Michael Green: How Speculative Behavior Is Shaping a Generation and Warping Market Reality
Summary
Market Structure: The guest argues passive investing has decoupled prices from fundamentals, creating momentum that disproportionately benefits the largest market-cap stocks.
US Equities: He is concerned about S&P/NASDAQ valuations, noting returns look unattractive long term as allocation-driven flows overwhelm fundamental analysis.
AI: He compares today’s AI buildout to the dot-com fiber glut, expecting consumer surplus gains but limited incremental revenue for most builders, with Google likely to dominate via ad-supported models.
Precious Metals: Gold’s surge is tied to China diversifying reserves away from Treasuries and trend-following by Western investors; he views gold as expensive relative to industrial commodities, with silver acting as a higher-beta play.
Bitcoin: He is bearish, calling it an antisocial, finite system that drives falling velocity, credit constraints, and extreme wealth concentration over time.
Oil/Energy: Energy storage constraints and costs can produce anomalies (e.g., negative oil prices), highlighting structural challenges versus easily stored precious metals.
Value Investing: He believes DCF and fundamentals remain vital, but their efficacy is muted in a passive-dominated “Keynesian beauty contest” where fewer participants price cash flows.
Companies Mentioned: Examples included Google (GOOGL), Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Cisco (CSCO), and Dell (DELL), cited to illustrate tech leadership and historical parallels.
Transcript
The market itself has become increasingly disassociated from fundamentals. It also has more importantly I think led to a nihilistic interpretation that these are no longer associated with fundamentals. We basically are treating the stock market as if it is a pure product of speculation. And the younger generation is reacting to the diminished prospects that they have of being able to succeed in life by adopting strategies that make sense in that framework. Don't forget to sign up for a free portfolio review with one of our endorsed investment partners at wealthon.comfree. So, let's talk about the financial markets now because uh I'm sure you would agree with me what we've seen here in the last few years is nothing short of craziness. And I I guess what really stands out to me is the level of speculation. And it doesn't matter what you look at. Like I think it was three or four years ago NFTTS were the big craze. Somebody paid $69 million at a Christy's auction for a NFT by an artist known as People. Just recently somebody paid $12 million for a a gold toilet at Sabes. And then you know there's so many other aspects when I look at cryptocurrencies and all the meme stocks. Um what's your sense of this the market right now when it comes to the speculation or the level of speculation we're seeing? >> Well, I think there's two separate components to it. One is the market itself has become increasingly disassociated from fundamentals. Um this is tied in large part to the work that I've done around the impact of passive investing. The style of investing that we use now for the vast majority of retirement accounts is simply to put money into index funds. Those index funds are allocated on the basis of market capitalization, not on the basis of fundamentals. That actually creates an endogenous momentum feature that leads to the largest stocks um outperforming significantly. There's academic research behind this at this stage. Um but it also has more importantly I think led to a nihilistic interpretation that these are no longer associated with fundamentals and therefore why does anything have to be associated with fundamentals right we basically are treating the stock market as if it is a pure product of speculation which doesn't have to be true it can be true um and the younger generation is reacting to the diminished prospects that they have of being able to succeed in life by adopting strategies that make sense in that framework. They take small bets with very asymmetric potential outcomes. They're very comfortable losing $500. That can be replenished quickly. What they want to see is the opportunity for that $500 to turn into $500,000. It's not particularly interesting if it turns into $550. The reality is what we would hope they're doing is putting aside 500 this year and that's growing to 550 and then the next year they add another 500 and that that combination grows by,00 etc. And so they slowly accumulate wealth. But if they do not see that as a path that works they're going to rationally engage in speculative activity. And unfortunately I think that's really what we're seeing. We're seeing people use levered strategies using products that they don't fully appreciate or understand but can look at the historical behavior of it going higher or the narrative that is being presented to them that it's a fate accomply that it's going to go higher in the future and you know they understandably are drawn to that because they are terrified about being trapped in the situation that they're currently in. So, I guess it goes back to what you said earlier. The younger generations, whether they be Gen Z's or young millennials, don't see the possibility of owning a home. So, the only way they can increase their wealth is by swinging from the fences and taking these big bets. Yeah, that is unfortunately what the analysis leads you towards is the interpretation that ultimately the younger generation does not see a path forward for themselves in which they slowly accumulate wealth and climb to the out of the bottom quintile into the second quintile, the third quintile, the fourth quentile and eventually have the opportunity to transition into the top quintiles of our income strata. You know the mobility across those strata has fallen significantly. the attractiveness of the outcomes in the middle of that distribution. Basically, what we call middle class has deteriorated significantly for some of the reasons that we talked about before. And as a result, the younger generation is looking at it and saying, why would I do this? This is pointless. Either get rich or die trying. >> The other aspect of speculation that uh I'm just astounded by is sports betting. And this has been legal