#252: Mark Yusko on How we got to QE Infinity from the Fed

Mark Yusko is the Founder and CEO of Morgan Creek Capital Management. In this conversation, Mark and Anthony discuss what is driving the current market chaos, how we got to QE infinity from the Fed, where we are in the economic cycle, who the winners and losers are right now, how institutions are currently thinking about their portfolio, and what certain assets should do over the next 5-10 years. =============================== BLOCKFI-----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. =============================== If you enjoyed this episode and want to stay updated on everything Bitcoin, blockchain, and crypto. Check out Off the Chain newsletter by visiting offthechain.substack.com and join 35,000+ other investors currently subscribed to my daily investor letter.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off. Mark Usco is the founder, CEO, and CIO of Morgan Creek Capital Management and the co-founder and partner at Morgan Creek Digital. He previously spent a number of years running the University of North Carolina endowment as well. In this conversation, we discussed what is driving the current market chaos, how we got to QE infinity from the Fed, where we are in the economic cycle, who the winners and losers are right now, how institutions are currently thinking about their portfolio, and what certain assets should do over the next five to 10 years. This conversation was incredibly enlightening, and I always

• 0:42Anthony Pompliano?

  enjoy talking to Mark. Before we get into the episode, though, I want to talk about this episode's sponsors. The first is BlockFi. As you guys know, I'm a proud investor and user. They've got three products: Deposit crypto, receive a US dollar loan; Deposit crypto and earn interest in their interest-bearing accounts of up to 8.6% APY; or go and buy and sell crypto on their new crypto exchange. They'll be releasing a new Bitcoin Rewards credit card later this year that allows you to use a credit card but receive your rewards in Bitcoin. It's gonna be pretty cool. Go check out blockfi.com/pomp, again, blockfi.com/pomp, to see what they've got going on. You can sign up and get started

• 1:24Anthony Pompliano?

  today. Again, blockfi.com/pomp, where you can earn up to 8.6% APY in their interest-bearing account. The second sponsor is the newsletter. That's right. Remember, the podcast is not just a podcast. I write a letter every single day to about 40,000 investors. You can go to pomp.substack.com. Again, pomp.substack.com. In that letter, I discuss financial markets, new technologies, Bitcoin, crypto, and a whole bunch of other things. Head on over to pomp.substack.com, sign up for the letter, and get in your inbox along with 40,000 other investors starting tomorrow. Lastly, head on over to the new YouTube channel. We're

• 2:05Anthony Pompliano?

  trying to grow subscribers there. Go subscribe, check out all the video content. This interview, plus every other interview, has video and is being posted there on a daily basis. All right, now let's get into this episode with Mark.

• 2:18Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 2:43Anthony Pompliano?

  All right, guys. Bang, bang. I've got Mark here with me calling in from North Carolina. Thanks so much for doing this.

• 2:51Speaker 02

  Well, thanks for getting together and I wish we could do it in person, but we're on lockdown, so we can't hang out together.

• 3:00Anthony Pompliano?

  Exactly. You have extensive experience across a number of different seats in the investing community. And I think a lot of people really value kind of your insight, having both been on the allocator side as the CIO of a very large endowment and then also as an investor. Help us understand, kind of with your experience, what exactly is going on in the markets right now and what's driving this chaos?

• 3:27Speaker 02

  Yeah, look, it's, it's the $64 trillion question. And that's a big number.

• 3:35Speaker 02

  The, I think the issue is it's the end of a cycle and people thought, well, this couldn't happen. You know, the Fed put was, was always going to be there. And I think what, what people are realizing again, you know, it's not the first time, that 90 or 85 plus percent of options expire worthless. And every Fed put that we've ever had has expired worthless as well. You go back to 2000, 2001, you know, you had the Greenspan put. Everybody thought the market could continue to go up. It would never go down. Tech bubble continued to inflate. You know, I'll never forget, you know, the Fab Four, C I M Q, Cisco, Intel, Microsoft,

• 4:18Speaker 02

  Qualcomm in 2000, no sell recommendations, all buy recommendations, estimated to be the four top performing stocks of the next decade. And collectively, they went down about 80, eight zero percent. And if you hold that, if you held that four name portfolio to today, you're still underwater. The only one that's up is Microsoft, the other three are still down. And so this idea that Greenspan had your back, it just didn't work because a recession came, the cycle ended, and then they tried to bail things out with stimulus in 2003 around the Iraq war, and it worked, right?

• 5:00Speaker 02

  It got people employed, it got oil prices to fall and stimulate the economy. And then we went on the next cycle. And then we built up the bubble again, and Bernanke took over, and we had the Bernanke put. And, you know, real estate prices could never go down. There was no chance we'd have a recession. And then bang, you know, the big short comes and the cycle ends again. The Bernanke put expires worthless. And the problem that second time was leverage. So everyone had levered up, primarily the banks, but also individuals. And so there was a lot of ownership of assets, particularly stocks and bonds, that were owned on margin.

• 5:41Speaker 02

  And margin calls are devastating because they cause crashes to happen really fast. And so you saw that unwind. And then, you know, in March of 2009, the Fed created this, actually didn't create it, they stole the idea from the 1930s of QE. You know, people think QE is new. It's not. It was invented in the 30s when the United States was an emerging market run by a gang, right? The mafia was in charge and no one would buy our debt because we were over indebted. And so we had to buy our own debt. And so we plunged interest rates down to zero. We had this little thing called 1929 crash.

• 6:25Speaker 02

  And then it was a series of policy mistakes in 1930 that caused a garden variety recession to become the Great Depression. So fast forward to today, for the last two years, kind of like 27 to 29, people were saying, oh, this could never end. You know, the Fed has eradicated the business cycle. You know, back in that, back then, it was called the roaring 20s. And here we had kind of this roaring environment where everybody was getting rich and tax multiples got back to where they were in 2000 and even worse. And so everyone thought that the Yellen slash Powell put would save us.

• 7:06Speaker 02

  And what we just found is that put expired worthless and we've had a crash. The first part of what I think will be a bigger crash, we can talk about more about that later, but so that's a long answer to your question, Pom, about. Look, we've seen this movie before, we know how it ends. All markets are cyclical, trees don't grow to the sky, valuation does matter. I would say Newton was right, you know, gravity rules. And if you go back to 1929, the great quote from Roger Babson, who was a big Newton aficionado. In fact, spent his whole life trying to invent an anti-gravity machine.

• 7:46Speaker 02

  But he said in September of 29, I repeat what I said last year and the year before. So he said it in 27, he said it in 28, and here he was saying in 29 that a crash is coming and it could be terrific. And people didn't believe him the third time because he was wrong early, euphemism for wrong. He was wrong in 28, he was wrong in 27, but he wasn't wrong in 29. And so just because you're wrong or early doesn't make the actual prediction wrong. So market did crash, just like you said it would. And I think the same thing happened here is for the last two years, myself included and others have warned

• 8:31Speaker 02

  that valuations were reaching stupid levels, that there would be this end of cycle correction. And that when it occurred, the risk is that the policy decisions would compound the problem instead of making the problem better. And I think that's where we are right now.

