Welcome back to another episode of the Meet Kevin show. This time we have the honor of not only having Kevin O'lear on the channel now for the fifth time, but in person for the first time. Thank you so much for having to be a great speaker. You know this is the outcome of the pandemic.

easing away, we can meet in person again. It's great! It's so exciting so thank you so much for being here obviously. Kevin O'leary from Shark Tank and oh shares Uh Kevin O'leary also has a YouTube channel So the first thing I want to talk about is of course, this banking crisis, right? We thought it was over. We saw that the banks were essentially de facto bailed out Silicon Valley Bank Signature and the others.

What's your take on a renewed banking Crisis coming first Republic For example, uh or uh or maybe I should say and do you think all deposits should have been 100 backstopped in March So let's just look at keep the emotion of it because it's actually quite an emotional issue. This whole idea of regional Banks supporting Regional economies. Most of these franchises were set up more than 60, sometimes 100. Years Ago By the Numbers there's about 54 Regional Bank Brands They have between a hundred and a thousand branches each, so you end up with around 4 500 branches.

We're learning that not every branch is well managed and that there's what I call the idiot Factor We don't know what percentage of them, but let's just use a number like 15 percent or run by idiots I Don't mean that in a derogatory way. I Mean they've never experienced rate hikes this fast. They when you think about the talents you required to run a bank, you only need to do two things right? Okay, you need to understand duration and quality. So when you loan out money, how long did you loan it for and what is the quality of the recipient's ability to pay it back, Or when you take depositors money and you invest it in treasuries, how long, How? What? What duration are you putting it out at Knowing with certainty that's illiquid until it comes to maturity.

In the case that rates go up, you have to sell it at a loss. Now, if you don't understand that in the context of being a banker, you're an idiot, That's my definition of idiot. Banker So in the case of Silicon Valley Bank Run by idiots, the board? no oversight at all it seems. and even the FED seems to be culpable here because they didn't see it coming.

So I think there's going to be a lot of soul searching within the system. But having said all that, let's ask ourselves a more important question: When you set up these Banks decades and decades ago, it was done for a singular reason because the banking system and the government at that time realized that there were Regional differences in the economies Texas's economy very energy based at the time versus California agrarian growing of all kinds of products and services. and then Florida was different than Illinois was different than New York So the Regional Bank stepped in to provide more local color and a touch. Point particularly around the asset class of commercial real estate.

Now there was no internet banking. You rode your horse to the branch. That's what you did. That's when they were set up and you had a bag of money and you brought it back to the ranch and all that stuff.

Decades go by and of course we don't need Regional banks in the same way anymore. Because we have online banking. we have Electronic Banking We have digital banking. You can make a loan or apply for a mortgage from an online entity that you'll never meet anybody.

Yeah, and indeed, that's what people do. And so all of a sudden you start to wonder: why do we need all this infrastructure when really other countries have already proven? England for example, has 300 banks in total running the economy Canada Six handful of banks in Australia Wow. two Banks now one big one in Switzerland with some smaller regionals in Zurich and Geneva. But they don't fail because they're well-managed Banks And there's some examples in the United States like the state of North Dakota that has its own banking Charter that oversees the regional banks in North Dakota And they don't fail.

It's the idiot banks that cause the problem. So now you're wondering about. you know what's going on with First Republic It's going to go to zero because it's run by idiots and that's okay. It doesn't matter if it goes to zero, as long as we don't guarantee every deposit past the 250 000 you should for Silicon Valley Well, we shouldn't do that again because you're making someone in Florida pay for the mistakes of an idiot in California and they're not going to put up with that.

They don't have that interest And so there's going to be a backlash of pushback from people saying wait a second I don't want to guarantee the Folly of idiot bankers And so we have rules in place. the FDIC insurance which is only just over 200 billion now and when first the Republic goes down, it'll probably up 40 billion of that. Wow, so you have to call the idiots from the herd and it's okay that all the shareholders at First Republic lose all their money, all the bondholders lose all their money and I'll tell you why. it's okay.

the market will self-correct They'll say oh, where's my money is, is it with an idiot Banker Maybe I should move my money away from an idiot Banker to a less idiot banker and the industry will consolidate to less idiot Bankers in super regionals. Long answer to a complex question. Thank you for that. So would you say that at first Republic or even let's go back to Silicon Valley Bank Should shareholders have taken or rather depositors taken? let's say a 10 haircut if that was what was necessary to prevent FDIC from taking a loss for uninsured deposits, the numbers over 250k like a Roku Roku had somewhere around 400 million dollars at Silicon Valley Circle had 3.2 billion.

