I've been learning so much lately, and one of them was about making a post go viral on LinkedIn that allows you to game the LinkedIn algorithm to get your post to go "viral". Once I learned about this tip, well, there's "knowing" a tip, and there's actually knowing it because you've tried it.
So I tried it.
And I recorded the results and shared it with everyone, because, why not? As our 4 year old #theLentil says, "Sharing is caring and helping is caring."
So here it is:
The LinkedIn Effectiveness tips: I learned more about LinkedIn as a social platform and decided to try it out. Here are the rules I learned/tested out:
-- Longer posts, all text preferred.
-- Don't include photos, don't include links - LinkedIn doesn't want people to go away from Linkedin's website.
-- Only use 2-3 hashtags (and I've learned since they may have removed this preference around hashtags from their algorithm, but I have not tested it to confirm yet.)
-- There's a golden hour, that's the 1 hour after you post that's the most important. I pinged 10 folks to "like" my post and comment on it during that 1 hour (thanks friends.) Repeat: folks must LIKE AND COMMENT on the post during the first golden hour. LIKE AND COMMENT.
-- Ideally, do this more than once, with more regularity for optimal impact.
Quite interesting, eh? I typically average about 50-200 views/post, so through this test, what I saw was that it really did significantly improve my reach on my message. Below are the details.
The Making a Post Go Viral on LinkedIn Test
Here's a link to the original Test post I did on LinkedIn to see if this actually did work (and embedded below so you can see the post that I did). You'll see that I did a long form personal mini-essay with only a couple of hash tags, no links, and no images:
The Making a Post Go Viral on LinkedIn Test Results
Here's a link to the LinkedIn post where I recap my learnings/observations if you want to see it:
Hope that helps someone. Let me know if you want me to participate in any of your posts - just tag me or send me a message with a link to the post, and I'm happy to LIKE AND COMMENT on your post to help you in your golden hour.
P.S. Also, there's a hack on the no links in the message "rule". Do the post without a link. Post it. Then after it's posted, go back and edit the post, and add in the Link. I haven't tried this out, but supposedly this is the workaround.
I'm still deep in the rabbit hole of blockchain and Bitcoin. It's fascinating, and the more I learn, the more it makes way more sense. I'm trying my best to listen to the counter-arguments as well, trying to hear the "other side" and make my own judgements.
A wonderful friend of a friend recommended the below interview with Jason Yanowitz, and said it was fantastic (especially the last half of the interview). I offered to get it transcribed - so here it is, for him and anyone else who might want it.
Transcription: BITCOIN, CRYPTO, AND ENTREPRENEURSHIP WITH JASON YANOWITZ
On today’s show, I sit down with Jason Yanowitz to talk about his entrepreneurial journey, and his views on Bitcoin and other cryptocurrencies. Jason is the Co-Founder of BlockWorks Group, an events and media company that sits at the intersection of digital assets and traditional finance.
IN THIS EPISODE, YOU’LL LEARN:
RECORDING LINK: https://www.theinvestorspodcast.com/millennial-investing/mi063-bitcoin-crypto-and-entrepreneurship-with-jason-yanowitz/
<<TRANSCRIPTION BEGINS: >>
You're listening to TIP.
On today's show, I sit down with Jason Yanowitz. Let's talk about his entrepreneurial journey and his views on Bitcoin and other cryptocurrencies. Jason is the co founder of block works group and events, a media company that sits at the intersection of digital assets and traditional finance. I've actually worked with Jason on a few different projects in the past, and he's a good friend of us here at TIP. I'm very happy to have him on the show today to talk about how he started his business, as well as to have a discussion about Bitcoin and cryptocurrencies. So let's get right into this week's episode with Jason Janowitz.
You're listening to Millennial Investing by the Investors Podcast Network. Where your host, Robert Leonard, interviews successful entrepreneurs, business leaders and investors to help educate and inspire the millennial generation.
Hey, everyone, welcome to this week's episode of millennial investing. With me today I have Jason Janowitz. Welcome to the show, Jason.
Thanks for having me, appreciate it.
You and I have worked together on a few projects in the past. But for those listening to the show today who may not know who you are, give us a brief overview of your background and how you got to where you are today.
I'm the co-founder of Block Works Group. We're an events and media company that helps institutional investors understand the crypto and blockchain space. I grew up in the Bay Area, went to school down in Atlanta at a school called Emory. I moved up to New York, worked in venture for a bit, investing in like late stage tech and life science businesses. So some of your listeners might know some of the investments like Dollar Shave Club, some other Hail Mary shots on Alzheimer's, and some fun things like that. And then I went and joined Sai Cents, which was an Israeli data analytics company that has raised about $300 million. And I built out the outbound sales team there; grew that team from two folks to about 24 people in a year.
And then, let's see, it was May of 2018 that I launched Block Works Group full time. I'm co-founder with Michael Bolita, who went to Emory with me. We just had our two year anniversary about last week. So we're excited, two year birthday.
You mentioned that the venture firm was focused on technology and Life Sciences. So I have to ask, where does Dollar Shave Club fit into there? Are they a technology company?
Dollar Shave Club was a co investment with Sequoia Capital. You probably see it now. Right? And a lot of the listeners probably see it with like, Peloton, right? And WeWork I think WeWork the prime example. A lot of these tech companies, or a lot of non tech companies, when they file for their IPOs and their S-1s people kind of got access to the company and started to see how they're describing themselves and with WeWork, right, their real estate company, their property management company, and they're calling themselves a tech platform to change people's lives.
And I think Dollar Shave Club was one of the early adopters of this kind of mentality and, really, marketing. I love their CEO, I was a history major at Emory and he was a fellow history major from Emory. I mean, I think he's a brilliant marketer, not fully a tech company. But uh, I think it was a nice little investment.
Yeah, they're definitely doing a little bit better than I would say WeWork is. So I think it's worked out for them.
Throughout today's episode, I want to talk a bit about entrepreneurship, how you're building your company, your experience in venture capital, and also Bitcoin. Let's start with entrepreneurship. How did you know you were meant to be an entrepreneur? Why, specifically, did you want to start Block Works Group?
Let's see, so I think those are two different questions, right? I think Block Works Group starts in the end of 2017. I think entrepreneurship starts when I was three years old. And both my grandparents on my mom and dad's side were entrepreneurs. My dad was an entrepreneur, my mom was an entrepreneur - they still are. And so I think oftentimes entrepreneurship is in someone's DNA. And I think what it translates to is just a lack of conformity, right, a lack of conformity to the rules. I think you can trace a lot of entrepreneurs back to non-work-related, non-business-related things. And you can start to see some trends emerging.
For example, at the VC firm, we would ask founders and entrepreneurs questions like, what was your major? Right? Their answer was I created my own major. That's one data point right? Along a trend of not conforming to the rules to little things like that. All my friends were getting jobs after high school flipping burgers, I was launching a network marketing company, or working with a network marketing company, instead of going to business school, right? Like all my friends did at Emory, I studied history. And so I think from a young age, I knew I wanted to be an entrepreneur. But I really think just entrepreneurship is a risk-reward game, right? Like, financially, I mean, most most entrepreneurs fail, right? And so it doesn't really make sense to be an entrepreneur, unless you love the risk. And I think for myself, I need the risk. But I think it's important to understand that most entrepreneurs fail. But yeah, I think from a young age is kind of the bound for the entrepreneurship.
Yeah, it's interesting you mentioned the major because I was actually One of the things I was going to ask is How did you go from being a history major to being an entrepreneur? I mean, that's not really a common study or a common major for a lot of people that go into business.
I think every entrepreneur have some of the same traits, and I think the biggest one is passion, right? Passion, and curiosity would probably be the second one. There's some other ones like grit and hustle and wanting to make an impact and wanting to have ownership. But I think curiosity and passion are the two biggest traits of successful entrepreneurs, passion for their business, and just a genuine curiosity about life and learning. And I think wanting to major in history, I think is just a genuine passion for it thinking that I'd be doing business for the rest of my life. And so I wanted to study something that I was actually passionate about, you know, paying a boatload of money to go to school. And then I was just genuinely curious about it, right. And I think if you have passion, and you have curiosity, it really doesn't matter what you majored in. Most of my friends are working in investment banking, or consulting or private equity. And it's not like I knew how to build a website out of school, but nobody really does, right. I think a lot of things that you learn in school, whether you're a business major, unless you study like a hard skill, like accounting, it's not too applicable to launching a business to be honest.
So why specifically Block Works Group? Why an event and media company?
Good question. I think any good company starts with a problem, right? More often than not, it's a problem in a founder's personal life. And it was no different for me. I got into the Bitcoin and crypto space when I was living actually in Budapest, Hungary. So when someone I knew out there introduced me to Bitcoin, that was 2015. I moved to New York in 2016, went deep down the Bitcoin rabbit hole, and really realized over the course of two to three years that there was no real source of information and education to help, whether it's a newbie a 22 year old interested in Bitcoin, or a 60 year old gray haired family office investor who's allocating from their $300 million portfolio, there's no good place for them to go learn about crypto and Bitcoin. And if you're a 70 year old, you're sure as hell not gonna learn from crypto Bobby on Twitter and crypto panda on Reddit, right? And that's all the sources or information that existed.
So started looking around, didn't see anything in the market. And so actually launched Block Works Group originally, just as a side hustle, I went to a meet up on a Sunday, I came home of living with four friends, actually. I said, I'm launching a consulting firm for the Bitcoin space, does anyone want to get involved two friends said no two friends shot their hands up and said, let's do it. One friend ended up dropping out. And the other friend was Mike, who's the co-founder. And the consulting firm quickly transitioned into an events company, which since has grown into an events and media company. And so took about six months of working with Walker's group as a side hustle, and then eventually launched it full time in May of 2018.
That leads exactly into my next question, because I wanted to talk about why you decided to have a co-founder a lot of people who are starting side hustles or startups or just a small business in general, they're trying to decide do I want to be a co-founder or do I want to go it alone? And why did you decide to get a co founder rather than doing it yourself?
I don't even think the idea crossed my mind to try to do this myself. I think for any first time entrepreneur, you should have a co-founder. Like I feel really, really strongly about that. I think there are a few things that you need to look for. But just hands down, I could not have done this alone. I feel really strongly about that. I don't think it was an active decision - should I have a co founder or should I not? I think it was just how can I link up with somebody who has different traits than I do? Right. And that's what I found in Mike.
So I manage all the sales and marketing at the company. Mike does a lot of like the strategy operations, content creation came from a consulting background, I came from like a sales and VC background. So I think you just want someone who is very complementary skills, right? When you think about finding a co-founder, you want to think about one thing, which is how do you two, combined have an unfair advantage? And so I think there's this narrative, actually, we'd love to talk about this for a second, there's a narrative that founders have to be like college friends or work together, as was the case for us.
But for any of your listeners think about launching something, I think this is less true than we think actually, right? Like, let's think about dating. People used to be embarrassed to say they met their spouse via an app, right? And instead prefer like, Oh, yeah, we met you know, at college, or we met at a bar. But I think that's going to be a lot less true moving forward. And I think that there will start to be like networks created and apps created to find your co-founder. And they'll help you find people who agree with you on first principles of company building, find people with complementary skills, find people who are aligned on your values and on your mission alignment, right? Like what does success look like? And then find people who are aligned on a company basis who makes the decisions, what trade offs you will and won't accept.
And so those are kind of company alignment, value, mission alignment, complimentary skills, and someone who agrees with you on the first principles of company building. I think those are the four things everybody really needs to look for in a co founder and I was lucky enough to find them.
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All right back to the show. Another big decision that you made early on was to bootstrap the company rather than take on capital from outside investors. And it's interesting because you worked in venture capital. So you almost had a sneak peek as to what you had to do to raise money if you wanted to. But you decided to bootstrap it. So I think that's interesting. For those who aren't familiar with what bootstrapping is, please explain what it means to bootstrap a company. And then why you decided to use this strategy.
So I think first let's talk about bootstrapping what is maybe pros and cons. And then we can talk about why I actually really strongly believe that most companies should not raise venture money right out of the gate. Not to say that they shouldn't ever, but I think right out of the gate they shouldn't.
So maybe just to touch on the first part. So bootstrapping, basically, it's a term that has its origin in like the early 19th century, actually, with the expression pulling up by one's own bootstraps. And that kind of meant like, I'm going to do it myself, right. And so bootstrapping, a startup just means starting lean, and without the help outside capital. And it means continuing to fuel growth, internally, from cash flow produced by the business. And so there are a couple reasons that we decided to do this.
The first one was just control. This is our first business that we built. And it was really important to us not to quit our jobs, go full time with the business, and then immediately start working for somebody else, right? If you're a founder, and you raise capital, you're not your own boss, you're working for the venture firm that invested in your company, or really, for the board, actually. Right. And you can get fired at any time. So I think that's something that a lot of first time entrepreneurs don't realize is that as soon as you take outside capital, the second that term sheet is signed, the money hits your bank account, you have a boss, right, and we really didn't want that.
So the pros, there's ownership, right? Literally, our equity stake is bigger now than if we had taken outside capital. There's control. If we want to promote someone to our executive team, we want to make a big hire, if we want to fire - those are all decisions that we want to have the control over. Instead of having VCs, we're gonna have metal in the business. There's decision making ties into what I just said. There's longevity, VC firms, their incentive structures have big exits after 5, 6, 7, 8, 9, 10 years, we didn't want that incentive structure kind of looming over us. We wanted the option if we wanted to sell in two years to have that option. Or if we wanted to make this a family business that runs for 200 years, we want that option.
The other thing that bootstrapping forces you to do is it forces you to build a business model that actually works right. You know, we're recording this what, May 5th 2020 we're starting to see some of these VC-backed companies completely blow up, right and the reason is, they never built a profitable business model.
