Ep 34 – The BearLord: A Recession Cometh

Travis Kimmel Bear Lord

We welcome Travis Kimmel, AKA the Dollar Fatalist, the Wizard of Web1, the Crusher of Cryptocurrency dreams, and our favorite moniker, the illustrious BearLord, onto the Gold Exchange Podcast!

Travis joins Keith to talk about Bitcoin acolytes’ underlying Marxist philosophy, interest rate hikes, balance sheets, and so much more. Listen in to hear what the famous BearLord thinks about whether a recession cometh, and why it’s insanity to hike rates in this market. This is a must-see episode!

Follow Travis (AKA BearLord) on Twitter here.

Show Notes

Zombie article 

Keith Swiss GDP article

Stateless vs Stateful

Credit Gradient article



Travis: If you make a perfect store value, it would mean that that thing, it’s one unit is now pinned to all other prices right for it in time so that they can forever buy X loaves of bread or whatever. Great. You just killed markets.

Keith: Literally.

Travis: You’re describing price fixing. It is not a goal!

Keith: That we should be this and shoes should be this and the ratios. We fix all this.

Travis: Great, Stalin!

Dickson: Hello, everyone, and welcome to the Gold Exchange Podcast. My name is Dickson Buchanan. I am the Vice President of marketing here at Monetary Metals, and I’ll be hosting today’s episode. I’m joined, as always, with the founder and CEO of Monetary Metals, Keith Weiner. We are super excited about today’s episode because we have a very special guest lined up for the show today. And I really mean that this person is special. If you’ve spent any time in the wide realm of Twitterdom, you’ll know that his presence casts a long, dark shadow over those who foolishly chase full markets tout speculative assets and dare to utter half baked financial sophisms in his presence. I’m referring, of course, to Travis Kimmel. But I realize you may not know him by his proper name. You may actually know him by one of his many online aliases. This is Travis, aka the Dollar Fatalist, aka the wizard of Web 1.0 Travis, A-K-A. The Crusher of Cryptocurrency Dreams and my personal favorite, the illustrious Bear Lord. So, Sir, Bear Lord, it is Keith great respect that Keith and I welcome you on our show today.

Travis: Wow, that is the best intro I’ve ever received. So thanks for having me.

Dickson: Yeah, let me just start by saying, if you’re on Twitter and you’re not following @ColoradoTravis, that’s Colorado spelled just like the state. Go ahead, press pause right now. Go on to Twitter. Follow him. And trust me, you will be glad that you did really good takes on macro markets, business, the occasional philosophy kind of cultural moment, tweet. It’s one of those rare accounts, in my opinion, that makes you think and laughs often in an equal proportion. So do yourself a favor, go follow Twitter. We’ll link to his account in the show notes. But let’s start, actually, Travis, if you don’t mind, by giving us a little bit of your backstory, how you became interested in finance and the origins of Bearlord.

Travis: So I come from the tech world. I was a programmer for a little while, then got into managing software teams and eventually started a company that did it was an analytics company with a friend of mine. Ben was one of the co founders and was the CEO of that for about four and a half years. And then we sold that, and I’m now still in the tech world. My interest in financial markets is kind of two gold bonds. I think one of the things I find really enjoyable is sort of this infinite game, right? There’s always more that you can learn about finance. The breath is just so intense, and I dig that that part is fine. And then I find it to be. I like the sort of enforced discipline of finance. I mean, risk management. The feedback loop is ultimately just sort of baked in. I think that part is really fun. The people who are in it have kind of an edge to them as a result of that. And, yeah, it’s just a good crowd. And I think one of the things that’s really interesting about finance is a lot of the stuff that gives that edge is actually kind of boring.

It’s really boring. A lot of the world is just sort of like understanding balance sheets, which I think a lot of people don’t. It’s not really an area a lot of people want to dig in on, but if you can develop a fascination for that, it becomes really powerful. So I’ve been trying to do that.

Keith: I wrote an article back. Maybe it was February 2015. January, February, right after the Swiss Franc lost its peg against the Euro, the Swiss National Bank lost something like 20% of Swiss annual GDP in a millisecond. And then the entire Swiss yield curve out to 30 year maturity plunged below zero. Negative. I wrote a really long article. I want to say it was five, 6000 words, essentially arguing the Swiss Franc is going to collapse. Nobody knows when it was a balance sheet flows kind of analysis, like all the really boring stuff turned out to be such a hot potato. It was so controversial, and people either hated me or loved me based on the fiery conclusions. And nobody really seemed to have done the reading of, like, what I said. It was a pretty boring something an accountant or a finance professor could like, maybe. And that stirred things up to such a great degree that I don’t have any regrets doing it. But it was an interesting experience.

Travis: I think finance markets are also highly emotional, and the emotional part is sort of the opposite of what you actually get paid for it. So that’s kind of a fun dynamic.

Keith: Don’t be dissin my asset now.

Travis: You know what? Yeah. I’m actually a fan of that aspect of it. I think the longer you sort of try to play in finance markets, the more humbling it is, really. I mean, it’s just hard. A lot of this stuff, especially, like you said, you can have these thesis which you think are kind of bulletproof. Like you’re kicking them around and you’re like, it has to play out at some point, and it gold be years, and you’re just sort of sitting there looking to fool for years. And so I don’t know it’s a test of your metal or something as well. I mean, I think the dollar bowls went through that recently, right? Where, like, the dollars is falling and falling. It’s like, yeah, but the way the system works, that thing is coming back. It’s coming back. At some point. We’re sitting there floating around 88 or whatever is that for years or for months of last summer, and then the inevitable always comes. It’s hard to fight gravity.

