← The Master Investor Podcast with Wilfred Frost
The Master Investor Podcast with Wilfred Frost
Tom Lee: Bear Market Coming in 2026 – Use It As Buying Opportunity
00:50:22
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- [00:00]
A
I think the most important advice I can give people is that trying to time the market makes you an enemy of your future performance. Because a lot of investors always only want to buy at the bottom and they want to sell at the top. But when we look at the stock market, and actually in crypto too, the only people who really make money are those who are investing for the long term. So as much as I'm warning about 2026 and the possibility of a lot of turbulence, they should view the pullback as a chance to buy, not the pullback as a chance to sell. And to avoid stocks. We still like the Mag 7 because we're confident of their earnings growth. And so as long as they don't derate, they should actually perform better than the market. But this year, our top sector pick is energy and basic materials. I think it means gold should be sitting in a portfolio. I've seen folks like Ray Daly recommend up to 10%.
- [01:11]
B
I don't think you said 15% on this podcast.
- [01:14]
A
Okay, so let's say it's 15. Most people are at 0 for gold. So that means gold is still under owned today. Crypto still has a, I think future adoption curve that's higher than gold because more people own gold than own crypto. But the path to getting that adoption rate higher is going to be very jagged and, And I think 2026 will be a really important test because if Bitcoin makes new all time high, we know that that deleveraging event is behind us.
- [01:46]
B
And your price target for Bitcoin this year is 250,000.
- [01:49]
A
Yeah. So we think Bitcoin will make a new high this year.
- [01:56]
B
Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, the edge. The Master Investor Podcast is sponsored by BNY Investments, LSEG and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. Fans of the podcast will know our guest today very well. Tom Lee, who returns for his second appearance since joining us in August for what was a very well received episode. He is, of course, the Fundstrack Global Advisors co founder and head of research. He's also chair of Bitmine Immersion, an Ethereum treasury company, and oversees the Grannyshots ETF, which when we spoke last August was around 2 billion in AUM, is now at 4 billion AUM. Extraordinary success, which we'll definitely get to in a moment. Tom, welcome back to the Master Investor podcast. What a treat to have you here in person in London.
- [03:07]
A
Yeah, it's great to see you, Wilf. Happy 2026. And of course, it's cool to be in London.
- [03:12]
B
Yeah, it's really great to have you here. And I do really recommend anyone goes back to the episode from August. In particular, we revisited Tom's successful calls of the last 10 to 15 years and broadly not to spoil that episode, how you've managed to maintain a bullish outlook, for the most part, correctly throughout that period of time. So do go back to that episode for a broad introduction for how Tom does his thinking. And as we start 2026, Tom, I've seen that you've predicted quite precisely a rally to start the year, then a pullback, quite a big pullback, I think, with a rally to follow towards the end of the year. Is that a fair framing of your outlook for 2026?
- [03:54]
A
Yes, that's right. I think when we look back at the end of this year, I think 2026 will look like a continuation of the bull market that started in 2022, and really a period when economic resilience is much more visible. But at the same time, there's two, I think, substantial transitions that the market has to grapple with. Maybe three. One is, of course, a new Fed. And the market always tests a new Fed. And that process of identifying and then confirmation plus the market test can create a correction. And I think that in 2026, our view is that White House, the White House is going to be more deliberate in picking winners and losers. In 2025, that caused a lot of disruption for technology, IT consulting and for healthcare. And this year there's a lot more industries and sectors and even countries in the bullseye. And I think that that creates uncertainty. You can tell by gold's rally. And so I think those two factors can cause a drawdown in 2026.
- [04:58]
B
Those two factors, you said maybe a third.
- [05:00]
A
Yeah. So the third is that the market is still trying to understand how much is priced into AI. And so our view is still a strong narrative. But as you know, there's questions about the longevity, how much energy we really need, data center capacity. And so until the market is comfortable, that there's other stronger narratives, which I think there's plenty like the ISM is turning up. I think housing could recover as rates are cut, but that transition, again would cause uncertainty. So I'm guessing that the three collectively could cause a drawdown that feels like a bear market.
- [05:40]
B
So implicit in that is what, like a 20% peak to trough pullback or more or less?
- [05:45]
A
Yeah, it could be 10. I mean if it's 10, by the way, it's gonna feel like a bear market. But it could be 15, it could be 20. But something that maybe brings us to a round trip from the start of the year. Cause we've started off strong, maybe we'll be down year to date at some point, but then I think we really finished the year strong.
