← Tom Bilyeu's Impact Theory
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- [00:00]
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- [01:00]
Tom Bilyeu
I'm Tom Bilyeu and this is Impact Theory. Let's dive right back in to part two with Cody Sanchez. So debt moves in cycles. Businesses move in cycles. The economy moves in cycles. And so I. I have a growing hypothesis that I'm going to lay on you like a fucking filthy blanket with smallpox all over it.
- [01:23]
Cody Sanchez
Please.
- [01:24]
Tom Bilyeu
Yeah, tell me what you think about this. I don't know that there's any way to escape it and that we may just have to write it. So, boys and girls, please do me a favor. I really hope you will do the following. In fact, Drew, pull this up. The national debt is so crazy right now, and basically nobody's talking about it and everyone's life, if you'll let me extend it to just your kids. Forget grandkids. Nope, just your kids is going to have to deal with it and it is going to be bad. And the reason it's going to be bad is it's the physics of money. So the way that money works is such that if you run up debt, you are going to have to pay interest on the debt. The way that you pay interest on the debt when you have a balanced budget in your nation is that you collect tax money and you pay that interest. But our national debt is getting so high that the interest on the national debt will eventually eclipse 100% of the revenue collected. So it will take up your entire gdp. That's clearly not sustainable. So then you have options. You can default on the debt, or you can take money from people in the form of money printing so it doesn't feel like they're taking money. We were talking about this earlier, but you're robbing their buying power. And so this is how you get into an inflationary spiral. And the problem is, which they will do, they will inflate the money supply. They'll print money in order to make the payments insane. Like if you put the two charts, the national debt is effectively a straight line up.
- [02:59]
Cody Sanchez
Yeah.
- [02:59]
Tom Bilyeu
And money printing is effectively a straight line up.
- [03:02]
Cody Sanchez
Yeah.
- [03:03]
Tom Bilyeu
And people are not being honest with the fact that there's a breaking point. And so everybody that's touching this is just saying, I hope I can kick the can down the road long enough that I'm not the one that that has to deal with this. But you can look backwards in history. Look backwards 500 years, that's a long time. And if you look backwards 500 years, it's just a cycle of this debt getting big, bursting, and there's bloodshed starting small again, getting big, bursting, there's bloodshed getting small again. And we just cycle through it over and over and over. And Ray Dalio, who nobody has put their own money where their mouth is more than Ray Dalio and had more to show for it. So he's built the largest hedge fund in the world, which is basically a casino that bets on what's going to happen in all the economies around the world.
- [03:52]
Cody Sanchez
Yeah.
- [03:53]
Tom Bilyeu
Once you think of it like that, it's like, okay, this guy's called more shots and won more than anyone else ever. And he's saying that there are six stages to this debt cycle. Stage six is total collapse. And that we're at stage 5.5 right now. And this is one of those where I'm like, I feel like Elon, back when he was trying to tell everybody to chill on AI and nobody would listen, so then he just built his own AI company. I was like, well, I guess I'm going to be fatalistic about it.
- [04:21]
Cody Sanchez
Yeah.
- [04:21]
Tom Bilyeu
That's how I feel. Since COVID started, I started learning about the economy, how money actually works. And I'm just looking at this going, wait a second, we're driving at full speed towards a cliff. And no one, no one's even like looking at the break, let alone stepping on the brake. And so I just go, oh, it may just be that these cycles repeat and you are in the point of the cycle that you are. And now you deal with. How do you thrive in the moment that you're in? Because you're never going to convince people to turn the car around.
- [05:00]
Cody Sanchez
Yeah, well, I mean, I think I Think there's a lot of reasons why you might be right. And I think what it comes down to is what can we do individually? Like if you're a person listening, the individual thing you can do is, is vote politically in a way that gives more power to the people, that decreases government spending and that believes more in you than believes in big government. And I mean we're seeing it in Argentina. It's probably one of the first examples where a government has really expanded continuously and then severely contracted post pain though
- [05:30]
Tom Bilyeu
I want to be very clear about.
- [05:32]
Cody Sanchez
And Argentinians really like to run out of money and explode their debt. I think this is like what the 11th time or something.
- [05:38]
Tom Bilyeu
The debt cycle, they just are on an accelerated same with grace.
