The Last Trade E036: Beyond the Fiscal Facade with Gary Brode

Brian Cubellis (00:01.646) And we're back with Gary Brode. Gary, welcome back to the show. Thanks for having me. It's interesting times right now. Competing narratives in the market right now, one of which we're going to open up the show with Jason Calcanis on the All In podcast last week, making the case that all is rosy, all is well, and the economy is as strong as ever. Let's play it, Logan. Tons and tons of interesting. topics on the docket markets are ripping jobs and inflation looking good as the Dow hits an all time high. Forget about soft landings boys sentiment is now flipping to a market melt up in 2024 the GDP numbers that just came out smashed it 3 .3 % year over year in the fourth quarter expectations were just 2 % Dow and S &P 500 both hit all time highs in the past week. Dow is above 38 ,000 for the first time in history. CPI number reasonable of 30 basis points month over month 3 .4 % from last year getting close to that 2 % target and the jobs data. Beat expectations, 2023 jobs, not so bad at 2 .7 million. It's the fifth strongest year for job increases since 2020. Real test will be, of course, this year. We've seen a bunch of layoffs. We'll get to that later. Gas prices plummeted 40 % for $5 a gallon in the summer of 2022. Now just $3 a gallon. And consumers are apparently feeling great about the economy. University of Michigan, which is the most respected report on consumer sentiment, said it increased in the past two months the most since 1991. I'm glad the University of Michigan, the most respected source for this material has provided us with that context. Yeah. Well, I'm a Michigan grad and I would actually rather talk about the Michigan football team than the consumer sentiment index, which I'm not sure is indicative of a whole lot. Congratulations on your first national title in many decades. I was actually in the Rose Bowl in 97. and they won it then. So, you know, it's been too long, but not as long as people make it out to be. That must have been a fun time. It was. It was amazing to be there. Yeah. This isn't a football podcast, though. It's a Bitcoin financial markets podcast. What do you think about Jason's comments there, Gary? Yeah, first of all, I mean, you have to admire his energy, right? I mean, Brian Cubellis (02:22.382) That was, that was like somewhere between, um, newscaster and guy who reads the disclaimer at the end of a drug commercial. So I, you know, I, I gotta respect his energy. Uh, I disagree with, um, with some of his analysis. I was furiously taking notes while listening to the, um, the commentary, which at the speed he was going was really impressive. But, you know, first of all, the Dow is at all time highs. That is completely irrelevant. That's 30 some. companies. I don't know that the performance of 30 some companies is indicative of the economy. If we want to talk about the S &P 500 or the NASDAQ, I think we should, but I don't actually care that the Dow is at all time highs. The other thing is there are some quirks in the way the Dow is calculated. Most notably, it's a price index. And so as the price of stocks go up, they have a higher weighting in the index. And if one of the companies in the Dow ends up doing a stock split, they're waiting and the index goes down. And so that's kind of a quirky way to calculate things that made sense 100 years ago. On GDP, yeah, that 3 .3 % number was certainly impressive, especially when everybody was looking for 2%. But the issue there is that was a manufactured number. I think we had GDP up by something like $1 .5 trillion, and debt was up by $2 trillion. And so... You know, this is, I was actually just talking about this on the deep knowledge investing video version of the five things. But imagine for a minute that you're a typical, you know, median income person, you're making, you know, maybe $60 ,000 a year. And, you know, in a particular quarter, you decide to run up $15 ,000 of credit card debt, annualizing to $60 ,000. And so you say, Hey, this is like, I'm earning $120 ,000 a year. except they're forgetting the fact that all they've done is pulled $15 ,000 of income or consumption, rather, forward in time. I don't know that the government spending trillions and trillions of dollars, which raises GDP, regardless of whether it produces any value or not, is really, I mean, it's kind of a ridiculous way to calculate GDP. The thing is, I think we can expect that will continue for the rest of the year. It's an election year. Brian Cubellis (04:44.653) No one wants to be responsible, no one in Congress, rather, or the White House wants to be responsible for somebody not getting their Stimmes or their entitlements or whatever it is that people feel like they want. So more of that will continue, but I don't know that that means the economy is in great shape. Regarding the stock market, what we're seeing right now is seven stocks priced for perfection. Over the last year and a quarter, all of the performance. of the S &P 500 has, yeah, there it is, right? Has come from seven stocks. And we just saw last night, Google and Microsoft announced absolutely fantastic numbers, but they didn't meet these really high expectations. These stocks were priced for perfection and based on expectations that they keep growing. And so, you know, Google was getting hammered. Microsoft was outperforming on a down day, but... You know, the last I looked at stock was actually down. The jobs number, that's kind of mixed news as well. Certainly having 9 million jobs available would indicate a healthy economy, except a lot of those jobs aren't real, right? The companies just post them, but they're not really hiring. The job growth we've seen is really people taking second jobs. There's been a decrease in full -time employment and those second jobs get calculated. So if somebody is working a full -time job, And then, you know, they lose that job and they take on two part -time jobs. You know, one, it's unlikely they're going to be making the same amount of income, but more importantly, that counts as two jobs. Again, not, when you look at the big picture jobs number, the headline number, it seems like a great economy. When you start to dig down into the details and realize that people are losing full -time jobs and taking on multiple part -time jobs, that to me doesn't seem like, um, a really healthy economy. That's not what you'd see when things are continually getting better. The final thing is, yeah, gas prices are certainly down from where they were a year ago and two years ago, but we're seeing a lot of geopolitical conflict and transportation issues that are causing the price of fuel to go up. And I don't know if you guys saw this, but earlier this week, the Saudis announced that they were stopping capital expenditures. Brian Cubellis (07:09.421) on another million barrels a day of capacity, that's going to be very hard to replace. So there are problems in the oil producing parts of the world and the United States, which for years was actually actually taken over for Saudi Arabia as the world's swing producer. Our energy policy, which is not coherent at the moment, is is not encouraging U .S. production and U .S. refining. And so, you know, all of that, I think, is going to drive oil prices higher and gas prices are going to follow. None of that's going to be good for the people tracking the CPI. Wow. That was such a cogent dismissal of the narrative from the All In podcast that just wants to see all time highs and doesn't care that it's about the currency being debased because of the expansion of the national debt, which they don't think is a problem. Yeah, it's a perfect. Their solution is 100 year bonds. It was a cogent, concise, perfect clip to share with our friends and family that we No believe that everything is all rosy in the economy and that's where I was really happy to listen to that clip and then Know that you're coming on the pod Because it was just a perfect description of yep. Well, so let's juxtapose this you have Jason's long rant Gary's