Late-Cycle Investment Theory: Foundations for the Coming Decade | Nicolas Colin

In Episode 455 https://hiddenforces.io/podcasts/late-cycle-investment-theory-foundations-for-the-coming-decade-nicolas-colin of Hidden Forces, Demetri Kofinas speaks with Nicolas Colin, a former French Treasury official and the co-founder of a European startup accelerator whose work sits at the intersection of technology, markets, geopolitics, and global finance. In the first hour of their conversation, Kofinas and Colin break down Colin's "Late Cycle Investment Theory" and the framework behind it. They draw on Carlota Perez's model of technological revolutions and techno-economic paradigms, explore the role of speculative manias and market concentration, and examine why Colin argues that AI is less a brand-new technological revolution than an intensification of the computing-and-network paradigm that has been unfolding for the past 50 years. They also compare the current moment to the 1970s as a historical analogue and discuss why Colin believes financial systems are often the last piece to be rebuilt after a major paradigm shift. In the second hour, Kofinas and Colin explore what this late-cycle thesis means for investors, the public, and the geostrategic competition between the United States and China. They discuss how tokenization and programmable money could reshape the global financial system's infrastructure, and how today's "Trump Shock" might be the opening move in a broader financial reset. They also examine what financial fragmentation between two competing spheres—one led by China and one by the U. S.—may look like in practice, why programmable grid infrastructure and a new scale of electrification may be leading candidates for the next technological revolution, and what all of this implies for public debt servicing, inflation, financial repression, and wealth redistribution as proximity services replace the factory floor as the central battleground over which a new social contract will be formed. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Joining our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 12/22/2025

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

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Nicolas Collin, a former French official and the co-founder of a European startup accelerator whose work sits at the intersection of technology, markets, geopolitics, and global finance. Nicolas and I spend the first hour breaking down his late-cycle investment theory and the framework behind it. We draw on Carlota Perez's model of technological revolutions and techno-economic paradigms,

• 0:45Demetri Kofinas?

  explore the role of speculative manias and market concentration, and examine why Nicolas thinks AI is less a brand-new technological revolution than an intensification of a computing and network paradigm that has been unfolding for the last 50 years. We also compare the current moment to the 1970s as a historical analog and discuss why he believes financial systems are often the last piece to be rebuilt after a major paradigm shift. In the second hour, we explore what this late-cycle thesis means for investors, the public, and the geostrategic competition between the United States and China. We talk about how tokenization and programmable money could reshape the plumbing of the global

• 1:27Demetri Kofinas?

  financial system, and how today's Trump shock might be the opening move in a broader financial reset. We also discuss what financial fragmentation between two competing spheres, one led by China and one led by the US, may look like in practice, why programmable grid infrastructure and a new scale of electrification may be the primary candidates for the next technological revolution, and what all of this means for public debt servicing, inflation, financial repression, and wealth redistribution as proximity services replace the factory floor as the central battleground over which a new social contract will be formed. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed,

• 2:12Demetri Kofinas?

  which you can listen to on your mobile device using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be viewed as financial advice.

• 2:57Demetri Kofinas?

  All opinions expressed by me and my guests are solely our own opinions and should not be relied upon as the basis for financial decisions. And with that, please enjoy this immensely interesting and valuable conversation with my guest, Nicolas Colan.

• 3:17Demetri Kofinas?

  Nicolas Colan, welcome to Hidden Forces.

• 3:21Speaker 01

  Thank you. Very glad to be here.

• 3:22Demetri Kofinas?

  It's exciting to have you on, Nicolas. So you were introduced to me by a mutual acquaintance who sent me, initially sent me a paper you published in the summer of 2025 titled Late Cycle Investment Theory: The Foundation for the Coming Decade. And that sent me down a rabbit hole of reading some of your additional work, which I quickly realized has so much in common with the subjects that we've covered, the perspectives that we've taken. You cite many of the guests that have been on this podcast. So I'm very excited to talk to you today. Before we do, just real quick, give me your background. I don't know much about you. What's your story? How did you get into writing about investment questions and related matters?

