The Future Of Bitcoin, Investing & Cryptocurrency In 2025 - Prepare Now | Michael Saylor

hey everybody welcome to another episode

of conversations with tom i am here with

somebody whose logic has had a profound

impact on how i think about bitcoin in

particular and investing in general the

one and only michael saylor michael

welcome to the show

thanks for having me dude so you are the

founder and ceo of microstrategy you

went to mit

uh at one point you almost became a

fighter pilot and a misdiagnosis

has granted us all a very interesting

public ceo to watch

and i want to actually start with that

story there's something about the way

that you face

massive disruption

that i find really interesting so i want

to start with the beginning of

microstrategy there was sort of you

versus another guy

going head-to-head with your ideas i

think started companies at relatively

the same time and he kept telling you

that you were doing things wrong

and you would make an adjustment and it

would have a material impact on your

business and you just kept

going with that facing what you referred

to as these existential threats

and the way that you handle existential

threats i find incredibly informative so

if you don't mind starting there that

would be really interesting

sure

um

you know so i started a company when i

was 24

and we didn't have a lot of resources i

i guess

i took out like a 5 000 furniture loan

and then i employed my

my first employer dupont

to give me a 250 000 contract

and then i asked for like a hundred

thousand in cash up front and

and uh my negotiating technique was they

said we don't normally do it and i said

well i don't have any money and so i

can't build the software you want unless

you give me the money up front

and uh that that negotiating strategy

only works once in your life but for me

it worked and so they wanted what i had

to

offer and so they gave me the money so

we started with not that much capital

and when you don't have that much

capital you know you can't you can't do

anything so

we were using we're building computer

simulations based upon uh an existing

piece of software that i had and it was

limited but we did what we could and we

grew the company to like 750 000 a year

and then we grew it to 950 000 the next

year

and we

and we saw an opportunity

to plug into

a graphical interface

and

the idea was give computer simulations

to executives to predict the future

and the problem was

it was kind of delving they couldn't

figure out what the assumptions were so

we thought well maybe we can actually

create a piece of software

that lets them plug in the assumptions

and of course we couldn't afford to

write it in c plus so we didn't even

have the programming skills to build the

software it was like 1991

or so so we found a product called wings

which was like an excel

spreadsheet but it had its own scripting

language and graphical interface it was

one of the first graphical interface

development tools

and we took that product

and we plugged it into our simulation

engine

and um

and

you know that that

friend i told you about friend slash

competitor was a former professor from

mit

and uh so he had the phd and he had all

the knowledge and uh and i was just the

kid you know trying to grow a company

so in his wisdom what he said was

you know like everybody knows that

you've got to use excel if you use a

spreadsheet you can't use wings excel is

the winner

and my response was yeah it might be the

market share leader but it doesn't have

the functionality the technology just

doesn't work for me

so i can either use excel and fail

like take to take the safe choice and

fail or i can try something new and

succeed

and he goes well you know long term

that's not going to work i said well you

know we all know that eventually excel

will crush them like all my business

school case studies say that

so i i said yeah but short term

we're going to fail so we got to do

something so we built the product with

wings and it was a screaming success and

the company doubled and we became a two

million dollar company and we became a

four million dollar company

and then we became a

six an eight million dollar company

and uh then a 16 million dollar company

and right around the time we were 16

million dollar company he was still a

one million dollar consultancy because

he hadn't taken the risk

and he was not at risk he had no

existential threats

whereas we had a 16 million dollar

company with threats which was

was uh excel was going to squeeze wings

out of the business and so

the answer was

we rebuilt our product on microsoft base

so we started using visual basic and

microsoft technology

and at that point when we were 16 times

bigger than that consultancy he said you

know every every good software

engineering company that i know uses c

plus plus they don't use visual basic

you know and uh and so you're not gonna

get taken seriously

and i said well you know i have people

that can figure out how to do it in

visual basic and they can't figure out

how to do it in c plus plus

so we did it the other way and then we

doubled to 32 million and we doubled the

64 million

and he stayed 1 million

and we we at 64 million we had this

existential risk which is we needed to

