Why Passive Investing Creates Zombie Money and Distorts Stock Prices

David Oransky [00:00:00] Commodities going up is what causes inflation. It's not that they hedge inflation, it's because think about what price inflation is, it's you're buying stuff and the inputs to those are energy and you know, grain and whatever needs to go into that. As the price of those things go up, the things, the cost of things we buy goes up also and it causes the price inflation. I'm Steven Fairbanks, a writer and teacher from St. Louis, Missouri, and you're listening to the Vance Crow podcast.

Vance Crowe [00:00:25] Welcome back to the podcast. I'm glad you're here today. David Oransky returns. Long time listeners to the podcast. Know I've had David on for the last few years, but over the last couple of months I've invited him on once a month to talk about the economy. If you listen to the Vance Grow Podcast, you know that I am hyper interested in the economy, in inflation in Bitcoin, but a lot of what I know about this comes from just my reading, being an amateur and, and kind of watching what's going on in the world. So I like to have David come in because he brings a level of grounding and deep knowledge to the subject. In past interviews, we've done somewhat basic interviews about how does Bitcoin work and kind of then the next intermediate level. Today what we're gonna do is just have a conversation about economics and the way the world is going. If you're interested in any of the subjects we're talking about so that you can get involved in something like Bitcoin, go to some of the earlier episodes to get maybe some of the more core knowledge. We're gonna get to the interview in just a moment, but I wanted to share about an experience I had the other day with Legacy Interviews. A father had called up and he had done a legacy interview and he said, I really wanna share this with my kids, but I don't really know how are they gonna want to listen to this? I had a great conversation with them where I got to say yes, actually we get photographs from a lot of our past guests showing them, watching their legacy interview with their whole family and they talk about how exciting and invigorating it is because they were able to tell stories that don't normally come up in everyday conversation.

Vance Crowe [00:02:01] And then because they watched it as a family, they were able to pause it and get more details, get more laughs, and really be able to dig into the whole thing. So Legacy Interviews are often more than just a gift and more than just the capturing of a story, it's a way to bring your whole family together. And if you're interested in having me sit down with one of your loved ones to record their family stories so that future generations can know their history, go to Legacy Interviews dot com to find out more. All without further ado, let's head to the interview with David Oransky. David Oransky, welcome back. Yeah.

David Oransky [00:02:36] To

Vance Crowe [00:02:37] The podcast

David Oransky [00:02:37] Becoming a common occurrence here.

Vance Crowe [00:02:39] Yeah, man, I've really enjoyed this. I think that it's good not to have like, Hey, we gotta get all the economics conversations out as quick as we can. And I just had like a rather profound experience when I traveled to Canada. So I think my opening question to you is, are things getting more expensive for you financial guy?

David Oransky [00:02:58] Things seem to always be getting more expensive. I mean, I'm still young enough in my career that my income has kept pace with my expenses, but every time I get to a level where like, you know, once I get here everything should be easy, it's always like my expenses have gone up in the meantime. I've also had multiple kids over that time, so I don't know what the steady state is for me, but I think if you look around and most of the people I talk to, there's a general feeling that things aren't getting easier. They're getting harder despite all the metrics saying they should be getting easier. And I think, you know, we have these measures of consumer price index, which is supposed to be inflation, that the composition of that basket changes though over time. And so what your own inflation rate is might be different than what's stated. And I think that's, you know, and also do you want the standard of living to increase over time or are you just trying to maintain that standard of living that you had 10 years ago? You know, as we have technology and innovation, like we get new things in this world and people want to buy those things, whether it's the hedonic treadmill or not, like people want those. And if your wealth and income isn't going up higher than inflation, you may not be able to actually include all those things. So I, you know, my sense is that people don't feel like it's getting easier, at least the vast majority of people. Yeah,

Vance Crowe [00:04:11] I mean certainly like my grocery bill is going up because I have two little girls that are getting bigger and they, you know, want to eat more, but like, I mean, anybody that's been the consistent person that goes to the grocery store says this did not use to cost that. Yeah, yeah,

David Oransky [00:04:26] I hear that all the time. But

Vance Crowe [00:04:27] I did not feel it as acutely until I flew into Canada last week. I get out of the, the plane walk through the airport and I'm like, oh, I'm gonna go get something to eat after I've gone through customs. And instantly I was like, this is literally the highest I have ever paid for fast food now, provided it's in Canadian dollars, but I, I was in Canada just last year a couple of times, and their prices for their restaurant meals inside of an airport were like staggering. I mean like

David Oransky [00:04:58] Just since a year ago.

Vance Crowe [00:04:59] Just since a year ago.

David Oransky [00:05:00] Wow. Like

Vance Crowe [00:05:00] To the degree where you're like, actually I need to like actually budget this out. Like should I be buying a, a hamburger or like, you know, the, the, you know, panda Chinese food or whatever it was that I was getting, it was really striking to me. And, and then the other experience that I had was coming back into the United States and being like, actually I'm in the Denver airport. Mm.

David Oransky [00:05:22] I've

Vance Crowe [00:05:23] Been to the Denver airport dozens if not hundreds of times, and the food there is even more expensive. Yeah. And it's like really surprising that even after somebody like me talking so much about inflation, watching it so closely to be surprised by how quickly prices are rising.

David Oransky [00:05:39] Yeah. Yeah. You think it's worse in Canada than here? Or just that juxtaposition of the exchange rate between the Canadian dollar and the US dollar made it obvious?

Vance Crowe [00:05:48] Both. I mean like what was surprising to me about the Canadian situation was yes, my dollar buys a lot more in Canada. It's like,

David Oransky [00:05:56] You

Vance Crowe [00:05:56] Know, a do one US dollar buys a dollar 30 in Canadian. Yeah. So maybe not quite that much, but, but pretty much. But even still the prices that were listed there, I didn't feel good about paying them when I converted 'em into dollars. Yeah.

David Oransky [00:06:09] Yeah. I think a lot of people are feeling that. I mean, we've, we've had a busy few months we've been eating out more and I noticed that, you know, we take out a family of five and it's like, wow. Every and that's, you know, kid with kids meals, I can't imagine once they're eating full meals.

Vance Crowe [00:06:23] Yeah. And I think the other thing that was going on in Canada was, so I was, I was invited to go to a place called Lloydminster, which is right at the border between Saskatchewan and Alberta. And so this is the Great plains of Canada. It gets just barely cold up there. But they are, Lloydminster is actually this really cool town because it's both a combination of agriculture and oil. So they're the heavy oil capital of the world. And, and the Alberta side, I mean Alberta has 10 times the amount of energy reserves that Texas does.

David Oransky [00:06:57] Wow.

Vance Crowe [00:06:57] They can't leverage it of course, because their government says you are not allowed Alberta to refine and then export this as a refined product. Instead, why don't you just send it down to the capital or send it down to the us, we'll refine it for you and then export it from there. So like the, these two provinces, Saskatchewan and Alberta from my perspective, are vassal states you produce the raw commodity. Yeah.

David Oransky [00:07:21] And

Vance Crowe [00:07:21] We'll take all the value off the top.

David Oransky [00:07:23] What's the argument for why they won't let them process it?

Vance Crowe [00:07:26] Well, a lot of it is like, where are you gonna export it to? Every time they try and put a a pipeline in, all of a sudden there's all these people coming out citing climate change and indigenous rights and you know, the dangers of having pipelines. So when they, you know, the, the, the smart thing for a place like Alberta to do would be, Hey, just run a pipeline over the Rocky Mountains, you've got a nice big warm water port and export it there. You know, have a good deal with British Columbia, but they can't do it. Can't do it. And so because of that, it means they have to rely on other provinces and the United States to take those goods at whatever they're worth at the raw commodity price. Yeah. Instead of a refined thing. And while I was there, so I was given a speech and I got sat next to a former provincial judge who had retired, the mayor of Lloydminster and, and like a local dignitary. And they were telling me when they built Alberta and Saskatchewan, first Alberta, Saskatchewan wanted to be one giant province. So that way they could be like, ah, we may be really wide and decentralized, but we've got the population to push back on the city. Oh,

David Oransky [00:08:36] Interesting.