- [05:42]
Cody Sanchez
They kind of, they, they are accelerated. But, but that said, I mean, I guess, listen, I'm an optimist for a ton of reasons. One, I do think you can make money in any market, guaranteed. And so if that's true and then what am I going to do? I'm going to bifurcate my focus. I'm going to say on one hand I, I realize that governments can't make you rich. No president is coming to save you. It's up to you if you want to get rich. But they can hurt you a lot. Like governments can't really help you that much truly. But they can ruin you. And I've seen it happen again and again. So I think making sure you're politically voting for people who don't ruin you is really like your base level. It's like just don't ruin our economy and country because that's when everything goes sideways. That's like apocalyptic. It's not like who has vibes or personality. That doesn't matter. Then the other side is now with everything that's happening, what can I do to become richer this moment? Because I do think money is protection, like money is freedom, money is optionality and choice. And you know, and if you are correct, then you earn money and you place it in things that are not correlated to the US dollar, right? You buy gold, you do crypto, you add on these additional things that maybe you hope protect yourself against the risk of the dollar basically eviscerating. But I think my thesis kind of goes to this idea of one, I actually do think we can beat private equity. And why do I think that? Because if money was all you needed to win, then the big companies would have created the best AI companies. Then the big companies would have won. At Search Continuously I actually think that a lot of times when you get really big, you get bureaucratic oversight, you get heavy, you get constrained, you get concerned with too much risk actually, because you have a lot to lose. You have a lot of regulatory oversight, you have compliance, you can't move fast. And for all these reasons, I actually think that small businesses, small nimble teams, increasingly with tech to enable them, can beat the big guys. We just have to one, make sure we have regulations and politicians that push back on them and then two, we've got to be a nation of builders. And Vivek talks about this too. I mean, he says the way to get out of the situation we're in, there's only one way and that is GDP growth. That's been his comment sort of since the beginning when I first talked to him. GDP growth is the only way to do it. One of the ways to do GDP growth is, is AI for instance, and having our next cycle of evolution. But you're not wrong. Like why do young people today not trust the system? In particular, it's because wages are stagnating. So they've made, for the first time ever, we have Gen Z making less than their parents did at their age. On a, on an inflation adjusted basis, the their university degrees are 3 to 4x more expensive than what their parents now their housing is anywhere from 1 and a half to 2x more expensive than their parents were. And simultaneously they have had inflation eating away at their dollars. There are more jobs available out there, but to your point, they're not jobs that are making more money overall. And so I think young people today are rightly saying, hey, we're out here working. You're saying we're quiet quit in. You're saying we're not as valuable and our skills aren't as good anymore. Except wait a second, our productivity level is higher than our parents generation, but we're making less money. And so there is reality to what a lot of them are saying. You know, sometimes I kind of chuckle at these TikTok videos where they're, you know, saying oh, I'm crying because my first job is really tough. And you and I know, of course it is, it's your first job, it's supposed to be tough. But they're right in some other ways, which is that it is harder than it's been in a long time economically for young people in this country, the only option is not working within the system. Stop doing the thing that everybody told us to do when we were young, which is go to University, burn four years and let's call it on the low end, $50,000 in debt that you can never get rid of for a job that pays basically minimum wage at 30 to $40,000 a year after you spent 50 to get it. Then go and try to climb a corporate ladder where people get 3% raises on average. Try to buy a house, but you really can't because if you don't have a W2 job, then it's really hard to get a loan. If you do have a W2 job, you probably don't make an enough income to get it. And so we have to, as young people, we gotta say no. Like I'm not doing it this way. And that's I guess why I keep coming back to the only solution I see is the system. Don't go to a bank. Go to the seller of the business and talk him in to letting you buy the business using future profits. Don't go work in a financial institution. Become financially independent and intelligent so that you can become the financial institution. Don't go work at a corporate job for somebody else for 3% wages each year. Become more valuable. Negotiate your salary. If there's no other upside, leave and go somewhere else. And don't rely on traditional university degrees because they don't teach you business. The best way to learn about business is being a business. And if, and if I was going to tell that to a young person, I'd say skip the 50k and the parding and the liberal arts theory. Learn that at Jordan Peterson's academy, go listen to the beautiful theory that's happening there and simultaneously go get in the game now. And I know it's not very, and I'm not saying don't go to university, I'm not one that's saying everybody should be an entrepreneur, but I'm saying what you're doing right now, young people, it's a lie. And it's not going to get you to the same place that it got your parents in the current situation, sadly.
- [11:13]
Tom Bilyeu
Why do you think that's true?
- [11:15]
Cody Sanchez
Because just math. I mean, if there, if wages aren't paying you more.
- [11:19]
Tom Bilyeu
But why not? Why? So if they're more productive, why aren't they getting paid more wages?
- [11:25]
Cody Sanchez
Oh, like why does wage stagnation exist? And productivity.
- [11:30]
Tom Bilyeu
Yes.
- [11:31]
Cody Sanchez
And productivity gains. Well, it's a really good question. I mean, what could it be? It could be like you said, are the jobs that are open, are those actually higher paid, hired, skilled jobs that are open? Are the number of jobs that are open actually real? Or are those like static jobs? That look like they're open but aren't actually going to be filled in.
- [11:48]
Tom Bilyeu
Like 70 of all the jobs that have been added in the last. Oh, God, two years have been. Excuse me, have been government jobs.
- [11:55]
Cody Sanchez
Oh, that's another point.
- [11:57]
Tom Bilyeu
Already freak you out. And we need to look that stat up just to make sure. Pretty sure direction that's correct. It's some. Just horrifying.
- [12:04]
Cody Sanchez
I know. I wish I had Vivek's like memory recall and statistics.
- [12:09]
Tom Bilyeu
You and me both.
- [12:10]
Cody Sanchez
Yeah. Amongst other things. Also, I'd take his bank account, but I think that. I know that you're right. The private sector has actually, I think, lost jobs, while the public sector has gained jobs. But I'm not sure if it's material, like 1 or 10%.
- [12:25]
Tom Bilyeu
Right.
- [12:26]
Cody Sanchez
And so I think there's some funky things going on in the economy there.
- [12:30]
Tom Bilyeu
Can I name them?
- [12:31]
Cody Sanchez
Yeah, tell me.
- [12:32]
Tom Bilyeu
So here's what I think is happening. The reason that the productivity is going up is entirely because of technology. It's not like the kids today are better. They're not worse either. They're just not better. So productivity goes up basically in lockstep with gains in technology. Now, technology is by its very nature a deflationary force. So the question is, why do we have inflation? You have inflation because you have to ask yourself, what is the thing that's inflating? The thing that's inflating is the money supply. And because the government, instead of getting you to vote on things, is just printing more money, which they do not have to get you to vote on, they are just stealing away all of the gains that people should be getting from the change in the level of productivity. And since buying power is going down and prices are going up, it becomes effectively impossible for companies who are having to deal with all those price changes to pay people more. Because. Because some invisible thing is stripping all of what should be that profitable cushion away, and that profitable cushion is being stripped away by inflation, is my hypothesis. Now this I'm gonna have to do more research on and make sure that I'm correct. But boy, oh, boy, does everything that I know, all the pieces that I am very confident on lead me to that?
