#1356 Kyle Bass | Bitcoin Could Explode On Global Chaos

Kyle Bass is the Founder & CIO of Hayman Capital Management. In this conversation, we talk about global conflict, why the traditional financial system incentives attacks on each other, China, Taiwan, Ukraine, Russia, Hamas, Israel, why inflationary pressures will continue to be a problem across the world, bitcoin, gold, and portfolio construction. ======================= Introducing Espresso - the world’s most interactive portable display. They have a portable screen that is incredibly light, comes with a nice stand, and the user interface is very easy. Anyone who listens to this podcast can go to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠us.espres.so/pomp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. They have a brand new offer waiting for you. ======================= BetOnline.ag is a proud sponsor of the the Pomp Podcast. Use crypto to bet on sports, play poker and enjoy casino games at BetOnline. Visit https://promotions.betonline.ag/pomp and use promo code POMP100 to receive a 100% matching bonus on any crypto deposit. BetOnline boasts no crypto transaction fees, and processing is anonymous, instantaneous and secure. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

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

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Kyle Bass. He is the founder and CIO at Hayman Capital Management. In this conversation, we talk about global conflict, why the traditional financial system is built to continue to incentivize people to attack each other, what he thinks about

• 0:46Anthony Pompliano?

  China and Taiwan, Ukraine and Russia, Hamas and Israel, and why we should continue to see inflationary pressures all around the world. We also discuss things like Bitcoin and gold, and how he's thinking about various parts of the world, how to defensively position your portfolio to weather the storm that he sees on the horizon. Kyle is always full of original ideas, and I learned a ton in this conversation. I really hope that you all not only enjoy it, but you take away some lessons learned. I definitely did. Here is my conversation with Kyle Bass.

• 1:19Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:43Anthony Pompliano?

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• 2:56Anthony Pompliano?

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• 4:02Anthony Pompliano?

  All right, guys. Bang, bang. I've got Kyle here. Kyle, it feels like conflict is a huge theme of this decade. We have had conflict in terms of competition. We've had conflict in terms of violent wars. It just seems to be everywhere all at once. And I think a lot of people are trying to wrap their head around that. And so I know you've got some views on like, why wars are happening, both from financial reasons and also kind of these inflationary pressures. So maybe you could unpack just like, why on a global scale is war seemingly like the default position that we're in at the moment?

• 4:38Speaker 03

  That's a great question. First of all, a pleasure to be here. I think that, you know, there are already idiosyncrasies for, let's say, why Russia wants to put Mother Russia back together again, why Hamas wanted to disrupt the Middle East peace process that was actually coming together so nicely after the Abraham Accords. And then, you know, again, why China and their militaristic belligerence is going to, you know, let's say, cause a few global flashpoints in the Philippines and Taiwan. And those are yet to come. But, you know, for the people that are protesting at universities, for the people that are screaming

• 5:20Speaker 03

  for a ceasefire, that are hoping to go back to this period of time in which we had a peace dividend for a long period of time, right? I think you and I and all of us felt like, you know, post 1988, 1989, when the wall fell, fell and kind of democracy somewhat overcame communism back then and created this enormous, you know, several decades of prosperity. We all thought the great wars were over. But unfortunately, there's this things called human nature, and long periods of prosperity create weak leadership and disproportionately, I think, allocate resources. And then all of a sudden, you're back into conflict. What

• 6:04Speaker 03

  makes conflict worse? What makes conditions worse for?

• 6:11Speaker 03

  Ever achieving some kind of denouement or some reproachment of these warring factions is the financial architecture of the world. And I think if you look back to 2008, I mean, what are we, we're 16 years past 2008 today. And I think we've got a scenario where you, the Fed's balance sheet, we just start with the US and starting with the US is very important, right? We're 4% of the world's population, we're 25% of GDP, we're 40% of the world's capital markets. We are the financial foundation of the world. The world's commodities, everything that trades in the world is priced in dollars.

• 6:54Speaker 03

  If it's priced in a foreign currency, it's priced in dollars and then converted to that currency, if you think about it, right? Global pricing is dollars, cross-border settlements, 85% plus happen in dollars today. Again, don't let any of the numbers from the IMF or the World Bank change that. It's you, you, you deal with traffic, you deal with any of these global import-export businesses and everything's priced in dollars. So the dollar is the world's reserve currency and it will be for a very long period of time. Anyone that says it won't just doesn't understand, in my opinion, the way that the world works. Now, can we do things that jeopardize that over time? Absolutely.

• 7:38Speaker 03

  Are we doing those things? Absolutely. But we're still the tallest midget by a long shot and we can get into the different areas of the world, different currencies. And I know we'll probably get to crypto at some point in time today, but the point, the point being is the architecture of the world starts with the dollar and then it moves to the emerging markets. It moves to the first for the rest of the developed world, then to the emerging markets. And the Fed's balance sheet going into 08 had less than a trillion on it. Basically, it was a very low-sloping Y equals MX plus B line that was fairly predictable. You know, we would counter-spend in the recessions, but it was, it was just very low standard deviation.

• 8:20Speaker 03

  From the mean, then two thousand eight happened. We were at roughly nine hundred ninety billion going into oh eight. And from oh eight to twenty eighteen, uh, we grew it from nine hundred ninety billion to four and a half trillion. It's hard to believe that we actually created that much money, uh, in actually a, as timelines are concerned, I'll say as history is concerned, a pretty short period of time. Right? Um, and then we started to try to wean ourselves off of that Fed balance sheet. Uh, went from four and a half to roughly four trillion and then the, the, uh, the, the disease started emanating from Wuhan, the virus. And we took, the Fed took its balance sheet from roughly four trillion to nine trillion in eighteen months.