Keith: Here we are at 104. I must be a glutton for punishment because I love to really promote the thesis at the time when the world seems to be going against it.

Travis: Same. I think that’s why we’re friends.

Keith: Both of my first waves of Bitcoin criticisms were during 2017 while it was skyrocketing. It turns out I wrote the last one. I decided for other reasons. Okay, enough here. I kicked this thing to death almost perfectly top ticked in December of 2017. Completely unknown. Every one of those articles, I was like, Where’s the Bitcoin price going to go next? I don’t know. And neither does anybody else. Neither that you’re paying to tell you where it’s going to go. He doesn’t know either. Yeah. And then recently, the bond bear case, inflation and rising interest rates and all that, and for a very long time has been that the negative trends falling. Every once in a while I get this troll on my Twitter. He’s like, you’re still wrong after all these months. And it’s like, how many times do I have to explain to you this isn’t a trade. I’m not a trading service. I’m not saying go long Treasuries with leverage.

Here’s the macro dynamic. Here’s how the engine is turning, and everybody can pretend it’s going to go the other way. And there’s a certain amount of slop or flex in the system, but this is going to come back, you Mark my words.

Travis: Yeah. I mean, any kind of macros training, anything macro with leverage is like risky business. That’s right.

Keith: Keynes was not right about a lot of things, but one of the things it’s right about was markets can stay irrational longer than you can stay solvent. Way longer.

Travis: Especially times like these moves are whipping around. It’s like leverage just blows people out, even if they end up being right.

Keith: Talking about whipping around. A friend of mine is a commodity broker in Chicago, mostly focusing on Euro dollars, which doesn’t mean the same thing as the Euro dollar milkshake Jeff Snyder type of thing on Twitter. He’s just the interest rate future, what they call Euro dollar contract. But a buddy of his is in energy pit. And there’s action on $50 nat gas. And for January, nat gas is like right now, $12 or something. I’ll go closely depends on where. And there’s the other action on $500 crude features.

Travis: Wow, that’s wild.

Keith: And I’m like, just imagine what would happen. This is going to kill people if this happens.

Travis: I mean, it already is. You see the retailers coming in with these just horrific earnings reports. The consumer is kind of dead. And it looks like the solution of that is everybody’s reaching for either the credit card at these nutty rates or these buy now, pay later shadow leverage businesses which are allowing people to you can finance your pizza order. I mean, stuff is so dangerous. If you’re like ordering lunch, it’s like, hey, you want to pay for this over the next three weeks? I’m like, what? Why are people doing that?

We’re getting in an interesting spot here. I mean, one of the things to circle back to the bond thing, to my mind, I get the same Twitter trolls. It’s like, is that still alive? Yeah, it’s very much alive. Where’s growth going to come from? I don’t quite know how the path that we’re going to take, I have no idea. But I know that we go into these moments where people just sort of like hate cash. And if you think about that, hating cash is the same dynamic in play when you lever up.

People are just trimming their buffer for being wrong down to this little nub. And then with these financing services going even deeper than that.

And I think those kind of dynamics just don’t typically when the consumer is that hard pressed and we’re in this sort of cash bonanza phase here in Covid where people got a little nihilistic. And when there’s death in the air, this is like a historical phenomenon. When there’s death in the air, which there was a little bit of people just sort of live for today. And so it pushed this wild spending boom into a supply shock. And I just don’t know that anyone is really calibrating what it’s going to be like to mean revert from that.

That’s pretty brutal. What’s your read on that?

Keith: I’ve been writing a lot about what I call lockdown whiplash. People think like the economy and the supply chain, like your VCR just press box. And you go to the bathroom, you go on a call with your friend, and 2 hours later you hit unplugged and everything’s fine.

And the real world keeps moving forward and everybody has to keep paying rent on their building and keep paying the debt service on the ships and the trucks and all those things. And some of those people go away. A lot of the ships were abandoned or otherwise shut down in all the wrong locations. There’s not a lot of spare capacity in the system. So all of a sudden everything’s stuck in the wrong location. And things are in the Philippines or Singapore La, and they need to be in China picking up the next load. There isn’t enough slack to just. Okay, fine. Sell them all back to China. That takes whatever, three or four days. I don’t know how long it takes. And that during that time everything’s stacking up and getting worse and worse and worse. So people see rising prices and called inflation. One of the things I’ve written a lot about is it’s actually rising and falling prices falling at the source. People who produce stuff can’t get paid hardly anything because the warehouses are overflowing with them and the consumers are paying more because the supply chain logistics train, the freight carriers, the Port in LA, infamously nobody can barely keep up in normal times.

Then you have this shock and it takes months to work off. If you live in a major crowded area like New York or La and there’s an accident on highway and traffic comes to a standstill. You’re driving home at 8:30 at night and the traffic still has a wave that stops where the scene of the accident totally hours ago. Right. It’s long been cleared, but traffic is a compression wave. And that compression wave doesn’t work its way out until midnight or something, when finally the density of cars is too low to continue to sustain the wave.

Travis: And then on top of that, you get these longer term effects in decision making, which I’m really interested to watch how this stuff plays. I mean, after you go through a supply shock like this, maybe think about keeping a little more inventory around because the world is changing or whatever the output of that thought process is. And so for these businesses, the deal in physical goods that have to be shipped around, the downstream implications of that, especially with rates a little higher. Like, you got to finance that somehow, right? That storage isn’t free. So maybe you’re borrowing. So the cost of money is going up at a time when business behavior is becoming a little more risk averse. From a supply chain perspective, that is just horrible for PL’s. It’s really bad.

