The Japan Playbook Is Coming To America — Here's What It Means For Your Money

Right now, I think we're going through some sort of weird phase transition. And normally, when you get bad economic news or you get bad jobs data that people are going to fly to safety into the bond market and then that causes rates to go down, but that's not actually happening right now. We've got long-term rates going up. What broke the bond market? So, what we're seeing right now is something we haven't seen since 2007, which is just one year before 2008 global financial crisis. And it's just that the bond market, who I always say are like the smartest really dull people on Wall Street who actually control the world, they are saying we don't really trust the US government because you guys are spending at an insane level. Now, we've all kind of gotten numb to that because 40 trillion debt just sounds like a ludicrous number, right? >> What's 40 trillion between friends? >> Exactly. It's meaningless if it's an extra trillion or 10 or whatever. But the problem is that the higher that interest rate goes, the higher the cost of paying for that debt. >> So I think the US paid what is it trillion and 1.4 trillion or something in the last year, >> which is a crazy number. >> But if that rate goes higher, it's going to cost trillions and trillions more over time. >> So what broke it is is a bunch of things. It's Japan, um the war in the Middle East, it's inflation, it's oil prices. There's a lot of stuff that kind of factors into that. But the panic we're seeing now from the US government, which is we're going to buy our own debt, which sounds kind of like a Ponzi scheme, quite frankly. Um, and it's not that far off. It's sort of a clever idea if you're trying to manipulate and massage the market. So what they're doing is they're basically buying their own debt that's like 10, 20, 30 years long because that's the stuff that's getting really expensive because the bond market saying we think the US is going to be in trouble in 10 or 20 or 30 years because of the way they're spending. So how they doing that? Well, they haven't got any money. So they are basically issuing short-term IUs into the market, but nobody wants to buy them. Surprise, surprise. So who's buying them? the Fed, which is basically the US government, >> but it kind of isn't on paper. So, they're buying their own debt, and that's called money printing. Now, the US government will tell you, you know, it's not money printing. It's not even quantitive easing, which is what we did during co, which was not going to cause inflation, they kept telling us, and then it did. >> Uh, so they're calling this now um what are they calling this? Some sort of u liquidity easing or something, right? >> Insert fancy name in to distract you here. Okay. So you started with the debt and so there is a knowable set of chain reaction um steps in the causal chain of rates going up and so when I looked at debt I was like oh this is clearly going to be a problem and people sort of laughed it off new guy doesn't know what he's talking about is it really as simple as if you let that debt get out of control then your interest payments become so burdensome that anybody who understands the way that the economy works knows you're eventually going to have to default on that. Either hard, meaning I'm just not going to pay it, or soft, I'm going to inflate it. >> Essentially, yes. Now, no one's going to default. Like, that's never going to happen. >> Hard default. >> Hard default is never going to happen. Look at Japan. They've been running this scheme since the '9s, right? 30 plus years. Um, which they're now in a position where Japan owns all of Japan's debt. And that's probably the path the US is going to go on. But Japan's debt has actually come down. So how the heck has that happened? Well, it's come down compared to the size of their economy. And that's what you were alluding to, which is like deflate this debt away, which is basically you create inflation and you let inflation run at a higher rate than the interest rate essentially. So thereby you are growing the economy on paper and that then overall reduces how much debt there is compared to the size of the economy. So the debt will still go up but the economies will sort of outgrow it. That's the idea and that's the only way anybody has ever gotten out of this sticky mess. Like if you look at the US after World War II that's exactly what they did. If you look at the 70s that's exactly what they did and they're doing exactly that playbook again. Now sounds super abstract but it matters to people. If you take a $1 1971 right now and you go out and spend and buy something with it, it's worth seven cents. >> Jesus. >> According to the government. Now, if you compare to what the stock market has done since 1971, which is how I measure inflation, by the way, I think inflation measures complete nonsense. >> Use the stock market. >> I look at the stock market. So, the stock market's gone up about 70% the last three years. That's inflation to me because the people with money, they got that much richer. >> Okay. But wait, are you saying that the stock market actually hasn't gone up in real sort of growth terms? It's not increased productivity. It's not better companies. It's not what AI is doing or even necessarily the promise. It is simply >> money has flooded in there to avoid being inflated into oblivion. And therefore, for the essentially the same product, the stock >> that this is really just the dollar losing value >> mostly. Yeah. Whoa. >> There's a little bit of that. If you had to swag it, are we talking 9010? We talking 982? >> I would probably say 8020. >> Okay. >> Yeah. So, it's it's mostly money printing. >> Still massive. Okay. >> So, we're not geniuses investing. No. No. We're just not really really getting punished by all the money printing out there. >> Have you ever seen the uh the meme where it's like uh dummy says that it's the debt, the the midbrain guy is like, "No, it's way more complicated than that." Uh, and then the super genius says exactly what the the dummy says and goes, "No, it's just the debt." Is that like this really does feel like it's money printing stupid? Like if people are going to inflate the money supply >> and look, that gets complicated and and I can certainly explain it, but I'm not going to go down that rabbit hole right now. But is it really just watch how much they're money printing and that's going to give you the direction of travel or are there like far more technical things that smart people pay attention to? >> So I think there's two ways of looking at the market. One is like if you're a beginner investor, if you were in the index fund, it's mostly money printing because you're just buying the whole market, right? Okay. >> Just get in avoid inflation >> and you're avoiding inflation. Um you could also buy gold. Gold doesn't go up. is the dollar that goes down, but it still protects you from the dollar going down. Um, the more skilled money, I would call it, not smart, but just skilled, which is the guys on Wall Street and the hedge funds and so on, they will jump around all the pots of gold within the market. Like I always picture the stock market as like a it's like a chessboard, 140 little industries, and they keep moving money around and that's how they make more money than than the average. But essentially what's driving all of this is just money. It's just money being printed. Money will always seek a return. So therefore the stock market goes up, right? >> Okay. If the people paying attention to the bond market understand that this is just money printing. Yes. >> Why can't we just or why can't Bessant just let the interest rate go up and then it will hit some sort of normalization period and we're fine? >> Well, when interest rates go up, government interest rates go up. Again, sounds very abstract. What's tied to it? It's your mortgage. It's your car loan. It's your credit card. It's the cost of building a factory in the US. It's the cost of investing. Everything goes up. So, the economy grinds to a halt and you get a massive recession. You get massive unemployment and people get voted out of power, which is why politicians don't want to tax you more. They don't want to cut spending. So, they don't want to take the sort of responsible route out. But at this point, it's too late to take any responsible route out because you can't actually reduce this debt in a kind of rational way like we would just like try to balance the the books. It doesn't work anymore. So there's only one route at this point and it's print money. >> Why doesn't it work to balance the books? >> The deficit is what? Two trillion >> a year. Yeah. >> Yeah. So where would you cut that from? Social Security. You're going to get voted out tomorrow. You're going to stop spending on wars. That's not going to happen. like there is just nowhere where you can cut this money. >> So it's not politically viable. It's not that we couldn't, we just won't. >> You get fired. So if you know you make business decisions, you're not going to take one that's going to bankrupt you or it's going to make you lose your job. >> So if you're politician, you're going to take the rational route, which is let's you know, >> ever since I came into this and started really understanding money printing, started understanding debt to GDP, uh without taking into account yield curve control, which you were talking about in terms of Japan. But if we set aside yield curve control for a second, we'll come back to it. You basically run into a problem where I think you end up on a clock. And for me, I'm swagging that clock at 10 years from when I started counting this, which is a year ago. So, I figure we're about nine years out from the debt becoming so burdensome that we will have inflated the debt so much that inflation will be even worse than it is today. Which I think is a big part of the reason that