Should they have all taken a 10 haircut? Well no. I think they should have taken the full haircut past 20 150 000. Oh wow, those are the rules. Why do we? Why do we change it? Because believe me, the economy would have survived Roku would have survived Circle would have survived, but it would have changed their behavior going forward.

The market always does a very good job and it has these Corrections and I'll give you an example: Lehman Brothers did it Wipe Out The American Economy no bear Stearns Just a blip Enron Who cares? It didn't change the energy Market Think of what the idiots always get cold and that's a good thing. But when all of a sudden I'm being asked to take care of everybody's problems all the time and there's no culpability with the idiot manager I'm not okay with that. now. How much can we put on a tinfoil hat here at Silicon Valley Bank One board member apparently was also at the San Francisco Federal Reserve And then you've got Gavin Newsom the governor of California whom I ran against for governor who's got his money at multi of multiple of his I think wineries had deposits in excess of millions of dollars at Silicon Valley Bank How much political influence do we think had to do with bailing out Silicon Valley Bank Completely Well, the litigation and the investigations are going to go on for years and all kinds of you know I'm sure class action suits or whatever and that is how you you clean it up.

You shine the light of transparency after the fact, after the fact and these and these questions will be answered and they should be. But for me it's about sticking with the infrastructure as it is because it's worked forever and not changing the rules for just one set of idiots and changing them for another set of idiots. The idiots will be called and it's important to do that and as a result you end up with us. When you call the herd, you end up with a stronger herd.

Sure, if you don't call the herd, you continue to have Idiot Bankers blowing up all the time. Well, because there's really no risk, you may as well try to expand your bank as recklessly as you can because then you get those. That is precisely the argument for why you don't change the rules because you will not change behavior of idiot Bankers If I get a bank Charter I can go to Vegas put all the depositors money on black and take no risk. Yeah, why wouldn't I do that exactly? Oh I lost all the money in Vegas bail me out like that's not okay.

Yeah, you start over right. Yeah, that's the other thing you had board members from Lehman Brothers on the board over at Silicon Valley Banks They are all able to start over. All of this will come, you know, to the forest. Very interesting.

the light of transparency. Next question, the um Ray Dalio argument is that we're at the end of a massive debt cycle that, uh, there are going to be a lot of defaults and that needs to happen to eradicate maybe some of that idiot, uh, herdness. What say you to this idea that we're going into a new monetary regime and uh, we're going to see a lot more defaults than than maybe we're prepared for in this economic cycle? Well, I have a slightly different take on it because the majority of risk right now in the infrastructure of both Regional and Money Center Banks is commercial real estate. So that is just one.

We have 11 sectors in the economy uh, the 11th. the newest is real estate and a lot of crypto for 12 soon. Well, I Still argue that could happen, but we can talk about crypto in a while. But let's just stick on this issue.

The majority of debt that was done in very liquid times with very low rates starts to come due in Q3 and Q4 of 2 2024.. So the defaults will start then and then the peak of it. The refinancing in 2025 is going to be very high. So that's when all of a sudden the economics of a lot of commercial real estate don't make sense.

It'll be upside down and the equity holders in the in those real estate buildings will. they'll go to zero. But the great thing about commercial real estate? there's always an underlying bid, right? So it's not a zero. It's just that the existing shareholders are going to get wiped out.

That's okay because hopefully they Diversified their portfolio. The one thing you get there's a free lunch in investing is diversification. so you don't want to have all your assets in commercial real estate. maybe up to 20 maximum, but that culling will come.

It'll be 24 25 five. That's going to be painful because refinancing that debt that was done at five to seven will be now nine to Fifteen. Yeah, Oh yeah, and so I feel sorry, uh for those people. But it's okay.

But it's not going to change the fundamentals of the economy. it's just one sector under pressure. I'm very optimistic actually, that the economy is structurally sound, and in fact, even more efficient that it's come through the pandemic and been digitized. Oh interesting.

