Laura Shin (4:06)

And you are such an OG bitcoiner. So I'm curious why you think that this is happening with gold and not bitcoin and why you moment we're going to announce your new company, but why, you know, are you in particular focused on gold more than bitcoin, considering how early you are in bitcoin.

Vinny Lingham (4:24)

So bitcoin has, has not reached the levels of liquidity that is required for it to be a global reserve asset. $2 trillion is just not big enough. It's smaller than Nvidia. It's smaller than a whole bunch of companies in the world. It is not big Enough. And we can go through the reasons why that, why we haven't gotten there. But I think that it's, you know, when I got into bitcoin it was peer to peer electronic cash. It was supposed to be highly liquid, lots of transactions. And then it became like, well, less transactions because it's gold, should be more expensive to move, et cetera. And so we went from a world where bitcoin was being used. Even Expedia had bitcoin at one point, right. And it was being used, the payment mechanism. My company gift in 2014, 2013, we had a Bitcoin, we did like 5% of all blockchain transactions back then. And it worked great, right. But then there were a bunch of changes made to bitcoin so it ceased to function as a, as an electronic cash currency. And the narrative was changed from digital cash to a store of value and digital gold, right. So then the narrative was let's go compete with gold and create this asset that people can trust. But bitcoin is very volatile, right? And gold isn't. And so, you know, maybe when bitcoin or if bitcoin gets to some high level number, it can be used as a, as a reserve asset or currency. But right now central banks around the world are not allowed to buy gold. They're just, they can't. So when you're running a population of billions and billions of people and the central banks that run these economies cannot buy bitcoin in times of crisis, they buy gold. Guess what's going to go up? It's going to gold, not bitcoin. And so I, yeah, I mean I have a lot of thoughts on the whole bitcoin thing. We've spoken about it over the years. I think bitcoin is in some ways failed to live up to the promise of what digital gold was supposed to be 8, 9 years ago to it is right now. Like 9 years ago when Bitcoin hit 20,000. If you said, hey, Bitcoin will still be under 100k in 9 years time, no one would have believed, believed you. We're like, no, no, bitcoin is going to be over a million dollars by then. And it's just sold, right? The growth has sold in bitcoin. Now again, it's not okay, but it hasn't been the top performing asset in the past four or five years. Gold has.

Laura Shin (6:39)

How are you personally allocated? So of the pot that you've allocated to both bitcoin and gold, what percent is in bitcoin and what percent is in gold?

Vinny Lingham (6:48)

I'm very, very light on bitcoin just because I mentioned I'm heavier on property personally. So I've moved out of the, the crypto world for the most part. So it's more, you know, fixed property, equity investments, companies, cash flow generating, you know, businesses, that sort of thing. And then, you know, and then gold within the portfolios is just good to have. So, so I'm, you know, when it comes to crypto I, I've really felt that especially over the past couple of years, there's again a lot of reasons for it. But I think that if you, it depends what, what you want, right? If you want. Crypto is really great for, for certain things and, and people have made a lot of money and I've made a lot of money in crypto. But like there's, there's a couple of things that I'm, I'm concerned about in terms of like longevity for crypto and, and you know, the margins you can make and the investment sizes you can make and you know, the liquidity. And we saw it happen on October 10th where every, when like the rug was effectively pulled and, and the bids were taken out, how badly the alt market fell, it was kind of scary. So I'm not yet at like, I'm not attacking crypto in any way and I do have a crypto portfolio. I'm excited about a bunch of crypto assets, but I think that for large scale investing, I think that you know, you're looking for yield in particular. So I became more someone interested in more yield. Like you know, I'm investing in restaurants and steakhouses and that sort of thing. Right. Because I want to get cash flow. Crypto is really great if you want to spend a ton of time researching and you have small amounts of money to play. But when you're putting large amounts of money into crypto, it's kind of dangerous.

Laura Shin (8:26)

Okay. Okay. Well, let's talk about your new company which you're announcing today. This is Zash, spelled X A S H for everyone. And it has both a stablecoin component and a gold component. It's described as the world's first gold backed stablecoin that rewards your activity. So explain what Zash is.