- [06:05]
B
So when we spoke in August, you said that we were at the start or close to the start of a 10 year bull market. Is that still your outlook? I guess another way of saying that is once we've had that pullback, you'll be banging the table and saying this is a fantastic buying opportunity.
- [06:22]
A
That's right. Every pullback has been a great opportunity. Last year the tariff related Drawdown was on April 7th. Turned out to be one of the best entry points in the last five years for anyone buying stocks. There were so many stocks that made new all time highs but really explosive rallies. So I think this year, if what we think happens, it's going to be a great buying opportunity.
- [06:45]
B
When you mentioned in August that you thought it was a new 10 year bull market, you said the reasons were a surge in prime age workforce and generation that's inheriting a lot of wealth and the US being at the center of a lot of innovation, particularly AI and blockchain. Are you still as confident in all three of those long term factors?
- [07:06]
A
Yeah, in fact I think four or four still look quite visible. You know, the US does have a favorable demographic tailwind that is in contrast to other countries where the prime age workforce has gone into deficit in terms of inherited wealth. I think there's a lot more conversations about it that Gen Z and Millennials and Gen Alpha, they are set to all inherit substantial sums of money over their lifetime. And it's strange because it does create disparity in wealth. There are going to be some very wealthy Gen Z, Gen Alpha and Millennials, while others are going to be of course living their life and accumulating their own personal wealth. And then with regard to AI, I would say that evidence that we could be moving towards super intelligence is accelerating and I think there's a lot more progress being made on robots and integration with robots. So those are all things that are going to favor the US and then on Blockchain, it's not just Blackrock and Robinhood anymore. Jamie Dimon has publicly stated that he thinks blockchain does fix a lot of problems for financial services. So I think the banking industry is starting to embrace the efficiency of blockchain.
- [08:26]
B
So clearly the long term bull market thesis you're still a big believer in after a pullback, how do we sort of try and get as good a feeling as ever about when that initial pullback comes? I was listening to one of your recent appearances on CNBC and you pointed out that markets peak on good news somewhat counterintuitively. Have we got that good news at the moment that would point to a short term peak?
- [08:52]
A
It's hard to say, and this is somewhat anecdotal, but are institutional clients aren't that bullishly positioned at the moment? And until we get to the point where both the public and institutions have positioned a way that good news doesn't make the market go up, I think stocks still have upside. That's why the fact that stocks were good in the first week of January is a good omen. And it looks like we're going to finish the month positive. That suggests strength in the early part of the year. Margin debt is something we can watch and we've been tracking it. NYSE margin debt is at an all time high, but it's only risen 39% year over year, usually for a local top. For markets you want to see that rise 60% year over year so there's a chance for essentially leverage to accelerate and then that marks a local top.
- [09:56]
B
This podcast is sponsored by Interactive Brokers. Building wealth starts with the right broker and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com forward/master investor. Let's touch on some of the kind of macro factors then. I guess let's start with trade because I know one of the things you were sort of saying last year was the trade war didn't turn out to be as bad as it could have been. Over the weekend more threats of tariffs linked to Greenland, this time on the UK and the eu. Looks like the UK is going to hold. The EU might retaliate. Is that a worry for you? In the short term?
- [10:54]
A
Yes and no. I think that last year investors did a fire ready aim whenever they saw the tariff conversations escalate and become uncertain. The market really reacted poorly and fell sharply. I think that this year markets are going to be a little more measured. So let's say it's half the amplitude of reaction but then there is still the uncertainty of how the Supreme Court will rule around the tariffs. And maybe if that rules against Trump, then it's going to look like the leverage of the US has dropped. And so the White House might take more extreme measures that could cause greater uncertainty. But over the weekend I've been reading the news. I mean, there's some folks suggesting the Supreme Court might actually rule in Trump's favor. So I really don't know.
- [11:49]
B
In terms of the other sort of big macro question about the Fed, ironically, when we spoke in August, it was in and around attempts to indict Lisa Cook. Obviously more high profile attempted indictment this time around. Generally your view then was Fed cutting is a good thing for markets, but questioning Fed interference is a bad thing for markets. But I don't think you took the idea of interference that seriously. How do you sum it up today, that outlook?
