Michael Nicoletos: Forget the Doom—Here’s What’s Actually Driving Markets Higher
Summary
Market Outlook: Bullish on US equities with the “pain trade” higher as passive flows and underweight active managers support further gains amid a Fed cutting cycle.
AI: Not a classic bubble since much activity is private; US government capex and strategic funding likely sustain the buildout and real economy spillovers.
Semiconductors/NVDA: Ongoing demand for AI chips underpins NVDA, with ETF-driven index flows and anticipated capex reinforcing upside despite valuation debates.
Energy: Expects subdued oil prices as Saudi policy aims to keep energy manageable while pursuing US investments; AI power demand builds over years, not immediately.
US Dollar & Treasuries: Dollar dominance remains strong by usage metrics; regulated dollar stablecoins could massively expand structural demand for US Treasuries and modernize payment rails.
China & Japan: China faces deflation, real estate/banking stress and tariff pressure; Japan’s tolerance for higher long-end yields may aid yen devaluation, intensifying competitive pressure on China.
Gold: Central bank and Chinese retail demand support prices, but near-term consolidation is likely; viewed as a solid multi-year hold within diversified portfolios.
Crypto: Bitcoin and blockchain are here to stay despite volatility; stablecoins show clear utility, and blockchain may help solve AI-related identity/deepfake challenges.
Transcript
The headlines do not give a complete view. I think the market still has legs. I think the US market will continue to go higher. Like it or not, people are taking their money from Europe, taking their money from Japan, taking it from whatever they can, and investing in the US stock market. Don't forget to sign up for a free portfolio review with one of our endorsed investment partners at wealthon.com/free. With markets hitting all-time highs, now is a great time to stress test your strategy and be prepared for what comes next. Hello and welcome to Wealthon. Maggie Lake and joining me to discuss the outlook for the global economy is Michael Nicolletus, the founder and CEO of Defi Advisors. Hi, Michael. It's such a pleasure to have you with us. >> Hi, Maggie. It's great to be here. Great to be back. Nice to be talking to you again. >> Most of our conversations happen on on on on Twitter, but it's always good to speak in person. >> It is. It is. And we are long overdue for a catch up. Um, and we're we're we're meeting up at a very interesting time. We're seeing a lot of volatility in markets. So I think maybe it's good to start uh with sort of the big picture and what kind of macro framework are you working off of right now? What do you think is happening in the global economy? >> Well, first let me say that it's interesting because depending on what news sources you read it the the reality varies. So, we live in a polarized world for the reasons we all know. And depending on which side the writer is, you tend to see a polarized view of what's happening. >> Either you're having a booming economy or you're having a collapsing economy or you have too much debt or the dollar is not sustainable or China is not sustainable. So, it needs to be dig you need to dig a bit deeper to understand what's happening. So the the headlines do not give a complete view. That's my my my my understanding. And the thing that I try to do is even if I disagree to try and write the other side and understand where they're coming from in order to have a complete uh view. I could be wrong, but at least that's how I frame my my thinking. Now where are we now? I think the US economy is doing fairly well. It has its issues. It's not collapsing. It's not having a runaway inflation that everyone expected. Uh you have inflation, but it's not a disaster. And I would argue that the Fed likes to have a bit of inflation more than what it uh wants to admit. It's a nice way to inflate the debt. So politically it's not something you can say, but I'm pretty sure that a a little bit more inflation than they would like to to acknowledge they're okay with. >> So that's a bit my understanding. Now uh the economy is still growing. The US economy is still growing. >> Europe has structural issues and if I we can put the third leg which is Asia and mostly China. China is facing its own issues internally which have a cascading event when it comes to trade agreements when it comes to deflationary pressures being exported out of China. So I think it's a tag of war when it comes to inflation as I mentioned before because China has deflation the west has inflation >> but things are not dramatic. Okay. So when we we when when the tariffs were announced initially, all the news wires and all the analysts were said talking about much higher inflation that we're seeing today. >> So yes, it's higher than it was, but it's not in a in an area where you're saying things are horribly bad. >> Now we have a Fed that's cutting rates. So it's a bit uh counterintuitive when you say there's inflation. Why is the Fed cutting rates? But the Fed has a dual mandate as most know which means that it's it needs to to look at full at uh full employment and price stability. So it's in the European Union has only price stability. It doesn't have full employment. So it has one mandate the ECB. So when the Fed its two mandates are diverging historically the Fed has cut rates. >> So this is something to to to look at and because unemployment is seems to be increasing. I think the Fed will continue to cut rates. Maybe not at the speed the market would like, but I think you'll be going into lower rates. If energy prices remain low or if they go lower, it would help I think the Fed to do so. And I think and my understanding is the discussions at uh President Trump with Saudi Arabia, he traveled there a month ago and now he was in the US. M >> I think there are discussions about where energy prices should be >> and there's also another discussion about investments in the US and I'm mentioning the second part because there's been a huge discussion how is this AI boom going to be funded because we hear billions and billions going around and we don't know where they're going to come from. So I guess part of it might come from Saudi Arabia. That's my assumption and that's how it feels to me at least. >> And if we go back to the 80s when the US did the agreement with the US to buy oil but the Saudis to buy US treasuries and that was the beginning of creating the US dollar global reserve. I think we're seeing something similar now where Saudi Arabia will try and keep energy prices at a level which is not painful and it's I would say helpful as well for the US and in the meantime it has agreed to invest in the US and the US to allow it to invest in strategic areas where it might not uh allow other countries to do so. Hm. So where so lots lots of threads in there uh which I'll come back to. But on the Saudi Arabia if if if they don't have the oil revenue, do they have enough revenue if oil prices are low to to make those kinds of investments? >> The the break even for Saudi Arabia is a very low price. >> It's lower than anyone else. >> And you don't buy that they're they don't have as much oil as they claim to have. Like there's a lot of you know conspiracies around like what is the balance sheet? >> Proven. So it doesn't feel like there's no not enough oil. >> So the question is I don't think the oil price is going to go to $20, but I think it's going to stay around the areas where it's now. Maybe a bit lower >> and that will be very helpful because remember there were times where we're talking about $200 barrels 15 years ago. Yeah. remember the stories where the oil would go to 200 and >> well there are a lot of them out there now because there is a very So you're you you you seem to be sort of poking holes in in a couple different narratives that have are very prominent right now and so one of them is that there is an AI bubble you and that that is about to burst. You sound like you don't think that is true. >> No no let me let me say something. What does an AI bubble mean? What I'm asking is is AI listed? Is it going to be are are we seeing all the big names listed on the stock exchange where the prices are are overpriced and going to burst? Most of AI is private. >> Most of AI that we're talking is private. So these are private investments. What does it mean for a private in Manson to burst? If the funding keeps coming, maybe the valuation is different. I'm not going to argue what the valuation should be, but unless there is a capital round or a capital raise or an exit, the valuation is a theoretical exercise. The only place where you see a valuation and you can call it a bubble is if there is a transaction or if there's a problem. So if we get a funding problem, maybe we'll see the we'll see something there. If we see someone wanting to exit and can't exit was but what does a bubble mean on a private market. >> So the the my question is here this is a strategic investment for the US. Okay. So I I believe that the US government has made it a priority in order to dominate in this sector. I don't know if it can. I'm not a specialist to tell you if it can, but I can tell you that that's what it wants. It's clear to me. >> So, one way or another, it's going to help fund these products and these projects. So, maybe it's overvalued. I'm not saying it's not, but at the end of the day, something that's overvalued A, can remain overvalued. be if you don't need money which you cannot find to fund it then if it if the value is 100 or if the value is a billion who cares only the person who books it cares and he can book whatever price he wants to book so I I'm not saying it there let me put let me rephrase what you just said is AI overhyped or not >> because overvalued I don't know if I can put I can I can say so I don't know if It's overhyped. Maybe it's overhyped of what it can do the next two years. I don't think it's overhyped of what it will do in 10 years. How do you manage this from an investment point of view? Well, I think and having I'm an investor in a small startup which does AI agents. Okay. >> So, what they're doing is they're specializing in a niche part of the AI agent business which is that collection. So they've decided to be specialized and looking at the market having been in this investment I see that there are not too many other companies doing the same thing. There are a lot of AI agents there not a lot of AI agents specializing in this and I see the company getting traction. I see a lot of companies asking for their business. So there is tangible value which can be uh extracted. If that value that everyone is discounting that's going to happen tomorrow morning is real. I don't know. But if you're an investor, you you you you can only control your entry price in a private investment. Okay? So the exit will come whenever it come especially if you're a minority. If you're a majority, it's a different point. But if you're a minority and you you can only control the the the the enterprise. If the enterprise is fine and the team is good, you're not in there for a trade to to flip it in 6 months. So unless it's a stock on the market, what does overvalid mean? I I hear that and I understand that people are worried that the hype is too much, but I don't know how to quantify it. And if I it was overvalued, how do I short it as an investor? >> Let's assume that we agreed. So how do I short it? There's no way for me to short it. Is there >> if there's one, please tell me because I I haven't found one. >> If you're looking for a simple, secure way to invest and own physical gold and silver, visit our sister company, Hardass Assets Alliance, at hardassetsalliance.com. That's hardassallalliance.com. I I think most of the concern is and and you're right to point that out. This is where um you know the the sort of narratives get simplified maybe in a way that is because I think people when they say that they're talking about Nvidia they're talking about the publicly listed companies um Microsoft Google Meta you know that that sort of have uh Amazon that have been dedicated dedicating capex to this and sort of shifting their business model from a capital light company to a I think it's centered on a very small group the mag seven that has been driving a lot of the US equity gains. I don't even know if it's a if it's a global story. I think that it's very centered on that small view. >> Great point. And let me clarify because the Mac 7 and the Nvidia case is very interesting and I'll say first of all I'll I'll I'll make a micro uh analysis and then a micro analysis. The micro analysis comes is if Nvidia overvalued if a five trillion company if if Nvidia is worth 5 trillion and you see people who says it's overvaluing you see people saying that it should be worth it will be worth 20 trillion. Okay first of all I'm I I don't know if it it should be valid 20 trillion or not. What I'm trying to say is that demand is still there >> and the demand for their chips is there. So the question one should be asking is the US government going to follow through on the capex it has announced. Is it going to find money to to do it? Is it going to find foreign investors to continue? And if these companies will continue to invest in that part of the business if the capex is there and the government is there. I my experience and that is me wearing an economics hat and not a a finance hat will tell you that this will not stop. When the government does capex on a specific sector, it usually helps the entire sector in ways that people do not understand at at at face value because this trickles down to to parts of the economy that on a on a first glance you can't anticipate. So my view would be that the question should be here a will the will the US government follow through on its capex regarding AI? I think yes and I say yes because I think it's a a national security issue. I think it's a priority one for the US government and it feels to me that this is something that even if Democrats do not agree with Donald Trump, it's a priority one for the national security of the US government and eventually they will agree there might be some negotiation or whatever. But I think it it should not be an issue where the government will stop. That that's at my my view. Now regarding the Max 