← Tom Bilyeu's Impact Theory
Tom Bilyeu's Impact Theory
How Money Printing, Inflation, and AI Will Reshape Wealth and Employment | Arthur Hayes X Impact Theory w/ Tom Bilyeu
00:49:39
Tom Bilyeu and Arthur Laffer dive into the disruptive impact of AI on the economy, the future of money printing, and the urgent political and financial shifts reshaping society.
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- [00:01]
Tom
Hey, Sal. Hank. What's going on? We haven't worked a case in years.
- [00:05]
Arthur Hayes
I just bought my car at Carvana.
- [00:07]
Tom
And it was so easy. Too easy. Think something's up? You tell me.
- [00:11]
Arthur Hayes
They got thousands of options, found a great car at a great price, and it got delivered the next day.
- [00:18]
Tom
It sounds like Carvana just makes it easy to buy your car, Hank.
- [00:22]
Arthur Hayes
Yeah, you're right. Case closed. Buy your car today on Carvana. Delivery fees may apply.
- [00:30]
Tom
This is pro linebacker TJ Watt and I'm back with YPB by Abercrombie for another activewear drop.
- [00:36]
Arthur Hayes
My second co design collection has new.
- [00:38]
Tom
Shorts and tanks that keep up with all my in season workouts. And their new restore collection is a game changer off the field too, because even pro athletes like me need rest days. Shop YPB by Abercrombie in the app, online and in stores because your personal best is greater than anything.
- [01:00]
Arthur Hayes
This is a defining moment of what it means to be human. Are we going to blow ourselves up because we couldn't decide how to share? Banks either adapt or they die. We all believe that the government is supposed to save us. Therefore the government says, okay, great, we don't want to raise taxes because that's very unpopular. Regardless of whether Democratic or not, if you own a house, you want what Trump wants to have happen, right? He's going to pump your house price too.
- [01:19]
Tom
I worry very much about society tearing itself apart.
- [01:22]
Arthur Hayes
To say that he is against socialism just doesn't. You don't remember what happened in 2020. The United States is not going anywhere. Just because debt to GDP is 135 or 140%. There's an immense capacity to add more debt in the US situation. If you don't like the way the situation is in the United States, there's a whole big old world out there.
- [01:41]
Tom
Leave. Arthur Hayes, welcome back.
- [01:46]
Arthur Hayes
Thanks for having me excited, dude.
- [01:49]
Tom
Always a pleasure. Researching you for these interviews is important, quite frankly to my macro thesis and how I treat my own money. So I'm excited to get a chance to sit down with you and bring all the things you're thinking, the things that are influencing me, directly to the audience. So I appreciate the time.
- [02:08]
Arthur Hayes
Awesome for having me.
- [02:09]
Tom
Thank you. All right, well, let me ask you. The economy right now feels pretty brittle to me. Crypto has dipped hard. Stocks are whip sawing AI. Looks like the biggest bubble ever. What. What is the real force underneath all of this? And is the economy about to break?
- [02:28]
Arthur Hayes
I know most of the listeners here from the United States. And I think that there's been a lot of discussion of the K shaped economy. There's a very small percentage of people who are doing very, very well. And then the majority of Americans, if you take a look at some of the consumer sentiment surveys, think this is the worst economy since the 70s, even worse than the global financial crisis when it looked like the world was going to implode on itself because of over leveraged American subprime mortgages. And the question is like, why is that if you know GDP, supposedly real GDP is growing at 3% a year, supposedly people are making more money and all these sorts of things. And I think the name of the game is inflation. People really feel inflation. And I know that the authorities in the United States and around the world like to say, oh, the year on year change is either decelerating or it's in deflation. But you know, everyday people don't give a fuck about the rate of change. They care about the at the actual price level. So like, how much does stuff cost right now? How much did it used to cost? Did my salary keep up with that? How do I feel about this situation? And obviously the answer is that majority of people in the United States and around the world are like, I'm getting inflated away. I afford less than I used to. I need to buy all these things just to have a job, whether it's a cell phone or it's a car or it's a type of dwelling that I live in, or it's healthcare or all these sorts of things. And I look on social media and I see all the influencers are partying like it's 1999, but I'm broke as fuck and I'm working 12 jobs and I'm barely treading water. And so I think that's why a lot of Americans and a lot of people around the world feel this sort of apathy and disillusionment with this supposedly amazing world economy that we have right now.
- [04:21]
Tom
Okay, so walk me through how did we get here? What is the driving factor? There's a lot of different theses about what exactly put us in this position. I certainly have one. My audience will be very familiar with my take. But walk me through what's driving all this.
