Kind: captions
Language: en
This is the defining moment of what it
means to be human. Are we going to blow
ourselves up because we couldn't decide
how to share? Banks either adapt or they
die. We all believe that the government
is supposed to save us. Therefore, the
government says, "Okay, great. We don't
want to raise taxes cuz that's very
unpopular." Regardless of whether
Democratic or not, if you [music] own a
house, you want what Trump wants to have
have happen, right? He's going to pump
your house price, too.
>> I worry very much about society tearing
itself apart.
>> To say that he is against socialism just
doesn't you [music]
don't remember what happened in 2020.
The United States is not going anywhere
just because debt to GDP at the 135 or
140%. There's an immense capacity to add
more debt in the US situation. If you
don't like the way the situation is in
the United States, there's a whole big
old world out there. Leave.
The economy right now feels pretty
brittle to me. Crypto has dipped hard.
Stocks are whipsawing.
Uh AI looks like the biggest bubble
ever. what what is the real force
underneath all of this and is the
economy about to break?
>> I know most of the listeners here are
from the United States and I think that
there's been a lot of discussion of the
the the K-shaped economy. There's a very
small percent of people who are doing
very very well and then the majority of
Americans if you take a look at some of
the consumer sentiment surveys think
this is the worst economy since the 70s.
even worse than the the global financial
crisis, you know, when it looked like
the world was going to uh implode on
itself because of overleveraged American
subprime mortgages.
>> And the question is like why is that if
you know GDP supposedly real GDP is
growing at 3% a year um supposedly
people are making more money and all
these sorts of things and I think the
name of the game is inflation. people
really feel inflation and I know that
the the authorities in the United States
and around the world like to say, "Oh,
the the year-on-year change is either
the decelerating or it's in deflation."
But, you know, every day people don't
give a [ __ ] about the rate of change.
They care about the at the actual price
level. So, like, how much does stuff
cost right now? How much did it used to
cost? Did my salary keep up with that?
How do I feel about this situation? And
obviously the answer is that majority of
people in the United States and around
the world are like, I'm getting inflated
away. I afford less than I used to. I
need to buy all these things just to
have a job, whether it's a cell phone or
it's a car or it's a type of dwelling
that I live in or it's child care or all
these sorts of things. And you know, I
look on social media and I see all the
influencers are partying like it's 1999,
but I'm broke as [ __ ] and I'm working,
you know, one two jobs and I'm barely
treading water. And so I think that's
why a lot of Americans and a lot of
people around the world feel this sort
of apathy and disillusionment with this
supposedly amazing world economy that we
have right now.
>> Okay. So, walk me through how did we get
here? What is the driving factor?
There's a lot of different um thesis
about what exactly put us in this
position. I certainly have one. My
audience will be very familiar with my
take. Uh but walk me through what's
driving all this.
>> I mean, at the end of the day, it's all
about money printing. Every single
economy in the world is essentially a
fractional reserve banking system with
this sort of Keynesian economic bent,
meaning the government's supposed to
spend money to incite demand. And if
there's ever a situation where there's
too much credit or too much um
overlever, then the government comes in
and saves those who are the bad actors
in the economy, prints a bunch of money,
and then we the party continues. And if
we keep doing that over and over and
over again, over time, inflation builds
up and you know what an average person
used to be able to afford on an average
salary, they no longer can. And you
know, pick your country. The average
firsttime home buyer is much older than
they used to be. Household formation is
down. People having less kids. It's all
the same of the same thing. We all
believe that the government is supposed
to save us. Therefore, the government
says, "Okay, great. We don't want to
raise taxes cuz that's very unpopular.
Regardless of whether democratic or not
in terms of how people express their
opinion politically, we're just going to
print a bunch of money. And if you don't
own financial assets, then you're
screwed essentially. And and that
compounds if you've been doing this
since, you know, the end of World War
II, you know, uh 80 years ago. We get to
this situation today where, you know,
the average home buyer in the US is what
40 years old is a four year is a the
first home buyer something
>> something in that where it used to be,
you know, the mid20s in, you know, the
60s and 70s, at least in the United
States context, is literally just a
symptom of of printed money.
This is something that I don't think uh
people really take on board in terms of
going back to what you were talking
about with the K-shaped economy. Um
that's what really got me thinking about
all of this. I I wouldn't have been able
to put words to it, but it just felt
like there were two separate economies
now that I do know how to articulate
this. And you've got one the people that
understand that if you have an inflating
[snorts]
currency that where I'm able to buy less
every day and there is a way for me to
escape it, then savvy people are going
to go wherever that escape hatch is. And
that means getting into something that
has um is protected against inflation.
So assets to oversimplify
and
right now the stat that really drives me
crazy is that 10% of Americans own 93%
of the assets. And so when you get a
moment like this where the so much
liquidity is slloshing around because
um the government or the Fed I should
say to be more specific is just not
raising rates.