7 and regarding their value, it's important to understand the structure of the market and how people trade. And this comes also to a question if markets are overvalued or not. The the way that markets have been trading has been trading through inflows. And when you get your 401k, you know better than me, or when you're a passive investor, what do you do? Most likely, you're going to buy an ETF. There are a few investors that are going to buy a pickup stocks. So if I buy the NASDAQ ETF because I believe technology is going to do well, what do I do? I reinforce the mechanism of putting more giving more money to the ones that have more weight on the index. >> Yeah. >> So it's an index trade. I buy the entire index and I'm going to buy PRA the allocations of the index. So I don't get to see if I'm going I don't I had a discussion someone asked me would you buy Nvidia here and the answer I gave him is I don't care if I would buy Nvidia here because if everyone's buying the NASDAQ ETF Nvidia is going to go higher even if you don't agree that Nvidia should go higher now because of the structure of the market because people have been investing so much in ETFs because for the first time as I can remember retail investors have outperformed professional investors because I buy an ETF, I do nothing. I pay fees, minimum fees, and I've done very, very well this year, at least until now. And I have the professional manager who has been worried about tariffs, who believes in volatility, who has been underweight markets, and has not done as well as me. I'm not saying he's wrong. I'm I'm not judging. I'm just stating the facts. And here comes the retail guy and says, "Why should I give you my money? I'm doing better than you are. So what's going to happen now? You have all the institutional base or not all most of it being underweight. They haven't performed well and at the end of the year when everyone starts to look at the numbers we're going to say oh my god why should I give my money to managers? That happens always on bull markets but it's happening again now. So why should I give my money to the managers and not do it on my own? So now the managers have a pressure to invest. So from uh looking at the market structure, I would say that the pain trade is on the upside, not on the downside. >> So I don't know if you agree or not. I'm I'm >> No, it's it's one thing I one thing I think is really important um and I'm I'm so glad we're having this conversation is to just if you if you switch your framing and you switch the questions you're asking how things can look very different and I think it's it's really important because that busting AI bubble has been a source of real fear and worry for people um because they're just sort of you know again it's it's kind of being narrowed down. Um but your point about uh investment both we know the passive flows we know the effect of that and you can argue that it might turn one time as folks like Mike Green do but >> it it will eventually turn >> right but for the moment if it's in it's in effect um then that's super important and then you know the the role of of governments now getting involved in markets in a way we haven't seen in decades super interesting right and and if you look through that lens again like very interesting let's do the same with energy then because I think this where your Saudi Arabia conversation. The other really uh strong uh narrative out there is okay, if you do believe AI is the sort of this next big tech revolution, you're going to need to power it and that's going to require huge amounts of energy. You're going to see a huge runup in energy prices because of that. Uh and so regardless of you know what you think this beat up sector like this is we are in sort of a commodity super cycle on the verge of a commodity super cycle because of that. But you sound like you think energy prices are going to remain subdued again maybe because of politics involved. How are you thinking about that? >> Aa are we going to have this AI demand tomorrow morning that's going to go through the roof? It's going to take some time. I'm not saying it's not going to happen, but it's not happening tomorrow morning. >> First thing. Second of all, think about it. If you're one of the biggest energy providers of the world is allowed to invest in that sector, they can help keep the prices lower >> and continue to to do well on both sides of the trade. If if Saudi Arabia decided to shut down the wells and price were to go to $100, I'm just, you know, speedballing here, but would it help its investment? No, it wouldn't. So, I think there there are discussions in rooms which I'm not in obviously, and I think there are discussions which are more strategic. And it feels to me that the issue if you and I are discussing this now on a podcast and if it's written all over the world in any newspaper I'm pretty sure that there are people really smart discussing this problem in a room is what I like to discuss on Twitter when everyone says that the Fed is wrong and the Fed is doesn't know what they're doing and and you have 160 PhDs that have information that you don't have because they have clearly more information than we have and we are the smart guys telling them what they should do. Okay? You know, you have to have you have to have some, you know, realization about what you don't know. >> So, I'm I'm saying I'm just saying here that there is information that we don't know and I think all the issues that are mentioned are risks and I think people that are smart enough are looking at it are looking into it. So yes, AI would be an energy problem. Is it a tomorrow morning to my energy problem? I don't think so. Is it a three-year problem? Yes, it is. Can it be resolved? I don't know. But people are find trying to find ways to do so. So, uh, we'll get there and we'll find out. But I don't think it's something that we need to worry now. when markets are at >> in all of the sorry sorry to interrupt you but it's so interesting because in all of the conversations about those narratives I always like to ask people well what role does innovation play um because if you've got this major problem seems to me that there is a huge incentive to solve it and so that the energy problem is exactly one of those examples. So, um, you're right, it is a risk, but are you telling me no one is working on an innovative way to address this that would obviously, you know, have a huge payoff if they were able to do it? That never comes up in the conversation. And I think you're sort of hinting at the fact that they've got three years and people are thinking really hard about this um to try to find a solution, at least leaving some room for that, which I think is interesting and again left out of the conversation a lot. Look, that's the problem of today's world where everyone becomes a fanatic about an opinion and I'm not you get one way AI is a bubble. AI is not a bubble. Energy price are collapsing. Energizers are going through the roof. Uh Donald Trump doesn't know what he's doing. Donald Trump is right. China is going to win the war. Okay, if it was that simple, probably we wouldn't have the debate. So I'm pretty sure there are arguments on both sides for any debate that we're talking about. The problem is that people do not sit down to have a discussion in a fashionable and normal manner and try to see what do you think, what do I think and let's try and think creatively and suddenly in 30 seconds you have people fighting on a camera, fighting on Twitter, fighting on anything. And I think the if we if we resolve the issue of discussion, we're going to resolve probably 80% of the problems that we're currently talking about. In any case, I I I I think the market still has legs. I think the US market will continue to go higher. It might be bumpy. Okay, I'm not saying it's going to be a straight line. >> Uh and I think that corrections are healthy that sense. So any correction is healthy and people trying to pick the top because the market corrected 3 4%. I think it's a bit premature. We're in beginning of a cutting cycle. It doesn't look like we're going to be raising any rates. So I think there's still room to go. I think there are issues like global flows and if you look at it all the global flows goes into the US like it or not people are taking their money from Europe, taking their money from Japan, taking it from wherever they can and investing the US stock market. So that global flow >> you don't think that's changing >> and I don't think it's changing now. I think it's it it posed in terms of treasuries uh and US treasuries but I think what the administration is doing now with the stable coins I think uh it's a pretty pretty smart move uh if you want me to elaborate on it but not per crypto sake per treasury sake and I don't know if you're if you're aware the genius act >> which was passed says what? Anyone can issue a stable coin, a US dollar stable coin, provided that they're backed by one to one dollar and dollar equivalents. So, and they are regulated. So, if if I issue $100 million in stable coin dollars, then I need to have $100 million in my bank account or 100 million worth of treasuries in my bank account and have it back to back. So, what does that do? It it it solves it it brings a solution to many of the US's problems. One is it it exponentially increases the total addressable market for treasuries because I'm I want US dollars on my mobile phone to transfer money. I don't care what you do with the US dollars but you are forced. You're not forced actually. You want to get interest. So what do you do? You buy treasuries. So suddenly you create demand for treasuries from third parties. Right now stable coins are around $300 billion. So that's a growth like in three four years you've gone to $300 billion which is a huge number. If that number grows in the trillions suddenly you have a trillion demand any given day for US treasuries. In the meantime what do you do? You create the rails for do for transactions for global transactions on a blockchain whatever that blockchain is and those dollars transfer and trade on that chain. So everyone's been arguing that the swift system is obsolete and US is controlling everything and that should change. What if the US is changing it in its own terms again? So going 20 years forward if the most liquid tradable asset is a US dollar stable coin again the US has that power that that everyone fears that it's going to lose and people try to they see the dollar they they they confuse where the dollar is trading with the dominance of the smaller in terms of usage that the usage has been higher than than I can remember. 50% of global trade is in dollars. Uh 58% of FX reserves are in dollars. Uh what are eight more than 80% of transactions are in dollars. So in terms of dominance in the transaction space, dollar is still pretty strong. Maybe >> that should be the more accurate measure. We shouldn't look at like the cross if you type in where it's trading on any given day versus the euro. >> That's the value of the dollar where it trades. So people confuse the price of the dollar versus the euro, the DXY, the yen, the British pound, whatever number, whatever currency you want to do it with. If the dollar remains dominant, the dollar remains dominant. And the reason that the dollar remains dominant, it's not because everyone wants dollars per se. It's because when you hold dollars as a reserve, you don't keep the dollars in your account as dollars. You invest it either in treasuries or in stocks or anything. So the curious capital markets are the most liquid liquid transparent market in the world. If that wasn't the case, everyone would be holding Raimi right now and Raimi bonds. If the if why why why doesn't anyone have uh is anyone holding FX reserves on China which is second biggest economy in the world >> it disproportionate the amount of dollars you have versus China if we took it if in a GDP if we were to combine if if I were to weight it in GDP terms and that's a simplified way to do it but let's say for the sake of discussion you wouldn't be having 88% of one and 3% of the there. >> Why? Because if you hold if you accumulate Chinese currency, what are you going to do with it? Buy Chinese bonds. Okay. And when you want to sell them and you want to repatriate your Chinese one to dollars, will they allow you? No, they won't. They have capitals with $50,000 per year quota. So the US dollar is a derivative of the capital markets that it's uh uh covering >> and and you it sounds like you reject the idea that that's changing because I think what people would say or what they have been saying is that that is a vestage of the old system and now everyone's woken up to the fact that uh you know that the sort of power of the US and that that is going to change and people will try to diversify But you said you you seem skeptical. >> A it will change eventually it will change. Nothing stays as is. My my my my answer to this if it's going to change the next 10 years I find it highly unlikely in the next 10 years for that to change in a way which is material not to change by 3% and say that this is the end because since 2017 I've been hearing that Iran and China will be trading oil in in in remimi the volume has marginally gone up why because no one wants to house Rimi bottom line that and so explain the sta this I think the stable coin point and and um I think some of us are aware of that. Um do you see this happening? I know that the the political winds have changed in DC but do you actually see this taking place over the next couple of years where we will see people around the world adopting stable coins? like is the infrastructure there for that that will create that demand for treasuries or is that still need to be built because I know you are in this space >> it it's it's already built >> if it can hold the volume that we're talking now I'm I'm not sure it can right now but I'm sure it's being developed if you can hold $300 billion right now I'm pretty sure you can in two years you'll be holding two trillion or three trillion we're already there so the the the the the the layer one biggest part has been constructed. Now >> that's layer one of of the blockchain when you're talking about that >> layer one of the blockchain the the infrastructure the when when you're building