Keith: Walmart has their earnings miss. And it goes to the graph showing your inventory levels. And the graph of inventory levels, I guess, versus earnings went back to, I think the 19, eight long term graph inventory levels right now shot the moon like unprecedented during the decades of this Walmart graph. One person commented, I have no idea whether this is right or not, but it sort of rings true. Is that real inventory that has real value or is that stuff going absolutely fast and trinkets and junk?

Travis: There are scenarios where it could be a pure loss if the product gets outdated. That’s fascinating. The other thing that I love your example with the traffic, because the way that you solve that is you have one car just sort of like slowly and methodically go forward to even out that ripple. There’s this guy on YouTube who goes and he’ll sort of like try to iron out these traffic things and you basically have to leave a buffer in front of you. Cars are going in front of them. And that’s kind of what these big retailers are doing with inventory.

They’re acting as that buffer, but there’s a cost associated with that. Their incentive is basically if Walmart, Walmart can remain the place where people know to go because they have stuff, in theory that’s long term good for the brand and that’s great, but they’re going to absorb that price. It and again, someone has to pay for it. There’s a beauty to it and that the private sector is trying to write this thing, but they’re going to do it at a cost.

Keith: I was going to say a lot of these guys, it isn’t necessarily strategic forward thinking like that just off in the highway. It’s very rare to see somebody who’s going to be a good Samaritan. I read a lot of these stories during the height of a supply chain crunch, I guess sort of as we were emerging from lockdown. So initially nobody was going to the stores, obviously. So the stores were sitting on gold that they couldn’t sell, which must have been some interesting losses that they suffered from that. And then during the height of like, we’re emerging, but the supply chain isn’t delivering. They have all this inventory that’s somewhere in the logistics chain, and then they need inventory to sell. So then they’re like air shipping stuff, paying more for it, not necessarily making margin on it, but what that means is that they bought double what they really needed for Christmas. Eventually all those chef and containers will work their way through the system. And eventually then they end up with like a surplus of inventory because the Walmart graph is showing that exact dynamic playing out. And the thing you always have to ask, with the craft that ends with a vertical like that, does that continue or is that going to level off at 32? I don’t know much anybody knows. Maybe the Walmart supply chain people know.

Travis: This inventory needs to be cleared either by losses or by a consumer buying it. And the consumer, you have this happening in time when the consumers are already under pressure. I thought one of the greatest earnings reports recently was the Restoration Harbor CEO, who I think that was a month ago or something by now he just read it out. He’s like, look, this is an unbelievable environment. Every retailer I know that earnings support, that was one of the best things I’ve ever heard from CEO on earnings. So it’s fantastic. Once you read it, he basically just came out and said, look, everybody I know in retail is faced with this dilemma where it’s like, what are we going to do? Are we going to eat the loss here to try to preserve demand and preserve brand loyalty? Are we going to try to pay that forward to a customer who can’t afford it. There’s no real great outcome there. At some level we’re looking at a negative growth environment here probably. Do you think we go I mean, GDB coming in negative is pretty funny. Everybody’s sort of in denial about that. But I don’t know, it looks pretty bad.

Keith: I don’t know how this goes with leverage. How many sellers are zombies interest rates being hiked? I say this often, which is if one is only concerned with consumer prices and one was either completely ignorant in the sense of like done Kruger effect ignorant or recklessly callously indifferent to all of the other harms caused by falling interest rates. But we only cared about consumer prices. One should want falling interest rates, not rising interest rates. Right now we have supply contraction and obviously energy and food and all the things that are exported by Ukraine and Russia, but country by country, Indonesia, India, they’re starting to announce bans on exports. Yeah, right. So this starts to spread in this environment, the producers who are still solvent, that they want to work to expand capacity because there’s an opportunity to make money here. Right. What do we do? We make it more difficult for them to obtain financing. And for those fewer of them who can obtain financing, we make it much more expensive than it used to be. And you’re going to cure lower prices. There is going to be such a wreckage of suppliers destroyed in every market. And then we’re going to see inflation.

Travis: And the fixed ultimately, I think at some point here we got to see them essentially try to pancake rates to get all that going again, which is effectively that’s kind of the bond thesis is at some point this causes enough damage that we got to restart all that appetite for capex in a really bruised up economy where like consumers bruised businesses are. I don’t see how you get persistently high rates from here.

Keith: No, I was going to say there’s a term from computers and software, which is the term stateless, and that’s the ideal API stateless. And I used to use the opposite term when I was a software developer. Stateful things that have a memory. So you call the same function input and you get a different answer because the function has a memory in terms of knows what happened yesterday or whatever. People are quite stateful totally. You offer them the same interest rates or the same incentive today versus what’s called February 2020. They’re not going to pay for the same because they remember what happened. Totally businesses. So we’re in this huge climate of uncertainty, regulatory uncertainty, tariff uncertainty, living aside war, and all the uncertainty that creates. And then you go and hike rates, go and destroy decimate industries wholesale. Then you say no mistakes, sorry, we’re going to go lower rates. It’s not going to get the same effect if you hadn’t jacked them up in the first place. Obviously not. And it’s very hard to predict how and who. And there’s always a new entrepreneur with fresh capital, or at least that’s the theory, which kind of reminds me of Atlas Shrugged when it’s like, oh, Mr. Reardon, how are you supposed to handle this latest new crushing burden that we’re putting on your shoulders? You’ll find a way. You always have.

Every time we destroy industry, there’s always a new investor coming in with new capital to buy up the old assets and restart it and hire people. And will that be true? I think there’s a world to hurt coming, for sure.