Vinny Lingham (8:46)

So the fast forward my thinking when I thought about, when I think about crypto and digital cash and bitcoin, I think, I think one of the best use cases of a crypto is actually being able to settle payments outside the banking system and be able to send USDC or tether or whatever you want to use from One person to another anywhere in the world. No banking hours like that's one of the best use cases for crypto. Unfortunately, people don't get to participate in the value of these companies. Like, you can buy Circle shares for sure, but you can't really buy tether shares easily. It's not available. And tether issues a token and then they take that money, they invest it in companies and Bitcoin and Treasuries and whatever else Circle does. Many Treasuries, US Treasuries. But it's kind of like the risks on the system are being sort of privatized, but potential losses will be socialized. And we saw it happen with Luna and whatever else in the past. Right. So not, not to knock any of the stable coins. I think that that's, it's all interesting, but you're still reliant on a reserve asset being Treasuries or whatever. And I think the reserve asset for the world is going to be gold. And so what we're doing is we're basically saying we'll issue a stable coin backed by gold hedged in the system. So, you know, there's a way of hedging. So if gold crashes 20%, no one loses. But if gold goes up 20% or 30%, how do you reward people for that? Because part of the new stablecoin bill and the carry acting genius act is you can't give interest, but that's great, but you can actually give rewards. And back in 2018, when I was thinking about this problem, I filed a packet and that patent was granted about just over a year ago. So it took us six years. So we have a granted patent as the first, effectively the first stable coin that can have a reserve and a reward system built into it. And so this is what we're building it around, the ability to reward people for using a stable coin. So when your stable coin sitting in your wallet and you're not using it, you could do things with it and you could earn rewards and get some of the upside in gold. But the good thing here is if for some reason government bonds crash worldwide or something went wrong or there was a run of the bank on the stable coins, you at least know and we will have on our website where the gold is how much gold we have, what's backing each coin and it's, it's always going to be over collateralized. So you know that at least there's gold back in the dollars versus with other stablecoins. In some cases they're either algorithmic or they're delta neutral or delta hedged stable coins. There's a whole bunch of these out there. This is gold backed stablecoin. So we'll be the first gold backed stablecoin with a rewards program for users.

Laura Shin (11:28)

Okay. And for the types of activity, it's literally like something like, you know, spending a certain amount of time within a certain time period and then based on, you know, whatever the points are, if the gold that is reserved in reserve to back the stablecoin, then like the, the users, their points would translate into some percentage of the increase in value of the gold.

Vinny Lingham (11:51)

Yes, something like that. So, so let's say for example, we had $10 billion in deposits and stablecoins issued and we took that $10 billion and we bought gold. And gold went up 25 in a year. It did like 60 last year, right? 25%, yeah. Now we've made $2.5 billion in gains. Those gains would be paid out to the rewards holders.

Laura Shin (12:15)

Okay, got it. And if the price of gold goes down during that time, then what?

Vinny Lingham (12:18)

Then, then the, you know, the hedging that we have, whether it's puts or whatever, would kick in and that gold will be converted to dollars and, and be put in Treasury. So you wouldn't actually. The money will still be there.

Laura Shin (12:29)

Okay, and what chain is this built on?

Vinny Lingham (12:33)

It's going to be, you know, we're going to be for issuing the actual stable coin. We'll be, chain agnostics will be on, you know, obviously Ethereum, Salana, etc. And we haven't announced which stablecoin the actual, which chain the actual coin will be on, but there's only a few options.

Laura Shin (12:49)

Okay, okay. And so you know, at this moment in time, like is your thought process just that you don't see prospects for bitcoin to rise in value and that you really think that over the next, I don't know, five years, 10 years, that it's really going to be a gold game.

Vinny Lingham (13:10)

So bitcoin absolutely can rise in value. And let me just point out the issue that we have today. If I said to you, I'm going to build the world's biggest stablecoin and it's going to be $200 billion, which is bigger than Terra if it was bitcoin backed. I cannot hedge that Bitcoin. You cannot hedge $200 billion in bitcoin right now without a ridiculous amount of counterparty risk. That's 10% of the market cap of bitcoin. There's no counterparty. That's going to take that risk on. Right. And so the market cap of bitcoin is too small to build the world's biggest stablecoin issuance gold is $34 trillion. You can hedge 200 billion in gold. That's you know, so. And the counterparty versus, you know, at that point disappears. You can deal with governments and banks and whatever else. So. So gold is not big enough to for become the world power, the world's biggest stablecoin. Well, like over there, it's pretty ambitious. You know, you want to build something bigger than tether. And I'm like, yeah, you know, that's the whole point of these projects. Like they want to build something big. And so I think that you can't start with bitcoin if you want to build the world's biggest stablecoin.

Laura Shin (14:22)

Okay, and is this going to be like a genius X stablecoin or is it going to be like non US or are you going to have two versions, one for the US and one for outside or like say that part.

Vinny Lingham (14:34)

As you know, all that's up in the air this week while everyone's really discussing and debating the bills and the amendments and stuff. So I mean, for the most part, this is stablecoin legislation outside the U.S. and if us makes it difficult for issuers to be in the U.S. or to issue from the U.S. then you'll issue outside the U.S. and it'll be compliant with whatever stablecoin laws there are. So this is a debate that's happening, I guess in the Senate right now is like, do we push entrepreneurs innovation out of the US and then do it elsewhere, or do we embrace it? And you know, Brian Armstrong's got some strong views on it, et cetera, but you know, let's see where it lands. I don't think it's. There's nothing stopping us from issuing this in, you know, out of a number of European countries or other countries in the world and then complying with those laws.