You have companies that are - Uber, right? WeWork, Airbnb starting to IPO, right? - that aren't profitable. And they never built a business model that actually works long term and is sustainable. And so I think all of those reasons, right, when you look at it, it's kind of a no brainer not to take venture money right out of the gate.
Yeah, I really like two things you said there. The first thing is about having a boss. I've never raised venture capital. But I've read a lot about that. And that's an idea that really stood out to me, and that I talked about a lot is when you raise that capital you took on boss, and that's almost exactly the opposite of why he became an entrepreneur, a lot of people become entrepreneurs, because they don't want a boss. And so when you go out and raise money, you're kind of defeating that purpose. And I have some friends that have started startups. And as they were trying to decide, do I bootstrap or raise money, this is one of the big things that I explained to them was, well, this is what's gonna happen, you're gonna have a boss, X, Y, and Z. So I think it was a really good point you made.
And then yeah, we're also seeing a lot of companies, like you said, blow up right now, because they're not profitable. And it seems in the startup space and venture space, a lot of companies think that a business model that isn't profitable, as long as you keep throwing money at it, it'll eventually become profitable, somehow, one way or the other. I mean, you just can't do that with bootstrap. I mean, you have to get to profitability and grow the business organically that way. So I think those are two really good points you made.
Yeah, I think there's a myth, right? No entrepreneur starts out and they're like, I want to, unless you're like one of the digital nomads, who goes to like Southeast Asia, and like, does their web agency or something like that I see all over Instagram. But there's like this big myth that if you want to build a billion dollar business, you have to go raise hundreds of millions of dollars. And it's just not true.
All your listeners should look at Qualtrics. Right? An awesome business is started by a couple of brothers and their dad, they bootstrapped for a decade, right, they bootstrap for 10 years. Then, over 10 years after refining their business model over and over and over again, then they raised hundreds of millions. They've got an awesome lifestyle, they've got an awesome business, a lot of great companies, Apple, Facebook, they didn't go raise money right out of the gate. They bootstrapped, they created a profitable business, and then they raised money.
What that allows you to do is if you raise on your terms, right. Imagine if you go to a VC and just picture, you go to a VC and you say, I've got this idea, it's going to be big, and you walk into their doors, and you share the pretty PowerPoint that you put together for a month. Well, you might raise money, but it's on their terms, they've got the liquidation preferences, they take 30% of the company, right? They get a board seat. Now what happens if you run a company for five years, you go into that same VC firm, you go, look, we've grown 100%, year over year. Revenue's 20 million a year now. We're profitable. We'd like to take some money so that we can grow. But we don't really need your money. You're going to get much more favorable terms.
Do you think having worked at the venture firms helped or hurt you wanting to raise capital?
Severely skewed my idea of raising capital. I would say, it just showed me that raising capital doesn't solve any problems, right? I was a really well known VC, Fred Wilson. He said Union Square ventures, they've invested in a "unicorn" like every year for the last decade or something, right? They've invested in hundreds of companies over the last 30 years, or whatever. A lot of your listeners might know him if you don't just type in Fred Wilson. And he wrote something, which was, no matter how much money you take, you still spend money, at the same burn rate is what he's seen, say we raised a million dollars, we're gonna make sure that million dollars last us for the next 12 to 18 months. Say we raised 100 million dollars, we're gonna make sure that money lasts us for the next 12 to 18 months. And on top of that, it doesn't solve any of our problems.
I think that was the biggest thing I saw at the VC firm is these companies would think that once they've raised the money that they're done, and that's just - the game has just begun. And then the other thing that was important that I noticed is once entrepreneurs raise money, they didn't get as stingy. They felt like they had the money. And one of the things that's so fun about being an entrepreneur is like, you're negotiating all day long, right? And you're taking inputs and you're negotiating all day long. And I think you lose that once you take in money, right? It's just psychology. Like, you just can't keep that mindset. Unless you're someone like a Jeff Bezos building their desks out of doors. That frugality, I think you lose it.
Yeah, that reminds me of a book I read not too long ago by Daymond John, The power of Broke, where he talks about how you just don't have that grit or that hunger in you, when you just have all these money being thrown at you. I mean, you don't have to be resourceful. You could just throw money at problems rather than trying to be creative and actually come up with a solution for the problem. So yeah, definitely a good point. I think it's really interesting, because I would have thought that working at a VC firm would have made you want to raise capital and kind of give you the inside scoop as to how to do it, how to be successful with it, and - but it sounds like it actually turned you off from it, which is really interesting.
Yeah, I mean, look, we've talked about raising we've spoken to folks before, we're a profitable business. So why go take outside capital. We really don't need it. And then there's the other thing that's really important, which is VC are incentivized to get their portfolio companies to billions of dollars, right? There are many companies out there that shouldn't be a billion dollars. But they're amazing businesses.
Like, let's take the Investors Podcast Network, for example. The investors Podcast Network, probably never going to do a billion dollars in revenue, right. But it's an amazing, amazing, amazing business that Preston and Stig have built. And they've got amazing partners like yourself on board, who are making a decent chunk of change, and living a really great life. But they had taken VC money, the VCs would be unhappy with how the Investors Podcast Network is being run right now. Because it's not growing quickly enough. The incentives are messed up, right, you see. So I think that's one of the biggest fatal flaws of a lot of companies is VCs kind of step on their neck and say, grow, grow, grow, even though the founder knows that they shouldn't grow any faster.
Yeah, that's a concept that I'm actually really passionate about. Because everybody, when they start a business, they want to become a billion dollar company. And that's mostly because of societal pressures and things like that, not necessarily, because that's what they need to reach their goals. And I think that puts startup founders at a huge disadvantage. Because if you go into this business, saying, I need it to be a billion dollar company, otherwise, I'm not successful. I mean, that's a lot steeper mountain to climb.
Whereas if you say, if I can get this to a $1 to $5 to $10 million business, then that's a massive success. I think that's so different. I think it really impacts your psychology. And I think if you looked at companies that had from the beginning a goal of $1 to 1$0 million, I bet they're a lot more successful than companies that go in and trying to go right for a billion. And I think that that's a really important thing for founders to get their mind wrapped around, just like you said. And there's nothing wrong with having a $5 million company, you can live a very good life with a $5, $10 $15 million company, even a million dollar company. So it's still a very successful business, even if it doesn't get anywhere near a billion dollars.
Look, we live in a world of instant gratification, but in the entrepreneurial community, right. Like, I open up my emails, and every morning, I've got TechCrunch, saying this other founder, just raised 100 million dollars. And it's natural. It's just psychology to be like, are they doing something better than I am? Right, but I think we live in this world of instant gratification.
As an entrepreneur, you need to remember to hold out, you need to take the time to build the business into something actually worth funding. And then when the funding comes, you can actually use the investment to scale, right to scale your profitable business, not to figure out what you're trying to do. I think too many folks raise capital to figure out what to do, saying, Oh, if only I had this money, then I could create a business. I think that's reverse of how they should be thinking.
So although you haven't raised capital, and you're doing it bootstrapped, you mentioned you started just in 2018. You guys have grown pretty quickly. So just two years later, you have a team of 10 people, how have you scaled your company already, so successfully, what have really been the different makers when building out your business?
Gotten luckier more than those that have. I wish I had something revolutionary to say, but it boils down to two things. First one is talking to our customers. You read it in the blog posts, and in the articles and you hear it on the podcast, you read it in the books, talk to your customers, talk to your customers, talk to your customers. And then you get into this Founder World and you learn how many people aren't actually doing that, right. And it's fascinating to me, it's really, really fascinating. And so from day one, we've always prioritized if we host an event, we need to be on the phone with the event attendees the next day. If we host an event we need to be on the phone with the event sponsors the next day. We need to be talking to our podcast listeners, our podcast advertisers, our podcast hosts to make sure that we're providing the best network for them, right. And so talking to your end users and your customers is just been crucial. It's allowed us to launch new businesses, honestly, or excuse me new product lines, that we never would have known that our customers wanted, if we didn't talk to them. So that's one thing.
And then the second thing was just an average guy, right. And so is Mike. We just hired people who are better than us, and put a lot of trust and faith in them, and let them run with it. And that's been one of the hardest things to do, as a founder is give up control of the business. But we've hired folks who are much smarter than us and who have much more experience than us and said, Look, you've done this before, run with it. And that's paid unbelievable dividends. So we've hired experienced people. We've also hired people who are younger than us and hungrier and just having faith in them that they would grow into top talent, even though it might be a few months, maybe even a year or something. But they've grown to top talent. And that's really proven true. So for anyone just starting a business out, two things, just talk to your customers more than you think you need to and hire people who are smarter than you and give up control faster than you think you have to.
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What have been some of the big struggles that you faced while building your business? Both for yourself personally and for the company?
It's a tough question, there's so many. But the company I would say, early on is the decision making. I think when you're an employee somewhere, whether you're at a VC firm, or work in finance, or work in tech, or work in sales, or marketing, whatever it is, there aren't a tremendous amount of decisions. No one can prepare you for the amount of decisions that you have to make as a founder, all day long, right? Hundreds of decisions with incomplete data. And I think you're kind of trained in school and in your life to make decisions based on data, and make a decision once you have the whole picture. Once you talk to both parties.
That's not how the world works. And as a founder, you just have to make so many damn decisions every single day, whether or not it's the font size, be a tiny bit bigger on the website, or all the way up to should we launch this new product yet? Is it ready, right? All the way up to like should we pivot the business. And so there's just so many decisions, that was a real struggle at first definitely gotten better at that.
And then the second thing is that I still struggle with is not going after shiny objects. I think not going after shiny objects is the toughest thing for entrepreneurs, and especially first time bootstrapped entrepreneurs. And what I mean by shiny objects is ways that you can get paid and make a lot of money, but that go away from your mission and your values of the company. For us, we're an events and media company that helps institutional investors understand the emerging digital asset space. And there have been so many times where we might do podcasts, and a dentist company would come to us, right. And like we would run an amazing marketing campaign for that dentistry company. But does that align with our mission, our values? And if not, we probably shouldn't do it. So that's what's been tough as a company from a company level.
And then from a personal level. I've struggled with this my whole life and still do struggle, just saying no - saying no to more people saying no opportunities, and just really trying to understand the opportunity cost of saying yes.
Yeah, as I'm building my podcast business with the investors podcast team, that's one of the big things that I'm struggling with myself is that shiny object. I mean, there's just so many different things that we can do so many different products or services we can offer so many different things you can build. And it's just one of those things that you get to really decide what's going to be best. And it's hard to make that decision. It's hard to say no.
No, I was just gonna say it really is and especially with limited resources. I think it's easier to turn down shiny objects if you've raised capital, actually. But if you're bootstrapped, right, and you see something, you've got revenue 5 million a year, and you see something that could make you an extra 500 k that year? Well, it's easy to want to go after it. But long term, it's not a smart decision.
Now I want to transition and talk a bit about Bitcoin. For someone who may not be familiar with Bitcoin or cryptocurrency explain to us what Bitcoin is and what cryptocurrencies are.
It's a big question. I think there are 100 different ways that you can describe Bitcoin; its importance, and its relevance kind of lies in the eyes of who's looking at it, and who's buying and who's holding it, right. I'm going to maybe take three minutes here and go through the whole shebang.
I think a simple definition of Bitcoin would be it's first and foremost, a new form of money. It's a new form of thinking about money. It's a new form of storing money, transferring money, and just dealing, organizing and understanding money. And then all kinds of second order financial effects that come out of that, but just to kind of like what is Bitcoin in one line? It's the world's first cryptocurrency. And it works because of the world's first public blockchain network. Right?
What does Bitcoin do? It lets you send and receive value to and from anyone in the world using nothing more than a computer and an internet connection.
Why is that revolutionary? Because unlike every other tool for sending money over the internet, it works without the need to trust a middleman, right? And so the lack of any corporation sitting in the middle in between means that Bitcoin is the world's first Public digital payments infrastructure, by public, I just mean, available to all and not owned by a single entity. So when you think about it, you know, we have public infrastructure for information, we have public infrastructure for websites for email, and that's called the internet, right?
But the only public payments infrastructure that we have for money and for cash is paper money, and it only works in face to face transactions. It's pretty damn outdated right? Before Bitcoin. If you wanted to pay someone remotely over the phone, or the internet, you couldn't use public infrastructure, you had to rely on a private bank, to open their books, enter the debit, enter the credits, the person that you're paying. If you both don't use the same bank, you know, then there'll be multiple banks, multiple ledger entries in between. And with Bitcoin, the ledger is the public blockchain. And anyone can add an entry to that ledger, transferring their Bitcoin to someone else. Anyone, regardless of their nationality, their race, their religion, their gender, their sex, their creditworthiness, and for absolutely no cost, create a Bitcoin address and receive payments digitally. And so for those reasons, I think it's pretty damn cool.
We've had the US dollar for a while and other fiat currencies, and they've treated us well. Why do we need crypto currencies?
It's a good question. I will respond to that question with another question, which is how long have we really had the US dollar? Right?
The real answer is we haven't had it for that long. The US dollar was backed by gold for a long time, and is really valuable then right? You could exchange your dollars for gold, and it's backed by something. But in 1971, Richard Nixon took us off of the gold standard. And any history nerds out there, you remember the speech, he took us off the gold standard, and said give it it's just temporary guys. It was on that public conference that he did for All Of America, where he said, Look, we're going off the gold standard. It's just temporary. Well, it wasn't temporary. It's been since 1971. And so the US dollar, right, this Fiat system that we've created, it's really an experiment. It hasn't actually been going for that long. So it's been less than 50 years that we've been doing this.