a building you put the the the how do you call them in the ground the the where the whole building is being held. So the the the basic infrastructure is there >> obviously it's going to be is going to need to be scaled and things are being built right now. I'll give you an example because most who haven't lived outside America or hasn't been in a country which is not developed do not know that. Let I'll take you extreme points to make my point. Let's assume that I'm in Nigeria. I'm in Kenya. I'm in Indonesia. I don't know. And I want to transfer money to my cousin in Argentina. And I want to transfer dollars. Not even do effects. I have dollars and I want to transfer. It's going to take at least a week. >> It's going to take a few correspondence bank which a bank will need to have in a correspondent bank and the correspondence bank will have to talk to another correspondent bank and the correspondence bank will need to talk to the bank of my cousin in order to do that transfer and that's fees fees fees fees fees fees it will take a week >> time for sure >> time time it will take money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money and it could happen and also for the example I gave it might not be able to happen depending on the bank Now I have a mobile phone. You have a mobile phone. You're in Argentina. I'm in Greece, but I could be in Indonesia. And you ask for $100,000 and have them in stable cards. You'll have them on your phone in less than a minute. It's a game changer. It's a game changer. The infrastructure that's being built is a multiplier on liquidity, a multiplier on M2. It's a multiplier on economic growth. So, >> and it's dollar based, which I think is important. >> And it's dollar based. >> So, yours I think you made an interesting point in something I read that when you when people are talking about US debt, you think they're looking at the wrong things, right? You think they're they're sort of uh coming coming up with >> I was thinking and I was laying I was I I I I put an idea out there and maybe my metric is wrong, but I'll tell you the thinking behind it. So you'll read that US debt is 37 trillion. Correct? Something like that. >> Yeah, something like that. >> And uh it's unsustainable and uh the US can't fund itself and all the things that we read on headlines. First of all, very important, 50% of all debt issued outside the US by non US uh participants, that being a European company, another government, right, is in dollars. Why do they do that? Why do they issue debt in dollars when they're in Turkey? They issuing dollars in Turkey because everyone will buy dollars. it has a lower interest rate and they feel that they do not have the currency risk >> why don't they issue in in Turkish L now what's the problem here and what's what's the benefit and what's the problem since the world is so financialized and integrated these dollars if the Turkish company cannot repay the dollar bond that it issued it needs to go in the market and find dollars to buy to repay it's not holding dollars so When there's a dollar crisis, all these companies are in search of dollars. So the demand for dollars outside the US goes through the roof. That's how the system is constructed. I'm not arguing if it's right or wrong, but that's how the system is constructed. So now you have the US economy whose GDP is 30 trillion and uh 88% of the global transactions are in dollars. 50% of the the the invoices are in dollars. So my question is when you're talking about debt to GDP, why are you using US GDP? Well, the dollar is bigger than the US. >> The dollar is everywhere. So why is your denominator US GDP? My argument is that it should be something bigger than the US GDP. I don't know what the right metric is and we could sit with 10 economists and 10 statisticians and find the perfect formula. But the bank of an doing a back of an envelope exercise saying that what's global GDP 114 trillion okay how much of these invoices are in dollars in in terms 54% so let's assume that 61% 61 trillion 68 trillion something like 60 trillion are in dollars why not divide it by 60 trillion I'm dividing it by 30 if I divide it by 60 trillion are the metrics we just discussed so horrible suddenly they're M >> again this is a back of an envelope exercise which I'm trying to put an idea on the table saying that if the dollar is the currency of the world then maybe when we compare its metrics it should be it shouldn't be confined only to dollar GDP I'm not saying I'm right I'm wrong I'm just saying an idea and I think it should be thought and I think given that everyone wants dollars given that everyone feels comfortable with dollars and given that if you were to shut down dollar liquidity in the world, the world would collapse. If tomorrow morning there was no dollar liquidity, the world would collapse economically, you would have a financial crisis like never seen before and probably those outside the US will have a bigger crisis than the actual United States. So >> I think this is super interesting. uh drop your comments in uh for all you economists out there um because I think this is a a really fascinating discussion but um you know there are folks out there who talk about the Euro dollar market which is I think what you're referring to this vast funding that is outside the border of the US and we it just sort of very rarely comes up in conversation those of you who know Jeff Snyder he's all over it all the time but um but it it it's really fascinating to to and I would love to hear people's uh thoughts about why why we wouldn't do that because it does change the conversation. I I want to switch gears slightly because I think this is really important part of this when we're talking about global funding and the sort of mechanics of the global economy. Um, and that's your view on China because it is, you know, we're in a world where the US and China are, you you brought up the RAMI already, right? China's currency. Um, and it's hard sometimes to know what's going on, but you have an interesting view on China as well, I think. So, walk us through a little bit in terms of what you see happening in China right now. Look, I I I spent a lot of time ding digging data on the Chinese economy and I've been doing this for 10 years. And the reason I I've been doing it is because it was not available. So, it's like these things like a small child when you tell him you can't do something and he will do it until you you get into a fight with him. So I decided to find out what the hell was going on on China. And what I don't like is because the US data is so available to everyone. Everyone does the easy work of judging the US for better or for worse. I'm not they're doing a good job. They're doing an analysis. When you tell them, okay, fine, that's your findings on the US economy, whatever that is. Now please tell me what the findings on the Chinese economy is and let's discuss because you're saying that China will dominate the world. You're saying that China is now controlling the world. Whatever that discussion may be please give me some data. And then they never come back with any information. They just uh bang on the US for the bad things it's doing. And that is mainly because the information on Chinese economy is very very hard to find and you need to triangulate the information in order to get a good proxy. So that um having said that I I've done the work to try and understand a bit how the Chinese economy has been uh doing. Let me give you two two numbers for people to understand. So the US economy is 30 trillion economy and has an M2 for those who don't know what M2 is is the money that circulates in an economy. Uh M2 is a bit broader than the actual cash. It has checks and other stuff but it's the liquidity that goes around in the US economy. So the US economy has a GDP of 30 trillion and an M2 of around 20 trillion. Okay. Now the Chinese economy which has an a GDP of 18 to 20 trillion um all numbers are in dollars so we can compare. >> I've done the effects in order to be to be comparing apples to apples. Of course if I give other currencies it's going to be very hard to compare. So all numbers I'm going to be mentioning are in dollars for compar for for reasons of comparison. has an M2 of 47 trillion. 20 trillion GDP, 47 M2. In 2010, the US and China had the same M2. So if all this M2 is going through the roof, you would have expected the Chinese economy to be growing right now and doing much better. >> So what has happened? You have capital controls. So money cannot leave the country. So it's like a balloon where you pour putting hot air. So you increase the money supply, increase the money supply, but the money can't leave. Okay? Because you have capital controls. So what are you doing? What what is China doing? China has a huge real estate bubble. Real estate the balance sheets of the Chinese banks are over 60 trillion. So that's three times the GDP. Three times the GDP with the balance sheet where they've never taken any provision for non-performing loans. Their provisions are 1%. >> So nothing's failed. No failures, no defaults, no >> Yeah, they're not even. And we know how bad Chinese real estate is doing. It's not me saying it. It's everywhere. So, there's been a huge correction and they're still taking 1% provisions where >> they feel like they processed that bubble because I I've had people say they've managed it. >> They haven't managed it. It's a it's it's on a balance sheet of a bank that the government allows it to have it >> and to postpone it. So if I'm if let's say I owe you a million dollars, okay, you have and I have to pay you in a year. Okay, let's say it's one year loan. If you and I agree that this loan goes to 100 years, I still owe you 1 million. Obviously, the net present value is different, but when the government allows you to hold it at face value, I still owe you 1 million, but I'll pay it in 100 years. >> Is is the value on your balance sheet accurate now of you reporting that you have a 1 million loan? It's not a 1 million, not a 500,000, $300,000 loan if you put the net present value. >> So, because the Chinese government allows it, there's a huge gap. So now let's put the back of the envelope exercise again. A 60 trillion asset balance sheet 60 6 trillion uh balance sheet. You have assets having fallen 10%. 12%, 20%, let's say 10%, that's 6 trillion. That's a 6 trillion hole in the banking system on an 18 trillion economy. So it's like 30% of GDP. And what I'm telling you here is a conservative number. If we go to 20%, that's 12 trillion. The only reason that you don't see a crisis is because they extend and pretend. If you look at GDP numbers in China, you'll see that they have deflation. It's obvious they have deflation. They have like 1 2% deflation. So if they have deflation, what are they trying to do? They're trying to export and get the revenues in the dollars they're missing from abroad. >> And Trump comes up because Scott Besson obviously as a hedge fund manager and a microtrer is probably aware of all the discussion we're having here. And I'm pretty sure he has five analysts digging any number that exists in the world. And being the Fed and the Treasury, they have more data than I have. So I'm pretty sure they're doing a better a better job than I do. They say, "Okay, you want to negotiate? I'm going to put tariffs." So, what do what are they doing? Effectively, they're trying to implode China from within. And by and because the number one priority of the Chinese government is to remain in power, it's putting pressure on the Chinese government to sit on the table of negotiations and negotiate whatever the US government wants to negotiate. So that >> they don't seem like they've been they don't seem like they have been um terribly well they're putting a good poker face because they stopped you know importing soybeans like they've been they've been they banned crit critical minerals. They're pulling the levers they have as well. >> Yes they are. Of course they're not going to sit and wait but the but let's let's >> it sounds like they have a weak hand what you're saying. No, >> I'm saying the following. If we read the headlines of any newspaper in the world, we think that the the Donald Trump uh administration regarding tariffs is doing the stupidest thing in the world. If you look at it from a pure economic perspective and the economics that we've all been uh we've studied in universities from that point, yes, it doesn't make sense. If now your point is a strategic uh argument whereas you have to negotiate with China on a thousand things when you have to make sure that the US supremacy remains in power for the foreseeable future then it's another discussion. >> So people go and see that the headline which says tariffs will create inflation, tariffs are not productive, tariffs will destroy the economy. If you if we take a textbook of economics is what it says. If if you go a bit broader and see okay do I care as a US person for the US to remain the global reserve currency to remain the dominant power hand and end maybe it's a small price to pay. M >> I it's not easy for me to quantify if the pros and cons but it feels to me that that's the tag of war that the government is facing internally in terms of doing what it's doing. So I think China is on wooden legs or sudden legs I don't know how you call it in English but >> all of the above. >> All of the above. It's not it's not on solid on a solid footing >> and I think the US government knows that and it tries to pressure. Now the latest pressure which is interesting here and I'm talking as a macro investor is that the Japanese government has allowed the long end of the curve to go up. >> Mhm. Now everyone runs to say, "Oh my god, the Japanese economy is going to implode. The debt is unsustainable. Everyone's selling uh the long end of the curve. Japan whatever." I'll ask a different question. What if Japan which has been a long ally of the US government and has never been has doesn't see eye to eye with the Chinese government is doing so in order to allow the yen to devalue. Devaluing the yen puts enormous pressure on the Chinese economy because suddenly you have an equal or better product selling at a cheaper price. So suddenly you have a second problem for the Chinese economy. So there are direct and indirect ways where the US