Vance Crowe [00:08:37] But then the other thing that happened was, as they were selling land to people who would presumably move out there and work the land they gave it to at a good price. Yep. Saying, Hey, we're gonna let you buy this land, and then with that money that you pay us, we're gonna build the railroad straight across here. But here's the catch, we, you are not allowed to build giant flower refining, like milling capability. All the milling has to be done back in the back in the capital. So you could grow all this grain, but you had to put it on the, on the train and ship it back. Yeah. And then if you wanted to get that back as flour, you had to buy it from them as as milled flour. And so they've lived in this kind of perpetual state of being extracted, but the people themselves not able to really leverage it.

David Oransky [00:09:25] That's, and has it over time gotten more, they've gotten more power or lost even more control to

Vance Crowe [00:09:31] Yeah, I would say lost even more so. So a few years ago I was up at this conference and the, the geopolitical guy, Peter Zhan, was at the same conference I was at and he stood up in front of this group of cattlemen and he was like, and I know what you guys should do. You know, you guys have all these reasons you should break away and what you should do is become the 51st state of the United States. And I was like, oh man, you're gonna get booed outta here. And in fact, the people cheered. Right. I was like, shut. Oh

David Oransky [00:09:58] Really?

Vance Crowe [00:09:59] Yeah. And I personally will never go to Canada and tell them what I think they should do politically, but, but like, okay, he did that. And so that's when I noticed something's going on different in Canada than what I understood. And so I started looking into it. This is when I became friends with Sean Newman and you see that these people out west are very clear that the, the old trope that they were telling themselves, oh, the city, it's just that they don't understand that we can't manage off of, off of wind energy or like, oh, the, we have all these oil reserves. They just don't understand it. Well after the COVID lockdowns and the extreme pressure that they put on 'em and then ultimately the trucker convoy. Yep. Now they're saying like, oh, we're not, they're not confused. Right. The people in the city are taking as much as they can from us

David Oransky [00:10:48] And

Vance Crowe [00:10:49] Now we've gotta figure out how are we gonna live because the trajectory that we're going on can't continue. Yeah,

David Oransky [00:10:54] That's interesting. So when you compare that to the us, are they living in the future? Like, you know, we often think of the US as always being the vanguard of always pushing things forward in the other western countries, kind of, you know, but it seems like maybe they're a pre, you know, forecasting of maybe what's to come here.

Vance Crowe [00:11:12] Yeah. Like I think like people kind of always look to Europe and be like, oh look how sophisticated they are. One day will be as sophisticated as them. But the reality is, I think everything that's going on in Canada is happening faster in Canada because they have so much smaller of a population. And Canadians are in, like, I, I think a high trust culture. I think they're breaking out of it. And we're watching the, the horrible sadness of people coming out the Garden of Eden where you're like, no, we all work together. We all get along things work. But in a place like Lloydminster, right? So this is a town of 30,000 people, but they have all these volunteer organizations. They have all these like chuck wagon races and you know, stampede and rodeo and hockey and they have all these activities that keep people engaged in the community. And so there's a much higher trust

David Oransky [00:12:00] Networks

Vance Crowe [00:12:00] Up there within those small towns. And I think that those people believe like, oh, this is the way we are living. So certainly the entirety of Canada is this way. And the reality was the people in living in the cities don't live in a high trust environment. They live much more like, well

David Oransky [00:12:15] That's

Vance Crowe [00:12:15] Urban

David Oransky [00:12:15] Us. That's interesting. If on the local level trust is increasing, but it's breaking down between greater distances or between the cities and the rural areas. And what does that, what does that mean? Like where does that lead things? I mean you see that in the US too, right? Where people who aren't living in the cities often feel very misunderstood or why aren't we being represented? And

Vance Crowe [00:12:39] Yeah, I mean I think like when I go to Lloydminster, I think what would we give here in the US to have back what they like have been able to pass down? Yeah. But in the cities, like these institutions have broken down and sure there's people that have church groups that they belong to or like some volunteering groups, but they're nowhere near as robust as they are in a small community where you can't be just lost to the anonymous crowd. Like I told the story at the beginning of my speech, I actually hadn't thought of this when I was flying into Edmonton. So you're flying over all these fields, it looks like you're looking down on a cold, snowy Illinois, which is where I grew up. And I remembered my dad when I was like 18 years old and he was like, Vance, what do you, what do you want to do when you grow up and you get outta here? And I'm like, oh, all I wanna do is see if I can make it in a big city. Yeah. And my dad being like, fans big city will, you know, welcome you with open arms because they're grinding people out the back

David Oransky [00:13:36] And

Vance Crowe [00:13:36] They need new people. The real question is if you've, you know, succeeded, if you're creating value is like, do you even get invited to people's homes? Do you get invited to that small town more than once? Right. Right. That's how you know that you're succeeding because in the city everything's anonymous. You're just a gear. Whereas in a smaller town, you're a part of a, of a network, you can be known. And that's something that like when I'm there and I experience it, it makes me wanna figure out how to have it here

David Oransky [00:14:06] In that environment too. I feel like you care more about your reputation. You don't, the way you act is different when you're, and we've talked about this before, when you're gonna see you interact with the people, whether you like them or not, you act differently than when you can be anonymous. And

Vance Crowe [00:14:19] I think that that allows people that have different opinions than you to have a, like a positive impact on. On like, oh, I have to be exposed to these ideas because I can't just roll my eyes and you

David Oransky [00:14:32] Know, click

Vance Crowe [00:14:32] Don't show me this viewer anymore. Right. Yeah, yeah,

David Oransky [00:14:34] Yeah. To which is

Vance Crowe [00:14:35] What you do.

David Oransky [00:14:35] Social

Vance Crowe [00:14:35] Media,

David Oransky [00:14:36] You're forced to interact with those ideas but also in a respectful way. 'cause you gotta see the people. Yeah.

Vance Crowe [00:14:43] As I spoke with Canadians up there, like they are further down the path of like, we need to do something about this than most Americans are. And clearly this was like a, you know, a microcosm where these are like ag people coming to the specific conference and talking to the speaker, but they're definitely like much more aware of what the government will do to them. You know, there was much stronger lockdowns there. Right. They took people's bank accounts, you know. So ultimately on the second day when I ended up talking about like, what should you do in this rural urban conflict? 'cause I was invited to give a second talk. It, I was not until I got there, I didn't know how far along people were. So the punchline of my talk got a lot further down the line. I would've been much more reluctant to say the things I said.

David Oransky [00:15:34] That's interesting. Yeah. And you attribute that too, that it was actually harsher there mainly during COVID or just in general that there's been more tension around those.

Vance Crowe [00:15:43] Oh, it's so much harsher there. So like the farmers right now are paying carbon tax credits for using fuel in their machinery. Right. And they were supposed to get some kind of like dispensation, but it didn't work. And so ultimately these are not carbon taxes where like the government is taking that money and putting it towards some giant carbon vacuum in the sky. Right. Or some, you know, magical thing it, a fact that they're doing is they're writing a rebate check to the people living in the city that are paying that carbon tax. They're saying, well you shouldn't their

David Oransky [00:16:17] Electric.

Vance Crowe [00:16:17] So they're buying them, they're using that money. No, just to give them straight up checks. Just straight up stimulus

David Oransky [00:16:22] Checks.

Vance Crowe [00:16:22] Stimulus checks. Oh wow. So this is like really extractive out in the west and it's happening over and over and over again. And their COVID lockdowns went way, way longer than us

David Oransky [00:16:32] And they just don't have the political power to make a change.

Vance Crowe [00:16:34] Yeah. I mean like what we feel by being like, oh there's some really densely populated cities and those are the only ones that matter. They feel that hugely amplified. And in fact, they were telling me a rule that they made in Canada was during their, you know, presidential election or their premier whatever that guy is the Trudeau, when they start doing the closing of the polling, you know, in Nova Scotia Right. They already know who's won

David Oransky [00:16:59] 'cause of the population because

Vance Crowe [00:17:00] Of the population. And so they started to make a rule. You just can't tell the people in Saskatchewan or Alberta on the news until their polls have closed who have won.

David Oransky [00:17:09] So that they feel like their vote still matters,

Vance Crowe [00:17:11] But it's just a lark. Yeah. So these are the kinds of things that are going on in Canada that you're like, wow, this is like how much further it can go. And like all the stuff we see going on in the US it takes us so much longer to feel those things.