- [13:45]
Cody Sanchez
No, I think that's right.
- [13:46]
Tom Bilyeu
I'll call it a theory. I don't even think that's a hypothesis. It is far more.
- [13:49]
Cody Sanchez
I think that's right.
- [13:49]
Commercial Narrator
Then.
- [13:50]
Cody Sanchez
Then you add to it a couple other things, which is globalized workforce. So maybe job wages aren't increasing because actually there's a massive decelerator which is International labor force at 10x cheaper the cost it could and that's about to break apart.
- [14:07]
Tom Bilyeu
We're going to see whether that is a big part of the answer or not. Because I don't know if you know any of the stats on this, but that feels like since COVID that really blew apart and we are now becoming more isolationist. Certainly that's the direction that Trump is leaning. It's America first. All of that rhetoric is about stop the global, the global exportation of jobs. All the stuff about tariffs which I think is being wildly miss, either intentionally or unintentionally but misrepresented in the press. Yeah, that stuff is about, okay, wait a second, don't export our jobs and then some amount. Not all because I have beef with the border, but my beef with the border is not about importing low wage workers. But that's certainly some of, I think those two.
- [14:56]
Cody Sanchez
See, I think what they're, what they're doing is they are mandating even in this Trump instance, let's say, I think they're going to try to retool jobs in the US and manufacturing, for instance, take back key services. But at least I play in the small business lane. So you know, when I look at our small businesses, we have Main Street Holding Company, we own, you know, 26 businesses there. In contrarian thinking capital, we own 30 businesses there. When I see the amount of these businesses that now used outsourced talent, it's incredible. I mean, for instance, even at Contrarian Thinking, our media company, we probably have 12, we have 12 team members that are located all over the world that are 1/3 the 1/4, effectively editors, everything, customer service, editing, using AI for customer service. No, we're probably not as intelligent as you, but that would even be, that
- [15:45]
Tom Bilyeu
would be, I'm just very curious if you see something I don't.
- [15:48]
Cody Sanchez
Yeah, I mean I think going forward that'll even be more of a deflationary measure. Right. Same with the robot baristas. Right. Do you really need a human who's not going to show up on time one way or another to do that job? I don't know. But right now, I mean, so if we have 12 at a company that has, let's see, concern, I think it probably has 30 full time employees plus maybe, I don't know, 20 or so vendors. And then if I look at, at our underlying companies, most of them have, I don't know, 5% of the workforce or something like that. That's, it's outsourced. I think it's probably more material than we anticipate. And there's no way those jobs can be brought back to the US if they are doing a good job. The only way they'll be brought back to the US is through AI because it's so much cheaper. And to your point, inflation has eaten the profit margin of businesses so much, they're not making much money anymore unless they get intelligent with outsourcing. And so we've seen it continuously. I mean, I was meeting with one of our business brokers at a company we own called Biz Scout, which is like a business buying and selling marketplace. And. And he was saying he's never seen a higher level of LA restaurants for sale than this year. Highest level ever. Ever.
- [16:53]
Tom Bilyeu
Stress distressed.
- [16:55]
Cody Sanchez
Yeah. And the reason why I'm like, if you had to like narrow it down to one thing, I was like, is it population leaving? Is it just that that business is really hard? It's one of my least favorites. Don't buy a restaurant. They're hard. And he said it's actually labor costs. They increase the minimum wage to $20.
- [17:10]
Tom Bilyeu
Yeah.
- [17:10]
Cody Sanchez
And that's the third biggest restaurant cost. And so they're. They go from a 10% margin business where for every dollar they make, they keep 10 cents of it, to essentially nothing. And so they just don't make sense to operate anymore here. And so I think that is really big. And I do think illegal immigration in small business and in sectors like agriculture, et cetera, it artificially deflates wages and it's not great for them either. So.
- [17:39]
Tom Bilyeu
For who?
- [17:40]
Cody Sanchez
For. It's not great for illegal immigrants here in the U.S. yeah.
- [17:44]
Tom Bilyeu
I mean, look, I'm riffing now, but if I were gonna do some freestyle bars on this, it's gonna go something like, we're going to take a quick break, but don't go anywhere. Cody Sanchez is just getting started
- [17:59]
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- [18:58]
Tom Bilyeu
All right, let's pick up where we left off. You allow illegal immigration out of a very weird sense of empathy. You let them flood in. You intentionally turn a blind eye to people that hire them, all the while raising minimum wage so that you can rail and say people have to be able to make a living wage off of XYZ job. Which PS not every job is meant to provide a living wage. Many a job, many of the jobs at the minimum wage are meant to get you a foot on the ladder so that you can start learning you're doing it in high school or right before college or instead of college or right after college. Like I was making peanuts right after college. Sharing an apartment with a guy and his girlfriend. And was it fun? No, it was not. But I needed to keep my rent low so I could figure enough of life out to get going.
- [19:51]
Commercial Narrator
Yep.
- [19:51]
Tom Bilyeu
So it, it's one thing when it's like, oh, that's actually a sustainable model and you just have evil capitalists that you're fighting against and so you have to do that. It's another when it's like, hey, like run, run the math. Figure out what you're doing here. You are making it such that you need an illegal immigrant that the business owner is going to take advantage of because it's under the table and you were turning a blind eye to it to make up for a problem that you created. And so we're going to say things like, well, we have to do this in order to do the jobs that Americans won't do. It's like, oh my God. So have a system that you can just stand up and say, this is my system at least. And I talk about this all the time in the business. Don't ever do like one offs with people because you like them. Just it's a policy. And if you want to do something for that person and you're willing to make it a policy, it's a great thing to do. If you're not willing to make it a policy, it's probably a bad idea. You're just doing it because you like the person. And so. Good lord. So I say all of this because I am an optimistic person and I often will paint this stuff with a dark brush. But the reason I cannot stop myself is I hope that people hearing this understand this is a swayable system that they can go in, not just politically, but that's one of the ways and that they can understand. This is how the system works. These things make sense. These things do not make sense. Rail against the things that don't make sense so that you can get the person who's driving towards the cliff with their foot jammed on the accelerator, partial, partially through the floorboard to let up. And then I welcome. Look, if I'm seeing something crazy and somebody has a more accurate interpretation, all I care about is predictive validity.