- [04:41]
Arthur Hayes
I mean, at the end of the day, it's all about money printing. Every single economy in the world is essentially a fractional reserve banking system with this sort of Keynesian economic bent, meaning the government's supposed to spend money to incite demand. And if there's ever A situation where there's too much credit or too much over leverage, then the government comes in and saves those who are the bad actors in the economy, prints a bunch of money and then we the party continues. And if we keep doing that over and over and over again over time, inflation builds up and you know what an average person needs to be able to afford on an average salary they no longer can. And you know, pick your country. The average first time home buyer is much older than they used to be. Household formation is down, people are having less kids. It's all the same simple of the same thing. We all believe that the government is supposed to save us. Therefore the government says, okay, great, we don't want to raise taxes because that's very unpopular. Regardless of whether Democratic or not in terms of how people express their opinion politically, we're just going to print a bunch of money. And if you don't own financial assets, then you're screwed essentially. And that compounds if you've been doing this since, you know, the end of World War II, you know, 80 years ago, we get to this situation today where you know, the average home buyer in the US is what, four years old as a four year is a, the first home buyer or something, something in that where it used to be, you know, the mid-20s in, you know, the 60s and 70s, at least in the United States. Contact is literally just a symptom of printed money.
- [06:16]
Tom
This is something that I don't think people really take on board in terms of going back to what you were talking about with the K shaped economy. That's what really got me thinking about all of this. I wouldn't have been able to put words to it, but it just felt like there were two separate economies. Now that I do know how to articulate this and you've got one, the people that understand that if you have an inflating currency that where I'm able to buy less every day and there is a way for me to escape it, then savvy people are going to go wherever that escape hatch is. And that means getting into something that has, is protected against inflation. So assets to oversimplify. And right now the stat that really drives me crazy is that 10% of Americans own 93% of the ass. And so when you get a moment like this where so much liquidity is sloshing around because the government or the Fed, I should say to be more specific, is just not raising rates. How do you think we have to factor fiscal dominance in this to really understand what's going On Well, I think.
- [07:34]
Arthur Hayes
The underlying problem is, and it's not all the government's fault is that nobody wants to take the hard medicine in the 1930s. And whether or not you think this is, was the correct thing for a little bit of time after the, the Great Depression, which was a credit fueled boom, the thinking was, okay, let's let the amount of credit contract. People lost their jobs, businesses went under, the keys were handed it to the creditors at banks and you know, different industrial companies and the medicine was there and the US economy, the US and global economy contracted a lot and it was a Great Depression. But again there was the hangover from the 20s and the early 20th century when there was all this sort of money printing in activity, that sort of situation. Obviously, you know, Herbert Hoover was a one term president because of that, meaning.
- [08:26]
Tom
Because he was being fiscally responsible and not just continuing the party, they booted him out of office.
- [08:34]
Arthur Hayes
I mean it's one of the, one of the reasons. But again, at the end of the day, it's very unpopular. And so I don't care whether it's the United States or you're talking about China, which is a different type of political system. Nobody wants to be the politician that stands up and says, okay, whether or not this was your fault, Maybe you're only 18 years old and this is a result of decades of fiscal irresponsibility, we're going to stop it right now, no more credit. If your business doesn't have enough cash flow to generate to pay its debts, too bad. You go out of business, you fire your workers, we're going to contract the economy, get back to a healthier level and then rebuild. And unemployment is 20, 30%, whatever, some ridiculously high number that is not winning your election or that is not going to keep the average person supporting you as an autocratic leader. So you see, okay, what's the path of least resistance? It's hey, I hear you, things are expensive. Here's a check. Don't worry about how it's funded, you don't have to pay any more taxes. We're just going to hand out money and you know, for your bills here, your healthcare there. And then it just makes the situation even worse because nobody's willing to stand up and say, okay, today is the day, it's over. And unfortunately you are, you are where you are. And some of you are going to be losers, some of you are going to be winners. But over time, this is going to be the best way forward for our particular country that just is not A winning political strategy. I don't care what kind of democratic or autocratic government you have. And therefore we get what we have today.
- [10:12]
Tom
The way that I think about this is a parent who's 14 year old wakes up with a severe hangover and the parent is reaching up into the cupboard to get the medicine and is like, listen, you brought this on yourself. Cracks open a bottle of vodka, starts pouring it into some orange juice and is like, you know, but I feel you, I get it. So here, drink this and you're gonna feel so much better. And because people do not understand how the economy works, they drink it down. And it does sort of push off having to deal with the hangover, but it is going to come for you. Like eventually you either become an alcoholic and you die of cirrhosis of the liver or you eventually get sober and you have to deal with it. When I look at the economy right now, I really try not to be an alarmist. I understand it well enough, I'm going to be okay. But I really don't like the sense that a lot of crypto people have where it's like, well, I know how to escape this in an uninflatable currency. I've got a life raft, it's available to all you guys if you want it, but they will never because they don't understand it. And so I have this pull to really want people to understand the mechanism by which this works and I want them to understand how fragile the economy is. All because of that very simple statement that you made about debt and money printing and the fact that nobody, regardless of Democrat, Republican, dictator, democratically elected, no one says austerity, everyone says print money. Do you think that I am, I've taken one too many black pills or do you think that I am seeing it correctly, but I should just stop worrying about it and learn to love the bomb or what do you take away from all that?