David Oransky [00:17:26] Yeah. Why

Vance Crowe [00:17:28] I think partly our population, but I also think we have so many more things happening. You know, you're watching what's going on in the Texas border. You're,

David Oransky [00:17:37] Is that a difference with the states? Like the US is such a unique structure where it's the United States, like the states here have at least on paper, similarly more power than, you know, provinces and you know, regions and other countries. At least that's my interpretation of it. Do you think that's one of the reasons for that or

Vance Crowe [00:17:54] Yeah, I mean the, the judge who I'll, I'll have him on if he'll come on pointed out that, you know, enshrined in the US constitution is if the power is not specifically enumerated Right. It goes back to the states. Right. And there they don't have it. Right. Yeah. It's like all the power is the federal power and the constitution is like, these are what powers we're giving you. Yeah. Or rights as individuals. And one of the crazy things, so I mentioned all this oil that's in Alberta in the 1980s, the government said Nah, that's actually the crown's oil. So if you decide on your land, Hey I'm gonna hold this oil 'cause I don't need the income right now, but one day this energy could be really valuable for my grandkids. Doesn't matter because they can go into your neighbor's property that he's agreed and they can milkshake that right out from me. I

David Oransky [00:18:43] Was gonna say that's where the expression comes from.

Vance Crowe [00:18:45] Exactly. So they just take that pipe, walk over, you know, underground. Yeah. And run it all the way to your oil reserves and suck 'em out. And so there's a few people that have oil wells in Canada that have been grandfathered in that they still own it and maybe they can pass it down one more time. Oh

David Oransky [00:19:01] Wow. But

Vance Crowe [00:19:02] Like all of those mineral rights are going away. They're so totally different than the US that they, one guy was telling me like, whatever you know about mineral rights, just forget it before you walk into Canada. 'cause it's so different

David Oransky [00:19:14] Times are just getting crazier and crazier. Well

Vance Crowe [00:19:16] So the thing that I was telling you about before the cameras got started was that, you know, the first talk I gave was about how to tell better stories. They have these institutions, this AgriVision group that comes together once a year. They do all these events. So I was like, you guys have figured out how to pass down these institutions. So keep doing that. Keep telling stories 'cause that's been lost here. But the second day I had a chance to talk about like what's going on rural and urban.

David Oransky [00:19:44] Yep.

Vance Crowe [00:19:44] And after having heard this dinner and like the things that were going on, I thought I knew what was going on with Canada. 'cause I listened to Sean Newman's podcast.

David Oransky [00:19:52] Yeah.

Vance Crowe [00:19:52] Pretty much every week. I, I like took it really seriously and said something that's different than what I I a lot of people, a lot of companies go to the farmers and they say, Hey farmers, you need to tell your story. It's really important for the people in the city to hear you tell your story. And that's probably true. Yeah. But like you couldn't stand up in front of a bunch of Canadians and say, the reason that all this stuff is happening to you is 'cause you're not telling your story about how your farm is a fifth generation farm and you really care about it because they don't care. Yeah. Like they're taking from you anyway. And so the punchline of the story was really like, what I believe you should do is focus on your community and inside of your community. Like look at the five people that you spend the most time with.

David Oransky [00:20:36] Yep.

Vance Crowe [00:20:38] 'cause you know that famous line, you're the average of the five people you spend the most time with now include podcasts and movies and television shows and see if that knocks anybody outta your list. Because it's the same thing. Yeah. If you're listening to hours of a podcaster more than you are your best friend, you're spending more time with that person. And now the question is, who on that list of five do you respect but that you disagree with the most?

David Oransky [00:21:02] Hmm. Because

Vance Crowe [00:21:02] It's that person that that whatever the distance is that person is from like your regular belief set, that's the widest your window is gonna be open to hearing new ideas.

David Oransky [00:21:12] Oh, interesting. Yeah.

Vance Crowe [00:21:13] And you need to have that if you're gonna avoid being a part of a mob. And then the next point that I made was, you all are sitting on all these energy reserves and they won't let you export it. Well you have a magical thing that's just come up in the last 15 years, right.

David Oransky [00:21:27] Which

Vance Crowe [00:21:28] Is you could burn this energy yourselves and have Bitcoin miners sitting right there. So burn the energy, create electricity, use that electricity, use mines. And now if people want your Bitcoin, you've just digitized that energy and you can send it anywhere in the world. And for the I I was like,

David Oransky [00:21:46] Now

Vance Crowe [00:21:46] They're gonna like this. But people really liked it. They wanted to talk about it. They wanted to know how does that work? How does that, where do they go? So it was, it's the culture is definitely changing that They're more open to it.

David Oransky [00:21:56] Energy and Bitcoin are increasingly becoming intertwined. I think people are finally starting to realize that connection there. I actually think that could be one of the best alliances in terms of those of us that want to see Bitcoin succeed. Like, you know, the energy sector, you know, having them as an ally and for purely profit driven reasons. Like we don't even have to be aligned with like philosophically what we want. Like it is mutually beneficial for those two to come together. And ironically doing so would probably incentivize, you know, the renewable energies that the quote other side wants because it brings the cost of energy down for everybody and allows a lot of those alternative energies to be more sustainable. Yeah.

Vance Crowe [00:22:35] Energy is the key thing here, right? Like, 'cause people can look at energy and be like, oh, Bitcoin requires a lot of energy. Let's just put that argument and discussion aside for a second. Imagine a world in which you can always get paid for your energy generation. That there's, there's, there's so much demand for it that you can always get paid for it. Imagine the technologies we could develop and the reason now all of a sudden like, hey let's build nuclear reactors that have a lot more energy than we even need right now. Now we can start getting that to people that don't have energy. 'cause there is no such thing as a rich country that is poor with their energy. Yeah. Yeah.

David Oransky [00:23:12] And

Vance Crowe [00:23:12] So Bitcoin could help facilitate this

David Oransky [00:23:14] Energy is like the base layer of much of society, you know, in a way that money is, is different. Like what's actually the inputs of that is going into everything isn't money, the input is energy ultimately. And money is just a, a way to transact in that. Yeah.

Vance Crowe [00:23:29] And the way that we use energy, like we don't realize just how much like that we're using that, that we have robots working at all times for us. And the way that the food for those robots is energy. 'cause it just comes in this bill and it, it is whatever they're gonna charge you for it, you're gonna pay it. 'cause what else are you gonna do? But we also don't have very much force on the other side being like, let's actively find new, new fossil fuels, new ways to do nuclear, new ways to do all kinds of things. And

David Oransky [00:24:00] Yet if you look at standard of living over time, like the line of energy usage going up instead living going up are like perfectly correlated there. Like that's the way we improve our quality of life is figuring out ways to use more energy to improve our lives. And so the idea shouldn't be to use less energy. Like we should figure out better ways to, you know, more efficient ways to get this energy. But the objective shouldn't be to reduce energy. Yeah.

Vance Crowe [00:24:23] And that, because that's ultimately a losing gambit. Yeah. You are always going to need energy, so why not try and find the absolute

David Oransky [00:24:29] And the idea that you can convince everyone not to. Like it's the whole prisoner's dilemma as soon as one nation, one company won, whatever decides I'm not gonna, you know, voluntarily not use energy because I see how much better my life could be if I did use energy. They're gonna do it and then you create this imbalance and like it's, it's, I don't think you could stop it even if you wanted to.

Vance Crowe [00:24:49] Yeah. But there's certainly people that are trying like, and you think about talking to somebody that's like, we need to use less energy and less, less flights on airplanes and things like this. Like to what end? Like at what point Yeah. Would, would reducing be enough for you?

David Oransky [00:25:04] Yeah.

Vance Crowe [00:25:05] Never.

David Oransky [00:25:05] Yeah, exactly. Yeah.

Vance Crowe [00:25:08] Well so the, a lot that goes on with Bitcoin ev in mining is energy and the hash rate has been just on a rip lately. Yeah. Have you been washing this?

David Oransky [00:25:19] Yeah. I don't wash the hash rate as much as you, but I, it's, it tends to be, you know, why would the hatch rate be increasing? Like if, if if the price stays where it is, it will become unprofitable for a lot of miners, especially after the having comes in April. And the reason is that miners are expecting the price to go up over time. Like, I expect the price to go up over time. I don't have, you know, strong conviction on exactly when that happens. But to me the hash, the hash rate going up is a positive indicator for bitcoin's future.

Vance Crowe [00:25:47] Oh. I mean like if you're mining, you're like, ugh, that's just cutting into my profitability. But if you're sitting there watching for the resilience of the network Yeah. And you're saying, Hey, every time more computers come on and they're contributing to this, it makes it stronger. It does. And you're watching, so there back in, what was it, 2020 when China banned mining.

