What Broke The Bond Market — And Why They're Going To Print Your Savings Away

What's up, guys? Today I am bringing you an absolute must-listen conversation with Felix Prehn. Felix is a renowned investor and financial educator, and the founder of Felix & Friends and The GOAT Academy on YouTube—a guy who is obsessed with teaching people how money actually works. Felix has built a global following by breaking down the mechanics behind money printing, debt, inflation, and the moves happening right now in the bond market that are going to impact every dollar you’ve ever made or saved. I wanted to talk to Felix because, to be straight with you, we are living through a radical shift in the economy, and most people have no idea how deeply it affects their future. Felix cuts through the noise and tells it like it is—who is going to get crushed by inflation, why hard assets are your defense, and how to spot the difference between growing your wealth and just getting decimated by printed money. In this episode, you're going to walk away knowing exactly why the US and Japan are on a collision course with reality, what happens when governments play games with their own debt, and most importantly, what you can do right now to protect and build real financial security for you and your family. If you care about your financial future—and you should—this episode is mission critical. If you get value out of this, drop us a review—it's the best way you can help us reach more people who are hungry to reach their greatest potential. I’m Tom Bilyeu, and welcome to Impact Theory. What's up, everybody? It's Tom Bilyeu here: Want my help starting a business? Join me here inside Zero To Founder https://tombilyeu.com/zero-to-founder?utm_campaign=Podcast%20Offer&utm_source=podca[%E2%80%A6]d%20end%20of%20show&utm_content=podcast%20ad%20end%20of%20show Sign up for my AI Masterclass: AI Masterclass https://tombilyeu.com/ai-masterclass?utm_campaign=Live%20Masterclass&utm_source=podcast&utm_medium=evergreen FOLLOW TOM: Instagram:https://www.instagram.com/tombilyeu/ Tik Tok:https://www.tiktok.com/@tombilyeu?lang=en Twitter:https://twitter.com/tombilyeu YouTube:https://www.youtube.com/@TomBilyeu Tailor Brands: Check out Tailor Brands to get started with your business today: https://bit.ly/TailorBrandsSept Quince: Free shipping and 365-day returns at https://quince.com/impactpod ElevenLabs: Book your demo at https://elevenlabs.io/impactpod Butcherbox: Go to https://ButcherBox.com/IMPACT https://butcherbox.com/IMPACT to get $20 off your first box, plus your choice of free ribeye, new york strip, or filet mignon in every box for a year — with free shipping always Quo: ​​Try for free PLUS get 20% off your first 6 months at https://quo.com/impact Shopify: Sign up for your free trial period at https://shopify.com/impact Netsuite: For the first time ever you can try NetSuite Next for free. If your revenues are at least in the seven figures, go to https://NetSuite.ai/Theory https://netsuite.ai/Theory. Incogni: Take your personal data back with Incogni! Use code IMPACT at the link below and get 60% off an annual plan: https://incogni.com/impact Pique: 20% off at https://piquelife.com/impact See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

• 0:00Speaker 00

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• 1:28Speaker 01

  So what we're seeing right now is something we haven't seen since 2007, which is just one year before 2008 global financial crisis. And it's just that the bond market, who I always say are like the smartest, really dull people on Wall Street, who actually control the world. They are saying, we don't really trust the US government because you guys are spending at an insane level. Now, we've all kind of gotten numb to that because 40 trillion debt just sounds like a ludicrous number.

• 1:55Speaker 00

  What's 40 trillion between friends?

• 1:57Speaker 01

  Exactly. It's meaningless if it's an extra trillion or 10 or whatever. But the problem is that the higher that interest rate goes, the higher the cost of paying for that debt. So I think the US paid, what was it, trillion, 1.4 trillion or something in the last year? Which is a crazy number. But if that rate goes higher, it's going to cost trillions and trillions more over time. So what broke it is a bunch of things. It's Japan, the war in the Middle East, it's inflation, it's oil prices. There's a lot of stuff that kind of factors into that. But the panic we're seeing now from the US government, which is we're going to buy our own debt,

• 2:40Speaker 01

  which sounds kind of like a Ponzi scheme, quite frankly. And it's not that far off. It's sort of a clever idea if you're trying to manipulate and massage the market. So what they're doing is they're basically buying their own debt. That's like 10, 20, 30 years long. Because that's the stuff that's getting really expensive. Because the bond market's saying, we think the US is going to be in trouble in 10 or 20 or 30 years because of the way they're spending. So how are they doing that? Well, they haven't got any money. So they are basically issuing short-term IOUs into the market. But nobody wants to buy them, surprise, surprise. So who's buying them? The Fed, which is basically the US government, but it kind of isn't on paper.

• 3:25Speaker 01

  So they're buying their own debt and that's called money printing. Now, the US government will tell you, no, it's not money printing. It's not even quantitative easing, which is what we did during COVID, which was not going to cause inflation, they kept telling us, and then it did. So they're calling this now, what are they calling this? Some sort of liquidity easing or something?

• 3:46Speaker 00

  Yeah, insert fancy name in to distract you here. Okay, so you started with the debt. And so there is a knowable set of chain reaction steps in the causal chain of rates going up. And so when I looked at debt, I was like, oh, this is clearly going to be a problem. And people sort of laughed it off. New guy doesn't know what he's talking about. Is it really as simple as if you let that debt get out of control, then your interest payments become so burdensome that anybody who understands the way that the economy works knows you're eventually going to have to default on that? Either hard, meaning I'm just not going to pay it, or soft, I'm going to inflate it?

• 4:29Speaker 01

  Essentially, yes. Now, no one's going to default, like that's never going to happen.

• 4:32Speaker 00

  Hard default.

• 4:33Speaker 01

  Hard default is never going to happen. Look at Japan, they've been running this scheme since the 90s, right? 30-plus years, which they're now in a position where Japan owns all of Japan's debt. And that's probably the path the US is going to go on. But Japan's debt has actually come down. So how the heck has that happened? Well, it's come down compared to the size of their economy. And that's what you were alluding to, which is like deflate this debt away. Which is basically you create inflation and you let inflation run at a higher rate, the interest rate essentially. So thereby you are growing the economy on paper. And that then overall reduces how much debt there is compared to the size of the economy.

• 5:17Speaker 01

  So the debt will still go up, but the economy will sort of outgrow it. That's the idea. And that's the only way anybody has ever gotten out of this sticky mess. Like if you look at the US after World War II, that's exactly what they did. If you look at the 70s, that's exactly what they did. And they're doing exactly that playbook again. Now, it sounds super abstract, but it matters to people. If you take a $19.71 right now and you go out and spend and buy something with it, it's worth seven cents.

• 5:44Speaker 00

  Jesus.

• 5:45Speaker 01

  According to the government. Now, if you compare to what the stock market has done since 1971, which is how I measure inflation, by the way, I think. Inflation measures a complete nonsense.

• 5:55Speaker 00

  Use the stock.

• 5:56Speaker 01

  I look at the stock market. So the stock market's gone up about 70% the last three years. That's inflation to me. Because the people with money, they got that much richer.

• 6:05Speaker 00

  Okay, but wait, are you saying that the stock market actually hasn't gone up in real sort of growth terms? It's not increased productivity, it's not better companies, it's not what AI is doing or even necessarily the promise. It is simply money has flooded in there to avoid being inflated into oblivion. And therefore, for the, essentially the same product, the stock, that this is really just the dollar losing value?

• 6:31Speaker 01

  Mostly, yeah.

• 6:32Speaker 00

  Whoa.

• 6:32Speaker 01

  There's a little bit of that.

• 6:33Speaker 00

  If you had to swag it, are we talking 9010? We talking 982?

• 6:37Speaker 01

  I would probably say 8020.

• 6:39Speaker 00

  Okay.

• 6:40Speaker 01

  Yeah, so it's mostly money printing.

• 6:41Speaker 00

  Massive, okay.

• 6:42Speaker 01

  So we're not geniuses investing. No, no, we're just not really, really getting punished by all the money printing out there.

• 6:50Speaker 00

  Have you ever seen the meme where it's like dummy says that it's the debt? The mid-brain guy is like, no, it's way more complicated than that. And then the super genius says exactly what the dummy says and goes, no, it's just the debt. Is that like, this really does feel like it's money printing, stupid? Like if people are going to inflate the money supply? And look, that gets complicated and I can certainly explain it, but I'm not going to go down that rabbit hole right now. But is it really just watch how much they're money printing? And that's going to give you the direction of travel? Or are there like far more technical things that smart people pay attention to?

• 7:30Speaker 01

  So I think there's two ways of looking at the market. One is like, if you're a beginner investor, if you're in the index fund, it's mostly money printing. Because you're just buying the whole market, right?

• 7:41Speaker 00

  Okay, just get in, avoid inflation.

• 7:43Speaker 01

  And you're avoiding inflation. You could also buy gold. Gold doesn't go up, it's the dollar that goes down. But it still protects you from the dollar going down. The more skilled money, I would call it, not smart, but just skilled, which is the guys on Wall Street and the hedge funds and so on. They will jump around all the pots of gold within the market. Like I always picture the stock market is like a chessboard, 140 little industries. And they keep moving money around and that's how they make more money than the average. But essentially, what's driving all of this is just money. It's just money being printed. Money will always seek a return, so therefore the stock market goes up.

• 8:24Speaker 00

  Okay, if the people paying attention to the bond market understand that this is just money printing?