• 8:52Anthony Pompliano?

  And so as we look at kind of what's transpired, obviously, there's the virus and you know, people I think will blame a lot of kind of the economic issue on that, but that's not the full story. So maybe kind of walk us through how have we gotten from that roaring period to now, you know, double digit losses in a matter of months, in really one month, in the stock markets, commodities falling and kind of this deflationary liquidity crisis?

• 9:21Speaker 02

  Yeah, look, it's, it's, it is again, that, that giant question for all of us to think about. And it's why, you know, Congress is, is pulling out all the stops and pulling out the giant bazookas with, with a couple trillion. And I love how we throw the T word around, right? I mean, in the 30s, it was millions. And then in the 60s, 50, 60s, it was, it was billions. And, and then in, in the 2000s, it was hundreds of billions. And now we're talking trillions. And a trillion, just one trillion, forget two or six or whatever the number is, but just one trillion is a dollar every second for 31,710 years. I

• 10:04Speaker 02

  mean, that's just a giant number. And so Congress is freaking out. The Fed is freaking out. You know, they put out four trillion. Now, that's a headline number. They've offered four trillion of support, but no one's actually borrowing that money. I think the day they put out the trillion dollar repo line, only 17 billion got pulled by the big hedge funds. And don't, let's, let's, let's be very clear and transparent about this. The Fed action was to backstop these quasi financial institutions that while the banks don't need a bailout this time because they've been restricted because of Dodd-Frank and how levered they could get, there are no such restrictions on the big hedge funds and the prop trading

• 10:49Speaker 02

  desks off Wall Street. So they have huge leverage, you know, arguably 10, 15, 20 times, and some of them were gone, right? They were just done. And I still think there's going to be some bodies that float to the surface here over the next couple of weeks. But yeah, all that money isn't getting strong.

• 11:10Anthony Pompliano?

  About the leverage, I want to go a little bit deeper on that because two things here. So one is we've seen a couple of firms who haven't been able to meet margin calls, kind of raise their hand and have to alert people to that. But I don't think people really understand this whole repo market and kind of bailing out of the hedge funds. Maybe just explain that a little bit more as to kind of what's happening there. And then how the hell is it hedge funds on the other side of that?

• 11:35Speaker 02

  Yeah, look, it's a really interesting phenomenon, right? Which is leverage in and of itself is not a bad thing, right? Many of us use leverage in our lives, although I guess it's getting less common as less people own homes, but anyone who owns a home uses a lot of leverage, right? They put 20% down or less, you know, some FHA loans are 3% down or 2% down. So you're using a lot of leverage to buy physical assets. And it's not different in the banking and finance world. Like a bank takes a deposit and they hold a portion of it. They lend out 90 some odd percent of it. Fractional reserve banking, somebody else deposits at 90 cents, then they keep another nine cents, they lend out 81 cents.

• 12:20Speaker 02

  And so you get this rehypothecation, you get this building up of leverage in the system. And all those loans that went to quasi-financial institutions or hedge funds, a lot of them started doing trades around fixed income markets that historically they wouldn't have done because there was plenty to do in equity markets, but equity valuations got really high and they would normally do things like arbitrage, merger arbitrage, or convertible bond arbitrage. But in a ZERP world, in a zero interest rate world, arbitrage is really hard. When you think about it, if you're a dollar long and a dollar short, your dollar sits in cash.

• 13:06Speaker 02

  In the old days, you made 6%, 7% just on your cash. Then you made money on your long, you made money on your short, and you were levered. So making double-digit returns as a hedge fund was child's play. Now, you had to have some skill. But it really wasn't that hard. In a ZIRP world, you're not making any money on your cash. You actually have to pay to borrow. So you have no short interest rebate where you were making money. You're actually paying to borrow. So you're in the hole. Alpha gets crammed down because there's so many firms competing for the same ideas. Because again, the old days of investing, it was about access to information. Right? Not illegal information, but access to information. If you could get information faster,

• 13:51Speaker 02

  if you could get information that other people didn't have, then you had a huge advantage. Well, suddenly with the advent of Bloomberg and other resources, information became ubiquitous. And once information is ubiquitous, access isn't really that valuable. Then it became about processing. Did you have computers that allowed you to process information faster or model faster or build, you know, ideas faster? And the problem is that everyone got fast computers. So that went away. So then it became about synthesis. Like who could synthesize? And who could take all the disparate information? And information became a commodity. Again, information became ubiquitous. Everyone had the same information. It was in real time.

• 14:35Speaker 02

  You had actually regulations like Reg FD, as my friend in Boston calls it, regulation feckin' disaster.

• 14:43Speaker 02

  That disallowed people from doing their job, which would be to build relationships with corporate CEOs and CFOs and be able to ask them really hard questions. And now the answer has to be, no, I can't tell you that. I got to release the information to everybody. So it all became about synthesis and understanding what's not important and what is important. So all this comes down to the fact that these funds started doing some of the things that the infamous long-term capital management did. Things like basis trading or things like convergence trading. And let's just talk about a convergence trade for a second. So if you take a 30-year bond.

• 15:26Speaker 02

  We know one thing with certainty. In 365 days, it will be a 29-year bond. And then for it will no longer be what's called on the run, meaning the popular treasury for hedging and investment purposes. So with absolute certainty, in 365 days, it's a 29-year bond, no longer a 30-year bond. Now, a 30-year bond trades more expensive than a 29-year bond, even though they're basically the same bond. But you can make five basis points. Well, five basis points isn't a lot. But since it's a guaranteed event, ah, there's no risk. Well, there's no risk if you can hold the trade for 365 days.

• 16:11Speaker 02

  But let's say you put on a five-basis-point trade and you put 100 times leverage on it. And let's say there's some dislocation in the market and that five-basis-point spread goes to 10 basis points. You've now lost everything. You get a margin call and you're forced to liquidate, even though you know with absolute certainty, if you could just hold the trade. So that was one type of thing that started to blow up. But then there are these other bonds that people were buying in the hedge fund space, where there's what's called mark-to-market risk, which is if you think about liquid, tradable, senior debt, you know, bank loans, senior secured loans, you know, investment-grade bonds,

• 16:55Speaker 02

  they should trade at par, right? You're going to get your money back. They shouldn't trade at a discount. Ah, but wait a second. If there's a liquidity crisis, if there's a period where people get afraid, and that's where COVID comes in. COVID becomes a stimulus, a prick to the bubble. It's not the bubble itself, but it's the pin to the bubble. And suddenly, people are fighting for liquidity and they get a margin call on their equities. Well, when you get a margin call, you're not able to sell what you want to sell. You sell what you have to sell. And so some of these bonds that were very, very safe suddenly gapped down.

