this is the thing that is a nasty little secret.
This is what my big concern is longer term, is that almost all the expense of health care for an individual comes in the last 24 to 36 months.
and we are just now getting into what I would call an accelerated death rate,
baby boomers, where if you look at, you know, when was World War II over?
I'd say 40.
So the first boomers, let's say born in 46, were now exactly 80 years, right?
So the oldest baby boomers are now 80.
I don't know about you, but most of the people I know,
they do pretty good in their 70s.
I mean there always exceptions for cramps But really where the health problems start cropping up for most of the older adults that I know is in their 80s And boomers this is the first year the oldest boomers are just hitting 80s
And if you look at fiscal projection for Medicare health spending, it's going to blow up.
And so we're getting interest expense blowing up.
At the same time, we're going to have health care spending blow up because boomers are hitting what I would call peak medical carry.
And that's not going to end anytime soon.
And it's just going to get worse.
And so if you look at the we're going to hit $40 trillion in U.S. debt coming month, we're going to hit over a trillion dollars in interest expense year to date.
in a couple months, how you can look at the US dollar
and not say, I wanna own gold, I wanna own Bitcoin,
I wanna own silver,
in the same way that people thought was so smart
12 months ago.
And the debasements, you know,
guys from Morgan Stanley coming on Bloomberg,
debasement trade, and now it's like, oh, look,
AI stole a little bit of thunder from me.
I mean, look, there's no question about it.
Stuff's going up four or five times.
But people are starting to see the easy money days are over.
You know, Micron, I think, like I said, it could be $3,000 a share in the next 12 to 24 months.
But that's not what it did in the last 12 to 20.
And I think once people start to recognize and once people see the plan,
the the the OCC the office of the control of the currency which largest bank regulate on CNBC today
talking about how he just approved circle to be a bank you know like this this stuff is starting to
happen where crypto um bitcoin they're they were fighting like up a river for four years under by
He basically said, like, Carl Quintanilla asked, like, aren't you worried about giving Circle a bank license?
He's like, look, all I'm doing is following the statutes and the laws as they're written.
And I can speak from firsthand experience that until recently, if you mentioned crypto to a regulator, you were like, you know, it was, you just didn't do it.
I started three different broker dealers, TechFi Security, Equity Security, Invested Security.
They're all broker check.
People want to start them as a CEO.
I went through the whole FINRA application process of all three.
two is new broker dealers one is a continuing application buy a broker
every single time and we had the best manhattan attorneys that advised
and guys
every single time they would tell us don't mention crypto like once you mention that
you're going to be persona non grata you're going to go to the back of the list
if you have to mention it, but otherwise allude to you might go into other aspects of business.
And there was no legislative statute law in the books that said, if you're involved with
cryptocurrencies, you can't have a broker dealer or you can't have a bank. There's no law prohibiting
it. It was just a stance that the regulators took because they were essentially in the back
pockets of the big bank. And it was a threat to the big banks, and it is a threat. This is the
whole reason why the Clarity Act hasn't been passed yet. Because the banks do not want stable
coin issuer like Circle basically paying out interest and not being regulated like a bank.
Well, guess what? Now Circle's a bank. So we're going to get through these hurdles,
and we're going to get over this.
We had Securitize, SECZ is the ticker,
go public via SPAC a week or so ago.
You know, it traded down quite a bit
and I actually bought some late last week, some today.
I'm not making an investment recommendation,
but, you know, it went public with SPAC,
traded up to like 14 and got down to $6.66 last week.
And, you know, this is a tokenization company, you know, blockchain.
Again, to reference Jordy Visser, he likes to talk about agents, the agentic economy.
It's going to be, you know, they're not going to be using dollars.
Once people start to realize this, they're going to say, oh, my gosh, I need to be there.
Just like a year ago, people were like, oh, my gosh, the basement trade.
I need to be there in gold and silver.
Then it ramps up, you know, 150% sells off.
Everybody hates it for six months.
And then it starts again.
