← The "What is Money?" Show
The "What is Money?" Show
WiM009 - The Saylor Series | Episode 9 | Economics, Inflation, Interest Rates, and Natural Competition
01:42:33
Michael Saylor joins me to discuss anthropology, energy, and technology from first principles as we build the intellectual foundation necessary to truly grasp the historic significance of Bitcoin.
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- [00:03]
Michael Saylor
Technologies that are dominating today, they're dominating because they're able to deliver force faster, harder, stronger, smarter. So if we ask the question, what is money? Money is the highest form of energy that human beings can channel. Bitcoin is channeling human ingenuity into making it better. And every commodity is channeling human energy into making it worse. The lowbrow or the historic colloquial term is hodl, right? Hold on for dear life and just hodl or save, whatever. And the highbrow term would be adopt as a Treasury reserve assay.
- [01:06]
Robert Breedlove
Hey guys. So as you learned by watching the what is Money Show, Bitcoin is the single most important asset you can own.
- [01:13]
Unknown
In the world today.
- [01:15]
Robert Breedlove
And so this begs the question, which I'm often asked, how does one build their bitcoin position? And the strategy really is simple. I suggest first you decide on an initial portfolio percentage allocation and a target portfolio percentage allocation. Go ahead and establish the initial position with a one time buy and then start dollar cost averaging towards your target portfolio percentage. And you can also complement this by buying bitcoin price dips to further increase that position and reduce your cost basis. And finally I suggest to everyone to take custody of their Bitcoin to move all of their Bitcoin into self sovereign custody. Because again, Bitcoin left on an exchange is not bitcoin, it's a Bitcoin iou. And for those of you living in the US there's no better choice than Swan Bitcoin to do all of the above. So Swan lets you set up automatic recurring buys for Bitcoin, also lets you facilitate one time buys for buying price dips. And finally they let you do set up automatic recurring withdrawals into cold storage, which is a really big deal. And all of this they provide at the lowest fees in the business, approximately 0.99% per year for weekly buys of $50 or more, which is about 60, I'm sorry, 70 to 80% less than Coinbase by comparison. And the best part, Swann is a bitcoin focused education first company. They publish great content on their Swan Signal live podcast. They publish a lot of content in their newsletter and website. And their team is just the absolute dream team of Bitcoin, I would say. Check out their roster, it's growing every day, but it's a super impressive group of individuals. And so with that I would highly recommend you check out swan bitcoin.com breedlove. You get $10 in free Bitcoin for signing up and it lets you stack sats with myself and the rest of the Swan team as we continue the fight to restore freedom, truth and virtue in the world through bitcoin. Alright, thanks. Alright guys, welcome back to episode nine of the Saylor series. Today is another deep episode. We're actually getting towards the end of the line here and covering some of the last bit of ground in the macroeconomic domain and tying it back into actually some philosophy towards the end which I thought was really interesting. So today we're going to talk a bit about how bitcoin is an elemental innovation. Tying this back to episode one actually where we discuss stone age technologies including fire, water and missiles. So we actually are making the case that Bitcoin is an elemental invention akin to one of these stocks technologies which as a reminder, if you haven't seen the prior episodes, highly recommend you go and check those out as they build a long and strong intellectual edifice to get us to this point. Secondly, we're going to talk about fiat currency, how it's a contaminated form of money that actually leads to socioeconomic decay. And we're going to go into interest rates, an area that's commonly misunderstood by even people typically considered financially sophisticated. Then we're going to talk a bit about central bank price manipulation, how that influences markets. We're also going to look at market competition and the law of decimation, how that plays out in nature and throughout history. Then we're going to get into the philosophical domain. We're going to touch on a bit of stoicism and how Saylor has use this in his own life and how he sees its importance in markets in general. And then finally we'll leave off with a bit of discussion on anti fragility and the vitality of life. So excited for this one. Another crazy episode with the incredibly brilliant Michael Saylor. So with that let's dive in.
- [05:30]
Unknown
Sort of the purpose of humanity has been to channel energy through our intellect, right? That's how we've developed everything essentially. And I'm reminded of a quote by Alfred North Whitehead that I'll paraphrase. He said that it's common wisdom for people to say you should think before you act, but that in fact civilization advances by us being able to execute more important operations without having to think about them. So we're actually when we can embed these things, these certain important actions in a protocol that we don't need to think about it as much, it frees us up to do other things, right? That's kind of the layers upon which we build civilization. And it just Seems like this digital age we're going into is something radically new. It seems to be as profound as the Renaissance or as profound as the Enlightenment.
- [06:29]
Robert Breedlove
Do you see it that way?
- [06:31]
Unknown
Are we co evolving with the tools that we're creating? And like the next 500 years are going to be something so fundamentally different than what history has been that it'll be hard to recognize it in a few hundred years.
- [06:47]
Michael Saylor
I do think that the creation of Bitcoin and the creation of the, of the first effective crypto network is an, is an elemental force, is a true invention akin to the discovery of fire or the discovery of atomic energy, or the discovery of. We can make a list of a lot of fundamental things. Maybe one interesting thing is just the science of. Or the science of sterilization, right? Germs medicine, modern medicine and the awareness of the importance of sterilizing instruments and the way that disease spreads, Right. Immunology. Once we figured that out, we were able to go from living 50 years to living 70 years because we realized that we were just. Every time we entered into a medical procedure, including the birth of a child, we were moving into an unsterile environment that was life threatening. In fact, life soul. Soul sucking, right? Like life stealing. The death rate from childbirth was huge. Right. The average life expectancy was short and we needed that breakthrough to realize that we were swimming in germs. And the very simple solution is wash your hands, sterilize your instruments, and you put that together with antibiotics and the human life expectancy jumps by 50%. So what if we're actually doing economics with dirty money? And so we've been dealing, we've been using monetary energy, which is bleeding, right. It's the same way as operating with, with non sterile instruments. And the patient keeps dying and we don't know why. And the significance of Bitcoin is we're going from defective money, which is somewhere between toxic, it may just be bleeding, like ineffective bleeding, 2, 3, 4% a year. Or it's toxic when it gets to minus 10 or minus 15% real yield. So using toxic money, how is that different than using toxic instruments? When I commit surgery on you, how is it different than feeding you toxic food? I think we're breaking through this new world. We sterilize our instruments, we encrypt our money. We're moving toward a science of non toxic economic energy. Madame Curie died of radiation poisoning. She died of cancer from the radiation. They didn't realize that radiation killed you, caused cancer. There's a lot of basics in life that we don't understand. A big breakthrough in health is when we realized that sugar was toxic. My mother didn't know sugar was toxic, right? I mean, conventional wisdom and governmental advice was you need your four favorite food groups and pursue a low fat diet. But starch and sugar was fine. And of course now we know that too much starch and too much sugar makes you insulin resistant, makes you type 2 diabetic, gives you cancer. My mother became diabetic, became overweight, got cancer. We thought it was just unfortunate. Doctor said, we don't know why these things happen. It's just unfortunate. You know, if I could go back in time, I'd be like, I know exactly why it happens. I know exactly how to solve it now, right? Don't eat sugar, don't eat starch, stop eating fast. Sometimes, you know, I never, I never eat before, like one, one in the afternoon. I only eat an eight hour window and I'll go two or three days and I won't eat. I mean, I adopt fasting and I won't drink anything with sugar in it. Right? You want to live a long time, don't dose yourself with sugar. It's toxic. The instruments are toxic, the germs are toxic. We killed George Washington because we bled him to death. Toxic. The money's toxic. That's fundamentally the issue. The money is toxic. I mean, that's the fundamental issue with inflation. And if we segue into the discussion of inflation, everybody keeps thinking there is no inflation because everybody focuses upon a market basket of consumer goods. And if you look in the US and you look in Europe, they leave food and energy out of the basket of consumer goods. And they say we left out the highly volatile food and energy from the index. Well, highly volatile means it went up, the number would change. Volatility is another word for signal. We left out everything that actually changes in price from our price index. It literally is like a Jedi mind trick. It's like a triple mind trick. It's like we have a consumer price index and we've left the prices that vary out of the index. Oh, check, we have a consumer price index. Well, first of all, it's not a scalar, it's a vector. It's an n dimensional vector dynamically changing in time. You've just created a scalar. We've created a market basket of things that we think you want. Yes, your basket is what I want. The market basket of things that you want does not include assets. No, I would never want to buy an asset. Only rich people buy assets. Poor people do not buy assets. How do poor people get rich? You have to buy assets to