The Last Trade E067: The Dire Debasement Dilemma with Gary Brode

Jackson Mikalic (00:01.777) Hey everyone, welcome back to The Last Trade. This week we have Gary Broad of Deep Knowledge Investing joining us once again. It's been about seven months Gary, since you were on last, so I'm sure there'll be a lot to talk about. And of course we have Michael Tanguma and Jesse Myers, my co -hosts here. Gary, how are you doing today? Gary Brode (00:18.87) Thanks for having me back. It's good to see you guys. Jackson Mikalic (00:21.55) Yeah, it's good to see you as well. Last time you were on the show, Marty Bent was the host. we'll try to keep the same flair that Marty had and it'll be a dynamic conversation as always. So appreciate you making the time, carving it out to speak with us again. Gary Brode (00:35.155) Yeah, I'm a huge fan of the work you guys are doing and you know, really Marty and I got to communicate a little bit on X yesterday. He's I will, I think we're going to talk about it later, but I think his interview with Caitlin Long earlier this week was phenomenal. Jackson Mikalic (00:52.124) Totally was. Yeah, we'll definitely cover that. I had the chance to catch up on it this morning while I was sitting in some Philadelphia traffic. So definitely will be keen to share some thoughts there. But, Gary, maybe we can start with a big headline of last week with the 50 bips rate cut. You categorize it as bigly a term coined by Donald Trump, maybe incorrectly. But nonetheless, it was maybe a shock for some people. Others were expecting it. But Gary, we'd love to hear your thoughts and what you decipher in the markets and the economy and what does that 50 -bips rate cut tell us about where it is today and maybe what we should expect going forward. Gary Brode (01:35.155) So I think there are a couple of interesting things going on. First of all, I'm in the minority on that rate cut. I actually think the Fed cut too soon. I do believe there's a huge slowing of the economy. People say we're in recession and I'll get to those thoughts. I think they're totally valid. But inflation is still elevated. I think the CPI is understated. So actual inflation is worse than. what's being reported. And the government, this is the most important thing. Congress, both parties, are still spraying trillions of dollars of value crushing stimulus into the economy that's pushing out the private market economy. I think with all of that, the Fed should have tried to get Congress to move. I don't think it would have been effective, but they should have held the line longer. With that said, They decided to cut and they did the bigger 50 basis point cut rather than the smaller 25 basis point cut. And I think the reason for that is because Powell and the Fed have realized something that deep knowledge investing and I have been talking about for the last year, which is we have a bifurcated economy. So when we look at the aggregate data, when we look at the GDP numbers and even though the recent employment numbers have been weaker, we still have growing employment. And that's even after all of the adjustments down. We still have almost 8 million jobs listed. Not all of them are real. But the point is the aggregate numbers for the economy look really good. And the reason for that, again, is because government spending, even if it destroys value, Gary Brode (03:08.751) adds to GDP. so Congress is basically creating the GDP number that they want to run for reelection on. And again, it's a bipartisan problem. So, you know, the reality is that that's created an economy that is fantastic for people who are beneficiaries of government largesse, and people who are very wealthy and can take on debt and buy hard assets and benefit from inflation. that leaves most of the rest of the country with a very weak faltering economy. You know, you see the shipping rates coming down, you see lower demand. You know, a lot of the manufacturing numbers haven't been good. And every time I talk to people who are running small businesses, they are just suffering in this economy. And so, you know, I think what we have are aggregate numbers that Betray reality and I think the Fed realized that and said hey the actual numbers look good But we have a lot of people who aren't doing well and they're looking to try to provide relief I don't know that that 50 basis point cut is going to be effective in doing that but that was the instrument that they had Jackson Mikalic (04:17.597) Yeah, that's interesting, Gary. And I was a bit surprised to read that you thought that the Federal Reserve was early to cut rates. Not that I disagree with you, but I think it's maybe a minority opinion at this point because there people that were calling for the Fed to cut, you know, 12 months ago, maybe longer. Right. So I'd be curious to hear. That was a great overview. I'd be curious to hear your thoughts just as it relates to inflation then. Inflation is obviously still persisting. In absolute terms everything that you'd want to purchase is much higher than it was four or five years ago and we understand that CPI is a handcrafted or selected government metric and it's also year over year, right? So just because the CPI print is coming down It doesn't mean that the prices in the economy are returning to levels that we saw five years ago So I'm curious where you think inflation is at. You also put together a great chart I'll pull that up too just for some historical perspective because I think that that'll paint a nice picture going forward. Gary Brode (05:20.597) Yeah, so, I think the point that you made is a it's a crucial point, which is people are frequently misunderstanding the difference between deflation and disinflation. And so disinflation for all of you calculus nerds who loved high school math. You know, is it's a second derivative. It means a slowing in the rate of increase. So if you have, you know, an inflation rate of 9 % that goes to 6%, that's disinflation, but prices are still rising. If that 6 % goes to 3 % or two and a half, which is where they're telling us it is now, you still have prices rising. And the issue is that we've had years of elevated inflation that raised the price index for people to the point where a lot of people are having a very hard time paying for their basics. paying for their rent or mortgage, for a car, to put gas in the car and to buy groceries. And that, those things, those necessities are taking up a huge portion of people's budgets. And you know, the government and these economists and the Federal Reserve and all of these Keynesians and MMT fans are busy celebrating, hey, we got inflation down, we won the war. And most of the rest of the country is saying, wait a minute, my groceries are unaffordable. And the prices are still going up and you know, the government economists are saying, but they're going up more slowly. And that's not helping regarding, you know, where I think inflation is, you know, the hard thing about that is people's inflation rates vary wildly. So for example, you know, in my case, I do this for a living and I saw this coming and I refinanced my mortgage in the fourth quarter of 2021. You could see inflation coming. You knew rates were going to be coming. I locked in. that that mortgage rate for the next 30 years. So I was in a good position. But what if you change jobs or you moved and you had to refinance your mortgage all of a sudden buying a new home in that market and having to finance a mortgage at rates that were twice as high? What's your personal inflation rate? Gary Brode (07:25.225) Right. And so it really depends if you owned good cars or cars in good condition going into 2022, you were in good shape. If you had to buy a new car to get to work, all of a sudden, those prices went up. you know, I think there are a couple of places to point to inaccuracies. The most obvious one is the shelter or housing price where they're using OER. It stands for owner's equivalent rent. We have charts on that, which I'm happy to send you. But owner's equivalent rent, which is what's used in the consumer price index free it just constantly under states. the actual prices when you look at like a case Schiller index or the Zory, that's the Zillow index. You know, another place where I think there's an accuracy is in food pricing. I continue to state that anybody who believes food inflation is only one or 2 % hasn't been in a supermarket in years. And, you know, nobody ever disputes me. Every time I'm on one of these shows, I tell people if your grocery bills are up only one or 2 % in the last year, email me. I want to see it. You'd be the first person to do that. Regarding, you know, where people thought we were, you're right. It's not only that people thought that the Fed should cut a year ago. I've got records. We were talking about this as early as May, June, July of 2022. This has been going on for nine quarters where prominent people were screaming for the Fed to cut rates, even as inflation was at insane highs. Right. I mean, approaching double digits, they were saying the Fed should cut. And my response to that is those weren't people who understand the Gary Brode (09:04.123) economy and had the best interest of the American people at heart. Those are people who are asset gatherers and really liked collecting fees on bubble prices. Right. And, and they still got that right. The market continued to go up after, you know, the midpoint of 2022. Despite the fact that the Fed ran a tighter policy, you know, and everybody's screaming the Fed is, you know, they're too tight. They're running us into a recession. But in the meantime, what happened to asset prices, housing prices, gold prices, stock prices, right? The price of assets continue to rise and are in bubble territory right now and unaffordable for a lot of people. you know, I think there were a lot of people calling for the Fed to cut. as much as nine quarters ago. you know, I continue to maintain that I believe they were wrong and they're entitled to their opinion. you know, I want you guys to think about what the impact of inflation would have been had the feds started cutting rates, you know, more than two years ago. Michael (10:09.08) Yeah, I mean, it's scary. The grocery store is the most visceral or like tangible because you just like look around, you're like, how is anybody making it? You know, especially if you're not the dominant shopper in the household, which you go every six weeks or two months, you kind of get like a shock. You don't see it every week gradually. That's kind of like how I ended up seeing it. I'm like, wow. But what's scary is like, don't see how like, if they raise rates, I could see how inflation in a lot of the key sectors would actually increase as well with the notion of destroying productivity by businesses going out just like the demand. There's a lot of things that they have been baking into. I think the energy sector was one of them as you increase rates, you can actually also increase inflation based on the aggregate. production going down while the demand is still staying static. And so it's just like, there's no way out of this. It's like we just have persistent inflation no matter what. And then maybe the lever on the margins increases it on certain sectors more or less. But there's not a lot of outs in this economy for somebody to basically make a living. in the traditional way of making a living, storing it in dollars and hoping to get anywhere outside of moving backwards, is pretty scary for the average person. Gary Brode (11:23.561) I agree with you. And in fact, about a year ago, deep knowledge investing put out an ebook called counterintuitive inflation, where I argued with I think something like 17 charts that no matter what the Federal Reserve did, we were going to get more inflation that if they started to reduce rates, you get inflation. And Michael, took a slightly I think your points are great points. I took a slightly different approach than you did, which is to say that our debt is so high that If the federal reserve had increased rates, what we end up with is higher interest expense. And with our government spending trillions of dollars