E71: Risk Taking, Contrarianism, and Growth [Byrne on Interintellect]

Speaker A: Welcome to the Riff, where writer and investor Bern Hobart and I discuss the major inflection points caused by technological change. Our weekly conversation covers the obvious and not so obvious ways in which markets and businesses will adapt as a result. Let's jump right in. Hey, listeners. Eric here. Today, instead of my usual conversation with Burn, we're releasing a conversation Burn recently had at a live event in Austin with Inter Intellect, which you can learn more about. In the description, Bern talks about his book, Economic Cycles, Financial Markets and more. Please enjoy the conversation, everybody.

Speaker B: Uh, thank you for coming.

Speaker C: Uh, thank you for earning this space. Um, and today we're here to talk about. Uh, your name is Bern, right?

Speaker B: That's right.

Speaker C: Bern Howard's new, uh, book, so Bubbles and the End of Stagnation. Boom.

Speaker B: Yes.

Speaker C: Um, so this is a book that sort of, uh. I was just, uh, saying to Gina, uh, it's sort of on technoteology, as I like to think of it, uh, which is sort of, uh, a really interesting topic. Um, the way this is going to work, I think, is that I prepared some questions and then we can sort

Speaker B: of open it up into a little more discussion.

Speaker C: Like it was sort of planned. So, uh, the book is like really great. It's uh, divided into. It's like extensively research, extensively referenced. There is a ton of books that I've heard people mention before that I didn't know how they sort of fit in for people, that I now know how they fit in for people. Um, and thematically, the sort of divided between the two parts, it's sort of like the ideology of stagnation and then what calling the ideology of progress. So perhaps an interesting place to start would be the first part. And the thing that I found perhaps most interesting about the first part is, um, the way you guys sort of argue, um, sort of financial markets inhibit risk taking, and that in particular low interest rates, which intuitively one would think of as, um, like encouraging risk seeking or actually much more ambiguous about that. So I'm kind of curious. Can you sort of talk more about how this is. First of all, what do you mean by. I think hyper appliance financialization was how it was called, and why is it that this inhibits risk taking or is ambiguous?

Speaker B: Yeah, so there are definitely a lot of paradoxical relationships here, because in one sense, financial markets, well, I guess, like, in full disclosure, they're very fun for me. I enjoy reading about them, writing about them, interacting with them in various ways. So I do personally like them. But, um, so in one sense they are just a really Elegant mechanism for directing capital towards potentially high return activities. But they can also end up with feedback loops that are fairly toxic. Feedback loops where they don't interact with the real world except in a more pathological way. And um, they can kind of detach themselves from reality. And there's a paradox there which I think, I think the best way to resolve that is to talk um, about a different section of the book where we taxonomize bubbles and talk about extrapolation bubbles and mean reversion bubbles and we use a bunch of different terms to describe this. But basically you can think of one set of bubbles as describing, is predicting this total rupture with the past. That things will never be the same and travel will be faster or energy will be cheaper or um, transportation will be more abundant, easily accessible or computation will be um, cheaper, et cetera. Like all of these, they, they imagine a radically different world where you can just do things that were not, not doable before. And then there's a different set of bubbles where what they imagine is that the future is a lot like the past, except that there is more of it and it's, it occurs within a narrower range of possibilities. So if you look at something like the housing bubble that was um, it wasn't driven by any new development in um, building cheaper, better houses. It wasn't driven by any new, you know, aesthetic change and what kind of house we want to live in that caused everyone to invest in something totally novel. It was just um, we had suffers and then we had more suburbs and more suburbs. And um, it kind of kept feeding on itself. But where, where financialization kicked in was that it, it started to develop this internal logic where housing prices were increasingly driven by the availability of credit for buying new houses. And then um, defaults were also driven by the appreciate, uh, or lack of defaults was also driven by depreciation housing prices. So if you bought a house with your subfront mortgage and a couple years later you lost your job, you couldn't really pay the mortgage, but the house had risen in value such that your equity had doubled. Then you could just take out another loan, you could refinance and you have enough cash flow to continue servicing your debt. And when people looked at the aggregate performance of subfrime mortgages, what they found is that defaults were actually much lower than expected. Which they read as the American consumer or the American home buyer is more credit worthy than we give them credit for and we should make more loans to them. But part of what was going on was that the American homebuyer was flush because their house had gone up in price. And over time just a gruent share of uh, economic growth came from things that were adjacent to housing. It was uh, you know, financial sector was doing extremely well and construction was booming. And so you had a set of a chunk of the economy where it existed because there was this continuous inflow of credit. And then um, that continuous inflow of credit was predicated on the existence of this, this piece of the economy. That lasted for a while but eventually we just, it just reached its limits. And uh, there were, there were various various shocks that um, that happened. You know, housing prices kind of leveled off and started going down and oil prices started going up. And that exerted this um, you know, oil price higher. Oil prices are basically a uh, a flat tax or were at a time when um, more people, everyone was driving internal combustion vehicles, no EVs, and um, where those vehicles were not getting great mileage. So it was basically a flat uh, like a tax increase. And that started to cause people to actually default. And then things started running in reverse. We found that some chunk of the mid 2000s economy was kind of a temporary fiction. So those bubbles do tend to be pretty damaging because they're treating the future as if everything you need to know about it is contained in the past. And I, I think that is true at a much higher level of abstraction. But it is not literally true in the sense that if you see a chart and you see that there's a line moving in some direction, you can just extrapolate that line in a dash in that lane. So that's part of our concern with the hyper financialization thing. And I think another piece of it is just um. There's always a question and the book implicitly and explicitly asks this question of what do smart people do with their lives? What do they decide to spend their time on? And if you look at the case studies in the book, the first few case studies, the first two case studies are both government funded megaprojects. You have Manhattan Project and Apollo Program. And then the rest is more private sector focused. And these case studies are roughly chronological ordered. And that's not a coincidence. So in the 1930s, um, in the 1930s the government was the growth sector. If you were a young ambitious person, you wanted to have lots of responsibility and live up in the world. There was just no. The second best options were not very good at all. You really wanted to get involved in some new deal program. You'd probably get promoted very quickly if you knew what you were doing and you'd have a lot of authority while you're still in your 20s. And so the government in the 50s and 60s was still run by those people, people who'd been selected from the very upper tier of uh, achievement and ambition. And so that government was capable of doing really, really impressive things. But um, over probably the post war, starting the post war period and accelerating since then, there's been a lot more selection uh, for ambition in the private sector instead. So that's, that's where the really competent people end up going. And after finance got more fun and exciting and deregulated, a lot of them went into investment banking, hedge funds, private equity, Indian capital, et cetera. And these are all fun, interesting professions and in fact dabbled in more than one of them. So I like them. But um, it is probably the case that there, there are people who could have developed things that impact the non abstract world and instead are applying their talents to currency, electrons or something.

Speaker C: Okay, so yeah, this version of so many of the things, um, so I'll skip the stagnation questions and then go to them. So Bram stuff. One interesting thing to kind of go off, the last thing you said is, um, so I feel like this book is very strongly influenced by certain ideas that I associate with Peter Thiel basically. And uh, George Soros also makes an appearance in the book. And I always thought that these were sort of two sort of similar characters. They're both sort of wealthy, they both have this deep devotion to a particular philosopher, which will be Rene Girard in one case and Karl Popery in the other. And they also have some kind of relationship to these bubbles. But uh, it does appear to be somewhat different. So I don't know how do you see these two characters and do you feel like they capture this distinction between these kinds of bubbles you were mentioning or not?

