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What’s the Story? AI Stocks, Crypto Downturn, Metals Selloff, SaaSpocalypse | Jim Bianco
01:15:10
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Bankless nation. The markets feel very chaotic lately, so we brought on Jim Bianco, who is a repeat Bankless guest, to tell us what the heck is going on. Before we get there, we gotta shout out our friends and sponsors over at Kraken and their new Defi product.
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D
And now let's go and talk to.
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B
Jim Bianco to figure out what the hell is going on in the markets.
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A
All right, Jim, I saw your Twitter, so I know you watched the Super Bowl. I think you called it the worst super bowl ever. I tend to agree. But what did you think of the Coinbase commercial that was also very controversial? Did you see it?
- [00:56]
D
Yes, I did. I, I, I kind of liked it. And kind of somewhat adjacent to crypto is I, I kind of like the Claude commercials too. I thought that those were pretty funny as well. But, you know, I, I wouldn't quite go as far as to say it was the crypto or AI Bull, you know, like we had a couple of years ago in 2022, 2023. But it was, it was, I liked it. What about you?
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A
Okay, so I was watching it with my family and the reaction was basically like everyone was singing along. Backstreet Boys. They had no idea what it was. In the back of my mind, I was like, this looks really similar to the previous commercial Coinbase played. So that was kind of out there. And then as soon as the song kind of ended in, Coinbase logo shows up and it says, you know, crypto or whatever. My whole family looks at me and everyone groans. So that was my experience with it.
- [01:51]
D
Yeah. I will say this about the commercials in general. I think that they're overproduced, you know, and basically what it is is every commercial to me seems to be the same. Let's get a bunch of a list. Celebrities overpay, them overproduce, 30 seconds of a big budget to try and make everybody laugh. And it's like there's 50 of them during the, you know, they're all the same thing, and they need to kind of get a little bit more creative kind of. Why I kind of like that one. I thought it was a little bit different.
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That's true.
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B
I will say that about Coinbase commercials generally is they have zig doing, everyone else has zagged. Speaking of a zigging and zagging market, Jim. Yeah, there is just a bunch of stuff going on that I am confused about. I'm going to call this section the the WTF was last week section. There's just a bunch of different things that if they happened in a vacuum, I wouldn't otherwise need an expert like you to come on to show and give you analysis. But four big things, if maybe more happened at once. One of them was SaaS Apocalypse. SaaS Apocalypse is just this name of this fear driven sell off on the idea that AI is starting to look more like a substitute for software SaaS companies instead of a feature that makes SaaS better. So people are saying cloud code wiped $300 billion off global software stocks. That's just one AI. CapEx, Google, Microsoft, Meta, Amazon all increased their forecasted AI CapEx spending in 2026 up to $700 billion. 60% increase from the previous year. That scared the market. We have precious metals volatility. Gold dropped 21% across four days. Silver dropped 70 50% across seven days. And then of course in the crypto side of things, Bitcoin dropped 33% over seven days hitting $60,000. Ether dropped 42% over that same period, getting as low as 1754th worst day of the decade in crypto price action. Like I said, any one of these things happens in a vacuum. I'm like, okay, it was a bad day in the market, but four of these things all happened last week. And so therefore I am confused. Jim, what the hell's going on?
- [03:59]
D
All right, so let me, let me start with SaaS Apocalypse. Let me give my street cred. I subscribe to the pro version of every AI that exists right now. I use the pro version of every AI that exists. I'm also heavily into trying to create agents with these AIs as well. And let me start off by saying I think this is the biggest thing since the Industrial revolution. I think this is way bigger than the invention of the Internet right now. And I'll even give you, as a prelude to some of this discussion, AI, not only are we going to get it and we're going to get it full force, we're going to want it too. Because in 2026, modern life is. Let me, let me describe modern life for all of us. We sit around on devices, pushing buttons, tapping keys all day long, you know, trying to get a million things done out of our computer. It is, you pointed out any one of these things, go order something from Starbucks. Well, that's easy enough, but I got 450 other things I got to do at the same time. And so if AI can help me do all of them simultaneously, I think it would be huge for us. And so therefore I am embracing my AI overlord and I'm hoping that he comes and comes fairly soon to help my help my life. Now, as far as SaaS apocalypse goes, what happened with the software companies is very simple. We all SaaS services software as a service. We all in we being business, you know, subscribe on a per seat basis for software, whether it's a CRM, a customer relations monitor from Salesforce, or some kind of other program like Microsoft 365 or something like that. Now, the reason that they were able to get away with that pricing mechanism is because to create these programs, I'll give you one example. Chrome, Google Chrome, their web browser, 35 million lines of code is what Chrome is, and it's pretty buggy free. And that they actually have hundreds of engineers that work on it. And on average they up, they fix 180 bugs a day and have been for years, which is why Chrome is such a good web browser. That is hundreds of millions of dollars that they have invested in Chrome alone in order to get that program to work to the way it was. Now what's happened with AI is they have collapsed the price of software building. So there's a company called Cursor. Cursor basically ran an experiment about two weeks ago. What they basically did was they gave basically a hundred pages of, of, of a prompt into the program and said, here's basically Chrome Described it in 100 pages create this. It ran for a week, it produced 3 million lines of Rust code. And on the other side, they got a crowd, they got a browser. Now it's a little bit buggy, doesn't quite do what Chrome is going to do. But what stunned them was they said they spent about 100, $150,000 in tokens to get this browser that if you were to have asked a year ago, how far, how much would have, how long and how much would have cost us to get this far? It would have been tens of millions of dollars of programmers, maybe 100 programmers in at least a year. And so what I think is happening with SaaS Apocalypse is not that software is going to go away, is that their pricing mechanism is going to have to change that. We're going to charge you per seat. We've done raised the prices on you because we're dug in as a legacy program for you, because the cost of creating software is. Is going to collapse. So are you going to create your own CRM and get rid of Salesforce? Probably not. But you know what? Somebody's going to raise some money as a startup and they're going to use AI and they're going to create what Salesforce has for a small fraction of the cost. And they're going to come in and say, get rid of Salesforce. Why? Because I'll charge you 10% of what failed. Salesforce was charging you and deliver you the same product. So that's what's happened to the SaaS PRO, to the SaaS is that their pricing model, their business model is under attack, not the existence of the software. And the reason is because the cost of producing software in the future is collapsing towards zero. Now, I would argue that crypto fell into that same trap. Crypto is programmable money. Crypto is software. If you actually overlay the S and P software index with Bitcoin or eth, looks the same. Even though it's been diverging from the, you know, from the nasdaq, it still kind of follows along with the software index because it's kind. It's thought of as a version of software, programmable money. And since the price of software has collapsed, I think that that got, you know, crypto got swept up in that as well, too. So though those are, you know, to answer your first two things, I think they're somewhat related now, gold and silver. What's been happening with them? First of all, let's put those into perspective. If you added up the total value of stocks, bonds, in real estate across the world, gold and silver, going back to last summer, it's like 3 or 4% the size of them. You know, at their peak two weeks ago, they were about 8 to 10% the size of them. So relatively speaking, it doesn't take a lot of money to move gold and silver. And so therefore, you know, you can have tremendous buying out of gold and silver. And all of my friends on Wall street are looking at you going, who's buying? Who's buying? Who's buying? Because of this big rally, you know, And I would just say to them, you know, if they were buying stocks or they were buying bonds, it would require so much money to move that you'd know who it was. Well, the argument has come around that the buyer of gold and silver is Asia, primarily China. Because if you look at the Chinese economy, and I'm a big bear on the Chinese economy, I think they're in trouble. And you look at some of the other Asian economies, primarily Japan, because of their soaring interest rates, a lot of investors in those countries are worried and they were looking for places to hide and they looked towards the metals. They also looked towards crypto a little bit too, earlier this year, earlier in 2025, excuse me. And so they were. But they were the main big buyers. So we're here sitting in the United States, all looking at each other, going, I'm not buying. You're buying. You know, I'm not buying. And the price has been soaring. And the only people we could eventually identify in the US that was buying gold and silver was a bunch of degens that were just following the trend, but they weren't creating the trend. I think it was largely created out of Asia. What I think happened with that, coincident with what we saw with the SAS apocalypse and everything, is if you look at the volumes of gold and silver that was turning over, it went absolutely geometric, you know, towards the middle, later part of January that you were getting daily volume out of the, out of the physical gold and silver markets equal to what four or five months ago was a month of volume. So there was just insane speculation. And what does insane speculation means to use silver? Silver is like $82 right now. We're talking about everybody was buying 100 to 110. They were all buying it at 100 to 110. It went to 125 and they felt smart. And now that it's settled out at 82, they're all sitting there with a loss and they don't quite know what to do with it from here. So I think that a lot of these things kind of came together all at once. I think the gold and silver one was a little bit of a coincidence with the software story.