- [12:07]
Arthur Hayes
So, I mean, I think you contextualize it well, but there are ways out of it. And I think the AI dream for a politician is the only one of the only ways out, which is we're going to create so much productivity and abundance that this debt doesn't really matter. We've taken all this debt, a lot of it was wasted. But we created these AI companies and then they created this magical thing called AI and you know, humanoid robotics. And all of a sudden the cost of labor is essentially zero and the cost of intelligence is essentially zero. So, you know, but I don't think they realize the problem that, that brings for a fractional reserve debt based society that we have, which is when the average investment banker and lawyer and accountant. The most vulnerable people to AI are those who make the most money today, who have the most sort of debt, right? They have a house, they have a car, have a rolling credit card bill, the four of the nice stuff that they're supposed to have, the TikTok tells them that they need. When you fire those people first because you know that's the easiest thing to replace in the first iteration of AI and they can't pay their bills. And what happens to the entire when the, when the 9% of the 10% who own everything can't pay their, their bills because they lost their job because you don't need investment bankers and lawyers and accountants when an AI can do it for free essentially. Well then what happens to the system? Then what happens when you have, you know, five companies, you spent all this money, you created the God AI that they have all this power, they've created all this abundance. Are they going to share it with everybody else? They don't need any other workers anymore. What happens to everyone else? Is it just going to be, you know, Mark Zuckerberg and Elon and Bezos and Altman sitting in the club and everybody else is starving because they said, well capitalism and property rights says that I created this, I invested, fuck you, I took your data, I made it. But you know, you didn't invest in my company. So you don't get to, you don't get to experience this abundance post scarcity world where we've eliminated the national debt because it doesn't matter anymore because we have robots and AI. I think that's what the conversation people should be thinking about in their head. The whole debt based financialized economy. I think that's a Post World War II, the last 80 years, that's the last war people are fighting that. What they should be thinking about is how do we reform society to share what is going to be created by these either supernational, you know, tech giants this, AI and robotics, this abundance that was based on our human data to create this, we're not getting compensated for that as society, how do we share that? That's a conversation that people need to have right now rather than well what are we going to do about the national debt? And I think if people start having that conversation and thinking about how they're going to reform political systems, deal with that, that is the next big risk. It's not whether or not the US or Japan or China or Europe can afford the debt, they can print the money. There's various ways to reduce your debt to gdp. It requires lots of high inflation. But I think that the real risk that people are not talking about is what happens when we don't need everybody or 20 or 30% of people anymore, especially the 20 or 30% of people who made the most money in the previous system. What happens when they're irrelevant Taking a.
- [15:28]
Tom
Short break, but there's more Impact theory after Stay tuned. Let's talk about a valuable thing that you own but don't actually your phone number. You protect your Bitcoin with a seed phrase. You use two factor authentication for your bank account, but your phone number that you use for verifications and many other things. AT&T can transfer it with a customer service call. Verizon can move it if someone tells a convincing story. T Mobile has let attackers hijack numbers thousands of times. Cape changes that. When you sign up, you get a 24 word phrase that generates a private key tied to your number. That phrase is the only way to move your number to a new device or carrier. No CAPE employee can transfer it without your phrase complete ownership. Take control. Head to Cape and use Code impact to get 33% off your first six months with CAPE. That's C A P E co Impact and use Code impact to save 33% off let's address the uncomfortable truth about business ideas. Ideas are worthless unless you actually know how to execute. If you're ready to make 2026 the year you stop being most people and actually start your business, then Shopify is here to help. Shopify gives you everything you need to execute well and sell online and in person. Choose from hundreds of beautiful templates you can customize to match your brand. Their built in AI tools write product descriptions and headlines and help you edit product photos instantly. Marketing is built in as well. Create email and social campaigns that reach customers wherever they scroll. As you grow, Shopify is going to grow with you. You. This is your shot. Entrepreneurship has never been more important or available. So sign up right now for your $1 per month trial and start selling today at shopify.com impact Hear your first sale this new year with Shopify by your side. Let's talk about what happens when life gets busy. Your schedule fills up, deadlines pile on meetings run back to back and the first thing that falls apart is taking care of yourself. You skip meals because there's no you grab whatever's fastest, but running on inconsistent nutrition means inconsistent energy when you need it most. That's Where Huell comes in with two products designed to keep you fueled when you're too busy to think about it. There's HU Black Edition ready to drink. It's a complete meal in a bottle. 35 grams of protein, 27 vitamins and minerals, 0 prep, 0 cleanup. And there's Huell Daily Greens, 42 vitamins and nutrients, 4 grams of fiber. Try it in apple, peach, blueberry flavors. Get 15% off your first order for new customers with code impact@hu.com impact minimum $75 purchase. That's huell.com impact and use code Impact. Thanks for staying tuned. Now let's get back to it. Even if AI does everything that we think it will do, which on a long enough timeline, I think it will, I think it will blow past all of our expectations. The problem is that when you drive and labor to zero you, as you pointed out, you start obliterating a lot of jobs. And that isn't going to be instantaneous. That's going to happen over time. You can have a meaning and purpose crisis and you're going to have a bunch of people that will expect a government handout. Like in the short term, I don't know, there'll be something where first the wealth is going to accumulate to the owners, then we'll deploy all the things because I don't think there's any reason for the bots and all of the energy to accumulate to the top. It's not sustainable. They will literally be murdered. So the people that try to hoard that, there'd just be way too many people struggling. So their first act of self preservation will either be to create a military, which I just read really doubt, or to start deploying some of the abundance out to other people. But it's the transitionary phase where it will exacerbate both financial hardship and psychological hardship, which will lead to deeper fractures in society. America is just extremely prone to this. Europe is, is like a powder keg right now. So any sort of downward pressure and you're going to get this, I think, very explosive response. So it's like, even if you believe that AI is going to do all the things, AI doing the things is a problem unto itself. So that's where I'm like, okay, you're going to take a system that is economically fragile and you're going to make it psychologically fragile. And if you think that it's going to be hard to get people to migrate into an asset class that would save them from this, I think it's 10 times harder to get them to or austerity. It's going to be ten times harder to get them to understand that we have to completely reimagine nation states. And what an economy looks like in a post scarcity world like that is 10x more daunting to me.
