Loading summary
Transcript48 lines
- [00:01]
A
Hi, everyone. Welcome to another episode of Bits and the Interview. My name is Steve Ehrlich, head of research at Sharplink and also your host. I've got a really exciting guest for you today. We have Charles Myers, the founder and CEO of Signum Global Advisors. Charles is an experienced foreign policy executive. He has a long bio which I'll ask him to provide in a second, but he was a senior foreign policy advisor to Hillary Clinton in 2016, Joe Biden in 2020, and he also has, he has had a distinguished banking career. Among other, among many things, he was the vice chairman of the investment bank Evercore. So welcome, Charles.
- [00:40]
B
Great, thanks for having me.
- [00:41]
A
Yeah, I've actually, as you know, I've been wanting to have you on the show for, for a little while now because the intersection of geopolitics and the economy, it's always hard to ignore. But I wanted to wait for a time that, that really made sense. And with everything going on in the world today, both domestically in the US and then around the world, there were high stakes diplomacy in Geneva yesterday related to Iran, stuff going on in Venezuela. There's a summit in China next, I think it's in April. And just everything in the US Again, like this seemed to be a perfect time to bring on someone with your, your type of expertise. So before we dive in, just have to take a very quick break break so that we can hear from the sponsors who make the show possible. All right. So Charles, I mean, before we dive in, I mean, just quickly, is there anything else in your bio I didn't ask that you think is relevant for the conversation? And I'd love for you to just spend 30 seconds explaining what your firm does.
- [02:03]
B
Yeah, no, absolutely. So we are a geopolitical and macro risk firm. Given what's been happening in the world for the last sort of three to four years, we're spending a lot more time on the geopolitical risk part of the business. But we're 22 partners in seven offices around the world and we focus on all of the big volatility events that are happening, whether it's what we're about to maybe do in Iran, whether it's leadership change in Venezuela, Cuba, Greenland, tariffs, elections, the midterms, anything that is driving volatility in markets, asset classes or economies we cover and we focus on and help our clients try to figure out what's going to happen next.
- [02:45]
A
Yeah, and it's funny, I actually remember, I mean, almost a decade ago when you're first launching the firm with a mutual friend of ours Angie Dalton and the growth. I mean, I've been following progress for four years on LinkedIn. Every seems like every other year, a new office, a new partner, a new continent. So the growth has been impressive. All right, so let's really kind of dive in here first. I guess my first real question is, how do you make sense of everything? In my lead in, I mentioned, like, five different hotspots, and there's plenty of others I did not mention. I mean, there's all the issues in the U.S. all the questions about what's going to happen with the Fed. I mean, the Supreme Court overturning Trump's tariffs. And then we might be at war with. I'm sorry, at war with Iran again, I guess, for the second time in less than a year. Like, how do you make sense of all that as you're trying to understand the interplay with markets and provide advice to your clients?
- [03:31]
B
Yeah, well, I'd say, you know, each situation is definitely different. The dynamics are different, the players typically are different, and the outcomes can be very different. And so in geopolitical risk, there's a tendency, because people like certainty, investors especially like certainty, to want to find patterns. It's also why, you know, we hear quite often from people, you know, you've got to figure out AI for your business. You've got to figure it out. The truth is, AI, as you know, ultimately just recognizes patterns. There are no patterns. To answer your question, there really are no discernible patterns in geopolitical risk because, again, actors, motives, objectives, and outcomes are always different.
- [04:13]
A
Yeah, well, I guess, I mean, I don't know if challenge is the right word, but, I mean, I actually studied, we may have talked about this years and years ago. I actually studied geopolitics in graduate school. I worked for a political risk firm before I really got into crypto and spent years working at the Pentagon. I mean, you've studied this obviously extensively, too. There are patterns. I mean, whether it's like realism or neocon liberalism. And people are trying now to make sense of Trump's foreign policy. What does America first mean in a world where we're kidnapping Venezuelan leaders, launching, I guess, preemptive or preventive strikes in Iran. I know. Marco Rubio, I guess, a couple of weeks ago in Europe was discussing sort of this new sort of like empire building type of strategy, like how I'm sure your clients ask you to sort of provide your formulation of what the Trump foreign policy is and how that sort of relates to great power rivalries in this new century. So what do you say, yeah, absolutely.
