3 Megatrends Every Investor Needs to Know: Demographics, Wealth Inequality, & the End of Labor (with Jeff Park)

Jeff:
[0:00] The value of labor is reaching zero because I think technology as a whole is deflationary. I think that's the punchline. If technology works the way that is allowing for productivity growth, that resets the jump to universality in ways that is unimaginable,

Jeff:
[0:15] it's really deflationary. And so you should expect a lot of things to maybe go down in price. What's happening, though, is that's not what we're seeing in actual price because we live also in a credit world where credit inflation and credit creation is a big driver of our growth model.

David:
[0:38] Bankless Nation, I'm here joined with Jeff Park. Jeff, we've had on the podcast once before a pretty good macro mind that is very well versed in crypto and Bitcoin. Jeff, welcome back to the podcast.

Jeff:
[0:49] Yes, happy to be here. And man, how much the time has changed since then.

David:
[0:53] Yeah, different era, different era, but nonetheless, the macro conversations are always kind of the same. And I think, Jeff, you wrote an article that is of the spirit of a lot of questions that me and probably most people have, which is like, what the hell is going on in the market? It seems the market is at peak uncertainty. And like AI, the fog of war of AI is so thick. Just AI itself prevents us from being able to see into the future. Meanwhile, we have like an unprecedented conflict in the Middle East. We have unprecedented levels of debt. We always have unprecedented levels of debt, but that numbers always goes up. And so these compounding things just make me feel so uncertain. And I think you wrote an article that if I'm understanding it correctly, it was in pursuit of certainty. Maybe you can talk about just like how you feel about being a macro investor or an investor in these like macro times. And we can go into some of the details of your article. But just like talk to me, talk to me about the times.

Jeff:
[1:52] Yeah, no, I love it. Great setup. And I agree with you completely. The fog of war is everywhere. I mean, the fog of war is present in the lens of AI and the great amount of anxiety that the population is experiencing as to what it means for them. The fog of war, as you mentioned, is also physical. And Iran, in terms of day by day, the tickers of how things seem to move with a lot of sporadic price action based on uncertain news flow, which cannot be actually trusted on both sides. And there's a lot of fog of war in public policy and all of these things create a lot of uncertainties for people to live their daily lives. And as you mentioned, I was more inspired by these times of difficulties to seek truth by trying to anchor what you at least know for sure because for me personally, it gives me great peace when I can at least underwrite the things I know with certainty and reorient my entire investing mindset based on the ramifications of what I do know. And what I do know to be irrefutable, to be playing out in a direction that is irreversible. And then if you rebuild your foundational thesis about macro from that point on, I think people find clarity and optimism of the will to then seek pursuit of truth in that mindset too. So that is indeed the genesis of my article and I'm excited to get into it with you.

David:
[3:05] Yeah, the idea of just if we can name things that we feel are certain or at least likely enough that we can call them certain for all intents and purposes, then I think what you're doing is just like, okay, let's do what we can to remove variables from the equation to make the equation just easier to reason about, easier to think about. And so in your article, you have three of these things, certain truths, three certain truths. One, demographic headwinds, the inverted pyramid of the population of not just the baby boomers here domestically, but I think that's representative of the globe at large. The second one that we're going to get into is wealth concentration approaching unprecedented critical levels. And then third, the value of labor consistently approaching devaluing versus capital.

David:
[3:49] But then when you bring AI into the equation, is going to get even crazier. So let's just start with the first one. Certain truth number one, global demographic headwinds. Talk to me about what this means for macro investors. Talk to me about what this means for the economy broadly. Kick us off here with the start of this conversation.

Jeff:
[4:08] Yeah, as you've laid out, there's three certain truths that I try to bring to light. And we start with what I think is the most intuitive one that people can really understand as a long moving average that is pretty much at this point somewhat unstoppable. And it's worth refreshing some of these numbers live with you because sometimes I think it helps people reawaken that this is real and we need to actually pay attention to it. So the first thing I would mention as the global level is that, a third of the world by countries that represent about a third of the world's population, they are all in declining mode. That's a fact.

David:
[4:47] Like the population number is going down.

Jeff:
[4:49] Yes. Yes. And maybe more scarily is that if you look at the top 10, you know, first wave economies, meaning the countries that benefited from the industrial revolution, countries including China, US, South Korea, Italy, all of those. So 10 biggest. They account for about 30% of the global population as well. And about 70% of the world economy, GDP, they are all declining.

Jeff:
[5:11] So this is kind of where we have to start our journey with, acknowledging this context. And if you look at Japan, because I think Japan does get thrown out a lot as kind of the poster child of being most advanced, the number that is really striking that we should all be worried about and what is potentially going to happen to the US is that their global dependency ratio is about 55. What that means is for every 55 elderly people in that country, there's 100 worker force supporting them. And by 2050, that number is estimated to get to 80. I mean, that's a pretty astounding fact if we get to a level where the population pyramid is inverting so much that the entire young force has to carry the back of the elderly population. And in South Korea, where my parents live and a country that I have close ties to, by that time in 2050, the median age is going to be 56. So, I mean, you look at these numbers and you realize that this is a global trend that is somewhat unstoppable because at some level, it's biology. If you're not having children today, they're certainly not going to be adults 18 years from now. So you already know with some certain amount of certainty with fertility rates where they are, that this is a slow moving train wreck that we have to be cognizant for. And in our lifetime, for sure, you and I, David, we are going to see this inversion happen and we have to be prepared for it. And that's the context of kind of how I'm assessing the certainty of this global demographic headwinds and what that means for macro assets.

David:
[6:37] Can we just state the obvious thing of what it means when we have a top heavy population for financial markets? So if you're retired, you are consuming more than you're producing. You're not making a wage. You're living off of your savings. You're selling assets. You have capital and you're drawing down on that capital in order to live your end of life, which also can become a very expensive end of life if you have healthcare costs, which are increasingly dominant in 65 years and higher. So it can be an expensive part of someone's lifespan is when they spend all of their capital. And so can we just state the obvious thing of how that impacts financial markets

David:
[7:15] if we have a top-heavy population that has to consume its capital?

Jeff:
[7:20] Yeah, absolutely. So at a very high level, all human beings throughout their lifespan are on a mission to acquire assets through their productivity gains that hopefully in their retirement that they return to the system to consume, ultimately lead to their meeting of father time. And so some of macro asset price action is entirely reflected by demographics. If there are more people that need to buy more things, that they're producing more things, that in itself is a demographics flow. And the same flows can reverse in a different direction once that consumption period has to be met. And there isn't enough people on the other side to potentially reabsorb the productivity gains that need to happen to offset some of that liquidity needs. And I think the point here to mention that is sometimes underappreciated is that we live in a very fortunate world where great miraculous things are happening at the scientific frontier. People are living healthier in ways where people in developed markets can actually expect to have higher longevity than their ancestors and maybe even their own grandparents. And I think there's an aspect of this mortality curve that is also probably not calibrated correctly for the incredible gains that we've made as a society. Meaning, not only do you have to actually save more, you're going to live longer than probably as most models tell you. And you can always kind of see that by looking at how much healthcare costs as part of the US GDP.

Jeff:
[8:46] Because at one point in 1960, 1970, healthcare was only about 5% of US GDP. We now know today, in 2025 plus, it's over 20% of US GDP that goes into healthcare services, right? That number alone kind of tells you people are living longer, healthcare is actually getting more expensive, which means that consumption actually has to be fulfilled, which will probably come from some kind of asset disposition that the older generation has acquired, either through U.S. Equities or the housing to which those needs will have to be met. And in the U.S. in particular, we should talk some of these numbers, too, because this is striking. We have older parents, you and I, and we think about this all the time. But the numbers that are striking to me is by 2030, which is basically three years from now. All the baby boomers are going to be 65 years or older. And then by 2034, there's going to be more adults than children for the first time ever in American history. And that's seven years away. And then in 2036, the fertility rate of this country is going to be below 1.5, meaning it'll stay below 1.5 for another probably 20 years. So we're looking into 2050 with this incredible inversion that is about to occur in which your parents, my parents will most certainly seek liquidity at some level in that timeframe and have to have other people on the bid side to be able to absorb that liquidity flow.