Speaker B: So that is an interesting question because Soros, um, has written really interesting things on bubbles as sort of a practitioner. In them he has these quotes like, when I see a bubble, I want to jump in with both feet or invest first, research invest first, investigate later, et cetera. So he's very much a fan of looking at some change and inferring that there's something important going on and he should chase it and then figure out what the nature of that change is. And um, actually there's been some research subsequent to Soros active investing career looking at that kind of phenomenon. And um, there's an interesting paper that actually looks at Soros's record and looks at what kinds of systematic replicable factors like uh, what kind of, you can write an algorithm that says if this currency is outperforming, uh, other currencies, buy some. And those kinds of strategies do tend to produce good returns over time, certainly did over Soros's career. And if you run all the linear regressions, do all the attribution, what you find is that the Soros specific skill actually had a negative contribution and that, ah, you can account for more than 100% of Soros's returns by looking at what assets that he invest in and what broad replicable strategies that you follow. So in other words, if, uh, if the strategy is something like buy the currencies that are going up and in this year the yen and the deutsche mark both run up. Um, if in a year where the yen did a little bit better, Soros probably bought the mark and vice versa. But over time he was generally picking the right kind of trend. So um, you can, you can look at that and say, okay, this means he had no skill whatsoever. Or you can look at it and say that Soros, just by reading headlines and thinking very hard and having lots of conversations with lots of different people, was able to intuit a statistical relationship that the rest of us didn't figure out for another 20 or 30 years with lots more data and much faster computers. So, um, but Soros does talk about not just that he likes bubbles and enjoys chasing momentum, which is true, but he, and I think, well, to take a side note, um, there is this problem that a lot of very Throbaldi, fuller ant people have, which is that they can take any personality flaw they have and discuss it at great length and discuss it as the highest of human virtues. So Soros is just a degenerate gambler. He loves buying and just has like this Pavlovian reaction to seeing a line in a chart go, uh, up. He can articulate a reason that this is actually really, really clever of him and not just to general gambling. And he has this wonderful memo where he talks about the theory of reflexivity, where he says, um, he gives an example of this particular, um, kind of company that's popular in the late 60s, early 70s called a, uh, mortgage or real estate investment trust, specifically a mortgage trust where the idea was you get a pool of capital, you borrow money against it, and you um, buy a bunch of commercial mortgages and then, um, you, you basically collect the spread between what those mortgages earn and what you pay to borrow against a diversified portfolio of them. And what he pointed out was as the value of those trusts, um, as their stock prices went up, they were able to borrow more cheaply because lenders would see that clearly investors think this company wouldn't make a lot of money and therefore it's probably fairly safe. And if that happened, the companies would issue more stock, use it to make more decent investments, borrow more money, et cetera. And so their fundamentals started looking better and better. And meanwhile, um, as in the residential real estate bubble of the 2000s, because they were buying many of these, because they were lending to people who were buying these buildings, the value of the buildings went up, which meant that the collateral was getting more valuable, so the loans looked even safer. And so we said this. One, this is totally unsustainable, like it is entirely an artifact of financial markets over extrapolating from the past. But two, those stocks are going to go up, so I'm going to buy them and then I'm going to own them until I decide the sentiment is changed. And probably sentiment will change before their earnings deteriorate. But once in the changes, once they're, once they are no longer getting all of these inflows, suddenly building prices aren't going up that much. And the last building that someone buys in the cycle, they probably borrowed too much and ah, the building's rents are probably not that great. It's just not a great investment. And so um, and of course if this sector is growing and the bubble is growing, a lot more of the assets are going to be bought at the very end rather than at the very beginning. So it's going to be net destructive of capital. But for a while things will be really good. And so source of theft is basically you buy them when the stock is going and you expect earnings to go up and then you sell them on, the stock is going down and you expect earnings to actually go down. And so he made a lot of money on that. And pattern does repeat itself in other sectors. When you look at the mechanics of it, he's describing something that is very much driven by the interplay of equity markets and loans and the collateral that backs those loans. So it feels like a special case. But if you consider um, say software companies in the last couple years, you have this period in 2020 and 2021, um, where there was an acceleration in growth. And um, again, what do you think the cats of it? If there's a company that has a lot of salespeople and they suddenly hire a bunch more salespeople, now they have added a bunch of seats to their docusign subscription, they've added a bunch of Zoom accounts, they've added slack, et cetera. So now docusign, Zoom and Slack are all growing faster. And so investors can see that these software businesses grow incredibly fast and so they invest in more of them. The new software companies are doing business with the old ones and ah, it all just kind of chases its own tail until you have like 2022 where there's this spike in inflation, the VCs get skittish, people start thinking about costs again, they start doing layoffs and suddenly all of that organic looking growth of uh, you know, Zoom would grow 35% a year if it never signed a new customer because its customers are all growing so fast. Well suddenly it's Zoom would actually Zoom needs to sign up new customers just to stay even. And so um, suddenly the equity values decline. And when that happens it's a lot harder for these companies to hire really good talent because they pay them partly to primarily in stock. So suddenly really, really smart people are non jumping to the nearest startup. They might be staying at their big tech jobs, they might be staying in grad school a little longer or going to grad school to just stay out of scary hiring market, et cetera. So um, yeah it does. Those feedback loops do show up in a lot of places. And that's like the high level soaring summary where he likes being long the bubble and that he will short the bubble once the prices show that the bubble has peaked, even if the fundamentals still really good. And Keel seems to take almost exactly the opposite attitude towards looking at bubbles, where he's also looking at the mechanics of bubbles and looking for where they can't be sustained. But then he's looking at betting against the bubble being sustained. And um, I think if you look at some of his big trades, um, one of them bedding on oil and that um, oil was underpriced in the early 2000s and that uh, they could only go up or it was very likely to go up. And that, you know, that sounds like we're betting on something going up. We're betting on, you know, better, brighter, bolder future, et cetera. But the world basically has a short position in oil where we don't. It's not like you gratuitously consume it and we have to use a lot of oil based products. And so when oil goes up it usually means that the world in the aggregate is a bit poorer and oil exporting countries are a bit richer. So it is actually a pessimistic bet to say that oil is going up. And so it's essentially shorting the concept of an economy that can be indifferent to energy costs in the face of uh, one, oil being a depletable resource, and two, the growth of emerging markets where if they uh, the last time I looked at this it was that if, um, emerging markets all reached US standards of lending and US standards of oil consumption, we would be using about four times as much oil as we currently produce. And uh, obviously that makes the price go up, but it also implies a much worse world, um, specifically for people in developed countries, which is where the equity market cap is.

Speaker C: Okay. And uh, perhaps to kind of go off on this because I'll, ah, sort of merge two questions into one. So the thing about the way people normally value financial assets is this discounted cash flow view of it. And it appears to me that when it comes to these bubbles, that is just sort of impossible, be it good ones or bad ones in particular. Because if you just focus on the good ones, for example, um, there uh, is no way to arbitrage general because there is no way to short anything basically. Um, and so I suppose my question is, what do you see if one is trying to make the money off of these bubbles? What is the right approach to that? Or to phrase the question differently, when it comes to these bubbles, who are the people that sort of end up making the money and who are the people that think they are investors but end up being visionary talent at this funding future?

Speaker B: That's a good way to put it. And yeah, a lot of people do end up just making a large charitable contribution to something like very affordable broadband infrastructure to the next generation or whatever. Um, I would say that one piece of this is that the people who do the best in bubbles are typically not the investor class. Like investor class will make the most money from when we first call it a bubble to the peak. But it's usually the founders who actually make the most money. And one reason for that is that the founders tend to be many steps ahead of the broader public and, you know, the investing public. So when Bezos was um, founding Amazon.com, he was noticing that the Internet is just experiencing explosive growth and that even if it slows down dramatically, it will be a very, very big deal. But, um, he was, he was also pretty aware of just the fact that there was a lot of froth that people were over investing. And um, unfortunately in his case what he had to do was also overinvest because he knew that there's just no honor in uh, raising a more prudent amount of money and grow it a little bit more slowly and having the second best everything store be the everything store that actually wins just because they raised more money and built in bigger but slightly shoddier enterprise. Um, let's see. So, um, those founders, they do tend to know a little bit more about where the market was going, but they also kind of recognized when there's this divergence between what the narrative about the bubble is and what the underlying facts on ground are. And so, um, Amazon, they were basically growing as quickly as they could in the 90s. Um, in the late 90s and then in the early 2000s when they recognized that capital was not going to be as abundant, they cut costs very, very aggressively. Their growth slowed at one point to almost zero, and they were still losing money. So at that point it kind of looked like every dot com skeptic had been vindicated because the dot com bull case was, yes, they're losing money, but they're growing insanely fast. And when they reach scale, they will be very profitable. And one other way to phrase when they reach scale is when they stop growing. And he demonstrated that when Amazon stops growing, it still loses tons of money. And this actually gets back to your discounted cash flow question. So it was very hard in the 90s to put a discounted cash flow valuation on Amazon because you were just making up numbers. But internally, Amazon was paying very close attention to their cohort metrics. So if you signed up for Amazon at the beginning of 1998, how did your spending trend in 1999 and 2000 and so on? And what they generally found was that yes, they were spending a lot of money to acquire these customers, but these customers were sticking around and spending more and more money over time. And if you started to extrapolate that, you could say that a lot of the customers that they acquired very expensively early on were actually one be credibly lucrative, do they? And Amazon acquired me as customer in the early 2000s. I think they've gotten their money's worth at this point. Uh, so it did, they were, they were thinking about actual logical questions like what is the return on investment? But I think it was a fairly deliberate strategy on their part to not talk too much about this because they, they, it was not really in their interest for their competitors to understand this. And as long as, as long as investors were accepting, uh, a fairly dumb narrative of just, we get big fast and every year our revenue doubles and our losses driven by equal to revenue also double um, as long as investors are satisfied with that, you don't need to tell them anymore. But when it's time to get serious, when it's time to cut costs and think about margins and things, I think they were a little bit more willing to tell people that this is actually a business model that makes sense because people keep on buying. And uh, it is also a business where you have fixed costs. The fixed costs are very high. But at some point if you have just the largest delivery infrastructure and you have the best recommendation engine, then you marginal profit on each individual unit sold is going to be higher than anybody else's. And at that point, as long as people do actually move a lot of their shuffle online and as long as Amazon doesn't run out of money, it is going to be worth more than its competitors. And that is. That was the right bet.

Speaker C: Right?

Speaker D: Right, of course.

Speaker C: And I suppose the next thing that I'm sort of, I guess, sort m of curious about igneous relation to that. So in one of these cases, these visions of the future seem to sort of play a big role in uh, um, how they. Okay, so the reason for sweating is that some of these bubbles are about stories about the past and some of these bubbles are about the stories about the future. But it seems to be the case even if the Kingspirit is about the future, um, stories about the past play a role. So for example, in your book you have things like the Mad Happy Project, the uh, Apollo Program and so on. Um, how do you see this relationship between um, visions about the future stories, legends about the past? How do they interact to allow people to do things? I'm kind of asking in the spirit of how do they help people coordinate. Yeah.

Speaker B: So I think what people are really trying to do is I guess if you are a STEM person you'd say it's a principal component analysis. If you're um, more available arts person, you might say that they're looking at the platonic essence of these different bubbles. They are looking at what are these deep commonalities that are expressed in very different ways because they're always expressed circumstantially but they do actually exist. And that's a lot of what we tried to get at in the book is that there are commonalities that are just that occur across time across different circumstances. Like um, one is that people build a bunch of different things in parallel that just don't make sense to build on their own. And the very first case study talking about the Manhattan Project so to build a nuclear weapon in the early 1940s, you need to do, um, at least two things, one of which is design a nuclear bomb that actually explodes. And the other is get enough fissile material that you can actually build a bomb that explodes. And these are two separate tests. You could imagine sequencing them and saying, we're not sure if we could actually design a viable bomb. Let's design one and then we'll find some uranium or plutonium and build it. But if you did that, your bomb doesn't get done until 1950. And at some point Congress cuts your funding. And we read books about the Manhattan boondoggle instead of the Manhattan Project. And it's just kind of one of the ways that the US wasted money in wartime.

Speaker C: So.