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B
So I painted Jim four stories. You know, precious metal, volatility, AI Capex, crypto capitulation test apocalypse. I'm not hearing from you that there is a coherent reason why these are all tied together. You know, markets are markets so you know, to some degree they are fundamentally intertwined. But really I'm hearing for the most part pretty compartmentalized siloed market activity. There's no underlying common denominator that's underpinning all of these.
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D
Yeah, no, I don't think there is. I think, you know, the, the one I didn't address was AI Cap X. I think that the concern with that, what you're seeing with the market now is that as companies report more Capex spending that it's getting a little bit nervous that there's might be too much Capex spending and we're going to wind up with way too much capacity for what we're going to need in the future. And that's typical throughout the history of of technology. If you go back and you look during 2000 there was a company called Global Crossing and Global Crossing was one of the darlings of the 1999 tech rally and they were laying fiber optic cable around the world. A lot of that cable is still dark. It never was lit, it was never used today. You know, the other example people were using was in 1915. 1915. 111 years ago there was 30% more railroad track in the United States than there is today. Even though the country's population was 40% less than it was today. And we move orders of magnitude more stuff, we overbuilt railroads is what we wound up doing. And so what people are worried about is that we're overbuilding on the air. So as they get more and more numbers that you start seeing that they're going to spend on Capex, they're getting worried. By the way, the one to get your could put your head around here is that Google announced that they're going to spend $200 billion in CapEx in 2026. The Russian military budget is $165 billion. So they're spending more than the Russian army at this point. And that doesn't even count Meta and you know, and Microsoft and the rest of them as well too. So yeah, that's why they're getting nervous about it. So you're right, these are somewhat intertwined. But I think that the big thing that kind of excited markets more than anything else was the, you know, was co work from Claude and Claude for Excel and last week they, they put up some prompts for Claude for law and I think a lot of people started to, it finally started to, you know, give them their holy moment. I get it, this stuff is easy. I could do a week's worth of work in half an hour with if I know how to use this product. And it's going to change a lot of things. And I think that that's what kind of kicked it all off. And I think if you play with these products as I have, I definitely see that, I definitely see that I've already done it for myself. Work that would take me several hours to do, I could get done in minutes right now because of what some of these AIs are able to do.
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A
Can we talk about that? So AI CapEx, right? And you've talked about bubbles in the past that we've seen and I just used the B word which maybe, maybe we shouldn't be doing at this point. But that is a question in investors mind. They see the technology, they're using it, they see that it has the ability to drastically lower the cost of building software. It has an effect on existing SaaS companies, allows all of these competitors to enter the fray. But we know that exciting technologies tend to get overinvested like Global Crossing, like train tracks in the early 1900s. Where are we on that spectrum with AI? Have, are we at the phase where we're investing too much capex where there's like we're over building AI infrastructure? And what do you think in 2026? Do you think we're in a bubble? Entering a bubble? What's going to happen there?
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D
Well, on the last part, I don't know what a bubble is, you know, at this point, but I think to your point about this is that all technology goes through kind of two phases and I'll use the Internet as my example. Phase one is your infrastructure build. And in 99 I mentioned Global Crossings, JDS, UniFace, Cisco. Cisco was the largest market cap company in the world at the time in 1999, making routers and switches for the Internet. And everybody was playing the most overused term on Wall street, the picks and shovels play, which was a reference to the Gold rush in California in 1849. And so they're all playing these infrastructure play as they are today, centered by Nvidia. By March of 2000, the over the, the infrastructure play got way overdone and we had a crash. The NASDAQ fell 77% over the next two years. But as Jeff Bezos argued in a op ed about three months ago, that was a good bubble. He referred to it as a bubble. He said it was a good bubble because what was left was the Internet. Okay, we, we overdid the investing in infrastructure and we left the world with the Internet. What did the world do with the Internet? We made companies and business models around the Internet. Think Uber, think Facebook, you know, you know, think Google, think all of those companies that have been, that have come beyond come. And then we had a more sustained kind of content type of rally that lasted 15 years and, and maybe you could argue is still going right now because of the Internet. Well, the overlay that people are using with AI is we're overdoing the infrastructure play and the infrastructure play is even getting on to energy and everything else. We got to buy nuclear stocks, buy uranium, because we need that to fund the energy needs for, for everything. And when that peaks and goes down, and this is why I said I don't want a bubble, is I get it that we might have overdone the infrastructure play. We're going to leave the world with AI. There's going to be data centers running AI when the Infrastructure play goes. And there's going to be people like Anthropic and like others that are going to look at these tools and they're going to raise money as a startup and say, I could compete with Salesforce or I could compete with JP Morgan or I could compete with whoever. Because to spin up the software that I need to compete with them is going to be a fraction of the cost that they spent and I will have a much lower cost basis and be able to walk into people and say, I can give you the same thing. Well, why would I want to change to you? Because I could give it to you at much less price. That's why you want to change to me. And that's where the, that, that's where I think the, the bigger rally from this technological boom of AI is going to come from, is when we get those content companies coming. Now we're not there yet. Maybe Anthropic with Agent and Gentic AI is the beginning of that. I mean, Agent okay has been around, but it seems like Wall Street's kind of discovered it in the last 45 or 60 days as being a potential threat or game changer. But I think that that's where we're going to be going with this. So it's not going to be about in the future, like in the year or two, about what new chip does Nvidia make. It's going to be about what new idea has somebody raised money on that they're going to use AI to build what for what cost basis? Or maybe whole new things that we haven't even thought of. And that's why I think that, you know, we want, we, we need AI. I think it's going to be good for us in the long run. And I say that because everything I read is all gloom and doom. We're all going to be unemployed and Elon's robots are going to do everything and what are we going to do with ourselves? And how are kids that are graduating from college going to get new jobs and stuff like that. That stuff will sort itself out. It always does when you get new technologies, because new technologies create new industries, they create new jobs. The history of new technology is it's a net creator of jobs. It's not a destroyer of jobs. Now the risk is that the job loss comes first, the job creation comes second, and in the middle there's a lot of angst and unhappiness that you get as you go through that transition. But the people that are best equipped to deal with that transition are younger people because they're not encumbered by legacy. They're not encumbered by business models that have been in place for a long time. That's why I like to say all new technology companies are always, you know, CEO'd by somebody who's 35 years old. And all old legacy companies are CEOed by somebody who's 70 years old because the legacy companies, business models don't change. And so I worry more about the over 60 crowd and I say to the over 60 crowd being one of them because I'm over 62. Your business model that you've spent your career is about to dramatically change. Are you ready to reinvent yourself? I know 28 year olds are ready to reinvent themselves. I don't know if 68 year olds are ready to reinvent themselves. So that who I think is. So I'm kind of coming at this and saying, I think it's the opposite. Everything I read is kids that graduate from school and they're never going to get jobs because of AI. I'm like, no, they're going to get jobs and they're going to show you how the business is working. They're going to push to 68 year olds to the curb because they're not going to be able to adjust to this new business model that we have coming.