rebuttal and then there's more data on top of that So Logan pull up the silent depression tweet that I sent out yesterday on the heels of This all -in podcast was which launched last Friday open up the tweet that I quoted We have all these layoff announcements that have happened so far this year so PayPal has cut 9 % of its workforce UPS cut 12 ,000 roles yesterday this both happened yesterday Throughout the month Microsoft has cut almost 2 ,000 jobs twitch cut 35 % of its workforce unity software 25 % Brex 20 % discord 17 % Wayfair 13 % riot games 11 % Duolingo 10 % rent the runway 10 % eBay Black Rock Citigroup Google and Amazon all cutting material rolls as well. And so you have this juxtaposition of the Dow at all time highs, these job numbers that are manufactured, as Gary explained, coming out rosy, GDP coming out rosy, and yet we have layoffs across the board, many different sectors. We have today, Brian Cubellis (09:33.741) The New York Banking Corporation, which bought Signature Bank last year, opened 40 % down. They reported a fourth quarter loss of $230 million, and they were expected to have net income of the same amount, around $230 million. It seems like the commercial real estate exposure that Signature Bank had that New York Bank absorbed is beginning to take them under. With the layoffs on top of that you have what seems to be the tremors of another banking liquidity crisis coming to the fore there there's clearly a mismatch between the reported numbers of how the economy is doing and the underlying the underlying economy what's actually happening Yeah, and and and as as Gary pointed out that you know, it's an election year and it's not just any election year It's it's a rather existential election year for the establishment and that's everybody in power really because they're all afraid of orange man coming back. And so there's more than normal of a willingness to circle the wagons and defend the party line. And that means making number go up in the stock markets. So I think that, you know, in every election year there's that motivation from the White House, but it might be stronger and more aligned across Washington. and in the seats of power there this time around because of the threat of Donald Trump coming back and they, and you know, they're afraid of that. Yeah. And that's actually an interesting topic because of what you just mentioned, Jesse and then what Gary kind of, uh, glossed over it. Cause he was trying to give them some credibility, but in the sense of like, let's not talk about if it's productive or not productive and where the capital goes or that, you know, the, the trillion number he threw out, uh, in debt, but there's a whole angle of the numbers. being cooked, whether it's the unemployment or two jobs, but there's also the private sector or from the government or the public sector getting that capital. And so I think we threw out a few weeks ago, there was like, I think 100 % increase in employment or in New York was in the public sector and then Illinois was like 53%. And so there's this notion or this idea that the growth and any of the GDP is actually related to the government spending. Brian Cubellis (11:56.661) as it relates to anything that they're spending on, whether it's healthcare, you know, municipal. And so that's another part that ties into what Jesse just referenced in like government or the actual election. And, you know, kind of cooking that in a different way. Brian Cubellis (12:13.613) Yeah, that part is absolutely true. It's not just that there's been GDP growth or that the GDP growth has been completely tied to government spending. It's that government spending and the jobs number, they're creating their own jobs. Right. So they're basically manufacturing their own numbers, their own consensus. And one of the things that I consider to be particularly dishonest about this and government numbers are always dishonest. This isn't a Republican thing or a Democrat thing. Everybody always wants their numbers to look good. And so the numbers are adjusted and massaged in so many different ways to make them look better that, you know, we would actually consider them to be lies. Um, but, but the trend that they have right now is they're actually just manufacturing their own numbers and they're lying about what, yeah, there you go. Healthcare growth, government growth. And remember government is half of healthcare spending. So that's, that's a huge part of it as well. Um, But basically, the thing that I consider to be particularly dishonest is, you know, let's go back a few decades. And what would happen is the government was largely funding itself through tax receipts. And that forced conversations at dinner tables across the entire country about the proper size of government and how we wanted to pay for it and how much we wanted to pay for it. And going back through history, even during the time of kings, if they wanted to go to war. and they had to tax their people too much for that, they would lose the support of their people. And, you know, as a king, you have a certain amount of leeway, but there's a point where you end up facing a revolt. And so we have all of this spending right now, but instead of funding it through taxes, which would cause people to say, is this good use of our money? Do we really want to pay for this? Is this a program that I'm in favor of? They're financing these programs through the treasury department. Right. So Congress is engaging in trillions of dollars of excess spending. The Treasury Department monetizes it. And we are now paying for our excess spending, not through taxes, but through inflation. And the thing that's particularly insidious about that is one Congress, they're acting like there are no limits to how much they can spend. Right. They're going to overspend this year by $2 trillion. Why not $10 trillion next year and $20 trillion the year after that. Nobody really has to pay for it. Why are we paying taxes at all? Brian Cubellis (14:38.285) And, and that's a, you know, a huge part of the problem. The other issue is that when people are taxed to pay for government programs that they don't benefit from, or don't think have value, or they're not interested in, or they think are wrong, they know where to direct their anger. But the system that we have right now, it's really easy for the government to blame greedy corporations, or supply chain issues. Now, does some of that matter? I don't know, maybe, but there's no question that we just had a massive increase in inflation directly tied to a massive increase in government spending. Basically, our government went full Ben Bernanke, who suggested we could and should stimulate the economy by throwing money out of helicopters. That's what we did. The result of that was inflation. And so what they're doing right now, and by they I mean the government, Congress and the Treasury Department, is they are hiding their spending. They're acting like there are no limits and they're hiding it in inflation and not taking responsibility. Brian Cubellis (15:38.573) Yeah. And with the election year, nothing's probably going to get done. Yeah, it's not going to change. No. And you had the with the last debt ceiling, right? They they pushed it to Q1 2025 and they'd be able to do anything about it. And you have a lame duck period as well. Which was a departure from how they've done it in the past, because usually when they lift the debt ceiling, they set a new ceiling. But this time they just suspended the ceiling for to get us through the next election cycle. laying the groundwork for being able to have an expansion of deficit spending in 2024 to try to make everything look good through the election cycle. Yeah, that's a, that's a great point, Chessie. And one of the key things here is to remember, you know, how they, how they lie about this stuff. Um, they, it's, it's, it's kind of a complicated topic, but you know, They tell us they're going to, first of all, you're right. They run this through the next election. It's because they don't want to have a conversation. But