In a very busy year, Bitcoin has flown relatively under the radar… despite reaching all-time-highs at the beginning of December.
Bitcoin is up around 152% year to date. We’re steadily seeing higher highs and higher lows.
So Dan brought Bitcoin Bull and legendary value investor, Mark Yusko, onto the show to discuss the rise.
Mark is the founder CEO and Chief Investment Officer of Morgan Creek Capital Management, which currently has around $2 billion in discretionary and non-discretionary assets under management.
He is also the Managing Partner at Morgan Creek Digital Assets… and has been very bullish on Bitcoin for years. He calls Bitcoin a “better form of gold, a digital store of value.”
Dan and Mark have a long in-depth discussion on the world’s most popular cryptocurrency. Dan plays devil’s advocate and grills Mark on Bitcoin every which way… What happens if the government tries to ban Bitcoin? What if someone wanted to hack the system, couldn’t they steal all the Bitcoin? Won’t some new innovation come along and eventually replace Bitcoin?
Mark responds giving a ton of incredible insight and information you likely haven’t heard anywhere else.
Listen to his discussion with Dan and more on this week’s episode.
CEO and Chief Investment Officer of Morgan Creek Capital
Mark Yusko is the CEO and Chief Investment Officer of Morgan Creek Capital Management, LLC, a registered investment adviser formed in July 2004 to provide investment management services based on the University Endowment Model of investing to wealthy families, individuals and institutional investors. Morgan Creek currently has $ 1.6 billion in assets under advisement in non-discretionary accounts and discretionary funds.
Stansberry Investor Hour Episode 184 Timestamps
2:15 – Some outlandish new rules are being proposed to promote diversity on corporate boards of NASDAQ-listed companies… “The way they put it in the proposal is a little bit crazy…”
6:45 – Has woke culture gone mad? Can a 59-year old white man “self-identify” as a young woman and meet the diversity criteria during hiring?
12:45 – Richard Russell provides our new quote of the week: “The wealthy investor tends to be an expert on values. If no outstanding values are available, the wealthy investor waits. But what about the little guy?…”
15:13 – On this week’s interview, Dan invites Mark Yusko onto the show. Mark is the founder CEO and Chief Investment Officer of Morgan Creek Capital Management, which currently has around $2 billion in assets under management. Mark is also Managing Partner at Morgan Creek Digital Assets. Mark has decades of experience on the forefront of institutional investing.
20:20 – Dan asks Mark about his love of value and Bitcoin… “Last time you were here, we emphasized you’re a long-term, value-oriented investor therefore… you’re one of the last people anyone would have expected to get involved in Bitcoin. How do you feel about Bitcoin?”
25:22 – Mark says he had a Eureka! moment where he realized “Bitcoin is just a better form of gold, a digital store of value…”
28:35 – Mark makes a big statement, “We are in the middle of an evolution of technology that is so profound… Money Over Internet Protocol might be the greatest innovation of this century.”
34:42 – Mark explains Bitcoin has fully established itself with tens of millions of users around the world and with thousands of nodes… and how it’s “not possible” at this point that anything derails that network at this point.
37:56 – What happens if the government tries to ban Bitcoin? Mark discusses how China tried to do exactly that and it blew up in their faces.
41:53 – Mark and Dan discuss the beauty of the decentralized system. “They are anti-fragile in the sense that they’re not subject to hierarchical structural risk. They’re not subject to government control…”
46:10 – Dan explains what attracted him to Bitcoin… “Between now and 2140 – 2140 at the latest – there’s only going to be more than 21 million of these things. It’s not going to be like the US dollar, which you know, we’ve seen $3 trillion of those appear this year alone.”
54:25 – Mark says inflation is just a wealth tax on the middle class. “…and the way to opt out and protect yourself is to buy Bitcoin.”
59:50 – Mark says kids these days grew up with phones in their hands. They are digital natives, so Bitcoin adoption among millennials and Gen Z is incredibly high. “Even if everyone wanted one, they couldn’t get one, so you better get one soon.”
1:04:50 – “If creating wealth was as simple as printing money… everyone would do it.”
1:09:11 – On the mailbag this week, one listener asks Dan about the rising national debt and the possibility of the US Dollar losing its reserve currency status. Another wants to know what the collapse of zombie companies would have on the average retirement fund. Plus a few more questions about Bitcoin. Listen to these and more on this week’s episode.
Announcer: Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour. [Music plays] Tune in each Thursday on iTunes, Google Play and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I’m also the editor of Extreme Value published by Stansberry Research. Before we get to today's episode, don't forget. Trish Regan is now a part of the Stansberry family. Check out her podcast, American Consequences With Trish Regan. The link will be in this description of this episode. As for today, we're going to talk with Mark Yusko from Morgan Creek Capital Management. Morgan's a value-oriented investor who is also a huge bitcoin advocate, and he's just a really well-informed, thoughtful guy.
Mark likes to talk a lot, so I know this interview is going to be a little bit longer. But I love what he has to say. This week in the mailbag, we have some very thoughtful questions about the national debt and bitcoin and, "What would you do if you wanted to invest $100,000 for cash flow?" We'll talk about all that and more. In my opening rant this week, we're going to talk about woke corporate insanity, and then I'll discuss even more signs that we're in a massive financial bubble right now. That and more right now on the Stansberry Investor Hour.
OK. I'm going to keep my rant short today because Mark Yusko is a very thoughtful guy, and I just like to let him talk. We're going to learn so much from Mark today. We always do. And I encourage you to really take notes. I mean, it's really great to hear him talk. But before we do that. I do want to cover just a couple things really quick. One of them is – and I wrote a Stansberry Digest about this recently. But I have to mention it, OK? So the Nasdaq has come out with this proposal to the SEC – the Securities Exchange Commission.
And they are proposing rules for the diversity of corporate boards for Nasdaq-listed companies. [Laughs] Which is kind of insane. Like, they're proposing that Nasdaq-listed companies have on their board of directors two, what they call, diverse directors. And the definition of diverse director... basically, it's just – I mean, it's all based on race and gender. That really is what it reduces to. They're telling Nasdaq company – they want to tell them... it's just a proposal right now. But they want to tell Nasdaq companies, as part of the rules of being listed, that you have to report on diversity on the gender and race of all your board members.
And if they're all, you know – if it's not a diverse board, right, you have to explain why. And for it to be a diverse board, you have to have at least two members. And the way they put this in the proposal is a little bit crazy. They said, "You have to find members – people who self-identify as" – and then, they listed everything except being Caucasian. You know, just Black, Hispanic, female, etc., Pacific Islander. Anything. Anything but a white person, right? And two people have to self-identify as that.
So there's a couple bits of craziness here. First of all, they're saying that the solution to racism and sexism is to embed racism and sexism into the system, which seems insane to me. And I do not accept the tenet that, "No. That's not it at all." I had somebody write into me. And he said basically that my perspective was flawed because he said I'm a rich, you know, white libertarian male. So my perspective is flawed. So he attacked me instead of what I was talking about.
And then, he said, "Well, and of course your readers who wrote in who said that you were right – they're all rich, white libertarian males too. So of course, they agreed with you." And then, he only gave one sentence that tried at all to address what I was suggesting – which is that this is absurd racism. And he said, "No, it's not racism." He said, "It's picking qualified people who also happen to be female or Black or whatever, whatever, whatever." And I'm telling you that the way to get that done – the way to try to fight against racism and sexism in the corporate world – is not to embed it in the law.