David:
[10:12] Right. I think that's the punchline right there is that the 65 and older camp is going to be top heavy. They are going to be selling assets. It's going to, you know, more sellers than buyers when you look at the demographic curve. And so what you're saying is like, it's going to be a hard time for the indices, the S&P 500, QQQ, Dow Jones, and the market broadly. It's going to be a hard time because simply you have more sellers than buyers. And this is a secular trend that's going to last decades. And it's not like, so it's not going to be so clear as like, clearly there's more sellers than buyers. It's not going to be so black and white, but that's what a top heavy demographic base looks like. And so what does that mean for the actual markets? Like as an investor, like I don't really own bonds. So I'm exposed to equities in crypto assets. Maybe thankfully, boomers don't really have as many crypto assets as they do equities. But if we talk about my equities portfolio, are you just saying that it's just going to be a hard time for that to go up harder than it's been in the past with a top heavy demographic base?

Jeff:
[11:09] I think it means that we're going to have to get a lot more creative about building the mousetraps, both using public policy, as well as some incentive aligned capitalist strategies to allow young investors to participate in the capital markets. And there's two dynamics here that is basically problematic to the inversion you're talking about. As we've talked about, older people are living longer. But the other side is people are also not having children. And in option trading, we call this like a positive shadow Greek. It's like a shadow gamma where like both of those things can accelerate convexity at the worst time. And that's actually what's happening. People living longer expands the social needs for servicing. If there's less people therefore having children, then there's actually a declining base at the same time. And this is actually kind of the thing that can lead to the type of implosion in global liquidity that is going to look okay until it doesn't one day.

Jeff:
[12:06] And so I think that's why you're seeing a lot of the changes today with the SEC and the CFTC in trying to permit what kinds of capital formation strategies can be permissible here in the United States. Part of the reason I think tokenization is such a national priority is because, hey, if Americans aren't going to be able to buy our bags in the U.S. Equities market, maybe we want foreigners to buy our bags because we know foreigners love American assets. We know foreigners want a piece of Apple and Nvidia and Microsoft and all these things you and I have the privilege to buy in our brokerage account. But the reality is most of the world don't. And they'd rather own that than whatever local economy stocks they might have, which is not developed nearly as well as ours. So there are exceptions to the

Jeff:
[12:51] rules of how to reimagine reformulating the capital base. And I think that creativity is in full force that lends itself to why crypto can become a really powerful force in alignment with US national security and policies to allow generational liquidity to move in a much more seamless way in our lifetime.

David:
[13:12] Let me throw two things at you that I want you to contend with. They're separate, but I think you'll be able to take two questions at once. One is, is this really an acute moment? Because this is, we're talking about like large timeframe demographics, you know, boomers are going to be retiring and drawing down on their savings over decades. This isn't going to create an acute problem. This is just going to be a, it may be just for 20 years. It's just the market is just more sluggish, less bullish than were previous. So is it really all that acute? And then secondly, isn't boomer savings mostly in real estate more than it is equities portfolio? Like isn't the meme about like the typical boomer person is that their cash, their house rich cash poor, and it's really all their savings is in real estate. And so is this really an equities problem? And not, or is this really, isn't this really a real estate problem and not really an equities problem? So take those two questions however you like.

Jeff:
[14:07] Sure, sure. I think that it is a problem for real estate and equities both. I believe it's actually a significant chunk owned by boomers. The problem with real estate that you're accentuating is that real estate is uniquely illiquid. So the price discovery mechanism of real estate is going to look a little bit more violent, in my opinion, and it's a little bit more non-fungible in the ways that it'll impact different geographies or different cohorts of housing that might not be widespread. Whereas equities are more or less fungible and indexable to detect the flows that we might see being a little bit more uniformly distributed. But there's trillions of dollars in ways that boomers have retirement account for sure that is part of their savings, pension funds, endowments, all of these things that basically are going to be a part of some way of needing to meet a cost of capital for the social contract that they've underwritten as an institution. So I think it's real. And that's also why you hear about.

Jeff:
[15:04] The Trump accounts, for example,

Jeff:
[15:06] Being a little clever mousetrap to absorb flows on the other side, right? It sounds like it's a gift to say, hey, we're going to give you a child account that's going to basically let you buy equities.

Jeff:
[15:16] But what it is, is actually, it's a funnel. It's a funnel to ensure that there's constant schemes of new retirement savings programs, whether it's for college education, whether it's because you had a child, whether it's because you're, you know, putting something in healthcare savings account, all of these schemes, I call them schemes, because they're truly traps to get mechanisms in the equities market by providing some favorable tax treatment is getting more acute. For example, the Trump accounts that has been popularized, if you read the fine footprints, it tells you that you actually can't even buy single stock. You have to buy indices. So the other thing that is happening here is the permutation of discretionary stock selection that people may engage in versus broadly defining index as a mechanism of financialization for people to put their asset class in. And this is why there's always this great debate about has passive investing destroyed capital markets relative to the power of active investing that allows dispersion of recognizing which companies are doing well, which ones are not doing well. When you think about what's happening with SpaceX that now wants to contend an IPO at $1.5 trillion and NASDAQ abruptly then changing their listing rules to potentially let SpaceX be a part of the index in a way that is historically abnormal without enough data points.

Jeff:
[16:43] Those are the kinds of things that are happening where you're seeing that assets and equities is becoming hyper-financialized, not as just what Benjamin Graham would have said is how you invest, but really as a matter of almost national security. The entire U.S. Might of its dollar hegemony and our economic power comes from the strength of our capital markets.

David:
[17:07] I want you to go back to Japan. You brought up Japan, but I didn't quite totally follow you there. Japan has had pretty severe demographic, an upside-down pyramid in their demographics for a while. But also, Japanese equities also hit all-time highs in 2024. Tokyo real estate has appreciated since 2013. It doesn't really feel like the Japanese markets have all that much of a malaise, while they are also the case study of upside-down demographics. How do you explain Japan?

Jeff:
[17:38] Yeah, thank you for bringing that up, David. I think Japan is always such a fascination. And there is some nuances here we have to address. So the first thing that I would point out is Japan hit an all time high in 1989, 1990. And it took them basically 35 years to get back to that nominal high in 2024. That's basically, you know, a long time in which assets did not participate in productivity gains. And also it's a nominal number, which makes it even worse because the illusion of that is coming from the currency depreciation and it would have affected anyone differently, not denominated in yen. So even looking at those numbers without taking effects into account, where today I believe the dollar yen is now hitting 160, it's difficult to assess that without concern for what the actual true productivity gains would have been. That's the first point I would just say about what you highlighted as something exceptional that is happening with Japan of recent memory. But that recent memory has to be observed in the long period of three decades in which almost nothing was happening in a productive way. The other thing I would mention is in 1989, at the 10 period.

Jeff:
[18:52] Japanese companies accounted for like more than half of the top 50 companies by global market cap. Japan was a powerhouse. Today, there's only one. It's only Toyota. That's the only global company that they have that actually carries weight. So I wouldn't necessarily tell you the strength of Japan and Nikkei is representative of something that's been working out well from the times when they've experienced a financial crisis. But here's the most important part. Even as these highs are being hit, the thing that is really unambiguous and different about Japan than the rest of the markets is that the Bank of Japan itself is actually the largest shareholder of the Tokyo Stock Exchange. They own more than 80% of Japanese ETFs. They own basically almost 10% of the entire stock exchange directly on their balance sheet. It is the only major central bank to have actually purchased domestic equities. And that balance sheet at times reaches 100% of their nominal GDP.

Jeff:
[19:49] So what I'm trying to tell you here is that you're right in that Japan has registered these numbers, but that doesn't refute the thesis that I'm coming from, which is that when you actually enter a world of hyper-financialization where global liquidity is being manipulated by price discovery mechanisms that isn't driven by fundamental value, but based on technical manipulation by sovereigns or institutions that are managing kind of the power of global liquidity, that is a sign of an ultimate command economy structure. And not representative of a healthy value discovery that really, I think, is what we imagined and intentioned the capital market should be, not so much a manipulation of time and duration and liquidity in ways that is removing itself from true value discovery.

David:
[20:33] I see, I see. So if I looked at the Japanese stock market in like gold terms, maybe it hasn't actually reached its all-time highs. It's only reached its all-time highs in fiat terms. And as we know, fiat, fake points, you know fake scoreboard not real not a real all-time high if it's in fiat denominated in fiat especially over 30 years and then on the other side of that equation if you tell me that the Japanese central bank is the one owning all the assets well even if we dig into all-time highs but it wasn't from a population of people who are owning the assets at all-time highs the points only count if the people own them because that's where the wealth comes from and so with those two things it kind of seems like your answer to like the what about japan problem is like it's all fake over there. They're like the people aren't scoring the points and the points are fake in the first place. Would you say that's a fair, fair summary?