- [21:14]
Arthur Hayes
I think that's going to come faster than we think it's going to become. Faster than the debt doom loop that I'm sure that a lot of people will talk about. Oh, we're adding a trillion dollars of this and that. Okay, cool. But what happens if we fire 10% of all of the most highly paid workers in the next two to three years? Because anthropic can now do the job of a junior investment banker who was making $150,000 a year for $10 a month. I don't need an entire class of JP Morgan and Goldman Sachs and Bank of America analysts anymore. I don't need junior lawyers. I have an entire corpus of precedent all in machine readable format. Do I need an associate at a law firm anymore? Do I need a cpa? It's just codified rules. They can follow the perfectly. So all the jobs that people were telling their kids, oh, go to university, get yourself in quarter of a million dollars of debt to get this degree, to do this professional career, that's over, you know, we don't need those people anymore, why am I paying you $2,000 an hour? And I think that's going to happen faster than people think in this conversation about what do we, what is society? What does it mean to be a productive human? This is something that people have to think about because there's going to be political leaders who are going to emerge to preach their own version of this, whatever that may be. Some of it will be very militant, like fuck the computers, I'm about humanity. First we're going to go back to the way things were when everybody had a job and everybody had purpose and all sorts of things. You know, get rid of all this AI. They're going to be those that oh no, I can solve everything. Just hold on a minute, we got this. And so I think that's going to be the contentious debate and it's going to happen way sooner than we talk about whether or not the United States or China or Japan can afford to pay the interest on their debt.
- [22:53]
Tom
Okay, so your bet is that that happens so much faster. So let's say that my timeline is roughly correct, that it's 10 years before we buckle under the weight of the debt. You're saying Two to three years, maybe a little bit more. And we have to contend with massive economic disruption from AI.
- [23:15]
Arthur Hayes
Yeah and it's, I mean it only takes about 10%. Right. If you could eliminate 10% of the highest paying white collar jobs which are very formulaic and easily replace for the very intelligent LLM. Well these are the most politically active people. What are they going to decide to do with society? Is the rest of the society that still has a job because they flip burgers to be a bit trite and the robot can't do that yet so they actually have a purpose. Versus the investment banker who went to XYZ Ivy League school making 150,000 out of school. We don't need him and her anymore. We do need the construction worker, the nurse, the policemen. We need those people still. But they weren't that politically important in the old system and now these people have been disenfranchised. What are they going to decide to do with society and is the rest of society going to support them? And what they believe that this post Scarcity or is 10% more efficient society looks like without the wealthiest folks?
- [24:13]
Tom
All right, let's extrapolate an answer to that from where we are today. So there are certain things that we know in terms of how people respond. The way that people are responding to I can't make ends meet is hyper gambling. So they are not being fiscally responsible. They're not buckling down and saving. They're going on every gambling mechanism that they can find from poly markets, sports betting, Pokemon cards, I mean just literally crypto, shitcoins, bitcoin, ethereum, like all of it is in my opinion and again I am happy to fight about this stuff but I think the only way to intelligently understand the markets is to think of them as gambling. Once you understand that humans step to them as gambling mechanisms by and large I'm not saying that sophisticated value investors are doing that. Although yes, actually I am saying that some, I will concede that point isn't going to be the part that I'll like fight people on because that gets a bit semantical. But just in general I think it is undeniable that that's what people are doing. So we know that people are going to go into a gambling scenario. We know that right now over educated people that are underemployed are leaning towards, let's call it socialism. The left leaning variant tends to be more popular among hyper educated underemployed. And so you put those two things together and it's like okay, you're going to get some ungodly number of people that are like, all right, well, my only shot then is to gamble. And then you're going to get some ungodly number of people that are like, not only am I going to gamble, but I want the government to give me the money with which I'm going to gamble. What say you to that? Do you think that is what we see in the tea leaves or do you see something different?