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A
Jim, I think you have a lot of listeners that actually buy the narrative that you just gave and the explanation. I think I'm probably one of them. But let's talk about that because that does not necessarily imply that you should own NASDAQ as an investor at S and P. And so let's talk about what happened in the era of the Internet exactly as you described. Let's say an analog is happening right now. It would have been great to sell Cisco in 2000, to sell the NASDAQ in 2000 once you started to identify this over investment in infrastructure and then to go back and buy the app layer, say in 2022, once some of the dust had settled, sorry, 2002 once some of the dust had settled. So pick up an Amazon, pick up a Google. That would have been the max best way to actually play that. And so at some level there's a lot of people listening and they, they get what you're saying, they actually agree with it. But then they're asking, the confusion that I have right now, and maybe the market is trying to sort this out too, is like, okay, what should I buy? Because ideally I want to time some of those things or try to Time. Some of those things I want to sell NASDAQ and S and P. Once it gets overheated on the infrastructure level, let the market reset and then redeploy into the app layer a little bit later. Let's say it plays out in the same way as the Internet. So it's still kind of a question in my mind of like, if everything that you say is true, how do you allocate to stocks and to tech companies right now? At the other side of things, it is so painful to be out of the market. When you see the stuff that these AI companies are dropping on almost a weekly basis, you're like, this is quite obviously the future and I need to own that or become like another meme, part of the permanent underclass. Right. If I don't own these capital assets, then, like, I don't have any of this exposure. And so I think a lot of investors are uncertain as to what, to what to do with this. And maybe, maybe your answer is you just buy and hold through the volatility. But, like, what do you think?
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D
Well, a couple of things real quick. Cisco peaked in 2000, and here we are in early 2026. It's still lower than its peak in 2000. So 26 years later, and it hasn't yet, it's marginally taken out the high a couple of times, but it's still below that 2000 peak today right now. So, I mean, you know, that, I think, is the risk that an Nvidia has is that whenever it peaks, maybe it's now, maybe it's in three years, that might be it for a generation in terms of its peak, if you follow that model. And the other thing is, you said every day about dropping this stuff, you know, Andropic dropped Opus 4.6 to last Friday, and everybody was wowed by it. And 20 minutes later, we got Codex 5.2 from open. I know. So you can't even go an hour without having another, another one. We're going hyperspeed with this. In fact, I heard somebody say to me that this technology is advancing so fast that if you asked AI how to use AI, it's behind right now, and telling you how that you're supposed to use it, it can't keep up with it right now. So this is very difficult. Now, to your question about investing, you're right, because the app layer is to come. It doesn't exist yet, or it's just in its infancy of being existing. So the companies that are going to start building on the app layer are going to be either startups or they're not quite startups. They're probably still in, you know, there's probably still in graduate school, you know, putting together ideas of how to do, how to use this stuff. Or as one friend of mine joked, they're still in seventh grade gym class and we got to have to wait a couple of more years before they start putting together these apps. So what's Wall street been doing is you've seen the broadening of the rally in the stock market, meaning that as the technology and software companies have been struggling, the traditional companies have been rallying. So the Russell 2000, the value stocks have been going up, the mid cap stocks have been going up under the RD idea that these companies all spend a lot of money on legacy software and they're going to get relief from the money that they spend on legacy software. Maybe AI is not going to change a Proctor and Gamble's business model right away or a General Motors business model right away or an Exxon's business model right away. But what they are going to be able to come into an Exxon to do is say, look at how much money you are spending on accounting software, on CRM software, on analysis software, how many, how many thousands of subscriptions you have to Microsoft Office, on and on and on. Here I can give you something for a lot less and save you tens of millions of dollars. So that's why they're starting to buy into that argument. That's all they've got right now. But you're right, the app layer is coming with a lot of this stuff and it's also got to be coming too because of what I just said. If we can't go an hour without getting another upgrade to a previous upgrade and AI can't tell me how to use AI properly because it can't keep up, then we're not quite there yet in terms of putting out the app layer because it's too difficult to try and build on this stuff because it's constantly changing in stuff like that. But it's coming. It's definitely coming in a big way.
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E
Yeah.
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B
Jim, we recently had Lynn Alden on the podcast. Her episode actually comes out after Yours, yours from the time of recording. We're gonna release this podcast tomorrow. She said something that was pretty interesting to me and it was about the nature of where the value of this whole revolution accrues. And some of the data that we have here is, well, we know Amazon Meta, Google Capex spending is just through the roof. So they're not, they're not saving any money. They're not, they're not capturing any value because they're just spending it all building out capacity. OpenAI anthropic. All the AI labs spending Buku bucks trying to just finish this AI race, get to the AI. They're not, they're not making any money either. They're still in their growth phases, but they're not making any money. And so it really begs the question, it's like, all right, like where all, where is all this value going at the end of the day? Lynn said something pretty interesting that I want to get your opinion on, which is that the equity value or the value itself really ends up in the hands of the consumers, the people using the products who can build apps. And I don't know if she said this specifically, but this has just been a conversation, a conversation that I had with my brother in law and this emblematic of many other conversations I've had.
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D
He said he's your brother in law. I assume your brother in law's a normie. He's not involved in the crypto space.
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B
Or he's in healthcare tech. He's in healthcare tech. So he's tech oriented but like.
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D
So he's still a normie. Yeah, yeah.