How do you think we have to factor
fiscal dominance in this to really
understand what's going on? Well, I
think the underlying problem is, and
it's not all the government's fault, is
that nobody wants to take the hard
medicine in the 1930s. And whether or
not you think this is was the correct
thing for a little bit of time after the
the Great Depression, which was a
creditfueled boom, the thinking was
okay, let's let the amount of credit
contract. People lost their jobs,
businesses went under, they the keys
were handed to the creditors at banks
and you know different industrial
companies and the the medicine was there
and the US econ US and global economy
contracted a lot and it was a great
depression but again there was the
hangover from the the 20s and the early
20th century when there was all this
sort of money printing and activity that
sort of situation obviously you know
Herbert Hoover was a a one-term
president because of that
>> meaning because he was being fiscally
responsible and not just continuing the
party, they booted him out of office.
>> I mean, it's one of the one of the
reasons. But again, at the end of the
day, it's very unpopular. And so, I
don't care whether it's the United
States or you're talking about China,
which is, you know, a different type of
political system.
Nobody wants to be the politician that
stands up and says, "Okay, whether or
not this was your fault. Maybe you're
only 18 years old and this is a result
of decades of fiscal irresponsibility.
We're going to stop it right now. No
more credit. If your business doesn't
have enough cash flow to generate to pay
its debts, too bad. You go out of
business. You fire your workers. We're
going to create contract the economy,
get back to a healthier level, and they
rebuild." and you know unemployment is
20 30% whatever some ridiculously high
number that is not winning your election
the or that is not going to keep the
average person supporting you as an
autocratic leader so you see okay what's
the path of least resistance resistance
it's hey I hear you things are expensive
here's a check don't worry about how
it's funded you don't have to pay any
more taxes we're just going to hand out
money and you know for your bills here
your healthcare there
>> and then it gets makes the situation
even worse because nobody's willing to
stand up and say, "Okay,
>> today is the day. It's over. And
unfortunately,
>> you are you are where you are and some
of you are going to be losers. Some of
you are going to be winners, but over
time, this is going to be the best way
forward for um the you know, our
particular country. That just is not a
winning political strategy. I don't care
what type democratic or autocratic
government you have. And therefore, we
get what we have today.
>> [snorts]
>> The way that I think about this is a
parent who's uh 14-year-old wakes up
with a severe hangover and the parent is
reaching up into the cupboard to get the
medicine and is like, "Listen, you
brought this on yourself." Cracks open a
bottle of vodka, uh, starts pouring it
into some orange juice and is like, you
know, but I feel you. I get it. Uh, so
here, drink this and you're going to
feel so much better.
And because people do not understand how
the economy works, they drink it down.
And it does sort of push off having to
deal with the hangover. But it is going
to come for you. Like eventually you
either become an alcoholic and you die
of cerosis of the liver or you
eventually get sober and you have to
deal with it. When I look at the economy
right now, um I really try not to be an
alarmist. I understand it well enough.
I'm gonna be okay. Um, but I really
don't like the sense that a lot of
crypto people have where it's like,
well, I know how to escape this in an
uninflatable currency. Uh, I've got a
life raft. It's available to all you
guys if you want it, but they will never
because they don't understand it. And
so, I have this pull to really want
people to understand the mechanism by
which this works. And I want them to
understand how fragile the economy is.
All because of that very simple
statement that you made about debt and
money printing and the fact that nobody
regardless of Democrat, Republican, um,
dictator, Democratically elected, no one
says austerity, everyone says print
money. Do you think that I am uh I've
taken one too many black pills or do you
think that I am seeing it correctly but
I should just stop worrying about it and
learn to love the bomb or what do you
take away from all that? So I mean I
think you've contextualized it um well
but there are ways out of it and I think
the
AI
dream for a politician is the only one
of the only ways out which is we're
going to create so much productivity and
abundance that this debt doesn't really
matter. we've taken all the all this
debt, a lot of it was wasted, but we
created these AI companies and then they
created this magical thing called AI and
you know, humanoid robotics and all of a
sudden the cost of labor is essentially
zero. Uh, and the cost of intelligence
is essentially zero. So you know but I
don't think they've realized the problem
that that brings for a fraction reserve
debt based society that we have which is
when the average investment banker and
lawyer and accountant the most you know
vulnerable people to AI are those who
make the most money today who have the
most sort of like
um debt right they have a house they
have a car you know have a you know
rolling credit card bill the for the
nice stuff that they're supposed to have
that Tik Tok tells them that they need
um when you fire those people first
because you know that's the easiest
thing to replace in in the first
iteration of AI and they can't pay their
bills and what happens to the entire
when the when the 9% of the 10% who
won't know everything can't pay their
their bills because they lost their job
because you don't need investment
bankers and lawyers and accountants when
an AI can do it for free essentially.
