Bitcoin & The Great Financial Reset | Porter Stansberry

[0:00] The mispricing today in Bitcoin is as
[0:01] long is as large as I've ever seen
[0:03] before in the model. My Bitcoin model
[0:05] has uh average price of Bitcoin today at
[0:08] 134,000. And if you look at hedge fund
[0:10] allocations and things like that, all of
[0:11] the fast money has gone into tech stocks
[0:15] and it had to come out of somewhere. So
[0:17] I think we're seeing a great opportunity
[0:18] today in Bitcoin. The certainly the best
[0:20] opportunity I've seen in Bitcoin in a
[0:21] decade. What's going on guys? Today we
[0:23] have a conversation with Porter
[0:24] Stanberry. Porter is the founder of
[0:26] Stanberry Research and Porter and Co. a
[0:28] boutique investment research firm. In
[0:30] this conversation, we discuss why Porter
[0:32] believes the end of America as we know
[0:34] it will happen in 2029. What the math is
[0:36] to drive his beliefs. How he thinks that
[0:38] you should be able to navigate all the
[0:40] volatility. What his portfolio looks
[0:42] like today. Why he has so much
[0:44] conviction in Bitcoin, gold, timber, and
[0:47] many other assets that you probably
[0:48] don't own today. And then we get into
[0:50] what Porter believes is on the other
[0:52] side of a great reset and why he thinks
[0:54] that the fourth turning will actually
[0:56] put America in a better spot in the
[0:57] coming years. Here's my conversation
[0:59] with Porter Stansbury. Porter, you
[1:01] believe that we're in the fourth
[1:02] turning. Can you explain that concept
[1:04] and why you think it applies to America
[1:05] today? Yeah. So, the fourth turning was
[1:08] um sort of a theory of history that
[1:10] these two scholars first put forward in
[1:12] the 1980s.
[1:14] And it it's kind of evolved, but it
[1:16] basically boils down to the fact that
[1:19] all of human history rolls in 80ear
[1:21] cycles because that is the sort of the
[1:25] the the longest normal human lifespan.
[1:29] And the idea is that
[1:32] over the course of of a person's
[1:33] lifetime um the things that they believe
[1:38] evolve, reach maturity and then fade.
[1:41] And so if you look at uh the like the
[1:44] history of the United States, uh the
[1:46] revolutionary periods come once every 80
[1:48] years. If you go and you back and you
[1:50] and you study Roman history, same
[1:51] things. Uh human beings, uh human
[1:54] culture, human history all follows this
[1:57] 80year cycle.
[1:58] And they first um the u let's see there
[2:03] Neil and uh
[2:05] >> Neil Strauss and uh and Hal their book
[2:07] um was called the fourth turning but the
[2:10] first one was called generations and
[2:12] then and the fourth turning they they
[2:14] theorized that America would go through
[2:17] a fourth turning that would begin and
[2:19] around the year 2000 and these fourth
[2:22] turnings typically take 20 years and so
[2:25] we're we've been in this process and if
[2:28] If you think about what happened at CO,
[2:30] if you think about what happened at the
[2:32] GFC, and if you think about what
[2:33] happened in the internet revolution,
[2:35] we've definitely lived through about a
[2:36] 20-year period of tremendous dynamic
[2:39] change. And unfortunately, these fourth
[2:41] turnings tend to end in a ultimate
[2:44] crisis where everything gets reset. And
[2:48] so I kind of put that idea together with
[2:50] what I see happening in finance and
[2:53] particularly with the deteriorating
[2:55] financial position of the US Treasury.
[2:57] And it just occurs to me that all the
[2:59] western democracies are going to need a
[3:00] massive monetary reset because we can't
[3:03] afford all the promises that we've made.
[3:05] And and if you look at it closely, we
[3:06] can't even really afford the debt we
[3:08] have now. And so I think that that's
[3:10] what's going to happen. We're going to
[3:11] the this this fourth turning is going to
[3:13] evolve and then ultimately culminate in
[3:16] a giant uh global financial monetary
[3:20] reset. And that's what the book is. So
[3:22] the idea here is the fourth turning is
[3:24] really a social, economic, and political
[3:26] kind of these trends come together and
[3:28] create this scenario. And you obviously
[3:30] described a number of crises that we've
[3:32] had. I think that there are a bunch of
[3:34] folks who will show, oh, wait a second.
[3:36] Uh we've navigated those well in their
[3:38] mind, right? They they'll claim that we
[3:39] we actually got through those and and so
[3:41] therefore they're not actually
[3:42] contributing to any sort of issue. Uh
[3:44] you have specifically identified 2029,
[3:46] the year 2029, uh as the year that the
[3:49] end of America as we know it. and you
[3:50] recently published a book under the
[3:52] name. I I spent the weekend reading that
[3:53] book. Um and you lay out a pretty strong
[3:56] mathematical argument as to why 2029 is
[3:59] that great reset. Can you just walk us
[4:01] through the math and and why 2029 is
[4:03] that year?
[4:04] >> Yeah, it's really simple. I um if you
[4:07] think about it, uh the the peak of the
[4:10] stock market in early 2000 was really
[4:13] the peak of the postwar
[4:16] American social and economic order. The
[4:20] price of gold at that point was under
[4:24] $300 an ounce and the Financial Times
[4:27] was calling it a barbaric relic and
[4:29] saying that it would play no further
[4:31] role in in the economy. And
[4:38] if you if you measure the value of say
[4:41] the Dow Jones Industrial or the S&P 500
[4:44] in terms of ounces of gold, that was the
[4:46] peak of our financial wealth. And since
[4:50] then, it has been in decline. And of
[4:53] course, now gold was recently trading
[4:55] around $5,000 an ounce. Um, and so
[4:59] people have become to believe that their
[5:02] wealth is measured in a currency, the
[5:04] dollar or the yen or the euro. But, but
[5:08] if you really measure your wealth in
[5:10] money, if you measure your wealth in
[5:11] gold, we've all gotten much poorer. And
[5:14] that is because the western financial
[5:17] system is failing. The currencies do not
[5:20] keep pace with growth to productivity.
[5:23] And as a result, people's after tax real
[5:26] wages have continued to fall. So while
[5:29] company owners and tech titans have
[5:31] become vastly wealthier, the average
[5:34] American, the average Britain, the
[5:36] average Japanese person has actually
[5:38] seen their way of life and their wealth
[5:41] substantially decline.
[5:43] And so that those two factors have to
[5:47] come to an end at some point. At some
[5:50] point, the average American is going to
[5:52] go, "Fuck this. I'm now working two
[5:55] jobs. I'm paying more taxes than ever,
[5:57] and my life keeps getting worse and
[5:59] worse and worse, and I don't understand
[6:01] why." And if you look at everything
[6:03] we've seen since the GFC, the the not
[6:06] just the Black Lives Matter movement,
[6:08] but the um the Occupy Wall Street
[6:10] movement, if you look at the absolute
[6:13] growing
[6:15] disaection of people under the age of
[6:18] 40, if you look at the age at which
[6:21] people have been able to start families,
[6:23] the age of which people have been able
[6:24] to buy their first homes, all of this
[6:26] shows a economy, a culture, a way of
[6:29] life that's falling apart. And I first
[6:32] predicted this back in 2011 when I wrote
[6:34] the first edition of the end of America
[6:36] book. And what I said was that the that
[6:39] we had begun to paper over the problems
[6:42] in our economy instead of dealing with
[6:43] them would lead to a debasement of our
[6:46] currency which we've seen. But more
[6:48] importantly, it would lead to a
[6:49] debasement of our culture, a debasement
[6:51] of our society. And I said you'd see
[6:53] three things in particular that would
[6:55] mark this. You'd see a huge increase in
[6:58] deaths of despair. So, what is the
[7:00] leading cause of death of men 18 to 34
[7:03] years old today? It's fentanyl. Okay. I
[7:06] said I said you'd see a huge increase in
[7:08] gambling as people would lose the
[7:11] ability to earn money through normal
[7:13] commerce and instead would begin to take
[7:15] enormous financial risks because they
[7:17] don't care about losing the money
[7:18] because it's not worth anything. And so,
[7:20] what's happened? We now have a casino in
[7:22] everyone's pocket. and look at the
[7:24] revenues from online gaming and from
[7:26] other kinds of gambling and from things
[7:28] like crypto which is really in my
[7:30] opinion and a lot of times just another
[7:32] form of gambling. Okay. And then then
[7:34] the one that's most tragic is I said you
[7:36] would see a huge rise in prostitution
[7:39] and prostitution always goes handinhand
[7:42] with collapsing cultures and collapsing
[7:43] economies. It's their oldest profession
[7:46] of humanity. But we should not have one
[7:49] in 10 American college females with
[7:52] accounts on Only Fans.
[7:54] >> That's crazy. That's true. It's It's
[7:57] frightening. And And a lot of people
[8:00] don't see this yet because as the Trump
[8:04] administration likes to say, stock
[8:05] market's at a new high. Well, stock
[8:07] market is denominated in dollars that
[8:09] they keep printing. It's not a fair
[8:11] measure of our wealth or our success. So
[8:14] if you look at all these factors,
[8:16] they're all going to come to an end. And
[8:18] it seems to me that in every crisis that
[8:21] we have, we have to print more money. It
[8:24] leads to more social dislocation. It
[8:25] causes bigger problems. And then the
[8:28] biggest problem of all is going to be
[8:30] social security. So the social security
[8:32] trust fund is what's responsible for
[8:34] paying benefits to everyone who is
[8:36] involved in social security and and um
[8:38] and Medicare.
[8:40] that those funds will run out. They they
[8:44] have been running out of deficit since
[8:45] 2010.
[8:47] The government says they're going to run
[8:49] out by 3033.
[8:51] >> 203,
[8:52] >> sorry, 2033. Yeah, 2033. Um, I think
[8:56] that's very optimistic.
[8:58] uh if inflation is worse, if there is a
[9:01] collapse in employment because of AI,
[9:04] all these things could re could lead to
[9:06] a a a quicker um collapse in those funds
[9:09] as could simply in increasing COLA
[9:13] payments. So by law, social security
[9:16] payments have to match the government's
[9:18] version of inflation, which is CPI. And
[9:21] so my prediction is that whether social
[9:24] security runs out of money by 2031 or by
[9:28] 2030, by 2029 it will be so obvious that
[9:32] it is going to happen that that will
[9:35] lead to this climactic situation where
[9:38] the government has to decide that it's
[9:41] going to default. The government cannot
[9:44] pay those benefits. It does not have the
[9:46] resources. It's impossible. And that
[9:48] default is going to lead to I believe a
[9:51] restructuring of the entire western
[9:54] economy.
[9:55] >> Now when we go through that default or
[9:58] this great reset, uh your prediction is
[10:00] 2029 seems to be the year. Some of that
[10:02] is social security, some of that is a
[10:05] number of other um kind of metrics that
[10:07] are all lining up. What is a great reset
[10:09] or monetary default to the United States
[10:10] look like?
[10:11] >> Well, we've had them before.
[10:14] The the two that are most recent was in
[10:17] 1933.
[10:19] Uh the government went broke because of
[10:21] the great depression and most
[10:23] particularly because of the Smoot Holly
[10:24] tariffs which really destroyed the
[10:26] global financial order. Nobody was able
[10:29] to earn dollars anymore because of the
[10:30] the size of the tariffs and so all the
[10:32] banks that owed dollars defaulted and it
[10:34] set off a chain reaction that people
[10:36] have studied for a long time. And how
[10:38] the government reset the economy was
[10:41] they seized all the gold in the country.
[10:43] They stole it. They stole all the money
[10:45] they needed to pay their bills. And then
[10:47] they reordered the economy so that the
[10:50] government was sort of the central
[10:51] economic actor going forward.