government can pressure China where people do not well you need to to to to to have spent a lot of hours on this to to be able to to to to see them. But I don't think it's done because market forces have allowed uh the the the bond market to to fall. It's done meticulously and it's done on purpose and the goal is for the yen >> to go lower. That's my view on that. >> So that that's a very very interesting concept. And by by the way, we know the Japanese are, you know, have more uh experience intervening in markets than than anyone. They've so actively done it for so long that it it would be >> incredible. They've written the textbook. >> Yeah. Yeah. They they wrote the textbook on it, right? So that's that's a very interesting point. uh is a de it sounds like you is there a path out for China without a banking crisis? Is there a path for them to because we're all struggling under this debt? So you're you're just you've you've laid out um why you think the US if you look at it at a different lens maybe the US debt situation isn't quite as dire uh in the near term if you look at it against the broad use of dollars and it sounds like you think the China situation is worse than most people assume that they have not dealt with their real estate bubble bursting. Is there a path out for them that you currently see without without a severe banking crisis? >> Okay. China has from an economic point of view two ways out and if compared to Japan in the 90s it can either do what Japan so what does China what has China done it has invested a lot in investment and manufacturing and growth has come from the investment and manufacturing component of the economy not from the consumption part of the economy like in the west >> right which they've tried to change but it's not worked. They've tried to stimulate consumption. >> Yeah. In in the west, the west made another mistake. Although it was dependent on consumption, it allowed production to go away. >> So now Trump administration is trying to bring production back into the economy in order to make it more resilient. In the Chinese government, they've invested a lot in manufacturing and in uh uh investments. That's why they've built bridges to nowhere and we have so many ghost towns and everything but consumption is I think around 38% of the economy something like that if I'm not mistaken I don't remember the number however to take it to 50%. It took Japan 15 years to do that. 1515. >> If there are two ways to do this either you do it gradually like Japan did it. So you'll have the lost decade as we call it. So China will remain where it is now for the next 10 years and slowly it will amortize the debts and it will amortize the growth and eventually we'll get to the numbers which are more sustainable. And maybe it's not 10 years for China, it's 20 years, I don't know. or it can do it but it will need it will cost a lot of money. So another scenario which I don't think the Chinese government will do but if if we're playing what if scenarios here is okay how much do Chinese banks need to be recapitalized let's say 10 trillion okay we need $10 trillion to recapitalize let's do a bailing let's use deposits to save us money to do the bailing we do the bailing we we restructure the banks what do we do next we allow the currency to devalue because we need to devalue it and make it productive. And then what do we do to stabilize the situation? Maybe we peg it to gold or we put gold equivalents. So suddenly you stabilize the economy and you take it from a new footing. But this is not an exercise easy if you're the government of China because you're going to create a huge unrest >> and to increase consumption you have to reduce savings. So it's not an easy exercise. >> It feels to me that we're more close to going to a Japanese model will take 10 to 15 years >> and depending on the relationship with the US, the US will allow it and will help in various moments to accommodate for the uh for things to be smooth. >> And I think that's what probably Trump is telling them that he's going to be supportive provided that they do whatever he wants. And that's my that was my question because a destabilized China isn't in anyone's interest, is it? >> Look, I think it's in no one's interest. No. And but if I were to to to do a hypothesis, do you think the US government would mind if the entire world were to go back 10 years and the US economy were to go back three years in terms of productivity and everything? it will remain number one for the next 20 years. So I don't think that's what the US government wants. But in the worst case scenario and the most adverse scenario where there is a liquidity issue and China deflates and everyone needs dollars, who's the saver of last minute? Who's the only one who can give swap lines to the other central banks to create dollars? The Fed. Who doesn't have a swap line? China. China does not have a swap line with the US Fed. So the Fed does not give liquidity to the PBC. >> This is a this is this is a fantastic exercise, Michael, in trying to expand the way we think about this or just as we said in the beginning, just shift the lens. Uh let's finish up with what you think this means for gold because I think that you know this has been plugged into the whole move away from the US. We're in an era of rapidly rising gold prices. We've moved to a hard asset as we reset the global economy. >> Look, gold central banks have been buyers. So, you have a big bid for the past few years which obviously helps and then you have everyone buying and then you have the Chinese people who cannot save their money from the banking system who buy gold at a premium because gold in China trades at the premium to the US and people feel that this is something negative for the US. I don't think it's a negative for the US. It's if I have my money in China, I can't take it abroad. I want to save my money. What's my safest thing? Ah, I can buy gold. Great. Let me buy gold. I I I prefer buying gold at a premium and knowing that I have something in my hands than having it in the banking system which I feel is unstable. So, that has created huge demand. I think gold will continue to do well. I don't think it's going to do as well as it did in the past year in the sense that it's taking a step and then it's going to do well. If you look at gold, it rarely takes a high for few years doing around it. And I think given that the US economy is still okay, people will have an incentive to go to equities and crypto and stuff more risky. Uh so I think it will do well but I don't I think it will pause here for some time in my view. >> If you were to ask me buy gold and wait for five years I'd say of course no brainer that I would I would be holding gold and I hold gold. So I have a percentage of gold for many years I don't trade it. It's like a constant throughout time. >> I think everyone's rethinking that role in their portfolios because a lot of people had no exposure for because for years because of gold. So maybe we're in a Yeah, >> we could take gold as price and where we are today. >> Yeah. Okay. And people are going to say you're 55 minutes in and you haven't asked about the crypto market given what's happened. Um, but I think it's super important to lay out this framework that you're talking about and the lens you're looking at things through. So, not in terms of price action, but just in terms of of sort of growth and development um in in crypto. Um, what is your sense of what's happening? Is just this a natural part of the cycle? Are we are do you still see I mean we talked about stable coins but do you still see positive growth or is this price volatility still something that's a negative for that market? >> Okay for anyone having spent some time in crypto they will know that this kind of volatility happens now and then. It's not the first time. We've seen it a few times. It's never it's never pretty and it always creates jitters and it always brings back the people who say this is a bubble. This is a Ponzi scheme. There's no value to it. >> I just I just saw something on on LinkedIn where someone said there's absolutely no utility or value to Bitcoin. It only exists >> one thing. Okay. Stable coins for have proven that there is a value which is very tangible. >> So I think that's very very important and it's a huge market. It's not something small. So at face value, stable coins prove by themselves that the blockchain and money transactions on the blockchain and via a token have benefits. >> We can have a whole call for that, but I'm not going to explain but just >> now Bitcoin is something the only common thing that it has with the rest of the crypto space is that it's on a blockchain. But because it's technology and because everything that has to do with Bitcoin is different. It's only 21 million. It's a proof of work instead of a proof of stake. So, uh it's a bit different in terms of you transact. It takes more time, but it's more decentralized. It's always been compared to gold. M >> so if you ask a 25 year and I think you I'm probably sure you had guess mentioning the fourth turning and uh what it means but the fourth turning does not apply only in politics it applies also in investments you have a new generation if you talk to them about gold they will look at you like you're a UFO >> but they're talking to you anyone below 35 years old and you tell them about gold they'll think you're speaking another language if you go to anyone who's above 40 years old and you tell them about Bitcoin, they'll think that you're crazy and this is speculative money. I'm going to lose all my money. So, it's purely generational >> what we feel gold has been for 2,000 years. A new generation is coming and is telling us that that doesn't apply. We believe in something else. Better or for worse, but that's what they believe. So, there's a new generation which is now the dominant factor in an economy. M >> they're more than the boomers and we're seeing the forth turning which are not only going to challenge the political landscape which been seeing they're going to challenge also the economic scene because they're investing from their mobile phones sitting on a couch and buying Bitcoin and then buying Robin Hood and then buying gold and then doing whatever they do without even knowing what they're doing or because they do it from a Tell that to a baby boomer. She's going to think that you're crazy. >> Yeah, >> you understand. So, it's a generational >> I have and and I we we have kids, right, that I have kids that age and so they are not doing that yet. But you're right, it's very generational. Things are changing from a generation. What about on the stable core though? If Bitcoin's off on its own. >> So, so my top down analysis on crypto is it's a new technology. It's a technology that's here to stay. It's been through a few cycles. Bitcoin has dropped off its highs by 85% four times and it has survived. No other asset has corrected 85% from its highs and made it through. Bitcoin has done it four times. So I think it's something that's here to stay and as it grows, it matures and as it matures, it will start trading more like what we know and what we have known for many years. But we're still not there. It's only 15 years. 16 years old. So 2500 years, 16 years old. >> We're still a baby in >> the early days. >> Still a baby. So that's the thing. Now crypto has so many application. Blockchain and crypto is let's say the currency of the blockchain. Blockchain has so many applications. And I'll say something to to make people think a bit. I think blockchain is a solution to AI. And I'm going to and I'm going to explain What's the biggest fear of any AI user right now? What am I going to do when the deep fake will think that it's me and it not it's not me and deep fakes getting so good that eventually we don't know what's true and what's not. What if every ID has an NFT on a blockchain? You'll instantly know if this is a real a real or a fake one. M >> so I think there are applications on the blockchain which could provide a solution to problems that we think we have but we also have the solution and we haven't thought of bridging the two together so >> our company is this what you're is this the area that you're interested in do you think that there >> I spend some time on it >> I I spend a lot of time on on applications on the blockchain and tokenization of assets and how to to make things more efficient so my thing. My my my top down is there's a lot of talent going into the ecosystem. It's been there for a few years. It's always been challenged by the older people saying that this is just a Ponzi. Stable coins is the first proof, big proof that this thing is here to stay. The US government has embraced it. It has legislated on it. So, this thing is not stopping. Now, >> do we know the rails that stable coins? Do you imagine they will be on many blockchains and many in many ecosystems? >> The most dominant the most dominant one right now is Ethereum, but we'll see what happens in the future. I'm pretty sure you're going to have on a few of them. >> Yeah, >> but right now Ethereum is the most dominant one in terms of where stable coins are being built. >> Michael, this was such a fascinating conversation. Um, I am with you that we need more discussion and more thoughtprovoking ideas so that we can sort of expand our knowledge. but you certainly helped us do that today. So, thank you so much. You gave us a ton to think about. >> Thank you for having me. It was great being here. Anytime I'd love to have a discussion on any issue that I can help and I have something to contribute and, you know, feel free anytime to if anyone wants to ask me anything on Twitter, they can find me. I reply back. So, >> great. We'll find you on Twitter. Drop your comments uh below as well um on what you think of this and and we'll follow up as well. And as we say always when you're watching um if this raises questions for you, if you want to review your portfolio based on some of what you heard or as you continue to think about what near the next year and the next five years looks like um you can get a free portfolio review from one of the adviserss in the wealthy network. Just hit the description in the link or go to wealthy.comfree. Michael, thank you so much. Thanks to all of you for watching. We'll see you again next time.