Travis: I think so, too. We tend to think of investors we like personify them, right? Like the Brave Investor or whatever. But I think in aggregate, a lot of the investment recently you listen to things like passive investing and all that. A lot of this is sort of like it’s systemic investing. Like people drip their 401Ks in people 529 plans for their kids. There’s just a systemic push toward assets, products, every package. People don’t necessarily think of themselves as investing in assets, but they’re in some target date fund or whatever. If we were to see people really get blown out on that stuff and see the appetite to deploy capital just decrease broadly, that’s not great. That creates lasting damage. It’s one of the reasons why I’m so aggro on Twitter about Bitcoin is I think there’s a real danger in the whole retail revolution component of it. I think if people get really stung, I’m not against Gen pop making gains trading. That’s great. Go have your fun, get your gamble off. But it’s a zero sum game at best. And as you and I have discussed, it’s more likely a negative sum game.

And so if people get burned really hard by that and internalize this message of, like, deploying capital is risky, then it’s not like that’s a minor thing. America sort of thinks like, yeah, I’m going to raise my cash levels forever. That’s a meaningful decrease in the amount of capital available for just everything, capex, entrepreneurship. It’s just sort of society wide. The more I look at where we’re heading, the more I think there’s a real risk there. And you couple that with some of the other dynamics in play, like the boomers for them, taking a loss is pretty bad because they’re no longer out there in the economy, really working most of them. So I think you could get a real proper long term decline in the amount of capital available for industry, entrepreneurship, all that.

Keith: Let me just tweak it slightly and say all that capital. I wrote an article years ago called A Credit Gradient, and this idea that even in normal times, of course, Fortune 500 companies with AAA credit ratings get a lot more credit, a lot cheaper than mom and pops and early stage companies, totally. But when the government lowered the interest rates or sets in motion dynamic, which caused 40 years of falling interest rates and or what I didn’t say in that article. But looking today with all the uncertainty for covet the uncertainty tilts. You have this as a pool liquidity, and the big companies are on the deep end to begin with. All you’re doing is tilting it even more. And so what are savings is like, people keep dollars in a bank account. It’s not like it goes away, but it goes to the balance sheets of JPMorgan and Citi and corporations who have less and less productive opportunities to deal with it. Because if you’re managing trillions of dollars, you can’t really focus on the entrepreneurial early stage. Obviously, they have a team of asset managers there. A friend of mine in the asset management business was talking about somebody who wasn’t nearly as big as JP Morgan or anybody like that. They said, yeah, the average guy on their team has to look after a portfolio of something like half a billion to a billion dollars. Yeah, I can’t be looking at 10, 20, 30, $50 million valuation startups. It’s wildly inefficient and where all the value creation is. And so they have to just be looking at, okay, we’re going to buy real estate, we’re going to buy S&P 500 companies. And so you get the over excess of capital on the companies that don’t need it and don’t have anything productive to do with it, and they get Bloated and management teams find more creative ways to help themselves to that bonuses.

Travis: That dynamic exists at a number of levels. Another one is when we were running our company, we took some debt along the way. And the amount we paid for that would sound absurd to most people who think about, like, business. I looked it up the other day. We were paying 11%, which is pretty spicy, right? But it was unsecured. And we’re startup, there’s nothing it’s unsecured debt. So the way they underwrite that is they clip you for a small warrant, which helps derisk their portfolio as a book. And then you’re paying high interest rates and they underwrite essentially your growth line. And for us, it felt like free money because we were growing at 300% a year. So it’s better than equity capital. But I think that dynamic is really interesting. So for a small entrance, higher rates can be overcome by growth. And so when you have these higher rate dynamics, if you’re a small business, those higher rates are actually competitive edge against a massive incumbent, because a massive incumbent can’t pay those kind of rates because they’re just not as efficient. Like small startups are wildly efficient, I mean, to a level that’s just sometimes pretty ruthless, very scrappy, all that stuff.

So you can pay these higher rates and you’re breaking into a market. There’s just a lot of growth ahead of you. And when you get an economy in which all of the there’s just low rates everywhere. Like, these incumbents just come along. They see anybody vaguely competitive, they just buy them and take them out or lower their prices and put them out of business. It’s this very promineopoly kind of situation when you have persistent low rates. And it’s really unfortunate because I think America is really good in entrepreneurship. It’s one of the things that’s one of our things we value as a society. So a lot of people like to give it a go, but it’s just harder and harder for new entrants into the economy, whether that is a millennial trying to buy their first home or a small business to compete with these huge entrenched incumbents. When you have persistently low rates…

Keith: Just to reinforce the entrepreneurship component of American culture. I’ve traveled all around the world, both in the endless fear and other places, and in a lot of places, there’s very much a sense of you shouldn’t dare to try to rise above your station. Totally honest. If somebody is trying to really go for the big brass ring and start a company that’s going to become a multibillion dollar enterprise and change the world in some way, there’s a fair degree of ill wishing and hope for shot in FreudA. And if that company fails, that person. So while they’re trying and while it looks like they’re succeeding, you have to cut down the tall poppies. That’s how they would phrase it in a lot of places. And then if that guy should fail, there’s a, hey, what the hell did you expect? You got what you deserved. You got what was coming to you. Yeah, I don’t want to name countries and whatever. I have friends in most of these places who don’t share that particular view, but that’s pretty endemic out there. And in America, there are so many things. There’s Michael Jordan saying, I’ve missed more shots on gold than most people have taken.