So potentially it's already been through. This is insensitive, but one weeding so to speak has strengthened already. Now by 2025, I think we're looking at 1.5 trillion dollars of real estate loans that have to refinance. I Think it's somewhere around 500 billion per year going up to there with more of that skewed today.

I Know that sounds like a lot of money. it does, but it doesn't go to zero. It takes a 40 to 60 percent haircut and that would be under extreme stress. More likely you know, maybe 25 to 35 percent depending on the property.

and there's a whole group of investors now forming funds stress funds around this to start to go. It's like bottom feed. Well, it's like a slug at the bottom of the ocean. You know the Shark dies and the protein falls to the bottom and it's re repositioned.

It gets consumed. and so the same thing's happening here. These sharks are emerging. Um, and it'll take about 36 months to take all of those facilities and refinance them at higher rates and re-establish their cap rate.

Yeah, because we might even see rent compression on top of that. But what I think is interesting. What you're saying is really: it's the we think of commercial real estate as losing so much value, but the debt is the protected portion. It's the equity that's getting wiped out first.

And I think we forget that it used to be that you'd wipe out all the equity in commercial real estate every seven years. Oh then it was every 12 years. Now it's going to be 25 years. Oh, my.

God It's been 25 years of low rates and so I would argue that sector is going to be challenged for a long time to come. But it's It's been the longest cycle ever. There's been billions and billions made and everybody should be pretty happy they've made money in real estate. I Think there'll still be opportunities more in residential and recreational, but commercial real estate? It's not only that, the fundamental Workforce is changing their behavior and they don't want to live in you know, basement rat cubicles.

I mean so all those buildings that were built with you know, no windows in the basement and everybody's sitting in Rat holes. They're worthless. They have to reposition them. Yeah, exactly.

now. Uh, what do you think if we see this? uh, multiple compression and Commercial Real Estate It sounds like you're optimistic about residential, but couldn't that carry over then that? if money moves from residential to now great deals in commercial, could that then equalize and also bring residential down? Well, it's you know. I Was looking at some residential data yesterday. It's fascinating.

This is now about the competition of States policy on taxes because we're talking residential. If you look at you know real estate in New York or California or uh, you know, Wisconsin or Wyoming Washington Washington versus Texas and Florida and you know, uh, West Virginia and states that have no state tax are enjoying extremely buoyant commercial real estate not commercial, but residential. In fact, Florida is up another 6.7 percent in in a time when rates went up that much. So it's sort of a situation where people are are uh, voting with their with their pocketbooks, leaving the Elizabeth Warrens and the Aocs and the punitive tax policy.

and of course all that tax base is leaving. I Don't know what happens to New York I Mean it's just that it's not investable. You can't put money to work here. It's the it's the regulatory environment and the taxes are so uncompetitive so you wouldn't buy a New York Oh never.

Oh, I Love to I Love New York I Love to visit I'm happy to be here, but I would never invest a dime here. Wow, Wow, that's incredible here. it is okay. so um, inflation in, uh, the mid 70s peaked twice.

Around the same time we had recessions. Our inflation in this cycle seems to have peaked around June of 2022.. yeah, which was also where we technically had two quarters in a row of negative GDP is the worst behind us I'm not sure about that. I Think we have this rolling softness.

Well, first of all, you have to answer this question next week. I think uh, there's 100 probability in my books that will get a 25 basis on a great height. Agreed. Yeah, what happens after that is uncertain I Think what happens is the Fed just stops, but it doesn't reduce it, just waits to see what happens Because when you when you're looking at how you calculate CPI almost 30 percent of it is real estate, but it's from 18 months prior.

Yeah, so we haven't seen the effect yet of what the rates have done to the prices. And so I'd argue that our real inflation right now is probably four and a half percent, not six. Oh wow, lower because of that lag. and I think the FED kind of knows that and I think that reflected in their in their comments.

But then what happens after that is an unknown because I think the economy is more productive than it was in the 70s or 80s because of digitization and a lot of Technology we have today that we didn't have then. um, I'm kind of optimistic that we're going to get sort of six to eight percent growth rates on equities even after all these rate hikes. My goodness. So going forward.