- [05:08]
B
So just to pick up on that first point that you made in the past, there were frameworks, historical frameworks that actually did work in geopolitical analysis. The problem is with, or the challenges with Trump being back, a lot of those frameworks you have to throw out the window because this is a president and an administration that doesn't follow rules, laws, convention, sometimes the Constitution, but also doesn't respect treaties necessarily. And I'd argue that even before Trump or during Trump won, but since COVID and the invasion of Ukraine, the world has changed so fundamentally. The United States today is engaged in classic industrial policy to help secure our supply chains, reshore protect American industry. We're engaged in extreme protectionism as well. So those historical frameworks or patterns, actually, it's very risky. I think you try to use those and apply those at your peril. In a way, the one framework that we use that I think is very relevant, and it's one that's been really hard for, I'd say, a lot of people in the US and especially people outside the US to really get their heads around is something we've been saying for 13 months now, which is that America first was always going to be, and has been now proven to be, but was always going to be about more than just domestic priorities. Most people assume because President Trump ran for a second time as an isolationist and on America first, that he would focus primarily on domestic issues. The truth is, America first was always also going to be about foreign policy and within that, pretty aggressive protectionism. Again, a tariff policy that's been very aggressively applied around the world. And secondly, a much more assertive, muscular, and I would argue expansionist slash imperialist foreign policy. I think looking back three years from now, we will probably have realized that we will realize that the Trump administration has been the most imperialist, expansionists and imperialists since George W. Bush. So on this broader question of frameworks or trying to analyze what's going to happen next, keep in mind the 1:1 constant is America first also includes foreign policy, which also includes regime change and the use of military force if necessary.
- [07:26]
A
Yeah, it certainly seems, seems that way. And we're going to get into a few of those hot button issues. But before, before we do, I'm just curious. I mean, your client base, it's a diverse, it's across a diverse set of industries, but I mean, there's a few big trading trends that I've been hearing about. And this cuts, again, this is mostly a crypto show, but bits and bips is meant to be sort of crossover between broader macro tradfi trends and crypto. I mean, what are you seeing in terms of the sort of defensive and offensive positioning among your clientele? I mean, we've been tracking, I mean, obviously, gold, precious metals surging, what's going on with the dollar and Treasuries. I mean, clearly, again, because this is mostly a crypto show, there's a bit of, I guess, disheartened, disheartening among the crypto industry because bitcoin and other assets have not quite moved in a, I guess, in a commensurate way with precious metals, even though those assets are supposed to sort of fall along those lines. What are you seeing and how are. Yeah, I mean, how are your clients really kind of approaching some of these safe havens in a world of turmoil?
- [08:34]
B
Yeah. So I'd say at the moment, and really, for the last couple months, the two biggest trends that we're seeing with Global investors, including U.S. but U.S. and global investors, is first, this serious questioning about the safe haven status of the United States. And within that, it's everything from concerns about will we have an independent Federal Reserve through to election integrity, all the way through to is Trump gonna try to stay in office for a third term, and is democracy dead in America? The answer is no, of course, but really deep concern about some of the institutional damage that's being done by the Trump administration. And ultimately, is that undermining the safe haven status of equities, US equities, the dollar, and Treasuries. And so that theme now has a name, which is Sell America. I just got back from three weeks, literally through the Middle east and seven cities in Europe. I've never seen sentiment this bearish towards the United States, really. And it's not just unique to Europe. It's much broader than that around the Sell America theme. And so we're not seeing it yet really in action. The. The data doesn't suggest yet that they're really. The investors are taking their US Overweight down necessarily, but I think there's a lot of concern. Yeah, yeah.
- [09:54]
A
Oh, I'm sorry. I was going to just follow up on that because I remember Sell America was a really big deal during Liberation Day back in April, and then it kind of, I guess, fell away a little bit when I guess, some of the deals started rolling out. Or, or I guess the. The taco trade quote, unquote, sort of showed itself again. And people remain overweight to the US in particular because of tech stocks. So I guess what you're saying is still that sentiment is there, but people are not quite ready to, to fully de risk from the US or.