• 9:05Speaker 03

  We increased the, the money supply, the broad money supply of the U S by forty percent in eighteen months. We've never done that before. Um, that is sheer, um. I think it's recklessness. I think that none of us knew how, what, what the mortality rate of, of the, uh, COVID was going to be. It was a guess. Everybody was panicking. We wanted to do plan after plan after plan, even before the money was spent. We were talking about new plans. Thank God Joe Manchin was alive. For heaven's sakes, we'd have another one and a half to two trillion. Uh, uh, of, of fuel on this fire and we'd have seen more than forty percent inflation. So that inflation is really important to understand in the context of, think about countries around the world.

• 9:49Speaker 03

  Like Argentina or Lebanon or the Gaza Strip. When the world's growing at, let's say global GDP is growing three and a half percent, inflation's at one and a half, two percent. The world's growing nicely, finely, and everybody's doing okay and the no conflicts. Those countries are still poor and they're still mismanaged and are regions. And the poor though, they figure out how to live. They figure out how to feed themselves. They have some housing. Basically, life can go on as they bounce along the bottom. What we just did is we shocked the system with what I deem to be forty to forty-five percent inflation. And let me, let me back that up with some numbers. You look at the average price of milk,

• 10:35Speaker 03

  up forty percent in, in three years. Look at the average price of soda, forty-five percent, three years. You look at the average price of, use the government's own FHFA housing index, that is not chain weighted, it's just the number, it's up forty-seven in three years. You know, they're all rhyming with about forty, which is about how much we expand in the money supply. So if you can't tell I'm a monetarist at heart, yes, I'm an Austrian school acolyte, and it's something that I all wish we could operate under. But unfortunately, the pattern was set a long time ago, and we're in a Keynesian system, and that's just the way life goes. But being a monetarist, I just believe that, that inflation is and always will be a monetary

• 11:17Speaker 03

  phenomenon. Then it becomes a psychological phenomenon. But if we push inflation like that to the rest of the world, and those economies that were just bouncing along, everything's priced in dollars. So the poor already didn't have disposable income. So inflation breaks them. It breaks them completely. And the middle class that were barely kind of making it, now they have no upward mobility whatsoever. As you know, middle class can't reach and buy a home anymore because home prices are up fifty. And you and I both know that wages are not up fifty, right? So in some places, you can point, oh, minimum wage has moved up this or that. But wages writ large in the United States and worldwide are not up fifty

• 12:01Speaker 03

  percent in the last three, four years. So real rates of, real wages are down pretty substantially, given inflation. So when you push inflation like that to these places, they hyperinflate. So there's a negative convexity to the emerging world when the US shocks the system. So we shock the system, and we, we, there were already countries that were mismanaged financially, and, and militaristically, and politically. But what we just did is we just broke them. And so when you look at Lebanon, or you look at Turkey, Turkey's a large country with a huge number of people that, let's just say, may not have the same religious views as, as the,

• 12:46Speaker 03

  the developed world. Turkey's hyperinflated. Argentina's hyperinflated. Lebanon's hyperinflated. Pakistan's on its way there. I can go country after country after country, Iran, Iraq. All of them have broken. So for anyone that believes there's going to be a magic ceasefire because people are demanding it at like colleges in the United States, I have another thing coming. It is not happening. It can't happen. And it can't happen because the financial architecture of the world is broken. And then you look to places like China and Hong Kong, who had a miracle in

• 13:24Speaker 03

  quotes of GDP, but that miracle was was basically built on a foundation of sand. The foundation of sand was real estate. They let real estate go unchecked for basically a decade. And what did that do? It got to prices so high that median home price to median income in tier one cities in China got to over 25 times. Well, at the peak of our subprime greatness, we were like 6.6. We tried to get it between three and five times. So what Xi figured out too late was that that's why their demographic curve hooked down and started collapsing because men in China, when

• 14:05Speaker 03

  they got out of universities, couldn't afford an apartment. So they lived at home. They weren't having sex. They weren't having children. They weren't marrying. They were living with their parents. And so any of these statisticians and actuaries that were modeling the Chinese mortality curve, they were shocked when their model that was showing a decline to 2050 hooked down and collapsed. Well, Xi Jinping was shocked too. And you remember, they've only been at financial markets for about 20 years since they entered the WTO, right? In 2001. We've been at financial markets for over 100 years. And look at how bad we screwed it up going in 08. So I think it's important to understand that the architecture of the world was just shocked. It

• 14:49Speaker 03

  was already pretty bad, and we just broke it. And the Fed has 18 unelected people running the Fed that are all academics that answer to no one. And that may sound conspiratorial to you, it's just the truth. They don't answer to anyone. They, if you go meet with them, they believe that they saved the world from COVID. And they were self congratulatory about that. And now they're self congratulating themselves, saying, well, we have this kind of inflation dragon tamed. When they're the ones that went so big on the front end, that the only institution policed with or tasked with policing inflation caused it. And now they're the ones trying to put the fire out.

• 15:33Speaker 03

  So I believe that understanding the architecture of the world is is so integral into trying to handicap geopolitics going forward.

• 15:46Anthony Pompliano?

  When you look at the United States, the Fed, to your point, they have immense influence. And they definitely helped cause it. They definitely are trying to put it out. Whether you think that they did a good or bad job, let everyone else decide that. But what I find interesting is the Fed, pretty much since the end of 2021, has been verbally saying, hey, we're going to bring inflation down. We're going to create these tighter financial conditions. We're going to take all these actions that historically they've been able to pursue, you know, draining liquidity out of the system. The politicians didn't get the memo. They continued to just pump tons of liquidity into the system via all these bills and legislation, etc. Like, how do you balance, like, who's actually in charge now?

• 16:27Speaker 03

  Yeah.

• 16:27Anthony Pompliano?

  Is the Fed overwhelmed by the politicians and kind of this pursuit of just these spending bills?