Well, then what happens to the system
then? What happens when you have, you
know, five companies, you spent all this
money who created the god AI, they have
all this power, they've created all this
abundance. Are they going to share it
with everybody else? They don't need any
other workers anymore. What happens to
everyone else? Is it just going to be,
you know, Mark Zuckerberg and Elon and
Bezos and Altman sitting in the club and
everybody else is starving because they
said, "Well, cap capitalism and property
rights says that I created this. I
invested. [ __ ] you. I took your data and
I made it, but you know, you didn't
invest in my company. So, you don't get
to you don't get to experience this
abundance post scarcity world where
we've, you know, eliminated the national
debt because it doesn't matter anymore
because we have robots and AI." I think
that's what the conversation people
should be thinking about in their head.
The whole debt based financialized
economy. I think that's a postw World
War II, the last 80 years. That's the
last war. People are fighting that. What
they should be thinking about is how do
we reform society to share what is going
to be created by these either super
national,
you know, tech giants, this AI and
robotics, this abundance that was based
on our human data to create this. we're
not getting compensated for that as
society. How do we share that? That's a
conversation that people need to have
right now rather than well what are we
going to do about the national debt? And
I think if people start having that
conversation and thinking about how
they're going to reform political
systems deal with that that is the next
big risk. It's not whether or not you
know the US or Japan or China or Europe
can afford the debt. They can print the
money. There's various ways to reduce
your debt to GDP. It requires lots of
high inflation. But I think that the
real risk that people are not talking
about is what happens when we don't need
everybody or 20 or 30% of people
anymore. Especially the 20 or 30% of the
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to the show. Even if AI does everything
that we think it will do, which on a
long enough timeline, I think it will. I
think it will blow past all of our
expectations. The problem is that when
you drive energy and labor to zero, um
you, as you pointed out, you start
obliterating a lot of jobs, and that
isn't going to be instantaneous. That's
going to happen over time. You're going
to have a meaning and purpose crisis,
and you're going to have a bunch of
people that um will expect a government
handout. Like in the short term, I don't
know. there'll be something where uh
first the wealth is going to accumulate
to the owners
then we'll deploy all the things because
I don't think there's any reason for the
um bots and all of the energy to
accumulate to the top. It's not
sustainable. They will literally be
murdered. So uh the people that try to
hoard that there just be way too many
people struggling. So, their first act
of self-preservation will either be to
create a military, which I just really
doubt, or to start deploying some of the
abundance out to other people. But it's
the transitionary phase where it will
exacerbate both financial hardship and
psychological hardship, which will lead
to deeper fractures in society. America
is just extremely prone to this. Europe
is is like a powder cake right now. So
any sort of downward pressure and you're
going to get this I think very explosive
response. So it's like even if you
believe that AI is going to do all the
things, AI doing the things is a problem
unto itself. So, that's where I'm like,
okay, you're going to take a a system
that is economically fragile and you're
going to make it psychologically
fragile. Uh, and if you think that it's
going to be hard to
get people to migrate into an asset
class that would save them from this, I
think it's 10 times harder to get them
to uh or austerity. It's going to be 10
times harder to get them to understand
that we have to completely reimagine
nation states and uh what an economy
looks like in a post scarcity world like
that is 10x more daunting to me.
>> I think that's going to come faster than
we think. It's going to come faster than
the debt doom loop that I'm sure that a
lot of people will talk about. Oh, we're
adding a trillion dollars of this and
that. Okay, cool. But what happens if we
fire 10% of all of the most highly paid
workers in the next 2 to 3 years?
Because, you know, Anthropic can now do
the job of a junior investment bank
maker who was making $150,000 a year for
$10 a month. I don't need an entire
class of JP Morgan and Goldman Sachs and
Bank of America analysts anymore. I
don't need junior lawyers. I have an
entire corpus of president all in
machine readable format. Do I need an an
an associate at a law firm anymore? Do I
need a CPA? It's just codified rules.
They can follow the per perfectly. So
all the jobs that people were telling
their kids, oh, go to university, spend,
you know, get yourself in quarter of a
million dollars of debt to get this
degree to do this professional career,
that's over. You don't we don't need
those people anymore. Why am I paying
you $2,000 an hour? And I think that's
going to happen faster than people
think. And this conversation about what
do we what is society? What does it mean
to be a productive human? This is
something that people have to think
about because there's going to be
political leaders who are going to
emerge to preach their own version of
this. Whatever that may be. Some of it
will be very militant like [ __ ] the
computers. I'm about humanity first.
We're going to go back to with the way
things were when everybody had a job and
everybody had purpose and all sort of
things. You know, get rid of all this
AI. There are going to be those that, oh
no, AI can solve everything. Just hold
on a minute. We got this. And so I think
that's going to be the contentious
debate and it's going to happen way
sooner than we talk about whether or not
the United States or China or Japan can
afford to pay the interest on their
debt.