• 8:29Speaker 01

  Yes.

• 8:29Speaker 00

  Why can't we just, or why can't Besen just let the interest rate go up? And then it will hit some sort of normalization period and we're fine?

• 8:38Speaker 01

  Well, when interest rates go up, government interest rates go up, again, sounds very abstract. What's tied to it? It's your mortgage, it's your car loan, it's your credit card, it's the cost of building a factory in the US, it's the cost of investing, everything goes up. So the economy grinds to a halt and you get a massive recession, you get massive unemployment and people get voted out of power. Which is why politicians don't want to tax you more. They don't want to cut spending. So they don't want to take the sort of responsible route out. But at this point, it's too late to take any responsible route out. Because you can't actually reduce this debt in a kind of rational way like we would, just like try to balance the books. It doesn't work anymore. So there's only one route at this point and it's print money.

• 9:23Speaker 00

  Why doesn't it work to balance the books?

• 9:26Speaker 01

  The deficit is what, 2 trillion?

• 9:28Speaker 00

  A year, yeah.

• 9:28Speaker 01

  Yeah. So where would you cut that from? Social Security? You're going to get voted out tomorrow. You're going to stop spending on wars, that's not going to happen. Like there is just nowhere where you can cut this money.

• 9:39Speaker 00

  So it's not politically viable, it's not that we couldn't, we just won't.

• 9:41Speaker 01

  You get fired. So if, you know, you make business decisions, you're not going to take one that's going to bankrupt you or it's going to make you lose your job. So if you're a politician, you're going to take the rational route, which is, that's, you know.

• 9:54Speaker 00

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• 13:29Speaker 00

  come back to it. You basically run into a problem where I think you end up on a clock. And for me, I'm swagging that clock at 10 years from when I started counting this, which was a year ago. So I figure we're about nine years out. From the debt becoming so burdensome, that we will have inflated the debt so much, that inflation will be even worse than it is today, which I think is a big part of the reason that we're headed towards, I'll call it, there's a revolutionary energy in the air in America. And I think within nine years, that pushes all the way into actual revolution. Because if we don't do something to change course, that the people on the bottom

• 14:09Speaker 00

  of the K will be in such a bad position, that they simply will not tolerate it anymore. And you'll, it will probably look something like electing so many socialists that they break the economy. It will be something like that. Does that seem naive? Or does that seem like a likely path of travel?

• 14:29Speaker 01

  The way I look at it is that if you earn a salary, or if you have savings, or both, they will lead to poverty. And that sounds-

• 14:38Speaker 00

  In an inflationary environment?

• 14:40Speaker 01

  Yes. Because the value of that, you know, someone making a good salary, 100K salary, well, if you look at the example I started with, the 1971 thing, which is now worth seven cents, $1. So your 100K becomes 7K, right? So that's the, that's the journey that we're on. So therefore, yes, people are going to get insanely frustrated by this. It's going to make average people's lives very, very difficult. Now, you're probably much better positioned to comment on like, what the Americans are going to do about it. Because, you know, I don't live in the US.

• 15:08Speaker 00

  Yeah.

• 15:08Speaker 01

  But it's a, it's a tax. Inflation is a tax on people who earn a salary, and on people who have savings. So it's your pensioners, and it's the people who are just, you know, ordinary people.

• 15:22Speaker 00

  Right.

• 15:22Speaker 01

  And the problem is, though, that that is the most acceptable tax a politician can put out. Because they don't have to announce it. Nobody realizes what's going on. And that's why, you know, I'm grateful we're talking about it. Because the more people understand this, and that there is actually a way out of this, to protect yourself. Because-

• 15:43Speaker 00

  You mean for the individual?

• 15:44Speaker 01

  For the individual. Because the rich are not getting poorer, right? They're getting richer from this.

• 15:48Speaker 00

  Right now, one of the things that I worry about, and this will be the, ultimately, this interview is going to answer the question, what do I do with my money? But I first want people to understand why they should be paying attention to the bond market, why precisely it's breaking, and then what's going to be done about it, and then what those consequences are going to be. So for a mile marker for everybody paying attention, so we've got, the debt becomes the huge problem. That's sort of the lead domino. It's not the only domino, but it's the lead domino for why the bond market is breaking now. I want to get into what Besen is going to do about it. But the sort of punchline of all of this is, they're never going to take, you didn't say honorable, but I forget the exact word you used, but I'll say honorable, like the actually fiduciary

• 16:33Speaker 00

  responsibility to the country kind of way of like, we got to do austerity, we got to stop deficit spending. We won't. That's what we should do. And if we did that, that's one path out of the need to money print. Another path out is the soft default of money printing, which we're certainly going to do by buying our own debt. So you've already explained that. I want to go deeper into the Japan of it all.

• 16:58Speaker 01

  Sure.

• 16:59Speaker 00

  So, one, I want to understand how on earth, because I've been to Japan in the last, you know, 20 years. It's amazing. It's a great country. Incredible. So, why is the, just keep racking up the debt? If it worked for them, what are we doing differently that makes it not work for us? We'll start there.

• 17:20Speaker 01

  Okay. So Japan, you know, was this booming economy, and then it stopped. And they got into deflation.

• 17:29Speaker 00

  Okay, so we're like, what, 1990-ish?

• 17:31Speaker 01

  Something like that, yes.

• 17:32Speaker 00

  Bubble burst, 89, 90?

• 17:34Speaker 01

  So they just kept the economy going through stimulus, more spending, basically handing checks out to everybody, sort of type thing. And it kept the economy on paper afloat. And what it did also is create an enormous amount of debt. So they're like indebted like a banana republic, you'd expect.

• 17:52Speaker 00

  230% or something. Absolutely insane.

• 17:54Speaker 01

  Crazy amount. But who's going to buy that debt? Well, nobody. Because the currency keeps falling in value, and nobody wants to own something keeps falling in value. So what do they do? Well, the central bank bought most of the debt. And the other part of the debt is bought by their pension funds and their financial institutions. So Japan owns pretty much all of its debt. So they, in theory, can keep this Ponzi scheme, if we can call it that, going. And what they've now managed to do lately is they've actually managed to create inflation again, which means the debt is going down compared to the size of the economy, which is the eventual path out. The US has a bigger problem. Because, for example, Japan owns a

• 18:35Speaker 01

  lot of that debt. Now, if Japan starts selling that debt, or doesn't want to buy it anymore, you need to create new demand for this debt. So the US isn't this sort of purely US economy, where it's all US, you know, holders of debt. Because the US has since 1944, basically been the currency of the world. And it's kept your dollar quite strong.

• 18:59Speaker 00

  Because everybody wants it.

• 19:01Speaker 01

  Everybody wants it. It makes your iPhones cheap, and your imports cheap, and it makes it, you know, feel like you're traveling in a third world country when you go on holiday in the south of France, whereas we think it's incredibly expensive. And so it gives you a benefit as a consumer. The American consumer has been very strong, which is what most of your economy is. But, and your vice president said this the other day, he said that being the reserve currency is, what was the word he used?

• 19:29Speaker 00

  Called it a resource curse.

• 19:31Speaker 01

  A curse, exactly. That was the word. Because it keeps your dollar strong, which means your exports are really expensive. So we had this much bigger picture of you have a government who's actually looking at fundamentally changing your system.

• 19:47Speaker 01

  But it means that eventually your foreigners are not gonna buy your debt anymore. Because if the dollar goes down, why do I, as a non-American, wanna own something that's going down in value? I'm not gonna do that. So central banks around the world have always held dollars, that's changing. Part of that is also the Russia story, which we can maybe go into a little later. But essentially, the US is in a bind where it needs to create demand for its dollars and for its debt.

• 20:17Speaker 01

  But at the same time, they actually want the dollar to go down. So they're doing that through crypto, stablecoins, the Genius Act. It's a genius way of basically creating artificial demand for your own debt.

• 20:29Speaker 00

  Explain how that would work.

• 20:30Speaker 01

  So the Genius Act is a funny piece of legislation. It's got nothing to do with crypto, in my humble opinion. It requires, if you own a stablecoin like Tether or something, you have to put that money into US government debt.

• 20:45Speaker 00

  To back it.

• 20:46Speaker 01

  To back it, right? So you now get your four, five percent interest. You are prohibited from paying that interest out, which makes it very profitable for you. So the banks obviously lobbied for this. But what it's done, it's already created, I think Tether is now the seventeenth largest holder of US government debt.

• 21:03Speaker 00

  Yo.

• 21:03Speaker 01

  Bigger than most countries, right, overnight? And expectations are it's gonna hit about two trillion, not just for Tether, but the whole, the whole stablecoin market as a whole. So suddenly, you've got two trillion of debt refinanced. At home, it's compulsory and no one really notices. That's a very clever way of doing it. So they're creating these kind of mechanisms to protect the system, buy themselves a little bit of time. But ultimately, it's gonna be money printing, like people are gonna pay for this.

• 21:31Speaker 00

  Okay, so anybody paying attention to the bond market right now is gonna have two beats in their head. Beat number one was Besant writes famously on a notepad, clearly for somebody to see.

• 21:42Speaker 01

  He wants people to see this, yes.

• 21:42Speaker 00

  That I'm gonna buy five to 10 billion of Japanese yen.

• 21:45Speaker 01

  Yeah.