Because these regulations, they get the force of law, right? This is like law-abiding executive fiat, which is a whole separate issue in itself that we won't get into. But the way to do that... it seems to me it's absurd. It's self-contradictory to suggest that the way to fight against this is to embed it as law. [Laughs] Right? Saying, "We're going to fight racism and sexism by embedding racism and sexism in the law." I just don't even – once you see the proposal, I just don't know how you could arrive at any other conclusion. You know? There are better ways to do this. There must be.
And the fact – the other problem, of course, is the self-identification. That's one of our, you know, ridiculous modern concepts that Dan Ferris, a 59-year-old white male, can suddenly wake up one day and say, "Well, I self-identify as a 20-year-old female from, you know, Malaysia," or something. That just strikes me as a little bit absurd. So what I want to know is, you know, can somebody get around this because they use this modern, silly-speak, this woke, diverse speak term "self-identify," does that mean that a white guy can self-identify as something that would qualify as diverse and that you'll have a board with, you know, 10 white people on it and two of them self-identify as something – you see what I'm saying?
It's ridiculous. The whole thing is ridiculous. And look. I understand. If you are one of these other – you know, if you're a woman or if you're someone – a person of color, let's just say, or another race than white – of course you could probably tell me that you don't understand. People who are more than qualified are being passed over for these reasons, for these racist and sexist reasons. I don't doubt that that has occurred. I'm willing to bet that it occurs a lot less now than it has in history. People of all different races and women own corporate boards and running corporations, you know, in the c-suite of major corporations in the United States and all over the world.
But of course, all over the world's less of a problem because... I'm sure African corporations have a lot of Black Africans in them. [Laughs] So that's not a problem there. But in the United States, of course, when we talk about racism we mean white people getting to do things that other races and women don't get to do... white men getting to do them for reasons of racism/sexism. Even though those other people are plenty qualified. Well, I’m going to tell you this. I still say the free market is 10 times better than stupid ideas like this.
Because since this is a stupid idea, I guarantee you it will have terrible consequences that no one is considering today. You can't screw with mother nature. It's going to come back to bite us if they do this. I'm going to leave it at that and just address one more thing before I get onto my quote of the week and then our interview with Mark. The other thing I want to talk about is just that I'm just seeing. A lot more bubbly talk. I've been talking about this the past few episodes, how the markets are more sort of speculative and crazy and overvalued than ever, right?
And I just saw this quote by Jeremy Grantham from an article in the Financial Times. And it said, "There's as much craziness now as there was in late 1999 or 1929. This is the real thing. It looked like we were in a bubble-mode this summer, but the real craziness has come out in the last few months." And that's Jeremy Grantham, right? From GMO. They've studied dozens of these bubbles, so they know bubbles when they talk about them. Sarah Ponczek is a reporter from Bloomberg, and she posts a lot of stuff.
And she recently posted, just within several hours of when we're recording this podcast, that the Nasdaq 100 is technically oversold for the first time since September, OK? So I'm talking about the fundamentals when I talk about things being expensive. I'm not talking about technical analysis. But she's saying, "Yeah. Technically over-sold now." And she posted another thing. She said, "Right before the Thanksgiving holiday, more than 35 million call options traded in a single day."
And that was a brand-new record. So yeah. Nobody wants to buy puts, right? Nobody wants to – nobody wants to short anything, right? Because everything is going straight up. And that's been one of the huge trends this year, is that people get onto apps and, you know, they're bored, they're home. They just got a $1,200 stimulus check, and they put it into a Robinhood account and start trading things. I think this is a crazy moment. How far does it go straight up? I don't know.
If we get this vaccine and then everybody gets sort of optimistic all over again, we could see the most crazy... it's already the craziness, most overvalued market in history. But just by a little, right? It's just a little bit more than 1999 and 1929. If the market goes nuts next year because people are just chomping on the bit and the economy comes back to life [laughs], this could become the absolute craziest bubble that you could ever imagine. And the crash after it? Oof. I don't even want to think about it.
But, you know, if it happens that way and next year the markets all go up and recover... we're pushing it out farther. And I don't know. I don't want to be unhedged. I don't want to not have any puts, and I don't want to not own gold and silver and bitcoin and plenty of cash when that day of reckoning arrives. I'll leave it there for now. I'm going to be talking about this for as long as it's true. And I'll just try – maybe I'll try to keep it to updates. I don't want to be that guy who goes on for, you know, 30 minutes every week about how expensive everything is.
But it's irresponsible of me not to if that indeed is the situation. All right. It's time for my quote of the week. And this week's quote comes from Richard Russell. Richard Russell wrote the Dow Theory letters. He wrote a really good newsletter from like 1958... I'm pretty sure right up until shortly before the time of his death in November of 2015. And if it wasn't right up until then, I'm pretty sure it was like within a year or two he was still contributing and still writing. Pretty amazing. He was 91 when he died.
So Russell has this phenomenal quote that I think is pretty good for the current moment. Listen to this. "The wealthy investor tends to be an expert on values. If no outstanding values are available, the wealthy investor waits. But what about the little guy? This fellow always feels pressured to make money. And in return, he's always pressuring the market to do something for him. But sadly, the market isn't interested...
"And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn’t understand values, so he constantly overpays. He doesn’t comprehend the power of compounding, and he doesn’t understand money. He's never heard the adage, 'He who understands interest earns it. He who doesn’t understand interest pays it.'"
That's Richard Russell. It's an old quote that I've had around for years now. I think it must've come from one of his old newsletters. But you may remember we talked about a similar topic when we had Keith Kaplan on the show recently about, "He who understands interest earns it. He who doesn’t pays it." But all the other stuff is great too because at rock-bottom – no matter what kind of investor you are – if you're a long-term investor and you want to buy stocks and hold them for more than a couple of minutes or a couple weeks or a couple months – you need to understand values. To really get the compounding and buy a stock like Amazon, let's just say... it's been an enormous winner last, you know, 15, 20 years, whatever – you need to understand the value of the business. Great quote. Perfect moment for it. OK?
And I just couldn't not tell you this quote this week. All right. Let's do it. Let's talk with Mark Yusko right now. My listeners know they need to secure their savings for the future. And after working with my friend and publisher, Porter Stansberry, for nearly two decades, I've seen him make one incredible investment call after another over the years. So that's why I wanted to recommend Porter's one critical move you must make with your money. You can get his full take on the subject by visiting www.newamericancurrency.com. Don't miss out. [Music plays and stops]
Today's guest is Mark Yusko. Mark Yusko is the founder, CEO and chief investment officer of Morgan Creek Capital Management. He's also the managing partner of Morgan Creek Digital Assets. Morgan Creek Capital Management was founded in 2004, currently manages close to $2 billion in discretionary and nondiscretionary assets. Prior to founding Morgan Creek, Mister Yusko was CIO and founder of UNC Management Company. The endowment investment office for the University of North Carolina at Chapel Hill. Cool.
Before that, he was senior investment director of the University of Notre Dame Investment Office. Mister Yusko has been at the forefront of institutional investing throughout his career. An early investor in alternative investment classes at Notre Dame. He brought the endowment model of investing to UNC, which contributed to significant performance gains for the endowment.
The endowment model is the cornerstone philosophy of Morgan Creek, as is the mandate to invest in innovation. Mr. Yusko is, again, at the forefront of investing through Morgan Creek Digital Assets, which was formed in 2018. Morgan Creek digital is an early-stage investor in blockchain technology, digital currency, and digital assets through the firm's venture capital and digital asset index fund. This guy sounds busy. Mark Yusko, welcome back to the program, sir.
Mark Yusko: Yeah. Thanks for having me. Although, you know, whenever someone says, "Mister Yusko," I always look around for my dad. But I appreciate the great intro, and I look forward to the conversation.