But actually, let me double up on that, because the second part of your question was, why do we need it? And I think that we is the most important part of that, because the we is very different for different people, right? A lot of your listeners are in the United State. America is the hardest place for folks to understand Bitcoin. Why? Because money works in the US and the government works in the US, right? That's not true for the entire world. Actually, for the majority of the world, that's not true. And so some people might like Bitcoin, because it's not manipulatable. Some people might like Bitcoin, because it's not seizable. It's not censorable. It's not debasable. And so I think when you say like, why do we need it? Well, are you a citizen in Venezuela? Are you a US investor looking to allocate 1% of your portfolio? Who is the we and then you can start to understand why it's valuable.
So if someone is ready to buy a cryptocurrency, whether it's Bitcoin or a different one, and this is a question I actually got after - a lot after our last episode on Bitcoin, so I wanna I want to walk through with you, how does someone from the very beginning to the end go about actually acquiring a crypto asset?
Great question. It's and it's cool, right? Because when I got into the space, there wasn't really any way like, there were some websites right, like Coinbase. But now there are mobile apps and it's even integrated with like Robin Hood, a lot of brokerages like TD Ameritrade and Fidelity are allowing their customers, or soon will be, allowing their customers to buy bitcoin, which is pretty damn cool.
But for all of your listeners, I would recommend first think about what's the amount that you're going to be buying, Are you someone who should be allocating 100 bucks a week to Bitcoin? A thousand bucks a week? Are you a big investor, you know, allocating $100,000 a million dollars to Bitcoin, right? Because that will determine what platform is best.
But I think for most of your listeners, there are a few things that should be important, right? Low fees is really important. The ability to dollar-cost-average into bitcoin is really important, right? Dollar cost average is just buying a set amount every single week, kind of having it you know, buying it passively on an automated regime rather than just buying a whole bunch at once. So dollar cost averaging, low fees, and then the ability to send from your wallet to another person's wallet instead of selling and then having to buy again.
To get more concrete with the answer I would look at Voyager. Voyager is a phenomenal app, I would look at with really low fees. I would look at Gemini, which folks might know because it's the Winklevoss twins started that company. I would look at Coinbase, I would look at Cash App. And then so those are the four I would look at if you're more of a smaller investor, buyer: Voyager Gemini, Coinbase and Cashapp. And then I would look at - if you're a bigger investor - I would look at like a River Financial. And if you're much larger, institutional investor, I would talk to the folks that Pantera, Morgan Creek Capital, Galaxy Digital.
But for your listeners, I would go with Voyager, Gemini, Coinbase or Cash App.
There's a lot of different cryptocurrencies out there. What do you think is the best long term investment?
Bitcoin is the only one I would recommend someone buy.
So let's zoom out right let's think about why Bitcoin is so revolutionary, right? And one of the biggest reasons is the founder's anonymous. So Ethereum is the second biggest cryptocurrency. It's the one that most of your listeners, if they don't take my advice would probably buy after they bought Bitcoin and they wanted to buy one more, they probably buy Ethereum.
Well, a few years ago, some folks who've been in the space for a while might remember there was a rumor that Vitalik Butorin, who's the founder of Ethereum got killed. Ethereum's price tanked 20 to 30%. Okay, so that tells you a lot about that public blockchain and, and about Ether and about Ethereum, which is that it's pretty damn centralized, right? If people are so worried that the founder of Ethereum gets is going to get killed, and then the price of Ethereum goes down, then it's pretty centralized.
Bitcoin and its founder, Satoshi Nakamoto, could be a man could be a woman could be a group of people, we still don't know. He, she them, they're anonymous. And that's one of the most important things about Bitcoin that no one can ever replicate. And then the second thing is there's a hard-capped supply. And that's what makes Bitcoin - more than it's not debasable, it's not seizable, it's not censorable - there's a hard cap supply: 21 million Bitcoins. There will only be 21 million bitcoins.
And so, in a world where we're so damn worried about inflation, and the feds pumping trillions and trillions and trillions into the economy, aka leading to inflation, inflation-hedged assets, like Bitcoin are really, really exciting. And we know because it's built into the algorithm, into the computer, and we trust it because there's no team or founder running this thing, that it can't be changed. Bitcoin's kind of the only one I would recommend. There are thousands of cryptocurrencies are probably going to be 10s of thousands of them pretty soon. But bitcoin’s the only one that's survived the test of time.
When we talk about there being a fixed supply of Bitcoin at 21 million, like you said, how is that still so important, when a Bitcoin is almost infinitely divisible? It can be divided into it's almost like an infinite supply. How is that still a valid reason for Bitcoin?
Yeah, good question. That's important to understand. So it's divisible right? To buy Bitcoin, Bitcoin's trading at like $9,000 or $8,000 today, you don't need $8,000 or $9,000 to buy one Bitcoin, it can be divided and you can buy $2 worth of Bitcoin $1 worth of Bitcoin, right? And it's so it's divisible into little things called Satoshis. But the amount that will be released into the system is hard capped at 21 million.
So let's compare it to the US dollar, right? The US dollar is divisible, it's divisible into quarters, nickels, dimes, and pennies. Same thing as Bitcoin, it's divisible into smaller units called Satoshis. The difference is, if the Fed you know - we need more money as a country, we just go to the printing press plan the red button start printing out more US dollars. With Bitcoin every 10 minutes, there are more blocks that are basically created every 10 minutes every block, there are more Bitcoin that are added to the circulating supply, but that 21 million fixed supply never changes.
Okay, so that makes more sense. That's the biggest thing I get from people that know that Bitcoin is capped, and people that use it as an argument, they always ask me, Well, why does that matter if it can be divided into a ton more coins, if you will, or fractions? And I've never really had a great answer for it. I'm a beginner when it comes to Bitcoin. So I'm still learning myself. So that's why I wanted to ask that question.
But Jason, I've really enjoyed our conversation today about your background, your company and Bitcoin and cryptocurrencies. For those listening that want to connect with you further after the show, where can they go?
I would love for folks to DM me on Twitter. My DMS are open. It's just @jasonjanowitz. Our website is Block Works Group. If you're listening to this podcast, you probably like podcasts. And we have 20 podcasts, right? And so go check out some of our shows on our website, Block Works Group and just type in Block Works Group and podcasts on Google. Subscribe to our newsletter. And yeah, DM me on Twitter. I'm pretty active there and LinkedIn as well. So yeah, hopefully some of your listeners take me up on that. And I would love to have a conversation with some of them.
Awesome. I'll be sure to put links to all those different resources in the show notes. Everybody listening today can go reach out to you and ask some questions if they have any. Jason, thanks so much.
Thank you. Appreciate it.
Alright guys, that's all I had for this week's episode of millennial investing. And I'll see you again next week.
<< /END TRANSCRIPTION >>
I just had an ad hoc Bitcoin debate. I'm finding, the more I put myself out there on the topic of Bitcoin, the more I learn about myself and my command of the knowledge I've been accumulating to date. I'm still learning - every single day, reading and listening and watching all of the content that keeps on growing. I stuck my typing fingers out and said something asking everyone on a particular call I was on if they'd been tracking Bitcoin. I heard rumblings, ah, yea, I'm still working on setting up my Coinbase account or, yea, I've gotta dollar average on in. Another person, let's call him Joe, went all in on the other side of the argument, Bitcoin is dead, it's not money, and the only currency that'll ever live is the U.S. Dollar. He said I should be worried about 51% attacks. I was told that I needed to study my history better and go look up the term, "Tulip Bubble", and then get back to him.
Then I got the following screenshots shared with me:
Seemingly harsh, I thought. Study my history better? Tulip Bubble.... Why do people keep bringing up tulips when they are trying to argue against cryptocurrencies and Bitcoin? Tulips. ... That always surprises me.
Actually, as my business partner says, "the “tulip bubble” as people refer to it is more of a confirmation of human behavior that, again, is a stupendous affirmation of why bitcoin is needed, is the answer."
I debated back and forth in my mind on whether to engage - or to just let this Tulip Joe go..... and despite my tendencies, decided to go for it. Here's what I wrote in reply (for context, this is a group chat, so there are other folks viewing this discussion going back and forth). This is literally a "copy/paste" of my response:
Supply side - Bitcoin has a limited supply
Demand side for Bitcoin (which has limited hard capped supply)
As for 51% attack concerns, yes - and now we are much further along with the Bitcoin network. It would literally cost billions of dollars ($15 billion I read somewhere?) to make this happen, if one could find and secure all the hardware, and that alone is really difficult to do for even setting up a small mining operation. The chances are becoming more and more slim as the Bitcoin network has matured - case in point, we now have more and more public companies putting their cash reserves into Bitcoin. It's 2020 now, a lot has happened since 2015, 2016, 2017, 2018, and 2019. There is no other currency that is as sound, as secure, as borderless, deflationary, hardcapped, transparent, immutable, decentralized, nonsovereign (as Travis Kling says often), than Bitcoin. My bet is on the digital future, on technology, and on math.
More on the 51% attack concerns: Think about it in terms of the built-in game theory. In short, it's not in the best interests of the miners to try and spend a shit ton of money to double-spend Bitcoin. They would have to spend a shit ton on equipment, electricity, space to even get a short at rewriting the blockchain. It's like trying to rob the bank for $10 million, after spending $10 million. Makes no sense. The numbers favor all of the people who have an incentive to keep the integrity of the Bitcoin global network is MUCH greater than the number of folks that want to attack it. We saw it - with Bitcoin Cash as the hard fork. That was a critical moment in history and the perfect moment for Bitcoin to have died. It didn't. Bitcoin has only gotten stronger since then.
RE: Bitcoin and tulips. Yea, this is the knock that we hear often from the "peanut gallery, it's a lazy argument intellectually and very misleading" (as I think Pomp would say about the Tulip argument). I heard a lot about tulips in 2017 and especially in 2018. Those were truly hard times for me personally.
[AND THANK GOODNESS FOR HUMANITY that] Bitcoin didn't die in 2018, sorry. Nor in 2019, sorry, or in 2020. Sorry. You're talking about the ATH (all time high, that was just all kinds of crazy speculation thanks to the ICO's) in 2017, it went from $1k to $20k, and then back down to $3k. It's not a good factual representation for anyone that looks at the market holistically. [I've learned recently that] The Bitcoin average across many weeks, 200 weeks is the better metric - [and as we've seen] Bitcoin is a solid investment. Also look at the number of consecutive days that Bitcoin has been (really boring) and just hanging out over $10k in 2020. ----> really that'll show you that Bitcoin has stabilized a lot since the crazy hey day of 2017. [Technology is evolving FAST. 10 years ago, I had turn-by-turn map directions printed out on paper. Today I have Waze on my phone.] As investors, we should care more about the long term. Things go up and down, and in this case, Bitcoin has been trending up, even with its ups and downs. The technology is much more mature. The network is much bigger.
And the timing is also, very right.
One more (the U.S. Dollar versus Bitcoin debate):
I don't know how I did, if all of my facts are straight - they should be close (enough).
Anyways, I'm a believer in Bitcoin, in bitcoin, and in blockchain. This is the future.
Saw this talk by Jimmy Song (and Jimmy Song speak live) for the first time when in LA for Russell Okung's Bitcoin is_ conference. So many concepts and ideas that I hadn't thought about before were introduced - and so provocative. I found the talk, had it transcribed, and am sharing it with you, because it really is so good. A couple of my favorite points that really got me thinking:
Watch the video below from Bitcoin Is_ 's Jimmy Song's talk. So good.
Bitcoin is the Ultimate Social Justice by Jimmy Song
Conference: "Bitcoin is ___"
Speaker: Jimmy Song
Title: Bitcoin is the Ultimate Social Justice
TRANSCRIPTION of above video below here.
Alright, how's everyone doing? I know it's like late afternoon right now. Maybe you're feeling a little bit sleepy, maybe you need to get a little coffee. I won't be offended if you fall asleep or something. I'm okay with that just you know I won't judge you too much. Alright, so my talk is called Bitcoin the ultimate social justice and I deliberately titled it that way as a way to provoke maybe a little bit of a reaction because we have a conception of social justice that I think is very flawed and we're going to talk about exactly in which… actually can you change that to the actual slide. Yeah thank you. Otherwise I'm going to get lost… as the ultimate social justice and this is something that I'm very passionate about and this is the way in which Bitcoin will impact society is absolutely huge. So, what I'm going to do is go through an argument essentially arguing that Bitcoin is going to be better for the cause of social justice than pretty much anything else and we're going to look at the current situation - what things are like right now, how fiat money changes a lot of the incentives, and exactly what incentives people have under a fiat money system. Then we're going to talk about Bitcoin now that changes you know the incentive system and how people behave under a Bitcoin system and then talk about the future and how things will change there.
So let's look at the cause of what's going on and let's sort of try to define at least what social justice is all about. Alright so we have a lot of problems in the world right? We have a lot of people that are poor, some that are rich, and so on. And we also have you know some people that have more opportunities than others we also have other people that have power over you some people that they can abuse and so on. There's a lot of different problems in the world today and the general way in which social justice sort of defines this or sort of attempts to remedy this is by treating essentially the symptom. And the symptom is kind of like the tip of the iceberg, alright? Like there's a lot more that goes into it than just some somebody is suffering. Generally, if you look at any charity or NGO or government program, they're looking to treat the symptom. This means making sure that the people that are going hungry have food or that the people that don't have housing have a place to stay and so on. But that's treating the symptom. The actual problem is underneath and that's what I want to talk about.
So this is the general way in which a lot of NGOs and you know charities and so on, this is how they generally approach the idea of helping people. And you know if you can't read it, it's give a man a fish you feed him for a day, teach a man to fish and you feed him for a lifetime, create a good tutorial and you can teach himself how to fish. This is sort of the way in which a lot of people that are in these spaces of charity and social justice, that's how they think about it. But I would submit to you that this is not the problem. It's not a problem of information. It is not a problem of information at all. It's not about somebody not knowing how to fish.