- [12:18]
A
I think it's still the same situation in the sense that there are implicit threats being made against the Fed, including this DOJ inquiry. But I think there are still voices in the White House that are kind of saying let's not undermine the Fed completely because markets know, and market history knows that the Fed is still the most important entity in the world. And to undermine the credibility and the independence would, would unleash a lot of uncertainty. We also know Fed Chair Powell's term is up this year. So time, there's a bit of like let the clock run because we know that there'll be a new Fed chair. And I think once we have that in place, I think the White House can be satisfied. And as you know who the Fed next Fed chair can be, I mean, the odds keep shifting. Now it looks like Hassett has dropped as the probable and Warsh and even Rick Reeder actually are ascending.
- [13:27]
B
So, and I guess everyone expects slightly more cuts than maybe the data would purely suggest once that change happens and, or a few more cuts this year. Is that a good thing ultimately for equities?
- [13:43]
A
Yeah, I think it is good for equities in the sense that inflation has been the market's fixation since 2022. Part of it, of course, is because the Fed has been fighting an inflation war and the Fed wants to maintain credibility by being tight. But when I look at the economic data, and I'm not an economist, I think the underlying inflation is actually much lower than the printed. I mean, a simple thing to point to is something like truflation, which is showing 1.8. If you look at median inflation, it's at 1.8 and the thing that's keeping inflation high is housing costs, but housing prices are falling. So housing, the way that housing is measured in CPI is with a lag. So to me, I think there is cover for the Fed to cut. And if housing, as you know, affordability is a problem, we need to do something about mortgage rates. And that is helped by cutting and even things like consumer installment debt, those can come down with rate cuts. So I think burdens on a lot of Americans can actually ease with Fed cuts.
- [14:58]
B
So let's talk about how people should be positioned sort of under the surface. Have the sort of Mag 7 or Mag 10 that the biggest stocks overrun and are they not the right picks for 2026?
- [15:13]
A
We still like the Mag 7 because we're confident of their earnings growth. And so as long as they don't derate, they should actually perform better than the market. But this year our top sector pick is energy and basic materials. So in early December we made that our favorite sector ideas. Part of it is, is a mean reversion trade. Energy and basic materials have underperformed so badly over the last five years that if you look at their performance in the last 75 years, it's usually marked a turning point, the level of underperformance. And then I think some of the geopolitical things that are taking place would favor both groups. But I think another thing this year is the ISM is likely to break back above 50 and along with Fed cuts, that means industrials, financials, small caps. So I like Max 7, but I think cyclicals could be the more interesting trade this year.
- [16:13]
B
So just let's do energy first because I think I'm right in saying you're also not constructive on the oil price in the short term, but you're bullish on the energy stocks.
- [16:21]
A
That's right. I've learned oil prices and energy stocks don't correlate. Part of it is that energy stocks price the future levels of oil prices. And I think that we may see weak oil prices or volatility in the near term. But everything from data centers and this shift away from alternatives is going to be putting upside into the future prices of oil. And that's why energy stocks can outperform basic materials.
- [16:54]
B
Obviously for those exposed to metals have had an unbelievable run in their underlying commodity. Maybe we'll come to that when we talk about crypto in a moment. What if that corrects a bit, will those stocks do less? Well, is your call on them requiring gold and silver, et cetera, copper to hold up?
- [17:16]
A
Yes. I mean if gold and silver and copper do have negative returns this year, then basic materials is not going to work as a trade. But part of our belief is that gold has made a big move, but it's going to be silver and copper that have good years. And as you know, copper is an industrial metal I think linked to the ism. So if copper has upside, I think it leads the basic materials stocks higher.
- [17:42]
B
Financials you were very bullish on when we spoke in August, so great call on that. They've obviously had a great run. Kind of can't believe the charts of some of them when I look at them compared to when I used to cover them very closely. Do you still like them at these levels? They're not cheap, are they anymore on price to book?
- [18:00]
A
Yeah, they're not cheap, but they're I think in the midst of being reviewed in terms of the durability of their business models in a favorable way. You know, I think the banks have invested so much in tech and into AI that they are really big beneficiaries of that super intelligence coming. And the bank's biggest expense is compensation. So I think banks can reduce their reliance on employees in the future, which means their margins go up and then the variability of their earnings drops. I think they're going to get re rated more like technology stocks. And when I started covering, when I started in research in the 90s, banks used to always just be one times price to Booker, 10 times earnings. And I think that they should get a market premium multiple.