• 17:38Speaker 02

  So you had, you know, senior secured bonds that suddenly should trade at 99 or 100, suddenly trading at 90. Well, if you own those with cash, no big deal. Oh, but if I own them with 10x leverage, I just lost all my equity. So these things start unwinding and you saw, you know, LQD, for example, the ETF for investment grade bonds fell 7% in three days. It's never fallen 7% ever. It shouldn't fall 7% because it's investment grade bonds. And those bonds, most of them are going to be money good. Ah, unless, and we'll talk about more, we'll talk more about this later.

• 18:18Speaker 02

  Unless the response to the virus in shutting down global economic activity leads to actual defaults in those investment grade bonds because they borrowed too much money. They didn't spend enough on R and D. They didn't save for a rainy day and they don't get enough bailout money. Well, that's, it's a long-winded way of saying funds were doing things that normally appeared to have low risk, but a black swan event, which wasn't necessarily the virus itself. The virus is a bad thing and we can argue how bad it is. And, you know, if you look at the number of people who passed away from influenza this year, it's 23,000 in the US and COVID is, you know, had 820 deaths. Which one is worse?

• 19:03Speaker 02

  I'd argue 23,000 is worse than 820, but maybe 820 is going to grow. And so we can have that debate all day long. But the key is it's not the virus, it's the response and the drop in economic activity, the drop of cash flows and the threat of what seemed like a very, very safe thing suddenly becomes unsafe.

• 19:27Anthony Pompliano?

  Yeah. And so when we get into kind of the bubble gets pricked, right? The, the virus happens, they, the government essentially mandates economic shutdown, right? I, I keep saying the government literally told small businesses, you have to shut, which then forced them to fire their employees. And we get kind of this cascading effect. Then all of a sudden we start to see the Fed and politicians go to work, right? This is their time to shine. This is their Super Bowl. They're going to come in, they're going to save everyone. What do you think so far about the Fed's response? And then also about kind of the politicians and the stimulus response?

• 20:06Speaker 02

  Yeah, look, I I don't like the Fed, full stop. Let's just be clear, right? You know, they they call it the the creature from Jekyll Island for a reason. You know, I think the Fed has one job, and that's to enrich bankers. And that's always been the job, right? The Fed was created by, you know, John D Rockefeller's father-in-law, who was the most powerful senator in the world back in 1910. And, you know, John D Rockefeller, Titan, and JP Morgan were good buddies. And and they didn't like the competition from these trust companies that were coming up in the banking system. And so they had this plan to create a lender of last resort to support the banks

• 20:48Speaker 02

  and make sure they'd never have a bank crisis again and runs on the bank. Although I don't, I'm sure everybody saw the video of the head of the FDIC saying, please don't take your money out of the bank, else there'll be a bank run. Could you trigger a bank run any better way than saying that on live television? Crazy. And now it's gone viral on the internet, makes it even worse.

• 21:09Speaker 02

  But the Fed, their response is always predictable. The Fed has one job, and that's to enrich bankers. So they don't care about the little guy. They don't care about corporations. They care about banks. And so if you think about it, Fed funds, who borrows at Fed funds? Do you borrow Fed funds? Do I borrow Fed funds? No, banks borrow Fed funds. And what do banks do? They borrow Fed funds, they buy treasuries, because no one else will buy treasuries. Because who would buy bonds of an over indebted country that's issuing trillions of dollars of deficit every year? No one. So there has to be someone to buy it. So the Fed has bought all they can through QE. So they lend money to the banks and the banks buy them.

• 21:54Speaker 02

  That's actually a riskless trade, right? JP Morgan last year had zero negative trading days. That's impossible if you're actually trading, right? No one's that good. But if you borrow and invest in a riskless trade, that's a pretty good deal. And you lever it up 11, 12 times, you're good. So the Fed, since 2009, reliquified the banks.

• 22:15Speaker 02

  Despite re-likifying the banks, the bank stocks are still falling. Why are they still falling? Well, because people have realized in zero interest rate world, or worse, negative interest rate world, the banking system breaks down. And you look at Japanese banks for the last 20 years, they've gone down. European banks for the last 16 years gone down. US banks are going to keep going down. And there's lots of reasons why that's going to happen. So the Fed's doing their job. They're trying to protect the banks and non-bank financial institutions. Citadel, Millennium, Bridgewater, you know, all these other non-bank financial institutions that are now too big to fail. So I'll say the Fed's doing what the Fed has to do.

• 22:55Speaker 02

  Full stop, I don't like it. I don't think it's that effective. And I think the market last Monday was proof, right? The Fed says we're going to lower interest rates all the way to zero overnight, Sunday, emergency, after the emergency 50 basis point rate cut the week before. And the market still went down 10% that morning or 9% that morning. So I think people realize that the Fed has lost credibility. I call it, you know, hashtag Fed in a box. They have no choice but to do what they're doing. And they're going to print as much money as necessary to keep the system liquid. But therein lies the problem. We don't have a liquidity crisis. We have a solvency crisis or a potential solvency crisis.

• 23:37Speaker 02

  And just like in 2009, liquidity can't solve a solvency crisis. And the problem is we need a raft of bankruptcies to occur and cleanse the bad companies. So that's where the fiscal comes in. So now, as of this afternoon, I guess, we're going to have this giant save bailout plan where we're going to hand money to malfeasant CEOs and corporations who have frittered away their competitive advantage by not investing in R and D, not investing in people, not investing in plant, property, plant and equipment, not saving for a rainy day, levering up and buying back their stock because they needed to feed the beast of QE. And what do I mean by that?

• 24:22Speaker 02

  Well, the Fed is not allowed by law. To buy stocks. Well, the only buyers of stocks over the last three or four years have been buybacks. Why? Well, because the boomers, myself and all my brethren and sisterin, right? 10,000 of us turn 65 every day. I still got eight years to go, but every day 10,000 of us turn 65. And another 10,000 of us turn 71 and a half. In a 71 and a half, you have to withdraw from your retirement. And so a trillion dollars has to come out over the next 17 years. Each year, that's 17 trillion with a T, has to come out of stocks. Some bonds, but mostly stocks out of 401k plans and retirement plans. So that was a negative drag.

• 25:08Speaker 02

  It also turns out that 65 to 85 year old people don't like stocks. They like bonds. And other than Mario Gabelli, who took the picture of him buying green bananas yesterday on Twitter. Legend, by the way, Mario is awesome.

• 25:21Speaker 02

  You know, most people don't really want to plan for the future. They want the now. They want to have money now. So there's demand for stocks went down other than buybacks. Well, why did buybacks go up? Well, the Fed, unlike the Bank of Japan or the Swiss National Bank, which are allowed to buy stocks, isn't allowed to buy stocks. So what they did is they cut a deal. They called all the corporate chieftains and Buffett. Anything that Buffett owned was now suddenly going to be given a massive tax cut. In exchange, you can't do R and D. You can't buy new facilities. You can't hire more people. You have to buy back your stock. And so Apple, my favorite one to pick on, has the same profits as 2015,

• 26:03Speaker 02

  yet their earnings per share, quote unquote, air quotes, is up 20% because they retired a bunch of shares. Well, who bought Apple five years ago? Oh, Warren Buffett, but he said he hates tech stocks. Well, they're not a tech stock anymore. They're a mature business.