more than it's taking in, in taxes, I refuse to call it revenue, it's taxes. that what you would have is an increase in interest expense that could only be paid for by printing more dollars, increasing the supply of dollars that leads to inflation. If that sounds like a Ponzi scheme, congratulations. That is the definition of a Ponzi scheme. scheme, that's where we are. You know, this is and this is why I'm saying I don't think it matters so much what the Federal Reserve does. The only thing that matters right now is the debt and congressional overspending. you know, credit to Lynn Alden on this. She's been writing. Basically the same thesis on this and you know, Lynn's writing I think is brilliant. Her reasoning and research are terrific. The term she uses for it is fiscal dominance, which is a great term, but it's basically just another way of saying the government has taken on so much debt and is overspending by so much that no matter what the Federal Federal Reserve does, that's the small lever. The large lever is congressional overspending. Gary Brode (13:10.085) And that's, that's basically where we are right now. I also Michael think the point that you just made really bears repeating. and for your audience, cannot save in dollars, right? The things that I'm a little older than you guys are, but the things that we were told when I was a kid, the things that my parents were told is, you know, spend less than you earn and save the difference. And that's not bad advice. It's actually great advice. The problem is you can no longer save in dollars, right? The dollar debasement is in full swing here. Again, the dollar is now a total Ponzi scheme. And so, you know, I can't tell you where, you know, the dollar index is going to be next year, but One of the things that I like to do is ask people to reframe the way they think about inflation. So the original definition of inflation was an increase in the money supply. And then that shifted to an increase in prices. And the way I like to frame it for people is I want you to think about inflation as a reduction in the purchasing power of the dollars you hold. So if you have a thousand dollars in your bank account today, you could go out and buy a certain amount of goods and services. So really easy quiz here. Imagine you have that same thousand dollars in your bank account. How much in terms of goods and services do you think you could buy in one year, three years, five years, 10 years? And you guys know the answer, right? It's less. Right. So that thousand dollars is not going to hold up and somebody could say, but you'll learn interest on it. Yeah, but not more than the inflation rate. They they figured that part out. Jackson Mikalic (14:45.297) Yeah, it's fascinating. What? It's a loaded question, but what are the implications on Gary of the U .S. Treasury assets no longer being an asset for savers, right? It's now a liability to store your wealth in dollars directly or in government bonds and bills. how like it's such a big idea, right? Because I like to think, you taking a generational view, I know for a fact that my grandparents predominantly saved like Great Depression, right? If that's your center of influence, you're more likely than not going to touch equity markets because you live through the Great Depression. So you save in bills and bonds and those are kind of the safe haven, the conservative way to preserve your value. Over time, as the market structure evolves, we have got the S &P 500 as the de facto savings account. And if you were to ask someone 100 years ago, would you predominantly save your money? and equity is the answer would likely be no. And now we're, I think, transitioning into a world where Bitcoin plays a significant role, of course, but that doesn't mean that equities and real estate still don't play a role in preserving wealth, but there are, in my opinion, pretty big implications that storing your wealth and bonds and obligations of the U .S. government will mathematically pay back a negative real return. So what are your thoughts on that? I mean, it's a big idea and big question, but I think this is a theme that we're going to see play out not just a year from now or five years from now but for decades. Gary Brode (16:23.657) I completely agree with you. And you know, what's really interesting is I've read these, these fascinating psychological studies of the saving practices of people who lived through the great depression. And it's incredible. It affected them their entire lives. Right. That I like, I read this story recently about, know, somebody who lived through the great depression and she lived to a very old age, but when she died, her kids found hundreds of pie tins. those aluminum pie tins because it had value during the war. And, you know, to us, sounds crazy to save thousands of those things, but these, these, these formative events, these traumas that people experience, they do make, an impact. on our psyche, on our emotions. you know, while I try to keep emotions out of my trading and investing as much as possible, you know, we're human beings and this is really normal. They're formative events. The thing I will point out is if we're to go back in history, Let's point out how people who tried to save in dollars were harmed. And it's not just the fact that inflation took off since the creation of the federal reserve, just, you know, a little under two decades before that 1929 great crash. Remember that, you know, it was only a short time after that 1929 crash that FDR changed the amount of gold that you could buy with the dollar. The dollar got devalued overnight. He confiscated everybody's gold. and then change the price of gold. And the converse of that is when you change the price of gold, you change the price of the dollar, you change how many ounces of gold you can buy with a dollar, you know? And so that's a big deal. And then in 1971, President Nixon took us off the gold standard. All of a sudden, the dollar went from backed by gold to backed by faith and credit. Gary Brode (18:15.043) And, know, I think faith is a perfectly fine thing. If you're in a religious institution, I think, you know, faith in your, in your fellow man is a great thing. Having faith in the government is foolish. you know, there's my political opinion for the day. You know, and so these things keep getting. Revalued. Jesse Myers (Croesus) (18:33.548) Yeah. Gary Brode (18:39.649) And it's never, it's never going to go for you. And worth pointing out the reason Nixon had to take the U S off the gold standard was because we had printed more dollars than we had gold. Again, this overspending problem, it's not a recent thing and it's not a Republican thing or a democratic. It has been a bipartisan problem for more than half a century. Right. I mean, at this point, it's just endemic. so going, I mean, let's talk about practical solutions though, cause we shouldn't be all doom and gloom. Michael (18:49.166) you Gary Brode (19:08.265) Right. There are answers. First of all, and this is not a good thing, but unfortunately for a large part of the American public saving in dollars, what they save in, it doesn't matter. They're not saving. Right. We've all seen the statistics and some huge percentage of people, they don't have $400 in case of a medical emergency, you know, so. A huge percentage of our country, every dollar that comes in, they're spending it that month. There are no savings, not effectively. So they're not saving it at all. And that's unfortunate. And if you are one of those people, I understand. I get that things are really hard. I get that everything's becoming more expensive. I would advise you do what you can to try to live beneath your means. That's the case, whether you're poor, middle -class or wealthy, it's just good advice. And I understand for some people that's going to be impossible, but work towards it. You know, it just, it will give you more financial freedom for the rest of us. I think you're a hundred percent right. We can't save in dollars, you know, the treasuries are no better because you're going to be repaid in debased dollars down the road. You know, think about the other side of my mortgage, right? I'm going to be making the same mortgage payment in 30 years. what's the value? The check is going to be the same, but what's the value of that check? What will that check by the people who own? You know, my credit then, well, trust me, the government is less responsible with their money or rather our money than I am with mine. I'm a better credit bet than the government is. So, you know, what do you do? And you brought up some options you can save in gold. You can save in Bitcoin. Gary Brode (20:48.689) You can save an energy. had lunch last year with a friend of mine who's a really smart portfolio manager. And he said, you know, if I could save in anything, if I could save my wealth in just one thing, he said, I would want my wealth to be measured in barrels of oil. It wasn't a bad assessment. And you know, he's well aware that gold, silver, Bitcoin exists. That for him was a decision. You know, if you can afford it, high growth stocks is a great place to to start to save and anything hard assets, anything that the government can't print more of is a pretty good place to hide and try to start to accumulate wealth. Jesse Myers (Croesus) (21:28.014) But Gary, what about T -bills? They're paying 4%, you know, and it's risk -free. Michael (21:35.042) I... It's funny, it's funny to say that Jesse heard there was a safe had Preston on his pod and it's really great pod, but they reference this one key knows like the killer app for crypto was demand for dollars. Cause you think about like crypto coupled with like stable coins. It's just, created this like, you know, trillion dollar plus asset class for, more bonds. Gary, just going back to you put this in light of like currently what's happening and we're refilling it on micro scale. I feel like the past six to eight months, have been really transformative or like a real inflection point for gold because of gold's breakout that I think people talk about and know it's happening but I think it's the ramifications are so much more than what's discussed simply because gold's all -time high it sat around that like $1 ,700 a troy ounce for a very long time and this move to like close I think we're almost at $2 ,700 is not only the micro scale understanding that you know treasuries and dollars are no good but this is like a more macro geopolitical undertaking of movement of assets into gold and just curious like how you think about that and what that signals today and then like moving into the future. Gary Brode (22:47.089) I think it's it's fascinating. Right. And gold bugs, you know, they they had to sit on their hands for years and years and years as the price of gold didn't move. It is a large position for me. I've owned gold the last few years. It's done really well. I think there are two things going on there. One is is what you talked about. Their geopolitical aspect of it matters. And there are huge debates on Twitter or X now about. You know, the dollar is the world's reserve currency and people talking about competition for it. And, you know, those are the really interesting debates. But the one thing that's not up for debate is that while the U S remains, you know, the dollar remains the global reserve currency right now, and will be again next year and the year after it has been losing share for a long time. And what we're seeing are foreign governments realizing, wait a minute, you know, Congress is debasing the dollar. We don't want to hold that. And they also saw our disastrous sanctions against Russia. And, you know, it's not that I'm against sanctioning Russia. It's that I've argued that the design of the sanctions were poorly done and confiscating their assets. You know, it felt good. It seemed like a good idea, but it didn't stop the Russian war machine. And what it did was it sent a signal to the rest of the world that we are an unreliable partner, that if you want to hold dollars, you need to remain in the good graces of Washington, which would be fine if Washington had a