Dan Ferris: Yeah. So Mark. I was noticing the last time you were on the program was May 2019, Episode 104. And I encourage listeners to go listen to that. How have things been for you at Morgan Creek? Has it been just crazy?
Mark Yusko: You know, crazy is the right word. You know, I keep saying, "You know, we live in the Upside Down." So many things are kind of crazier or wild in the sense that we have global economies that are contracting like literally we've never seen in history. And we'll have the first global recession in history. We've had regional recessions or country-specific recessions, but we've never had a global recession. We've seen stimulus. Again. Like we've just never seen.
And what that's doing to traditional asset prices – particularly in the public equity markets... again. We actually have seen that one other time back in 2000. We just – but actually, we've exceeded even that craziness in certain examples. There are companies trading at 50, 100... I guess the record is now 440 times sales. Forget price-to-earnings. You know, now we trade on price-to-sales multiples. So that's kind of crazy and upside-down. And then, you've got interest rates trending to negative around the world.
We have the highest rate of negative-interest-yielding bonds in history. All of Europe, Japan and soon to be the United States probably headed that way. It's just a funky, funky world. And then on top of that, you've had to endure – we have all had to endure – this I think kind of silly... not silly. Silly's too strong... overzealous response to the viral threat. You know, we've been dealing with viruses for 2,000 years, and suddenly we're acting like we've never encountered viruses and locking people in their homes and apartments. And one of our directors, our guy in China, literally got taken from an airplane, carted to a hotel, and had to sit in that hotel for two weeks with no heat, no air, you know, cafeteria lunch twice a day.
And just craziness. We have gone crazy as society. And then on top of that, you know, trying to run a business, right? Trying to work with customers, trying to bring in new customers has been very, very challenging. So it has been definitely like living in the Upside Down like that show Stranger Things. And every time I think it can't get any stranger, it does. All that said, Dan, it has been [laughs] maybe the best year ever for us... no, it's only three years... '18, '19, '20. But it's been the best year ever for us in terms of investing in digital assets in companies around digital asset space. So it's been fantastic. So that's good.
Dan Ferris: Yeah. Maybe talk a little bit about that. Because last time you were here, we emphasized that you're a long-term, value-oriented investor, fundamental-type investor. And therefore, just the way people have been thinking the last few years, one of the last people anybody would've picked maybe to get involved in bitcoin... how do you feel about bitcoin? I mean, it's had a hell of a run here. And to me, I like bitcoin. I've been buying it. And I view it as a burgeoning store of value. But I can't help noticing that it trades like a risky asset.
Mark Yusko: Well, here's the interesting thing. Bitcoin is really an extraordinary innovation. And we talked about this last time we were together, and I won't go through all of the – again, the origin story or the backstory. But, you know, technology evolves on a 14-year cycle. I actually never figured out exactly why it's 14 years, but it's precisely 14 years going all the way back to the '50s. And, you know, had the mainframe computer in '54 and then the microchip in '68 and the personal computer in '82, the Internet in '96, the mobile net – just the handheld cellular supercomputers – in 2010, and now the "trust net" as I like to refer to it – or the Internet of everything or the Internet of value – in 2024.
Which, yes, is still three years from now. And what people miss when they think about bitcoin or other digital assets and the refer to them as Ponzi schemes or scams is, they're just missing that it's simply about technology. Bitcoin as a technology is a use case of blockchain technology. Blockchain technology is simply an operating system for this, you know, global network computer that we're building and will build over the next few years, you know, started back in 2009 at the depths of the financial crisis. In response to what I call the fiat fiasco.
Which really stared in the '90s, right, when we decoupled from gold, and we allowed governments to print money at will and basically debauch their currencies and destroy those assets as stores of value. And so, we've lived in this world – again, back to the Upside Down – where there's a perception that wealth is rising, and things are going higher. But that's only when you denominate them in this depreciating asset: the dollar.
When you actually denominate stocks or real estate or other assets that appear to be rising in the past few years in something like gold – right, which has been sound money for 5,000 years – or bitcoin, which is the digital version of gold... we can explain why that's a good thing... stock prices are actually down. Real estate prices are actually down. And what the plan was – I think we won't go too far down this [laughs] rabbit hole. But, you know, the Federal Reserve was created in 1913. And the plan was to make the banks very powerful and bankers and people related to bankers very rich.
And that plan has worked flawlessly, right? We have the highest concentration of wealth in the top 1% – actually the top 0.1% – in history. We have the greatest wealth and inequality in history, all over the world. And while a lot of people have been pulled up out of abject poverty by, you know, incredible programs in places like China and India, in the developed world we have continued to make the impoverished more impoverished and the wealthy more wealthy through this constant devaluation of currency.
And what bitcoin does is, it allows us to opt out. It allows us to take part of our wealth and just opt out of the fiat fiasco that's going on. And when you think about that as a use case and as an evolution of money, it gets really exciting. You know, the reason I got so excited about this was, I was introduced to it in 2013. And I was an idiot, right? I didn't understand it. I say, you know... not jokingly – right – that I wasn't running drugs on Silk Road. I'm not a cryptography student. I didn't really understand blockchain technology at that point I kind of got the idea that blockchain was like picks and shovels – it was literally like infrastructure or an operating system.
But I didn't really understand how bitcoin related to that until really 2015, 2016 when I just had that eureka moment – literally in Eureka, California and behind the wheel of an RV. I wrote about it. Actually, I just tweeted that link last night. You know, I wrote about this digital gold rush. And once you have the epiphany that bitcoin is just a better form of gold and a digital store of value and that ultimately it will be a base layer protocol.
Kind of the same way TCPIP is the base layer protocol for the Internet and that ultimately, you know, we'll have a series of protocols – whether that's bitcoin, Ethereum, maybe Cosmos or Polkadot or Filecoin or a handful... and once you think about this protocol stack in the future where not just the Internet of information and media an commerce but the Internet essentially of everything... of all things of value, every stock, every bond, every currency, every commodity, every piece of real estate, every private business... everything of value in the world will be connected on this, you know, global supercomputer.
It will trade seamlessly, 24/7 in a borderless world. And efficiency will be better, will strip out trillions of dollars of wasted cost from rent-sinking middlemen – now, the bankers don't like it very much because they kind of get displaced. And the future of finance – you know, decentralized finance or DeFi, which is coming. And people make fun of that too. And I actually tweeted last night, "You know, whenever you invest in something that you believe in that others don't understand, you get laughed at. You get ridiculed.
And I've been laughed at a lot in my career. And yet, when I go back and I look at those times when the laughter was most cacophonous, those have been my best investments, by far. By far, right? When you invest and everybody agrees with you, you usually don't make much money because it's already in the price When you invest in something and you feel a little sick to your stomach and it makes you a little uncomfortable, people really do laugh and say, "Well, that's just stupid." You know, when I wrote about bitcoin in 2015 in my quarterly letter, it was one paragraph out of a 41-page letter.
The next paragraph is about Saudi equities – which arguably is probably more controversial than bitcoin – and nobody cared about the Saudi paragraph. But they said they'd fire us, to your point about, "What's this value guy doing talking about this magic Internet money, this crazy Ponzi scheme?" They don't talk about that anymore. And actually, we've had a lot of clients convert and buy into our funds and make a lot of money. So it's a long answer, Dan. But we are in the middle of an evolution of technology that is so profound.
And I said a couple days ago that "Money Over Internet Protocol," or MOIP, might – not saying it is, but it might – be the greatest innovation of this century. That's a big statement. I know. But I really think the ability to transfer value between two parties without an intermediary, without a trusted third-party, is pretty extraordinary. And it opens up so many efficiencies and economies of scale and the ability to transfer money seamlessly around the world without making the Rothchilds more rich than they already are. It's actually pretty cool stuff.