Speaker B: But if you build it in parallel, you're building things knowing that it is possible that you, it's certainly going to waste some of your money and if, ah, it's possibly to waste all of it. But you also, that's the only shot you have at actually building this thing. So, um, we spun up multiple ways to get to some materials. Some of them worked well, some of them did not. But enough of them worked that we had enough for two different BOM designs. Meanwhile, we did design, did pursue multiple BOM designs. We got at least two that actually worked and we were able to test one and then deploy two in Warcham. So um, that just would not have happened had we tried to slow block it. Had we tried to do one piece at a time, we would have either maybe done part of one piece and then given up or not actually done any of it. And this shows up in the private sector bubbles. Like the dot com bubble is a really good example where you had the simultaneous build out of infrastructure to get people online and of content that is purely online and of efforts, um, to take content that's offline and bring it online. And if you think of Amazon from the perspective of what is the easiest kind of content to bring online, one way to the book business is that it's just, um, it's the business that, where shopping is as close as it can be to just querying a database. You know, you're selecting books where author name equals X and ordering by publication date. Or you're selecting books where genre equals Y and ordering by total sales over the last month. So you know, one of those is an author page and one of those is a bestseller list in a particular category. And uh, that doesn't really make sense if you're selling fruit or something like there's not really a bestseller list telling you that bananas are really, really big this month. Um, and it's not really how people shop, but they absolutely do pay attention to bestsellers and they do shop by author and genre and topic and publication date and things like that. So, um, you have a product that as it existed it was just already built as, um, already you basically already had the database schema defiant. And then all you had to do was put an HTML front end on it and find a way to accept people's money and ship them the product they ordered. So books had a lot of advantages in that respect. And that meant that if you were going to sell pretty much anything online, something like Books was a really good place to start. Also, they tend to be in pretty consistent sizes. Um, it's just very easy to put something like this in the mail and send it anywhere. So, um, that's where Amazon started. And then they moved into electronics. Um, um, I think they moved into CDs and electronics around the same time. And um, CDs also have, uh, a lot of those categories where you can search by genre, you can search by artist, you can search by timeliness and by, um, popularity. And then electronics, it was a little bit messier both in terms of you have a lot more dimensions to care about and um, there's a lot more specifications. And a lot of people don't really shop by specification or they shop by particular things and, or indifferent other things. But once you have the infrastructure that can ship books, it's um, a smaller lift to add one more product category than it would be to start with something that was a little more heterogeneous and a lot harder to think about what the shop process was.

Speaker A: Us.

Speaker C: Okay. And so perhaps to go a little bit off on, um, that. So, so, so we've talked about the investor part, but I feel like for a lot of people that work on building these technologies, what kind of drives them? Is that, at least emotionally, what they want to get out of it is that they are sort of. They kind of want to be a part of one of these legends that Ryko I've sort of seen in the past. And I'm sort of wondering in the end, sort of, I asked the question about who, who kind of gets to be the visionary philanthropist. So do you think that people that work on these technologies, ultimately the experience they get out of doing that is what is kind of promised. Does it feel like being a part of them and have the project work on the AI, or is it ultimately more like a story that gets people on board with ultimately least a disappointment.

Speaker B: I mean, when I talk to them right now, they definitely like to give that vibe. I don't know how true it is, but it seems directionally true that they, they're working on something that they can honestly view as the most important thing that anyone could be working on right now. And I think another piece of, like one piece of it is they want to be on the team that does really cool things and they want to have those memories. But another really important piece is if they think it's possible to get built and that now is the time when you can get this confluence of, uh, funding and of talent and, uh, public approval in order to actually be able to build it. There's also a question of what version gets built. I think this actually motivates a lot of people in the recognition that it will probably exist. Or like, one possibility is it only exists if I work on another possibility is it will definitely come into existence and the only version I can tolerate interacting with is the version that I myself would build. So it is a question of militant taste in just what these products look like and how they function, how they're used. And, um, yeah, a lot of the really, um, successful tech companies that are very product oriented, that's part of what they're doing is they, you know, someone who looks at MySpace in 2004 just wants to vomit and says, look, this is, this is hideous. Everything is flashing. And, you know, I open something and I open three tabs and now I have three different pop songs playing and I hate it all. Um, burn it down. They want to build something clean, minimalist. And they also look at this wasteland of, you know, there's a page for someone's chihuahua. There are 50 pages for every celebrity. There are pages for concepts of things. And they say, no, we, we went together computers in order to link together people. We didn't link together computers in order to have everyone interact with basically, um, a cartoon or a mascot or something. So instead of letting anyone be anything online, the mandate was you, you can be online, you can interact with other people, but only as yourself. And this actually turns out to free ride on a lot of social norms because on, on MySpace, um, yeah, if you have an account under somebody else's name or under a fake name or something, um, you don't really suffer any real world consequences if you're obnoxious. And that means the average level of obnoxiousness is pretty high. But if you're on a real name social network, and your real world reputation is going to be partly affected by what you do online, then you do hold yourself to a different standard. Not that people on Facebook always hold themselves to really high standards, but I think it's much better than it could be.

Speaker C: Well, another thing this was sort of quoted at the beginning of the book is, uh, so one difference that I see between people that are, say, in the kind of business, entrepreneurial world versus the science world is that like in the entrepreneurial world, people are very, very keen to paint these like big, you know, kind of dramatic versions of the future. We're all going to live forever. There's going to be a base of the moon and we're going to build a network state. Um, people in sort of sort of science type things are very reluctant to put visions like that. And what they sort of want instead is the thing that was kind of mentioned sort of towards the beginning, which is just this like, curiosity driven, driven, um, research where people want to, well, this is something interesting there. We want to go off, explore it, but there is no real vision. Um, I think these two things often get lumped into sort of the same thing, but they are sort of quite distinct. So when you look at this sort of approach that the scientists often want, they just sound much less charismatic. Um, do you feel like these are two different approaches and you can get different things out of them, or do you think that the science people should basically get into the sci fi vision business?

Speaker B: What I think is that part of the magic of bubbles is that they do bring together people with different motivations. And if you look at the Manhattan Project, you have people who were genuinely curious about the science. You have people who did actually have a utopian vision and they felt like unlocking the secrets of the atom means unlocking infinite energy. And that's what we need to achieve the world we want to live in. And then you have people who really want to win a war, um, either against the Nazis or against the overall Axis. And then, um, towards the end, uh, people start to realize that the war against the Axis is pretty much won, but the war against the Soviets is just getting started. And so, uh, we still want to build this to make sure we intimidate Stalin, even if we don't actually need it to win, um, against Japan. And the fact that they had different views on what the ultimate, um, purpose was did not preclude them from working together. In fact, you had really ardent proto cold warriors and working side by side with people who were literally spying for the Soviets. And they were like, uh, both sides managed to contribute to actually building the thing.

Speaker A: Hey everybody. Eric here with a word from our sponsors.

Speaker B: What does the future hold for business?

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Speaker B: Um, I also think when you consider a lot of the figures who lead some of these more bubbly organizations, they do actually tend to synthesize that curiosity and ambition. So they want to understand the world and they want to tinker and they like messing around with interesting new technologies just for their own sake. And then once they find something that's genuinely novel, they want it to be as many enhanced as possible. Bill Gates, for example, he was just relentlessly curious about computers. It's weird. Um, Gates and Arnold Schwarzenegger are two people where their biographies both include late night bike rides home as kids in school from the thing that would make them famous. Schwarzenegger has this story about how the first time he went to the gym, he rode his bike several miles there and then he did too many squats and he had to walk back and not eat piggyback. And Gaines would also sneak out of home at night because there was a shared computer and there was cheap computer time. Ah, or free computer time at night and he could go to their office and play around with the computer as long as he told them about all the bugs that he found. So, um, you have people who just, they're really, really curious about some narrow aspect of the human experience. But then Once that curiosity has led them to build something new, it almost seems like there's this moral obligation once you've made something new, to get into as many hands as possible. That's part of the purpose of it is to affect people's lives. And so I think there is just a synthesis between those two attitudes at, um, at the very top of achievement in managing and thriving in bubbles.

Speaker D: Okay.

Speaker C: And maybe just like one final question before opening it up. Um, so at the beginning of the book, what sir mentioned is that a part of the reason for destination might be that we are so good at giving people kind of these virtual experiences that satisfy either kind of more base needs or even like sort of more like sort of ah, transcendent needs, uh, um, spiritual needs. So. And that people are kind of able to satisfy that virtually rather than sort of seeking it through pursuing things in the real world. Um, ultimately, if you had to explain why people should prefer the real over the virtual, uh, what would you say?

Speaker B: Um, I don't think that that's really amenable to persuasion. I think that people who are satisfied with the virtual are just, they're perfectly satisfied with it. And um, I don't think I could tell someone anything they wouldn't already know about the difference between, you know, winning in a simulation and actually winning something real. I think the best you could do is a bit of light shaming and just kind of have this sense that people pursue glory in virtual environments because they know that they wouldn't achieve it in the real world. But I think a lot of people would also kind of quietly admit that to themselves. And so maybe it's more, more depressing than inspiring to say it, but I also, you know, I can't judge that much. Like, I enjoy, um, map steering games, plenty of. And um, I do, I do suspect they do some good for the world. Like there's, there's someone out there who would be conquering the real world and instead they're, they're conquering a virtual world. Yeah, it's really good that we have those. So, um, it's, it's a nice outlet. But um, yeah, I think the, you know, I guess it just comes down to a philosophical question about whether, whether you prioritize your, your experience of reality or reality. And if, I don't think you could persuade someone in either direction, if someone actually believes that the real is what matters and that the suffering they feel in order to achieve glory or success or whatever is worth it, you can't really persuade them that they'd have more fun smoking weed and watching Netflix.

Speaker C: Right.