we're headed towards I'll call there's a revolutionary energy in the air in America. And I think within 9 years that pushes all the way into actual revolution because if we don't do something to change course the the people on the bottom of the K will be in such a bad um position that they simply will not tolerate it anymore and you'll um it will probably look something like electing so many socialists that they break the economy. It will be something like that. Uh, does that seem naive or does that seem like a likely path of travel? >> Okay, the way I look at it is that if you earn a salary or if you have savings or both, they will lead to poverty. And that sounds >> in an inflationary environment. >> Yes. Because the value of that, you know, someone making a good salary, 100k salary, well, if you look at the example I started with the 1971 thing, which is now worth seven cents, $1. So your 100k becomes 7K, right? So that's the that's the journey that we're on. So therefore, yes, people are going to get insanely frustrated by this. It's going to make average people's lives very very difficult. Now, you're probably much better positioned to comment on like what the Americans are going to do about it because, you know, I don't live in the US, >> but it's a it's a tax. Inflation is a tax on people who earn a salary and on people who have savings. So it's your pensioners and it's the people who are just, you know, ordinary people, >> right? >> And the problem is though that that is the most acceptable tax a politician can put out because they don't have to announce it. Nobody realizes what's going on. And that's why, you know, I'm grateful we talking about it because the more people understand this and that there is actually a way out of this uh to protect yourself because >> you mean for the individual. for the individual because the rich are not getting poorer, >> right? They're getting richer from this >> right now. One of the things that I worry about and this will be the ultimately um this interview is going to answer the question, what do I do with my money? >> But I first want people to understand why they should be paying attention to the bond market, why precisely it's breaking and then what's going to be done about it and then what those consequences are going to be. >> So for a mile marker for everybody paying attention. So we've got the debt becomes the huge problem. That's sort of the lead domino. It's not the only domino, but it's the lead domino for why uh the bond market is breaking. Now, I want to get into what Besson is going to do about it. But the sort of punchline of all of this is they're never going to take, you didn't say honorable, but forget the exact word you use, but I'll say honorable, like the actually uh fiduciary responsibility to the country kind of way of like we got to do austerity. We got to stop deficit spending. We won't. That's what we should do. Uh, and if we did that, that's one path out of the need to money print. Another path out is the soft default of money printing, which we're certainly going to do by buying our own debt. So, you've already explained that. I want to go deeper into the the Japan of it all. Sure. >> So, one, I want to understand how on earth, cuz um I've been to Japan in the last, you know, 20 years. It's amazing. It's a great country. Incredible. So beautiful. Um why is the just keep racking up the debt if it worked for them what are we doing differently that makes it not work for us? Um we'll start there. >> Okay. So Japan you know was this booming economy and then it stopped and they got into deflation. >> Okay. So we're like what 1990ish >> something like that. Yes. >> Bubble burst 8990. So they just kept the economy going through stimulus, more spending, basically handing checks out to everybody sort of type thing. And it kept the economy on paper afloat. And what it did also is created enormous amount of debt. So they're like indebted like a banana republic. You >> expect 230% or something. Absolutely insane. >> Crazy amount. >> But who's going to buy that debt? Well, nobody. Because the currency keeps falling in value and nobody wants to own something keeps falling in value. So what do they do? Well, the central bank bought most of the debt and the other part of the debt is bought by their pension funds and their financial institutions. So Japan owns pretty much all of its debt. So they in theory can keep this Ponzi scheme, if we can call it that, going. Um, and what they've now managed to do lately is they've actually managed to create inflation again, which means the debt is going down compared to the size of the economy, which is the eventual path out. The US has a bigger problem because for example, Japan owns a lot of that debt. Now, if Japan starts selling that debt or doesn't want to buy it anymore, you need to create new demand for this debt. So, the US isn't this sort of purely US economy where it's all US, you know, holders of debt because the US has since 1944 basically been the currency of the world and it's kept your dollar quite strong. It's made Everybody wants it. >> Everybody wants it. It makes your your iPhones cheap and your imports cheap and it makes it, you know, feel like you are traveling in a third world country when you go on holiday in the south of France, whereas we think it's incredibly expensive. And um so it gives you a benefit as a consumer. The American consumer has been very strong, which is what most of your economy is. But and your vice president said this the other day. He said that being the reserve currency is what was the word he used? Um he called it a resource curse. >> A curse. Exactly. That was the word. Because it keeps your dollar strong, which means your exports are really expensive. So we had this much bigger picture of you have a government who's actually looking at fundamentally changing your system. But it means that eventually your foreigners are not going to buy you your debt anymore. Right? Because if the dollar goes down, why do I, as a non-American, want to own something that's going down in value? I'm not going to do that. So, central banks around the world have always held dollars that's changing. Part of that is also the the Russia story, which we can maybe go into a little later. >> But essentially, the US is in a bind where it needs to create demand for its dollars and for its debt. Um, but at the same time, they actually want the dollar to go down. So they're doing that through crypto stable coins. The Genius Act is a genius way of basically creating artificial demand for your your own debt. >> Explain how that would work. >> So the Genius Act is a funny piece of legislation. It's got nothing to do with crypto in my humble opinion. It requires if you own a stable coin like Tether or something, you have to put that money into US government debt to back it to back it, right? So you now get your four 5% interest. You are prohibited from paying that interest out which makes it very profitable for you. So the banks obviously lobbied for this. >> But what it's done it's already created I think Tether is now the 17th largest holder of US government debt. >> Yeah. >> Bigger than most countries right overnight. And expectations are it's going to hit about two trillion not just for Tether but the whole the whole stable coin market as a whole. So suddenly you've got two trillion of debt refinanced at home. it's compulsory and no one really notices. So that's a very clever way of doing it. So they're creating these kind of mechanisms to protect the system by themselves a little bit of time. But ultimately it's it's going to be money printing like people are going to pay for this. >> We'll be right back to the show. But first let's talk about where creators actually end up spending their time. You film for an hour but you all know you end up spending like 3 hours editing that 1 hour. Capturing the footage [music] takes the least amount of time and then the part that when it's done well, nobody even sees [music] or notices is the thing that eats your whole day. Let Opus Clips AI take that work off your plate. Upload your footage and their AI pulls in relevant B-roll [music] automatically. It enhances your speech, strips out the background noise, and cuts every filler word without you ever needing to touch the timeline. If [snorts] you need a voice over, just drop in your script and their AI generates natural sounding narration on the spot. You can also upload your own videos and images to build branded intros and outros. [music] No editing knowledge is required. You point, you click, and Opus Clip handles the technical work [music] while you focus on what actually grows your channel. Try Opus Clip for free today and get 50% off your first three months on the Pro monthly plan when you click the link in the show notes. Right now, let's get back to the show. Okay, so anybody paying attention to the bond market right now is going to have two beats in their head. Beat number one was Bessant uh writes famously on a notepad clearly for people to see this that I'm gonna buy 5 to 10 billion of Japanese yen. Yeah. um one, who benefits by us buying Japanese yen and who would be hurt if the yen continued to decline in value? >> Okay, so the to understand that and to answer that, we need to understand what's called the carry trade. And the carry trade is a funny thing where for the last 20 years, US hedge funds and funds generally have borrowed money in Japanese yen at pretty much zero interest. That's free money. And then you take that money and then you buy US government bonds with it. You buy US stocks with it. And now you're getting your 5%, your 10%, your your whatever. And so it's it's like free lunch basically, right? It's amazing. >> But what they then did because the financial industry I was a part of for a little while is very greedy, they leveraged that. So they borrowed on top of it. And that leverage can be 10 times, 20 times, maybe 40 