- [21:34]
Cody Sanchez
Yeah, I mean, I think what I guess I come back to today is like it's so similar to healthcare. It's like two options. Get Kellogg's to get rid of red food dye and work on that problem, which is great. And I think people should do that.
- [21:48]
Tom Bilyeu
Kelly, shout out to you, yeah, the
- [21:50]
Cody Sanchez
man, he's a buddy of mine from Austin. Also simultaneously learn about Kellogg's putting red food dye in their food. And don't feed your kids that and don't eat it yourself. And so it's sort of the same idea here. Here's what we think is happening in the government. Don't spend your life glued to a screen obsessing about a thing that is out of your control. Take whatever measurable control you can do there and then give it not one second more thought. Because the best way to control the universe is to become financially free in order to put resources towards things that you want to exist in the world. And if more that then we would be a lot harder to control. What I talk about with being a business owner is you become more unemployable in a lot of ways and you become more unpush aroundable because nobody can fire you because you have an ability to actually affect your financial outcome. And so I think simultaneously to railing against whatever you feel in the government, you should simultaneously obsess on how do I increase the size of my bank account because that is my protective armor. And if I increase the size of my bank account, I can make a lot more decisions based on optionality and what I would like to do as a opposed to what I don't want to do because money doesn't make you happy, but as sure as hell decreases misery. And I think we were told a total lie that money is bad for you, that money is evil, that money is wrong, that people who have money, AKA billionaires, must have gotten it a bad way. In fact, the opposite is rather true, which is it's really hard to get money if you Create no value. Now, at a certain point, you, like, have a lot of money, and money can make more money. But to create it the first time, you have to have provided something that somebody was willing to pay for, some sort of value transfer. And so if you think about it that way, money's just a tool. It's like, do you want to build the house and put together the framing with a nail and a hammer, or do you want to do it with an industrial nail gun? Like, one of you is just going to move faster than the other, and so get bigger tools so you can make a bigger impact. And that is sort of my, my point. And you will feel more free because let's say, worst case scenario, this would be awful. I don't think it's going to happen, and I hope it doesn't. But let's say America implodes. You can't take your assets with you. You can't take your business with you. Money becomes worthless here. What could you do? Well, if you're a doctor, you could technically go to another country, but what are they going to make you do? They're going to make you go to medical school there. You're going to have to become licensed and certified there. That's not great. Well, what if you understand the language of money and doing deals? Can you buy a business in another country in the exact same way that you bought a business here? Of course you can. Could you go and negotiate something that shows your value in order to get equity in a business somewhere else? Of course you can. So it's going to be really hard for you to be poor once understand how money works. And I think that's my, my belief because I, I argue with biology sometimes. Not well, because he's a genius, but I, in my head, I argue with him and say, stop giving up on America. Like, no, I don't want to move to Singapore. Like, no, thanks. I don't want to be in a high rise covered in green and feel like that's the forest for me. I don't want to live lovingly to him. I don't want to live in the apartment complex with a bunch of other people, you know, talking about crypto. I don't want to. I want, like a little land. I want a little, maybe country music every once in a while. You know, I like a cheeseburger. I like to speak English. And so, like, I'm gonna fight for that. And I think a lot more people, if more of us think that way, we will win. You know what else I Was into Ubers while I was here. I remember I came. It was like, maybe two years ago when I first came on the podcast.
- [25:24]
Tom Bilyeu
About that. Yeah.
- [25:25]
Cody Sanchez
Okay. So two years ago, we're in la. I came on the podcast.
- [25:27]
Tom Bilyeu
Ass.
- [25:28]
Cody Sanchez
Let's just say that when I was in the Uber, I would have never said things like, the governor here is kind of nutty, huh? Not a huge fan of that guy. If I would have said that, I would have probably had a pretty negative reaction from people today. Two people brought it up to me proactively. They were like, yeah, well, it's not that great around here. And, you know, we got to change our politicians, and one of them does. Tanner, do you remember what she does. Did for a living? She does, like, energy work. Like, not the type of person.
- [25:57]
Tom Bilyeu
Energy healing.
- [25:58]
Cody Sanchez
Yeah. She's like crystals. Right? So you wouldn't think maybe she would be one way or the other. I think people are waking up. I really do. And I maybe crazily, optimistically think that more people are willing to fight for what we have here and that if a bunch of people wake up, this stuff isn't that hard to understand. And I think now there are people talking, like, a little bit of common sense, and I think we just might be able to pull it out.
- [26:25]
Tom Bilyeu
Well, your book is an amazing version of that.
- [26:27]
Cody Sanchez
Thank you.
- [26:28]
Tom Bilyeu
All right, what I want to do now is I want you and I to rank financial advice. So my producer Drew has put together some stuff. So I don't know if you're familiar with doing, like, the S tier ranking. All right, so we've got S, A, B, C, D, E, and F. Okay. And S tier is like, yo, gangster. That's like the. The highest tier. All right, let's go, Drew.
- [26:50]
Cody Sanchez
Hit us with meaning. Good.
- [26:52]
Tom Bilyeu
The best.
- [26:53]
Cody Sanchez
Okay. Because I'm not cool.
