#983 Mark Yusko On Why Governments Can’t Print Unlimited Money

Mark Yusko is the Founder, CEO & CIO of Morgan Creek Capital Management In this conversation, we talk about how our economy got into this downward spiral, mistakes made by the Fed, what to expect for the rest of year & if interest rates will continue to rise, why China will become the next global reserve currency, and how we could potentially fix the current economic crises. ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Imagine coinmarketcap - decentralized. 3X in valuation is 15 billion dollars from the current price. Cryptotoday.com starts at zero, at fair launch on 7th of March. No VC. No pre-sale. Team tokens locked. For the people, by the people. For decentralized crypto. Visit http://cryptotoday.com and read the whitepaper for the details.

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. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Mark Yusko is the founder, CEO, and CIO at Morgan Creek Capital Management. In this conversation, we talk about the macro economy, the Federal Reserve, inflation, interest rates, geopolitics, and the supply chain. I really enjoyed this conversation with Mark, and I hope you do as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by BlockFi. BlockFi provides financial advice for crypto investors. Those products include the BlockFi Wallet, a US dollar loan collateralized by your crypto, and a no-fee trading product. BlockFi also released the world's first crypto rewards credit card. It's a Visa credit card that gives you crypto back as your rewards

• 0:47Anthony Pompliano?

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• 1:29Anthony Pompliano?

  spending to diversify your crypto portfolio. I've got the credit card, I love it, and I think you will too. Head on over to blockfi.com/pompcc today. Next up is Choice. It's time to stop paying capital gains taxes on your Bitcoin, and Choice is here to help. Choice is rebuilding the way Bitcoiners approach retirement by making it possible to invest in Bitcoin and 19 other digital assets inside your IRA. Right now, every time you make a trade, you have to pay capital gains taxes that can be as high as 37%. Choice enables you to trade real Bitcoin, other cryptos, and stocks without having to pay a dime in capital gains. The best part? They just released an iOS app, so you can open an account in less than 10 seconds. Ten minutes and take control of your future from the palm of your hand.

• 2:13Anthony Pompliano?

  Join me and the 20,000 other Bitcoiners who have started their tax-efficient stack and open your Choice account today. Search "stack sats" in the App Store or visit choiceapp.io/pomp. Again, search "stack sats" in the App Store or visit choiceapp.io/pomp. And one more thing, if you want to hold your private keys, Choice lets you do that, too. Start stacking tax-efficient satoshis today and visit choiceapp.io/pomp. This episode is brought to you by cryptotoday.com. Exchanges got decentralized, money got decentralized, and the only bottleneck is the very sites listing them all. cryptotoday.com is like decentralized coin market cap. It's the first

• 2:55Anthony Pompliano?

  of its kind. There's no bribes, no connections, or heavy fees are needed to get listed like on the centralized sites. You can simply request on the blockchain and disperse the prize on-chain to the community and get fact-checked by thousands of eager crypto users. cryptotoday.com treats very differently. There's no pre-sale, no VC money, and all of the team is locked up for at least one year. All the centralized competitors have valuations in the billions of dollars. cryptotoday.com started out at $0 as the first decentralized token information site. You can read the white paper at cryptotoday.com. Again, go to cryptotoday.com to learn more. All right, let's get into this episode. I hope you guys enjoy this one.

• 3:39Speaker 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.

• 4:02Anthony Pompliano?

  All right, guys. Bang, bang. Got Mark here with me. Mark, super excited to talk about this. Nine months ago, it seemed like everyone was in the froth. They were just FOMOing into every asset class. We saw everything from trading cards to stocks to, you know, literal NFTs all the way on down. Here we are nine months later, and not so much FOMO, not so much froth. What happened? And why exactly did this occur?

• 4:31Speaker 02

  The baby came pop. You can relate, right? You know, leading up to the base, it's all excitement and everything's euphoric and you got all the presents coming in. And then, bang, you know, no sleep. And, you know, things are a little tougher on the other side. Now, I think what it is, is the little boy who cried wolf.

• 4:52Anthony Pompliano?

  Okay.

• 4:52Speaker 02

  Right? When the boy cries wolf and the wolf doesn't come, everybody says, oh, I won't listen the next time. And cries wolf. And then, and I think this time, the Fed actually turned into the wolf. You know, it's interesting. When, when Powell came in, you know, he was Jerome the Hawk. You know, he, all the cartoons were him with the hawk body. And, and then he became Jay, J A Y, the dove, right? When Trump kind of put, you know, the, the needle in and said, hey, you got to help me with the market. And he backed off in 18 on, on his, hey, I'm going to raise interest rates. And the market rallied. Well,

• 5:33Speaker 02

  by 2020, I mean, he was Jay, just the letter J, the pusher in the hoodie on the corner, passing out, you know, hits of steroids to everybody. So I don't think anyone thought Jerome the Hawk would come back. I don't think anybody thought the markets would also do his job for him. In the sense that by the time he raised the second 50 basis points, up to 75, the market had already tightened two and a half points. I mean, we had the greatest tightening of liquidity in the last 100 years.

• 6:12Speaker 02

  So I think that's what changed.

• 6:14Anthony Pompliano?