- [10:26]
B
Yes, yeah, I think, you know, any investors that took some of their US overweight down, you know, a year ago into April, into Liberation Day, they did that, but still remained mostly overweight. And since then that's been the right call because from the low in the US equity market in April, the markets had an incredible run. And, and so I think that what has changed though is that the concern about the US there's been more perceived institutional damage since last April and that in the governance part of esg, the governance part of any investor's investment process, in terms of looking at country risk, the perception is higher. It hasn't yet translated into actual selling or taking that overweight down. So and if I can really quickly, I think that the concerns, I understand them and I answer all of them. I spent a lot of time, you know, trying to answer them or address them, but I think those fears are overdone. We will have an independent Fed, we will have free and fair elections and the US economy is in very good shape and probably going to grow above 3% this year. So, but, but just to say that's been one of the biggest trends. The, the other big trend is the AI displacement trend or fear of displacement, which is basically a very painful but in a way healthy rolling correction through the AI space that is primarily in software. It's made its way through parts of financial services. I think the AI infrastructure pieces next, which is going to be bigger and more painful. But, but those are the two big themes that we're seeing from investors at the moment.
- [11:52]
A
And along those lines, I mean, right before we, we went live, you had Senator Raphael Warnock from Georgia, a Democrat, in your office. And, and I know you mentioned that you guys were discussing some of these, these key issues. I would imagine a lot of people watching here would, I guess be heartened to hear that there is going to be remain a quote, unquote independent Fed. I guess perhaps that depends on if Kevin Warsh is I guess, approved to, to replace Jerome Powell. And it seems like that may depend on what happens with, with the investigation into Jerome Powell. I mean, what is your sense on that? And maybe you could just share a few other key insights that you got from Senator Warnock.
- [12:31]
B
Yeah, well, first, just on the Fed, I think Kevin Warsh is an excellent choice. I think he's going to be a great Fed chair and the Fed will remain independent, it will remain data dependent and I feel very Good about that. I think that the other kind of related question though and it came up in our meeting with Senator Warnock is the and it again comes back to that key or central concern about governance in the US and the safe haven status which is why aren't more of the guardrails working in the US the only guardrail that's really working in the US today and for the last 13 months has been the bond market. The the Trump put in Trump 2 is the 10 year yield in Trump 1 the Trump put was equities. Whenever equities corrected 3 or 4% the Trump administration would course correct today they care about equities but what they really care about is the bond market at when the ten year goes to four and a half they will, they get nervous at five they will course correct on almost anything. And so that's the guardrail that's working. A second guardrail kicked in just last Friday with the Supreme Court's decision on IPA on tariffs ruling against the president President again the Supreme Court proving that on key issues they are a guardrail. And then third and it came up in our meeting with Senator Warnock is the Democrats are very likely to take the House and a Democratic House next year could serve as another guardrail. We'll see if the Senate's actually in play or not. So so I think that again some of the most bearish assessments of the US Are overdone and the guardrails are kicking in and will work.
- [14:01]
A
Okay, well that's, that's good to hear and I guess maybe then you kind of have, have an auspicious outlook for the U.S. let's, let's turn internationally in the time we have left because that's what I'm really interested in speaking with you about. There was a high stakes meeting on Iran yesterday I guess between the US And Iran and I believe Oman, Omani diplomats were in the middle because the U. S and Iranian delegates didn't actually speak with each other. And I'd love to just kind of get your sense of what's happening there. I mean I know there's going to be more talks next week but Trump certainly likes to surprise sometimes with attacks. It's the largest I guess military buildup in the region since the early 2000s. And I know some people are wondering if President Trump is really willing to theoretically walk away if he gets what he wants from negotiations with that much firepower in the region.
- [14:55]
B
Yeah, I would say on Iran first, the meeting yesterday in Geneva led to an agreement to continue talking and meeting again next week. So I don't. There was no great breakthrough. There was no major moment. But the two sides are still talking and have agreed to continue the broader question on Iran and whether the US Is going to strike militarily. I think just to first make a sort of important context point, which is President Trump, to his credit in this situation, as in almost all situations, has defaulted to his primary objective or his primary MO which is to negotiate. He always wants to negotiate first. He would like to get to a new nuclear deal with Iran. And again, to his credit, they are trying very hard, the US to get to a new deal to avert the alternative, which is a military strike. And I think that, you know, in the very short term, given that not much progress is being made diplomatically, there could be a smaller military strike to try to force Iran's hand a bit more. But if diplomacy fails between now and say right after President Trump and President Xi's meeting in early April, again because China doesn't like what we might be doing in Iran, I think we should expect a major military strike. So diplomacy is still very much on the table. Could see a smaller strike. But if we don't get to a deal where Iran essentially agrees to no enrichment and a much more limited ballistic missile program, expect a major strike which will ultimately lead to decapitation of the regime.