Speaker B: And vice versa. Um, but people do, they do burn out of real world achievement, um, sometimes temporarily, sometimes correctly. And they also burn out of the ritual. And I think the real world is just um, a bit more gratifying, a bit more engaging and it tends to, it tends to bring you back in a way that the virtual doesn't. There are just not that many people who stopped playing video games 20 years ago because they realized it was a waste of time, who just have this aching curiosity about what the games are like today. Um, whereas there are people who they, they worked really hard at their startup, their startup failed, they were really depressed for a while, they did their Ayahuasca retreat, it didn't fix anything. And then you know, six months later they're, they're using some app and they're like this is just unbelievably dog shit. And you know, everyone involved in this should be humiliated. I'm going to start a company specifically to punish them. And then they're back in the game.

Speaker D: Right.

Speaker C: Okay, well so with that uh, there's a lot of stuff uh, we have not come like.

Speaker B: But yeah, it's fair enough.

Speaker D: The content go to the social network early and one of my favorite reasons why. But I think that's how people got to know your work in a bad place. I'm sure you have the data on how many of your paying subscribers. They've got you back that piece so you could create that work. The most important movie on World nine. Yes, and I do Alive and why.

Speaker B: Okay, so the. It is unfortunately for a work of artistic criticism, it is just a data driven approach which is that there are um, like a lot, I don't know what the number is but a lot of us market cap, public and private is tech companies that were founded in the last 15 or so years and the inputs into that. The global limiting factors include things like how many people choose to major in computer science versus other STEM fields or versus Margaret Lawrence field. How many people once they have that major choose to start a company rather than do something else like work at a big company. And you know, there are plenty of interesting uh, gratifying jobs that you can have. You're really good at ah, programming. You can get a job at John Deere and analyze lots of data from tractors and figure out how to make them slightly, slightly more efficient. You are actually feeding people like on the margin. There are people who, with stark who do not start because these software engineers do what they do. So that is really valuable. But um, it is valuable as a way to optimize an existing process, not to build something completely new. And um, I think the social network, so the data driven pieces are things like the number of people at the Ivy League who majored in computer science went up dramatically after that movie came out. The number of applications to Y Combinator. Um, Sam Altman posted a graph of this years ago. There is this step function increase and, but he tweeted the graph, he said can anyone guess what happened then? And yes, the answer was the social network came out. And I think some of that, like one, you know, you could criticize that you could say wait, if you change your life based on a movie, how influential would you really be? And the counter, the answer to that is um, Vladimir Putin is a very influential person. Not, not for good, but he is influential. He will be in the history books. And the reason that he is in charge of Russia now is that he was a very, very high profile, you know, very um, successful spy before the collapse of the ussr. And the reason he was a successful spy is that once when he was a teenager he watched a movie about size and decided he should apply for a job at Khicidi. So um, that happened. Um, Top Gun, the original one did lead to an increase in number of people who um, applied to appointed in the Air Force. So you do have cases where real world changes are downstream from these social changes. And I think one of the mechanisms of that is that people see them on the screen and to say I want to be like that. But another mechanism is it makes the choice more legible. It's not that they have permission from themselves to do this, it's that they have permission from their parents or their in laws or other people in their lives where they, you know someone like if the year before the social network someone told their parents I am dropping out of school in order to start a company. Mom and dad associate that@test.com and Dr. Goop they do not associate that with the, with Google necessarily because Google is just less, less salient. It's kind of a utility. Everyone has it, everyone uses it. No one really has to think about it. And yes it's valuable, but it's not as valuable as the whole dot com sector was the peak in 1999. That is, that is no longer the case but it was the case at circa 2010. Um, and you know your friends also either think that's a weird nerdy hobby or just don't, don't care that much. But once the Movie glamorizes that and says, this is a choice. It's a choice people make. There are moments of high drama, there are highs and lows. And in the end, if you do it right, you make a ton of money. Um, and Hollywood and anyone who watched the movie and then looked into it realizes Hollywood actually had to add the part where Mark Zuckleberry is not happy he's married to his girlfriend, who was his girlfriend during all of the events of the film. So the entire emotional drama that is not business related is fake. The business related emotional drama is based on a true story. So yeah, that's. The Social Network hypothesis is that it just. It made the choice legible. It made it make sense to more people and, um, caused a lot more people to found these companies. And these companies do just have a very enlarged impact on how to live with data in it. And then the jokes came out in the same year or the year before the World's Rising scene. But yeah, but it was. I guess you could be like Nick

Speaker D: Elon, the Ashley Mass Elon fake.

Speaker B: Mystically. Right. Then it took. It certainly made him more. More well known. I think Elon Elon tries very hard to make Mulan and get everyone else tries to, uh. Yeah, those could have had an advantage. I do feel like movies have a different kind of cultural foot plant because people, if you and try to tell someone, try to relate to someone who read that book when the book came out, try to relate to them about a particular chapter. Do you remember that chapter where they hire the guy from JC Kenney to redesign the Apple Store? Or they hired the future J.C. kenney guy to redesign the Apple Store. Maybe a handful of people who read the book remember that. But the reason I bring that one up is that it is the only chapter of the book where I specifically remember what that chapter was about. Whereas a lot of scenes in movies are just much more Unama Business. Like they. Yeah, yeah. They all remember that. They all remember drop the. The. They all remember the Victoria's Secret suicide thing. They did not. Um, a lot of people do. I do. Uh, they remember the scene with the interns who are drinking and trying to hack a server or whatever. So there's just a lot of scenes where everyone, they're showing points for talking about this in a, ah, relatable way. And books, because people buy books and don't read them. But people don't like, go to a movie theater and just, you know, stare at Pete like two hours. Yeah, you're hit rate Fawn. You watch the movie, therefore you remember the scene is 100 out of real world nervous. That was something being like the rock patch, right. That majority is coming out and we had Davis Black, you know, Lemon Root knee that they get me powerful more AC blown and we're now getting into a more horizontal body.

Speaker A: We're.

Speaker B: You have to watch clients watch these, you know, technologies that you can see it's the narrative of our clients.

Speaker D: But

Speaker B: you can compare. You might have kind of narrow slide now because I think one object you could see that the proper does versus top of the UT forward output.

Speaker D: Right?

Speaker B: M. Yeah.

Speaker C: Yeah.

Speaker B: The Soviet Union was really bad at a lot of things, but they were really good at capturing that technological sublime. They really liked having posters with gear, the sand, really muscular men smacking hammers near the gears and things like that. And so I think they did just cross that vibe that progress is this tangible thing. It is being built before your eye and it's that there, you know, that your. Your life is just automatically great compared to what you're the parents or grandparents that have even realistically accepted. And that it is the result of human effort and human decisions. So, um, yeah, if I were propaganda minister, I would probably want to reveal a lot of posters of things like that and a lot of video things like that everywhere. Unavoidable.

Speaker C: But to kind of inject the question later because it does sound to me like Aaron Sorkin is basically the unsung hero of Silicon Valley in this way. Right. Uh, and yet he's not an ally of that world, as I understand, in

Speaker B: the same way that Lee Harvey Oswald is the unsung, um, hero Landings, but unpopular. But then it got really unpopular to question things that JFK wanted after he was dead. So, um, yeah, you often have that dynamic where it's the energy of interacting uncredits. In fact, going slightly earlier in the space race, there was this moment where the Russians had launched Sputnik and Sputnik2 and the US was doing test launches and one of them blew up on the launch pad and the Russians got up in front of the UN and said that Russia has a program to provide engineering assistance to underdeveloped nations and they would be happy to send some of their engineers to America to help them build a rocket that can actually

Speaker A: get off the ground.

Speaker B: And I feel like this really is one of the reasons that people have walked on the not. Not Soviets. Americans have walked on the moon is just. It was such an insulting thing to say and there is no comeback other. They don't. You can't have a comeback. Like we have, you know, really, really big Cadillacs and you don't. Or we have TVs and you don't. No, the actual comeback is we have walked on the moon, our flag is up there, you can look up and see it and back on Earth where you are stuck.

Speaker C: Interesting. And so I think that is basically the reason why I guess the Silicon Valley world isn't able to get a similar kind of a cultural product to social networks, say from its more allied voices.

Speaker B: Yeah, I think the criticisms, uh, so the criticisms of m. A lot of these products that are more purely digital, where they provide a layer that you interact with the real world. True. And it's just less of a tangible thing to criticize, but you can criticize their social effects and um, a lot of tech critics and even people who are broadly supportive of technological progress, but just concerned about the specific areas where there's more progress, like really addictive video apps or whatever. Um, they do have to point to the social effects because there's just, there's not really a glamorous visual of the downsides when you uh, like, you know, you can, you can show a picture of someone alone in a dark room, just staring at their phone, but you don't really know if they're watching TikTok or reading more at peace. So you actually don't. You need some kind of external cue to even know if this is supposed to be depressing or if this is like a really inspiring picture of someone who is just so thirsty for knowledge, then they can't stop reading the great works of the canon.

Speaker C: Love it.

Speaker B: Curious to invent the social network. Are there any uh, roles of field for problems facing for like having a, you know, like flagship movie or just kind of something to increase the sheet of field would be especially helpful. I think it would be nice for there to be a movie mentioned.

Speaker D: Circulate a lane trickle. Just your list.