  So this is a great point in that a lot of folks will argue that the way that we talk about inflation can create inflation. So if everyone starts yelling and screaming inflation's coming, inflation's coming, then naturally some business owners, or maybe even many of them, will raise prices in anticipation, and that in turn creates inflation. It seems like the Fed tried to do the opposite and talk the market down and kind of talk tough. And the longer that they did that without actually raising rates, to your point, there was a little bit of like the boy cried wolf. Do you think that there's any weight or ability for them to actually talk tough enough to get the market to move? Or does the market only care about actions?

• 6:58Speaker 02

  It's the perfect, it's the perfect question. Here's, here's what I've been saying for the last couple of months is, you know, the Fed didn't create the inflation that we're all feeling, and they can't fix it. Right? How many basis points are going to restore the supply chains in China? How many basis points of tightening are going to get all those ships stranded off the ports to unload and reload to come back here? How many, you know, basis points is going to stop the craziness on people locking down and halting parts of the economy? No way. And so that's the first part.

• 7:41Speaker 02

  And I will also make the case that the inflation that we see isn't inflation the way most people are talking about it, trying to compare this to the 70s. This is nothing like the 70s, right? 70s was about demand pull inflation, where there was excess demand and limited supplies. And then, then really a big problem with the Iran-Contra scandal and the Saudi pullback in, in oil. And oil prices spiked. And then on top of it, there was a built in problem in the way they measured CPI back there, back then, in that it double counted.

• 8:22Speaker 02

  Interest rates and house prices. And so Volcker, who, you know, everybody says, oh, he beat the, you know, beat inflation. He was actually causing the problem. He was looking at bad data, raising interest rates, which was then feeding back into the data, raising, so it was, he didn't really beat it per se. It was just it got so high that people just said, oh geez, I'm done. Right? I won't do anything at 20% prime rate. The difference is this time, we don't have demand pull inflation. We don't have good demographics. We don't have low levels of debt so people can lever up and start businesses. We have the exact opposite. We have crappy demographics. You know, people turn 65 every single day, 10,000 of them in this country, every single

• 9:07Speaker 02

  day for the next seven years. And 65 to 85 year old people don't spend a lot. They don't, you know, they're not as productive, the way we measure productivity. We have way too much debt. Debt is deflationary, not inflationary. The real problem we have is currency debauchment. What happened two years ago is we had the buffoon move by whoever, the Wefites, to lock down the world. Absolute insanity. I mean, literal insanity. And because of that, the reaction from global central bankers was print, print, print, print, print, print. Because the cult of Kelton, right?

• 9:47Speaker 02

  The Stephanie Kelton, you know, modern monetary theory people, modern monetary madness people, decided that, oh, we can print as much as we want and it won't matter. Well, no, of course it matters. Right? You used to live down here in North Carolina, where I am now. Houses, houses are up 40, four zero percent in 12 months. My house did not grow. It did not get more efficient. It actually cost me money. I have to put money into the house to keep it a certain level. It's not worth 40% more. The currency in which I value it is worth 40% less.

• 10:23Speaker 02

  That's not inflation, the way they want us to believe that inflation is good for us, that prices rise in a controlled way. That's just currency debasement.

• 10:34Anthony Pompliano?

  When I think about this, what's so fascinating is if you just take it to the extreme, and I forget who I heard say this, but I thought it was so, just so articulate. If the debt doesn't matter, if the printing of money doesn't matter, then let's just print three quadrillion dollars, right? Like, if it literally doesn't matter, then like, let's just add a bunch more zeros to the end when we're printing, and rather than have two trillion dollar stimulus bills, let's literally just do a two quadrillion stimulus bill. Now, obviously, nobody who is sane or serious would ever actually argue to do that, because it does matter to some degree.

• 11:11Speaker 02

  No, come on, if it was that easy, Pomp, we've talked about this, you know, when we first met. If, if creating wealth was as simple as printing money, wouldn't everyone do that? Wouldn't every country just print money? That's not how wealth is created, right? I mean, I have, in my office, I can go get it for you, a 100 trillion Zimbabwe dollar bill. Wouldn't buy a loaf of bread. 100 trillion dollars, right? That I own, couldn't buy a loaf of bread in Zimbabwe. So, how many bolivars does it take to buy a chicken in Venezuela? How many pesos in Argentina?

• 11:51Speaker 02

  You know, it's just this fallacy that debt and deficits, oh, but we're the world reserve currency. Well, for now, you know, the UK was the world reserve currency for 75 years. And they thought they could spend as much as they wanted, just like we do. And they thought they could invade anybody they wanted to, just like we do. And then 1913, they invaded Mesopotamia, incurred a bunch of debt. The palace started to collapse, the dollar ascended 30 years later. Bretton Woods, we became the world reserve currency. Then, coincidentally, we invaded Mesopotamia, incurred a bunch of debt. The dollar collapsed, the renminbi ascended, China became, oh wait, that hasn't happened yet. It will.

• 12:33Anthony Pompliano?

  You think, you think that the Chinese renminbi will end up being the global reserve currency?

• 12:37Speaker 02

  Yep.

• 12:38Anthony Pompliano?

  Walk me through kind of what the, the thought process of where we are today to how we get there.

• 12:44Speaker 02

  Yeah, so.