• 16:33Speaker 03

  All right, let me give you one answer. And it's just look at 2023. 2023 is fiscal year. The US government receipts were about 4.4 trillion. We spent 6.1 trillion. And a lot of people say, well, that's just 7% of GDP. It's a big number, but you know, you know, when you start, when you start characterizing things like that as percentages of GDP, it kind of is their way of throwing it to the ether. Because the average American has no idea what that means. And I bet many people on Wall Street have no idea what that means. If you really think about it. The way I think about it is, you know, we ran a deficit

• 17:14Speaker 03

  that was 40% higher than our than our than our income. So if you made $100,000 and you spent 140, it's really a tough thing. Right? And that's basically what we did. And we did that at full employment. So that is something. Never really been done before. I'll retract that statement. It's been done one other time, to my knowledge, and that was going into World War II. And by the way, that's when you do it, right? That's when you go, you literally go for broke. If you're headed into a big war, you deficit spend as much as necessary to win, and to the victor go the spoils, and to the loser goes defeat and default, just about every time. And so,

• 17:59Speaker 03

  you know, I worry that we're at a point where spending, congressional spending, is out of control at full employment. And we're only spending three and a half percent of GDP on defense. If you look at the, at the, call it, distribution of low and high of spending on defense, you know, the lowest we've ever spent as a percentage of GDP on defense is three, and we're at three and a half. And the highest we've spent, call it 1945, we spent forty-seven percent. We repeat that. Forty-seven percent of GDP on defense. You

• 18:37Speaker 03

  know why? We had to win that goddamn war. And we did. Right? So, in the Cold War, we spent six to nine percent of GDP on defense. One could argue that if you try, if you, if you were to pin the tail on this donkey today, you would say, well, there's a ground war in Europe. There is a war now that Iran has entered and its proxies are fighting with Israel. And China's threatening to invade, basically take the Second Thomas Shoal in the Philippines and invade Taiwan. And one could argue that we're not at the peace dividend level of defense spending, nor should we be. Should we be somewhere in the Cold War

• 19:21Speaker 03

  region? Absolutely. Should we maybe be spending even more than that anticipating a hot war? I don't know, maybe that's where I'd come out. And you'd say, well, where do we get the money? And I would say, well, we're gonna have to deficit spend, so even more. So, you know, the answers here are just not good. But what they tell you is- If you're thinking about investing around what I'm talking to you about, you know, if China invades, uh, this takes the second Thomas Scholl in the Philippines or starts a a fight there, um, we have a mutual defense treaty with Philippines. If it gets invoked, we're in this fight. Japan has already said they'll be in the fight. Why China's pushing, you know, 700 miles from its coast?

• 20:07Speaker 03

  Big question mark, um, other than it's a big protein source and they're the US's number one longest-lived ally in Southeast Asia, but these things are happening. And I think we go day to day, you know, yawning and oh yeah, there's a headline that went by. No, we are at a hinge in history and this stuff's gonna happen. And I'm, I'm certain that it's gonna happen. It's just a question of when. And so when you get to that point, what do you do about it? How do you think about defensively positioning your portfolio or more importantly, your net, your, your net worth, you know? Not everything is public stocks, right? Um, I'm sure some people are that way, but some people probably have real estate. They have some crypto, they have stocks.

• 20:50Speaker 03

  You know, how do you position yourself so that you don't, um, you know, deal with the, the trials and tribulations of what the, of what I think's coming geopolitically? Uh, and the answer is, in the world I just explained to you, what I'm telling you is I think the Fed is at a permanent $7 trillion balance sheet, uh, plus or minus some, uh, and going higher, right? Um, I think that conflict will not settle anytime soon. It will only increase. It tears at this, the inflation we just pushed to the world tears the social fabric of the world even more. It was already tearing because there were so many decades of prosperity. Uh, and we, and we had weak leadership.

• 21:32Speaker 03

  Uh, and then idiosyncratically, there were reasons why, again, why these, these wars popped up, uh, but more wars are coming. And I think you're going to see the Fed expand the balance sheet. And I think that, um, yeah, if I'm right about this, interest rates will head back down. And the Fed will expand its balance sheet. And that wealth gap between those that have assets and those that rent assets and those that can't afford them will continue to widen, which just means social conflict, both domestically and internationally, will increase even more. We're kind of on a path where we need a big reset. And in the past, let's take World War II, for example.

• 22:16Speaker 03

  The US on balance sheet debt to GDP got to 106% in 1947.

• 22:23Speaker 03

  We paid that down to 35%. You know why? We won. We helped rebuild two continents post-war. We ran trade surpluses with every single counterparty in the world that we traded with in 1950. Just think about that. Right? These things, and, and World War II, we were close to losing. Right? There were a couple of events that changed the whole war. And thank God, those dominoes fell our way and not the German way. And we'd be speaking German or Japanese, right? Or both today. So those, those moments are pivotal. We need proper leadership and, and we actually have to deficit spend.

• 23:06Speaker 03

  I know that is something you don't like. It's something I don't like, but they're practical realities of the world between what we hope for versus what we know has to happen. And those are two different things. And by the way, I don't hope for war. I have three kids. I don't want my kids growing up in a wartime economy or in, in a, in a world full of conflict. But unfortunately, you have to call the spade the spade. You have to call a baller a strike and it's obvious that it's going to happen.

• 23:38Anthony Pompliano?

  When you say that we need the deficit spending, how much of the deficit spending could be reduced? If we stopped spending on dumb things, right? I'll put dumb things. It's a very kind of naive term that can be encompassing of many, many things.

• 23:52Speaker 03

  There are some things on the top of your head. Give me two.

• 23:55Anthony Pompliano?