Laura Shin (15:18)

Okay, and where are you custodying this gold?

Vinny Lingham (15:22)

That's again cbd, but it will be with very, very strong tier one banks and compounds.

Laura Shin (15:28)

Okay, so I. Yeah, like just. So the guest right after you is somebody from Vaneck who wrote this report on what the value of gold would be if it were used to back, you know, the money supply. And their projection is like, if it were to include the M2 money supply, it'd be $184,000 per ounce. So point is that, you know, just watching all this, it does feel like there's some Kind of changing world order. And there is a scenario, you know, where we could see gold continue to rise. And so in that sense it does feel like, you know, this venture is kind of well timed. But you know, one thing that's interesting is analysts at Bitwise published a research note that argued that gold and bitcoin actually play complementary roles in portfolios. They noted that gold works as a defense in drawdowns and that bitcoin works as offense in recoveries. And they stress tested this across multiple market shocks and they concluded that out owning both outperformed holding just one. So what do you, what do you make of their findings?

Vinny Lingham (16:35)

I think, I think holding both bitcoin and gold definitely has different purposes in your portfolio. So you should, you should do both. And I, I don't think people should be super exposed to gold either. I don't think gold should be, you know, all, you know, anyone should be like all in on gold. Just like I've always said, being all in on bitcoin city. Right. Like both of these, these assets, you should have a diversified portfolio that helps you ride the ups and downs of, of the markets. And so some allocation to bitcoin, some allocation to gold, and, and you know, and, and that's the whole point of diversification. When you have a well balanced portfolio, regardless of what happens, you should actually do okay over the long term.

Laura Shin (17:18)

Okay. So one other asset that I have to ask you about is of course we saw that silver also spiked up to a new all time high on this whole DOJ Fed fight. And I wondered what you thought about silver compared to bitcoin and gold or, or just generally how you think about it as an investment.

Vinny Lingham (17:35)

So, so I think silver is definitely overheated right now. Doesn't mean it can't go to 100, doesn't mean it can't go higher. I've been trading it up since, I mean, you know, 50s and stuff. I kind of, I had some, I had some calls expire on Friday at 80 bucks. I'm kind of pissed that this morning is at 89, but you know, that's life. I think silver is great, but silver is, you know, again, part of a, if you have a precious metals portfolio and someone actually pinged me yesterday, Vinny, like what should I do? I've got a million bucks to invest. I said put 85% in gold, 10% silver, two and a half percent platinum, two and a half percent palladium and just leave it like that's a balanced portfolio. If silver outperforms you can do really well. I wouldn't put all of it into silver because silver is highly volatile as well. You can see a big crash. Gold is, gold is the stabilizer for a portfolio. Just like in crypto, right? If you have the crypto portfolio generally you want to be about 50% bitcoin in, in the portfolio and then a whole bunch of alts and you know, some Ethereum, Solana, et cetera, et cetera and maybe like 10, 15% or high risk alts as a balanced portfolio in crypto. That's kind of what it's like in the, in the middles market or doing a middles portfolio. Want to be 85% gold, you know, and then you can balance out the other 15% to get some extra, extra beta out of those. Again, everyone is, I like, I don't like. This is not financial advice. I don't give people financial advice without context. Everyone is in a different financial situation. You know, some people have, have, have already made it in life, so, so their goal is not to lose it. Some people are just like, hey, if I don't do something, I'm gonna, I'm not gonna make it in life, so I need to take a, a bet the farm. And that's fine. Like everyone's in a different phase and has different outcomes and needs. And so I, I, I just think that the, the, you know, when it comes to crypto, obviously it's very, very volatile. So unless you got the staying power to stay in for a while and you and I have been there for a while, we've seen the ups and downs. I, I just don't recommend people, you know, invest money in crypto. Like crypto is more about speculation, not investing. If you want to invest, buy, buy some really good stocks to companies, you know, Apple's gonna be around, you know, 10 years from now, 20 years from now, you know, Google, et cetera. Like those are things that's investing. Crypto is more like Gambi. But you know, to me gold is, gold is actually investing in, in a way as well because it's hedging your portfolio against things like, you know, global conflicts and currency debasements and those sorts of things. So your portfolio should have a little bit of everything. But the right ratio is what makes you a good investor. I mean, again, it's more about, it's more about a balanced portfolio. Like I think you should have a bit of everything.

Laura Shin (20:15)

So you are allocated to stocks, but like what percentage in that horses?