- [26:54]
Tom Bilyeu
That's like that Sigma tier. I think that's what the S actually stands for. Somebody off the correct.
- [26:59]
Cody Sanchez
And F is like, bad, terrible, fail, Fail.
- [27:02]
Tom Bilyeu
Why he's made it blue on here? I guess it's just a color. From red hot amazing to blue Cool. Lame.
- [27:09]
Cody Sanchez
Okay, I like this. Exactly.
- [27:11]
Producer Drew
Yeah. The blue is a cold, hard take.
- [27:12]
Cody Sanchez
Is the first one gonna be me?
- [27:15]
Tom Bilyeu
I. I would be. I would be shocked if you end up anywhere other than S tier here.
- [27:19]
Cody Sanchez
Okay.
- [27:20]
Producer Drew
Okay, here we go. Your network equals your net worth.
- [27:24]
Tom Bilyeu
All right. Is that S tier? F tier. What do you think?
- [27:28]
Cody Sanchez
I think that's probably A. So that's. Yeah.
- [27:32]
Tom Bilyeu
Not S, but A. I believe in it big time. But because I have not done it, I'M going to put it C tier. I am living proof that you can do it without it. But, man, do I think that I should be punched in the mouth by myself. Uh, this is not an invitation to people out in public for not doing that more. So that. That's a big miss in my book. But you can clearly do it without it.
- [27:55]
Cody Sanchez
Yeah, I think, I think we've been messing around with this idea. The five steps. So in order to become really, really wealthy, step one and two are you have to work really hard for longer than you think, which is step two, you have to increase the skill stack that you have. You have to have more valuable skills. Then you have to take risk once you have those skills. And finally you have to have connections where you give and take in order to have like, like real wealth. And so it's, you know, you're that thing you talked about in the beginning. Grit. Are you willing to do a hard thing for a long type of. For a long time. Resiliency to finally, are you valuable? Do you have a good skill set to. Then can you take risk? Are you willing to jump in and choose yourself? And then finally connection. So I think it's. It's really helpful at the highest level.
- [28:39]
Tom Bilyeu
No doubt. All right, Drew, next.
- [28:42]
Producer Drew
The way to get rich is to save money.
- [28:45]
Cody Sanchez
I disagree with that.
- [28:46]
Tom Bilyeu
Where's it go?
- [28:47]
Cody Sanchez
I've never met anybody who got rich that wasn't in their 70s and did it by saving. So I think that is an F tier.
- [28:56]
Tom Bilyeu
That's hard F. You cannot save money because of inflation. The buying power will be stripped from you. That is a fool's errand. It's immoral. That. That's true. Yeah, but it is true.
- [29:06]
Cody Sanchez
That's true.
- [29:07]
Tom Bilyeu
Hard F for me.
- [29:08]
Cody Sanchez
Hard F. I mean, that's just math, actually.
- [29:10]
Tom Bilyeu
Literally.
- [29:11]
Cody Sanchez
That's literally just math. I mean, if you've ever seen the dollar symbol where it basically when the Fed was created in the 40s.
- [29:17]
Tom Bilyeu
Yes.
- [29:18]
Cody Sanchez
And then you go all the way to the dollar amount that an individual dollar is worth today. You can like see it. It looks like this. It looks like a sloping ski slope with what a dollar used to be worth and is worth today. It's like a beautiful visual that only is because of our government deflation.
- [29:34]
Tom Bilyeu
Every fiat currency has the same graph. That's what I'm saying. These are probably inevitable cycles.
- [29:39]
Cody Sanchez
Yeah.
- [29:40]
Tom Bilyeu
You have to have a currency that can't be inflated.
- [29:42]
Cody Sanchez
I gotta buy more Bitcoin, huh?
- [29:43]
Tom Bilyeu
I mean, look, I try not to overhype it because right now, bitcoin is volatile, but you need a currency that is uninflatable.
- [29:52]
Cody Sanchez
Yeah, yeah, yeah. Well, I think that's the other reason why I think you have to. You could have a currency that's uninflatable. You could also have assets that increase in value, such as, like, gold, for instance. Maybe real estate. You could say land.
- [30:10]
Tom Bilyeu
Real estate makes me nervous.
- [30:11]
Cody Sanchez
Yeah. Because of maybe national.
- [30:12]
Tom Bilyeu
And in fact, we're going to get to that. I think that's one of the items, if I'm not mistaken. Drew.
- [30:16]
Cody Sanchez
Yeah. And. But the last thing I think we should talk about is. Is price controls. So, like, one of the reasons I like owning businesses is because if the currency deflates or if inflation happens, you increase your prices.
- [30:26]
Producer Drew
Yeah.
- [30:27]
Cody Sanchez
And as long as you make sure you have some price elasticity, the ability to raise prices for value, then you can continue to outpace inflation in a way that you can't if you're in a job.
- [30:35]
Tom Bilyeu
Are you saying that the government being in control of prices is a bad idea?
- [30:40]
Cody Sanchez
Cody Sanchez, did you read that tweet from. It's actually a friend of mine. His name's Robert. He's like a cfo, and he had the world's best tweet about why price controls is a terrible idea. And it's worth. It's worth reading.
- [30:54]
Tom Bilyeu
But if it was the one that, like, breaks down, like, literally from a grocery store.
- [30:58]
Cody Sanchez
Yeah, that's exactly why you.
- [30:59]
Tom Bilyeu
Yeah. I didn't know. I don't remember who it was from.
- [31:01]
Cody Sanchez
Yeah.
- [31:01]
Tom Bilyeu
But it was. Was literally brilliant.
- [31:03]
Cody Sanchez
Yeah.