Michael Nicoletos: Forget the Doom—Here’s What’s Actually Driving Markets Higher
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Transcript
The headlines do not give a complete view. I think the market still has legs. I think the US market will continue to go higher. Like it or not, people are taking their money from Europe, taking their money from Japan, taking it from whatever they can, and investing in the US stock market. Don't forget to sign up for a free portfolio review with one of our endorsed investment partners at wealthon.com/free. With markets hitting all-time highs, now is a great time to stress test your strategy and be prepared for what comes next. Hello and welcome to Wealthon. Maggie Lake and joining me to discuss the outlook for the global economy is Michael Nicolletus, the founder and CEO of Defi Advisors. Hi, Michael. It's such a pleasure to have you with us. >> Hi, Maggie. It's great to be here. Great to be back. Nice to be talking to you again. >> Most of our conversations happen on on on on Twitter, but it's always good to speak in person. >> It is. It is. And we are long overdue for a catch up. Um, and we're we're we're meeting up at a very interesting time. We're seeing a lot of volatility in markets. So I think maybe it's good to start uh with sort of the big picture and what kind of macro framework are you working off of right now? What do you think is happening in the global economy? >> Well, first let me say that it's interesting because depending on what news sources you read it the the reality varies. So, we live in a polarized world for the reasons we all know. And depending on which side the writer is, you tend to see a polarized view of what's happening. >> Either you're having a booming economy or you're having a collapsing economy or you have too much debt or the dollar is not sustainable or China is not sustainable. So, it needs to be dig you need to dig a bit deeper to understand what's happening. So the the headlines do not give a complete view. That's my my my my understanding. And the thing that I try to do is even if I disagree to try and write the other side and understand where they're coming from in order to have a complete uh view. I could be wrong, but at least that's how I frame my my thinking. Now where are we now? I think the US economy is doing fairly well. It has its issues. It's not collapsing. It's not having a runaway inflation that everyone expected. Uh you have inflation, but it's not a disaster. And I would argue that the Fed likes to have a bit of inflation more than what it uh wants to admit. It's a nice way to inflate the debt. So politically it's not something you can say, but I'm pretty sure that a a little bit more inflation than they would like to to acknowledge they're okay with. >> So that's a bit my understanding. Now uh the economy is still growing. The US economy is still growing. >> Europe has structural issues and if I we can put the third leg which is Asia and mostly China. China is facing its own issues internally which have a cascading event when it comes to trade agreements when it comes to deflationary pressures being exported out of China. So I think it's a tag of war when it comes to inflation as I mentioned before because China has deflation the west has inflation >> but things are not dramatic. Okay. So when we we when when the tariffs were announced initially, all the news wires and all the analysts were said talking about much higher inflation that we're seeing today. >> So yes, it's higher than it was, but it's not in a in an area where you're saying things are horribly bad. >> Now we have a Fed that's cutting rates. So it's a bit uh counterintuitive when you say there's inflation. Why is the Fed cutting rates? But the Fed has a dual mandate as most know which means that it's it needs to to look at full at uh full employment and price stability. So it's in the European Union has only price stability. It doesn't have full employment. So it has one mandate the ECB. So when the Fed its two mandates are diverging historically the Fed has cut rates. >> So this is something to to to look at and because unemployment is seems to be increasing. I think the Fed will continue to cut rates. Maybe not at the speed the market would like, but I think you'll be going into lower rates. If energy prices remain low or if they go lower, it would help I think the Fed to do so. And I think and my understanding is the discussions at uh President Trump with Saudi Arabia, he traveled there a month ago and now he was in the US. M >> I think there are discussions about where energy prices should be >> and there's also another discussion about investments in the US and I'm mentioning the second part because there's been a huge discussion how is this AI boom going to be funded because we hear billions and billions going around and we don't know where they're going to come from. So I guess part of it might come from Saudi Arabia. That's my assumption and that's how it feels to me at least. >> And if we go back to the 80s when the US did the agreement with the US to buy oil but the Saudis to buy US treasuries and that was the beginning of creating the US dollar global reserve. I think we're seeing something similar now where Saudi Arabia will try and keep energy prices at a level which is not painful and it's I would say helpful as well for the US and in the meantime it has agreed to invest in the US and the US to allow it to invest in strategic areas where it might not uh allow other countries to do so. Hm. So where so lots lots of threads in there uh which I'll come back to. But on the Saudi Arabia if if if they don't have the oil revenue, do they have enough revenue if oil prices are low to to make those kinds of investments? >> The the break even for Saudi Arabia is a very low price. >> It's lower than anyone else. >> And you don't buy that they're they don't have as much oil as they claim to have. Like there's a lot of you know conspiracies around like what is the balance sheet? >> Proven. So it doesn't feel like there's no not enough oil. >> So the question is I don't think the oil price is going to go to $20, but I think it's going to stay around the areas where it's now. Maybe a bit lower >> and that will be very helpful because remember there were times where we're talking about $200 barrels 15 years ago. Yeah. remember the stories where the oil would go to 200 and >> well there are a lot of them out there now because there is a very So you're you you you seem to be sort of poking holes in in a couple different narratives that have are very prominent right now and so one of them is that there is an AI bubble you and that that is about to burst. You sound like you don't think that is true. >> No no let me let me say something. What does an AI bubble mean? What I'm asking is is AI listed? Is it going to be are are we seeing all the big names listed on the stock exchange where the prices are are overpriced and going to burst? Most of AI is private. >> Most of AI that we're talking is private. So these are private investments. What does it mean for a private in Manson to burst? If the funding keeps coming, maybe the valuation is different. I'm not going to argue what the valuation should be, but unless there is a capital round or a capital raise or an exit, the valuation is a theoretical exercise. The only place where you see a valuation and you can call it a bubble is if there is a transaction or if there's a problem. So if we get a funding problem, maybe we'll see the we'll see something there. If we see someone wanting to exit and can't exit was but what does a bubble mean on a private market. >> So the the my question is here this is a strategic investment for the US. Okay. So I I believe that the US government has made it a priority in order to dominate in this sector. I don't know if it can. I'm not a specialist to tell you if it can, but I can tell you that that's what it wants. It's clear to me. >> So, one way or another, it's going to help fund these products and these projects. So, maybe it's overvalued. I'm not saying it's not, but at the end of the day, something that's overvalued A, can remain overvalued. be if you don't need money which you cannot find to fund it then if it if the value is 100 or if the value is a billion who cares only the person who books it cares and he can book whatever price he wants to book so I I'm not saying it there let me put let me rephrase what you just said is AI overhyped or not >> because overvalued I don't know if I can put I can I can say so I don't know if It's overhyped. Maybe it's overhyped of what it can do the next two years. I don't think it's overhyped of what it will do in 10 years. How do you manage this from an investment point of view? Well, I think and having I'm an investor in a small startup which does AI agents. Okay. >> So, what they're doing is they're specializing in a niche part of the AI agent business which is that collection. So they've decided to be specialized and looking at the market having been in this investment I see that there are not too many other companies doing the same thing. There are a lot of AI agents there not a lot of AI agents specializing in this and I see the company getting traction. I see a lot of companies asking for their business. So there is tangible value which can be uh extracted. If that value that everyone is discounting that's going to happen tomorrow morning is real. I don't know. But if you're an investor, you you you you can only control your entry price in a private investment. Okay? So the exit will come whenever it come especially if you're a minority. If you're a majority, it's a different point. But if you're a minority and you you can only control the the the the enterprise. If the enterprise is fine and the team is good, you're not in there for a trade to to flip it in 6 months. So unless it's a stock on the market, what does overvalid mean? I I hear that and I understand that people are worried that the hype is too much, but I don't know how to quantify it. And if I it was overvalued, how do I short it as an investor? >> Let's assume that we agreed. So how do I short it? There's no way for me to short it. Is there >> if there's one, please tell me because I I haven't found one. >> If you're looking for a simple, secure way to invest and own physical gold and silver, visit our sister company, Hardass Assets Alliance, at hardassetsalliance.com. That's hardassallalliance.com. I I think most of the concern is and and you're right to point that out. This is where um you know the the sort of narratives get simplified maybe in a way that is because I think people when they say that they're talking about Nvidia they're talking about the publicly listed companies um Microsoft Google Meta you know that that sort of have uh Amazon that have been dedicated dedicating capex to this and sort of shifting their business model from a capital light company to a I think it's centered on a very small group the mag seven that has been driving a lot of the US equity gains. I don't even know if it's a if it's a global story. I think that it's very centered on that small view. >> Great point. And let me clarify because the Mac 7 and the Nvidia case is very interesting and I'll say first of all I'll I'll I'll make a micro uh analysis and then a micro analysis. The micro analysis comes is if Nvidia overvalued if a five trillion company if if Nvidia is worth 5 trillion and you see people who says it's overvaluing you see people saying that it should be worth it will be worth 20 trillion. Okay first of all I'm I I don't know if it it should be valid 20 trillion or not. What I'm trying to say is that demand is still there >> and the demand for their chips is there. So the question one should be asking is the US government going to follow through on the capex it has announced. Is it going to find money to to do it? Is it going to find foreign investors to continue? And if these companies will continue to invest in that part of the business if the capex is there and the government is there. I my experience and that is me wearing an economics hat and not a a finance hat will tell you that this will not stop. When the government does capex on a specific sector, it usually helps the entire sector in ways that people do not understand at at at face value because this trickles down to to parts of the economy that on a on a first glance you can't anticipate. So my view would be that the question should be here a will the will the US government follow through on its capex regarding AI? I think yes and I say yes because I think it's a a national security issue. I think it's a priority one for the US government and it feels to me that this is something that even if Democrats do not agree with Donald Trump, it's a priority one for the national security of the US government and eventually they will agree there might be some negotiation or whatever. But I think it it should not be an issue where the government will stop. That that's at my my view. Now regarding the Max 7 and regarding their value, it's important to understand the structure of the market and how people trade. And this comes also to a question if markets are overvalued or not. The the way that markets have been trading has been trading through inflows. And when you get your 401k, you know better than me, or when you're a passive investor, what do you do? Most likely, you're going to buy an ETF. There are a few investors that are going to buy a pickup stocks. So if I buy the NASDAQ ETF because I believe technology is going to do well, what do I do? I reinforce the mechanism of putting more giving more money to the ones that have more weight on the index. >> Yeah. >> So it's an index trade. I buy the entire index and I'm going to buy PRA the allocations of the index. So I don't get to see if I'm going I don't I had a discussion someone asked me would you buy Nvidia here and the answer I gave him is I don't care if I would buy Nvidia here because if everyone's buying the NASDAQ ETF