Jeff:
[21:22] A hundred percent. A hundred percent. It's this notion that basically if you manipulate price based on forward pulling the duration curve of a generation, there's an end to that game at some point.

Jeff:
[21:34] And what's happening is ultimately that Japan is at the epicenter of this global carry trade in which the data points we're recently mentioning about Japan reaching these nominal highs where they're escaping negative or zero interest rate policy is exactly the thing that is creating problems everywhere else as well as in the US. So we know that, yes, we're experiencing nominal growth in Japan, but it's a function of relative value, not really otherwise driven by what I would still consider to be a productivity gain. It's because the Japanese yen is getting crushed. It's because of all these things that is not representing that there's less people in Japan who's still actually doing anything. They don't have a pro-immigration policy. Like I said, the global dependency ratio is going to get to 80 in the near future. And you still hear about the stigma of wages having historically been going down every year until very recently. I mean, imagine that. Imagine living in a world where every year, instead of getting a raise, you actually get the opposite because of depreciation. It is wild. But because Japan is on the other side now, it is actually part of why the global kind of carry trade itself is falling apart and creating a lot of other problems. So the borrowing from the future that's funded a lot of the kind of nominal growth where Japan is at the center of it is the thing that everyone should be watching very carefully because it is my belief that that will be at the epicenter when these things unravel.

David:
[23:00] I see. So I brought up Japan as like a potential counter argument, a counter example for you to contend with. Maybe now I'm kind of hearing Japan's actually our future. That is the canary. We are going to be like Japan's last 20 years is what we are heading into now.

Jeff:
[23:19] That's pretty much correct.

Jeff:
[23:21] Yep.

David:
[23:21] Yeah. Okay.

Jeff:
[23:22] Now, the U.S. has special levers that Japan doesn't. Like, we know the military might have U.S. is unmatched. We know that pro-immigration has generated a policy that can reflect population trends. I think the U.S.'s biggest edge is that it is diverse and it does allow a variety of people to mix and come for their ability to build lives on the pursuit of the American dream that other countries not necessarily do reflect when they're as homogenous as Asian countries can be. So there are things that I think make the U.S. Slightly exceptional relative, but the global trend of the demographics thing will certainly hit us unless we solve it in a clever way.

David:
[23:58] Let's get into the second certain truth that you have. Wealth concentration is at critical levels. So the broad thesis is that wealth inequality is unprecedented. It's trending even worse, especially in a world of like AI and how fast our market moves. We are worried about it becoming even more accelerated.

David:
[24:18] The idea here is like, talk to me about this broad trend that you have here with wealth inequality. Yeah, absolutely.

Jeff:
[24:26] Wealth inequality is accelerating in the U.S., but no doubt it is accelerating in most developed markets. You hear about this story pretty much everywhere. And it just shows you that globalization has accelerated some of these trends more so than history would otherwise have permitted. But it is the biggest story of our times. And it's actually, in my opinion, the cause of the biggest split between the left and the right, because both of them have very distinct views on how to solve this wealth inequality, but they ultimately sit on opposite ends of the public policy agenda. And so let's see, today, I believe the top 1%, you know, account for, you know, maybe like a third or so of the spend, like top 10% account for a third of the consumption economy, which is actually pretty high. I think it's the highest U.S. has ever been because when I looked back at this number, even during like the gilded ages of the 1920s, the roaring 20s, when that was the period of, you know, Great Gatsby era, it peaked closer to like 25%.

Jeff:
[25:21] So we're at pretty exceptional levels here. And that makes sense because technology is one of those things that can accelerate inequality, because even though at a holistic level, technology brings a lot of benefits to people's quality of lives, I think it also accelerates how much technology can accrue productivity gains in a more consolidated basis to the few. And we're seeing that play out not just in kind of corporates, but we're also seeing that with people too, with the rise of AI tooling, how much someone can now actually own a piece of an economy by the productivity of technology that, you know, wouldn't have been possible, frankly, in the 1920s.

David:
[25:57] Do we know anything about the destiny of this trend? Like, is wealth inequality destined to only move in one direction? Maybe we are approaching a peak and it can go back down. Why are you certain about this being an inevitable problem that we can't really deal with?

Jeff:
[26:15] I would hope that we can deal with it, but it's getting harder and it's getting harder because the borders have opened in a global world that historically was closed. I think in the past, each country could try to solve these things through policy.

Jeff:
[26:29] The thing that looks remarkably different now than the past is everyone has become a nomadic citizen of earth. You actually have kind of this ability to move capital and people around in ways that wasn't possible where you're seeing signs of those kinds of flight.

Jeff:
[26:45] So this is becoming hugely political where in the past you would hear about tech entrepreneurs saying they're going to go to New Zealand and carry their wealth with them and whatnot. And maybe 10 years ago, it was kind of funny or kind of whatever, you do what you want. But what I think people are realizing now is you can't do that, right? Like you can't actually separate the sovereign and the people in that kind of way without there being consequences for the public. And you're seeing that play out in the US too, between states. So when you hear Governor Hochul asking people to come back to New York because the tax base is going down and they can't fund the generous social programs, well, she's basically recognizing that capital can move. Now, when capital leaves across national borders, I mean, that is problematic. And that's why I think the scary thing about where we're heading towards is that if you're going to fix capital control, you're probably going to still fix it in a tight way amongst your own country. It's these trends that you're seeing develop at large from both sides of the parties where people are pretty unhappy with that gap. And everyone is trying to deal with it in slightly different ways, but they're all both extreme. So on one hand, you have the wealth tax on unrealized capital gains tax. That's pretty extreme. But on the other hand, you see this weird thing that's happening too with like the very pro markets perspective being something like I said about SpaceX.

Jeff:
[28:09] Like a private company that could reach $1.5 trillion in valuation without zero distribution for retail participation, zero distribution for a regular shareholder of citizenship in this country to have participated in that value creation, zero ability for Americans to own a piece of open AI, which if you believe is the backbone of the knowledge economy that you might have even contributed to by having provisioned the data that it fed its models on. The idea that these things can be so centralized in ownership where there's actually no redistribution of that wealth, well, I would say that's equally insane on the other end of the spectrum. And so the solution is somewhere in the middle. And we're just going through this kind of, you know, pretty, I think, combative exercise in Washington to get to some solution. But this isn't new. I think going back to, you know, how do we know that this is a trend is because Carnegie warned about this back in the 1890s all the same. And you may have read this in high school, as I certainly did. He wrote a book called The Gospel of Weld.

Jeff:
[29:09] And for those who haven't read it, it is a book that I think everyone should read. It's written in 1890. But when you read it, you'll realize, man, Carnegie was dealing with exactly the same stuff as a mega billionaire about the problems that we're having today. And it's intellectually very honest because what he talks about is that the concentration of wealth is actually inevitable, number one, and two, desirable. It's inevitable and desirable because you do need to organize capital efficiently at scale to create outcomes that retain surplus. So you have to do that. But then you have to actually make the second move, which is that that same concentration becomes socially lethal unless it's recycled back into the public goods before the wealthy man dies. He even talks about that where the wealth actually has to be distributed after you die, which is a version that even most Americans I don't think would accept today in the construct of like an estate tax. But that's how much we've moved kind of the social acceptance of what wealth transfer could look like both at a public and private level intertemporally across time as a dimension that is being really pushed back by the young people. I think when you see the young people basically choosing not to participate in capitalism or choosing to think socialism is the answer, it's precisely because we don't have the gospel of wealth written by our billionaires today about what is a morally responsible thing to do in that class. This is something that I think will continue to compound over time unless the

Jeff:
[30:34] billionaire class gets its acts together.