David Oransky [00:26:07] Yeah. So

Vance Crowe [00:26:08] Like

David Oransky [00:26:08] That sounds right. Yeah. You

Vance Crowe [00:26:08] Had all these miners there, significant amount of miners, significant amount of electricity that like overnight it's

David Oransky [00:26:14] Like half the hash rate I think,

Vance Crowe [00:26:15] I think it was like 30, 35% significant. Yeah. Like, so, so you watch the hash rate just go woo, like down. And then what they do is they, the the code automatically recalibrates Yep.

David Oransky [00:26:26] And

Vance Crowe [00:26:27] Makes it so we're still gonna get a, a new block about every 10 minutes. So it went down and about four weeks later they had already recovered all that hash rate. Yeah. So all those computers that were going as fast as they could in in China, that they shut off fine. Once they went on online offline, people bought more computers to miners and put 'em on there.

David Oransky [00:26:46] And that's the beautiful thing about Bitcoin. Like, and, and what happened to Bitcoin, they, you know, they lost 30% of the opera, you know, mining operations and what happened, eh, block times got a little bit longer for a week or so. Like it just didn't skip a beat and it went on. And that's the other thing, like this is why it's so hard to kill Bitcoin. It would literally, it would take everyone coordinated to turn off all the Bitcoin miners and all the nodes and keep them off. But as long as you get one dissident that says, I'm gonna keep mining, I'm gonna keep my node going, the whole system can come springing back to life.

Vance Crowe [00:27:15] And the, just this last week the Bitcoin hash rate went up 10%. Right. So, so like of all the computing power in the entire world that is going towards this and people are plugging these things in and being like, I'm plugging in this minor and I'm going to get money back for this. Yeah. It just increased by 10% like in one week. Yeah.

David Oransky [00:27:36] Which

Vance Crowe [00:27:37] Is staggering and it, and like it's improving the, the strength of the network. But it like, to your point, it's not like people just investing in an ETF that are like, Hey, I think I'm gonna get some price volatility if it goes up and I decide to sell fine people that are doing mining like they are buying equipment, it's gonna take 'em three months to receive that equipment. The first three months of plugging that miner in is when it's gonna be the, it's the top of the technology stack. Yeah. It's the top of the wave. And then it starts to go down because other people are bringing faster and faster miners on. And so to watch these spikes go on is is like watching people say, I am making a capital investment into this. Yeah.

David Oransky [00:28:15] For

Vance Crowe [00:28:15] The long term hash rate doesn't happen by accident.

David Oransky [00:28:18] No. And how the miners and, but each of each of these players is an important piece of the Bitcoin ecosystem. Like just the people that buy and hold, whether it be through the ETF or buying directly is one piece of it that's creating demand such that the miners have an incentive to mine. And like everybody comes together with these checks and balances. Like bitcoin's one of those systems that's like, it's amazing how simple it is, but how perfectly aligned the incentives are to have this system just work with zero coordinated, you know, top down coordination. This is all just free market dynamics, everybody acting in their best interests and yet it comes together in this very efficient way.

Vance Crowe [00:28:53] Yeah. I mean it really is that kind of MEUs philosophy of like, markets will work if you let them go. Right? And then

David Oransky [00:29:00] People

Vance Crowe [00:29:00] Look around and they're like, nuh, this us has a free market and look how corrupted it is. And you're like, no, they have red tape and bureaucracy and you know, all these like coordinators that you have to get involved with. But with Bitcoin it's like, it's the code is what, it's arguably the

David Oransky [00:29:15] Freest market there is. Yeah.

Vance Crowe [00:29:17] So the aligned incentives, it reminds me of the fact you and I went out to dinner the other night with one of our good friends and we were talking about aligning our incentives with our children

David Oransky [00:29:28] And

Vance Crowe [00:29:29] I had an awesome experience the other day. I'm dropping my wife off at the airport, the girls are with me, we're driving back and my daughter, my 3-year-old is in the, in the sun and she's like, dad, I need some sunglasses. And I'm like, what kind of sunglasses would you get? She was like, pink sunglasses with sparkles. And I'm like, okay, so you want pink sunglasses with sparkles? And she's like, yeah. And I'm like, well, do you wanna wait until your birthday? That's in August. She's like, no, I want 'em sooner than that. And I was like, well then have I got a a world for you? So I started to explain to her that she has chores at home that are like just a part of her being in the family. Yeah.

David Oransky [00:30:04] But

Vance Crowe [00:30:04] If she were to get all those chores done, then we could discuss an additional chore or two that would help her earn this money.

David Oransky [00:30:11] And

Vance Crowe [00:30:12] I thought there was gonna be resistance there. No, she like would not stop asking me about like, when can, can I do those chores? So she like was, you know, in the fireplace digging out all the ash and putting it in the bucket. And I just wanted to thank you about that 'cause it was like I, you, you were telling me like the way you get your kids to behave is aligned. The ascent incentives. That's

David Oransky [00:30:32] What I'm always looking for. I don't figure it out often, but every now and then I figure something out

Vance Crowe [00:30:36] Of aligned incentives. One of the things that I heard a guy talking about this weekend that I had never thought of, and I'd be interested to hear your take on it, he was saying the reason that housing prices are up so high is because people are trying to preserve their wealth by investing it into property. Right. A way to hold its value. But that ultimately the amount that it has been used as a store of wealth has actually increased the price beyond the utility that you get from having a house. Right? Yeah. 'cause you can't really live in two houses. Right. And if as you go from having a summer house to a win, you know, a winter house, okay, let's say you get a third one, like eventually you can't live there. Right. What you can do is turn it into an asset that's earning you money, but that the, his proposal was that the housing market is wildly overvalued because almost all the people that own it aren't using it.

David Oransky [00:31:32] Yeah. I mean that's my general feeling too. The hard part is quantifying that. I mean this is an argument that I've made in general that many assets that are have been great investments over the last few decades are ones that are arguably being used as a, as a savings account because the dollars in a good savings account, whether that be stocks or real estate being the two big ones. And that, I worry that in a world where Bitcoin continues to be successful and gets reputation for being a good store of value, that more and more people wanna adopt that the value will flow out of real estate and stocks into Bitcoin. And that there could be not just, you know, normal volatility but kind of a one-time adjustment back down, you know, where right. We talk about PE ratios in finance, which is the price to earnings. Like how expensive is an investment relative to the cash flow it's producing basically. And right now real estate and stocks are really expensive by historical standards. And you know, a lot of people believe they're just permanently higher that this is just structural change and how the world works. And it might be if you look just at the lens of fiat currencies. But I think that changes once you have Bitcoin that actually people are really desiring a store of value and Bitcoin is a better, more portable, more scarce store of value. And that I worry that those could come back down. And which means a lot of people who are getting ready to retire or saving for retirement may not have as much wealth there as they think they do. And I usually get met with, well how much is it gonna, I, I don't know. Like I don't, it's hard to tease out how much monetary premium is baked into things like real estate. Directionally though I'm fairly confident that's the case and in a world without Bitcoin, those might be the best store of value.

David Oransky [00:33:08] But I think it's not anymore. Yeah.

Vance Crowe [00:33:10] I mean like I have a lot of friends that are in real estate. I would not tell them what to do. They've done very well financially. Yeah. But it was the first time I had ever considered that, well if you own property, the only way to maintain its value is to keep that property up. Right. You know, you have, you are getting charged property taxes, so inherently the value is getting chopped away. Yeah. So you have to either charge rent or you have to get enough utility out of that. Yeah. That supersedes

David Oransky [00:33:36] It. It's not a true passive investment,

Vance Crowe [00:33:38] It's not a savings account. Right. And like then you think about, well once you have your money in Bitcoin, once, once you've paid the, the, you know, you've bought it and you've paid the fees to move it. Yeah. 'cause there is that first, you know, that one time fee now you don't have carrying costs year in and year out so long as the government stays out of it, you you won't be, you won't have it taxed away to nothing. It's easier the same way that land. Well it's easier.