coherent policy. But as you guys know, right, the people making policy in Washington change every two to four to six years. So how do you do that? How do you do that when the president changes every four to eight years and control of Congress regularly changes? is within a presidential administration. How do you remain in the good graces of a country that doesn't have a consistent foreign policy? It's not possible. so countries like China and India are saying, you know what, we want to own more gold and they're importing huge amounts of gold and gold is flowing from West to East. you know, historically, empires have been built on that. Gary Brode (25:00.189) You know, historically world reserve currencies have been backed by whoever had the most gold. Now, do I think, you know, that China and India are going to have the world's reserve currency in the next few years? Absolutely not. But this is not a good trend for us. and it does show that foreign governments have a lack of trust in the dollar. And right or wrong, I understand the reasons. These are not irrational people. We may disagree with some of their policies, but they're not irrational. And that's something that we should be concerned about. The other thing I'd point out is sometimes I find it useful to look at things backwards, which I know sounds crazy, but I'll give you guys a great example. People love to talk about the price of gold going up. And when they say that, they almost always hear in our discussions mean the dollar price of gold going up. you talked about gold going from 1 ,700 an ounce to 2 ,700 an ounce, and that's a huge move, right? So I've made money in my gold position. could trade my gold position today for more dollars than it cost me to accumulate that. Well, here's, I think, maybe a better way to think about it. It's for thousands of years, the value of gold has remained relatively stable. It's the value of fiat currency that continues to decline. What we're seeing is not an increase in the value of gold. What we're seeing is gold maintaining its purchasing power while the value of the dollar, the purchasing power of the dollar slides. Jackson Mikalic (26:33.05) Yeah, that's a good point. It's always a good reminder to measure a commodity like gold or oil or Bitcoin. the denominator is changing, right? And people don't necessarily go to the first principles to understand that. I'm curious, Gary, like, so obviously debasement plays a big role in the demand for gold and other scarce assets. But what do you think has gold outperforming virtually every other asset class, think besides Bitcoin this year. I want to say gold is up maybe 25 % or so year to date. it just, was it a combination of the geopolitical situation we find ourselves in? Is it in addition to that gold sniffing out and knowing that there was going to be easing from the Federal Reserve and other global central banks? Is it just the fact that there are more dollars that exists now, the money supply grew by 40 % or so in a matter of 18 months. How do you kind of attribute the performance of gold in dollar value to these different factors that seem to be driving the price? Gary Brode (27:43.017) I think there are two crucial elements to that. One is there's this flight to safety. We are at a point where we have an enormous amount of geopolitical risk. And again, I'm a little older than you guys, but when I was in elementary school, we would have nuclear bomb drills. were worried that the Soviet Union was going to destroy us all with nuclear weapons. And in these drills, we would hide under our desks. It's not clear to me if we were hit by a new, mean, yeah, the, windows, you know, the glass from the windows might not have hit us, but you know, I don't know that hiding under your desk is going to save you from nuclear blast, but you know, this was the drama that we engaged in. And then we had a period of relative calm, but now, you know, look at what we have, you know, right now the U S and Russia are involved in a proxy war. But, you know, in the past. Michael (28:37.067) you Gary Brode (28:42.261) We avoided direct conflict, right? mean, you know, first it was the Soviets in Afghanistan and the U S supporting them. I'm sorry. Before that it was in Vietnam. You know, that was a proxy war. And then the Soviets in Afghanistan was a proxy war. And then the U S in Afghanistan was a proxy. When we we've done this many times, but with what's going on between Russia and Ukraine right now. You know, this is going dangerously close to moving from a proxy war to direct conflict. And, you know, people in Washington seem to be very willing to risk World War Three. In some cases, it seems like they're trying to advocate for it. And, you know, listen, I do I think that the Ukrainians should be free to chart their own course and not be invaded. Yeah, of course I do. But that, you know, there are ways to get there without getting us into World War Three. We have conflicts in the Middle East. We have sovereign debt crises all over the world, you know, not just in the U S and we talk a lot about us debt. but these are, this is a crisis all over the world. You have, immigration that on one side is being referred to as migration on other sides as being referred to as colonization, but it's completely changing, you know, people's lives. There's a lot going on. And I think in a situation where people are realizing that the dollar, which is the best house in a bad block is a Ponzi scheme. There's this huge flight to safety and gold has been that for thousands of years. Do I think Bitcoin will be that? Yeah, I do. But with Bitcoin, I think it's important to separate the short term in the long term. In the short term, Bitcoin trades as a high beta proxy for mega cap tech stocks. Right. It's basically Gary Brode (30:36.605) That this is a fancy way of saying you're basically buying a leveraged version of the Nasdaq, right? Of the QQQ. And that's pretty much how it trades. And on days when, you know, the Nasdaq trades up one or two percent, you see Bitcoin trading up three, four, five percent. And then the opposite. So that's where we are short term. Long term, I think Bitcoin will be an excellent inflation hedge because Bitcoin is now harder than gold and the dollar is just been printed into oblivion. you know, when people say, well, Bitcoin hasn't acted as a hedge, you know, against dollar debasement, my response is in what timeframe, right? If you're looking at it, like people post these things on, on X on a daily basis, you know, Bitcoin's down 5 % today. See, it's not an inflation hedge. Okay. But what about over the last year or the last five years or the last 10 years or more importantly, the next five years or the next 10 years, right? That people, you know, it's one of the great ways that we engage in sleight of hand is by changing the timeframe that we display to people. And, you know, look, I'm guilty of it too. Every week we produce a piece called the five things. Each one of the things has an image. You think I don't pick the period I want to show in the charts. We all do it. Right. I'm not I'm not poking at anybody else. Of course, we we choose the time frame that makes our argument. But if you take a step back, Bitcoin has been a great way to hedge against loss of value of the dollar. And I think that will be the case. But in the short term, you know, if you want to hedge against global unrest. In the short term, gold is your option in the long term. think you make more money in Bitcoin. Michael (32:24.45) Yeah, you said looking backwards and it's such a great framing of gold's opportunity or hedge and then Bitcoin's opportunity because you referenced the, it's like the old notion of what is it? Troy Allen can buy you a cow and a nice suit or that idea is like, so gold keeps pace with inflation or hedges against inflation where Bitcoin does that but it's also still in its monetization period phase until you get the upside. Gary Brode (32:39.421) Yeah Michael (32:54.384) the hedge coupled with the upside and the volatility is the opportunity that you just have to be able to manage. Because that's what keeps everybody out is the volatility. But the volatility is your friend if you to your point size it appropriately. That's just an interesting like. It's an interesting dynamic of, you mentioned gold energy stocks and oil, because like oil, the derivative of oil is like how much gold can you buy with barrels of oil, how much Bitcoin can you buy with barrels of oil, and ultimately Bitcoin's the one that, you know, it's a paste over a long enough time, it's just more portable than the oil. It's almost like it is oil, it's in a different form factor. Gary Brode (33:21.747) Right. Gary Brode (33:33.425) Yeah. Well, I think one of the best descriptions I heard of Bitcoin is that stored energy, which I thought was a fascinating way to frame it. Also worth pointing out. You're right, Michael. thinking in terms of gold, like Michael Gaia talks about gold and lumber and he's used that to figure out the direction of the economy and the, you know, the stock market versus gold. And I think those are really interesting relationships. You're right. Like, you know, gold to oil or Bitcoin to oil is a good one, but worth pointing out that oil is typically priced in dollars. And so, you know, at some point we come back to a dollar that's just losing purchasing power. You know, also one of the questions you guys sent me, you know, when we were preparing for this was, you know, gold outperforming Bitcoin in the past six months, which is true, but I'm also going to point out that We don't have to go back that far year to date. I checked this just before we came on air. Bitcoin's up 55%. So, know, has Bitcoin, Bitcoin hasn't done anything in the last three months. Yeah, it's gone up and down a lot, but here we are sort of in the same range that we've been at for a while. It's been range bound for a bit wide range, but so what? Right? Like the, one of the things that I really love about A huge part of the Bitcoin community is this culture of, I don't care where it is today. We're just going to hold. Right. It goes down and then we buy more. Right. And it's like, and the amazing thing is, you know, my, my, what I spend 90 % of my time on are us equities stocks. And you have no idea how many times, you know, I tell somebody, listen, I think this company is undervalued. My thesis is over the next three, four, five years, this was going to happen. And five years from now, you end up with stock price of X and like, okay, great. I like it. And then, you know, the stock goes down a little bit and they call me a week later. Like, why isn't it working? I don't know. I don't know. I don't know why the stock is down. Gary Brode (35:37.083) a few percent in the last week. I know I had a five year thesis on it and there's no news in the last week that is invalidated what I think will happen over the next five years. I would love to see, I think investors would be well served to take that Bitcoin sense of patience and longer timeframe and ability to stomach short term volatility. And if you were to take that into equity investing, there is a time arbitrage where you can take advantage of of people's impatience and emotional volatility and buy when people are upset and then just hold it through, you know, through a longer period of time and investing like that. I think you do really well. Michael (36:20.366) Well, and that kind of ties into this podcast being called The Last Trade because there's a Zen, and I don't know if you're there because I understand your background, but there's Zen I think most in the Bitcoin side. It's like there's nothing else. So the Zen is that you're just holding money and there's nothing else to trade it, so you just hold it until you want something in the real world that that's what you spend the money on. So it's short -term price appreciation while it hurts because we're humans and there's a psychological component. It's not like, what's the next thing? Because that's generally where trades turn into. It's like, well, what's the next thing that I gotta get out? I have to find my exit position. The other