- [18:55]
B
This episode of the Master Investor Podcast is brought to you by lseg, the leading global financial markets infrastructure data and analytics provider. To learn more about how ELSEG connects businesses, investors and markets worldwide, visit elseguard.com. I want to talk more about the tech stocks and AI stocks in a little bit more detail. And I heard you say something on the Prof. G podcast that surprised me because you're still constructive. As you've said, you are very constructive, correctly and early for most of the last 15 years. But you said only 10% of the AI stocks will turn out to be a good investment over the next decade. But you still like the sector.
- [19:40]
A
Yes, I think that that's pretty true of any exponential growth sector. For instance, when we look back at Internet, if you looked at a basket of stocks, let's say in 2000, so 25 years ago, I think only 2% of all the universe's stocks actually survived. But the return generated by that 2% and then let's say you lost money. The other 98% you still outperformed meaningfully the S&P 500. So I think in the AI sector, a basket of the entire universe of stocks, it may be more than 90% turn out to be poor investments, but the winning investments more than make up for it.
- [20:30]
B
And I guess the difference perhaps today is that not that many of them are listed. I don't know if that increases the jeopardy or reduces the jeopardy for people playing the average investor is not going to get exposure to all of them.
- [20:44]
A
Yeah, it's, it is a good question because today IP companies IPOing are more mature in their later stage and, but it does seem like that that's changing. I think for the first time we, we, we're seeing companies now more interested in going public. Not all through IPOs, some through SPACs. I think that's coupled with the fact that the alternative world, which is venture, private equity, private credit, the investors in those LPs, limited partners, they haven't really received distribution. So I think that there is an allocation away from alternatives into public markets and that it's kind of now pushing more things to go into public markets. But you're right, as much as we say that in the last 12 months I've seen many publicly traded stocks have big moves. So I think that there's still a lot of opportunities.
- [21:45]
B
And in terms of the sort of hyperscalers, the sort of mega cap names, it's really interesting when you think of the multiples that they've got, which for the most part I think have been justified because of growth rates. And again, a conversation you had on another podcast I was really drawn to, which is the idea that these companies evolve to a sort of Staples company which can have a premium multiple for a different reason. And I guess that got me, I mean, basically is that the Warren Buffett kind of sniffed that out before the rest of us with Apple. Is that kind of what we're getting at with some of those mega cap names and that even if Nvidia's growth rate slows, that actually it might maintain its, its multiple from here?
- [22:29]
A
Yeah, that's right. I think that some of the listeners should think back to Apple, which Apple analysts that cover the Stock from its IPO in the 80s insisted Apple was a hardware company. And they couldn't get over the fact for many years that Apple shouldn't trade more than 10 times earnings. And yet they had a services business that was growing. They of course, had created a whole ecosystem and retention model that really showed Apple was not just a hardware company. But I remembered Even in the 2015, 2016, 2017 period, I'd meet with institutions say Apple's a hardware company. And now of course, Apple's RE rated completely. I think people look at Nvidia as a cyclical hardware company and that's why they're giving it grudgingly a 26 multiple. Whereas Nvidia, as you know, essentially is a company that has high visibility on future earnings and yet trades at half the multiple of Costco. I think there's a lot of room to re rate those stocks higher if.
- [23:34]
B
The sort of macro outlook is worse than expected. Well, either way, as and when we have this market correction that you foresee, let's assume it's 20% for argument's sake. For the S&P 500, will those stocks act like a Staples company and fall less than the market, or are they still in the growth company high beta stage such that when we have this correction this year, the Nvidias of this world will fall more than The S&P 500?
- [24:03]
A
Yeah, it's a good question because what will lead in the correction are crowded trades? Because that's when people have to de risk. So it makes sense that, oh well, the Mag 7 are the large holdings will people de risk? But as you know, when people get nervous, maybe they go into the MAG7. And so to me, it's possible that the non US stocks could be the ones where you see correction because that's where there's a lot of money that's been made. I mean non US stocks did far better last year than us. And so if there's trade escalations and uncertain about the global economic outlook, maybe that's where the correction could be greater.
- [24:46]
B
And so that's. You mean across the piece or do you mean specifically tech like ASMLs and TSMCs of this world?
- [24:52]
A
Oh, I think more broadly, so it could be msci acwi.
- [24:56]
B
Yeah, interesting. This episode is sponsored by BNY Investments. BNY Investments is part of bny, a global financial services company supporting investors and institutions around the world. This sponsorship does not constitute investment advice. Let's talk about some of the Tom Lee specific success stories recently. Because granny shots, as I mentioned in the intro, and this is your ETF or suite of ETFs now that you explain the rationale for in August for us when we last spoke, was about 2 to 2.5 billion. You now have 4.5 billion under management for these ETFs.