times. So if you borrowed at 40% 40x and you then invested that money in say the US stock market, the US stock market goes down 2%. You've just lost 40 uh 80% of all your money. >> Whoa. >> So a single day down of 2% basically wipes out your fund. And that's a problem. >> So I would say >> it's a little bit of a problem, right? And we're talking estimates are it's trillions. Nobody knows quite how much. It could be 10. It could be 30. Nobody really knows because it's sort of between institutions. So we saw this a couple of weeks ago on a Friday where the market dropped very rapidly in 40 minutes and we lost good part of a trillion dollars and that's when the government was like yeah we need to have a plan B against us >> because they're worried that too many people will get wiped out and it will cause global recession. Like what's >> it 2008 banks will fail, right? Which is what happened in 2008 >> because the banks themselves are borrowing on margin. It's either the banks or the funds are borrowing from the banks, >> right? And so if they go under, debts become bad. >> Got it. >> And nobody knows where the debt stops, which is the same as 2008. >> Say it's 10 trillion. You don't really know who's ultimately on the hook for the 10 trillion, but it's too much money. >> So why is this happening? Because Japan wants to get out of this world where the yen keeps falling in value. And if the yen goes up in value, what's the problem with the carry trade? Well, you borrowed at no interest, but if you have to repay yen that are now worth more, so you need more dollars. So, what are you going to do if the yen goes up? If you were that that fund, well, you're going to close your trade, which means you have to sell US stocks and US bonds to pay back the yen, right? It sounds really, really complicated, but it's really just like you're borrowing from your neighbor at 0% interest and you invested it somewhere and now you need to pay it back. you need to sell the thing that you invested in. So a lot of the stock market and nobody knows quite how much is held up by this Japanese yen trade. >> Okay. So that's beat number one. So we see Bessant is like, "Oh, I'm going to help Japan out." But in reality, based on what you just said, he's certainly helping the US, maybe helping the broader world avoid the rapid unwind of all this. Uh first of all, much of it borrowed on margin. Those guys could collapse. And then just everybody sort of pouring back in to sell off their positions is going to suck liquidity out of the overall system because everybody's selling stocks. That's going to lower the value. You get into a desk. >> Everyone gets like like Korea just you get margin call the whole thing collapses and it's >> and it goes fast, >> very fast. Yes. >> Okay. Beat number two is while Bessant is saying that he's going to defend the Japanese yen, he comes out and says that we're going to defend the US bond market as well. So, what's going on there? And why shouldn't everybody read these moves as somebody panicking? Or should we? >> Well, I think it is they're blinking, right? They're kind of saying when a government steps in to bail out another country's currency, you know, you're not in a happy market, [laughter] >> right? Because in a free market, this isn't meant to happen. And when a government steps in to artificially reduce its own interest rate, not by lowering interest rates, but by buying its own debt with money it's freshly printing, again, you know you've got a problem, right? So, they're kind of like given it away, but they are explaining it in such a complex weird way that nobody really realizes, right? Like the Fed has given a basically lending to Japan. They they used one of those accounts they have that are normally set up for US banks so they don't go bust. >> FEMA. >> Uh yeah, exactly. If I may, I don't know. >> And they've done this they did this to um Switzerland a couple of years back and then one of the biggest Swiss banks collapsed the week after. >> You've called it the like world's pawn broker like what what how does it work? >> So it's a it's a pawn broker. So, Japan walks into the porn broker, which is the US government or the Fed officially, and says, "We own your debt, your IUs. I'm going to deposit them here, and you're going to give me dollars for them now, but I still own them." And it on paper, therefore, doesn't look like Japan is selling US debt because it didn't sell them. It just deposited them in the porn shop, >> P A WN, for viewers to be clear about. [laughter] Um, and it is of course ridiculous because essentially Japan is selling US debt and Japan was doing that to prop up its own currency and defend its own currency. But Japan is one of the largest holders of US debt. If they sell a lot of it, what happens to US interest rates? >> Well, they go up again, which causes all the problems we talked about. It crashes your economy and makes your debt even more unsustainable. So, the US has come up with this weird little scheme that people are not meant to see through. But the bond market isn't that stupid, right? They can fool most of the people, but the guys running the bond markets are some of the smartest people in the world. So they're like, "Okay, we can see what's going on here." >> All right. So Bessant originally said, "Okay, we buy every time we go in and buy bonds, we spend 2 billion. We're going to up that to 4 billion." It worked for like a day or 48 hours or something. >> And then it went back actually up higher than before he announced that he was going to do this. So, the bond market didn't believe him or they at least want to test to see how far he's going to go. Um, he's recently come out and said, "Well, actually, I've got a call it a discretionary fund, the Treasury General Account, if I remember right, something like that. TGA is the initials. >> And that goes up to almost a trillion." And he hasn't said he's going to spend the whole trillion, but he's definitely got the bazooka sitting on his shoulder letting people know what he's capable of. How do you think that's going to play out is the if the smart people are in the market surely they look at that and go all right you want to play let's play >> but that's why he's doing it because actually I I interviewed um Jim Rogers about a week ago who's the guy who with George Soros set up that wonderful fund that later broke the bank of England so >> with Besson though wasn't Besson involved in that whole thing >> he was somewhere in the hedge fund world at the time right so big hedge funds can go against governments and can call a bluff and make a lot of money out of it. So, he's saying, "I've got a trillion dollars, guys. Don't try this." Which is why he's doing that. And a lot of like financial policy is always about just setting expectations, right? Just telling the market this could potentially be what we do and therefore all the lunatics on Wall Street take back a step back and don't do the thing that they might otherwise do. >> Um, but essentially, he's got no choice. He has to win against whoever is trading against him because otherwise he loses credibility and then your interest rate isn't 5.2% what it is today but it could be 10% or 15%. Right? And then look at what your mortgage would be or your car payment would be or what would be the cost of building and financing a data center in the US. It'd be prohibitive compared to the rest of the world. >> Plus if your >> because getting the loans that you need will come at such an interest >> your bank's going to charge you 20%. Plus, if you are have an interest rate that high, the entire world's going to buy US dollars again, right? Because you're going to get a really nice high interest. So, it's going to push your dollar up even higher. >> Exporters, which is what the US is trying to be, the US is trying to revive manufacturing, right? Like you kill that with a high with a high currency. So, there's a lot of stuff that hinges off on this, but I think for most people watching this, the thing that hinges on this is that they're definitely going to print more money. And you don't have to go back far to understand what that does because they did it in CO and it created massive inflation, right? And it made people's salaries worth massively less. And unless you were invested, it made you a lot poorer. >> If Bessin is going to uh keep buying back the bonds to keep that interest rate artificially low. >> Um, who gets hurt if this works? Is it just a pure inflation game or is there some other gotcha in here? It's pretty much inflation. It's just it's it's a tax on everybody who has a salary, everybody who has savings. It's just what it is. And it's a it's a free handout for anybody who's got money invested. >> If the smart investors know exactly what's going on, what is this game going to look like between Bessant with his trillion dollars and the hedge funds that are trying to test him? >> Well, generally what governments do in this situation is you try to be more aggressive than the market expects you to be. Like what Japan has done is the opposite. So they keep trying to pop up their currency and it keeps falling. So you do that once, twice, three, four times >> because they're not being aggressive enough. >> Yes, they're not being aggressive enough. They haven't got they can't they're not able to do it or or not willing to do it on a large enough scale. So what does that mean? Well, people lose faith in your ability to prop up your currency. People don't think you're going to do what you say you're going to do. So then the market will price the opposite. If you look at the yen to >> the rates start going up, they smell blood in the water. They see that you're distressed. They're like, "If you want me to hold long-term bonds, baby, you're going to have to pay me a fortune in interest." Exactly. >> So, the great irony, and this is the very thing I want people to understand about the US, the great irony of trying