- [31:04]
Tom Bilyeu
And price controls equal starving to death. It's just quite literally true. That tweet and many other analyses have just walked people through it. It's. It's absurd.
- [31:15]
Cody Sanchez
Yeah. That's a red flag. Anybody who says you should control price. I mean, and then people go, well, like, what about pharma? And so there are instances in which it makes sense to make sure that if there is life giving care in some way, we aren't gouging people for it.
- [31:30]
Tom Bilyeu
Interesting. I think that what Mark Cuban is doing would be my preferred method of dealing with that.
- [31:35]
Cody Sanchez
Yeah.
- [31:36]
Tom Bilyeu
If you have created some bizarre system where the market has been clamped down on so hard that nobody has done that. Yes. But whoa, do that at high risk, because once the government starts doing that, they just want to keep going, keep going, keep going. But what Cuban is doing with drugs, Cost plus drugs. I forget the exact name, but that, to me, is brilliant. Like, get the transparency. Let somebody compete in the open market and let him win, and he's doing exactly that. And I hope he gets even wealthier for doing it. Yeah, he and I certainly don't see eye to eye on all things, but I'm so glad, like so many people have have gone against him simply because he has a take politically that they don't like. And I'm like, yo, look, look at what this guy's done. Like, he brings a lot. You could by all means ignore a lot of the things that he's saying that don't work in the real world or you fear won't. But man, don't throw the baby out with the bathwater.
- [32:29]
Cody Sanchez
Oh, I agree. Moral absolutism will not make you money for sure. What's our next one?
- [32:34]
Tom Bilyeu
Let's pause for a quick second and we'll be back with Cody Sanchez after a short message from our sponsors.
- [32:41]
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- [33:43]
Tom Bilyeu
All right, let's pick up where we left off.
- [33:46]
Cody Sanchez
What's our next one?
- [33:47]
Producer Drew
Go buy a house. You should rent.
- [33:49]
Tom Bilyeu
E. What's your take on buying versus renting?
- [33:55]
Cody Sanchez
Well, multiple aspects. One, I think we have to not just look at what the math says, which is that sometimes it's cheaper to rent, especially if you add in all additional costs to it and say the average American has, let's see. So what is it? 60% of Americans have a thousand dollars saved up.
- [34:13]
Tom Bilyeu
Up.
- [34:13]
Cody Sanchez
And something like 30% of Americans have no savings. And so if that's true and the numbers are anywhere near that, anything that we can do to have assets that increase wealth over time and mandate that we have an ability to save with earnings increases are probably good. And so I think sometimes people talk about this. And they're like, no, you shouldn't do it because like Ramit Sethi is sort of famous for this, for this line. But we shouldn't do it because in fact you should allocate your, your money somewhere else and it'll make you more money. That's like the argument there, except that most people don't keep their money in the stock market when the stock market goes down. And so you can't use like the average return of the stock market, which might be 10% because people get emotional and they pull things in and out. So that's why I think behavioral economics is really important overlaid on top of hard math and investment returns. So for me, I know that most Americans net worth is largely tied up in their homes, for instance. And that might be good considering our behavioral economic patterns of not really saving at all.
- [35:16]
Tom Bilyeu
Yeah, so I'll put it B, C tier. Excuse me. So remember, this is Dear audience, remember don't buy a home rent. And the reason that I think that that's actually mid tier, it's not terrible advice is dumb. Money should buy a house and leave the money in the house because it's going to be a forced savings account. The thing that I don't think take into account with the house, all a house is doing is saying pay an insurance policy and I will keep, I'll make sure your money keeps up with inflation. Housing prices, it's not an absolute. It's rare that housing prices are going up because suddenly Austin is the hottest place to be. It obviously does happen, but for the most part what's really happening is the value of the dollar is going down. And just to keep them equal, the house price appears to go up. But houses are extremely expensive to maintain, especially over long periods of time. And so you're basically just paying into an insurance policy to make sure that the money you save because the government has done an immoral thing and they are printing money that you're paying into this insurance policy to ensure that the money that you sunk into the house actually maintains its purchasing power. Yeah, that's it. Now you probably on a long enough timeline, you are way better off putting that into the stock market or whatever because you can just set and forget there. But to your point, the actual thing that people do is they buy low and they buy high and sell low as people actually do. So there is some protection there for the average person who is probably buying the house because they love it and not because of literally any other reason. And so cool. It's A thing that you love, that you're creating memories inside of. And if you keep paying that insurance policy, it will be there for you when you retire.
- [37:05]
Cody Sanchez
Yeah, I mean, the other reason that buying your own home kind of makes sense to me is that you can also use that as leverage. So you can take out loans against your actual property, but you can also take out.
- [37:17]
Tom Bilyeu
Shouldn't do.
- [37:18]
Cody Sanchez
Yeah, you could take out loans against your stock portfolio to stock secured. His is securitization. So you could technically take out both of them. But your house price is probably less volatile than your stock price, so maybe less risk there. And then you do have some tax benefits of write offs you can do for it. Plus you maybe could turn that asset into multiple things with like income properties in it. But by and large, I think real estate is for keeping wealth, not making wealth. And so that's why I don't invest a ton in real estate. Because the average home in the US I was just at Bigger pockets giving a little speech. And the average home in the US is somewhere between 300 and $400,000. And it was funny, I asked one of the guys there, I'm like, so how much money do you make on a 300, $400,000 house? He's like, well, if you buy it with cash, like 800 bucks. Hold up. No, he's buying this with cash. Like if this is your first house, they're not buying it with cash. So with a mortgage on top of it. He's like, yeah, you know, you probably make 140, 40 bucks to 150 bucks a month. So you have a liability that's 300, $400,000. And then you only make 50 to 150 bucks a month on it. That's not great.