these guys spent, the different part, the two parties spent six months pretending that they were having a huge fight about cutting spending and gutting government spending and people were going to be homeless. None of that's true. The level of spending always goes up. It's just the Republicans wanted a slightly slower increase in growth than the Democrats wanted. But what we really need to do right now is cut spending. And so, you know, they're having this debate and pretending that they're talking about cutting spending. They're not. They're talking about a slow reduction in the rate of growth of spending. It's not the same thing. And the entire conversation takes place in a playing field that doesn't match the language that they're using. And they're using hyper politicized events, like what's going on at the border as bargaining chips during these spending negotiations. Looks like we're saber rattling to potentially get into a couple more wars, at least at a time when our weapons depot is as depleted as it has been in quite some time, which if we, God forbid, do get into more wars, would dictate more spending just to get our arsenal up. Brian Cubellis (18:03.789) to go actually fight those wars. It's a complete mess right now. And with that being said, we have a big day today. Jerome Powell and the Fed, the Federal Open Markets Committee meeting today. Gary, what are your thoughts on what they'll do, especially considering this New York community, Bancorp situation where it seems like a liquidity crisis can be popping up and the suspension of BTFP come March. Yeah, so one of the things we've been tracking for the last five quarters actually has been this inconsistent data. What we've seen is that the consumer is spending, that inflation has while it's come down is still running hot. And again, I'm using the CPI as a proxy for inflation. I actually think real inflation is experienced by most American families as higher than the CPI. You know, unless you guys want to tell me that your food costs are only up, you know, 1 .6 % in the last year. You know, my view is anybody who believes that hasn't been in a supermarket in a couple of years. Um, but where we're seeing the stress in the economy is in the upstream part of it. The manufacturing numbers have been horrendous. The PCE, uh, has been coming down. And so, you know, on the manufacturing side, the planning side, it looks like people are preparing for a recession on the consumer side. People are spending like, you know, it's still the good times. They've got money to party or like, they'll never have to pay. their debt again. My thinking is that with all of this inconsistent data, that Powell and the Fed are likely to pause here. I think the people who are betting that they lower rates today are likely to be disappointed. I also think the people who are betting on six rate cuts or a total of 150 basis points of cuts this year are likely to be disappointed. Now look, you know, Could the Fed come out in an hour and a half and say, we're cutting by 25 basis points? Sure. You know, right as of this morning, Wall Street thought it was a 50 -50 bet. You know, I'm not 100 % on it, but I think the most likely thing is that they hold Pat for now. And if I'm wrong about the six rate cuts, if they really do cut six times, if they cut the Fed funds rate by 150 basis points, Brian Cubellis (20:20.151) And I'm wrong about my prediction. It will be less than that. It will be because we have an economy that's extremely weak. And that's not going to be as good for the stock market as people think. Brian Cubellis (20:35.085) Just thinking here, because what are your thoughts on the suspension of BTFP? Because it seems like the Fed, with all their new facilities, they're attempting to plug a hole somewhere. They plug that hole and water comes out the other end. And it seems like with the BTFP, particularly opened up this arbitrage trade that the banks were taking advantage of, where they're able to get these loans at par value and then put that money somewhere else and get a yield on it, which was hindering the Fed's balance sheet. and they decided to shut that down. And what does that mean? It seems like just based off this conversation so far, like the banking crisis is an afterthought. The potential of the banking crisis reemerging is an afterthought for many people. And if that does reemerge, how does that disrupt the plans of everybody? Yeah, so you're talking about the plans of everybody. and unintended consequences and unintended consequences of policy is why I've always been against a centrally planned economy. It's why centrally planned economies rarely work. So, you know, what happened was the Fed had this, you know, pretty much an emergency situation about a year ago and what they wanted to do was provide liquidity to the banking system. Okay, I get it. But the thing is they were acting in emergency mode. And they came up with a plan that had unintended consequences, which was a risk -free arbitrage, which is a fancy way of saying they basically were funding the banks with free money. They were charging the banks a lower interest rate than they were paying the banks. And so what the banks were doing is they were borrowing money at a low rate and then depositing money with the Fed and receiving a higher rate. And they had a risk -free rate of return at the expense of the Federal Reserve. That was not the intention. And so... I don't think it's crazy that they're unwinding it, but I think when you look at government policy or the Fed as a quasi -government agency, the number of times how frequently we end up with negative unintended consequences from policy that's made, it happens really consistently. And it's why we need more of a free market and less central bank or central planning direction in the economy. Brian Cubellis (22:51.437) I do love how it's like the voracious appetite of banks to make a profit come through in this particular anecdote of like, basically the banks are drowning and the government's like, oh, you guys need a life preserver? Okay, here, I'll toss you this life preserver. And the banks get the life preserver and they're like, well, I could sell this thing for 10 bucks though. They turn around and sell it. And then they're drowning again and they say, oh, throw me another life preserver. I need help. We're just caught in this cycle. It's particularly poetic on us It's like an auro barrow where the commercial banks particularly are like equity holders in the Federal Reserve And they're just completely taking advantage of it hindering its ability to operate profitably And leading to all these negative externalities in that It's like it's almost like a double -edged sword where they're basically hurting the Fed with this arbitrage trade, but they're also exposing the weak spots where the unintended consequences exist. I don't know if I'm articulating this, but it's almost like a snake eating its own tail at the end of the day. I think a big part of this is the fact that the Fed has made it clear that they want these institutions to not fail. And so what we have is, and then when we have... problems in the economy. People blame capitalism. This is not capitalism. This is corporatism. And what we really need to do is somehow find a way to cut that link between the government and private business. We do need failure in the economy and keeping these zombie businesses alive or having businesses that can only exist with a 0 % fed funds rate or negative interest rates or government handouts or government backstops. That doesn't... lead to building any kind of wealth or prosperity in the long run. We're going to end up drowning in inflation. And you know, it's as unwise as I think it is for the consumer to be spending themselves into debt, particularly given what the banks charge on credit card debt or, you know, other kinds of debt. Fine. Fair enough. And it's easy for me to say that's unwise. But let's just take a step back and put yourself in the shoes of, you know, the regular American consumer. Brian Cubellis (25:12.333) And you can