- [16:33]
A
Obviously a few follow ups there. And I wish I could honestly speak with you for hours about this topic because that's what I used to do for my previous job in grad school. But I mean, what do you mean by like for instance, a limited strike versus a major strike? A lot of people are trying to draw parallels between what happened in Iran and then in Caracas. But Caracas, I think is 10 miles from the ocean. Tehran is, is deep into the, the internal part of Iran. And then again, I mean, not to tie, we're gonna get the Venezuela next anyway. But the US Seemed to be pretty successful at getting President Maduro's, I believe, his vice president to kind of play ball. Whereas in Iran with decapitation, as we've both seen time and time again, that doesn't necessarily mean regime change. It could just ayatollah Khamenei is 87 years old, something like that. So there has to be a successor plan in place. And it's not like the IRGC would just go away. So I mean, what do you, what do you see there? And again, because this is a macro trading show, what are you seeing in the markets? How are clients reacting? And, and are there any Aside from just like the impact on oil, energy, commodities, are there any sort of real takeaways that our listeners, viewers should keep in mind?
- [17:51]
B
Yeah, so I think a couple things in there. First, you know, the very stark differences between what we did in Venezuela and what we are likely to do in Iran. Just highlight again that there are really no discernible patterns in foreign policy and geopolitical risk because they're very different situations and both our strategy and possible outcomes are very different. On Iran, limited strike, I think means somewhat surgical ballistic missile strikes on key government buildings, nuclear sites and some military sites to force Iran to move faster on getting to a nuclear deal. I don't think that's going to work in the end. So I think it probably leaves on the table a larger military strike in April. And what that looks like, I think is to your question on are the markets trading this correctly or how to trade it? I think the oil markets have been trading the situation in Iran so far very well or correctly, which is we have an elevated price of oil, meaning geopolitical risk is now there's a geopolitical risk premium in the price of oil and has been for the last two months because of the possibility of a strike. I think what is. And so I think oil is trading where it should based on the information we have now, if we get to a major military strike, which we think again would be more like April, once Trump has exhausted all diplomatic and other options. I think what's underestimated there is how big it will be. And I think it'll be 2 weeks, 10 days, 2 weeks of shock and awe, meaning hitting everything from nuclear, government, military sites, combined with a huge surge in, in cyber and other asymmetric warfare, including a wave of assassinations, including the religious leadership. So the goal there to just on the third part of your question on decapitation, what that means is ultimately trying to identify a group of generals that will ultimately negotiate with the US Agree to what the US Wants and be much more, you know, outwardly engaged. The challenge here is identifying who those people are. And so one last quick point. You know, decapitation of the regime is actually regime change. Unlike in Venezuela, that was leadership change. The risk of it in Iran going incredibly wrong is much higher. And I think that's where looking out a month, month and a half, we could see a much bigger risk off move. And I think oil spiking probably higher than people expect.
- [20:22]
A
And it's, I was going to say, and I mean, it's interesting too. I mean, America first and Trump has certainly shown proclivity to US Military power, but at the same point he tries to shock and all quick strikes, but so far has managed to avoid protracted conflicts. And, and to be perfectly honest, I mean when he took out the head of the IRGC last year, I thought that was going to be a big problem. I mean even something like moving the, the US Embassy from I think it was Tel Aviv to Jerus Jerusalem during I guess his first administration, I, I thought that was going to create a huge problem and it didn't. So, so maybe some of us do overestimate the risk. I do want to ask you one, I guess fun question though. I'm curious what you think of Polymarket and prediction markets because as, as you were talking I pulled it up on my screen and there are dozens, literally dozens of different markets where you can bet on US strikes on Iran by March 15th. Next US strikes. Strikes like today will come in a be out as supreme leader by the end of the month. And there's lots of different examples there. I'm curious your thoughts on that. I mean, do any of your clients trade on these markets? Please, please.