• 21:46Speaker 00

  One, who benefits by us buying Japanese yen? And who would be hurt if the yen continued to decline in value?

• 21:55Speaker 01

  Okay, so the, to understand that and to answer that, we need to understand what's called the carry trade. And the carry trade is a funny thing, where for the last 20 years, US hedge funds and funds generally have borrowed money in Japanese yen at pretty much zero interest. That's free money. And then you take that money and then you buy US government bonds with it, you buy US stocks with it, and now you're getting your 5%, your 10%, your whatever. And so it's like free lunch, basically, right? It's amazing. But what they then did, because the financial industry, I was a part of for a little while, is very greedy. They leveraged that.

• 22:35Speaker 01

  So they borrowed on top of it, and that leverage can be 10 times, 20 times, maybe 40 times. So if you borrowed at 40%, 40X, and you then invested that money in, say, the US stock market. The US stock market goes down 2%, you've just lost 80% of all your money.

• 22:55Speaker 00

  Whoa.

• 22:56Speaker 01

  So a single day down of 2% basically wipes out your fund. And that's a problem. So.

• 23:04Speaker 00

  I would say.

• 23:04Speaker 01

  It's a little bit of a problem, right? And we're talking, estimates are, it's trillions, nobody knows quite how much. It could be 10, it could be 30, nobody really knows, because it's sort of between institutions. So we saw this a couple of weeks ago, on a Friday, where the market dropped very rapidly in 40 minutes, and we lost good part of a trillion dollars. And that's when the government was like, yeah, we need to have a plan B against this.

• 23:27Speaker 00

  Because they're worried that too many people will get wiped out and it will cause global recession? Like, what's the concern?

• 23:32Speaker 01

  It would cause a 2008, banks will fail, right? Which is what happened in 2008.

• 23:36Speaker 00

  Because the banks themselves are borrowing on margin?

• 23:39Speaker 01

  It's either the banks or the funds are borrowing from the banks.

• 23:43Speaker 00

  Right. And so if they go under, debts become bad.

• 23:46Speaker 01

  Yeah. And nobody knows where the debt stops, which is the same as 2008. Say it's 10 trillion, you don't really know who's ultimately on the hook for the 10 trillion, but it's too much money. So why is this happening? Because Japan wants to get out of this world where the yen keeps falling in value. And if the yen goes up in value, what's the problem with the carry trade? Well, you borrowed at no interest, but if you have to repay yen that are now worth more, so you need more dollars. So what are you gonna do? If the yen goes up, if you are that fund, well, you're gonna close your trade, which means you have to sell US stocks and US bonds to pay back the yen, right?

• 24:30Speaker 01

  It sounds really, really complicated, but it's really just like, you're borrowing from your neighbor at 0% interest, and you invested it somewhere, and now you need to pay it back, so you need to sell the thing that you invested in. So a lot of the stock market, and nobody knows quite how much, is held up by this Japanese yen trade.

• 24:47Speaker 00

  Okay, so that's beat number one. So we see Besant is like, oh, I'm gonna help Japan out. But in reality, based on what you just said, he's certainly helping the US, maybe helping the broader world, avoid the rapid unwind of all this. First of all, much of it borrowed on margin, those guys could collapse. And then just everybody's sort of pouring back in to sell off their positions is gonna suck liquidity out of the overall system, because everybody's selling stocks, that's gonna lower the value. You get into a debt spiral.

• 25:14Speaker 01

  Like Korea, just, you get margin called, the whole thing collapses, and it's.

• 25:18Speaker 00

  And it goes fast.

• 25:19Speaker 01

  Very fast, yes.

• 25:20Speaker 00

  Okay, beat number two is while Besant is saying that he's gonna defend the Japanese yen, he comes out and says that we're gonna defend the US bond market as well. So what's going on there? And why shouldn't everybody read these moves as somebody panicking? Or should we?

• 25:39Speaker 01

  Well, I think it is, they're blinking, right? They're kind of saying, when a government steps in to bail out another country's currency, you know you're not in a happy market, right? Because in a free market, this isn't meant to happen. And when a government steps in to artificially reduce its own interest rate, not by lowering interest rates, but by buying its own debt with money it's freshly printing, again, you know you've got a problem, right? So they're kind of like giving it away, but they are explaining it in such a complex, weird way that nobody really realizes, right? Like, the Fed has given a, basically, it's lending to Japan.

• 26:18Speaker 01

  They used one of those accounts they have that are normally set up for US banks, so they don't go bust.

• 26:25Speaker 00

  FEMA?

• 26:25Speaker 01

  Yeah, exactly.

• 26:26Speaker 00

  F I M A, I don't know.

• 26:27Speaker 01

  And they've done this, they did this to Switzerland a couple of years back, and then one of the biggest Swiss banks collapsed the week after.

• 26:34Speaker 00

  You've called it the, like, world's pawnbroker. Like, what, how does it work?

• 26:39Speaker 01

  So it's a pawnbroker. So Japan walks into the pawnbroker, which is the US government or the Fed officially, and says, we own your debt, your IOUs. I'm gonna deposit them here, and you're going to give me dollars for them now, but I still own them.

• 26:56Speaker 01

  And it, on paper, therefore, doesn't look like Japan is selling US debt. Because it didn't sell them, it just deposited them in the pawn shop. P A W N, for viewers to be clear about. And it is, of course, ridiculous, because essentially, Japan is selling US debt. And Japan was doing that to prop up its own currency and defend its own currency. But Japan is one of the largest holders of US debt. They sell a lot of it. What happens to US interest rates? Well, they go up again, which causes all the problems we talked about. It crashes your economy and makes your debt even more unsustainable. So the US has come up with this weird little scheme that people are not meant to see through, but the bond market isn't that stupid, right?

• 27:39Speaker 01

  They can fool most of the people, but the guys running the bond markets are some of the smartest people in the world. So they're like, okay, we can see what's going on here.

• 27:47Speaker 00

  All right, so Besant originally said, okay, we buy, every time we go in and buy bonds, we spend 2 billion. We're gonna up that to 4 billion.

• 27:54Speaker 01

  Yeah.

• 27:54Speaker 00

  It worked for like a day or 48 hours or something.

• 27:56Speaker 01

  Couple of days, yeah.

• 27:57Speaker 00

  And then it went back, actually up higher than before he announced that he was going to do this. So the bond market didn't believe him, or they at least want to test to see how far he's gonna go. He's recently come out and said, well, actually, I've got a, call it a discretionary fund, the Treasury General Account, if I remember right, something like that, TGA is the initials. And that goes up to almost a trillion. And he hasn't said he's gonna spend the whole trillion, but he's definitely got the bazooka sitting on his shoulder, letting people know what he's capable of. How do you think that's gonna play out? Is the, if the smart people are in the market, surely they look at that and go, all right, you wanna play, let's play.

• 28:40Speaker 01

  But that's why he's doing it. Because actually, I interviewed Jim Rogers about a week ago, who's the guy who, with George Soros, set up that wonderful fund that later broke the Bank of England. So.

• 28:51Speaker 00

  With Besant, though, wasn't Besant involved in that whole thing?

• 28:53Speaker 01

  He was somewhere in the hedge fund world at the time, right? So big hedge funds can go against governments and can call a bluff and make a lot of money out of it. So he's saying, I've got a trillion dollars, guys, don't try this, which is why he's doing that. And a lot of, like, financial policy is always about just setting expectations, right? Just telling the market, this could potentially be what we do, and therefore, all the lunatics on Wall Street take back a step back and don't do the thing that they might otherwise do.

• 29:25Speaker 01

  But essentially, he's got no choice. He has to win against whoever is trading against him. Because otherwise, he loses credibility, and then your interest rate isn't 5.2% or this today, but it could be 10% or 15%, right? And then look at what your mortgage would be, or your car payment would be, or what would be the cost of building and financing a data center in the US. It'd be prohibitive compared to the rest of the world. Plus, if you're.

• 29:50Speaker 00

  Because getting the loans that you need will come at such an interest.

• 29:53Speaker 01

  Yeah, your bank's gonna charge you 20%.

• 29:54Speaker 00

  Impossible.

• 29:55Speaker 01

  Plus, if you have an interest rate that high, the entire world's gonna buy US dollars again, right? Because you're gonna get a really nice high interest. So it's gonna push your dollar up even higher. Exporters, which is what the US is trying to be. The US is trying to revive manufacturing. Like you kill that with a high, with a high currency. So there's a lot of stuff that hinges off on this. But I think for most people watching this, the thing that hinges on this is that they're definitely going to print more money. And you don't have to go back far to understand what that does because they did it in COVID. And it created massive inflation, right? And it made people's salaries worth massively less. And unless you were invested, it made you a lot poorer.

• 30:35Speaker 00

  If Besen is going to keep buying back the bonds to keep that interest rate artificially low, who gets hurt if this works? Is it just a pure inflation game or is there some other gotcha in here?

• 30:52Speaker 01

  It's pretty much inflation. It's just, it's a tax on everybody who has a salary, everybody who has savings. That's just what it is. And it's a, it's a free handout for anybody who's got money invested.

• 31:01Speaker 00

  If the smart investors know exactly what's going on, what is this game going to look like? Between Besen with his trillion dollars and the hedge funds that are trying to test him?

• 31:13Speaker 01

  Well, generally what governments do in this situation is you try to be more aggressive than the market expects you to be. Like what Japan has done is the opposite. So they keep trying to pop up their currency and it keeps falling. So you do that once, twice, three, four times.