• 26:17Speaker 02

  That is milking a cash cow and buying back their stock to fabricate artificial earnings growth. So you have that happening all over. I call it stealth QE. That now stops because prices are falling. So now you've got the last buyer of stocks gone. Companies are flailing, and they're saying, well, now you've got to help me, government. So what does the government do? Whoever paid the most in lobbying is getting the biggest check. And I thought the great calculation someone put out there is if you just divided the total number by the total number of people in the US, excluded babies, and just talked about adults, it's about 58,000 per household. We're getting checks for 1,200 each, plus 500 for our kids,

• 27:02Speaker 02

  3.14 people, that's about 2,900 bucks. Where's that difference from 58,000 and 2,900 going? Oh, Wall Street executives, hedge fund managers, and people like BlackRock, who are going to get to manage these big funds that are created, call me cynical, but I think that sucks.

• 27:21Anthony Pompliano?

  Yeah. One of the things that's really interesting, kind of as we go through these economic cycles, is the people who are hurting the most, right? And I think where I have the biggest problem is the everyday American citizen and the small business. A lot of this economic cycle, they don't even have a fighting chance, right? If you think of what the government basically did is they said, you have to shut down. And so, you know, if I walk down the street in New York City, and we're talking 70-plus percent of the businesses are closed, right? And it's not because the economic cycle got so bad that they couldn't survive, or it's not that, oh, we have a little bit less demand and we just mismanaged our cash. It's that, no, the government mandated that I shut down, and therefore I went from whatever revenue I had to zero overnight. Of course, I have

• 28:05Anthony Pompliano?

  to fire my staff. I can't survive, etc. But what's hilarious to me is at the same time that the small businesses are getting shut down and not really getting nearly as much relief, the companies that are getting these huge bailouts, they're still operating. The airlines are still flying. Now, there's less demand, right? There's all these issues, but the government didn't shut them down. And so it just feels like there's a mismatch both in the treatment of who has to shut down and who doesn't. And then on top of that, who's getting what in these bailout packages or these relief packages?

• 28:35Speaker 02

  Look, you're tempting me to go down my rabbit hole on, and I have been tweeted or retweeted one of your tweets today with this, that if we assume that that's not the plan, then everything makes sense. Unfortunately, if we assume that the plan is, as I call it, hashtag dictator playbook, if the plan is to concentrate the assets in the few and impoverish the many and make them dependent on government, then everything's working just the way it's supposed to. And all these decisions make perfect sense if you view it from that perspective,

• 29:18Speaker 02

  as opposed to the perspective of we want to help as many people as possible. And people say, "Oh, that's ridiculous. Why would they want to do that?" I said, "Well, let's think about the series of events that's happened over the last three or four years. Everything has gone to this plan, right? They gave the fat cats, right, the corporate executives and corporate companies, the big tax cut. Middle class didn't get a big tax cut. The impoverished didn't get more help, didn't get more resources. We didn't increase lending for small business formation. In fact, we have the smallest rate of small business formation. Part of that's related to housing. Not as many people can afford housing, so there's not as much home equity, which is a big source of financing new businesses.

• 30:01Speaker 02

  So there's all these things that point to, wait a second, if I'm trying to consolidate wealth in my own family, in my friends, what we call crony capitalism, in the biggest contributors to my campaign, you know, just to go completely down the rabbit hole for a second, someone said, "You know, it's weird that we haven't identified the companies that would provide the drug to combat COVID-19, and particularly ARDS, the advanced respiratory distress syndrome, which is, it's not the virus actually that's killing people, many of the people. It's actually the response, the immune response of the body to the virus itself."

• 30:44Speaker 02

  Which actually can be controlled with this drug that Korea used to, you know, lower their death rate. And other countries have used, and you know, my cynical view was, well, none of the drug companies were able to pay off the amount to be the sponsored drug back, you know, if you go back to 2003, it was very interesting. Remember the anthrax scare? And, you know, we were all supposed to take Tamiflu. Well, it turns out the reason Tamiflu was, or no, not, not Tamiflu, Cipro, Cipro. The reason Cipro was stocked by the, you know, the, uh, the military and everybody was supposed to stock up on Cipro was Donald Rumsfeld was the chairman of that company.

• 31:26Speaker 02

  There are plenty of other companies that made similar type drugs, but Secretary of Defense was the chairman of the company. How does that work? So I think we're seeing many of the same problems today in that we have interested third parties. We have conflicted third parties. We have people making decisions based on their own pocketbook. And I actually believe unfortunately, that the plan is just like in the 30s to create as much disparity between the haves and the have nots. So the greatest income inequality in history up until last year was in 1929, 1930. Right before the depression and it got worse during the depression.

• 32:11Speaker 02

  Same thing I think is happening now is we have this massive inequality. And if you actually push the economy into depression. And people say, that's ridiculous. That could never happen. I don't know. It's possible. Anything's possible. But if that actually is the plan, then what it does, it creates an environment where the rich stay in power. All the wealth flows up because they have to print money to devalue the currency, which inflates scarce assets like real estate, fine art, collectible cars and stocks. Remember 49% of people in America don't own stocks at all, right? Not only do they not own trading stocks, they don't own anything. They don't have a pension. They don't have a retirement account.

• 32:55Speaker 02

  Can't even come up with 400 bucks to pay an emergency bill. And now you've got restaurants who have 16 days of cash. Who have been forced to shut down. And I give you the example, and I shouldn't pick on this guy, but it just made me so angry when I watched him. So the commissioner of basketball gets up, saying he's canceling the season. And he's looking so, you know, social justice warrior, and I'm such a great guy. And, and I'm thinking to myself, yeah, that's great. But what about all those vendors with all their hot dogs and hamburgers and Coca Colas and T shirts? They've paid for, they're not going to be able to sell. Who's going to pay their rent? Who's going to keep them from being homeless? Who's going to pay their healthcare premiums? So now they don't have coverage.

• 33:40Speaker 02

  What if they actually get the virus? I mean, you could spiral into some really, really dark times. All on the account of, oh, we want to slow the spread of this particular virus. But I'm like, wait a second. There are threats every single day. I said 23,000 people have died of influenza. A whole bunch of people, here's a number most people don't know. 1.2 million people this year will die from tuberculosis globally. Not very many people in the U.S., but around the world, 1.2 million people. That's a lot of people. No one ever talks about shutting the economy down to stop the spread of tuberculosis. So I just think there's something else going on.

• 34:22Speaker 02

  Of why this is the thing that we chose to literally grind economic activity to a halt. And the problem with flywheels, right? Once the flywheel stops, it's really, really hard to get started again. And I think the economic damage is going to be really bad for a while.