go from being poor to being rich. I didn't go from being poor to being wealthy by not buying assets or not creating assets. You create them or you buy them. So the entire field of inflation is defective. And the irony is that 99% of the economists that talk about it, they already have accepted the notion that a market basket of consumer products and services is acceptable. And it's acceptable to throw out energy and food. And I never seen an economist say, why don't we actually define the things that a 22 year old is going to want to buy by the time they're 32? And here's one thing, early retirement, right? I want to buy early retirement by the time I'm 32. How do I do that? I need to buy a bond that pays me $75,000 a year in interest, risk free, and I need for the $75,000 a year to pay my living expenses. And if the interest rate was 7%, then I need a million dollars for that. But the interest rate goes to 0.7%. I need $10 million for that. So from 2010 to 2020, the interest rate went down to 60 basis points on a 10 year government bond, which meant that the bond went from a million dollars to $10 million, which meant that the 22 year old was suffering from 22% inflation on early retirement. But because that's not in a basket, because that's not something that you would ever want to give them, there's no inflation. You can actually track it and you can see that the inflation rate changes across a thousand different. If you just started with a simple principle, inflation is a basket of products, services or assets. If you just did that, that's kind of the equivalent of saying, oh, it's possible the sun revolves around the Earth, but it's possible the earth revolves around the sun. Let's find out which. Has anybody ever asked the question whether or not the basket should include assets or products or services? No one's even questioning the most basic premise. And it goes to this the most. You know, it's pernicious rule of propaganda. And it's attributed to Joseph Goebbels in the Nazi regime. He said, and it's also attributed to Ogilvy. So maybe it's apocryphal. But he said, all of our focus groups show us and tell us. We can't tell people what to think, but we can tell them what to think about. I cannot change your mind. Once you've made it up and if you have an opinion, but I can get you to focus upon something. So if I just keep saying inflation CPI and it didn't go up and this is what it is, when's the last time 100 million people said what we really wanted to buy was early retirement? I didn't even know that was a product I could buy because I couldn't conceive of it? Well, it is a product you can buy. It's a government 30 year bond that yields 6% interest in a non inflationary environment. That's a risk free retirement. You can buy that right now. The problem is at 140 basis points that would cost you, you know, $30 million for 60 grand a year. How do I make that at 75 grand a year salary, saving 15 grand. If I'm making $500,000 a year and I save 100,000, you know, I pay 200,000 in tax, I make 300 grand, I save 100,000. If I save 100,000 for 20 years, I've got $2 million. And investing that in the government bond at 60 basis points or 100 basis points, I've got nothing. So the problem starts with the fact that inflation is misdefined. The right way to think about it is every single product, service or asset has an inflation coefficient. And the inflationary coefficient, that's the rate at which the price will change as I pump money into the money system, as I pump fiat. And so the coefficients vary and they're a function of the scarcity of the asset, the demand for the asset, the information content of the asset, the material cost or the variable cost of the asset and then the modularity of the asset. If I can stamp out the asset a million times out of a factory, it's going to be less inflationary because the fixed cost is higher and the variable cost is lower. Cell phones, mobile phones will not be inflationary because everything's in the Fab software will not be inflationary because there's no variable cost. Things, you know, streaming music on Amazon Music or Apple Music will not be inflationary because I can stream in a billion times a Picasso will be inflationary because there's only 20, 50, 105 acres of beachfront property in the middle of Miami beach will be inflationary to the extent people want. Miami Beach, 5 acres in Ohio will not be inflationary because there's a lot of land in the world. The only land people want is, is in the middle of New York, the middle of London, the Hamptons Miami beach, the middle of la, the middle of San Francisco, the middle of Tokyo. You fly across this country and look down, there's enough land to park 10 billion people on 5 acres each. If you look down, it's just got to be in demand and scarce.
- [19:05]
Unknown
May I ask you a question about this? So the coefficient itself in my mind would be a product of the scarcity of the good or service relative to the scarcity of the money is denominated in, right? Such that if the money supply is outpacing the production of the good or service, that good or service will inflate in price, right? And then so my. So to your point, it's not a single variable. It's not CPI as inflation. Everything has its own inflation rate. And then my second. Sorry, second part of that question would be what? Why is the narrative surrounding inflation so distorted? Do you think it's intentional by governments that are clearly heavily indebted? Because I don't see any equitable benefit to inflation whatsoever. It's purely a mechanism for reallocating wealth. And I don't understand why the narrative's so distorted.
- [20:00]
Michael Saylor
200 years ago, people thought they had to bleed George Washington to death to save his life. And everybody agreed on it. People, you know, people. The whole point of paradigm shifts, right? Everybody agreed that the sun revolved around the earth. Everybody agreed the world was flat. Everybody agreed that humans would never fly. I mean, everybody agrees on stuff until they realize that they're just utterly and totally and horrifically wrong. In this particular case, I blow a bunch of liquidity into the system. Let's say there's $50 trillion worth of energy. Pick a number, any number. And I blow $10 trillion worth of money in the system. And so there's still 50 trillion worth of energy, but now the money is diluted by 20%, right? So if I have a product and I can measure the pure energy content of the product, then if it's 100% pure energy, the price has got to go up by 20%. If I expand the money supply by 20%, assuming it's completely liquid and in demand, what's an example of that? Like maybe a bond, a pure financial instrument, something that is a ribeye, something that is tangible and you cannot produce it with any less energy, right? This is, you know, this is why proof of work. And Bitcoin is sort of. If it takes me a tangible amount of energy to produce that thing, then its inflation coefficient is going to be like 100%. And on the other hand, the cost to produce a streaming YouTube video, you know, is going to be the energy content is 1% of the value added or the value in use and 99% of the value in use is information, but not and non scarce information. So it's got a variable cost of 1%. An iPhone's got a variable cost of 30, 35, 40%. Everything's got a different variable cost. Gold's got a much higher variable cost. Right. Because it's holding its energy. So when you look at all these things, you'll be able to calculate different inflation coefficients and therefore different inflation rates across an array of thousands of things. It'll be different inflation rates in New York City, Manhattan versus farmland in Kansas. It'll be different. So you can't really, you can't say, oh, this asset class, there'll be different inflation rates on different stocks. Right. Because it'll be a function of the. You notice if the cash flows are likely to continue from the stock subject or less affected by inflation, then it's going to go up. So I think that the pernicious mistake everybody makes is they don't really think about energy density and information density of their products, services and assets. They're not applying conservation of energy. If the law of conservation of energy applies that when I increase the money supply by 20% and if the energy is constant, then all the numbers have to change and if they didn't change on the deflationary products, they must have changed more on something else. So you can't very well be printing 10% more money and not have the inflation. It's just we're choosing to pick just 1% of the things that are inflated, the deflationary assets, we put them in a bucket. And it's almost too easy. If I get to throw out all assets, all real estate, all stocks, all bonds, and then I get to throw out energy and then I get to throw away food. Well, what is, how could you possibly generate inflation? Because you could print 100, gazillion trillion billion dollars and the cost of free streaming Twitter and YouTube is not going up.
- [24:37]
Unknown
Right? Yeah, you're throwing out everything that changes. So it's self defeating.
- [24:43]
Michael Saylor
So bottom line is inflation is there's no such thing as a free lunch. But the inflation that's being reported is an irrelevant metric. I call it, it's a metaphysical metric that's been artificially defined in order to provide some comfort. And it's working. The great majority of people, not only do they not think there's not, they don't think there's Inflation. You literally have politicians lamenting that they can't create inflation and how important it is to create inflation, even as they're inflating every scarce asset on earth to the point where no one can afford. Look, Robert, like, I'm a rich man. Like, I'm, I'm a very wealthy man. I can't afford to buy a house in the Hamptons. Like, I'll go, you know, like I'll go look at these things. And I'm like, who's paying $47 million? Or like they're selling houses for $25 million on two acres. I'm like, are you guys out of your minds? Like, like how you know? Or like you go to New York City and someone's paying $25 million for a 5,000 square foot apartment apartment. $5,000 a square foot. I mean, at the end of the day, it's obscene. And what you can see is we're running 10 to 20% inflation for the past decade. We're just running it on all of the scarce luxury assets that have high information, that have high energy value, that. I mean, what's the definition of scarce, right? Maybe the definition of scarce is it has high energy value. Because if I could stamp out a billion trillion of them for the same unit of energy, I must be diluting the energy down, right?