Fact the real problem is oppression - it is oppression. People have power over other people and that is the real problem here. And when you have oppression well you can do certain things. It's not that the person that's being oppressed doesn't know how to fish, it’s that he has to apply for a fishing license or has to you know get in with government crony in order to fish at scale. It's that they got taxed on the fish that they catch because that's the current law that happens to exist and that's the real problem. It's not that they don't know. Lots of people know. That is not the problem at all.
So what happens when there are enough people that are oppressed continually and there are more regulations and things like that that happen is that eventually you end up with revolution. This is the most recent thing that happened that's like that is the Arab Spring. I mean Muslim countries where you had Arab Spring, a lot of them were very oppressive. They had so many rules and it gets worse and worse and worse until basically the people explode. It’s gradually then suddenly and all of a sudden something happens. And so you might be wondering, "okay are we always doomed to this kind of cycle where you know you have a revolution and then you have more and more regulation and more and more oppression and then people get sick of it and then they revolt again"? Yes, but things have changed. Bitcoin is something that's new and different and we just heard from Alex who's talking about government surveillance and technology that's used to make people more and more oppressive, but there's also a technology that's taking the power of money printing away from the state. Financial oppression, believe it or not, is the biggest source of oppression that you can have. In many ways, that's what we're going to be talking about going forward.
Alright, so we talked about the current problems and my argument in this section is that the real oppression is easy fiat money - is easy fiat money. Alright, so I don't know how many of you know what this is but these are glass beads and this was used in sub-Saharan Africa for money for a very long time. And in fact it makes sense to be money if you heard Saifedean Ammous's talk - it's about hard money versus easy money. Glass just isn't very abundant in some in Africa so it made sense to use this as money. European settlers came in and they recognized that oh they're using glass for money. We know how to make glass we have glass blowers and we have a plentiful supply. So what did they do? They went, made a whole ton of glass beads, and bought up everything. They bought up everything. They were able to print money essentially as a way to take the wealth of everybody that was depending on that as money. And this has an economic name and it's called the Cantillon effect. And the Cantillon effect is essentially this - the first printers are the money, the people that get to spend the money first, they get all of the benefits of the printing of the money.
And it's something that Richard Cantillon noticed in the 1700s. He used to work as a banker and then you wrote you know some economic treatises, but that's essentially what happens. The thing about the Cantillon effect that's so seductive is that the population doesn't really notice right away. It's very slow. When you're inflating money, when you're adding new money to the population, you don't notice oh this is going to be worthless later. You know it's a very gradual thing and then very sudden. And this has some really pernicious effects including long term uncertainty. And among other things that it does is it increases consumption and rent-seeking. By consumption I mean just like sort of buying things for now alright? Like YOLO or FOMO or whatever. And rent-seeking in the sense that - and the way I define rent-seeking is taxing some transaction without any adding any value and there are plenty of people that do that.
Here's a chart of the health care system in America today and you can notice that the number of physicians has not gone up very much, but the number of administrators has exploded. What is going on? Well there's a lot of money going into the healthcare system and as a result there's a lot more rent seekers - a lot of people that are taxing transactions that aren't really adding anything. Now I could show you a similar chart for education and government and many other organizations, but this is just what happens when you have a lot of money printing. There's no real… there's a lot of people that end up sitting in the middle of transactions making money essentially for doing nothing.
And this has some consequences among others this is the question that gets asked. How do I get a job? And if you know anyone that's unemployed or in college right now, this is the question that they ask - how do I get a job? And if you think about it, this is the wrong question because in a sense it's asking where can I fit right; what rent seeking opportunity can I get? It's not about adding value at all. It's about finding a place in the world where you can survive right? It has a very static view of the world where there's only so much to go around and you need to get your piece - and that is the wrong attitude.
And this has some serious consequences and real social ills that come out of it. Here's a cartoon. I don't know if you can read it but it's sort of from a perspective of a millennial. I don't want much in life, just sick clothes, a bunch of money, convenient restaurant options, free shipping is always nice, and like a sense of purpose I guess. I love this cartoon because it does sort of like capture that mentality, but think about it. If you are a rent seeker in in this economy, what are you going to be thinking about? You're not thinking about changing the world or providing value for the world. You're thinking about all this other stuff and why is that? Well it's because deep down inside you know you are a leech; that you are really stealing from everybody else. And I'm serious about this. There's a lot of people that are going through having to deal with the fact that they are not contributing at all to society. We have epidemic levels of depression. Where do you think that comes from? If deep down inside you know that you are not contributing anything to society well how should you feel? And think about it. There's a lot of other people that when they have that voice inside that's telling them okay you're not really doing anything useful, well they go around and drown that. We have epidemic levels of all kinds of addictions too – alcoholism, drugs, even like TV or getting obsessed with the latest Netflix series, or you know eating or whatever. There's a lot of different addictions that everyone can get into. That causes real social ills. And eventually you get to a situation where you have a lot of run seeking and eventually you collapse.
These are the ruins of Rome right? The Roman civilization famously devalued their money. Diocletian went from 70% silver in a denarii down to like 5% and that caused a lot more rent-seeking that caused a lot more people that weren't doing anything and eventually the whole edifice just sort of crumbled under the weight of all the rent seekers that were out there. So Fiat leads to decay. It's a fundamental part of it.
Alright so why is that? Why does Fiat cause all this? Well there are two ways essentially to make money in any system. The first is to create more of the monetary medium - more of the monetary medium. So with gold or something like that you have to do the hard work of actually mining it. With central bank, they can just print the money and this is actually more expensive than what they do which is update a database that says I have 200 million more dollars. So there's creating more of the monetary medium.
In the second case the other way to make money is to provide goods and services and this is what actually builds civilization. If you're successful with creating a good or service, then you're going to be adding something beneficial to everybody else. It's what they want.
The key thing to realize is that the former does not add anything to society. If you're creating more of the medium of monetary exchange you are not contributing anything. You're not making anything. You're essentially stealing from everyone else through inflation. The latter definitely adds to society because by definition you're doing something better than what's out in the market already. You're doing something faster, more conveniently, more you know securely, or something - you're doing something better than what other people in the market are doing because there's a market for your services. And as a result you're adding to the pie. You're growing the pie. You're making something better. And the key thing to realize is when there's easy money people go towards the former. When there's hard money people go towards the latter.
So when you have easy money for example you want to go into the money production business because the cost of producing that money is very cheap relative to the value that you're going to get out, but when there's hard money only the specialists go in. So if you're… not many of you are probably gold mining right now and that's because you have to be an expert in gold mining in order to be a gold miner and this is actually one of the biggest mistakes that people make when they come into Bitcoin is they think oh I can go print my own money buying miners or something, but in fact it turns out that only the real specialists can make money off of mining. And this is really terrible because think about where people have been going… where the best, smartest, and most talented individuals have been going into for the last 50 years? They've been going into investment banking, right? And they go into it not because they happen to be talented in investment banking, they go into it because that's where the margins are. That's where they can make the most profit. It's much easier to be an investment banker and make 300 million dollars a year than to create a three-billion-dollar company and keep three hundred million dollars for yourself. That's the reality that we are living in is that because of easy money everyone is motivated to go towards that direction and that's a real tragedy. That's how civilization gets built and hopefully this picture comes up.
Alright, so I was born in Seoul, Korea and I found this nice picture of the contrast between then and now. See, 1900 it was kind of a backwater Asian place and after you know a 120 years later you have this thriving city that you have now. That happens because you have a lot of entrepreneurs, because you have people building things, that are creating things for the benefit of others. In a way, they're creating goods and making the world better and they get to profit - that's the beauty of capitalism.
So let's talk about the new system right? Because we're are under a fiat money system well how is that going to change? The revolution is Bitcoin and the revolution comes in from the fact that we have property rights. We have control over our own money right now. If you have money in a bank account the government can confiscate it from you. They can accuse you of being a drug dealer or using it for terrorism or something like that. Even if you have money under your mattress, they can just inflate it away. They can print another eight hundred billion dollars to different investment banks or something like that. We don't have property rights over our money, but with Bitcoin we do. We can take the power of money printing away from the state and as a result we have a lot more long-term certainty because we can save for the future. A lot of people think that capitalism is like materialism or something like that. It's this idea you know I got the sickest car or something like that. That is not it at all. Capitalism is about capital accumulation. It is about creating more so you can you can make even more money and continue to benefit society. In fact, production and entrepreneurship are exactly what happens in a in a hard money civilization because most people aren't going towards investment banking or the money production business. They start using their talents towards something else. They start giving people what they want. And this increases production, increases value for everybody. There's a really good illustration in Saifedean's book which I'll repeat here, but at one point in time people used to catch fish with their hands and it would take… maybe you can catch only like one or two fish a day by trying to catch with your hands. At some point somebody decided okay you know what I'll catch an extra fish and sort of half star for a day and I will make a fishing pole and using a fishing pole - that's capital accumulation - they can maybe catch four fish a day and then doing that for about a week, you can save up, take another week to make a boat. Now maybe you hire somebody to drive the boat while you go fish. You get better and better productivity out of people as you have more creativity and entrepreneurship to the point where we are today where we have a, you know, a fishing vessel takes like five years to build cost millions of dollars but you have eight people on that ship and they can catch hundreds of thousands of fish in a week. That's real productivity; that's real entrepreneurship; that's real value that the rest of civilization gets to have.
Anyway the pertinent question that people ask in this case is not how do I get a job; it's what do people want. And this is the right question it isn't about finding your place in a rent-seeking society. It is about what value can I bring to other people and this is absolutely critical for entrepreneurship. I'm speaking to you right now as a speaker, as an author and stuff like that, but for the first years of my life I was a coder. I was a programmer. Think anyone ever paid me to go speak in front of people or to write a book? Not a chance. Those are things that I had inside of me that I didn't realize I could use for that sort of stuff but being an entrepreneur, being a producer, I was able to see ok well that's something that I can do. In a Fiat money society, what you end up with are very specific roles right if a company hires you to be an accountant that's all you can really be. They don't hire you to also be a publicist or something like that not unless you're in a start-up. But it's much more fulfilling to be an entrepreneur in part because you get to use all of who you are instead of this narrow slice that's defined by the company. And that's something that hard money allows and Bitcoin is the path to get there because that takes the power of money printing from the state and that makes it very difficult to go into the money production business eliminating a lot of rent-seeking.
Anyway, let's examine what that actually means and what that actually looks like. So one of the things that's really scary about Bitcoin is that you know ownership is pretty scary. This is a cartoon you can probably look at it later. It's about somebody that newly bought a house and you know doesn't think that he's ready for a home ownership. Fact of the matter is were not used to the personal responsibility that Bitcoin requires. There's a lot of people that you know… like even Bitcoin core developers, if they have to move their Bitcoins, they get really nervous. Why? Because it's scary having to handle a lot of money right, where it might be permanently lost. Everything is centralized in a sense to take away that fear of having to move or be responsible for a lot of money and that's convenient right because you don't want to lose money to a bank robber or something like that where if you had like a gold bar in your house and it gets taken away from you all your savings disappear. That's kind of scary, but at the same time, we've lost something we've lost something as a civilization as a result of all that centralizing of responsibility and it's this idea of personal responsibility. See when you have personal responsibility, it helps because you start caring about the thing that you're responsible for you. You want to make it grow. And you know those of you that are parents, you kind of understand what that means. A lot of it is helping the thing that you're in charge of. And when you do that it leads to a lot of good things because when you have long term certainty, when you're when you're thinking about ownership and you you're used to the responsibility, now you can set goals and have a purpose, and that in turn leads to a lot of building. And instead of the sort of the rent seeking job that you might have where your soul is telling you, you are not doing anything good, when you are producing something for the rest of civilization that is beneficial, it's much easier to get up in the morning. It's much easier to live and know that you are contributing something. You don't have to drown yourself in alcohol or drugs or sugar or whatever it is that you might be addicted to. It becomes something different. And that is the future that we want to have with Bitcoin.
And really the key here is that we have a path to a peaceful revolution. It used to be that history was you know just a regime that would get more and more authoritarian until there was a revolution. That's like one view, kind of cynical view of history, but now with Bitcoin we have the ability to decentralize the power. See a lot of the social justice advocates, what they think about is okay if only my guy were in charge, things would be different. If only my guy were there, then everything would be okay. That's the wrong problem. It's still centralized power. With Bitcoin, we can start taking some of that power back and give it to ourselves. And as a result, all of the rent seekers that are propped up, we walk off the platform that goes away naturally and that's a very good thing. We don't want waste in our society. I love this picture because it has the Statue of Liberty which stands for freedom in the foreground and you have all these buildings that are built by big banks in the background.
The prosperity that the U.S. experienced in the 19th century versus the 20th century are profoundly different. 19th century we were under a hard money standard and a lot of stuff was built during that era. The 20th century, it was mostly because of the dollar hegemony. It was the result of the dollar being the world standard and being able to use that to gain a lot of wealth from other countries. And thinking about the 19th century, there is a really cool phrase that's part of why I wear the cowboy hat.
The phrase is, “Go west young man. Go west young man.” Now they were saying this not just to people that wanted to you know pan for gold or something like that. They were saying this to nearly everybody because say you are like 22 years old, maybe you're a new baker or a barrister or you know cobbler, whatever. The thing is, if you stayed on the East Coast, you would have to compete against everybody else that was a cobbler or a baker or a barrister and it would be very difficult because they had like 20 - 30 years’ experience on you. How are you going to compete against those people? They already had the clientele and everything. Well if you went out West, what happened? There weren't that many bakers or cobblers or barristers and you could make a lot more of yourself very quickly that way. Bitcoin gives us a new frontier. Bitcoin gives us a new frontier and it makes all of this happen a lot faster. And ultimately, this is why I think that a lot of social justice people have the wrong conception of human value. It isn't that we're not feeding them or housing them or clothing them - that's not the tragedy. Yeah it is a tragedy that's people are starving or don't have homes or don't have clothes or don't have you know freedoms and so on. That isn't the real tragedy. The real tragedy is that these people aren't contributing to civilization. The real tragedy of the starving African child isn't that the child is starving - I mean that's a tragedy too - the real tragedy is that that child has no chance to express their creativity, entrepreneurship, and inventiveness by contributing to civilization and creating something that none of us have thought before by creating businesses, by making something better - that's the real tragedy of centralized power is that it oppresses so many people so that we don't get to benefit from the tremendous human capital that already exists out in the world. By bringing sound money back through Bitcoin, that is the ultimate social justice.