• 34:45Anthony Pompliano?

  Yeah, one of the things that I, and this is always a sensitive subject. So I caveat it with, for people to listen to what I'm saying and kind of leave the emotion at the door. But Jason and I were talking about it, it's just like, when you have bad data, whether you make a good analysis or a bad analysis of that data, you end up making bad decisions because the data was bad. And what I mean by bad data here is We know at pretty high accuracy how many people have died, right? For the most part, yes, there are some questions about somebody could have died and it could have been labeled or mislabeled or whatever. But for the most part, we know the people who have died from the virus and kind of their immune response, et cetera. What we don't know, and pretty much everyone admits, is we have no clue how many people actually have the virus

• 35:29Anthony Pompliano?

  or have been infected. And the data points that just blow me away are, you know, they tested like two NBA teams and nine people on the team, on the different teams, had COVID-19. And they're out there playing NBA games, you know, the night before, two days before. One out of the nine, I think, showed symptoms. And so you get into this thing where there's actually probably a lot of people who have, they're asymptomatic and they're kind of walking around and maybe they thought they had the flu or they don't show any symptoms ever. And so when you don't understand what the accuracy of the denominator is, we just can't make good decisions because we don't have the testing in place to actually understand how, you know, what is that mortality rate? How bad is this?

• 36:10Anthony Pompliano?

  And then we go and we make, you know, obviously very kind of bold decisions. Whether they're good decisions or not, we just don't know because we don't have good data to look at.

• 36:20Speaker 02

  No, it's such an important point. And, and look, we know the data's bad, right? There's no question the data's bad. We didn't have enough tests. We weren't even aware of the virus in its presence in the US for probably four or five weeks. It was probably here and we just didn't even think about it. So we know the data's bad. And to your point, the death data is absolutely easy to ascertain, right? There's a death certificate, there's a body. Now, what we are learning, it is possible in some cases where there's comorbidity, right? Someone has lung failure, heart failure, and then they get the virus or they're in the hospital. And if they code that as a coronavirus death, is it really? So that's one of the things that they're talking about in Italy.

• 37:04Speaker 02

  Because if you look at Europe. Europe is really the epicenter of the virus in addition to China. And if you look around Europe, one of these things doesn't look like the others, right? Germany, almost no deaths, like 194. Switzerland, one of the highest per capita infection rates, very low number of deaths. The Nordic countries, Sweden's, Norway and Denmark, very low number of deaths. So it's only Spain and Italy where you have this, this very high mortality rate or case fatality rate, that just seems odd. The data just seems inconsistent. So to your point, if you have bad data, you're going to react to things and you're going

• 37:48Speaker 02

  to make potentially bad decisions. It's kind of like we're talking about in investing, right? If, if you had access to good information early, you could make a good decision. Well, what if you had access to bad information? What if somebody fed you bad information? You'd make a bad decision. Or what if you synthesized the data wrong? You, you missed something in your, your exclusion, you'd make a bad decision. Or what if your model had a mistake? There's the famous story of, of, you know, one of the most successful real estate investors in history, Barry Sternlicht, you know, he was kicked out of JMB Real Estate in Chicago because they blamed him because they said he took down the firm because he had a mistake in his spreadsheet. Because none of the other partners knew what a spreadsheet was back then. I'm that old, right?

• 38:33Speaker 02

  And the crazy thing was Barry might have had a mistake in the spreadsheet, but that's not why they went down. They went down because they had too much leverage on real estate into the financial crisis in the 90s. So it wasn't Barry and Barry turned out to be a really smart real estate investor and billionaire now. So he's done okay. But the other thing that's interesting to your point is some of the decisions we're making are decisions without knowledge. And I'll use just one example. So school closures, sounds like a great idea. Oh, it's brilliant. Oh, let's think about this for a second. We know one thing about this virus. It's impact on aged population is much

• 39:16Speaker 02

  Much, much worse. Case fatality rate for over seventy, much, much higher than under seventy. And in fact, under sixty-five, the recovery rate is like ninety-nine point nine something. So it's not a hundred, but it's pretty close. So, and in the lower cases, there's very few incidents under ten. Almost no incidences under ten. Very strange, but that's what it is. So if we left schools open, those people who are young, healthy, and resistant to the virus could have kept the virus amongst themselves. By closing schools, particularly colleges, and sending those people home to be with their parents who are my age in their late fifties, or their grandparents. Ooh, what, what if?

• 40:00Speaker 02

  And I'm not saying that necessarily happened, but it's a higher likelihood of spreading the infection to the vulnerable population. And when we think about actions, we have to think about reactions. And the closure of all activity seems like a really bad idea. The protection of vulnerable populations, like my parents are in their eighties. I am really worried about them being exposed because this virus is very harmful. And in fact, to personalize it a little bit, one of my very good friends, his wife lost both parents in the last two days to COVID-19.

• 40:43Speaker 02

  Tragedy, I mean, absolute tragedy. You just can't even comprehend it.

• 40:50Speaker 02

  So I'm very worried about this. And I'm doing everything I can to protect that vulnerable population, even to the point of excluding my contact with them, my kids' contact with them, their grandchildren. We're just not going to let it happen. So I think thinking through the process rather than just reacting to the process probably makes a little more sense.

• 41:17Anthony Pompliano?

  Yeah, and I think as part of this, I want to talk about winners and losers. And there's the macro view winners and losers, which is I really look at it as a trade off decision between we can let the healthcare system collapse or be inundated, or we can let the economy collapse. And it seems to be everyone is presenting this black and white choice. I think you and I probably are more, hey, it doesn't have to be a black and white solution. And what the details of that are will be debated forever. But I think just getting people thinking along that line is important. Let's go back to the investing world. And as we see this market chaos and the fallout of the liquidity crisis, etc. Who are the winners and the losers coming out of these situations?

• 42:02Anthony Pompliano?

  What are the types of investors or strategies that should be doing really well versus the investors that are probably just taking it right on the chin and losing a lot of money right now?

• 42:11Speaker 02

  Yeah, look, it's a really interesting dilemma for investors because in times of true crisis, and we have to say this is a crisis or a crash or whatever word you want to use, there's really only one place to really hide, and that's cash. Cash is king. It always has been. And people say, oh, but it gets devalued. Well, yeah, over the long term, devalued. Short term, particularly dollars actually appreciate because flight to safety is the world reserve currency. So owning dollars has actually been a really good place to hide. The other thing that's been a winner is bonds.