now in the US for I think since 2018. It's now legal in 39 states, but you can't watch any game. It doesn't matter if it's football, hockey, baseball, whatever, and you're just inundated with these sports betting commercials. And I read an article recently that said on YouTube, any on any given month, there's 5 to six million searches on anything to do with trading, equity trading, FX trading, whatever, but 50 to 60 million searches on sports betting. >> Yeah. I mean, again, it's the same underlying phenomenon, right? If you think about American society, sometimes people will tell the story of Fred Smith and FedEx in which he was facing the inability to meet payroll, took the entire savings of the firm, went to Vegas, gambled, won enough to save the company. And this is treated as an inspirational story right now. I mean, just stop and think about if that had gone the reverse, we never would have heard of FedEx. And candidly, if he hadn't gone, maybe we never would have heard of FedEx as well. But this idea that gambling is part of making it through to that other side has just firmly grasped this younger generation, right? They don't see the baby boomers and the older generation setting down a path for them to succeed in the traditional framework and so they're forced to seek alternative approaches. >> So I want to talk about value investing. At one time you were a proponent of value investing using discounted cash flow models and whatever else to determine the value of various companies and equities. Um do you think of value investing as a thing of the past? Are we ever going to see it again? >> I think so. First of all, I want to be very clear. I think discounted cash flow analysis done properly and evaluating businesses on their ability to generate cash is ultimately always going to be critical. The problem is that we exist in a world that John Maynard Kanes identified very well roughly a hundred years ago. We exist in a Keynesian beauty contest. It's not what I think the forecast for free cash flows is. That allows me to determine my perception of value. If other people value it less, then it's trading at a discount to my expectation. I can buy it and ultimately the process of buying it if my forecast is correct means that I will earn extraordinary returns higher than my cost of capital associated with that. The issue is in the Keynesian beauty contest, it requires other people to be doing similar work. And when you move to passive index investing, you stop that process. Instead of a fundamental analysis driving the decision to buy or sell, it's driven by a participation process. I have a job. I have a 401k. Every two weeks, they withhold roughly 6% of my paycheck. That money then flows into the stock market. At no stage in that process am I doing an analysis of the cash flows of the company or the valuation associated with it. And as the marginal cap excuse me marginal capital flowing into the markets has become increasingly dominated by this systematic flow into index funds valuation has stopped working. You know the point I sometimes get into arguments with other value investors around this. I want to be very very clear. I still think that pro that approach and that process is critical and ultimately I don't think we should allow those skills to atrophy. The simple reality is part of the reason they're atrophying and part of the reason these people are losing their jobs is because they're not paying attention to that Keynesian beauty contest component. They're effectively screaming the emperor has no clothes at a nude beach, right? Nobody's surprised and the emperor is kind of pissed. I heard recently the number of people taking the CFA designation or applying for the CFA designation has dropped significantly in the last five years. That makes perfect sense. I see more and more people first of all objecting to components of the CFA institute and its behavior as a profit- seeeking institution rather than an education institution. But I think the more important component is is that it's being demonstrated that the skills that are being taught things like the discounted cash flow analysis process or the proper pricing of options etc that those just have less relevance. And so they've simultaneously made the process of obtaining the designation harder. the materials remain significantly outdated and the actual skill set that is developed doesn't have an immediate return on your um you know your earnings prospects because it's leading you to do something that by and large is counterproductive in today's regime. It shouldn't be a surprise that demand is falling. 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. >> So, you expressed some concern about the US economy and the strength of the US economy. Uh, what about the S&P and the NASDAQ? Are you concerned about valuations? And when we look out into 2026, do you expect a pullback? Well, I think the really critical thing to understand is is that the valuations are now largely an output of the allocation process. Right? If I have to put $1,000 to work, I don't really care about valuations per se. I have to put the money to work. And if I'm doing that in proportion to market capitalization, as I do within the vast majority of indices, I'm going to allocate more money to overvalued securities because they are more richly valued. they have a higher market capitalization by definition. So, you know, am I worried about valuations? Absolutely. I think on the long term, we're actually setting up conditions in which returns are extremely unattractive on a look forward basis. I think we're receiving signals in terms of areas to invest like data centers etc. that really don't reflect the underlying fundamentals here. Um, and so I think it's costic to our society. We first recognized this about 20 years ago in the aftermath of the dotcom cycle. An academic named Michael Jensen wrote a very influential piece called the agency costs of overvalued equities. He points out that unlike undervalued equities, there's really no mechanism for control. If a security is undervalued, I could theoretically mount a takeover campaign that would force management to change their behaviors. If the stock is really richly valued, I could theoretically short it and try to drive the price down, but management is