- [26:42]
Unknown
The same things that are hard to produce. So gold and bitcoin, they're all inflating. And I would say that it's, it is a lie. I'm not sure necessarily about the intentionality, you could argue about that, but it's definitely a lie that CPI is inflation. And it seems like it's being used to cover up this widespread system of theft that is monetary inflation.
- [27:06]
Michael Saylor
I'm not even sure they realize that it is theft or that they're doing it. I'm half convinced that 80% of the people in government don't even realize that the inflation metric is a wrong metric and irrelevant. It's like I'm burning myself to death and I'm calculating the temperature on the counter six feet away and I'm keep turning the thermostat up. And I guess it's like they're just not feeling the pain and that, you know. And because of that, it takes us to the issue of interest, right? And if you think inflation is not coming, so you keep printing money and you keep driving the interest rate down. The problem we have is really just a war on currency, a war on time. We render the money toxic. If you hold the money once you understand that the real inflation rate is 10 to 15%, because that's how assets are clocking. Then you realize that any currency you're holding is draining energy from your life at 10% a year. It's almost like I put it in a battery that drains 2% a month or 1% a month. I can't store energy. You know, another metaphor for what happens in the human body when you can't store energy. It's like, Robert, if I took you and I dropped you in the middle of the Arctic Circle and it was 20 below, your body would start losing energy at a rapid rate. You'd freeze to death. It's literally like I come into your office and I crank the temperature down 20 degrees, and I'm freezing to death because I'm pulling the energy off your skin. And so what do you do? Insulate, cover up, right? But what if you can't? If you're a wealthy person, you put on a fur coat, right? Or maybe you're smart enough to realize, like, what do wealthy people do? You drop them in the Arctic and they get on their jet and they fly to the Caribbean where it's warm, right? Because they can't. And what do you do if you're poor? I drop in the Arctic or even worse, right? I go to your hometown and I just turn the temperature down to 20 below, and you can't leave. But. But, you know, it's like I slowly freeze you to death. I don't do it fast. It's like you don't even realize it's happening. If it happened at a gradual enough rate. It's like, I know I'm working hard. I'm just not getting ahead. I'm working. I'm not getting ahead because every time I put money in the bank, right, the cost, the price of everything keeps going up. The of a house in Miami beach, it was a million dollars on the street where I live. And then it's 2 million, and then it's 3 million. That's 4 million, then it's 5 million, then it's 8 million. That's 10 million. I'm not talking about every decade. I'm talking about every year. I'm talking about 2000 to 2010. You know, during that administration, we were printing money so fast that we had this housing boom, and everybody that owned houses were happy. They're refinancing their houses. But you look and you're like, how is it possible people bought this house in 1998 for a million dollars? And I'm Being asked to pay $10 million for the same house. If you happen to be working for cash, that's what Pop would say you can't work for. If you're working for cash and paying taxes and then you're putting cash in the bank, then you're suffering from inflation and then shadow tax, your life energy is being robbed from you. And so that takes us to this issue of real yield. Right. If the actual nominal yield is 1 1/2% on a 30 year T bill or 0% on short term money, and if the asset inflation rate blended across all stock, all liquid assets, stocks and bonds and the like, it's probably 15% right now, maybe 12, 13, 14, 15%. But let's just say it's only 10% just to be nice. Well then you're looking at a real yield of -10%. You've never seen that number printed in any kind of public media. No. I mean, no one would dare say we have a negative real yield of 10%. It would create a panic. But if you did think negative real yield of 10%, what happens next? You cycle through and you say, well, if my cash flows of the stock aren't going up by more than 10%, that's diluted. The only equity you can buy where you're going to make out on is where the company is able to grow its cash flows more than 10% a year. Right. And then you got to buy it at a decent price. So if your cash flows are growing 20 or 30% a year, maybe it's a good deal. That's why people like tech like Facebook or Google, because they did. And Amazon, they did for a while. I don't know if they will going forward. It's a lot harder to. Over the next 36 months, it seems much less likely that you'll see 20% cash flow growth. Will you see 10%? I don't. What percentage of the S&P 500 will grow cash flows more than 10% this year? Any 5%. 10%? Like probably not more than 10%. Right?
- [32:47]
Robert Breedlove
Right.
- [32:48]
Michael Saylor
We could figure it out. But if you're not doing that, then you're dilutive. Of course that means any, any fixed bonds that aren't generating 10%, they're, they're long term dilutive. So where does that leave Bitcoin, Right? Well, Bitcoin's got a positive real yield because you don't, you're not getting hit with that 10% currency debasement.
- [33:15]
Robert Breedlove
And so let me ask you, so.
- [33:18]
Unknown
This just to jump back a Little.
- [33:20]
Robert Breedlove
Bit to Bitcoin as a unit of.
- [33:22]
Unknown
Account or financial frame of reference. Do you suggest here that it is actually useful to look. And I guess you could do this with Bitcoin or gold, but to look at these historic price charts denominated in Bitcoin or gold, to strip out a lot of this central bank induced market manipulation via inflation, I think that would.
- [33:45]
Michael Saylor
Be a lot more useful in the next 10 years. With Bitcoin, the first 10 years of Bitcoin, it was so developmental. Going from zero, you have this asymptotic zero number. I think that if you look over the next 10 years, I think that'll become a valuable thing. People have done it in gold and I think that's probably it's a more stable application because gold was a bit more stable through this time period. But again, it's manipulated to a certain extent and it's got its own problem.
- [34:16]
Robert Breedlove
So we talk.
- [34:17]
Unknown
This would help eliminate some confusion. I think for people that think the S and P is just going up forever, if you actually denominate it in gold, the chart doesn't look that great. Right. It had a boom in 2001, but it's not been good ever since.
- [34:32]
Michael Saylor
If you simply divide it by the monetary supply, if the monetary supply is going up by 7% and the S&P is going up by 8%, then the overall market's flat. And that makes sense because why do people think that stocks should always go up 8%? I'm in business, Robert. It's hideously competitive. Like, do you think that we don't have a competitive market for everything in this country? It's obscenely competitive. And so what you've got, you look at the NASDAQ is you have like five companies. Apple, Amazon, Facebook, Google. Right, Microsoft. Right, those five. And aren't they responsible for like 80% of the game? Everybody else is competing and it's competitive market. And what does that mean? It means it's hard to grow 20% a year because whenever you do anything, someone else is copying you and they're pushing on you. So unless you get a dominant digital network with a near monopoly, with these massive exploding economies of scale on a zero variable cost, low variable cost, it's very, very difficult to perform. And most of the S and P isn't right to the extent that the S and P isn't. Apple, Amazon, Facebook, Google, Microsoft, they're just a bunch of companies competing with each other. So you would think that they would grow at the productivity growth rate of the overall economy. But of course, 2%, 3%. Why shouldn't it? If you had hard money. And by the way, coming back to that theory of Bitcoin network value, Bitcoin network value goes through the roof, skyrockets in the early days when there's massive adoption and massive technology explosion. But in the later stages of the S curve, when it's fully diffused and when it's mature, it just grows with the gdp. It grows with productivity of the people in the network. If they grow 2% a year, it grows 2% a year. So any mature equity market, you would expect equity indexes, equity prices to grow with the gdp. If they're growing faster, it's the monetary expansion, right? Expand the monetary supply 7%, expand the GDP, 1%, S&P should go up 8%. It's going to be disproportionate. The big tech, the leading edge, innovative tech, is going to be going double, triple, quadruple that. And then the trailing edge laggards are going to be tanking. And then everyone that's working their asses off as hard as they can is going to be barely keeping up, right? Because you have to do a hundred thousand things, right, just to stay in business. In a real Darwinian capitalist economy, it's like being flat means defeating 99% of the rest of the market being flat. To be up, you have to, you know, Amazon's up because they beat 15,000 companies. The next two are just slightly okay, and there's some that are flat. And everybody else gets destroyed, destroyed because of the natural effect there.