[10:54] In 1971,
[10:56] the same thing happened. Uh and the the
[10:59] details are in the book. It's really
[11:01] extraordinary
[11:03] uh how fast the government went broke
[11:05] between about 1965 and 1971. And as a
[11:10] result, our foreign creditors were
[11:11] demanding payment in gold for for all of
[11:13] their uh trade receipts. And so uh
[11:17] that's when Nixon uh defaulted. He said,
[11:20] "We're not going to pay you what we
[11:21] promised we would pay you. Instead,
[11:22] we're going to print dollars and pay you
[11:23] in dollars." And that of course set off
[11:25] a huge inflation in the 1970s.
[11:28] How the mon how our monetary system will
[11:31] be reset this time, I actually don't
[11:34] know. Uh what I do know is that bankrupt
[11:37] governments do very very bad things to
[11:40] their creditors. And the number one
[11:42] creditor of the US government today is a
[11:45] retiree. And so I think it's very
[11:47] important that Americans, especially if
[11:49] they're in retirement or near
[11:51] retirement, really understand what the
[11:53] government owes them and the
[11:55] government's inability to pay. And it's
[11:57] so easy for people to say, "Porter
[11:59] Stanberry is crazy. Doesn't he know the
[12:02] government will never default because
[12:03] they can always just print the money?
[12:05] Well, those people have not studied the
[12:06] law. They don't understand how COLA
[12:09] adjustments work. The government cannot
[12:12] print the money because that will just
[12:13] lead to more inflation which will lead
[12:15] to higher payments and higher interest
[12:17] payments. That's a doom loop. That will
[12:19] not work. And that will become very
[12:21] obvious in the next several years. And
[12:23] by the time 2029 arrives, it will be an
[12:26] inescapable reality. And so then the
[12:28] question is how do we reset the world?
[12:31] We can't all live off the government.
[12:34] The government, if you look at it today,
[12:37] Anthony, the government is in direct
[12:40] control of about 60% of our entire
[12:44] economy.
[12:46] So that's uh federal, state, local
[12:50] spending plus all of the direct
[12:52] regulated uh medical expenses. That's
[12:56] way too much.
[12:58] Nobody can afford that.
[13:00] >> I saw you and Peter Schiff both agreeing
[13:02] on this idea of we have uh two political
[13:04] parties in this country. Uh the Democrat
[13:07] party and then we have Republicans but
[13:09] the Republicans uh you guys were talking
[13:11] about how they are Republicans in name
[13:12] only. We essentially have two versions
[13:14] of Democrat party which is two parties
[13:17] that believe in big government just
[13:19] different forms of socialism that they
[13:21] both are pursuing. Can you describe a
[13:23] little bit in terms of regardless of
[13:25] which political party is in office, it
[13:27] sounds like you still believe that this
[13:28] is uh kind of the end state of America
[13:30] regardless of who's in power?
[13:32] >> Sure. So just look at the size of
[13:35] government. It doesn't matter who's in
[13:36] power. The size of government always
[13:38] grows. It's it's more and more spending
[13:40] and it is a larger and larger section of
[13:42] our G our GDP. So there hasn't been
[13:45] anyone there hasn't been either party
[13:47] that has been for actually draining the
[13:49] swamp or for actually restructuring the
[13:51] government. Even Ronald Reagan who
[13:53] talked a beautiful game. The size of the
[13:56] government still grew. And the reality
[13:58] is is that the American people want more
[14:00] government and and it's not hard to
[14:02] understand why. Look at who pays for
[14:03] government. The people who pay for
[14:05] government is a very small section of
[14:06] the of the population. The people who re
[14:08] receive net benefits from the government
[14:10] is a very large segment of the
[14:11] population. Well, they're going to win
[14:12] every vote. The trouble is, of course,
[14:14] is that that doesn't scale. Um, there
[14:18] was a great comedian, uh, British guy
[14:20] who said, you know, we're all communists
[14:23] and our families, right? We we all we
[14:27] all will do whatever we can for our
[14:28] children, right? To each according to
[14:30] their needs and from each according to
[14:32] their abilities. Works great in your n
[14:34] and your family. It might even work,
[14:36] okay? You might be a socialist when it
[14:38] comes to your neighborhood. You might be
[14:40] willing to mow your neighbor's lawn for
[14:41] a week while he's sick because it it
[14:44] affects your property value, affects
[14:45] your quality of life. Most neighbors are
[14:47] happy to roll in their their their
[14:48] neighbors uh garbage cans and things
[14:50] like that. When they're sick, we take
[14:51] them food. Socialism works great in a
[14:54] community doesn't scale, right? Uh you
[14:58] take those same principles and you apply
[14:59] them across a very complex large economy
[15:02] and it always fails. And I don't think
[15:05] that many people realize how socialistic
[15:08] America has become. Um mo most of the
[15:11] most of the people in the United States
[15:14] are receiving substantial government
[15:16] benefits and they're being paid for by
[15:18] the very few.
[15:19] >> What I find interesting is uh in recent
[15:21] couple of weeks, we've seen Jamie
[15:23] Diamond, we've seen Ken Griffin, uh Jeff
[15:25] Bezos, they've all come out and said
[15:27] some commentary about taxes and
[15:29] government spending. And usually these
[15:30] guys are very well media trained. they
[15:33] don't really talk about this stuff
[15:34] because they understand it's kind of a
[15:36] hot button issue and they'll get
[15:38] backlash. But um I think that the
[15:41] general talk track has been I actually
[15:44] don't mind paying more taxes if I knew
[15:46] that it was going to help people. I
[15:47] donate a lot of money to philanthropy. I
[15:49] actually try my best to help a lot of
[15:51] folks either through my business and the
[15:52] way we employ people and pay them or in
[15:54] things I do from a social perspective.
[15:56] But actually the problem with paying
[15:58] more taxes is you're just sending more
[15:59] money to Washington. And so you see
[16:01] wealthy people talking about my dollars
[16:03] are being, you know, misappropriated in
[16:05] Washington. Even to the point where Jeff
[16:07] Bezos is talking about the bottom 50% of
[16:09] Americans who are responsible for about
[16:11] 3% of the federal budget. He's saying,
[16:12] why are we even asking them to pay
[16:14] anything at all? Just go no income tax
[16:15] whatsoever for the bottom 50%. How does
[16:18] that play into your world view? Well,
[16:20] this is a, you know, sort of a much
[16:21] broader discussion and I can get into
[16:24] the the economics of why it doesn't
[16:26] work, but I'd rather just ask people to
[16:28] look at their daily experience. Have do
[16:30] you do anything where you interface with
[16:32] a government agency of any kind that is
[16:35] a good experience? The answer is of
[16:37] course not. Right? The worst thing you
[16:39] have to do as American is go to the DMV
[16:41] every five or seven or 10 years and get
[16:43] a driver's license. It's the most It's
[16:45] the most humiliation ritual that exists
[16:48] in our in our society. Everything the
[16:50] government does sucks. Every single
[16:52] thing. Amtrak has a monopoly on East
[16:55] Coast train travel, right? It's
[16:58] ridiculous. If most Americans have never
[17:01] been on a train because what Amtrak runs
[17:03] is garbage cans and they still lose
[17:06] billions of dollars a year. There is no
[17:08] government solution that works. There is
[17:10] none. Why? So then why do we pursue
[17:12] government solutions? And the answer is
[17:14] because it's good for the people in
[17:15] power. It's good for the elites and it's
[17:17] also good for the people who don't have
[17:19] to pay for it. So a really shitty train
[17:22] is still better if you don't have to pay
[17:23] for it. So that's a huge problem. And
[17:27] you know, I think most Americans would
[17:29] be like, "Yeah, we need to have some
[17:31] kind of a some kind of a social safety
[17:35] net. We need to we need to have armed
[17:37] forces. We need to have a secure border,
[17:40] you know." But I think most Americans
[17:42] would say if you've been on welfare for
[17:45] more than 5 years, get a [ __ ] job.
[17:48] That's ridiculous. And I think also we
[17:51] should say if Amtrak can't make money,
[17:53] then let's sell it to a business that
[17:55] can. And so I I just think that we're
[17:58] approaching a point of time,
[17:59] particularly with people under the age
[18:01] of 30, where they've had enough. They
[18:03] see that this is no way to live. It's no
[18:06] way to allocate scarce resources. It's
[18:08] no way to run our economy. And I think
[18:10] you're going to see a massive massive
[18:12] shift in what most Americans believe in
[18:15] when it comes to government there. The
[18:17] boomers all saw government as the
[18:18] solution and people under 30 all see
[18:21] government as the enemy.
[18:22] >> Mhm. Now, how much of that is just
[18:24] because of the internet and the ability
[18:26] for people to communicate and kind of
[18:28] expose some of the nonsense going on.
[18:30] I'm very interested in watching like a
[18:32] Spencer Pratt in LA, right? whether he
[18:34] wins as the mayor of LA or not, he is
[18:36] definitely taking a uh approach where
[18:38] he's essentially saying, "I am not
[18:39] right, I am not left. I'm just common
[18:41] sense." And what I find maybe most
[18:44] fascinating is the group that he seems
[18:46] to be targeting the most are the LA
[18:48] moms. And the reason why I find that
[18:51] fascinating is because usually people
[18:53] would think of if you are a mother
[18:55] living in Los Angeles, you most likely
[18:57] are in the heart of a blue city and you
[18:59] are voting blue. Almost automatic.
[19:01] you're not even thinking about it. But
[19:03] what he is essentially saying is open
[19:05] your eyes. You don't feel safe going to
[19:07] the local park. You don't think that you
[19:09] can afford groceries or you know name
[19:11] the the problem. And it seems to be
[19:14] resonating with people.
[19:15] >> Can I just take a break and talk about
[19:17] public safety in America?
[19:18] >> Yes.
[19:19] >> Is there any reason at all any actual
[19:22] reason the most powerful nation on earth
[19:25] has a crime problem?
[19:27] >> It's absolutely absurd. We have the
[19:29] ability through facial recognition,
[19:31] through cameras, and through police to
[19:33] put every single violent person in
[19:35] America in jail in the next 60 days. We
[19:37] could easily do it. Why don't we Why do
[19:41] we put up with it? Why do we tolerate
[19:43] it? It's absolutely unnecessary. I've
[19:45] got the best criminal justice reform
[19:47] idea ever. It's real simple. If you get
[19:50] arrested for a violent felony, now, do
[19:53] you know how difficult it is to actually
[19:55] be convicted of a violent felony? Every
[19:57] DA in the country is going to plead this
[19:59] down to a misdemeanor. They're going to
[20:00] let you go the first time, the second
[20:02] time, the third time. Okay? By my point
[20:04] is, by the time you've actually been
[20:05] arrested for a violent felon, for a
[20:07] violent felony, you've been a you've
[20:08] been a criminal for years. So, if you
[20:10] get arrested for a violent felony, you
[20:13] go to jail and you stay there until
[20:16] you're eligible for parole, but you do
[20:18] not get out of jail. You do not get out
[20:20] on parole unless there is a nonfelon
[20:24] American citizen who is willing to vouch
[20:26] for you. You have to have someone who is
[20:29] your sponsor. And if you commit another
[20:32] felony, your sponsor has to pay for the
[20:35] damages you cause and goes back to jail
[20:37] with you.
[20:41] Problem solved. No one who is an
[20:44] actually violent person would get out of
[20:45] jail again ever. And that's where they
[20:48] belong. If you can't learn to keep your
[20:50] hands to yourself in our country, you go
[20:52] to jail and you don't get out. Period.
[20:55] If we did that, can you imagine what the
[20:57] property values would be in Baltimore?
[20:59] What the property values would be in
[21:01] Detroit? What the property values would
[21:02] be in Memphis? Why? Why have we allowed
[21:05] our greatest cities to be utterly
[21:08] destroyed by crime? Hello everyone.
[21:11] Sorry to interrupt this conversation,
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[21:52] >> Well, you talk about in this book uh
[21:53] that you wrote about the end of America,
[21:55] like the breaking of the social compact
[21:57] of America, right? And I think that um I
[21:59] could go through example after example
[22:01] of everything from graffiti to violence
[22:04] on the subway in New York City to the
[22:06] homeless and drug problem in LA. I mean,
[22:09] this stuff has been well documented, I
[22:11] think, at this point in terms of people
[22:12] talking about the problem, but when you
[22:14] get the breakdown of the social compact,
[22:16] it almost feels like people are mostly
[22:18] saying, I know that's a problem. It's
[22:21] not worth my time to try to solve it.