• 12:48Speaker 02

  Profligate spending in the US, right? All empires fail the same way. Whether it's the British Empire, the Roman Empire, the Ottoman Empire, they all fail the same way through massive amounts of debt. When you become massively indebted, you only got four choices. You can pay it back. Couldn't do that, right? You could tax the assets of all the people in the United States, their wealth, forget their income. Tax all their wealth. You couldn't pay back the debt. All of it. Can't do it. So you can't pay it back. So then you can restructure it. Problem is, if you structure it, someone's got to take the other side. No one's going to take the other side. Third, you can default on it. Merging markets default all the time, but we can't do that because there's no IMF to bail us out.

• 13:33Speaker 02

  And oh, by the way, if you default, what happens? You get kicked out of power and politicians like to stay in power. Fourth, you can devalue it. And that's what we will do. So we will continue to devalue. It says, oh, the dollar is so strong. The dollar is so strong. No, it's not. The dollar is down versus the renminbi over the last two years. Fact. The dollar only shows to be up because we compare it to toilet paper. I mean, we compare it to the yen, which is hilarious. And we compare it to the euro, which is just as bad. And because those went down more, DXY went up a little bit, not even a lot. But we are down versus the renminbi. Now, it says, oh, but the last couple of weeks. You know, whatever. The Chinese are playing a different game.

• 14:18Speaker 02

  They, I believe intentionally, are creating this nonsense, you know, supply chain garbage to create a greater alignment with them. They started with Southeast Asia and Africa. Now they've got Russia and they are creating this massive axis of alignment. It all are going to move to use the renminbi. And over time, the petrodollar system will weaken and erode. Without the petrodollar system, we're just a little country that does 8% of global trade.

• 14:56Anthony Pompliano?

  What is the US response in that scenario? So let's say that they are successful in carrying out the plan you just outlined. What does the US do or do they not have any options?

• 15:06Speaker 02

  Uh, great, great question. So part of it is what he said this morning, right? We will protect Taiwan at all costs.

• 15:15Speaker 02

  Really? You want to provoke the other major nuclear superpower? Well, we already provoked Russia, so why not provoke China too? And look, you've been in the conference room in Chapel Hill, right? We have a map in the table. We have four conference rooms, Brazil, Russia, India, China. And then we have a global map in the in the boardroom. And they were made in China. And the global map, there's no UK, which is clearly intentional because they hate the UK because of Hong Kong. And the China map, Taiwan is part of China. Right? There's no question that that that map includes Taiwan. So they view Taiwan as China and we view them as a separate country.

• 15:57Speaker 02

  So we'll continue to do stuff like that to antagonize a little bit. But at the end of the day, what can we do? We owe them a lot of money. They owe, they own over a trillion dollars of our debt. Technically, we have to pay them back.

• 16:15Anthony Pompliano?

  Yeah, it's crazy.

• 16:16Speaker 02

  Debtors usually lose. Over the long term creditors win, debtors lose.

• 16:20Anthony Pompliano?

  Yeah. Another topic that I've seen people talking about is GDP and debt ratio. It's about, I don't know, 130%, you know, ballpark at the moment. And obviously, everyone always talks about paying back the debt, pay it back, pay it back, pay it back. And I think you're highlighting like that's probably not nearly as as possible or realistic as maybe people want it to be. But another thing that we could do to affect that number is to grow the economy. And it feels like the the growth component, almost grow your way out, almost never gets discussed in any meaningful way. Some of that's because, you know, obviously in Q1 and kind of our hindsight bias or recency bias, negative 1.4% GDP annualized.

• 17:05Anthony Pompliano?

  So like, if we're already negative, it doesn't feel like we're gonna, you know, start growing anytime soon. But what is the realistic nature? Like, is it possible for us just to do a 180 on growth of the GDP and on the economy? And that would help us at least alleviate some of the pain here?

• 17:20Speaker 02

  Again, really good idea, really good idea. Short run, no chance. Here's why. So GDP growth is equal to working age population growth plus productivity. Working age population growth, we know with precision for the next 30 years. Because you can't make people age faster. I guess we could invent something to do that, but you can't. Well, actually, you can open up your borders and let a lot of older people in, not old people, but older, like 20s and 30s. That actually is a great thing to do. And it's how countries can, in fact, if it were up to me, I would send airplanes to Ching Hua University and IIT in India. And I'd say, all you PhDs, get on board. Come on,

• 18:05Speaker 02

  we got free land for you. Start a business. We'll give you loans. That's what I would do. But no one asked me. So, yes, you can grow, but not in the next decade. Next decade, we're going to have sub 2% GDP growth, because we know working age population growth to the second decimal point is going to be sub 1%. We know productivity is going to hover around 1% because, again, aging population, bad demographics. When the millennials, the eco boomers, start to turn 45, that's when we might get a little more productivity back. Because 45 to 65 year olds are actually really productive, because they've learned their business and

• 18:45Speaker 02

  they're in their peak spending years. The other thing we could do, but we're not going to do it anytime soon, is we could focus on innovation. Innovation is how you create wealth. Innovation is how you grow. You and I talk about this all the time, right? There are four asset classes that people talk about, that you talk about on the Best Business Show, right? Stocks, bonds, currencies, commodities. That's it. Everybody says, oh, what about hedge funds? Nope. Hedge funds own stocks, bonds, currencies, commodities. Oh, what about private equity? You own common stock, preferred stock, convertible bond. What about real estate? I own equity, the debt, equity, the deal, the debt of the deal, or the land, the commodity. There are four assets. But all of those come from innovation. Without

• 19:26Speaker 02

  innovation, we get no new companies, no new formation of assets, no new, you know, growth. And so, we could, if we were smart, like Singapore. What does Singapore do? They took their social security, and they put into an entity called Tamasic, NGIC, Government of Singapore, and then they invest in the smartest growth businesses around the world.