Vinny Lingham (20:20)

There's private stocks and there's public stocks. I don't have a lot of. In fact, I have virtually no public stocks right now. I got stuff that's going public, but I've got nothing in my public portfolio. And I. Most of those just pri. Private companies, private company chairs.

Laura Shin (20:34)

Okay, okay.

Vinny Lingham (20:36)

We just saw equities. I just. I like. I like the illiquidity of it, because public stocks is. You get tempted to sell as well. Oh, this is a true. You sell, then you get out. I like the idea to just leave it and. And just. I mean, I sit in private company stocks, like, clean hands sometimes, and then they. On a. I'm a BITCO investor for 10 years, and they're going public next week, which is great.

Laura Shin (20:57)

Yes, yes. Yeah. And I see people. I saw Jeff park tweeting he thought this IPO was being mispriced. Okay. I want to ask you a couple other things about Bitcoin before we hop. One is, I'm sure you've seen all this stuff about privacy, and there, you know, was this kind of surge in these privacy coins. And Bitcoin at this moment doesn't have a way to adopt private or, you know, integrate privacy, at least, you know, currently on its roadmap. And I was just wondering, you know, what your thoughts are around this interest in privacy and either which assets you think are best poised to take of any. Take advantage of any interest in it, or whether you think Bitcoin kind of will need to integrate that somehow in order to remain top in crypto.

Vinny Lingham (21:43)

I'm still not buying the privacy narrative because what we're witnessing right now is, even with the UAE is government backlash, and I think the US Will do the same thing. The whole point of the. The whole point of Bitcoin was the Bitcoin developers, Satoshi and Accrue. They could have made Bitcoin anonymous, but they made it pseudonymous for, you know, for a bunch of reasons, I think. And I think adding an anonymity layer to Bitcoin is. Is not healthy and kind of dangerous in the broader sense of, like, adoption, because all you're going to have is governments banning it. And so I've always been a fan of pseudonymity, which is it's a need to know basis versus an anonymity when nobody knows, and all you need is one transaction to go fund some crazy terrorist utility. I mean, look, without calling our main or certain governments, there's a lot of oppression happening worldwide. And the moment you add a privacy layer to Bitcoin, I think you're going to have them pressing Bitcoin as well. I'd rather have a situation where something like Bitcoin is be used and they're, you know, at least counter gives people a way out to set, you know, in some way, you know, give their ends out, save whatever versus being banned. And I think the banning, we've seen the banning of privacy coins for a long time now. I don't think it's going to stop. I think it may actually get worse as they rise and become a threat. Yeah, if you want to fight the battle, fight. But I just don't think, you know, I don't think it's going to be a B1 where privacy coins win necessarily. And I think bitcoin should stay away from it. I don't think it was part of the original design.

Laura Shin (23:15)

Okay, and the last quick question, I'm sure you saw this whole thing about the quantum threat to Bitcoin and Nick Carter saying that he felt like people weren't treating it with enough urgency because you know, there, there is a lot of time that's needed to make any changes that are decided upon and even, even just to make the decision on what to do. So what do you make of the quantum computing threat to Bitcoin?

Vinny Lingham (23:36)

I, I kind of agree with Nick Commerce as well. I think it's, it's being glossed over largely due to the developer changes like tap fruit and say what that happened to Bitcoin. I mean Bitcoin's theoretically more at threat now because of those, those things. That's my understanding of it. Maybe I'm wrong. Please tracking but there is more, more risk now this, it's, you know, the older incantations of protocol but I haven't spent enough time looking at it. That's just my off the cuff sort of reaction to it. I do want to comment on the whole pal thing by the way. Yeah. Because I, I, I have not been a, a big fan of, of Jerome Powell over the past couple of years. I think he's made so many errors. He screwed up on so many levels back in 2021, you know, when he was trying to get himself reelected as Fed Chair. All the stuff he's done. I'm not the biggest fan, but I do think that the current sort of administration's attack on power isn't, isn't a good thing either. I think we're like, that's not the way to handle it. His turn is nearly over. Just let him, you know, let him get out in May and inflation's not under control. So I don't think he's being unreasonable in any way. So that's my two senses. I think that, that we're in a kind of a weird spot right now and markets are bloving the attack and pile and yeah, for good reason I think.

Laura Shin (24:52)

Okay. All right, Vinnie. Well, it's always such a pleasure to hear your thoughts. Thank you so much for sharing your insights on gold and silver and bitcoin and congrats on Zash. And thanks so much for coming on Unchained.

Vinny Lingham (25:07)

Thank you. Very great to be here. Good seeing you.