Dan Ferris: Yeah. Oh, I totally agree. And you point to an interesting part of this. I've heard this term "trustless," which fascinates me. Because it makes you – right away, you start thinking about all the trust that you have absolutely had no other choice that you've had to have placed. You have to place it in the central bank for their management of the currency, and you have to place it in your own bank. Don't you? So now, we won't have to do that. We won't have to trust the same way.
And I have a feeling that you're right, that – and that trustless systems in general are going to become really, really important. But, Mark, I have to ask you. I've been talking about bitcoin partly because of people like you and Raoul Pal and our own crypto guys, Eric Wade and Fred Marion, here at Stansberry... have really done the most to kind of convert me and educate me. But one of the constant sources of pushback that I've gotten since I've kind of become a convert is this idea... a couple ideas. One is the intervention of the state somehow. The government is going to somehow ban or regulate or otherwise mute this wonderful technology.
And then, the other source of pushback – and I have a question from one of my readers in today's e-mails that I'll read later in the program – is about technological pushback where people are saying, "You know, eventually they'll make computers powerful enough that we'll have like quantum supremacy or whatever that will be able to hack this thing, and it'll be worthless." You must've been – I mean, you've got a whole part of your company investigating this stuff. [Laughs] How do you handle this – I'm sure you've heard these sources of pushback. How do you handle them?
Mark Yusko: Yeah. No. It's great. Look. I mean, it is totally natural and totally normal for people to be skeptical, right? I was very skeptical back seven years ago. And nobody that I respect didn't start skeptical, right? Any new idea – Will Durant says it best, right? "Every custom begins with broken precedent." And going against conventional wisdom, or going against common knowledge, is hard, right? I mean, like I say. You're a pariah. You're ridiculed. And so, to take them in reverse order, this whole idea of, "Well, some computer will eventually be created that'll hack this" – because here's the thing. Bitcoin has a network, right?
It is a network. It is a computing machine. It's a network... is the most powerful supercomputer in the history of the world. It's 1,500 times – not 1,500%, 1,500 times – more powerful than the largest supercomputer in the world, in Switzerland. And here's the thing. It's been constantly up, but for literally a few minutes, for 11 years and has done hundreds of millions of transactions. It's never had one fraudulent transaction, not one hack, not one moment of uncertainty. Compare that to, say, Visa, right? Everybody says, "Oh. Bitcoin's so slow. It'll never be a payment system because it can only do six transactions a second. You know, Visa can do 30,000." "Great. How many times have you had to get a new Visa number because of fraud, because someone hacked into their computer?"
In computing, you can choose to be fast or secure. Not both. And bitcoin shows secure. And so, yes. We will develop second and third-layer technologies to make transactions fast over blockchain. That's coming. It's the same way that... Visa isn't a bank, right? They're a spreadsheet, and they keep track of yours or my transaction with other financial intermediaries over the course of a month. Then once a month, we settle up at the bank where the money is. So it's just a fancy spreadsheet.
And it's a really popular spreadsheet, and the reason it became popular – I mean, think about it. Visa started in Fresno, California as a tiny, little project from Bank of America. And, you know, they had 50%-plus of merchants that banked with Bank of America in Fresno. So they picked Fresno. And once they got everyone to use their system, suddenly it caught on. That's called the network effect. And so, there are two things about the technological argument that just don't work. So one is that, "Oh. Some technology will come along, and bitcoin will be the Myspace to Facebook." "Well, no. Because the best technology doesn't win. It's the technology that creates the network effect."
So, like, Betamax was better technology than VHS. Betamax lost because VHS cut the deal with Sony. And so, bitcoin has established itself, right? It's got tens of millions of users around the world and thousands and thousands of nodes of interconnected supercomputing power. So it's just not possible for something to disrupt that network at this point. And the real reason is because of open source, right? In a closed source world, Facebook did have better technology than Myspace. Another example was when Google came out. This is a No. 21 search engine. It didn't need another search engine. Web Crawler and AltaVista were just fine. Or Go Fetch or, you know, Ask Jeeves. They were just totally fine.
But Google brought different technology but in an open source world – you know, post-Red Hat days. Now any new technological innovation I can copy-paste out of the open-source network onto bitcoin and make it better. Now, the threat of quantum... OK. Here's the funny thing. There is no such thing as a quantum computer. Everybody says, "Oh, there's a quantum computer." Yeah. There is, and it functions about as well as the 286 computer I had when I was right out of college that took three minutes to boot up. So it's really not very practical.
And it has to be cooled to like negative 400 degrees Celsius or something like that. I mean, it's crazy. So there is no threat of quantum computing. Now, if – it's a big if, capital-I, capital-F – someday they invest quantum computing, here's the thing. There is no incentive to hack the bitcoin blockchain. Why? Because the moment you do, the moment you do a 51% attack or the moment you take over the network or hack the network or steal everything, it becomes worthless.
It's one of the most genius elements of the design from Satoshi – whoever he/she/they are... that there is literally no incentive for someone to disrupt the network because post the disruption, all of that assets would become worthless. Because no one would use them anymore. So it really is a very cool self-healing system. So, you know, maybe quantum comes up – but the other thing is, there's already been $100 million raised by a group in an ICO to create the quantum buster.
So, you know, just like today technological technologists – right, Web developers like Jamison Lop who speaks in a language. I don't even understand half the things he says. But these people have built a system that is unhackable. And that's based on current computing standards. Now if new computing standards are developed, my guess is people who are much smarter than I will figure out how to protect the system against that. So that's the first one. The other point on – if there was technological risk and then... what was the second one, Dan? Or the first one. The first part of the question.
Dan Ferris: The first part of the question was just about government intervention into this: regulation.
Mark Yusko: Yeah. That is one of the biggest FUD, right? Fear, uncertainty, and doubt. And the FUDsters will always throw out stuff like, "Well, anytime the government wants, they can just ban it." "Really? Well, China tried that in 2017. And bitcoin actually did fall 40% – I'm sorry, 20%. Not 40%, 20% – over the next couple weeks only to make new highs a few months later. Because it turns out China couldn't ban bitcoin. What they could do is, they could ban exchanges.
But then what happens is, exchanges just moved to Japan and Korea. And those countries said, "Bring it. We'll tax it, and we'll be very happy to have that network computing power in our country." And the U.S. the day after Thanksgiving... you know, there was the rumor because of the tweets from the CEO of Coinbase that Mnuchin was planning some outgoing shot across the bow to try to ban bitcoin. Just silly, right? And, yes, prices fell almost 20% overnight. But now, they're right back to near all-time highs again.
So this idea that a government can ban it is backwards, right? If you think about the nature of a decentralized system, the reason it's so awesome is, in a centralized world – right, think back to the days of Napster, right? You wanted to borrow a song from me, and I make a copy of that song. And I make it available to you. Or you get a pass to come onto my hard drive and play the song from my hard drive. So if you have a centralized system – which means a hierarchical structure, you have a single CEO, you have a single server and a single home office – how do you shut that down? So you and I kind of love Napster, but the music industry doesn’t like it at all.
So the music industry lobbied Congress who then arrested Sean Parker and blew up his server. So that's how you kill a centralized system, right? You arrest the CEO and blow up the main server. Well, in a decentralized world who do you arrest? You know, there's a fine line where Mark Zuckerberg got someone to testify to Congress and they said, "You know, the bitcoin CEO was subpoenaed as well, but he never showed." Because there is no bitcoin CEO to arrest. Second is, "Which server do you blow up?" Right? There's like 9,600 of them around the world.