It’s not how many times you fall down, but you have to get up one more time than you fell. There’s so many things here that says, hey, look, even if you fail as an entrepreneur and your venture goes out of business, you learn something. Your next venture is going to be smarter. There is the next venture. There’s this presumed optimism. Meanwhile, of course, we’re breaking that because we keep adding more and more regulations that make it harder and harder to raise capital. Obviously, every industry is increasingly licensed and regulated and controlled. You can’t do anything. I’ve been tweeting now about this.

Travis: Well, let’s dig into that. I think you and I, this is probably an area where you and I would agree. I would say in some ways I’m a fan of regulation and you would definitely say you’re not. But I think in the end, we sort of mean similar things. So to my mind, inflation is the rules of the game, and there have to be rules, and people should follow them. And what we’re seeing now is regulation as regulatory capture, which is like the exact opposite of what you want from regulation. We’re seeing inflation that further entrenches this advantage, the incumbents dynamic.

It makes it brutally hard for new entrants to pay some whatever yearly licensing fee. All of the small players get washed out before they start to exist because you have this crushing, essentially burden of entrenched regulatory policies that doesn’t really let any of that stuff Bloom.

Keith: It doesn’t allow your new model and compliance. You can’t raise $3 million to put together your compliance program totally before you really started producing revenue.

Travis: So we simultaneously have too much and not enough regulation.

Keith: I’m a big believer in the Rule of Law. It should be illegal to lock you up and steal your money. It should be illegal to defraud people and cheat them and steal from them.

Travis: I vaguely remember the Rule of Law.

Keith: But regulation is when they attempted a couple of things. One is guilty to approve an innocent, so regulated industry, you have to prove your innocence with what’s out there being any evidence of any actual crime. Number two, of course, regulation completely breaks down the separation of powers.

So in the Constitution and for people that are listening from abroad, there are several things that were unique about the American experiment, one of which was separate government into three branches. The legislature writes the laws, the judiciary who tries the cases and determines the fact of whether or not you broke that law. And then the executive, which enforces the law. Regulatory agency writes the law, judges the law and enforces it. And of course, you’re appealing to the person who wrote the regulation to say, Please show me mercy, my Lord. It’s not the same thing as the cops arresting, petition to a panel, which is presumed to be disinterested, and even a jury of your peers. You’re petitioning the regulator themselves.

Travis: Yeah. And what you’re describing effectively flips the burden of proof. Which is the problem. That is the dirtiest way to win an argument. And it is a piss poor way to legislate.

Keith: They have these vague statutes of what constitutes securities manipulation, for example. So there’s been a lot of stuff that’s gone on with Elon Musk, and even before the Twitter, I don’t even know whether you call it adventure to block on what the word for it is. But long before that was six, eight months ago, his brother sold some shares in Tesla, and there were a lot of people arguing that that should be illegal under the securities act. That should be a required disclosure that has to go through. Like, everybody has to have a chance to front run his brother selling the shares as if it was Elon himself. And I’m like, well, that’s an interesting expansion of the powers of the regulator. What does that really serve? So with regulation, you have non objective law where it’s impossible to know in advance whether something is illegal or whether something is legal. My favorite example for that. And I started to get into this whole thing around the time that it was the Microsoft trial, antitrust for bundle the browser, the operating system at around the same time that there was OJ trial for the murder of Nicole Brown Simpson.

I said compare and contrast these two things. In the OJ trial, there was no controversy as to whether or not it was illegal or should be illegal to beat and stab somebody to death. The entire controversy was over the fact of whether or not OJ did that to the deceased, which is how it shed me and went to trial. And he was acquitted. And whatever. In the Microsoft trial, there was no controversy over the facts. The fact is they bundled the browser with the operating system. The entire controversy was whether it was illegal or should be illegal. With PhD, JD wonks weighing in as to their opinions of us. And clearly this is a major Corporation. They had the advice of counsel. They didn’t think that what they were doing was illegal at the time they did it. And then they have to go to court where it has to be determined whether it should be illegal. I mean, how do you run a business in an environment where you can’t know in advance whether something is legal or illegal? So it creates uncertainty and you get a hesitancy to invest, you get less dearth of consumer products, fewer of them at higher prices.

Travis: How do you think society should approach stuff like antitrust?

Keith: To the extent that a company abuses its so called market power, that is, to the extent to which it actually produces its market power. If you try to nudge, I love that term from Cas Sunstein when he’s on Obamacare. If you try to nudge your customers, which means force, strong arm, twist their arm, whatever that is the extent to which all sorts of negative things are happening, that you’re actually losing that power. And somebody might be in a position where they have no choice today, but people are statefull. So I don’t actually believe in the whole monopoly theory of the left anyway. Number one in a free market, as long as someone else has the right to compete, not that the government manages and has some central planner to find for each market what’s the right number of competitors, which is not objective, and how do you define the market and what are the substitutes for the market and so on. There will always be the next thing. If a company is abusing customers. Now what you find the classic cases in history, standard oil, alcohol, aluminum, to name two were actually hated the most, and Microsoft were bundling.

The browser, for that matter, hated the most, not because they were abusing their customers. But because they were always pushing themselves to deliver more to their customers and their competitors are saying, hey, that’s not fair to us. We need to have less for your customer and higher prices. That gives us room to compete. It’s like, well, who’s this law supposed to be protecting? Yeah, we kind of lost the tune here.

Travis: To me, this thing, it always gets complex when you have a scenario like I think we have now where there is a lot of regulatory capture style dynamics, and those are the things which are protecting and entrenching monopolistic behavior. Like, I’d love to see that end.

Keith: That’s right. That should be the first step that we can all agree on.