And so I think the same thing is happening right now with some of these chip stocks.
And what was hated, some of the hyperscalers, like I said, I mean, they're having amazing returns.
I mean, look at something really quick, like a meta.
I mean, this thing was literally 540 bucks a share like five, six days ago.
And today it hits 675.
But yet if you hear people talk about, oh, meta hyperscalers, what a dog.
Well, look, these things are in ranges.
They're trading around.
The money is moving.
um and i think at the end of the day if if you're gonna argue maybe this could be our last quick
topic would be like the trump accounts like what's going to keep this party going it's just an
endless stream of passive there's a michael green argument it's you know pees can blow up
They don't need to stay at 25. It could go to 30, 35, like because the passive bid is not going away and is only getting augmented by the tune of hundreds of billions of dollars a year in perpetuity just from one law going into effect on July 4th, which is the Trump accounts.
yeah so let's jump into that
I mean
what should we follow
there in terms of adoption
to then try to
port to the flows
that you just described
because everybody
has access to a Trump account you have to physically
go out and get them for your kids
how's this going to play out in your mind
I think it's being way
underestimated
by the market because I don't think people fully understand the tax advantage of these.
And it's not just $1,000.
It's the ability for anybody to give to a kid that, and it's $5,000 and it's available
to every single person under 18.
so every american under 18 can go create or their parents can go create a trump again
not if you're 16 you're not going to get a thousand dollars so it's like you have to be
born i think since trump took office or something like 2025 2026 there there's a there's a there's
a lower age range where you get the thousand dollars and then there's other people making
big gifts like Michael Dell, Brad Gerstner, different people that are, Gerstner's just
doing the video.
But the big thing is the tax advantage is that, okay, I talked about boomers turning
80.
We all know boomers have 70 plus trillion dollars.
they can put $5,000 a year for each of their grandkids into this account,
and it's going to grow for their grandkids tax-free.
When they're 18, the kid wants, they can roll this over into IRA,
and then when they're 59, they can take it out tax-free.
There have been some studies showing that if a kid that's born now for the next 18 years,
$5,000 is contributed, which ran it.
That's a lot of decent amount of money.
It's less than a hundred thousand dollars though.
That should the markets perform as they have, um, by the time that kid is 59 and a half
and could withdraw it, it should be between 13 and $15 million.
because you're starting that early.
This is the power of compounding.
It's the same thing that AI guys talk about,
how humans think linearly.
We don't speak exponentially.
Or Einstein talking about compounding
the most powerful force in the universe.
And you're like, you know, is that really right?
Like put $90,000 into its account at 13.
And well, yeah, because of compounding,
because it's that many, 60 years.
We're starting from year zero when the kid's born.
to 59 and a half, so it's called 60 years.
Nominally, S&P is up 10, 11%.
You're putting that money in.
And so whether that's going to happen or not,
that can be up for debate.
What I don't think is going to be up for debate
is that there's going to be a lot of well-off grandparents
putting money in accounts.
Now, what has to happen with that?
It's in the S&P 500, and it can't be sold, right?
I mean, the kid can't, oh, I put it into my six-year-old grandchild.
I just put $5,000 in.
Next month, I'm going to sell it.
No.
It's a passive bid.
It's an unstoppable passive bid because every year there's new kids born.
So I think it's three and a half million kids born.
Some of these numbers were gone through on our recent All In podcast with Brad Gertz.
It really spells all this out well.
And, you know, they don't tie it necessarily to S&P terms.
They just talk about the great tax savings.
But I think if you combine what they're talking about, the tax savings, combine that with Michael Green's passive bid thesis, combine that with the fiscal deficits and that we literally can't clamp down on inflation.
Like we can't just start raising interest rates when the government is primarily funding itself through U.S. Treasury bills and start hiking up those rates when we're running over a trillion dollars a year.
Like Lou Grohman, you know, what are you going to do, sacrifice the currency or bonds?
Right. I mean, like, are we either going to let the bond market blow up or are we going to sacrifice the currency?