not going to change their behavior based on me shorting the security unless I drive it down. So, when you have an environment like you have today where the dominant marginal flow is coming through passive investment vehicles, reinforcing momentum, causing the largest stocks to be the most positively affected. It's led to an investment wave that is of very dubious quality. >> So you talk about what uh the late 1990s and early 2000s and a lot of things we saw back then it was uh building out the internet and uh one company that comes to mind was Global Crossing. Do you remember that company? >> I remember it extremely well. Um, you know, so part of what was interesting about firms like Global Crossing or Level 3, etc. is very similar to what we're seeing with the AI buildout today. They made projections based on nearly unlimited demand for the services, which ended up being largely correct, but the source of that nearly unlimited demand actually turned out to be collapsing prices. And so, Global Crossing was actually I remember actually the the S1 perspectus around it and the issuance of debt. Um, you know, their model was that they were dealing with high value data that was being transmitted on a global basis. At the time, data was about $800 per megabit. Their model projected that that would continue and that would allow them to service any of the debt and have significant equity value. Instead, what we actually saw was the buildout of capacity occurred far ahead of the demand and then incremental technologies like what waved division multipplexing and amplification technology emerged that radically expanded the capacity of the infrastructure that was built. Just to give you some idea, level three I believe put 13 bas I think it's 13 fibers on a nationwide basis. One of those fibers today actually carries basically 30% of all the internet traffic in the United States, which is millions of times what they had originally anticipated. It's literally just the technology improved dramatically. I think ultimately AI is going to end up going down the same path. And I think what we're seeing with the emergence of Google as the the frontr runner is that ultimately this is just going to be another source of consumer surplus. It will in some form or another replace search services for most people, but just like search, it's likely to be controlled by Google and likely to be advertising supported. So, you know, I'd be very very surprised if this turns into significant additional revenue for the vast majority of the companies that are building out in the space. >> And so, I want to bring it back to 99 and 2000. And at that, as a reminder to our viewers, the market topped out in March of 2000. And in the ensuing two years, the NASDAQ lost somewhere between 75 to 80% of its market cap. Do you see the same thing happening now in this environment with what's happening with AI and Nvidia and all this entire sector? >> Well, I think that there's there's a number of things that are important. So, one, people try to draw a distinction between the dotcom cycle in 96 to 2000 and what we're experiencing today, highlighting the profitability of companies like Microsoft, Apple, etc. The dotcom cycle had plenty of profitable companies. Cisco was extraordinarily profitable. Microsoft was extraordinarily profitable. Dell was extraordinarily profitable. Um there were lots of hype companies and just like today there are lots of hype companies. We actually have an extraordinary number of publicly traded companies with negative earnings. Um that similarity is getting glossed over by people focusing on the largest most successful companies forgetting that those characteristics existed in the last cycle as well. Um, you know, what really happened in 2000 in my analysis was ultimately a portfolio rebalancing. And so, you know, we used to allocate capital typically on a three-year time horizon. In that rally from give or take 96 to 2000, growth outperformed, technology outperformed so dramatically that many institutions found themselves fantastically overallocated to technology and growth areas and starting in the first quarter of 200 um began to change their allocations sending money to things like small cap value like I used to manage. Um that process of reallocation is actually what caused the correction. It's what caused the subsequent rally in small caps and ultimately contributed to the recovery. That process of rebalancing and allocation has changed significantly. It's on a much tighter cadence today. There also tends to be much more acceptance that by buying a total market index, you're sideststepping many of the issues that might have existed before. But perversely, if you buy a total market index, you're presuming that the market is doing the rebalancing to things like small cap value, etc. And it just doesn't do that. It doesn't work that way. And so, you know, the really perverse component of this is that we have seen the market capitalization of many segments of the economy shrink to the lowest levels relative to the overall market we've ever seen in history. I just don't see a mechanism to change that unless people change their style of investing until a much more severe event emerges either through job loss, the retirement of the baby boomers, a changing regulatory environment, etc. >> Interesting points. So, I I want to get your views on a couple of asset classes. And I get the sense this year 2025, it's a transitional year. Uh, a lot of money moving into hard assets. And I'm going to look at gold for example. It's up 50% on the year. Copper is doing extremely well. Silver's doing extremely well. Oil is not, but that can change in a heartbeat as we both know. But what's your sense on precious metals in general and especially when it's compared to Bitcoin? We've been told Bitcoin's like people refer to it as digital gold. It's down I think 5% on the year. Seems to be very volatile. But what what's your sense on those two asset classes? Well, so very quickly um on Bitcoin, my views are very well known. Unfortunately, I think Bitcoin itself is a poorly understood asset class even by the people who are the proponents of it. Um because it is a program because it actually can be simulated in software. We can run it faster forward. And unfortunately, the BIS