  Well, well, let me give you a serious example. That's not really a dumb thing, but would fall under this thing of like, probably needs to be addressed. Like there's entitlement spending, which obviously I think people say, hey, look, we're kind of flying off a cliff here and we're going to have to do something or we're just making empty promises. And then if you get to like the really dumb things, if you go back and at one point we did a breakdown of like, I think it was the infrastructure bill. And in it, there was all kinds of crazy things like, you know, they were doing studies of like driving while high. And the joke was like, trust me, we've got plenty of people in the audience that'll do it for free. Right? You know, type, type thing. And so like, is there enough money that is quote unquote, like wasteful? That could actually be pulled back and redirected to things that are like higher impact or towards defense? Or is it something where like, you know, if you're running a business and you're losing a little bit of money,

• 24:41Anthony Pompliano?

  but you just need more revenue, like sometimes it don't worry about saving, but just go and get the additional revenue. And it's like, where are we as a country with that?

• 24:48Speaker 03

  Yeah, I, you, you hit on one that's actually, look, whether anyone wants to admit it or not on entitlement spending, I've spent a lot of time looking at it. There's something really easy to be done. Now, again, this may sound that I, that like I have a lack of humanity or compassion or empathy for those that are now in their twilight years.

• 25:13Speaker 03

  But if you think about it, all you have to do, and I'm just going to be a pure numbers guy for a second. If you move the entitlements forward, if you, if you raise the retirement age into the curve of mortality, you, you can actually solve that problem. If you do it slowly, but certainly you can actually get to a formulary that works because you cut the tail off, a longer tail off, if you follow me. You know, it's a terrible way to think about things, but I, I mean, I could solve it. I wouldn't be anyone's favorite person, but I could, again, like there's no easy button.

• 25:55Speaker 03

  So Anthony, there isn't, there isn't a button we can press and magically fix everything.

• 26:01Anthony Pompliano?

  But I think that you're not gonna be

• 26:03Speaker 03

  It's anything we can get to.

• 26:04Anthony Pompliano?

  You're not gonna be anyone's favorite person also if we keep the path that we're on and then you can't, you don't have money to give them, you know, in 12 years, 13 years. So it's kind of like,

• 26:13Speaker 03

  Absolutely.

• 26:13Anthony Pompliano?

  Choose the, uh, choose the worst position to be in, right?

• 26:16Speaker 03

  Right. Uh, I, I actually think that when you look back through history, you know, real leaders didn't have it easy. Real leaders got through some tough, tough times by making incredibly difficult decisions. Um, many under duress, and that's why they're known as, as true leaders today. I mean, do you think Joe Biden is a true leader? I mean, nobody does. Not even the Democrats do. Uh, right? So, um, and I'm an independent for what it's worth, and I don't want to bring politics into this. Um, but the point being, uh, I think that there are a few things that can be solved. There are a few things that just can't. Um, the fact that we got to energy independence,

• 27:00Speaker 03

  uh, and then just turned it off and said, we're going full climate crazy. Um, it is clear to me that there are certain positions of strength that we have. Number one, uh, we are the Saudi Arabia of natural gas and the only two byproducts of burning clean natural gas are CO2 and water. Uh, and we can figure out how to sequester the CO2. We are the Saudi Arabia of food. We have, we grow, we have, we are blessed with a land that is, that, that is, uh, defensible, uh, because of its, its proximity to two oceans. Um, it is a breadbasket, uh, one of the breadbaskets of the world. Um, and we're energy independent if we actually choose to be.

• 27:45Speaker 03

  Uh, and we've got the nuclear technology and we've got the best schools in the world. We, we still, believe it or not, live in the best country in the world, despite what you're seeing with the weak, um, fragile, I don't even know what to call them, rabblers that are, that are pushing all of these different agendas at schools, whether, you know, whether we're going to the right bathroom or not, or our hair is the right color or not, or whether we're forgetting About October 7th and saying pro Hamas things. It's like, there's crazy stuff happening in our world, but that's just because we've had it too easy, too long. You know, at some point in time, we're going to get to a point where we realize we still have the best country in the world to live in. People vote with their money. You see, it's all here. Um, it's not going anywhere else.

• 28:30Speaker 03

  Um, so what we need is real leadership, and I think we can solve some of these, these fiscal problems, but I say but. You know, when was the last time you heard the two words tea, the tea and party together? Right? Um, what the Fed and the Treasury just taught Congress. You, you said they didn't get the memo. I actually think they got the memo. The memo is, we got you, go for it.

• 28:53Anthony Pompliano?

  Yeah.

• 28:53Speaker 03

  Right? That's what they just learned. It just doesn't matter. We can just spend and do this AOC MMT crazy shit because it's just going to work out. Now, we all know that the very people it affects most are the poor and the lower middle class, who supposedly these same people, um, you know, who are extolling the benefits of modern monetary theory, um, are trying to in theory protect. They're the ones destroying the poor, which is just the ironies are so thick here. Uh, that going forward, again, what I expect to happen is asset price inflation. I expect, you said, you know, can the Fed arrest the inflation?

• 29:37Speaker 03

  It's super easy to understand where they get the word transitory. If you and I are running the Fed, we drop forty percent more money in the system in eighteen months, we create forty, fifty percent inflation. Do you think if we raised rates five hundred and fifty basis points that we could get an inflation print year over year at zero? Hell, yes, we could be a piece of cake. However, the price level would still be one fifty, right? We took it from a hundred to a hundred and fifty. Could we get it to print one fifty again year over year? Maybe one fifty-three over one fifty-three. That's gonna happen. Like, wages are sticky because asset levels went up so much so fast. But somewhere in here, you're gonna have deflationary forces fighting inflationary forces,

• 30:20Speaker 03

  and you're gonna get a year-over-year print, and you're gonna see the Fed victory laughing and slapping five and patting each other on the back. But they just changed the price level fifty percent. Right? That's, that's, that's the, that's the thing that maddens me here.

• 30:34Anthony Pompliano?