- [21:28]
B
Well, let me just say I personally, this is not a House view, but I personally am a big fan of the betting markets. I think that, you know, predict it's been very good. They've gotten better at predicting our election results. And now with Polymarket and Kalshi, they, you know, these betting markets have been, they were very precise and very good at the 2024 election and you know, have kind of a mixed bag on some of this other stuff, including probably some of the hits on Iran. But, but, but I'm a fan of it. I think, you know, I do think they're going to run into some regulatory headwinds on some insider trading issues and that's a regulatory issue. But overall, you know, being able to make bets on political or other outcomes, not just sports, for example, I think is a good thing. So no, I'm a fan. I'll give you one trade that I think is a really no brainer on the markets, you know, and it's political. But Don Jr. Has a 1% on polymarket. On Kalshi, I think it's 2%. But, but a 1% probability of being the Republican nominee in 2028, that is way too low. That's the same odds today on Polymarket as Kim Kardashian has for president. And I'm here to tell you he's got a 10,000, at least a 10,000 higher percent probability so I would make it, I would take that trade if even if the contract goes from $0.01 to $0.10, you've made money. Don Jr. Is a very, very viable possibility for the Republican ticket. Top of the ticket in 2028. So no, I'm a fan of the betting markets. Again, it's not for everyone. I don't think gambling is good but it needs some regulation. But I think it's, it's been a really interesting indicator and to your question, a lot of our clients now follow the betting markets very closely.
- [23:09]
A
Yeah, please. Yeah, yeah. I mean it's funny, I think I remember the odds on Aaron Rodgers being the vice president. Who was it for? It was the vice presidential nominee for RFK Jr. Was that, I think there was a possibly.
- [23:23]
B
Yeah.
- [23:23]
A
Anyway. But yeah, I'm curious, I mean just the prediction markets, I don't know how deeply you've studied them. I mean insider trading is, is obviously a concern. Even though the laws on insider trading for what's something quote unquote regulated by the CFTC is different than, than like traditional insider trading laws with the sec. But yeah, I mean, I mean according to Polymarket, like Israel is going to strike Iran by March 31st. There's a 63% chance. 23% haman is out of Iran by March 31st. There is, it's a 50, 50 probability basically that US is going to strike Iran by March 15th. Do you, do you foresee any issues with like perhaps the tail wagging the dog here or like, or I mean there's been so many issues are examples of people front running certain trades and making a significant amount of money and I wonder too sort of, I guess like the morality of betting on things, things like this.
- [24:25]
B
Yeah. I think you know again just whether it's our, you know, our firm or most the vast majority of our clients to the extent that because we do follow the betting markets very closely, it's one input and I think everyone understands that. Right. It's one indicator. It's not an overarching indicator. It's not necessarily the most accurate but it's a really interesting indicator and certainly should be looked. Secondly, there's blatant insider trading. I, I, you know if you look at the, the one, there was one person that made a huge amount of money betting on Maduro being out.
- [24:55]
A
Yeah. Like hours before or something. Yeah, yeah.
- [24:58]
B
And, and there's been some front running of some economic data so there's clearly some need for a little more regulatory oversight I would argue. So, so, but, but barring that, you know, on the morality question. Look, financial markets and morality have never really intersected. I, I don't know how to say that diplomatically, but, you know, at the end of the day, people are going to invest and bet mostly on where they're going to get the highest return. And I think the betting markets are kind of an extreme example of that.
- [25:26]
A
Yeah. So it's funny. I'll give you a funny example from a crypto point of view that you may not have seen. So there's kind of this online sleuth, he goes by Zach xpt, he's pseudonymous. And he published a big investigation yesterday into some serious insider trading allegations at a crypto exchange. And then apparently there was a poly, there was a polymarket market on which exchange was going to be made, and somebody made a very advantageous trade at the right time. So there was insider trading on the insider trading.
- [25:56]
B
Yeah, that is, it's, it's, it's fascinating. But I think that, by the way, the regulation will come or the oversight will come. Yeah, I do think that the future is very bright for these, these companies. Also, Don Jr. Is a paid advisor to call. She and the Trumps actually are actually both.