• 19:51Speaker 02

  And so they don't have a massive unfunded hole in their liabilities. So we could do the same thing. In fact, again, if it were up to me, I would take a trillion dollars, literally a trillion dollars. They can print them all over the place and I'd put it in a fund and I would hand it out as venture capital to the smartest entrepreneurs in the United States to build businesses. And then we would get a growth spurt, as you described, that would help. Now, it wouldn't totally fix because we got the aging population problem and the unfunded liabilities problem, social security, Medicare. We can fix social security. We just extend out the retirement

• 20:33Speaker 02

  age because people are working longer. Hard to fix Medicare, but we could, we could, again, it's a long answer to your, your

• 20:40Anthony Pompliano?

  Really figure something out, though. Yeah. And, and I think a huge piece of this is, uh, it does feel like, uh, for the last couple of years, uh, the tech industry, uh, got built up, put on a pedestal, you know, literally movies, the social network, like all this stuff. And then the last, I don't know, three, four, five years, they've been taking a beating from the mainstream media. And all of a sudden now it's been, uh, look at the scams, look at the zeros, look at the stupid founders doing all these dumb things. And like, to be clear, there was definitely zeros and scams and founders doing dumb things or whatever.

• 21:15Speaker 02

  Always.

• 21:16Anthony Pompliano?

  But on a net basis, it's like, shouldn't we want all of our children to be like these problem solvers? Right? Like, like, isn't that how we solve problems in our society? So like, I don't, I don't know. You've been doing this longer than I have.

• 21:29Speaker 02

  We could go back to my, you know, my passion. I know it's your passion too. Early childhood education. We do it all wrong, right? Our whole education system is designed to create factory workers. We don't have factories anymore. We don't produce anything. What we need are kids who can problem solve, kids who can collaborate, kids who can... I'll give you a true two-story. So my little guy, so you know, we have the two older kids and then the caboose. We took our little guy seven years ago to his tryout for kindergarten, for this nice private school here. And a whole day, literally a whole day, four-year-olds in this room. And we noticed some behaviors. I'm like, oh, what?

• 22:14Speaker 02

  Well, Will didn't like to sit on his square. I'm like, I don't want my four-year-old to ever sit on a square. Are you joking? Stop. Oh, what else? Oh, well, he was walking around the room, picking things up and looking at them. Oh, my God, he's creative. He's curious. Seriously? So obviously, we don't go to that school. But the point is, if we teach problem solving, if we put people in positions to lead, if we put people in positions to create, they will create, they will lead. You know, unfortunately, we're ruled by a political class. And that political class only cares about being in power.

• 22:58Speaker 02

  And so they cut anything. They cut head start, right? Number one indicator, whether you go to prison, score on the second-grade reading test. Number one indicator of whether you spend time in prison is how low you score on the second grade. We can fix that. That's easy to fix. Maybe we can't create a whole bunch of great entrepreneurs, but we can fix those problems. And once you fix the base level problems, then we can focus on this creativity, this innovation and growth. And maybe we can't grow our way completely out of it because the mess we're in. But we can certainly have a shot and I'd rather take a shot.

• 23:36Anthony Pompliano?

  It feels like that's the only thing that we can control, right? Cause to your point, the, the political class, the laptop class, you know, whatever you want to call the, these individuals, uh, they're in control either through elections or appointed positions. They're going to continue to play the game. If you've got a money printer, you're incentivized to print the money. And so what is the only thing that the, you know, average entrepreneur or investor can do? It's literally try to grow, right? And that is the only contribution that you can have.

• 24:04Speaker 02

  Well, and the other thing, and again, I don't want to go too far down this rabbit hole, but, but it's this whole backlash against, you know, the billionaire class and the wealthy, the wealthy are not the problem. The wealthy create businesses. They create jobs. They create livelihoods. They inspire, they lead. Our problem is the bureaucrats that, that feed off the wealthy. And, you know, like, like this latest thing where they're going to tax corporations to solve inflation. Are you kidding me? And, you know, it's just, basic economics aside, it's just a stupid idea.

• 24:47Anthony Pompliano?

  First thing. You mean that raising the cost to run a business is actually going to make them lower their prices?

• 24:56Speaker 02

  Exactly. So the, so look, the first thing is we should never tax income anyway, right? We should never tax wealth creation, innovation. We should tax consumption. Everyone should earn whatever they want to earn. And then when you consume, you get taxed. You can't cheat. There are no loopholes. There are no special interest groups. You know, when I bought this shirt, I paid tax. I didn't care about it. I just paid the tax. If I want to buy a fancy car, I pay more tax. If I want to drive my Kia, I pay less tax. I love my Kia. So the thing is,

• 25:30Speaker 02

  What we should have is a focus on creativity, creation, innovation. And by doing so, look at the massive fortunes that have been created. Everybody says, oh, you know, Bezos, he's so wealthy, he needs to pay his fair share. Are you kidding? He's paid way more than his fair share. And by the way, he employs four million people. And I love to tell a story. My two nephews both had to drop out of college, couldn't quite handle the rigor or the, not the rigor, they couldn't handle the environment, right? They're more free spirit, big thinkers. Long story short, they, I know with their father-in-law, but they got some help.