[22:23] And that feels almost like the the thing
[22:25] that again, it gets tied back into the
[22:26] economics of, you know, if there is a
[22:30] degradation of purchasing power, if
[22:32] there is a loss of wealth, all of a
[22:35] sudden all this stuff starts to fall
[22:36] apart. You talked about gambling,
[22:37] prostitution, etc. But at the same time,
[22:40] it almost feels like people then start
[22:41] to become somewhat insular and say,
[22:42] "Listen, I I don't have the time,
[22:45] effort, or energy to go try to solve
[22:46] community problems. I can't get ahead
[22:49] here because I'm getting paid less every
[22:51] single day because the dollar's getting
[22:52] debased."
[22:53] >> Nobody understands this. If you if you
[22:55] want to know why Americans were able to
[22:57] live very good lives on one paycheck
[23:00] between 1945 and 1970, the answer is
[23:05] really simple. We had a very sound
[23:07] currency. It was backed by gold and we
[23:09] didn't allow the government to run big
[23:11] deficits or to owe big debts. To
[23:13] >> talk real quick just u because you break
[23:15] down in the book pretty well. Um what
[23:17] does that mean? Live a good life on one
[23:19] salary. Like what what does that look
[23:20] like? You know, for those that either
[23:22] don't remember or weren't alive.
[23:23] >> Yeah, it means that you know usually the
[23:26] the father goes to work in the morning.
[23:28] He works at Sears. He works at Ford
[23:30] Motor Company. He works for the
[23:31] telephone company. and he has a salary
[23:34] or he gets paid by the hour, but his his
[23:37] wage is enough to easily buy a home,
[23:39] easily provide for his children to go to
[23:41] college. Um, you know, easily provide
[23:44] health care, all this stuff, vacations.
[23:46] I mean, you know, people would get in
[23:48] their big Buick station wagons and and
[23:50] go to Disney World, right? And they and
[23:52] the father worked and the mother
[23:53] typically worked in the home. And one
[23:56] thing people don't understand about
[23:57] this,
[23:59] who who benefits when the wife goes to
[24:01] work?
[24:03] And I'll be really clear about this,
[24:04] Anthony. I'm not saying that women
[24:06] should stay home. I'm not saying that
[24:09] everyone should do what's in their best
[24:10] interest. For a lot of women, that is
[24:13] having a career and having a job. I got
[24:15] of course I have no problem with that.
[24:16] But what I'm saying is more broadly
[24:19] speaking at looking at culture, looking
[24:21] at our economy, who wins when the woman
[24:24] goes to work? And the answer is the
[24:26] government wins. The government wins
[24:29] because it makes the woman a taxpayer.
[24:33] It makes the woman far more dependent on
[24:35] government services. If you're looking
[24:37] to to understand what has gone wrong in
[24:39] the black community with black families,
[24:41] look no further than the welfare state.
[24:43] the the the women don't need the men
[24:45] anymore because they can their their
[24:47] husband is the government. So all these
[24:49] things all this destruction of our
[24:51] culture and our economy has been very
[24:52] good for one group in our society and
[24:54] that's the government. It's been very
[24:56] bad for people and I I think that that
[24:58] is just more and more evident to people
[25:00] now especially postco when people see
[25:04] that the price of eggs go up you know
[25:06] sixfold they're like what is going on
[25:09] and um I think the other big thing is
[25:12] most Americans don't really realize how
[25:15] badly they've been lied to about social
[25:17] security and when the truth of that
[25:19] comes out in 2029 there's going to be
[25:21] very big ramifications most people
[25:24] actually believe that they have an
[25:26] account, that their money has been
[25:27] invested, that it's their money. They
[25:29] don't know it's just a tax. It was never
[25:32] anything but a tax and all the money's
[25:33] been spent.
[25:34] >> Do you think that uh it's a Ponzi scheme
[25:36] at this point?
[25:37] >> Oh, it it was from the very beginning.
[25:39] Yeah. Now, one of the things that you
[25:41] wrote that I had never thought about
[25:42] this before and it made me question some
[25:45] of the assumptions that I had before I
[25:46] read uh your book is the debasement of
[25:50] the dollar and the fact that I struggle
[25:53] to get some of our employees,
[25:55] particularly young men, to come to the
[25:58] office 5 days a week to work a number of
[26:01] hours that we think are are necessary,
[26:03] right? To do the things that we think
[26:05] are necessary. Um, I think every single
[26:08] person I know who runs a business,
[26:10] whether they are, you know, I call kind
[26:11] of the boomer mentality of like, oh, the
[26:13] next generation, they don't work hard,
[26:14] or it is young people who run businesses
[26:16] who are saying, I literally cannot get
[26:19] XYZ people inside of my organization to
[26:22] do the things I need them to do. You tie
[26:24] that back to the debate of the dollar.
[26:26] Explain this.
[26:27] >> Yeah. Well, if you look at if you look
[26:29] at what the real average wage was, and
[26:31] I'm sorry I don't have the numbers off
[26:32] the top of my head. If you look at the
[26:34] real average wage in 1971 and you divide
[26:37] that by the cost of an F-150, why why
[26:39] the F-150? Well, the F-150 is the most
[26:41] popular passenger vehicle in the United
[26:43] States and it has been for the last 50
[26:45] years. And it's it's a manufactured
[26:48] product that incorporates everything
[26:49] that goes into our economy, right?
[26:50] You've got labor, you've got capital,
[26:52] you've got technology, you've got
[26:53] marketing, you've got distribution,
[26:55] everything the it's a great measure,
[26:57] basic measure of a a simple well-known
[27:00] good in the economy. And it's something
[27:01] that most young men at some point in
[27:03] their lives are going to buy. Very, it's
[27:06] the most commonly owned passenger
[27:07] vehicle in the United States. So, how
[27:09] long in 1971 did you have to work at the
[27:12] average pay to buy an F-150? And the
[27:15] answer is is about 3 months. Okay. Now,
[27:18] it's 18 months. So, what happened? Did
[27:22] is Ford gouging everybody, right? Is
[27:24] that what's going on? No. What happened?
[27:27] our our currency was debauched and
[27:29] therefore the real value of your wages
[27:31] has been debauched and and that's why
[27:33] people are not dedicated to their jobs
[27:35] anymore. If you if you told those
[27:37] employees, I'll pay you three times as
[27:39] much if you come to work every day, what
[27:40] would they say?
[27:42] >> Yeah, they're probably short.
[27:43] >> Exactly. And that's what's happened. So
[27:45] the real value your wages have fallen by
[27:47] about 75% over the last 50 years. And as
[27:50] a result, people are simply making wise
[27:52] economic choices. One of the things we
[27:53] discovered
[27:54] >> that that part right there I think is
[27:56] the part that that made me question some
[27:58] of the assumptions I had and frankly it
[27:59] may change the way that I manage some of
[28:01] our companies, right? Is you you make
[28:03] the argument that actually the
[28:04] individual let's just take aomic actor.
[28:08] >> Yeah. Let's take a 25-year-old male who
[28:09] says, you know what, uh I know that my
[28:11] grandfather or my father, he used to go
[28:13] to work 5 days a week. He'd leave the,
[28:15] you know, house at 7:00 a.m. He'd come
[28:16] home at 7:00 p.m. Uh, and he got paid
[28:19] what he got paid and he built the life
[28:20] that I was able to enjoy growing up.
[28:23] Now, I'm not going to the office 5 days
[28:25] a week. I'm going three days a week. I'm
[28:26] going Tuesday, Wednesday, Thursday. And
[28:28] on Monday and Friday, you're lucky if I
[28:29] get a little bit of work out of me. Um,
[28:31] but you still got to pay me. And
[28:32] actually, you need to pay me more.
[28:34] You're claiming that he's a rational
[28:35] economic actor.
[28:36] >> He is. You're pretending to pay him and
[28:38] he's pretending to work. That's exactly
[28:39] what's going on. And the thing we found
[28:41] we we I had a large uh group of
[28:43] employees at marketwise and what we
[28:44] found is when we went to the the co
[28:46] policy of no one had to come to the
[28:48] office. How many people got second jobs?
[28:50] >> Probably a lot.
[28:51] >> Yeah. Yep. They were mailing it in and
[28:55] then they were you know they were they
[28:56] were building a second income stream. I
[28:59] don't blame them. They had to survive.
[29:00] >> Mhm. And now how much of that So some
[29:02] people will hear that and say, "Well,
[29:03] why don't business owners just pay them
[29:05] more money?"
[29:05] >> Yeah. because we can't because the
[29:08] entire productivity economy is falling
[29:09] apart. We're we are paying as as as much
[29:12] as we possibly can because we have to
[29:14] earn a return on our capital too.
[29:16] >> And so the breakdown basically comes
[29:18] from okay these people are feeling like
[29:21] uh as a rational economic actor um if I
[29:23] go to work I am being paid less. Now,
[29:25] you know what's interesting is uh my
[29:27] father-in-law uh grew up in Bulgaria and
[29:30] he lived through two hyperinflation
[29:31] events and one of the first stories he
[29:33] told me as he um you know as him and I
[29:35] were getting to know each other years
[29:36] ago is that during one of the
[29:38] hyperinflationary events he was sitting
[29:40] there one day and he started to do the
[29:41] math and he realized he was being paid
[29:43] essentially the equivalent of about 30
[29:45] cents in US dollars.
[29:46] >> I go to work
[29:47] >> so he stopped going to work.
[29:48] >> Yeah.
[29:48] >> But you know what the reaction was from
[29:50] all of his colleagues and co-workers?
[29:52] >> You're not loyal. you're
[29:55] what do you mean you're going to stop
[29:56] working? Like they they looked down on
[29:58] him for not coming to work, right? And
[30:01] his point was he was being a rational
[30:02] economic actor and saying, "I'm coming
[30:03] to work, but I'm not getting paid."
[30:05] Theirs was more of a social like you're
[30:07] supposed to go to work.
[30:08] >> And so he told me that story. I'd kind
[30:11] of memory hold it, frankly. Right. And
[30:12] then when I was reading what you were
[30:14] writing, I Oh my god, it's the same
[30:15] thing.
[30:15] >> Of course it is, Anthony. I've been
[30:17] telling people for 20 years, if you use
[30:19] their money, you will be their slave.
[30:20] It's that simple. They're not using
[30:22] money. They're using currency and they
[30:24] print it. It's not hard to get your head
[30:26] around that. It's just not. And and so
[30:29] what are they going to do with that
[30:30] power? They're going to abuse it until
[30:32] they collapse the system. And the system
[30:34] is very very close to collapse. It's
[30:35] much closer than people realize. And
[30:37] people don't realize it because they
[30:39] think, "Oh, you know, I got a raise last
[30:41] year. Oh, the stock market went up."
[30:43] Yes, all those things are denominated in
[30:45] dollars. I mean, look, I' I've been
[30:47] talking for a long time. If you go back
[30:48] to 1971, you denominate the stock market
[30:50] in gold. it's basically flat to down. If
[30:53] you go to 2,000 to now, it's definitely
[30:55] down, right? Um, and I think that using
[30:57] gold just 5,000 years, you know, plus of
[31:00] uh human history there, um, it is
[31:02] definitely true that these assets are
[31:04] not doing as well if they are not priced
[31:06] in dollars. At the same time, if you
[31:07] look, you know, one of the things I I
[31:09] love to uh argue with what I'll call
[31:11] traditionalists from the finance system
[31:12] is they'll say, well, stock market
[31:14] delivers, you know, 8% returns. I say,
[31:16] well, how much of that is inflation? and
[31:17] and they'll sit there and they'll tell
[31:19] you, you know, inflation's been 2% or
[31:21] whatever. I say, okay, well, in the last
[31:23] couple of years, what has the return
[31:24] been? It's been much more than 8%. Well,
[31:27] has inflation ticked up? Of course.
[31:29] Right. Oh, yes.