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B
And he's, he's like eight years older than me and he goes, man, I wish I was either, you know, 20 years younger or 20 years older. I either want to be retired right now so I don't have to deal with AI, or I want to be 20 years younger so I could like adapt to it. And like the, the idea here is like really the equity value isn't like Amazon spending everything. All the, the big hyperscalers are spending all of their money. The AI labs are in hyper competition. Where does all the value accrue? It accrues to the users using the product who are going to make something valuable. Do you have any sort of thoughts or reflections about that, if that makes sense to you or, or where you think this is really pushing the, the value.
- [30:38]
D
It makes a perfect sense and you know, I think, yes, exactly. It accrues to the user. The user right now on AI is largely a business and it's largely trying to take business tasks, accounting, compliance, analysis, that kind of stuff and making that easier and simpler and cheaper. And so that's why you're seeing those stocks start to rally. You're going to be the winner, Procter and Gamble in General Motors and Exxon from this AI race because you're going to get cheaper products and better products in order to accomplish the goals of what you want to do with your business model. And the problem that you're seeing with the spend on the other side is a lot of these companies are starting to realize this is a race to win and there is no second place and there's no participation trophy. As a matter of fact, that has been the biggest complaint you've heard out of tech about Apple. Apple is trying to do the Apple model, right? We're going to sit back, we're going to let everybody else beat themselves up and then we'll just show up like they did with the iPhone. Right. You know, Nokia invented the smartphone, you had the Palm Pilot, you know, through throughout the late 90s and early 2000s. And then eight or nine years later, here comes the Apple iPhone One and just took all the business away from them. And Apple is trying to recreate that kind of mentality. Oh, let the rest of them kill themselves. We'll show up in 2029 or 2030 and we'll while your socks off what we'll do with AI and we'll take it all away from them. And I think the market is saying you did it with the, with the iPhone, but I don't think you could do it with AI. And that's why Apple stock and Apple's, you know, critic, the criticism of Apple is coming in. So I understand why these companies are doing it because there is no second place. You've got to try and be the winner here and we have to keep going and going until we're spending more than the Russian military in order to try and win this, this match that we're doing right now because there, there is nothing left for us if we don't.
- [32:33]
B
What do you think that means for the just distribution of assets in the like S&P 500 for example, like over the last three years as I have understood it, the trend has been to a concentration of the S&P 500 in a very low number of companies like after, after Nvidia, Amazon, Microsoft, like the rest of The S&P 500 is only making up something some much smaller percentage of the total thing. Do you think that trend reverses? If we think that the value of all of this Capex spending and all this stuff goes to the businesses, the long tail using these products, that's where the value accrues. You think the tail end of the S&P 500 has outsized growth versus the fat end?
- [33:12]
D
Yeah, I think it's already starting, it's already starting to Reverse, you're right. If we were to back up to last summer, early fall even, I was showing the statistics that AI and AI related companies, or call it AI adjacent if you throw in some of the energy companies was like 50% of the stock market's capitalization. Half the stock market was involved in AI to some degree or another. And the fear was if that ever peaks and goes down, it's going to take the whole market down with it. And that was a valid concern. And I shared that concern too. That's somewhat happening right now, especially if you throw in the SAS stocks with it as well. But the market isn't going down now. It's very volatile and it's kind of holding near its highs because what we didn't anticipate was the other 50 of the stock market was going to benefit from it and that they were going to swell in value, value as these, as these AI related companies, AI adjacency companies shrunk or at least stalled in value. And so that's what we've started to see happen with the stock market. So it's holding up for now in terms of, yeah, you know, the, the Salesforce is down 50% from its high and Cloudflare is struggling and everything else. But look at the Russell 2000, look at the mid cap, it's going up and it's kind of offsetting it so that the total value in the stock market is roughly unchanged. It's just a mixture of where it's coming from is really what's chasing it around. So people that invest in QQQ, the NASDAQ 100 are, are very long faced and traditional value vestors are very happy faced because you know, but they're kind of offsetting each other that I didn't have on my bingo card that there would be this giant offset. I don't think many other people had that on their bingo card either. They thought, man, when this AI thing peaks and goes it's going to take everything down with it. But for the moment it isn't. Now maybe that changes, but it doesn't seem to be working that way.
- [35:14]
A
So Jim, as you could tell, both David and I are just unloading all of our questions on you where areas where the market doesn't make sense and I want to move back to precious metals again and the volatility and you mentioned that a big reason for the increase in some of these precious metals has been Asia buying in particular, maybe China. I have a question, something I don't understand that makes sense to me. With respect to gold. Okay, so Chinese central bank, a hard asset. Gold is very similar to kind of the crypto story that we've been telling and, and, and looking at for quite some time. Why silver? Okay, is. Is there any economy on the planet that is moving in the direction of a silver standard? Or is this sort of an effect that we've seen in crypto where you have sort of a. A leader, you know, a main asset, and then you have kind of the, the altcoin that can catch up to it. I don't understand why silver is worth like $4 trillion right now.
- [36:10]
D
Yes, it is. You know, we're not going bimetal. You know, the US flirted with that idea around the 1890s and stuff like that. You. A gold speech. But it is, it is the poor man's gold silver, and it is you. You got it exactly right. It's kind of like bitcoin goes and the altcoins follow, or eth goes and the altcoins follow. So it is the altcoin that's following. And that's why silver is a higher beta version of it too. Right. So when it goes, it just doesn't follow gold. It outperforms it. And then when the peak is in, it collapses. It just doesn't, you know, it, it doesn't just go up and down with it. I mean, it might be correlated in price movement, but it's not in terms of price. And so that's where I think you've seen that happen with silver as well. So. And there's a lot of. Don't. Don't kid yourself. You guys know better than me because of the you're in the crypto space, there's a lot of degen mentality out there in the world. You know, oh, I got to buy gold to protect myself, but oh, man, look at what silver's doing. Maybe we should buy that instead. And that's where you've seen a lot of that going. But to emphasize, I think the genesis of the movement was that the Chinese economy is struggling. The Chinese economy has got a terrible real estate problem. Chinese investors are starting to see that there are problems in the Chinese economy. They're looking to protect themselves, and they're saying, what should I do? The problem with them buying Bitcoin or any other crypto, as you know, I mean, how many times is the government banned them from buying it? And they keep, you know, they keep finding ways around it, but gold and silver are still a viable option for them. And I think then if you Throw in Japan too, because their interest rates have been surging. Absolutely surging. Because for the first time in 50 years, Japan has a higher inflation rate than the U.S. and so that's why their interest rates are surging. And there's an old line on Wall street that applies around the world that when interest rates go up fast and hard, something breaks. And there's a real fear that that giant surge of interest rates in Japan will break something. It hasn't yet. But we're also not done with the surge either. And so you're probably seeing a lot of buying coming out of Japan as well too. And then you'd want to throw in Vietnam, Indonesia, Malaysia, maybe Korea as well too. And that's where I think the genesis of this gold and silver rally began. And you know, there was a bunch of momentum followers in the US and in Europe that saw it, jumped on it, and probably helped push it to the insane peaks that it got to. But they didn't begin with, they didn't start it. It started out of Asia.