- [26:17]
Arthur Hayes
Yeah, I think there's some variant of that. And it's, hey, the Mamdanis of the world, all these things that we know. Socialism is not a new concept, it's a very old concept. There was this dislocation. We have this thing called the money printer. Instead of dealing with the hard conversation with society of what it is to be a productive human, how do we share this abundance that we've created with this new intelligence? We're going to just print a bunch of money to paper over the problem because we don't want to deal with it because it's too hard to have this conversation. And yes, you get the hyper gambling mentality, which is a very little bit of money. However, I got, maybe my parents gave me a little segment. I'm getting the government check, you know, universal basic income, whatever it is. I'm going to the stock market, I'm going to meme coins, I'm going to crypto and what have you. And yes, S and P might be at 20,000 and bitcoins at a million. And it's all the same sort of theme. It's, we don't want to deal with a problem, so we're going to print a bunch of money to mollify people until shit gets so bad, whether it's, you know, a bunch of young people in the streets protesting violence, whatever it is, until we're going to have this cataclysmic conversation about what it means to be a productive human.
- [27:30]
Tom
Why was Margaret Thatcher able to pull this off? Like, what are we missing right now? Or structurally, what is different? Because in the 80s, Margaret Thatcher was able to say to England, all right, like, we got to tighten the belt, we got to do less, otherwise we're not going to make it. Or, I don't know, she had some sort of convincing message.
- [27:49]
Arthur Hayes
China. China was the deflationary impact that allowed the west to sort of deleverage themselves and do these neoliberal policies, whatever you want to call it, and not suffer inflation. China shipped you the everyday low prices at Walmart and gave you all These great things super cheap. Because you essentially added, let's call it half a billion people, very productive youngsters to the global economy to make stuff super cheap. China was willing to degrade their economy beyond anywhere beyond, you know, produce the solar panels, produce the rare earths, they don't produce energy, but all these things that they degraded their, their local environment so that the west could enjoy the 80s to the early 2010s, that was all predicated on the Chinese entering the workforce. Unfortunately, you know, policymakers don't like to acknowledge that that's really the reason why they're able to pursue these policies and not blow up their economies.
- [28:49]
Tom
All right, so there's no new China, right?
- [28:52]
Arthur Hayes
We don't have another 500 million young people or another country willing to degrade its environment to the, to the extent that China did for the first part of its, you know, grow up phase in the 80s and 90s. Right now we have a different sort of problem and a different sort of situation.
- [29:08]
Tom
That's interesting. What do you think India entering the market is going to look like? Are they already so plugged in we're never going to feel anything from them? Are, are they going to be felt in a unique way?
- [29:23]
Arthur Hayes
Well, I think it's a, this right now, it's a story of robots, right? Even if India plugs in, if you want. If you think about, I'm a manufacturer of something, I know I own a, I'm a big shareholder in a sexall company. And you cannot beat how efficient China is at producing things. Just cannot. There is no other country that has the infrastructure available, the amount of labor and, and the installed robotics base that China has. And so I don't care if you have India, you have Vietnam, Malaysia, Mexico, all these other places which are essentially low cost manufacturing centers, do not have the ability to have the infrastructure of China. And so this isn't a story about adding a bunch of low cost workers. It's how many robots per 100,000 people do you have or installed? What percentage of your factory is mechanized? Because okay, sure, India can add a few hundred million young people to the labor force, but China has built a million robots. Same with Japan. These robots are infinitely cheaper than a human, regardless of where they're at. And so I think that that story of, okay, we're just going to repeat what China did in the 80s and 90s with India, with Nigeria, with Indonesia, all these growing young populations, it's just not happening. Because we have robots and we have AI, we have these advancements. Human labor is Going to be obsolete. And a lot of these things that we did in the past.
- [30:47]
Tom
Okay, well then let us face AI head on. So we've obviously already talked about a huge part of the puzzle, but we haven't talked about the economic part of the puzzle. What happens when AI is a better investor than anybody else? And so you and I are like, we understand this stuff bro, we're going to keep being rich all day and then we get an AI that comes in that is loaded up with crypto and it just goes and does this thing, does what does AIs impact into the competitive nature of the financial markets look like?
- [31:21]
Arthur Hayes
I don't believe that AI is any better or worse than a, than a human investor today.
- [31:28]
Tom
Sure. But in five years, well, what is the market?
- [31:33]
Arthur Hayes
The market is essentially a discounting tool for human preferences and scarcity. Right. And so if remove this one A is just going to, is it going to be better at predicting human preferences than a human?
- [31:46]
Tom
Yes.