- [38:04]
Unknown
This reminds me of the Red Queen from, I think, Alice in Wonderland, which said, in my kingdom, everyone has to run as fast as they can just to stand still.
- [38:17]
Michael Saylor
I'll give you another example. There are 3,500 publicly traded companies, 9.99% of humanity. That makes you the number one out of 10,000 people. If you were smarter than 99.99% of humanity. There are 750,000 people on the planet smarter than you, and 99% of them want what you have. If you have a billion dollars, if you have a publicly traded company, 99% of the people that are smarter than 10,000 other people don't have what you have. And they can probably raise a billion dollars and chase you, right? They're harder, they're smarter, they're faster, they're stronger than you are. I'm sitting at a company, it's one of 3,500, and the world is full of people that are smarter than me that can raise a billion dollars that want what we have, want what I have, that star winning in competition. There's the view from one side of the table, which is, oh, yeah, well, you made it, you're successful. There's the view on the other side of the table, which is there's a guy that's going to work 80 hours a week, that's going to be surrounded with 100 other people. They're going to work 70 hours a week, they're going to raise infinite money that are going to target you and do everything they can to take your market from you. Now, that's a very humbling observation. That's why you can't rest on your laurels. There's something beautiful right in that terrifying concept. That's what drives humanity forward, keeps you honest, Right? It is the core of stoicism, and it reminds you your best chance is to focus all of your energy, all of your assets, on just this one thing that you're going to be the best in the world at, and you better stay humble. If I take my own business, I came public in 1998, there's a 99% mortality rate. 99 out of the hundred companies I competed with are gone. My peers, I'm the only person probably. I'm talking about 100 publicly traded companies. There's probably 500 CEOs that launched a company with 20, 30, 50, $100 million of capital, and they're all gone. That's what the open market, the free market will do. And it is what it is. I mean, that's why the human race is what they are. There's always someone. And when they attack, if you're distracted, if you're arrogant, if you're. If you're fat, dumb, happy, comfortable, they're going to eat you. And if you're half focused or defocused, they're going to take your arm off. And if you completely focus, you can react. If there's something they're doing that's good, you channel it, you inherit it, you evolve, you live and you grow stronger, and otherwise you shrink, and they squeeze you out of the entire market. There's something I observe, and again, it's very stoic. Everybody thinks when you're young, you want to acquire as much as you can acquire. So young men are acquisitive, young business people are acquisitive. Can you acquire the thing? That's generally the easiest hurdle to jump. The next question is, can you maintain the thing? Can you stay competitive? That's 10 times harder. And then the biggest Hurdle is, are you going to be able to commercialize the thing or profit from it? Can you buy something or build something and continuously improve it forever so that you're competitive, and then do it in a manner that is cheaper, such that you can charge more for it than it costs you to do that thing? That's obscenely hard. So typically, everybody thinks that they can acquire something. Then when they realize the maintenance requirements, you know, they fail. And then very few people ever get to the point where they can commercialize something. You can apply to a boat. Everybody wants to buy a boat. And then they're like, oh, my God, this is really expensive to maintain a boat. And they're like, I can't afford to maintain the boat. But if they buy the boat, they got to spend 10% a year to maintain it. And then at some point, the question is, can you enjoy the boat? They're like, oh, I'm spending all this money on the boat, but I never have time to go out and use the boat. This is just crazy. This is way around my neck. I got to rid this. It's an example of being too ambitious in your effort, in your inquisitiveness. And it illustrates the. The law of decimation. And the law of decimation is, in the ancient Roman Republic, if the Legion screwed up, they killed one out of every 10, 10 men in the Legion. Actually, they made the nine kill the 10th in order to remind them that.
- [44:08]
Unknown
They should stay disciplined at random, right?
- [44:12]
Michael Saylor
Yeah, random. Randomly. Randomly killed. They didn't kill them all because there'd be no legion left. So. But 1 out of 10 is going to die if you break ranks and retreat. So is there a way? Is there ultimate punishment? Law of decimation. But you can apply to everything in life, Robert. But it goes like this. The universe tends toward entropy and disorder. If something will go wrong, it does go wrong. That's Murphy's Law. The law of decimation is 1/10 of all the moving parts in anything will break in any given year. If you have 10 employees, one will quit or become unhappy. If you have 10 moving parts, one will break. If you have 10 plans, one will blow up in your face. If you have 10 features, one of them will stop working. If you have 100, 10 of them will stop working. If YOU spend $100 million on something, you have spent $10 million to maintain it, you're going to have to divert 10% of the cost of anything to maintain something. I talked about steel will last forever, quote, if you maintain it. Most People don't maintain costs a lot of money to paint a steel ship. Most people, they budget for the acquisition. They underestimate the maintenance because they don't have the humility or the life experience. This is, by the way, the problem with building Rube Goldberg devices into crypto networks. That's the problem with all the complexity with Ethereum and all the complexity with some of these things. It sounds good on paper, but when you put 187 moving parts into something and when one of them breaks and the entire thing crashes and burns and you die, it wasn't worth it. When you're young, you overestimate the value of functionality and acquisition and you underestimate how expensive it's going to be. Maintain things, and then you really underestimate. This last issue. Can you enjoy it? This is a basic rule of life. Can I buy the thing? Can I maintain the thing? Can I enjoy the thing? Right this. Men are always reaching beyond their fingertips. Sometimes women do like they want too much. They're empire builders. This is why Napoleon should not have gone to Moscow. This is why Hitler should not have gone to Moscow. This is why you don't fight a war on two fronts. This is, and this is the essence of stoicism. But stoicism is really a philosophy that is very consistent with thermodynamics and entropy and complexity theory. And if you've ever run anything complicated or built anything complicated or been responsible for anything complicated, you know, stuff breaks.
- [47:20]
Robert Breedlove
Is this.
- [47:21]
Unknown
Do you think this, we'll call it a law of nature that 10% of the components in a complex system break down and require maintenance yearly, annually. Is this connected to the religious tithing, you think, where you're actually supposed to feed the flame, right, with 10% of your profit to maintain the institution?
- [47:43]
Michael Saylor
I think, I think it's interesting the extent to which you see the 10% number pop up on an annual basis. 10% is the maintenance obligation on a boat. 10% is the tithing obligation for thousands of years. 10% is a reasonable estimate for a house with 187 light bulbs. 18 of them will burn out, right? It just pops up over and over again. And my only real explanation is just friction, randomness, chaos, life, corrosion, weather, right? Termites, bugs, bacteria. The same would be true with your body, right? If you're talking about maintaining yourself, you got to actually allocate time and energy to maintain yourself. And a lot of times people under invest in their own health. And then when they. And when they under invest in those things, they blame it on genetics or they blame it on some unfortunate occurrence. We don't know why this happened. It's very unfortunate. These things just happen sometimes. I'll end with one thought on Stoicism, and Nicholas Taleb would appreciate this one too. It's like the words don't matter, the action matters. Okay? Words are just words. And that applies to Stoics, you and me, Marcus Aurelius. I think one of the great paradoxes of history is Marcus Aurelius was the last emperor in the line of the Antonines during the golden age of Rome. And there's Trajan and there's Hadrian, there's Marcus Antoninus, etc. And for about a hundred years that was the Pax Romana. And each of those emperors was elected based on virtue as an adult. And he adopted his heir. And they typically adopted a 40 year old emperor who had had a career in the military of virtue. And he was tough and responsible and grounded in reality. And you know, if you're a general in the army, campaigning and you get drunk and screw around, right, your soldiers put a knife in you, you're not gonna make it. In order to keep the respect and stay alive in wartime around a bunch of guys with weapons, you better be a good leader and they better respect you because you're leading them to their death if they don't respect you. So if you actually rose through that meritocracy, you know, maybe you had a. So Marcus Aurelius writes the Meditations and it's that it's the quintessential text on Stoicism. And he says, you know, just because you can't do a thing doesn't mean you should do a thing. He said, soon you will have forgotten all and all will have forgotten you, and you should know your place in the universe and you should submit yourself and do the right thing for everyone else. And that's all good. But at the end of the day, the single most important decision Marcus Aurelius made in his entire career and his life was the decision on an heir. And when it came time to make that decision, he failed miserably and he appointed his son Commodus to be the emperor. And Commodus was a minor and of weak moral and intellectual constitution and in no way, shape or form qualified to be emperor of all the known world. And by so doing that, Marcus Aurelius plunged the Roman Empire into chaos and turmoil for hundreds of years, resulting in the deaths of millions, if not tens or hundreds of millions of people. Awful. Awful. And there's Your philosopher king, he's remembered today as having written a good book and been a great. But if you look at his actions, the actual action he took was the least stoic, most foolish, most painful action of any of his forebears. And it just makes the blood curdle.