Travis: But it’s weird. The way we go about ending it is weird to your point, which is like, we set up this situation where there’s like, regulatory capture, then people get mad about that, and then we go like, smash the company, which is very weird. What we’re doing now in the macro where it’s like, well, we’ve got this really weird situation where there’s sort of supply shocks and whatever else. Our solution is at a time where everyone’s levered up, we’re just going to crush demand. That is just the worst possible way for us to get out of this thing.

Keith: I tweeted a few times about there’s a huge shortage of baby formula right now. So it turns out when you look at it that the FDA has forced Abbott and Gerber at least to close plants. Now, why? Well, it gets into the abundance of caution. The four babies got sick. No particular evidence actually linking them to Abbott food. But plant closed. And the philosophy seems to be we’d rather have millions of babies starve than take the risk of four babies who got sick.

Travis: I mean, you presume there’s a philosophy guiding this?

Keith: Anyway, so some congresswoman decided something has to be done and appropriated. It was actually a tiny amount of money. It was only $28 million, which I’m going to stand for. Our government today. You can’t even get out of bed for $28 million.

Travis: That’s the change left on the dresser.

Keith: That’s right. Appropriate the $28 million to give to the FDA to hire more regulators. We had a problem. There were too many regulators that were too overactive, shutting down plants and causing a shortage. And now we’re going to hire more regulators. Yeah. That’ll fix it. Here’s how I look at it. The regulation creates incredible perverse incentives, and then, of course, the companies that are subject to first incentives behave perversely. That’s used to look at how these evil capitalists are behaving we need more regulation because otherwise look how perverse they would be without regulation. And so then we create more regulation, and then there’s more progress incentives and more progress behaviors and more progressed outcomes. And if you don’t stop it, you get all the way to Venezuela.

Travis: These dynamics are really funny. There’s a local business here who’s building it as a gym, and they built sort of an outdoor expansion. And the fire Department, they’re like, trying to put this thing up so they can make it through Kobi because it’s like people want to be outside a little more or wherever else fire Department charge them, like $7,000 to certify the thing. And it’s an outdoors expansion. Like, what kind of fire risk are we talking about? There’s nothing to catch fire. Right. You just walk that way. There’s a fire anywhere near the building, you’re going to be fine.

And it’s a business that’s trying to sort of like Bob and weave in this very difficult environment. And the point, of course, is to preserve their ability to make money. And it’s just sort of this huge chunk. The seven grand is like it’s just a lot of money out of nowhere. That’s what drives me bananas for companies.

Keith: Revenues have already been crushed already! To deal with other problems…

Travis: And I think one of the issues is there’s no like, you look at that as an outsider, and you’re like, well, couldn’t they just sort of look at that and make an exception and be like, look, you’re fine. I think the problem with the application of regulation a lot of times is that that’s just not how it goes. It has to be this pain everything with the same brush kind of approach. And when you do that, you directly reduce human dynamism because you’re not responding to the situation.

Keith: Wait a minute. They do create exceptions, but the exceptions are created for their cronies.

Travis: Fair enough.

Keith: You need a consistent application, equal and all that. If the law is such that you have to constantly make exceptions for it, I would suggest you got to reconsider that law. Like, if there was a law against murder, nobody would ever argue for any exceptions. Logins, reap, log in, bringing somebody store down. There shouldn’t be any exceptions if you do those things out of prison. But law against building an outdoor. I’m going to guess that not only was it outdoor, but it was concrete and steel. There wasn’t actually anything flammable there.

Travis: All steel.

Keith: Right.

Travis: And the building’s brick. I’m like, what are we….?

Keith: Right.

Travis: And simultaneously, I understand that. Let’s say you’re doing new construction. Maybe you do have to have them certify it, I don’t know, once or something. Right. I think we don’t want people burning in buildings that were poorly designed, surely. But this isn’t that situation.

Keith: Right. Let’s turn to Bitcoin. Bitcoin and crypto. One of the means that’s floating around there right now is that Bitcoin is not crypto. Crypto is something else. And every time the bitcoiners try to differentiate themselves from what they call the quote unquote shit coins, I like to post there’s a Dilbert strip that Dilbert goes to Dogbert and he says, what you’re doing and Dogbert says, I’m writing press releases for fake green energy scams. Here, listen to this. By 2030, scientists predict that you’ll be able to power your home with the breeze from your refrigerator door. And Dilbert goes, oh, great, now how am I supposed to tell the real ones and the fake ones? And Dogbert looks up at him, he goes, this is the best part. It’s already funny. But the best part. He goes, Seriously? You think they’re real ones?

I mean, it’s not crypto. It’s not shake, coins, Bitcoin. It’s something completely other. It’s a real green energy thing and not a scam.

Travis: The deepest irony of the entire crypto thing is that they fancy themselves Austrians, a lot of them, which I find so funny because it is the most woeful capital misallocation I have ever seen. Ever.

Put racks of these Asics just like tons of Silicon. The time where there’s a chip shortage, they’re putting them in warehouses, which they then spend a bunch of energy to run and cool. And it’s literally just waste.

Keith: A big theme of mine is that even if somebody agrees with you on the conclusion and argues for something that you like, but if the argument is total rubbish, you should, in fact, you almost have a moral duty to stand up and say, this is rubbish. So there was a yesterday, I was sort of shit posting late last night as I was working in between revising. The document is going back and forth, and this guy says that the price of Bitcoin is set by the hodlers.

Travis: And I saw that one.