Laura Shin (25:10)

Today's episode is sponsored by Figure, which is transforming financial services using blockchain. They're the largest non bank mortgage lender in the US with over $19 billion unlocked on their lending platform. Now they're offering industry low crypto backed loans at 8.91% interest rates at 50% LTV for BTC. So you're about to make a trade based on a friend's text but which you do you listen to is it we could buy a house in Tulum, get optioning those options. We could lose everything. Or let's do a little research, get your head in the trade and make the investment decision that's right for you. Learn more@finra.org TradeSmart ETH and SOL. They differentiate themselves by offering decentralized NPC custody which protects your crypto ownership in a segregated wallet. They've also recently launched liquidation protection to protect you from liquidation during large price drops. Whether you're funding a major purchase, investing or even buying more bitcoin. Figure makes it transparent. Visit FigureMarkets Co Unchained to take advantage of their crypto backed loans today. Welcome back to part two of this episode on Gold and Bitcoin and apologies for the long delay. So next up is my second guest for today, Eric Fine Vaneck, Portfolio manager for active emerging markets debt. Welcome Eric.

Eric Fine (26:41)

Hi Laura.

Vinny Lingham (26:42)

Thank yous.

Laura Shin (26:43)

Vanek published a great piece called if the Dollar loses Reserve status, could gold surpass 39k? It's a very very interesting title. What is the main thesis of your article?

Eric Fine (26:55)

Well, before the thesis, the premise is everyone's asking the question and nobody's answering the question with a precise number other than inappropriate normalizations. The goal was to have an actual number to answering the question as opposed to an essay. You can challenge the question, but we don't get into that in there. But that was the spirit of it is to answer this very frequent question very precisely.

Laura Shin (27:25)

And so you say everybody you know is kind of talking about this, but nobody is putting a number on it so you know, explain, explain that background like what is it that is happening that inspired you to focus on this question right now?

Eric Fine (27:37)

Yeah, that's an important starting point because a lot of words get thrown around. The spirit of this is fiscal dominance, namely that when countries have too much government debt, their central banks lose traction or meaning because hiking interest rates at some point bankrupts the government and bankrupts the financial system. So it's really, it's a non option. And as a result you normally should see the central banks of those countries maintaining lower real interest rates than they would otherwise. And that's exactly what's materialized in the developed world. Now that happens and it should lead to higher inflation in some countries and lower inflation in others. And if the higher inflation and the higher inflation countries should see their currencies depreciate more as a result. That's all totally orthodox. It's simple depreciation. It happens to be the situation that it's the developed markets doing it. So they're seeing the inflation pressure, their currencies are under more of this pressure and therefore it is more visible via gold. Who really cares if the ties lose confidence, right? And buy gold. In any case, they already have. That's one of the points of the piece. So that's the, you know, that's the context is that fiscal dominance means, hey, you're supposed to pay attention to the central bank balance sheet and so you have depreciation pressure. But then this becomes acute. It's more than just the normal, okay, yeah, all governments get out of control and go bankrupt eventually. It's hey, I'm at a central bank and I have my country savings in my central bank reserves. Right? These are a lot of these are deposits of individuals and private corporations that they have reserve requirement, they're held at central bank. So it's not the central bank's money in the sense that of the journalistic sense. And it disappeared $300 billion of it from the Russian central bank accounting, right? They lost access to a third of a trillion dollars. Other central banks have reserves and that's not supposed to happen. So it became very acute. And central banks have always looked at gold as a currency and they're the center of money for every country. And so that's the story. Now there are different gateways into this conversation. I was sold at fiscal dominance, but you got takes years. Then I'm further sold at inflation differentials, that's clear. And the market's going to get that. But this issue of Ken Rogoff called Sanctioning central bank reserves. Russia's central bank treasury reserves as an act of default. Right. It's a major event and central banks cannot ignore it. And they are buying gold. And all I saw in response to these questions was a whole bunch of words that didn't tell me anything precise. So I was frustrated.

Laura Shin (30:44)

All right, so explain what methodology you use to try to calculate this implied price of gold if it were to back the global money supply.

Eric Fine (30:53)

Yeah, it's incredibly simple. So simple it may seem complicated and also so simple it may remind you what you weren't taught or what you forgot in econ. But the principle is M0123 came about as runs. You didn't weren't born on an earth where there was a central bank and there was an M012. Those came about because political actors observed that people ran to things and ran away. Ran away from things. And further background, during the global financial crisis, a new M that we have an internal paper on that we're trying to calculate, which we're calling M infinity was created. Right. There was a run on global derivatives. It was met. There are real heroes. Bloomberg News, Bob Ivory and Mark Pittman, Lawrence Kolakoff, Boston University and then Levy Institute. But you know, it might be around 700 trillion. An incomprehensible number. So we put that to the side, right? Just use the old fashioned things. We have traded countries that had systems like this. Bulgaria did. I was the world's leading Bulgarian economist. Whoop de do. But you know, it was a big country for me at the time. And Argentina had a currency board. And there are simple measurements that have gone back a few hundred years that you can use to measure them. Bottom line, what's the question? What is the price of gold if the dollar loses its reserve status? Okay, I got a balance sheet. I can answer that question. Your reserves. Oh, take Treasuries out.