- [52:22]
Unknown
That's. I've been anxiously waiting to talk about this, actually, because I'm a huge fan of Marcus Aurelius. That particular episode is documented somewhat well in the movie Gladiator for people who want to go out and watch it. But he is also known to have been one of the greatest emperors of all time, right up until that point where he made that fateful decision.
- [52:46]
Michael Saylor
He was great until the succession. He had all of the power of the Western world in his hands. He had keys, the crypto keys to all the wealth and power in the Roman Empire. In the Gladiator, they imply he was murdered by his son. But in the history books, they're pretty handed those keys to Commodus. And Commodus was a disaster.
- [53:13]
Unknown
And he was that Platonic ideal of the philosopher king, right? One of the few, maybe, possibly, arguably the only successful philosopher king throughout history. And I think one of his other quotes that I really liked is that no man can lose any other life than he now lives, nor can he live any other life than he now loses. And Stoicism has been big in my life personally, and I think it's necessary for everything we've talked about today for this eternal contention we have with reality. If you don't adopt a Stoic philosophy, how do you keep yourself together? Right?
- [53:52]
Michael Saylor
It's just I think Stoicism is critical, and I think he was a good writer, and I would even probably admit he was a good emperor until that final decision, which I just lay out as a paradox. And maybe it's. Maybe it's a warning. And the warning is you could live a great life and you could be a great writer and you could be a great thinker, but at any given point, it's always that last decision. It's that you still have time to snatch defeat from the jaws of victory.
- [54:27]
Robert Breedlove
Right?
- [54:28]
Unknown
Did he choose love over his principles? Is that what it was? Love for his son over the principles of succession?
- [54:36]
Michael Saylor
Presumably you can read up on it and come to your own conclusion. It's short chapter. I think I end with the last, our last point, just on vitality. Antifragility could be a synonym for antifragility, could be genetic vitality, right? Darwinian vitality. If I'm evolving in response to threats As a life force, then I'm antifragile.
- [55:11]
Unknown
And this is Darwin's famous quote. It's not the strongest, fastest or smartest species that survives, but the one that's most adaptive to change, which makes it.
- [55:21]
Michael Saylor
Anti fragile, which makes it over time the strongest, just not in the near term. Yeah, there's a certain terrifying beauty in nature. There are no ugly animals. You look at a bird that it's beautiful. You look at a lion in the wild, it's beautiful. No one's got a mangy coat. There's no unhealthy anything. And most people, and that's our ideal of beauty, right? We think nature is beautiful. All the trees are beautiful, the plants are beautiful, the birds are beautiful. They chirp, they're beautiful sounds, the flowers are beautiful. What they don't really think about is what's going on behind the scenes because they got this simple zoo, backyard view of nature. I mean, the truth is everything's at its finest when tomorrow is uncertain. When the, when, when the life of the creature is uncertain. I've actually got these beautiful banyan vine trees in my back of my house in Florida. One day on a beautiful sunny day, I walked by and I, and I stood and stared at the tree and I saw a bunch of ants running up and down. And when I traced the ants, I saw there were thousands of ants. And I saw there was a centipede, some kind of millipede about a hundred times bigger than a normal ant. And those ants had decided they were going to eat that. They were actually going to haul that millipede back to their queen as dinner. And they attacked it relentlessly, relentlessly. And I watch hundreds and hundreds and then thousands and thousands of ants going, it's this one, one Melvin. And it's fighting for its life. And I swear I watched it for 45 minutes like a war, nonstop on a beautiful sunny day. If you looked around, you would have saw grass and blue sky and pretty water and birds chirping. But there was a knockdown, drag out war to devour this millipede. And it's fighting for its life. And I watched it call up the tree and the ants dragged it down. It did everything it could and they kept coming. And you just had this horrific, terrifying, you know, sad conclusion. It's going to die. Unless, unless a massive rainstorm spins up to blow water down and create some disruption. There's no, it's got no chance it's going to get eaten alive. And it's horrific and it's terrifying. That's life. That's nature. And then you start to realize on all those pretty National Geographic TV shows, you see the lions attack the antelope or the gazelle, and they try and they miss, like, well, no dinner for you tonight. And all the antelope trot off happy with their babies, and the lions trot off happy with a little smirk. And everybody's like, that's about as much nature as they want. Nobody wants them more nature. When you think about it a bit more, you realize, well, they're gonna miss three, four days. They're gonna hit one of those a week, and 99% of them are gonna live, but one of them is gonna die. And over three years, they're all gonna die. And over three years, they'RE all gonna be eaten by the lions. And that's nature. Everyone. That's. And by the way, every week that goes by, it's like they're clicking on a carousel. And the oldest one is getting slower and a little bit tired and a little bit less flexible. And if they don't get the old one, they're gonna get the unlucky one. And that's why every one of them is beautiful, because they're all in the prime of their life. And the same is true with all the predators. They're all in the prime of their life. When they get a little bit old, a little bit hurt, they get driven out of the tribe or out of the pride, and then that's end of it. So in nature, the life expectancy of those wolves or predators or lions is five years. And in the zoo, it's 15 years. And if you want to see a fat, mangy, lame one, you'll find one in the zoo. You won't find one in wild. And the same is true with the rest. And when those two herds, when they go at each other like that, viciously, they're both strengthening. You take away the wolves from the deer. The deer overpopulate. They eat all of the trees. The trees all die. The trees die. They destabilize the bankman of the river. The river erodes everything. You know, the river bank gets screwed up. All the greenery dies. All the deer are gone. All the wolves are gone. You want to fix the river? You put the wolf back in. The wolf scares away the deer. The trees grow, the roots stabilize the bank. The river flows. All the wildlife returns. This beautiful thing we call nature is in continual, dynamic equilibrium. And everything about it is getting stronger and harder and faster and getting cold all the time, you know, And That Mother Nature is supreme and men with delusions that they will defeat her, right, are gonna be disappointed. The great, I guess the great challenge, right, is this paradox. And the paradox is the paradox of the engineer versus the zookeeper. We see nature, we want to engineer a better world for ourselves and it can be done. But we can always. We can also reach too far and try too hard and try to make water flow uphill and try to make time flow backwards. We can try to shake our fist at Mother Nature. We can defeat all of those natural forces. And if we try to do that, the energy consumption goes up exponentially and eventually it goes up to such a level that we deplete ourselves of energy and we end up like those natives on Easter island where you chop down every tree to build your monuments to your gods and put soon there's no canoes and pretty soon there's no fish and pretty soon there's no food and pretty soon there's no you. All you've got is your monuments to your God and you're all dead because you depleted the energy in the ecosystem in pursuit of over engineering your reality.
- [62:10]
Unknown
Let me ask you about that point which I think is fantastic. It seems to me like the free market is, is the economic expression of that Darwinian equilibrium. And that possibly was the implementation actually of central banking, which is a, it's antithetical to a free market institution. It's a monopoly. It has, I guess, in our attempt to over engineer the economy, we have disturbed that Darwinian equilibrium, the economy. And that's why we're having all these haywire consequences like inflation and negative rates.
- [62:50]
Robert Breedlove
So on and so forth.
- [62:51]
Michael Saylor
Yeah, we've stopped it. Right. We've attempted to stop time and interfere with nature. We're trying to freeze that dynamic equilibrium that's being continually, continually calculated all the time, trying to turn, we're trying to turn nature into a zoo.