- [38:44]
A
You said earlier you were bearish on the Chinese economy and then you just said there Chinese real estate market. Of course, that is very much known. However, there is definitely a bull case in the air about the Chinese economy. It also has to do with some of your bullishness in this episode, which is AI. And China indeed is a manufacturing super hub. They can use AI and they're coming up with some of the best open source model AI models out there. They can apply that to manufacturing, they can apply that to robotics. Friend Noah Smith has talked about the electric tech stack, which is sort of the future of every modern industrial, you know, super state. And they have that ability in spades. They have a massive electricity grid, massive energy production. It seems like they're actually pretty well positioned for this new era. So why are you bullish or bearish? I should say.
- [39:40]
D
Yes, that is all true. But they also have two other big problems too. They have a lot of political risk and they have a lot of competition. So whatever you could say about China, you could say it about Vietnam, you could say it about India to some degree as well too. And I think the big change that's really causing every everybody some angst is the political risk. Let's go back to November 2022. That was the middle of zero Covid in China. Just to give you a quick anecdote about this. Zero Covid in China so everybody understands what was going on in China. You were not allowed to leave your house home. Most people live in apartments the government would weld the door shut of your apartment. You were not allowed to leave. They would bring you necessities. And usually they were very poor at doing that. And you weren't getting enough food and you weren't getting enough necessities. There was a fire in one of these buildings and the fire brigade didn't get there fast enough. And people were beating on the, on the door that was welded shut because of zero covet. And a lot of people died in the building. And it sparked what was called the white paper revolution in China. And there was a lot of protest about that. We've had it with zero Covid. Those protests went to the Foxconn factory floor where they made the iPhone. And the answer that the Chinese police had to the protest about we want to end zero Covid on the Foxconn factory floor was they came in, they beat the protesters on the floor, and that Foxconn was wiping up the blood every day and getting more people in there. We can't stop iPhone production. You can't imagine what an uncomfortable position this put Tim Cook in that, you know, all of a sudden we've got people being beaten on the floor where they're making iPhones. And that prompted Apple to say, we got to get out of China. And they're now starting to move their production to India as far as they can. So there's huge political risk in China right now. Their economy is growing at 4 or 5% a year. Those are official numbers. Those numbers are probably goosed because they're official numbers. But even if they are official numbers and you take out the COVID shutdown and restart, those are 50 year lows in terms of economic growth coming out of China because most of the Chinese economy is still traditional manufacturing. And it has to compete with lower cost options of Vietnam, Indonesia, the rest of southern Asia as well. And on top of that, now you've got the political risk that's going on with China and India's waving their arm over here going, you know what, we're actually now bigger. I don't know if you guys knew that, but India had now surpassed China as the largest population country in the world. And they're. They're. The vast majority of their population speaks English, where it does it in China. And they're at least a democracy where China is not a democracy. So all. So China has some things going for it, you're right. Open source software, some. Some really good and smart manufacturing facilities in Guangdong, which is just over Hong Kong as well. But it also has Political risk. Not only the story I gave about what happened on the iPhone floor, but Jimmy Lee was just sentenced to 20 years in prison. He was the, he wrote Apple News, and he was a big critic of what the Chinese government was doing in Hong Kong. And he was first put in solitary confinement with boarded up windows for five years and then was announced that he was going to go to jail for 20 years. He's 78 years old. All because he dared to criticize the government. So that's the political risk that they face as well, too. And that's why I'm bearish on them, because they need to open up, they need to do it. But instead, under Xi, they're getting to be more authoritarian almost by the day. And so it's going to give them a big limit as to how much they can compete in this stuff.
- [43:48]
B
What do you think about Trump's pulling back from America being the dominant world order? What do you think that does for China's options? Does China now have more options than it did previous due to Trump's political choices?
- [44:04]
D
I don't think that's necessarily what he's doing is pulling back from the political order. I'll go back to J.D. vance's speech to the Munich Conference in February of last year, and I'll summarize it in my words. Over the last 50 or 60 years, we in the US have spent nearly $20 trillion more on defense than you, Europe, have spent on defense. You have enjoyed the umbrella of our security around the world. And what you did, instead of spending that money on defense is you've given your economies free health care and you've wind up having big public sector infrastructure that we couldn't do and provide security at the same time. So what they're arguing is it's time you step up and start kicking your load. And I think the, the catalyst was the Houthis in Yemen were blocking shipping in the Red Sea. And so everybody understands, the Houthis were basically putting together these $50,000 drones with duct tape and lawnmower engines and 200 pounds of explosives and shooting them at commercial shipping. And the Europeans couldn't do anything about it. They could not do anything about. They were in their, their militaries had degraded to such a point that they were incapable of doing it. Now, the US eventually, through 2025, kind of got the situation under control there, and shipping is reopened to some degree in the Red Sea. And also the Gaza deal with Israel also helped as well, too. But that was kind of like, man, you guys Are you, You. You can't just let us continue to spend trillions of dollars on defense while you keep pushing green initiatives, free health care, and lecture us on everything you do wrong. So it's time you start taking up the mantle and start spending more money on it. Now, the problem with Trump is if you read what Trump. If I was to say, here's a Trump policy, Greenland, and I was to write it down on a piece of paper, and I said, what does he want to do in Greenland? Well, Russia and China are there mining from rare earths, and there's some military, strategic, strategic advantages to being in Greenland. We should get them out. I think even the Europeans would agree with that. But how does Trump go about doing that? Oh, we're going to take over the country, we're going to invade the country, we're going to buy it from Denmark. You know, he goes to. He goes to 11 in everything he wants to do. Kind of like Canada. Canada. He's been complaining that because of global warming, there's open shipping lanes to the north of Canada that runs through Canadian waters. The, the Europe, the Chinese and the Russians run warships right through it. And he's saying, we got to stop this. Okay, I think even the, even the Canadians agree. But how does Trump decide that we need to stop this? Calls him the governor of Canada, wants to make it the 51st state. He goes immediately to 11 on a lot of this stuff. So the reason I bring this up is I don't think he's trying to push them towards China or trying to fracture the relationship. He's trying to make it more equitable. But by doing that, he's doing it in the Trumpian way, by going to 11 to force you to wind up making more equitable and rubbing everybody the wrong way. Now, there's two arguments to be made. You're doing it wrong, and you're just pissing everybody off. Could be one argument. But the other argument is Scott Bessett's argued this, too. If we did it the nice way, all we would do is talk for two years and then put together a working group to discuss it for five more years. And we don't want to do that. We want this to change. So maybe we have to be a bit abrasive to get these changes with the Europeans. I understand that argument, too. So I'm, I'm going to tell you, I'm really in the middle on where we should be going with this thing right now. But I don't think at the end of the day that it is as catastrophic as it's being painted to be. I think the Europeans understand exactly what he wants, and they just don't want to do it. And they want to try and get away with less defense spending. Or in the case of the Spanish, they want to say, yeah, we'll spend more on defense, but we'll call that cyber security and green initiatives. That's all part of defense and stuff. No, no, no. Defense means raising an army and buying weapons. That's what defense means. And then using them to project your power around the world, because that's what we've done since the end of World War II, and it's time that you start taking up that load. So the next time the Houthis decide that they want to shut down shipping, you fix it. We don't have to go in and fix every one of these problems. That's ultimately where he wants to go with this.