thing that's really amazing about Bitcoin that you kind of reference to is it's really bleak for lot of individuals that don't have an opportunity to get out of their... the rat race that they're in, but this notion of like, it has the capabilities of like a stock where you can download any application and buy one penny of it. If you can get out of a quarter, a dollar, whatever it is, you can get a taste of it in any country, in any place, which hasn't been affordable to most. You reference the energy side, it's like, I don't even know how to go, I mean, I'm sure I could Google it, but like, where would I get my energy exposure and what brokerage account? to sign up and there's a lot of learning and of course volatility of is a learning curve but it's a lot more accessible and I think once we get it cleaner and easier it's just gonna be a step, like it's gonna be a lot easier for people to just port over and start to move and you talked about like simplifying things. love the notion of Bitcoin is just, like Bitcoin or the dollar, it's like what's the value problem? like one lets me buy more eggs every week than the other. Right? Like at the end of day, like that's what it is all nets out of it's like you go to the grocery store and every other currency specifically the dollar because we're used to it just buys you less goods and then you know, general generalizing but over time Bitcoin just lets you buy more food and provide which I think is an easy thing for people to wrap their heads around once it becomes more ubiquitous. Gary Brode (38:17.449) I think it is too. you know, look, Bitcoin is my largest position, not because I bought the most of it. It's because I bought a decent sized position and then it just keeps going up. So it's become a huge position. And then, you know, I, I, I remember a couple of weeks ago, you know, when Bitcoin was down temporarily and it cracked 60 ,000, I think it hit what 54, 53 ,000, something like that. And Michael Saylor tweeted out or posted on X. You do not sell your Bitcoin and somebody who I forget who it was very, very funny responded to him saying somebody is right. And, know, so I listen, I don't, I don't sell my Bitcoin. And so it's become a larger part of the portfolio. That said, and I get the, I get the appeal of the last trade to say, Hey, you can just do one thing. And if you do this one thing, you're going to be fine. With that said, I don't love the idea of having all of my assets in one anything. And if you want to argue, but it is the highest upside position you own in your portfolio. I 100 % agree. have individual stocks in my portfolio that have the possibility that have the potential to go up 10 X. And you know, you guys will laugh because you're like, well, Bitcoin can go up a whole lot more than 10 X. And I 100 % agree. I just don't like owning. having everything in one place. And I get that that's, you know, that's not necessarily in line with where you guys are and where some of your audiences, but, you know, as somebody who's managed money, who's been an asset manager my whole life, I like at least some diversification. also Michael, I can solve your problem for you where you're saying, Hey, if I wanted to invest in energy, I wouldn't know where to go. deep knowledge investing that's deep knowledge, investing .com. You know that like we do that. I maintain, you know, there's a current recommendation and portfolio, we have a huge energy portfolio where people are making a lot of money. And I like the stuff we own. you know, energy is a big part of our portfolio, as is Bitcoin. But certainly not all of it that and gold and, you know, high growth, high potential return stocks. And you know that that works for us. But you know, that's the answer to your question. That's where you go if you need help with that. Jesse Myers (Croesus) (40:29.166) Yeah. And on the point of, you know, position sizing, think, I think we don't talk enough about the realities of this, of like, if you're, you know, if you're Gen Z and you're just getting your first job and you don't have any savings, like what's the right position size for Bitcoin? In my opinion, it's a hundred percent, you know, like you put your first $10 ,000 into Bitcoin and just, you know, start building that position. But, you know, if you're If you are the heir of someone who left you, know, someone who did very well in life and left you a fortune, the right position size for getting into Bitcoin is not 100%. It's very different. Your job is to defend that position, that position in life that your family, you know, bestowed on you and pass it on to the next generation. So you're playing a defensive game. inherently in the right position size is, you know, maybe it's 1%, maybe it's 20%, but it's probably not more than that. Just because your responsibility is to do something different with your finances than someone who's just starting out and just trying to build. you know, we as Bitcoin advocates, we don't acknowledge that enough, I think that, you know, it very much matters your circumstances in life. And, you know, if you are If you are closer to retirement than the start of your career, you probably are more in that more conservative bucket or should be because you don't want to lose sleep at night and wake up in cold sweats because you have too large of a Bitcoin position. You're betting your retirement ultimately on being right about Bitcoin. I think that's an easier place to get into if you start. Without much build your Bitcoin position and grow your conviction along the way But but yeah, it's it's a different ballgame for most people out there Michael (42:34.374) I think that's exactly right. I will say it is funny and Gary, probably know folks like this. know Jesse and Jackson do is like older individuals that get in and they, this is like the bullish case for Bitcoin. People get very short. They feel very short Bitcoin when they come in and they have wealth. And I've seen people throw everything out, including the kitchen sink to get rid of their real estate, their cars, their watches to go buy Bitcoin. So it's an interesting dynamic on like the different, I think a lot of it has to do with with education and looking at just the monetization that's happened around real estate as a good example. There's a lot of things that aren't organic there. But then Gary, on your side, I think we talked about it on one of the pods we did, because we've done two where... this notion that was like, I think we back to like biblical times, but I know it was like a opinion where you have like a third, a third, a third, like in your land, in your money and in your business. And it's just like randomly, you naturally organic live kind of like falling down that path as you get older. think maybe to your point, like whether it's on purpose or just by default, you start to diversify from your holdings and you invest in, know, cashflow. cashflow nature things like a business or you buy some land because it provides you other utility outside of an investment that coupled with it. And then you end up in these positions that you're not as concentrated in a singular thing, which I think is what you're alluding to from a risk perspective. Gary Brode (43:58.889) think you guys both make great points. As somebody who grew up in the hedge fund business, I'm constantly thinking about position size. Where do I have a ton of confidence? Where do I have a lot of upside? How big can I get in something? Other things where I'm really worried about the downside, you may take a 1 % position or a 3 % position, but you want to limit that risk. Gary Brode (44:22.619) I grew up in this business thinking about that. know, Jesse, your point is crucial. Like know where you are in your life. Know what kind of risk you're taking. And when you talk about playing defense, it reminded me many years ago. I was flipping through a Forbes magazine and it was a list of all the billionaires in the United States or maybe in the world. don't remember. Anyway, the thing that I thought was fascinating. was more than 90 % of the people on the list. this is years ago. And so the people at the very, very top had something like $50 or $60 billion in wealth. Now we have a number of people above $100 billion and one or two above $200 billion. But then the top of the list was in that $50, $60 billion range. But more than 90 % of that list was grouped between $1 $3 billion. And you could see the point where everyone's like, OK, great. I'm all set. I'm done now. Now I'm going to play defense. And they clearly had stopped trying to build wealth and there's nothing wrong with that. Right. You build yourself a billion dollar fortune and you say, I want to take a break and not lose it as opposed to grow that into 50 billion. you know, certainly I can understand why somebody would feel that way, but it's really interesting. could see, you know, numerically where everybody's just like, okay, I'm done. Right. I don't, I don't want to do this anymore. more importantly, let's talk about, know, were you saying put your first $10 ,000 into Bitcoin? That's a really interesting way to think about it. And, know, certainly having, you know, a stock portfolio of $10 ,000 isn't a bad idea either. but maybe the end of the easiest way, because you're right, you don't, it's not like. Gary Brode (46:08.871) You have to buy one share. guess now you can buy fractional shares, but effectively it's hard to diversify a portfolio at really low levels. But you know, we were talking before about people who are really struggling. And, know, I was saying, try to live on less than what you make. And, but understanding is really hard for a lot of people. Just grocery prices alone are crushing people, fuel prices, energy prices, rent. It's, really hard. So if you're in that position, here's what I would tell you. Do everything you can to put $10 a week aside and stack sets and just every week by $10 of Bitcoin and do that for. a few years and financially you will almost certainly be in a better position and just, just do it a little bit at a time if you can and try to do it consistently, you know, see if you can save $10 a week, you know, if you can get there. Great. And I understand that for some people, even that $10 a week is too much, you know, that just, you need to be able to set aside something to invest if you want to have a better outcome. I, again, I get that it's hard for some people. Jackson Mikalic (47:19.034) Yeah. Yeah. Bitcoin is uniquely suited to meet the needs of virtually any type of person or institution, Gary, because as you mentioned, it's. It's something that could be fractionalized unlike any other asset. And it allows for access unlike any other type of monetary technology. And it is fascinating in my opinion that you could speak to someone who may only be able to put $10 aside each week and year over year, five, 10, 20 years down the road, they'll be able to actually... grow whatever wealth they have at a rate they otherwise wouldn't have been able to. But it's also interesting to me that Bitcoin is now like packing a punch all the way to the largest institutions in global financial markets as well. And it does everything in between. Like just I want to say last week it was BlackRock, right, that they've them and everyone else who sponsored an ETF in the US this year has been wildly successful. BlackRock, I think it was last week or it might have been this week, there's always a lot going on, they released a report, was Bitcoin as a unique diversifier. And it's just remarkable to me that you have something that is so... groundbreaking as a technology and as a way that both individuals from the very bottom of the totem pole could use this to better their lives in the same way that someone who's allocating hundreds of billions of dollars on behalf of pensions could use Bitcoin to offset some of their exposure to depreciating U .S. treasuries in real terms. And I just think that's so unique. Then it's nothing that we've ever seen before. And I just can't believe that Jackson Mikalic (49:10.814) like in a 15 year period, right? We're almost at October 31st, about a month away, white paper