• 26:10Speaker 02

  But they have created a business that Amazon uses to tape the floors of their warehouses so the robots know where to go. They're making millions of dollars a year in revenue. I love that. I love that story. That is real. That is tangible. And they are good citizens and they are good contributors and they are inspirational to other people that know them to, hey, wait a minute, I can start a business. I can do something myself. I don't have to go to work for this, you know, nine to five thing. And not everybody can be entrepreneur. That's not my point. But we can all aspire and we can all help and we can all contribute.

• 26:52Speaker 02

  We can all, you know, push those entrepreneurs to do great things.

• 26:57Anthony Pompliano?

  I could not agree more. The last thing I want to talk to you about is during these market downturns, we obviously see stocks down, crypto, real estate, bond, I mean, just everything is going down and, you know, it goes back to this idea, it's all one trade, the Fed's in control and they're going to drive this stuff down until they feel like people have capitulated. What are institutional investors thinking about right now? When they're watching this play out, obviously they have some direct investing, they have probably much more kind of investing through general partners and through fund managers. But like, what's going through the heads of these institutional investors right now?

• 27:35Speaker 02

  So it's a, it's a great question that.

• 27:40Speaker 02

  You have to answer it in pieces. There are really great institutional investors. I was just with, you know, the Fairfax folks that you and I know well, last Thursday up in DC. So think about this, in the midst of all of this turmoil, markets crashing, as you said, every asset going down, they called together all of their private investors, venture capital, growth equity, buyouts, energy, and put us all in a room together for a day on Thursday and just had a massive idea session. Genius, right? Take people you're paying lots of money to do smart things for you, and let's see if there's some opportunities that come out of all this turmoil.

• 28:22Speaker 02

  And they got some really good ideas. So the really smart ones, like Catherine and Andy, are going to do that kind of stuff. The less smart ones are going to do what human beings do. Human beings do two things really, really well. We buy what we wish we would have bought, and we sell what we're about to need. You and I debated this this morning, actually. So the problem with most investors, and institutions a little bit less, but they're just as guilty as the individuals. The individuals are the worst about this, right? They constantly buy the top and then they sell the bottom. But the institutions also chase hot dots. And so there are some institutions that are looking around saying, well, there are no hot dots. So what do I do?

• 29:06Speaker 02

  So they are probably selling some things, like all the nasty stuff about the hedge funds and the Tiger Cubs and all that stuff. There are people they're going to try to redeem from those things. That's probably a mistake. You know, one of the things about investing that I tried to live, and I was actually decent at it, but not perfect. But what you should do, you should never buy something that has had a hot three-year period. You should sell that because it's going to mean revert. What you should do is find somebody who has a great 10-year track record, who's just had a terrible one, two, three-year run, like, and the worse the better,

• 29:48Speaker 02

  and give that person money. So there are some that are out there doing that, and those are the real geniuses. I think the last thing is... I think something that's being talked about at the institutional level a lot right now is the same thing that's being talked about at the individual level, which is, well, wait a second, this is different. What about all these assets that were supposed to be uncorrelated? Why are they all going down at the same time? I thought bonds were supposed to not go down if stocks went down. They're supposed to be a safe haven. I thought gold was supposed to be a safe haven. I thought crypto was supposed to be a safe haven. I thought international stocks weren't supposed to be correlated with US stocks. Well, here's the problem. The everything bubble, which was the result of the excessive central bank liquidity around the world, caused all

• 30:33Speaker 02

  assets to move to stupidville, right? You mentioned the market cap to GDP, right? Worse than 2000, price to sales ratio, worse than 2000. So equities got to stupidville. Bonds, listen to Greg Foss on Twitter, right, rail about this, got to stupidville. And everything, commodities and all of it went up. And so what happened is when they cut off the liquidity, the first thing started to correct. Well, the problem this time was people didn't just buy with cash, they bought with margin. Everybody bought with margin, even some of the institutions bought with margin, because the Goldman Sachs's and others for J- were giving them margin. And so we had the

• 31:13Speaker 02

  highest margin ever in history. Well, when you get a margin call, right, your stock falls 20%, you get a margin call, you're supposed to put in more money. You don't get to sell what you want to sell. You sell what you have to sell. You sell what's most liquid. So that's what causes everything to fall. And you saw it in March of 2020, and you've seen it in the last two, three weeks here. And when that starts to happen, people start questioning the whole theory of diversification. Now, Markowitz won the Nobel Prize, and I have a T-shirt that says Markowitz was right. And it does work. But in the short run, it gets temporarily suspended. And I think that does prompt some people to make bad decisions. So you got to avoid that urge.

• 31:56Speaker 02

  To make those bad decisions. And, you know, I've said this to many others, many other times, but investing, I think literally is the only business I know. When things go on sale, people run out of the store. And the cheaper the price, the further they run. Think about any other business. You put wedding dresses on sale, they all run in the store. They don't run out of the store. They run in the store.