Speaker B: But I think a movie about um, Operation Warp Speed and about the entire lead up to it would be really, really interesting. The lead up to it. It feels like you could have a very nice one season Netflix drama that ends the day that Covid is sequenced. And so you have all of the ups and downs of someone working relentlessly on an approach that many of their peers think is not a great approach. And um, I've always felt like you can sort of read between the lines where if someone is working in a field for a really long time and they have and everyone else is just irrationally conflict prone with respect to them, it is entirely possible that this person is actually really hard to get along with. But also most of the great achievers in history are really hard to get along with because a really easy way to get along with people is to tamp down your ambition and tell them, no, you don't actually have to do that, or no, you don't have to give me permission to do that. So I think a certain amount of disagreeability is really helpful, but it also would make it a more complex and interesting story. And, and then, yeah, going from we've sequenced this and it takes two days to go from there's a sequence to we have a prospective vaccine and then that from that to there are shots going into people's arms is less than a year, uh, is just one of the great achievements of humanity. But it's also, um, you know, you're basically telling two different stories where one of those stories is this sort of dystopian organizational story and a story about maybe, maybe it is a story about a sort of lone genius artist who's constantly true to their work and their mission despite all of these social obstacles. And then it transitions to a story about mass production and cold chains. And how do you get the vaccine from point A to point B. And also how do you get the vaccine from? You know, we have a little message that tells your body to build a bunch of spike proteins that you can so that they terrify your immune system and teach you to build antibodies. But, uh, there's like getting that actually into someone's body in a way that it, um, survives and also deploys. And it's not just, you know, you have a little bit of MRNA and um, then you excrete it after a while. That is also very complicated, challenging. I'm sure it would produce some amazing visuals. So, um, I think that would be good. I think SpaceX. It's, uh, part of the problem with doing a dramatization of SpaceX is that they do plenty of that themselves. If you want to watch a really, really cool video that tells the story of SpaceX, just go to YouTube and look up SpaceX and you'll find them. So, uh, that one. Yeah, less so. And then, AI, um, I think we're just too much in the middle of the story to tell the story just yet.

Speaker D: Casablanca.

Speaker B: So I got your touchdown. But how would you generalize the characteristics that made for a successful narrative and inspiring thing versus the ones that don't? Because there are a lot of biofeatures that don't have the scene in that. I don't know. I feel that this is ah, this is a question for the artist. Um, because I haven't made anything that is featured remotely like a social network. And it does seem to be a talent that Sorcup has. There was um, that wonderful article about Obama staffers who all lost the west winning and I think um, they had misconceptions about how the US government works specifically because they were talking to you Wesley. Apparently there's this site. There is this ISIS Westrand block. Yeah. Or like um, there was an NPR thing a while ago about um, wiretapping New York mobsters and how when mob movies came out they would all start talking like the movie mobsters and they have far the idioms. It was really funny. I loved it. Uh, this also happens with things like um, people at boiler room brokerages watching a movie. Boiler room because the speeches are just top notch. Um, so you do have that nerd feedback loop where there's a real world phenomenon. Someone just crystallizes it perfectly in a movie and that movie defines the phenomenon and defines how people. I think um, the thing was the

Speaker D: first time the offices started storing alcohol like we were massive here on top because of men. This was completely agro fashion in most industries for men. We can have drug Italian. That's great.

Speaker B: Well the men thing was. I always like to point out that the. Because this, this touches on multiple issues. The reason, one of the reasons that people drank so much at work in the 1950s is that marginal tax rates were very high. That the IRS was really really bad at determining what was a work and non work expense. So if your marginal tax rate is 92% then um, work drinks are a 90% off, 92% off happy hour. So of course all you're doing should be in professional context. Everything you do should be in professional. As much as there's a, a great study that came out recently. It was like looking at a bunch of different company um, registration data and tax and spending data in Portugal that uh, found that uh, people shift a lot of when they start companies they shift a lot of their personal expenses to companies like um, companies Dining and hotel budgets tend to rise 10% in the month of the founder's birthday and 7% in the month of the founder's wife's birthday. This does not show up for employees. So it's not like companies just throw really really good birthday parties for everyone. No, it's that people throw their own little parties for themselves and uh, you know, company card and um, this study calculated that at least in Portugal, um, taxation revenue worth roughly 1% of GDP is avoided through this sentencing. So yeah, the man mandate was an Artifact, uh, of 1950s, 1960s tax policy was, uh, not entirely a cultural thing. But yeah, it is true that there is, there's that kind of feedback. But when I actually worked at a digital marketing company when Mad Men came out and it definitely affected how I and everyone else talked.

Speaker D: It was.

Speaker B: You've kind of like been to expensive cigarettes on the company. Yeah. Um, yeah. So, yeah, thinking of a. On the West Wing, um, there's this wonderful episode where it's the new presidential term and the chief of staff tells everyone they did a great job last term. You know, here's how much employment went up, here's how much we've done for this and that and that. And then he says, all right, I'll need your resignation letters on my desk by seven o'. Clock. And the characters explain that this is just a ritual, that when there's a new presidential term, everyone resigns. And then the president gets to choose who to keep so that it's not like a big. The president doesn't have to hire anybody. But this actually turns out to be something that Aaron Sorpentis thought would be a really cool scene. And so the Obama staffers were just trying to figure out okay, how do we do this? Like we can do this anywhere and

Speaker C: just for that new take.

Speaker B: But it is actually a good idea. Like Sorkin. Credit to Sorkin M. That is how you should do it. Since when there's a new presidential term, everyone resigns. I'm curious to uh, bring you over to the question but really the violent media. But you talked about Global Student Congress so that in that quadrants dave race and hex.com, market mod. So there's like a true trade of uh, usually worth. But when I think the math in my head or where what is the like should you have a bubble that applies to Senju voters. So the burst of a bubble when it's one of the government megaprojects is a little bit less visible. But we certainly dialed down spending on nuclear uh, weapons and nuclear research after the Manhattan Project concluded it. And um, I think the, the staff, um, this is I think from making the atomic bomb is that by the end of World War II there was actually more fixed capital invested in producing nuclear weapons in the US Than there wasn't producing cars. So the massive, massive investment and it's just not the case today that we have more Capital devoted to building dukes than building cars. So there was like a gradual bursting of the bubble. But since there weren't stock prices that would have been getting carp to market. And there was also just a lot of post war kind of economic uncertainty and chaos and demobilization and changes in government spending, et cetera, such that it was kind of lost in the noise. And then the Apollo program, there was a sort of bursting of the bubble where we went to the moon and then we went back a couple times and then we kind of got tired of it and stopped doing that at NASA's budget and have declined for a while. And NASA's output for dollar budget seems to have also declined pretty steadily since then. So again there's not an asset where you could say this is the day when everyone realizes that nobody else believes in sa. And um, suddenly the line chart goes straight down. But the phenomenon is still the same. It's just going to, it's going to take place on a more gradual basis. And this by the way is one of the reasons I really like financial markets is they do just immediately mark to market like they do tell you right away this happened and this is the impact. And when you look at historical events you can't. It is helpful to look at things like asset price. So when you're reading about some crisis and the narration is this felt like the end of the world, you can look at did the Dao go down 10% when that happened? Did it go down 2%? Did it actually go up that day because no one really cared? Um, it is useful to know this kind of thing. There's actually a book, um, one of the recent Napoleon biographies, the big one that a lot of people read. I forget the name, I forget both the book title and the name of the author but can provide it um, when I get my phone out after this. Um. Yeah. There you go. Thank you. Militant was over Andrew Robdon So the Andrew Robertson Foliam biography will periodically quote the price of French bonds as evidence for whether or not Poliev was successful. And it's really good evidence because French investors were very much asking themselves well I got my money back or not. And the bonds were basically percentage odds that polin pulls it off. So they were like um, manifold markets for 17th or early 19th century. And um.

Speaker A: Yeah.

Speaker B: And because financial transactions are bilateral, there's a buyer and there's a seller and because there's money involved and because there's sometimes litigation involved, the records are kept very, very well compared to other kinds of activity. Like you, if you are a bank, you really don't want to shred all of your records on who owes you money. So you tend to keep them a lot, keep them around for a very long time. So financial data sets are also just much richer than other data sets. They go back a lot further. And so we can track a lot of things where we can't really look at survey um, data on how much people thought Napoleon, how likely people thought it was that Napoleon would win in his Russia campaign, um, at the peak of campaign. But we can look at bond prices and see that. And then for the US Civil war, you look at the ratio of gold um, to the greenback. This was basically. Greenback was basically a bet that the union will win and they only good on their gold backed but non gold redeemable obligations. And um, gold prices fluctuated after every battle and they fluctuate based on rumors of battles. And so um, you will sometimes get these external indicators of what's going on in barter world. And in fact um, there was a boom in electronic stocks in the early 60s and that there was a good period for some of them in the late 60s and the 70s were just not a great time to be invested in the electronics industry. Listening, um, it's a wonderful book, the Money Game by um, Tony used the pseudonym M. Smith, which is this portrait of uh, the late 1960s financial markets and the characters in those markets. And um, it is just taken as a given in that book that if you invested in IDM and Xerox and Polaroid, you were making a lot of money. And that if you invested in some random company that was headquartered in California and its name ended in Onyx, they made even more money. But you also potentially lost your shirt. So uh, you do see maybe some proxy for the bubble bursting in measurable data. But it happens on a different timescale when it's government spending versus private sector spending that's haunted by capital markets. What's the role of Black mirror constantly black uh, mirrors?

Speaker C: I don't know.

Speaker B: I never got into black mirror. I heard the concept of uh, here's what a black mirror episode is like. And then every time I would hear about a specific episode I'd be like, yeah, that sounds like a typical black mirror episode. So I think I have not watched it, but I think I got the idea.

Speaker D: Got it.