day. You've gone from a mailing list of cryptographers to $10 .6 trillion asset manager publishing a report about why people should consider this in their investment portfolios from the smallest fish to the largest pool of capital. Gary Brode (49:35.241) Yeah, I think about it this way. Imagine you were running a giant pension fund, right? And so you had a very long duration, and you had to provide for people in their retirement. And that's that's your goal. Why wouldn't you have a 1 % position in Bitcoin? Right? mean, you know, these guys are all busy with their 60 40 allocation, which doesn't work anymore. And, know, even if you make nominal profits on the bond side of that, you're not making real profits, right? Like whatever money that you're saving for your people in that bond portfolio, the purchasing power they're going to receive is less. It's the opposite problem of the problem my bank has when they wrote me that mortgage, right? I'm writing the same check for 30 years. Well, but what, you know, if you own the the my paper. What can you buy with that? Well, the government bonds are the exact opposite problem of that. so, you know, putting 40 % of the portfolio on something that loses value over time. And they can say, no, no, we have more dollars, but what can you buy with those dollars? And so, you know, if I were managing a trillion dollar portfolio and I had to think about the welfare of the people under my financial care for the next 30, 40, 50 years. Like, why wouldn't you have at least 1 % of that portfolio? You can't carve off, you know, 2 .5 % of your bond portfolio and put it in Bitcoin. I certainly would. Jackson Mikalic (51:09.062) Totally. Yeah, it's interesting, right? Because Jesse's point earlier and your point, Gary, now really mesh together well, because if you are someone starting your career, Bitcoin offers you long term growth potential that other asset classes likely will not be able to match. at the same in the same vein, it's You have this retirement age populace. It's a massive demographic, right? Boomers own, I think, $70 trillion of wealth. And then you have people who are nearing retirement age, and they're grappling with the fact that their purchasing power is declining at a faster rate year over year in bonds today than it was 10 years ago, just because of the fiscal situation that we talked a little bit about. And that's... Really, it just goes to show the flexibility of Bitcoin in a portfolio. think the optimal place to start for most people if they have a traditional allocation is somewhere around three to five percent. And then, of course, it is a nuanced topic and you have to consider one's unique financial circumstances and family circumstances, whatever it may be, to determine what the right allocation is for you. But it does play a really critical role. And I feel like one thing I did want to touch on, Gary, that we didn't get to yet is the chart that you threw together on inflation. I think it ties into this, right? Because we just went through a very large run of inflation in the past four years, and some may think that the mission has been accomplished. You know, we're back to around 2%. We already talked about some of the issues with measuring CPI, but you threw a chart together. I'll pull it up on the screen that shows the kind of the double peak of inflation. was you comparing some period in the 1960s 60s to the 80s versus I 2013 to 2024 where we are today and then kind of looking forward. So could you offer some thoughts going forward, your macro thesis, how are you thinking about inflation? Because I would, know, me personally, I'd get a lot of value out of that and I assume our listeners would as well. Gary Brode (53:13.489) think to answer that it's important to go back and talk a little bit about economic history, which I know is a fascinating topic for everybody. You know, everyone loves it as much as I do. But before I do that, I just want to, you know, give proper credit. We did put that chart together. But I'm not the first person to come up with that relationship. or this particular presentation. I know other people have done this in particular. I want to credit the Kobayashi letter. They have a chart, you know, very similar to this. They did it before we did, but they hadn't updated it. We needed an updated version, so we just produced it. But I just want to be clear. You know, there, were other people doing this kind of analysis before me, and it's really important to credit them and to not claim, you know, intellectual credit for someone else's idea. more importantly, let's talk about the history here. So when we think about, you know, huge periods of horrible inflation in the U S everybody, you know, my age, the example is the late seventies when, you know, inflation was, you know, was closing in and in the mid teens closing in on And, you know, we all know the story of how then Fed Chairman Paul Volcker raised the Fed funds rate to around 20 % to get that under control. And it worked, but he had to crush the economy. Now, here's the part that a lot of people don't realize that inflation actually started back in the 1960s. And it started to get really bad. And there's this incredible story where then fed chairman Arthur Burns got summoned to president Lyndon Johnson's ranch in Texas. And Johnson was a very large man and not delicate in his behavior. And the story goes that he picked up federal chairman, federal reserve chairman Burns slammed him into a wall and told them, I want lower interest rates. And of course. Gary Brode (55:13.543) He does, right? Every president wants lower interest rates because it stimulates the economy. You want to have, you want to show good economic growth. Now, is that a good idea? No, because you end up with male investment and asset bubbles. But if you're in that chair for four or eight years and you're ever going to be judged on the economy, You want low rates and you know, we've, we've seen that. And this is why every time, you know, the party in power is always clamoring for lower rates. And you know, that's, this is, this is normal. so. Burns, you know, caved and I listen, I can understand how it's intimidating having, you know, a six foot something, president of the United States slam you into a wall. but burns caved. And he lowered the Fed funds rate too early. And you can see on the chart, no. We ended up with this huge spike in inflation. They called it this double dip situation. You can see the two huge spikes. That's the blue line on the chart. And so take a look at where we've been over the last 10 years or so. And the end of that red line. That's where the Federal Reserve is cutting rates. Anyone want to guess what comes next? Because it's pretty obvious. Look at the blue line, right? This that tells you what's coming next. And, you know, I understand why Powell did this. My view is he's seeing the same thing we're seeing, which is we have a bifurcated economy. The issue and I was right for more than two years, but I thought Powell would hold the line longer. Jesse Myers (Croesus) (56:38.242) Yep. Gary Brode (56:57.577) I thought Powell would be more afraid of being the next Arthur Burns. And, you know, if you're the chairman of the federal reserve, you can survive causing a recession. You can't survive a resurgence of inflation. And so I figured Powell would go the Volcker route and just not care if he threw us into a recession, but hold the line until he got inflation really under control. And, you know, I think Congress forced his hand. Now, the reason we're in more trouble now than we were in the 1970s is because our debt to CDP ratio then was much, much lower. And so again, then Federal Reserve Chairman Paul Volcker had the option to raise the Fed funds rate to around 20%. You know, I think it maxed out at around at 18, something like that, but it was okay. So 18%. Jesse Myers (Croesus) (57:46.19) Yeah, 18. Gary Brode (57:49.577) Powell doesn't have that luxury, not with, you know, the U S has $35, $36 trillion of on balance sheet debt. The off balance sheet liabilities are more than 200 trillion. know, again, what can't be paid won't be paid. but you know, this is, this is an issue. Volcker had. more flexibility than Powell has because, you know, if Powell tries to raise interest rates to even forget 20 % or 18%, if he tries to go to 8 % or 10%, the U S interest expense. blows out the budget and what do we do? Then we print more dollars and now we're back to the original definition of inflation, which is an increase in the money supply. It's a disaster. You know, if you want to know where we're going, we've been saying, you know, for two years now, look at Japan. Japan has this exact problem, right? The yen has plummeted over the last couple of years. Just two years ago, it 102 yen to the dollar. You know, earlier this week, it was the low to mid 140s. Earlier this year, it was 160, 161, something like that. You know, that's that's a huge problem for Japan, but their debt to GDP is even higher than ours. It's more than 260%. So if you're the Bank of Japan, how do you get rates off of zero? Right? Again, they have the same problem, no matter what the Bank of Japan does, they have A debt problem. have an interest problem. have a financing problem. That's the direction we're headed and there's nothing that's going to stop that. There's nothing that's going to change it. There's nobody that we can vote for in November who has even as part of their plans, cutting spending. And that's the thing that's necessary. So Powell has a lot less rope than Volcker did. And, but, you know, he caved early, out of fear of causing a recession. Again, I understand his fear, but you know, look at that blue line. Gary Brode (59:42.987) and let's figure out what's coming next. And I think what we're going to see over the next two years is a resurgence of inflation. there are people who say, well, if the CPI goes down in the next few months that I was wrong, this is a longer term problem. And these things act on a lag. And, you know, one of the biggest problems that we had with zero rates for so long are the zombie companies. And that's just, you know, a fancy way of talking about when interest rates are zero companies that should go out of business don't. And you have a misallocation of assets, right? You have money going into businesses that are failures. just the reason they're called zombie corporations is they're dead. They just haven't been buried yet. They're walking around dead and they just don't realize it or, you know, haven't just been. properly buried and discontinued. Michael (01:00:34.806) It's funny you mentioned the zombie because this is super hyperbolic, but I've to this conclusion that every company's zombie company is just at what level because they are all built on a standard with the monetary policy, not actually in congruence with the universe. There's a cost of capital that's not actually what it was. So you think about just all the companies that exist, you keep rates at this level or higher, who stays alive long enough. And there's very few companies that most people would expect just because there's an artificial low. Anyway. Gary Brode (01:01:05.085) Yeah, in fact, I think last week it was announced that the last Kmart store in the country is closing, right? Sears imploded, Atari imploded, like all of these companies that had been around for decades eventually went to zero. Michael (01:01:24.078) There's a great anecdote you're probably familiar with Gary worth pre World War one Inflation or everything's hot post World War one. There's kind of like disinflation and kind of production goes down forward People are like buying less they have debt they basically instead of take out loans to keep up with the the rate of what they were selling cars for they basically shut they sell everything shut everything down and Rebuild from the ground up and they like have to cut their cost by 20 to 30 percent by just going deep into how do you actually build better, faster, more efficient to the point of you have to destroy some cap, some things go under while others come back stronger. And he understood that versus