>> Okay. So your bet is that that happens
so much faster. So let's say that my
timeline is roughly correct that it's 10
years before we buckle under the weight
of the debt. You're saying two to three
years, maybe a little bit more, and we
have to contend with massive economic
disruption from AI.
>> Yeah. And it's I mean, it only takes
about 10%, right? If you could eliminate
10% of the highest paying white collar
jobs, which are very formulaic and
easily replaced for the very intelligent
LLM. Well, these are the most
politically active people. What are they
going to decide to do with society? is
the rest of the society that you know
still has a job because they flip
burgers to be a bit tright and the robot
can't do that yet. So they actually have
a purpose versus the investment banker
who went to you know XYZ Ivy League
school making 150,000 out of school. We
don't need them. We don't need him and
her anymore. We do need the construction
worker, the nurse, you know, the
policeman. We need those people still,
but they weren't that politically
important in the old system. And now
these people have been disenfranchised.
What are they going to decide to do with
society? And is the rest of society
going to support them? And what they
believe that this post scarcity or 10%
more efficient society looks like
without the wealthiest folks.
All right, let's extrapolate an answer
to that from where we are today. So
there are certain things that we know in
terms of how people respond uh the way
that people are responding to I can't
make ends meet is is hyper gambling. So
they are not being fiscally responsible.
They're not buckling down and saving.
They're going on every gambling
mechanism that they can find from uh
poly markets, sports betting, uh Pokemon
cards. I mean just literally crypto,
shitcoins, bitcoin, ethereum, like all
of it is in my opinion and again I am
happy to fight about this stuff but I
think the only way to intelligently
understand the markets is to think of
them as gambling once you understand
that humans step to them as gambling
mechanisms by and large. I'm not saying
that sophisticated um value investors
are doing that. Although yes, actually I
am saying that some I I will concede uh
that point isn't going to be the part
that I I'll like fight people on because
that gets a bit uh semantical. But uh
just in general, I think it is
undeniable that that's what people are
doing. Um so we know that people are
going to go into a gambling scenario. We
know that right now overeducated people
that are um
undermployed are leaning towards let's
call it socialism. The leftleaning
variant tends to be more popular among
hypereducated undermployed people. And
so you put those two things together and
it's like, okay, you're going to get
some ungodly number of people that are
like, all right, well, my only shot then
is to gamble. And then you're going to
get some ungodly number of people that
are like, um, not only am I going to
gamble, but I want the government to
give me the money with which I'm going
to gamble. [snorts] Um, what say you to
that? Do you think that is what we see
in the tea leaves, or do you see
something different? Yeah, I think
there's some variant of that and it's
hey the mum donnies of the world all
these things that we know socialism is
not a new concept it's a very old
concept there's this dislocation we have
this thing called the money printer
instead of dealing with the hard
conversation with society of what it is
to be a productive human how do we share
this abundance that we've created with
this new intelligence we're going to
just print a bunch of money to paper
over the problem because we don't want
to deal with it because it's too hard to
have this conversation And yes, you get
the hyper gambling mentality, which is
I've got a little bit of money. However,
I got maybe my parents gave me a little
excitement. I'm getting a government
check, you know, universal basic income.
Whatever it is, I'm going to the stock
market. I'm going to meme coins. I'm
going to crypto and and what have you.
And yes, S&P might be at 20,000 and
Bitcoins in a million. And it's all the
same sort of theme. It's we don't want
to deal with a problem. So, we're going
to print a bunch of money to mllify
people until [ __ ] gets so bad, whether
it's, you know, a bunch of young people
in the streets protesting violence,
whatever it is, until we're going to
have this cataclysmic conversation about
what it means to be a productive human.
>> Why was Margaret Thatcher able to pull
this off? Like, what are we missing
right now? Or structurally, what is
different? Um because in the 80s
Margaret Thatcher was able to say to
England, "All right, like we got to
tighten the belt. We got to do less
otherwise we're not going to make it."
Or I don't know. She had some sort of
convincing message.
China China was the deflationary impact
that allowed the West to sort of delever
themselves and do these neoliberal
policies, whatever you want to call it,
and not suffer uh inflation. China
shipped you the everyday low prices at
Walmart [clears throat]
and gave you all these great things
super cheap because you essentially
added let's call it half a billion
people very productive youngsters to the
global economy to make stuff super
cheap. China was willing to degrade
their economy beyond anywhere beyond you
know produce the solar panels produce
the rare earths
um they don't produce energy but um all
these things that they degraded their
uh their local environment so that the
west could enjoy the 80s to the early
2010s that was all predicated on the
Chinese entering the workforce
unfortunately you know policy makers
don't like to acknowledge that that's
really the reason why they're able to
pursue these policies and not blow up
their economies.