Keith: That is literally how prices are not set. I was tempted to say, hey, Austrians that are on board the Bitcoin thing, is there anybody that would you care to school your fellow traveler? And I was like, no, I’m not going to go that far. I’m not going to say that. But that’s exactly how prices aren’t set. But that’s how the Marxists and all the other people think the prices are set.

Travis: Well, this is, again, the great irony here. Bitcoin is a variance of Marxist, which I find it’s mind numbing that it’s marketed value. It’s a whole host of it. I mean, think about I did some labor, and therefore I should be able to hold that for all eternity. And it shouldn’t. This one thing that I did, which I traded for money, I should be able to then snowball that value forward forever. That’s ridiculous. A human economy cannot work like that. It’s just patently absurd. You have all these people believing it. It’s truly amazing. There’s that piece of it. And then there is this piece where the entire store value thing is just really just kind of a trip. Because if you were to think about a store of value in the essence, like if you make a perfect store of value, it would mean that that thing, it’s one unit is now pinned to all other prices right forward in time. So that thing can forever buy acts loaves of Brad or whatever. Well, great. You just killed markets. That is literally you’re describing price fix.

Keith: It is not a goal that we should be there and shoes should be this, and the ratio should be fixed.

Travis: Great, Stalin. Good work.

Keith: I’m working on a paper. Looking at the term anti concepts. One of the anti concepts that I delve into is store value. And that all of the rhetoric. It’s a lot like crypto or Bitcoin, where they use rhetoric like coin and money. They use all these terms that evoke something that really has nothing whatsoever to do with reality, but they’re just really great branding. So the idea of store value evokes this picture of, like, container, like a water jug, and you pour water to it, and then as long as you put the stopper on it, it should hold the water into you forever. And then when you’re ready, you unscrew the top and you pour the water out. It’s good indefinitely. And that’s not how even gold works. Gold people say store value, and then other language they use retention or retain. It’s like a retaining wallet. You have wet soap that’s down the Hill, and then you put up this barrier. But what is it you’re trying to capture? Well, of course, you have the Michael Saylors who say pure digital energy, man.

Travis: I can’t even engage with that.

Keith: Of course, if you try to take your Bitcoin container, you’re not going to get any oil out of it or not gas or whatever form of energy, but ultimately labor by the dead of work. Now the work is encapsulated in this thing. So, Dixon, did you want to put up some tweets?

Dickson: I think this was one that you were kind of riffing on, the whole energy dynamic. I mean, Travis, you said you just can’t engage with it. It looks like you did engage with it a little bit.

Travis: Oh, yeah. I should rephrase. I engage with it all the time. Just not as serious. I kind of feel for people who get bound up in these ideas a little bit. I think it happens to all of us at various levels. You have to constantly be on the watch for sort of these really custom designed, memetic warfare ideas that get thrown at us. The Internet has made people very good at marketing branding, because it’s this constant sort of cycling lab. And I’m always fascinated to find people like you. If you don’t, you’re in the gold business, and you’re sitting here saying with the store value thing is not the way to frame this. I just love that it’s so rare to be able to engage with people who are not taking the bait on a concept that would serve them, because the concept is wrong.

Keith: I don’t know if we knew each other followed my work way back when. I’ve got a lot of enemies in the gold met, particularly. I mean, it wasn’t even the store value thing. I guess the first item that was items I created when I said fractional reserve isn’t the problem, it’s a match. But then later, the biggest name in the gold community is manipulation, right?

Travis: Yes. This is how I found you. Brent turned me on to that piece. It’s a great piece.

Keith: And there’s this vast conspiracy that over a period of decades, it’s holding the price of gold, thousands or tens of thousands of dollars below where it should be for decades. And given the number of banks that are involved, every bank would have their trading desk, internal audit and external audit and regulate it. Gold be thousands of people, if not tens of thousands of people that would be aware of this highly illegal fraudulent team, which somehow there’s no hide or hair of other than the London Whisperer or whatever his name was. And anyways, I would take that on and say, you’re not doing gold any favors by promoting this rubbish. There’s a lot of good reasons that I’ve been happy to talk about them and people like Turd Ferguson. His real name is Craig Hemky. Max Keiser actually dropped the F bomb on my name on his show a decade ago.

Travis: Whatever. If Max Keiser not attacking you, you’re doing something wrong.

Keith: That’s right. Because he said buy silver to crash JP Morgan. Yeah, I said there’s two problems with the CSA. One, buying silver is not going to crash JP Morgan. You’ve got the whole thing is fundamentally wrong. And number two, nobody in their right mind should want to crash J. P. Morgan. If he thinks that the banking system is problematic, you should be looking for a graceful transition to something better and not the collaborative. Anyway, so he decided I was his enemy and actually he was cursing at me. I made a lot of enemies doing that. But I think it’s a really important principle that if your friends are making a rubbish argument nominally in support of the thing that you agree on, they’re actually undermining it.

Travis: I totally agree with that. There’s this whole thing, the false dichotomy gets thrown around in finance. Do you want to be right or do you want to make money? I’m like, well, I want to be right for the right reasons, and I trust that in the fullness of time that will work out.

Keith: That’s right. And they’re just saying, no, just go on to Bitcoin because it’s going up or it was going up. Obviously that dynamic has been broken down.

Dickson: I think in the beginning, Travis, you talked about just the importance of balance sheets and I realize you’re quoting another person’s thread here, but I’m actually going to read this just because we’ve got some listeners who will only be listening to the audio. So just for their sake. And then I’ll read the quoted tweet, and then I’ll read what Travis quotes “Conclusion Both Bank issued money and Bitcoin is written into existence. The latter, though, requires huge amounts of energy. Before that creation from nothing occurs and the thing created has no liability side. In fact, it’s simply a numerical noun.” And then Travis tweets “Excellent thread. And agreed. The great irony of Bitcoin is that it is, in fact, purely unbacked in a way that Fiat is not because of a basic failure to understand balance sheets and money is epiphenomel thereof.”

