Technology companies run the show. Rockefeller was a technology company. Kraft, Hein, technology. Every company that ever succeeded was a technology company. By the tech that is hated and hold. Real wealth is created by one bet and holding. How do you wreck your software company? Make a bad acquisition. Want to buy your shares back? Well it takes capital to do that which means your emergency fund can get too thin as you drain all of your capital and your “shit hits the fan” buffer isn’t there and then something like COVID happens. What is left? Leave the cash in the bank and when a paradigm shift comes along you take a risk. That risk was BITCOIN and he took. Convey $100m to your next 100 years. Let’s say you owned all the gold in the world today. If gold miners created 2% more very year the rule of 70 says that the supply of gold will double in 35 years, so you now you own 50% of the supply and in another 35 years you own 25% of the supply and so in 100 years you’ll only onw 12-15% of the gold supply. Raoul says he thought of something similar in a different way and saw that the fed balance sheet outperformed everything except bitcoin. Gold has an inflation rate of 2% (miners find 2% a year). Worse than that because gold is not all pure. And as the price goes up, every miner is your enemy. Think of oil, it went up so high we went to war, then we invented fracking, The cartel is the only way. This is the problem with investing in commodities over the long term.
The simple premise of bitcoin:
Fully diluted share count is all that matters. Take your earnings divide by that and your done. Take your revenue divide by that and your done. (Fully diluted shares are the total number of common shares of a company that will be outstanding and available to trade on the open market after all possible sources of conversion, such as convertible bonds and employee stock options, are exercised.) The fully diluted bitcoin count is 21 million. Wood can only build a few stories. Stone can only be 5 stories, (Europe). Steel creates skyscrapers. Civil engineering is the perfect element. Aerospace, its all aluminum. These are fundamental things. Gold Standard, great idea in 19th century. Along comes bitcoin. Bitcoin is the new steel. This entire thing is its own anti-fragile evolving ecosystem. Bitcoin ownership is guaranteed.
Felt a lot of tension between the hosts and the interviewers.
Dutch Tender Offering: (Sometimes referred to as a reverse auction). A Dutch auction is a market structure in which the price of something offered is determined after taking in all bids to arrive at the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price.
Treasury problem: Subsequent to 2020 the cost of capital exploded from 8% to 25%, and you can see that by the performance of the S&P500 index which went from 8% for a decade to 25%. This means that anyone investing money has to generate this cost of capital to avoid destroying wealth, (My own comment here is that this is the equity cost of capital and not the total cost of capital which would include the cost of debt. Although as a CEO of a publicly traded company this is the relevant cost of capital.) The cost of capital is being driven by the money supply. The Federal reserve is expanding the M2 money supply by about 5-6% per year for the decade 2010-2020 and when you tack on a risk premium, you get to the 8% return. When the federal reserve expands the M2 money supply by 20-25% that’s where you get that explosion in the cost of capital. Inflation doesn’t show up in consumer goods, inflation immediately shows up in assets with asset inflation within minutes. The treasury problem, which effects all 100 million companies in the world, public or private, is that you have money in your treasury and that capital has to yield the cost of capital and if it doesn’t then you’re destroying shareholder value. The treasury problem is that the cost of capital has exploded and if you can’t beat it the you will be under enormous pressure from shareholders, and may need to de-capitalize and return the capital to investors or pay a dividend or buy the stock back. The second pressure is that if you have a company and cash flows are running at 5-8% a year, and the cost of capital is 25% the forecast of your stock is for it to go to zero. There’s an example used that he had a $500 million ice cube that is melting at 20% a year so it’ll be gone in 5 years. He’s holding bitcoin as property on his balance sheet.
This applies to all $400 Trillion investor money, estimate the rate at which the money supply (currency) will expand for the next 8 years. He thinks 15% for the next 8 years is reasonable. If you were optimistic 20%, if you were pessimistic then maybe 10%. He refers to this as a risk free return, (not sure why he thinks the M2 growth = SP500 returns = Risk Free Cost of Capital. I get why the money supply would effect the SP500 but the SP500 is definitely not risk free.)
His whole concept is that asset inflation equals the cost of capital and equals the money supply growth. Now you will realize there is a negative real rate on everything except bitcoin. So convert everything into Bitcoin.
Finite, scarce monetary asset, as you can’t make any more of it.
Encrypted money which means it is least likely to be impaired by a property tax and execution issue, money printing, dilution, counterparty risk and corruption.
We have engineered a technically superior asset that’s placed on an open global digital monetary network.
This apex asset on the open protocol makes it the most disruptive technology in the world.
Paradigm shift. First time in human history we have put first layer of money on a digital network. There is nothing to study because it’s never happened before. It’s like when we invented fire or electricity. First such digital monetary network. Fire in cyber space that is burning with $1 trillion of energy. Fastest market to $1 trillion, (12 years).
All fiat is linked, for the first time in a very long time, and it’s all collapsing at 20% a year.
Every company needs a financial plan because if the monetary supply is going to grow 20% a year you have to own assets unless you can exceed that. And who can succeed at doing that (risk-free) you would have to be a monopoly. So all these other companies are going to be squeezed out of the ecosystem. They will have to decapitalize and be rendered insolvent by the monetary policy.
Money is a measure of energy (I love this line.)
Warren Buffet in Zimbabwe, Argentine Dollar, Lebanese Pound. Lebanese currency collapsed 80% overnight.
When you ask someone how they did last year if they are honest they will say ” the dollar crashed so all my stuff was up because the dollar was weaker.” Or they will say “oh I was up 37% because I’m a genius stock picker.
There are people that will say operating companies shouldn’t have assets. Your CEO, go back to your cubicle and write software and leave the investing to the professionals. The macro environment is so incredibly unfair to those that don’t own any assets or property.
while the broad measure of the money supply in the U.S., M2, has gone up 12-fold since the start of 1981, the velocity of money–how many times it changes hands over a period of time–has collapsed.
Note that the Fed refers to money stock, where the word stock refers to the sum total of money in the system, as in “the store is fully stocked with merchandise”. They’re not referring to the stock market, but to all the money that’s in the “store” of our financial system: cash, money in checking accounts and money market funds, etc. Here’s the definition of M2:
“Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs (money market funds) less IRA and Keogh balances at MMFs.”
Put somewhat more directly, M2 is all the money in the financial system which people can spend. It doesn’t include the money in individual retirement accounts because that has been set aside for the long-term and is not available (except in cases of early withdrawal) to spend.
“The velocity of money is the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. A decreasing velocity might indicate fewer consumption transactions are taking place.”