  So one of the things that I'm really interested in is we obviously have this like southern border crisis. And I think a lot of times investors will look at demographics and there's places around the world where people will point to and say, look, young demographics are in the favor of a country like Nigeria. It's fast growing. It's big. It's, you know, internet penetration, et cetera. China at one point, I think, got people excited. Now, maybe not so much, et cetera. But in the United States, we just had one of the biggest population increases in a given year, mainly driven by these illegal kind of immigration trends. And so on one hand, I think that you, myself, many other people, you know, on Twitter, et cetera, like, wait a minute, we're like, basically watching an invasion

• 31:15Anthony Pompliano?

  of our country with no checks, no understanding of who these people are. And we jump to the extreme level of like, defense should come first. You shouldn't have a porous border, et cetera. On the other hand, from an economic standpoint, there's a pretty strong argument, like, we may need more people in the economy. And I don't know if that necessarily means the economic argument should trump the defense argument. Like, actually, I think the defense argument may be the single most important argument. And so therefore, even though you need more people, like, you need to know who the people are, there should be legal immigration, there should be, you know, these pathways. So I think that's kind of like, maybe 1A of this theme. But then the second thing is like, maybe human demographics aren't going to matter as much in the future because robotics? And you see these, like, you know, humanoids

• 32:00Anthony Pompliano?

  and all this stuff coming. And so like, are investors now going to have to watch immigration trends? And also, like, what humanoid, you know, manufacturing facilities are pumping out in a given country? And like, that is going to be the new, you know, quote unquote, investing behind demographics?

• 32:13Speaker 03

  Yeah, I, look, on the border side, it's really important. Have you been, have you been to the southern border?

• 32:19Anthony Pompliano?

  Uh, not, not to go look at the actual crisis itself.

• 32:23Speaker 03

  So I would say I've probably been down there, I don't know, seven or eight times in the last three years. And I go with the state police. I sit on the board of the Police Foundation. And so,

• 32:35Speaker 03

  I've seen it firsthand. I think I understand what's going on. I think we have a completely open border, not porous, it's open. Anyone that wants to come across will help them in. I FOIAed CBP in October of 23, and I asked for two years of data on what we call, what CBP calls, special interest aliens. Those are aliens that come from countries that are deemed to be supporters of terrorism and/or known enemies of the United States. The number was 160,000 special interest aliens have been in in the last couple of years. It only took

• 33:19Speaker 03

  19 guys to take the buildings down. So when I think about security, the enemy is already behind the gate, and that's by design. It is, we have, we have, we have almost treasonously allowed people in. I would say it is treason to just open the border. So when you think about the economics of positive population growth vis a vis, or let's say as opposed to, border security, look, the definition of sovereign is you control who comes in and out of your border. It's the basic definition of sovereignty, right? And so I believe that if we are looking for the right economic mixture, we set, I'm very pro-immigration,

• 34:03Speaker 03

  but I'm very, we need to build a wall. We need to build a big wall, and then we need to decide what our immigration policy looks like, and then let's do it, right? Meaning, let's let in a certain amount of skilled workers, highly skilled workers, skilled workers, and then basic immigrants that don't have any real skills, that are just willing to work. But let's set forth a plan and let's execute a plan. A certain way to disaster is to have social welfare programs like we have, and have an open border. It's a certain way to destroy our country. It's absolutely certain. Economic suicide is doing what we're doing right now. And so I believe that that security is

• 34:44Speaker 03

  Key number one. Number two, I'm very pro immigration, but there should be a formulary in a plan. And let's do that. And let's have a proper border structure. You want to call it a wall, a fence, whatever you want to call it. We must have a structure. And so it's vital that we do that. Unfortunately, here's the thing about this. We've, we've allowed our country to just kind of follow some path of pure open borders. And crazy ideological protests going on. We basically, we've taken our eye completely off the ball of what got us to the level of greatness as to where our country once was.

• 35:28Speaker 03

  And I think we're going to get back there, but the way we're going to get back there is through crisis. So I guess I always say in our, in our office that we're at a hinge in history right now. There's no doubt in my mind that we're at a hinge. And in the last 20, 30 years have been driven by economics. The next 20 or 30 years will be driven by geopolitics. And you better change the way you view the world. And you better adapt quickly. Because those changes are coming and they're actually going to come much faster than you think they are.

• 35:59Anthony Pompliano?

  Yeah. Before the recent Iranian attack on Israel, where they launched the missiles and drones. Literally the day before, the attack was on Saturday. On Friday, I wrote this piece to investors and I said, hey, gold is running. Is somebody prepping for some sort of attack? And it was just a thought process of like Bitcoin and gold seemed to be like the alarm systems of, you know, kind of geopolitics of the moment. And if gold is running this aggressively now on a dollar basis, it wasn't like it was going up hundreds of dollars. But still it was hitting a new all time high and you could see that it was definitely kind of breaking out.

• 36:39Anthony Pompliano?

  And the US has now shown their hand in being very quick to the financial sanction kind of trigger, if you will, with Russia and going after so many people. How do you look at either gold or Bitcoin, you know, in the backdrop of geopolitics? And like, are these now going to become the assets where people will go and they'll buy them before they go and make these geopolitical moves?

• 37:00Speaker 03

  Yeah, so I I view sanctions very differently, I think, than the crypto crowd. If you put me in the Treasury, if you if you put me as Secretary of Treasury and China goes and attacks, or Russia goes and attacks Ukraine, China goes and attacks the Philippines or Taiwan, you have you have a couple of potential responses. One is just keep shoveling basic munitions and advanced munitions and energetics and just shovel tens of billions of dollars their way and and hope they can win, or hope they can even keep fighting, which is what we're doing in Ukraine. Or we can take the the the tip, the shiny tip of the spear on the financial side and institute crippling sanctions.