- [31:46]
Arthur Hayes
I don't know. But if you are, this is already the case. If you're an investor and you're like, I'm going to be a day trader, right? And I'm going to go up against, you know, Citadel and Jump and DRW and all these massive Goldman Sachs and all these trading firms that essentially use very intelligent computers to do all their trading, you're already losing money. So it's not like this is a new situation. If you think that you're going to day trade yourself into, you know, being the best, being Warren Buffett, I'm sorry, but there is a computer out there that is better than you, faster than you, smarter than you. What you have to do as an investor is say okay there. I believe in a future where this particular product or service gains traction and therefore I'm going to buy and hold this stock, this crypto, this whatever and over time I'm going to make money. But to be a systematic short term trader hasn't been profitable for a retail investor in a very long time. And it won't be profitable when AI is there either. So I'm not exactly worried about that particular outcome. I just think that's just not a style of investing that is suited for a lot of individual humans.
- [32:50]
Tom
Like let me see if I can make you scared. So we, we just talked about that. One of the things that we see right now today is when people are not able to have their income, keep up with the cost of living, they go to hyper gambling. You give them stimmy checks, they hyper gamble. The stimmy checks. So now you are correct, they would be unwise to go into the markets and hyper gamble, especially given the AI is already better. Them at that. Five years from now AI is going to be really better. And by the way, the AI is going to understand how people respond to algorithms, how to sway algorithms. And so the AI is going to put out messaging that will, humans will respond to. The AI is going to understand what I certainly understand, which is that markets are effectively entirely sentiment driven. And so now AI manipulates sentiment, humans hyper gamble against that sentiment. AI laughs all the way to winning at all the PVP stuff. Now anybody who understands better will back off and go, listen, I play a long term game, I'm not going to be able to beat the AI, so I don't even try. But my whole thing is there is a generation and I don't know if that generation is 2 years, 5 years, 10 years, probably not much more than 10 years, but there's going to be a 10 year span. Where we go from energy cost is racing towards zero, labor cost is racing towards zero and everybody settles into the age of abundance and in that period, oh dear God, AI is just going to hand people its ass. In the same way it beats us at chess, in the same way it beats us at go, it will beat us at the game of short term investing. It, it will just crush the average investor. Humans can already crush the average investor. And so you have this tiny number.
- [34:36]
Arthur Hayes
Of people, it doesn't change anything. It's okay, instead of ken Griffin making $16 billion a year, it's some AI model. Do we care?
- [34:43]
Tom
Yeah, but Ken Griffin becomes, Ken Griffin becomes the, that's getting his ass handed to him.
- [34:49]
Arthur Hayes
So. Well, not really. I mean it's just like who, who's going to take, who's going to extract this vig from the desperate retail? The desperate retail is there. No, that's what we should change rather than saying, well, the AI is going to beat you at stock. Well, Citadel is already beating you at stock investing. And Robinhood and payment for order flow and all these micro searcher things were already fucking you. It wasn't like the AI is going to change the situation. You still were going to lose all your money in 5 seconds if you want 100x longs. Right? It just doesn't matter whether there was an AI on the other side or you know, pick your large institutional investor. That was already happening. So we're just changing who makes the money potentially. It doesn't matter. What matters is just don't play that game, you already were losing it today when there was a little bit of AI, you were losing it yesterday and there was no AI. Understand that then just don't do that. I think that's got to be the message rather than oh, let's freak out about the AI is going to be better at stock stock picking, it's going to be better at being Citadel, but the money is still going to just go to that particular bucket.
- [35:45]
Tom
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- [40:30]
Arthur Hayes
Well, leverage will become more and more available as sort of the types of financial products proliferate that especially the thing that I invented with Bitmex called the perpetual swap. It's a highly leveraged derivative that we invented in the crypto space that's coming to equities that's already started on some decentralized platforms and it's going to become ubiquitous. Instead of creating a futures contract or optimist contract that we're familiar with, it's going to be perpetual swap on equities, on bonds, on crypto. And that is going to be very highly leveraged and gamified. What people need to understand is, and I tell these people, there's nothing wrong with leverage. The problem is that people are not dedicated professional traders. And when I say professional, I don't mean that you went to a fancy school and you got a degree that made your professional trader. I mean that this is your job. You live and breathe the market that you trade. You're on your phone all the time, you've got alerts, you go to bed, something happens in your market, you wake up and you deal with it. That is a very small sliver of traders. And if you dedicate yourself to this craft, you can become successful. What people don't want to do is they want to become successful without dedicating themselves to the craft. And so they want to work their job, do their passion, whatever it is, go on their phone for a few hours a day, trade, trade, trade, use the leverage, make enough money to survive and then that's it. And that's just not how it works. Right? It's not. The market doesn't provide you profit just because you got off of work at 6 o', clock, you've got dinner at 8, you got two hours to make your money. That's just not how markets work. Markets work however they want to work and they'll provide the profit whenever they want to provide the profit. And you need to be there studiously looking at things to be ready to accept it. And so I think people don't understand that. They don't want to put in the 24, 7, 365 mentality of trading. They want to trade two hours a day and make money. Therefore they jack up the leverage. They approach it like they went to the casino and what do you know, they get liquidated all the time. When you should never ever get liquidated as a trader if you use leverage correctly. And so my advice is, unless you are willing to dedicate yourself to being a professional trader, that this is your job, then don't use leverage long. Only pick things you understand, whether that's crypto or stocks or real estate or fx, whatever it is, pick something you understand, go long and you don't have to worry about these sort of things. And over time, if you are studious and you buy things that you understand, you should do okay. Again, that's not a sexy way to think about things.