Vinny Lingham (32:34)

Why?

Eric Fine (32:34)

Because that's the fricking question. All right, if you think it's stupid, then don't need to listen. I get it. And the spirit is to get a number and you divide it by whatever the M0 on the other side. That's it. And you find the price, you calculate the price that equalizes that number. So now how do you really do that in a practical and an economic, economically consistent way? Well, do you do global M0, the addition of all M0? Well, first of all, there's no good series for that. There is for M2 and we showed its history and it spiked after GFC, namely banks, central banks became More levered and then it bid again after Russian sanctions, but a better, more precise, practical and econometrically consistent way because the M0s are calculated differently by different countries. Right. So that's why there's not a blob called Global M0 is to do it central bank by central bank and then to further say, well yeah, I care more about the US central bank than I do about the, you know, the, the Malaysian central bank. I love Malaysia and Thailand. I don't mean that they're great important countries. And, and in more precisely use global FX turnover as of mid last year according to the BIS. So the US gold equalizing weight counts 50% because it's global FX. That's a practical thing. They're the ones who have the M0 to sell and then on, you know, then UK, Japan and China and weight it and that's how you get the numbers. So if you come up with the gold equalizing price for the individual central banks for M0 and in the paper we show the mean, the median, you know, whatever other numbers you want to get. But then you weight it towards that answer for us, Japan, UK, China, you get $34,000 an ounce. Is the gold equalizing price if you use M2? Exact same methodology. We didn't show the detail chart, we just showed the out output for the main countries. You get $189,000 an ounce. The real kicker is there was a run on M infinity. So these numbers are. But they're already so big that you know. But it's an attempt at precision. And the relative differences between them are what's fascinating. The central banks that look the most levered are UK and Japan, which rhymes completely with the original spirit of the question. So that's why we thought it was interesting. My favorite observation is that South Africa has 60% of its M0 rand money supply backed by gold and the yields on their bonds are 8% whereas Japan has under 3% of its yen M0 backed by gold and the bonds pay under 2%. The relative differences are really maybe impactful when you get this reset. So it's not just a theoretical thing about gold, it's about yen and sterling relative to the other currencies as well.

Laura Shin (35:42)

And so talk a little bit more because. So you mentioned which countries are not necessarily super well positioned, but I was a little bit surprised by which ones are more well positioned. So explain that.

Eric Fine (35:56)

Yeah, you know, it's kind of like the kid that didn't have a trust fund is going to be a little tougher and better. It's not more complicated than the old fables that we all grew up with. And so, you know, I grew up with these kids, you know, as in, you know, as a sell side economist at Morgan Stanley. And they had the crap beaten out of them all the time and they're really tough now. That's my version of the story. The 97 Asia crisis is a good moment, but these countries had too much debt. And what did we, the cool kids. Not me specifically, but I was part of the crew. You know, I was a Morgan Stanley guy and the imf. I loved their recommendations. Their recommendations were do not guarantee all financial institutions.

Vinny Lingham (36:37)

Right?

Eric Fine (36:37)

Finance one was the biggest bank in Thailand. They let it go. Daewoo was sold to General Motors, right? We could barely sell U S steel to even a Japanese company. And when we had our gfc, the IMF went to the US and said hey, what about Fannie and Freddie? What is it? Is it a state owned bank or is it a private institution? And us said go away. Right? We're the biggest shareholder of the IMF now. We didn't say go away, we said well we're changing the definition of percent shade estate ownership. So endless monetary forbearance. And it was really painful. They had to float their exchange rates and risk inflation. But that stabilized the currency. Dollars started piling into these countries that have been going on for 30 years. It's why they rallied in response to tariffs this way they also had to very high real interest rates. If it created a recession, the answer was too bad, right? Since when is that against economic law? Recessions are grandma Bond guy recessions are healthy and they get rates down. Similarly on fiscal. You can't spend. Oh, we have a depression. Too bad. Thailand, Indonesia had 50% declines in GDP. I'm not endorsing Indonesia. They got a lot of issues, you know, it's a less.

Laura Shin (37:59)

Yeah, well actually I lived through that because my first job out of college was in Indonesia. I was teaching ESL at an international school and I landed there in August of 1997. So I, when I arrived it was 2,500 rupiah to $1. And within five months on the worst day it was 17,000 rupiah to $1. It eventually kind of stabilized at like 13,000 and then 11,000. I think even like a year later it was maybe like 8 or 10,000. But you know, I mean it just dropped. I mean I was lucky. I was making money in dollars. But you know, for the local currency to basically go to 1/7 of its value. Four months. That was, that was insane.