• 37:45Speaker 03

  So when I look at Russia, you look back to what really brought the wall down, it's important to think about what brought it down. The Russians didn't wake up one day and think, you know what? Democracy is just a better thing. You're right. Communism is a terrible idea. We're just going to relinquish power and we're going to embrace democracy. You guys were right. What happened was, we, through through ourselves and our allies, overpumped crude. Crude is 60 to 65% of Russia's GDP, and we took crude to 11 bucks. We broke Russia, and we did it intentionally. And that's how we won the Cold War. Now, fast forward to China. China's really economically integrated.

• 38:29Speaker 03

  We have a certain amount of trade with China. Everyone says that we can't possibly be at war with China because of how how much money we have invested there and how economically intertwined we are. Well, I've got news for those people. They obviously haven't read history. They haven't read what happened going into World War I and World War II, because those same things were said about the world economy and our level of interconnectedness. So when I think about sanctions, we have not implemented

• 39:00Speaker 03

  Sanctions that matter, yet. And what I mean by that is, we have primary sanctions, and we have secondary sanctions. Primary sanctions, if I were running our country, if I were running treasury and I were actually able to be the wizard behind the curtain, I would have sanctioned the entire Russian banking system, I'd have removed them all from SWIFT, I'd have sanctioned every Russian energy company and every, every state actor, and I would have banned Russian passports from the United States, writ large, no more. So, and I hope, and I would hope our, our allies in, in Western Europe would have done the same, if we could get them both to do it. Because today, Russia exports 8 million barrels of crude. What's 8 million times 80?

• 39:45Speaker 03

  Everyone's pretty good at math. They make half a billion dollars a day of state revenue, uh, and we haven't touched it. You know why? We're too afraid of moving gasoline prices and being thrown out of office. Like, so we have cowards running our country. There is only one button to press, well, there were, there were two, I guess, there was the easy button, says, "We're gonna sanction Russia." We didn't do shit. We sanctioned a few people, we sanctioned 10% of the oligarchs. We didn't touch their banking system, kind of writ large, they can all still process payments for energy and international payments. Yeah, we kinda went after some munitions and some drones and some bad guys, but we

• 40:28Speaker 03

  didn't even implement secondary, secondary sanctions, right? Secondary sanctions are, for any other countries or people around the world that continue to trade with the primary sanction entities, that is the tip of our economic spear. If you wanna shut someone down, that's how you do it. When I see friends, I have friends that live in Moscow, that when I go to various locations in Western Europe, or Saint Bart's, or this or that, they meet me there. And I say, "So, how's it going?" And they're like, "Yeah, it's fine." I said, "So, how'd you get here?" I said, "Well, we just have to get to Istanbul, then we can go anywhere we want." Cool. That's awesome. So they're like, yeah, so you know, I went to London and chopped a little bit, had some fun nights out. I went to New York. We're good. You're thinking,

• 41:11Speaker 03

  how are you ever gonna like effectuate regime change with a madman if his people don't feel any of the pain? If all it is is the military, right? So sanctions, we get, in my opinion, I would give the administration a D minus, almost an F on sanctions. If China invades, what we've got to do is, one of the reasons the Cold War never went hot is there was this concept of mutually assured destruction, right? That if we launch, they launch. If we, if, if we think there's a preemptive launch coming, we preempt, we preempt, right? And there was this belief that we both would get after it, right? Um, so today, there is no real, like China's been running an economic war against the United States since 2001.

• 41:55Speaker 03

  They've been running a cyber war against us since 2001. We just recently realized that our intelligence and military industrial complex and military realized that China's the, is actually our mortal enemy about five years ago. Our leadership still hasn't called them that. We still call them a strategic competitor that we really need, that we want to grow with. They are the enemy, right? Under this regime, Russia's the enemy, China's the enemy, Iran's the enemy, North Korea's the enemy. There are many more enemies, but those are the key four. Um, and so, uh, if China were to, to attack Taiwan, what I'd be doing if I were leading our country, I would say, listen, I have this red button,

• 42:37Speaker 03

  and it's not going to send, you know, five carrier strike groups to the Taiwan Strait. I'm just going to remove your ability to move dollars around the world. You know, China imports 12 million barrels of crude every day. They import eight and a half BCF of LNG every day. They import 40% of their food every day. And guess what? They pay dollars for all of it. Imagine if we crippled China's economy by pressing that red button, and we didn't have to send.

• 43:04Speaker 03

  Three hundred thousand men and women to fight. Like, if you, if you give me A or B and you say, well, oh, well, that would take the world GDP down, you know, three, four percent, that would kill us, that'd kill China. Well, I choose that button ten out of ten times over sending our men and women over there to fight. And so, do we have the greatest military in the world? Absolutely. Do we have the best infrastructure the world's ever seen with financial sanctions? We do. I think there are best weapon. I don't view it as a negative. Now, if we do so, you know, does that mean that the price of Bitcoin and gold and everything will go up? Yeah, it, it might, but guys, that's what we have to do.

• 43:49Speaker 03

  It's the hard button. Leaders press the hard button, but leaders also socialize the fact that they will press that button. And we have people like Janet Yellen, who doesn't engender one ounce of confidence with me, I don't know about you. Uh, she's a labor economist. She's out of her league, she doesn't know what she's doing, and she's over there bowing to her Chinese counterparts. You know, we need someone that projects strength, that lets the Chinese understand that we will play hardball and we will play the hardest ball in a game that they don't want to be in with us. Uh, and we're understanding that it will hurt us, uh, but it will cripple them and it could change the regime.

• 44:32Speaker 03

  And if we can change the regime, maybe we could actually have a positive relationship with them. But under Xi Jinping, who's the, in, he's Mao incarnate of 2024, every single person in the Standing Committee of the Politburo, the rest of the Politburo and the Communist Party, they all owe, owe their lives to him. As you know, he's cleaned house, he has kicked out any opposition to his rule, and he holds all five, uh, tools of dictatorship firmly in his hand today. He's a madman. He's a madman just like Putin is. And when madmen are, have a quote limitless partnership that they publicly, uh, um, announced and then reaffirmed, uh, several times. That's not good, right?