has done this, I've done this, etc. But what it always terminates in is an astonishing collapse because it is an it is an antisocial entity. At the end of the day, it plays like a game of monopoly in which a single winner emerges. Um, precious metals have done extraordinarily well this year. Um, that actually started back in 2022 with the Russian invasion of Ukraine and the US's confiscation of Russian reserves. We sent a very clear message to China that their reserves were not safe in US treasuries. They chose to d to um reinvest the proceeds associated with their tremendous trade surplus which has risen to a somewhat unfathomable level into gold. And that started the process of kicking off the buying of gold. I'd argue that western investors sometime around 2024 started to pay attention to the emerging trends and piled in. You know, look, I think gold is relatively expensive versus almost any industrial commodity, which is in my opinion the right way to compare it. As I look across the metals complex, as I look across the energy complex, it suggests to me that gold is captured by largely speculative components. Silver running is another example of that. If you can't afford to allocate to gold, silver, you can have a much larger impact in that market. It trades with higher beta, etc. Um, and so silver has started that process of outperforming things like copper. They're not good stores of value. They're not good speculative vehicles because they are so dense or so um uh they lack density in terms of materials. Storing copper is going to cost dramatically more than storing gold or silver for a similar amount of money, similar quantity of money that you've invested. Um, and those have lagged because of that. The industrial sectors are well behind those of the the precious metal sectors. Um, energy is similar, right? Where it is exceptionally expensive to store. This is why we saw things like negative oil prices in early 2000 when it became very clear that there was going to be a surplus of production with no place to put it. You can't put gold into your bathtub. It's toxic or I'm sorry, oil into your bath. You put gold in your bathtub, do weird thing, but maybe in your toilet as you were pointing out. Um, you know, but if you if you try to put oil in your bathtub, one, you're not going to store a meaningful amount. You're going to get maybe 55 gallons worth in a, you know, single barrel into your bathtub. It's just not worth that much money, right? So, like why go through the hassle and effort of introducing a toxic substance into your life? >> A lot of people are saying the move we've seen in gold this year is just a referendum on the US economy and the US dollar. What are your thoughts on that? >> I don't think that's really the case. I think that it's largely a function of momentum chasing and trend chasing combined with the need for countries like China to diversify away from investing in US treasuries. To the extent that's a verdict on the US dollar and the US economy, I think that's a different statement though. I I just don't buy into the category that says, you know, the BLS is hiding a ton of inflation and the actual inflation levels are running like crazy and people are responding to it by buying gold. Simple reality is if inflation is really running wild, you don't have the money to buy gold. >> One more comment or question before we wrap it up. Uh you said with regard to Bitcoin, only one winner emerges. What do you mean by that? Well, literally if you run Bitcoin through its cycle, what you discover is because Bitcoin itself is actually the distribution of tokens that are used to pay the accountants for maintaining the blockchain on the Bitcoin network. Um, as those rewards diminish, the thought process is that we will ultimately see transactions increase. Unfortunately, anytime you have a system in which there is a truly finite quantity of the currency, the prospect of loss on transaction gets higher and higher. As a result, the velocity of money falls. People's willingness to spend it falls and any transaction that you enter into ultimately runs a credit-like risk of confiscation by others. It also means that a traditional credit function which is endogenous money creation by the banking sector really can't happen in a Bitcoin world because there is no mechanism for forgiveness without absolute loss. When you run that system forward in a simulation, you discover that instead of um uh diversifying or distributing wealth as Bitcoin proponents have argued, instead it leads to concentration of wealth, a rising jinny coefficient. And this is empirically what we've seen, right? We've heard over and over again that Bitcoin is infinitely divisible, etc. That more and more people are going to be getting access to Bitcoin. And yet, if we actually look at the statistics in the in the Bitcoin universe, the genie coefficient is rising and rising to levels that make people tremendously poor. There's also the intergenerational transfer component, which is very simply that a child born 50 years from now has no access to native Bitcoin because the actual tokens have already been distributed. And so what you're talking about is all future generations are born in intense poverty in a Bitcoin framework. It's the reason why you can't enter a monopoly game halfway through, right? Everybody else has properties. Everybody else has money. You would lose almost immediately upon playing. And that same simulation holds in a Bitcoin world. >> Interesting comments. And I like the monopoly analogy. Well, Mike, this has been a great conversation and I always enjoy our chats. And as we wrap up, if someone would like to follow you online or check out your Substack, where can they go? >> Well, the easiest thing to do is I'm on Twitter asprofplum99. My firm is simplifyasset management. You can find us at www.simplify. us no.com. us. And if you're interested in my substack, it's yes, I give a fig.com. um it tends to be market commentary, although occasionally veer into things like social commentary, which is what you've seen for the past few weeks. >> Well, Mike, once again, thank you and all the best in 2026. >> Thank you. I appreciate it. >> 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. Thank you all for watching. We'll see you again next time.