code part of our software and c plus

plus

but we of course were 64 times bigger

than we had been and we're 4x bigger

than we were when we started so we hired

a lot of people and we started coding in

c plus plus

and

he still had a a secure consulting

company that was a million dollars with

no risk

and uh you know and

it went on like that the next thing was

we adopted uh you know the internet and

we started building our software to run

on html

and people said well you know like no

big company uses html it's a risky thing

and it might not be secure it doesn't do

that and we thought well you know well

we can't give the software to 20 000

people unless we try this and so maybe

we'll try to figure out the problem

so

the result was initially we built it and

not that many people used it and then we

built it and people use more of it and

then we built the third version and

everybody used it and then the people

that hadn't built the internet version

got squeezed out of business

and then you know then it went on and

by at this point right the company is

like 200 times bigger than the million

dollar consultancy which is still not at

risk

but it's the difference between being a

technology company

and being a services company

services companies don't take risks and

they don't

they don't pursue architectures

technology companies need to take risk

and and of course

that

eventually uh the mobile wave hit and we

rebuilt our software to run on ios and

then people said well you're crazy

android's the winner so we built our

software on android and eventually we

had software running on pc operating

systems web operating systems android

and ios operating systems and then of

course eventually the web browsers

changed to chrome and and in plug-ins we

built something supported plug-ins

if you sign up for technology i think

you gotta have this model in your head

that you're a snake that's shutting its

skin

every three four years

or i mean a really good model in nature

for growth under pressure is a chambered

nautilus

and a chambered nautilus is this

creature that grows under under deep sea

pressure and it and it builds a shell

and of course the shape of the chambered

nautilus is this spiral because the

creature

is rebuilding the next shell to be twice

as big

as the last shell and turning in on

itself and is using its previous work as

the structure to support the next piece

of work

and so

if you look at the at the design of a

chambered nautilus what you see is

is nature's solution for growth under

pressure

and um

and i think that's how technology

companies work you're just always

growing you can't abandon what you've

done

but

neither can you uh

can you uh

not move forward and not take risk and

not not branch off in a new area so you

so there's this very interesting dynamic

dance between

between uh respect for the past

and integrity uh and architecture versus

uh the opportunity

and the challenge of the future

and you're living in that zone in the

middle the the friction between those

two this is uh the very thing that makes

you so compelling to me and the way that

you think through problems and and

compelling in a way where i have taken

your advice and invested a substantial

portion of my entire net worth um into

bitcoin not by force of personality but

by the way that you can walk people

through the logic of how to

think through a problem

and the one sort of uh capstone that

i'll put on the story that you just told

to really build your credibility and

then we're gonna go cause my audience

probably doesn't know a lot about crypto

in general they may not know a lot about

you yet

and

the capstone i want to put on is you are

if not the longest serving ceo of a

publicly traded company in your industry

one of certainly the top

and you know in an era where

ceos and public companies

you know are constantly like in fear of

losing their job you've navigated

through insane storms including the

dot-com crash including the

2008 crisis uh including kovid so it's

um i think you said at one point you

actually

went through a 98

loss in shareholder value and still

managed to keep your job so just

understanding how profoundly difficult

that is now i will credit it to

something and then you can tell me if

i'm crazy

what i credit it to

is not only your ability to sort of

analogize something like the the

chambered nautilus but that you think

from first principles

and that's what i found so compelling in

your analysis of bitcoin is just

reducing it down to first principle so

want to be great

um for you to define what first

principles are so that people understand

that and then for the rest of the

interview we sort of build on how that

plays out in crypto

yeah i think probably the most valuable

thing that i i learned from mit

was

to think from first principles and to be

intellectually fearless

mit is just a is an entire university

full of very bright people but

intellectually fearless people

my

my freshman classmates you know one of

them started a computer company

and launched a pacman competitor and got

a cease and desist letter from

our computer the game company another

one designed hardware that went on the

space shuttle you know