• 4:03Speaker 01

  So I was born in France, grew up in France, studied engineering in the 1990s, never really practiced engineering because when I graduated from my engineering school, it was right after the dot com crash and so engineering became unattractive suddenly. So I switched to a different career, studied political science, public administration, joined the French government where I worked for a few years as a senior civil servant at the treasury. And then I left because I got interested in tech again after a 10-year hiatus and had a brief entrepreneurial experience, tried

• 4:42Speaker 01

  to found a startup in France, faked miserably like many startup founders. And then I co-founded a pan-European startup accelerator, which grew from zero in 2013 to three offices in Europe, London, Paris, Berlin, a portfolio of about 100 companies. And we stopped investing in 2021. So today I'm managing that portfolio, which still exists and is still growing. I consult with investment firms, mostly on research, investment, thesis, markets, etc. And I write several newsletters actually on mostly macro and geopolitics.

• 5:27Demetri Kofinas?

  Fantastic. So you actually have a few different substacks. You have three from what I've seen, but your main one is DriftSignals.com, is that right?

• 5:34Speaker 01

  Yes, that's the main one. That's my personal newsletter where I cover the economy and how I see things. The second most important, I would say, is the one I'm writing with my colleague Marie Flammant, who used to work for Circle, is a specialist in stable coins and everything crypto. And we have launched this newsletter called Currency of Power about the emergence of a new monetary order.

• 6:01Demetri Kofinas?

  So it looks like you started publishing almost nine years ago, to the day, actually, which is roughly as long as I've been hosting this podcast. What motivated you to begin writing for public consumption all the way back in 2017?

• 6:14Speaker 01

  Well, I guess I've always been into writing. Most of my work, including in government, was writing reports, memos, et cetera. Many, many good things have happened to me because of my writing. People reading my stuff and reaching out. And that's a good networking tool, I find. And it's also a good way to clarify your own ideas. Like when you try and understand a situation or a topic, the best way to really go deep is to try and write about it or teach it if you are lucky enough to have students, which I don't have at the moment, but I used to teach quite a lot. So I launched my newsletter in 2017.

• 6:56Speaker 01

  The idea was to, well, I was interested in this idea of, you know, writing regularly for a growing audience, that is, people who receive a newsletter in their mailbox like every week or every month or whatever. But I had been writing forever. Like I wrote several books before that in French and again, reports and stuff like that. So writing is my natural way of, you know, working and building a network, et cetera.

• 7:26Demetri Kofinas?

  Have you always been doing this or have you gone through phases where you write more? And then go through phases where maybe you spend more time researching and thinking without actually putting pen to paper?

• 7:37Speaker 01

  Yeah, so you're right to ask that question because I find that writing and researching as to a certain extent mutually exclusive. Like when you write, you don't have that much time to read or have interactions with people. But no, mostly I prefer writing against it's the best way for me to absorb knowledge and to get interested in new things. There were periods where I wrote quite a lot, like during Covid, like we were all stuck at home with the lockdown, et cetera. So I increased the pace of, you know, sending editions of my newsletter at the time. And then I stopped for a few years between 21 and 23 because I was busy with restructuring my firm and taking care of the portfolio, et cetera. And I resumed mostly.

• 8:22Speaker 01

  Essentially earlier this year because I found myself with more time on my hands and realized like so many things I changed over the course of three years like launch of ChatGPT in 2022, Russia's invasion of Ukraine, also 2022, reelection of Trump 2024. The world is so different from what it was like three years ago. I had to catch up and the best way to catch up like understanding what the world for me is to write.

• 8:51Demetri Kofinas?

  Who are you writing to? Who is your ideal reader?

• 8:55Speaker 01

  Well, my theory is that you mostly write for yourself, but it turns out when you write for yourself, you also address an audience that that is people that are interested in what you think or see the world the same way as you. And so I've grown this audience of people that are at the confluence of, you know, finance, strategy, geopolitics, policy, and what they like about my writing and which tends to provide a guideline for me in terms of deciding what to write about is precisely that mixing all those topics together and have a broad perspective on things like it's not narrow. I'm not like

• 9:37Speaker 01

  a an equity analyst. I'm not a policy researcher. I can do all of those things together, which by the way, is a very French tradition. Like we have this tradition of being a generalist.

• 9:49Demetri Kofinas?

  And it sounds thinker.

• 9:52Speaker 01

  Yes.

• 9:52Demetri Kofinas?

  I'm working on my French accent since we turned on the microphones earlier. So what were the things that you were interested in writing about in 2017? And how have your interests evolved or your focus become better defined in the last decade?