- [25:48]
A
Yeah, in total, 4.7 billion across the three.
- [25:52]
B
And the main one is four and.
- [25:54]
A
A bit, yeah, that's granny grny is still is the largest. Granny J, which is small mid cap, launched in November last year and that's about 355 million now of assets. And then the income oriented Granny, which is Granny but generates income, it paid its first dividend in December. That's usually when asset gatherings start to rise because now there's a posted yield, the targeted yield is around or I think the posted yield is 10, that's around 55 million.
- [26:30]
B
And in terms of the year ahead, is now a good time to buy small caps or income over traditional?
- [26:40]
A
Now I'm not one that likes to time the market so for instance in January of last year Mark Newton kind of warned that there could be a drawdown. It turned out to 20 was way bigger than we expected. But we still wanted people to stay fully invested and people made their money back by July. I think that small mid caps have underperformed for so long that even if there is a drawdown there, it's not going to interrupt the fact that there could be a five or six year cycle of small cap outperformance. So I'd still want to own that Granny isn't going to go up if the market goes down. So I think Anyone buying these ETFs should be aware of that. But they are buying the strongest companies linked to the most important theme. So to me they should hold up better on a drawdown and of course be stronger on recovery.
- [27:42]
B
Let's touch on gold and then crypto. Why did Gold perform so well last year, do you think?
- [27:48]
A
I think there's some very visible reasons and some invisible reasons. To me I think the visible reasons for gold doing well is one, I think that there's a lot more political and geopolitical uncertainty in the investment environment because we have wars taking place and of course we have a president in the US that I think has actually done a good job on the economy but has raised divisiveness and uncertainty about trade globally. The second is that global central banks are generally easing and in the US we're finally getting an easing cycle, including QT ending that should support gold. The invisible reasons are number one, I believe Tether, which is the largest stablecoin provider in the US has become the largest private buyer of gold because Tether is already sufficiently collateralized with treasury backing every stablecoin unit. But they generate income and with that excess return they're buying gold. So I believe that they've been the largest net buyer since July.
- [29:04]
B
When you say you believe that, you Know that or.
- [29:07]
A
Yeah, I think we've seen the data. Yeah.
- [29:11]
B
And so how big a buyer are they relative to the sort of central banks of this world that have been big buyers of late?
- [29:16]
A
Wilfred. I'm sorry, I don't know how to scale it, but I believe there's only maybe one central bank that might have bought more and tether.
- [29:27]
B
Wow. Because that's not talked about very much.
- [29:29]
A
No, it hasn't. But if you look at. One way to simply look at it is look at tether, USDT outstandings and gold price since July, and they've been highly correlated. But I think a second factor is we did a study in 2018 showing you that investment preferences skip a generation. So baby boomers loved gold, millennials liked hedge funds. I'm sorry, Baby boomers like gold, Gen X liked hedge funds. But now millennials who are entering their prime working years, like what their grandparents liked, which is gold. So I think that there's renewed interest in gold. So those are the two invisible reasons I liked gold.
- [30:13]
B
I'm just a millennial, but I sold too early. So there we go. Interesting snapshots on that. So my question on gold is whether you think of it, I guess generations will have different answers to this as the ultimate currency or as a commodity, like some of the other metals you listed earlier, like copper and silver and many others that have industrial use. Because it can suddenly change the way we think about all of the returns we were looking at last year. JP Morgan had a great year, Nvidia had another good year. The stocks were up 20% here or there. If you consider the ultimate backstop currency gold, then they were down.
- [30:53]
A
Correct?
- [30:54]
B
Is that how you think about it or not?
- [30:56]
A
Yes. We don't make explicit recommendations at fundstret around gold, but I think we probably should because I think you've described it correctly. Gold doesn't make sense if you're trying to view it as a commodity metal, because total gold sales last year, industrial and retail Jewelry is like 120 billion, and it's a 30 trillion network value. So price to sales doesn't make sense. And we know gold is not scarce because there's a million times more gold underground. And all gold is extraterrestrial. So SpaceX might discover a gold meteor and suddenly gold supply would be huge. Yet gold has worked as a store value for centuries. And as the reasons I explained, it acts, like you said, an alternative to the dollar, which means maybe we should view it as a dollar alternative, and by that measure, everything else is debased against Gold.