to defend your bond market is you can cause it to go the other way because people know the game you're trying to play. >> Yes. >> Okay. So, >> I mean, at some point, you're going to get to an interest rate which is so high that people are going to be willing to lend you money again, >> right? >> But at that point, you've destroyed your economy. [laughter] So there that sounds like a problem, Felix. I'm not going to lie. >> Uh, okay. So, let's parallel track. So, if you're a betting man, what what do you think is going to happen in Japan, which is >> they're running the scenario where they're trying to do the same thing we're doing in the US, but they don't have the full uh ability to go as ham as Besson is going to be able to go. Yeah. So, how does Japan play out? To me, Japan, I don't see the yen going up. Um, you see Buffett, who's for example, Warren Buffett, who's a very big investor in Japan. What has he done? He >> he borrowed yen to buy some. I >> thought he sold all of his debt. >> Did he sell all of it? I thought he borrowed yen to to buy the stocks whether he sold or not. Before that, he changed his dollars into borrowing yen. And that way he eliminated the currency risk. You see? So if he thought the currency was going to go go down and he owns Japanese stocks but he's paid with yen that he's borrowed is not his yen then he doesn't have that currency problem. But it is a a lesson I think for for the US because you talked about the sort of social contractor. Your Japanese salary men are not wealthier today than they were 30 years ago. Quite the contrary. So they have suffered this inflation or this money printing in a sense. Um, and it's just the thing that I think worries me the most is that people don't understand this. People don't take this seriously, that this weird sort of financial engineering that we're talking about actually really affects people. >> It makes them poorer over time. Same number of dollars in your bank account, but those dollars buy less. Yeah. >> Okay. So, if in Japan you don't see the yen getting stronger, do you see it weakening over time and that being how they get out from under their debt? Or do you see them in a death spiral where they're constantly having to try to defend it uh only to take on more debt to do that only for it to be fruitless and ultimately the rates go up anyway? >> Well, if they were successful with what they wanted to do, they would unwind the Japan carriage trade. Now, the US >> by letting the rates go up. >> Yes. But they can't because they own 50 plus% of all outstanding debt. So that'd be crushing. >> What what would it do to the to the to the curry trade? Well, it would unwind it. So they would tank the US stock market and they would make US government debt interests would go up. >> So the US isn't going to be very happy about that. And Japan generally talks to the US before it intervenes. So the US has a tremendous amount of influence on many many countries, Japan being one of them. So I don't really see that happening. So I don't think it's in the US's interest to let this happen. So therefore, >> so does that mean that the the US is just going to let them suffer? Like sorry Japan, you guys are going to get poorer. >> Well, it's it's one way of putting it. >> If it's inaccurate, let me know. But it's um you know, all economies are tied together, right? Um you have tariffs and you have imports and and so on. Japan is very export-led also, right? Uh, so they have to make a deal and and and at the moment that's the deal that they're living with is don't just act in our own self-interest because if we did, well, we'd lose our biggest customer. >> Yeah. Right. That's wild, man. That is uh that is a very dark and gloomy picture of [laughter] Japan. We'll get right back to the show in a second, but first I want to talk about what actually stops people from starting their business. Ultimately, they're waiting to be ready until they have more time, more money, confidence, waiting until everything feels ready. [music] But nothing is ever going to feel ready. So, people just wait forever. When we decided to launch Impact Theory Merch, Shopify had everything ready for us from day one. [music] What I thought would take weeks took no time at all. And that is my message to entrepreneurs. [music] That's what Shopify does. Their templates and AI tools get your storefront looking professional fast. You don't need to wait for anything anymore. There's no coding, no designer required. Sidekick, their built-in AI assistant, is there to answer every question that comes up so nothing stalls you out. If you're ready to hear the of your first sale, head to shopify.com/impact to start your free trial today. That's shopify.com/impact. [music] Now, let's get back to the show. So, okay, I'm gonna short it. You tell me if this is accurate. This is what I just heard. Uh, I'm Scott Bessant. I'm on the phone with Takiichi, and I'm like, "No, no, no. You're going to keep the carry trade going. We will help you as much as we can, but you're not selling our debt. >> Uh, you're going to keep the carry trade rolling, so you're going to keep that. You're going to keep your rates artificially low. Obviously, they're going up, but they're not going up nearly enough. We need that. So, cool. your people are going to get inflated into oblivion. Enjoy your internal conflict. That's what I just heard you say >> pretty much. Yeah. And they're doing it a little bit more sort of it looks a bit more fancy through that sort of porn shop setup we're talking about and so on. But ultimately it's that. Yeah. And occasionally we're going to step in and help you. But when they when the US was just helping them, what did they sell to do it with? It wasn't dollars. >> Yeah. >> They sold euros. >> Yeah. >> Which was just a kick to the Europeans. It was probably, you know, about something else. >> Yeah. You worry that people won't understand money printing. I share that concern. I also share the concern that people are not understanding what's happening in the world right now. I don't have a better way to say this, but what I'm try I got to find a just a way that cuts to the chase, >> but we're going to look back on this in 20 years, this moment, and we're going to say, what did it feel like to live through delobalization where we went from high trust cooperative to lowrust competitive? We're living through that chaotic moment right now. It will play out over years. And so it will never quite feel like we're in the middle of it, but this is the in the middle of it. This is Bessant going, "Cool. We're going to sacrifice Japan just because I needed to take longer. I'm never going to be able to stop it. I needed to take longer." And so maybe I get a year, maybe I get five years before people in Japan threaten to revolt. Takai's gone. They flip-flop back and forth like we've been doing in the US trying to find who's going to magically solve this problem. The answer is nobody. You're going to suffer because the the debt had to come due at some point. And the number of people when I began my um financial learning journey that looked at me like I was [snorts] because I kept saying, "Guys, you can't just rack up debts forever." And they were like, "No, you really can. That's just how modern monetary theory works." I'm like, "It's not possible. You're going to default on your debt at some point." So, I look at Japan. If you're right, and that's a terrifying analysis, but it seems true, we just say, "Cool. They're going to suffer. We'll take as many years as we can get before they revolt." Now, back to the US. Besson is basically trying to do the same thing here. And as far as I can tell, and this is me, please tell me where you think I go wrong. I have a hypothesis about how Wars got into office. This is just me. I don't have any insider information. And this is uh this is hearsay, my emotional read, whatever my lawyers would like me to say right now. I have a feeling that behind the scenes that you had Besson and Trump sit down with Wars and say, "All right, listen. Um, you're going to have to lower rates." >> Mhm. >> But it's a bad look. And we know you want to raise rates because that's the only right move to play right now because otherwise we inflate your everyman into oblivion and only people who own assets are going to come out of this on top. Everybody else is going to get obliterated. Um but the reason is that we've got to keep running these deficits because as Felix pointed out uh no one is going to do austerity. So, I need my 2 trillion a year, maybe more because I'm at war with Iran, which was ill- advised, but nonetheless, here I am. And to that end, we need a brief period here in the beginning where you're going to just hold rates steady so that nobody thinks that you're a pawn. But when the time comes, I'm going to need you to lower rates even when it doesn't make sense. And I don't see any way around that because we're already at 1.4 4 trillion and climbing. Uh the service on the debt is our number one line item now, which is crazy. I forget who wrote the the document, but he was either at a major hedge fund or at one of the big banks, I forget, but but a real player. And he said, "The suffering begins at 40." >> And so we're now at 40 and the suffering begins. And it really seems like you're going to have a battle as Bessant tries to throw enough money at the problem to manage rates. But the market understands and they're going to find that number, which if Wars could let the interest rate go high, maybe we find and all would be well. But given that they're going to need to bring that number down so that they can uh keep running at least$2 trillion dollars in deficits. So we can't let it go up. And that means there's going to eternally be this battle between Bessant trying to keep the rate artificially low and the market trying to find equilibrium. >> And that is a very similar story to Japan. >> Yes. And so now both in Japan and