So I guess you could go try to blow up all of them. But they reside in different places. So no one single government has jurisdiction to, you know... U.S. government can't go into Japanese servers and blow them up. The challenge of attacking a decentralized network is, you're going across border, right? How does a U.S. government, you know, ban exchanges that are running in Mongolia or Eastern Europe? They can't, right? Now, could all global governments come together and cooperate? [Laughs] I guess, in the dream world. You know?
But that's never happened before and probably not going to happen in the future. And look. What are they fighting to preserve? They're fighting to preserve their ability to concentrate wealth in the hands of the few through devaluation of currencies like they did in Zimbabwe or Venezuela. And what do the people do? Right? The people choose bitcoin. So the people move their money out of the system. They opt out. And you could try to ban it, right? You could try to ban the on-ramps or the off-ramps and say, "Oh, we can't use it." "Well, what's to stop me exchanging bitcoin with you if we don't have to use a bank or a Visa network or if I can just transfer it from my mobile phone to your mobile phone?"
So the beauty of decentralized systems is, they're anti-fragile in the sense that they're not subject to hierarchical, structural risk. They're not subject to government control. And that's the beauty of them. And, yes, it gives governments agita. It gives bankers agita. The bankers don't want this to happen because they kind of like having their monopoly. [Laughs] So it's a natural evolution. And the genie's out of the bottle. So all this talk about, "Oh. You know, it's going to end in some cataclysmic event" – well, look. If that were the case, it would've already happened.
You know, I'm going to say the miracle of bitcoin is not that it went from $1,000 to $10,000, or $10,000 to $20,000, or $3,000 two years ago, to $18,000, $19,000 today. That's not the miracle. The miracle is, it went from $0.003 when it was a science project to $1 or $2 or whatever the number is. Doesn’t really matter that it survived it all. And there's this great chart, you know, of the Lindy effect. And the Lindy effect is the phenomenon where the longer something survives, the longer it will survive."
You know, think about life expectancy. Life expectancy rising isn't so much about people living longer as it is people not dying younger. You know, you think about infant mortality rates are the biggest contributor, falling from mortality rates are the biggest contributor to life expectancy rising. Because the average person lives longer. So the longer you survive – right, if you make it to six months, you're likely going to make it to a year. If you make it to a year, you'll likely make it to five. If you make it to five, you're likely to make it to 25. If you make it to 65, you're likely to make it to 85.
And so, that's the same thing in anything, is the longer it survives, the longer it will survive. And today, bitcoin has survived all of these existential and actual threats, and it continues to grow. All the fundamentals continue to rise. The number of users continue to rise. The number of transactions continues to go up. The amount of capital locked in the network continues to rise. The market capitalization of the network continues to rise. And the fundamental use cases continue to expand, and the idea that it becomes this base layer protocol for the Internet of value... a pretty compelling, long-term story.
Dan Ferris: Wow. Indeed. It strikes me as really, super-duper important that when I talk to you about bitcoin, you really focus on the network, the size of the network, the growth of the network, the fact that – as you say – "If it's hacked, it becomes worthless. So who the hell would want to do it?" Whereas, you know, other folks tend to focus on just other aspects. You know, the adoption of it,how many people are using it, how well it just sort of works by itself. It's interesting to me because, over time, I've just learned to kind of focus on the way companies and people and societies and everything just sort of interacts rather than what it is on its own.
And you're definitely one of the people – you're probably the No. 1 guy who's taught me to think about bitcoin that way. Because I focused on the fact that it's – from my perspective, the first thing that I saw that attracted me was the fact that... well, it's funny this is sort of a fiat currency because it was created out of nothing. However, the promise of it being managed in a far, far superior manner really is what initially attracted me.
And that's been kind of my handle on it – is that, you know, between now and 2140, 2140 at the latest, there's never going to be more than 21 million of these things. It's not going to be like the U.S. dollar which we've seen 3 trillion of them appear this year alone. But the idea that you focus so heavily on explaining the network and what's good about that... I feel like this is another learning moment for me. I think you're showing me, "OK. You got that fiat thing down, Dan. You need to focus on the value of this network." Networks are valuable, aren't they?
Mark Yusko: Now, it's an amazing point, Dan. And look. We're value guys. We're value investors. And it's tough because what we're talking about is not value but innovation. And some of the cognitive dissonance in my life is, you know, half my brain lives in the innovation as an asset class world, and I've always believed that the greatest wealth – it's actually in my pinned tweet on Twitter. You know, the greatest wealth is created by investing in something that you believe in before others even understand. And for that, you'll be ridiculed, but it's worth it.
And what I think is interesting is, I've always been on foot in this land of innovation. I've always had an overweight to Venture Capital. I've always, you know, migrated toward trying to find really smart people who are pushing the envelope. And whether that was investing in junk bonds in the early '90s – because that was a financial services innovation – or whether it was investing in real estate after the crash in the early '90s out of the RTC or whether that was the Internet back in '96, '97, you know, whether it was distressed debt – which was a new asset class or new category – whether it was credit default swaps back around the time a subprime made so much money for our clients, investing in these things that most people just didn't understand about... they were just a big bank Ponzi scheme.
But really, they were just a form of insurance. And you come forward to bitcoin or decentralized finance or all these other applications of technology, and it's that innovation that drives wealth creation. And on the flip side is this, you know – again – cognitive dissonance of, "Look. If creating wealth was as simple as printing money, wouldn't every country just do that?" Right? I mean, if it were that simple, wouldn't every country just print lots and lots of money? And this idea that printing money is a good thing is insane. Now, I will say that fractional reserve banking is a good thing, right?
Fractional reserve banking is one of the eight wonders of the world. It is incredible. And just, "Oh, no. It's a" – no. Look. Fractional reserve banking, done right – right, hedged finance where you're lending against an asset that has cash flows to pay you back both principal and interest – is a beautiful thing. And it allows... if you look at successful countries around the world versus non-successful countries around the world, the biggest difference in many cases is a well-functioning fractional reserve banking system.
The problem is, central banking is a complete illogical extension of that, which is by printing money and putting it onto bank balance sheets to liquify them so they don't go bankrupt from making bad loans – because if you make bad loans, you know, you should go out of business. That's the way the world should work. Bad businesses should be let die, but we don't seem to do that anymore. Because we live in participation-trophyville where everybody gets a, you know... everybody gets a ribbon. And what I don't understand is this idea that by increasing the stock of money, somehow assets are more valuable. And on a nominal basis, right, the values do rise, right?
I call this the dictator playbook. If you're a dictator, and here's the plan: you get into power, you surround yourself with cronies and wealthy donors and then you pass laws or do things that concentrate the wealth in the hands of you and your cronies, and then you devalue the currency, you basically create your currency or turn your currency into toilet paper. And look what happened in Zimbabwe. Look what happened in Venezuela. Look what's happened in the United States. That's what we're doing. And it's money illusion. There's this illusion that the S&P is making new highs. Well, it's only making new highs if you denominate in USD.
If you denominate in gold, you're down 44% over the last three years. If you denominate in bitcoin, it's way worse. And so, sound money, real money, hard money, is telling us that paper money, fiat money that can be created out of thin air... and the difference is, bitcoin is not a fiat. Bitcoin is a deflationary currency, not an inflationary currency. And that's the difference. And that's the genius. And that's the beauty. And people say, "Oh. Well, that can never work." Well, yeah, it absolutely can work.