[31:30] >> And so, from that standpoint, you know,
[31:32] there's a very good question as to if
[31:34] you are an equity investor, you actually
[31:37] are not benefiting whatsoever from
[31:39] productive assets.
[31:40] >> Well, okay. So, no surprise, the same
[31:43] people who do all the counterfeiting are
[31:45] the same people who measure inflation.
[31:47] So what do you think they're going to
[31:48] say about it?
[31:49] >> So what do you think inflation really is
[31:51] in your and your experience in your
[31:53] lived experience? How much on average
[31:54] has inflation gone up the last 5 years?
[31:57] >> Yeah, I think um take out the last 12
[32:00] months with all of the AI robotics and
[32:02] deflation. We we talk about all that,
[32:03] but I would say that inflation is
[32:05] probably somewhere in the like 5 to 7%
[32:07] range on an annual basis. So there's an
[32:09] economist um who actually twice a year
[32:12] goes out and measures 150 items and
[32:15] their standard items like airfare from
[32:18] on Delta from New York to LA um a pound
[32:22] of of ground beef dozen eggs goes out
[32:24] and measures the actual prices twice a
[32:27] year of 150 items and inflation for the
[32:30] last decade on average in American
[32:34] cities has been 11%. Wow. Yeah. 11% for
[32:39] the last decade.
[32:40] >> Yeah.
[32:41] >> And obviously if the government is
[32:43] saying it's 2% but it's really 11 you
[32:45] get this massive you know bifurcation.
[32:48] Now what I find uh maybe most
[32:50] interesting is uh you've made the point
[32:52] that um what people are being told may
[32:55] be different than what they feel. And
[32:57] the reason why that's fascinating to me
[32:59] is because uh Scott Bessant when he
[33:01] became the Treasury Secretary he sat
[33:02] down with uh Chimath Palipatia and David
[33:04] Freriededberg and they did an interview
[33:06] and he has a pretty big interview for
[33:08] these guys with the treasury secretary
[33:10] and at one point Chimath asks Scott he
[33:12] says do you believe the economic data
[33:15] and Bessant says without thinking no and
[33:19] then very quickly starts to massage the
[33:21] answer and professionalize it.
[33:24] Now, in his
[33:26] >> he's way too smart to believe any of
[33:27] that.
[33:28] >> Well, in his massaging of the answer and
[33:30] in kind of, you know, uh uh maybe gift
[33:32] wrapping of it, he basically makes the
[33:34] argument that look, when the data was
[33:36] telling me one thing, but I would go and
[33:37] I would talk to people, they would tell
[33:39] me something else. And we have to listen
[33:41] to what people are saying sometimes more
[33:44] than when we look at the data.
[33:45] >> If you're in the financial markets, you
[33:47] do. But if you're if you're if you're in
[33:48] the government, you don't have to.
[33:50] >> Well, Jerome Powell is uh now infamous.
[33:52] I mean we we for months talked about
[33:54] back in I think it was in 2020 or 2021
[33:57] uh he was asked you know do you think
[33:58] that uh inflation is hurting the
[34:01] affordability or you know whatever the
[34:02] question was and he literally his
[34:04] response was no one has come to my
[34:05] office and told me that
[34:06] >> no gez
[34:09] >> right you know first of all and we would
[34:11] pull up a picture of his office and say
[34:12] you know this is where his office is
[34:13] good luck finding it right
[34:15] >> so let me let me uh let me make another
[34:17] point for people about this if you know
[34:19] that the real underlying rate of
[34:21] inflation in US ities is between 8 and
[34:23] 12% a year and you know that you can
[34:25] borrow large amounts of money for 5%.
[34:29] What's the rational economic actor do?
[34:32] >> What do you think?
[34:33] >> The answer is you borrow as much money
[34:34] as you can and you buy the assets that
[34:36] are inflating.
[34:38] >> And that has enabled a lot of people to
[34:40] get very very very wealthy. But the
[34:42] average American doesn't have any idea
[34:44] how to do that. And I've been doing it
[34:46] and I have made a fortune. But I
[34:48] actually think it's deeply unfair and I
[34:50] don't want that kind of economic system.
[34:52] I don't want a world where the
[34:53] speculator wins and the hardworking
[34:56] middle-class American gets destroyed.
[34:58] There's no future in that society for me
[35:00] or for anyone else. And there's a whole
[35:03] lot of people that have made a whole lot
[35:04] of money and now live in Switzerland or
[35:06] live in Singapore and they they didn't
[35:08] leave America because they hate America.
[35:10] They left America because they hate what
[35:11] America's becoming. We're we're losing
[35:14] 7,000 citizens a year now. And these are
[35:17] not poor people who are leaving. These
[35:18] are the very wealthiest Americans who
[35:20] are leaving. We are approaching a
[35:21] crisis. And unfortunately, by the time
[35:24] it comes, all the media will say, "No
[35:26] one could have ever seen this coming."
[35:28] When in fact, you know, everyone I know
[35:31] in finance understood the housing bubble
[35:33] in 2005 and 2006. Everyone I knew it was
[35:36] obvious. Media says that no one could
[35:39] have seen it coming, right? Um, and we
[35:42] are approaching a crisis that is the
[35:43] most obvious crisis we've had in America
[35:45] since 1971 and everyone should see it
[35:48] coming and no one does.
[35:50] >> Before we talk about how to invest
[35:52] through this crisis, let's talk about is
[35:54] there an offramp? Is there some way to
[35:56] put the genie back in the bottle or to
[35:57] stop the crisis from actually occurring?
[35:59] >> Of course, but have you ever seen a
[36:00] politician do that?
[36:01] >> Well, what do you think they would have
[36:03] to do?
[36:03] >> They all they always do the very worst
[36:05] thing. You can always you can count on
[36:07] it. So, I mean, think about it. when
[36:09] when inflation uh tod up in uh in 2020,
[36:12] what did Joe Biden do? He passed the
[36:14] what was it called? The name of that the
[36:16] coffees name of that bill. George Orwell
[36:18] named the bill for us. It was the
[36:20] anti-inflation bill or something like
[36:21] that, wasn't it?
[36:22] >> And what did it do?
[36:24] >> It created more inflation. So, no, I
[36:26] have no unfortunately this is the
[36:28] easiest bet that you can ever make. If
[36:30] you just bet the government will do the
[36:32] wrong thing, you're going to win every
[36:33] single time. So what we what we need to
[36:36] do is stuff that is politically
[36:38] absolutely unacceptable. We need to cut
[36:41] government spending in half. We need to
[36:43] lower taxes. We need to get regulation
[36:45] out of the way of the schools and the
[36:47] police forces so that people can make
[36:49] their cities livable again and so that
[36:51] public education can work again. Those
[36:54] are all things that are absolute mustd
[36:55] dos and they're not going to happen
[36:57] unfortunately. Now, when you say cut
[36:58] government spending, obviously President
[37:00] Trump ran as this is one of the key
[37:02] components of his uh campaign. Uh Elon
[37:04] Musk, who is probably the best in the
[37:07] world. I think people would or at least
[37:08] one of the best at cutting costs.
[37:10] >> Remember, they're going to cut a
[37:11] trillion dollars in spending
[37:12] >> it. Well, and here's the part. I I was
[37:14] somebody who was very bullish and
[37:16] optimistic on their ability to do it
[37:17] mainly because they were going to take
[37:18] Elon. He was going to go in and do the
[37:21] things that no one else was going to do,
[37:23] right? That that was kind of the the
[37:24] pitch. That was the promise of it. Um,
[37:26] and we saw that in the beginning. I
[37:28] mean, they were literally inside of
[37:29] buildings and the politicians were at
[37:30] the door like banging on the doors,
[37:32] right?
[37:32] >> As I recall, he got a black eye and got
[37:34] kicked out and no spending got cut.
[37:36] >> So, describe a little as to is that
[37:39] because there is no ability to do this
[37:42] like do you think it was the Trump
[37:43] administration saying, "Hey, we actually
[37:45] don't want to cut the spending." Or do
[37:46] you think there's some big blog?
[37:47] >> K bono. K bono. Who who wins with the
[37:50] spending? All the people have all the
[37:51] power. Who loses with the spending? The
[37:53] regular American. So, what's going to
[37:55] keep happening? They're going to they're
[37:57] going to do what they always do. They're
[37:58] going to keep spending until they can't
[38:00] spend anymore. And then they're going to
[38:01] find a way to blame it on speculators
[38:04] like Nixon did in 1971. He said that he
[38:07] said that the break with gold was
[38:09] temporary. He said it three times. And
[38:12] he said that it was because of
[38:13] speculators.
[38:15] Towden County. I think this is uh
[38:18] something people really don't
[38:19] understand. Lowden County, uh, might as
[38:21] well just call it DC, right? Uh it is
[38:23] the wealthiest county in America. Uh
[38:26] describe how does that happen?
[38:28] >> Well, you know how it happens. All these
[38:30] all these people have all these side
[38:32] deals. They have all this money that
[38:33] gets gets sent to them. Um government
[38:36] procurement process is is you know
[38:38] absurd. Um yeah. And by the way, should
[38:41] it be that way? You know, in 1930, which
[38:45] is the year that Warren Buffett was
[38:46] born, the federal government total spend
[38:50] was 3% of GDP.
[38:54] Now federal government's toll spend is
[38:55] 35% of GDP. It's not making our lives
[38:59] better. It's making all the people who
[39:01] live around the beltway lives better. Um
[39:04] it's it's it's not the way we should
[39:06] organize our society or our economy. And
[39:09] unfortunately it it because there is no
[39:12] market mechanism, there is no
[39:14] self-correcting mechanism. It's it's
[39:16] it's going to cause a a really big
[39:18] crisis and it's going to arrive right on
[39:20] schedule. Yeah. Well, the Canellian
[39:22] effect of just like whoever's closest to
[39:24] the spot, they get paid. The
[39:25] >> Canellian effect. Yeah. What we're
[39:27] essentially seeing is those people in
[39:29] Lowden County, they are the ones who run
[39:31] the NOS's. They're the ones who run the
[39:32] defense contractors. They're the ones
[39:33] who are doing all the uh kind of
[39:35] receiving the money from the procurement
[39:36] process of the government. And so, if
[39:39] somebody says, "Hey, I've got 10
[39:41] million$10 billion that I now have for a
[39:44] program." Where's that money go? It goes
[39:46] to the people they know, they like, they
[39:48] see around town, etc. And that money
[39:51] somehow never actually makes its way to
[39:53] the end impact zone. It gets siphoned
[39:56] off along the way.
[39:56] >> We get the money last. Think about this.
[39:58] The the fiscal deficit this year will be
[40:02] 6% to 7% of GDP.
[40:06] We have full employment and we're
[40:08] relatively at peace. This is
[40:10] unprecedented in American history. And
[40:13] where does all that money go? It goes to
[40:15] government contractors. They get the
[40:17] money first. They are able to buy assets
[40:20] and property and investments before the
[40:22] inflation hits. They've got it over on
[40:25] all of us and they're not going to give
[40:26] up that power. And if you look look at
[40:29] what happens to anyone who tries to
[40:31] actually control government spend. What
[40:33] just happened to congressman uh from
[40:36] Kentucky last week,
[40:36] >> Thomas Massie?
[40:37] >> Yeah. he got primared by his own party
[40:41] because he had the audacity to question
[40:43] whether or not the, you know, Trump
[40:46] spending programs were really in the
[40:47] best interest of the country.
[40:49] >> Mhm. One of the things that I do think
[40:51] will uh change sentiment, um I hope this
[40:54] does not happen this way, but but I I
[40:56] could foresee. So there's now
[40:58] essentially two different groups of uh
[41:00] recipients from government spending.
[41:01] There is the old guard which are all the
[41:04] traditional uh primes on the defense
[41:06] side, many of the NOS's etc. There is a
[41:09] small but fast growing segment of
[41:11] Silicon Valley that has realized well
[41:14] hold on a second here. If the
[41:15] government's going to give out money,
[41:17] >> I want it one I want it. But also two is
[41:20] imagine if we can be more efficient with
[41:22] it and actually produce positive things.