• 31:27Speaker 00

  Because they're not being aggressive enough?

• 31:29Speaker 01

  Yes, they're not being aggressive enough. They haven't got, they can't, they're not able to do it or not willing to do it on a large enough scale. So what does that mean? Well, people lose faith in your ability to prop up your currency. People don't think you're going to do what you say you're going to do. So then the market will price the opposite. If you look at the yen to the dollar.

• 31:45Speaker 00

  So the rates start going up, they smell blood in the water, they see that you're distressed. They're like, if you want me to hold long-term bonds, baby, you're going to have to pay me a fortune in interest.

• 31:53Speaker 01

  Exactly.

• 31:53Speaker 00

  So the great irony, and this is the very thing I want people to understand about the US. The great irony of trying to defend your bond market is you can cause it to go the other way. Because people know the game you're trying to play.

• 32:06Speaker 01

  Yes.

• 32:07Speaker 00

  Okay, so.

• 32:08Speaker 01

  I mean, at some point, you're going to get to an interest rate which is so high that people are going to be willing to lend you money again.

• 32:13Speaker 00

  Right.

• 32:13Speaker 01

  But at that point, you've destroyed your economy.

• 32:16Speaker 00

  So that sounds like a problem, Felix, I'm not going to lie. Okay, so let's parallel track. So if you're a betting man, what, what do you think is going to happen in Japan? Which is they're running the scenario where they're trying to do the same thing we're doing in the US. But they don't have the full ability to go as ham as Besen is going to be able to go.

• 32:40Speaker 01

  Yeah.

• 32:40Speaker 00

  So how does Japan play out?

• 32:43Speaker 01

  To me, Japan, I don't see the yen going up. You see Buffett, who's for example, Warren Buffett, who's a very big investor in Japan. What has he done?

• 32:51Speaker 00

  Sold.

• 32:52Speaker 01

  He borrowed yen to buy some stocks.

• 32:55Speaker 00

  Sold all of his debt.

• 32:55Speaker 01

  Did he sell, sell all of it? I thought he borrowed yen to buy the stocks. Whether he sold or not, before that, he changed his dollars into borrowing yen. And that way he eliminated the currency risk, you see. So if he thought the currency was going to go down and he owns Japanese stocks, but he's paid with yen, that he's borrowed, it is not his yen, then he doesn't have that currency problem. But it is a, a lesson, I think, for, for the US. Because you talked about the sort of social contract there. Your Japanese salarymen are not wealthier today than they were 30 years ago, quite the contrary. So they have suffered this inflation or this money printing in a sense.

• 33:36Speaker 01

  And it's just the thing that I think worries me the most is that people don't understand this, people don't take this seriously. That this weird sort of financial engineering that we're talking about actually really affects people.

• 33:46Speaker 00

  It makes them poorer over time. Same number of dollars in your bank account, but those dollars buy less.

• 33:51Speaker 01

  Yeah.

• 33:51Speaker 00

  Okay, so if in Japan, you don't see the yen getting stronger, do you see it weakening over time and that being how they get out from under their debt? Or do you see them in a death spiral where they're constantly having to try to defend it, only to take on more debt to do that, only for it to be fruitless? And ultimately the rates go up anyway?

• 34:13Speaker 01

  Well, if they were successful with what they wanted to do, they would unwind the Japan carry trade. Now, the US.

• 34:19Speaker 00

  By letting the rates go up?

• 34:20Speaker 01

  Yes.

• 34:21Speaker 00

  But they can't because they own 50 plus percent of all outstanding debt, so that'd be crushing.

• 34:26Speaker 01

  What, what would it do to the, to the, to the carry trade? Well, they would unwind it. So they would tank the US stock market and they would make US government debt interest would go up. So the US isn't going to be very happy about that. And Japan generally talks to the US before it intervenes. So the US has a tremendous amount of influence on many, many countries, Japan being one of them. So I don't really see that happening. So I don't think it's in the US's interest to let this happen. So therefore.

• 34:53Speaker 00

  So does that mean that the, the US is just going to let them suffer? Like, sorry, Japan, you guys are going to get poorer.

• 35:00Speaker 01

  It's, it's one way of putting it.

• 35:02Speaker 00

  If it's inaccurate, let me know.

• 35:04Speaker 01

  But I mean, it's just, it's, it's, um, you know, all economies are tied together, right? You have tariffs and you have imports and so on. Japan is very export-led also, right? So they have to make a deal. And, and, and at the moment, that's the deal that they're living with. Is don't just act in our own self-interest, because if we did, well, we'd lose our biggest customer.

• 35:25Speaker 00

  Yeah. That's wild, man. That is, uh, that is a very dark and gloomy picture of Japan. We're hitting pause for a moment, but there's plenty more ahead, so don't go anywhere. Let's talk about your sales pipeline reviews. If your CRM is half-empty fields and notes nobody finished, every review turns into guesswork. I've seen it so many times in my own sales team and that's where today's sponsor, Pipe Drive, comes in. An intelligent AI-powered sales CRM that is loved by growing sales teams. Pipe Drive just launched meeting intelligence built right into the CRM. Before the call, it pulls the deal history and past conversations into one brief.

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• 37:49Speaker 00

  Thanks for sticking around, let's get right back into the action.

• 37:53Speaker 00

  So, okay, I'm in a shorthand, you tell me if this is accurate. This is what I just heard. I'm Scott Besen, I'm on the phone with Takeichi and I'm like, no, no, no, you're going to keep the carry trade going. We will help you as much as we can, but you're not selling our debt. You're going to keep the carry trade rolling, so you're going to keep that, you're going to keep your rates artificially low. Obviously, they're going up, but they're not going up nearly enough. We need that, so cool. Your people are going to get inflated into oblivion, enjoy your internal conflict. That's what I just heard you say.

• 38:23Speaker 01

  Pretty much, yeah. And they're doing it a little bit more sort of, it looks a bit more fancy through that sort of pawn shop setup we were talking about and so on. But ultimately, it's not, yeah. And occasionally, we're going to step in and help you. But when they, when the US was just helping them, what did they sell to do it with? It wasn't dollars.

• 38:39Speaker 00

  Yeah.

• 38:40Speaker 01

  They sold euros.

• 38:40Speaker 00

  Yeah.

• 38:41Speaker 01

  Which was just a kick to the Europeans, so probably, you know, spat about something else.

• 38:46Speaker 00

  Yeah, you worry that people won't understand money printing. I share that concern. I also share the concern that people are not understanding what's happening in the world right now. I don't have a better way to say this, but what I'm trying, I got to find a, a, just a way that cuts to the chase. But we're going to look back on this in 20 years, this moment, and we're going to say, what did it feel like to live through deglobalization? Where we went from high-trust cooperative to low-trust competitive? We're living through that chaotic moment right now. It will play out over years and so it will never quite feel like we're in the middle of it. But this is the in the middle of it. This is Besen going, cool, we're going to sacrifice Japan just because I needed to take longer. I'm never going to be able to stop it. I needed to take longer.

• 39:31Speaker 00

  And so maybe I get a year, maybe I get five years before people in Japan threaten to revolt. Takeichi's gone. They flip-flop back and forth like we've been doing in the US, trying to find who's going to magically solve this problem. The answer is nobody. You're going to suffer because the, the debt had to come due at some point. And the number of people, when I began my financial learning journey, that looked at me like I was retarded. Because I kept saying, guys, you can't just rack up debts forever. And they were like, no, you really can. That's just how modern monetary theory works. I'm like, it, it's not possible. You're going to default on your debt at some point. So I look at Japan, if you're right, and that's a terrifying analysis, but it seems true. We just say, cool, they're going to suffer, we'll take as many years as we can get before they revolt.

• 40:17Speaker 00

  Now, back to the US. Besen is basically trying to do the same thing here. And as far as I can tell, and this is me, please tell me where you think I go wrong.

• 40:27Speaker 00

  I have a hypothesis about how Warch got into office. This is just me. I don't have any insider information and this is this is hearsay, my emotional read, whatever my lawyers would like me to say right now. I have a feeling that behind the scenes that you had Besen and Trump sit down with Warch and say, all right, listen, um, you're gonna have to lower rates. But it's a bad look and we know you want to raise rates because that's the only right move to play right now. Because otherwise we inflate your every man into oblivion and only people who own assets are going to come out of this on top. Everybody else is going to get obliterated.

• 41:08Speaker 00

  But the reason is that we've got to keep running these deficits because as Felix pointed out, no one is going to do austerity. So I need my two trillion a year, maybe more because I'm at war with Iran, which was ill advised, but nonetheless, here I am. And to that end, we need a brief period here in the beginning where you're going to just hold rates steady so that nobody thinks that you're a pawn. But when the time comes, I'm going to need you to lower rates even when it doesn't make sense. And I don't see any way around that because we're already at 1.4 trillion and climbing.

• 41:49Speaker 00

  The service on the debt is our number one line item now, which is crazy. I forget who wrote the document, but he was either at a major hedge fund or one of the big banks. I forget, but a, but a real player. And he said, the suffering begins at 40. And so we're now at 40 and the suffering begins. And it really seems like you're going to have a battle as Besen tries to throw enough money at the problem to manage rates, but the market understands and they're going to find that number, which if Warch could let the interest rate go high, maybe we find and all would be well. But given that they're going to need to bring that number down so that they can

• 42:36Speaker 00

  keep running at least $2 trillion in deficits. So we can't let it go up and that means there's going to eternally be this battle between Besen trying to keep the rate artificially low and the market trying to find equilibrium. And that is a very similar story to Japan.