another one uh used to like

rip down and fix his own cars for fun on

the weekends and they were

they were just capable people that

weren't afraid to do something and what

does that mean to be intellectually

fearless like you're not afraid of

looking stupid you're not afraid of

breaking something what is that

my in my first material science class

the professor comes out and we're

literally all freshmen it's the first

the first hour of our um of our time in

in the class and maybe it's like a

freshman year

class like freshman year first semester

so it's early

so the professor walks on the first

lecture and he holds up a tile he says

you know i'm a consultant to nasa and

this tile burned off the space shuttle

on re-entry last week

so they have a problem they don't know

why they flew me down to talk about it

so they gave me the tile we had a deep

discussion they're still not sure he

says so here's the tile what do you guys

think

and uh you know everybody looks at each

other and these are like 18 year olds

right we're

okay i was valedictorian of my class or

i'm an eagle scout or whatever but

they're all thinking was this in the

readings

you know i did i not read this and and

there's this first you know

horrifying thought right that i should

know the answer but i don't

and then uh the light bulb goes off and

and you know one one guy in the front

row raises his hand and he and he

suggests that maybe you ought to try to

you know reverse the lattice composite

or you know or ask a question about the

nature of the material and where it was

on the space shuttle

and then he pause it's a theory

and then the rest of us go

wow that professor actually expects us

to think for ourself

and then and then we realized

he just asked us the question that he

doesn't know the answer to that nasa

doesn't know the answer to that no one

in the world knows the answer to

it's not in the back of the book and

then the second thought is not only is

it a truly a truly

unique question

he actually has confidence that maybe we

can reason our way through it to figure

out a methodology to solve the problem

so

i would say that a lot of education

consists of rote learning you read

something you read the answers on the

back of the book you try to remember

what the answers are and then you

regurgitate them back

but there's a point in your life when

you have to reason from first principle

so what are first principles

a grasp of math a grasp of the

scientific method you know um

a grasp of of you know elements like at

some point you have to build a building

you have to choose an element where you

choose steel or will you choose bronze

or will you choose gold or will you

choose silver or

or ceramic or

whatever if you don't understand the

math of civil engineering and if you

don't know anything about material

science then you certainly can't put one

thing together with a structure and make

it

stand or not stand

so

engineering in general is

is about learning enough math enough

science and enough uh engineering

technique in order to construct the

mechanism that's going to work

right under whatever the circumstances

is you need it to work i think

that's that's what it means to reason

from first principles you have to be

want to take a clean sheet of paper

like a literally a clean sheet of paper

like a for example i tell you design

something that flies you get wood

okay

design something that flies you get a

metal pick the metal well

we don't design planes with steel why

it's the perfect metal for everything

except flying it's just too heavy to fly

you will never ever successfully design

a plane with steel without aluminum you

will never design a metal plane it's

just not happening so

so if i tell you design a plane that

flies in high winds that's a different

design

designer you know design something that

works in cold

right if

if you're unable to to divine the impact

of the change in the material design

something that flies on the moon

but it's it's different flying on the

moon and flying on the earth right what

if i change the gravitational constant

what if i change this the speed

you know with of sound right what have i

changed the density of the air

how about run a marathon how about run a

marathon at the top of mount everest

how about how about stay alive for a day

at the top of mount everest if i were

going to string those together to give

people an overarching sentiment of what

unites those and tell me if you think

this is crazy

what i explain to people is you have to

understand the physics of the situation

like the the whole thing about flight

you have to understand lift to

understand this is about using and trust

me when i say i don't know the actual

physics of flying but the sort of

ballpark idea is you've got thrust

you've got the wind hitting underneath

the wings so weight is going to become

an issue the amount of thrust that you

have is going to become an issue and

when your thrust exceeds the you know

effort that you need to get that lift

then you fly and if you fail to do that

then you crash and when you understand

this is about recognizing the the way

that it works so tensile strength of the

you know object you choose to build your

building is going to determine the