[41:24] Now let's put aside for a second whether
[41:26] they're going to be successful in
[41:27] actually delivering the thing that
[41:28] they're saying. But I do think that the
[41:30] same way, you know, the average American
[41:32] hated Wall Street over the last, I don't
[41:34] know, 40 years or so at different
[41:36] points, there is quite a bit of backlash
[41:38] now pointed towards Silicon Valley and
[41:40] big technology, etc. And so if big
[41:42] technology starts to become the
[41:44] recipient of government funds, you could
[41:46] see easily people starting to yell and
[41:48] scream about, you know, this program. I
[41:50] I mean I think I think that in many ways
[41:54] what for example SpaceX has done has
[41:57] been great because it has shown the
[41:58] absolute failure that is NASA. No
[42:01] surprise. You know government can't
[42:03] handle the mail. Let's not put them in
[42:05] charge of space. So the idea that you're
[42:08] going to go from a cost plus contract to
[42:10] a competitive bid contract for for the
[42:12] government primes is a wonderful thing
[42:15] that would make our military much better
[42:17] and much more efficient. That'd be
[42:18] great. The b the problem with that
[42:20] though is now that it gets much much
[42:23] more efficient, what will the government
[42:24] do? It won't spend less. It will spend
[42:26] more. Oh, this is wonderful. We have now
[42:29] we we can now our dollars will go
[42:32] further. So, we should invest more in
[42:34] these in these kinds of programs. So
[42:37] yeah, I'm um unfortunately, you know, uh
[42:41] government spending does not ever stop
[42:44] and it won't stop until they have
[42:46] wrecked the economy. And the reality is
[42:49] you can plot that out on a chart. It's
[42:51] not hard to see.
[42:52] >> Mhm. Now, we're going to talk in a
[42:54] minute about how uh somebody watching or
[42:57] listening to this should navigate or
[42:59] could navigate this crisis ahead from
[43:01] their investment portfolio. But before
[43:03] we do that, I want to talk about Warren
[43:04] Buffett. Warren Buffett is widely
[43:05] believed to be the best investor of our
[43:07] lifetime. Um he has built Birksher into
[43:10] this massive trillion dollar company. Um
[43:12] I think most people look at him as you
[43:14] know he's smart, he's hardworking, he's
[43:16] been very successful. Um but you
[43:18] recently wrote a book that highlights
[43:20] maybe Warren Buffett has significantly
[43:23] struggled to navigate the last 20 years
[43:25] or so of this entire thing. Everything
[43:28] we're talking about from the debasement
[43:29] of the dollar, the breakdown of society,
[43:31] the social compact etc.
[43:33] Your argument is that Buffett is
[43:35] actually not winning in this
[43:36] environment. Can you just break that
[43:38] down?
[43:38] >> Well, I mean, it's just a it's just a
[43:39] fact. Um, Bergkshire used to outperform
[43:41] the S&P 500 by 11 points a year, not
[43:45] basis points, percentage points, you
[43:48] know, that's incredible. And it was a
[43:51] great thing for investors because you
[43:52] didn't have to know anything about
[43:53] stocks. You could just buy Birkshire and
[43:55] you're going to beat the market every
[43:56] year and you don't have to pay for the
[43:57] manager. It was what a what a deal.
[44:00] Unfortunately, starting in around 2000,
[44:03] Buffett converted what was an insurance
[44:05] company with an equity portfolio into a
[44:08] conglomerate. And in the process, his
[44:10] capital allocation became woefully less
[44:13] efficient. But also, it's also true he
[44:16] turned 70 years old in 2000. So, I'm not
[44:19] saying that the 80-year-old Buffett is
[44:21] isn't a brilliant person, certainly
[44:23] smarter than me, but 80-year-old Buffett
[44:25] cannot hold a candle to 40-year-old
[44:27] Buffett. And I think that was a really
[44:29] big problem at Birkshshire. There was
[44:30] there was no institutional control at
[44:32] the board whatsoever. And as a result,
[44:34] Buffett made a lot of terrible
[44:35] decisions. And I actually wrote a whole
[44:37] book about it called Warren's Mistakes
[44:39] where I show you what would have
[44:40] happened if instead of say buying Dairy
[44:42] Queen and taking it private, he instead
[44:45] just left the 1.6 billion he had
[44:47] invested in McDonald's there. And the
[44:49] delta on that one transaction is $4
[44:52] billion over the last 25 years. And then
[44:55] the biggest mistake he made clearly was
[44:56] buying the railroad and the worst thing
[44:58] he did was he bought it with Birkshire
[45:00] stock. I mean this is a disaster. You
[45:03] take the highest quality equity that
[45:05] exists in the world and you exchange it
[45:07] for the equity of a railroad that maybe
[45:10] maybe makes 1% a year on its asset
[45:13] value. Disaster. Disaster. So anyways,
[45:16] >> what would his argument be? So if you
[45:18] sat down and said, you know, Mr.
[45:19] Buffett, I think you're very smart, but
[45:21] you made this mistake. Uh this was I've
[45:24] got a video. You can go see what he
[45:25] would say because one of my partners,
[45:27] Arz Khalier, his daughter drew the
[45:29] lottery ticket to ask a question at the
[45:31] 2018 Berkshire meeting.
[45:34] >> Her name is Daphne Kier. And if you go
[45:36] on YouTube and you Google Bergkshire
[45:38] 2018 Daphne Kle, you can see her ask
[45:40] this question. She gets up and she says
[45:43] Bergkshire Hathaway made his reputation
[45:45] and and served investors well for 50
[45:47] years by buying America's very highest
[45:50] quality publicly traded companies. But
[45:52] lately, over the last 20 years or so,
[45:54] you've been buying whole companies that
[45:57] are of much lower quality. Why are you
[45:59] doing that? And what they Munger and
[46:02] Buffett said is, well, second best is
[46:04] still pretty good.
[46:06] >> That was what that was their answer.
[46:07] >> That was their answer. And what he said
[46:09] literally is we can't we can't buy
[46:12] enough good companies at a good price.
[46:14] So, we have to go to this to this lower
[46:16] quality business.
[46:17] >> Do you agree with that?
[46:18] >> Of course not. It's ridiculous. Who did
[46:21] Buffett buy out of the GFC? Everything
[46:23] in the world was on sale. You could buy
[46:24] Amazon for $40. They knew what Google
[46:27] was. That you could buy Google for
[46:29] nothing out of the GFC. What did they
[46:30] buy? They bought IBM and Bank of
[46:32] America. Makes no sense. They bought a
[46:35] railroad. Makes no sense. They just made
[46:38] very bad choices. And luckily, they made
[46:41] one really good choice, which is in 2016
[46:43] they bought Apple. That's what the kind
[46:45] of thing that Bergkshire should buy.
[46:47] Berkshire should be the world's best
[46:48] insurance company partnered with the
[46:51] very or invested in the very best
[46:53] companies in the world. And you see this
[46:56] starting to happen. They've they've
[46:58] established a big position in Google.
[47:00] But they've also really lost the plot
[47:02] when it comes to their strategy. What is
[47:04] Google's sorry what is Bergkshire
[47:06] strategy? It's use our investment, use
[47:08] our insurance float to buy the very best
[47:10] companies in the world and hold them. So
[47:13] do you ever see them selling American
[47:15] Express? No. Do they sell Coca-Cola? No.
[47:18] So, why did they sell Apple? Two years
[47:20] ago, they started selling Apple at about
[47:23] $150 a share. Today, it's almost $300 a
[47:26] share. Why? There was no sign that its
[47:28] moat was declining. There was no sign
[47:30] that it was investing too heavily in AI.
[47:32] Apple has been a fantastic business.
[47:35] There is no reason to sell it too big.
[47:37] >> That's what they would tell you. But
[47:39] that's that but but Coca-Cola at one
[47:41] point was almost half of Birkshire. Who
[47:44] cares? It's a great business. It's a
[47:45] good thing, not a bad thing. So,
[47:47] anyways, I'm very hopeful and I wrote
[47:49] this book not because I hate Buffett. I
[47:50] love him. He's an inspiration to me. I
[47:53] wrote this book because I want to see
[47:55] Bergkshire restructured. Bergkshire
[47:57] needs to spin off the um power company.
[47:59] It needs to spin off the railroad and it
[48:01] needs to spin off its wild sort of mly
[48:04] collection of very average businesses
[48:06] like Borchimes, the jewelry company, and
[48:09] Mrs. Be's furniture mart. These things
[48:11] are not great businesses. You want to
[48:13] talk about Delta
[48:15] Buffett's so famous in 1985 for buying
[48:18] um Mrs. Be's Nebraska furniture mart for
[48:20] $80 million something like that. Imagine
[48:23] if you put $80 million in into into Home
[48:25] Depot.
[48:28] Home Depot is compounded at 23% a year.
[48:31] The delta would be hundreds of billions
[48:33] of dollars. That's what I want to see
[48:34] Bergkshire do again. Spin off most of
[48:37] the wholly owned businesses. Focus on
[48:40] insurance. It should buy all of Chub.
[48:42] It's been adding to Chub. should buy all
[48:44] of Chub, grow the float, and then buy
[48:47] the very best publicly traded companies
[48:49] in the world. That's it. And the number
[48:51] one thing you you you gain as an
[48:53] investor when you invest in a publicly
[48:54] traded company instead of building a a
[48:56] conglomerate or taking a company private
[48:58] is you don't have to manage it. And
[49:00] that's a really important thing. Buffett
[49:03] can do capital allocation for an
[49:04] insurance company. He can't possibly
[49:06] manage 78 businesses. And you saw a
[49:09] management failure throughout Bergkshire
[49:11] over the last 20 years. Mhm.
[49:12] >> And you think that's specifically
[49:14] because Bergkshire owned them?
[49:16] >> I know it's specifically because
[49:17] Bergkshire owned it. So which is the
[49:20] very worst railroad in the United
[49:22] States? Birkers. Which is the very worst
[49:25] auto insurance company in the United
[49:26] States? Birkers. Which is the very worst
[49:30] utility United States? Birkers. What do
[49:32] these things all have in common? It's
[49:34] not industry, it's ownership. They're
[49:37] very, very poorly managed and they have
[49:39] been for decades. And that's because
[49:42] Warren is obviously not a manager.
[49:46] Now, when you think through this, how
[49:48] much of their struggles are um bad
[49:52] decision-m, you know, m misjudgment,
[49:54] whatever you want to call it, versus no,
[49:56] there's just a debasement of the dollar
[49:58] and they have not kind of
[49:59] >> I don't think it has anything to do with
[50:00] the debasement of the dollar. This is a
[50:02] very simple to understand structural
[50:05] mismatch and an insurance company a
[50:07] property and cash to the insurance
[50:09] company has to be equity funded. The
[50:11] regulators demand it and so does the
[50:13] business model. You need a huge equity
[50:15] cushion so that when there is a cat when
[50:18] there is a catastrophe when there is a a
[50:20] bad underwriting year you can survive.
[50:22] So you have to fund an insurance company
[50:25] with equity. For things like a utility
[50:28] or a railroad or a retailer, you want to
[50:30] fund all those businesses with debt
[50:32] capital, not equity capital, because the
[50:34] debt capital is much cheaper and the
[50:36] pricing in those businesses is really
[50:38] very very important. And so you cannot
[50:42] since they've owned um BNSF, the
[50:45] railroad, they have had to invest $22
[50:48] billion above depreciation in that
[50:51] railroad. You cannot do that with equity
[50:53] capital. You're never going to make any
[50:55] money. Why do you think they won't sell
[50:56] it?
[50:58] >> I think they won't sell it because of
[50:59] Buffett. And that sounds obvious, but
[51:01] let me explain. Buffett is a collector.
[51:04] He has been collecting things since he
[51:06] was four years old, starting with bottle
[51:08] tops, golf balls, and he also, of
[51:11] course, collects people. And so, he's a
[51:14] collector, and no one no one is going to
[51:16] break his collection before he dies. So,
[51:19] I don't think that Birkshire will be
[51:20] restructured until he dies. But let me
[51:21] just finish one last thing about the the
[51:23] structure of Birkshire. The insurance
[51:25] company is the best in the world, okay?