- [63:37]
Robert Breedlove
Okay, so that was episode nine with Sailor here in the Sailor series. And wow, what an episode. You know, we started off this series actually with a discussion of Stone Age technologies which Michael laid out his thesis of how mankind is the dominant animal in the world because we channel energy across time and space more intelligently than any other animal. And he really built the foundation by drilling into our use of fire as one of the primordial energy networks, our use of water as a hydraulic energy network for overcoming gravity, and our use of missiles for actually competing at a distance. And in that lens, if we consider that that is the, the overarching goal of humanity is to More intelligently or more precisely, channel energy across time and space. Bitcoin is an elemental innovation. It's the only system we've ever had throughout history that allows us to channel energy effectively at the speed of light and store it in a way that is totally or virtually totally loss minimized. Right. There's no unexpected inflation, for instance, and there's very minimal transaction fees, just enough to sustain the network. And you could contrast this with something like gold, which we touched on earlier, that just depreciate to 2% a year at least, or something like fiat currency, which tends to depreciate much faster. So it takes a lot maybe to get to here. It's a whole reframing of your worldview. But I think Saylor just did an excellent job of that. And I love the example he gave where describing immunology actually is another one of these elemental innovations where we figured out antiseptics, we figured out how to use clean medical instruments and disinfectants and whatnot, and the discovery of penicillin, for instance, all of these things that helped us insulate ourselves from the entropy of microbes to be to conduct medical and biological experiments and operations with less exposure to the entropy of nature just catapulted our life expectancy. We almost overnight went from say, 50 year average life expectancy to 70 years. So I wonder, and I love this, the way he describes it is doing business, right? We're conducting economics thus far in history with dirty money, with contaminated money. And you could analogize this to doing surgery with contaminated medical instruments, right? If you don't decontaminate your medical instruments and you try to perform surgery on someone, you're going to cause an infection and you're going to cause death. And this was actually a major cause of death throughout most of history. So through a similar lens, if we're trying to build socioeconomic systems using a money that's contaminated with the uncertainty of inflation or confiscation or deauthorization, it tends to make me believe that the system we would build would be more vulnerable to death as well. And I think that a quick study of history will show you that typically the debasement of money tends to presage the collapse of the civilization. So when the money becomes extra contaminated, this tends to be a specter or a harbinger of its ultimate demise. So I, I love this analogy. And it really gets into the entropy aspect. Again, if we just consider that entropy is uncertainty. We want medical instruments that are free from the uncertainty of microbial infection. We Want economic instruments that are free from the uncertainty of inflation, deauthorization and confiscation. It just makes sense. The more certainty we can add to our tool set, whether in the medical or the economic domain, the more longevity we can give the organism or the organization. It just makes sense. So. And you know, as Saylor said earlier, monetary energy being the highest form of energy that humans can channel, and channeling energy across space and time being the highest aim of man, that effectively monetary energy is life energy.
- [68:17]
Unknown
Right.
- [68:18]
Robert Breedlove
It gives us a claim on all of the forms of energy. So we can think of encryption. Actually, I think Saylor tweeted this at one point that encryption was the destiny of all money. The destiny of money is to be encrypted. We can think of encryption itself as a sterilization function or process for money. We've actually disinfected the money by encrypting its rules and its supply. And this, you know, that kind of harkens back to something we talked about in earlier episodes as well, where consumer packaged goods, when we were able to vacuum seal foods and store food energy in a stable fashion at room temperature, that was a game changer. All of a sudden we had this abundance of economic surplus and food energy that we could distribute around the world, and this led to a surge population growth. So all these analogies pointing back to this breakthrough that is Bitcoin that again, we've been building on in early episodes I just found to be super exciting. And then in that lens, Saylor also talked about the story of his mother actually being diabetic. And this was the connection I made there was she was essentially following a governmental food advisory, just eating the typical, typical food pyramid that governments, at least the US Government used to advise, which had carbs as kind of the staple big thing at the bottom, bread, pasta, et cetera, and then worked its way up. Whereas, in fact, anyone that studied ketogenics and paleo diets and whatnot, it tends to actually be the opposite. You want low carb, high fat or high protein diets, and it's not the same, it's not one size fits all. But a lot of the diseases we suffer from today, like diabetes, is from excessive carb consumption. So the connection I made there was that this government food pyramid scheme, or mistake, whatever you want to call it, whether the intention was good or bad, it's actually rooted in the government fiat currency pyramid scheme, where we have contaminated the money, so we've contaminated even the ideologies we put out in terms of nutrition and it just has these cascading effects. And I just thought it was really interesting how again, inflation is not just contaminating our economic efforts, but it actually bleeds over into the biological domain. So as Saylor said, fiat currency is toxic money. Right. It's just, it's not sound, it is not entropy free, it's infected with entropy. And this has all these second order effects to everything that it touches. And the main problem is this misunderstanding about inflation. We have have this whole economic sphere today focused on CPI as inflation, but it doesn't make any sense at all. There's deeper reasons why if you read a book like Human Action by Mises that you can never have an index for inflation because sort of like value itself or beauty, it's subjective. Right. It's based on the things you individually desire, based on the course of your own goal directed action. So there's not a universal index that can fit everyone. Your own inflation number is a basket of these goods that you're seeking. And they, you know, the government metric is just taking what they assume to be things that are desirable but exclude assets. So it's like they're excluding the fact that anyone wants to get wealthy, which is absurd, are also excluding food and energy and other volatile assets. Volatile meaning they changed in price. We're talking about a metric that is intended to reflect price changes, excluding things that changed in price. It is a non starter. It's absolutely crazy. And this is still the benchmark number that so many people are focused on. And, and it's just amazing to me that this still goes on. So I think, and I love the discussion flowed into understanding inflation, which for me I think this makes more sense is if you think about it in rate of change terms, as in how many dollars are being produced, the growth in dollar production relative to the growth in good or service production. Right. If the pace of fiat currency production is outpaced the productivity gains or the output on a particular good or service, it's going to inflate in price because you're going to have more dollars chasing the same or only slightly growing goods or services. So another way to say that is how energy intensive is the good. Right. And the example that I like to think about is rib eye steak. We're not going to invent a technological breakthrough that makes cows grow faster, really.
- [73:28]
Unknown
Right.