David Oransky [00:34:01] You're not having to pay to maintain it. You're not having to worry about tenants. You're not having to worry about, you know, natural disasters. You're not like, yeah. I think if the reason you were holding real estate was a store of value, there are better options out there now, but real estate will always be valuable. People need places to live, you need places to farm. Like there will be, I don't think that real estate's going to zero. Like, you know, the, the the downside risk or the risk of ruin on something like real estate and stocks versus, you know, fiat cash or bonds is very different. Like, and that's what's kind of ironic in the short term things like, you know, cash and short term bonds are arguably the safest investment over a very short time horizon. But over like a century time horizon, they're arguably like the most risky. And so when we talk about risk in terms of portfolios and finance, like we, what are we talking about? Like usually in, we use a, a proxy for risk volatility, like how much something bounces around as a proxy for risk, but really that's not risk over a long time here. Risk is like losing that purchasing power and having it never coming back. And so yeah, I don't think real estate's bad long term, but I do worry it's, it's in, it's kind of inflated and we'll come back to

Vance Crowe [00:35:10] Yeah, I mean like just, it's just like everything else when you have interference in the market Right. The price of it gets distorted.

David Oransky [00:35:15] Yeah.

Vance Crowe [00:35:16] And I mean it's hard to convince people that it's not distorted. If you own a house and you're going to Zillow and you're like, hey, that thing went from 500 to $750,000. Like, you definitely feel more confident in whatever system is going on that, that you have that that buying power.

David Oransky [00:35:34] Yeah. Interesting though the correlation of like real estate prices over time and the money supply are also somewhat correlated. Like as we printed more money. Like, so this is a question like how much of real estate's appreciation is just that there's more dollars floating out there. I would argue a at least a portion of it. Well, and

Vance Crowe [00:35:51] That goes with an argument or a disagreement you and I have had for a long time, which is I think so much of the stock market is complete zombie money. That that, and like the, you know, my, my base case for it is every Friday, you know, people are getting their paycheck to deposited into their bank accounts and then they have a certain amount of money that's taken and for their 401k,

David Oransky [00:36:13] The

Vance Crowe [00:36:13] Company matches it, you drop it in there. Now you can't touch that for 20, 25, 30 years. Right. But that money is now getting pumped into the system and it's getting pumped in at whatever, you know, asset, whatever allocation you set it up as, I want it to go into this index fund or I want it to go into these, you know, mutual funds or whatever that is. So there's all this money pumping into the system and the people that are pumping it in are completely blind and other people are trading and, and they're trading based on like factors that are not necessarily aligned with what is this company producing, how is it doing, what is its inventory? These kinds of things.

David Oransky [00:36:54] Yeah. I think that's all true. But most of these are passive investors, meaning that they're buying the total stock market. And so this is where I, I think it matter, like our, this has been an argument for years about is passive investing or index fund investing bad for the markets, bad for the economy because of, I think what you're alluding to that people are indiscriminately investing money in companies without actually analyzing the fundamentals. And a true passive investor is just buying the whole market as it is. So what we would call cap weight or evaluated. So the biggest companies, you know, like Apple and Microsoft would get more of your dollars when you invest, you're not, you know, you're not splitting your investment up equally across the number of companies. You're not dividing it if there's 500 companies, you're not dividing it and you have $500, you're not putting a dollar in each one. You're putting more of your wealth in the one that's biggest. And how is, how are the value those companies determined? They're determined based on the number of shares they have and what the market price of those shares is. So then the question is, who's determining the price of those? If every Friday I go and I'm just buying them a slice of the market as it is, I'm not really relative to those companies, I'm not really affecting the price because I'm, I'm spreading my dollars out proportionally to their current values. So the relative values between the companies isn't really, I'm not putting my thumb on the scale for one or the other. It can become an issue if for, say you say I'm just gonna invest in the nasdaq, I'm just gonna invest in the s and p 500 where it's a subset of stocks that you are adding more dollars flowing into those stocks and leaving other stocks off.

David Oransky [00:38:28] So there you can have mismatches there, but at the end of the day, the prices are being set by the active traders. So most of the ball, because all prices are set at the margin, if I buy and hold stocks, the fact that I hold those, I'm not actively in the market, you know, bidding and, and asking and getting bids and asked for those, for those shares and affecting the market price. So the people that are out there actively trading, whether it be hedge funds or active mutual fund managers, they're the ones doing the fundamental analysis to determine the relative prices between all these stocks. And basically all the past investors are free writing off that. So does it mean that the stock market is elevated as a whole relative to other assets? I think that is probably true, but doesn't mean that like that investors are keeping these zombie companies alive. I don't think that you can blame that on passive investors, at least broad passive investors. I think the Federal Reserve and, you know, government policies of low interest rates and not allowing companies that have taken on too much debt and don't have profitable, you know, profitable businesses with a good future and we're keeping them alive because of low interest rates for so many years, that does keep zombie companies alive. But I would just place the blame elsewhere.

Vance Crowe [00:39:42] I mean like the, the whole discussion about, you know, money just getting pumped in and you, that money has to go somewhere, right? Yep. So like there's certainly however much money people are taking out for retirement, that balloon is still getting blown up faster by people

David Oransky [00:39:56] Pumping

Vance Crowe [00:39:57] Money into the system. So that's one thing. But I would say about the, about the traders that know they're trading on some kind of fundamentals. I had a chance a couple different times in my life where I was invited in to be like, Hey, you wanna work in investor relations?

David Oransky [00:40:13] So

Vance Crowe [00:40:13] I would sit down and talk with people in investor relations for quite a while. Yeah.

David Oransky [00:40:18] And

Vance Crowe [00:40:18] I would ask them detailed questions about what is it that this company owns, right? What is it that we are producing? And I would say it is the rule rather than the exception that they do not know what the company owns. Right? Like you can't, in these giant companies, they are way too big to understand what do you own, what are you selling, what is your workforce like? Like I, I think that we've yeah,

David Oransky [00:40:44] Convinced

Vance Crowe [00:40:44] Ourselves that we can, or that you can like boil it down or distill it to something. And the reality is like you can't,

David Oransky [00:40:52] Yeah, I don't think any one person knows all of that. But that's the beautiful thing about markets. Like if you do have a piece of information that you think isn't properly priced in the market, you can act on that. You can go either buy or sell Relative to that position. Like if you think a company has some valuable thing that other people are under appreciating, you can go buy the stock in that company, which adds demand for that company and pushes the price up for everybody, including all those passive investors. So as long as there's somebody out there having an argument with somebody else about what the fair value is and they have the capital to, you know, vote with their capital i, that gets baked into the markets. That's my view. Is it, does it work perfectly efficiently? Absolutely not. But it's always trending towards being more efficient. I mean, I as a analogy that, you know, takes it to the other, I mean imagine there's an estate sale and there's some, you know, famous painting by some famous artist and this isn't my area of expertise so I wouldn't be able to name them. And the person who's running the estate sale has no idea that this is some, you know, great work of art. They just think it's a random painting. And so they price it appropriately. If someone shows up to that yard sale and identifies it as a famous painting, they might get to take it off their hands for really cheap, really inefficient market even because the seller has no idea. But what if two people show up and they both recognize that that painting listed for a hundred dollars is really worth a hundred thousand dollars. They're gonna keep bidding each other up until it gets close to that price. You don't need to have everybody know the information. You just have to have at least two people with enough capital and with that information to properly set that price for everybody else.

Vance Crowe [00:42:26] I grew up in a diet of the markets are, are like efficient and this is how it works. My father was a stockbroker. These are the arguments I've, I've

David Oransky [00:42:35] Heard

Vance Crowe [00:42:36] Many times and I agree in theory that this is the way that it should work. Yeah.

David Oransky [00:42:42] But

Vance Crowe [00:42:42] That, I would say that the complexity of these companies is such that it is literally not possible because what you don't see in that estate plan is yes that, that, you know, that painting should have gone for a hundred thousand dollars on the open market. It would, but you also don't see the colossal amounts of debt, the like the hole in the backyard. That is gonna be a liability. Like I, I mean yeah you can give other examples but, but my point is, I think in the US capital system we have been convinced that it is efficient and it is actually being run by communications departments that do not know what they are buying and selling.