in the US, we're running a average person suffer game where we're going to inflate you until you pitchfork. That that is so wild to me. This is the thing that makes me want to scream and yell into a microphone every time I go live until my vocal cords are bleeding. And I don't know how to get people to understand that you have to elect politicians that will balance the budget. >> I think you summarized it very well. I think what he said at the end though is is is very idealistic. There is no politician who's going to balance the budget. >> It's never going to happen again. >> Relax. >> Um it's it First of all, >> I hate this so much. >> First of all, you will never get elected. So don't look for the government to fix it for you. Fix it for yourself. You can vote for three people. You can vote for the guy who's going to raise taxes and promise that he's therefore going to balance the budget. >> Yep. >> Now, in reality, it's not a it's not going to happen, but I mean, kind of >> we for every new tax dollar we bring in, we spend $1.58. It's literally never going >> Some people will argue, well, we just need to raise taxation a lot. Well, all you got to do is look at the stats in California or in New York and people will leave. >> Felix, for every new dollar in tax we bring in, we spend $1.58. >> Yeah. you have to stop spending I if for every new dollar we brought in we spent 98 cents then I'd be like okay you maybe there's a way that you can tax away out of this but until you change that ratio that's one we can vote for the person who will raise taxes >> that's one right though so the the second lunatic you can vote for is the guy who's going to say I'm going to slash spending by $2 trillion a year >> I like him he's got my vote >> okay wonderful but where do you think that $2 trillion goes it doesn't go wasted it goes into American businesses that provide services and goods. >> That's part of it. Now is where I find out how much you what you think about fraud. >> Okay? There will be a fraud element, however big that is, but it won't be two trillion. Um, even if it is two trillion, you're not going to eliminate it completely because no systems. >> I'll grant you it's probably nowhere near two trillion. >> If you were to cut all that spending, you would end up with a massive recession, right? which nobody's going to vote for because you would just >> walk me through the mechanisms of why that equals >> Okay, so the government spends $2 trillion on goods and services who provides the goods and services. It's largely American businesses, right? So those businesses employ people. They buy things from their suppliers and their suppliers and so on. It's like money flowing out. But at the same time, those companies are largely also listed on the stock exchange. So they report their earnings, their profits and their revenues. So if they say profits are down by 20%, because the government isn't spending money anymore, what happens to the stock price? Well, it goes down. So everybody gets poorer. Everybody feels poorer. When everybody feels poorer, what do they do? They spend less money, >> right? So house prices go down. Like everything just goes down. Companies are going to lay people off. You get into this death spiral of a recession. How do you get out of a recession? Well, you spend more money, which is what government's always done, >> which means you're probably worse off than when you started because you're gonna have to spend a lot more money to make up for that, you know, kind of problem. >> And you're going to money print presumably. >> And you're going to money print, of course. So, you're going to create more inflation. >> Do you know Steve Keane, the economist? >> No. >> Oh my god. You guys have to meet. You're both in my buckets of like teach me about things. Okay. Uh so Steve Keane has a very interesting philosophy which is exactly what you're pushing right now which is uh Tom you don't understand double accounting double entry bookkeeping once you understand that um every time the government spends a dollar and it's deficit spending they're creating that dollar and they're putting liquidity into the system. Therefore you want the government in deficit spending. You want them to tax less than they spend always and forever. Now >> I don't agree with that by the way. Do or don't. >> I don't. Okay. I I think a government should balance its books. >> Should? Why should though? That sounds moral. >> It's somewhat moral because it's what we meant to do. It's how you live a responsible, happy, calm life where you sleep well. And the government is setting a very, very poor example, right? Which is I think why also so many people are in >> spending money. If deficit spending juices the economy, why not juice the economy forever? >> Well, because someone's got to pay for it. And there is this idea well if you can print money is free but it isn't because it causes inflation. Inflation we said talked about this before is not it's not a law of nature. Inflation is the direct result of printing more money and therefore you are taxing the poorest. You're taxing the bottom half of the society the most because they live off their salary 100%. They don't have real estate and a beautiful portfolio that goes up in in line with inflation or more. So >> what do you say? I'm going to channel Steve Keane in a way that he probably will be just mortified by. But his argument goes something like this. Yes, Felix sort of. But the reality is that because they're putting money into the economy, that money ends up getting uh used to be more productive to create new things. And in the creation of new things, that money isn't chasing the same goods. It's more money, but it's chasing new goods. And so that's why the inflation will never track M2 money supply exactly. There will always be a difference. And that difference is when the money is spent on smart things, you don't get the inflation that you got during COVID, say, where you injected a ton of money into the system that went directly into people's hands so that they were spending it directly, but at the same time that you shut manufacturing and shipping down. So you literally had less goods and more money which that is how you get 30% inflation in 6 years which is what we got. So that is >> if you believe the inflation statistics. >> Yes. Do you think they're way worse? >> I would way worse. Yes. >> All right. Blackpill me Felix. [laughter] Give it to me. What do you What do you peg it at? >> It's very hard to measure. U because government have u >> swag me >> massaged inflation numbers for many many years. Y >> it's not 30, it's 32, it's 40. It's >> I mean I I think it's it's hundreds of percent. >> Oh >> Yeah. Yeah. And all I look at is asset values. >> Another thing I think this is quite good to track is luxury hotel rooms which probably went up about five times or maybe 10 times. >> What? >> Right. And it's just the react and and to me that's a reflection of the the asset rich who book those luxury hotel rooms and they're happy to pay five or eight times more because it doesn't matter because the portfolio went up 10 times. Right. Whoa. So, what I said at the beginning, and I kind of mean that to me, the S&P 500's performance is the inflation number. >> Okay. Dark. Uh, okay. So, it is what I said just much much worse. Yeah. Going back to Steve Keane's argument, you're saying Steve Keane's argument is broken precisely because the discrepancy in the inflation numbers is so much bigger that while we would love it to be that those dollars go and they become highly productive, the reality is that a gigantic portion of that does not create new goods and therefore is truly more money chasing roughly the same goods. That's the definition of inflation. >> Yeah. I also think and this is where we get probably a little bit political there is there is if you think the government is going to spend the money in a productive way and put it in the place where it's going to circulate the most economous benefit that's a belief system right some people have that I I don't share that >> I think a privately spent dollar is incentivized >> by a better system uh to go into the right places and therefore create more value >> meaning a system that's better than the government what system would that be? >> Well, the free market. >> Okay. >> Um, now we don't need to get completely into that. A completely free market will also end up very corrupt and all in one place. >> But the idea that the two trillion deficit spending is efficiently spent is, I think, fairly ludicrous. >> Yeah. >> So, you could probably cut that in half and have the private sector spend it and you'd have the same outcome. And I'm making that number up, but you know what I mean. There's a lot of waste, not in the sense necessarily of fraud, but just like they're just buying the wrong thing or at the wrong price. So, they're building a road nobody needs because it's just a weird bureaucracy that operates it. >> Yeah. >> Okay. So, we've got two people. We've got tax everybody guy. We've got cut [clears throat] spending guy. >> Uh so far, neither of them are going to solve the problem, but you said there was a third. But there is a third and that's the guys you keep electing and it doesn't matter what party they are and that's the um I will create more inflation and that that way I will make the debt manageable and you guys will all pay for it but you won't notice because we haven't given you any financial education. >> Mhm. >> That's the guy you keep voting for. >> Okay. Uh yes. The current set of guys that we keep voting for that are doing the inflation theoretically have a belief system that goes like this. If I was in a private conversation with them, they'd be like, "Tom, listen. Here's what we're going to do. Uh, we are going to do all this crazy defend the Japanese yen. We're going to defend the US um market as well. We're going to get those long-term rates down