And what it really does – and, again, this is not good for a lot of people who have vested interest – it encourages things like innovation and wealth creation and saving, not consumption and frivolous creation of GDP through the broken window syndrome, right? If I break a window, then I don't count the breaking of the window. But I count the, you know, replacing the window. It's like when a hurricane comes through. They don't count the devastation of the hurricane against GDP. But when you rebuild, GDP goes up. Well, it's just funky accounting. It's like revenue recognition for software companies.
So look. There's a famous line of, "If you torture the data long enough, it will confess." And one of my favorite jokes about accounting is, there was a guy who was interviewing accountants. And the first one comes in. And he says, "OK. What's two plus two?" And the guy says, "Four." And he says, "OK. Thank you very much. Next person comes in, "What's two plus two?" She says, "Four." He says, "OK. Thank you very much. Third person comes in. "What's two plus two?" "What number do you want it to be?" "You're hired."
And that's where we live today. We live in a world where, "What number do you want it to be," is created by the people at the top, and it steals the wealth. You know, this idea that inflation is a good thing – this is comical. It is a wealth tax on the poor and the middle class to the rich. Always has been, always will be. And that’s why it was created. And that's why it's been normalized. And the narrative is that, "Oh. We should have a target for inflation." No, we shouldn't. We don't want prices to rise. OK?
When I was growing up, I paid 33 cents for a gallon of gas. OK? Went to California – I grew up in Seattle, Washington. Went back to California to see my daughter in the summer. And we actually drove, didn't fly. We drove. Which is actually a cool trip. But we paid $4.33. Now it's the same gallon of gas. Does the exact same thing, produces the same amount of heat – actually, it's a little less good because it has some ethanol in it now. But gas is no different than it was 50 years ago. Or I guess 40 years ago. I'm 57, so 16 – yeah. 40 years ago.
But I'm paying more because the dollars are less valuable. And that erosion of purchasing power is, again, a wealth tax. And the way to opt out and protect yourself is buy bitcoin. And that's why Michael Saylor – and if people haven't listened to Michael Saylor taka bout this – the guy from MicroStrategy... he's done a bunch of podcasts – you got to listen. Because he had the epiphany, right? He had the epiphany that all this cash that his company was generating, about $50 million a year of free cash flow, was accumulating on his balance sheet, and it was being destroyed every single day.
And he is a fiduciary, had an obligation to his shareholders to preserve the value of that asset. So he bought bitcoin. And the rest, as they say, is history. And I've coined the term, #SaylorRule, like the Taylor Rule for economics. I think the Saylor Rule will become to be known as the prudent thing to do... is to own – it's like Satoshi said, right, when he created it. "You know, maybe you'll want to get some just in case it catches on." So maybe it'll catch on.
Dan Ferris: So Mark. Did you see that MicroStrategy announced yesterday it'll issue $400 million worth of convertible senior notes with an eye-catching use of proceeds – this is an internal e-mail that somebody sent me – open-market bitcoin purchases. So he's sold $400 million worth of convertible senior notes and is going to buy bitcoin with the proceeds. Did you see that?
Mark Yusko: Yeah. It's a beautiful – no. I did see it, absolutely. And look. The guy is doing the right thing for his shareholders. He has demand for... his stock price is up a lot. He's got demand for traditional securities. And he can take those proceeds and invest in an appreciating asset, not a depreciating asset or a devaluing asset. And, you know, that's arbitrage. So I think all of us need to think about this. Again. And my big thing is #GetOffZero, right? Ten years from now, we'll look back, and it will be fiduciarily irresponsible to have zero exposure to digital assets. In particular, bitcoin.
And it sounds crazy to say that, right? That you have to do this. But 50 years ago, pension funds didn't own stocks. It was common knowledge that stocks were too risky. And you opened up our conversation talking about the volatility and the risk. You know, volatility is not risk. Volatility is your friend. As an investor, you should seek volatile assets, right? If you minimize your volatility, you own T-bills and you make no return. And after inflation, you lose money.
So you want to manage volatility. You want to seek upside volatility, positive deviation from a mean, and you want to control downside volatility or negative deviation from a mean. And you can do that through lots of risk management techniques. But at the end of the day, all of us should want a portfolio that embraces a myriad of assets, right? Some assets that have protection characteristics, some assets that have growth characteristics, and some assets that are uncorrelated with other things in the portfolio.
And the biggest reason to own bitcoin in addition to just a protective nature against fiat fiasco is that it's the one asset in micro – and I got white hair to prove that I've been around a while – that every new asset that has been introduced that promised better return, returned enhancement, be it through low correlation, has more or less failed to deliver. You know, international stocks, 70% correlated... you know, bonds, 30% correlated. Hedge funds 60% correlated. Those correlations are just too high. Bitcoin, 15 correlated to traditional stocks and bonds.
And that's because the return to stocks and bonds comes from the same things... comes from economic growth, interest rates, inflation. And the return to digital assets – or cryptocurrencies in particular, bitcoin in particular – comes from the technology itself from Millennial adoption. You know, there's this massive digital divide, right? You ask anyone over 35 who's your broker – I don't know, Merrill Lynch, UBs, whatever – "How much gold do you have?" "I don't know, 3, 4%." "How much bitcoin do you have?" "Are you kidding me? That's a Ponzi scheme. I'd never own that."
Ask anyone under 35, "Who's your broker?" "What's a broker? I mean, I have a Robinhood trading account, but what do you mean broker?" "How much gold you have?" "Are you kidding me? Who would own that dumb pet rock?" "How much bitcoin do you have?" "I don't want to talk about it?" "Why not?" Because it's like a really big percentage. I'm a little embarrassed." So as $37 trillion, with a T – and remember. $1 trillion you and I would have to sit here and spend $1 a second for 31,710 years. That's $1 – $37 of those babies are going to get transferred from the Boomers, people like me, to our kids, the Millennials.
And those kids are digital natives. They've grown up with a phone in their hand. They've grown up in a digital world. They acknowledge that digital assets are superior in form and function to traditional assets. And they're going to own this stuff. So fighting against it, you know, I guess makes some sense. But why? Right? Why not embrace the technological evolution as we have every other time – it's like when Warren said, "Oh. You know, I never invest in technology." "Really? OK. Why? I mean, it seems like a silly question or a silly statement."
But he did ultimately buy Apple stock. Now, he didn't buy Apple because it was technology. He bought Apple stock because he knew that they were going to... because it's so much cash that they were going to buy back a lot of stock, which creates an illusion of growth. You know, Apple has the same revenues that it did in 2015, right? Same earnings as it did in 2015. Revenues actually fell year over year. And the stock almost doubled. Why? Because they bought back shares, and they created the illusion of earnings per share growth. It's just accounting manipulation.
So we live in the Upside Down. Assets that are losing value every day rise because of the fiat fiasco. And assets that can preserve our wealth and grow our capital like bitcoin, are sitting there waiting for us to own them. The problem is, to your point, there'll only ever be 21 million. And there won't even be 21 million because some will get lost or stolen or whatever. But even if everybody wanted one, you couldn’t get one. So you better get one soon.
Dan Ferris: Right. You know, Mark, you mentioned countries like Zimbabwe and Venezuela. Your average modern monetary theory person will push back and say, "Well, wait a minute. They're not printing the U.S. dollar. We're 60% of the world's foreign exchange. We're the No. 1 Coca-Cola currency. So we can print – we can't print infinitely, but we can print a lot more than people think without creating much of a problem at all."
Mark Yusko: Look. It's a quaint little theory that some people have embraced. And it holds some water in a world where you kind of suspend – it's like going to the movies, right? Temporary suspension and disbelief. If you suspend the notion that every world reserve currency holder has eventually ceded control – right, go back in history. You know, Portugal used to have the world reserve currency. Imagine that... Portugal. Tiny, little Portugal. Why did Portugal have the world reserve currency? Well, because they had the tallest trees... therefore, they had the fastest-sailing trips and the most powerful navy. Then they got taken over by Spain.