David Oransky [00:43:24] Yeah. I would never make the argument that markets are purely efficient. Like they're clearly not and that you will never have perfect information. At least in liquid public markets though I take the opinion of, you know, just like the wheels on my car or the tires on my car are not perfectly, you know, symmetrical and round, but they're close enough that it gets me where I'm going just fine. So I still use the model of efficient markets in general, but it's also important to like notice when things are really outta whack. But also markets can be efficient and still wrong. Like markets being efficient doesn't mean that the price is always right. It just means that it's a fair representation based on what everyone in the market, you know, acting on their own information is, you know, voting with that and like that the prices are fair. Well

Vance Crowe [00:44:09] I mean price is fair. That's like a funny thing 'cause I'm in the total belief is what is the fair price? Whatever somebody's willing to sell for

David Oransky [00:44:16] Than

Vance Crowe [00:44:17] Somebody else is willing to buy for. That's, so

David Oransky [00:44:18] This is what's different between value and price. Because if you value something more than its price, you will buy it. That's what will compel you to buy it, which increases the demand for it and will just nudge the price up a little bit more. Like, so the price may not be your value to it. And that's kind of the point. People always talk about how there's so much information contained in prices that, you know, markets are these great aggregators and they, you know, all that information gets, you know, condensed into this one price. And from that, like you can tell a lot about markets based on the price. I maybe, but I actually think prices don't contain hardly any information at all. They've actually distilled it down to get rid of all the unnecessary information. So that all you need to know as an individual economic actor is what's the price and do I value that in my life more or less than what its price is and you act accordingly. And so I, I don't know. I am, I also don't think, I mean, 'cause outside of Bitcoin, which is only like a small percentage of my portfolio and what I recommend, like we mostly do invest in passive funds and we're not doing, you know, many sector funds. We're buying like the whole world basically global equities. And from that regard, you actually don't even need to believe in efficient markets for that to be a good investment thesis. You know, Jack Bogle's famous for saying like, it's the, you know, instead of the efficient market hypothesis, it's the cost matter hypothesis. Like in aggregate the whole world owns all the companies, right? Somebody always has to own these companies. So you as a passive investor is coming in and just buying one slice of that in its perfect weight. So that means that the aggregate market return will be the same return before fees as you as the passive investor had.

David Oransky [00:45:52] There's no way around it. It's just a mathematical identity. The difference is, and that also means that all the active investors, the ones that are coming in saying, no, I want to own this stock or this stock is these ones are better, those are the bad ones. Someone has to be on the other side of that trade. Someone else is owning all the stocks that they don't want. And you add up all the active investors together and put them in one pot and guess what they own collectively the market, their return in aggregate will be the same as the passive investor. The difference is their fees will be much, much higher. So if you're agnostically just wanting to invest, which is a whole debate whether you should be, I still believe that passive investing is, should be your default way to do it. Now if you, I can identify in the market something that you believe to be true or you have information, I mean, it's unlikely you're gonna have any special private information and if you did, you're not allowed to act on it. But what you can have, and I think this is true about Bitcoin, you have a view that is out of consensus with the market because you identify things that other people haven't realized, that you can make a lot of money by being right and outta consensus with the market. Because if I, you know, if you believe something to be true, but the whole market kind of believes that that's already baked in the price, you're not gonna get huge returns. You're gonna get the average market return maybe 5% above inflation. Whereas if you can identify something that everyone else has gotten wrong for whatever reasons, you know, and I think that's where the inefficiencies are. I think Bitcoin, for example, is very, very misunderstood about what it is. So I, I dunno, I'm that weird. I'm a Bogle head and Bitcoin, which are two groups that rarely mix, I believe in past investing,

Vance Crowe [00:47:27] I mean, I think you've made a good case for it. The, the, the one that strikes me is when people get into, say like ESG funds, right? Yeah. And so they say, I want you to do this, I want you to invest my money based on scores that people get for sustainability or the, and I'm not entirely sure how those are constructed. Yeah. But that really sends weird information Absolutely. Into the market.

David Oransky [00:47:52] And that's because they're valuing something other than pure profits, which is fine. People can express whatever preferences they have in the market. That also creates an opportunity for investors that are agnostic and that are purely viewing investing as a means to an end of generating, you know, more profits to say, well, because there's now this artificial demand for, you know, say ESG companies, whatever that may mean, that would mean that the cost of cap, what they're, what they're trying to do is make the cost of capital higher for the companies they don't like. Meaning it's more expensive for them to borrow money or to raise capital? Well, what's the opposite of cost of capital for a company is expected return to the investor. So if you're an investor with capital that you're trying to deploy, you now, they now have made it more profitable to go invest in energy companies. Which is why if you look at the, the expected returns or the, you know, price to earnings ratios of energy companies right now, they look really, really attractive relative to, you know, what might be other end of

Vance Crowe [00:48:52] Spectrum. 'cause people have been convinced to put their money in places that are not,

David Oransky [00:48:57] Well I don't think they've been con, well some of them have been convinced that the returns, they're gonna be higher. I think for a lot of them it's, it aligns with their beliefs that aren't always aligned with maximizing profits and that's okay. They should be allowed to express that way. I never understood that until Bitcoin. Like I think Bitcoin is gonna be a really well performing asset. But I also think a lot of people are into Bitcoin because of the ideals that it represents in terms of, you know, you know, various freedoms and liberties of being able to act without permission and all that stuff that I know a lot of Bitcoiners that would hold Bitcoin even if they didn't think the price was gonna go up more than, you know, the stock market. And so I kind of can understand that a little bit more now. But it's also easy with Bitcoin because I think both of them are aligned.

Vance Crowe [00:49:39] Is there a, a fund that is the opposite of ESG? Can you, can you be like, I want to invest,

David Oransky [00:49:45] I think there, there was, I feel like there's an ETF or mutual fund that I can't remember the ticker of that was, it's basically made up of like sin stocks, you know, it's tobacco companies

Vance Crowe [00:49:53] And like,

David Oransky [00:49:55] And, and after, you know,

Vance Crowe [00:49:57] I mean typically that would be undervalued

David Oransky [00:49:58] And I, if I'm remembering, I think I've seen like it's actually done quite well. Which you would expect if people are choosing not to own these, not for monetary economic reasons but for you know, philosophical reasons. There's an opportunity there. I mean that's not my investment strategy. I'm far more agnostic of just, you know, trying to buy the world as it is because unless I think I have some special insight, I'm not really willing to take a bet, you know, know I'm always wondering like I could be wrong, I could be wrong about Bitcoin and that's why I don't have everything in Bitcoin. I'm also bullish enough on Bitcoin that I think you only need a small percent to have a really good outcome, you know, but we own US stocks, international stocks, we own bonds. As much as worried as I am about bonds, I think that's still one of the safest things in the short term. What

Vance Crowe [00:50:46] Do you mean worried about bonds?

David Oransky [00:50:48] I mean I worry about inflation in general and by inflation here I'm mostly, I'm a lot more confident that we're gonna have debasement, meaning we're printing money, we're expanding the money supply, which classically would've been very linked to inflation. As you print more money, the bigger you end up with more dollars chasing the same number of goods and you get inflation. You know, over the last century or so we've had such amazing, you know, starting with the industrial revolution really we've increased the production of goods and services so much that we've been able to print a lot of money without having the prices of things going up. 'cause although the money supply has been expanding, so have the things that they're buying and so it's allowed price inflation to stay lower. But there's no little doubt in my mind I should say that we will continue printing dollars. We have to, we have a credit based system that has to constantly expand or it implodes and we get something worse than the Great depression, which because we have the power to avoid that by printing money, that is what we'll do. But that means that the, we produce a new risk of potentially high or runaway inflation if it gets outta hand. And if you look around world history, like the places where inflation has shown up, whether it be, you know, Weimar, Germany or Zimbabwe or any number of places throughout history, once you get inflation it reduces the real value of those bonds. So in some of those places they had inflation 'cause they had debts in some other currency that they couldn't print and they just kind of eventually became insolvent.