I'm working on creating a holistic blockchain heuristics course and I keep going back to this talk by Jill Carlson that we saw when we were at the "Bitcoin is_" conference in 2019, hosted by Russell Okung (yes the NFL football player) because it really hits the nail on the head on the question of:
For almost everything, I'm a big believer that the context, the journey, the how we get to our destination matters just as much, if not more, than the end result. Integrity. Satoshi Nakamoto, whoever or whatever you are, thank you for your contribution to humanity.
Had my assistant help us transcribe Jill's talk, so for anyone that has any accessibility issues with hearing, hopefully that helps. The talk was so good. Actually, that whole conference was just amazing and well produced (Thanks to George M., and Russel O., - go #Seattle!).
Legend of Satoshi Nakamoto by Jill Carlson
Conference: "Bitcoin is ___"
Speaker: Jennifer Carlson
Title: Who is Satoshi Nakamoto?
TRANSCRIPTION of above video below here.
I'm really, really excited to introduce you to our next presenter who is going to cover one of the most important topics of Bitcoin. In the eToro Lounge, you will see the white paper, the Satoshi white paper that is now a part of the legend of Satoshi. So, it's in there, you can read it if you haven't. I'd recommend reading it multiple times, but with that, I would like to introduce you to Jill Carlson to talk about the legend of Satoshi Nakamoto.
Thanks. It's awesome to be here. So I'm going to be talking about one of my favorite topics within Bitcoin. And it's one of my favorite topics because it sounds like a book. It sounds like a movie. It sounds like something out of the Da Vinci Code to me. And the most important thing to understand about this is that it's real. Everything I'm about to tell you is true to life how this played out, what the origin story of Bitcoin was.
I'm going to talk about Satoshi Nakamoto and the origin story of Bitcoin. Now, as Alex Gladstein, Jimmy Song, and the guys who were last up mentioned a few times, Bitcoin has no controller. Bitcoin has no one who is a central authority who's making the decisions around how it should be developed, how it should proceed. It is fundamentally, truly decentralized and that dates back to the very beginning of it. And it's very important to understand how it came about, how this could possibly be.
And so, in order to understand this, we need to go back in time to the Fall of 2008. October 31, 2008, it was Halloween, eleven years ago. Take yourself back there. Now, on October 31, 2008, there was a paper that got published that we've mentioned already - the Bitcoin white paper. And in that white paper, there was presented for the first time, a solution to a problem that had existed for a while. That problem was how might we create a peer-to-peer electronic cash system.
Now, we might be sitting here and saying, "Well, okay. But I kind of already have electronic cash. I have my Bank of America app on my phone, I have Venmo, I have PayPal. Why is this different?"
This is different because what we talk about when we talk about Venmo for example - there's nothing wrong with Venmo, I use Venmo everyday - but, with Venmo, I'm relying on a third party to make that payment which is very fundamentally different from cash. If I send you $20 on Venmo, that transaction has to be routed to Venmo, back to my bank, back to your bank. There are all of these different parties and players involved. Whereas if I pull $20 out of my pocket and hand it to you, who else is involved in that transaction? No one, right? And that becomes very important when we think about the distinction between cash and just money.
And so, here for the first time, in this paper, we had electronic cash invented. Now this paper was published and it wasn't published by a research university, it wasn't published by a government agency, but rather, it was released to an email mailing list called the cypherpunk mailing list. And so here we actually have the original email that Satoshi sent presenting Bitcoin P2P e-cash in this paper or the Bitcoin white paper. And again, it's important to note here, the way that he chose to release it was to this pretty niche mailing list on a random corner of the Internet that had maybe gotten a lot of traction back in the 90s and we'll go over in a second sort of who the folks on this mailing list were and why he might have chosen to release it in this format to these people.
But he did. That was an intentional choice that he made to release it on the cypherpunk mailing list. And so then, we move on and we ask okay, well so who is this 'he' that I keep talking about? Who is Satoshi Nakamoto? Who is this author of this white paper that solved the problem that, again, had been around for a long time, that many great mathematical minds, that many great cryptographers etc had set out to try to explore.
And the answer to that question is where, again, I think this starts to sound like a mystery book because we don't know. To this day, we don't know who it was who managed to solve this problem. That is wild if you think about it because if you think about other folks who publish under pseudonyms, for example. Authors. Artists. Very often we have some idea of who they are or they were just using the pseudonym as just kind of this is my professional life and then I'm keeping my personal life separate.
But with Satoshi, there is not a trace. There is his online persona, he published this paper, again, to this mailing list. No one on the mailing list had ever interacted with this Satoshi before, with Satoshi Nakamoto. And in fact, the first people who started responding to him didn't even think twice. They didn't question who you are or where you came from. It wasn't until weeks, even months down the line that he started fielding those questions and he was always sort of very cagey and shy and didn't reveal very much at all. And then only later did it come out that actually no one exists. Satoshi Nakamoto does not exist in the form, at least, that he was presenting to the world.
And then finally - so he publishes this white paper to this mailing list and very quickly on the order of weeks and then months he followed it up with working code and he performed the first Bitcoin transaction. And there are a few things that are important to think about there because that tells us something actually, about who Satoshi was. He's someone who could program. He wasn't just sort of an armchair philosopher coming up with these ideas and presenting them out to the world. He was actually programming and creating the source code that would enable this vision that he had for the future to become possible.
And so he performed the first Bitcoin transaction on January 3rd, 2009, a few months after he had first released the white paper. Pretty quick turnaround time, actually. He performed the first Bitcoin transaction and he timestamped that transaction by publishing within the transaction the headline of that day's London Times. And here you can see it over on the right - The Times 03/Jan/2009.
Now, let's take a step back and think for a moment here because what I've just presented to you is pretty wild. Again, it sounds like something that is borderline hard to believe that this is actually how it played out. That this isn't just some origin myth narrative that we've come up with to sort of kick up some interest in this product and in this space. It's all true, though, but what I would suggest, what I would propose here is that it actually was very intentionally done for a whole number of reasons. That none of this was an accident from the timing to the format in which he released it, to the distribution strategy around it, who he was, who he presented himself as, and then finally, the kind of branding that he created around this new currency, this new technology, this new product.
And I wanna again, take a step back here and think about the fact that we spent so much time in the Bitcoin space thinking about the technology, the technology that goes into Bitcoin. As we should because there are major breakthroughs that have occurred based on what Satoshi was able to put together for the first time. Again, he solved this unsolved problem.
But if we look at this timeline up here, we can see that actually, a lot of what went into Bitcoin, those components massively pre-dated Bitcoin going all the way back to the 1980s. There were all of these developments that happened along the way in terms of the technologies that were needed to be able to create Bitcoin. And really, what Satoshi did on the technology front, among other things of course, was he assembled these technologies for the first time in such a way that he created something new and he created this peer-to-peer digital cash. But should we spend so much time in this world, talking about, thinking about the technology aspect? But what I would propose is that we spend not nearly enough time talking about basically the marketing strategy, actually, that Satoshi created around it because Satoshi's brilliance was not just in creating the technology, but it was also in how he presented it to the world and how he sparked people's imagination with it.
And so with that, I want to briefly dive into a few of these areas. So I mentioned he created it on October 31, 2008. That's not quite right, though, right? He didn't create it then. That was when he chose to release it to the world. He chose that date. Now why would he choose October 31, 2008? There was a lot going on in the world at that time. Philadelphia had just won the World Series, Barack Obama was on the verge of being elected President, but you may also recall we were in the midst of a global financial crisis.
So who here remembers where they were in 2008 when Lehman filed for bankruptcy? Who feels like they were affected by it in some way? This affected everyone in the United States, everyone in the world. And suddenly, for the first time, people took a step back and started scratching their heads at the financial system. If big investment banks could go under - and here we have a picture. This is the Lehman Brothers sign being brought into auction at Christie's to be auctioned off in order to raise capital, actually for the bankruptcy filing of Lehman Brothers.
If we can have banks going under, if we can have governments bailing out those banks and creating, really, a moral hazard around the bankers who made poor decisions around risk that set off this chain of events, this cascade that impacted every single one of us in this room, people were starting to ask these questions for the first time. And they were mad about it.
Occupy Wall Street. I was actually working on Wall Street at the time the occupy movement started happening and I would walk past everyday the protests occurring because people were mad as hell that the banks were able to be so irresponsible and governments were able to come in and bail out those banks while Mom and Pop had to lose their jobs, lose their pension funds.
And so what I would challenge you to think about here is October 31, 2008 Satoshi releases the Bitcoin white paper. Why? Not because that was the date where he finally felt like he cracked the code of the technology, but because he knew that the timing was finally right to release this to the world, that people were asking the right questions that would enable them to understand this. So there we have the timing, the question of timing.
The next thing I wanna talk about here is the question of who he released it to, why, and in what format most particularly. So I mentioned this word, "white paper". Everyone in Bitcoin loves to talk about the Bitcoin white paper. The Bitcoin white paper this, the Bitcoin white paper that. I had never heard the word "white paper" before I got into the Bitcoin world. Not actually a normal thing to be talking about, it's not actually a normal tactic and marketing etc. Now why did he choose this format to release it in? Well, actually the origin of "white paper" actually dates back to the early 1900s in the UK (United Kingdom) when white papers were used as policy proposals and they sat in this kind of interesting middle ground where they were policy proposals. They were intended to be used as tools somewhat of democracy to solicit feedback from people on the policy proposed there. And so there was this very all encompassing, democratic, high value placed on an individual freedom's format to be able to have a discussion.
Interestingly - of course, this format has been picked up by universities and academic research and some other technologies in the meantime, but nonetheless, I think that it's really worth thinking about why did he choose this format - the white paper - and does it have something to do with the fact that he was soliciting feedback. He wanted this to be an inclusive process, an inclusive conversation and I would say yes, that is probably exactly what he was thinking.
And so, we have the Bitcoin white paper, but as I mentioned before, we also have code. Satoshi didn't just put the idea out there and say, "Alright. No you guys take this and run with it or go and try and solve it." He said, "Okay, I'm also going to sit down and implement this. I'm going to pull some other people in and we're gonna try and build this damn thing and do some transactions."
And that's exactly what he did. And there, he's tapping into a slightly different ethos from what he did with the white paper. He's tapping into an ethos of create, ship the code. And I want to come back to the importance of that because we might think about oh you know well this just kind of make sense for him to put the idea out there and then tinker around and try and build it, but even the fact that there was lag time between when he released the white paper and when he build the first version of the code. That's important because that made it such that he could get feedback from the community that he was presenting it to before shipping and releasing the first version of it.
And now we want to talk about, of course, who he released it too. And this is where I think it gets very interesting again because I mentioned already the cypherpunk's mailing list and I want to talk about who the cypherpunks were. They were an activism community that really gained traction in the 1990s, really focused on privacy, individual rights, individual rights online, freedoms, all of these themes that we see crop up in the Bitcoin white paper. And cypherpunks had actually been working on this problem of how to create digital cash for years and so, you can think about the different ways that Satoshi might have gone about trying to present to the world this new idea. He could have gone and filed a patent. He could have approached a government agency and said, "Hey, I think I'm really on to something here." But instead, he took it to this community that he trusted to be the stewards of this - the cypherpunks - whose values he had some degree of certainty around in terms of the privacy and the individual rights aspect.
And then finally, the last thing that we need to talk about is of course, the branding around it and so we've covered the timing, the creator, his distribution strategy, the format that he released it in, but what I would say was actually the masterstroke of this whole thing was his ability to see how he could plant, basically, an Easter egg in the middle of this. So, I talked a little bit earlier about how he embedded in that first transaction that he did, a headline from the London Times from that day. He did that for two reasons. He did that to timestamp it, but also, what that headline was, was no accident.
That headline read, "Chancellor on Brink of Second Bailout for Banks." And that was indeed the headline on January 3rd of 2009, but that was also a political message. That was a political message saying look at the money that you have today. Look at where it's got us. It's gotten us into crisis. It's gotten us into a situation where we have banks and institutions who can use that money in ways that hurt us. It's gotten us into a situation where governments can bail out banks and what if we imagined a world in which that were not possible? What if we imagined a different type of money? And that's what Satoshi was presenting to us.
And so, I wanted to share this story with all of you today because I think that it's really important to consider not just the technology behind Bitcoin, not just to consider the technological breakthroughs that Satoshi made in order to make all of these possible, but to also think about all the other decisions that went into it - as he was releasing it, as he was developing it - that got us, really, the magic of Bitcoin that we have today.
I was asked if I could make time to go to this webinar this morning (9-10am), and I could, so I did, and of course, I took notes. I always take notes. And I'm continuing to share them - so hopefully they are useful to someone out there. I have to say, I saw Danielle DiMartino Booth in an interview for the first time last week - and was superbly impressed. Today, she went from being a self-proclaimed "old timer" who hedges with GLD (Gold) - to someone who might finally understand the great big case for BTC (Bitcoin). WOW. And Jeff Booth did an amazing job building up the case and really pushing for logical thinking and thought experiments. Now, I am following @JeffBooth - as I am also a newly minted fan.
Here are their bios for reference (I don't think they are related.):
Feedback welcome on the notes. Too much? Too little? Different format? Let me know! And here's the link to the full interview: https://blockworksgroup.io/ia-inflation-vs-deflation?SQF_SOURCE=webinararchive
[Jeff Booth] Technology is driving deflation - exponential efficiency, exponentially deflationary. People are trying to plug the hole from technology deflation. Everything else is a by product of that. Why does anyone use technology - it’s to FREE OUR TIME. It removes labor. That’s why prices should go down. We are fighting that natural order - which is concentration wealth, power, etc.