understand why they might think it's a perfectly fine idea. They've seen corporations get bailed out. They've seen car companies get bailed out. They've seen the auto unions and their pensions get bailed out. Government agencies get bailed out of their budgetary problems and pension problems all the time. They've seen the banks get bailed out multiple times. They're looking at student loan ballots and people talk about debt cancellation. It is not cancellation. It is a transfer. The debt doesn't disappear. It simply gets transferred from the students or the former students, rather the graduates, onto the American taxpayer, onto our government bill, right? That debt doesn't disappear, it's transferred. And so imagine, you know, you're a consumer and you're seeing with inflation, the value of your savings being depleted every year, right? Maybe not the dollar amount, but what you can buy with those dollars. And you see everybody else getting bailed out. And listen, I would never recommend that anyone listening to this spend yourself into debt and then declare bankruptcy, wash, rinse and repeat. I think it's unwise to do that. But if you put yourself in the shoes of the American consumer and they look at everyone else getting bailed out and Congress and the Treasury taking aim at their savings accounts and making them worthless, again, maybe not in a aggregate dollar amount, but what they can purchase with those dollars, you can see why people might be willing to run up huge credit card debt and just say, you know what, we're going to make it somebody else's problem. Why am I the only one who has to be responsible? And a derivative of that is just the quality of life as we've seen the past whatever it's a year to 10 years, whether it's suicide and all the things associated with it, that as you reduce the purchasing power of an individual, you start to lose hope on week over week, year over year on what you're working towards. And that's where the debt comes in and to a point where you just end up aimless because there's no hope, but there's a... This like to Marty's point, the tail eating as you're effectively get to a point where you're like, what am I doing here? Brian Cubellis (27:11.629) Yeah, there's there's no question. It ends up becoming like addictive behavior. We have huge amounts of deaths of despair. And if you look at the use of things like antidepressants, particularly in our big cities, they're huge numbers. And I'm not recommending that people who are not feeling all right or feeling depressed, I would never recommend that they not get help. But when we look at the these numbers, the statistics on it, it's not a sign of a healthy society. You know, I have no idea if this is true, but I've read multiple times that 25 % of the women in New York City are on antidepressants. Now, you know, should people who aren't feeling well get help? Yeah, absolutely. You know, if you're feeling depressed, anxious, whatever it is, if you're having difficulty coping, I think getting help is a great idea. But when, you know, a quarter of your people are on brain altering chemicals, that's more of a societal problem. And you know, how much of that's related to inflation? I don't know, there are multiple factors here. We haven't isolated it. Um, but it's not, it's not a sign of, um, of a society where people are feeling fulfilled and hopeful. Maybe switching gears on that though, to a hopeful topic, um, is one of the things I took away from our last conversation, Gary, was that you, you articulated very well that what we're, where we're at is, is no different than where we've been before. These cycles repeat and that there's ways to. I don't know if benefit is the right word based on what we just described or you described talking about, but there's ways to make sure that you're protected and to play this situation, whether it's from a business perspective or just an individual's purchasing power investments. And I'd love to hear kind of how you're thinking about it. And particularly with your clients that you referenced and your audience, has anything changed or just to share like more color on that? Yeah, that's a great question. Look, one of the places where deep knowledge investing differs with some of the other firms that we partner with or compete with is, we've seen over the last couple of years, this narrative that we need 0 % rates or lower rates so that the market will go up and we're in a good market, a bad market. And that's coming from kind of the indexed long only crowd, the asset gatherers who get a percentage. And for them, they just want the market to go up. And if it does, we're all getting richer and that's fine. But Brian Cubellis (29:37.357) I don't know that that's skillful and what do you do when you're in a quote unquote bad market. At Deep Knowledge Investing, we don't believe in good markets or bad markets. If you think inflation is going to be a problem, you can prepare for that. If you think the market's going to go down, you can get defensive. You can reduce exposure. You can short something. You can be long volatility. There are all kinds of things that you can do to perform and make money in any market. And so you're right. A lot of what we've talked about in the first part of this podcast, has been very negative, but the fact that I think so much of our economic policy is unwise doesn't mean that as investors, we can't take advantage of it and find ways to make money from it. And so, you know, if you're concerned about inflation and I am owning things like gold, oil, energy, I love uranium right now. I think nuclear power, there's a huge supply demand imbalance right now in the uranium market. And then, you our favorite way to save in a, an inflation safe way is in Bitcoin. And that's a great response on that. If you're worried that the market's going to go down because, you know, we've got seven stocks that are priced for per perfection. And we saw huge growth numbers out of, um, you know, we're talking about Microsoft and Google and the stocks are down. Um, you know, that's, that's going to be a rough thing. Apple there's concern that they're going to have, um, fewer iPhone sales, right? That their units are going to be down double digits this year. And so if you're worried about the market going down, you can own volatility, right? You can own the VIX. You know, I own VXX, not in size, I have a tiny position in that. You can also reduce exposure. You can short the market, right? You can go short, or at least hedge out your equity exposure, which is one of my preferred ways to do it. There are stocks that I like, but I want to hedge out the market exposure and that take less market exposure while having exposure to the companies that I like. So there are all kinds of things you can do to benefit from what many would consider to be a bad or risky environment. Brian Cubellis (31:46.669) and particularly digging into Bitcoin, interviews on that, what are your thoughts on the ETF approvals and what impact that may or may not have on people's views of Bitcoin as we move through 2024? Yeah, big picture. I'm a fan of the ETFs. Look, and I'm sure you guys are gonna agree with this. If you wanna own Bitcoin, your best option is to own it yourself and self -custody. Either, you know, on your own, like I own and self custody my own Bitcoin or through a company like OnRamp Bitcoin where you can have, you know, multi -factor authentication and spread the keys out, right? The way you guys do it. But the best way to do it is to own and self custody your own Bitcoin. And that's great for people like us, but there are issues for a lot of people for that. One is for some people it's confusing and they're afraid to do it and there's no 800 number to call. You can't call 1 -800 -BITCOIN and ask to talk to your local branch manager, right? I mean, you can understand why somebody might be nervous going on, say a crypto exchange, buying Bitcoin and then transferring that to a hard wallet and not knowing if it's going to get lost in transfer and knowing that if there's a problem, there's