So Spain had the tallest trees, fastest ships. Then Spain had the world reserve currency. Then they got taken over by France, and they got taken over by the Netherlands. And then eventually, the U.K. created the steam ship, and they had faster ships. And then, America created nuclear. So we had the fastest ships. OK. Great. So historically, the world reserve currency was held by the country with the most powerful navy. Well, in the future the next war we fought with ships, and we fought with chips. And China is rapidly moving toward a digital renminbi. Once that is live, it will take massive share from the dollar around the world in terms of global trade... already is. And ultimately, bitcoin likely takes that role.
So for the next few years, could MMT work? Sure. Knock yourselves out. The one thing I know, every time you print dollars you devalue it, and you make it less valuable. And if I own something that's not denominated in it, like bitcoin, my value's going to... so it's like – and I hate the word "perfect storm," because perfect storm implies Marky-Mark going down with the ship. I want the opposite of perfect storm. It looks like the perfect, you know, high-pressure system in the summer... endless summer for bitcoin, the longer and – the more MMT, the more valuable bitcoin. Full stop.
Dan Ferris: OK. Yeah. Yeah. I mean, it seems right to me, but I won't claim to understand whatever subtlety there may be in MMT. So, you know, I'm not an MMT expert or anything. It just strikes me as [laughs] not a good idea, long term.
Mark Yusko: Nor am I. Look. It just goes back to my comment I made, right? If creating wealth was as simple as printing money, everyone would do it. And the history of mankind shows that every country that's tried to do it has eventually gone down in flames. Lots of examples. Lots of examples. From Weimar, Germany to the U.K., lots of examples... Zimbabwe, Venezuela, reserve currency and not reserve currency. If creating wealth was as simple as printing money, everyone would do it.
But they can't. It doesn’t work. What creates wealth is innovation and commerce and global trade and comparative advantage. And Adam Smith was right almost 500 years ago. And all the trends today are going the opposite... which is why I say we live in the Upside Down. But hey. Those of us who were in a good place, touch wood and be grateful. You know, our life isn't going to change that much. But, boy, there are a lot of people who are at risk, and their lives are about to get a lot worse for all of these restrictions on global trade and this nationalism and populism. And that's another use case for bitcoin, because bitcoin can protect people against the ravages of those systems.
Dan Ferris: Well, I normally ask all my guests for one final thought, but I don’t know if creating wealth was as easy as printing money, everybody would do it. That's pretty darn good. I don't know. Can you top that? I don't know if you can top that. [Laughs]
Mark Yusko: Yeah. I probably can't top it. So what I'll leave you with is... always enjoy these conversations. I appreciate how much time and effort you put into prep. I love how you let the conversation flow to really important topics. And so, I won't try to top that last thought. And I will wish everybody a happy holiday season however you celebrate. I wish everybody peace and prosperity in the new year, and I look forward to our conversation in 2021.
Dan Ferris: Excellent. Yeah. We'll definitely be talking to you in 2021. [Laughs] Well, thanks again, Mark. Thanks for being here, and we will talk to you hopefully sooner rather than later.
Mark Yusko: All right. Thanks. Take care.
Dan Ferris: Bye-bye. Wow. You know, I hope you feel the same way I do [laughs]. I like to ask Mark Yusko questions and just start him up and let him go, because I sit and I take notes, and I think about it. And he always teaches me something. You know, he obviously knows history extremely well. He knows financial history, the history of innovation. And I think just his whole way of talking about bitcoin is just a little bit different than what other folks focus on. You know, most people that I've heard talk about it who are like investor converts to bitcoin – you know, like generalist investors who have been converted to bitcoin advocacy – they tend not to focus as much on the power of the network as Mark does.
So I like hearing from him. It recharges that idea and brings that super important idea back into my mind among many other things. I mean, he's just a great guy to talk to. Hope you enjoyed that as much as I did, man. All right. Let's check out the mailbag. [Music plays and stops] My colleague and friend Dave Lashmet is on fire right now. His average close pick this year alone has returned 187% – almost triple your money. Today, he's got a time-sensitive $13 stock pick that he believes is set to explode.
This is an opportunity you don't want to miss. Listen to Dave's take along with all of his evidence on the stock over at investhourtech.com. Check it out. [Music plays and stops] In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Just Send your questions, comments, and politely worded criticisms, please, to [email protected] I read every word of every e-mail you Send me, and I respond to as many as possible.
We had some interesting stuff this week. I heard multiple times from some of our more frequent correspondents – I think they're just catching up on episodes... try to cover some of that. But first, let's start with Taylor S. And Taylor S. says, "Hey, Mr. Ferris. Thanks for taking my question a few weeks back. So I have been following the national debt since college, roughly 2012 through 2013. Back then, I was saying to my friends, 'At what point does this peak? $25 trillion, $50 trillion, $100 trillion?'
"And yet, no one seemed to care. Sadly, I find myself having the same discussions with friends and family today in 2020. Again, no one seems to care. The only thing on their radar is the pandemic and identity politics. And yet, here I am thinking, 'If the dollar collapses, none of that matters.' As of today, December 3, it's over $27 trillion. So what gives? Am I just a sucker for thinking the dollar will collapse, fail, be removed as the world's reserve currency in my lifetime? And does it make me a bad person to want to see it collapse to feel justified in my beliefs and hopefully benefit from my hedging against its collapse by stocking food, guns, and bitcoin? Or should I be hoping the Fed and our government saves the day even though I am fundamentally against most things our government gets their hands on? Happy to have found your podcast. Thanks, Taylor S."
Taylor, this is so open and honest of you. I embrace the spirit of this question fully. I don't think you're a bad person. But I will say this. We talk about this now and then on the show. It doesn’t have to be a binary thing. It doesn't have to be either it totally collapses or the Fed and the government save the day. I don't think it has to be that at all. I think the government and the Federal Reserve just keep doing what they're doing, and silver, gold, bitcoin and your food and your guns or whatever [laughs] – you know, you stock those things. You know? You take care of yourself. You be prudent and prepare for a wide range of outcomes. That makes sense to me what you're saying.
But I would just counsel you don't assume that it's binary... that, you know, it's either an apocalyptic wasteland or everything's fine, and the Fed and the government save the day. As far as the national debt, look. Eventually, this does lead to lots of money printing. The idea that you have to sort of time it and know when it's going to happen and that it has to happen during your lifetime in order for your worrying and hedging to be worth anything... again. It's the same idea. You're simply aware of a possible outcome during your lifetime.
And I think that's prudent. It doesn't mean it has to happen. Doesn't have to collapse or fail or be removed as the world's reserve currency, even, in our lifetime. And I hope you heard Mark Yusko talk about this today. He's obviously a very learned guy and had a lot to say that I think sort of addresses your question as well. But these are great questions. You should continue to ask them. Thank you, Taylor. Next is from S.C., in Santa Clara. S.C. in Santa Clara. And S.C. says – they forwarded me an article by Harris Kupperman. It's all about... and he gave me a quick summary of the article, and I'll read a little bit of it. It's all about the difference between bitcoin and the gray-scale bitcoin trust that trades under the ticker symbol GBTC.
And the crux of it is this. "To create more GBTC," S.C. says in their e-mail, "Grayscale buys bitcoin and sells six-month restricted shares of their trust." And then, he asks – they ask, "Who wants six-month restricted shares during a mania? Nobody. So the free trading Grayscale shares sell at a dramatic premium, 26% premium, when Kuppy" – Howard Kupperman – "wrote this article on November 24 that he forwarded to me."