taking the capital. And I think this is this persistent zombie that you bring the cost of capital down, you extend loans and you keep people alive longer. And it's just this persistence that's inorganic across everything. Gary Brode (01:02:18.557) Yeah, Michael, what you're talking about, it's not just an economic argument. It's a sunk cost argument. And that gets to people's emotions. The longer people have been involved in something, the more emotionally attached they are to it, the harder it is to just say financially would be better off tearing this down and starting over and building it from the ground up. but you know, it's, hard to do. It's, it's hard to do it with. Assets with companies. It's hard to do with personal relationships. People have understandably an emotional attachment to something that has been with them for a long time. and you know, those, those emotions can be very difficult for people to manage again. You know, one of the things that's really important in my business is being able to emotionally distance yourself from the daily performance of your portfolio. Right? You know, you have days when you're up a few percent and you're making a lot of money. Guess what? That that does not the stock market agreeing with you today does not make you a genius. And just like the converse doesn't mean you're an idiot. You know, you just, these decisions play out over a long period of time and keeping yourself emotionally calm. you look at intraday trading on a daily basis is very much a challenge for people in my business. And I think the best answer, know, Michael, you're talking about old stories and old economic stories. One of my all time favorites is people love to ask hedge fund managers and asset managers, you know, how do you, how do you, what makes you sleep well at night or what keeps you up at night? And somebody said, listen, it's, it's not my job to sleep well. I get paid to worry about stuff. I get paid to worry about what's going to happen. and, know, I was talking to a friend of mine earlier this year, I had, you know, really, I had a unique investment opportunity and I called a few friends and I said, you know, I said to him, look, I can make room for you in this. and a bunch of them wanted to do it. And that was great. And one of my friends said to me, you know, can we talk about this? said, sure. said, you know, I just want to feel better about it. said, stop. That is not my job. Gary Brode (01:04:23.325) My job is not to make you feel good about this. I'm trying to make money, but our feelings about it are not relevant. Here's the analysis, but you know, a certain amount of discomfort is going to come with the territory. You don't get these great opportunities and, know, bring it back to Bitcoin. You know, it's one of the things I really admire about the Holdlers. You know, Bitcoin goes down in dollars and they're like, we're stacking sets. Right? Like they don't get upset. They don't sell it. They don't, right. They don't vomit it out. Their view is, okay, well, just wait. Where, you know, our job is to hold it and buy more. And that, that kind of emotional. distance that lack of emotional volatility serves the Bitcoin community well and Coming back to something I was saying before I would love to see it more and you know my part of the business people investing in in publicly traded equities Jesse Myers (Croesus) (01:05:24.354) Yeah. One thing that when you were talking about inflation earlier and then, and then the emotions of, of investors and people in general, that second, that, that potential looming spike, even bigger than the one we went through over last four years of potential inflation in the next half decade, that the emotions that will happen for everyone. in the country and the world will be, I think it's hard for us to properly appreciate how cataclysmic that will be and how much that will, you you talk about, you know, decades happening in, a short space of time, the kind of emotion that will cause people to question the dollar, question the status quo, move towards Bitcoin. I think that like it I think it's it's it's very hard for us to appreciate how much bitcoin will Move forward into the mainstream if that second spike of inflation does materialize and it's all due to emotion and what that'll cause people to Get over and and you know Cast off their their prior views of bitcoin and their and their determination to stick to the 60 -40 in particular. So I think the writing's on the wall. If you see that chart, and then you can imagine the emotional landscape that that chart would imply plays out. Michael (01:07:07.982) Yeah, Gary, would you reference a second ago about... the hodler or stacking like when your price when you're purchasing power and your your net worth goes down by 20 % in a day or 40 % you can still buy more in that is embedded that you've you're spending less than you make because you have the ability which is the because there's different kinds of leverage and as the price of anything appreciates like you said you get this psychology that you're kind of can walk on water and you start to spend more than you can in the other side of leverage is business building because I've seen this like Bitcoin's life cycles are just if a business life cycles five to ten years, Bitcoin's life cycle is 18 to 24 months or whatever the directional analogy would be. And so generally in Bitcoin, people on the business side tend to outpace or they get really excited and they go higher and they ultimately have to fire or they go out of business because they've already extended. And so there's this natural like prudence that has to be embedded across that is just again in congruence with how people should just operate with spending less than they make. even though that price appreciates and you can step into it over time. But I think that's just a function of like a better society and civilization of people are operating like this who've just been operating in a different kind of climate with the cost of capital. Gary Brode (01:08:25.267) I completely agree with you. And it gets to that key issue that when you have inflation and people have this very high time preference, you have no investment. People just spend. having hard currency or in this case Bitcoin, which effectively is becoming a very hard currency. People have a low time preference and all of a sudden the idea of cutting your current spending so that you can save but save in Bitcoin or invest in Bitcoin. gives people over time a huge amount of freedom and a much greater ability to invest and build something for themselves. But for them to get there, what they have to do is live on less than they make. they're they're forced to if you want to enjoy the benefit of that, they're forced to spend less today and invest more for the future. And you're right, it is it's a societal change. I think it's a better way to live than the, you know, current consumer thing where you know, I hear people I still hear people talking about retail therapy, the idea that you'll be happy if you go buy things, right? Go buy things, go spend money and you'll be happy. You'll live a good life. That's ridiculous. That doesn't make people happy, right? It's building something meaningful is doing something, accomplishing something difficult. It's our connections to other people, or in some cases, their spiritual pursuits. These are the things that make people happy. And so to have that longer timeframe and not be focused on how much you're spending or rather to just be happy spending less. I think that's a great way to approach life. Jesse, I also think you made this incredible point, about how inflation affects people. And, you know, we were talking earlier. Gary Brode (01:10:14.873) about how, you know, people lived through the great depression. They experienced this trauma and basically they had a version of PTSD, right? Post -traumatic stress disorder that followed them through their whole lives because in their formative years, they experienced something that was really horrible. and you know, we have a time machine available to us to see, to, to illustrate exactly what you were talking about. And that's Argentina. Right. And, I've spent time there. You guys know, I, you know, I spent a big part of my winter, not this last winter, the winter before living in Buenos Aires. was with my friend Gustavo is a terrific person, but the people in Argentina have spent decades living with insane inflation. And if you guys could see the effort that they spend in their daily lives, trying to get out of pesos. out of Argentinian pesos and save in anything else. It is unbelievable. There are dollar brokers wandering around, wandering around Buenos Aires literally with sacks of cash, sacks of dollars. And you know, I knew people like... these guys, would come with thousands of dollars and they would walk away with millions of pesos. Like they would need backpacks, they'd need duffel bags to cart all of these bills around. And like just to give you guys an example, you don't use credit cards. in Argentina. And the reason is because it converts at the official exchange rate, which has nothing to do with the real exchange rate. They call it the blue market there, which is what we call the black market here. I don't know why they call it that. And so, you know, there's been a huge amount of inflation since. But when I was there, the largest bill in circulation was the thousand peso bill, which at the time was worth on the blue market, approximately two dollars, seventy five cents. So, you know, you aren't going to pay with a credit card. So to go out for the Gary Brode (01:12:15.235) just to get dinner, meet a friend for a drink, you had to be carrying stacks of these thousand peso bills. mean, entire stacks of it. And there was someone I dated when I was there, this, you know, very pretty Argentinian woman. And she had, were talking about the currency and she had this tiny purse and she had this really funny line. You know, she said something along the lines of, no, you know, this little purse is just for dollars. You can't fit pesos in here. Right? And that's how you know you have an inflation problem. Right? When women have to figure out which purse they're carrying based on whether they have to pay for dinner or not. And so, know, like she knew I was gonna pick up the check for dinner and, you know, so she could go out with her little purse. But I mean, it's... Jesse Myers (Croesus) (01:12:53.354) That's awesome. Gary Brode (01:13:06.313) It's crazy when you think about it, but one of the great things I saw earlier this week was an article about the way Mealy has changed the real estate market there because people had to rent apartments out. You had to sign a three year lease, but you couldn't lock in the rent for more than six to 12 months. So people would sign a three year lease without knowing in pesos what the rent would be six months later. This is insane. And because the rental market was so closely controlled, what people would do there, if you owned an apartment, they just wouldn't rent it out, or they'd only rent it to friends. And so Mealy, by getting rid of their version of rent control, actually lowered prices. And the reason is because all of a sudden, all of this extra inventory that had been mothballed hit the market. Right. And it's insane. Imagine buying an apartment with the intention of renting it out. You want it as a rental property and you don't because of government policies and you don't because you can't capture value related to inflation. It's just the people there spent decades living through their own version of economic trauma and it affected the way they did everything. And by the time you have people walking around with sacks of cash, you know, are we at Weimar Germany, where people would have to take a wheelbarrow of cash, you know, midday because the price of bread was going to go up. You know, no, it wasn't that bad, but people carrying sacks of cash around Buenos Aires is again, indicative that they have a real problem and the people there experienced their own version of trauma related to it. Michael (01:14:43.692) Maybe