Michael Green: How Speculative Behavior Is Shaping a Generation and Warping Market Reality
Summary
Transcript
The market itself has become increasingly disassociated from fundamentals. It also has more importantly I think led to a nihilistic interpretation that these are no longer associated with fundamentals. We basically are treating the stock market as if it is a pure product of speculation. And the younger generation is reacting to the diminished prospects that they have of being able to succeed in life by adopting strategies that make sense in that framework. Don't forget to sign up for a free portfolio review with one of our endorsed investment partners at wealthon.comfree. So, let's talk about the financial markets now because uh I'm sure you would agree with me what we've seen here in the last few years is nothing short of craziness. And I I guess what really stands out to me is the level of speculation. And it doesn't matter what you look at. Like I think it was three or four years ago NFTTS were the big craze. Somebody paid $69 million at a Christy's auction for a NFT by an artist known as People. Just recently somebody paid $12 million for a a gold toilet at Sabes. And then you know there's so many other aspects when I look at cryptocurrencies and all the meme stocks. Um what's your sense of this the market right now when it comes to the speculation or the level of speculation we're seeing? >> Well, I think there's two separate components to it. One is the market itself has become increasingly disassociated from fundamentals. Um this is tied in large part to the work that I've done around the impact of passive investing. The style of investing that we use now for the vast majority of retirement accounts is simply to put money into index funds. Those index funds are allocated on the basis of market capitalization, not on the basis of fundamentals. That actually creates an endogenous momentum feature that leads to the largest stocks um outperforming significantly. There's academic research behind this at this stage. Um but it also has more importantly I think led to a nihilistic interpretation that these are no longer associated with fundamentals and therefore why does anything have to be associated with fundamentals right we basically are treating the stock market as if it is a pure product of speculation which doesn't have to be true it can be true um and the younger generation is reacting to the diminished prospects that they have of being able to succeed in life by adopting strategies that make sense in that framework. They take small bets with very asymmetric potential outcomes. They're very comfortable losing $500. That can be replenished quickly. What they want to see is the opportunity for that $500 to turn into $500,000. It's not particularly interesting if it turns into $550. The reality is what we would hope they're doing is putting aside 500 this year and that's growing to 550 and then the next year they add another 500 and that that combination grows by,00 etc. And so they slowly accumulate wealth. But if they do not see that as a path that works they're going to rationally engage in speculative activity. And unfortunately I think that's really what we're seeing. We're seeing people use levered strategies using products that they don't fully appreciate or understand but can look at the historical behavior of it going higher or the narrative that is being presented to them that it's a fate accomply that it's going to go higher in the future and you know they understandably are drawn to that because they are terrified about being trapped in the situation that they're currently in. So, I guess it goes back to what you said earlier. The younger generations, whether they be Gen Z's or young millennials, don't see the possibility of owning a home. So, the only way they can increase their wealth is by swinging from the fences and taking these big bets. Yeah, that is unfortunately what the analysis leads you towards is the interpretation that ultimately the younger generation does not see a path forward for themselves in which they slowly accumulate wealth and climb to the out of the bottom quintile into the second quintile, the third quintile, the fourth quentile and eventually have the opportunity to transition into the top quintiles of our income strata. You know the mobility across those strata has fallen significantly. the attractiveness of the outcomes in the middle of that distribution. Basically, what we call middle class has deteriorated significantly for some of the reasons that we talked about before. And as a result, the younger generation is looking at it and saying, why would I do this? This is pointless. Either get rich or die trying. >> The other aspect of speculation that uh I'm just astounded by is sports betting. And this has been legal now in the US for I think since 2018. It's now legal in 39 states, but you can't watch any game. It doesn't matter if it's football, hockey, baseball, whatever, and you're just inundated with these sports betting commercials. And I read an article recently that said on YouTube, any on any given month, there's 5 to six million searches on anything to do with trading, equity trading, FX trading, whatever, but 50 to 60 million searches on sports betting. >> Yeah. I mean, again, it's the same underlying phenomenon, right? If you think about American society, sometimes people will tell the story of Fred Smith and FedEx in which he was facing the inability to meet payroll, took the entire savings of the firm, went to Vegas, gambled, won enough to save the company. And this is treated as an inspirational story right now. I mean, just stop and think about if that had gone the reverse, we never would have heard of FedEx. And candidly, if he hadn't gone, maybe we never would have heard of FedEx as well. But this idea that gambling is part of making it through to that other side has just firmly grasped this younger