- [48:32]
A
We had the fourth worst day this decade in crypto last week as well, Jim, as David mentioned. And what was incredibly odd about this is there was nothing visible that broke. So you put out this tweet saying it's the fourth worst day this decade. In fact, it may have actually graduated to number three. The other worst days were the FTX failure. That was in November of 2022. Terra Luna collapse, that was 2022. And the COVID shutdown, 2020. This time, it didn't seem like anything terrible was happening. And so there's a question of, like, did something break and what broke? I want to link this to another idea that you've talked about, which is the idea of synthetic bitcoin. I've seen people like Arthur Hayes talk about this, which is, like, now crypto assets in particular. Bitcoin is a traditional finance asset. There's an ibit etf, has a massive amount of liquidity. And so some of this breaking could have happened off chain in tradfi world where crypto has less visibility. What is the idea behind synthetic bitcoin? And, like, I guess. What's your take on why crypto had its third worst day ever last week?
- [49:48]
D
I think they're somewhat related. So we all talk about that. Bitcoin crypto, you know, ethis deflationary as well, is. Is hard money. You can't print it. No, you. You're right. You can't print it on chain. You can't create more than 21 million bitcoin on chain. But off chain, what we've effectively done is we've created like, a fractional reserve system around bitcoin so we've got, we've got the ETFs, we've got borrowing by say strategy that's been borrowing in the tradfi markets to buy Bitcoin. We've got structured products that are tied to the ETFs which is tied to the underlying Bitcoin. So what we're doing is we're creating many, many billions of dollars of, of crypto buying that is not on chain. It's not unlike the, what we call the paper gold market, the paper silver market versus the physical market as well. It's not unlike what we do with the stock market where we have derivatives options and futures and total return swaps and the like in, in, in those markets as well. The difference is with crypto is it's new and the history of fractional reserve systems like that where you're basically leveraging yourself up and kind of creating more synthetic supply. And the reason I say synthetic supply was it's not on chain supply, it just mirrors the on chain supply is that these systems are inherently, these crypto are, these fractional reserve systems are inherently unstable. That's why over hundreds of years with banking, we've got the Fed, the fdic, the occ, the treasury, the sec, the cftc. We got to have these overlapping regulators to take this very unstable system and try and hold it from blowing up. And we've got generations that we've kind of made mistakes, have had blow ups in these markets, learned from them and adjust it. Crypto is new with this kind of synthetic stuff and it, I think the real catalyst for this in a big way was yes, we had futures and options, you know, from the crypto exchanges, from the centralized exchanges forever like the finances of the world. But what really changed was these digital asset treasuries in the ETFs and now you've got a representation of, of, of crypto in the tradfi world. Now we could put options on that, futures on that, total return swaps on that, we could borrow structured notes on that. And we've got billions and billions and billions of dollars of people that are invested in playing crypto and never touching on chain. And so when the market started to crack, I think it was the synthetic markets that cracked.
- [52:42]
A
Is, and so I would argue the Tradfi synthetic markets.
- [52:47]
D
The Tradfi synthetic markets is what started to crack and that was pushing a lot of liquidation that was showing up on chain which is why the underlying markets were going lower. You know, because what I'm trying to address is people have said to me, yeah, but we've done this forever with gold and silver. Yes. And we've. How many times have we blown those markets up over and over before we kind of learn to kind of keep it, you know, in, in check. This is new for crypto, these tradfi synthetic markets. And so that's a learning process. We're going through a learning process. In 1982, we started in with futures on, on the indexes in the S&P 500, the value line index was the first one. The Dow eventually came in the rest. In 1987, the stock market crashed 22% in a day because these new tools that created synthetic stock positions, we didn't quite fully grasp the risk that they were having. We had a stock market crash. We kind of are doing that right now with crypto from going down 50% from the October high in Bitcoin as well. So is it inherently bad that we're doing this? It depends on your point of view. You know, some people would argue, no, it's not inherently bad that we're doing this. It opens it up to other people. Purists would say, Maxis would say, no, we, there's only one way to own Bitcoin and that's on chain. And if you don't own it on chain, you don't really own it. Not your keys, not your crypto kind of argument as well. But the bigger issue is when you go to these inherently unstable fractional reserve system in other ways, say is leverage. When you go to these inherently unstable leverage systems, unless you've got some experience with it, it's going to get unstable for you at times and it's going to blow up. And we might be seeing that kind of unfolding or have seen that unfold over the last several months.
- [54:42]
A
Yeah, I think that's a good explanation for like what's happening and why there is this massive volatility. That's somewhat unexpected because this is runs counter to the narrative that we've heard, which is once tradfi enters, things will stabilize, they'll get less volatile in crypto. Right. Because you have disciplined dollar cost averaging in these instruments like the etf. And what are we seeing? We're seeing massive amounts of volatility. But I want to ask you if.
- [55:07]
D
What you can I jump in on that real quick and just say that argument was correct, but it had an assumption trad fi is going to buy directly that either on chain or one hop from on chain, they're going to buy an ETF or digital Asset treasury company that will then represent their position on chain. What Tradfi wound up doing was getting three or four levels removed from it by buying options on ETFs. They are buying futures on options on or options on futures on ETF or structured products on ETFs that are on digital. Digital asset Treasuries that they were going to buy options on the convertible bonds of the. Of the digital asset treasury. Like strategy. And that's when things started to get inherently unstable.
- [55:54]
A
You're telling me they're a bunch of degens. They're a bunch of degens, just like us.
- [55:58]
D
But they don't. But don't call them degens. Don't call them degens, though. Exactly.
- [56:05]
B
Professional degens.
- [56:07]
A
What do you think is next for crypto? Do you think that was the capitulation event or do you think there's more pain to come? And then how does crypto rebuild, rebound? What's the future and what's the story with crypto prices in 2026?