that's a great transition or thoughts on China, because we know we talked about it on the notes, China and stimulus. And I feel like that is the one economy that most people have different opinions on where they're at in stimulating in their current status from the individual perspective. We talk a lot about Japan and Argentina, but curious your thoughts on China. Gary Brode (01:15:11.155) So, you know, I'm certainly not the world's foremost China expert. There are a few things that jump out at me. one is the Chinese government has a problem and the problem when you're a one party state, particularly when that party controls the entire economy, you can't point at anybody else. Right in our government, the Democrats can do stupid things and point to Republicans and greedy corporations and Vladimir Putin and you know, energy companies and Republicans can do stupid things and they can, you know, point at the Democrats. Everybody around here has somebody else to blame. Listen, just once I'd like to see Elizabeth Warren take responsibility for one of the things she's done. So, you know, everybody can do stupid things here and blame it on somebody else. But in China, where you're a one party state, things go wrong. Everybody knows who to blame. And what are you going to do if you're China? You can't, if you're the Chinese communist party, you can't, there's no opposition party. You can't blame anybody else. So that's, that's an issue. They also have, I think, you know, a real issue in that. They have over invested in real estate and that's how people there hold their wealth in the United States. People largely hold their wealth in stocks. In China, it's all real estate and so people are building and as a result, their banks are over leveraged and they built housing that they don't need and everything's become more expensive. so, you know, the Chinese government a couple of years ago implemented these policies to try to stop speculation in real estate. their policy and I'm I'm rephrasing it, but it was something like houses are for living and not for investment. We don't want to support this idea that your nest egg is your home and people were buying multiple homes because that's how they would save better to save in Bitcoin. But in China, that's also an issue, as you guys well know. And so the recent actions that the Chinese government has taken over the past four days or so have actually been aimed at shoring up the property market. Gary Brode (01:17:19.685) And it's the opposite of what they said they were going to do. I think part of it is they're, they're trying to hold up an asset bubble because of that asset bubble fails. Like it's one thing here when, you know, large corporations fail. The downside of it is investors are going to lose their money. Bondholders are going to lose their money and the people working for those companies are going to lose their jobs. And that's all bad. But in China, if they have, their property bubble burst, that is going to affect the net worth of a huge portion of the Chinese middle class. You know, that is just hundreds of millions of people who are going to be financially crushed. That's the thing I think they're trying to hold off. So their policy there isn't completely coherent. They're desperately trying to provide liquidity to their banks, which, you know, anybody who wants to point out, hey, you're poking at them for that. Yeah, I know we have that issue here, too. I'm in no way saying, you know, our economic policies are pristine, but we're talking about China. The other thing that I've been enjoying is I've been a long term shareholder in Las Vegas saying you know, that company has been undervalued. Macau visitation last month was actually above the pre COVID 2019 levels. So there's been this great recovery there and people are acting like, know, these are still distressed assets and the concern has been the Chinese economy. so, you know, I think over, let me just take a look, you know, a week or so ago that stock was trading below 38. And right now, you know, as we're talking about, it's 48 and a half. You know, that move is largely happened in the last week or so. You know, so we've seen this all this liquidity and this optimism now for the Chinese economy flowing into the gaming sector, which I've been enjoying personally and making money from it. But there is something kind of funny about, you know, the government trying to address societal issues and the money flowing into Macau. Jackson Mikalic (01:19:27.121) Yeah, Gary, on the on the China thing real quick is so they're extremely over leveraged as an economy as well. As you pointed out, is it pretty clear that the two choices they face are the choices any sovereign nation would face where they either add more and more liquidity kind of as you mentioned, which would mean at some point devaluation of the yuan or they just have to stomach a mash, a massive deflationary crash. And that would as you mentioned, be catastrophic, not only to folks who participate in capital markets, but more so the middle class of China that has most of their net worth tied in real estate markets. Gary Brode (01:20:10.141) I think it's hard to say. mean, from where I'm sitting, I would expect that a deflationary crash is sort of the most likely outcome, especially since when you're a single party state, while they will be blamed, they can survive it. It's not like you can vote them out of office and get somebody else. That said, you know, we've had this long series of insane asset bubbles here. And, know, we don't seem to learn. you know, we just keep our federal reserve and Congress and our Treasury Department keep blowing up these gigantic asset bubbles. And we went from, you know, tech stocks in the nineties to real estate, you know, back to tech stocks, back to the everything bubble. And, you know, the zombie companies that we were talking about, have malin. investment here and we're throwing money at debt assets here. you know, shockingly, like if you would have said to me 10 years ago, what happens, you know, if our debt hits $36 trillion and with off balance sheet liabilities, you know, you have total liabilities of the U S government at a quarter of a quadrillion dollars. would have said, well, somebody's got to cut spending and change the benefits we're offering. And, you know, this is, isn't sustainable. And yet here we are right with, with, Strangely enough, equities at all time highs, gold at all time highs, Bitcoin just slightly off of all time highs, but up, you 55 % in the year. The bond market hasn't crashed, right? You know, the yield on the 10 year, actually, let me, let me take a look. It's a remarkable number. Yeah. The 10 year is yielding 3 .79%. The VIX is at 15, right? Like, Somehow, we've done unwise thing after unwise thing after unwise thing. Again, it's a bipartisan problem. And yet, you know, our asset markets are saying, that's all fine. You know, don't worry, we're all rich in dollars. Gary Brode (01:22:16.253) You know, so I don't know. People keep asking me, when does this bubble get popped? You know, as soon as the bond market decides not to take the next trillion dollar offering, know, to not take the next trillion dollars that Janet Yellen tries to shove down their throats. But as of today, you know, people are still buying it. Jesse Myers (Croesus) (01:22:29.922) Yeah. Jesse Myers (Croesus) (01:22:33.75) I keep getting more more reminded of the historical anecdotes of war bonds and how those are presented to the public as a patriotic thing, perhaps even a good investment, when the subtext of any war bond is like you are going to destroy your value if you buy and hold this. That's how the war bond helps fund the war effort is by confiscating your value and necessarily doing it in a way where you're not presented upfront with like, if you buy this thing, you're going to donate a huge portion of your value to the government. But that's how war bonds work. And that's what bonds are right now. I mean, we're kind of in a war bond era, despite the fact that we're not in World War Three, at least yet. And, you know, at what point does $300 trillion of value sitting in global bonds and debt wake up to that reality. Michael (01:23:35.212) Well, think, Gary, I'm curious to add to that, like, this goes back to the Zoltan piece when he left Credit Suisse about the inside outside money and the gold move, in a sense, at a certain point, like, you can't eat the bond, right? Like, your country can't eat the bond, and we go back to stores of value and energy, you have your exports and your imports, and you ultimately need to export whatever you're storing your value in to import what you need to keep your... country life. And so this is like this gold notion of movement and to Jesse's point, like, I think this is people waking up, it happens at a micro level where you can't eat the bond. So you gotta eat you can't change the bond for your your I guess you can theoretically, but over time, it produces less eggs to eat. And then from a country perspective, if you're holding bad debt, like you you're your country's harmed at a certain point, they look at you and like, what did you do? And I think this was like the Russian take, right? Where Russia has energy and they can start to export it for gold or other hard currencies because they have to import certain things. So I think we're seeing it in real time. Like this is these moves in harder units that people are moving into. Gary Brode (01:24:45.241) I think those are great points. you know, talking about the war bonds, that was, if you think about it, brilliant persuasion to say to people, yeah, you're going to lose value, but it's patriotic. It's a good thing to do. You're helping your country. you know, remember the people buying war bonds were largely the people relatively safe, maybe materially uncomfortable, but safe back in the U S while their sons and husbands were fighting overseas. You know, my grandfather fought through France and Germany with the 80th airborne in world war two. And, you know, he faced live action. was, he was a paratrooper. He, you know, dropped out of, he didn't jump out of airplanes. They were part of the glider core. they'd be in these balsa wood with canvas, gliders. that were trailed behind an airplane and then somebody would just, you know, cut the rope, cut them loose. They would crash land. There'd be bullets going through the canvas, you know, the crash land and wall under fire. They're trying to get the heavy artillery out of this balsa wood plane. you know, and we got lucky, you know, fortunately he came back healthy, both physically and emotionally. but you know, imagine facing that, imagine doing that as a young man. With, you know, your mother and your young wife and your, you know, one year old daughter at home that that was my grandfather. And so when the entire country had their sons and husbands fighting overseas, it felt like a good thing to do. It felt like the Patriot, like this is what I can do to contribute to sacrifice for the cause. And it was great marketing and you know, the best proof. Gary Brode (01:26:42.329) that people no longer have that civic minded feeling anymore is, you know, on a daily basis, you guys like raise your hand if you've seen people complaining on a daily basis that You know, people should pay more to the government. People should pay more in taxes. And who are the people complaining the most? It's super wealthy people as billionaires, you know, or people in Congress worth, you know, tens or hundreds of millions of dollars, you know, that come out and talk about how the rest of us should all be paying more in taxes. And they hate it when you remind them, Hey guys, on your tax return, there is a box you can check to make an additional donation. to the U .S. Treasury. There is no law, not only is there no law preventing you from overpaying the amount that you're owed, but there is a place on your tax form that allows you to do so. So when you pay your taxes, all you have to do is check that box and say, I would like to make an additional gift to the U .S. Treasury of X dollars. Now, how many people do you guys know