generation, right? They don't see the baby boomers and the older generation setting down a path for them to succeed in the traditional framework and so they're forced to seek alternative approaches. >> So I want to talk about value investing. At one time you were a proponent of value investing using discounted cash flow models and whatever else to determine the value of various companies and equities. Um do you think of value investing as a thing of the past? Are we ever going to see it again? >> I think so. First of all, I want to be very clear. I think discounted cash flow analysis done properly and evaluating businesses on their ability to generate cash is ultimately always going to be critical. The problem is that we exist in a world that John Maynard Kanes identified very well roughly a hundred years ago. We exist in a Keynesian beauty contest. It's not what I think the forecast for free cash flows is. That allows me to determine my perception of value. If other people value it less, then it's trading at a discount to my expectation. I can buy it and ultimately the process of buying it if my forecast is correct means that I will earn extraordinary returns higher than my cost of capital associated with that. The issue is in the Keynesian beauty contest, it requires other people to be doing similar work. And when you move to passive index investing, you stop that process. Instead of a fundamental analysis driving the decision to buy or sell, it's driven by a participation process. I have a job. I have a 401k. Every two weeks, they withhold roughly 6% of my paycheck. That money then flows into the stock market. At no stage in that process am I doing an analysis of the cash flows of the company or the valuation associated with it. And as the marginal cap excuse me marginal capital flowing into the markets has become increasingly dominated by this systematic flow into index funds valuation has stopped working. You know the point I sometimes get into arguments with other value investors around this. I want to be very very clear. I still think that pro that approach and that process is critical and ultimately I don't think we should allow those skills to atrophy. The simple reality is part of the reason they're atrophying and part of the reason these people are losing their jobs is because they're not paying attention to that Keynesian beauty contest component. They're effectively screaming the emperor has no clothes at a nude beach, right? Nobody's surprised and the emperor is kind of pissed. I heard recently the number of people taking the CFA designation or applying for the CFA designation has dropped significantly in the last five years. That makes perfect sense. I see more and more people first of all objecting to components of the CFA institute and its behavior as a profit- seeeking institution rather than an education institution. But I think the more important component is is that it's being demonstrated that the skills that are being taught things like the discounted cash flow analysis process or the proper pricing of options etc that those just have less relevance. And so they've simultaneously made the process of obtaining the designation harder. the materials remain significantly outdated and the actual skill set that is developed doesn't have an immediate return on your um you know your earnings prospects because it's leading you to do something that by and large is counterproductive in today's regime. It shouldn't be a surprise that demand is falling. 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. >> So, you expressed some concern about the US economy and the strength of the US economy. Uh, what about the S&P and the NASDAQ? Are you concerned about valuations? And when we look out into 2026, do you expect a pullback? Well, I think the really critical thing to understand is is that the valuations are now largely an output of the allocation process. Right? If I have to put $1,000 to work, I don't really care about valuations per se. I have to put the money to work. And if I'm doing that in proportion to market capitalization, as I do within the vast majority of indices, I'm going to allocate more money to overvalued securities because they are more richly valued. they have a higher market capitalization by definition. So, you know, am I worried about valuations? Absolutely. I think on the long term, we're actually setting up conditions in which returns are extremely unattractive on a look forward basis. I think we're receiving signals in terms of areas to invest like data centers etc. that really don't reflect the underlying fundamentals here. Um, and so I think it's costic to our society. We first recognized this about 20 years ago in the aftermath of the dotcom cycle. An academic named Michael Jensen wrote a very influential piece called the agency costs of overvalued equities. He points out that unlike undervalued equities, there's really no mechanism for control. If a security is undervalued, I could theoretically mount a takeover campaign that would force management to change their behaviors. If the stock is really richly valued, I could theoretically short it and try to drive the price down, but management is not going to change their behavior based on me shorting the security unless I drive it down. So, when you have an environment like you have today where the dominant marginal flow is coming through passive investment vehicles, reinforcing momentum, causing the largest stocks to be the most positively affected. It's led to an investment wave that is of very dubious quality. >> So you talk about what uh the late 1990s and early 2000s and a lot of things we saw back then it was uh building out the internet and uh one company that comes to mind was Global Crossing. Do you remember that company? >> I remember it extremely well. Um, you know, so part of what was interesting about firms like Global Crossing or Level 3, etc. is very similar to