- [43:00]
Tom
It's, it's. Well, it, it is sexy for anybody that wants A long term relationship. So for me, from a, you know, this is sort of the, the square's equivalent of dating advice. Instead of trying to bag chicks, it's, I want to fall in love and I want to get married and I want to, you know, have something that is prolonged and has meaning and purpose and all that good stuff. So I, I'm right with you. That is the eternal advice that I will give people. Now, for somebody that wants to do the fast and furious dry humping of the leveraged trade, how do you do that? Well, so you gave us the, you've got to be 24 7. Totally understood. Is there because there was a recent event where somebody got liquidated, like just some ungodly 6,000 bitcoin or some terrifying number. What did they do wrong? That we can all learn from.
- [43:55]
Arthur Hayes
So, you know, position sizing is the number one thing. Like how big is your position relative to the underlying liquidity? There's a big risk off event in crypto on October 10th started at Binance and spread to a bunch of other exchanges and essentially was a lot of traders didn't understand the product that they were trading. They didn't read the information that was given by the exchanges about how these things worked. Something happened to the microstructure of the market, adversely affected their positions. They didn't know what to do because they had never thought about it before, but it was all written down, been there for years. And so again, study your craft. Are you a professional trader? Yes. Okay, well then you better know every single way that your exchange operates. Right? People in the stock market found out during the, the GameStop crisis what settlement meant. What did DTC mean? How do these things interact with the exchange and the broker? And you know, your, your trading app, why were you locked out of the stock? Why wasn't it? Why weren't you allowed to trade? You didn't know the rules. So if you want to play the game, know the rules, study the rules, understand the rules. If you don't understand the rules, ask customer support. They want your money. They want you to spend time and effort on this app. If you don't understand something, ask them and they're going to explain it to you because they want you to trade and pay them fees. But if you don't ask questions and it gets ignorant and you think, oh, everything's going to be okay, then, you know, over leverage, things happen. Certain policies that the exchange has, you didn't read about kick into effect and all of a sudden you find yourself liquidated. You don't know why, because you didn't read, because you didn't dedicate yourself to what you're supposed to do as a trader, you should never, ever be liquidated as a trader. That just means you didn't understand what it is you're trading and you didn't size your position correctly.
- [45:30]
Tom
What are the things that people don't understand? How fast the market moves or how much collateral they need? What. What's like the common mistake?
- [45:39]
Arthur Hayes
I mean, so specifically this last incident in the crypto space, or this thing called automatic deleveraging, where because there was more losses than profits, some of the traders who had profit had to get their positions closed early. And some traders run these long, short strategies where they're losing money on one side, making money on the other. Well, what happens when the side that you're supposed to make back, you know, more than you lost gets closed out early? You don't make all that profit. All of a sudden, now you have a loss. And people thought, well, what is this thing? Well, it's been written about for. I mean, I almost invented it 10 years ago, and people didn't read this stuff when I wrote it then, they don't read it now. And CZ and the other crypto guys write about it on their own platform. So again, it's. You're trading a leveraged product. There are ways in which that leverage is created. Understand how that leverage is created. Understand the math, understand how the exchange police has that leverage and how it protects itself with its margin system, how the clearinghouse works. And I mean, I'm sure a lot of you like, whoa, this is a lot of information that I don't know. And I'm using these leverage products. I don't know if I want to expend this sort of time and effort to really go deep on this. Well, then don't use leverage. Just buy and hold. It's just that simple.
- [46:49]
Tom
Okay, so punchline being that leverage is basically for the professional trader.
- [46:57]
Arthur Hayes
You've already been on effort, not on knowledge.
- [47:00]
Tom
Right, right.
- [47:00]
Arthur Hayes
It's all about effort.
- [47:01]
Tom
Very fair point. So given the moment that we're in, given that you've got 10% of people that own 93% of all the assets, how can somebody today that doesn't want to trade on leverage, how do they get into the market and not feel predefeated by the fact that they don't have a lot of money to spend? And now if you're telling them leverage isn't for you, what's the play Time.
- [47:27]
Arthur Hayes
And compounding interest rates. So I was having, I was having a conversation with a friend and he happens to be a lucky soul that has access to a rent controlled apartment in New York City. And he was saying that rent's gone up, I think since the 70s, three or four times, whatever it is. So if you break that down and look at the compound annual growth rate, it's about 2 to 3%. Right? So a 2 to 3% compounding on a dollar gets you three to four times more money over time in an exponentially increasing fashion. So I think people need to understand very basic, the compound interest rate and time works in your favor if you're patient, if you're not patient, then those things work against you. And so yes, in the beginning it might look like, you know, the hockey stick isn't going anywhere, but then you hit an inflection point and then you go like that, that, and that's the whole point, is to be able to survive long enough to get to the inflection point. Invest responsibly. Invest in things that compound over time, even at a small rate, even 2% compounding inflation has taken the value of the dollar down 99% since 1913 when the Fed was created. So compound interest rate and time are your friends if you use it that way and they work against you if you use aggressive amounts of leverage and you're impatient. And so I know it's not the most sexiest message but, but patience, time and interest will get you to where you want to be.