In other words, inflation. We're going to have that.
Now, there's going to be counterproductive or counter forces with productivity.
But at the end of the day, this whole market fear, oh, my gosh, we've got the second coming of Paul Volkner in the Fed chair seat.
And he's just going to start hiking rates because inflation is at 3.2%, which I wouldn't be surprised if tomorrow, and it's always risky making a call less than 24 hours before a number comes out.
I wouldn't be surprised if we're well below expectations.
and even more low next month.
And I think we could have some deflationary prints,
like literally negative numbers,
especially if the Trump administration
would get out of its way a little bit with Iran stuff
because those are the tactical headwinds I talked about.
But when you had oil go from $120 a barrel
down to a six-handle,
in a matter of weeks,
I mean, that's going to be good for reducing inflation.
So I think, you know, all of these signs,
like there's so much noise out there,
a lot of volatility,
but like you just can block that out and say,
look, I think I want to have...
of a 4% allocation,
memories,
12% allocation to gold,
8% allocation to Bitcoin,
whatever those allocations are right for you,
hold on to them.
You're going to be very happy
with where you're at six months,
12 months from now.
And I just mentioned that
because there are a lot of
doomer voices out there.
There are a lot of people saying
this AI thing is going to blow up.
I think credit is going to blow up.
you know uh ram war is going to send oil to 200 there are a lot of people that i think could be
scaring people into saying oh my gosh i need to take my money out of all risk assets and put it
into a cd um i think that's going to be the wrong decision i could always be wrong but i mean i i'm
i'm about as bullish as i've i've ever been i think i think 15 000 by the end of the decade on
probably
yeah you've always been very bullish
on the show and
it seems like
let's see I mean the AI
stuff like when I hear Ed Zitron
I have to wonder like is there
some sort of nefarious
incentive driving it
or is he not using it
or is he not using it the right way because you can
he just sells his research he makes money on
that yeah
but as a research kit
because I'm using the stuff
we've basically automated a ton of
the back end stuff, the TFTC
and like I said, my token usage
is going up exponentially
it feels, particularly with the new frontier
models launching, we're hopping on them right away
and it's
undeniable
objectively, just looking at my
micro situation, looking at my business
it is helping us be
crazy productive
it is a multiple and productivity
the costs are manageable for us as a small team.
Maybe that's different for enterprises.
And it does seem like enterprises are trying to figure out
how to manage token spend
and what the right mix of frontier models
and open source models is.
But I think to flatly say that this is a bubble
built on idiotic technology that hallucinates.
Yeah, he claims it's nothing.
He doesn't even make the claim
that like open AI and Anthropic are, you know, insecure business models.
Like he literally makes the claim that we're going to look back on this period and say,
this was the biggest waste ever.
And we're going to be like massively oversupplied with compute.
And I would, I like will grant him that there's no guarantee.
Like I said, that open AI becomes a $10 trillion company one day.
In fact, I kind of doubt it ever does, but that does not mean that AI, that data
that are built outs are worthless.
That, you know, meta,
like I made this argument months ago
where I was basically like,
look, everybody's talking about shortages of compute.
The hyperscalers own compute.
Microsoft owns compute with Azure.
You know, Amazon with AWS.
Meta with what they built out for themselves,
which is now selling.
Google with Google Cloud
and what they built out for Gemini.
They own compute.
if there's a need for compute it doesn't matter if it comes through open ai anthropic
rock uh glm you know kimmy minimax like it doesn't matter when the the baba model like
if it needs to be computed it needs the hardware and the hardware is going to be valuable because
that demand is going up crazy and like you talked about and mentioned earlier we're not even getting
into robotics.
I mean, we're not even getting into all this stuff.
And like, is a lot of that stuff going to be on the edge?
Yes.
But guess who's going to make the memory for the robots, right?
Is that, so it's like, you know, mind the miners, you know, this is, this is the, the
railroads, man.
I mean it was like the same thing picks and shovels mind the miners You know like I said honestly I would not invest in Anthropic or OpenAI right now
I just wouldn't.