- [38:19]
Tom Bilyeu
That's terrible. Given that something will break, it will go wrong, and it will cost a lot more than that.
- [38:25]
Cody Sanchez
Yeah, exactly. So I think you're right. I don't think over time real estate is the way to make real wealth. But people in real estate hate me saying that. And it's definitely in some ways less risk, less volatile for sure.
- [38:35]
Tom Bilyeu
Yeah. The math is the math.
- [38:37]
Cody Sanchez
The math is the math. Maybe that should be the name.
- [38:40]
Tom Bilyeu
You got it.
- [38:40]
Producer Drew
Pricey. You gave me C for your net worth equals your net worth. So you can't use C for the house one. It gotta be a B or oh,
- [38:49]
Tom Bilyeu
then it's a D. Got it.
- [38:52]
Cody Sanchez
Oh, man.
- [38:53]
Producer Drew
Next one. Speaking of the stock market. The stock market is a gamble.
- [39:02]
Cody Sanchez
I mean, no, I think that's probably what I've already used F and E. Yeah, I guess that's a D. The stock market is a gamble. Is a D. To me it is a gamble if you're day trading like don't Robin Hood, don't yolo into the stock market. But over time we have numerical returns that show that if you average out the returns, it's not a gamble that you can have some predictive ability to see what the future might look like over a long time period. So I think the question is, are you investing consistently? Are you investing for the long term? Are you not pulling money out? Are you using low cost investments because costs really eat into your returns and investing and have you diversified, diversified your risk enough and, and I still think, even though I hate a lot of what happens in the asset management industry, that over time there is a benefit to having diversification of income in the stock market. But I, I don't give financial advice. It's totally dependent on what you want to do. I'd much rather you built a business.
- [39:57]
Tom Bilyeu
It's interesting building a business as a way to secure the bag that I, if I could do another F tier on that one, I would just because I don't think most people are going to be capable. I love the energy, I love where you're coming from, but I think the average person is, is going to fumble that. But to the question, I would just first like to say definitionally, the stock market is gambling. Period, end of story. And if you think of the stock market as gambling, you're going to be in way better shape. The weird thing is though, on a long enough time horizon, what you're gambling on is the ingenuity of the people in whatever sector you're betting on. And betting on human ingenuity, especially if you can take a full global perspective so you're protected from any sort of pocket problem is the best gamble that I know to make. So the stock market as a gamble is the. Give it the lowest thing that I haven't already used. And if that's B, then I'm switching my previous home one up to B and then this one goes to B or whatever.
- [41:05]
Cody Sanchez
Flip flopping more than politicians today.
- [41:07]
Tom Bilyeu
Well, because I don't, I don't know the full gamut here of the questions being asked with the two of us.
- [41:11]
Producer Drew
That's an E for you. That's an E for you.
- [41:12]
Tom Bilyeu
All right, word. There it is.
- [41:13]
Producer Drew
You got two more. We're almost there. You should get out of debt as soon as possible.
- [41:19]
Cody Sanchez
You should get out of bad debt, which I Would define as high interest debt where you are not out earning the interest as fast as possible. Yes. Whether you have low interest debt, long term debt that you're able to out earn somewhere else. That I don't think matters.
- [41:39]
Tom Bilyeu
I don't think matters. That is very shrewd advice. It's interesting. You clearly have a mental model. The person that you're speaking to is very sharp, engaged. They know it. The mental model I have is somebody who is more likely to need a set and forget solution. So I. With all of your caveats, I agree. Like that if you understand it that well, you can leverage debt and get way ahead. But if you don't understand debt is the one thing that will obliterate you.
- [42:14]
Cody Sanchez
But what about a mortgage?
- [42:16]
Tom Bilyeu
Yeah.
- [42:16]
Cody Sanchez
Mortgage is debt.
- [42:17]
Tom Bilyeu
Yeah. In 2008 having a mortgage was pretty trash. And I can only imagine the number of people that got divorced because they lost their house because they were in an adjustable rate mortgage. 2008. That's what I'm saying. With all your caveats. I love it the most.
- [42:35]
Cody Sanchez
Oh God.
- [42:35]
Tom Bilyeu
Like if you're savvy and sophisticated and you get all the things that you just said, amazing. But as somebody who spends a lot of time in the world of crypto and you see people get liquidated like that because they're doing things on debt
- [42:46]
Cody Sanchez
or like margin calls.
- [42:48]
Tom Bilyeu
It's. That's really like people just, they go ham. And so I get super nervous.
- [42:54]
Cody Sanchez
Yeah.
- [42:55]
Tom Bilyeu
So getting out of debt is for the average person, getting and staying out of debt is S tier.
- [43:02]
Cody Sanchez
Yeah. Is the top. So you're, you're. That's. What. What is it? It's Charlie Munger said, or the easiest way that a man lose all. Loses all of his money. Ladies. Liquid and leverage. Ladies. Liquor and leverage. I fucked that one up pretty royally. But it's a great line which is basically. And then Warren Buffett had the best one where he came back and he said, my partner Charlie, I think meant to say just one L. Leverage.
- [43:27]
Tom Bilyeu
Yeah.
- [43:28]
Cody Sanchez
You know, again it's. I think, I guess that you're right. I'm. I am optimistic about an idea that what if we can actually. I mean if you really sit down and you explain to somebody simply, here's a calculator that shows you how much money you make in this scenario with debt and this scenario with debt and they look at that calculator and they see an outcome that comes from it. I think we can teach more people how to just like most people know how to do addition and subtraction. We could teach them how to understand finance. And I think the problem with our. Our world today is that we don't have any financial literacy. And so this is a perfect example. It's like Charlie Munger and Warren Buffett says the. The easiest way to kill a man and lose all his money is leverage. And yet they're highly levered to be honest. But it's really late.