• 10:06Speaker 01

  Yeah, so 2017 was the peak of our business as a startup accelerator. And we were right in the middle of a very interesting decade, which I would sum up as the decade of software eating the world to echo Marc Andreessen's words. And so the challenges we were confronted as an investor backing early stage tech startups in Europe was that everyone knew what was Was coming, how the economy needed to be transformed, how new entrants were toppling incumbents and disrupting entire markets. But there was a lot of resistance because it's Europe. People are not like in all in front of tech companies. The markets are small. It's difficult to build businesses across borders in Europe.

• 10:51Speaker 01

  There are many different lines of fragmentation, like regulations, language, culture, many things. So it's still difficult, but it was difficult to grow tech companies in Europe. And so a lot of what I did as, you know, the policy guy in the startup world was advocating for startups and making the case that we should help startups instead of resisting them. And so most of my time was spent addressing audiences in the corporate world, in the policymaking world, the media, think tanks, everyone that was not like either a founder or a venture capitalist. Those were addressed by colleagues of mine at the firm, but I was in charge.

• 11:35Speaker 01

  I was kind of like the foreign minister for, you know, the startup world. And so when I started writing this newsletter, it was really about that, like why startups are important? What can we do in Europe to help them grow instead of, you know, curbing their growth? And making sure we weren't missing that opportunity of, you know, embracing a new paradigm and growing our economy with it.

• 12:02Demetri Kofinas?

  So the way that I view the world, Nicola, is more often than not informed by a series of unanswered questions that continue to resurface over and over again in my head. One of those questions that's relevant to today's discussion is, how do I protect myself, my friends, my family, from a changing economic and political order? So that we don't become the collateral damage of government policies resulting from some inexorable set of structural, economic and social trends. Another would be, how do I help arm the public with the information needed to steer public policy in a direction that will prove more beneficial for everyone?

• 12:43Demetri Kofinas?

  And that could help us avert large scale catastrophes of our own making that will imperil all of us. What would you say are the corresponding questions that you find yourself asking over and over again that motivate your concerns and the things that you've been writing about in recent years?

• 13:02Speaker 01

  So I would say my main concern, I didn't use those words back in the days, but is economic development. I think as a European, I've been enjoying living, growing up and living in a country that was in a continent that is a very advanced economy. We have very high standards of living, we have safety, we have strong institutions, we have democracy, everything you can wish for. And for some reasons, which we can discuss, for about 20 years, it stopped working. And so the main question I've been interested in, working with startups or working from

• 13:47Speaker 01

  a policy perspective, has been what explains the slowdown in, you know, European development? What explains the acceleration, the spectacular acceleration in Chinese development? What explains the difficulties the US is going through at the moment? What are the promises if you look at the Middle East or Africa or South America or Southeast Asia? Where will those different countries or regions be 20 years from now? And what can we do to reverse the trends if we can spot them? That's really what I'm interested in. And I think the business world has a critical contribution to make to, you know, winning

• 14:31Speaker 01

  or losing that game, but also the policymaking world. And that's where my worldview of, you know, embracing all of that finance, policy, business all together makes real sense. So I'm kind of obsessed with that and I'm, I'm in Europe, I've been living in different European countries, so I know the differences. But I'm kind of vested, I have vested interests in Europe, you know, catching up and not slowing too much in the current transition.

• 15:03Demetri Kofinas?

  So if I'm hearing you right, your focus is much more on... How to strengthen our societies and make our economies work in the public interest and less so in terms of how can you understand the current environment in order to increase the market capitalization of your portfolio?

• 15:22Speaker 01

  Well, I think both are correlated. I'm a big believer in, you know, you would call them hidden forces, but key trends or, you know, long-term trends.

• 15:32Demetri Kofinas?

  You can certainly do both. I'm not suggesting you can't. I mean, again, these are the two biggest concerns for me as well. I mean, the ones that, those two, both, how do I respond to this on a personal level? And then also, what can I do to help inform people so that we can, you know, shift the vector at the earliest stage possible in order to have the biggest long-term effect and also so that we don't end up way down the road having missed key opportunities where our economies are now stagnating for the long term and there's little we can do to reverse the trend?

• 15:59Speaker 01

  Exactly.

• 16:00Demetri Kofinas?

  I think that's the concern, right, that we're facing today. So, as I said, what brought us together initially was a paper that you published over the summer, the paper titled Late Cycle Investment Theory, in which you argued that today's markets show signs that we've entered the maturity phase of the computing and networks revolution. And the paper is your attempt to help people navigate this phase and help them spot opportunities that consensus thinking might be overlooking. Let's start first with a summation of the argument that you make in that paper and as well as what your inspiration for this late cycle investments thesis has been and when you began to see confirming evidence of it in the world.