because we just need to buy ourselves a few years and then AI is going to be a productivity miracle and we're going to look like post World War II where we used yield curve control to inflate our debt into nothing." But the real economy was growing even faster than inflation. So, uh, we held interest rates intentionally below the inflation rate and AI helped us grow the economy faster than even that inflation rate. Uh, what say you, Felix? >> Well, I hope it's true. It's a really nice fairy tale. Um, I mean, and AI is real. AI is incredible. I mean, I'm sure you use it in your business as I do in mine. It's incredible. But is a technology going to fix everything? If you go back to say 2000, the internet came about, which is an incredible technology, arguably has been probably the most impactful thing since, I don't know, electricity or something. But has it fixed any of the financial problems? Has government debt gone down since, you know, Bill Clinton years? Of course, it hasn't. It's only gone up. M >> so I think this idea that there's one magic pill you can take and everything will go away. We just have to wait a few years. I just think it's it's just what politicians are telling you. >> Yeah. No, I agree. Uh do you know Ray Dalio's beautiful deleveraging? >> I don't I mean I I I read some of Ray Dalio, but I'm not quite sure what. >> Yeah. So he basically he's saying what you're saying now, which is it's going to be a messy basket of things that we have to do in the exact right order. And basically nobody ever gets this right, but we're going to have to do uh additional taxation. We're going to have to do some debt forgiveness. We're going to have to do money printing. And we're going to have to do austerity. We're going to have to do all four. And you have basically two sets of opposing levers. Some are stimulatory and some are recessionary. And so you just sort of ah wiggle these back and forth, back and forth, back and forth. uh and try to get your way to the other side of this. And he's been saying that for a long time, that that's going to be the only way. And I really want to believe that we can do it. But it doesn't seem as believable in in the reality of what people are like as the um inflate right up until revolution. Stop just shy of Marie Antuinette and then uh you have to have AI grow your way out of it. And if you can't do that, >> you're going to be in trouble. And right now you've got Trump probably vibescent trying to do a Hamiltonian model which is now is the time to be protectionist. >> We've got it. We're going to take on debt. We're going to do some crazy things with money printing, but we're going to block China and we're going to start getting manufacturing here. between getting manufacturing back here and AI, real wages are going to grow and we're going to be able to get on the other side of this. And it feels like such a long shot, but it is actually coherent. And I think a big part of the reason people don't want to acknowledge that it's coherent is that Trump said it. >> Yeah, I think that's true. I think people get very divers, you know, divisive with politics. I always say, I don't care at all about politics. I just care about how it's going to impact my money. >> Um, and there is some sense in that that you you reduce, you know, cheap competition and you bring things back at home and so you can actually build things again without being dependent on somebody you may or may not like. When I studied economics, we were taught boom and bust economics, which is, you know, you have a boom, you have a recession because interest rates went up and that sort of thing. They stopped doing that around 2008 and we do less and less of it. >> It actually stopped happening. No, it's the government stopped allowing it. So >> because they stimulate. >> Exactly. Before you you a massive boom, inflation goes up, interest rates go up. Now we get a recession. Now recession does something quite healthy. It kills off the crap companies. Right. Now the good companies buy the good bits of the the bad companies and it sort of creates a new fresh start. >> But they stopped doing that. They just gave money out especially since 2008. So you bail out the big company that you don't want to go under, the big bank you don't want to go under. Co we just gave everybody money, right? Just hoping it would would somehow protect us. >> And it creates an expectation both in people and financial markets that well they're going to bail us out. >> Yeah. >> So let's take whatever crazy risk we want just like the financial institutions have always done because it's going to be fine. And that creates a problem because now we're going to do really really crazy stuff. Look at all the I mean look at the AI spending like what how many is it 700 billion this year or something the top five US companies are spending. That's insane. Just purely insane. And then there isn't enough electricity to power it. So it's just insane. So but they're doing that because they kind of know nothing really bad's going to happen if it's a bad bet. They're going to get bailed out, right? Open AI basically saying if we go under I think the government will get us some money. So you get into this world where you always have Uncle Sam writing a check if you need it and it doesn't create necessarily the healthiest economy. So I think it makes it harder to create this nana that Trump is describing which in theory is possible. >> Okay. There's uh one little mile marker that I want to put down and then um I want you to walk us through how people save themselves because largely I think you and I agree saving the system is tough if not impossible but anybody can save themselves. Most won't, but it really is pretty straightforward. The mile marker is something you alluded to earlier, but we didn't sort of push to the end of it, which is this idea of a moral hazard. When the government is reckless with its money, when it gives everybody the indication, um, for corporations, it'll be we're going to bail you out, and it causes them to do really irresponsible things that hurt a lot of people, uh, but their business will survive. And then the moral hazard of making sure that everybody has a safety net regardless of whether they do anything to earn it or not. Do you have like a way that you think about that moral hazard? Like it it is this part of why empires always fail and there's no way to stop it or like why worry about the moral hazard? >> Well, I think it was you know you call empires. I think, you know, the Romans used to give out free bread, right, after they sort of won a victory or something and then it became such a an expected thing to happen that I think during Caesar's time it was like 300,000 people would queue up for the free bread. >> So it became a welfare state, right? And so it started off as a let's do something nice for people to it's an expectation and it changes how people behave. I'm not saying there shouldn't be a welfare state. I think we all agree there should be some element of a welfare state. >> But I think the way we're going is that everyone's going to get paid. Universal wage or whatever you want to call it. And I think the sad thing about that is is that for many many people it's going to take away the incentive to do something meaningful and impactful and satisfying, which is really what life's all about. I think you know you can do something you do something incredibly impactful for people and it must be incredibly satisfying if millions of people you know benefit from that. So if you take that incentive away from people, what are they going to do, right? So they're going to sit around, smoke pot and drink or something, right? And it's a very sad existence. So that's kind of I think for me the the sort of sad part of where I see this going. >> But what I always try to bring my brain back so I don't go, you know, depressed about the state of the world is just like, well, let's just focus on what we can do about it. And I think that's what I would say to everybody. Just don't get scared and stressed by all of this. It's not everything is not going to be terrible for everybody. It's going to be very difficult for most people who don't understand this. >> But we can't actually go back and help ourselves. >> Okay. So, we know that they're going to print money. I mean, that really is sort of the basic punchline, right? >> It's they're going to print money. There's no way out of it. There is no alternative. I mean, unless people are suddenly going to vote for the guy who's going to increase their taxes to a ludicrous degree, then you already said mathematically that doesn't do anything. And no one's going to vote for the guy who's going to shut down the schools and the kindergartens and the welfare and you know cut all the government spending so everyone's unemployed around you. No one's going to vote for those people. >> Okay. So if the core of saving ourselves is understanding that they're printing money, >> what how is it that we take advantage of that to save ourselves? Well, if you look at all the periods in history where we've printed a lot of money and just look at the US history, you know, after World War II because they had a similar amount of debt. Then if you look at 1971 kind of sort of post that story which was hangover of Vietnam War and just the welfare state getting bigger um decoupling from the gold standard and all of that. Um what's always done well in those moments? Well, I mentioned gold actually. It's a it's a physical hard asset. you can't print. That has traditionally done well. But to me, gold isn't an investment, and it's probably going to upset the gold bugs. Um, gold never goes up. It's just the currency goes down. >> But there isn't a currency in the world that has survived, right? We don't have a 3,000-y old currency anywhere in the world. >> So, there is a value in that, but it's an insurance. It's like car insurance. it isn't going to make you