[51:27] But it needs to be funded with equity.
[51:29] All those operating businesses need to
[51:30] be funded with debt. That is a that is a
[51:33] mismatch to have in the same parent
[51:35] company. Just a terrible idea. And
[51:38] eventually it will have to be
[51:40] restructured because of that basic fact.
[51:42] Okay. Now, let's talk about the average
[51:46] person who is saying, "Okay, I
[51:48] understand the debasement of the dollar.
[51:50] I understand 2029 is this kind of magic
[51:53] year of all these things coming
[51:54] together. I understand that there's been
[51:56] a ripping apart of American society, the
[51:59] social compact, etc. Um, I am, let's
[52:03] just say, a a middle-aged person who is,
[52:07] I don't, let's actually say, between the
[52:08] ages of 35 and 50. So, I've got, you
[52:11] know, a couple decades in front of me.
[52:12] Uh maybe I've got a young family and I
[52:15] need to take whatever capital I have and
[52:17] whatever capital I'm going to earn in
[52:18] the coming years and I got to navigate
[52:20] this
[52:21] >> and I got a lot of people telling me a
[52:24] lot of different things. I got some
[52:25] people who are telling me you need to
[52:26] have a lot of cash and you should be
[52:27] saving. I got other people who are
[52:29] telling me just buy the S&P 500 and
[52:30] relax. I've got other people telling me
[52:32] about Bitcoin or AI or space or whatever
[52:35] cool industry.
[52:36] you point to uh this idea of a permanent
[52:39] portfolio and in the permanent portfolio
[52:42] there are uh the general idea if I
[52:44] understand it correctly is there are
[52:45] four different allocations in the
[52:47] traditional permanent portfolio and you
[52:49] put 25% of your money in each one of
[52:51] them and those are stocks longdated
[52:52] treasuries gold and cash and that those
[52:55] four buckets have done very well if
[52:57] you've done been 25% in each one of them
[53:00] over time through cycles etc. talk a
[53:03] little bit maybe about the traditional
[53:04] permanent portfolio and then we'll talk
[53:06] about how you've upgraded this or or
[53:08] kind of innovated on it.
[53:09] >> So my mentor taught me this back uh in
[53:12] the mid1 1990s. Harry Brown was a
[53:15] libertarian philosopher and he was also
[53:17] twice a presidential candidate for the
[53:18] Libertarian Party. And it it just
[53:21] occurred to him being an economist for
[53:23] 40 years that the economy would go
[53:26] through seasons and and and when there
[53:29] when there's a growth period you want to
[53:30] own stocks. Um, but there's a there's a
[53:34] downside to growth in a paper economy,
[53:35] which is inflation. So, you want to have
[53:37] gold be a big component of your
[53:39] portfolio so that you can convert those
[53:42] that growth into real money. And then,
[53:44] of course, there's always um winter.
[53:46] Winter is coming. Sooner or later,
[53:48] there'll be a recession. Sooner or
[53:50] later, the economy will slow for a
[53:51] period of time. And in those seasons,
[53:53] you really want to have exposure to long
[53:55] duration fixed income bonds. And then,
[53:58] of course, you need optionality. You
[53:59] need to have a buffer to all the
[54:01] volatility, which is why you have cash
[54:02] in the portfolio. So, if every year you
[54:05] put 25% of your money into stocks, 25%
[54:07] of your money into bonds, 25% of your
[54:09] money into gold, and 25% of your money
[54:11] into cash, you'll you'll weather any
[54:13] season with a plum. And if you do that,
[54:16] you find that you make um about 7% a
[54:19] year, which is an equity like return.
[54:23] It's not the full 8% that you would
[54:24] supposedly get in equities. Um but you
[54:27] have much less volatility. In fact,
[54:29] volatility is less than half of the
[54:30] market. So if you think about this, if
[54:33] you were just to leverage that a little
[54:34] bit, you could get better than market
[54:36] returns at the same amount of
[54:37] volatility. And that's the real
[54:40] interesting application of a permanent
[54:41] portfolio for people. And that is
[54:43] exactly how Ray Dallio built the largest
[54:46] hedge fund in the world. He took Harry's
[54:48] Harry's idea, he tweaked it a little
[54:50] bit. He actually made it more focused on
[54:53] fixed income and it's done very very
[54:55] well for people. That's the all-weather
[54:56] fund at at Bridgewwater.
[54:59] What I did was I took I took a look at
[55:00] this and I thought, well, unfortunately
[55:02] Harry uh passed away in ' 06, so he
[55:05] never saw Bitcoin. And I also don't
[55:08] think he really could even really
[55:11] imagine how dire the US Treasury's
[55:14] financial position would become. So I
[55:16] personally do not believe that longdated
[55:18] fixed income is investable right now.
[55:20] It's just the how are you going to make
[55:23] money in long dated fixed income when
[55:25] you know even even riskier bonds are
[55:28] only yielding 10% and inflation as I
[55:31] count it is running 12. It's just a
[55:33] really bad outcome. So I don't think um
[55:36] the long long data fix is vestible right
[55:39] now. And of course um gold has been a
[55:42] wonderful hedge to all of this financial
[55:45] mayhem.
[55:47] And then there's cash. So what I said
[55:49] is, you know, let's let's bring this
[55:50] into the modern world. Um, instead of
[55:52] owning bonds, let's own property and
[55:54] casualty insurance companies because
[55:56] there you have an underwriting unit
[55:57] which is going to hopefully make you
[55:59] some money, but you also have the
[56:00] ability to actively manage the yield
[56:02] curve. And a great example of that is WR
[56:04] Berkeley. In 2020, when the Fed took
[56:08] rates all the way under 1%.
[56:11] WR Berkeley moved their entire bond
[56:13] portfolio from an average duration of
[56:14] about 5 years all the way down to an
[56:16] average duration of 90 days. They said,
[56:19] "If you're not going to pay us to take
[56:21] the inflation risk, we're not going to
[56:22] own that paper." And if you look at how
[56:25] WR Berkeley stock performed in 2020 and
[56:27] 2021, and 2022 as all that materialized,
[56:30] they're by far the best performing
[56:31] property and casualty insurance company.
[56:33] They did great for investors because
[56:34] they managed the risk in the bond
[56:36] market. So, so your argument is instead
[56:38] of just direct bond exposure, if you
[56:41] supplement that or or replace that with
[56:43] these property and cash insurance,
[56:44] you're still getting underlying bond
[56:46] exposure. You're getting the active
[56:48] management of bond exposure. You're also
[56:51] getting the premium the premium kind of
[56:52] cash flow component.
[56:53] >> So, if you own WR Berkeley, it's a it's
[56:55] a $30 billion market cap company. Their
[56:58] bond portfolio is $35 billion. What do
[57:00] you own? You own a pile of bonds. If you
[57:02] buy Chub, what do you own? You own a
[57:03] pile of bonds. If you own Travelers,
[57:04] what do you own? You own a pile of
[57:05] bonds. you own a pile of bonds with a
[57:07] with a um uh an underwriting uh group on
[57:10] top and hopefully makes a little bit of
[57:12] money on underwriting and then owns a
[57:14] big bond portfolio. So, you're owning
[57:15] bonds anyways, but you're owning them in
[57:17] a way that's actively managed with
[57:19] underwriting profits in addition. Okay?
[57:22] Now, I also don't think you should just
[57:23] buy stocks today because when when Harry
[57:27] in the 1970s was was building out this
[57:30] model, the S&P 500 was broadly
[57:32] diversified. Today, there's like what,
[57:34] four companies that make up 40% of the
[57:36] index. If you buy the S&P 500, you're
[57:39] really buying a pretty intense tech
[57:41] portfolio. And that might be great this
[57:44] year, but it's sooner or later there's
[57:46] going to be a correction, and that might
[57:47] give you a lot more volatility than you
[57:49] were expecting. So instead I I came up
[57:51] with a different strategy for investing
[57:53] in stocks which is that rather than
[57:55] focus on the biggest companies or the or
[57:58] the tech companies instead what I want
[58:00] to do is I want a cross-section of the
[58:01] economy where I own the oldest
[58:03] companies. And now why the oldest
[58:06] companies? Well because they have proven
[58:07] through many cycles that they're that
[58:09] they're resilient. So this is I call
[58:11] this lendy investing. And of course
[58:12] there's a whole theory behind it but so
[58:14] I I don't want to just buy the S&P 500.
[58:16] I want to buy Lindy stocks. I don't want
[58:17] to buy bonds. I want to buy insurance
[58:19] companies. And when it comes to gold,
[58:21] >> ju just real quick before we continue.
[58:22] The Lindy stocks themselves uh describe
[58:24] a little bit as to the oldest companies.
[58:26] What are you looking for?
[58:27] >> So, who's the oldest who's the oldest uh
[58:28] semiconductor company in the United
[58:30] States? It's Texas Instruments. They
[58:31] started in 1930. All right. Uh who's the
[58:34] oldest pharmaceutical company in the
[58:35] United States? It's Merc. Who's the um
[58:38] who's the oldest um oil and gas royalty
[58:40] firm? Texas Pacific Land. So, I go back
[58:43] and I just find the oldest stocks and we
[58:46] invest in a in a in in 20 of those
[58:49] names. So, we have Broly diversified,
[58:52] but we're selecting based on not just
[58:54] quality, but also duration. And I think
[58:58] that's going to give me a return that
[58:59] beats the S&P 500 and is also less
[59:02] volatile. Makes sense. Okay. Gold.
[59:04] >> And then gold. The gold bucket. So, I
[59:06] reallocate every year 20% to gold. But
[59:10] again, when Harry built this originally,
[59:13] the only way to really invest in gold
[59:15] was to buy bullion there. You don't
[59:18] really want to ever buy a gold mine,
[59:19] believe it or not, because gold mining
[59:22] is a very, very tough business. Very low
[59:23] margin, very capital intensive. That all
[59:26] changed when Franco Nevada came around
[59:28] in the early 1980s. They pioneered the
[59:31] royalty model in gold mining. So, I love
[59:34] gold royalty stocks. It's been one of my
[59:36] highest returns of my career. and Franco
[59:39] Nevada, of course, is the granddaddy of
[59:40] them and the and the very best managed.
[59:42] So, I'm gonna own bullion. I'm gonna own
[59:44] Franco Nevada, and I'm going to own
[59:46] Bitcoin. I'm gonna own three forms of
[59:48] sound currency, which gives me a little
[59:51] bit more diversification, a little less
[59:53] volatility, but it's basically just
[59:55] sound money in three different forms.
[59:57] And then, of course, we're going to own
[59:58] cash. And Harry, his idea was you'd
[60:01] always have 25% in cash. My idea is that
[60:04] you should you should vary that based on
[60:07] market conditions. Um
[60:10] on March 24th of 2020, I I went on I I
[60:14] hosted a webinar for all the customers
[60:15] of Marketwise and I was pounding the
[60:17] table on buying stocks and I said, "This
[60:20] is the very best buying opportunity I've
[60:21] ever seen in my life. Stocks had fallen
[60:23] 33% in 30 days.
[60:27] I'm buying." And so at that time, that's
[60:29] when you should use your cash. And so in
[60:32] my opinion your cash should be somewhere
[60:34] between 25% and 5% depending upon market
[60:37] conditions. Right now stocks are very
[60:41] very expensive and interest rates are
[60:43] rising. So today I would have 25% in
[60:46] cash waiting for a buying opportunity to
[60:48] emerge.
[60:49] >> So basically when the market is drawing
[60:51] down aggressively if you've been sitting
[60:52] with 25% cash you should be deploying
[60:54] the cash and drawing your cash down from
[60:56] 25 to 5%. And then obviously as stocks
[60:58] or other assets start to rise, you're
[61:00] basically taking some of those profits
[61:02] and restoring the 25% of cash so that if
[61:05] there's some sort of buying opportunity
[61:06] in the future, you can go and deploy
[61:07] that money.