Speaker B: So yeah, I guess maybe the positive view is okay. Black mirror does tell us that we can go way too far with a lot of this stuff and that it takes us to pretty Dark places. But I also feel like maybe black mirror tells people who are not participating in this that it's okay that they are worth a whole lot less than their friends and can't go on the same fancy vacations and things. That at least they're not doing something evil. But also for a lot of technology. The more general purpose of technology is, the more it can be used for evil. And so you should expect that, um, you'll have better and more cutting criticism of something, the more important and transformative it is. And so it's kind of just the null hypothesis that there could have been a black mirror of uh, 19th century railroad development. There could have been a black mirror of electrification. I guess Charlie Chaplin did that sort of. So that always exists. And it is a useful corrective. Especially because if you're in the industry, you do tend to focus on the upsides and you will almost treat the negative externalities as just. That's a fact of life. But, uh, the profits that I get, those are very much something I deserve. Um, that's not a fact life at all. So, uh, it is useful to have that kind of corrective. But I think it's also just really easy from outside of a field to look at it and say this, this has to be totally broken. It has to have negative consequences. Because it just sucks for me that these people are doing a lot of good for the world and also doing very well for themselves. And I'm not doing it in this mother's term. To relate this to the book you criticize the sages and do you think to have to be a, uh, pessimist to be a true optimist? So there is act. I think there's a form of pessimism in this book which is that the default state of humanity is not that we're all very happy and prosperous, it's that we, we all have pretty bad lives as basically a particular variety of wild animal that can talk. And that the difference between our lives today and that the state of nature is the accumulation of physical technologies and also social technologies. And when we accumulate those technologies, we get better at using things that are available in the, in the natural world. But some of those things are um, either finite and so repleting them over time, or they are available in varying quantities such that sometimes you get unlucky. Like you have a simple agrarian society. You can m. Mostly grow enough food to feed yourselves. But every so often there's a drought and a lot of people die. And that is the default experience, uh, of Humanity is um, things are okay, but if something bad happens or if we run out of some critical input, things get really bad really fast. And the only thing that prevents that is getting more output out of a constant level of input. The productivity, technology, whatever you want to call it. And so that is really the only escape we had from eventually using up all the oil and then using up all the social trust as we fight over whatever's left after we used up all the natural resources and then eventually killing ourselves. So yeah, it's a deeply cascade to the end.

Speaker D: Um, interesting. Like the juxtaposition of ah, dos rows and

Speaker C: the way we said mapping is

Speaker D: different but the Delaware merch slab, this for like drawing you uh, know, pneumatics on and like replacing overlap and various. How to see those the same thing or like different ones go on the same thing where I see my. A very small amount of them.

Speaker B: That's an interesting question because I think at one level you could say that Teal and Soros are completely opposed in that Soros is looking at what popular perception is and extrapolating from there, and to the extent that Thiel is looking at popular perception is to ask what is everybody but me getting wrong? And if your strong assumption is prices are moving up and therefore someone must know something I don't know, so I'm going to buy versus your starting assumption is prices are moving up or prices have not collapsed, somebody's missing something important, I'm going to sell. You end up with a very different attitude, very different approach, and actually just a very different cadence of return. The classic pessimist cadence is you're losing a little bit of money most of the time and then occasionally you're really, really right. And then the classic optimist thing is you're generally right and you feel smarter and smarter and then suddenly things reverse. And if you're Soros, you just instantly change your mind because your whole view is predicated on prices going up. And if they're no longer going up, then you just sell and maybe you go short. So they do have very, very different approaches, but I would say they're almost taking the same first principles. Question of, uh, how do we operate under uncertainty and how do we operate in conditions where we're not sure who knows what or we're not sure who knows how much and they just take those in different directions. I meant to finish a tangent on Soros a while ago, so thank you for reminding me. So when we look at um. So momentum shows up in a lot of different Asset classes. And it's just the observation that things that have gone up tend to keep going up. Things that have gone down tend to keep going down. And one of the questions to ask about that is why could that possibly be true? And uh, I was listening to a really interesting interview with a, um, pseudonymous quant on Twitter, giving a podcast interview and macrocephalopod's um, great follow. And he said that momentum is the missing factor. You can run a lot of regressions and say this company has X sensitivity to interest rates and Y sensitivity to consumer spending and Z sensitivity to how well industries do, et cetera. And then you run that analysis and then some, some little residual falls out is just where's the company's idios credit performance? And if you run that analysis and then add in momentum, what you are implicitly doing is say what are the factors I didn't think of that other people are trading on? And if you see those factors start to emerge, you can infer that if someone figured it out and they started trading, someone else is going to figure it out and they're going to start trading. And at some level that the name to this. So the way to make that concrete is to say in, um, late February of 2020, if you were doing a momentum spree and the companies that looked really good on momentum were companies like Zoom, and the companies that looked really bad on momentum were companies like airlines and cruise lines, they had already started moving by well before the overall market was reacting. And in retrospect it turned out that these companies were. They had a very high factor loading on the COVID factor, positive or negative, but they had a load in on that factor. Their performance was tied to how bad Covid was and how much investors were thinking about it. But if you just traded purely on momentum, you would have bought Zoom before everyone freaked out about COVID and everyone started doing remote work and you would have shorted airlines and cruise lines before everyone said I'm never traveling again, I never leave the house.

Speaker D: He I was there to follow up with that. I mean again, I was thinking more about what reflexivity is one sort of lens on momentum. Like where do it be to store like evaporates that uh, lead away that

Speaker B: core craft into

Speaker D: and this really met an E is another button M not sort of like denoising around them.

Speaker B: I would say the probably the fundamental difference is you can think of Soros and Thiel's attitudes towards financial markets. And I'm not speaking for either of them of course, but, um, the soros attitude is there are secrets in this world that I will never know. I can infer their existence for other people's behavior, and so I won't know exactly why I made money. But if I try to infer the behavior of smart people, or if I try to infer the beliefs of smart people from their behavior and then tack along, I will probably profit. And then the teal view is there are secrets in this world. I will find them and then I will bet on them. And that's how I'll make my money. So in some sense they took exactly the same problem of, uh, we just don't know everything and took exactly opposite approaches where Soros, which is kind of proparan just to say I'll never know. In fact, all I can know is that I was wrong about something. And then the tele approach is I can figure it out. There are things that can be, uh, just revealed.

Speaker C: But I'm just curious, like, why does the source thing even work? Because it seems like something a lot of people could copy and yet it doesn't seem to be.

Speaker B: I mean, it feels that way until you try to copy it.

Speaker C: Right. So therefore, what's the magic?

Speaker B: I think some of the magic is just being wired in such a way that you can contrarianly do what everyone else is doing. Because there is a form of meta contrarian ness where you say the things that people do. I'm going to do more. So, like, you were right. But the problem is you're not as. You're not acting as if you're as right as you are. And so I think m one analogy to that would be, um, saying that generally good popular things are actually really good. Like if you say my favorite band is the Beatles and I love to eat chipotle as the best value for your money, you sound incredibly lame. But these are. The Beatles are objectively really good. Chipotle for the money is about the best, healthiest food you can buy. So, um, yeah, that's absolutely true. But it's really embarrassing to take a stand and say I like the premium mediocre hybrid morning stuff. And, um, it just feels cooler to have some mildly contrarian belief. And that you could say that that is with momentum is the bet that people just don't extrapolate enough because it's embarrassing to go that far.

Speaker C: Interesting.

Speaker B: So it's like taking the cult seriously.

Speaker D: I actually want to associate with very similar matters. Ross too, because. All right, what did you say about the world if you thought Napoleon is Russian? It seems too large A method worker. Yes. He has this saying that he always tells to the startups under his care huh that any decision you fire on this,

Speaker B: there's some sound

Speaker D: oh and then return for an overcrowd. It's a reply just see giving flush in one extreme direction on the sound that it's not like my psychic somebody here to get asked for the renters that run in one direction. And so you were the right song.

Speaker B: There is a good financial metaphor for this which is options can be in the money or out of the money. They can be in the money, right? Just have to breathe. So like in the money option is the stock trades at $50, you have a right to buy the $5 and performance of that option is going to be almost identical to just what the underlying stock does. If the option is out of the money like it's at 50, you have the right to buy it in the next six months for 100 then one. It's not very sensitive to the day to day changes in the stock price because going from 50 to 51 or 5049 does not materially change the odds to 1 to 100. But if it gets bonked that volatility implies that we have more uncertainty about the future. And so it can actually hit operate. And so you can have cases. This happens with beam stocks sometimes where the stock um, goes up. But extreme clip options actually appreciate as well because as it rises the volatility goes up so much that the odds of it crashing have actually increased or at least the perceived odds of it crashing have actually increased and vice versa that if you have a stock that's at 50 and over the last two years it's range from 40 to 60. If tomorrow it goes to 25, the probability of it hitting 100 may have actually gone up depending because now we're in a different distribution where it just bounces around a full wattpoint um and figuring out whether or not that's exactly true is an options math question. And I can't do it by uh, hand things in that direction can be true. And so think of a startup versus an established country. A startup is a very far out of the money option. The most likely outcome is it simply fails. And anything it can do to just raise the barriers to that outcome actually raises the probability that it succeeds even if you're lowering the expected value. And uh, meanwhile if you think of say a late career executive at a very large established company, they were very much in the money. Most of the decisions they could make would be slightly damaging to the company. So their preference is to minimize volatility and to avoid anything unexpected. So I think that's what a long starts are doing. And then another case of this is that one of the ways that an option trade can win is if you have a series of um, low probability events that have to happen in sequence like X and Y and Z, all have to happen. And let's say the odds of each of those happening are 1 in 10. So the odds of all of them happening if they're totally independent are one in a thousand. But if you can increase the conditional probability of one happening once the other has happened, that you can make it a joint probability. If you can increase that correlation such that if any one of these happens, all of these happen, you've gone from one in a thousand odds to one in ten odds. And so the expected value has gone up by 100x even though you still have a one in ten shot of uh, the same one in ten shot of each of those things happening. And so when starters try to polarize and when they put out a really bold narrative and when they say this is who our customer is not, or they do some really crazy move, triple their prices, or make their core products free and figure out a new way to monetize it, what they're doing is increasing the correlation between the different outcomes they care about such that it is actually more likely that they get the very low probability end result they want. Even though they might be reducing. Maybe you go from 1 in 10 odds of these different things happening, the odds are totally independent to 1 in 20 odds. But now the odds are all the same. Now the joint Probability is still 1 in 20.

Speaker D: Your early explanation of what was kind of impactful and um, I was curious like um, it shocked me. Now like there's the legend of uh, finance like Goodheart and Paris if you start. And then we've drawn deep blame like far these legend people over optimized for.