• 45:16Speaker 03

  So, and you asked me about sanctions. Sanctions are, in my opinion, our best weapon. And the problem is, we're just not using them or socializing them right now.

• 45:27Anthony Pompliano?

  Do you think that's why Trump was so effective geopolitically? It's just that, you know, there's all the jokes of, um, I think he tweeted once at the Ayatollah in Iran and said, basically, keep America out of your, you know, America's name out of your mouth. He tweeted at, um, North Korea and was like, you know, somebody tell little Rocket Man that I've got a big red button on my desk and mine works. You know, he went and, and almost was, I would, I would categorize it as like unpredictable and, uh, put forward a show of strength. Where if you're another world leader, you kind of don't want to mess with their erratic, you know, leader. And so by being unpredictable and showing that sign of strength, um, well, maybe people in America didn't like it because it felt chaotic.

• 46:11Anthony Pompliano?

  Um, it actually was quite effective.

• 46:14Speaker 03

  Yeah, I, I, I agree with that statement now. It's a double edged sword. He's not an expert in foreign policy. He listened to his advisors almost all the time, not all the time. He was unpredictable with his own staff, a little bit more difficult. So again, I'm not saying he's a perfect leader. Someone like Reagan is a great leader, right? A Thatcher, a Reagan, a Churchill. We need a highly educated, calculated, um, strong leader. But you're right about that level of unpredictability being an asset without a doubt.

• 46:52Anthony Pompliano?

  Yeah.

• 46:52Speaker 03

  The question is, if we get to a moment where we actually have to send our men and women to fight, I just, I don't, I actually don't know where Trump stands on this. You know?

• 47:02Anthony Pompliano?

  Yeah.

• 47:03Speaker 03

  You go back and you carefully listen to him. You know, did he order the hit on Soleimani? Absolutely. Do I give him full credit for that along with Pompeo, the CIA and the team? Absolutely, I do.

• 47:18Speaker 03

  Was that much easier? Uh, a tactical strike on a suburban? Absolutely, that was super, I'm not going to say it was super easy, much easier than sending a carrier strike group into the Taiwan Strait to actually be in a hot war with China. I don't know if he'd do it. Um, and you know, there's a lot of calculus on whether Biden would do something like that. Our military leadership transcends, um, political presidential administrations. Our military leadership, we're the best in the world at kinetic movement and we still are. And we have the most advanced military in the world despite what you read. China may outnumber us in boats, but I can tell you this, there is no one better integrated

• 48:01Speaker 03

  with the more, you know, again, with the, with the best warfighting capacity in the world than we are. Uh, I don't, I'm certain that we can fight and win. Do we want to? No, I definitely don't want to go to war. But guess what? There are periods of time in which you're going whether you like it or not. Think about, think about World War II and go back and read, um, read, read Churchill's first book in his six book series called The Gathering Storm. It, it, it will remind you that even with people like Chamberlain and Halifax, who were begging for meetings with Hitler after he invaded, right? After he took the Rhineland back and after he was invading Holland, they were like, please, please, please meet with us.

• 48:44Speaker 03

  We want to maybe give you your advances and just stop invading. Right? They were begging for meetings when what we should have been doing is fighting like a son of a bitch from day one. And we needed strong leadership and thank God Churchill took over. Right? I mean, you think about the series of events that kept us on the right trajectory, us meaning the, the Western alliance. Um, moving forward today, we have guys like Secretary Blinken. We have people like Janet Yellen. We have people like John Kerry giving, you know, taking climate promises out to 2050 for action today. We have people that, I mean, I don't know what else to call them, but somewhat retarded,

• 49:25Speaker 03

  you know, for, for accepting 30 year promises for immediate action. Like who does that? It's just crazy what kind of leadership we have right now. And, and, and would Trump be a better leader? I mean, you can't break your arm jumping out of the basement window is what I think about that. But is he the best leader? You know, probably not. Is someone like Pompeo, um, better without a doubt? Let's hope that there is leadership at state and leadership at treasury that's actually wartime leadership because that's what we need. We need a war cabinet.

• 49:59Anthony Pompliano?

  Yeah. Um.

• 50:02Anthony Pompliano?

  People will be very upset with me if I don't give you two or three minutes to talk about your thoughts on Bitcoin and crypto in general. We've talked a lot about geopolitics, but there's also just kind of the general financial markets, ETF approvals, regulation, et cetera. You are very well known for, you know, housing market bet, nickel, plenty of things that you've done over the years. So where are you kind of thinking on Bitcoin today?

• 50:27Speaker 03

  You know, if you've noticed, I've stayed out of that conversation as much as I can.

• 50:31Anthony Pompliano?

  I know, but I also know everyone will be upset if I don't press you on it.

• 50:34Speaker 03

  You know, I don't, I don't, is total crypto today worth about 2.2, 2.3 trillion?

• 50:41Anthony Pompliano?

  Is that somewhere around there?

• 50:42Speaker 03

  And Bitcoin's still worth like a trillion eight or trillion six, somewhere in there. It's like, it's a big number. Oh, wait, no.

• 50:48Anthony Pompliano?

  Fifty, 53% of it.

• 50:50Speaker 03

  Okay, trillion three, something like that, right? Yeah. So, look, it is, it is the, it is the bellwether, you know, it's the, it's the, it's the one that people really, you know, gravitate towards. I, I've said it before and I'll say it again. I'm not going to be like, people are not going to like it. But, you know, you can't win everyone at every time. Look, I think it's a sunny place for shady people. I think it's a, I actually see its use case. And by the way, that like Parker Lewis, who runs Unchained, a capital down in, in Austin is still someone I admire and one of my close friends and will always be one. We just have a differing opinion.