So then, he describes this arbitrage that you could do – which I won't describe because I don't want anybody to think that I endorse doing it. Which if you know what you're doing, you know what you're doing and you don’t need me to tell you to do it. If you don't know what you're doing, I don't want to describe the trade because you might think I endorse it. So, SC, that's all I'm going to read of your e-mail. And I'll just say that the trust trading... the basic idea of the arbitrage is that you're short the trust because it trades at this absurd premium and which will one day be gone. I don't know that I'd want to short the trust. I think it's a highly – you know, like you say, it's an easy thing for people to buy.
So you could be standing in front of an oncoming train. And to your credit, S.C., you make these risks apparent in your e-mail. I'm not saying you don't. OK? But I just thought this was an interesting situation that the world sort of needed to know about. And if you want to, you can find this article by Harris Kupperman over at Chris Macintosh's website, adventuresincapitalism.com We had Chris on the program a while back. He's a pretty thoughtful guy. All right. Thank you, S.C. Ludvik H. writes in – I actually have two of his e-mails. Ludvik is one of our very most frequent correspondents. Sometimes he writes in – I think he wrote in three or four times this week. It looks like he's catching up on episodes.
So first e-mail. Ludvik says – and I'm not reading the whole e-mail. He writes a lot more than what I'm reading. Says, "I'm happy you discussed the zombification of the markets. When the collapse happens and the zombies march all over the USA, what does it mean for the retirement funds? The collective programs I'm referring to, those people consider a safe haven. I'm not a fan of those programs." I'm not sure what you're talking about there, Ludvik, but I'll just deal with retirement funds. And I'll answer this, and then I'll read the other part of your e-mails.
So I think what you're talking about is, you know, the zombie companies – which have reached a record, like 18% of U.S. companies at this point – are so-called zombie firms where they need some kind of a bailout in order to keep paying their debt payments because their cash flows cannot cover them. So even if the bailout is just that some lender wants to keep lending to them or, you know... I'm not talking about necessarily a government bailout.
But they need to keep borrowing in most cases in order to pay their debt payments. That's a zombie, right? They're the walking dead. And when does it all blow up? You'd think it would've done so by now. And what happens, you know, to people's retirement funds? Well, you know, the more of the zombies they own, the worse they do. A lot of this stuff is really low-rated garbage, and I think a lot of the retirement funds probably don't have any of it.
So I don't know if that's the biggest impact. But there's going to be a big impact because there's hundreds of billions of this stuff outstanding. And when it happens, I don't know. No idea. But you should definitely understand the credit quality of any kind of a bond fund you own, I would say. At the very least. It's a good question. It's a good topic. Next, Ludvik H asks, "What do you make out of the crises in the travel industry? It seems to be that we are heading to a new recovery. But this could be the perfect moment to enter the market as an investor. Also, what about the Walt Disney conglomerate? They're doing radio, TV, theme parks, real estate cruises. And on a global platform, why not split the media off?
So Fox, ABC, ESPN and so on as well as the streaming business? All right. Best regards, Ludvik H." As far as Disney goes, splitting the media off – maybe they'll do it, and maybe they won't. I don't know that I have a view on that. But Disney in general with real estate, you know, they have theme parks and real estate and cruises, right? So these are things where people have to show up and crowd in together, right? They're depressed in the time of COVID. I suspect if the vaccine gets going over the next year that Disney will get a nice boost back to normal.
What I'm curious to find out is if people really are chomping at the bit. Paul Tudor Jones was recently – I think he was on Bloomberg or someplace. I forget where I saw it. You can probably look it up. He was talking about, you know, he's got these kids in their 20s. And his kids in their 20s are chomping at the bit to just go out to a restaurant, go to a theme park – whatever, do anything just to get the hell out and do things again. So it follows that there are a lot of people who feel the exact same way. I think he's right.
There are a lot of people – I think that's the point – who feel the exact same way. And, you know, Walt Disney has a lot of desirable stuff that... people like that and the ones with kids especially want to do. So yeah. I like the idea of Disney, you know, as a play on if you believe that the vaccine will sort of bring the economy back to normal. Good questions, Ludvik. Keep writing. I love your stuff. There's only one more, but it's kind of long. I'll just address the – maybe I'll start from the end here. Just, I've been looking at this question half the morning. I don't know how to do it.
So let's start from the end. "With this in mind," he says – and what's in mind are, he's worried about people like... maybe even like me or other investors operating outside their circle of competence when it comes to owning bitcoin, right? And being interested in the blockchain technology. And then, he talks about... he was the guy who I mentioned during my interview with Mark today who was talking about quantum supremacy and China having reached quantum supremacy, and he's worried about the technological hacks into the bitcoin network. I thought Mark addressed that beautifully.
But then, he says, "With this in mind, how can bitcoin be anything except a small speculative part of someone's portfolio? Even if you disregard Jim Roger's argument that governments will ban bitcoin in the future, it still seems pretty risky to me. Don't get me wrong. I think it's a great asymmetric bet, and I'm very optimistic about decentralized finance's future. But bitcoin as a legitimate store of value – it's starting to sound really tulippy to me." Right? Like the tulip mania in Holland, which was a big fat bubble. Then he finishes up here. "I love your podcast. I've learned a great deal from you. I only wish you were around as a mentor when I was in my 20s making a lot of silly mistakes. I wish I was around when I was in my 20s making silly mistakes. Thanks so much, Dan. Brad."
OK. So, Brad, I'm going to substitute Mark Yusko's answer on the technological side for my own. Because that really made sense to me. Once you hack the network or even bitcoin itself – as I understand the difference – it becomes worthless. So, sure, maybe you can do it. But your goal would have to be purely destructive. It couldn't be theft. And if your goal is theft, people have stolen bitcoin before. There are better ways to do it.
So I'm going to leave it there. Let's just leave it there. But this other question is, "How can bitcoin be anything except a small, speculative part of someone's portfolio?" When I started recommending bitcoin earlier this yar in my newsletter, Extreme Value, I said, "You only need it to be a small part. Because if I'm right about it, the upside is potentially multi-hundred-bagger upside." Right? I think my far-out sort of... it wasn't a prediction. But my far-out scenario that I wrote about back then was something that the folks at Horizon Kinetics wrote about. And they said, "Maybe a 425-bagger." Right?
From the price when it was around $10,000. So that's a lot. And it would be really cool, wouldn't it, if you put 1% – imagine something you could put 1% of your portfolio into and it not only hedges the entire value of the portfolio; but if the whole rest of the portfolio goes to zero and you get this multi, multi-bagger, you still made a ton of money. [Laughs] Maybe double, triple, quadruple your money over some period of time. So what I would say to you and your question is... I don't know about speculative. Maybe you could still think of it that way. I do think it's becoming a more widely recognized, legitimate store of value, and I think it is very well-managed in the manner that we described during the interview, right?
There will never be more than 21 million of them between now and 2140. And as Mark said, you know, "Some of them are lost." So there won't even be that many. I hope that covers it for you, Brad. It was – I found your e-mail very thoughtful, and you seem very well-informed. And these are good questions. And you should ask them. All right. That's another mailbag. And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. If you want to hear more from Stansberry Research, check out americanconsequences.com/podcast.
Do me a favor. Subscribe to our show on iTunes, Google Play or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. You can also follow us on Facebook and Instagram. Our handle is @InvestorHour. You can follow us on Twitter where our handle is @Investor_Hour. Have a guest you want me to interview? Drop us a note at [email protected] Till next week. I'm Dan Ferris. Thanks for listening.
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