amount of weight that it can hold things

like that and once you understand that

foundational layer

now you don't have to necessarily follow

a book you can just think well i know

that this will work because this is a

function of you know strength

weight

durability and once you get the

parameters that you're operating under

now you can build something that's new

because you just you understand

literally the physics of that situation

i think engineering is a discipline of

constructing mechanisms to channel

energy

and

so

you have to understand a bit of math

you got to understand uh the basics of

physics

you fly and you and you generate lift

but you gotta you gotta know enough to

know that the amount of lift you

generate is different if the density the

air is different and if there is no air

try generating

right like uh

human beings

human beings rise through channeling

energy so so fire was pretty elemental

okay how about uh does that burn or does

that not burn right i give you two

things can you burn a rock can you burn

some wood all wood doesn't burn the same

can you burn grass

yeah design an oven

how about uh you know we wouldn't have

made it without uh air bows and arrows

missiles right probably the most

elemental thing is you need to hunt from

a distance okay so design a bow

design an arrowhead

i give you four rocks choose the one

that makes the best arrowhead

okay kind of common sense right not not

the light happy shiny soft rock

maybe the sharp flint

rock that will will do the job now

design an arrow you want a long arrow

short arrow but

you have some ideas

but then there's also experiments right

how long should the arrow be

okay we'll make it this long fire the

arrow now make it this long fire the

arrow again now make it this long fire

there now should i create a bunch of

randomly different sized arrows

uh

pro probably one of the arrows works

better than the others right so after i

fire 100 arrows and i pick the 87th

arrow then i'm going to manufacture 10

000 arrows of the the 87th arrows length

and and width and

make up and

you know and then put the right

arrowhead on it and manufacture it and

pretty soon you don't have to go and

wrestle with a gorilla or a bear in

order to get dinner

so

it goes on right i mean

what's a sale channeling went into wind

energy

you ever create a sailboat one sale two

sales three sales

what kind of sale different shape of

sale how do you make the sale how high

should the sale be

right so there's an entire set of

engineering which is just common sense

can you imagine that there's a shape of

a boat that goes through water better

than a different shape of a boat

okay there's there's laminar flow you

know oftentimes you know there's there's

the ratio if i make the boat one foot

wide and 100 feet long it goes faster

that's a crew shell right if i make the

boat 10 feet wide and 40 feet long or 50

feet long well it goes slower but on the

other hand it carries a lot more

stuff right and uh and there's something

called hull speed what you'll find is

that there's a maximum speed at which

you can push push a hole through the

water

it's um it's not a function of the

energy you use it's a function of the

shape of the hole

right common sense create a square

shaped boat right

harder than a needle shaped boat

which has the fastest hull speed it's

when the aspect ratio is 1 to 100 you go

fast when the aspect ratio is one to

five you go slower when the aspect ratio

is one to two

you go slower

what's the best aspect ratio

depends on what you're trying to build

right

what should you do once you figure it

out

make more like that

does the material matter yeah ever see a

butt with rocks

doesn't float as well you know

yeah everything matters

how do you solve the problem right

through being methodical

is it important well it might be a

matter of life and death

so i

look i think the big thing that happened

with regard to bitcoin this year is that

bitcoin is the first is the first point

in human history where engineering

impinged on economics

up until this point people didn't really

embrace the idea of energy theory and

engineering theory and math and sciences

as being integral to the way that a

monetary asset function

you know it used to be money was you

know seashells and tokens and then and

then we have this

general you know we have gold and we

have coins and then we have general

agreements and and uh

and the like and

bitcoin was the first time when we

created um

a digital

monetary asset a pure a pure digital

token on a pure digital network

that that actually uh

respects the laws of conservation of

energy

you know i say it's it's sound money

but that's the same as thermal dynamic

we sound money

which is conservation of energy which

means mathematically proper

we'll get to that in a minute because

those are like really deep concepts that

even i after being in this for a while

struggle with some of those definitions

but so now i want to help people

understand so we're talking about boats

and arrows and there's a certain type of

arrow that works better and it takes a

lot of experimentation there's a boat

and a certain type of boat some of which

you could probably think your way