what we're seeing with the AI buildout today. They made projections based on nearly unlimited demand for the services, which ended up being largely correct, but the source of that nearly unlimited demand actually turned out to be collapsing prices. And so, Global Crossing was actually I remember actually the the S1 perspectus around it and the issuance of debt. Um, you know, their model was that they were dealing with high value data that was being transmitted on a global basis. At the time, data was about $800 per megabit. Their model projected that that would continue and that would allow them to service any of the debt and have significant equity value. Instead, what we actually saw was the buildout of capacity occurred far ahead of the demand and then incremental technologies like what waved division multipplexing and amplification technology emerged that radically expanded the capacity of the infrastructure that was built. Just to give you some idea, level three I believe put 13 bas I think it's 13 fibers on a nationwide basis. One of those fibers today actually carries basically 30% of all the internet traffic in the United States, which is millions of times what they had originally anticipated. It's literally just the technology improved dramatically. I think ultimately AI is going to end up going down the same path. And I think what we're seeing with the emergence of Google as the the frontr runner is that ultimately this is just going to be another source of consumer surplus. It will in some form or another replace search services for most people, but just like search, it's likely to be controlled by Google and likely to be advertising supported. So, you know, I'd be very very surprised if this turns into significant additional revenue for the vast majority of the companies that are building out in the space. >> And so, I want to bring it back to 99 and 2000. And at that, as a reminder to our viewers, the market topped out in March of 2000. And in the ensuing two years, the NASDAQ lost somewhere between 75 to 80% of its market cap. Do you see the same thing happening now in this environment with what's happening with AI and Nvidia and all this entire sector? >> Well, I think that there's there's a number of things that are important. So, one, people try to draw a distinction between the dotcom cycle in 96 to 2000 and what we're experiencing today, highlighting the profitability of companies like Microsoft, Apple, etc. The dotcom cycle had plenty of profitable companies. Cisco was extraordinarily profitable. Microsoft was extraordinarily profitable. Dell was extraordinarily profitable. Um there were lots of hype companies and just like today there are lots of hype companies. We actually have an extraordinary number of publicly traded companies with negative earnings. Um that similarity is getting glossed over by people focusing on the largest most successful companies forgetting that those characteristics existed in the last cycle as well. Um, you know, what really happened in 2000 in my analysis was ultimately a portfolio rebalancing. And so, you know, we used to allocate capital typically on a three-year time horizon. In that rally from give or take 96 to 2000, growth outperformed, technology outperformed so dramatically that many institutions found themselves fantastically overallocated to technology and growth areas and starting in the first quarter of 200 um began to change their allocations sending money to things like small cap value like I used to manage. Um that process of reallocation is actually what caused the correction. It's what caused the subsequent rally in small caps and ultimately contributed to the recovery. That process of rebalancing and allocation has changed significantly. It's on a much tighter cadence today. There also tends to be much more acceptance that by buying a total market index, you're sideststepping many of the issues that might have existed before. But perversely, if you buy a total market index, you're presuming that the market is doing the rebalancing to things like small cap value, etc. And it just doesn't do that. It doesn't work that way. And so, you know, the really perverse component of this is that we have seen the market capitalization of many segments of the economy shrink to the lowest levels relative to the overall market we've ever seen in history. I just don't see a mechanism to change that unless people change their style of investing until a much more severe event emerges either through job loss, the retirement of the baby boomers, a changing regulatory environment, etc. >> Interesting points. So, I I want to get your views on a couple of asset classes. And I get the sense this year 2025, it's a transitional year. Uh, a lot of money moving into hard assets. And I'm going to look at gold for example. It's up 50% on the year. Copper is doing extremely well. Silver's doing extremely well. Oil is not, but that can change in a heartbeat as we both know. But what's your sense on precious metals in general and especially when it's compared to Bitcoin? We've been told Bitcoin's like people refer to it as digital gold. It's down I think 5% on the year. Seems to be very volatile. But what what's your sense on those two asset classes? Well, so very quickly um on Bitcoin, my views are very well known. Unfortunately, I think Bitcoin itself is a poorly understood asset class even by the people who are the proponents of it. Um because it is a program because it actually can be simulated in software. We can run it faster forward. And unfortunately, the BIS has done this, I've done this, etc. But what it always terminates in is an astonishing collapse because it is an it is an antisocial entity. At the end of the day, it plays like a game of monopoly in which a single winner emerges. Um, precious metals have done extraordinarily well this year. Um, that actually started back in 2022 with the Russian invasion of Ukraine and