• 42:53Speaker 01

  Yes.

• 42:54Speaker 00

  And so now both in Japan and in the US, we're running a average person suffer game where we're going to inflate you until you pitchfork. That, that is so wild to me. This is the thing that makes me want to scream and yell into a microphone every time I go live until my vocal cords are bleeding. And I don't know how to get people to understand that you have to elect politicians that will balance the budget.

• 43:24Speaker 01

  I think you summarized it very well. I think what he said at the end though, is, is, is very idealistic. There is no politician who's going to balance the budget. It's never going to happen again.

• 43:32Speaker 00

  Felix.

• 43:33Speaker 01

  It's, it, it.

• 43:34Speaker 00

  I hate this so much.

• 43:35Speaker 01

  First of all, you will never get elected. So don't look for the government to fix it for you. Fix it for yourself. You can vote for three people. You can vote for the guy who's going to raise taxes and promise that he's therefore going to balance the budget.

• 43:48Speaker 00

  Yep.

• 43:48Speaker 01

  Now, in reality, it's not, A, it's not going to happen, but I mean.

• 43:52Speaker 00

  We, for every new tax dollar we bring in, we spend a dollar 58. It's literally never going to happen.

• 43:58Speaker 01

  Some people will argue, well, we just need to raise taxation a lot. Well, all you gotta do is look at the stats in California or in New York and people will leave.

• 44:05Speaker 00

  Felix, for every new dollar in tax we bring in, we spend a dollar 58.

• 44:10Speaker 01

  Yeah.

• 44:10Speaker 00

  You have to stop spending. If for every new dollar we brought in, we spent 98 cents, then I'd be like, okay, you, maybe there's a way that you can tax your way out of this.

• 44:20Speaker 01

  Yeah.

• 44:20Speaker 00

  But until you change that ratio, that's one, we can vote for the person who will raise taxes.

• 44:25Speaker 01

  That's one, right? So, so the, the second lunatic you can vote for is the guy who's going to say, I'm going to slash spending by $2 trillion a year.

• 44:31Speaker 00

  I like him. He's got my vote.

• 44:33Speaker 01

  Okay, wonderful. But where do you think that $2 trillion goes? It doesn't go wasted. It goes into American businesses that provide services and goods.

• 44:42Speaker 00

  That's part of it. Now's where I find out how much you, what you think about fraud.

• 44:47Speaker 01

  Okay. There will be a fraud element, however big that is, but it won't be $2 trillion. Even if it is $2 trillion, you're not going to eliminate it completely because no systems.

• 44:56Speaker 00

  I'll grant you, it's probably nowhere near $2 trillion.

• 44:58Speaker 01

  If you were to cut all that spending, you would end up with a massive recession.

• 45:05Speaker 01

  Which nobody is going to vote for because you would just take.

• 45:08Speaker 00

  Walk me through the mechanisms of why that equals.

• 45:11Speaker 01

  Okay. So the government spends $2 trillion on goods and services. Who provides the goods and services? It's largely American businesses, right? So those businesses employ people, they buy things from their suppliers and their suppliers and so on. It's like money flowing out. But at the same time, those companies are largely also listed on the stock exchange. So they report their earnings, their profits and their revenues. So they say profits are down by 20% because the government isn't spending money anymore. What happens to the stock price? Well, it goes down. So everybody gets poorer. Everybody feels poorer and everybody feels poorer. What do they do? They spend less money, right? So house prices go down. Like everything just goes down. Companies are going to lay people off. You get into this death spiral of a recession. How do you get out of a recession?

• 45:57Speaker 01

  Well, you spend more money, which is what governments have always done. Which means you're probably worse off than when you started because you're going to have to spend a lot more money to make up for that, you know, kind of problem.

• 46:08Speaker 00

  And you're going to money print presumably.

• 46:10Speaker 01

  And you're going to money print, of course. So you're going to create more inflation.

• 46:12Speaker 00

  Do you know Steve Keen, the economist?

• 46:14Speaker 01

  No.

• 46:14Speaker 00

  Oh my God. You guys have to meet. You're both in my buckets of like, teach me about things.

• 46:19Speaker 01

  Okay.

• 46:20Speaker 00

  So Steve Keen has a very interesting philosophy, which is exactly what you're pushing right now, which is, Tom, you don't understand double accounting, double entry bookkeeping. Once you understand that every time the government spends a dollar and it's deficit spending, they're creating that dollar and they're putting liquidity into the system. Therefore you want the government in deficit spending. You want them to tax less than they spend always and forever. Now.

• 46:48Speaker 01

  I don't agree with that, by the way.

• 46:49Speaker 00

  Do or don't?

• 46:49Speaker 01

  I don't. Okay. I think a government should balance its books.

• 46:53Speaker 00

  Should? Why should though? That sounds moral.

• 46:57Speaker 01

  It's somewhat moral because it's what we meant to do. It's how you live a responsible, happy, calm life where you sleep well. And the government is setting a very, very poor example, right? Which is, I think, why also so many people are in crazy debt.

• 47:08Speaker 00

  Spending money, if deficit spending juices the economy, why not juice the economy forever?

• 47:14Speaker 01

  Well, because someone's got to pay for it. And there is this idea, well, if you can print money, money is free, but it isn't because it causes inflation. Inflation, we said, talked about this before, is not, it's not a law of nature. Inflation is the direct result of printing more money. And therefore you are taxing the poorest. You're taxing the bottom half of the society the most because they live off their salary 100%. They don't have real estate and a beautiful portfolio that goes up in, in line with inflation or more. So.

• 47:48Speaker 00

  What do you say? I'm going to channel Steve Keen in a way that he probably will be just mortified by. But his argument goes something like this. Yes, Felix, sort of. But the reality is that because they're putting money into the economy, that money ends up getting used to be more productive, to create new things. And in the creation of new things, that money isn't chasing the same goods. It's more money, but it's chasing new goods. And so that's why the inflation will never track M2 money supply exactly. There will always be a difference. And that difference is when the money is spent on smart things, you don't get the inflation that you got during COVID, say, where you injected a ton of money into the system that went directly into people's hands so that they were spending it directly.

• 48:33Speaker 00

  But at the same time that you shut manufacturing and shipping down. So you literally had less goods and more money, which that is how you get 30% inflation in six years, which is what we got. So that is.

• 48:47Speaker 01

  If you believe the inflation statistics.

• 48:49Speaker 00

  Yes. Do you think they're way worse?

• 48:51Speaker 01

  Oh, way worse. Yes.

• 48:53Speaker 00

  All right. Black film me, Felix. Give it to me. What do you, what do you peg it at?

• 48:58Speaker 01

  It's very hard to measure because governments have.

• 49:01Speaker 00

  Swag me.

• 49:02Speaker 01

  Massaged inflation numbers for many, many years.

• 49:04Speaker 00

  Yep. Because it's not 30, it's 32, it's 40, it's 80.

• 49:08Speaker 01

  I mean, I, I think it's, it's hundreds of percent.

• 49:10Speaker 00

  Oh shit.

• 49:11Speaker 01

  Yeah, yeah. And all I look at is asset values. Another thing I think is quite good to track is luxury hotel rooms, which probably went up about five times or maybe 10 times.

• 49:23Speaker 00

  What?

• 49:24Speaker 01

  Right? And it's just the reality, and, and to me, that's a reflection of the, the asset rich. You book those luxury hotel rooms and they're happy to pay five or eight times more because it doesn't matter. Because the portfolio went up 10 times, right? So what I said at the beginning, and I kind of mean that, to me, the S and P 500's performance is the inflation number.

• 49:44Speaker 00

  Okay, dark.

• 49:47Speaker 00

  Okay, so it is what I said, just much, much worse. Going back to Steve Keen's argument, you're saying Steve Keen's argument is broken precisely because the discrepancy in the inflation numbers is so much bigger that while we would love it to be that those dollars go and they become highly productive, the reality is that a gigantic portion of that does not create new goods and therefore is truly more money chasing roughly the same goods. That's the definition of inflation.

• 50:18Speaker 01

  Yeah. I also think, and this is where we get probably a little bit political.

• 50:22Speaker 00

  I love it.

• 50:23Speaker 01

  There is, if you think the government's going to spend the money in a productive way and put it in the place where it's going to circulate the most, you know, most benefit, that's a belief system, right? Some people have that. I don't share that.

• 50:35Speaker 00

  Okay.

• 50:36Speaker 01

  I think a privately spent dollar is incentivized by a better system to go into the right places and therefore create more value.

• 50:46Speaker 00

  Meaning a system that's better than the government?

• 50:48Speaker 01

  Yeah.

• 50:48Speaker 00

  So what system would that be?

• 50:50Speaker 01

  Well, the free market.

• 50:51Speaker 00

  Okay.

• 50:52Speaker 01

  Now, we don't need to get completely into that crazy. A completely free market will also end up very corrupt and all in one place. But the idea that the two trillion deficit spending is efficiently spent is, I think, fairly ludicrous.

• 51:05Speaker 00

  Yeah.