no one that you can call. I can see why people would be nervous. From an institutional point of view, pension funds, they can't own Bitcoin. There are lots of people with traditional brokerage accounts or family offices where they have rules that say you have to own something in a brokerage account, in a traditional brokerage account. And so, you know, one of the key things that we always say is Bitcoin is for everybody. It's not just for the 25 year old crypto punks. You know, it's also for your... traditional asset management or hedge fund managers like me. It's for 80 year old grandmothers. It's for poor people in Venezuela or Argentina, you know, or Nigeria who can't save in their local currency, right? The use case for Bitcoin is enormous. And the thing that I like about the ETFs is it opens up ownership and accessibility to people who Brian Cubellis (34:03.885) don't have or don't want to develop the technical skills to self custody, which, you know, I get it. It's hard for them not having anyone to call. And, you know, for pension funds or traditional asset management firms where they can't own anything for compliance reasons outside of their brokerage account, anything that makes Bitcoin more accessible, I think is long term going to be a good thing. I think that articulates it really well. We talk about how the ETFs make Bitcoin accessible to more capital, but you explain the mechanics of that, that in a lot of these cases, there are prohibitions on what certain allocators can hold and how they can hold it. And the ETF solves for a lot of those conditions. And that's how it expands the amount of capital that can access Bitcoin. Which is great. Ultimately it's great. And, and, you know, we agree with you that, um, for people who can, who are technical enough, um, and confident enough to take on self custody, that's a great situation. And, you know, everyone on this, on this podcast is, is doing that, um, you know, and also diversifying our, how we're holding our, um, coins with multi -institution custody through on -ramp, um, because that's a great way to, to have a second setup for how you're custodying your Bitcoin that also retains the end user's full control of that Bitcoin because of the nature of multi -institution custody where none of the key holders have unilateral control of the assets in that particular on chain vault. And anyway, so that's the best way to do it. But if you can't hold actual Bitcoin because you're a family office or a pension or whatever and and. The ETF allows you to get some access to Bitcoin. It comes with those risks that are inherent to the ETF of, you know, will BlackRock protect your rights to that Bitcoin? But you at least have exposure to this asset so long as these terrible scenarios don't arise. And that's a good thing on net and a great way for people to be. Brian Cubellis (36:22.635) Dipping, everyone has to dip a toe into Bitcoin first, and that includes pensions. And, you know, they can dip a toe with BlackRock, start to learn more about it, start to shape their investment theses around the role of Bitcoin in an era after the last 40 years of declining interest rates have meant the 60 -40 portfolio has disproportionately performed and that can't continue. And so scarce assets might have. make more sense going forward. And having dipped a toe in the BlackRock ETF makes people more aware of that. It's all good for Bitcoin in the end. Brian Cubellis (37:05.037) Top of funnel. It's a nice top of funnel. First entry point for a lot of people. And I think bringing this back to the macro backdrop, I mean, Gary, you mentioned uranium as something that you're bullish on. And that is, while we're shifting from pessimistic to optimistic views, I was really good to see earlier this week up in Canada, they announced that they're gonna refurb one of their nuclear power plants. They were thinking about decommissioning. So it does seem like there is a massive sea change in terms of the view toward nuclear energy. I think the energy crisis in Europe a couple of years ago really woke people up that it was probably a bad idea to decommission a material amount of nuclear power plants in Germany specifically. France was thinking about going the same way. They made a pivot last year and said, hey, we're not going to decommission. We may actually be building more. And that leaves the U .S. where we still seem a bit hamstrung here. Do you have any hope that we can wise up in terms of nuclear power generation here in the United States? I think it's something we should definitely be doing. Basically, whether you believe in man -made global warming, global weirding, climate change or not, nuclear is the only technology that will get you base load generation capacity without a carbon footprint. And so it should satisfy everybody's needs for, you know, we, we have all of this discussion about the electrification of everything, the sense that we want to have, you know, electric cars, um, and everything to be electrified and, and it's being sold to us as an environmental good. Now I, will easily question the environmental impact of EVs. But if you believe that and you want that, the issue is we don't have enough grid infrastructure for it and nobody's building it right now. Nobody's permitting it right now. And so if you want to have a decent quality of life, that means higher energy usage without having more carbon emissions. Nuclear is the option. The reason. Brian Cubellis (39:28.909) I think they're making that shift in Europe is because they realized that they had to. And they had just ridiculous outcomes, like in order to save the environment, they were burning coal and lumber. They were burning coal and trees. And that's, if you want to reduce your carbon emission, that's sort of the worst way to do it. They also got bailed out last winter by an unusually warm winter, but a cold winter. And... they would have been in trouble. I think the issue here in the US is we haven't had that energy emergency with the exception of a few things. You know, like we saw the horrible cold snap in Texas last year, or maybe it was two years ago, that led to some massive problems, but we haven't really had widespread grid unavailability that's caused people to move. And I think a big part of the, current energy policy is actually just to have people living at lower, a lower standard of living. I think the people in charge of this want there to be fewer people on the planet living at lower energy levels. And even though cheap, reliable nuclear power would not be an environmental problem by anybody's definition, they don't really want that. And so, you know, anytime you see somebody who says I'm an environmentalist, I'm very concerned about. climate change and they're also against nuclear power, I think it's reasonable to assume that what they're really against is human beings. And so until we weed that out, we're going to have some nutty energy policy, which is kind of where we are right now. Yeah. Nutty energy policy. Who knows whether or not it was a direct reaction to governor Abbott's actions at the border to defend the border against the federal government, not against the federal government, but. because the federal government was refusing to defend the border. But last week, the Biden administration came out and essentially said, we're not going to be building any more LNG export infrastructure moving forward. They're going to put the NICs in that, which is insane because United States LNG exports essentially saved Europe during their energy crisis a couple of years ago and has been one of the... Brian Cubellis (41:48.223) Glaring bright spots of the US energy industry over the last five years. We've I Think we've increased our production by an order of magnitude in a rather quick time to think that they would actively prevent that market which has a lot of demand globally from expanding is insane It also makes us unreliable Right. It makes us an unreliable partner. The reason we were exporting was we were telling our European allies that do not get your energy from Russia, right? We