- [56:21]
D
I think the narrative that we had that went into the high in October 25 was the adoption narrative. Digital asset treasuries, ETFs. Here come the boomers. Everybody's going to come and they're going to buy BlackRock. Right? Exactly. All of that was the adoption. Was the adoption narrative. Now I actually think the adoption narrative was and ended around that big surge after the election in November 24th to a hundred thousand. And momentum waned. And then we got to 126 in October 25th, and then we. We crapped out as well. I think that that adoption story is over right now. Just like the defi summer story, the cycle before is over now. So crypto needs another narrative. And I still think there's a chance you can get Bitcoin 2 million. You can get ETH to 20,000. And here's how you do it. The next narrative has to be, instead of having permission, talk about replacement. You guys talk about Bankless all the time. So let's get back to that. Your podcast is called Bankless. Let's get back to that. Instead of saying everybody wants permission. Larry Fink is giving us permission. Jay Powell has given us permission. Donald Trump has given us permission. They passed the Genius Act. They're going to hopefully work out the Clarity act that gives us permission to buy it. That story's over. The next story is replacement. Don't wait for Larry Fink to tell you you're okay. And that bitcoin is going to go to 700,000, build systems that are going to take Blackrock away from him if he doesn't keep pace with it. And so if you go to the replacement system, build a new alternate financial system. They're talking about tokenization of all assets online. Why are we waiting for BlackRock to do it? Why isn't the crypto community saying, you're right, we'll do it. Thank you very much, Larry. Step aside and watch how we get this done. That's where I think the next bull market will come from. Every winter, this seems like the cycle always repeats, right? We the every summer ends with a little bit overdone in the degen community. Then we have a winter. And what gets us out of the winter building, like defy summer in 2020, we built a new kind of system. So what I've argued is long term, I've been in this space now for nine, 10 years and I've always said every time this space starts to talk about and that's why I tend to lean more towards eth than bitcoin. Every time this space starts talking about a replacement of tradfi because I think that the tradfi system needs to be disrupted. Count me in. Come in. I'm all in on this. When it stops talking about replacing this system and starts talking about being a casino, then I get nervous. And that's what I started hearing in the summer of 2025 is we're back to casino talk all over again. So if we want to go back to stop asking Larry Fink for replacement for permission and start saying we're not going to wait for Larry Fink to tokenize every asset in the world, we're going to do it, Larry. You better keep up. Then you can have yourself get yourself out of a winter and you can get out of a winter in a big way if we go in that direction.
- [59:38]
C
Hey, Bankless nation, it's David. If you're hearing this, that's because you are listening to the free Bankless podcast feed. Did you know that there is a premium Bankless RSS feed? The premium feed has extra interviews that I do for my own personal research and just deeper questions that I want answered about the crypto industry. Questions that I want to answer so I can be more informed as an investor both at Bankless Ventures and also also just in my own personal portfolio too. Also, there are no ads, which means if you listen to the premium feed instead of the free feed, you'll get about 20 hours of your life back every year because you choose to support Bankless directly. So if you're interested in getting extra content all while skipping the ads or you just appreciate what we do here and want us to keep doing it? We'd appreciate it if you signed up for Bankless Premium and there is a link in the Show Notes to get started. Cheers to a good 2026. Few people in crypto put real skin in the game when they make public.
- [60:24]
D
Top or bottom calls.
- [60:25]
C
The Defi Report is one of them. The week before the October 10th flash crash, Michael from the Defi Report emailed his entire newsletter saying he's going aggressively risk off and sold the majority of his book from crypto into cash. This is when eth was about $4,000 and Bitcoin was 110. Michael runs the Defi Report, an industry leading research platform built on data cycle awareness, risk management, transparency and most importantly, skin in the game. We like Michael at Bankless. We like his analysis and that's why you hear him on the bank podcast.
- [60:53]
A
About once a month.
- [60:54]
C
And the Defi Report is giving Bankless listeners one free month of access to the Defi Report. So if you're looking for some sharp data driven analysis to make better informed decisions around your portfolio, you can learn why and how Michael called the top and what he's doing next all in the Defi Report Pro. Check it out. There is a link in the Show Notes.
- [61:10]
B
Hell yeah, Jim. That's gotta be one of my top five top three Jim rants on the Bankless podcast. One of my favorites. This is why we keep bringing you back, Jim. We just gotta have a few more questions before we round out this episode and let you go. New incoming Fed chair Kevin Warsh. Thoughts? Reflections? Are we excited about him? Are we scared of him? What do you think?
- [61:29]
D
I'll give you two thoughts. One, the, the moniker that they've all stuck on him is that he's hawkish. That has come from a lot of commentary that he's made over the last 20 years. He was a Fed governor from 2006 to 2011. All right, he made some hawkish statements during the financial crisis. He was worried about all the money printing cut rates to zero was going to produce inflation. It didn't, but he was worried about it. That's 20 years ago, you know, Besant and, and Trump knew that. So Warsh made some statements to Trump to, to alleviate those fears that he's hawkish. So the first point I'm trying to bring up is I don't think he's nearly as hawkish as everybody makes him out to be. But we don't quite know what they are because he's kind of gone radio silent. And we'll find out. I mean, I understand the argument is that he's saying AI is going to produce productivity, that's going to keep the inflation rate down so that we could cut interest rates. But I'd like him to dig, dig deep, a little deeper than that. We'll have to wait for his confirmation hearings and hopefully they'll ask him those questions at his confirmation hearings. The other argument he's talking about is the Fed Treasury Accord. So in just so quick word, a quick history on the Fed. Fed was created in 1913 until about 1935. On the FOMC was the Treasury Secretary and the head of the Chairman of the Office of Controller of currency, the OCC chairman. They were part of the FOMC until 1935. And so what happened in the first 30 or 40 years of the Fed is we really struggled about what does the treasury do, what does the Fed do, Which one is theirs, which one is theirs. And then we had this, called this Fed Treasury Accord in 1951, which kind of drew the lines, treasury does this and the Fed does that. That's not a law. It was just an agreement. And he's saying it's time for a new agreement. Now why is he saying it's time for a new agreement? His argument is the balance sheet at $9 trillion in 2022 was too large. We started to reduce the balance sheet. We got the $6 trillion through quantitative tightening. And what happened in the fall of 2025, we started to see. So for the secured overnight funding rate, you know, overnight money, funding rates start to get very volatile relative to underlying rates. And we started to realize that we can only pull the balance sheet back to about $6 trillion. And if we go anymore, the funding markets run into trouble. And his argument is this is still too big a balance sheet for the Fed. We need to go further than 6 trillion to reduce it, but we can't unless we start changing rules to allow Wall street to, to expand and take it up. So if we reduce the balance sheet from 6 to 4 to 3, that Wall Street's funding markets double in size, in order to do that, we're going to need agreements from the Treasury. And that's this new Fed Treasury Accord that he's talking about. Count me in. I think he's dead on right that we need to do this. The Fed is still too big, even though it's gone from nine to six. And now they're doing Reserve management purchases to increase their balance sheet. But don't you dare call it qe. It actually is qe. They just don't want to call it qe. And so because they're afraid that the funding markets, the plumbing of the financial system is going to get kind of wobbly. So I think that they didn't need that. The last thing I'll say about him is a quick antidote or a quick history lesson. 