• 51:06Speaker 01

  So you could probably cut that in half and have the private sector spend it and you'd have the same outcome. And I'm making that number up, but you know what I mean?

• 51:13Speaker 00

  Sure.

• 51:13Speaker 01

  There is a lot of waste, not in the sense necessarily of fraud, but just like, they're just buying the wrong thing or the wrong price. So they're building a road nobody needs because it's just a weird bureaucracy that operates it.

• 51:25Speaker 00

  Yeah. Okay. So we've got two people. We've got tax, everybody guy. We've got cut spending guy. So far, neither of them are going to solve the problem, but you said there was a third crazy guy.

• 51:36Speaker 01

  There is a third, and that's the guys you keep electing. And it doesn't matter what party they are. And that's the, I will create more inflation. And that, that way I will make the debt manageable. And you guys will all pay for it, but you won't notice because we haven't given you any financial education. That's the guy you keep voting for.

• 51:52Speaker 00

  Okay. Yes. The current set of guys that we keep voting for that are doing the inflation theoretically have a belief system that goes like this. If I was in a private conversation with them, they'd be like, Tom, listen, here's what we're gonna do. We are gonna do all this crazy defend the Japanese yen. We're gonna defend the US market as well. We're gonna get those long-term rates down because we just need to buy ourselves a few years and then AI is gonna be a productivity miracle. And we're gonna look like post-World War II where we used yield curve control to inflate our debt into nothing, but the

• 52:30Speaker 00

  real economy was growing even faster than inflation. So we held interest rates intentionally below the inflation rate and AI helped us grow the economy faster than even that inflation rate. What say you, Felix?

• 52:51Speaker 01

  Well, I hope it's true. It's a really nice fairy tale. I mean, AI is real. AI is incredible. I mean, I'm sure you use it in your businesses. I do in mine.

• 52:59Speaker 00

  Aggressively.

• 52:59Speaker 01

  It's incredible. But is a technology gonna fix everything? If you go back to, say, 2000, the internet came about, which is an incredible technology, arguably has been probably the most impactful thing since, I don't know, electricity or something. But has it fixed any of the financial problems? Has government debt gone down since, you know, Bill Clinton years? Of course it hasn't. It's only gone up. So I think this idea that there's one magic pill you can take and everything will go away. We just have to wait a few years. I just think it's, it's just what politicians are telling you.

• 53:34Speaker 00

  Yeah. No, I agree. Do you know Ray Dalio's beautiful deleveraging?

• 53:38Speaker 01

  I don't. I mean, I, I read some of Ray Dalio, but I'm not quite sure.

• 53:42Speaker 00

  Yeah. So he, basically, he's saying what you're saying now, which is it's gonna be a messy basket of things that we have to do in the exact right order. And basically, nobody ever gets this right, but we're gonna have to do additional taxation. We're gonna have to do some debt forgiveness. We're gonna have to do money printing and we're gonna have to do austerity. We're gonna have to do all four. And you have basically two sets of opposing levers. Some are stimulatory and some are recessionary. And so you just sort of wiggle these back and forth, back and forth, back and forth, and try to get your way to the other side of this. And he's been saying that for a long time, that that's gonna be the only way. And I really want to believe that we can do it, but it doesn't

• 54:25Speaker 00

  seem as believable in, in the reality of what people are like as the inflate right up until revolution, stop just shy of Marie Antoinette, and then you have to have AI grow your way out of it. And if you can't do that, you're gonna be in trouble. And right now, you've got Trump, probably viabessant, trying to do a Hamiltonian model, which is now is the time to be protectionist. We've got it. We're gonna take on debt. We're gonna do some crazy things with money printing, but we're going to block China and we're

• 55:07Speaker 00

  going to start getting manufacturing here. Between getting manufacturing back here and AI, real wages are going to grow and we're gonna be able to get on the other side of this. And it feels like such a long shot, but it is actually coherent. And I think a big part of the reason people don't want to acknowledge that it's coherent is that Trump said it.

• 55:32Speaker 01

  Yeah. I think that's true. I think people get very diverse, you know, divisive with politics. I always say, I don't care at all about politics. I just care about how it's gonna impact my money.

• 55:40Speaker 00

  Yeah.

• 55:41Speaker 01

  And there's some sense in that, that you, you reduce, you know, cheap competition and you bring things back at home. And so you can actually build things again without being dependent on somebody you may or may not like. When I studied economics, we were taught boom and bust economics, which was, you know, you have a boom, you have a recession because interest rates went up and that sort of thing. They stopped doing that around 2008. And we do less and less of it.

• 56:04Speaker 00

  It actually stopped happening?

• 56:06Speaker 01

  No, it's, the government stopped allowing it.

• 56:09Speaker 00

  Because they stimulate.

• 56:10Speaker 01

  Exactly. Before, you have a massive boom, inflation goes up, interest rates go up, now we get a recession. A recession does something quite healthy. It kills off the crap companies, right? Now the good companies buy the good bits of the, the bad companies and it sort of creates a new, fresh start. But they stopped doing that. They just gave money out, especially since 2008. So you bail out the big company that you don't wanna go under, the big bank you don't wanna go under. COVID, we just gave everybody money, right? Just hoping it would, could somehow protect us. And it creates an expectation, both in people and financial markets, that, well, they're gonna bail us out.

• 56:47Speaker 00

  Yeah.

• 56:48Speaker 01

  So let's take whatever crazy risk we want, just like the financial institutions have always done, because it's gonna be fine. And that creates a problem because now we're gonna do really, really crazy stuff. Look at all the, I mean, look at the AI spending. Like, what, how many, is it 700 billion this year or something? The top five US companies are spending? That's insane. Just purely insane. And then there isn't enough electricity to power it. So it's just insane. So, but they're doing that because they kinda know nothing really bad's gonna happen if it's a bad bet. They're gonna get bailed out, right? OpenAI basically saying, if we go under, I think the government will give us some money. So you get into this world where you always have Uncle Sam writing a check

• 57:33Speaker 01

  if you need it. And it doesn't create necessarily the healthiest economy. So I think it makes it harder to create this nirvana that Trump is describing, which in theory is possible.

• 57:46Speaker 00

  Okay. There's one little mile marker that I wanna put down and then I want you to walk us through how people save themselves because largely, I think you and I agree, saving the system is tough, if not impossible. But anybody can save themselves. Most won't, but it really is pretty straightforward. The mile marker is something you alluded to earlier, but we didn't sort of push to the end of it, which is this idea of a moral hazard. When the government is reckless with its money, when it gives everybody the indication, for corporations, it'll be, we're gonna bail you out. And it causes them to do really irresponsible things that hurt a lot of people, but their business will survive. And then the moral hazard of making sure that everybody has a safety net regardless of whether they

• 58:28Speaker 00

  do anything to earn it or not. Do you have like a way that you think about that moral hazard? Like, is this part of why empires always fail and there's no way to stop it? Or like, why worry about the moral hazard?

• 58:42Speaker 01

  Well, I think it was, you know, you call empires. I think, you know, the Romans used to give out free bread, right? After they sort of won a victory or something. And then it became such a... An expected thing to happen that I think during Caesar's time, it was like three hundred thousand people would queue up for the free bread. So it became a welfare state, right? And so it started off as a, let's do something nice for people to, it's an expectation. And it changes how people behave. I'm not saying there shouldn't be a welfare state. I think we all agree there should be some element of a welfare state. But I think the way we're going is that everyone's gonna get paid. Universal wage or whatever you wanna call it. And I think the sad thing about that is, is that for many, many people, it's gonna take away the incentive to do something

• 59:27Speaker 01

  meaningful and impactful and satisfying, which is really what life's all about, I think. You know, you can do something, you do something incredibly impactful for people and it must be incredibly satisfying to have millions of people, you know, benefit from that. So if you take that incentive away from people, what are they gonna do? Right? So they're gonna sit around, smoke pot and drink or something, right? And it's a very sad existence. So that's kind of, I think for me, the, the sort of sad part of where I see this going. But what I always try to bring my brain back, so I don't go, you know, depressed about the state of the world. It's just like, well, let's just focus on what we can do about it. And I think that's what I would say to everybody, just don't get scared and stressed by all of this. It's not, everything is not gonna be terrible for everybody.

• 1:00:13Speaker 01

  It's gonna be very difficult for most people who don't understand this. But we can actually go back and help ourselves.

• 1:00:19Speaker 00

  Okay, so we know that they're gonna print money. I mean, that really is sort of the basic punchline, right?

• 1:00:24Speaker 01

  It's, they're gonna print money, there's no way out of it. There is no alternative. I mean, unless people are suddenly gonna vote for the guy who's gonna increase their taxes to ludicrous degree. And you already said mathematically, that doesn't do anything. And no one's gonna vote for the guy who's gonna shut down the schools and the kindergartens and the welfare and, you know, cut all the government's spendings. Everyone's unemployed around you, then no one's gonna vote for those people.

• 1:00:43Speaker 00

  Okay, so if the core of saving ourselves is understanding that they're printing money, what, how is it that we take advantage of that to save ourselves?

• 1:00:54Speaker 01

  Well, if you look at all the periods in history where we've printed a lot of money. And just look at the US history, you know, after World War Two, because they had a similar amount of debt. Then if you look at nineteen seventy-one, kind of sort of post-war story, which was hangover of Vietnam War and just the welfare state getting bigger, decoupling from the gold standard and all of that. What's always done well in those moments? Well, I mentioned gold, actually, it's a, it's a physical hard asset you can't print. That has traditionally done well. But to me, gold isn't an investment and it's probably gonna upset the gold bugs. Gold never goes up, it's just the currency goes down. But there isn't a currency in the world that has survived. Right?