want to try to limit the cashflow going to Russia, which they were using to fight a war in Ukraine. Okay, and so, you know, our European allies and partners said, okay, great, thanks, US, we'll get the energy from you instead of from Russia, which is a whole lot closer and, you know, there were pipelines and those got destroyed. And so, you know, when we tell them, don't rely on the Russians, we're here for you. And then a couple of years later we say, yeah, we're done with that. It makes us unreliable. Brian Cubellis (42:55.981) Yeah. Go ahead, Jesse. Go ahead. No, I was just going to a different direction. Well, yeah, I was thinking on the global macro side, Gary, how you're thinking about, and just any color on what's going on in the Middle East with, you know, oil trade or potential disruptions there. And then also the little further East before the pot, I think you were resetting. Marty and I were talking about the China stock market and some of the volatility that's happening around there. Any color that you could share, that would be nice. Yeah, I don't know that I have a whole lot more to add on China than what's being discussed. I mean, I think they have a lot of the same problems we do here, only really in size. You know, their public sector and private sector are very tied together. They have huge amounts of debt in their system. Their banks are over leverage. The big thing there is the Chinese tend to hold their wealth in property and You know, there's, there's just, there's an oversupply of property and, you we just saw, uh, their largest property developer finally had to declare bankruptcy. Um, these companies are, are over leveraged and having, you know, they take deposits from people, but they don't have the money to finish the corruption. And that leaves, you know, people with massive losses. So there are all kinds of issues that China has throughout their economy. Plus on top of that. You have a lot of companies that are trying to diversify their supply chains. They don't want to rely on China. They don't feel like China is a reliable partner. And they're also tired of the technology exchange, right? I mean, part of the issue when you do business in China is you have to give them access to your technology, which a couple of years later, you end up seeing copies from Chinese companies, you know. And so people are looking for ways around that. And None of that is going to be good for China, which is a country that, you know, their economy really runs internally on property and externally on, you know, consumer product export growth. So I think they're going to be facing problems for on both of those sides, and those could be long -term problems for them. Brian Cubellis (45:09.261) China's always not confused me, but I just have no idea what's going on there at any given point in time. I mean, Evergrande was a hot topic in the news maybe a year or two ago. It seemed like their collapse was imminent. They were able to extend that for a considerable amount of time. And I don't know. Yeah, I could just never tell. The great firewall is real in terms of actually having any sense of clarity into what's going on. within the Chinese economy at any given point in time. There's definitely an information asymmetry. When I talk to friends of mine who are Chinese and go back to visit China, so much of what we see reported here in terms of Chinese use of slave labor, their practices of harvesting organs, a lot of the really vile things that the CCP does, the Chinese Communist Party does, is not reported there. And there is, believe it or not, information that you can get about China here in the US that the Chinese people don't have. The other side of it is, I'm told by, again, my Chinese friends who are watching Chinese television in China, that there's just this constant negative drumbeat about the US. And it is just wall to wall daily propaganda about how horrible the US is. Now, you know, if you're the CCP, you might claim that our media is doing the same to them or our politicians are, and you know, that's fair, but it's not clear that there's any consistency of information. The information you get on different sides of the ocean are different, and it's not clear how serious they're going to be about addressing these problems in a way that fixes them. Brian Cubellis (47:05.837) bullish or bearish this year. I guess that's it. I'm most worried about this banking crisis reemerging. It seems like the liquidity situation is beginning to peer its head. If you look at the outflows of deposits from the small to regional banks, especially minus the BTFP program, it seems like people are flooding out in mass. Jesse? I saw a great chart the other day. should have saved it. But we've been living in this really anomalous time in the last two years with M2 contraction. And in the last 50 years, that hasn't happened. There hasn't been a red year in M2 money supply growth. And so all of this is unusual. And because of our system, the way it's constructed, we have to expand the money supply. It is necessary for us to switch back to growing that at some point here. Quite remarkable that, you I think because of the massive expansion in 2020, in the COVID response, they have basically been pausing it and allowing, you know, the normal curve to catch up to where. the COVID response jumped the money supply up to. And we're kind of there now. And things are reeling a little bit. And at some point, maybe it's an election year and maybe it's the rolling off of the BTFP, which has to be replaced by something else because otherwise every regional bank that has underwater securities is in deep trouble. And so they have to do something and they'll just come up with a more exotic way to obfuscate the fact that they're backstopping the banking sector. But anyway, all of these things are on the horizon here between election year, Fed cutting, BTFP ending, the need for another acronym to replace it. Brian Cubellis (49:34.445) in order to shore up the banking sector. So, you know, I think in a funny way that the all in podcast at the start of the show is in some ways, right, that to be optimistic about where the stock market is going, but for the wrong reasons, because, you I don't, Gary did a great job of enumerating how we're not looking at healthy economic signals. It's quite, it's the contrary, but at the same time, the need for monetary debasement, national debt expansion, deficit spending means that overall, the money supply goes up and the stock market with it, even if what's actually happening is that in real terms, it's flat or potentially even down in real terms, which is what happened in the 70s. Flat in nominal terms, down in real terms for a whole decade. And, you know, so I think I'm bullish on the money supply, which will be a departure from the last two years. And I think that kind of means I'm bullish on the stock market for the wrong reasons. And I'm certainly bullish on an increase in the deficit, in deficit spending, which... you know, is a continuation of the last six months really ever since the nine months since the end of the debt ceiling or the suspension of the debt ceiling. So, you know, Marty, to your point at the beginning of the show, it is weird times. It's just, it's really weird. And we're all trying to figure out what the causes are and how to explain it all and what to expect going forward. But it's all weird because we're in this era of debt. expansion and monetary debasement causing everything to be funky. And, you know, there's no good measuring stick in markets anymore. And so everything goes up. Yeah. The thing I keep anchoring back to is the gravity changed. We were on one planet where it was one zero percent to build a business or do anything on the debt. And now we're at five or whatever. And what does that manifest itself and how weird does it get is effectively what this pod's been about in that. Brian Cubellis (52:02.221) that clip from all in and we're still continuing to see what's happening. I think that Gary brought up the grocery store. So it's such a great like