through like even just as a lay person

looking at a square boat it seems like

okay something doesn't feel right

intuitively

and then i think it was a portugal army

that at one point like took over the

world because they had longer trees

which meant that their boats were faster

and so you get to a point what i want

people to understand about the way you

approach the world is you get to a point

where you can know nothing about it and

say hey somebody tell me

which boat to buy and you're as ignorant

before as you were after but at least

you have if you have a good consultant

you have the right boat but when you

yourself can reason from first

principles now you can act at a moment

of tremendous uncertainty now the reason

i care about this probably important to

articulate that to you

when uh kovic kicked off i had a moment

of panic for because i

first of all i started not poor but i

was broke so i start broke i utterly

transformed my life

i work in the inner cities a lot because

i'm in manufacturing or i was

and so i see these incredible people

that are

destitute because in my opinion they

don't not all of them lack intelligence

because intelligence is evenly

distributed so in any neighborhood

you're going to sort of find the same

distribution of iq but what you won't

find is the right frame of reference

they don't think in the right way and

because they're not thinking in the

right way they get stuck so i become

obsessed with how do i convey mindset to

people so they can think through novel

problems and solve it in a way that

allows them to get out covet hits and

i'm like whoa

the monetary system is blowing up i'm

super

scared for other people that

the basically they have no sense of how

to invest or if inflation is going to go

crazy like how to protect against that

and so i start bringing on financial

experts and none of them could talk at

the street level about like what does

the guy do that's making 52 000 a year

what does that guy do

and none of them had an answer and then

i come across you and you've got this

idea that we're having a once in a

thousand year opportunity with bitcoin

and i'm like i've got to get people to

understand

how you have come to that how you have

come to that conclusion through first

principles

and then like we can get to sort of the

what they should do

so walk through how you go from that

sort of early tweet that you just sent

off as a whatever saying you know

bitcoin is never going to be anything to

like whoa this is real and as a person

and as the ceo of a company i'm going

all in how does that change happen

well the catalytic event is uh

the pandemic

and the events that took place in march

of 2020

and what you saw was main street shut

down

it literally shut down and came to a

grinding halt

and wall street had an initial panic and

a rapid recovery of v-shape recovery and

so we put those two together you had an

l-shape recovery main street just shut

down

and then you had a v-shape recovery and

we call that a k

but what we but if you decompose it and

i was very sensitive to it because on

one hand in my personal life i'm an

investor

and in my public life i run a a main

street company i run a software company

that has people that that manufactures

software that does things

so

what i saw was

if you had um

if you had a large portfolio of stocks

or assets

and you went into this pandemic

uh after the fed uh ended up expanding

the money supply and with the interest

rates going to zero and the expansion of

the m2 monetary base the money base

you found that you were actually 25 30

percent wealthy or doing nothing

you could have done nothing the entire

year as long as like the only mistake

you could have made is do something

right if you if you had a billion

dollars and you did nothing for the

entire year you had 1.3 billion dollars

at the end of the year

on the other hand if you had a main

street company and you're generating

let's say

100 million dollars a year in cash flow

and you're valued at a billion because

of the cash flow you would have to be

generating 130

million

after a year to be valued the same

because the value

uh the assets that the money buy is is

being devalued by 30

if the currency is devalued

at some rate and

you know the money supply expanded to 24

last year so you could use that as your

metric or you could use the s p 500s

return as another metric

but clearly

the currency devalued which means that

if you're a main street company you had

to work 20 percent harder to get nothing

and if you're a wall street company you

had to work you had to do nothing to get

20 better

and so what i saw was a shift in balance

of power you know and a shift in in

wealth

and it was pretty disturbing to me too

you know it's like

you don't want to be uh the dentist

working for a fixed amount of money

that's getting 20 less valuable every

year

so the average person i think struggles

with that because they're like well i'm

getting my stimulus check what do you

mean like how's this going down cost of

breads the cost of bread i'm all good

i think there are some fundamental

misnomers or or

or um

understandings of the world that people

miss and one and the most pernicious one

is the idea that inflation equals cpi