Yeah, so I'm not in the in the camp that says massive recession because there's another trillion dollars of stimulus that hasn't even been printed yet to put back in the economy. I Mean we have spent too much? Hell yeah, there's no question about that. But having said that, these programs are already law and they're in place. That inflation reduction? Yeah, okay.

the inflation. Yeah, that's so funny. I Love the names of these bills. There's no.

there's no Act of any act anything the government does that isn't inflationary because they're printing money of course and so it's It's laughable. but you know we all understand the joke. Well, Goldman did a great piece on it. They mentioned that the inflation reduction Act was supposed to create 389 billion of new spending I think it was, but Goldman says that's going to be 1.2 trillion because they're interpreting all the rules so loosely they're going to be rolling the money project.

Yeah, it does. It does look that way. so you know I don't know who's going to pay the piper on this one day, but you know, even this debt ceiling thing. Yeah, you keep kicking it, kicking the can down the road.

and I I one day that will be unhealthy. But given that all Commodities are denominated by U.S dollars. Everybody wants to put their money here. Yeah, that's what happens.

So um, I want to ask you about the dollar in a moment? but I want to ask you also about this. it's another thesis and I want to see your opinion on this. We had very little inflation between 2000 and 2019. the money supply was slowly expanding and it wasn't really until Covid where the acceleration of the money supply printing ramped up.

Is that potentially what causes inflation? That is, Can we go back to printing money at a normal rate and have virtually no inflation? Maybe because of disinflationary forces like technology? Uh, and it's not. unless we really ramp up. Uh, the spend that we see inflation. Is that possible? Or is that? Well, the binary definition of inflation is too much liquidity chasing a limited amount of goods and services.

And certainly that was the case during Covid because it was an unprecedented situation. We've never had anything like that. I Think the government did the right thing in just providing liquidity to keep W-2 employees employ. That's basically what the programs were PPP And we'll talk later about the employment retention credit, which is now coming to light as another program that's that's going into the economy, but it's sort of.

um, given that that there's so much liquidity. still. I Don't think inflation is going to be easy to tame, and The New Normal of inflation may not be two and a half percent. Or maybe more like three and a half percent.

Particularly when you look at what's happening with energy and food and proteins and things that are stubbornly resisting any kind of a decline in inflationary pressure. Eggs are a great example. I Mean you're really paying a lot more for those than you used to compare it to 2019 Without a doubt. I mean I think it was Nestle that just reported they raised their their prices somewhere around 10 percent and they were essentially bragging about how how they were able to raise prices now.

I Actually tweeted Kathy What about that? She was talking about, um, disinflationary forces over at 3M and she suggested that, but volumes are going down and soon, generics will take over and we'll get the disinflation. even in those sort of food areas. the Nespressos, Kitkats, chocolates, and that. do you think that's not likely to happen then? I Don't agree with that.

Okay, no. I mean I've been looking at the off-brand markets forever. it's you know, in my career I I Used to it was a marketing My my first summer job ever was with the Bisco brands in Pet Food Yeah, that's not a really good lesson in brand versus off-brand and generic brands will always be up to 30 of the market, but they never seem to get past that. Oh interesting.

Oh so that's something that has been around for 40 years. So the idea that all of a sudden everybody goes generic I mean that's just not going to happen because there's Brands Um, when when young adults grow up, there's an emotional tie to Brands they grow up with as children. Oh wow, and so it's a very powerful force. So if you love KitKat when you're growing up, you still buy KitKat when you're an adult and no off-brand version of KitKat will ever replace your childhood memories.

That's how Brands work. Wow, same for pet food you think. Then definitely if you fed your cat uh, you know, whatever it was Arena or whatever. the one area about pet food that has Healthy Pet Foods as a category is the fastest growing.

All of a sudden, people care about salt and sugar and and you know, carbs for cats. Yeah, yeah, we just which, but that category is a very high premium brand. Oh yeah, and of course, uh, is growing. So that's because the Pandemic people really fell in love with their pets.

That's fascinating. Okay, so no on that disinflation and we'll we'll hang out higher for longer essentially then yeah. I Think you know the numbers are the numbers you get to read this data. you know multiple times each year, and data sets should be looked at in sets of three.

So if you've got a spike in one data set, it means nothing. Ah, my old statistician training coming out. You've got to see at least three in a row. So if I'm worried about the preliminary read of University of Michigan inflation numbers ticking up, that's just one.