- [26:11]
A
He's on both. He's on both boards.
- [26:12]
B
I believe they own part of Polymarket. So I would say for the next three years at a minimum, the outlook is pretty bright.
- [26:18]
A
Okay, I know we only have a few minutes left. I want to turn to Venezuela quickly. From last I heard, you're going to be leading, I believe, the first foreign business delegation into the country next year. Just briefly, kind of just talk about, like, what you're looking to accomplish. And I think to again, bring this back home to my audience. I mean, the US Is selling Venezuelan oil. How could all that sort of impact the US Economy, the US Deficit, especially in a world where Trump's tariffs were just, I guess, invalidated and the US could have to pay 100 billion plus back in tariff rebates.
- [26:54]
B
Yes. So, first of all, Venezuela, let me just say at a broader level, part of the theme that I mentioned earlier, that America first now. Absolutely, you know, applies to more than just domestic policy. It also incorporates foreign policy, including a much more assertive or aggressive one. And, and within that, for our hemisphere, the Monroe Doctrine is back, and they've renamed it the Donro Doctrine, which I'm convinced the President named himself. But the Monroe Doctrine is back, which stipulates that the United States can use, has every imperative, moral and other, to dominate our hemisphere economically and militarily, including regime change, if there's any perceived threat to the national security threat. So on Maduro specifically or on Venezuela, the Monroe Doctrine was somewhat invoked. The other thing I would just say on Venezuela is, and this is somewhere again, where I give the Trump administration a lot of credit because any other US President would have really harped on what we needed to do or did in Venezuela by saying it was about democracy, democracy, human rights, it was about drugs, it was about getting Cuba out and rush out of our hemisphere. It was about all of those things. But actually the Trump administration, it's about oil. And let's be clear, Venezuela was about oil. And it's partly to your broader question of kind of how the markets might view this over time. But the Trump administration have had a very explicit and very clear strategy, energy policy to bring the price of oil down into the low 50s. I think oil, once we get through what we do in Iran or don't do, but oil will be trading in the low 50s later this year. And part of that is bringing much more Venezuelan production on stream, ultimately getting to a new nuclear deal with Iran, either this government or a different one. Iran can export more oil legally and a ceasefire in Ukraine possibly by the end of this year. More Russian oil. The world is awash in oil. I think there's actually a lot more supply coming on and that's an intentional part of the US Strategy to bring down the price of oil to address the number one issue in our midterm, which is affordability. And the Trump administration has done a pretty good job of bringing down the price of gasoline because of the price of oil. So, so I think that Venezuela is, is central to that last quick thing on Venezuela. We are taking now 55 clients. We turned it into a conference in Caracas, March 22 because of huge demand. Any crypto clients, not crypto. Interestingly, I think it's just a bit early. There is use of stable coins in some crypto in Venezuela, but it's just a bit early. It's mainly oil and gas infrastructure, insurance, banks, chemicals and asset managers that own the defaulted bonds.
- [29:38]
A
Well, there's rumors that the, the Venezuelan government sitting on billions and billions worth of Bitcoin. So maybe you guys can, can find it while you're down there.
- [29:45]
B
I will ask, I will ask when I'm on the ground. But, but I think the outlet for Venezuela is incredib. Whether you agree or disagree with what we did, there is no scenario in which the Venezuelan people would have been better off under Maduro. So I think the future from Here on Venezuela is they have a guaranteed income stream, which is oil. The only question and only variable is how fast that income stream grows. I think it'll be faster than most estimates. A huge win for Venezuela. Cuba's next there will be government or leadership or regime change in Cuba. We are going to get to a deal on Greenland and you know, we will have regime change or leadership change in Iran. So a lot happening in geopolitics and I think the one constant is keep in mind this is a much more imperialist and expansionist administration. I would argue the most expansionist since George W. Bush. And they're just getting started.
- [30:40]
A
I know we're just about of time. Do you have time for one or two more quick questions please? Because yeah, there were two other things I wanted to ask you before we'll wrap up.
- [30:48]
B
Sure.