• 42:52Speaker 02

  And it's interesting that most people would say, well, bonds are an inferior investment to stocks. Well, yeah, over long periods of time, but actually, in the last 20 years, long duration bonds have beat stocks because interest rates have continued to compress. And look, we're going to have lower for longer and potentially even negative rates around the world because of bad demographics, too much debt and deflation. So long duration bonds are probably still a pretty good place to hide. And in fact, maybe one of the best places would be Chinese long bonds because they have the highest yields around the world and they're going to zero too because they've

• 43:30Speaker 02

  got banking liabilities and bad debts from their shutdown that are going to ripple through their economy. So there's going to be some significant need for them to lower interest rates. So beyond that, let's think about, you know, the losers. The losers are clearly over leveraged companies because they're not only going to have a liquidity crisis, but they're going to end up with a solvency crisis. And we got lots of examples of those. You know, you have the highest level of corporate debt in American history. And everybody thought that was great as long as interest rates were low and the cost of carry of the debt was low.

• 44:09Speaker 02

  But no one anticipated a demand shock of epic proportions that would cause this type of, of, you know, come to Jesus moment for these companies. So I think unfortunately, as we talked about earlier, the most egregious offenders are the most well-connected and they're actually going to get helped. Where the people who didn't do anything to cause this problem, they operated with prudent leverage, normal business activities, small, medium enterprises, they're going to get crushed because the money's not going to get there fast enough. It's not going to be big enough and there's too much red tape to, to get those loans. Whereas this, you know, the Fed gives loans to hedge funds directly.

• 44:54Speaker 02

  So that doesn't make any sense to me. So the other thing-

• 44:57Anthony Pompliano?

  Mark, so you've obviously sat in the asset allocation seat and the investor seat. Maybe help us understand how endowments, pensions, foundations, et cetera, how those investors are thinking about the market situation right now?

• 45:11Speaker 02

  Look, I think the, the big question for institutional investors is they make most of their returns on the big picture decisions from an asset allocation perspective. Should I be in stocks? Should I be in bonds? Should it be in currencies or commodities? Should I be real estate or private investments, venture capital? And so all those big picture decisions are usually coded into strategic investment policies. They don't change that often. Hopefully the institutions exercise discipline, you know, coming into year end with the big move in US markets and they thought about rebalancing. And then there's the second order decisions, you know, for the big asset classes to within-

• 45:53Speaker 02

  Equities, do I want to be in US equities, Japanese equities, emerging market equities? Do I want to be in small caps or large caps or value or growth? And then there's, then there's other decisions on geographies and, you know, stage. For example, in venture capital, I want to go early stage or seed or late stage or growth equity. So all those decisions are, are pretty hardcoded. Times like this, it really comes down to the manager selection. So there's, there's asset allocation, manager selection, portfolio construction and security selection. I'll say 85% of the returns come from the first three. The big picture asset allocation, which managers you pick to ask to manage those assets for you.

• 46:37Speaker 02

  And then how much you give to each manager? Let's say you pick 10 managers. Do you give them 10% each or you give 50% to one because they're awesome? And you give 5% to the others. And then security selection kind of gets outsourced to the managers. In these crises or these fast moving markets, those decisions, you know, should I buy? United Airlines or American because which one's going to get bailed out? Those decisions are out of your hands as an allocator. So you have to trust that the managers you picked are well suited to the environment. One of the challenges there is what if you had a whole bunch of growth managers coming into the end of the year?

• 47:17Speaker 02

  You didn't rebalance and all these guys were long the fangs and the fangs start getting crushed. And then the passive unwinding, as I call it, you know, hashtag passive aggressive starts happening. Where on the way up, it's a virtual cycle. All the growth names go up because the ETFs have to buy them and the low volatility ETFs have to buy them. And then the momentum ETFs have to buy them. Well, on the way down, reflexively, back to Soros and reflexivity, that virtuous cycle turns vicious. And everybody has to sell and you don't care what the price is, you just have to sell. And there's liquidations and you kind of saw that happen at the end of the day in the markets today.

• 47:59Speaker 02

  Is everything looked great up until the last 15 minutes when the ETFs were forced to sell? Because they had a bunch of sell orders, so they don't get to think, they don't get to say, oh, I think, you know, Facebook is cheap here. They just have to sell. So I think it's really hard for institutions to be tactical at these crises time, particularly when they happen fast, right? If you go back, you know, to 2000, 2001, 2002, we had two years to kind of get ready for the downturn in distressed debt. We could go out and give Howard Marks some money and he could get Bruce Karsh together and they could go look for all these great companies that were going to default on their debt in 2002.

• 48:44Speaker 02

  And then it took them six months to default and go through bankruptcy and we had the chance to buy in and, and, you know, it was great. We made huge returns. You come to 2008, 2009, you had about 11 minutes at the bottom to try to allocate resources and find the managers and go buy the bonds because as soon as they announced the big QE, all those things bounced off the bottom. And I think the same thing is, is true today. I mean, look, look, what could happen in the last two days is they start talking about the deal in Congress on, on Sunday. They actually haven't passed anything, but in anticipation, you had stocks like Boeing and the airlines bounce 50, five, zero percent.

• 49:27Speaker 02

  Impossible for an institution to take advantage of that by and large. I mean, there'll be some that, that trade around the edges, but you have to hope that your managers were well suited. Challenge is at what point is a growth manager vary into the value space and buy things that went on sale? Or do they stick to their discipline and do what they're supposed to? And, and did people have enough foresight? I mean, we, we had some, I'll call it luck, maybe there's a little skill, but we had added a manager, uh, famous on Twitter, John Hampton from Bronte Capital. Uh, we added him in a big way at the end of last year and people kind of looked at us funny like, what are you doing giving him money? He had a crappy year this year. Like, yeah, but his long-term track record is great.

• 50:11Speaker 02

  You want to add those managers precisely at the time that they have a tough short-term period because mean reversion says they're going to do well. And, you know, through Friday, you know, they were up eight percent with the market down almost 30. So you make back a lot of underperformance in a hurry if you were willing to buy value when nobody else wanted to. Now, That's just one example. We've had plenty of other mistakes, but I think your question about how does an allocator, how does an investor think about these types of times? I think it all depends on speed. We've all been conditioned by social media, by what I call now-ism. Everything's about right now, right? Nobody thinks long-term. Everything's

• 50:56Speaker 02

  about what happened 15 minutes ago or 15 seconds ago, and nobody's taking time to step back and say, hmm, what is this response to the COVID threat going to do to economic activity? Okay, probably going to be negative. Well, what's that going to do to earnings? Hmm, probably going to be negative. How much of the stimulus money is going to help the solvency problem of a lot of these companies? The liquidity may help, but the solvency problem doesn't get solved. How are we going to restart demand? How are we going to fix the oil war between Russia, Saudi, and the US, the shale war? All these things, we should

• 51:37Speaker 02

  step back and think about them, but because we're all conditioned to, oh, my gosh, it's going to be a V-shaped bottom, and I'll miss it if I think. It's like the famous scene from Top Gun, my favorite movie of all time, where they're sitting in the pre-flight room, and they're reviewing Mavericks flying, and Charlie says, Maverick, you go to a split S. What were you thinking? And he says, you don't have time to think up there. If you think, you're dead. Like, such a great line. And then the guy behind him says, gutsiest move I ever saw. So that's kind of where we are, is people have been conditioned that you can't think, that you can't step back and think long-term, that you've got to

• 52:20Speaker 02

  react, because every bottom in an upward market is BTFD, buy the frickin' dip.