David:
[30:36] This is a conversation that I think we're having both here domestically in the United States, but you also see it in Europe as well. The Europe story is the Netherlands put a 36% tax on unrealized gains in stocks and bonds and crypto. That was passed last month in February. A tax on unrealized gains for the capitalists is just absurd because it's just so destructive in terms of capital. If you are a startup founder and you have a illiquid equity that's valued at a, you know, some amount of money that you have to then pay tax on, but you haven't made a dime because it's illiquid, it just destroys capitalism, it just destroys startups. And so this gets the reaction from the right towards the left about like, you guys are so economically illiterate. You socialist policies are going to destroy capital and capitalism. And then we're all going to be stuck in like the CCCP or the USSR. And then we can't have anything. But then on the flip side of things, you have a lot of people who feel disenfranchised and just like cut out from participating in capitalism in the first place. And so they vote blue. They vote in Mayor Mamdani into New York and Washington state, my previous state. They just put in a 13 percent income tax. And that same day that that tax position went live, the founder of Starbucks moves to Florida.

Jeff:
[31:55] And so we have capital flight.

David:
[31:57] We're having these same conversations in California about a wealth tax. And all the California billionaires are now moving out of that state. And I was looking at the IRS 2024 data about capital migration, like the tax migration. And it's just across the board, it's red states, blue states to red states. Not just the capital account, not just like the actual income, but also the just populist number of people is moving from blue states to red states. Now, you might think that, okay, well, then all the red states are growing in the population. And so the red states are going to vote red in the election. And then we're going to have a red president who's going to not do the socialist policies. But I think that would be naive because you could also just flip the red states into blue states. What happens if too many, like the left leanings go to Florida and all of a sudden the Florida, of the famously capital attacks favorable state flips into a blue state because of this wealth inequality problem. And so I think I'm just kind of trying to underscore some of the inevitability it feels like where we are arriving, where you have massively valuable private companies, hugely wealthy billionaires, and then a populace who doesn't seem to be able to access any of that. And it seems like we are positioned in a rock and a hard place, or at least that's where we're going.

Jeff:
[33:18] Yeah, yeah. No, and even just to piggyback on that a little further, you know, I hear the exact same things we're hearing in terms of the mathematical ridiculousness of taxing unrealized capital gains. Of course, this is actually a problem because the liquidity is not present to meet the demand.

Jeff:
[33:35] But actually, the other thing that is happening that you would also feel equal sympathy to being something a little bit wrong is that you have these billionaires borrowing tons of money against these unrealized capital gains, which then allows them to actually take leverage into the system to continue to do more financial engineering with their wealth without actually having the liquidity transfer event. So we go back to this number one thing. The number one issue is we need liquidity transfer. But if you come up with all these mechanisms to not permit the natural discovery of price through a liquidity transfer, the system is breaking. So just as ridiculous it is to tax unrealized capital gains, it is equally, in my opinion, ridiculous that you never have to sell your assets, but actually find liquidity in different ways and continue to fund the eternal cycle of capital with reflexive leverage.

Jeff:
[34:31] So this is the problem. This all comes back to the fact that most Americans can intuit something's wrong with a system when there is no price discovery that is happening. And for price discovery to happen, you need transactions. And so maybe what the socialists are saying is we need to put a tax on unrealized capital gains to force them to sell it, right? And that's kind of the other version of how you can steel man that argument. And to your point, if you're an entrepreneur, right, here in New York, and you just found out your QSBS exemption is going away because Mamdani is deciding that entrepreneurs have to pay taxes on their startups that haven't yet fully found its value creation.

Jeff:
[35:12] Man, what a horrible thing, right? And that thing is nonetheless fundamentally different than trillions of dollars sitting in private wealth that is still not then being used for social public programs by taxation, where there could be more leeway. And I think that's the problem that we're seeing. We're just seeing a conflation of messy politics, messy public policy, messy ideologies trying to fix the problem without this core understanding that this is all about generational liquidity that needs to move and meet its price.

David:
[35:45] I really want to underscore what you talked about where the classic way that billionaires access capital without paying taxes is Zuckerberg, Elon Musk, they have all this equity. It's a liquid. In the case of SpaceX, it's a liquid. Or even when it's liquid with Tesla, what do they do? They don't sell it. They get a loan against it. And so they get the money without actually having to have the taxable event. That's the loophole that I feel like is the middle of the road it's this potential policy that's not partisan of If you get a loan using your equity as collateral, that is realized. You are realizing the value of that equity. So we should tax that, actually. That's just a loophole that we should close. And that's just a failure in the tax code. And it's not like partisan or nonpartisan. I think that's actually the smart solution that we could have. But that's just a rant that I have.

Jeff:
[36:40] Yeah, I'm not speaking here a little bit because you and I, of course, followed all the ambiguities with crypto laws in terms of what staking as an income can be and whether it's realized on what cost basis. And those things would have all these kind of amorphous arguments. And yet, as you pointed out, this one's pretty simple.

David:
[36:58] This one's simple. This is not that hard to think about. If the money shows up in your bank account and it's from a collateral that is untaxed because it's unrealized, that's realized income.

Jeff:
[37:10] But here's why this is not popular from a public policy perspective. Because if you do that, you have to then probably sell the asset and the whole scheme that is being built on right now is to preserve the image that the stock market valued at the, The 7,000 S&P level or whatever it was two weeks ago is the correct price because nobody is selling. That is at the core why this is not meeting its moment in public policy as well, because it is part of, in some sense, the national security defense of our entire welfare system to be based on these numbers. And that's why it's such a hard problem. Nonetheless, the certainty that I'm driving with here to know that it will happen is because at some point, the demographics and the wealth and income inequality will reach a breaking point where it is no longer something that can be avoided.

David:
[38:01] Before we move on to the last one, just explain this concept of drag on demand, this mechanism of drag on demand, where concentrated wealth actually just stifles economic activity. Explain that concept for me.

Jeff:
[38:11] We talked about wealth inequality quite a bit, but the close cousin of wealth inequality is income inequality. But the reason I mentioned it is because they're slightly different. Income inequality is more rooted upon the ratio or spread that could exist at a society of a high earner and a low earner at a moment in time for whatever they're delivering on productivity value, right? So this is the classic, like, how much should a CEO get paid as a multiple of the average employee of a company? And what's the reasonable number? Is it 10 times? Is it 100 times? Is it 1,000 times? You know, that's the income inequality question. The income, however, is generally expected to tie into some success in having delivered value. So we, I think, have a slightly higher tolerance for income inequality if we believe that it is the market clearing price for the delivery of the value capture. However, wealth inequality is different. Wealth inequality is different because wealth is, by definition, at some level, inert capital.

Jeff:
[39:16] Wealth is inert if it's sitting in property. It is inert if it is staying in government bonds and paying you a coupon. It is inert if it is actually not being motioned through the cycle of capital for consumption, where the whole point of money is to actually have a velocity associated with its money supply. So the problem with wealth inequality is that it has this feature in a world of total debasement to actually be exceptionally convex in its ability to retain value by doing absolutely nothing. And that is the drag on demand.

Jeff:
[39:50] That is the drag on demand because the supply shock, if it doesn't come for the people's ability to consume it, either horizontally in the same generation or vertically amongst the old and the young, means that we're actually slowing down some pace of economic wealth transfer that is meant to realize whatever is meant to for the future. Part of the reason why people are not having children as much anymore that they probably should be is because they don't have the economic security they feel in order to have children. Well, how can we fix that? We got to move the money and we got to move that wealth into income, right? It's moving... It's moving potential energy into kinetic energy in terms of thermodynamics. And it is more powerful to have money that is kinetic than in potential, especially if the potential energy is getting to such an absurd sum of the entire weight of the closed-ended capital system. And that's why I think I make the case on the drag on demand being particularly acute for wealth that is exacerbating a lot of the social problems today.

David:
[40:54] Right, yeah. So the idea of wealth inequality, wealth inequality wouldn't be so big of a deal if there was just faster velocity of the money that was circulating. But with increased wealth inequality, the ratio of moving money to inert money, just like the trillions of dollars in savings that the very, very wealthy have, that's not circulating through the economy. They're not buying stuff. That's not going to small businesses. That's not turning into salaries. And so there's a ratio here of just like moving money to inert money. And when inert money is like 10 to 1 the moving money, then it overall just like is a dampener on like GDP commerce. And it kind of like it turns it into like a downward spiral because it also just reduces people's ability to like climb the ladder. Right. If incomes can't go up and savings can't go up, then it kind of just keeps the system locked into itself and unable to be adaptive. right?