who have ever checked that box? Have you ever heard anybody complaining about people not paying their fair share and how we should all pay more in taxes? Who checked that box? Have you ever seen a really wealthy person who's complaining about our tax rates? Check that box, right? That, and that's the difference between what people viewed as a noble cause and great persuasion, which was the war bonds, which got people, Jesse, as you said, to voluntarily give up value because they wanted to support this, this government endeavor. And they thought it was worthwhile and understandably so. but now, you know, our version of war bonds is check the box. You know, somebody look it up. What percentage of people check that box? Jesse Myers (Croesus) (01:28:29.386) It's gotta be close to zero. Gary Brode (01:28:31.482) very close to zero. Jackson Mikalic (01:28:32.531) I'll admit I didn't even know that box existed. I'm not paying enough attention. Jesse Myers (Croesus) (01:28:35.192) Same. Gary Brode (01:28:36.297) So I know the box exists. I pay my taxes every year. I pay the full amount that I owe. But I don't I don't check the box. I don't send extra. Jackson Mikalic (01:28:49.053) Yeah, that's fascinating. Gary, if you have just a few more minutes, I think. want to touch on your favorite person, Elizabeth Warren and the Silver Gate Bank News. And it ties into, it actually does tie into the discussion we're having about debt and war bonds and persuasion, because I see this as just a more forceful way to block the exit doors, right? And prevent people from preserving their value in something like Bitcoin. So I know we talked a little bit at the top of the show just about the interview that Marty did with Caitlin Long at Custodia and I know that there's been a lot of research with Nick Carter as well. You sent out a tweet, I want to say today or yesterday, I don't know exactly when it was, but you shared your thoughts just on the Silvergate situation. I know you've been more than generous with your time today and we're already over, so if you just want to share any high level thoughts on that situation and how it kind of ties into the conversation today, that'd be interesting. to hear. Gary Brode (01:29:56.721) Yeah, a few. First of all, a huge round of applause for Marty Bent and Caitlin Long. They're both doing great work. I respect both of them and the work that they do. They're terrific. And so what we're referring to is an interview that Marty did recently with Caitlin. I had the chance to read the transcript of that. The link to it was posted on X. You know, Jackson, I love the fact that you use the term block the exit because that is what happens. You know, when, once you reach full Ponzi and you have capital flight, inevitably the doors get slammed down. and people should expect that there will be bank balance that you won't be able to get your money out of your brokerage accounts. This talk about, taxing unrealized gains is the first effort. at slamming that door down and preventing assets from exiting the system. And, you know, they can say, it's just for people worth more than a hundred million dollars. And I'm going to remind you that, that the alternative minimum tax was originally designed to capture less than fewer than two dozen. wealthy families, but now it grabs millions of Americans. That limit won't stay at a hundred million dollars. It is designed to catch the middle class. And so what we're going to see over the coming decades is increasing gates, exactly as you described, preventing people from getting their assets out. And the reason Bitcoin is such a threat is because one, it offers people the opportunity to get money out. and out of the country. And you know, you can you can self custody. And if you can remember 24 words, you can reseed your device someplace else, you know, you can walk out, they can confiscate gold at the airport, they can find it on your person, they can find gold in your bag. But if you can store those 24 words in your head, you can transfer Bitcoin to yourself in any country in the world. The second thing is Bitcoin is a threat. Gary Brode (01:31:59.803) to any fiat currency because it denies them the opportunity of seniorage. And that is just a fancy word for we're going to grab your value. That's how they're doing it from inflation. And so for people who, you know, maybe don't do this for a living or find that confusing, it's really, it's very simple to explain it. Inflation robs you of the value of your money. So where does that value go? It doesn't disappear. The value goes to the government and to the banks. Right. That's the value of senior age. When you lose purchasing power, it doesn't disappear from the earth. It is being redistributed and senior age allows them to do it very quietly a couple percent at a time without people noticing. call it stealth stealing, which, you know, I think is a good term, but it's mine so you guys can judge it. So that is why people like Elizabeth Warren and so many people in the U .S. government are against Bitcoin. It prevents the government from slamming those gates shut. It prevents them from benefiting from senior age. It prevents them from trapping you in their system where you only have access to dollars that are being debased. The other thing that's happening is the government is trying to use illegal and unconstitutional methods to deny people banking services. And so we see that, you know, if somebody has, you know, political opinions that are deemed to be undesirable, you know, they get unbanked. you know, we saw that actually the UK did it, Canada did it. And we're starting to see that here in the US. We're also seeing efforts by the government to tell banks not to provide services to certain companies and industries operating legally and saying, yeah, but just don't provide banking services to people who provide this, these goods. or these services. It is the financial version of what the government is doing with free speech. The government can infringe on our First Amendment rights, but what they do is they go to Facebook. And before Elon Musk bought Twitter and turned it into X, they would go to Twitter. They'd go to the platforms and say, we would like the following points of view to be demonetized or these people to be banned. Gary Brode (01:34:20.557) Or, you know, the reach they can say what they want, but just make sure nobody sees it. Right. And, and these are not legal means, you know, where the government is imposing on private businesses to pursue people who are engaging in legal speech or legal commerce. But that's what they're doing. And so, you know, what Marty and Caitlin talked about is there are now credible allegations that the white house. And Elizabeth Warren and the Federal Reserve conspired to put Silvergate Bank out of business. And the reason is Silvergate was serving a large number of crypto accounts. And, you know, the story that we all got told is, you know, it was a danger and the bank could go under. But in the end, the proof that that allegation was false is depositors got 100 % of their money back without having to tap FDIC funds. In other words, Silvergate Bank was properly reserved. None of the depositors lost money. The FDIC funds were not tapped. The government didn't have to backstop it. This bank was killed. It didn't go out of business because of their own practices. It was put out of business by the US government because they didn't want crypto being banked. And that is that is a gigantic problem. And, know, here's here's the even the best proof of all of this. If they want to argue that it's a safety issue, that the bank didn't have the proper reserves to repay everybody and they did. But if they want to argue it's a safety issue, then somebody tell me why they won't give a charter to fully reserved banks only fractionally reserved banks. Right. So if you lend out more than you take in, You, can be deemed safe and you have to keep, you know, 10 or 15 % of your capital on hand, but that's a lot of leverage that you can employ. but a fully reserved bank, guess what that does? That's a threat to the system because guys, if you wanted to put money in a savings account or a checking account and just make a value yourselves of basic banking services, why would you ever go to JP Morgan or city or Wells Fargo or Gary Brode (01:36:40.873) any bank that's fractionally reserved and take the risk right that the FDIC will be there to bail you out if that if that over leverage bank goes under, you wouldn't do that. You would go to the fully reserved bank where you know with 100 % certainty, your money is safe that you will get it back that there you don't have to worry about a run on the bank, right. And they know that a fully reserved bank would drain funds from the fractionally reserved banks who donate to congressional races, donate to presidential races who control the various branches of the Federal Reserve, right? They have embedded themselves in the system. And so what we're seeing here is multiple levels of corruption playing itself out, you know, across our banking sector. And, know, these people are acting like, you know, it's a reasonable thing to do, but it's not. And, you know, I... Elizabeth Warren is constantly talking about how, you know, there's fraud and theft in crypto and, know, but we were talking about this before, right? Imagine that you're running, a human trafficking ring, a drug ring, a terrorist group. Do you guys want to be paid in traceable Bitcoin or in untraceable hundred dollar bills? Right. Well, we all know the answer to that. So. Bitcoin is not within the purview of Elizabeth Warren, but the US dollar certainly is. advice to her is get fraud in the US dollar under control. know, and once you manage to do that, then we'll listen to your views on Bitcoin. You know, why don't you show competence in the area that is your constitutional responsibility? And once you demonstrate, you know, it's like we've said, you know, you want to run a chain of restaurants, show me you can run a hot dog stand first. So, you know, I would like to see Elizabeth Warren And, you know, the U .S. banking sector show that, you know, they can eliminate fraud in the dollar. And once they do that, then I'll be interested in their view on Bitcoin and other crypto. Jackson Mikalic (01:38:48.503) Mike Drop, I love it. Gary, think we should take just a clip of that video and send it in one of those video mailers to Senator Warren's office. She'd appreciate that. But I wholeheartedly agree with you. Gary Brode (01:38:59.981) You know what? Hey, Liz, I'm here every day. Reach out. I'm happy to talk to you. Jackson Mikalic (01:39:06.698) Yeah. Well, Gary, we're coming up on the half hour here. Really appreciate the time. Excellent conversation. Very diverse topic set. So thanks for carving out some time to speak with us. Just want to give you a handoff before we part ways here. Where should folks get in touch with you to learn more about what you're working on? Gary Brode (01:39:26.299) Yeah, thanks so much, guys. Thanks for having me. You know, for people who are interested in what we're doing, we help. We help individuals and corporations and hedge funds, family offices, get better returns in the stock market. We've done it effectively. We've had, you know, a whole bunch of stock picks up a hundred percent or more, including, you know, Bitcoin, which is not a stock, but we've made great returns in that. Feel free to reach out at deepknowledgeinvesting .com. You can avail yourself of a free or paid subscription there. Would love to have, you know, the support of the community here. Love to help you make That's, you know, ultimately what we focus on every day. people who want to follow on social media on X it's gary underscore brode B R O D E. So, you know, feel free to reach out there. my DMS are open and I, you know, always happy to talk to people in this community. Jackson Mikalic (01:40:20.054) Thanks, Gary. Pleasure speaking with you today. I appreciate the time. Gary Brode (01:40:23.997) Thanks guys. Michael (01:40:24.014) Thanks for joining, Gary. Jesse Myers (Croesus) (01:40:24.29) Yeah. Thank you, Gary.