which is consumer price index

average the idea is the number that

for inflation inflation is only two

percent or inflation is one percent or

inflation might be three percent

okay that's just a mistaken idea

um to to

what is inflation inflation is the rate

at which the things you want to buy are

going up in price

and what are the things you want to buy

well you might want to buy pizza you

might want to buy netflix but you might

want to buy a house you might want to

rent a house but if you want to rent a

house it might not go up in price as

much as if you want to buy a house what

if you want to buy a house in the middle

of manhattan it might go up in price

differently than a house in the middle

of kansas

what if i want to buy food what if i

want to buy energy

what if i want to buy a picasso what if

i want to buy something really scarce

what if i want season tickets to you

know the baseball game

what if i want health care what if i

want early retirement they're all things

you can buy you can buy assets

you can buy

luxury service you want to buy a rolex

you want to buy a maserati or a porsche

luxury goods or do you want to buy

commodity goods and there are some

things you don't have to pay for right

there ad finance right streaming youtube

what's that what's the inflation rate on

streaming youtube ad finance

right

so

the inflation is is the cost of stuff

if the money

supply is expanding

that means the currency is devaluing

in a closed system we want to make that

simple

i live in a town and there's a thousand

houses and i and i double the amount of

currency in the town

and everybody wants a house what's the

price of houses do right

if the only thing i can buy is a house

and if i double the amount of currency

then the price of the house must go up

probably go up by two bit but maybe not

exactly by two but it goes up if i

increase the amount of money if i get if

i raise everybody's salary by a factor

of ten

and i keep the number of houses constant

one might

presume that the price of houses will go

up how will inflation actually take

place

well there's a different coefficient

for price

for the price gradient or the change in

price for everything you might want to

buy and it's different at every point in

time

so for example if i put you in lockdown

and i make it illegal to go to the

movies and i make it illegal to go to a

restaurant then the price of restaurants

and movie theaters aren't going to go up

if i if i make it illegal to or or

inappropriate to go on a cruise

and fly in an airplane then the price of

cruise tickets and movie theater tickets

and restaurants they just don't go up

because you can't buy them if you want

to there's no velocity on that money

okay what can you buy you can buy stocks

you can buy crypto

right so what you know what does go up

well if i give you a thousand dollars

and you can go and you can buy stocks

then the price of stocks go up

now what happens um

what happens next well so

everybody gets locked into their

apartment and they decide they really

want a house with

grass so what happened next well 12

weeks after the lockdowns the price of

like suburban housing went up and people

started trying to buy houses they said

this is unprecedented we've never had so

much demand for houses in the suburbs of

new york

well that's not a surprise

you know what if your choices if i close

the parks in the cities

and

you know and and i close your office

then why wouldn't you move out into the

country and live at a house with green

grass right you're not

the utility you're not missing out on a

restaurant you're not missing out on a

park you're not missing out on your job

so rational human behavior causes people

to take their money and go buy things

they want

so and where do they buy them well um

you know hampton's real estate went up

in in price fifty percent

palm beach they go to the places where

they want to go

uh did the price of land in the middle

of north dakota go up by 50

not so much

it's not you know it's not a scarce

desirable asset by people stampeding

so

so what is inflation inflation is a

vector it's not a scalar

a vector means you can calculate for a

thousand different products a thousand

different numbers and they change every

month

so i could give you

a thousand different numbers

uh 12 different times a year and it

would be different in every city

everybody can figure out that in minot

north dakota it's different than

manhattan and it's even different in

manhattan than in brooklyn and it's

different in brooklyn than in upstate

new york so inflation is varying by time

by space and it's varying by every item

and if you want to calculate the

inflation index

you have to construct a market basket of

goods and services and assets that you

would want to acquire

and then i can give you the rate at

which that market basket of goods and

services and assets is changing

every month or every week

and uh

of course that would be different for

every person

so what happened after the lockdowns

well we got hyper inflation in some

things bonds hyperinflated

cost of bonds doubled in three weeks

whoa that's hyper inflation uh equities

inflated you know they were up 40

you know year over year

uh you know cryptos inflated bitcoin was