>> H All right. So there's no new
>> again, right? We don't we don't have
another 500 million young people or
another country willing to degrade its
environment to the to the extent that
China did for the first part of its, you
know, grow up phase in the 80s and 90s.
Uh right now we have a different sort of
problem and a different sort of
situation.
>> It's interesting. Um what do you think
India entering the market is going to
look like? Are they um already so
plugged in we're never going to feel
anything from them or um or are they
going to be felt in a unique way?
>> Well, I think it's a this right now it's
a story of robots, right? Even if India
plugs in, if you want if you think about
I'm a manufacturer of some I know I own
a I'm a big shareholder in a sexile
company and you cannot beat how
efficient China is at producing things.
Just cannot. There is no other country
that has the infrastructure available,
the amount of labor and not and the
installed robotics
um base that China has. And so I don't
care if you have India, you have
Vietnam, Malaysia, Mexico, all these
other places which are essentially
lowcost manufacturing centers do not
have the ability to have the
infrastructure of China. And so this
isn't a story about adding a bunch of
lowcost workers. It's how many robots
per 100,000 people do you have or
installed? Uh what percentage of your
factory is mechanized? Because okay,
sure, India can add a few hundred
million young people to the labor force,
but China has built the million robots.
Same with Japan. These robots are
infinitely cheaper than than a human
regardless of where they're at. And so I
think that that story of okay, we're
just going to repeat what China did in
the 80s and 90s with India, with
Nigeria, with Indonesia, all these
growing young populations is just not
happening because we have robots and we
have AI, we have these advancements,
human labor is going to be obsolete and
a lot of these things that we did in the
past.
>> Okay. Well, then let us face AI head-on.
So, we've obviously already talked about
a huge part of the puzzle, but we
haven't talked about the economic part
of the puzzle. What happens when AI is a
better investor than anybody else? And
so, you and I are like, we understand
this stuff, bro. We're we're going to
keep being rich all day. And then we get
an AI that comes in that is loaded up
with crypto and it just goes and does
its thing. Does what does AI's impact
into the competitive nature of the
financial markets look like?
>> I don't believe that AI is any better or
worse than a than a human investor. I
mean, think about it today, right?
>> Like today, sure. But in 5 years,
>> well, what is the market? The market is
essentially a discounting tool for human
preferences and scarcity, right? And so
if we remove an AA is just gonna is an A
gonna be better at predicting human
preferences than a human?
>> Yes,
>> I don't know. But if you are this is
already the case. If you're an investor
and you're like I'm going to be a day
trader, right? And I'm going to go up
against you know Citadel and Jump and DW
and all these massive Goldman Sachs and
all these trading firms that essentially
use very intelligent computers to do all
their trading, you're already losing
money. So it's not like this is a new
situation. If you think that you're
going to day trade yourself into, you
know, being the best, being Warren
Buffett, I'm sorry, but there is a
computer out there that is better than
you, faster than you, smarter than you.
>> What you have to do as an investor is
say,
>> okay, there I believe in a future where
this particular product or service gains
traction, and therefore I'm going to buy
and hold this stock, this crypto, this
whatever, and over time I'm going to
make money. But to be a systematic
short-term trader hasn't been profitable
for a retail investor in a very long
time and it won't be profitable when AI
is there either. So I'm not exactly
worried about that particular outcome. I
just think that's just not a style of
investing that is suited for a lot of
individual humans.
>> Like let me see if I can make you
scared. So, we we just talked about that
one of the things that we see right now
today is when people are not able to um
have their income keep up with the cost
of living, they go to hyper gambling. Uh
you give them sty checks, they hyper
gamble the sty checks. So now you are
correct. They would be unwise to go into
the markets and hyper gamble, especially
given that AI is already better than
them at that. 5 years from now, AI is
going to be really better. And by the
way, the AI is going to understand how
people respond to algorithms, how to
sway algorithms. And so the AI is going
to put out messaging that will humans
will respond to. The AI is going to
understand what I certainly understand,
which is that markets are effectively,
entirely sentiment driven. And so now AI
manipulates sentiment. Humans hyper
gamble against that sentiment. AI laughs
all the way to winning at all the PVP
stuff. Now, anybody who understands
better will back off and go, "Listen, I
play a long-term game. I'm not going to
be able to beat the AI, so I don't even
try." But my whole thing is there there
is a generation, and I don't know if
that generation is 2 years, 5 years, 10
years, probably not much more than 10
years, but there's going to be a 10ear
span where we go from uh energy cost is
racing towards zero, labor cost is
racing towards zero, and everybody
settles into the age of abundance. And
in that period, oh dear god, AI is just
going to hand people its ass in the same
way it beats us at chess and the same
way it beats us at go, it will beat us
at the game of short-term investing. It
it will just crush the average investor.