wealthy, but it's going to protect you from the inflation madness and the money printing. >> So, that I think is one place one can be. Um, I would warn against being in just one thing and like going I'm just going to hoard gold under the mattress or whatever. >> Why? >> Because if you look at any any asset class, it fluctuates. It's it goes up and down. Why does it go up and down so much? Well, people trade it. >> So, in the short term or in the medium term, the price of gold or silver is determined by a bunch of lunatic traders on the Comx and New York, right? So, those guys are not interested in it going up because they make just as much money if it goes down because they trade both directions. So, people need to understand that it isn't going to be a straight line. If you look at the stock market, you zoom out like a 100 years, it looks like a straight line, but there were like 50 70% drops in it, right? Um, com tech stocks went down 78%. So, you alluded to AI. >> Well, the spending is even way more crazy than now. The good thing is that the companies spending the money actually have income, right? Microsoft's a good business, you know, Facebook is a good business and all these kind of they have real money coming in, but the likelihood of something going wrong there and the likelihood that they're misspending a lot of that is pretty high. So you could see a very large correction. So the problem then comes if you are 100% in gold and it goes down 70%. And you're trying to live off that if you're retired, you're screwed. Now if you're 100% in tech stocks and I see I see thousands and thousands of people's portfolios because we we teach people and what do I see? Well, portfolios are usually 90% tech. >> Yeah. >> And then the responsibly go come in and go, "No, no, no. I'm mostly in index funds." Well, the S&P is 50% AI. >> Yeah. It's all one big bet, right? >> It's all one big bet. I literally I built a tool for it so you can put your portfolio in and you can see your AI exposure and everyone's Yeah. >> Send your boy a link. >> Um, actually, there is a it's an app I built is it's called uh check winston.com. If you guys go on that, there's a two-month free use to it >> because I know who Winston is. That's >> Winston is my golden retriever. Here's a large nose for sniffing things out. But yeah, literally you log into that, it's free for two months, cancel if you don't like it, and you put in your portfolio. You can do a copy paste job and it'll tell you what your AI exposure is. And for most people, it's more than half their money. >> Way high, way high. >> And the problem with that is if say you get that com bust that was minus 78%. >> Right? That's painful for most people if they are about to retire or they are retired because now they can't. So the whole system gets pushed back by a few years which isn't much fun. You can avoid that like the guys who know how to invest don't have their exposure. I have >> what are they looking for? >> So like okay so I have about 30% AI exposure by that metric. So Donald Trump put out his filings yesterday of the thousand trades he did in the last quarter. >> Jesus. >> Presumably he has has someone who does it for him. >> But you know the most actively I think I think Obama did about 12 trades in in his entire time in office. >> Yeah. Trump's on >> another level, you know, trader and chief. But what has he sold? He sold the AI companies. What has he bought? Visa card, >> Mastercard. [clears throat] >> And they are what kind of businesses are they? They're like a toll booth, right? You can't leave your house without basically giving them some money because every time you beep your phone or your card on somewhere, they're going to get a tiny amount of money. So, it's a very like, you know, financial world calls it a business with a great moat because try competing with Visa. Try getting, I don't know, a billion cards into people's hands. This would be an incredibly expensive thing to do. No one's going to bother doing it. So, it's a business that is very defensive. It's a business that's going to survive pretty much anything. And if you're going to print more money, well, they're going to just get a cut of more money, aren't they? So I always say don't follow what people are talking about. Don't look at what people are pushing on, you know, the news or financial channels and so on. Just look at where the money is actually going. Um now looking at a politician's filing isn't the ideal way of doing it because it's old. They don't have to file the day they buy it. They file I think is it two months after I think something like that. >> So he could have sold it by now presumably. Um, but looking at what the people with inside information actually are doing, which is the funds, it's the guys running the country is a pretty pretty good place to look. >> How do you track that? Like what is the is it like the Pelosi tracker obviously? >> So there's a bunch of free trackers. I can that that link I just gave you, we also track it. So we'll give you an alert. You can follow Trump or Pelosi or whatever. >> But I wouldn't follow his trades, right? >> Because you're not Trump. >> But how do you see the flows of money? Like who's trading in and out? Okay, so get a bit more technical there. Essentially, if you look at the stock market, the media tells you the market's up 1% today, but it's not really. So, the way Wall Street looks at the market, it's 150 industries, and we look at each one separately. >> So, energy might be up, oil services might be up, uh I know AI might be down, that sort of thing. And that's telling you where the money is going from where to where. And you can actually see it literally on a stock chart. So give you an example. In the last 20 years, we did some research on that. All the stocks that went up more than 10 times, so there, you know, people call them multibaggers. >> Yeah. >> Every single one of them had the same pattern before it happened. And I call it, >> this is on a technical chart. >> Yeah. It's on a stock chart. It's a I call it a heartbeat pattern. It literally looks like a heartbeat going sideways. And it did that heartbeat for about a year and a half to four years. Generally speaking, the longer it does it, the more the stock goes up if it goes up. >> So the heartbeat isn't causation, but the heartbeat and then breaking out of it tends to produce quite good results. So it's a pattern. It's a pattern every trader gets taught. It's a pattern every guy in a hedge fund knows, right? And then we look at the moment it goes out above that heartbeat pattern. Do we see lots of buying volume, which is just a candle at the bottom of a stock chart that nobody understands because we haven't been taught any financial education in school, right? is a scandal. So we look at that and we see, yeah, everyone else is looking at the same thing. Everyone else is buying the same thing. So it's not rocket science how to see where the money is flowing. But yeah, you do need to know how how to look for it, right? >> So for most people, it's be in assets that are either hard assets like say gold or silver, but they're still going to fluctuate a lot. You can be in good companies, and by that I mean companies that actually have a good hard business model. Visa, Mastercards would be examples of that. >> Um or like a Microsoft or something or a Google. I mean, you probably used Google this morning, right? So, they made a bit of money on you. >> Cash cows with moes basically. >> Cash cows with moes. Exactly. Um or you can take it one step further and you can actually learn where the money is flowing, >> which is what the skilled money does, right? So, they're kind of your scale of options. Um but if you're not invested, and a lot of people I talk to, they say, "I'm scared. I've sold everything." And I'm just like, "Oh my, that's the that's the you're guaranteed to lose money because >> because they just put themselves into inflation territory." >> Yes. Money is going to get printed and we're going to go back to 1971 if you had compared to someone who had invested it is worth a third of a cent, right? >> That's so crazy. >> So you can either have a third of a cent or you can actually have a tremendous increase in value. and and I I just wish it was taught in school. >> So, but you talked about okay, be careful being in gold, careful being in uh AI, just like the when gold draws down, it can draw down by 50 60 70%. Uh stock market went down by I think you said 78%. So, it takes years and years for those to go back up. So, if the answer isn't uh just hold blindly, if the answer isn't just sell, >> how does one figure out the ultimate skill, which is knowing when the right time to sell is? >> I think there's two things of doing if you're not invested, buying the S&P 500 is a thousand times better than not being invested, >> even though it's 50 whatever percent AI. >> Yeah, I would not want to discourage that. Um much much better because you you're in cash you're guaranteed to lose money. So, it's much much better to be in this. The S&P 500 in the long term is likely to keep going up. Just there's more money around right now. How do you actually do it smarter? Um, it is it's a bit of a skill. I don't think you can learn it in 30 minutes. I think you can learn it in a couple of weeks. But essentially, we're looking at what I look at is just like I just follow the money. So, I look at every Saturday I sit down for about an hour and I look at what industries are going up and going down. and you have a series of charts >> and you can do this at home. You can do with index funds. You can just look at, you know, the semiconductor index fund and the software index fund and the utility index fund and the, you know, energy index fund and so on. You can look at that and that'll give you a bit of an idea. Um, and I imagine you could just ask Claude or OpenAI, hey, I'm trying to track money flows essentially using the stock market. Give