• 32:18Anthony Pompliano?

  When you think about prices going up of assets, there's lots of talk about hold them, they're compounding, you know, the Charlie Munger, Warren Buffett, never interrupt, compounding unnecessarily. Then there's another school of thought of rebalancing and kind of hitting your allocation target percentages, et cetera. What do the institutions do on the way down? Are they rebalancing? Are they trying to take, let's say, a pension fund as an example, like, do they try to maybe not pay out as fast? Or what are like the tactical things that they do on the way down that maybe people aren't aware of, where they're trying to essentially stop the bleeding, maybe, or at least address the problem?

• 32:57Speaker 02

  Yep. Now, again, two really important points. So one is, is the rebalancing, the good ones, right? The Swenson acolytes, et cetera, you know, rest in peace, David, they do rebalance. And that was something that, you know, I was always really proud of the way we did that at Carolina and at Notre Dame is, is we're very active rebalancing. Because when you're in the endowment business, or the pension business, you're not in the get rich business. Concentration makes you rich, diversification keeps you rich, and rebalancing keeps you richer, because you're constantly buying cheap and selling dear. All great fortunes in the world came from concentration. How do you create a small fortune? Start with a large fortune and stay concentrated. So there will always be cycles.

• 33:41Speaker 02

  And if you can hold forever, right, in a tax-deferred structure like Berkshire, you should do that. But, and you should lever up, that's what they do. But most people should just constantly rebalance with a good plan. They should have some get rich money. I would say you should have three buckets. Liquidity bucket to fund your lifestyle, a get rich bucket to do all the fun stuff, the friends condo deal, the brother-in-law's venture deal, you're going to lose it all anyway, so just make it small. And then stay rich bucket, diversify that. And these institutions are looking at that stay rich bucket and saying, okay, my equities just fell a lot. My tech equities fell more. Let's go buy some stuff that's on sale. Maybe buy some Chinese equities, maybe buy some of these, these cloud companies. Although I think the cloud companies are still too expensive.

• 34:22Speaker 02

  Then on the flip side, they're looking at their private port. And here's the one problem. The very best of the very best. The Yales, the Notre Dames, the UNCs, et cetera. The very best of the very best in performance. They have this lag problem. The public markets adjust immediately. And then you have a denominator problem because your private markets don't adjust. And so you have a denominator problem in that your total fund value went down. So you're waiting in private went up, but you can't really sell unless you sell in the secondary market. And then you're going to take a massive haircut because there's very little liquidity. So doing that doesn't make any sense.

• 35:02Speaker 02

  So you have to actually talk to your LPs and say, well, how far are valuations actually going to fall? Because they're going to fall. Um, but they'll be sticky down instead of immediate. Because in private, it's the escalator up. I mean, in public, it's the escalator up and the elevator down. Right? In the private world, it's the escalator up and the escalator down. It just takes longer to come down.

• 35:26Anthony Pompliano?

  What's your read on a lot of the major hedge funds? So we've seen Tiger Global, D1, you know, a whole bunch of it. It's not just any one of them. Uh, obviously, the more tech oriented or growth oriented they were, the more their public losses seem to be. Uh, but also they had started to push into the private market.

• 35:43Speaker 02

  Private.

• 35:44Anthony Pompliano?

  And, you know, I've heard some of them are pausing private investing. Some of them are drastically slowing. Some of them have even said, hey, we're getting out of that business. Like, just walk me through if one of these major hedge funds, like, what are some of the things that they're dealing with right now? That maybe people aren't aware of?

• 36:01Speaker 02

  Oh, so, I mean, lots of issues. Uh, one, some of these guys have been so incredibly successful. You know, uh, Tiger Global is a great example. You know, they, they had a, had a $30 billion hedge fund, but they also had 70 billion in private investments across 13 or 14 funds. I remember, you know, when we gave them $1.6 and 7 million, when they were just starting as Tiger Tech. And they were teeny tiny. And that, that firm is, is one of the great investors of all time and this year notwithstanding. You know, they overstayed their welcome on the long side. You know, like a lot of hedge funds, they let their hedges down because for 10 years in the QE era,

• 36:45Speaker 02

  it didn't pay to hedge, right? If you shorted anything, they came after you and they squeezed you. And, you know, we've all seen the meme stocks, you know, stories and, and Melvin and all that stuff. But it was just really hard to short. And so what tends to happen, unfortunately, and we, we've seen this now in two different cycles. We saw it in the 2008, nine cycle and we're seeing it again now. Unlike the 2000, 2001 cycle, which I'll talk about in a second. But this time what happened is, is that the pressure was so incredible against the short side is that hedge funds came into this deleveraging, the, the largest net long they'd been a long time. So they're taking it on the chin there.

• 37:28Speaker 02

  Now, the good news is most of them, you can't get out, right? Literally, you can't get out for three, four, five years to get all your money back. So they'll be fine. On the private side, I think the good ones will, will continue. And I just saw Co2 just did another great deal today. I think the good ones will, will continue to do well. I think the ones that were tourists that were trying it because everyone else was doing it, they're done. I think they're going to be out because they reneged on some deals in the stress period or last six months. And their reputation suffered because of it. I don't think they'll be invited back. A deal that we did with someone who shall remain nameless, you know, referred to them as cap table hackers. You know, that's, those are strong.