• 16:39Speaker 01

  Yeah. So, as I mentioned earlier, when I resumed writing earlier this year, one of the big things that had changed in the meantime, when my writing was on hold, was the rise of artificial intelligence, the launch of ChatGPT and suddenly every tech company trying to become an AI company, et cetera. The way I see what I call the the age of computing and networks, that's our age, is that every year we add more of those, like more computing, more networks. And we combine them in ever more efficient ways and

• 17:22Speaker 01

  and sometimes it has a dramatic effect, like a transformative effect on certain industries or society as a whole, et cetera. And so when I see new things happening in tech, what I see usually is the continuity. It's like, oh, it's more computing and more networks, which makes my view very different from that of many venture capitalists, who tend to see change in terms of waves, like you have like open source and then cloud computing and then mobile and then social and then crypto and metaverse and and now AI. And so what they tend to see is, oh, AI, it's a new wave.

• 18:07Speaker 01

  So the world is completely different and we need to restart from zero in terms of understanding what's going on. So what I see when I see AI is just the continuity of all of that. And what I see is something else that I think is very important is the fact that AI has been going so fast in terms of market adoption

• 18:32Speaker 01

  that it should tell you if it's going so fast, it's because people are understanding right away. And it's not radical innovation for that precise reason. If everyone understands it in an instant, it's not radical. It's more like the continuity, the deepening, the, you know, the acceleration of things that were already happening.

• 18:57Speaker 01

  And you could see that because when ChatGPT launched, everyone was impressed. Like you could test it and realize, oh, wow, that's absolutely amazing. Like it can write an entire article based on a prompt. But then three months later, maybe there were already like similar models launched by all the big tech companies like Meta had its own thing, Google had its own thing. Everyone was catching up less so fast, like, okay, that's not radical innovation. That's more like, okay, someone opened the door and everyone's, you know, rushing in to try and take positions. And so what I was looking for was a way to articulate this idea of everything that

• 19:41Speaker 01

  we're seeing, even though it looks like it's radically new, is in fact the continuity of everything that has been going on for decades, like more computing, more networks. And because I like to think in systems, that's another very French trait, I tried to build this castle of a theory that puts all of that into perspective and that explains, okay, we're in the same cycle, we're at the late stage of this cycle. What are the consequences for you as an investor, a founder, a financier, a corporate executive or a policymaker? And that's the birth of this concept of late cycle investment theory.

• 20:27Demetri Kofinas?

  So let's take a step back now and try to build a solid foundation for listeners who are following along, because Carlota Perez's framework on technological revolutions and techno economic paradigms has been a very important inspiration for your thinking. Walk me through her framework and to the extent that differs from how you view things, please elaborate, but give us more detail into how the mental model that you're using to understand the innovation cycle. And I know also from having read some of your additional work that Bill Janeway's also been an inspiration. His book, Doing Capitalism in the Innovation Economy, was also a really influential book for me when I read it as a younger man, and he's been on the podcast as well. So, and in that sense, feel free to pepper in other inspirations.

• 21:10Demetri Kofinas?

  Just help us really build out, flesh out the mental model that you use to understand the world and the innovation cycle.

• 21:18Speaker 01

  Sure. So historically, I think I discovered Carlotta through Bill's book. I don't really remember how I discovered Bill's book, Doing Capitalism, Innovation, Economy. I think it was in a TechCrunch article about Bill giving a talk at Andreessen Horowitz back in 2013 or something like that.

• 21:38Demetri Kofinas?

  I met him through Robert Johnson at INET. So people that don't know the Institute for New Economic Thinking.

• 21:43Speaker 01

  He's a founding member, yeah.

• 21:44Demetri Kofinas?

  Right. They were doing some, they did some really important work post 2008. I assume that they were founded after 2008. I don't remember. But that was the period where, you know, critical thinkers really had an opportunity to say, okay, here's what didn't work. Let's do the hard work of figuring out why it didn't work and how do we need to evolve our mental models in order to address the challenges that we're facing going forward.