[61:08] >> That's right. And what I would also
[61:09] recommend as a slight departure is I
[61:11] really believe very much in letting my
[61:13] winners run. So when you go to rebalance
[61:16] every year, you know, you you you want
[61:18] to be careful about how you do that. You
[61:20] you want to let your best stocks grow as
[61:22] a portion of your portfolio. Um and so
[61:24] that's that's that's my judgment.
[61:26] >> So what do you do? You sell the losers.
[61:28] >> So I would I would rebalance by selling
[61:30] the losers. Yes.
[61:31] >> Got it. And um you mentioned in the gold
[61:33] bucket uh gold streaming and Bitcoin as
[61:36] two other components. Uh describe a
[61:38] little bit in terms of the relationship
[61:39] between gold and Bitcoin and and how you
[61:41] think of those two assets.
[61:42] >> Oh, that's a great question, Anthony. I
[61:44] don't think many people know how to
[61:45] price Bitcoin and I know most people
[61:47] don't know how to price gold. So I got
[61:49] taught how to price gold by a very
[61:52] famous Austrian economist Kurt
[61:54] Rishabasher. I met Kurt in the late
[61:56] 1990s and he was the last living member
[61:59] of what's called the Austrian school of
[62:00] economics. So the the van me the Hayek
[62:02] guys he was part of that original crew
[62:05] uh obviously a German fellow and he had
[62:09] a beautiful beautiful gold pricing model
[62:11] that he taught me and basically the way
[62:13] gold price works is it's directly
[62:16] related to the total amount of global
[62:19] credit. If you understand that gold is
[62:21] money, then you know that underneath
[62:24] every loan, there has to be collateral.
[62:26] There has to be money. And so as global
[62:29] credit grows, the the the ounces of gold
[62:32] are not going to grow that fast. So the
[62:34] price of each ounce has to grow in order
[62:36] to be the foundation of the credit
[62:38] system. And so there is a very good
[62:41] algorithm that can tell me what the
[62:44] price of gold will be within a range
[62:46] over the next 3 years because that
[62:48] credit has already been created and the
[62:50] the the gold price will have to increase
[62:53] to match the reserves required by the
[62:55] credit that's been created.
[62:57] >> Most people look at the price of gold as
[62:59] the M2 money supply and gold. You're
[63:01] saying it's M2 plus all global credit as
[63:04] well.
[63:04] >> It's global credit. It actually isn't
[63:06] correlated to M2.
[63:09] uh Bitcoin is different. Bitcoin is
[63:11] directly correlated to banking system
[63:13] liquidity. So, M2 and other forms of
[63:16] money and that is why Bitcoin will react
[63:20] faster to uh monetary intervention. So,
[63:24] what happened at the bottom COVID
[63:26] bottom? Bitcoin just went absolutely
[63:28] straight up. It took gold a little while
[63:30] about 18 months before it began to react
[63:32] to it because it took a while to restart
[63:34] the credit system. So you have gold
[63:36] that's very correlated to credit and you
[63:38] have Bitcoin that's very cor correlated
[63:40] to to uh measures of of of monetary um
[63:44] uh totals.
[63:45] >> Why do you think that they're correlated
[63:46] to different things? I think most people
[63:48] would say, "Oh, Bitcoin is just digital
[63:49] gold. Shouldn't they both be correlated
[63:51] to global credit?"
[63:53] That is a fantastic question and I
[63:55] really I don't know the answer to it but
[63:57] I have a theory and my theory is that
[64:00] the banking system the ultimate monetary
[64:04] standard is still gold. So what are all
[64:06] the central banks buying in the last
[64:08] four years? They're all buying gold. I'm
[64:10] not saying there's no central bank in
[64:11] the world that doesn't buy Bitcoin. I'm
[64:13] just saying that clearly the global
[64:16] financial system still is anchored to
[64:18] gold and so therefore it is the ultimate
[64:22] um guarantee for credit whereas
[64:26] um Bitcoin has largely become a
[64:28] speculative asset that's very correlated
[64:31] to money.
[64:32] >> Mhm.
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[66:37] Go check it out today. Now, uh when you
[66:40] think about Bitcoin in particular, uh
[66:42] it's been very interesting for a decade.
[66:45] Bitcoin significantly outperformed gold,
[66:48] stocks, pretty much anything over the
[66:50] last 5 years. There are certain points,
[66:52] depending on what timeline you choose,
[66:54] where gold has outperformed Bitcoin. Um
[66:56] even stocks have outperformed Bitcoin.
[66:58] How do you look at Bitcoin today in the,
[67:00] you know, kind of uh buffet of assets
[67:02] that you could put into your portfolio?
[67:04] Is it something you say, "Look, you got
[67:05] to have it, but just keep it in a
[67:07] smaller percentage or do you think that
[67:09] maybe it's changed the way that people
[67:10] look at Bitcoin given its lack of
[67:12] performance compared to some of these
[67:13] other assets in the last 5 years?"
[67:15] >> I think Bitcoin has matured as an asset
[67:16] class. I think it's going to be less
[67:18] volatile and I think also people are
[67:20] going to understand it better and see
[67:22] what it correlates to so that there'll
[67:24] be a more efficient market for Bitcoin.
[67:27] The reason why gold has outperformed
[67:28] Bitcoin over the I would say the last
[67:31] three years is because there have been
[67:34] there there was until very recently
[67:36] until last December there was a
[67:38] concentrated effort to reduce inflation
[67:40] by reducing the growth in monetary
[67:41] aggregates. Uh but there was still
[67:44] booming credit growth absolutely booming
[67:46] credit growth. So it makes sense that
[67:48] gold would be outperforming over the
[67:51] last several years. Um that has all
[67:54] changed. um people don't pay any
[67:56] attention to it, but the central bank is
[67:57] buying bonds again, resumed QE, if you
[68:00] will, in in December. And it's very
[68:03] obvious to me that the that that those
[68:06] purchases of the the Fed's purchases of
[68:10] our government's bonds is going to have
[68:12] to increase dramatically over time in
[68:14] order for them to achieve their their
[68:17] financing needs at rates that won't
[68:19] strangle the economy. Mhm. Now, when you
[68:21] look at uh gold, I think that you see
[68:24] based on this global credit model, it
[68:26] going somewhere near $8,000 by 2030ish
[68:29] or so.
[68:30] >> Yeah. So, right now, gold is actually
[68:32] quite a bit above my model. Um my model
[68:35] for gold right now says prices should be
[68:37] somewhere between $3500 and $4,000 an
[68:39] ounce. It's going to $8,000 an ounce
[68:42] over the next 3 years based on credit
[68:43] that's already been created. So, that's
[68:45] already b that's already baked in. And
[68:47] the reason why gold would be above my
[68:49] model is because a lot of people I'm not
[68:51] the only person in the world that
[68:52] understands the Austrian pricing model
[68:53] for gold. So people can see it's going
[68:55] much higher and so that that it's normal
[68:57] that it would be above the model at this
[68:59] current time in the cycle.
[69:01] >> Does that worry you that there could be
[69:02] some sort of correction to bring it back
[69:04] within the models?
[69:06] >> I've been buying gold every year since
[69:09] 2001 and I've never sold a single ounce.
[69:12] So no, it doesn't bother me. I'm hope
[69:13] I'm looking forward to it. I would uh I
[69:16] would put half my portfolio in gold if I
[69:18] could get it at $3,500 an ounce.
[69:20] >> And then what about uh Bitcoin? Do you
[69:22] have any sort of price uh you know,
[69:24] understanding or or way to measure what
[69:26] Bitcoin actually should be worth in the
[69:28] future?
[69:28] >> Uh yeah. Uh my Bitcoin model has uh
[69:31] average price of Bitcoin today at
[69:33] 134,000. So according to my model, bit B
[69:36] B bit B bit B bit B bit B bit B bit B
[69:36] bitcoin is is as is virtually as as it's
[69:39] the the mispricing today in Bitcoin is
[69:41] as long as large as I've ever seen
[69:43] before in the model and um I think
[69:47] that's because the tech stocks have been
[69:50] so strong that all of the risk capital
[69:53] has fled into Nvidia and then the memory
[69:56] stocks I mean the performances of these
[69:58] stocks have really been historic and if
[70:01] you look at hedge fund allocations and
[70:02] things like that all of the fast money
[70:05] has gone into tech stocks and it had to
[70:08] come out of somewhere. So, I think we're
[70:10] seeing a great opportunity today in
[70:11] Bitcoin. The certainly the best
[70:12] opportunity I've seen in Bitcoin in a
[70:14] decade.
[70:14] >> Yeah, it's pretty interesting. Um,
[70:16] another thing that you talk about in
[70:17] your book, which I found fascinating is
[70:19] Timberland.
[70:20] >> Yeah.
[70:20] >> And and uh what exactly, you know, the
[70:24] ability to kind of navigate these um
[70:26] cycles and crises. just describe maybe
[70:29] why did you get interested in this and
[70:31] then how has this performed over the
[70:33] last century or so?
[70:34] >> I got interested in it because a
[70:35] business partner of mine um Steve
[70:37] Sugarude uh figured out at about the
[70:40] same time Jeremy Grantham did they they
[70:41] did it separately that but they both
[70:43] arrived at the conclusions at roughly
[70:44] the same time which is the the late 90s
[70:46] early 2000s that as an asset class
[70:49] timber had performed as well as equity
[70:53] but in a way that was completely
[70:54] uncorrelated to stocks. And so if you
[70:57] understand the Marowitz theory about
[70:59] portfolio management, the ideal thing
[71:02] you can have is a bunch of assets that
[71:04] are fundamentally uncorrelated. So that
[71:06] if one goes up, the other one, you know,
[71:09] can go down and versus vice versa. And
[71:11] what that does is it reduces your
[71:13] portfolio volatility so that the
[71:15] portfolio volatility is actually less
[71:17] than the individual components. And it's
[71:20] a really clever ma mathematical proof.
[71:23] Um, he won the Nobel Prize for it in
[71:24] 1990. It's it's really an interesting
[71:27] thing that every investor should
[71:28] understand. And anyways, timber makes a
[71:31] wonderful diversification asset like
[71:33] gold does. And unfortunately, timber
[71:35] isn't correlated to gold either. So, if
[71:37] you're building a permanent portfolio um
[71:40] and you say to yourself, well, geez, you
[71:41] know, gold's had a heck of a run um and
[71:45] it's above the model price, is there
[71:47] something I could buy instead for now?
[71:50] Uh timber would be my second best
[71:51] choice. Mhm. And the idea is basically
[71:53] that not only do you own the underlying
[71:55] land, you've got the trees. Those trees
[71:58] continue to grow, but you're not putting
[72:00] any money into it. Um, and then as those
[72:02] are
[72:03] >> people say that money doesn't grow on
[72:04] trees, but that's only because they've
[72:05] never owned timber.
[72:08] >> Now, a huge part of this, I think, is
[72:10] okay, so I hear uh I should own timber.
[72:13] I get on, you know, I don't know, Zillow
[72:15] or uh any Loop Net or, you know,
[72:18] wherever and I say, uh, let me find a
[72:20] 100 acres of land somewhere in the
[72:21] United States that's got timber on it.
[72:23] >> Yeah,
[72:23] >> I'm already out. That that seems pretty
[72:25] hard.
[72:25] >> Well, for a lot of wealthy families is
[72:27] not hard at all. It's a very sensible
[72:29] thing to do. Um, there's a lot of
[72:30] different private investment groups that
[72:32] can buy and and manage timber for you.