Humans can already crush the average
investor. And so you have this tiny
number.
>> It doesn't change anything. It's okay.
Instead of Ken Griffin making $16
billion a year, it's some AI model. Do
we care? Not really.
>> Yeah. Ken Griffin becomes Ken Griffin
becomes the [ __ ] that's getting his ass
handed to him. So,
>> well, not really. I mean, it's just like
who who's going to take who's going to
extract this vig from the desperate
retail? The desperate retail is there.
No, that's what we should change rather
than saying, well, the AI is going to
beat you at stock. Well, Cidel is
already beating you at stock investing
and Robin Hood and payment for orderflow
and all these microer things were
already [ __ ] you. It wasn't like the
AIA is going to change the situation.
You still were going to lose all your
money in 5 seconds if you won 100x
longs, right? It just it doesn't matter
whether there was an AI on the other
side or you know pick your large
institutional investor that was already
happening. So we're just changing who
makes the money potentially. It doesn't
matter. What matters is just don't play
that game. You already were losing it
today when there was a little bit of AI.
You were losing it yesterday and there
was no AI. Understand that and just
don't do that. I think that's got to be
the message rather than oh let's freak
out about the AI. It's going to be
better at stock stock picking. It's
gonna be better at being Citadel, but
the money is still going to just go to
that particular bucket.
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Shopify by your side. All right, let's
get back to the show. Let's talk
leverage. So one, will AI influence the
rate at which leverage
is available? I don't know if there will
be any impact there, but I've heard you
talk about AI's interaction with
leverage before. Um, so I'd love to know
that. And then I would love to dovetail
into the fact that Maelstrom, your
company, does not use leverage, which I
think is super brilliant. And so I'd
love to get your take on those two
aspects of leverage.
Well, leverage will become more and more
available as sort of the types of
financial products proliferate that you
know especially that the thing that I
invented with BitMX called the perpetual
swap. Uh it's a highly leveraged
derivative that we invented in the
crypto space that's coming to equities
that's already started on some
decentralized platforms and it's going
to become ubiquitous instead of trading
a futures contract or an options
contract that you know we're familiar
with. It's going to be a perpetual swap
on equities, on bonds, on crypto, and
that is going to be very highly
leveraged and and gamified.
What people need to understand is, and I
tell the people, there's nothing wrong
with leverage. The problem is that
people are not dedicated professional
traders. And when I say professional, I
don't mean that you went to a fancy
school and you got a degree that made
you a professional trader. I mean that
this is your job. You live and breathe
the market that you trade. You're on
your phone all the time. You've got
alerts. You go to bed, something happens
in your market, you wake up and you deal
with it. That is a very small sliver of
traders. And if you dedicate yourself to
this craft, you can become successful.
What people don't want to do is they
want to become successful without
dedicating themselves to the craft. And
so they want to work their job, do their
passion, whatever it is,
go on their phone for a few hours a day,
trade fair trade, use a leverage, make
enough money to survive, and then that's
it. And that's just not how it works,
right? It's not the market doesn't
provide you profit just because you got
off of work at six o'clock, you've got
dinner at 8, you got two hours to make
your money. That's just not how markets
work. Uh markets work however they want
to work and they'll provide the profit
whenever they want to provide the
profit. And you need to be there
studiously looking at things to be ready
to accept it. And so I think people
don't understand that they don't want to
put in the 247 365 mentality of trading.
They want to trade two hours a day and
make money. Therefore, they jack up the
leverage. They approach it like they
went to the casino. And what do you
know? They get liquidated all the time
when you should never ever get
liquidated as a trader. If you use
leverage correctly and so my advice is
unless you are willing to dedicate
yourself to being a professional trader
that this is your job, then don't use
leverage long only. Pick things you
understand, whether that's crypto or
stocks or real estate or FX, whatever it
is. Pick something you understand. go
long and you don't have to worry about
these sort of things. And over time, if
you are studious and you buy things that
you understand, you should do okay.
>> All right. That's not a sexy way to
think about things. [snorts]
>> It's it's well, it it is sexy for
anybody that wants a long-term
relationship. So for me from a, you
know, this is sort of the the squares
equivalent of dating advice instead of
trying to bag chicks, it's I want to
fall in love and I want to get married
and I want to, you know, have something
that is prolonged and has meaning and
purpose and all that good stuff. So I
I'm right with you. That is the eternal
advice that I will give people. Now, for
somebody that wants to do the fast and
furious uh dry humping of the leveraged
uh trade, how do you do that? Well, so
you gave us the you've got to be 24/7.
Totally understood. Um is there because
there was a recent event where somebody
got liquidated like just some ungod like
6,000 Bitcoin or some terrifying number.
Um what did they do wrong that we can
all learn from?