• 52:29Speaker 02

  That I think broke down in February and now I think it's STFR, sell the frickin' rip. And every time you get a big move up, I think you should be selling into it and accumulating cash to buy at the real bottom. And it was funny, someone asked me the other day, so when should I buy? You know, you told me to get out, I got out, really thankful, I appreciate, you know, you helping me make money, but when do I buy? And I said, well, you know, one indicator, and I'm not actually a huge fan of Mr. Buffett, like some people are, but I do think he's a great buyer of bottoms. And when he buys, that's a good time to go in. He hasn't bought yet.

• 53:10Anthony Pompliano?

  Yeah, it's pretty interesting that he's sitting there on, what's it like $120 billion of cash? We've heard nothing from him yet. So I'm sure he's cooking up something there. I want to go through, I don't even know if you know that this happens yet or not. Speaking of investors and kind of big bets, Bill Ackman today wrote a letter and in the letter says that at the beginning of March, he put a $27 million short on to basically bet on the economy tanking and the market's going down. And it has produced $2.6 billion in profits. One, did you even know this? And two, what's your thoughts about this?

• 53:51Speaker 02

  Yeah, look, I knew about it and heard about it a little earlier. A couple of things. Look, you know, Bill Ackman, he's very good at structure. So the decision, you know, to put on a position that you think that the market's overheated or overvalued and is going to go down, you know, you could, you could just get out, right? Go to cash. If the market goes down 30%, you save 30%. And that's fine. And you look like a hero, but you only made 30%, or you only saved 30%, so to speak.

• 54:31Speaker 02

  Or you could have actually shorted the market and actually made money as you shorted the market. Well, you could have bought put options and got some embedded leverage from those options and get a better return. But what he did is he bought credit default swaps. And credit default swaps are instruments that, and we learned all about credit default swaps in the big short during the subprime crisis. And, you know, we, at the time, way back then, you know, we had 10% of client money in the big short trade, you know, with, with managers like Kyle Bass and John Burbank and John Paulson. And it was amazing. It all came down to one of

• 55:12Speaker 02

  our clients saying that he deserved to live in these big expensive houses in Las Vegas and the 35-year-olds next door to him with, you know, a job and kids didn't. And he said, "Find me a way to get short." So we found him a way to get short. But credit default swaps are pretty amazing because they have monstrous embedded leverage. And so you can put a very small amount of premium down. And if it goes your way, you can make 100 times or, you know, more of your, of your return on invested capital. So, you know, great for, for Bill for doing that. And, you know, we made a lot of money doing that in 2011. We bought credit default swaps

• 55:53Speaker 02

  on Europe when the European debt crisis happened and Greece exploded. We did, you know, a bunch of things like that. And credit default swaps are amazing. But here's the problem I have with, with Mr. Ackman. And he was on TV not many days ago, basically saying the world was ending and that one of his primary holdings, Hilton Hotels, was going to zero. Now, as he was saying that, he was taking the proceeds of the credit default swaps and buying Hilton stock as other people were selling, watching him say it's going to zero.

• 56:33Speaker 02

  I think that's abhorrent. I don't understand how the SEC is not looking at that and saying, what the hell? So, look, I unfortunately have, I'm not friends with Bill, but I've made his acquaintance on a number of occasions. And he's a very arrogant guy. He thinks he's kind of above the law. And I'm just sore, quite honestly, because in the global financial crisis, we saw what was coming in real estate. We were short real estate. We were short subprime. And we bought bonds in this company called General Growth. And we bought it for about 50 cents on the dollar. And General Growth declared bankruptcy. We're like, awesome. Okay,

• 57:18Speaker 02

  we're going to get all the assets, all the shopping malls. We're going to double our money on the bonds. We're going to own the equity and the restructuring. Well, in bankruptcy, equity is supposed to be extinguished. But Mr. Ackman somehow convinced Mr. Diamond at JP Morgan not to foreclose on the equity. Didn't enforce the covenants of the bonds. So that equity then went up 39 times. It was best forming equity over the next 10 years post global financial crisis. And we got screwed. So maybe I have a personal little pet peeve on that.

• 57:56Anthony Pompliano?

  I did not know all of that, which makes it even better that I asked.

• 58:00Speaker 02

  You didn't know that. You did not know that. In fact, I've never told many people that story. And here I am telling the world on the podcast. So, oh, well.

• 58:11Anthony Pompliano?

  I want to end real quick with just throwing some assets out at you and kind of what you think the five to 10 year outlook is for those assets. Let's just start with domestic equities here in the United States.

• 58:23Speaker 02

  Yeah, and I love the fact that you're thinking five to 10 years because that's exactly the time horizon you want to have in situations like this. You know, five to 10 minutes, five to 10 hours, five to 10 months, no idea. But five to 10 years, I can give you a pretty good answer. So, you know, US equities, two months ago, were priced to produce about a negative Negative three, negative four percent compound return for a decade. And it was, oh, that's impossible. Well, no, it's not impossible. From two thousand to two thousand and ten, you had a negative two percent return compounded per year for ten years. And we are priced at that level. So today, at current valuations, we're probably close to zero to one percent.

• 59:05Speaker 02

  So I think the index of of US equities is still a bad place to have a lot of capital. I think within that index, there's a lot of overpriced assets in the growth side. I think the fangs are still wildly overvalued. And I think the value stocks finally are undervalued. And it's time to be a value investor. Here's a great stat. So in two thousand, Seth Carmen was running Baupost, still is running Baupost. And no one would give the guy money. Everybody said, look, you underperformed for ten years. He had underperformed the S and P for the previous ten years. He's still done fine. He's still generated good returns, but he'd underperformed by multiple hundred basis points per year.

• 59:47Speaker 02

  And everybody said, you stink, right? Value's dead. No one would ever buy a value stock again. Why would I invest in Baupost? And he couldn't raise any money. So for the next ten years, the US equity market was negative. And he compounded at seventeen point eight percent, compounded per year for ten years. It's a big ass number, a technical term. And so today he runs around thirty billion dollars. And he just wrote that he's, for the first time in many years, looking to to take in additional capital because he sees incredible opportunities. So I think the next decade is gonna be awesome for value investors. So if you have good value investors, give them capital. I think that's the place to play in the US markets.

• 1:00:31Anthony Pompliano?

  Got it. What about emerging markets or international stocks?

• 1:00:36Speaker 02

  I think they will absolutely outperform US markets over the next decade. Look, it's been a horrible 10 years for particularly for emerging markets relative to US markets, and I think that's going to reverse. It always does, it mean reverts. And I think part of it is the dollar trade. The dollar has been very strong. I think you've had Brent on the podcast to talk about the dollar milkshake. And there's lots of stuff going on in the dollar. 8% of global trade occurs with the United States. 60% of global transactions are denominated in dollars.