Michael - There has to be a reset one way or another. It’s an epic battle of our time. Do you agree? —>
[Danielle] Same but different prism. COVID acted as an accelerant. Small businesses employed 40% of people in the US - found US labor for their purposes was cheap. Now they are automating even more now. Customers want EVEN LESS human interaction than before because of COVID. 26,000,000 collecting unemployment - that’s DEFLATIONARY itself. 1/3 of American households have lost income - Still have households that have lost income. Jay Powell is running like a mouse on a wheel by trying to create asset price inflation. Only works if the banks will lend. Asset price inflation in stocks. The old Alan Greenspan playbook is in play too - Fannie is all about refinancing, all in the last 6 months. People are pulling out of cash out of their homes - interest rates at 2.6%, all of this engineered by Jay Powell. Wealth effect NEVER trickles done. The bottom of the “K” is where we are seeing deflation. The Fed is creating a housing bubble. The Fed cannot print JOBS. The Fed cannot create cashflow.
Michael - The K shaped recovery is the best manefestiation of the Fed. They inflate asset prices so people feel wealthy. This is causing real dispersion. Real income inequality. What’s the outcome? ——>
[Jeff] This isn’t just the FED. This is a global phenomenon. Logical step by step. If Tech is deflationary at the rate I am talking about, and IF as you print more money and more capitalism - it’ll force businesses to implement technology faster. Period. Full Stop. Means everything else globally, if you’re trying to drive inflation, you’re trying to drive WAGE deflation, You’re trying to make debt cheaper. You’re picking the pockets of the people LEAST able to do that. You’re driving society breaking. They’re pointing at each other. Fundamentally - revolution, political divide, …. The system is being forced to change. This is the most important topic of our time. If that cannot work together, monetary cycle and inflation. 1) let it happen. - capitalism would call for this. Assets are so overpriced. And they will fall by 80-90%. Banks would fail… It’s not bad people anywhere. They are TRAPPED. The time to fix this was 20 years ago, Instead of fixing it they made it worse by making bigger and bigger bubbles. Populations on booth sides are pointing at each other. …. then it’ll be “Euro’s fault”, “China’s fault”… the only other way is to drive inflation. At some point, treasury might coop the Fed, the next step, then you’ll get more inflation, in the name of HELPING people. Whole people cannot pay for these prices (inflation). Then people will come back and say ’Save me!” — massive printing all around the world will be picking the pockets of people (wages, savings) — which will cause revolutions in the street. The Fed is the firefighters, but also the arsonists.
Michael - The Fed feels trapped. Enemy of the Fed has transitioned.
[Danielle] Jay Powell came into office, the Dow Jones closed in triple digits in January 2018. He thought it was not the Fed’s job to backstop Wall Street. Fed has been inflating the household bubble, and now the exchange market bubble. Massive disconnect. He said QE was a bad idea - and then he reversed that statement because the Fed is Trapped, because of the magnitude of the bubbles. There’s also massive proliferation of dollars throughout the world. The weight of the world is on the shoulders here too. It’s a MESS.
Michael - it’s a tough situation. Money printer go “brrrrrr”. The Fed is in an unfortunate position. Fiscal policy will play a bigger role. Lots of deflationary forces.
[Danielle] If you create a working class that doesn’t have opportunities, we're going to be in trouble. Germany in 2005 took opportunity to retrain their workforce. US is doing the opposite thing - stimulus bandaids. This is going to head to a STAGflationary situation. This will swing too far on the other side…. Rising interest rates, people out of work… this may be the worst of the 1970s.
[Jeff] They have to try and create inflation (let’s thought experiment). Take it logically. Deflation is happening from technology - which SHOULD bring prices down, which SHOULD be a benefit for society. Where’s the evidence? Last 20 years, preCOVD, we had 35 trillion global debt. … the problem is that is looking backwards. Technology is moving forward. 30 trillion dollar debt, it’s nothing compared to what’s going to happen. It has to explode mathematically. That money is going into asset prices. It’s robbing from the free market, because it’s trying to protect the value of the money. China takes their money out and puts it into real estate - to protect its value. That steals from the economy. It’ll move into authoritarianism. THere’s no way out of this right now. There will be hyper inflationary. It won’t be right now. When the FISCAL side comes on - it’ll be stagflation, hyper inflation, etc… at that point, as currencies are destroyed all around the world. The feedback is like what we’re seeing in Turkey. Remove that market from exports, the feedback will race around the world and take it down. You’ll just keep on going. We have to LOWER our dollar value in relation to the world. Now, how does the Treasury get out of the debt box? Inflation is trying to make the debt cheaper? What government will take this on? The fed has taken the risk. The bank has taken the risk. You’ll collapse the entire economy and the Fed, because the Fed has absorbed the entire risk of the market. I really wish these weren’t as binary situations…. But we cannot. The next 10 years…. In order to get stronger, the dollar HAS to get weaker. Where in safety is that? Where are you personally going to do? How to look out for your family? That’s the greater conversation for our time.
Michael - Absolutely. How do you position yourself in this crazy world? What does the transition look like over the next 10 years? Stagflation, hyperflation, this is globally something we haven’t seen for a very long time? How does this look for the next 10 years for the dollar?
[Danielle] Correlation between Euro and growth of the US balance sheet = is like 80%. Jay needs more product. Whoever is winning the balance sheet battle… Christine has more product and is winning right now. You can see the Fed will have 3-5 trillion out there between now and Q1. That’s when the Cares act goes away. Trying to buy time - but not in a productive way. The currency, whoever is printing more money the fastest will win. Jeff’s scenario is dire. In the background, as you become more authoritarian and more dependent on the state and not spending on infrastructure - and throwing NONproductive stimulus cash of people NOT working. We will DEglobalize - this is what will SET off the authoritarian state. Events folded from 1914 - 1930, and the war was decided on who had the least amount of debt.
[Jeff] Let me build on what Danielle just said. Why infrastructure projects? US should spend on infrastructure projects - not just printing. A road, bridge - this will decrease time between home and office, the short term benefit of labor, long term benefit of faster commute which is more productivity. Here’s the problem with that today. Everything we do, zoom calls, digital doesn’t care about this. Where does the money need to go to have long term benefit? There’s no job in Canada from zoom. Technology is borderless. IF tech is coming in right now. Lots of working from home forever. I don’t need real estate - real estate will crash. If labor can work from anywhere, wouldn’t you hire the best at the cheapest? Talent is extraordinary anywhere. If we are working from home - how fast tech is deflationary is incredible. We have a house of cards that’ll kill people. You cannot train fast enough once this all falls. This will force businesses to look for better cheaper everywhere. I wish that would be the debate. If we start having this debate - on how we PROSPER fro this, instead of feeding a system built for a different time - you’ll see what saves humanity makes all of the abundance broadly based, is right in front of our nose. Let’s question the system? Can it work any more?
Michael - this is the system today. It’s not working for everyone. It’s contributing to economic inequality. Russia and China are working on alternatives. We can see evidence that the system today is NOT working. Question is what a transition OFF of the US dollar will look like? 80% of global trade in USD, how do you even do this? It’ll be messy. Current system is not working. What does the new global monetary system look like?
[Danielle] As messy as it will inevitably be - as long as you have 1 government that is methodical about it. World history doesn’t work like that. Egos don’t work like that. China will be methodical. They are methodically reducing their treasury from $1trillion to $800billion. They put it in writing. Think again about an economy that has it’s people relying on its government leads to socialism leads to authoritarianism…. It leads to something like the Roman Empire. There is no alternative to the Yuan. There’s no viability. It’ll come about in a military kind of way.
[Jeff] I agree with Danielle says, look at the pendulum of time. What we are seeing, this is history repeating itself. Go to to China as an example. No country ever that has created debt to GDP as fast as China. It’s a house of cards exponentially. Why do they want their own digital currency - if they can do that, they OWN the world. That’s why the US is going to create a digital currency. It leads to more and more control and isolation. Game theory perspective. What government in the world, after seeing a fiat currency in the US that can be manipulated, which exports their problem to the rest of the world? Absolute power corrupts absolutely. Last week — Chinese billionaire in real estate went to jail for 15 years because he comment publicly on China. That’s what happens. … Take a business landscape look at this. What happens to an existing business, like Blockbuster, … it wasn’t bad executives. The minute download speeds change. Their business relied on people driving to the business. Netflix hence took off. There’s nothing that the government can do - they’re just adding “candy isles” to the business - making the problem worse like blockbuster. Bitcoin is a new business - it’s a new monetary policy. It works on a network effect. I suspect governments will be forced to peg to it to bring ORDER. What is trust? What is money? As that happens, …. Small folks, small businesses, small nations, … this problem will be solved by something NEW. It deals with game theory. It becomes an incentive for governments to peg to this earlier. The incentive structure built into it is greed - which drives early adoption. At least that’s the hope. If Bitcoin went to zero, and if we could safely transition in a safe way, … I think it’s the safest way to transition society. It’s the biggest benefit for society without wars.
[Danielle] I’m bitter about the fall of the Roman Empire (being Italian blood). I don’t know how to get there. It’s the most peaceful route what Jeff said. That means cooler heads prevail and there’s order to it. Greg Iprit wrote a Wall Street society about dominance of China in the tech space on telecom equipment - 30% market share on equipment. If China passes the 50% mark on marketshare, we’ll be in trouble. Australia is looking into the origins of COVID, and is speaking out against China (116 countries joined in) — technology is the future of where power lies, then if there’s not 1 country where all the power lies, then we can have a more ORDERLY way to transition. 5G, AI, etc… that changes the game.
Michael - Let's dig deeper into this. There’s a lot of stigma around Bitcoin. … regardless of your thoughts on Bitcoin, a form of sovereign free currency possible? Game theory. It’s like the prisoner’s dilemma being played out on the global stage. Our currency is causing a lot of problems today. Game theory - there actually is a strong possibility of a sovereignless currency.
[Danielle] If you have a gas station on one corner, and Costco comes across the street with better cheaper gas. There as to be a peaceful change of power. This has to be REALLY different this time to be able to happen. I’m FED UP with undisciplined monetary policy. I would rather the purpose be more peaceful. I’m worried about human nature.
[Jeff] That’s why I use the example of Blockbuster. It’s not bad executives, their business model was around something that didn’t scale. You can’t charge for things that are in abundance. Technology creates that abundance. WE are trying to manipulate the system - and we’ve made the system more fragile by design. Very rarely in the existing system, do people look at anything holistically? Do you believe housing already goes up? People individually - people are in the system and cannot see the big change that’s already happen. People are STUCK in the system (matrix). Banks fail. They only see it in the way of the system. Bitcoin is the release valve - that’s what’s going to happen. People are starting to understand. It’s network effect. The more people understand it in relation to currencies - more people will trust it. This will happen country after country. The onramps - the trust to Bitcoin will get higher and higher. The value to the entire network will become extremely value - it’ll take time. The existing system will not go quietly into the night. Bitcoin is the safer more peaceful route to change.
MIchael - it seems like minor disagreements. The one key takeaway is that we are going through a period of transition. A lot of volatility. How can I preserve my wealth? Asset prices could fall 80-90%? How do I make sure that my wealth can be protected from a downdraft that serious?
[Danielle] We express it in gold. In deflationary times, gold outperforms as long as there’s enough disruption. Personal philosophy, if you see an extraordinary company and you see an opportunity to seed it, do it. There will be survivorship. There will be great companies coming out of this.
[Jeff] I’m fortunate because I get to work with leading technology companies at early stage. I spend the majority of my time in tech. You can do very well in tech companies. Mike you made a good point that if asset prices drop 80%, and governments stop printing - they you’ll want to get out of assets and into currency. You’ll want to get out of banks too as the system clears. BUT Governments have no choice. They have to keep printing. This is binary in nature. Opposite example —— governments will continue to print. Need more leverage and get into assets, that should do well if governments keep printing. The problem with that is that later on governments will have to tax this at different rates. This will happen thorough history. All assets will be in local currency - houses, businesses, assets, etc…. - than you go through a reset at some point and there’s no way out. In times like this you get the rise of authoritarian regimes. If you looked at Germany in 1920s-1930s. People were wheelbarrowing money to get bread. Extreme joblessness. People didn’t realize it. … Once you’re stuck in a currency and all your wealth is in that currency. How do you leave? People don’t leave because they feel richer as society is getting poorer. IF I leave, then I become a refugee in another country because I can’t take my wealth with me. That’s another case for Bitcoin - you can take it anywhere.
Michael - feeling the need to end on a positive note…..
[Jeff] Technology should happen on its natural course, there would be abundance in the world. Let it happen. Stop trying to manipulate it. For the first time in history, we can solve the abundance problem for society.
Michael - how can people reach out?
[Danielle] I can barely keep up with Twitter. Find me on Quillintelligence.cmo
[Jeff] @jeffbooth on twitter.
These are my personal notes from attending conferences/webinars/talks - and this one is from this past weekend in watching a couple sessions from the Trading Investment Summit: Investing Notes: Lyn Alden 9/26/2020. I recently started following Lyn on Twitter too - after discovering that some of my favorite investors also follow Lyn, so thought it'd be a good opportunity to catch an interview live to learn a little more about her perspectives.
Here's a link to her BIO, with some additional resources she's created.
Hope this helps! (And feedback always welcome.)
Investing Notes: Lyn Alden 9/26/2020
Lyn Alden Interview
Lyn founded LynAlden Investment Strategy. Free newsletter every 6 weeks. Engineering background. Started investing before studying as an electrical engineer.