David Oransky [00:52:21] In the US we aren't likely to default on our debt and we can always pay it because we have a money printer. But that means we will continue just to stoke inflation by printing money. And so with that, bonds could go down in value, they will always pay back what they promised you. You know, when you buy a bond you're basically lending a thousand dollars getting paid an interest rate and then you get your money back that thousand dollars back at the end of the term, whether it be five years or 10 years or 20 years or 30 years. And I think if you're buying US debt, you will almost certainly get that back at the end of the period. The question is, does the purchasing power of that a thousand dollars, has that gone down over that period? And I think that's the real risk. Bonds are safe in nominal terms, US treasuries are safe in nominal terms, but will it buy you what you think it's gonna buy? And

Vance Crowe [00:53:10] There's

David Oransky [00:53:10] Actually a recent study by a few finance professors that came out this fall looking at around the world data sets. Not just US data, which is what most financial analysis is based on, but around the world, you know, what's the best investment portfolio to hold during your working years and during your retirement years if you couldn't choose like what country you were born into. And the idea of this is that although the US has had a great run, like what is the future like? Is the, is the past like a repeat itself or what if we were, you know, what if we had an experience looked more like Japan or any other developed country in the world? And so they looked at this and the conclusion that they came to is that the safest investment portfolio over over long periods of time. So not looking at volatility but looking at like that you didn't run outta money basically is global stocks 50% US or sorry, 50% domestic, whether that be if the in the US that'd be us and 50% internationally and zero bonds, which has given a lot of people like what? Because convention and finances, you know, you need stocks and bonds and as you get older you want more bonds because you can't take as much risk. And if you look into the reasons for why bonds fail, then why they don't make sense in a super long-term portfolio, it's inflation. The real value of those bonds goes, starts approaching zero as inflation takes off. In the US we haven't seen that because the US has won two world wars. We've been the powerhouse for the last century. But if you lived in another country, it was a far worse experience. And so this is still a relatively new paper.

David Oransky [00:54:42] There haven't been many rebuttals to it yet. I haven't looked through the data enough to see if there's certain methodologies that don't make sense. But to me it isn't inconsistent with the, you know what I've studied by learning about gold and Bitcoin in terms of what happens around the world. And so to me the implications are not that everyone should get rid of bonds because I think most people probably can't handle the volatility of a full equity portfolio. But that you should think about, you know, there are other options out there, you know is for example gold, a better alternative to long-term bonds. Like should you really be lending money for 20 or 30 years when inflation is always has a risk of taking off, you know, maybe shorter term bonds make sense. Maybe if you wanna hold a savings vehicle for long term it should be something like gold or aspirationally Bitcoin. The other thing that study didn't look at, which now exists at least in the US are inflation protected bonds. You can buy inflation protected bonds from the US government that gives you some protection against not monetary debasement but against price inflation, which is what we're buying. And I think it's not perfect, it's tied to CPI, which may not perfectly correlate to your own consumption habits, but it's, it's close enough, it's the best that's out there. I think that's one. Although interestingly, when I was looking into this afterwards I learned that in Canada, back to Canada, they also had inflation protected bonds. And in fall of 2022, which was kind of right as inflation was peaking around, you know, the world, what did Canada do? They stopped issuing inflation protected bonds. They said, ah, there hasn't been enough demand for these.

David Oransky [00:56:15] They've been, they've been out for you know, decades and suddenly the first time we get inflation in the time period that they've been out, they say, oh no demand, we gotta cut these off. Which for me was like, oh man, that's interesting. I would guess there's something more to that than just lack of demand.

Vance Crowe [00:56:30] And what's your sense for what that would be?

David Oransky [00:56:32] That when you are a country that, and I don't, I don't know Canada as well, I, you know, I live in the US and that's everything is US-centric in terms of my finance world. But in the US we aren't likely to default on our debt by not paying our debt. We're gonna default by printing money and devaluing that currency. And that's what part, you know, right now we have a debt to GD ratio of like 120%, maybe 130% now. And how do you solve that? You either need to have significant growth, which we've had deteriorating growth for a while, so that's gonna be hard. Or you need to effectively inflate away the debt and so you inflate away the debt by printing more money, but that causes inflation. And if you have too many inflation linked bonds or programs, whether that be social security or anything else that's inflation linked, it becomes a problem. 'cause as you print more money, you cause inflation, you have to print more money to make all those, you know, your social security holders, your bond holders keep up with inflation. And so you can't ever solve the problem. You can't inflate away the debt. What you need to be able to do is have liabilities that are not tied to inflation. And so to me that could be like whether premeditated or not, if we eventually are in position where you have to inflate away the debt, it would be better from a government standpoint not to have inflation protected bonds. Yeah.

Vance Crowe [00:57:47] Now you have to pay that

David Oransky [00:57:48] On top, maybe maybe close the window so that that doesn't become a limiting factor if you need to use that tool, you know, down the road. So it makes me wonder like, I don't know, I haven't heard any rumblings in the US of getting rid of tips, but it makes me glad that we already own a bunch of 'em. They're, I doubt they're pulling them back. It's a contractual relationship. It's just whether, whether they'll issue more.

Vance Crowe [00:58:08] So as you think about things like interest rates, these, these get changed when a wizard walks away from his special wizard meeting and then he stands in front of a podium and and says these magical words where he's not actually saying what he thinks he's saying these words that will trigger. Yeah,

David Oransky [00:58:26] That's

Vance Crowe [00:58:26] A lot what it is. You know, all these symbols and like what do you think, how has the, the Jerome Powell managing the economy gone so far? What do you think of the wizardry behind it?

David Oransky [00:58:39] Yeah, I mean, you know, we can debate and in circles with people talking about gold Bitcoin, there often is a debate about whether what role a central bank should even have. But if we just assume that this is the system we have and Jay Powell's job is to, you know, fight inflation and keep unemployment at reasonable levels and maintain stability in the financial system, he's done a better job than I think many people expected. Like if you just take that mandate of that's his objective and that the Federal Reserve exists and this is their role, he's done so far a pretty good job. Like I don't know that we're gonna have this soft landing, but we haven't had a hard landing at least yet. So I don't know, I am more in that camp of, I I question how much they should be involved, but he hasn't dropped the ball yet. I think he is gonna be in a position where he's increasingly having to fight the treasury, you know, in terms of, you know, the Fed is trying to maintain tighter monetary policy to keep inflation down. At the same time you have the treasury now issuing, you know, lots of short-term bonds and continuing to do deficit spending, which is, you know, the equivalent of easy monetary policy. It's stimulative into the economy. And this whole idea of fiscal dominance, I think we maybe talked about a little bit last time or touched on it. Lin all then talks a lot about, it increasingly seems to be taking over where the stimulatory effects of what the treasury and the US government is doing are more than offsetting the tight monetary policy that the Fed is able to do. And then as this continues on, the longer we keep interest rates higher, the more stimulative it becomes because now instead of paying one or 2% on our bonds, were paying 5%.

David Oransky [01:00:18] So that's more money that's being pumped in, given out to all the bond holders and then goes and gets spent on other assets or other consumption goods and then eventually higher interest rates end up having the opposite effect that we hoped they would. So we'll see where that goes. I think ultimately the Fed has a lot of control over the short-term interest rates. They don't necessarily have as much control over long-term interest rates. And I think that's the concern where you could see if people start to lose confidence in the US' ability to pay its debt back, you could have a situation where the dollar is doing quite well relative to other currencies. But US treasuries, you know, especially long-term treasuries are not, they're, the yields are going up, which means the prices are going down. I think that's a real possibility in the coming, you know, decade, two decades.

Vance Crowe [01:01:03] Yeah. You're, you often talk about how how slow it could move into the US system because of the, they call it the milkshake theory, right? Yeah. Where where Well, you, you can explain it better than I can.

David Oransky [01:01:14] Yeah. So this was term coined by Brent Johnson who's a fund manager or investment advisor. And the idea is basically that, and he's actually a gold buck. Like he gets criticized a lot by everybody because he's, you know, seems to be defending the dollar, but he's actually, you know, his, his like fund is like a Santiago gold fund, like he was, he is primarily a gold bug. He just has a different view than most of the other gold bugs. And his view is that the US dollar being the world's reserve currency has a lot of special powers with it. And one of those is that we can set basically monetary policy for most of the world. They all need dollars to pay off their debt. We've got the whole Eurodollar system where they owe money to each other and they're kind of outside of the normal federal reserve system where they can get, you know, cheap lending directly from the Fed. And so in order to de dollarize, they first have to pay off all their dollar denominated debt, which means that actually creates more demand for dollars. And as they're paying off that debt, the dollars get harder and harder to get because that debt, most of the money we had was created by debt being issued. And so as the debt goes away, dollars are destroyed, which means fewer and fewer dollars to pay off the remaining debt. And you get this kind of race to zero where in order to get off the dollar you have to cut off your own arms and legs. And so people aren't really gonna want to de dollarize, but even if we try to, the dollar's gonna go up in value all along the way. Now he ultimately believes the dollar eventually fails and gold becomes really valuable or at least the dollar goes down relative to gold. But he thinks in the short term, the dollar goes up. And I think there's at least some credence to that.