- [31:58]
B
And what are the implications of that? Do you think more people will come around to that point of view? And what would be the implications?
- [32:05]
A
Yeah, I think it means gold should be sitting in it in a portfolio. I've seen folks like Ray Dalio recommend up to 10%.
- [32:16]
B
I don't think you said 15% on this podcast.
- [32:18]
A
Okay, so let's say it's 15. Most people are at 0 for gold. So that means gold is still under owned today.
- [32:27]
B
Really, really fascinating. By the way, the other thought of SpaceX finding a gold meteor in space, that would be a story. I wonder who would claim ownership of that. Well, the shareholders of SpaceX, if it is IPO'd by then.
- [32:40]
A
That's right, because it's international. It's not international, it's galactic. So there's no sovereign claim on it except for the.
- [32:48]
B
Which I guess applies to Mars as well. Lots of complicated questions ahead.
- [32:53]
A
Yeah.
- [32:54]
B
Why did crypto not perform last year in a way that gold did?
- [33:00]
A
I think there's a time based answer. So crypto was outperforming and keeping up with gold until October 10th. And on October, Bitcoin, for instance, was up 36% and Ethereum was up 45. So Ethereum was outperforming silver. But on October 10th was the single largest deleveraging event in the history of crypto. Bigger than what happened in November 202022 around FTX. And after that, Bitcoin lost more than 35% of its value and Ethereum fell almost 50%. So I think crypto lost its tracking to gold because of deleveraging within crypto. Crypto has periodic deleveraging events. It, it really impairs the market makers. And the market makers are essentially the central bank of crypto. So many of the market makers, I would say maybe half, got wiped out on October 10th. So until we get to the day where crypto is widely mainstream, supported by institutional investors, the internal deleveraging events kind of knock it out of the, knock it out of the sky.
- [34:14]
B
Does that by implication mean that you accept that bitcoin is not digital gold?
- [34:20]
A
It's bitcoin is digital gold. But the universe of people that believe that thesis is not the same universe that owns gold. And so crypto still has a, I think future adoption curve that's higher than gold because more people own gold than own crypto. But the path to getting that adoption rate higher is going to be very jagged. And I think 2026 will be a really important test because if bitcoin makes a new all time High. We know that that deleveraging event is behind us.
- [34:58]
B
And your price target for Bitcoin this year is 250,000.
- [35:02]
A
Yeah. So we think Bitcoin will make a new high this year.
- [35:06]
B
And that's driven by what?
- [35:10]
A
Well, it's driven by I think the usefulness of crypto increasing. So we know banks for instance are recognizing blockchain and the idea of settlement. Settlement and finality work really well on blockchain. And then a company like Tether, which is a crypto based bank, is proving that a bank that emerges natively on blockchain is actually better than a traditional bank. For instance, Tether is expected to make almost $20 billion in 2026 earnings. That would make it a top five in terms of bank profits. The on valuation might be number two only to JP Morgan. Twice the valuation of Goldman Sachs or Morgan Stanley. Tether only has 300 full time employees. JP Morgan has 300,000. So by using blockchain they make almost as much. Well, they make more money than any bank and they only have less than 1% of the M1 money supply and a tiny balance sheet and yet it's one of the most profitable banks in the world.
- [36:23]
B
Let's touch on Ethereum. Obviously you explained to us in August you're a believer in both Bitcoin and Ethereum, you love them both. But you long term see Ethereum as more of the bull case. Why did it fall so much back quarter of last year?
- [36:41]
A
Ethereum is the second largest blockchain and it's I think always going to be more volatile than Bitcoin until it becomes similar in size. The crypto world views Ethereum as as a price ratio to Bitcoin. So there's this. If you just simply said eth to btc, assume Bitcoin is the price denomination of the crypto world. Ethereum's price ratio to Bitcoin is still below where it was in 2021, four years ago. And that compared to four years ago. Ethereum is a far superior blockchain because we know tokenization, including dollars are tokenized is one of the big bets Wall Street's making. I mean Larry Fink says it's the biggest innovation since double ledger accounting. Vlad at Robinhood wants to tokenize everything. And we already see a lot of effort to tokenize not just dollars, which is stablecoins, but credit funds. JP Morgan is launching on Ethereum, a money market fund. BlackRock has already tokenized credit funds on Ethereum. So Ethereum is really the blockchain that Wall street is beginning to use. If Ethereum's price ratio recovers to the 2021 highs and Bitcoin goes to 250, Ethereum would be around 12,000 and Ethereum's around 3,000 today.