How has the banks/markets responded to Covid? What’s your view on this, esp regarding employment/supply chain? ——> April 2020 - looking forward square root sign curve regarding employment. Falls, small recovery, then will be a very slow recovery. So far, that’s what we will see. We have a credit cycle playing out - permanent job losses are happening. Going forward, this will be an issue. Fiscal policy is what to watch out for - will dictate how “K shaped” this will be. If you see more fiscal, you can see a narrowing of the K.
How to get this trickle down effect of QE over these years. Helicopter money into people’s accounts has a good short term effect. ——> Central bank have been trying to address this problem of the global financial crisis - we have had low rates for so long, so it is miss pricing risk. Negative rates destroy the economy. It’s an over reliance on monetary policy - it’s like the 30s-40s. We need more fiscal policy - in the 40s, that’s what happened after the war. Lot of the deficits is tied to structural, an aging demographic. Fiscal versus monetary policy. This recessions we got a lot of direct to consumer earlier. Now it comes down to what happens next. We’re in a normal recession right now.
Apple issuing debt even with their cash pile of billions. Is it sustainable for low rates? It’s good for real estate, taking out low 30 year fixed rates. It’s good for stocks. But what else? ——> Whole yield curve is so low. Looking at the long term debt cycle, in a typical biz cycle, you might get more leverage in the system, then you get an external catalyst, and then a small recession. Then monetary policy comes in and ends it. Over multiple short term multiple biz cycles, then you’ll get more debt in the systems, … then you get lower interest rates, then you hit zero. The last time we hit zero bound was 1930. This will be a big deleveraging event - but they play out differently. Very challenging time for markets. Not a lot of safe havens right now - because they are not good places for holding right now. No safe haven to put your money right now.
The FED has announced a symmetrical period… how will this affect the dollar. Interest rates will not be volatile because central bank will hold. You’ll get more currency volatility. 1940s, when we were getting off of 0 bound, they said won’t let the 10 year yield go above 2.5%. Inflation reached double digits - it was inflationary and contained. In 2020, we’ll see a scenario like that. They will cap treasury yields - and let treasury underperform. We’ll come down to fiscal policy. Central bank will put the breaks on it - so it’s all about fiscal policy.
How calculating inflation has changed so much. Inflation is basically which is reported is different. Central banks changed different from tightening to easing pretty quickly. The pain problem is the debt - everywhere, not just the US. So much debt - how will central banks get out of it? —> Long term debt cycle will be done by inflating a large chunk of the debt away. It’ll be like 1940 — they capped yield below inflation rate. You get all of your money bank nominally - but you lost 30% off your purchasing power. We’ll be in that period. We’ll get inflation. Real yields will be negative for awhile. Over the next many years, negative real yields. 40 year period from late 1930s to mid 1970s, you mostly failed to keep up with inflation. We’re in that situation. Yields are so low - only short term trades is where you might gain.
Look at total debt to money supply — our debt is building up nominally, but it peaked in 2007 and has been in decline because of the money supply growth faster than debt. US came out of the 1940s as the only country as the global creditor nation with a large industrial nation. Now it is the largest debtor nation. This one is different. People point to “Japanification”. It’ll maybe stagnation? Japan is currently is the world’s largest creditor nation - they own more foreign assets than foreigners own their assets. That’s not our case. I’m in the dollar-bear camp. Over the next 10 years, the dollar will lose value against some major currencies. Japan also owns a lot of their own debt, btw.
Since we had massive QE, zero rates - have we seen inflation? QE and zero rates are more deflationary. Housing going up Disposable income has been getting reduced of the average person - because most people don’t have all these extra assets. Thoughts? ——> Some extent. View a similar outcome from a different lens. QE mostly props up asset prices. Fiscal policy working with banks - that’s more generally inflationary. Need to point more to fiscal policy. This happened in the 1930s, you didn’t see broad price inflation until 1940s where they saw the broad price inflation. Fiscal policy more than more central bank monetary policy.
1930s we had twin budget surpluses in the early 1930s, The starting point was positive. We have twin deficits right now going into this. ——> This is more of a inflationary variable. We have slower population growth. Rapid tech growth. Deflationary forces, that are offset by trade deficit, debtor nation, etc…. More vulnerable currency than back then. Over the next 10 years, we’ll see the dollar decline (maybe more 5 years). Depends on more fiscal policy. It might go down to the “70s”. It’ll depends on fiscal policy between all the countries.
Fiscal policy that leads us to the most event of the year, the US elections. What is a risk-positive or risk-negative outcome? Trump with Senate Red, House Blue = lot of things can happen. Depends on the decisiveness of the election. You’ll get large deficits no matter what. Size of deficit is all about the gridlock. There will be a volatility period.
What is the breaking point? The confidence level? Where’s the limit? ——> FED is trying to do tightening. Domestic balance sheets are tapped out, even with the deficit oof 5% of GDP. Now QE happening to buy treasuries. We’re getting into a fiscal issue. We can’t float the treasuries to the foreign sector. Much slower rate of purchase than before, so we are self-funding them. These deficits are not going away anytime soon. You’ll still get large deficits, the central bank buying a large amount of it. If you look into 2021-2023, that narrative will change with so much deficit.
One of the most popular asset classes, Gold, Silver views on the next 1-2 years? ——>. 1 year I’m neutral. Out 3 years, I’m bullish on it. I turned bullish on this back in 2018. It’s really correlated to real interest rates. Sentiment layer on top of it. Real rates are less negative than 1 month ago. How well gold does really depends on stimulus? Are we getting disinflation? Inflation? How big will the stimulus be? Especially for the middle class. The wealth concentration (like the 20s-30s), …. Part of the inflation debate will depend on middle class, this is key. History repeats itself.
Dollar losing its reserve currency status. What’s your view? Will this happen? ——> Good question. Most people ask the wrong question? We are at the point where there is no one currency that can do this. This is a weird period in history. Previous periods didn’t have such a lock globally. The dollar since the 1940s have been in a super entrenched position. After WWII,US was 40% of global GDP, rise of emerging markets, …. The US is now 20% of global GDP. We’ve run many large trade deficits. We exported our industrial base and our currency to the world. US used to have 80% of the world’s global GOLD reserves. Going forward, the trick is not to look for which currency will replace the dollar. You could have regional trading currencies. Trade between Russia and China, used to be 80% of dollars, but now it’s got more Euro. But Russia/China are antagonist towards the US. A handful of currencies will be used to price commodities. Going forward, central banks buy less gold/treasuries. The dollar will be A reserve currency, not the ONLY currency to price commodities. Just a part of the system.
These are my personal notes from attending an interview with Danielle Booth today: Investing Notes: Danielle DiMartino Booth 9/25/2020. I think my fingers got a major workout for the 45 minutes she was being interviewed trying to type/write as much as I could from what she was saying. Super smart, savvy woman who obviously knows her stuff and does not apologize at all about her opinions. The "Speak Truth to Power" type of stuff - which I'm a personal big fan of. In a sea of men that were presenting today at this 3 day investor conference, it was so refreshing to see and hear her.
Took a screenshot (sorry, not the most flattering I know if you see this Danielle) - see below. Here's a link to her bio too.
Anyways - hope these notes are helpful. Feedback welcome. Normally I wouldn't be sharing my notes with everyone so forgive me if they're a little rough. Trying something out (sharing).
Notes from the conference on this talk: Danielle DiMartino Booth will be interviewed live by our hosts, where she will give a brief overview of the recent global developments and their potential economic effects. She will undoubtedly discuss central bank action and the likely scenarios for equities, interest rates and various asset classes.
Her ability to create really useful analysis and her Markets Briefings was how she made her mark and gained the attention of the great investors (Warren Buffet and Charlie Munger for example). They saw some of her work and invited her to Omaha to meet with them personally (she couldn't because she had a 5 month old baby - and they said no problem, they would provide childcare so she took the whole family.) Worked in the Fed, Speaks truth AND she doesn’t do sensitivity training. :) LOL. In the Fall 2015, inside the Fed, she was given special instruction to pay attention to only Jay Powell. An outsider insider. Danielle was not liked at the Fed.
Covid was a bump or the catalyst, from October 2018. She really understands the markets and the behaviors, the impact to the market. Jay Powell really understands the credit markets. What’s going to happen going forward does she think? A doomsday policy was in place after junk bond issuance freezing. May 2019, Neiman Marcus issued debt and the bond market froze. Jay Powell talked about easing so the markets over again. Again, there already was a doomsday policy. Morgan Stanley did the math. Jay Powell already knew TRIPLE B was an accident happening. Any downgraded debt was eligible for purchase by the Fed — so even if anything was junk, the investors had to treat it with respect.
The problem is that today, the market is losing confidence. Jay Powell cannot create cashflow. He hates Trump (even though he’s a Republican). He will not buy stocks 39 days before an election. Optimically and narratively it’s more damning. It’s ready to deploy - but he will likely do nothing. He will not do negative interest rates. Other countries can. Everything will break. Someone needs to have a reference free rate.
Jay Powell spoke yesterday. Downside risk is out there without further federal aid. The Fed is begging congress to do something. The growth of fed balance sheet is correlated with the S&P. The Fed wants more stimulus. “I wouldn’t say we are out of ammo”. Did he say it? He kind of did. They need “product” = They need “paper”.
Is the Fed influenced by the president? Danielle says no. Jay is afraid of the credit markets. He doesn’t care about supporting Trump. One thing to note, is that Munichen and Powell speak the same language. What the Fed is doing is doing now against the law. During WWII there was yield control and there was a cap. The Fed and the Government were severed in 1951 - Fed was separated from government. There was an accord. Now because of what's going on, future politicians will have to RE-separate the Fed to be nonpolitical.
Rhethoric today for Powell, is one of his biggest tools. The briefcase indicator. Powell likes to “play” with investors. What happens if the investing public loses confidence in the Fed? You’re already seeing that. He blows it on Jackson Hole on August 27. The whole world freaked out as a regime change. F1c statement to 2023, with a target of 1.7%. Market took a step back. The Fed, before this rhetoric, the Fed had been buying up all kinds of stuff. The Fed is creating the narrative. 26 million people are collecting unemployment, when there’s deflation knocking on the door. Powell is trying to bring up inflation. Rent is coming down. Housing is the main # into every model.
The Fed gauges inflation how? Fed has to hide behind inflation. Our health care inflation is not medicare/medicaid rates. They know that. They know we spend more on housing. They have to have this broken metric to support the Contant QE. They can’t change this. They are trapped. QE is important. They cannot turn the facilities, they cannot turn off the printing presses. If they decide to become the printing press for hire. We’re going to go from deflation too STAGflation.
What is the breaking point that will push yields? Traders are all waiting for this. Dallas, Scottsdale - Jay Powell has created the housing boom. The Housing is the most leading of all sectors. He bought all mortgage back securities in 5 minutes. You have rates of 1.99%. Ed Pinto (Fannie’s former economist). IN 6 months, cash out refinancing is HOT. The appraisals are not even happening. Fed is creating the narrative that there is this hot market. Wealthy people are renting homes for $75k. People who have money? FHA lending is still 3.5% down — people who are not wealthy are hurting. If you see the riots now, it’s going to be worse in March. Once banks can start to foreclose - this is going to cause mayhem. This is all caused by the Fed.
You’re bullish precious metals? Gold? What will drive prices higher. Right now investors are going after the traditional next. Miniature repeat of March/April 2020. People are calling bluff of Fed and selling Gold. Gold is still outperforming in both deflationary and inflationary markets, and with volatility. If you’re looking for protection - Buy the Move.
How do you feel about cryptocurrencies? The trading community is favoring it as a hedge. It’s like TikTok instead of the walkman. People that want to make a name for themselves buy Bitcoin. The old people want Gold. If we go over the line into quantum and it becomes more economical to mine this stuff. People are disgusted with the fiat currency. Danielle owns gold.
Lot of people look at what the Fed is doing, expanding the balance sheet. $1.5Billion/hour worldwide is what is being printed. Will asset prices will go higher? Is this a V shaped recovery? No, it’s a VERY K SHAPED RECOVERY. Small businesses hire most of the Americans and have been left behind. Great innovations. Great new industries. Lots of people left behind. The K may not be permanent. Raymond James, law firms are laying off. Indeed.com — job postings for high income are down 24% year over year. If we have more white collar jobs lost, then we’re in trouble. The stimulus really helped - if you see white collar layoffs, they the K will not happen. It’ll be a W shape.
What about Japan and the bank of Japan? The rates are at 0. US to Japan is apples and oranges, but is there anything to compare? Yes and no. The No is that the fact about 1/3 of treasuries are owned by foreigners. It’s owned by the post office. Banks own 40% of CLOs. Good luck Japan. We are not Japan in the sense that we don’t have a long runway to start the printing presses because we pushed it so far. We are not at the point to being a recovery. Starting points matter. It’d be more convenient if we were Japan. The whole world is in recession. Japan is going in and out of recession despite it all. Nothing cataclysmic has happened - they’re an innovative country that’s moved that innovation to China. @bondstrategist on Twitter — sent out a poll a few weeks ago. We believe we’re in the Great Financial Crisis 2.0 because of the Credit issue.
Is there a way for the Fed to get out of the box? They keep buying ever increasing debt. She wrote a book “fed up” as she’s not a fan of the Fed. That’s the trillion dollar question? The answer is you have to look at 2019. Russell 2000 and the broader stock have not ever gotten back to ATH’s off 2018, when the Fed tried to get out of it. They think they can do this for 10 years. I don’t think the market will not allow it. Bondage vigilantes have been hibernating for a long time - they will come out. The Fed can continue this for much longer - what they want us to believe. As long as there’s deflation, they will continue.
If Biden wins? Remember, the debt ceiling was passed - it was because the Democrats asked for no debt ceiling until 2021. From now until June 2021, there’s no debt ceiling. The bond investors will hit their pain threshold soon. Who knows when or what will happen.