Speaker B: Yeah, I think that's actually true. But it's like, like the, if you look at a lot of the 90s accounting scandals of varying degrees, like some of them the scandal was this company artificially smoothed out its earnings. And in other cases like the scandal, this company's profits basically did not ex. Um you A lot of times what you'll see is that the way it starts is just trying to hit one quarter's numbers at the expense of making the next quarter a little bit harder to hit. And then if you do that once and get away with it, then you've just gotten away with it, you will probably be just fine. But if you're the kind of person who does that, you will probably be tempted to do that again and again. And at some point there will be some gap between what you've promised and what you delivered. And the trouble with doing whatever you can to hit your 15% earnings growth estimate this year is that next year people are even more certain that you'll hit it. So next year the cost of missing it is even more catastrophic. But the difficulty of hitting it is also that much higher. So yeah, that is a case where people were absolutely good hearting to their heart's content and eventually they just created such a huge gap between expectations and reality that they had to do pretty value destructive things just to keep things going. And eventually they ran out of ways to destroy value and that was the end. So uh, financial markets are somewhat prone to that. But they're also a check against that because you have short sellers and um, people can't short careers. I'm sure the world would be very different and very interesting if they could, but for various market microstructure reasons it's really hard to do that well. And so you can have people who are pursuing something like say a Ah, PhD. Then everyone in their life can tell them this is actually not the best use of your time. This is not even the best use of your time. If the achievement you want is the achievement of PhD is meant for that, there are just better ways to do it. But um, there isn't really a direct check on that. Whereas um, if you incorporated announced that you incorporated is going to pursue a Ph.D. and you Inc. Soc or token immediately dropped 30%, you'd have a pretty good sense that it doesn't mean that the public is wrong. And um, actually companies like Facebook, Amazon, a lot of them have had big drawdowns where they made a strategic choice that their investor base disagreed with. The investor base was absolutely wrong. And it's very fortunate for those investors that they weren't allowed to fire the CEO at that time. But um, you, you have to, when you look at a reaction like that, you do have at least have to ask yourself, am I that confident that I got this right? Like even if I'm more confident than not that it's the right choice. Like clearly people with very high conviction are staking a lot on me being wrong about this. And so it does force you to ask, what do I know that they don't know? And it'll go back to the Soros versus Teal Thing I think Soros by default would just blow out of the position and then reevaluate later on. And I think the teal approach would be to ask, is this how we would expect people who are mistaken about this to react to this incremental beast? And there had been some really interesting trades in the past where that's what people were looking for, was this paradoxically backwards reaction. A lot of times if a company switches, say the way it prices its product and investors don't like it, but they simply don't understand that pricing model, this happened a lot, um, during the growth of SaaS. There were a lot of companies where their business used to be, we will sell you a license. You could use the software forever and then switch to we're selling a subscription and the subscription is like one third the cost of a license. So in year one they've just blown up their revenue. But then in year two, most of their customers are still around, some of them are actually spending more, and then they land new customers. And some investors start to figure out that this is actually a more stable business with a higher quality stream of revenue. And if it is delivering some kind of SASE product where you, the customer are connecting to their servers now the company has a lot more information on how you use the product. So, um, Microsoft Word that is always phoning home with every keystroke and telling Microsoft exactly what you're doing is a much more valuable product to Microsoft than the Microsoft Word that I started using in the 90s where it's just a static thing on your computer, doesn't really know what the Internet is and Microsoft just has no idea how we use it. So it has no way to detect any of the frustrations that maybe a lot of users have. But, uh, no one really picks up because they're minor. But at Microsoft scale, any minor thing you do that wastes a couple seconds of people's lives every day is in a quality adjusted life here sets equivalent to murdering someone. I don't think it's morally as bad, but in a purely utilitarian sense, yes,

Speaker C: I'm sort of curious. We were sort of talking about this at the beginning about this like Girardian view of bubbles. So something that always, that I was, that I've always been curious about when it comes to the Girard thing is that it doesn't seem to be the case that people are just kind of blindly imitating everybody. There is a reason, there is some reason why somebody imitates somebody in some situation. So in light of that how do you. How to think about the kind of the imitation aspect of these bubble? How do they get started? Who imitates whom, and then how does it kind of take off?

Speaker B: I'm curious about that dynamic. When George talks about that imitation, what he talks about is that there's a paradox where even as you are trying to be as similar as possible to someone, you're also just frantically highlighting all the differences between yourself and that person. Because some of it is the. Just the internal inconsistency of. You don't want your entire personality to be swallowed by your concept of their personality. So you try to sharpen those distinctions, but the distinctions you highlight are the fake ones. And then the ways that you converge on their behavior are the real ones.

Speaker D: Interesting.

Speaker B: And when we were writing about Gerard and Bubbles, what we looked at was that sometimes you'd have companies that historic. Early on they have this core idea. It actually works, People actually use it. And what gets copied is sometimes something very deep about the business, but that doesn't even look like a copy. What, what is easy to copy is you just do exactly what that company did. But because you started after the company got successful, you are a year behind them. And so you built a slightly worse version of, uh, the thing they built. And they already have a head start, so you really can't possibly win. So, um, one of the key studies we use there is, um, going back to the idea of Amazon taking the catalog of books and saying, this is something that is already a database schema. We could just put an HTML front end on it. And now we have a website and you can order books and buy them. You can view Google as a very deep copy of this. Where Google looked at the link graph and said, this is a data set that exists. It can answer useful questions for people like, what's the best lobster bisque recipe? Well, let's look at all of the sites that link to some page and use the phrase lobster bisque. And then let's weight those links by how many inbound links those pages have. And perhaps we weigh those by are the inbound links related to food or are they related to, um, I don't know, a Seinfeld episode? And then you, um, knew someone would get it. Um, and then you repeat that process recursively and you have a really good search engine. But it's a search engine that exists because the information was already out there. Just it hadn't been organized in the right way. And so in that sense they were doing exactly what Amazon was doing. But I strongly doubt that they looked@Amazon.com and said, how can we copy this? Oh, I know, a list of books. It's a lot like a link graph, just in totally different dimensions, and it's a completely different problem. And also, we don't know how to monetize this yet. And I think they were just looking at an interesting technical problem. But it was the same kind of instinct of the Internet is growing, but not just there are more pages online, but now there are more links between these pages. And those links contain information, but no one is doing anything with that information. Just like the catalog of all the books you could buy, that is really valuable information. And yet, even if you have this global network where all these computers are linked together, you can't go to someone's server and say, get me the best book about cooking Thai food at home. Even though that should be a trivially solvable problem. All the information is there. Someone just needs to organize it. So I think they were, they were doing kind of similar things at a very deep level. And then Facebook again, I don't think Mark Zuckerberg looked at Google and said, how can I copy this? Oh, there's a latent graph, which is the social graph. It exists, but no one has formalized it yet. But if we create, uh, the right hooks for people to sign up to our website and give them an easy way to upload photos, perhaps they will create the social graph where we can traverse it and find all these interesting relationships and eventually sell people stuff through ads. And then he was just building something cool. And one of the emergent properties of that cool thing was that it turned the social graph into an actual graph that you can query in an actual database if you work at Facebook, set the right permissions or whatever, that made it a real thing. And this is actually a piece that we talk about, I think, more in the Gerard paper than, um, in the book. But one of the weird side effects of bubbles is that they make parts of the world more legible. And this goes really, really far back. Colonialism was a bubble. There was over investment. There were really dumb investing decisions that were made. Um, Scotland basically invested enough of its GDP in a colony that, uh, they had no choice but to unite with England. Um, so there was this period of irrational exuberance. South Sea bubble was also part of this. But, um, one of the things that it got us was, um, we had actual ways to locate positions on a map. We needed that in a way that we did not need it before. When most of the ocean going routes were just along the shore. So you could kind of tell where, you could tell where you were in the world by looking left or right and then consulting a map. But if you're in the middle of the ocean, you need to do something a little bit fancier to know exactly where you are. So um, that creates legibility in terms of dimensions. And then um, the railway bubble created legibility in terms of how finely grained our understanding of time was. You need to coordinate closer to by the minute than by rough time of day if you have a train to catch and there's another connecting train, et cetera. And so um, they added that and then um, other bubbles just, they tend to lead to more information being stored, shared, organized, et cetera. Um, one of my favorite examples of bubbles inducing legibility is um, there are these um, Ivy companies like Opendoor where their business model is. We use algorithms to price houses. We just buy them really fast. You have minimal paperwork and you sold your house. And um, they started in the markets that were the last markets of the housing bubble. And the reason for that was that all of these houses built at roughly the same time. They were all very mass produced. You could actually look at what features different houses had and figure out what is the precise dollar value of those features. Whereas if you tried to start Opendoor, but it's in, I don't know, um, Boston, middle of Boston, like every house has completely different history. There's no way to compare them. Your model is a complete mess. But if you start with these completely homogenized houses where, yeah, there have been a couple years where people added and changed things so we could look at exactly what effect that has on the value of that house. And then you move to maybe the um, 80s, um, sunbelt states and their, their bubble era housing or their, they're 80s bubble housing stock, you have a little bit more heterogeneity but you also have a much stronger starting point, their model. So that housing bubble did actually enclose some legibility on what is a house worth and what makes one house worth more than another. And um, ibuyer is like the business has often great, but it was a really cool concept. And uh, they do at least know a lot more about what makes one house worth more than another. So yeah, bubbles are always just imposing more legibility on the world. They are revealing things that previously existed but there was no way to know them or no incentive to know them. And now they're just permanently part of the human corpus. We don't Think anything of the idea that you could schedule a zoom call for 2:05 in the afternoon. Whereas to someone in the 17th century this would be ludicrously incoherent. It'd be like scheduling a call for the millisecond of being mad that someone is slightly late because the packet didn't get to your computer in time or something.