Eric Fine (38:45)

And that the m. Well, it's great that you had that experience. That's the main point that a lot of Americans don't know. The dollar goes down 20%. No one would even know what that means in America. But your experience is really interesting because it's a reminder currencies can go to zero. Right. So it's often not the thing you think is going up, it's the floor you're standing on going down. Like I have two kids and I, when they're growing up, I would tell them whenever we got in an elevator, hey, how do you know the building's not going down? Right. You can't. Other than the feeling in your muscles. Right. And the other thing to mention is in so many of these countries, leveraging the central bank to achieve economic objectives is a non starter across the political spectrum. Voters are going to say, wait a minute, the last time we tried it, our banks disappeared, our money disappeared. The rich countries don't have that memory. Right. It's 86.5 years old. Right. They've all died. And which is often how things. That's the only cycle that's worth paying attention to really. So the EMS had a tougher go of it. And they're our best students. They took lessons from the imf, they cut fiscal. They created independent central banks that maintained high real rates and they fixed their structural problems. No state owned banks, or if they are call it that and treat it that way. So no, it's a real vindication for orthodoxy.

Laura Shin (40:07)

And so I noticed in your paper you had done this analysis before in 2012. What did you find then and what does the change say to you about kind of the position of the US dollar in gold right now?

Eric Fine (40:20)

Yeah, it says that everything's continuing and getting worse for the developed markets. So the worst, the biggest improvers were the emerging markets, but they were already in good shape. In other words, they were not exhibiting this leverage at the central bank level that the rich countries were. And so that continues a really interesting observation comes on China. For my 30 years in the business, for a couple decades of it, China was regularly ambassador for a leverage heavy development model, their ratios unched. I'm not saying they're targeting it, but it is unched and meaning they've seen no deterioration and they were in pretty good shape from the beginning. Moreover, like we said in the paper on the econometrics, we excluded state banks because you can't do proper, you can't do a version of this paper because they aren't consistent. But if you do, then China's even in much, much better shape. So that's an interesting one. And then the other interesting one is the developed markets that were bad got even worse. Uk, Australia, Japan just got worse. Which is consistent with my experience of history. Right, the lockdowns. We saw the same forbearance as the gfc. Every stage you see forbearance and it never gets measured precisely because regulations don't describe leverage the way they used to. It's not like you can say from It's a Wonderful Life that you need 10 units of actual cash for, you know, 100 units of, you know, risk or deposits at the bank. You don't, you can't really. We attempted in this internal paper like I said, and the numbers like around 700 trillion. We're just having fun really. But that's, you know, the, the bigger system or that's the bigger challenge and capital control will come as a result of this. But this can tell you where they will come first and where the pressure is going to come from and which currencies and countries are going to experience, you know, the most pressure. And it's the DMs. They keep papering things over. We keep hearing you can't do this forever. And you know, UK and Japan were our active, you know, markets of concern right now. It's not a fringe belief anymore to think that, you know, you know, the Prime Minister of, of the UK says in an FT article a couple years ago that the bank of England perpetrated a coup against her. Right. Using their power over markets. Right. I'm not saying that's true. I'm just saying that's this is the kind of, these are the kinds of headlines that I'm observing in the developed markets. You don't see things like that you used to in em, but they're over that.

Laura Shin (43:13)

And so, you know, we're at this moment in time where even just in the last, you know, week and, and some change we have seen just so much happen in the geopolitical space, you know, with obviously Venezuela and the US like throw in a little bit of Greenland and all of that really is subtext for you know, the China, Russia situation, Iran. Your company also is very forward thinking on crypto and bitcoin and you know, has like its on chain economy, ETF and all kinds of things. So when you look at just all kind of the balance of everything, it seemed like you could play out in your head what you think the future will look like in terms of the power balance between developed markets and emerging markets, US dollar, gold, bitcoin, whatever. So just if you were to play this out in your hat, how all of these circumstances will continue to keep moving going forward, like, what does that look like to you?

Eric Fine (44:15)