Jeff:
[41:56] That's right. That's right. And we should talk about real estate for a couple minutes here as a source of this inner capital, because it's really important to understand the role of real estate broadly here in the United States. Real estate is so unique because on one hand, it is a consumption asset. For instance, if you're living in the suburbs, you're paying taxes, presumably for the social benefits of school and social services and other things that you find valuable in your life as a form of property tax.

Jeff:
[42:21] However, it's also an investment asset where people are storing their asset for the hopes of actually feeling debasement can be escaped through that investment. And therefore, what we're seeing with real estate uniquely is the mixing of a consumption asset with an investment asset and the price discovery that is being distorted as a result of that. One of the reasons the young people are so kind of despairing in their inability to have home affordability within reach is precisely because of this problem. And it is especially acute in the context of why I think I'm very optimistic that Bitcoin can be partially a solution to this, is because if you find other venues to store wealth that is better than real estate, it is better societally for everybody to shift that intention into an asset that is dedicated for that purpose. And you should not want to distort the price of consumption that is affecting intertemporal gap between the young and the old that is otherwise causing a disservice. This is one of my bullish case for Bitcoin as to why it is so socially important that it survives and wins because on some level, it also needs to be a part of the housing dilemma solution. One more thing to add there.

David:
[43:34] Actually, before you hold that thought, because I want to bring up the anecdote of real estate in Buenos Aires. In Buenos Aires in Argentina, I don't know if this is still true as inflation in the Argentine peso has gone down with Malay as president. But previously, and probably to this day, money, like savings in Buenos Aires, is your home, is your apartment. And there was a story that I was told where some individual was getting like a bonus at work. He had some sort of windfall. he was getting like a $30,000 bonus at work. And so he gets the $30,000 bonus. It's in cash, it's in US dollars. He puts the cash into his backpack. He goes to a brokerage, a real estate brokerage. He sells his $80,000 apartment in Buenos Aires. Gets $80,000 in cash, puts it in his backpack, goes to another brokerage, buys a $110,000 apartment because that's how he's storing his value. And he just stores it in the apartment. I mean, he just gets a windfall and buys a better apartment because that's how he stores it because you can't store it in any other way because the Argentine peso inflates so bad. And what this does to the Argentine housing economy is it like you would think that Argentine real estate is cheap because the Argentine peso is weak, but it's not. Argentine real estate is extremely expensive. I know I don't just use like an apartment for $110,000 is cheap. That's not the right number. I was just like using up fake numbers, but the story is the same.

David:
[44:58] And as a result of that, a lot of apartments are empty because they are savings vehicles for people who just need to park their capital somewhere. And so there is a housing issue in Buenos Aires because so many people own apartments and don't live in them because it's their bank account. So I just wanted to emphasize your point on it's useful to not conflate people's housing with the vehicle that people choose to need to actually live in or save their money.

Jeff:
[45:27] No, yeah. Thanks for sharing that story. I didn't know that about Argentina, but that makes me feel like New York is maybe not the only place that we're dealing with. But as you know, in New York, the trend is actually cross-capital border flows. We're finding foreigners acquiring trophy assets here to preserve wealth, especially if you're a Russian or if you're from the Middle East, and you want to have American-denominated, dollar-denominated assets. And so that could also cause a distortion when foreigners are interfering with price discovery for the local market that is New York City. But the point that I want to mention too is going back to Bitcoin, I know that right now, one of the things that the Bitcoin Policy Institute is fighting really hard for is to seek a de minimis exemption for Bitcoin transactions and one in which we're finding moderate success in enthusing the subject matter, but maybe not total acceptance. I actually think this is super, super, super important. And the reason this is important is because the thing about storing wealth that becomes far more amenable and interesting is if you can actually spend it seamlessly. The problem with housing is you got to sell the whole thing to actually get liquidity. You can't do partial sales. You can't partially sell 0.0001% of your house for something. And that means that there's illiquidity in the ways that these things have to move and it creates a lot of disruption in the consumption curve of how people can predict and anticipate their needs.

Jeff:
[46:50] Imagine Bitcoin, though, where you actually can spend and you can spend de minimis on the thing. It's exactly the feature you want in a savings asset that allows you to a lot more comfort with the liquidity that Bitcoin provides. And actually, it's really good for Bitcoin long term to have these things because you don't need to sell the Bitcoin to fiat to then transact, which causes these price gaps of digital step functions of selling behavior. I believe there's a lot more Bitcoiners out there who would actually keep their Bitcoin if they knew that they could actually spend it in ways that they wouldn't have to think about denominating it back to dollars if they could avoid it. So all to say, like one of the beautiful features about Bitcoin too, is that it is actually money in the ways that it can be if we aspire to it. And the ability to have that kind of fractional spending as a store of value is so unique, only unique possible because of its digital feature that makes it even better than something like gold.

David:
[47:50] Let's head into the last certain truth, certain truth number three, the value of labor is approaching zero. God, harsh words. When I was reading your article, Jeff, I kind of always intuitively knew that this was true. But like in the AI age, I think we're all being told that like eventually the value of labor is going to zero, especially when we introduce robots. It turns out that the value, I learned this from reading your article, it turns out the value of labor has always been decreasing in terms of the value of capital. So this is a trend shift that is present. It has been happening, is currently happening, even before we get into the conversations of AI and robotics. But talk about the demographic, the trend shift of the value of labor approaching zero as it's related to the other two trends that we've talked about so far.

Jeff:
[48:33] The value of labor is reaching zero because I think technology as a whole is deflationary. I think that's the punchline. If technology works the way that is allowing for productivity growth that resets the jump to universality in ways that is unimaginable, it's really deflationary. And so you should expect a lot of things to maybe go down in price.

Jeff:
[48:56] What's happening, though, is that's not what we're seeing in actual price because we live also in a credit world where credit inflation and credit creation is a big driver of our growth model. And so we have these two contradictory forces at play that can actually manifest itself in some weird ways. And so the weird way that I would say it has manifested pretty clearly at this point is that labor itself is becoming less valuable while capital is itself becoming more valuable in the financial manipulation of asset prices that is happening via capital and credit creation.

Jeff:
[49:33] So I think that's a big component of it. The other part of it is generally a lot of the wealth creation has actually come from stock-based compensation. So that's probably something that looks a little bit different than the prior eras of industrial revolution or anything thereafter, where labor coming from income and salaried wages is maybe not where the greatest wealth creation has happened. Even in America, when you talk about the newly minted wealthy class, it's coming from asset inflation in capital that historically was not as wide reaching. I think those things are key. And the third thing that I would mention is there's probably a general weakness to the power of unions over time in more recent memories that historically could have been a guardrail to protect some of the floors around what the true cost of that human labor in itself should and could be against the forces of top-down managerial capitalism otherwise. And that weakening, I think, also could have played a pretty meaningful role over time, too.

David:
[50:39] So one counterpoint that I want to bring up is the Industrial Revolution. The Industrial Revolution produced just enormous asset appreciation. It also produced labor uprisings.

Jeff:
[50:51] But it also just produced a boost in global GDP.

David:
[50:54] And so if we kind of think that we're going into some sort of industrial revolution with AI and robotics, I kind of would expect both to happen. We would have the Luddite pushback, which we're seeing in our politics. You're seeing Bernie Sanders do this with his weird videos with Claude. But I kind of would expect nonetheless that GDP would be massively boosted by the fact that we have free intelligence and free labor. And so this would actually be just a boost to some of the other problems that we've introduced earlier, which is we need to have more buyers than sellers in the stock market to offset the top side, the top heavy demographics. Well, if we have this like, you know, this AI industrial revolution, aren't we also solving some of the problems? Maybe we also do have the populist uprising that we had in the industrial revolution, but it ultimately ended up just fine. and we had a roaring stock market as a result. What would you say to that?

Jeff:
[51:51] There's things that make sense and things that serve as templates for what we can indeed do better and improve upon. So the thing about the industrial revolution is you're absolutely right. It was an incredible productivity gains and it did result in a labor uprising simultaneously over time. And that's because eventually the... Benefits that come from like the genuine productive capacity creation, once it matures, does lead into that distributional question of like, where should asset valuations go to reflect that? And as you pointed out, there was a labor uprising. And that labor uprising is actually probably why that they were able to end up having higher wages that rebuilt the demand base that then allowed for the sustainability of those asset returns. And that's the bottom line. There was infamous 10 Hours Act that was passed, I believe, where basically you couldn't work more than 10 hours. And basically you created that almost like an analog mechanism where you created scarcity, right? The 10 hours work actually just created scarcity of your time. You just couldn't do more. So by doing that, you're actually increasing the cost of labor very directly.