• 1:01:38Speaker 01

  We don't have a three thousand year old currency anywhere in the world. So there is a value in that, but it's an insurance. It's like car insurance. It isn't going to make you wealthy, but it's going to protect you from the inflation madness and the money printing. So that, I think, is one place one can be. I would warn against being in just one thing and like going, I'm just gonna hoard gold under the mattress or whatever.

• 1:02:05Speaker 00

  Why?

• 1:02:06Speaker 01

  Because if you look at any, any asset class, it fluctuates. It's, it goes up and down. Why does it go up and down so much? Well, people trade it. So in the short term or in the medium term, the price of gold or silver is determined by a bunch of lunatic traders on the COMEX in New York. Right? So those guys are not interested in it going up because they make just as much money if it goes down, because they trade both directions. So people need to understand that it isn't going to be a straight line. If you look at the stock market, you zoom out like a hundred years, it looks like a straight line, but there were like fifty, seventy percent drops in it. Right? Dot com, then tech, tech stocks went down seventy-eight percent.

• 1:02:52Speaker 01

  So you alluded to AI. Well, the spending is even way more crazy than dot com. Now, the good thing is that the companies spending the money actually have income. Right? Microsoft's a good business, you know, Facebook is a good business and all these kind of things. They have real money coming in. But the likelihood of something going wrong there and the likelihood that they miss spending a lot of that is pretty high. So you could see a very large correction. So the problem then comes if you are one hundred percent in gold and it goes down seventy percent and you're trying to live off that, if you retire, you're screwed. Now, if you're a hundred percent in tech stocks and I see, I see thousands and thousands of people's portfolios because we, we teach people. And what do I see? Well, portfolios are usually ninety percent tech.

• 1:03:36Speaker 00

  Yeah.

• 1:03:37Speaker 01

  And then the responsibly Google come in and go, no, no, no, I'm mostly in index funds. Well, the S and P is fifty percent AI.

• 1:03:43Speaker 00

  Yeah, it's all one big bet right now.

• 1:03:45Speaker 01

  It's all one big bet. I literally, I built a tool for it, so you can put your portfolio in and you can see your AI exposure. And everyone's like, yeah.

• 1:03:51Speaker 00

  Send your boy a link.

• 1:03:52Speaker 01

  Actually, there is a, it's an app I built, it's, it's called checkwinston.com. If you guys go on that, there's a two month free use to it.

• 1:04:00Speaker 00

  Because I know who Winston is, that's funny.

• 1:04:01Speaker 01

  Winston is my golden retriever, he has a large nose for sniffing things out. But yeah, literally you log into that, it's free for two months, cancel if you don't like it. And you put in your portfolio, you can do a copy paste job and it'll tell you what your AI exposure is. And for most people, it's more than half their money.

• 1:04:17Speaker 00

  Way high.

• 1:04:18Speaker 01

  And the problem with that is if, say you did get that dot com bust, that was minus seventy-eight percent. Right? That's painful for most people if they are about to retire or they are retired, because no, they can't. So the whole system gets pushed back by a few years, which isn't much fun. You can avoid that, like the guys who know how to invest don't have their exposure.

• 1:04:38Speaker 00

  What are they looking for?

• 1:04:40Speaker 01

  So like, okay, so I have about thirty percent AI exposure by that metric. So Donald Trump put out his filings yesterday of the thousand trades he did in the last quarter. Presumably he has a, has someone who does it for him. But, you know, the most actively, I think, I think Obama did about twelve trades in, in his entire time in office.

• 1:04:59Speaker 00

  Yeah, Trump's on a whole thing.

• 1:05:01Speaker 01

  Another level, you know, trader in chief. But what has he sold? He sold the AI companies. What has he bought? Visa card, Mastercard. And they are, what kind of businesses are they? They're like a toll booth, right? You can't leave your house with basically giving them some money, because every time you beep your phone or your card on somewhere, they're gonna get a tiny amount of money. So it's a very like, you know, the financial world calls it a business with a great moat. Because try competing with Visa. Try getting, I don't know, billion cards into people's hands. It's would be an incredibly expensive thing to do, no one's gonna bother doing it. So it's a business that is very defensive, it's a business that's going to survive pretty much anything.

• 1:05:43Speaker 01

  And if you're gonna print more money, well, they're gonna just get a cut of more money, aren't they? So I always say, don't follow what people are talking about. Don't look at what people are pushing on, you know, the news or financial channels and so on. Just look at where the money is actually going. Now, looking at a politician's filing isn't the ideal way of doing it because it's old. They don't have to file the day they buy it. They file, I think, is it two months after? I think something like that. So he could have sold it by now, presumably. But looking at what the people with inside information actually are doing, which is the funds, it's the guys running the country, is a pretty, pretty good place to look.

• 1:06:24Speaker 00

  How do you track that? Like, what is the, is it like the Pelosi tracker?

• 1:06:28Speaker 01

  So there's a bunch of free trackers, again, actually that, that link I just gave you, we also track it. So we'll give you an alert, you can follow Trump or Pelosi or whatever. But I wouldn't follow his trades because you're not Trump.

• 1:06:39Speaker 00

  But how do you see the flows of money, like who's trading in and out?

• 1:06:42Speaker 01

  Okay, so get a bit more technical there. Essentially, if you look at the stock market, the media tells you the market's up one percent today. But it's not really. So the way Wall Street looks at the market, it's a hundred fifty industries and we look at each one separately. So energy might be up, oil services might be up, AI might be down, that sort of thing. And that's telling you where the money is going from where to where. And you can actually see it literally on a stock chart. So give you an example. In the last twenty years, we did some research on that. All the stocks that went up more than ten times, so those, you know, people call them multi-baggers. Every single one of them had the same pattern before it happened.

• 1:07:25Speaker 00

  This is on a technical chart.

• 1:07:27Speaker 01

  Yeah, it's on a stock chart. It's a, I call it a heartbeat pattern. It literally looks like a heartbeat going sideways. And it did that heartbeat for about a year and a half to four years. Generally speaking, the longer it does it, the more the stock goes up, if it goes up. So the heartbeat isn't causation, but the heartbeat and then breaking out of it tends to produce quite good results. So it's a pattern, it's a pattern every trader gets taught, it's a pattern every guy in a hedge fund knows. And then we look at the moment it goes out above that heartbeat pattern, do we see lots of buying volume? Which is just a candle at the bottom of a stock chart that nobody understands, because we haven't been taught any financial education in school, right? Which is a scandal. So we look at that and we see, yeah, everyone else is looking at the same thing, everyone else is buying the same thing.

• 1:08:12Speaker 01

  So it's not rocket science, how to see where the money is flowing. But yeah, you do need to know how, how to look for it, right? So for most people, it's be in assets that are either hard assets like, say, gold or silver. But they're still gonna fluctuate a lot. You can be in good companies. And by that, I mean companies that actually have a good hard business model. Visa, Mastercard would be examples of that. Or like a Microsoft or something or a Google. I mean, you probably used Google this morning, right? So they made a bit of money on you.

• 1:08:43Speaker 00

  Cash cows with moats, basically.

• 1:08:44Speaker 01

  Cash cows with moats, exactly. Or you can take it one step further and you can actually learn where the money is flowing, which is what the skilled money does, right? So that's kind of your scale of options. But if you're not invested, and a lot of people I talk to, they say, I'm scared, I sold everything. And I'm just like, oh my, that's, that's the, you're guaranteed to lose money. Because.

• 1:09:07Speaker 00

  Because they just put themselves into inflation territory?

• 1:09:10Speaker 01

  Yes, money's gonna get printed and we're gonna go back to nineteen seventy-one dollar. If you had, compared to someone who had invested it, is worth a third of a cent.

• 1:09:22Speaker 01

  Right?

• 1:09:22Speaker 00

  That's so crazy.

• 1:09:23Speaker 01

  So you can either have a third of a cent, or you can actually have a tremendous increase in value. And, and I just wish it was taught in school.

• 1:09:31Speaker 00

  So but you talked about, okay, be careful being in gold, careful being in AI, just like the when gold draws down, it can draw down by fifty, sixty, seventy percent. Stock market went down by, I think you said seventy eight percent. So it takes years and years for those to go back up. So if the answer isn't, uh, just hold blindly. If the answer isn't just sell, how does one figure out the ultimate skill, which is knowing when the right time to sell is?

• 1:10:04Speaker 01

  I think there's two things of doing. If you're not invested, buying the S and P five hundred is a thousand times better than not being invested.

• 1:10:10Speaker 00

  Even though it's fifty whatever percent AI?

• 1:10:12Speaker 01

  Yeah, I would not want to discourage that. Much, much better because you're in cash, you're guaranteed to lose money. So it's much, much better to be in this. The S and P five hundred in the long term is likely to keep going up. Just there's more money around, right? Now, how do you actually do it smarter? It is, it's a bit of a skill. I don't think you can learn it in thirty minutes. I think you can learn it in a couple of weeks. But essentially, we're looking at what I look at is just like, I just follow the money. So I look at every Saturday, I sit down for about an hour and I look at what industries are going up and going down.