• 38:11Speaker 02

  The other piece I'll, I'll talk about is this, this idea that, you know, hedged with a D matters. So if you go back to 2000 to 2002, and I will argue that we're in 2001. Again, I call it the 2001 redo. So we had the tech bubble and everybody forgot about hedging and the D got lost. And most hedge funds got whacked in 2001, 2002, but there were a handful, most of them Tiger Cubs and some Soros acolytes and a few others that actually had a capital D and they did great. And now the thing I'm probably most proud of in my whole career is from 2000, 2002,

• 38:54Speaker 02

  when the markets were down 40% and the average endowment was down 25, we at Carolina were dead flat.

• 39:02Speaker 02

  Yeah, we didn't make any money. So I won't break my arm, pat myself on the back. We didn't make any money, but we didn't, um, we didn't, uh, lose any money. And that goes to your second point, which is true. In downturns, endowments, foundations, well, foundations can't do it. Endowments can do it. Foundations have to spend 5% a year because of tax code, but endowments have something called a rolling 12-quarter average of their market value. And so as the market value declines, they will pay out less to preserve capital so they can buy the cheaper stuff. And that does make sense. Now, again, it doesn't help, like in 2002, I remember colleges having to cancel scholarships and cancel professorships.

• 39:44Speaker 02

  That's painful. So then, again, most proud of is we never had to cut spending at Carolina. So if you do constantly rebalance, which was one of the hardest things, I remember arguing with my board, you'll love this story. So March, February of 2000, I go in and say, guys, we need to rebalance. Like, what do you mean rebalance? I said, well, we're at 36% in, in domestic equity. We're supposed to be at 25. Well, what do you mean supposed to be? So, well, the investment guideline, I mean, the investment policy, I call it the investment policy. The investment policy, oh, we're the board. You know, you brought that investment policy. We don't even like the word policy. Change that word to guideline. Like, okay, fine, change to guideline. Didn't get signed in. Come back in May, market started

• 40:27Speaker 02

  to roll over. Like, all right, fine. You can take the allocation back to the top end of the, the guidelines, but, uh, no more. Cause these are our best managers. You know, they did so great the last year in 2000. Like, okay, by September, they're like, get that shit out of here. And remember that thing, change it back to policy. We like the word policy.

• 40:47Anthony Pompliano?

  It is, uh, it's incredible how, uh, this, you could literally be talking about right now, right?

• 40:53Speaker 02

  Oh, we are talking about right now. We are talking about right now. It is 2000 because what's happening right now, all the fraud, right? All the corporate fraud, all the grift, all the stealing is being exposed, just like in 2001, Enron, WorldCom, Cisco had to restate all their earnings, just like they just, oh, well, maybe we overstated some inventory. And so.

• 41:15Speaker 02

  The problem is, people forget 2002 was the bad year. 2002 was the down 23% year. So I'm not, I'm not saying we have to go there. But if we make policy decisions that exacerbate the problem, we could go there.

• 41:32Anthony Pompliano?

  So I think this is a good place to, to wrap up with my last question, which is, as of right now, give or take, the market is pricing in what will be 10 rate hikes in interest rates, and that we will reach a 300 basis point interest rate by the end of the year. I don't think that you believe that that is going to happen, but you can confirm that.

• 41:57Speaker 02

  I take the under, take the way under.

• 41:59Anthony Pompliano?

  And so what do you think is likely to happen? Do we get five, three? Where do we end up at as an interest rate at the end of the year?

• 42:07Speaker 02

  Look, I, I was correct in March when I said, no way 50. Lucky if he does 25. I was incorrect in May. I said, no way 50, no way 75, no way 75, and no way 50. I thought maybe another 25. He did 50, surprisingly. If you put my feet to the fire pump, I'd say he's done. I think the Powell pivot is coming any day now. And he just, there's just no way. I think he needs a couple prints on CPI to roll over.

• 42:48Speaker 02

  You know, as oil prices stop going up and as used car prices start to mediate, ameliorate, because that's really 75% of the CPI increase. I think if he gets two months of, of kind of flat to down, he can back off. I'll say five this year, you know, half as many as the market expects. And I think maybe we get to a buck and a quarter, maybe.

• 43:13Anthony Pompliano?

  Yeah.

• 43:14Speaker 02

  I don't think there's any way, maybe get to a buck and a half, maybe half and half. So five and a buck and a half.

• 43:19Anthony Pompliano?

  So I'm biased in this last question because I think this is going to happen. But do you think we get an interest rate cut before the end of the year?

• 43:30Speaker 02

  I do, I do.

• 43:31Anthony Pompliano?

  Yeah.

• 43:32Speaker 02

  I, I think, I think this fall is gonna be bad.

• 43:37Anthony Pompliano?

  I don't think you can go into a midterm election with

• 43:40Speaker 02

  Yeah.

• 43:41Anthony Pompliano?

  uh, any level of inflation would be bad.

• 43:44Speaker 02

  Oh.

• 43:45Anthony Pompliano?

  But the thing that's worse than that is a recession.

• 43:48Speaker 02

  Look, I, you're exactly right. I mean, we know for a fact that the number one indicator of success of the president's party is gasoline prices. Number one. I mean, inverse relationship. Low gas prices, they sweep. High gas prices, they get swept out. And right now, at 750 in California, they're out. I mean, like, like, they're all out.