[72:34] Uh, for the investing public though,
[72:36] it's very simple. Um, Wirehouser is a
[72:38] 100-year-old timber company. It owns 11
[72:41] million acres of timber in United
[72:42] States. It's by far the largest uh
[72:44] timber firm and right now it's trading
[72:47] at a discount to its replacement cost
[72:48] and it's yielding more than 3%. The the
[72:51] key to being a successful timber
[72:53] investor is that the return on this
[72:56] asset is well known. The trees go grow
[72:58] between 3 and 5% a year. So you can map
[73:01] out what your return is going to be. If
[73:02] you're buying them at a discount to
[73:04] replacement cost, then your effectual
[73:06] yield could be 8% 9% depending upon the
[73:08] price you pay. And then the most
[73:10] important thing is being able to
[73:12] effectively use leverage, especially
[73:14] when we have a paper currency system. So
[73:16] if you could get a 4 and a half%
[73:19] mortgage for 20 years on 10,000 acres of
[73:22] timber, you're going to make a heck of a
[73:24] lot of money. And that is essentially
[73:26] what Wirehouser does for you in a public
[73:28] form. And it's what all it's how all the
[73:30] private uh timber groups work as well.
[73:32] So, I would I would just I'd say if
[73:34] you're interested in and and an asset
[73:36] that will definitely survive the reset,
[73:39] uh my two top choices would be gold and
[73:42] Bitcoin and Timber.
[73:43] >> Now, let's talk about uh the honeycomb
[73:45] portfolio that you've constructed, which
[73:47] I think a pretty unique way to think
[73:49] about investing. Just walk us through
[73:51] what is that. Well, if you if you study
[73:55] market widths, you realize that the most
[73:57] important um single number in your
[74:00] portfolio is the pair-wise correlation.
[74:03] You want to make sure that the different
[74:04] things in your portfolio are not
[74:06] correlated to each other. And if you can
[74:09] really eliminate pair-wise correlation,
[74:11] you can have a portfolio that's very low
[74:12] volatility. And that's very important if
[74:14] you're going to use any kind of
[74:15] leverage. And what I've been saying sort
[74:17] of through the through the lines here is
[74:20] when you know the dollar is being
[74:21] devalued, you want to short the dollar.
[74:24] The very best way to short the dollar is
[74:26] to borrow against it and invest in
[74:28] highquality productive assets. People do
[74:31] this all the time in their home, right?
[74:33] Most people's down payment is 20%. Most
[74:35] people carry a mortgage that's, you
[74:36] know, 50% loan to value. But when you
[74:39] tell them you should borrow money to buy
[74:41] stock, they look at you with with four
[74:42] eyes because they're like, "Well, that
[74:44] sounds really dangerous." And it is
[74:45] really dangerous if you don't know how
[74:46] to build a portfolio that has low pair
[74:48] wise correlations. If you can build a
[74:50] portfolio such that it has a volatility
[74:52] that's much less than the stock market,
[74:54] you can responsibly use a small amount
[74:57] of leverage 20% 30% you're not going to
[75:00] have a draw down that results in a
[75:01] margin call and you can greatly increase
[75:03] your average returns. More importantly,
[75:05] you can hedge the the the risk that you
[75:07] face from dollar to basement. So how do
[75:09] you do that? And you do that by building
[75:11] a honeycomb. A honeycomb has something
[75:15] in the center that's utterly
[75:16] non-correlated to financial assets.
[75:18] Whether that's gold or timber, up to
[75:20] you. Some of both is fine, too. And then
[75:23] around that, you you you ask yourself a
[75:25] fundamental mathematical question, which
[75:27] is how many circles can fit into a
[75:30] plane? And I know I just lost the whole
[75:32] audience. The idea is there's an area of
[75:35] economic space in the United States. And
[75:38] that area of economic space are all the
[75:40] all of the different companies that are
[75:43] capable of earning an above average
[75:45] return on equity. And interestingly,
[75:48] there's some industries that aren't. So,
[75:50] you're never going to find a gold mining
[75:52] company that has an above average return
[75:54] on equity. It's too hard of a business.
[75:56] You're never going to find an airline
[75:58] that has an above average return on
[76:00] equity. So, we exclude all those. and
[76:03] S&P uh uh standard standard and pores
[76:07] divides the US economy into 24 separate
[76:10] industry groups. So we throw out all the
[76:13] industry groups where there is not a
[76:15] wellestablished pattern of companies
[76:17] that can produce good results. And if
[76:20] you look a little bit further, you go,
[76:22] okay, where do all the best companies
[76:25] reside? And so if you if you know the
[76:27] math behind all this, there's like it's
[76:30] crazy how paro law the stock market is,
[76:33] it's something like 3% of all the
[76:36] companies generate 80% of all the
[76:37] returns. So then I said, okay, well,
[76:40] which companies are those? What are the
[76:41] companies who've done the best over the
[76:42] last 100 years and what industries are
[76:44] they are in? And the top one is Philip
[76:46] Morris. Makes sense. Greatest consumer
[76:47] product company of all time. The second
[76:49] one is Vulcan Materials. How does Vulcan
[76:52] Materials make a lot of money? Don't
[76:53] they own a bunch of gravel? What's that
[76:55] about? And the the way they made a lot
[76:57] of bunch of money is gravel is so
[76:59] expensive to transport that they end up
[77:01] with a local monopoly. If you want to
[77:02] build a road in this county, you got to
[77:04] go through Vocal Materials because they
[77:05] own all the gravel and you can't order
[77:07] it from a different state or from a
[77:08] different country. It's too heavy. So
[77:10] that's why they've had such a great
[77:11] business. So anyways, I went looking for
[77:12] all this kind of stuff. And what I found
[77:14] was there's about 10 industry groups
[77:17] that have power law winning companies.
[77:20] And then I just selected six of them
[77:22] because you can only have
[77:25] a maximum of seven circles in a in an in
[77:29] a existing area. Seven equally sized
[77:32] circles and a plane. There's a it's a
[77:34] famous um geometric proof. And what I
[77:37] figured is that that would allow me to
[77:39] capture 100% of all of the available
[77:43] return on equity that is non-correlated
[77:45] in the stock market. So I then I went
[77:47] and made sure that each of these
[77:48] industry groups are non-correlated. And
[77:51] what I built is a portfolio that only
[77:53] has a maximum of 14 positions. So it's
[77:56] two stocks. Whoops, sorry. It's two
[77:58] stocks from each of the industry groups
[78:00] so that you don't have as much single
[78:01] stock risk. And they're all
[78:03] non-correlated. So that the pair wise
[78:04] correlation is is less than 0.25 which
[78:07] is not very correlated and it's of
[78:09] course focused all in a circle around
[78:12] gold andor timber and those portfolios
[78:16] uh have performed extremely well with
[78:18] extremely extremely low volatility. So
[78:21] you end up with a volatility that's much
[78:23] like a permanent portfolio only about
[78:25] half as volatile as the stock market but
[78:26] there is no cash position. And so that's
[78:29] a pretty incredible structure for people
[78:31] to follow. I think one of the aspects
[78:33] just in reading the book talking to you
[78:35] over the years is uh you think very long
[78:37] term but you also think uh both in terms
[78:40] of the macro debasement of the dollar
[78:42] and the debt cycles and you just many of
[78:43] the issues that we're facing the the
[78:45] fourth turning but then all the way down
[78:47] to like why does this company in
[78:49] particular have an advantage right what
[78:51] is the the the liy of this specific
[78:53] company
[78:53] >> and is that advantage resilient can that
[78:56] will that will that advantage still be
[78:57] here in 10 years or in 20 years
[78:59] >> and and so how do you when you wake up
[79:01] in in the morning like how do you think
[79:03] through am I thinking about macro? Am I
[79:05] thinking about the micro? Do you do it
[79:07] all at once? What do you check?
[79:09] >> Yeah. Uh I spend a lot of time on my own
[79:11] portfolio. So I run a portfolio with
[79:14] quite a bit of leverage. Um and so I I'm
[79:17] I'm really looking to see if my various
[79:20] positions are behaving and the
[79:22] volatility bands that I expect and I'm
[79:25] and I'm following uh how they're
[79:27] progressing on my uh on my thesis for
[79:30] each of those stocks. So just as an
[79:32] example, I have a very large position in
[79:34] Merc the pharmaceutical company and
[79:36] everybody thinks that Merc is has been
[79:38] that they're going to patent cliff and
[79:40] that they're going to be out of
[79:40] business. Well, you know, Merc has been
[79:42] me uh managing patent cliffs since 1890.
[79:47] And uh you know, I'll uh I'll take I'll
[79:50] take the 4 and a half% dividend and uh
[79:53] one of the highest quality businesses in
[79:54] the world uh trading at 12 times
[79:58] earnings, you know, all day long. And so
[80:00] I like to just see that um I like very
[80:04] low volatility, very high quality equity
[80:06] businesses and I like to apply leverage
[80:09] on that so that I can have outstanding
[80:10] returns. And my portfolio has been
[80:14] producing about 80% annual returns now
[80:16] for about 5 years.
[80:18] >> 80%.
[80:19] >> Yeah. Annually.
[80:19] >> Yeah. It's pretty good.
[80:20] >> It's pretty good. And I I'm telling you,
[80:22] I don't buy risky stocks.
[80:24] >> Mhm. Um, so I think a lot of people
[80:27] think that to earn really high returns
[80:28] in equity, you have to go buy the the
[80:31] high beta, high volatility stocks and
[80:33] and I I take a very different approach.
[80:35] And by the way, one reason my portfolio
[80:37] has done so well is because gold has
[80:38] done so well. So I have a big exposure
[80:39] to gold and that's definitely a big part
[80:41] of it.
[80:42] >> And you have exposure in Bitcoin, too.
[80:44] >> I do. Yeah, I own Bitcoin. Um, for me,
[80:46] the big winners over the last five years
[80:48] have been Philip Morris, uh, Franco
[80:50] Nevada, Google.
[80:51] >> Google and then gold.
[80:52] >> And gold. Yeah. and Goldstein. Great.
[80:54] All right. Well, you've got two books
[80:55] out right now. You've got uh 2029, The
[80:57] End of America, which uh I spent the
[80:59] weekend reading. It's fantastic. I
[81:00] highly suggest people go and read that.
[81:01] And you also have this book, Warren's
[81:03] Mistakes, which uh um I see people
[81:06] talking about it online already. And and
[81:07] I think part of what's fascinating about
[81:09] that book is you respect him, but are
[81:11] still calling out the mistakes, right?
[81:12] It's kind of critique of a mentor almost
[81:14] to a degree.
[81:15] >> Yeah. And honestly, I think that
[81:16] Bergkshire Hathaway, we Americans need a
[81:19] Bergkshire Hathway. We need a single
[81:21] investment choice that is wellrun enough
[81:23] that we don't have to think about it
[81:24] anymore. Most people don't want to be
[81:26] professional investors. And for 50
[81:28] years, all you had to do is buy Birker.
[81:30] And I'd like to see Birkshire run that
[81:32] way again. There's, in my opinion,
[81:33] there's no reason why it shouldn't be.
[81:35] >> Yeah, makes uh makes sense. Um, where
[81:37] else can we send people to uh to find
[81:39] some of your writing?
[81:39] >> I'm on Twitter all the time. Uh uh X
[81:42] now, of course. Uh um Porter stands B on
[81:44] Twitter and I actually every month I
[81:47] post my personal portfolios results. I I
[81:50] run all my money on Interactive Brokers
[81:52] and I use their portfolio analyst
[81:53] software. So, they're doing all the
[81:55] calculations, not me. And I show you
[81:57] exactly what I did last month and where
[81:58] I'm at year to date.
[82:00] >> Yeah, it's pretty uh it's pretty cool.
[82:01] And then if people want to subscribe to
[82:02] any of the newsletters, where can they
[82:03] go for that?
[82:04] >> Uh I'd go to porterdailyjournal.com.
[82:07] Uh Porter's Daily Journal. I I write a
[82:09] free email every day. Um, and um, I'm
[82:12] not real hard to find online, but yeah,
[82:14] I'd love to anyone who's interested in
[82:16] um, low volatility, high return
[82:18] portfolios. I I always love to chat
[82:20] about portfolio construction and I'm
[82:22] kind of a math nerd. So, if you have any
[82:24] questions about all that, I'm happy to
[82:25] chat.
[82:25] >> I think you're doing a great job. Thanks
[82:27] for taking the time to do this,
[82:28] >> man. I really appreciate you inviting He
[82:29] had a great time.