- [30:48]
A
One, I mean we're, we're talking today on a day when OpenAI just announced 110 billion dollar investment. I saw plenty of this. Dr. Evil means like a hundred billion dollar. But it did get me thinking again. I mean last couple decades they were dominated by the Googles and Facebooks like those, the, the GAFA companies or whatever the acronym was it where they became state actors in their own right because of their power. Today it's AI companies, the voracious appetite for data centers, energy, etc. And they're going to be the new, the new GAFA companies. Like, like how do you see them sort of playing in a world of now like great power, power rivalry and especially now like Donald Trump. I think they, the rumors they were going to it was reported in the fc I think right before we came on that they're going to try to spin out truth social and kind of lean into nuclear energy. So they're getting involved in all this. Like how does that dynamic play out? And then I guess just to again be considerate of your time, the other thing I was going to ask too is in this world of like Trump capitalism where the US government has golden shares and things like US steel and is taking 10% of intel and I think it's getting royalties from Nvidia sales into China, like how does all that play play? And I apologize, I know it's a bit of a long question, but I just wanted to get this to you.
- [32:10]
B
It's a lot in there. Let me answer them in the reverse order because the second part is a shorter answer. But again, as I mentioned earlier, the United States today is engaged in classic industrial policy. It started under Biden with chips, IRA and infrastructure. Trump came in, kept most of that and then has put industrial policy on steroids, which is protectionism, tariffs and government taking stakes in companies. You mentioned a bunch of them. There's also the rare earths companies that the government's taking direct stakes in and I think we will continue to do more of that. So again, it's very much a part of the industrial policy that began under Biden and is being accelerated by Trump in part out of national security to secure our supply chains, encourage reshoring and reviving the manufacturing base of America, protecting American industry protection, protecting American jobs. So expect a lot more of it. It brings me to your first question, which is OpenAI and AI companies generally. I have a very unpopular view of this controversial view. OpenAI does not have the most advanced or sophisticated technology and I think ultimately when the CFO last year in November said they may need a government backstop or they would get one, I think that if necessary, the government would take an equipment equity stake in OpenAI. They just raised the 110 billion, but from three existing shareholders, three shareholders that have the most to lose if, if things don't go well. And they also raised it at a lower valuation than they initially had hoped to, which is 730 billion, not the 850 they were talking about a month ago. Not a good sign either. So. And they're preparing for an ipo. Maybe they do ipo, they'll buy even more time. This cap raise gives them time. We have a long history of US companies IPOing that have no path to profitability. But on OpenAI specifically, the math is just science fiction. There is no mathematically, I'm willing to debate anyone either be proven right or wrong in the next six to nine months. Mathematically, these OpenAI will not be able to deliver, forget about earnings, they're not going to be able to deliver on sales estimates to justify the valuation at which they're raising capital today. So I think that AI is so critical to everything we do and to national security. I think you could see the government become a bigger player there. Not, not in terms of regulation. This is a very regulation light administration, but probably needing to backstop, potentially take a stake in, in open AI, which would be very controversial, but they would do it. Yeah.
- [34:36]
A
Although I think the markets would appreciate it because if AI goes down, Nvidia goes down, the rest of the market goes down. So I guess.
- [34:43]
B
Oh, absolutely.
- [34:44]
A
Oh, no government put on on all of that?
- [34:47]
B
Oh, absolutely. No. The reason the US will bail will backstop open AI is exactly what you said, it's, it's. And, and by the way, if OpenAI needs a backstop ultimately, and that would be six to nine months from now. It's, it's, it interesting. Would not be a credit event for OpenAI. They have almost no debt. It's the collateral damage to everyone else. Amazon, Microsoft, Oracle, you know, the, the collateral data centers, real estate developers. The collateral damage would be absolutely very painful. And secondly, OpenAI is the centerpiece of Trump's AI moonshot, which is, you know, Stargate is OpenAI and SoftBank. So, so it'll be bailed out for the right reasons if necessary. Yeah, but, yeah, so, but, but overall I'm incredibly optimistic as most people are on AI. I think the displacement trade which is playing out now is a little overdone, meaning people are just selling everything first and then trying to ask questions. It's going to create some really, if it hasn't already, interesting buying opportunities selectively within software, within parts of financial services that have been hit and ultimately, like post the Internet bubble, you know, what's going to emerge here through some of this somewhat painful correction is will be two or three national champions. And Google, by the way, is absolutely one of them. They have incredible technology and they have the resources to keep building. But there will be others. Anthropic is good. I worry about anthropics taking on the Department of, of Defense or Department of War. I understand why they're doing it. I admire them for their principal position on this. Taking on this administration, though, has usually not been a great strategy, so we'll kind of see how that plays out.