• 44:14Speaker 02

  If they could, they'd get rid of the president in the midterm at 750. I mean, just done. Uh, and then the second thing we know is that they actually can control oil prices if they can get Saudi to play ball. Now, arguably Saudi doesn't want to play ball because they won't return his call, but if they could get Saudi to pump, they could get oil prices to roll over. That would collapse CPI and that would get people thinking that we'd be out of the woods on a recession. But remember, recession doesn't mean back to back quarters of negative GDP. Okay. And that's why I think we're in 2001. 2001, first quarter was down 1.3, kind of similar to this year. Second quarter was actually positive.

• 44:58Speaker 02

  Third quarter was negative, exacerbated by 9/11. I'm not saying we're gonna have a 9/11. And then fourth quarter was slightly positive. The year was 1%. But anything sub one and a half is a recession. And so I think we're gonna have the same kind of mild recession, barring bad decisions, right? We put up more tariffs, it gets worse. We do lockdowns, much worse. So there could be some policy errors that make it worse, but I'm with you. I, I think, uh,

• 45:32Speaker 02

  We're gonna, it's gonna be very clear that we're in a recession. I think we're already in. And whether it turns from a garden variety recession into a depression, I'll leave you with one depressing point. In 1840, the government made a number of policy decisions that turned a garden variety recession into a depression. In the 1930s, government made two policy decisions, raising rates and Smoot-Hawley, that turned a garden variety recession into the Great Depression. Now we're 90 years late. There's a 90-year cycle. Go back and read about it.

• 46:09Speaker 02

  J D Ghan. And I don't think it necessarily has to happen, but the picture of the ships off the ports in China actually scared me. That was actually a frightening picture because I know how close we are in just time inventory and how broken the system is. And then you throw on top of that, you know, wheat production problems and all the things you talk about in your, your daily newsletter. Again, don't have to have a depression, but it's not a zero probability.

• 46:46Anthony Pompliano?

  Yeah, it's a, it's crazy to me. I mean, the, if you had said in 2020, when Biden got elected, if we would be here in this situation, I think very few people would have put a high probability on it. But what's even crazier to me is regardless of your politics, the sitting US president in the latest poll, it's like two out of every 10 Americans think we're headed in the right direction. It's like, forget who the president is, forget political parties, forget like, to me, it's just like, man, that is a low, low, low number. Because usually you just expect kind of like partisan politics, right? It's like, oh, okay.

• 47:27Anthony Pompliano?

  You know, my person's in, cool, I'm cool with whatever we're doing. Oh, the other person's in, I'm not cool with it. So you get kind of like a 50 50, maybe we get like a 60 40 in either direction. But a 20 80 is not what you would expect.

• 47:41Speaker 02

  Not what you want, not what you expect. And I'll, I can't, I'll leave you with the other frightening thing. I used to say when, when W was proximate to the Cheney presidency.

• 47:54Speaker 02

  I knew who to be afraid of, right? I mean, Dick was in charge and we all knew and it was fine. And I, you know, I love W. He's a great guy. That little faux pas recently was pretty wild, but, but I think he's an interesting guy. Now I don't know who to be afraid of. Cause it ain't, it ain't, it ain't the guy sitting in the main seat and it ain't the woman in the backseat. So I just don't know who to be afraid of. And that, that makes me more afraid than ever. Because if I don't know who to be afraid of, I don't know what to expect. And if I don't know what to expect, I don't know how to prepare. And so I think, again, for people thinking about this or listening to it or watching it, the way to prepare is to have a lot of personal liquidity, right? Have more liquidity than you normally

• 48:36Speaker 02

  would. Have a little bit of kind of running money. And, and, and, you know, we made it the whole time pump without saying Bitcoin. I, I am impressed. We made the whole show without saying, but, but you gotta own a little. You just have to.

• 48:55Anthony Pompliano?

  If people understand the problem, the solution becomes more obvious, my friend.

• 48:59Speaker 02

  Ah, there we go. We, at the beginning, you said how you were going to finish and you just did. I love it.

• 49:04Anthony Pompliano?

  All right. Where can we send people to find you on the internet or learn more about what you guys are doing across all the different vehicles at Morgan Creek?

• 49:12Speaker 02

  Yeah. So Morgan Creek Cap, C A P dot com is the website. Morgan Creek Capital Management and Morgan Creek Digital. And then at Mark Yusko on Twitter. My DMs actually do work. I stink at most every other form of communication, but the DM I am not too bad. Texting, I'm actually pretty good too, but I'm not going to give that number out.

• 49:35Anthony Pompliano?

  All right. Well, I appreciate you, you coming on. I always enjoy talking to you about what's going on in the world because I think there's just more and more craziness, which leads to more and more complexity. And so as you unpack it, it becomes just fascinating to think about.

• 49:50Speaker 02

  Well, I, you know, we don't get to do it often enough. We talk all the time, but we don't get to do this nearly as often as, as I, I would like. I have loved our conversations over the, the many years and appreciate the invite tonight.

• 50:04Anthony Pompliano?

  Of course. Thanks so much. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite

• 50:12Speaker 03

  Player and if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three week intensive training program with over 50 events packed into that three week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.