- [73:28]
Robert Breedlove
It still requires kind of the same amount of sunlight and energy and time and processing to deliver ribeye steak. So. And turns out historically that actually the purchasing power of gold maps pretty nicely to ribeye steak or cows more generally. And so in that way, inflation is not a single universal phenomenon that we can peg to one index number. It's occurring differently for every asset and every person in every place at every time. It's just, it's this undulating sphere of changing economic values. You can't possibly just put a number to and say that is inflation. Another way to say that is it's just uneven across space and time. So you're dumping new money supply into the system. That money itself is distributed unevenly and then the aims of economic actors are shifting unevenly as well. Supply and demand. So it's just hubris to think that we could peg it all to one index number. And then to that point, Saylor makes a more sound argument, that more appropriate measure of inflation, knowing that we can't peg it to a number. But what we can do is say, well, what do things? What are things that people generally desire and how much are their prices changing year over year. He gave the example of early retirement, premier real estate. You know, things like this, things that people actually want in life. You don't go to work to think, I just want to put food on the table for the rest of my life. Like at some point you'd like to work towards an aim or a goal, whether that's a nice home, living in a nice neighborhood, possibly. You know, I love the example of early retirement where you could just buy a government bond that pays you a, you know, quote unquote risk free rate for the next 30 years. And looking at the price of government bonds and how much that's jumped based on, based on monetary policy. So I thought that was just a great example. And it's interesting because I think when you really get to first principles on it, inflation as we define it, fiat currency inflation, which is just an arbitrary increase in the money supply that adds no economic value to an economy whatsoever. This is very important to understand that printing money, quote unquote, you're not infusing an economy with any new factors of production. Whether this is human time ingenuity, tools, equipment, factories, like there's nothing being added to the economy. You've just reshuffled the paper claims on those productive factors. So you've taken away from those relying on fiat currency or the dollars of store value, and you've reallocated those claims to whoever can get their hands on the newly printed money first and spend it first. So it is a mechanism for theft. I don't know what else to call it, frankly. It only has one purpose. You can Argue about the intentionality, whatever. I'm not here to debate that. I can just tell you that the tool, fiat currency, the inflation of fiat currency has only one purpose and that is to reallocate wealth from some and allocate it to others against their will, by the way. So I don't know what else you could call that really, besides theft. And it seems to me like this Keynesian ideology feels like a cover up. I mean, I don't know if they just believe what they're saying about inflation. You know, Saylor, he was arguing that they bled George Washington to death and they thought that was the best course of action. Maybe that is the case. Maybe Keynesian economists are so deeply steeped in this ideology that they just can't see their own hand in front of their face, so to speak. Or perhaps it's something more nefarious, more of a propagandistic thing. But regardless, I love the point that he tied this into an old. I think it was a German propaganda machine. Says their studies show them that they can't tell people what to think, but they can tell people what to think about. And it is amazing to me how many sophisticated investors I've talked to about Bitcoin and macroeconomics over the years and people are just anchored to CPI as inflation. It's as if this wool has just been pulled over their eyes. They are satisfied with the answer presented to them versus thinking more deeply about it. I can't help think it's related to this. It's pushed as the representation of inflation and people just accept it at face value, which is just a really bad deal all the way around. So we got into a bit of discussion about interest rates and his analogy of actually suppressing interest rates is freezing out market participants or sucking the air out of the room. Right. We're actually. If you consider that the interest rate is the price of money, money is this tool for trading time and energy. We could consider that the interest rate is the price of time or energy effectively. And when you try and suppress it, you're fighting against the natural flow of time, if you will, or something to that effect. And it's this misguided attempt to try and mute entropy that causes what Taleb would call this is an iatrogenic effect. So it's harm caused by the healer when someone over medicates. You know, again, back to George Washington. They thought they were helping George Washington by bleeding him, but they were actually hurting him. Right? They actually killed him by doing that. There's, you know, many doctors Today will prescribe you a pill for your cholesterol or your, your anxiety or whatever it may be. Whereas in fact, the right treatment of the core problem, not just a drug to cover up the symptoms, could be something more like removal, elimination of certain foods from your diet or fasting or whatever it may be. And this, to me, it points towards what central banks, I mean, ostensibly at least, have been trying to do, is that they're trying, their explicit aim is price stability and low unemployment. So price stability, you're saying that you want supply and demand worldwide to be consistently close enough to keep prices stable. It just doesn't make any sense. It's. You're arguing against the entropy of nature again. And when you try and artificially inflate the money supply to create this veneer of stability, you're actually just delaying. First of all, you're manipulating market prices. So supply and demand, buyers and sellers are having trouble getting matched up correctly, which is what the market does because of this, this distortion in the marketplace. But you're also delaying and exacerbating the ultimate correction because you can't fool economic reality. And in that way I see, the vision I have in mind is central banking is kind of like an air conditioner. So it's trying to pump, you know, an air conditioner is a heat pump. So it's pulling entropy out of the room. So I'm actually putting cold air into the room, is pulling hot air out of the room or heat energy out of the room. And if you ever stood behind an air conditioner, you'll feel it, you'll feel the heat coming off of it, that it's pumping out of that room, that it's air conditioning. And it seems like central bank is trying to accomplish that in a way. It's trying to paper over the entropy, the natural entropy of price instability and unemployment. But in doing so, it's pumping out, you know, it's creating certainty for its shareholders, let's say. So it's decreasing the entropy for its shareholders, but it's pumping out entropy onto broader society in the form of price distortions, an exacerbated boom and bust business cycle, and you can even throw warfare in there, right? Central banks were originally set up to fund warfare, to give governments a virtual limitless mechanism for funding the war, where instead of just needing to rely on their own savings, they could just print money and siphon savings off the entire productive economy. So that's my central bank air conditioning analogy, that it's trying to cool the room for its shareholders with Pumping heat onto broader society and it's just disastrous. So then we got into the relationship between interest rates and the risk free rate, I'm sorry, inflation rates and the risk free rate. So the risk free rate would be the yield on government bonds. So in finance we say that, and this is a quote unquote risk free rate, that the US Government, for instance, cannot default on its debt because it can always just print more money to pay its principal. What that actually means is that it can never default on its debt because it can externalize the cost of that debt onto society via inflation. So that's your risk free rate, whatever the US 10 or 30 year treasury is yielding. And then there's the inflation rate, which is how quickly? Again, not cpi, but we could say our proxy is how quickly is the US M2 increasing on a percentage basis. And the delta between these two is a negative real yield.
- [83:45]
Michael Saylor
Right.
- [83:45]
Robert Breedlove
If I can only get 2% on US Treasuries, which is lower than that today, but USM2 is growing at 15% year over year and it's expected to do that for the next few years, then I've got a negative real yield of 13%. So unless I'm growing my business or my own personal cash flows by more than 13% year over year, then I'm being diluted, I'm losing money. And this is. So it's the hurdle rate, basically, to use another investment term, you need to at least exceed the delta between inflation and the risk free rate to even be accretive to your business or your household, whatever it may be. So the only way to do this is you need to buy an equity. Right? And a lot of people are doing this, are buying equities as a store value that is expected to appreciate faster than that negative real yield. A lot of this is in tech, because tech has just a ton of productivity gains associated with it and they've had a great decade. So there start to be market accurate expectations built into that price. Where if you look at the PE ratio of something like Zoom or even Tesla or Facebook, they're just, they're astronomically high relative to historic averages. So another way to think about that is there's nowhere to store your value that's safe except these equities that are expected to grow and outpace the hurdle rate and remain relatively scarce. So that leaves you these bonds that are, you know, they're yielding less than the inflation rate, they're long term dilutive, and then those negative real yields, that's driving and incentivizing people to buy scarce assets. So again, equities, real estate, gold. And then, you know, this is also the bucket you put bitcoin's value prop in is that it's the same scarcest liquid asset in human history. So of course it's going to benefit from this centrally planned market manipulation in both the bond and fiat currency markets. We talked a bit about this. Just the one way to strip out central bank market manipulation and get an honest assessment of what's going on is to just price the index in gold or bitcoin. Again, Bitcoin's a bit more noisy because it's emergent. Gold has a much longer history. Or to Saylor's point, you could also price it in the change in money supply and this will strip out a lot of the manipulation. So if you look at the past decade in the S and P, it's just been one long bull market. You price that same chart in gold. It's flat, it hasn't done a lot. So that's I think, really important. Sort of changing your economic frame of reference, which is what's so tricky about talking about these things about like what is money, because it's an a priori perception and a priori means no priors. So it's kind of like you're looking at what is looking, so to speak, and people just the a priori economically language today is dollars. For most people, this is what they think in, it's what they trade in and negotiate in. But you have to look at the dilution occurring in that frame of reference, which is the dollar. So it's a bit of a meta thinking, but it's really important for coming to sound economic conclusions and calculations. And then we got into which I thought was really interesting, the competition and the law of decimation. Say, let me the point that even if you're smarter than 99, I've never thought about this. Say you are one of the top 0.1% most intelligent people in the world. You were smarter than 99.99% of humanity. There are still on this planet 750,000 people smarter than you. That's just crazy to me to think of it that way. And in the digital age, I think what we're entering is this age of Excellency almost where because, you know, the bounds of location have been lifted through digital tools and technologies. It's no longer good enough to just be the best local guy at whatever it is. Singing, for instance, maybe you're a Billy Joel impression impersonator or something. It's no longer a good career strategy to just be the best Billy Joel impersonator in your neighborhood, because people have YouTube now. They can go and look at the best Billy Joel impersonator of all time, or maybe even Billy Joel himself, and that they can seek their entertainment there. So you start competing for audience with the best of the best in any domain that can be considered inductive remotely, which increasingly is every domain. So this means that Excellency is going to have more of a tendency to rise to the surface and that markets more typically are going to converge on winner take all dynamics. So it changes things a lot. This non locality or not being bound by geography really changes the game a lot in a lot of ways. So Saylor's point was you've got to focus your energies to compete well on your specialty, whatever that is, whatever skill set or unique ability you have, whatever gift you might have, and you got to stay humble and you just really have to focus on that and developing it to the best of your ability, but also maintain the humility I think necessary to succeed and learn and grow. And you know, anytime, as he was describing his experience at Microstrategy, it's just, it's ferociously competitive. Anytime you become arrogant or comfortable or resting on your laurels, One of those 750,000 people are just going to eat you up, right? They can go out, raise a bunch of money. They want what you have by definition, if you're successful. So if anything, digital tech has made the world more fiercely competitive, which I thought was really interesting. And as far as the law of decimation, you know, we brought up the point that in ancient Rome there was the law. The law of decimation was anytime the soldiers broke ranks or retreated, that 10% of them would randomly be put to death and they would make the other nine put the 10th to death. And what this was was a massive disincentive to malperformance. So no one wanted, everyone had a big incentive to hold the line, so to speak, and to act in a concerted effort. Because if they didn't, if they got fearful or started kind of operating their own individual best interest in a battle where you need the collective effort of the battalion to win, then they're engaging in this loss where either they're going to be put to death or, you know, at least one in ten of their friends is going to be put to death. So I thought that was really interesting, really good system for inducing skin in the game. And it turns out that this is again Kind of getting back into natural law. It's sort of a reflection of what we observe in nature. And that 1 in 10 of any. Anything, any system with 10 moving parts, one is going to break down per year roughly. So a 10% breakdown in parts or features per year. And thought that was interesting. I observed that as just being. Again, we're creating these systems that are intended to confront the entropy of nature and deal with it in certain ways. Well, that has a cost, right? And every year, by some universal magic, that number tends to be about 10%, which I thought was interesting. And this pointed back to steel. Saylor referred to, like steel will last forever if you maintain it. So you need to expend the 10% whatever per year to maintain it. In terms of painting it, maybe this is also related to the religious tithing, which we see is like a 10% contribution annually to the institution.