• 51:35Speaker 03

  And I just think about it, if I were in the Secretary of the US Treasury, how I would think about it. So I try to put myself in different shoes. Now, do I own a big stake in blockchain.com? I do. Do I own stakes in, in some crypto? I do, believe it or not. But when I think about it writ large, is it going to keep growing as a universe? If the world heads in the direction I think it's gonna head, then I actually think it's gonna keep growing. Am I gonna allocate a significant portion of my assets to crypto? I will not. Now, if it grows from here and it grows crazily again, you know, will I have a meaningful portion of assets there? Yep. Uh, will I sell it?

• 52:20Speaker 03

  Absolutely, I will sell it, right? Um, so I'm just, I'm not, I'm not the person that says, you know, I'm gonna hold it forever and we're, we're riding things to the rocket moon or whatever these people say. Um, the use cases like for places like, for places like I discussed earlier, where governments are, call it, they're poor, they're poorly designed and poorly operated from the get-go and then inflation happens and they break. So if you're Turkish or if you're Lebanese or if you're Argentinian, like, there is an outlet. You can get your money into dollars, you can get your money into Bitcoin, you get into Bitcoin, it's easier to hide. Um, so I understand use cases for, um, populations that have horrible leadership.

• 53:05Speaker 03

  I do, I understand that. Um, I don't understand why, but I pay my taxes. Um, I pay them every year, happily do it. Uh, what, let me ask you, what percentage of people in the United States that own Bitcoin, declare 100% of their Bitcoin or crypto holdings globally to the IRS every year? Uh, on, on their, on their tax statements?

• 53:33Anthony Pompliano?

  I think five years ago, my guess would be less than 10%.

• 53:38Speaker 03

  Yeah.

• 53:39Anthony Pompliano?

  I think that today, probably closer to like 50% and headed higher, mainly because I think that, um, too many of them use KYC like crypto exchanges and those folks are reporting. And so like you, you kind of can't not report. Um, and then also I think that the IRS realizes, along with politicians, like, hey, this is kind of a honey pot of, uh, tax revenues. And so they're making a concerted effort. You see it showing up as a question on tax forms. You see the politicians, you know, putting it in bills and things like that. To your point, though, could we get to 100%? I think that there will always be bad people who do bad things and, you know, people will try to avoid paying taxes. I don't think that's an American thing. We're not, we're not so special. I think it's just around the world.

• 54:24Anthony Pompliano?

  But I guess I'll extend the question then, maybe we can end on this, which is, given where you think the world is headed, how are you allocated today? You know, kind of positioning yourself to weather whatever does come?

• 54:38Speaker 03

  Yeah, I, I just think this is, uh, this is a time to own real assets. Again, in your own mind, if crypto is a real asset, well, you know, that fits that category. For me, it has too much volatility. It scares, it scares me too much now. You know, what's going on out there today? And, you know, in, in new ideas that have, uh, quick interchangeability and, and less latency, you know, there's some interesting things going on in certain cryptos out there. But when I think about real assets and call it real portfolio allocation is meaningful to me. I actually think that if, if you look at the population demographic in the U.S., you have high cost, high tax, mismanaged jurisdictions.

• 55:23Speaker 03

  You happen to live in one that doesn't indict you. It's just poorly managed, fiscally, politically, and it's pushing people out. And the whole West Coast, the Northeast, the West Coast is, and, and those people that are moving businesses, I'm not talking about rich people moving to Aspen or Palm Beach, like we, every, all the rich people who do what they want to do. Let's just talk about core America is moving to places like Florida, Tennessee and Texas. Now that's painting things with a broad brush, but that's actually what's happening. So if you're buying, um, land or assets that will soon be developed, or if you're investing in things like what, what I'm doing is buying land and, um, I'm actually.

• 56:09Speaker 03

  Offsetting environmental impacts, that sounds crazy, but it's a pretty good business. So I think the land will appreciate faster than inflation will because of the population macro tailwinds. I think that anything that you can do to enhance those returns is great. So I have a huge allocation there. I have a huge allocation to energy. Old, old energy, actually like hydrocarbon based energy. Because we've fat shamed so much money away from pure hydrocarbon based energy. It takes forty or fifty years to change energy sources. We've proven that over time. People in the current administration believing to snap your finger and say, we're going to go all alternatives.

• 56:51Speaker 03

  We're going to turn hydrocarbons off. You know, I have news for them. That's not going to happen. We've only replaced about eighteen percent of reserves globally this year. We typically replace eighty-five to ninety percent of reserves annually. We are setting ourselves up for a massive hydrocarbon rally, both net gas and crude. If you think about it in, in real terms, you'll say inflation, non, or say inflation adjusted terms. You know, crude before COVID was about where it is now. And we've had forty-five, fifty percent inflation in almost everything and crude's still where it was pre-COVID. So in real terms, crude's down like forty or fifty percent, right?

• 57:33Speaker 03

  So if crude were to just move to one-twenty, it'd probably be a break even from where it was pre-COVID. I think that's likely to happen. So I have a, call it forty percent of my capital is allocated to hydrocarbon based energy. Because I think it's the golden, I think the next decade is the golden decade for family office investing in crude. In, in hydrocarbons. So I like, I like productive assets, hard assets. So like apartments, investing, you know, investing in things that can actually move with inflation. Energy and then land where, where the macro tailwinds are, are at your back.

• 58:14Speaker 03

  And I, and I don't think that in the environment I just described to you. I don't think in that environment that you do poorly, there is no foolproof way to never lose money. But you can definitely allocate your assets in a way that.

• 58:31Speaker 03

  You don't, like you win over time and with the macro environment and the Fed doing what we know it's going to do, you're going to be safe investing the way that I'm invested. So, you know, it's personal preference.

• 58:45Anthony Pompliano?

  I think you've done just a fine job investing over the years. So we'll leave it there. I appreciate the time today. I learned a lot as always, and we'll definitely do it again in the future.

• 58:54Speaker 03

  Yeah, a pleasure to be here with you.