• 1:01:18Speaker 02

  So, and that's because of the historical petrodollar system, which is under attack now by Saudi and Russia because of oil prices. But all of that, I think, is going to change. We're going to move to a new currency regime. And I think the dollar is going to be weaker over the next decade, which is going to be a tailwind for international assets and emerging markets. And I think emerging markets is where all the growth is. And the interesting thing about emerging markets is you make the most money when things go from truly awful to merely bad. And we've had a truly awful period over the last few years, and I think it's about to go to merely bad, and you can make a lot of money. Got it. Oil?

• 1:02:03Speaker 02

  Look, oil is a tough one. I never would have believed that Saudi would commit to flood the market with oil the way they have and push prices down. The math just doesn't work, right? If you're pumping 9.6 million barrels at $50, and you're going to try to get to 12 million barrels at $20, you lose money. That's a bad trade. And yeah, you're going to push a handful of companies in the US into bankruptcy, but that's not going to help you long term because they can't produce more than 12 million barrels, from what I understand. And Russia is going to be a big beneficiary because they

• 1:02:45Speaker 02

  They can continue to sell at these prices because they need lower prices to balance their budget at the government than Saudi does. So I just think this oil war is is kind of foolish. I do think that that the US is a swing producer now and that they are going to have to take some pain. You know, historically, OPEC took all the pain and and the US shale companies just took all the excess capacity. So now on top of that, you have a demand shock that is maybe unprecedented in history. I think it's going to end up being worse than the Great Depression. Think about we've we've ground global activity to a complete halt.

• 1:03:28Speaker 02

  I mean, it's not just the United States. I mean, we had a conference call with a client this morning. Someone from France, someone from Switzerland, someone from Denmark. And they were all talking about how it's just ghost town. No one's moving, no one's transporting goods, services. And that's going to be maybe as much as five or six million barrels a day of offline demand that that look, if I was China, I'd be scooping up oil as fast as I can. And I'd be building oil tankers to build up my SPR and take advantage of these low prices. That would buffet some of the or buffer some of the the demand shock. They did it during SARS, and that's why oil prices didn't crash as crash as much.

• 1:04:12Speaker 02

  I just don't think they have the capacity today because they're dealing with other things. So I think oil is going to be lower for longer. I think Russia definitely is trying to put the screws to the shale business, as is Saudi. And the whole idea that we're still aligned with Saudi Arabia, we could do a whole podcast just on that, makes no sense to me.

• 1:04:35Speaker 02

  Bonds.

• 1:04:38Speaker 02

  Okay, I'm a big bond fan. I think interest rates are going to be lower for longer. I think owning long-duration bonds is good. I think you've got to be careful with credit. I think there's a lot of credit that is going to go bust. Energy credit, kind of interesting, you know, at 26%, 27% yields. Last time that happened, it was a pretty good buy. So I might go scoop up some, some energy bonds and maybe some of those companies go bankrupt and you end up getting converted to equity and then you make even more money. So I might do a little bit of that, but long-term government bonds, and like I said earlier, Chinese bonds are kind of interesting because they have highest yields and those yields are going to zero too.

• 1:05:19Anthony Pompliano?

  And then we'll finish up with gold and Bitcoin.

• 1:05:24Speaker 02

  Love it. So gold is money and everything else is credit. And gold has been money for 5,000 years. An ounce of gold buys a fine man's suit for 5,000 years. Go to Savo Road today, it's about 1,600 bucks, right around where gold is. So, gold is a good asset. You should have a little bit in your portfolio. It's a great absolute hedge, but there's something better and that's Bitcoin. Bitcoin is digital gold. It's the perfect safe haven asset. People, "Oh, it can't be a safe haven. It has too much volatility." It's a nascent asset. All nascent assets have high volatility and volatility, again, I think you talked about this in a recent podcast, it's a feature, not a bug.

• 1:06:08Speaker 02

  And you want to embrace assets with high volatility if you have a long time horizon. I can guarantee everybody, no volatility by T-bills. You'll have no volatility and you'll have a crappy investment performance for the rest of your life because inflation will chew up all your returns. That's a bad strategy. So you want to seek volatility and you want to seek volatility in assets that are uncorrelated to other assets in your portfolio. And the beautiful thing, bonds are 30% correlated to stocks. They're not zero, they're not negative. Bitcoin is 15% correlated. And that doesn't mean every day, every week, every month, but over the long term, it's 0.15 correlated and that's

• 1:06:47Speaker 02

  Because the return stream from Bitcoin comes from other things beyond GDP growth, profits growth, and interest rates. That's where traditional assets earn all their returns. Bitcoin grows because it's a network. It grows according to Metcalfe's law, one over the sum of the inverse of squares, or one over the sum of the squares. And then you've got millennial adoption. I talked about this with somebody earlier today. Look, if you ask anyone over 35, who's your broker? Oh, Merrill Lynch. Well, how much money do you have in gold? Oh, you know, 10%. How much Bitcoin do you have? Oh, my God, are you kidding? It's a Ponzi scheme. Ask anyone under 35, who's your broker? I don't have a broker. What are you talking about?

• 1:07:31Speaker 02

  How much money you have in gold? Gold? Are you kidding? It's a relic. But no, I've never owned gold. How much Bitcoin do you have? I don't want to talk about it. What do you mean? I'm embarrassed because the percentage is so high of my net worth. So there's going to be $37 trillion, $37 trillion, not from government assistance, but the boomers, as we age and eventually pass on, we're going to, you know, bequest that money down to the millennials, and they're going to inherit $37 trillion. It's not going into stocks, bonds, and gold. Some of it's going into Bitcoin and other crypto assets as we tokenize the world. And look, you know it, I know it, every stock, every bond, every currency, every commodity in the world is going to be tokenized.

• 1:08:16Speaker 02

  Bitcoin is the operating system or the base layer protocol on which the internet of money, or the internet of value, or the trust net, as I like to call it, operates. And MoIP, Money Over Internet Protocol, is the biggest wealth creation opportunity you and I are going to see in our life. Well, you're going to have a longer life than me, but I'll probably see in my lifetime. So that's a long answer for why I love Bitcoin, but it's a must have in your portfolio, and it's time to get off zero.

• 1:08:46Anthony Pompliano?

  I am one of those 35-year-olds with no broker, too much Bitcoin, and no gold. So you're not wrong.

• 1:08:52Speaker 02

  Yeah, there you go.

• 1:08:56Anthony Pompliano?

  All right. Thanks so much for doing this. I appreciate it. I know people enjoy hearing from you. We'll have to get in the future.

• 1:09:03Speaker 02

  No, look, it's always great to sit down and connect, and especially when we can't hang out together more often like we normally do. Stay safe up there, and we'll do the same down here in NC, and we'll talk to you soon. Thanks, Paul.

• 1:09:18Anthony Pompliano?

  Hey everyone, Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.