- [92:16]
Unknown
And that's.
- [92:16]
Robert Breedlove
That's across a number of religions. And I think this too points to a strength of Bitcoin, is that it actually has minimized moving parts. So. And it's. It's open source. So anything that does break down is there's as many eyes on it as possible to quickly repair it. But. But it minimizes its saying in comparison to something like Ethereum that just has countless moving parts, it's gonna. It's gonna suffer more from this law of decimation over time than something like bitcoin will, which is more optimized for survivability. And then finally got into the philosophy of Stoicism. And this is a philosophy which ties back in everything we've been talking about. It's consistent with thermodynamics. So again, if we're just saying it in a purely physics sense, we would say truth is an accurate portrayal of reality. We know that everything in the universe is energy. So therefore conservation of energy, which is the first law of thermodynamics, that is truthfulness. So the systems, the strategies, the techniques, the businesses, the individuals that optimize for energy conservation, this doesn't just mean defending all the energy you have. You can actually increase energy efficiency through innovation. Right. So being exploratory, figuring out a new way of doing things, can actually add to your energy efficiency as well. So there's this ratcheting effect between defending what you've gained and gaining new innovation. So this stoicism is this thermodynamic philosophy, if you will, which I think is so cool that it's a way many of the ancients accorded their behavior. And it directly maps on to innovation and general biological success. So the Stoic, again, when we have this law of decimation, so we have these systems encountering the chaos of nature, there's a little bit of breakdown over time. The Stoic embraces that. The Stoic knows and willingly embraces what, your death, right? The potential death of your child, the potential loss of your business or your fortune. There are all these practices when you get into Stoicism, like negative visualization, where you may imagine, for instance, the next time you hug your mother, you just imagine that that may be the last time you ever hug her. And through that mental practice, you're actually training yourself to be more grateful for something in the moment, and you're preparing yourself for the inevitable loss that will come. Your mother will be gone one day. And Stoicism is a deep rabbit hole in and unto itself. I'll just leave it at one example, but I thought that was really cool that Stoics embrace entropy and choose to accept it and strive on valiantly nonetheless. And I think that's the only proper approach to life if you're going to be successful. And then say they went into the paradox of Marcus Aurelius, which I'd never heard before. I'm a big fan of Marcus. You know, Marcus, great philosopher king, great writer, but in the end, sort of blew it on one decision. And Saylor's point here, we said that words don't matter, actions do, ultimately. And even one action can undo a lifetime of good action. This reminded me of Taleb's don't tell me what you think, just show me what's in your portfolio. It's more about the actions you take with skin in the game versus your cognitive beliefs. And for me, personally, I think I tie this back to religion, actually, is that people always want to argue, do you believe in God? Do you not believe in God? I love Jordan Peterson's answer to this. I act as if God exists. God doesn't care about my cognitive beliefs. It's more about my embodied action and my moral behavior that really matters in the world. So it's a bit of an Occam's Razor thing there. Anyways, the story of Marcus is, you know, he was. He had the keys to the kingdom, right? He's one of the most successful emperors of all time. He was the Platonic ideal, the philosopher king. And he, on his final decision, essentially, and as Imperial of Rome, decided to break duty, break with tradition, break with the Stoic protocol, if you will, of appointing the most competent man for the Job for succession and instead appointed Commodus, which was his son. And there's something really deep here. There's this age old struggle between, I guess you would say duty and love. And I don't know, this one left me thinking, so I'd be excited to hear some of your guys feedback on this. But it's really fascinating to me that we had this guy held in such high regard. And then at the last yard line, so to speak, he just fumbled the ball. But you know, I don't know if it was, I don't know if it was based on love for his son or something else, but it'd be really interesting, right, if you made this decision out of love, so to speak. Yet it still proved to be the wrong decision for civilization. Just a mind bending thing, but that was super interesting. And the warning there is, you know, you can live a good life, you can be a good leader, good writer, whatever, but there's all you have to always remain humble and never become arrogant, no matter how much success you've had. Because there's always that opportunity to snatch defeat from the draws of victory, as Sailor put it, which I thought was brilliant. And then finally we completed the episode with a discussion about anaphragility and vitality. And I loved this point that animals in the wild are all beautiful because they're constantly being conditioned against the chaos of nature. Once they've went past the tipping point of misfitness, they're no longer serving their highest and best function in the world. Something else eats them, they're gone. It's nature rolling forward and becoming better through this process. This dynamic equilibrium between predator and prey. And it's this natural, you know, Darwinian natural selection that's constantly promulgating excellence and beauty in the world. And it's just, it's a, it's great to behold. You know, if you've ever watched a nature documentary, it's one of the most awe inspiring things I think we can watch. So another way to think about this is just nature constantly sharpening her own strategies against herself. So the strategies of animals, the survival strategies, are constantly being tested against the environment. And those that succeed roll forward and those that do not are weeded out. And so you're left with kind of just by definition, the most fit creature for its entire environment. And when we try and disturb that dynamic equilibrium, we're just exacerbating that correction. So instead of having these little corrections along the way, we're giving time for the strategy and the environment to diverge significantly to where an ultimate cataclysmic return is necessary. And that's what nature does. It always selects and it always restores balance. So all of that tying back into again what I think central banking is just a failure of an institution because it's tried to over engineer this dynamic equilibrium of nature. We have price instability and unemployment as a natural product of the business cycle. It's trying to paper over that. It's trying to pretend, or even not even pretend. It's trying to eliminate this dynamic equilibrium and create something that's predictable. It's trying to subdue the entropy of nature, if you will, which could be a good intention, but clearly has a poor result which leads to suppression interest rates, which is like trying to reverse the flow of time. So it's all of this effort going countervailing to nature that always fails. That's the core point here. And you know, it turns nature into a zoo, right? We said every animal is beautiful, but if you really want to see some not beautiful animals, you can actually go to a zoo. They're sad, they're in a cave, they're not fulfilling the function for which they were evolved. And I think central banking sort of turns society into a zoo. It softens us in this process of trying to protect us, quote unquote from price instability and unemployment. It's actually reducing our skin in the game, softening us externalizing entropy onto society. So, yeah, you know, it's another awesome episode. Hope you guys enjoyed this. Saylor and I are going to do at least one more episode, so maybe more after that. We're going to see how it goes. But I hope you enjoyed this one as much as I did and I'll see you again here soon.
- [102:26]
Unknown
Thanks.