- [44:21]
Tom Bilyeu
It really is. I mean, not to derail the conversation, but if you want to see the. The. Oh, God. Who was it that said it might have been Sam Harris? And he was like. It was during the whole time where it was like, do men really have that much power over women? And Sam was like, hold on a second. Yes, there can be situations, no doubt. But what is the only thing you could ever imagine a highly successful man with a family and all of that? What's the one thing that he'll throw it away on? An attractive woman? It is crazy. And it's true, man. It's true. I'm totally derailing the conversation. But. But that.
- [44:53]
Cody Sanchez
That is just ladies, number one.
- [44:54]
Tom Bilyeu
Yeah, yeah, ladies. Most people won't take on that kind of leverage just because they don't understand it.
- [45:00]
Cody Sanchez
Well, that's a good point.
- [45:00]
Tom Bilyeu
But the thing that people will ruin men. The thing that men will ruin their life over is a woman that is probably a little too attractive for their station in life. And men will just do dumb. The fact Jeff Bezos, I love you to death, man. And I am so sorry I keep bringing this up, but the fact that Bezos has dick pics out there just tells you you everything you need.
- [45:22]
Cody Sanchez
Does he really?
- [45:23]
Tom Bilyeu
I didn't even know that that's how his whole thing got blown up, was someone hacked his phone. And they were, I'm sure, trying to take down Amazon or something like that. So, like, we're gonna go after him. They tried to blackmail him, and he was just like, yeah, I'm having an affair. Yes, that is my dick. And the fact that what I've done historically, I'm not going to be blackmailed. So he just stood by it. And credit to him, man, that's. That's a baller move. Like, he was just like, I don't do blackmail. So, yep, it blew up his marriage.
- [45:53]
Commercial Narrator
Just.
- [45:53]
Cody Sanchez
Just the fact that I can picture Jeff Bezos, his face and, like, his bald head, and then what I imagine, it's. I don't need that in my life. I am now picturing things about Jeff Bezos I never needed to picture. I can almost imagine what it Looks like. Like, I feel like maybe they represent the two. This is. This is a dark corner of the Internet for me now.
- [46:09]
Tom Bilyeu
Yeah, it's. But that's the thing, man. Guys, there was a time I would like to reflect. It was a very long time ago, but there was a time where I thought that women would want to see it like, that they would be.
- [46:20]
Cody Sanchez
I thought you were gonna say that
- [46:21]
Tom Bilyeu
you sent dick pics to my wife. Yeah. There's no universe in which I could stop myself.
- [46:27]
Cody Sanchez
And then, yes, I have occasionally to my wife.
- [46:29]
Tom Bilyeu
And my wife is like, of course, she's very sweet, but both of us know that she doesn't care. So. Yeah, I'm just very glad.
- [46:38]
Cody Sanchez
I don't think women actually like the other financial advice. That's a. That's F level. Because whoever said that women really want to see your isolated dick pic is a liar. That's enough. That's an absolute fail. In the background, the women are like, all the 100. Nobody wants to see that little naked mole rat out there screaming around, yeah, keep it to yourself.
- [46:58]
Tom Bilyeu
You know, Men are giving the gift they would want to receive. Because if my wife would like to take a quick pic and send it on any day of the week you're into it, I'm here for it. Just shoot it over. Yeah. We are wired differently. And there's been a few years of confusion here for a minute about boys and girls being the same, and they are not. So my inbox is open. Cody Sanchez. My wife can send them all day long.
- [47:23]
Cody Sanchez
That's. That's true. I'm. I. I don't think that most women are the same in that that's how we can tell if you're a man or woman.
- [47:29]
Tom Bilyeu
Correct. Actually correct. Yeah.
- [47:31]
Cody Sanchez
This is devolved from financial advice. Oh. We did start in the beginning that either we could talk about politics or fuckery. And now we've devolved there. Top ranked podcast.
- [47:41]
Tom Bilyeu
Thank you. Yeah, we're all the way. Do we have any more? Did we get all of them?
- [47:44]
Producer Drew
I feel like we hit all of them. I had a couple more, but did you.
- [47:47]
Cody Sanchez
Please stop. Please just stop.
- [47:51]
Tom Bilyeu
Well, on that note, Cody Sanchez, your book is brilliant. You have filled an important gap in the market today. I really believe that there's something that you've come onto the scene and done and that's good. People hope that they could take control of their own destiny with a super tactical way for them to actually do that. In fact, we're going to be now going over and you and I are going to film something for my university where we're going to get very tactical. So anybody that wants some hyper tactical advice on how to identify a business to purchase and what to do can join me there. But until then, where can people follow you? How do they get the book?
- [48:25]
Cody Sanchez
Yeah. Msmbook.com and there's also lots of cool things we're giving away with it. So if you buy it within the next couple of months here, there's tools and tactics and calculators and the things that I talk to you about because I do think tools limit mistakes when it comes to making money. A lot of times we were talking about, well, how could the average person do this? Well, how can they figure this out by themselves? Well, if you have a nice little calculator that kind of can tell you what the outcome would be and you can see it in dollars. Most of us understand the value of a dollar. And so we want to take these crazy ideas from private equity and finance and we want to simplify them down to a place where you can understand it in 30 to 60 seconds. Seconds. And so the book does that. And then the download that comes with the book hopefully really does that for you.
- [49:08]
Tom Bilyeu
I love it.
- [49:08]
Producer Drew
Cool.
- [49:09]
Tom Bilyeu
All right, everybody, make sure you check that out. It is mind blowing. And speaking of things that will blow your mind, if you haven't already, be sure to subscribe. And until next time, my friends, be legendary. Take care.
- [49:19]
Cody Sanchez
Peace.