• 1:10:45Speaker 00

  And you have a series of charts.

• 1:10:47Speaker 01

  And you can do this at home. You can do it with index funds. You can just look at, you know, the semiconductor index fund and the software index fund and the utility index fund and the, you know, energy index fund and so on. You can look at that and that gives you a bit of an idea.

• 1:11:00Speaker 00

  And I imagine you could just ask Claude or OpenAI, hey, I'm trying to track money flows essentially using the stock market. Give me the ten or fifteen index funds that will give me a broad understanding of what industries are working and not.

• 1:11:12Speaker 01

  And you could do that and it might elucidate the numbers and make them up, so be careful, but.

• 1:11:17Speaker 00

  But even if you're just asking for what industries are important, it'll probably get you close.

• 1:11:23Speaker 01

  It'll probably get you close. It'll be better than than not doing it. The danger I see with people is that they, so most people will own the S and P five hundred in a 401K or some sort of pension fund, which is half tech. So the top five companies are now thirty percent of that market. So you basically own five companies and a bit of everything else. They will then go out and they'll buy those top five companies again, because those are the companies that are in the news. So they'll buy Microsoft and Apple and Nvidia and Tesla and so on. And it just means that they are increasing their risk to this one thing. Whereas when you look at people who actually manage money in institutions, they don't care whether it's a famous stock. They don't care whether it's popular, right?

• 1:12:07Speaker 01

  They're just looking for the return and they're looking for a relatively smooth ride. So how do you get a smooth ride? Well, you buy stuff that isn't necessarily in the news. Right? So that could be a utility stock or it could be, I just bought a railway, for example, stock about two weeks ago. Now that's again, it's a business. No one's going to build a competing railway in the US because it's physically impossible. So it might not make you a hundred percent return, but it's also unlikely to get you a seventy percent drawdown like a tech stock might. So I think it's looking at the market as a, I always say it's a chessboard and try to be in more of the fields rather than just in the top row, which is where most people are sitting right now.

• 1:12:49Speaker 00

  And do you think of it as being on more of the fields is about being uncorrelated asset classes?

• 1:12:54Speaker 01

  Yeah.

• 1:12:54Speaker 00

  Okay.

• 1:12:55Speaker 01

  Yeah.

• 1:12:56Speaker 00

  That makes a lot of sense.

• 1:12:57Speaker 01

  So what I look for, I mean, you know, I buy stocks once a week. I do nothing Monday to Friday. I don't look at a stock chart. I don't buy anything. I don't sell anything.

• 1:13:04Speaker 00

  Why?

• 1:13:04Speaker 01

  Because you get emotional when the markets open. Like you tried to buy a stock before and the stock price goes up and down a little bit? The numbers change and you're like, shut up. You get, you get a bit like itchy about it, right? Well, if you do on a Saturday, it doesn't move.

• 1:13:17Speaker 00

  Markets are closed, static. That's interesting. I've never heard anybody say that before.

• 1:13:21Speaker 01

  So I used to do on Sundays and I'll do on Saturdays because I don't have to think about it on Saturday or Sunday. So I just do it and I just look at what's happening week by week. And if I want to buy something, I look at, well, what do I already own? Right? I already have tech. I have a software company. I have a railway. I'm not going to buy a second railway. I want to look something at something else that I don't own yet, like a different universe that isn't going to get impacted by the same news story so much.

• 1:13:47Speaker 00

  And I know this will be unique to you, but I'm curious how you discover those new things that you're not already thinking about.

• 1:13:53Speaker 01

  I basically build a scanner and I say you can do this with index funds that just flags to me what industry is going out of sort of like base level, you know, going sideways to actually starting to move up. And then I will look into that industry. So it cuts down looking at five thousand stocks, what the US market is approximately, which would drive you nuts.

• 1:14:11Speaker 00

  But are you going to like show me the money dot com? Like where are you going to find these charts?

• 1:14:16Speaker 01

  Well, I build them myself because.

• 1:14:18Speaker 00

  Okay, like you actually build the software using what AI?

• 1:14:22Speaker 01

  Uh, yeah, nowadays we do. Yeah. Well, I have about a dozen developers still, but yeah.

• 1:14:27Speaker 00

  But you start to tell it to grab APIs or something?

• 1:14:29Speaker 01

  Yeah. So you got, you got to feed it the right data and you got to feed it.

• 1:14:33Speaker 00

  Is that publicly available? Is there?

• 1:14:35Speaker 01

  We don't make that scanner available because I feel it's dangerous. It's going to give you, it'll, I'm not a fan of selling people stock alerts because unless you know how much of your money you should put into it, how it relates the rest of your portfolio and most importantly, when you should sell it, you are going to be in trouble. So, you know, I put videos out on YouTube. We talk about stocks and I don't tell people, I tell people specifically, don't buy this, right? But I don't know, it was a year ago, something. We did a video on a stock called AIVA or something, sort of nuclear, whatever. Went up, I don't know, five hundred percent. I got angry messages from people who lose money on it. So it isn't about giving people.

• 1:15:15Speaker 00

  How they lose money? They just got in at the wrong time?

• 1:15:17Speaker 01

  Bought at the top and then it went down obviously after that, right? So you have to look at it as a skill. And, you know, if you play a sport, you don't become great at the sport at lesson number one, right? You really suck at it. And this is a skill like any other. It's like walking or cycling or swimming or playing basketball or baseball or whatever. It takes a little bit of time to learn it. It's not difficult, but I do think you need to actually learn it. And to me, that's the biggest hanging fruit that everybody has. Because your salary is, it's like your seed money.

• 1:15:53Speaker 01

  Your salary is not what's going to make you wealthy. Your salary is the money you're meant to use to invest it and then that's your actual business.

• 1:16:00Speaker 00

  Yeah, very smart.

• 1:16:02Speaker 01

  Right? But we've not been taught that. We've been taught just work really, really hard and then go home, watch Netflix, drink a beer and then do it again the next day. But if you actually just spent not forty hours or fifty hours or sixty hours, or most people are working, but like an hour a week on actually learning the skill of how, just how investing works a little bit better. I think the impact on people's lives is tremendous. And that's, that's why I, I do what I do. I mean, actually, if you go on my channel, there are five, six hour long videos on, on, on just exactly that.

• 1:16:32Speaker 00

  What is your channel, Felix?

• 1:16:34Speaker 01

  It's very kind you asked, Tom. It's called Felix and Friends.

• 1:16:38Speaker 00

  The Goat Academy. Yeah, I found you through your content. Was literally just really trying to wrap my head around how all of this stuff works. I have a deep desire to understand the cause and effect of the economy. I don't know that people need to follow me down that road, but certainly getting to the point where you understand where to put your money, understand inflation well enough that you're scared straight, if you will, that you know you're going to lose if you're saving money, that you've got to find a diversified portfolio, diversify against economic forces. I can't stress that enough. So being in seven different tech stocks or AI stocks, even worse, is not being diversified against economic forces. Felix, if people are going to take away one lesson from you,

• 1:17:22Speaker 00

  because this, this stuff, even the stuff that you said about saving, which is really boiled down pretty concretely into, I think roughly four steps. People can rewind it and listen to it again, but you made that very tidy. But if they were going to take just one core principle away from you, what would it be? Beware inflation, be in the market. Like what's that core idea?

• 1:17:42Speaker 01

  I think it's see your salary or your income as your seed money. Invest it. If you don't, you're guaranteed to lose. The salary isn't going to make you wealthy unless you're, you know, at one of the ten jobs in the country or something that would. And focus just a little bit of your energy on that investing part. Because most of us go through life, spending seventy, eighty percent of our waking hours working for somebody else, making somebody else wealthier. And we spend basically zero time actually managing the money that we have. And if you look at, just look at the wealthy families in America. Why are they wealthy? Because somebody figured this out two or three or four generations ago.

• 1:18:25Speaker 01

  And once you understand this, just a basic principle, like stay invested and compound your money. It's incredibly easy or hard not to be wealthy, actually. It is just a game and the government, in a sense, is going to make it easy for you because they're going to print money. So therefore, asset prices, stocks, real estate, gold and so on, are very likely to keep going up in the long run.

• 1:18:46Speaker 00

  Yeah.

• 1:18:47Speaker 01

  They can crash massively in the short term.

• 1:18:49Speaker 00

  Have fun.

• 1:18:50Speaker 01

  So have fun with that. But you need to understand that they will just print more money to fix the problem and therefore it's going to keep going back up. So if people got a little bit more confidence in that process and managing their money, they will not do what everybody did in COVID, which is sell at the bottom. Right? And then watched it go up two hundred percent. Right? So lots of people get richer and you are left out because you're scared. And it's natural and it's that, that's why I do my investing on the weekend because I get it too. We all get it. We all are emotional beings.

• 1:19:21Speaker 00

  That's a good dodge, man. Very smart, bro. Thank you so much for just the content in general and thank you for taking the time to come on the show today. I assume you want people to go to Felix and Friends.

• 1:19:31Speaker 01

  Sure.

• 1:19:31Speaker 00

  On youtube.com.

• 1:19:32Speaker 01

  Just check out the YouTube channel. Yeah, that'd be the best thing to do.

• 1:19:35Speaker 00

  Love it. It's great. I can attest to it.

• 1:19:37Speaker 01

  Thank you very much, Tom.

• 1:19:37Speaker 00

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