• 22:07Speaker 01

  Yes. So Bill's book was very compelling for that reason in that he was explaining the critical role of venture capital in funding innovation and the critical, in turn, the critical role of innovation in fueling economic growth. And so I don't remember exactly. I probably sent him an email and by coincidence, he was in Paris like a few days after that. So I probably was based in London at the time, but I was in Paris often. So we had lunch and became friends and he kind of became my mentor. Like he's the one I turn to when I want advice or ideas or discuss ideas related to venture capital and the economy in general. But in his book, he mentions Carlotta's work. And I connected with Carlotta, I think, a bit later

• 22:52Speaker 01

  after watching an old video of hers where she was interviewed by Fred Wilson, a prominent venture capitalist, Union Square Ventures, at WebExpo, an O'Reilly conference in 2011. So you can find that video on YouTube. It's a great interview because they really go in depth into work, how model or framework helps understand the economy and innovation and technology in general.

• 23:21Speaker 01

  And so when I watched that video, I was blown away. Like, this is so clear and so systemic. And I like, you know, the very systematic manner in which she explained the different stages of a technological revolution, et cetera. And so I bought the book, Technological Revolutions and Financial Capital, read it, was blown away. And I think I contacted her by introduction of Bill and then started to see her from time to time because she, she lives in Sussex. And so I would take the train in London and meet her for lunch or dinner and we would discuss a bit and exchange ideas, et cetera. So I would say I really absorbed her work and read a lot of what she wrote in addition

• 24:05Speaker 01

  to the book itself. And it really became my, my mental model to explain what's going on because at the time I was doing a lot of work on institutions and, you know, social policy, et cetera. The push I was trying to make was how to convince European policymakers that tech can be good and is not necessarily bad. And one of my argument is that tech contributes to creating value, but then on top of that, we need to build institutions so that that value is distributed more equally and contributes to shared prosperity at the society level.

• 24:47Speaker 01

  And the best way to explain that, you know, is to go back in history and explain how they did it the previous time. So when automobiles were invented, it triggered the previous technological revolution, which led to what Carlos calls the age of oil, automobiles and mass production. And at first it was a mess. Like, you could even say that it was so hard on society, it created such inequalities and such tension, especially in the relationship between, you know, employers and workers, that it fueled the rise of fascism during both world wars.

• 25:30Speaker 01

  And it's only after World War Two that Western governments decided to do something about it. Okay, we've seen how far it goes if we... Let technology do its thing to society without safeguards and institutions to make sure that the value it creates is redistributed to everyone. So they basically set up the welfare state, social insurance regimes, et cetera, and it opened that golden age of thirty years of uninterrupted growth across the Western world. And so when I started explaining that to people in Europe, like especially policymakers,

• 26:11Speaker 01

  like, look, this is what they did the previous time, this is what we need to do this time. Like, the age of computing and networks will be an age of shared prosperity if we put in place the right institutions. And at the time, I saw the power of, you know, going back into the past and revisiting history and using historical precedents. That's how you really convince people that technology is important and should be supported as opposed to, you know, curbed.

• 26:38Demetri Kofinas?

  I have some clarifying questions. First of all, how many historical cycles does Carlotta draw upon? So each of these cycles has four stages or four waves.

• 26:52Speaker 01

  Yeah.

• 26:52Demetri Kofinas?

  We have the recent one, the computing and networking revolution. We have the industrial revolution. Are those the two main ones? Is there a previous one that she looks at as well?

• 27:02Speaker 01

  She has five technological revolutions or great surges of development in her model. The first is the industrial revolution. It's basically the invention of labor productivity, like you combine humans and machines and it creates that thing that didn't exist before, that is productivity. Then you have the second revolution, which is the age of steam and railways. So you deploy railways and it completely changes geography of our economy. Then you have the revolution of electricity, steel and heavy engineering. So that's the end of the nineteenth century. Then the revolution of oil, automobiles and mass production. That's essentially the history of the twentieth century.

• 27:48Speaker 01

  And then you have computing and networks. And the birth date of that is the invention of the microprocessor in 1971 at Intel.

• 27:58Demetri Kofinas?

  And there's overlap between these two phases.

• 28:01Speaker 01

  Yeah, yes, because when you're in the maturity phase of the finishing revolution, of the current revolution or great surge, you can already spot the signs of, you know, the inception of the next one. Obviously, if you're a very good investor, you can spot the signs really well. There are many false starts, like at the time, if you ask people like, what's the next technological revolution? A lot of people will say it's AI, others will have other ideas. I think it's a bit early, but in 10 years or 20 years, we'll revisit this period and we'll see the signs of, you know, whatever happens.

• 28:42Demetri Kofinas?