I mean, not anything significant.
And I think we've seen SpaceX, you know, not have that great of a reaction in the market.
um but i think there's a valid criticism that when people are willing to draw out like where
spacex is going to be in 15 year like who the heck knows where spacex is going to be
and so that deserves a pretty heavy discount even if you grant that it's going to access
this 24 trillion dollar tam and it's like granted at all but you got a discount the hell out of that
but was it a big leap once the automobile was invented to say automate autos are going to be
a big thing didn't know if ford was going to be great studebaker a lot of companies went bankrupt
a lot of railroad roads went bankrupt a lot of dot-coms went bankrupt but at the end of the day
hey, this was a transformational technology.
I just don't see how, and Zitron argues this a lot of the times,
he basically says AI is not a transformational technology.
Like it's not good.
It doesn't do anything.
It hallucinates.
It's like, look, it's getting better every month.
It does a lot of stuff.
I mean, I'll tell you what,
you could make the same argument about a word processor.
You could be like, oh, what's a computer?
It's a keyboard.
I already have a typewriter.
It's not transformation.
I mean, sometimes the differences don't even have to be that huge.
Just the fact that you can now talk to computers is huge, right?
I mean, before the big LOMs, the best talking, you know, back and forth was like Alexa and Siri, and they all suck.
And now, like, I'm like, you know, you start talking to these models and they're picking up on slang.
you're picking up on, like, that is just a huge, huge leap. I mean, it's so easy to, you know,
imagine like glasses and, you know, automatically, you know, translating and all the stuff that these
things have already proven they can do are huge. They just haven't been fully implemented in society
yet because people don't change as fast as the technology, but they will get implemented.
just like, like I'm old enough that when I was a kid, we had a radio,
had a rotary phone and we had a dial black and white TV with an antenna.
Okay. That was the like epitome of electronics in like a 1981 household.
There were people that first got VHSs. They got betas.
My dad didn't like that stuff. There were people that got cable.
I just didn't like that stuff.
there were kids that got video games i mentioned the commodore 64 the atari 2600 my dad didn't like
that stuff he bought a new video game console called the atari 400 which even though it was
less than the atari 2600 was actually more expensive but it was a better computer but
nobody liked it everybody liked the 2600 so like all this stuff happened all this stuff happened
And then these companies came and went, but they have literally just transformed the world over what is a relatively short period of time.
I mean, it's not like the iPhone's been around for even a decade, right?
I mean, it came out 2007.
I mean, excuse me, for 20 years.
You know, it hasn't been around for 20 years.
I mean, that's that is not a long time.
that that's yeah I that pairs of socks older you know been around longer than
iPhone like this stuff changes the world and AI is gonna change the world
that not gonna end does that mean you know SpaceX and trade down to a share in the next 24 months Sure it can I actually don think it will But yeah I mean that thing got barely any revenue not profitable
You know, I'm just saying like, would I want to put a bunch of money into SpaceX?
No, I own some shares.
I got a little allocation on the IPO and I bought some the very first day.
Small amount.
And I just put it away.
because I do believe in the potential of it.
But I'm not going to be a SpaceX maxi.
Let me put it all into that.
And I think a diversified portfolio, crypto, Bitcoin, gold, silver, equities,
emerging market equity, everything except for bonds.
I just don't like bonds because I just don't see a way for the fixed income return to keep up with the inflation that's going to be necessary to handle the fiscal issues that every major developed country, Japan, the UK, France, even China, just swamped in it.
and basement trade's not hot right now,
that doesn't mean it won't be.
Yeah, it's not hot.
It's the best time to allocate typically.
It is.
Every single time, people hate the hyperscalers.
It's ridiculous how many times
when everybody thinks it's the smartest thing to do,
that's when everybody's invested in it
and it's got nowhere to go but down.