- [38:13]
B
That's very interesting. Those ratios kind of makes you think of the gold silver ratio as well, which a lot of people point to after Silver's extraordinary run recently. Obviously, part of your love for Ethereum brought you to become chairman of Bitmine Immersion Technologies, which is an Ethereum treasury company. And this caught my attention. I think this was last week, was it, that you announced a $200 million investment into Beast Industries. This is the company behind MrBeast, who is one of the biggest YouTube influences. In fact, I think I've understood it. You sent me the numbers before. He has an extraordinary reach over everyone in media today.
- [38:52]
A
Yeah, I think that most people on Wall street aren't aware of the reach of Mr. Beast for several reasons. One, it's a privately held company, so you have to look at media metrics to understand his reach. Two is that his demographic is. He's iconic among Gen Z, Gen Alpha and Millennials.
- [39:13]
B
What are some of the numbers?
- [39:14]
A
Just remind us he has over a billion followers today. So the only person with more followers across TikTok, Instagram, Meta, I mean, you name it, is Ronaldo.
- [39:30]
B
Cristiano Ronaldo.
- [39:31]
A
Yes, Cristiano Ronaldo. His YouTube videos today, in hours monthly viewed, exceed that of Disney and Netflix. Every One of his Mr. Beast YouTube episodes is watched by over 250 million viewers monthly, and he releases it twice a month. That is more viewership than the Super Bowl. So he is releasing the equivalent of two Super Bowls of viewership every month. And Beast Games, which was launched on Amazon prime, is the number one, number one show in Amazon and again, more widely watched than almost any other movie.
- [40:11]
B
So, I mean, I've been blown away by those numbers. You emailed them to me in advance of this truly astonishing reach. But then why isn't this an investment that's being made by Disney or Amazon prime or Comcast or Netflix? Why is it being made by an Ethereum treasury company?
- [40:27]
A
You know, they are very selective on who is on their cap table. So Mr. Beast is the himself. Jimmy Donaldson is the largest shareholder. And then there is folks like Chamath of social capital. And Bitmine will be the largest corporate investor in their balance sheet. They have received overtures, as you can imagine, from a lot of people who want to invest into Beast Industries. We were very fortunate to be invited to actually be in their capital structure.
- [41:05]
B
And watching back your announcement from last week at the agm, I think it was for bitmind. You alluded to something. It was a sort of throwaway line, but when they come to do financial products or financial services. So that is coming and you'll be a part of that or what?
- [41:21]
A
Yes. The CEO Jeff Housenbolt had mentioned that, that there's a future Beast Financial Services. And I think that Beast is going to probably provide full details in coming weeks around that. But I think it is something that they've talked about that Beast Industries, they've been very smart. They've productized Mr. Beast in many ways. There's the feastables, chocolates, and they have like healthy lunch. They've done drinks and beverages. They've done collaborations with other creators. And so it makes sense then to say, well, you know, if you have a billion followers, how do you productize the business further?
- [42:10]
B
And so would you argue? I'm sure you would. This is bullish for Ethereum with a billion followers.
- [42:18]
A
Yes.
- [42:18]
B
As in, will he be. Is it reasonable to expect he'll be pushing Ethereum down the line?
- [42:24]
A
Well, I'd say to me, there's some things that make a lot of sense. I think today there is a huge vacuum on financial literacy among most Americans globally, actually most young people, because it's not really taught in school.
- [42:41]
B
I agree with that.
- [42:43]
A
But we know financial literacy is critical because even today we know that a lot of baby boomers and Gen X are retiring without sufficient savings and we can't count on things like Social Security. So financial education is one of the biggest vacuums out there. Well, it's natural that Mr. Beast could be one of the people leading financial education, which is a huge societal benefit. I mean, that's one of the reasons we were really interested in investing in Beast Industries is our corporate and social values are aligned. He really represents decency and kindness. And then in terms of the future of finance, it's very obvious today that banks are saying blockchains are the future of finance. I mean, JP Morgan wants to build on the blockchain. Jamie Dimon said it's a better way to build a bank. And Ethereum is where all the banking, the banks today are actually choosing to build smart contracts. So it makes sense then if there's financial education for the public, it should include Ethereum to an extent.