Speaker C: Well, okay, fascinating. The open door thing. Did the open door people know this? That was that the plan or was that just the emergence? Oh, these are the houses that we know how to price.

Speaker B: I wouldn't be surprised if they thought about which markets to target and concluded that you want a market where there have been a bunch of houses that were built at the same time. So you have a bunch of sale data at the same time and then you can look at this very restricted set of what kinds of things have changed from, from the first sale to now and start to understand how prices. So yeah, my guess, I don't think any. Okay, this is the front then it didn't actually work. It lost a bunch of money and shut down business. Zillow shut down their business. Opendoor is still in business, but yes, losing money. Um, yeah, tuna TF under business is Bob, it is one thing to be able to have a better idea than someone else of uh, what something is worth, but you've also got to be elective fisa. You have to be able to earn enough profit when you buy or sell that thing to pay for the cost of developing your models and then the cost of actually getting your customers and getting them to sell you a house. So um, it's entirely possible for the business to have done something of value but also to have not been worth doing in the end. Do you have a strong what problem? I'm sure they did. Yeah. I'm sure the people who are most interested in selling a house for the ones who got what we were offering to talk like I did hear anecdotes about that in the peak hindor era that people will just be shocked at how much they were getting to their house. Like um, the conversation of the houses

Speaker D: had been more maybe thank Talking about

Speaker B: the smooth bubble support aspect of only five view formulation. And there's like some aspect of this, the legibility in that example probably that like there's a correlation slow in terms of asseting. I'm just curious that there's other aspects of that and correlation of that. Yeah, so correlations go into. One is this agile observation about asset prices which is that uh, when there is a financial crisis, pretty much everything drops except gold and Treasuries and they go way up when people expected. And so um, you think that you have a diversified portfolio if it's 2007, do you think of a door's large portfolio? Because you own um, emerging market mining companies and big US investment banks and you're doing some statistical arbitrage strategy, you're also buying very safe mortgage backed securities. And then when some asset class starts dropping enough, everything drops at exactly the same time. It turns out you had no diversification once a week. And if you were diversifying and the fact that you were diversified meant that you felt comfortable levering up, you're part of the problem. Because the reason that those four variations go to one is that someone who lost money on one thing have to sell something else and then someone else has to sell something else. So this actually started to happen over the summer of 2007. Um, I've heard claims that Jeffrey Epstein actually kicked this whole thing off by redeeming his investment in a Bear Stearns fund that had a very levered portfolio of mortgage backed securities. And um, just turned out not to be able to sell them for as much as I thought. So the funds had to liquidate and get backstopped by Bear Stearns. And then people started losing money on other mortgage backed securities investment. And then you had funds where one part of the business was doing that, another part of the business was doing more standard equity quantitative stuff. And when they started unwinding the equity stuff in order to get cash for the other stuff, since they were running the same models as everybody else, suddenly everyone looks at their model and sees that if I'd done exactly the opposite of that, I would have been a lot of money. Because an anecdote that a well known hedge fund manager just stood up in the trading floor and yelled at his aunt and said I'd love you to run your model again. To do the exact opposite of what? Everything. That's the way to make money right now. And um, I think you're right that if you have a bunch of really levered investment vehicles, then as they lose money, the only sane thing to do is reduce their exposure. But that means if you are doing a momentum trade, like you're selling everything with time momentum and buying everything with bad momentum, if you're doing a value strategy, you're selling everything that's cheap and buying everything that's overpriced, et cetera. So uh, yeah, correlations, correlation go to one is um, this fun verb of financial time Travel where there's this distribution of future catastrophes over time. But if everyone's levered and everyone is diversifying across a similar set of strategies, then when something bad happens, every bad thing happens all. Or else we just instantly do time travel to the worst possible scenario. And because those probabilities, like the probability of those things happen look independent. It looks like a financial crisis in an emerging market country and a collapse uh, of oil prices and a blowout in implied um, volatility on index options. These are all caused by different things. But if someone m makes the bet that since they're all caught by different things, I can bet on all of them and use a little bit more elaborate and just capture the, the blend has perturbed those and suddenly they're all calls about the same thing, which is someone has to liquidate something and so they liquidate a bit of everything and then everyone else has to liquidate too.

Speaker C: What about the crypto thing? Because there is a chapter in the book of how do you sort of see that? Because it's a, that very much still is in the vision stage. And never, whenever I look at these crypto visions, I'm never quite sure if, if the real vision is what's being put out there or whether there is like a different vision that, you know, people don't really want to say out loud. How do you see that bubble?

Speaker B: Yeah, I think there's. Well, in some ways I think crypto was very, very honest at the beginning when it was people who really liked privacy, really distrusted any kind of Senate authority and just um, liked live cryptography. And um, so they, they wanted to create something that was like gold in the sense of an asset for really paranoid people who think that governments were to print infinitely. But also that was like software in that you can cheaply transfer it to anybody and there's no marginal cost for moving around. And that was the original aim. And so a lot of the early founders were really radical, really weird people. And um, then it had to get more normal because it's interacting with a normal financial system. And that means eventually it's interacting with, with people who chose to become bankers. Like they looked at all the possibilities in this world and they said, I would like to be a banker and lead those people to exist. Like it's very important for financial stability that they exist. And if you uh, if you are interacting with the dollar system, that's ultimately the banking system. So you have to be normal and well adjusted enough to handle those people. And that's, that's a transition that I think crypto has struggled with and continues to struggle with. And like every time there's a bubble, um, there is a subset of crypto people who think like finally anarcho capitalists who do not go anywhere without guns, who are finally back in charge. And then crypto prices drop and suddenly you have to care about KYC and AML and your friend gets arrested for money laundering even though they weren't trying to launder money, just trying to preserve their privacy, et cetera. Um, one of the reasons we included crypto in the book and believe in Bitcoin is that it is much purer of a bubble. There isn't a direct real world reference that tells you Bitcoin's price is a multiple of X, but there's, there is a belief where you can coordinate on that belief where you can say people need a reserve asset. They need something in which you denominate value. And for a lot of people day to day, it's the US dollar. But when it comes down to it, some countries would prefer gold to dollars because they believe that their dollars exist somewhat at the discretion of the US Government. They're somewhat right now. And in Russia's case, they weren't, they weren't taking that too seriously. They did have gold in the physical possession of other countries. So it's not like they thought when things get really bad, we'll at least have our gold bars. The gold bars are somewhere else. You don't have them. But, uh, it is true that gold will retain its value in times when dollars and other currencies are inflating. And that is part of the appeal. And uh, when you run the regressions and look at uh, correlations going to one, in a crisis, uh, gold does tend to outperform in cases like that, but not necessarily as much as you'd like it to. And uh, you never know if maybe in the next crisis everyone will turn out to have had a levered gold position too.

Speaker C: And do you think the governments will ultimately tolerate or lose the battle with there being this intermittent assets that they don't control?

Speaker B: I think it is a possibility. And um, I used to be more open to the thesis of hyper bitcoinization of M. As people decide that actually it's not that Bitcoin is going up relative to the dollar, it's that the dollar is depreciated relative to Bitcoin, they will denominate more of their savings at Bitcoin. That of course exacerbates the same issue. And My thinking was if that actually starts to happen, governments will just always be a little bit behind the marginal buyer of bitcoin. And so there will always be, they will always be doing things a little bit too late. And every time they do something too late, what it tells the bitcoin bulls is they are not actually aware of how bad this is. And so we need to just press harder. And this was, um, Jim Cramer, of all people, this rant. Um, I think it was either summer 2007 or when bear starts to laughter, he's screaming that the Fed is just not doing enough. They don't realize how bad it is. And if you see that there's an intervention and if you're a macro trader, if you're the Soros type, you see that there is this problem. Government's finally woken up to it, they do an intervention and it's not as big as you think it needs to be. And also the market is not reacting as if the problem is solved. The market is reacting as if the problem is still a problem. Isn't that you actually want to double down on that bet and bet that things continue to get worse. But at some point, governments do realize that it's a really big problem. And I think this is, uh, this is something where you, you could imagine a scenario where hyper bitcoinization is just so very hyper that by the time governments say, okay, we're banning bitcoin, well, everyone in the country has a coinbase account or they have their own keys, their own custody. And you just can't ban bitcoin in the same way that, you know, shred banned guns in America. Well, you know, give it a couple centuries and you might be able to collect half of them. But they're here and you can't really, it's very hard to get rid of them. Um, so that is one possibility. But it is also possible that they underreact. Underreact, underreact. Massively overreact. And that's kind of the end. But I think there are enough crypto, like, enough crypto is in the hands of well behaved people who just kind of want to make money. And they are sympathetic to the ideals of crypto, but they're not rabid idealists and that it's probably safe and those. Part of the function that those people have is ejecting more extreme elements from their club and saying this is, you know, you were, you are actively bad for bitcoin. If you celebrate how it's a great way to buy drugs or hit and by the way, do they reject them

Speaker C: or just kind of act as a culprit, though?

Speaker B: Um, I'm sure there's some of both. And I'm sure it kind of depends on who's in the meeting. Like if you, if you are the head of Coinbase and you're in a meeting with Bitcoin core developers, then you probably do mention that you only eat meat and would never touch a vegetable. And uh, and then, um, you're here talking to federal regulators. You mentioned that you're just an upstanding citizen and you love this country and you realize that crypto is a growth industry and you think that America is the natural phone for every big growth industry. And that's why you love the whole crypto company in the United States and the following United States long. You kind of have to talk to, to both sides. That's part of, part, uh, of the CEO's job and with the sales front.

Speaker D: Thank you so much. Yes, we are time. Um, did there any more questions at the dining table or the table on um, our ichat? For sure before we do it while you can.

Speaker A: Thanks for listening to the riff. Please go follow and subscribe. Give us 5 stars and check out Byrne's excellent newsletter. The Diff if you haven't already.