Like about four weeks ago,
everybody's like,
you got to bet on the um the the builders you know you don't bet on the spenders get out of
the hyperscalers everybody was saying that hyperscalers knocking the socks off of the um
you know uh quote unquote you know the picks and shovel plays um in the last three or four weeks
because it just gets overdone and the narrative gets old and now you've got micron down 200 bucks
and you've got meta up 80 bucks in the last couple of years and people are saying what the
hell happened like i thought a month ago you were supposed to buy micron and sell meta
oh actually a month ago you were supposed to sell micron and buy meta um and it's like
longer term i think you just be diversified because it's hard to pick the perfect okay i
I mean, when am I going to pick that perfect day that Meta stopped, Micron stopped?
And I think you just want to be involved in these long-term themes.
And this is why even when Bitcoin and gold were ripping last year, and I did once in a while go on a podcast and someone would say, no, you believe so much in gold and Bitcoin and the debasement trade.
Why do you own equity?
I'm like, it doesn't mean that the basement trade is always going to be, you know, doing what I think it's going to be.
Do I think gold and Bitcoin will outperform the S&P 500 over the next 10 years?
Yes, I do.
And I still do.
But it's not happening this year.
And you know what?
It's good to have that diversity.
There's an old saying in investing.
The only free lunch in investing versus that increases your Sharpe ratio.
This is volatility.
increases your expected return.
And that's why I've never been a fan of like,
just put every dollar you own,
put it all into,
put it all into gold,
put it all into the NASDAQ,
put it all into monster,
biddy,
strategy.
I do believe in diversification
and want to take short-term bets,
take short-term bets,
but I do,
but I do it with all per,
most of it is a,
I think that sage advice Any predictions between now and the next time we meet after q3 um what what it let me see if i can come up with a shocker for you
already well you're my favorite person to talk to um
uh i don't know if i have anything that's actually
two out of consensus.
I do think that with gold,
right around $4,000,
Bitcoin not too far away from $60,000,
that next time we meet,
I would wager that gold and Bitcoin
outperform relative to equity.
even some high-flying
I would much rather invest
in big gold right
micron
doesn't mean I don't think they're
not good
I just think that
especially by the end of the year
we could be looking at some
really
I think this was before we came on
but we're like three months away
from the four-year anniversary of the FTX low in Bitcoin.
October 2022, 16,000, four-year cycle.
I wasn't a believer in four-year cycles,
but you know what?
We seem to be following well.
And we're going to bond four years after the last bottom.
That's October.
We're in the middle of July.
Basically, if people have said,
okay, Bitcoin winner, like, well,
winner's getting ready to end.
Because, you know, if we're bottoming
in the next couple of months,
you know, I think you need to start adding now.
And to me, Bitcoin, 57,000,
whatever it hit last week.
I mean, that's a gift.
Gold at 4,000, silver, 60.
Now is the time to be buying those.
Not.
The hottest.
And not SpaceX.
Yeah.
It is funny.
The four year cycle does seem to be repeating.
And it's always good to zoom out with you, Mel.
I think this was like the most dense.
high signal.
We've ran through all this
in an hour and eight minutes here now.
So thank you for coming on.
Let's catch up in the fall
when Q3 is over.
And I'm always looking forward
to our end of year retrospective
and predictions for the following year.
So it's going to be a fun one.
I'm too.
And I've got a few that I'm actually thinking
could still come to fruition
that nobody thought.
One of them was Mag7 outperforms S&P 500.
I had Bitcoin outperforming gold.
I had some things that didn't seem to make sense back in January that I predicted at the end of the year.
And they still don't make sense, to be honest with you.
But I think there's still plenty of time left in the year for some of those things to come full circle.
and I think a lot of people that kind of gave up on the mag seven early in the year gave up on
Bitcoin and thought gold was the bee's name um as it hit 5600 there's no way Bitcoin's gonna
outperform it um I still think Bitcoin's gonna offer gold for 2026 and I
clip it and send it to Peter Schiff freaks
no we'll uh we'll catch up in the fall brother enjoy the rest of your summer
i think peace and love freaks