So, you know, position sizing is the
number one thing, like how big is a
position relative to the underlying
liquidity. There's a big riskoff event
in crypto on October 10th. Um, started
at Binance and spread to a bunch of
other exchanges and essentially was a
lot of traders didn't understand the
product that they were trading. They
didn't read the information that was
given by the exchanges about how these
things worked. Something happened to the
micro structure of the market, adversely
affected their positions. They didn't
know what to do because they had never
thought about it before. But it was all
written down. Been there for years. And
so again, study your craft. Are you a
professional trader? Yes. Okay. Well,
then you better know every single way
that your exchange operates, right?
People in the stock market found out
during the the GameStop crisis what
settlement meant. What did DTC mean? How
do these things interact with the
exchange and the broker and, you know,
your your trading app? Why were you
locked out of the stock? Why wasn't why
weren't you allowed to trade? You didn't
know the rules. So, if you want to play
the game, know the rules. Study the
rules. Understand the rules. If you
don't understand the rules, ask customer
support. They want your money. They want
you to spend time and effort on this
app. If you don't understand something,
ask them. And they're going to explain
it to you because they want you to trade
and pay them fees. But if you don't ask
questions and it gets ignorant and you
think, "Oh, everything's going to be
okay." Then, you know, overlever things
happen. Certain policies that the
exchange has you didn't read about kick
into effect and all of a sudden you find
yourself liquidated. you don't know why
cuz you didn't read because you didn't
dedicate yourself to what you're
supposed to do as a trader. You should
never ever be liquidated as a trader.
That just means you didn't understand
what it is you're trading and you didn't
size your position correctly.
>> What are the things that people don't
understand? How fast the market moves or
how much collateral they need? What
what's like the common mistake?
Uh I mean so specifically this last
incident in the crypto space or this
thing called automatic deleveraging
where because there was um more losses
than profits some of the traders who had
profit had to get their positions closed
early and some traders run these long
short strategies where they're losing
money on one side making money on the
other. Well what happens when the side
that you're supposed to make back up you
know more than you lost gets closed out
early and you don't make all that
profit. All of a sudden now you have a
loss and people thought well what is
this thing? Well, it's been written
about for I mean I almost invented it 10
years ago and people didn't read the
stuff when I wrote it then. They don't
read it now and CZ and the other crypto
guys write about it on their own
platform. So again, it's you're trading
a leveraged product. There are ways in
which that leverage is created.
Understand how that leverage is created.
Understand the math. Understand how the
exchange polices that leverage and how
it protects itself with its margining
system, how the clearing house works.
And I mean, I'm sure a lot of you like,
well, this is a lot of information that
I don't know, and I'm using these
leverage products. I don't know if I
want to expend this sort of time and
effort to really go deep on this. Well,
then don't use leverage. Just buy and
hold. It's just that simple.
[snorts]
>> Okay. So, um, punchline being that
leverage is basically for the
professional trader. Um, you've already
>> on effort, not on knowledge. Effort,
it's all about effort.
>> Very fair point. Um, so given the moment
that we're in, given that you've got 10%
of people that own 93% of all the
assets, how can somebody today that
doesn't want to trade on leverage, how
do they get into the market and not feel
predated by the fact that they don't
have a lot of money to spend and now if
you're telling them leverage isn't for
you, um, what's the play?
>> Time and compounding interest rates. Uh,
so I was having I was having a
conversation with a friend and he
happens to be a lucky soul that has
access to a rent controlled apartment in
New York City and he was saying that
rents gone up I think since the 70s
three or four times whatever it is. So
if you break that down, look at the
component annual growth rate, it's about
2 to 3%. Right? So a 2 to 3% compounding
on a dollar gets you three to four times
more money over time in an exponentially
increasing fashion. So I think people
just need to understand very basic the
compound interest rate and time works in
your favor if you're patient. If you're
not patient then those things work
against you. And so yes, in the
beginning it might look like you know
the hockey stick isn't going anywhere.
But then you hit an inflection point and
then you go like that. And that's the
whole point is to be able to survive
long enough till you get to the
inflection point. Invest responsibly.
Invest in things that compound over
time. even at a small rate. Even 2%
compounding inflation has taken the
value of the dollar down 99% since 1913
when the Fed was created. Right? So
compound interest rate and time are your
friends if you use it that way. And they
work against you if you use, you know,
aggressive amounts of leverage and
you're impatient. And so I know it's not
the most sexiest message, but patience,
time, and interest will get you to where
you want to be.
>> Yeah. I'm not worried about the sexy.
I'm worried about the effective. I I
really do consider myself a
uh evangelist for trying to help the
average person. Like the people that
already understand the market there.