Nvidia is going to go higher even if you don't agree that Nvidia should go higher now because of the structure of the market because people have been investing so much in ETFs because for the first time as I can remember retail investors have outperformed professional investors because I buy an ETF, I do nothing. I pay fees, minimum fees, and I've done very, very well this year, at least until now. And I have the professional manager who has been worried about tariffs, who believes in volatility, who has been underweight markets, and has not done as well as me. I'm not saying he's wrong. I'm I'm not judging. I'm just stating the facts. And here comes the retail guy and says, "Why should I give you my money? I'm doing better than you are. So what's going to happen now? You have all the institutional base or not all most of it being underweight. They haven't performed well and at the end of the year when everyone starts to look at the numbers we're going to say oh my god why should I give my money to managers? That happens always on bull markets but it's happening again now. So why should I give my money to the managers and not do it on my own? So now the managers have a pressure to invest. So from uh looking at the market structure, I would say that the pain trade is on the upside, not on the downside. >> So I don't know if you agree or not. I'm I'm >> No, it's it's one thing I one thing I think is really important um and I'm I'm so glad we're having this conversation is to just if you if you switch your framing and you switch the questions you're asking how things can look very different and I think it's it's really important because that busting AI bubble has been a source of real fear and worry for people um because they're just sort of you know again it's it's kind of being narrowed down. Um but your point about uh investment both we know the passive flows we know the effect of that and you can argue that it might turn one time as folks like Mike Green do but >> it it will eventually turn >> right but for the moment if it's in it's in effect um then that's super important and then you know the the role of of governments now getting involved in markets in a way we haven't seen in decades super interesting right and and if you look through that lens again like very interesting let's do the same with energy then because I think this where your Saudi Arabia conversation. The other really uh strong uh narrative out there is okay, if you do believe AI is the sort of this next big tech revolution, you're going to need to power it and that's going to require huge amounts of energy. You're going to see a huge runup in energy prices because of that. Uh and so regardless of you know what you think this beat up sector like this is we are in sort of a commodity super cycle on the verge of a commodity super cycle because of that. But you sound like you think energy prices are going to remain subdued again maybe because of politics involved. How are you thinking about that? >> Aa are we going to have this AI demand tomorrow morning that's going to go through the roof? It's going to take some time. I'm not saying it's not going to happen, but it's not happening tomorrow morning. >> First thing. Second of all, think about it. If you're one of the biggest energy providers of the world is allowed to invest in that sector, they can help keep the prices lower >> and continue to to do well on both sides of the trade. If if Saudi Arabia decided to shut down the wells and price were to go to $100, I'm just, you know, speedballing here, but would it help its investment? No, it wouldn't. So, I think there there are discussions in rooms which I'm not in obviously, and I think there are discussions which are more strategic. And it feels to me that the issue if you and I are discussing this now on a podcast and if it's written all over the world in any newspaper I'm pretty sure that there are people really smart discussing this problem in a room is what I like to discuss on Twitter when everyone says that the Fed is wrong and the Fed is doesn't know what they're doing and and you have 160 PhDs that have information that you don't have because they have clearly more information than we have and we are the smart guys telling them what they should do. Okay? You know, you have to have you have to have some, you know, realization about what you don't know. >> So, I'm I'm saying I'm just saying here that there is information that we don't know and I think all the issues that are mentioned are risks and I think people that are smart enough are looking at it are looking into it. So yes, AI would be an energy problem. Is it a tomorrow morning to my energy problem? I don't think so. Is it a three-year problem? Yes, it is. Can it be resolved? I don't know. But people are find trying to find ways to do so. So, uh, we'll get there and we'll find out. But I don't think it's something that we need to worry now. when markets are at >> in all of the sorry sorry to interrupt you but it's so interesting because in all of the conversations about those narratives I always like to ask people well what role does innovation play um because if you've got this major problem seems to me that there is a huge incentive to solve it and so that the energy problem is exactly one of those examples. So, um, you're right, it is a risk, but are you telling me no one is working on an innovative way to address this that would obviously, you know, have a huge payoff if they were able to do it? That never comes up in the conversation. And I think you're sort of hinting at the fact that they've got three years and people are thinking really hard about this um to try to find a solution, at least leaving some room for that, which I think is interesting and again left out of the conversation a lot. Look, that's the problem of today's world where everyone becomes a fanatic about an opinion and I'm not you get one way AI is a bubble. AI is not a bubble. Energy price are collapsing. Energizers are going through the roof. Uh Donald Trump doesn't know what he's doing. Donald Trump is right. China is going to win the war. Okay, if it was that simple, probably we wouldn't have the debate. So I'm pretty sure there are arguments on both sides for any debate that we're talking about. The problem is that people do not sit down to have a discussion in a fashionable and normal manner and try to see what do you think, what do I think and let's try and think creatively and suddenly in 30 seconds you have people fighting on a camera, fighting on Twitter, fighting on anything. And I think the if we if we resolve the issue of discussion, we're going to resolve probably 80% of the problems that we're currently talking about. In any case, I I I I think the market still has legs. I think the US market will continue to go higher. It might be bumpy. Okay, I'm not saying it's going to be a straight line. >> Uh and I think that corrections are healthy that sense. So any correction is healthy and people trying to pick the top because the market corrected 3 4%. I think it's a bit premature. We're in beginning of a cutting cycle. It doesn't look like we're going to be raising any rates. So I think there's still room to go. I think there are issues like global flows and if you look at it all the global flows goes into the US like it or not people are taking their money from Europe, taking their money from Japan, taking it from wherever they can and investing the US stock market. So that global flow >> you don't think that's changing >> and I don't think it's changing now. I think it's it it posed in terms of treasuries uh and US treasuries but I think what the administration is doing now with the stable coins I think uh it's a pretty pretty smart move uh if you want me to elaborate on it but not per crypto sake per treasury sake and I don't know if you're if you're aware the genius act >> which was passed says what? Anyone can issue a stable coin, a US dollar stable coin, provided that they're backed by one to one dollar and dollar equivalents. So, and they are regulated. So, if if I issue $100 million in stable coin dollars, then I need to have $100 million in my bank account or 100 million worth of treasuries in my bank account and have it back to back. So, what does that do? It it it solves it it brings a solution to many of the US's problems. One is it it exponentially increases the total addressable market for treasuries because I'm I want US dollars on my mobile phone to transfer money. I don't care what you do with the US dollars but you are forced. You're not forced actually. You want to get interest. So what do you do? You buy treasuries. So suddenly you create demand for treasuries from third parties. Right now stable coins are around $300 billion. So that's a growth like in three four years you've gone to $300 billion which is a huge number. If that number grows in the trillions suddenly you have a trillion demand any given day for US treasuries. In the meantime what do you do? You create the rails for do for transactions for global transactions on a blockchain whatever that blockchain is and those dollars transfer and trade on that chain. So everyone's been arguing that the swift system is obsolete and US is controlling everything and that should change. What if the US is changing it in its own terms again? So going 20 years forward if the most liquid tradable asset is a US dollar stable coin again the US has that power that that everyone fears that it's going to lose and people try to they see the dollar they they they confuse where the dollar is trading with the dominance of the smaller in terms of usage that the usage has been higher than than I can remember. 50% of global trade is in dollars. Uh 58% of FX reserves are in dollars. Uh what are eight more than 80% of transactions are in dollars. So in terms of dominance in the transaction space, dollar is still pretty strong. Maybe >> that should be the more accurate measure. We shouldn't look at like the cross if you type in where it's trading on any given day versus the euro. >> That's the value of the dollar where it trades. So people confuse the price of the dollar versus the euro, the DXY, the yen, the British pound, whatever number, whatever currency you want to do it with. If the dollar remains dominant, the dollar remains dominant. And the reason that the dollar remains dominant, it's not because everyone wants dollars per se. It's because when you hold dollars as a reserve, you don't keep the dollars in your account as dollars. You invest it either in treasuries or in stocks or anything. So the curious capital markets are the most liquid liquid transparent market in the world. If that wasn't the case, everyone would be holding Raimi right now and Raimi bonds. If the if why why why doesn't anyone have uh is anyone holding FX reserves on China which is second biggest economy in the world >> it disproportionate the amount of dollars you have versus China if we took it if in a GDP if we were to combine if if I were to weight it in GDP terms and that's a simplified way to do it but let's say for the sake of discussion you wouldn't be having 88% of one and 3% of the there. >> Why? Because if you hold if you accumulate Chinese currency, what are you going to do with it? Buy Chinese bonds. Okay. And when you want to sell them and you want to repatriate your Chinese one to dollars, will they allow you? No, they won't. They have capitals with $50,000 per year quota. So the US dollar is a derivative of the capital markets that it's uh uh covering >> and and you it sounds like you reject the idea that that's changing because I think what people would say or what they have been saying is that that is a vestage of the old system and now everyone's woken up to the fact that uh you know that the sort of power of the US and that that is going to change and people will try to diversify But you said you you seem skeptical. >> A it will change eventually it will change. Nothing stays as is. My my my my answer to this if it's going to change the next 10 years I find it highly unlikely in the next 10 years for that to change in a way which is material not to change by 3% and say that this is the end because since 2017 I've been hearing that Iran and China will be trading oil in in in remimi the volume has marginally gone up why because no one wants to house Rimi bottom line that and so explain the sta this I think the stable coin point and and um I think some of us are aware of that. Um do you see this happening? I know that the the political winds have changed in DC but do you actually see this taking place over the next couple of years where we will see people around the world adopting stable coins? like is the infrastructure there for that that will create that demand for treasuries or is that still need to be built because I know you are in this space >> it it's it's already built >> if it can hold the volume that we're talking now I'm I'm not sure it can right now but I'm sure it's being developed if you can hold $300 billion right now I'm pretty sure you can in two years you'll be holding two trillion or three trillion we're already there so the the the the the the layer one biggest part has been constructed. Now >> that's layer one of of the blockchain when you're talking about that >> layer one of the blockchain the the infrastructure the when when you're building a building you put the the the how do you call them in the ground the the where the whole building is being held. So the the the basic infrastructure is there >> obviously it's going to be is going to need to be scaled and things are being built right now. I'll give you an example because most who haven't lived outside America or hasn't been in a country which is not developed do not know that. Let I'll take you extreme points to make my point. Let's assume that I'm in Nigeria. I'm in Kenya. I'm in Indonesia. I don't know. And I want to transfer money to my cousin in Argentina. And I want to transfer dollars. Not even do effects. I have dollars and I want to