David Oransky [01:02:47] I would rather own the US dollar than any other fiat currency, but I think there's a world where the dollar does well relative to other currencies, but still does poorly relative to things like gold and stocks and Bitcoin.

Vance Crowe [01:03:01] Yeah, it's hard to imagine a scenario where you, we picture like the US dollar holding value, right? Like it's not losing value as fast as maybe in other places, but like I can't imagine a world in which, you know, I I I gather up a bunch of dollars to be able to give to my children because they're going to expect that they'd be able to use those dollars in the future. Yeah.

David Oransky [01:03:26] And

Vance Crowe [01:03:26] So it's an interesting thing to ask yourself like, okay, if that's the worldview that you have Vance at what timeframe, at what like interval does this occur? And I can tell you that my experience of flying back into Denver and, and eating in the restaurants in the airport, which I'd done so many times before where I was like, this is actually the money is losing money value faster than, than what I, even me the inflation

David Oransky [01:03:52] Person.

Vance Crowe [01:03:53] Like it's happening faster than what I thought.

David Oransky [01:03:57] Yeah, I, yeah. And this is where I have to separate, I'm very confident they're gonna print money and dBase the currency. I'm reasonably confident we're gonna have some waves of inflation here higher than what we've had in the past.

Vance Crowe [01:04:11] But

David Oransky [01:04:11] I don't know that in the short term we get runaway price inflation. I'm less convinced of that. But that's, I'm positioned such that if that happens, like we should be okay. So when I think of like looking at the portfolio like what does well in an environment where we are printing money but price inflation isn't going crazy. So, you know, people aren't in a lot of pain yet. You know, things like stocks probably do really well. Things like Bitcoin probably do really well and that's kind of the environment we've been in for, you know, decades now where we're printing lots of money but it doesn't show up in price inflation. And that can be, you know, what could get us there, you know, if this AI stuff really is as amazing as, you know, they say it's gonna be in terms of productivity that could allow us to have more goods and services with fewer inputs and allow us to print more money without causing price inflation. At the same time that will also put a lot of people outta work and what are they gonna want? They're gonna want stimulus checks and so we're gonna have to print money. Like I think we could get there. And again, that's where owning scarce assets is really valuable in a world where we get actual price inflation. I think one of the most underappreciated assets right now is back to energy. Like, you know, energy's sold off a lot. People, you know, think that this energy transition is gonna happen overnight. I think in that world you probably want some commodity exposure because that commodity is gonna, commodities are gonna have a little bit closer of a hedge to actual price inflation. Whereas monetary assets, gold Bitcoin stocks and real estate to some degree having monetary premium do well in a debasement scenario.

Vance Crowe [01:05:39] Huh. I guess I'd not delineated it that way, but yeah, you're right. Like so in, in the commodity world, those prices are reflective of what's going on right now.

David Oransky [01:05:48] Well because commodities going up is what causes inflation. It's not that they hedge inflation, it's because think about what price inflation is, it's you're buying stuff and the inputs to those are energy and you know, grain and whatever needs to go into that as the price of those things go up, the things, the cost of things we buy goes up also and it causes the price inflation.

Vance Crowe [01:06:08] You know, something that in all of this that's gone on over in Europe is that they've had so much energy turned off due to their green economy. Yeah, I was just reading somewhere that Germany now has the same power generation that it had at the same time when the Berlin wall came down and I didn't check that stat out. Some, some listener might be able to tell me that that's not correct, but like it's amazing to think about the basket of goods that they bought from the us Like, you guys should do natural gas. Oh here, here's a pipeline. Oh the pipeline's blown up. Now you've got a, you know, truck coal in from South

David Oransky [01:06:42] South America. Oh no, we'll send, we'll send it over in Yeah.

Vance Crowe [01:06:45] On

David Oransky [01:06:45] Boats.

Vance Crowe [01:06:46] So it's like a wild thing and like it is inevitable that things are gonna get a lot more expensive in places like Germany if you're throwing workers outta work because you can't, you can't,

David Oransky [01:06:57] I think inflation's a lot scarier a prospect outside of the US because of the dollar milkshake theory, like we're gonna be, their currencies relative to the US dollar are more likely to inflate away. Like Bitcoin's already hit all time highs in many other currencies, just not a dollar.

Vance Crowe [01:07:10] Oh I haven't even watched it at all.

David Oransky [01:07:11] And that's be, well it's not because Bitcoin's magically doing better in those places because Bitcoin is a way to measure other currencies and those currencies are losing faster than the dollar.

Vance Crowe [01:07:22] Well I mean imagine being in Germany right now, you had one of the most sophisticated, like, you, like the best part the top of the food chain in, in a market is can you add substantial value to whatever the commodities were? Yeah. And Germany was like, we'll take this metal and turn it into luxury cars. Yeah, we'll make really fine grade equipment, measuring equipment. But like if you don't have factories, you can't do any of that.

David Oransky [01:07:47] And to think that it's all self-inflicted.

Vance Crowe [01:07:50] Yeah. Well and we blew up a pipeline. Well the US blew up a pipeline. I think that's

David Oransky [01:07:54] Yes, we're Yeah. But either way the western states have brought this upon themselves and the US seems to be playing both sides of it a little bit. Yeah.

Vance Crowe [01:08:02] And it's shocking because like the, you would think that like even if you decide, okay, we're gonna quit these nonsense policies about energy, like it's going to take you years to build factories, to have engineers like I I've heard, especially when, when are we producing nuclear engineers? Almost never anymore because there's no work for them. So it would take you a generation

David Oransky [01:08:25] And to get those projects ramped up takes a while and there's so much red tape that Yeah, it's, and that's, so then that's, that's the scenario though where energy is underdeveloped and we continue to increase our demands for energy, you know, which has happened throughout history. We continually demand more energy. And if we've now under invested in that energy infrastructure that what does that mean? It means that energy's gonna become more expensive, energy becomes a scarce resource and what do you have happens when you have a scarce resource? The price goes up if there's more demand for it. And so that's where, you know, back to the ESG conversation and energy companies like energy companies are relatively cheap. If we end up in a world where energy is still relevant and

Vance Crowe [01:09:05] Which like Right. Yeah. Unless you defy the laws of physics, it won't. So

David Oransky [01:09:10] I, from a purely economic financial planning perspective, I think it's would be concerning to, you know, when people say I don't want any energy in my portfolio, it's like you realize that much of what you consume requires energy input. So you are short energy. Like if you really want to make a difference and you know around energy, you probably should stop consuming things that require energy because as long as you're consuming things that require energy, you might wanna have a hedge by also owning some of the energy infrastructure behind that. Otherwise you could get caught off sides pretty easily.

Vance Crowe [01:09:40] Yeah, the big ag news recently was that they were hoping to make jet fuel out of ethanol. Yeah.

David Oransky [01:09:46] And

Vance Crowe [01:09:46] That it like didn't pass the muster of like no, whatever it had to do. And so you have all these farmers that are like, you know, appalled and angry and it's like, well that's not the best use of that energy is certainly not enough. No. You know, there's not enough in there to be able to, to convert corn into jet flights. Like let's think of another way to, to to sell corn or to diversify and not make so much corn.

David Oransky [01:10:10] Yeah. Yeah. It's gonna be interesting.

Vance Crowe [01:10:14] Well it is the, the starting to be the end of winter here in Missouri. What are you looking forward to?

David Oransky [01:10:23] Spring and fall are my favorite times in, in St. Louis. You know, I grew up in Maine. I love the summers there. I try to get back there every summer 'cause it's way too hot in St. Louis for me. And I don't really enjoy winter other than skiing and certain, you know, snow sports. So spring and fall in St. Louis are my prime time here. So now I'm stoked. This last, was it two weeks or so? We had this amazing weather after that cold spell. We were outside at parks, going for walks all the time and that's where, that's my happy place. What going for a walk in the woods? So

Vance Crowe [01:10:53] Yeah, we've started the, I think the girls picked up from me, like now I go outside and try and pull my sleeves up and, and absorb as much sun as I can. And I've noticed my daughter's doing the same thing because we're just like little plants, right? Yeah. You just stick your head up there and it feels so good and sun does

David Oransky [01:11:09] Feel good.

Vance Crowe [01:11:10] Cold temperatures were pretty brutal for a little while there.

David Oransky [01:11:12] Indeed.

Vance Crowe [01:11:13] Well, David Oransky, thanks for coming back on the podcast.

David Oransky [01:11:16] Thank you.