  So each of these, as I said, each of these cycles has phases. The eruption phase is the initial phase where there's an intense amount of funding, of innovation in new technologies. Then there's a frenzy phase, which is characterized by increased speculation and financialization that leads to a temporary decoupling between financial capital and productive capital. Then there's a phase of growing inequality and political unrest, which actually feels a lot more like the phase that we're in now, though there are also signs that we're in a maturity phase, which is what you think that we are in. So my first question is, help clarify for me what stage we are in and why, given that we do see some signs of this stage of there being political dislocations,

• 29:25Demetri Kofinas?

  why that isn't a better fit for where we are today in this cycle?

• 29:31Speaker 01

  So there are many signs and my essay Late Cycle Investment Theory is precisely an attempt at going through the list of all the signs that make me think we are in the maturity phase of computing and networks. I'd say the most important one is the fact that the dominant players have emerged and are clearly identified.

• 29:58Speaker 01

  And typically, in this cycle, the stage at which you see the winners emerge and and secure their dominant position is the synergy phase. It's because some companies use the technology of the day better than others and use it as leverage to take dominant positions in the market. And then during the subsequent maturity phase, they enjoy their dominant position and make a lot of money. And so you could say that the decade of software eating the world is the decade during which like all those big tech companies have emerged and reached dominant positions.

• 30:39Speaker 01

  And now they're really enjoying the immense power, including their influence over policymaking, which we're seeing in the US with the unprecedented relationship between the tech sector and the world of policymaking with the Trump administration, et cetera. And you can see it from another angle, which is that it's so clear that those are the winners, that everyone wants to invest, to participate in the big feast, like want to invest in them. And this is why the stock market is so concentrated, which by the way, happened the last time as well. At the end of the 1960s and early 1970s, there was something known as the Nifty Fifty.

• 31:24Speaker 01

  Do you know that one?

• 31:25Demetri Kofinas?

  Sure.

• 31:26Speaker 01

  Those were all the blue chip industrial companies that were considered safe heavens for investors. So everyone wanted to invest in them and there was an inflation of prices for the Nifty Fifties, like companies like GE and IBM and many others that were household names and that were considered safe bets for investors. So today we have exactly that, except we don't have 50 of them. We have seven of them, as you know, the magnificent seven. And everyone wants to invest in them because it's so obvious they've won the race of the synergy phase and have secured dominant positions, which they probably enjoy for the rest of the maturity phase.

• 32:11Demetri Kofinas?

  So as you're speaking, I'm reminded of some other guests that have been on the show, one of whom you mentioned earlier, Tim O'Reilly. Who is a great follow and I recommend people go back to listen to that episode to compliment what they're hearing from today as well as an episode with Howard Marks where we briefly discussed the nifty fifty and that investment period in the late 60s. And also Sebastian Malaby, who wrote a book on the origins of the venture capital industry, which also complements a lot of Bill Janeway's work on the innovation cycle. So just sticking with this thread of like what characterized an economy that's in this maturity phase of prevailing technological paradigm, you have brought up the 1970s,

• 32:52Demetri Kofinas?

  both in this conversation and also in your work as a tight analog for what we're living through today. What happened in the 1970s that's relevant for today's discussion?

• 33:02Speaker 01

  Yeah. So I'd say two additional things. So one thing that happened was the concentration of the stock market, which ultimately prompted investors to seek returns elsewhere because if you're all pining up in the same stocks, in the end, no one makes money. Another thing that happened was the reset of the financial system. And so it started in a way with something known as the Nixon shock in 1971, when the Nixon administration decided to disconnect the dollar from gold. And it triggered like Ray Dalio has this great video, which you

• 33:45Speaker 01

  can see on his YouTube channel. He was a young Wall Street guy at the time, watched Nixon announce the Nixon shock on television and went to work the next morning expecting like a complete collapse of the market. And what he says in the video is the opposite happened because people were investing and buying stocks and all the stock prices went up. And that was because the gold standard or the Bretton Woods version of the gold standard was in fact a constraint on the economy. And the fact that Nixon put an end to it freed capital to flow more easily towards various assets. So.