There's plenty of people for them to
listen to. I'm trying to speak up for
the person that never uh wanted to
understand this, never thought they
would need to understand this and
they're just not able to get ahead. They
can't afford a house, like all of that
stuff. Uh so yeah, I want whatever. Also
the other thing that people instead of
instead of having the market do this for
you, get politically active. Why are you
supporting the same politicians
Democrat, Republican, pick your
political flavor, depending on which
doile you're in, who continue to [ __ ]
you with inflation. Stop supporting them
just because this guy or girl has the
right last name, which are the right to
the right school, wears the right
clothes. Oh, I need to support that
person. They're [ __ ] you. Change it
up. So yes, you can say the market needs
to save me because I'm unwilling to
ditch all these politicians regardless
of the party who over many decades have
continued to [ __ ] me, but I need to go
leverage the market instead of, you
know, using this thing, my voice, my
political activism. I know we have this
thing called the internet and social
media. You know, people can line up for
hours outside a Louis Vuitton store. Why
can't you get politically active and
boot out all these guys and girls who
are continuously [ __ ] you?
>> Yeah, you're not wrong. And I have said
something along those lines myself, but
I do feel a little bit hopeless when I
talk about that because the very nature
of a politician is to gain and retain
power. And you have been very eloquent
on the hard truth, which is that you
don't get elected by promising
austerity. You get elected by promising
free [ __ ] and free [ __ ] is exactly how
you end up in the position that we're in
now. So, that one maybe of all the
options feels the most hopeless to me
because I don't think that anyone will
ever get elected that
is sincere about austerity. So, Trump
broke my heart when I realized, oh, he
was
never going to balance the budget. And
when he put forward the big beautiful
bill, I realized, oh, it's game over.
Like, this is just a question of degree.
So, maybe the Republicans spend a little
bit less than the Democrats. Uh, but
fiscally, they're both wildly
irresponsible. So, when you look at the
next three years with Trump in power,
what do you see? Is it just money
printing as far as the I can see? Are is
he going to be more like is he going to
be more effective at generating growth
than the next person? Um, what do you
see? So I mean technically speaking you
can generate growth to reduce the debt
to GDP and balance the government's
balance sheet by going to you know a
hyper growth scenario but it's
inflationary right and so again you need
to have the right kind of job maybe it's
a union job or whatever where you're
able to negotiate high pay rises or you
need to be in financial assets in that
situation like in the co area era right
you had a lot of these unions that have
been dormant for many years being able
to negotiate 30 40 50% % pay rises for
their workers during co because
everybody needed them at that period of
time and they had had the power and if
you take a look at the years from you
know 2020 to 2022 the US debt to GP
actually declined because they ran this
hot economy model again it produced a
lot of inflation which pissed a lot of
people off but that is the way in which
the textbook way and Trump and invest
have sort of tried to say this that this
is what they want to do that you can
delever the the government's balance
sheet which as politicians who work for
the
That's their number one job is
deleveraging their own balance sheet and
you know sorry for the inflation that we
we generate. I hope you have a good job
and you bought some financial assets.
That's what they're going to try to do.
And obviously you have the mom donnies
of the world on the left who are like
hey I can I can produce better free [ __ ]
rhetoric than you Trump and therefore I
am going to you know win the mayoral
election in New York and state elections
and you know Virginia and New Jersey and
all those sorts of things. So Trump is a
non ideological politician. He wants to
win. Uh he is the most prolific
president since probably you know ever.
He lost his stimulus checks. He can't he
was the first president to hand out
money directly to every you know
household at 200 million household. No
other president has done that before
like Trump has done it. So to say that
he is against socialism just doesn't you
don't remember what happened in 2020. So
he's going to do something similar again
because it's very popular. And then the
question is, okay, well, if you get a
stimulus check for or whatever it is,
whether it's your house price goes up or
there's a check by the government, how
are you going to make sure that you
leverage that money in the most
effective way if you're not going to
advocate for change, fundamental change
in the political system? And then that
is, okay, well, it's it's Bitcoin, it's
a house, it's S&P 500, it's whatever it
is you feel it's gold, right? It's these
sorts of things that you feel
comfortable with. But Trump on one side,
M Dania on the other, they're kind of
saying the same thing. They have
different styles in which they say it.
Um whether or not you support them or
not is not the point. They're both kind
of saying the same thing. And I think
once people realize that, then it's
like, okay, well, I'm going to get this
money from the government instead of
going out and buying a new washing
machine or, you know, going to Vegas or
going on vacation. How do I make sure
that I parlay that into, you know, above
trend growth in my financial assets?
>> All right. If we know that the
government is going to print, if we know
that Trump is doing everything he can to
drive interest rates lower, and we know
that both of those things are
inflationary, they will drive up asset
prices, they will make houses more
expensive, they'll make rent more
expensive, on and on and on. What does
the world look like over the next three
years as that easy money continues to
flood the system?
I mean S&P 10,000, NASDAQ 100,000,
Bitcoin 1 million, gold 15,000, ri