up three four hundred percent

so

the cost of scarce art the scot the cost

of luxury real estate

all of that stuff inflated you know or

hyper inflated what didn't inflate

things that people can't buy

and and yeah i can define a market i

could define a market basket of things

that don't go up in price by definition

too

right if i define a market basket of

highly manufactured goods that have very

low variable cost

right like

what's the price of your streaming

youtube video or what's the price of

some manufactured box of macaroni

that's five percent food and 95

marketing

right i mean the more ma if i spent two

billion dollars on a fat on a factory

to stamp out widgets that have a

variable cost of 10 percent

right then inflate then i've already

sunk the cost in the factory those

things don't inflate at the same rate as

you know if there's only one

mona lisa in the world and if i increase

the amount of money in the world by a

factor of 100

don't you think that the value of the

mona lisa would go up assuming that lots

of wealthy people wanted it

and that that gets you to the really the

the interesting theory of economics

right if i want to really understand the

anything in the engineering world i need

to use vector

vector calculus right or vector math i

would never use arithmetic you cannot

solve the problem of fluid dynamics with

the arithmetic you can't design a boat

you can't design a plane you can't

design a nuclear reactor and you can't

design a bridge with the arithmetic well

a scalar like oh inflation is two

percent that's arithmetic

right

you know adding it up right uh

isaac newton gave us the calculus of

variations

you know and calculus in general and

pretty much every sophisticated thing

that flies

or floats

you know it's all based upon calculus

and uh

and you just can't solve the problem

without that math so

that's the problem for inflation okay so

let's

inflation is our problem

but we have the confounding variable of

the average person is being told by sort

of the mainstream media by the

government hey inflation's not a problem

they look at their basket of netflix and

bread and whatever and it all seems fine

they're getting their stimulus checked

there's no worry but the reality of

inflation is completely different and

we're now seeing a break in the

narrative from the government saying

well actually

inflation is you know whatever twice

what we thought it was and that may be

just the tip of an iceberg that's coming

so inflation is a problem in two ways

one if you pour money into the system

inflation is going to go up on a certain

set of items and then number two if

you're confused about what inflation is

because it is not simple arithmetic

you're now paralyzed especially when

that's confounded by marketing

essentially

so cool so we've got inflation is sort

of problem number one you're you often

use the analogy of you know if you have

a boat that has a leak in it you've got

a real problem and if you know that

inflation at some level exists you've

already got a problem

so when did you begin to think

okay i've got this

in fact what i'm really the the part

that i find so intriguing about your

story is when you turn to wall street

and we're like i have a profitable

company it is wildly profitable

and yet wall street does not like it

dear wall street why do you not like my

company and the answer to this is so

revealing

yeah the company was valued at like one

times revenue plus uh cash

and uh

i said well i have i have 500 million in

cash

why don't we get more credit and the

answer is cash is trash

like it's ray dalio's quote cash is

trash well why is cash trash

well if the money supply is expanding at

seven percent a year then then the

risk-free hurdle rate is seven percent

if you don't generate more than seven

percent yield on your cash then it's

devaluing

so from 2010 to 2020 the money supply

expanded seven percent

so all the cash you're holding is losing

seven percent of its value

um

assuming you have a zero percent

interest rate or zero yield on the cash

so you can imagine the traditional world

you invest your cash at three percent

treasury yields and you get a minus

seven and it's like a minus four percent

and divide four into 72 and

you know and somewhere

15 20 years out you're going to lose

half of the shareholder value in the

treasury if you do that

people might hold their nose but after

march of 2000

the money supply is expanding at 24

the interest rate's zero

so now you have to put a forecast in

place at what rate will the the money

supply expand if it expands at 20 a year

and you're going to generate zero in

treasury yield

then you're looking at cutting your

treasury purchasing power in half in

three and a half years whoa okay now

that's not trivial so

you have to find a way if you're gonna

if you're gonna have assets to get over

the hurdle rate another way to say it is

i have to invest it in a strategy which

is going to appreciate faster than the

money

is devalued

if the money is devalued at seven

percent a year then the s p 500 index

better yield nine or ten percent if it

yields ten percent and the money

devalues it seven percent your plus

three you can save money

in an s p 500 index fund