How to find Danielle? Come to Quillintelligence.com — we publish/write every day. Macro investing is hot again. Data means something now again. They put unvarnished best research. She says @dimartinobooth follow on Twitter.
As an insider at the Fed, is the plunge protection thing real at the Treasury? It is. It’s not inside the Fed. It involves more than the Fed and Treasury. It’s like you need a Lehman Brothers. That’s because they already had the Doomsday plan ready to go.
These are my personal notes from a talk I attended from the Investment Institute: Investing Notes: Brady Dougan 9/24/2020. I decided to attend this one because SPACs (Special Purpose Acquisition Companies) are all the rage right now and VERY INTERESTING as a vehicle for cash preservation (with some upside), and also for fundraising (as a company who's ready to scale and interested in doing an IPO (Initial Public Offering - when a company goes from being private to public), with a lot more support). SPACs remind me of the ICO (Initial Coin Offering) world, from which I got my first taste of this. They are sometimes called "Blank Check Companies". Some people will criticize and ridicule it. I am a believer and think this is a trend that'll be sticking around.
Hope these notes are helpful to someone out there. Feedback always welcome.
Here are the bios of the folks that were in the presentation:
Brady Dougan (Interviewee)
Brady Dougan is an American banker and CEO of Exos. From 2007 to 2015, he was the Chief Executive Officer of Credit Suisse. Before this, Dougan was CEO of Investment Banking and acting CEO of Credit Suisse Americas. After starting his career in the derivatives group at Bankers Trust, Dougan was hired by Allen Wheat to join Credit Suisse Financial Products in 1990. In 1996 he was named Head of the Equities division, a position he held for five years before being appointed Global Head of the Securities division in 2001. From 2002 to July 2004, he was Co-President, Institutional Services at Credit Suisse First Boston, and from 2004 until the merger with Credit Suisse in May 2005, he was Chief Executive Officer of Credit Suisse First Boston. Dougan received a BA in Economics in 1981 from the University of Chicago and an MBA in Finance in 1982 from the University of Chicago Booth School of Business.
Ted Seides (Interviewer)
Ted Seides, CFA is the Founder of Capital Allocators LLC, which he created in 2016 to explore best practices in the asset management industry from the perspective of asset owners, asset managers, and other relevant players. He hosts the Capital Allocators podcast and serves as an advisor to allocators and asset managers. Previously, Ted was a founder and served as President and Co-Chief Investment Officer of Protégé Partners, LLC, where he spent 14 years at a leading multi-billion-dollar alternative investment firm that invested in and seeded hedge funds. Ted began his career in 1992 under the tutelage of David Swensen at the Yale University Investments Office. During his five years at Yale, Ted focused on external public equity managers and internal fixed income portfolio management. Following business school, he spent two years investing directly at two of Yale’s managers.
Investing Notes: Brady Dougan 9/24/2020 Interview
Brady Dougan Talk notes:
What is the functionality of financial institutions? What are the aspects of a bank that you took to Exos? Answer: The basic function is to intermediate the financial flows, and to do so in a productive way. This can be done a lot more efficiently through modern technology:
SPAC investing opportunity. How to approach framework for investment fund in SPACs.
Then he talks about a special fund that Exos and Morgan Creek are doing together. It's called the "SPAC Plus Fund":
What about crypto/stablecoins/etc?
How do you allocate your time across all these different things?
What’s the biggest unexpected challenge of being a CEO of Exos versus Credit Suisse?
Here are some recent "Investing Notes" from two talks I attended this past week by Mark Yusko. I'm a very big fan of Mark Yusko. We personally had a chance to meet him at a Morgan Creek investor luncheon in early 2019 (I think I was pregnant with our second baby when we first met him). He is the first person I've ever met that has managed or manages more than a BILLION dollars. Mind blowing the number of zeros. And, Mark was the first interview we did on our podcast. I can remember being so nervous. He turned out to be a really nice person, with some really good words of wisdom. One of my favorite words he said that I say quite frequently, is "health is wealth".
You'll see that Mark's general tone is that of a bear... he's bearish for sure.
Link to the original Mark Yusko podcast interview (episode 22), if anyone wants to check him out. We spent a lot of the time trying to learn about who he is as a person, how he thinks, how his mind is wired, and his character - not just him as an investor. We have the interview on over 12 different audio platforms, including:
Also, Mark Yusko's bio here, if you want to know more about him.
Investing Notes on Mark Yusko Talk from 9/24/2020
From the weekly Webinar from Hedge fund investor and CIO (Chief Investment Officer), Mark Yusko (also of Morgan Creek) notes.
Mark Yusko went on a road trip across the company. NC, NV, KY, AR, OK, NM, AZ, CA, AZ, NM, TX, LA, MS, AL, GA, SC, and NC. Not as many signs out on lawns showing support for Trump. Economy is hurting. Global tourism will contract 75-80% in 2020.
Trends seen from being on the road:
We’re in a recession - even with the market bounces, we’re in a global financial crisis. We have lost 62million jobs over the last 26 weeks (this doesn’t count federal #’s). This is worse than the peak of the Global Financial Crisis (2008-2010). This is bad. Small business are the most effected by the global lockdown.
Central bankers have hit “control P” - and they are printing money. The Fed is committed to low rates for many more years. Interest rates are ugly. 10 year treasury is going down. Oil prices are suffering, the demand is just NOT there. South Korea loves QE (Qualitative Easing) but it is fading. Another market trend that's going on: Everyone wants to be a day trader - and everyone is buying the same stocks. If you become the largest top market cap leader…. If you buy the top stocks, you may not make money. EBITDA is flat and starting to roll over. Debt is supporting everything. The DEBT is skyrocketing in order to maintain the illusion of growth. In the last 3 weeks, they are all down, and we’re just getting started. Risk happens fast. These stocks are really overvalued. Don’t just own what everyone else is owning.
Focus on healthy cash flow. Ecommerce is a global phenomenon. Cloud/software is eating the world. S&P is up 10% over the past 2 years. NASDAQ up 35%. FANG is up 40% (FB, Amazon, NFLX, Googl). Gold Miners is up 115%. C Limited is up 950% (Asia). TWLO (is up 180%) over the past 2 years. JD.com (China) up 120%. You’d be a lot better if you did the other stocks over the last 2 years.
August 26 was all-new all-time highs. So be prepared: NASDAQ stocks could fall, and fall very fast. The trade is very crowded…. People are paying too much. NASDAQ is declining. Banks are falling even harder in the past week. This might mean that people are liquidating, another de-leveraging. EVERYTHING will go down. People will be forced to sell what they have to sell. This will be an across-the-board WIPEOUT as we get into October.
What kind of rational investor pays 10x revenues? A lot of them are doing that now in the market. $SNOW (Snowflake) is just the top of the bubble. "TechWreck 2.0 is coming." 227 times sales is what people paid and are paying. NOT 227 times EARNINGs. This is 227 times SALES. $SNOW falling. And it’s just getting started. Now it’s at 127 times sales.
ZOOM ($ZM) was at 95 times sales. ZM went up … Zoom is a great company, but you can’t do this kind of math as a rational investor.
TSLA is down 25% this month. AND it’s up 3.5x year to date.
NKLA is likely a fraud.
Everyone should be worried.
S&P is a money supply story - more money supply means more higher S&P. It is not going to keep up. This will be a repeat of 1930/1931,
Pay attention to money illusion. You might think that the value of your stock is up. It looks like it if you look at it in terms of nominal value. What's the REAL value? Look at them in terms of GOLD. Then you’re DOWN 44% when you look at the value.
2020 is supposed to be a panic year. Volatility crashed…. Take note, VXX (helps hedge against stock market volatility). VXX Risk/Reward is rising again. VXX has also outperformed equities - if you bought VXX early in 2020, then you’d be up 80%.
The Fed has collapsed and is reversing as people freak out. We’re having a liquidation again. People are scared and are buying “safe havens”.
Oil markets are worried. Everyone should be nervous about these energy/oil stocks. There’s too much supply. Short tech. Long oil might be a good strategy for right now. Maybe wait. Maybe buy it back after it hits the bottom.
MLPs (I don't know what this acronym is yet - trying to figure it out) is looking good, and someone is selling. We don’t know who. It’s someone BIG. Don’t fight it. Emerging Markets are selling. Is it pension funds? Is it sovereign wealth funds? TBD. Maybe there’s forced selling going on? Someone or something big is liquidating right now.
GLD and Bonds are outperforming Stocks. Gold Miners have been doing well. Gold is still very undervalued. GLD was overbought in August. THere’s been an abnormal liquidation in GLD. SIL is doing worse.
Paper currencies are getting destroyed around the world. Bitcoin is in the initial adoption phase. Still on track to be $100,000 value per Bitcoin. (Stock to Flow model). Over the long term, Bitcoin is likely to be one of the best on the planet, better than gold.
Bitcoin is the best major performing asset in 2020. Bitcoin is outperforming everything. Diversify.
Question from the audience: Are there any good public crypto mining companies? Biggest miners don’t need capital. They make a lot of money. Recommend staying away from. Better way to play is to own the CHIP manufacturers. Those prices are ahead of themselves. AMD has been a great play over the past couple years. Prices are a bit high. Better play than direct buy of mining public companies.
Question from the audience: Where should you hold cash? Cash is pretty attractive. Money market cash. Mutual fund cash. A small amount in the cash in the bank. Usually he would like GLD. But today he likes Cash. We are in a strange period. Buffet has the highest amount of cash in history. Soros has a lot of cash. Lot of really smart people in Cash right now. Probably a good place for it.
Question from the audience: Would you put cash in a SPAC fund (Morgan Creek). It’s a perfect fixed income substitute. An inverse relation to interest rate. Bonds (if interest rates rise), then you wipe out yield. Spac + fund, then you get a 10% bump from warrant. Then you get a bump post deal announcement. That’s a good question. As a cash substitute, if you don’t need the cash for 4-6 months, SPAC + is going to compound at 9-10-11%? You’ll make a good 4-5% over that time. SPACs are a great instrument.
Investing Notes on Mark Yusko Talk Interview 9/25/2020
He went across the country to see first hand what’s going on for real on "Main Street". Traveling allows you to separate reality from narrative. There’s no recovery on Main Street. 1 out of every 3 businesses boarded up in New Mexico. This focus and narrative on the stock market on highs is not good. It’s called “money allusion”. That’s because people denominate them in US dollars. Dominate them in gold, they’re down 40+%. Dominate them in Bitcoin, they’re down 80+%?
The only way out is to devalue the currency - and the rich will feel richer on paper. There will be uprisings. The divide is bigger. Mostly RED states. They used to be really RED with every yard with a Trump sign. It’ll be a very interesting election. It’ll be unexpected for people. It’s the mission of the Fed to create income and wealth inequality. It’s to make the bankers really rich. It is built to steal from the poor and middle class, and give to the top.
Bitcoin is the best performing asset of the decade, of the year. Everyone is devaluing their currency, globally. We have the illusion of prosperity. The reality is not the case.
On FAAANG - From the bottom of the crisis. $FANG has outperformed FAAANG. The new FAAANG, are up twice as much as the market. Gold miners - is there a lot of risk? These companies mint money. They are making more money in Q2 than ever in their history. Their output, gold silver is going up. Their inputs are going down (oil, gas, electricity…). Snowflake is losing money $350m on revenues of $250m and is significantly overvalued.
The Fed has kept liquidity ample. Putting off the pain. When you put off going to the dentist, that root canal is bad. This obsession of not letting failure happen and participation trophy is bad. 40% of companies cannot serve and cover their debt service with their EBITDA. Let the fail. Don’t save them. UBI is dumb - communism with a label is bad.
Leverage in the household is high. Every household up to their eyeballs in debt. Government and corporation up to their eyeballs in debt. Ray Dalio. You want an orderly de-leveraging. They don’t usually happen that way. 2002 is the better comparison - Worldcom/Enron. Nikola might be a fraud…. If there are more frauds, then it’ll get ugly more quickly.
Mark likes Gold/Gold Miners for deflation. McDonald’s is real. Deflation in real estate. Urban center real estate is in trouble. People believe inflation is a monetary phenomenon. It’s a demographic phenomenon. 25-35 year olds are not as productive = deflation, 65-85 year old are not as productive. Every baby bust company is Ono the far end of this greying. Huge deflationary. Killer deflationary. Debt is deflationary. Lacy Hunt. Demographics + Debt = Deflation.
Every interest rate in the world will be negative. Negative interest rates everywhere, within 5 years. Wouldn’t that cause huge problems? We’re at .65% on the 10 year. A year ago we were at 2%. If 40% of companies can’t pay interest with sub 1% rates? They can’t pay with higher rates.
The echo boom (kids of the baby boomers) turning 45 will get more productivity. 10-15 years out still.
The problem is because of Fear and because of lack of understanding, the whole federal government lives in the bubble nationalistic inward world. They’re fighting a fight that they cannot win. Technology - the internet of everything. Internet 1996, Mobile 2010. Internet of Value (blockchain) - 2010 the US chose social media as our technology. And, China choose AI (Artificial Intelligence) and 5G. 5G is key which allows connectivity everywhere. As a result, we’ll end up with 2 internets: 1) Chinese centric will be all over Asia, where there are billions of people. 2) America, South America, Europe will be another. Their’s will be bigger and faster. Rather than collaborate, imagine if China said, "Apple can’t sell in China." We’re fighting the wrong war - it’s not about “Made in China”. With "Made in China", the USA 20 years ago, 10 years ago we outsourced our jobs and pollution to China. We got all the cheap stuff. We "felt" richer because we could buy more with less. It’s not about “Made in China” anymore. We, the USA, are now a consumer force. That will not win. We need to focus on making stuff to SELL TO OTHERS (ESPECIALLY CHINA), Not BUY from them.
Hope these notes are helpful. Let me know if any feedback or questions. I'll keep doing them if it seems to be helping.