Jeff:
[53:07] And that constrained supply of labor then becomes more available and far reaching with the benefit of machinery and capital, right, which then allows some productivity gains, but both of them kind of affect that capital labor ratio in a positive way. And it turns out like the fulcrum was actually the scarcity of time, the time of labor by humans. So that's why I think AI is a little bit different because AI almost nearly has the opposite effect, right? Because we're not bound with AI in the physical constraints of hours anymore. This isn't a question of like, hey, here's a guy who works in the factory for 18 hours. And if we just make him work 10 hours and pay him more, that would solve the problem and reprice his labor. because AI isn't really time-based. AI's orthogonal value creation is really coming from the reach of the knowledge economy itself. And it's not of the physical realm. And so...

Jeff:
[54:04] There is no labor absorbing industrial frontier with AI. In fact, if anything, it's labor displacing right from day one. So the asset appreciation that could happen otherwise by financial engineering, like the productivity rent, is just different. It's just a different catch-up question for how AI is going to affect the price of labor. And on the other side, you get to then see if the machinery that is promoting AI models is the thing that is valuable, Well, then it's really explicit to me that the cost of capital is far more valuable at that point than the cost of labor in terms of that becoming the fulcrum point. And that's what's different. At the Industrial Age Revolution, the fulcrum point actually was a scarcity of time of laborers. In this modern era of the AI revolution, the fulcrum is actually the scarcity of capital that is needed to fund the machineries.

David:
[54:59] Yeah, it's what you're saying. It's just like, you know, in the industrial revolution, we allowed a worker's time to become leveraged with better tools, factories, but we still needed the worker's time. The one that's what's different about this is that actually we it's the labor is dropping to zero. We actually don't have a reason in the supply chain to have your average like button pusher laborer who would have been enhanced in the industrial revolution is being deleted in the AI revolution.

Jeff:
[55:28] Exactly. Exactly. So let me put it this way, metaphorically. I think this will make a lot of sense to people. The 10-hour act worked because it forced you to only work 10 hours no more. And that made your time valuable and therefore more scarce. The equivalent of that, if you can imagine it with me a little bit, would be something like the 10-prompt act. You can only do 10 prompts a week or a day. You cannot do more prompts. You just can't. That's a federal limit on a ban. That makes each prompt far more important. It makes each prompt actually much more scarce. It makes the human ingenuity, therefore, who can leverage that prompt far more important. So what I'm trying to say here is that you have to bound the constraint of scarcity on the thing that brings value to human ingenuity. If you do that and you have the 10 prompt act, then I do believe this can actually be very good for labor because the smart people who know what they're doing and learn how to prompt better is not only benefiting from their productive capacity, but they will also be handsomely rewarded for actually being users of the tool in the best ways possible. That is a way to imagine how you could create labor value in times of what we're experiencing in our version of some replacement value recalibration as I talk about the cost of labor versus cost of capital.

David:
[56:53] So downstream of the industrial revolution, we had, you know, some level of innovation and regulation to produce the modern labor laws, the modern workforce laws that you talked about. And it kind of created the foundation of just like modern workers' rights. And that was like innovative regulation for the time. What I'm kind of thinking now is like what you're alluding to is like we kind of need similar levels of smart regulation to fit the form factor of the times of today, AI. So bear with me as I daydream for a moment. The United States nationalizes an AI lab, or maybe all of them. We'll skip the bureaucratic details of how we actually do that, legally speaking. But all laborers get a universal basic income of tokens. And when you are hired for a company, you get to point your universal basic income of tokens towards your company. And that's the scarcity of intelligence that gets applied and redistributed towards the people because every single laborer has, you know, one million tokens a week that they get to spend and companies will hire them based off of their competency of being the correct prompter to maximize the leverage of their tokens. Does that kind of like fit that same sort of model that you were talking about, but for like the AI age?

Jeff:
[58:11] Yeah, I like it. I think it is very similar. And it is this allotment construct in which it makes the agency and self-determination value come back to the humans. The reality is right now everyone sees that the price of AI itself is heavily subsidized and heavily manipulated by what we're seeing in private credit, what we're seeing in just general capital formation strategies behind what they're thinking is a national security priority, number one, and a competitive spirit from the geographical sphere, especially versus China. And so we know that some of these pricings are probably not correct. Like we know that you shouldn't be able to ping a thousand times for something that's maybe not super valuable if it's competing for costs of power elsewhere that people need for different ways it functions in the grid. So we know there's a lot of funny things happening right now where there's an incredible subsidy effect. So the reality is it may be not possible in five years from now to have the abundance of the toolings that we have today. I do believe we're living through a pretty golden age right now where much like Uber rides were free and Lyft rides were free for like the first two years and you got to just experience that, wow, are rides going to be free forever? It's like, no, actually they're not free forever. In fact, at some point the market will catch up and get you the right price for the network effect and the disintimidation, but it's not for free. And I do think we're probably going to find what that limit is. And then people will start thinking about, well.

Jeff:
[59:38] Maybe we should actually find this to be more valuable on a per unit basis. And that's because energy is valuable and energy competes with a lot of other things. So I think you're right. I think there's some kind of dialogue to be had there in the future. And it's why public policy is going to be so important. And whoever's next AISR is going to be tasked with trying to figure out these components for the social

Jeff:
[59:58] contract of what energy means to our civilians.

David:
[1:00:00] Okay, Jeff. So those were the certain truths that you have. The demographic headwinds, the wealth concentration at critical levels and the value of labor approaching zero. I have a lightning round for you of the different like assets and asset categories that you think will do well or not do well. Before we get there though, I wanna give you the opportunity to kind of finish this story, which is each of these trends are not in a vacuum. They're not siloed away from each other. They feed into each other. So when you put these three trends together, kind of paint a picture for what the problem is, like the interconnectedness of these trends than the destiny that you think that they point towards.

Jeff:
[1:00:38] That's right. No, thanks for giving me the chance. And the reality is what I just shared with you and with our audience today are in alone, independently, not new. I think everyone knows that these are problematic things. People have been talking about social security running out for decades. I remember this was a conversation even when I was in elementary school and all these years later, it hasn't blown up and things seem to be working. So why is the problem now? Why is it acute today? Why is it all? You know, it seems to have worked out in the past.

Jeff:
[1:01:08] But the thing is that history has a funny way when these things converge pretty abruptly.

Jeff:
[1:01:15] And the thing that I feel really certain is that convergence is going to happen across the dimension of time and its global reach. Because we are at a point where these trends we talked about, mostly in the American context, is fairly universal, again, from a global demographics perspective. And so there is no escape patch left. And then from a time perspective, the pyramid will invert. And at that point, there is no reversion. And the thing about human history is that every now and then, the certain systems evolve differently. Not incrementally, but they suddenly just become capable of something else. So I don't know if you've read David Deutsch's book, Beginnings of Infinity.

David:
[1:02:01] Parts of it, very dense.

Jeff:
[1:02:02] Yeah, he talks about, from a physicist's perspective, but also as a philosopher, this concept of jump to universality. And the core observation there is that systems can improve incrementally, but at some point when the facts align perfectly, the sudden happens where improvement isn't linear. It actually crosses like a threshold and then it becomes totally unbounded. And he talks about a lot of these examples and it talks about it through the lens of evolution as to natural selection, but also like the alphabet and like why did letters become more meaningful in itself over time through other things at certain threshold levels. And the point that I'm making is that this convergence is happening now because of all three of these things happening at the same time and at the same place everywhere in the world. And that's why I think our moment is coming. And we should be prepared then to think about how to allocate capital correctly as a macro investor to have your best chance of success in navigating a worthwhile outcome.

David:
[1:03:03] Right, right, right, right. So we have a stock market that has a very top-heavy demographic base, lots of the elderly retiring trying to consume their capital, putting sell pressure on the stock market. The resulting buy pressure is weak because we have a very concentrated wealth inequality. Like the people making the money aren't making that much money to support the buy side of that economy. And then we have AI and robotics coming in to fundamentally disrupt labor in the first place. It's like not

Jeff:
[1:03:32] Really the most optimistic.