transfer. It's going to take at least a week. >> It's going to take a few correspondence bank which a bank will need to have in a correspondent bank and the correspondence bank will have to talk to another correspondent bank and the correspondence bank will need to talk to the bank of my cousin in order to do that transfer and that's fees fees fees fees fees fees it will take a week >> time for sure >> time time it will take money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money money and it could happen and also for the example I gave it might not be able to happen depending on the bank Now I have a mobile phone. You have a mobile phone. You're in Argentina. I'm in Greece, but I could be in Indonesia. And you ask for $100,000 and have them in stable cards. You'll have them on your phone in less than a minute. It's a game changer. It's a game changer. The infrastructure that's being built is a multiplier on liquidity, a multiplier on M2. It's a multiplier on economic growth. So, >> and it's dollar based, which I think is important. >> And it's dollar based. >> So, yours I think you made an interesting point in something I read that when you when people are talking about US debt, you think they're looking at the wrong things, right? You think they're they're sort of uh coming coming up with >> I was thinking and I was laying I was I I I I put an idea out there and maybe my metric is wrong, but I'll tell you the thinking behind it. So you'll read that US debt is 37 trillion. Correct? Something like that. >> Yeah, something like that. >> And uh it's unsustainable and uh the US can't fund itself and all the things that we read on headlines. First of all, very important, 50% of all debt issued outside the US by non US uh participants, that being a European company, another government, right, is in dollars. Why do they do that? Why do they issue debt in dollars when they're in Turkey? They issuing dollars in Turkey because everyone will buy dollars. it has a lower interest rate and they feel that they do not have the currency risk >> why don't they issue in in Turkish L now what's the problem here and what's what's the benefit and what's the problem since the world is so financialized and integrated these dollars if the Turkish company cannot repay the dollar bond that it issued it needs to go in the market and find dollars to buy to repay it's not holding dollars so When there's a dollar crisis, all these companies are in search of dollars. So the demand for dollars outside the US goes through the roof. That's how the system is constructed. I'm not arguing if it's right or wrong, but that's how the system is constructed. So now you have the US economy whose GDP is 30 trillion and uh 88% of the global transactions are in dollars. 50% of the the the invoices are in dollars. So my question is when you're talking about debt to GDP, why are you using US GDP? Well, the dollar is bigger than the US. >> The dollar is everywhere. So why is your denominator US GDP? My argument is that it should be something bigger than the US GDP. I don't know what the right metric is and we could sit with 10 economists and 10 statisticians and find the perfect formula. But the bank of an doing a back of an envelope exercise saying that what's global GDP 114 trillion okay how much of these invoices are in dollars in in terms 54% so let's assume that 61% 61 trillion 68 trillion something like 60 trillion are in dollars why not divide it by 60 trillion I'm dividing it by 30 if I divide it by 60 trillion are the metrics we just discussed so horrible suddenly they're M >> again this is a back of an envelope exercise which I'm trying to put an idea on the table saying that if the dollar is the currency of the world then maybe when we compare its metrics it should be it shouldn't be confined only to dollar GDP I'm not saying I'm right I'm wrong I'm just saying an idea and I think it should be thought and I think given that everyone wants dollars given that everyone feels comfortable with dollars and given that if you were to shut down dollar liquidity in the world, the world would collapse. If tomorrow morning there was no dollar liquidity, the world would collapse economically, you would have a financial crisis like never seen before and probably those outside the US will have a bigger crisis than the actual United States. So >> I think this is super interesting. uh drop your comments in uh for all you economists out there um because I think this is a a really fascinating discussion but um you know there are folks out there who talk about the Euro dollar market which is I think what you're referring to this vast funding that is outside the border of the US and we it just sort of very rarely comes up in conversation those of you who know Jeff Snyder he's all over it all the time but um but it it it's really fascinating to to and I would love to hear people's uh thoughts about why why we wouldn't do that because it does change the conversation. I I want to switch gears slightly because I think this is really important part of this when we're talking about global funding and the sort of mechanics of the global economy. Um, and that's your view on China because it is, you know, we're in a world where the US and China are, you you brought up the RAMI already, right? China's currency. Um, and it's hard sometimes to know what's going on, but you have an interesting view on China as well, I think. So, walk us through a little bit in terms of what you see happening in China right now. Look, I I I spent a lot of time ding digging data on the Chinese economy and I've been doing this for 10 years. And the reason I I've been doing it is because it was not available. So, it's like these things like a small child when you tell him you can't do something and he will do it until you you get into a fight with him. So I decided to find out what the hell was going on on China. And what I don't like is because the US data is so available to everyone. Everyone does the easy work of judging the US for better or for worse. I'm not they're doing a good job. They're doing an analysis. When you tell them, okay, fine, that's your findings on the US economy, whatever that is. Now please tell me what the findings on the Chinese economy is and let's discuss because you're saying that China will dominate the world. You're saying that China is now controlling the world. Whatever that discussion may be please give me some data. And then they never come back with any information. They just uh bang on the US for the bad things it's doing. And that is mainly because the information on Chinese economy is very very hard to find and you need to triangulate the information in order to get a good proxy. So that um having said that I I've done the work to try and understand a bit how the Chinese economy has been uh doing. Let me give you two two numbers for people to understand. So the US economy is 30 trillion economy and has an M2 for those who don't know what M2 is is the money that circulates in an economy. Uh M2 is a bit broader than the actual cash. It has checks and other stuff but it's the liquidity that goes around in the US economy. So the US economy has a GDP of 30 trillion and an M2 of around 20 trillion. Okay. Now the Chinese economy which has an a GDP of 18 to 20 trillion um all numbers are in dollars so we can compare. >> I've done the effects in order to be to be comparing apples to apples. Of course if I give other currencies it's going to be very hard to compare. So all numbers I'm going to be mentioning are in dollars for compar for for reasons of comparison. has an M2 of 47 trillion. 20 trillion GDP, 47 M2. In 2010, the US and China had the same M2. So if all this M2 is going through the roof, you would have expected the Chinese economy to be growing right now and doing much better. >> So what has happened? You have capital controls. So money cannot leave the country. So it's like a balloon where you pour putting hot air. So you increase the money supply, increase the money supply, but the money can't leave. Okay? Because you have capital controls. So what are you doing? What what is China doing? China has a huge real estate bubble. Real estate the balance sheets of the Chinese banks are over 60 trillion. So that's three times the GDP. Three times the GDP with the balance sheet where they've never taken any provision for non-performing loans. Their provisions are 1%. >> So nothing's failed. No failures, no defaults, no >> Yeah, they're not even. And we know how bad Chinese real estate is doing. It's not me saying it. It's everywhere. So, there's been a huge correction and they're still taking 1% provisions where >> they feel like they processed that bubble because I I've had people say they've managed it. >> They haven't managed it. It's a it's it's on a balance sheet of a bank that the government allows it to have it >> and to postpone it. So if I'm if let's say I owe you a million dollars, okay, you have and I have to pay you in a year. Okay, let's say it's one year loan. If you and I agree that this loan goes to 100 years, I still owe you 1 million. Obviously, the net present value is different, but when the government allows you to hold it at face value, I still owe you 1 million, but I'll pay it in 100 years. >> Is is the value on your balance sheet accurate now of you reporting that you have a 1 million loan? It's not a 1 million, not a 500,000, $300,000 loan if you put the net present value. >> So, because the Chinese government allows it, there's a huge gap. So now let's put the back of the envelope exercise again. A 60 trillion asset balance sheet 60 6 trillion uh balance sheet. You have assets having fallen 10%. 12%, 20%, let's say 10%, that's 6 trillion. That's a 6 trillion hole in the banking system on an 18 trillion economy. So it's like 30% of GDP. And what I'm telling you here is a conservative number. If we go to 20%, that's 12 trillion. The only reason that you don't see a crisis is because they extend and pretend. If you look at GDP numbers in China, you'll see that they have deflation. It's obvious they have deflation. They have like 1 2% deflation. So if they have deflation, what are they trying to do? They're trying to export and get the revenues in the dollars they're missing from abroad. >> And Trump comes up because Scott Besson obviously as a hedge fund manager and a microtrer is probably aware of all the discussion we're having here. And I'm pretty sure he has five analysts digging any number that exists in the world. And being the Fed and the Treasury, they have more data than I have. So I'm pretty sure they're doing a better a better job than I do. They say, "Okay, you want to negotiate? I'm going to put tariffs." So, what do what are they doing? Effectively, they're trying to implode China from within. And by and because the number one priority of the Chinese government is to remain in power, it's putting pressure on the Chinese government to sit on the table of negotiations and negotiate whatever the US government wants to negotiate. So that >> they don't seem like they've been they don't seem like they have been um terribly well they're putting a good poker face because they stopped you know importing soybeans like they've been they've been they banned crit critical minerals. They're pulling the levers they have as well. >> Yes they are. Of course they're not going to sit and wait but the but let's let's >> it sounds like they have a weak hand what you're saying. No, >> I'm saying the following. If we read the headlines of any newspaper in the world, we think that the the Donald Trump uh administration regarding tariffs is doing the stupidest thing in the world. If you look at it from a pure economic perspective and the economics that we've all been uh we've studied in universities from that point, yes, it doesn't make sense. If now your point is a strategic uh argument whereas you have to negotiate with China on a thousand things when you have to make sure that the US supremacy remains in power for the foreseeable future then it's another discussion. >> So people go and see that the headline which says tariffs will create inflation, tariffs are not productive, tariffs will destroy the economy. If you if we take a textbook of economics is what it says. If if you go a bit broader and see okay do I care as a US person for the US to remain the global reserve currency to remain the dominant power hand and end maybe it's a small price to pay. M >> I it's not easy for me to quantify if the pros and cons but it feels to me that that's the tag of war that the government is facing internally in terms of doing what it's doing. So I think China is on wooden legs or sudden legs I don't know how you call it in English but >> all of the above. >> All of the above. It's not it's not on solid on a solid footing >> and I think the US government knows that and it tries to pressure. Now the latest pressure which is interesting here and I'm talking as a macro investor is that the Japanese government has allowed the long end of the curve to go up. >> Mhm. Now everyone runs to say, "Oh my god, the Japanese economy is going to implode. The debt is unsustainable. Everyone's selling uh the long end of the curve. Japan whatever." I'll ask a different question. What if Japan which has been a long ally of the US government and has never been has doesn't see eye to eye with the Chinese government is doing so in order to allow the yen to devalue. Devaluing the yen puts enormous pressure on the Chinese economy because suddenly you have an equal or better product selling at a cheaper price. So suddenly you have a second problem for the Chinese economy. So there are direct and indirect ways where the US government can pressure China where people do not well you need to to to to to have spent a lot of hours on this to to be able to to to to see them. But I don't think it's done because market forces have allowed uh the the the bond market to to fall. It's done meticulously and it's done on purpose and the goal is for the yen >> to