- [43:47]
B
I guess my final point on this is it still feels for a Treasury company, which is, I guess, meant to be a sort of fairly focused business. It's obviously a Sort of tangent to do this type of investment. I know you've spoken before, same with orbs, that you'll do some moonshot investments. I guess with that phrasing, do you acknowledge this is a high risk investment or actually do you not make it's just a sort of odd tangent investment?
- [44:16]
A
Well, I would say for someone who hasn't walked through our rationale, it seems totally risky. It makes sense. Bitmine had from day zero said that about 5% of its balance sheet would be allocated to moonshots. And so with today's balance sheet that would be about $700 million of investments. And so far about 220 has been invested into moonshots. I think Beast Industries as an investment is going to be very profitable because this is getting you exposure to the biggest content creator in the world, you know, maybe in our generation. So your father was like the Mr. Beast of his generation and there hasn't been anyone since and I don't know if there's going to be anyone after him. As a Treasury company, our goal is to not only strengthen the Ethereum ecosystem, but really ensure its future viability. But by securing a potential organic collaboration with Mr. Beast, I think it's going to strengthen the future of Ethereum. So I think it was a good strategic move as well.
- [45:36]
B
As we wrap up, Tom, we're nearly out of out of time. We've asked everyone on this what's your overriding piece of investment advice for our listeners, which we asked you in August, and I loved your answer, which was along the lines of when you invest, invest in companies, not indices and you'll have more conviction and you'll see through the volatility. To tweak the question for this time, I have two questions, the first one being what's your overriding piece of advice for equity market investors for this year?
- [46:01]
A
Specifically, yes, I think the most important advice I can give people is that trying to time the market makes you an enemy of your future performance. Because a lot of investors always only want to buy at the bottom and they want to sell at the top. But when we look at the stock market and actually in crypto too, the only people who really make money are those who are investing for the long term. So as much as I'm warning about 20, 26 and the possibility of a lot of turbulence, they should view the pullback as a chance to buy, not the pullback as a chance to sell and to avoid stocks. I think it's a really important distinction because too many people sell on emotion and Then they don't make the second decision to buy back and then they miss out on all the compounding investing delivers.
- [47:02]
B
And my second question is, what's your overriding piece of advice for crypto investors over the very long term? I'm sure it's slightly linked to what you just said, but how should they be exposed?
- [47:14]
A
Yes, well, I believe many listeners are skeptical crypto and might even have zero exposure and say that they don't really understand it. One of the things that we have to appreciate is that crypto is being adopted by the young, younger generations. I mean, it is a part of their lives because they are digital natives. And there is really a blurring between what's a service and what's money in the future. It's no different than in 1995 when Bill Gates was on Letterman talking about the Internet. David Letterman expressed enormous skepticism of what the Internet was because he was the wrong generation to adopt the Internet. If Bill Gates was explaining that to a 20 year old, a 20 year old instantly understood the future of the Internet. And I think that's what's happening with crypto today.
- [48:07]
B
And how should people. Obviously you recommend Bitmine, but should they have a basket of currencies? Should they own treasury companies? Should it be 2 to 1, Bitcoin, Ethereum?
- [48:20]
A
I think that I would have a dual pronged effort. One is there's something called the Lindy effect. I would only buy the crypto that have been around, so Bitcoin and Ethereum. But the second thing I would focus on is that crypto is the settlement layer. It may be invisible in the future. Bitmine is acting as not only a settlement layer for the, for the industry, but with the investments we're making, we are really becoming a financial services company. So with bitmind, you're not just buying Ethereum exposure, you're buying a company that is helping drive the future of finance.
- [49:01]
B
Well, a great answer to state the obvious, Rod, is since clearly Tom has an interest in that particular stock. Tom, it has been a great pleasure to catch up with you once again, particularly in person in London. Thank you so much for joining me.
- [49:14]
A
Great. It's great to see you.
- [49:15]
B
That was, of course, Tom Lee from Fundstrat and various other businesses on the Master Investor podcast. Next week we'll be joined by Halima Croft of RBC Capital Markets to cover all things oil. Lots going on there, of course, as Tom's alluded to, he's bullish on the sector and all things commodities more broadly. If you haven't done so already. Please do subscribe. But for now, our great thanks again to Tom Lee. The Master Investor Podcast is sponsored by BNY Investments, LSEG and Interactive Brokers. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show. Notes this podcast is produced by Paradine Productions and Master Investor limited In association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.