David:
[1:03:34] Forecast of the future, but let's get into the lightning round of just like where to invest. And so if the whole idea is that capital beats labor, we have to find the capital that matters, of course. So I want to get your quick takes on each of them. I want to start actually in the middle of my list. Residential real estate. Healthy? Not healthy? Thumbs up? Thumbs down? What do you think?

Jeff:
[1:03:58] It's a thumbs down for me.

David:
[1:04:02] Because boomers have to sell?

Jeff:
[1:04:03] Boomers have to sell.

David:
[1:04:04] That's as simple as that.

Jeff:
[1:04:05] There's got to be exceptions to the rules. Maybe if you have trophy assets, there's going to be different buyers for those. And real estate itself is not evenly distributed. But as a median asset, American homeownership, I think, is going to be negative.

David:
[1:04:18] Negative. Now, is that negative nominally or just negative as it relates to other assets? that like I potentially have in this list, like a mean of all the other assets in the world?

Jeff:
[1:04:28] I think it's definitely negative real. It's also high probability it'll be negative nominal. And that's really because there's just gonna be more sellers. And eventually the price that homes can be afforded by will be met by the income power of those who are wage earning. And we haven't seen wage inflation catch up nearly at the rate of asset inflation. And so from a public policy perspective, there may be different tricks to do, But, you know, the goal is to build more supply and get that number lower. And that's the other irony. Those who own real estate don't want to build more supply. And you should all be very critical and open-minded to why people are behaving this way. So I think in general, renting from a cap rate perspective has provided far more value for most people. And in fact, if you leave the U.S., you'd be surprised. In Germany, I believe, half the people rent. If you think about rent as a social norm, there is actually ways in which that can be equally worthwhile from a mathematical perspective.

David:
[1:05:26] What about indices? QQQ, SPX, Dow Jones, any of those?

Jeff:
[1:05:31] Man, so I have to basically ask for some of my answers here in that it's not going to be fulfilling to recognize that these are somewhat patent-dependent. I think in the construct of the generational liquidity trap, this is also a negative. Look, it's probably going to do well over a certain amount of time, but I'm answering these questions based on the moment when these liquidity events trigger and ultimately how overwhelming those flows can be unless there was different ways to offset it via foreigners or AI machine driven flows or something that isn't present today, but might be imaginable in the future.

David:
[1:06:11] What about gold?

Jeff:
[1:06:13] Thumbs up for gold.

David:
[1:06:14] Thumbs up?

Jeff:
[1:06:15] Thumbs up. Yep. Thumbs up? Yes.

David:
[1:06:18] Why is that?

Jeff:
[1:06:19] I think gold is the premier, premier, premier asset when it comes to the hedge against fiat that will be forever. It's permanent. It's a part of our human civilization as an artifact. And I expect that to remain the case forever because there's value in something that is physical as much as there is something in digital. And there's a rule for both. And it is ultimately derived from what I call energy transformation. One of the things I talk about in my radical portfolio theory is to separate assets based on compliance assets and resistance assets. And one of the features to define what one can be one versus the other is that one cohort of asset class is involved in liquidity manipulation and one cohort is involved in energy manipulation because it's only liquidity and energy that intersects by creating time. And time is the only valuable thing we have in life. And so from that perspective, gold is absolutely an energy transformation affair because it is mining. The same way Bitcoin is an energy transformation affair because it involves compute. Those things have a fundamentally different value proposition than a liquidity transformation endeavor, like pulling forward the yield curve on an index-based asset.

David:
[1:07:37] I see, I see. Let's get into Bitcoin itself. Bitcoin, how does Bitcoin fare?

Jeff:
[1:07:41] Oh man, this one's a layout. You know the answer. Bitcoin is the only one that fulfills a lot of all this stuff.

David:
[1:07:49] Yeah, what are the properties that Bitcoin has that so resonates with just kind of the future that you have forecasted here?

Jeff:
[1:07:57] Yeah, I think the best part about Bitcoin, we kind of talked about it a little bit earlier, is that it is digital and it is entirely nomadic. The fact that you can actually have Bitcoin stored in your mind is in itself a unique value proposition that no other asset class could ever have. And if you imagine the worst draconian scenario of capital control flows being restricted or maximalist state affairs where we all become kind of part of the surveillance state and this very dark dystopian world that you could have to have a hedge for. The only asset I think that can have a remote chance of success is the thing that you can memorize in your brain and carry it with you till your dying days in a non-custodial format. And that's Bitcoin's superpower. That's why it's better than gold in some aspects of it.

David:
[1:08:49] What about the fact that just boomers don't own a lot of Bitcoin? That has to benefit Bitcoin when it comes to like if boomers are drawing down on their capital account, but their capital account doesn't really hold that much Bitcoin. That means there's a malaise in the stock market, but Bitcoin is outside of that.

Jeff:
[1:09:04] A hundred percent. That's why I think the huddle affair is actually kind of important. And it really is because the young people are buying it and therefore young people are going to hold onto it for longer. You never hear about people who sell Bitcoin really at losses as much as people who buy them at the peak and then wait until their next rebound. And that's because people are psychologically attuned to holding onto Bitcoin for a long time. And so you tell me, hey, you get a chance to own an asset someone's not going to sell for 70 years versus someone that's going to sell something in 20 years. I want the one that no one's selling in 70 years. And I think all young people are going to understand that importance. And that's definitely its power too.

David:
[1:09:39] How does that relate to wealth tax? Because I'm of two minds about this. Bitcoin, I kind of understand as a resistance asset. It's F you to the Federal Reserve. It's outside of governments. It's cypherpunk. It's badass. But I'm a subject of the state that I live in. If the IRS comes knocking at my door, I'm paying the tax because I don't want to go to jail. And so I'm of two minds about this. Like we have this trend that we've identified is that like governments are going to have to figure out how to tax wealth. But you have Bitcoin, which is this like, you know, outside of the system asset, which you would think resonates with that. But I'm inside the system. How do you square these two things?

Jeff:
[1:10:20] You can achieve both outcomes. You can still be law-abiding taxpayer and still want the desire to move those assets after tax cross-border in the click of a button. Those things can exist together in harmony. And one might imagine actually the threat of the latter should inform the former as well. And you hear, you know, Governor Hochul the other day describing her plea for New Yorkers to stay or ask their friends in Miami to come back. And at one point, I believe she actually used the word captives of the state to describe her own constituents. And that she had imagined that the captives of the state would not have ever left. And that's why this is a problem. When you hear those kinds of word choices from our publicly elected officials describing their own constituents as captives of the state.

David:
[1:11:08] Makes me feel like cattle.

Jeff:
[1:11:10] Yeah, it should really, really, really reawaken your sense of self-determination as to re-empowering what you could do to push back. And so you can still pay taxes to Governor Hochul, but you can also leave. And that is more powerful with Bitcoin at a global level than I think with almost any other asset classes because of its non-fungible nature to which it can just be held in the air.

David:
[1:11:34] What do you think about the crypto industry broadly? So there's Bitcoin. And I know, Jeff, you're a Bitcoiner. You're a strong Bitcoiner. But then we also have just crypto broadly, Ethereum, tokens on Ethereum, smart contract blockchains, this whole sector. How does this fare in your future economic forecast?

Jeff:
[1:11:52] Yeah, I'm super bullish on crypto. I mean, I have to be at some level from an ideological perspective because I believe that there's going to be value creation outside of store of wealth, too. I mean, store of wealth, at the end of the day, is a little bit of a selfish affair. I mean, we're talking about just wanting to preserve wealth that is self-serving at some level, whereas you're not really creating value otherwise for society at large. And the other parts of crypto, I think, is more optimistic and aspirational in wanting to deliver some of those early promises, too. So, you know, historically, the challenge has been that we haven't found a lot of ways to enthuse the price matching mechanism of its value creation. But I believe over time that will come. And as people find Ethereum to be useful, as Solana to be useful, then I think it will work itself into the system where it is valuable. So, yes, you know, big fan of Bitcoin. It's the one true love that I have, but I'm always rooting for the economy to succeed at large. And hopefully, you know, some aspects of tokenization, stablecoin adoption using these rails can bring some real revenue and a model that is underwritable to that value creation technique.

Jeff:
[1:13:03] Are there certain emerging economies that you might find interesting from an investment standpoint?