go lower. That's my view on that. >> So that that's a very very interesting concept. And by by the way, we know the Japanese are, you know, have more uh experience intervening in markets than than anyone. They've so actively done it for so long that it it would be >> incredible. They've written the textbook. >> Yeah. Yeah. They they wrote the textbook on it, right? So that's that's a very interesting point. uh is a de it sounds like you is there a path out for China without a banking crisis? Is there a path for them to because we're all struggling under this debt? So you're you're just you've you've laid out um why you think the US if you look at it at a different lens maybe the US debt situation isn't quite as dire uh in the near term if you look at it against the broad use of dollars and it sounds like you think the China situation is worse than most people assume that they have not dealt with their real estate bubble bursting. Is there a path out for them that you currently see without without a severe banking crisis? >> Okay. China has from an economic point of view two ways out and if compared to Japan in the 90s it can either do what Japan so what does China what has China done it has invested a lot in investment and manufacturing and growth has come from the investment and manufacturing component of the economy not from the consumption part of the economy like in the west >> right which they've tried to change but it's not worked. They've tried to stimulate consumption. >> Yeah. In in the west, the west made another mistake. Although it was dependent on consumption, it allowed production to go away. >> So now Trump administration is trying to bring production back into the economy in order to make it more resilient. In the Chinese government, they've invested a lot in manufacturing and in uh uh investments. That's why they've built bridges to nowhere and we have so many ghost towns and everything but consumption is I think around 38% of the economy something like that if I'm not mistaken I don't remember the number however to take it to 50%. It took Japan 15 years to do that. 1515. >> If there are two ways to do this either you do it gradually like Japan did it. So you'll have the lost decade as we call it. So China will remain where it is now for the next 10 years and slowly it will amortize the debts and it will amortize the growth and eventually we'll get to the numbers which are more sustainable. And maybe it's not 10 years for China, it's 20 years, I don't know. or it can do it but it will need it will cost a lot of money. So another scenario which I don't think the Chinese government will do but if if we're playing what if scenarios here is okay how much do Chinese banks need to be recapitalized let's say 10 trillion okay we need $10 trillion to recapitalize let's do a bailing let's use deposits to save us money to do the bailing we do the bailing we we restructure the banks what do we do next we allow the currency to devalue because we need to devalue it and make it productive. And then what do we do to stabilize the situation? Maybe we peg it to gold or we put gold equivalents. So suddenly you stabilize the economy and you take it from a new footing. But this is not an exercise easy if you're the government of China because you're going to create a huge unrest >> and to increase consumption you have to reduce savings. So it's not an easy exercise. >> It feels to me that we're more close to going to a Japanese model will take 10 to 15 years >> and depending on the relationship with the US, the US will allow it and will help in various moments to accommodate for the uh for things to be smooth. >> And I think that's what probably Trump is telling them that he's going to be supportive provided that they do whatever he wants. And that's my that was my question because a destabilized China isn't in anyone's interest, is it? >> Look, I think it's in no one's interest. No. And but if I were to to to do a hypothesis, do you think the US government would mind if the entire world were to go back 10 years and the US economy were to go back three years in terms of productivity and everything? it will remain number one for the next 20 years. So I don't think that's what the US government wants. But in the worst case scenario and the most adverse scenario where there is a liquidity issue and China deflates and everyone needs dollars, who's the saver of last minute? Who's the only one who can give swap lines to the other central banks to create dollars? The Fed. Who doesn't have a swap line? China. China does not have a swap line with the US Fed. So the Fed does not give liquidity to the PBC. >> This is a this is this is a fantastic exercise, Michael, in trying to expand the way we think about this or just as we said in the beginning, just shift the lens. Uh let's finish up with what you think this means for gold because I think that you know this has been plugged into the whole move away from the US. We're in an era of rapidly rising gold prices. We've moved to a hard asset as we reset the global economy. >> Look, gold central banks have been buyers. So, you have a big bid for the past few years which obviously helps and then you have everyone buying and then you have the Chinese people who cannot save their money from the banking system who buy gold at a premium because gold in China trades at the premium to the US and people feel that this is something negative for the US. I don't think it's a negative for the US. It's if I have my money in China, I can't take it abroad. I want to save my money. What's my safest thing? Ah, I can buy gold. Great. Let me buy gold. I I I prefer buying gold at a premium and knowing that I have something in my hands than having it in the banking system which I feel is unstable. So, that has created huge demand. I think gold will continue to do well. I don't think it's going to do as well as it did in the past year in the sense that it's taking a step and then it's going to do well. If you look at gold, it rarely takes a high for few years doing around it. And I think given that the US economy is still okay, people will have an incentive to go to equities and crypto and stuff more risky. Uh so I think it will do well but I don't I think it will pause here for some time in my view. >> If you were to ask me buy gold and wait for five years I'd say of course no brainer that I would I would be holding gold and I hold gold. So I have a percentage of gold for many years I don't trade it. It's like a constant throughout time. >> I think everyone's rethinking that role in their portfolios because a lot of people had no exposure for because for years because of gold. So maybe we're in a Yeah, >> we could take gold as price and where we are today. >> Yeah. Okay. And people are going to say you're 55 minutes in and you haven't asked about the crypto market given what's happened. Um, but I think it's super important to lay out this framework that you're talking about and the lens you're looking at things through. So, not in terms of price action, but just in terms of of sort of growth and development um in in crypto. Um, what is your sense of what's happening? Is just this a natural part of the cycle? Are we are do you still see I mean we talked about stable coins but do you still see positive growth or is this price volatility still something that's a negative for that market? >> Okay for anyone having spent some time in crypto they will know that this kind of volatility happens now and then. It's not the first time. We've seen it a few times. It's never it's never pretty and it always creates jitters and it always brings back the people who say this is a bubble. This is a Ponzi scheme. There's no value to it. >> I just I just saw something on on LinkedIn where someone said there's absolutely no utility or value to Bitcoin. It only exists >> one thing. Okay. Stable coins for have proven that there is a value which is very tangible. >> So I think that's very very important and it's a huge market. It's not something small. So at face value, stable coins prove by themselves that the blockchain and money transactions on the blockchain and via a token have benefits. >> We can have a whole call for that, but I'm not going to explain but just >> now Bitcoin is something the only common thing that it has with the rest of the crypto space is that it's on a blockchain. But because it's technology and because everything that has to do with Bitcoin is different. It's only 21 million. It's a proof of work instead of a proof of stake. So, uh it's a bit different in terms of you transact. It takes more time, but it's more decentralized. It's always been compared to gold. M >> so if you ask a 25 year and I think you I'm probably sure you had guess mentioning the fourth turning and uh what it means but the fourth turning does not apply only in politics it applies also in investments you have a new generation if you talk to them about gold they will look at you like you're a UFO >> but they're talking to you anyone below 35 years old and you tell them about gold they'll think you're speaking another language if you go to anyone who's above 40 years old and you tell them about Bitcoin, they'll think that you're crazy and this is speculative money. I'm going to lose all my money. So, it's purely generational >> what we feel gold has been for 2,000 years. A new generation is coming and is telling us that that doesn't apply. We believe in something else. Better or for worse, but that's what they believe. So, there's a new generation which is now the dominant factor in an economy. M >> they're more than the boomers and we're seeing the forth turning which are not only going to challenge the political landscape which been seeing they're going to challenge also the economic scene because they're investing from their mobile phones sitting on a couch and buying Bitcoin and then buying Robin Hood and then buying gold and then doing whatever they do without even knowing what they're doing or because they do it from a Tell that to a baby boomer. She's going to think that you're crazy. >> Yeah, >> you understand. So, it's a generational >> I have and and I we we have kids, right, that I have kids that age and so they are not doing that yet. But you're right, it's very generational. Things are changing from a generation. What about on the stable core though? If Bitcoin's off on its own. >> So, so my top down analysis on crypto is it's a new technology. It's a technology that's here to stay. It's been through a few cycles. Bitcoin has dropped off its highs by 85% four times and it has survived. No other asset has corrected 85% from its highs and made it through. Bitcoin has done it four times. So I think it's something that's here to stay and as it grows, it matures and as it matures, it will start trading more like what we know and what we have known for many years. But we're still not there. It's only 15 years. 16 years old. So 2500 years, 16 years old. >> We're still a baby in >> the early days. >> Still a baby. So that's the thing. Now crypto has so many application. Blockchain and crypto is let's say the currency of the blockchain. Blockchain has so many applications. And I'll say something to to make people think a bit. I think blockchain is a solution to AI. And I'm going to and I'm going to explain What's the biggest fear of any AI user right now? What am I going to do when the deep fake will think that it's me and it not it's not me and deep fakes getting so good that eventually we don't know what's true and what's not. What if every ID has an NFT on a blockchain? You'll instantly know if this is a real a real or a fake one. M >> so I think there are applications on the blockchain which could provide a solution to problems that we think we have but we also have the solution and we haven't thought of bridging the two together so >> our company is this what you're is this the area that you're interested in do you think that there >> I spend some time on it >> I I spend a lot of time on on applications on the blockchain and tokenization of assets and how to to make things more efficient so my thing. My my my top down is there's a lot of talent going into the ecosystem. It's been there for a few years. It's always been challenged by the older people saying that this is just a Ponzi. Stable coins is the first proof, big proof that this thing is here to stay. The US government has embraced it. It has legislated on it. So, this thing is not stopping. Now, >> do we know the rails that stable coins? Do you imagine they will be on many blockchains and many in many ecosystems? >> The most dominant the most dominant one right now is Ethereum, but we'll see what happens in the future. I'm pretty sure you're going to have on a few of them. >> Yeah, >> but right now Ethereum is the most dominant one in terms of where stable coins are being built. >> Michael, this was such a fascinating conversation. Um, I am with you that we need more discussion and more thoughtprovoking ideas so that we can sort of expand our knowledge. but you certainly helped us do that today. So, thank you so much. You gave us a ton to think about. >> Thank you for having me. It was great being here. Anytime I'd love to have a discussion on any issue that I can help and I have something to contribute and, you know, feel free anytime to if anyone wants to ask me anything on Twitter, they can find me. I reply back. So, >> great. We'll find you on Twitter. Drop your comments uh below as well um on what you think of this and and we'll follow up as well. And as we say always when you're watching um if this raises questions for you, if you want to review your portfolio based on some of what you heard or as you continue to think about what near the next year and the next five years looks like um you can get a free portfolio review from one of the adviserss in the wealthy network. Just hit the description in the link or go to wealthy.comfree. Michael, thank you so much. Thanks to all of you for watching. We'll see you again next time.