- [48:46]
Tom
Yeah, I'm not worried about the sexy, I'm worried about the effective. I, I really do consider myself a evangelist for trying to help the average person like the people that already understand the market. There, there's plenty of people for them to listen to. I'm trying to speak up for the person that never wanted to understand this, never thought they would need to understand this, and they're just not able to get ahead. They can't afford a house like all of that stuff, stuff. So yeah, I want whatever.
- [49:14]
Arthur Hayes
Also the other thing that people instead of, instead of believe having the market do this for you, get politically active. Why are you supporting the same politicians? Democrat, Republican, Pick your political flavor and depending on which domicile you're in, who continue to you with inflation, stop supporting them just because this guy or girl went to the right, went to the right school, where's the right clothes? Oh, I need to support that person. They're fucking you change it up. So yes, you can say the market needs to save Me, because I'm unwilling to ditch all these politicians, regardless of the party, who over many decades have continued to fuck me. But I need to go and leverage the market instead of, you know, using this thing, my voice, my political activism. I know we have these things called the Internet and social media. You know, people can line up for hours outside of Louis Vuitton store. Why can't you get politically active and boot out all these guys and girls who are continuously you?
- [50:11]
Tom
Yeah, you're not wrong, and I have said something along those lines myself, but I do feel a little bit hopeless when I talk about that, because the very nature of a politician is to gain and retain power. And you have been very eloquent on the hard truth, which is that you don't get elected by promising austerity, you get elected by promising free. And free is exactly how you end up in the position that we're in now. So that one maybe of all the options feels the most hopeless to me because I, I don't think that anyone will ever get elected that is sincere about austerity. So Trump broke my heart when I realized, oh, he was never going to balance the budget. And when he put forward the big beautiful bill, I realized, oh, it's game over. Like, this is just a question of degree. So maybe the Republicans spend a little bit less than the Democrats, but fiscally they're both wildly irresponsible. So when you look at the next three years with Trump and power, what do you see? Is it just money printing as far as the eye can see? Is he going to be more like, is he going to be more effective at generating growth than the next person? What do you see?
- [51:26]
Arthur Hayes
Technically speaking, you can generate growth, reduce the debt to GDP and balance the government's balance sheet by going to, you know, a hyper growth scenario. But it's inflationary. Right? And so again, you need to have the right kind of job. Maybe it's a union job or whatever where you're able to negotiate high pay rises or you need to be in financial assets in that situation, like in the COVID area era, right? You had a lot of these unions that have been dormant for many years, being able to negotiate 30, 40, 50% pay rises for the workers during COVID because everybody knew them at that period of time and they had had the power. And if you take a look at the years from 2020 to 2022, the US debt to GDP actually declined because they ran this hot economy model again. It produced a lot of inflation, which pissed a lot of people off. But that is the way in which the textbook way and Trump invested say this. So this is what they want to do, that you can deleverage the government's balance sheet, which as politicians who work for the government, that's their number one job, is deleveraging their own balance sheet. And sorry for the inflation that we generate. I hope you have a good job and you bought some financial assets. That's what they're going to try to do. And obviously you have the Mamdanis of the world on the left who are like, hey, I can produce better free shit rhetoric than you, Trump. And therefore I am going to win the mayoral election in New York and state elections in Virginia and New Jersey and all those sorts of things. So Trump is a non ideological politician. He wants to win. He is the most prolific president since probably ever. He lost his stimulus checks. He was the first president to hand out money directly to every household at 200 million households. No other president has done that before like Trump has done it. So to say that he is against socialism just doesn't. You don't remember what happened in 2020. So he's going to do something similar again because it's very popular. And then the question is, okay, well, if you get a stimulus check for or whatever it is, whether it's your house price goes up or there's a check by the government, how are you going to make sure that you leverage that money in the most effective way? If you're not going to advocate for change, fundamental change in the political system and then that is okay, well, it's bitcoin, it's a house, it's S P500. It's whatever it is you feel, it's gold, right? It's these sorts of things that you feel, feel comfortable with. But Trump on one side, Mandani on the other, they're kind of saying the same thing. They have different styles in which they say it. Whether or not you support them or not is not the point. They're both kind of saying the same thing. And I think once people realize that, then it's like, okay, well I'm going to get this money from the government instead of going out and buying a new washing machine or, you know, going to Vegas or going on vacation. How do I make sure that that parlay that into, you know, above trend growth in my financial assets.
- [54:14]
Tom
That's it for part one. Make sure you are subscribed so you do not miss part two. Coming up soon.