David:
[1:13:09] So over the last few decades, the S&P 500 has crushed emerging economy stock markets. There's very few stock markets out there, if any, I think, that has at all kept up with the American economy. So that's why everyone reinvests back into America. I think, Jeff, I don't know if you're explicitly doing this, but it seems to be you are pointing directionally towards a top of American equities dominance as it relates to the rest of the world. Maybe those are my words, but I might guess that you might agree with that. And so there's like other economies out there. And I've noticed just a lot of rumblings about like LATAM ETFs, Brazil, Argentina. What about specifically maybe in South America? What do you think about LATAM ETFs when it comes to like fitting into what you think the future holds for us?

Jeff:
[1:13:51] So I'm going to take a slightly ignorant and blunt approach here, which is that when I think about emerging markets, there's two dimensions. One is the actual engine of growth reflected by equities, but also the currency that it is denominated in, both of which can have just different thesis as to its value. I'm just very bullish on the dollar at the core, which informs a lot of my views on American might. It's kind of the cleanest, dirty laundry as I see it, even though fiat debasement is going to be a global trend nonetheless. I think the dollar has the strongest chance of retaining value.

Jeff:
[1:14:27] But if I wanted to draw a line amongst jurisdictions of countries, what I might do is bifurcate between tax havens and non-tax havens. Because I do think the world is going towards a perspective where people want to opt out of certain things. And there's value in becoming the conduit for that opt out. And over time, you have seen history will always have a credible intermediary that is neutral towards that jurisdictional affair. And so the game of chicken always is where is the next haven going to be? You know, once upon a time, it was Switzerland. Switzerland spent 300 years building that reputation. and then 2008 hit and then the U.S. went after them. And then within basically 75 days, Switzerland put up their white flag and said, all right, you can have all our client information. They changed their national laws in an emergency meeting to meet the demand so that UBS doesn't get banned. And now Switzerland is not what it used to be. And so on the back of that, you were seeing other tax havens come to market.

Jeff:
[1:15:33] And I think the wealth, wherever it goes, is going to have some effect to that. And so maybe in South America, I would say I'm bullish Uruguay because Uruguay is actually at some level that conduit. And that's maybe a meta that I would use to approach investing in not emerging markets per se, but kind of jurisdictionless haven economies.

David:
[1:15:57] Yeah. Yeah. And really good wine. What about Dubai? Because isn't Dubai kind of the perfect answer for some of what you are talking about, especially with wealth inequality creating the incentive to tax wealth? And then your answer is like, okay, well, then we're going to incense capital flights. But really, there's no place to go because all these countries all across the world are facing the same problem. Isn't Dubai unique in that where the purpose of Dubai is to say, hey, we're not going to tax your wealth. Actually, we are the capital of capital. Your capital is safe here. The whole point of Dubai is to be the tax protective or the wealth protective jurisdiction. What do you think about Dubai?

Jeff:
[1:16:38] Dubai is super interesting because there are features about it to appreciate that makes them unique, though there are some features that make them also susceptible to the same challenges that other haven markets have had. So here's the thing about what it means to be a haven market. You almost need to work with the US to be one because you're on the dollar system and you're on the corresponding banking systems. So Switzerland, I think for a long time, benefited from that because they were able to live together in that. But the moment the US decided to change it, it was a decree, right? It was a decree that we are going to go after tax frauds and we are going to actually put down the hammer and they turned. And so I think that shows you that the only way to really then be outside of that force is you have to build a decentralized system away from the dollar rails. The thing with the UAE and Dubai is it is still built on dollar rails, but it may have the highest chance of moving away from it because of its geopolitical positioning in the construct of the petrodollar. So I think if you looked at Singapore, if you looked at Dubai and you looked at Andorra and you looked at all these tax havens.

Jeff:
[1:18:01] To me, Dubai does stand out a little bit more unique because they can be useful in a multipolar world where the dollar rails are weakened and they emerge stronger from it. And that would be kind of their Hail Mary output that not even Singapore or others could match, right? And Uruguay would absolutely get crushed in that version as well. So there's aspects to appreciate about Dubai. Now, the downside, of course, is you have to make a bet on the regional stability there for which wealth will choose to repatriate. And I think the events in the past few weeks have demonstrated that is a big social component that is maybe not even an economic one, but a real one that could create different optics for it.

David:
[1:18:44] Yeah, totally fair. What about extremely real assets? Now this is assets like farmland, minerals, water rights, like just super hardcore, very real, obviously real assets. What do you think about this category? Very, very bullish. Very bullish. Yeah, this goes

Jeff:
[1:19:00] Back to the energy transformation, right? These are critical things that require energy to mine, to take outputs of, to secure, and it's a slow leverage. The price can be volatile, but volatility is a good thing when there's no leverage because it's people discovering price. And all of these extremely real assets have those characteristics. I would add to that category, even things like, you know, very rare, scarce wine, you know, very rare watches or very rare collectibles of kinds that are essentially things that, that retain value in a different a mechanism than financial assets do. Farmland.

David:
[1:19:41] Pokemon cards. What about Pokemon cards?

Jeff:
[1:19:43] Definitely Pokemon cards. Really? Definitely. Very bullish on Pokemon cards.

Jeff:
[1:19:51] Look, Nokia is in full force.

Jeff:
[1:19:53] All the stunted young adults and adults alike are rediscovering value and nostalgia. And that's where maybe the leisure economy goes into some of the ways people choose to spend their wealth. And all of the recreation of that franchise is becoming super valuable. So I think this plays very nicely into the scarcity element and the non-financialized element, right? You're not going to find Pokemon cards in the Singapore Sovereign Wealth Fund. And that's a good thing. You don't want to own things that are in sovereign wealth funds.

David:
[1:20:26] Yeah, yeah. And boomers won't have any to sell on you.

Jeff:
[1:20:29] Boomers won't know which Pokemons to buy. This is for Ed.

David:
[1:20:33] Okay, last one, Jeff. AI picks and shovels. I think we're all kind of bullish AI. I think there is an expensive price tag if you want to have exposure to AI, the AI picks and shovels. What do you think about that as a category? I think I'm pretty bullish

Jeff:
[1:20:46] On that too. I think it's a price that will be determined by the value of the acquirers, ultimately, because I do think that a lot of these companies are priced richly to the aspect of being an acquisition target. And you can't escape the fact that we've now achieved a monopolized states with our tech companies and champions. And especially because tech in itself is becoming a security issue. You always want to bet on the things that are aligned with national security at the forefront being the price setter. You almost will never lose if the government is the buyer for your things. And AI is squarely within that domain of necessity that I think there's going to just be a lot of interest for. On the other side, I even mean this to general civilians like you and I that will find value creation with that too. Because if.

Jeff:
[1:21:40] You are basically

Jeff:
[1:21:41] Able to contribute data to train these models in ways that give attribution back to you, which I do believe is a world that may come, then hopefully that creates that UBI construct a little bit more directly where your own existence can actually then be monetized for the data that these models rely on for which you're a purveyor of. And so I think that means you should value your own kind of, again, self-determination to be free thinking. And that free thinking itself is the thing that makes you valuable away from AI slop and should be worthwhile. So the pixel and shovels of your own mind even is something you should put on.

David:
[1:22:23] Jeff, this has been great. Is there any other assets or asset categories that are worth bringing up that I haven't yet?

Jeff:
[1:22:28] I think you covered a lot, including in the super hard assets. I think of IP as a category, like litigation, financing has always been profitable. You know, you talked about mineral rights, but music rights also are very valuable from a cultural perspective as an asset. And they have long tails. The last thing I might mention is I think predictions market and information markets also is going to be hugely valuable, because if you believe in the direction of what, financializing news and intelligence can look like, then we all have a part in actually being a part of that engine. And so that is another market, which I think if you're an exceptional trader or investor for, it gives you some ability to bet on yourself, which is a kind of energy transformation in itself of your own capacity by doing research.

Jeff:
[1:23:16] So I'm bullish on information markets as well.

David:
[1:23:20] Jeff, this has been extremely educational. I really appreciate all the hard work that you put into your essay. I learned a lot. So I'll make sure that it is linked in the show notes. And I highly encourage listeners and viewers of the podcast to go read it for yourself. Not that long, not that short either. Perfect in length just to get the point home. And I'll also have just a bunch of just information just to back it up. Bankless Nation, you guys know the deal. Crypto is risky. You can lose what you put in. But nonetheless, we are headed west. It's not for everyone, but we are glad you're with us on the Bankless Journey. Thanks a lot.