angle, because at the end of the day, the core of it, it's like when you need to like your purchasing power, all you care about is you can buy more eggs every week than less. And that's effectively what you're going the opposite way with what's happening. But you look around like local restaurants and not only does the cost increase and almost everybody on this call, like their local restaurants are either closing or there's a degradation in their like experience from all different, whether it's like the inputs in the food to the prices to effectively they just like end up having to close up shop. And that's just like a small anecdote, but that like you can extrapolate that to all different things all the way up to Wall Street Journal. Their gravity's changed for a while and it got accelerated with the increase in the cost of capital. So now they have to accelerate that. So yeah, the gravity, we're on a different planet right now. Well, we're back to Earth right now. We're not on a different planet. This is the way things are supposed to. No, we'll get to Earth when the cost of capital is a BTC. We're just like we're falling back to Earth maybe. We're leaving a different planet. I actually agree with you guys that it's an election year. We are going to be flooded with liquidity all year. The one thing I would add, though, is I don't know that the Treasury and the Federal Reserve are as concerned about the failure of a few small banks as we might think that they would be. My thinking on this is if Washington DC had their way, we wouldn't have thousands of banks. They would prefer us to have half a dozen mega banks that were controlled by the government. And where you got a guy like Jamie Dimon, you can call him into the office and tell him, yeah, this is what we need you to do, or you want to stay in our good graces. follow this policy, deplatform this person. More banks mean less control by the government of our financial lives. So I think if they had their way, they'd love to see a bunch of small bank failures as long as it didn't, you know, ruin their stock market and just have all of those assets transferred to half a dozen megabanks. And then, you know, you have regulatory capture and they basically become the banking arm, the quasi... Brian Cubellis (54:27.371) governmental banking arm. Yeah, that makes seems to be the plan since 2008 even if you just look at the cons consolidations After the great financial crisis. It's just trending in this direction slowly But surely over time at a quicker pace at different points in time like last year and potentially This year and Gary. I know you have to go prep for something but one question I want to ask you before we wrap up here is Another thing that's not really being talked about but Jan Yellen announced last year that they were going to open up the buyback window for treasuries in 2024. Do you view that as a mechanism to mask falling demand in US treasuries, US debt more broadly? You know, I'm not actually sure on that one. The one thing I do see Yellen and the Treasury doing that I understand why they're doing it, but it's dangerous. Is there shortening, sorry, shortening the duration on the the new issues, right? Rolling over debt. So, you know, let's just say for a minute, you have a billion dollars of, you know, 10 year debt that's come due. And instead of refinancing that with 10 year debt, they're refinancing it with three month debt or six, six month debt. And I understand why they're doing is because the yield curve is, is such that they're sorry, it's not the yield curve. They're actually just expecting. the Fed is going to reduce rates. And so they'll be able to refinance that 10 year debt, maybe a year from now at lower rates, which, you know, it makes sense. I understand that. But the problem is what they're doing is reducing supply of the long -term debt and increasing supply of the short -term debt, which by definition needs to be rolled over more often. And so if she keeps pursuing this policy, and again, I understand why they're doing it, but if they keep pursuing this policy, the size of, Brian Cubellis (56:22.157) the weekly auctions and the monthly auctions are going to continue to grow, right? Because if you have 10 year debt that rolls over by definition once every 10 years, and you replace that with three month or six month debt, you need to reissue that debt 20 to 40 times more often. And that means larger and larger auctions. And so we saw last year, there were a couple auctions that had some pretty bad tails. They weren't failed auctions, but they weren't. sign of a healthy bond market either. And if the bond vigilantes wake up and decide, hey, I don't really want to own, you know, treasuries at less than a 2 % yield, I'm talking about real yield, not the nominal one, you know, after inflation, or, you know, they become concerned about the dollar, then that problem will happen with larger and larger auctions. And they're giving themselves less room to maneuver by pushing the duration more. toward the auctions that are coming up sooner rather than out further. unintended consequences seems to be a theme of all these actions. Yeah, or in this case, I think they know, I hope they know the risk they're taking. I think they're just willing to roll the dice and take the risk, right? And we do see that at times, you know, Biden took a huge risk running down the SPR before the last election, the strategic petroleum reserve. And you know, Had there been a bad hurricane that had ripped through the Gulf and taken production, a refining capacity offline, it would have been a disaster, right? Because we would have had a lack of supply, fuel prices would have spiked, and it would have absolutely thrown the election the other direction. By using the SPR to get fuel prices down, they gambled on good weather. They got good weather, and they got fuel prices down, and they had a much better election than anybody had expected. Brian Cubellis (58:19.501) you know, and 22. So, you know, I don't know that for Yellen it's unintended consequences. I think she knows what she's doing. I hope, I hope she's aware of the risk she's taken. I think they're just willing to roll the dice and, you know, sort of hope it turns out okay. Brian Cubellis (58:39.201) Yeah, that would explain what people were surmising toward the end of last year when you had the Jerome Powell and the Fed sort of shift their language to a more dovish stance where she essentially banking on rate cuts, then they can refi 10 year bonds at lower rates at some point later this year, next year. Yeah, to me, the most interesting part of this whole drama is, uh, Congress and the Treasury Department are in a very quiet fight with the Federal Reserve. They're undoing everything Powell's trying to do, right? So Powell is, they've done more than a trillion dollars of quantitative tightening. Granted, it was from a ridiculous $9 trillion number. It should have never been that high, but they have decreased the amount of liquidity in the system and then run rates from 0 % to a much more reasonable, where are we now, 5 .3 % on the Fed funds rate. And he's trying to bring inflation and the money supply under control. That's what he's supposed to do. But Congress, they're spending an extra $2 trillion a year and running up an extra, you know, few trillion dollars of debt every year. That's going to get worse as interest expenses now spike to well over a trillion dollars a year and will continue to rise. And, you know, the Treasury is monetizing that. And so there's this really interesting quiet fight between the Fed trying to reduce the money supply and get inflation under control on one hand. and Congress and the Treasury, which are saying, no, we are going to increase liquidity, increase spending, increase fiat dollar creation, and just monetize everything. And who cares about inflation? We'll blame that on somebody else. So watching these government institutions have this quiet fight out in public has been fascinating. Brian Cubellis (01:00:29.741) supposed to be separate. I suppose to