Yeah. So first, just to complete the answer your early question, the, you know, the biggest change is that people care about this paper. They didn't care 13 years ago. That's the biggest. You know, no one was thinking this way and now everyone is. And so that I wanted to mention that, yes, geopolitics is the core of demand. I look at the central banks, that's the core of their demand. Sanctions, right? That's the core of these developments. The natural endpoint is blocks, regional blocks. Now I used to say that the world is not deglobalizing. People in the rich world say that because they are deglobalizing. Right? We're sanctioning people who lend us money, but that the EM was globalizing. Right. India trading with uae, Brazil, China and their own currencies. Right. The ultimate definition of globalization now with US and Venezuela and a new regional focus, regionalism and blocks seem very, very clearly a result. And there are asset price implications for that. Now. Asset price implications I would write in a book or a paper, not we trade every day and our goal is to outperform every day, but trading blocks that could lead to, in practical sense, convergence. Convergence if the Americas are becoming a bloc. I was sent by Morgan Stanley to London in the 90s to be part of the convergence trade in Europe. Poland had teen interest rates in zloty, but they were converging on every metric, structural, fiscal, otherwise they were saying they were going to join the money union, but they never were. And what happened? Well, inflation converged and it had happened. And this was trillions, trillions. You're borrowing in boons at really low rates and you're long zloty and the zloty's rallying and the rates are going down. So it's just tons of money was made permanently for 15 years. So, you know, why isn't that a scenario? I'd say another scenario is history does seem to say that humans like one king. So you know, there are big periods of history where you had the Greek king on an Indian coin. There is that thing. And so, you know, I would say you have to look longer term. Again, if I'm writing a book, not if. And you know, every few months, this is important. But China's rise, CNY has been Incredibly stable. It is clearly going to be appreciating for all sorts of reasons because they want to, but also what does it do to the relationship with the US and the rest of the world? You can't have a tariff negotiation and then devalue your currency. That's what happened last year as people realized these countries are too rich and they were being told their currencies have to strengthen. So yeah, China and the development of blocks is a really important one. And for crypto, I think what happens. And gold, I think what happens in Europe is really important. If that suboptimal zone declines, that'll be a real test of the mechanics and desirability of these. I guess people call them alternatives. I don't think they're alternatives. They were never to central banks. And that'll probably be where the big energy comes from in terms of flows, because money should flow to the US US is not obviously vulnerable from this Eurozone as a block. Is not obviously vulnerable, but it's not a block. Give me their phone number. Right. I don't know what's the bond there?

Vinny Lingham (47:55)

Right.

Eric Fine (47:55)

You're going to sell France or Italy or Greece or whatever first. And that's a dynamic that's just inconsistent with reserve status. So in addition to the problems we read about in newspapers, social, political, fiscal.

Laura Shin (48:07)

Okay, so you actually don't think there's too much risk to the dollar?

Eric Fine (48:12)

No, yeah, not yet. So I think. Which dollar? So I Posted on, well, $, Euro, $, Yen, $, BRL. I posted on X. You know, I don't know, middle of this year, I said economic historians will not say about 20, 25 that euro dollar rallied 11.2%. They're going to say the dollar went down 50% against gold. Right. So our day job is intracurrency and uk, Japan, Eurozone have far worse and more fundamental problems than the U.S. so in that, if you define that as the normal world. Yes. If you, if you include gold, which we have to. We invest in countries with central bank, they all have central banks, then you care about that more. But like your experience in Indonesia, it's often about something going down. But you're the kid in the elevator who's, you know, convinced that it's the elevator when something, you know, you don't know.

Vinny Lingham (49:17)

Right.

Eric Fine (49:18)

You really can't know other than your legs.

Laura Shin (49:20)

Okay, and so then to understand about gold versus Bitcoin or even other cryptos, like how do you kind of position each of those?

Eric Fine (49:32)

Yeah, I, I don't know. I would ask Matt Siegel and Just do what he, whatever he says. So he's fantastic and very, he's been there for the birth of the industry. I would also observe that the, you know, the calculation we're doing is simple. It's asset and you know, the question tells you what you look at. There's zero here of BTC. Now you could say the 21 million coins and get, get like 250 grand or over a million using M0 M2S. It's a reminder that geopolitics are important and where it ends up is in blocks, currency blocks, particularly with the new US focus on South America and that can create convergence trades. I mentioned that I would participate in the multi trillion dollar convergence trade in Europe as Poland was converging to Germany. The German balance sheet in euros at low rates would be long zlottis at high rates. And that's something that's a reasonable outcome to expect, as is CNY's rise as the reserve currency over 10 years. That's a scenario. Now our view is the dollar will not lose its status, it'll share its status. That's a good standing view over time. Humans often don't like that. They like one king's picture. As you know, we had Greek kings on, on Indian coins and gold. So that's a scenario to keep in mind as well. They want it and they are a low inflation, very stable country. So that's another scenario to keep your eye on.

Laura Shin (51:10)

Okay, yeah, I, I don't love that scenario, but that's just my opinion. Not that it matters.

Eric Fine (51:16)

Yeah, no, you know, if I was, if I was in the business of generating things we love, I wouldn't be in the business, I guess. Yeah. We're just saying what we see.

Laura Shin (51:26)

All right, Eric, well, thank you so much for sharing all your thoughts and your great report. It was such a pleasure chatting with you.

Eric Fine (51:33)

Great. Me as well, Laura. Thank you.