- [36:22]
A
Yeah, and actually, I think OpenAI just, again, right before we came on, it was reported in the Wall Street Journal that they're having similar discussions now with the DoD so they can take on classified information, but Sam Altman seems to want the same types of restrictions. I'm not quite sure how that's going to fit understandably, you know, but yeah, I mean, otherwise. Charles, I mean, thank you for joining. I mean, before I let you go, I just want to give you the chance to share any other final thoughts on what's going to happen in the rest of the year, either domestically or internationally or again, I know your firm doesn't primarily focus on crypto, so I didn't want to belabor that topic too much for you, but if you do have any thoughts on, on Bitcoin and how it sits alongside gold or other types of equities, I'd love to get your thoughts on that as well.
- [37:06]
B
Absolutely. You know, I have again a very unpopular view on crypto generally. And you know, when you're, if you're old like I am and you have, are remotely skeptical, everyone just assumes, you know, they say you, you're too old, you don't understand it. But, but let me just say on crypto I think bitcoin has a big future. I'm much more optimistic by the way, on stable coins. I think the genius act was absolutely brilliant, absolutely incredibly important to ensure that the most liquid stable coins going forward will be $pe. Very positive for the US as a reserve currency, the dollar as a reserve currency. And I think stablecoins will be the, the overall adoption is only going to accelerate on crypto itself. Look, I, I, where I've come out on this is where I always do, which is, you know, it doesn't trade on fundamentals. It is not a risk hedge, it's not an inflation hedge, it is not a store of value and it is not a medium of exchange. No one really buys anything with bitcoin. The average person doesn't. Maybe many people in your audience do. But, but you know, these currencies do not trade on fundamentals. They have incredible moments of bullishness and then they have incredibly painful periods of, of correction. I don't know what it's going to take to finally clear some of that out. But given the huge amount of retail and other often speculative money that drives these, especially the bull runs, I'm not very optimistic on the outcome. Doesn't mean it can't be back up at 120,000 at some point, but it will not be on fundamentals. So I'm very skeptical on, on these cryptocurrencies.
- [38:40]
A
Yeah, I mean that's something that I think most responsible players in the industry would like to see change. I mean speculation can be a good thing but, but it also can have perverse incentives. And I think the goal is to find those like those real monetary premiums or use cases for different assets so that you can sort of build models and, and find out what this fundamentals are. I know that's something that, that people are working towards, but I, I do appreciate your honesty on this.
- [39:05]
B
Let me know, can I have one more thing on this because you know, again, you know, there I came from the sell side. There's a number of sell side, very smart sell side analysts that cover crypto. The, the reports they've been putting out in this most recent correction have been, you know, saying, trying to explain why the, why bitcoin has sold off so much is, has been, have been things like, oh, because of Iran risk or oh, because, you know, it's, it's for all the reasons that Bitcoin was actually not supposed to correct. It should actually be going up. So, so, you know, I, I think that until the average American, not even the average, until, you know, a majority of Americans can use Bitcoin, for example, to go out and seamlessly buy something that they need every single day, it will continue to trade as a very speculative asset.
- [39:51]
A
Yeah, no, I, I, again, I, I agree with that. I mean Bitcoin safe haven, but sometimes it's kind of like the doomsday haven. Like safe haven may not be a strong enough of, of word. And then again, I mean there's other assets, Ethereum, Solana, like other ones that are focused on other use cases that aren't meant to just be a, a safe haven. But it's early and I do appreciate your, your candor on the subject. Anyway, Charles, I mean, thank you so much for, for joining. We'll have to have you back when there are other geopolitical factors at play, hopefully not war with Iran because I think we both agree that there's going to be repercussions that no one can anticipate there. But otherwise, again, thank you so much for the time. Thank you to everybody for watching and listening. And we'll be back next week with another episode of Bits and the Interview.
- [40:34]
B
Great. Thanks for having me. Steve, good to see you.