influence each other. You would think I, you know, I can't prove it. I suspect they talk to each other. Yeah. They might be on speed dial, I think. Yeah. Not even a phone. Yeah, we we have seen photos of Powell and Yellen in the same room before. So you know, theoretically, they at least, you know, greet each other on a friendly basis. Gary, before wrapping, maybe if you want to give a plug for anything you're working on, but also your El Salvador trip, any learnings from there? I know you're really excited about that trip. If you want to share any key learnings or insights. Yeah. So, you know, we don't have key learnings yet. I haven't left yet. Oh, but it hasn't happened. Sorry. I thought it happened. Okay. Yeah. No, no, no. I'm just back from the Philippines and Thailand. But within the next month, I'm going to head to El Salvador and. I want to get a sense of how their lives and their economy has changed since adopting Bitcoin and going on the Bitcoin standard. You know, their crime rate is down a huge amount. Their economy is improved. You know, this is one of these things where you can look at the government statistics, but I don't know that I necessarily believe that. I think there's huge value in going to these places and talking to the people who are living that experience. You know, whether it's... somebody working in a hotel or a cab driver or somebody in a restaurant, or, you know, as everyone knows, you know, we, we need to figure out how people are buying coffee because that does seem to be the test case for whether something's a currency or not. So, you know, we need to go use Bitcoin to buy coffee, talk to the person who's making the coffee, you know, to prove that it is a currency. Um, but I'm excited about it because I like having these experiences where you find out from people what their life is like. And last year I spent, part of my winter in Buenos Aires. And it's one thing we've all read for years, for decades about the issues that Argentina has had with inflation, with the peso, with their economy. But when you go there and you talk to the people there, I spoke to people who run small businesses, I spoke to just friends who were trying to work there or cab drivers or waiters. Brian Cubellis (01:02:48.909) you really get a sense of how hard these people work to get out of pesos and convert their pesos into something that won't be losing 10 % of its value every month. And when you read the stories on this stuff, you know, the thing that you don't get is how hard it is to rent an apartment in Buenos Aires, because how do you set the rent? Right? You learn how hard it is when you talk to them to buy a house there, because how do you how do you have a mortgage? Right? When your inflation rate is 120%, what do you do? You charge people 140%, but what if your inflation rate drops to 80 %? Then you're killing the people who have the mortgage, but you know, your inflation rate could go to 200 % and then the bank is losing money. At certain levels, there's just no way to finance anything. And so people can't finance a home. They can't save for a home in pesos. Renting an apartment, you might have a three year lease, but you're... rent is only guaranteed for the first six months. So try to imagine how do you live when one, the currency that you get paid in depreciates in value by 10 % every month. And two, you don't know what your rent will be six months from now. Right? It's, I mean, the amount of effort and energy these people have to put into protecting themselves from the government abuse of their currency is exhausting. And you don't get that. from reading the statistics. You don't get that from reading, oh, Argentina's economy grew by X percent or it contracted by Y percent. Their inflation rate is this, their CPI is that, they're converting pesos to dollars, went from this rate to that rate. Those are the dry statistics when you get there and you talk to people and you start to understand what their lives are like. Some of the policies that the Argentinian government has, which you would have never known here in the US, actually prevent people from doing business legally. People need to have foreign subsidiaries in order to live up to the contracts that they have with their suppliers. And so because the government controls the supply of dollars in the economy and you can't pay for things in pesos or have contracts in pesos, these things create massive problems for people. And they end up creating all of these quasi legal subsidiaries to manage it. And Brian Cubellis (01:05:11.629) It's not until you really talk to them that you find that out. And so what I'm hoping is to go to El Salvador and have the same experience, but the opposite. I think, you know, where things in Argentina have gotten really bad, it would be fascinating to go to El Salvador and find out how their lives have changed. And I'm hoping to hear, you know, similar transformational stories, but I suspect that it may be a much more positive trip than the one to Argentina last winter. Yeah, the, the, the number that I remember from when El Salvador adopted Bitcoin as, as legal tender, it's that stuck out to me was, I think it was like 24 % of their GDP is remittances, international remittances, mostly from the U S and that because of the like fixed rate fees that they pay Western union, they're losing 7 % of that in transit. or 7 % of that total. So basically that Bitcoin, by adopting Bitcoin and replacing Western Union, they could boost their GDP 7%. So a quarter of that 25%. And I wonder how much of that has happened. I think that learning curve is still significant to change that kind of behavior, but you know, speaks to how big of an opportunity there is the low hanging fruit for boosting GDP by just cutting out intermediaries for, you know, for sending money from the U .S. back home to El Salvador. That's a great point, Jesse. The one thing I do know is if you are a worker here in the U .S. and you have family in El Salvador and you're sending money to them and you're losing seven percent of your money on slippage, they will absolutely find a way to use Bitcoin. or something else, if there is technology that allows them to avoid that, they will figure it out. Yeah. Yeah. I think I garbled it. I think it's like a effective rate of like a quarter of all the money that you're sending home. So like, so that it comes out to like 7 % of, you know, from that 25 % of their GDP roughly. Um, yeah. So incredible. And that's because they've just fixed fees and they're sending small amounts or extending $50 home at a time. And you pay a fixed fee. Brian Cubellis (01:07:31.277) That's how it gets eaten up Yeah, and we have some insight at 1031 It seems like that use case for strike is going a bit viral where as soon as somebody does it once they can it's like oh This is way better than what I was using before and it's inevitable just a matter of time and and people telling people Yeah Yeah, it's um Brian Cubellis (01:07:58.197) Reverse diaspora that's happening to I think that's an encouraging indicator that people are actually going back to El Salvador from the countries they fled to It's just a good data point to be like, huh? Maybe things are getting better people feel comfortable Coming back. I'll let you the country. I'll let you guys know in a few weeks. Yeah, Gary We know you got to go. We're over time here Enjoy your trip to El Salvador. Thank you for joining us again always bringing incredible insight to what's going on in markets and a different perspective than the Jason Calacanis of the world. So thank you. Guys, thanks so much for having me. Always great talking with you. And I love what you're doing to make Bitcoin more accessible for institutional accounts, for large accounts, and making it safer and finding different ways to make Bitcoin something that's usable by a larger percentage of the population. I will always love talking to you guys just for that alone. Awesome. Thanks for coming back. I'm looking forward to having you on again. Thanks. That's all we got this week. We'll see you guys next week.