me the 10 or 15 index funds that will give me a broad Yeah. understanding of what industries are working and not. >> And you could do that and and it might elucidate the numbers and make them up. So be careful. But >> but even if you're just asking for what industries are important, it'll probably get you close. >> It'll probably get you close. It'll be better than than not doing it. The danger I see with people is that they So most people will own the S&P 500 in a 401k or some sort of pension fund, >> which is half tech, right? So the top five companies are now 30% of that market. So you basically own five companies and a bit of everything else. they will then go out and they'll buy those top five companies again because those are the companies that are in the news. So they'll buy Microsoft and Apple and Nvidia and Tesla and so on. And it just means that they are increasing their risk to this one thing. Whereas when you look at people who actually manage money in institutions, they don't care whether it's a famous stock. They don't care whether it's popular, right? They're just looking for the return and they're looking for a relatively smooth ride. M >> so how do you get a smooth ride? Well, you buy stuff that isn't necessarily in the news, right? So that could be a utility stock or it could be I just bought a railway for example stock about two weeks ago. Now that again is a business. No one's going to build a competing railway in the US because it's physically impossible. So it might not make you 100% return, but it's also unlikely to get you a 70% draw down like a tech stock might. So I think it's looking at the market as a I always say it's a chessboard and try to be in more of the fields rather than just in the top row which is where most people are sitting right now. >> And do you think of it as being on more of the fields is about being uncorrelated asset classes. >> Yeah. >> Okay. >> Yeah, >> that makes a lot of sense. >> So what I look for, you know, I buy stocks once a week. I I do nothing Monday to Friday. I don't look at a stock chart. I don't buy anything. I don't sell anything. >> Why? >> Because you get emotional when the market's open. Like you try to buy a stock before and the stock price goes up and down a little bit, the numbers change and you're like, should I buy? You get you get a bit like itchy about it, right? Well, if you do on a Saturday, >> doesn't move. >> Markets are closed, static. >> That's interesting. I've never heard anybody say that before. >> So, I used to do on Sundays, now I do on Saturdays because I don't have to think about it on Saturday. On Sunday, >> um, so I just do it and I just look at what's happening week by week. And if I want to buy something, I look at, well, what do I already own, right? I already have tech. I have a software company. I have a railway. I'm not going to buy a second railway. I want to look something at something else that I don't own yet, >> like a different universe that isn't going to get impacted by the same new story so much. >> And I know this will be unique to you, but I'm curious how you discover those new things that you're not already thinking about. >> I basically built a scanner and I say you can do this with index funds that just flags to me um what industry is going out of sort of like base level, you know, going sideways to actually starting to move up and then I will look into that industry. So, it cuts down looking at 5,000 stocks, which is what the US market is approximately, which would drive you nuts. >> But are you going to like showmethemoney.com? Like, where are you going to find these charts? >> Um, well, I I build them myself cuz bit of >> like you actually build the software using what? AI. >> Uh, yeah, nowadays we do. Well, I have about a dozen developers still, but yeah, it's it's >> But you still have to tell it to grab APIs or something. >> Yeah. So, you you got to feed it the right data and you got to feed it. >> Is that publicly available? Is there >> we don't make that scanner available because I feel it's dangerous. It's going to give you it'll I'm not a fan of selling people stock alerts >> because unless you know how much of your money you should put into it, how it relates the rest of your portfolio and most importantly when you should sell it, you are going to be in trouble. So you know I put videos out on YouTube. We talk about stocks and I don't tell people I tell people specifically don't buy this, right? But I don't know was a year ago or something. We did a video on a stock called um AVA or something sort of nuclear whatever went up I don't know 500%. I got angry messages from people who lost money on it. >> So it isn't about giving people >> how they lose money they just got in at the wrong time. bought at the top and then it went down obviously after that, right? >> So, you have to look at it as a skill and you know if you play a sport you don't become great at the sport at le number one, >> right? You really suck at it. And this is a skill like any other. It's like walking or cycling or swimming or playing basketball or baseball or whatever. >> It takes a little bit of time to learn it. It's not difficult, but I do think you need to actually learn it. And to me, that's the biggest hanging fruit that everybody has because your salary is it's like your seed money. Your salary is not what's going to make you wealthy. Your salary is the money you're meant to use to invest it and then that's your actual business. >> Yeah. Very smart, >> right? But we've not been taught that. We've been taught just work really, really hard and then go home, watch Netflix, drink a beer, and then do it again the next day. But if you actually just spend not 40 hours or 50 hours or 60 hours where most people are working, but like an hour a week on actually learning the skill of how just how investing works a little bit better. I think the impact on people's lives is tremendous. And that's that's why I I I do what I do. I mean, if you go on my channel, there are five, six hourong videos on on on just exactly that. >> What is your channel, Felix? [laughter] >> It's very kind you asked, Tom. It's called Felix and Friends. the Goat Academy. Yeah, I found you through your content. Um, was literally just really trying to wrap my head around how all of this stuff works. Um, I have a deep desire to understand the um, cause and effect of the economy. I don't know that people need to follow me down that road, but certainly getting to the point where you understand where to put your money, understand inflation well enough that you're scared straight, if you will, that you know you're going to lose if you're saving money, that you've got to find a diversified portfolio, diversify against economic forces. I can't stress that enough. >> Uh so being in seven different tech stocks or AI stocks, even worse, uh is not being diversified against economic forces. Felix, uh, if people were going to take away one lesson from you, because this this stuff, even the stuff that you said about saving, which is really boiled down pretty concretely into, I think roughly four steps, uh, people can rewind it and listen to it again, but you made that very tidy, but if they were going to take just one core principle away from you, what would it be? Uh, beware inflation, be in the market, like what's that core idea? >> I think it's see your salary or your income as your seed money. invest it. If you don't, you're guaranteed to lose. The salary isn't going to make you wealthy unless you're, you know, one of the 10 jobs in the country or something that would. And focus just a little bit of your energy on that investing part because most of us go through life spending 70 80% of our waking hours working for somebody else, making somebody else wealthier, and we spend basically zero time actually managing the money that we have. M >> and if you look at just look at the wealthy families in America, why are they wealthy? Because somebody figured this out two or three or four generations ago and once you understand this just a basic principle like stay invested and compound your money, it's incredibly easy or hard not to be wealthy actually, >> right? It is just a game and the government in a sense is going to make it easy for you because they're going to print money. So therefore, asset prices, stocks, real estate, gold, and so on are very likely to keep going up in the long run. >> Yeah, >> they can crash massively in the short term. >> Have fun. >> Um, so have fun with that. But you need to understand that they will just print more money to fix the problem and therefore it's going to keep going back up. So if people got a little bit more confidence in that process and managing their money, they will not do what everybody did in CO, which is sell at the bottom. >> Yeah. >> Right. and then watched it go up 200%. Jesus, >> right? So, lots of people get richer and you are left out because you're scared and it's natural and it's that that's why I do my investing on the weekend because I get it, too. We all get it. We all are emotional beings. >> That's a good dodge, man. It's very smart, bro. Thank you so much for just the content in general and thank you for taking the time to come on the show today. Uh, I assume you want people to go to Felix and Friends. >> Sure. Check out YouTube.com. >> Um, just check out the the YouTube channel. Yeah, that'd be the best thing to do. >> Love it. It's great. I can attest to it. Thank you very much, Tom. >> All right, everybody. If you have not already, be sure to subscribe. And until next time, my friends, be legendary. Take care. Peace. If you like this conversation, check out this episode to learn more. I think America's gone too far in privatizing everything. Election campaigns are something that [music] should be funded 100% by government money, and private donations should be banned. Not even possible. Set it up in such a way that you guarantee you can't