1986, there was a Fed meeting and there was a meeting to decide to cut interest rates. Fed chairman at the time was Paul Volcker. Volcker voted to not cut interest rates, but the Open Market Committee voted to cut rates. In other words, the chairman was on the losing side of that, of that vote. Volcker got up in the middle of that meeting and resigned. Walked into his office, called Jim Baker, the Treasury Secretary, and resigned. Two minutes after the meeting. The other FOMC governors convinced them to come back into the boardroom. They had a second vote a few minutes later and they reversed themselves. They were voted to not cut interest rates. Volcker unresigned and Baker accepted it. Volcker stayed on for another 18 months. But from that moment forward, the way the Fed works is the Fed chairman decides what they're going to do. And so everybody can spend the five weeks, there's six weeks between each FOMC meeting. You can spend the first five weeks convincing the Fed chairman of your position. If you don't, he'll decide. Everybody salute it and we get a 12111 vote. Coming into 2025 and 2H25, we've been arguing whether or not we're going to have problem with Fed independence. And what we're seeing is the other voters are starting to independently started to say, I'm going to dissent. I have a different opinion. I actually think that the biggest problem the Fed had is this structure, that the chairman is all the power. This was more most evident in 2021 when Paul said that inflation was transitory on its way to 9%. Was it that everybody at the Fed thought that? No, not at all. I don't know Powell, but I know enough people at the Fed that they were not on board with this. But the chairman bequeaths we are in transitory and so go out and give speeches and tell why it's transitory and if you don't think it's transitory, keep it to yourself. And so I would rather that we had more conflict, more dissents, minority opinions, majority opinions, coming to a consensus view. We're getting more of that. Now, why did I bring that up? Because if war has an argument to aggressively cut rates, as Trump wants, what could wind up happening in the second half of the year is something like what happened to Volcker. I think we should be cutting rates. Yeah, but you got to get sick. There's 12 people on the committee. You got to get six others to agree with you. That used to be a formality, but it's not anymore. And if you look at the current makeup of this Fed, I could tell you right now, unless the stock market crashes or something changes, there are a solid four or five no votes for any rate cut this year. Now, again, if the economy changes between now and the summer, that might, those might change. But if it looks like it looks the day we're recording in June, there's at least four or five no votes for a rate cut, maybe more. And so this is going to be the next thing we're going to start to see out of the Fed a more independent Fed. In other words, it's going to act like the Supreme Court. You know, in this country, if the Supreme Court hold our arguments about fill in the blank. And then they went into the cloakroom and they looked at Chief Justice Roberts to go, so how are we voting on this one? Chief? We wouldn't tolerate that for one second if that was the way the Court worked. But that's exactly the way the Fed has worked. And maybe the Fed will start working like the Supreme Court. Everybody will vote what they think is best. Remember Fed governors and Fed presidents. Technically, your boss is the American public. Your boss is not the chairman of the Federal Reserve. And so start acting like that. And then you could, you can vote however you think, and you could put out a statement to explain yourself. And those that vote with the chairman could put out statements to explain themselves, and you can come to an agreement as to how Fed policy is going to be. So I think with war, we're going to see a very different type of way that the Fed is going to operate as we get into the rest of 26 and into 27.
- [68:49]
A
Jim, we've covered tremendous territory here. We've talked about Saspocalypse and AI Capex and crypto and precious metals, and now the Fed. So let's wrap all of this chaos up into a portfolio. How are you playing this? What assets do you think look attractive right now? What are you holding? What are you selling? What are you buying? This is the hardest part for me is putting all this together into what a portfolio actually Looks like. What's yours?
- [69:18]
D
Let me start with crypto. I'm not adding to my crypto position. And yet either I, either longer term, I want to see building being done with crypto, or I want to see a serious puke out of public, out of the public, out of the ETFs and the like. I know my friend Eric Balconis likes to say, in fact, I had a Twitter thing with him, you know, that 93 or 92% of all the money that's gone into the crypto ETFs has not left and that they're holding tight their diamond hands. And I said to him, I don't know if that's bullish because I mean, you know, we're just going to have to find that. We're going to have to find that pain point to get them to move. I'd rather that they were vomiting it up right now and I'd start buying it right now than saying that they're diamond hands and are never going to sell it. There's a pain point out there. There's a pain point for everybody out there. And so that would get me to kind of add to my crypto position. Yeah. Yet otherwise, if I start to see some real signs of building. Let's, let's, let's do the tokenization. We don't need Larry. You know, that kind of thing. I'd be in it. Tradfi markets. I've been arguing now for two years that the problem, that the trad, the problem in the TRADFI markets is one of unrealistic expectations. The last three years, the stock record was up 20, 25% and 17%. That's the S P 500. There's an expectation, well, you know, if I do nothing and buy the index, I'll get 20% a year. So that's kind of like, that's kind of like cash. Just do nothing, just buy. Spy goes up 20% a year. And then the question is, what can I do to get more than 20% a year? Those are three great years, but I would argue that those were unworthy. That's an unrealistic expectation. What is probably more realistic for the market is what I've termed the 4, 5, 6 markets. Cash over the next couple of years should return you around 4%, bond should return you around 5. Stocks should return you around 6. By the way, that's not bad numbers. Those are, but they sound bad because. No, the NASDAQ supposed to return me 40 and the S&P supposed to return me 25. And if I pick the right stocks, I'm supposed to double. That's because that's what has been for the last couple of years. But I'm saying that those were unique years. So if you put that into that kind of perspective and we wind up, and I wind up having another 15 or 17% year, then realize that you had a decent year. So I've been arguing more of a mixture kind of some bonds, some stocks. Now part of that is where you are in the cycle too, because as you get older, you should be having less risk in your portfolio. There was a podcast I was watching in April of last year when the market was melting down in April, you know, right after Liberation Day. And this woman called up as a personal finance podcast. She said she was 72 years old and she needed to take her mandatory withdrawal. So what you know is if you have money in a 401k or you have money in an IRA and you don't withdraw it after 59 and a half, you have to withdraw all of it at 72. And so she was hitting that limit. She had to withdraw all her money. And that means you get a tax bill. That means you get a big tax bill because all you're doing with 401k and stuff is you're deferring taxes to the point when you withdraw it. So you get to continue to compound tax free. And then when you withdraw the money, you tax it. Well, what happened was she said, because of Liberation Day, she said that she was going to get this enormous tax bill and her portfolio was down 40%. And between that and her tax bill, she lost half of her net worth in a month.
- [72:54]
A
My God, that's like a bad airdrop, right?
- [72:56]
D
And so they asked her, like, what are you investing in? And she's like, well, my biggest position is Nvidia. And then she had some the Ark fund and she had some Apple. And I'm like, you're 72 years old, weeks away from your withdrawal, and you're pressing the bed on Nvidia all the way to the last day. You should have been in three month bills at that point, whatever your net worth was at 71 and 11 months is your net worth. And you got to start thinking about not losing half of it, as opposed to can I sneak one more double out before I die? You know, or something like that. And so in that regard, that's why I've been arguing, because I talk to older people, that, you know, you want to have more of a mixture of stocks or bonds. But if you're, if I'm talking to people that are younger that want to own more stocks, I would say dial down your expectations to about 6ish percent, maybe 7%, and understand that there's a big rotation going on in the market right now towards the traditional companies that would do better because of cheaper cost of software. And eventually we're going to see the emergence of these app layer or content layer AI companies coming. Now, probably the closest we have to that today might be OpenAI and Anthropic, but unfortunately neither one of them are public. So that's going to be hard for people that are only in the public space to invest. But eventually we're going to start to see some of these companies come into the public space as well. But I think the biggest thing I've been arguing to people is your expectations that, you know, oh, I just plow it in Spy and if I just continue to breathe, I'll make 20% a year. Yeah, you have for the last couple years, but that's not going to continue.
- [74:35]
A
Jim, this has been great. Thank you so much for joining us again.
- [74:38]
D
Thank you. I enjoyed the conversation.
- [74:40]
A
Bankless Nation. Got to let you know, none of this has been financial advice. Of course, you could lose what you put in. But we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.