the US's confiscation of Russian reserves. We sent a very clear message to China that their reserves were not safe in US treasuries. They chose to d to um reinvest the proceeds associated with their tremendous trade surplus which has risen to a somewhat unfathomable level into gold. And that started the process of kicking off the buying of gold. I'd argue that western investors sometime around 2024 started to pay attention to the emerging trends and piled in. You know, look, I think gold is relatively expensive versus almost any industrial commodity, which is in my opinion the right way to compare it. As I look across the metals complex, as I look across the energy complex, it suggests to me that gold is captured by largely speculative components. Silver running is another example of that. If you can't afford to allocate to gold, silver, you can have a much larger impact in that market. It trades with higher beta, etc. Um, and so silver has started that process of outperforming things like copper. They're not good stores of value. They're not good speculative vehicles because they are so dense or so um uh they lack density in terms of materials. Storing copper is going to cost dramatically more than storing gold or silver for a similar amount of money, similar quantity of money that you've invested. Um, and those have lagged because of that. The industrial sectors are well behind those of the the precious metal sectors. Um, energy is similar, right? Where it is exceptionally expensive to store. This is why we saw things like negative oil prices in early 2000 when it became very clear that there was going to be a surplus of production with no place to put it. You can't put gold into your bathtub. It's toxic or I'm sorry, oil into your bath. You put gold in your bathtub, do weird thing, but maybe in your toilet as you were pointing out. Um, you know, but if you if you try to put oil in your bathtub, one, you're not going to store a meaningful amount. You're going to get maybe 55 gallons worth in a, you know, single barrel into your bathtub. It's just not worth that much money, right? So, like why go through the hassle and effort of introducing a toxic substance into your life? >> A lot of people are saying the move we've seen in gold this year is just a referendum on the US economy and the US dollar. What are your thoughts on that? >> I don't think that's really the case. I think that it's largely a function of momentum chasing and trend chasing combined with the need for countries like China to diversify away from investing in US treasuries. To the extent that's a verdict on the US dollar and the US economy, I think that's a different statement though. I I just don't buy into the category that says, you know, the BLS is hiding a ton of inflation and the actual inflation levels are running like crazy and people are responding to it by buying gold. Simple reality is if inflation is really running wild, you don't have the money to buy gold. >> One more comment or question before we wrap it up. Uh you said with regard to Bitcoin, only one winner emerges. What do you mean by that? Well, literally if you run Bitcoin through its cycle, what you discover is because Bitcoin itself is actually the distribution of tokens that are used to pay the accountants for maintaining the blockchain on the Bitcoin network. Um, as those rewards diminish, the thought process is that we will ultimately see transactions increase. Unfortunately, anytime you have a system in which there is a truly finite quantity of the currency, the prospect of loss on transaction gets higher and higher. As a result, the velocity of money falls. People's willingness to spend it falls and any transaction that you enter into ultimately runs a credit-like risk of confiscation by others. It also means that a traditional credit function which is endogenous money creation by the banking sector really can't happen in a Bitcoin world because there is no mechanism for forgiveness without absolute loss. When you run that system forward in a simulation, you discover that instead of um uh diversifying or distributing wealth as Bitcoin proponents have argued, instead it leads to concentration of wealth, a rising jinny coefficient. And this is empirically what we've seen, right? We've heard over and over again that Bitcoin is infinitely divisible, etc. That more and more people are going to be getting access to Bitcoin. And yet, if we actually look at the statistics in the in the Bitcoin universe, the genie coefficient is rising and rising to levels that make people tremendously poor. There's also the intergenerational transfer component, which is very simply that a child born 50 years from now has no access to native Bitcoin because the actual tokens have already been distributed. And so what you're talking about is all future generations are born in intense poverty in a Bitcoin framework. It's the reason why you can't enter a monopoly game halfway through, right? Everybody else has properties. Everybody else has money. You would lose almost immediately upon playing. And that same simulation holds in a Bitcoin world. >> Interesting comments. And I like the monopoly analogy. Well, Mike, this has been a great conversation and I always enjoy our chats. And as we wrap up, if someone would like to follow you online or check out your Substack, where can they go? >> Well, the easiest thing to do is I'm on Twitter asprofplum99. My firm is simplifyasset management. You can find us at www.simplify. us no.com. us. And if you're interested in my substack, it's yes, I give a fig.com. um it tends to be market commentary, although occasionally veer into things like social commentary, which is what you've seen for the past few weeks. >> Well, Mike, once again, thank you and all the best in 2026. >> Thank you. I appreciate it. >> 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. Thank you all for watching. We'll see you again next time.