• 34:27Speaker 01

  That's one thing. The reason why we need a reset of the financial system in the maturity phase, or stage, is the following, according to me. It's the fact that the financial system is the last thing to transform in a technological revolution. That is, for the previous stages, technologists and investors in technology have to make with the financial system inherited from the previous paradigm. Most of financing, of, most of the financing in the computing

• 35:03Speaker 01

  and network era has been done in the financial system designed in the 1970s. That is, the stock market, the bond market, derivatives, hedge funds, payments, currencies, et cetera. The reason it has to break, it's because at some point, the new paradigm is so different, is such a mismatch with the old financial system, that you have to get rid of the old financial system and rebuild it from the ground up. And that can only be done if something collapses. And so, the previous time, it was like, they put an end to the Bretton

• 35:47Speaker 01

  Woods system, which made room for radical transformation of financial markets, from May Day on the New York Stock Exchange to the London Big Bang in 1986. And today, I think, well, one hypothesis would be that the equivalent of the Nixon shock for the computing and network era would be the Trump shock of 2025, where they, they've really made an effort in, you know, dismantling a few things. And thus creating room for reinventing financial markets entirely from top to bottom.

• 36:29Speaker 01

  It won't happen in a day, but at least we have a clear ground here to start reflecting on what needs to be done for financial markets to really serve this economy of computing and networks, which is radically different from the previous economy of automobiles and mass production.

• 36:52Demetri Kofinas?

  So I'd like to delve into that more in the second hour when we discuss implications for investors, but let's go back to the gold standard here, because I think this is important for people to understand, because I don't fully get it, by the way. When I read it in your paper and you talked about how gold, the gold standard was an example of how technological maturity breaks institutions designed for earlier paradigms. I didn't understand what it was about the computing and network revolution that made gold or the Bretton Woods system of fixed exchange rates no longer viable. So what was it about that system that worked for the previous era? And then explain to me exactly why it didn't work for the next one and what needed to change and why?

• 37:36Speaker 01

  So what they dismantled in the 1970s was a financial system shaped right after World War II, at a time when the financial implications of the economy of the automobiles and mass production was not fully understood. So what they tried to do was to rebuild the financial system that everyone was familiar with, that is, the old gold standard system, pre-World War I, but with a tweak, which was that instead of, you know, all currencies being convertible in gold, only the dollar would be convertible in gold and then all the other currencies convertible in dollars.

• 38:19Demetri Kofinas?

  Wasn't that largely philosophical, not actually a reflection of what they thought an ideal system would be for a particular technological paradigm?

• 38:31Speaker 01

  Yes, it's because it's a lack of imagination. When you're invited right after World War II to rebuild the financial system, you can only go as far as what you know and what historical precedents tell you. So most of them tried to rebuild the system that had delivered so much value supposedly decades earlier. The reason it didn't work was that when you peg a system to gold, you're constrained by the quantity of gold available. So you can mine and extract more gold from the earth, but not that much. Like it goes very slowly. So at some point, if the economy is so productive that you create a lot of value

• 39:13Speaker 01

  and you create currency to account for that value, because a thriving economy means a lot of credit to entrepreneurs who invest in machines and hire people and build new activities. At some point, there's a disconnect between the quantity of gold and the quantity of money.

• 39:32Demetri Kofinas?

  The amount of credit and capital available to make the investments that are commercially viable, that would be otherwise commercially viable, isn't there? Because you're on a limited supply.

• 39:43Speaker 01

  Exactly. And America's problem that prompted Nixon to implement the Nixon shock was that the economy was growing so fast and had reached such a scale that the global economy, I mean, they didn't have enough gold to support that, to support that growth.

• 40:02Demetri Kofinas?

  We were already seeing indications through the emergence of the euro-dollar market that something wasn't functioning in the Bretton Woods system. So the economies were demanding more capital and credit in order to finance these opportunities. Is that the right framing here?

• 40:16Speaker 01

  Yes, that's the right framing. Plus, the fact that the US was not really playing it fair. Like Martin Wolf explained on the Odd Lots podcast that, well, the US had spent so much money like funding the Vietnam War and they should have devaluated the dollar because the dollar wasn't worth what it was officially worth. But they didn't want to because it would be humiliating for the US to have to devalue the currency. And so that also contributed to breaking the system.

• 40:44Demetri Kofinas?

  And the social welfare programs that LBJ instituted in the 1960s.

• 40:48Speaker 01

  In part.

• 40:48Demetri Kofinas?

  But just one more question though, before you continue though. We were under a strict gold standard in the 19th century and that was a period of massive capital investment. So why would the same principle not have held then?