Travis: I mean, sometimes I just get real deep in the big words. Yeah. So I think if you want to understand finance, just get deep into balance sheets because you learned some of the stuff that really kind of blew my mind when I went down that route is saving and debt are kind of the same. Like they’re two sides of the same thing.

Because if I’m going to take my money, I’m going to save it somewhere. So you can do that one or two ways. You can either have a bearer instrument, which again, one of the reasons gold is interesting, you can sort of save yourself. But even then, if you just sort of run with this balance sheet thing to get into the mindset of the world’s balance sheets, you have a safe in your house, and that safe has a balance sheet. And if you put $1,000 of gold in there, it owes you that gold in some sense. Right. If we’re going everything is balance sheets, and all of this stuff breaks down.

Keith: That’s really very philosophical.

Travis: Well, yes. I mean, I just think it’s informative to take an almost absolute framing to this stuff. Because even then, whether you’re storing your gold with someone like you all or whether you’re storing your gold in your state, there’s a carry cost associated with that. Like you got to pay the rent, you have to pay property taxes. There is a cost. And so all of these understanding, these really basic fundamentals like balance sheets PNL that will help disambiguate some of the horse shit that you see online.

And so when you think about this, one of my favorite sort of things to say over and over here is that I think part of what’s going on with crypto is that it’s essentially this little number go up phenomena is essentially because they’ve created a little pocket Weimar Republic here.

So if you imagine crypto as a country and it’s a country that doesn’t have any borders, it just exists in the Metaverse within that country. The central bank has gone insane and is printing a lot of money.

And you’re seeing the prices of things within that country which are crypto, tokens moon. But the phenomenon that people are experiencing there is like being in Germany and seeing Brad Moon and think bread is a good investment that just doesn’t quite work. What’s happening is that there is a bunch of funny money being created inside of an ecosystem and there are dynamics resulting from that. And some people will be able to get their money out of there, maybe.

Right. But that is not an ecosystem that you want to engage with. And if you start trying to model this stuff out in terms of balance sheets, that is the kind of stuff that sort of that’s how you Peel back the layers of that onion when you are Bitcoin. If you buy Bitcoin, there’s a sense in which you are giving money. You expect to get back out later to people who you have no idea who they are. It’s a network of totally unaccredited. And they may be accredited. We have no idea. We have to presume. They’re not totally unaccredited people. You’re putting that money in there and you’re expecting to withdraw it later. That’s insane.

Keith: There’s another fundamental error there. And that is this idea of putting money in withdrawing. What they glossed over is that you didn’t put anything. You gave your money to the previous guy who’s exiting. He’s actually leaving the movie theater and you’ve given your money to get his tickets dubbed. Because now you may think of it as getting your money back later with interest or whatever, but actually the next guy is going to give you even more of his money.

Travis: Maybe you hope, yeah, it’s a freaking Ponzi scheme. And this is the thing that’s so funny is that it is a self aware Ponzi scheme. You had Sam Bank and Freak go on. Odd lots. Why’s? And describe this like, you put the money in a box, take more money out, and if people adopt the box, then you’re banking that more people will adopt the box. And Matt Levine is like, you’re literally describing a Ponzi scheme. This is a series of networked Ponzi schemes. Everyone’s like, well, the safety is in diversification. I’m like, no, the safety is not in diversification. If you’re diversifying Ponzi scheme.

Dickson: This was one of my favorite images here.

Travis: Totally Ponzi schemes. The network for safety.

Keith: It’s just absurd to bring it full circle. And to continue with the movie theater analogy, do you want to be right or do you want to make money? Make money. You have to get out the exit door of the movie theater, except all the exit doors are changed shot except for one, which is only half Wayte. And there’s a crowd of a million people when the movie theater is on fire and it’s time to rush for the exit, there’s a million people rushing to the exit. And you think that I’m going to be one of the first ones to get out the door. Maybe you will be.

Travis: This is one of the downsides of American optimism, right. That we’re really good at bubbles because we always think we’re going to be the first ones out the door.

Dickson: There was actually a meme that circled, I think, on Twitter where I heard several people say I’m long like short duration ponzies and short late duration Ponzi meaning I’m taking the position that I’m going to be early enough to get out in time but I’m shorting the people that are going to get out late.

Travis: I’m a simple guy. I think maybe just own productive assets which I mean, you all are effectively in the business of turning gold into a productive asset, right?

Keith: That’s the key distinction. That’s why I make enemies with this one too. I define speculation to buy an asset and later to sell and the profit to the speculator comes from the savings or the wealth or the capital of the next speculator. Investment is financing of productive activity. The profit comes from the profit on that production.

Travis: Yes, it’s very rewarding too. It’s fun.

Keith: Somebody’s making more or new or at least increased quantity of consumer goods or maybe producer goods is selling the profit and is paying the investor part of that profit for the privilege of having that investor capital, whether that’s Keith: , your dad or whatever. Fundamentally, speculation and investment are opposite economically. Although in a world where the status deprived investment of most of its return will turn to speculation is like a surrogate in the way caffeine and then jolt and then cocaine as a surrogate for sleep. By the way, it makes you feel euphoric while it kills you.

Travis: Yeah, here we are.

Keith: This has been awesome.

Travis: This is fantastic. Thanks for having me on.

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