• 41:01Speaker 01

  Well, it was a period of massive capital investment, but as Karl Polanyi explained in The Great Transformation, it was also what led to the rise of fascism in a way, because World War I broke the gold standard. After World War I, they tried to reinstate it, and it created so much rigidity in the economy that when the, just as a new paradigm was taking shape, the paradigm of oil, automobiles, and mass production, that it broke and it basically destroyed many societies, including Germany, Italy, et cetera, and the whole of Europe, basically. So, the gold standard in general imposes rigidity, which is not

• 41:44Speaker 01

  good for an economy that is thriving on technological progress and is going in too many directions, especially at the global level. So I think it's more of an intuition here, but it's that the reason why we had to reinvent the financial system in the 1970s was because the economy had grown so large and so fast and technological progress was so spectacular that we needed much more flexibility, much deeper capital markets. Plus, there was the start of the next Nixon shock, also made it possible to to enter a new phase of globalization and so international trade, et cetera. And that really called for reinventing financial

• 42:28Speaker 01

  markets, because you can't fund an economy that's so global and so dynamic with, you know, old capital markets. So I think it was done in, over the course of 15 years, between 1971 and, again, the London Big Bang. But at the end of the 1980s, you had a financial system that was completely new, completely different from what it was in the 1960s. And it basically provided the paradigm of the time with 30 more years of

• 42:58Speaker 01

  Healthy life, like until the great financial crisis, we basically grew the economy off the back of one financialization and two globalization, and it worked well. And that's because we finally had a financial system designed for making the most of the mature paradigm that was the age of oil, automobiles, and mass production. And so I would argue today, we're exactly the same stage with computing and networks. We're trying to make it work with a financial system inherited from the past, from essentially the eighties. But it doesn't work for many reasons. The world is completely different.

• 43:43Speaker 01

  First of all, the technologies of the day are completely different. They have created a much more service-oriented, much more globalized economy. There are a lot of flows of services, goods, and money going across borders. Plus, there's a key difference in today's world compared to back in the days is the size of China and the weight of China in the world economy. And the fact that China has been using a lot of computing and networks to propel their manufacturing industry and have become so powerful in terms of exporting manufactured goods. They have passed the record level of one trillion trade surplus this year.

• 44:28Speaker 01

  And that's also in part because thanks to computing and networks that they use in the factories to make them more efficient, more productive, but also computing and networks that sustains international trade and makes it easier to trade, to finance, to buy, to ship. And so the economy is on steroids in many respects, and the old financial system has difficulties keeping up. Not only in terms of, you know, the plumbing, but also in terms of the balance of the whole system. And the trade imbalances, in a way, are key signal that something needs to be redesigned here.

• 45:06Demetri Kofinas?

  So, Nicola, I'm going to move us to the second hour, where I wanted to devote that time to the implications of what we've discussed in this first hour. The implications to investors, the implications to the financial system, to programmability and tokenization, decentralized finance, to the geopolitical competition between the US and China, and how that also relates to AI and the embedding of AI in manufacturing versus its application in the service sector. And then also debt and the social contract. You know, how debt factors in. And I'm particularly talking about public debt and public obligations and the social contract, because I think we're also in a phase now where we're seeing a lot of social and civil strife. And that plays into how, what sorts of political solutions come out of this.

• 45:51Demetri Kofinas?

  I also want to mention a few books that came to mind. They're all from the same author. And actually, the reason it came to mind is, are you familiar with Kevin Phillips by any chance? He wrote famously The Emerging Republican Majority back in the 19, early 1970s.

• 46:05Speaker 01

  But I think it's the only one I have, so I only know him as the author of that book.

• 46:10Demetri Kofinas?

  I had a chance to interview him back when I had my TV show years ago. He had written a book called 1775, A Good Year for Revolution, which is not the book I was going to recommend, but it's also an awesome book. And it's essentially about like, what was going on in the Americas before the onset of the American Revolution? So, super important. There's a really great chapter there on the hyperinflation that happened to the Continental. But he had two books. The first was American Theocracy, which had three sections, one of which was about the deregulation of the financial industry. Then he wrote a follow-up book to that titled Bad Money, where it was just devoted entirely to this wave of deregulation, which most people don't realize actually started under Carter. It didn't start under Reagan.

• 46:51Speaker 01

  Yes, absolutely. Yeah.

• 46:52Demetri Kofinas?

  Yeah, so Nicola, I've already given our listeners an idea of what we're going to talk about in the second hour. For anyone new to the program, Hidden Forces is listener-supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want access to the second hour of today's conversation with Nicola, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to this episode right now. Nicola, stick around, we're going to move the second hour of our conversation onto the premium feed.

• 47:36Demetri Kofinas?

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @Kofinas and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.