I Need two more to really worry more to set a trend? you need two more. And that's why you really can't call in inflation yet. We had two quarters. not quite enough.

Got it now? Uh, okay, how long then until we see the First Rate cut? So that's a great question. In fact, that is the question. Yes, I mean it's it's more important, uh, than discussing whether or not they'll raise High rates next week, they will. Right then you're going to have this narrative that is going to be incredibly difficult to Divine because if you knew that they were going to in Q3 of before this year, do the first 25 or 50.

you want to be long equities? Yeah, yeah, and you know you're going to find a very interesting narrative. It's going to be No one knows. and anybody that says they know don't know anybody that tries to charge you for a service that will tell you that's worthless. Information great, You just don't know.

And so accordingly, you need diversification in your portfolio, including a good hunk of cash to be opportunistic. in case all of these assumptions are wrong. Ah, how much cash would you say percentage-wise Well, I know your rule. your original rule.

Yeah, but I You know I find myself in a very interesting situation. We just did a mark to market last week because there was so much turbulence in our private portfolio and we've sold some companies and we we moved a bunch of money out of regional Banks and we were rolling T-bills now. I Remember you got rid of your commercial real estate a while? Yes, I did yeah the last interview which was about a year ago. Yeah, no idea.

Yeah I did I I Not all at a profit, but enough to get out of that second. I still have some that is, you know it's it's locked in I Can't do anything about it, but um, I'm thankful for that. but I'm sitting on about 30 percent cash. Oh wow, yeah.

okay and you know I'm making and I'm rolling it in 90 day T Bills Oh yeah, so it's sort of waiting out what happens next. and I want to be opportunistic because there's so much illiquidity in the private markets right now. I get a call every week XYZ Company 100 million in sales I have a 17 and a half percent position in equity I've been in it for five years. we were supposed to go public last year.

I'm willing to sell it at a 20 discount for the last round I Love these calls. Yeah! I just got one on the weekend and I listened to the call and I send the deck over to my guys and we look at it. I'll bid that 80 discount 85. Sure, why not? you're playing Warren Buffett because I'm buying illiquidity.

Yeah, absolutely and so I'm gonna. you know and the fact that you would call me tells me you've called everybody else and you've tried to do it. you're Mr Wonderful Well Mr Wonderful uh you know, likes royalties as people know I like my Capital back but when I get that call and it's always they're so optimistic about Great Value this is and I'll get that deal for 85. you know 15 cents on the dollar or I won't take it because I don't care.

But once I bought it, it's my problem you shark, You know, right? And but I'm I'm just very transparent about it because if you really want liquidity, you are going to pay a lot. Um for that a lot because I do not want to be locked in I've had it's got to be a hundred deals. A hundred have come in just the last 90 days. Oh my.

Lord Yeah, it's crazy is would you say you could potentially align economic turmoil with how many phone calls you get? I would say that, but most of them have been worthless opportunities because they're based on companies that have no revenue. or they have no, uh, you know that free cash flow? It's always. They were the remember the hype just before all the crazy stuff. Unicorns.

The unicorns, all that stuff. well you might have paid. You know you might have bought into a unicorn and a 5 billion valuation, one had no revenue and now you're calling up saying well, look I'm willing to do it at a four billion evaluation. Yeah how it's worthless and if you know I have no idea what it's worth and I'll give you a hundred thousand dollars for your position and if you can do better, take it.

Yeah, yeah, because then I'm going to own the you know, the lack of liquidity. There's so many portfolio positions like that. Wow. your take on de-dollarization Obviously we've lost some cloud in the Middle East Partnerships between Iran and now.

Saudi Arabia would have never been thought of before negotiated by China There's so much talk about yeah, a dollar fading away Metro dollars going away First time I Heard this narrative was in 1977. it was the first time the discussion about other countries currencies replacing the US dollar and I've always found that interesting because no other currency is actually used to denominate all the Commodities of the Earth. So I don't care if it's platinum or you know, pig iron or Titanium or oil or gas when you quote a price in India Shanghai Zurich Geneva Paris London There's only one currency the US dollar and you have to change that narrative that's been around for a hundred years. And then there's the question: how much of your money let's say you're an individual or how much of an institution's money or a sovereign wealth fund would you put into the Chinese one? Well, my answer is zero because it's not that I don't trust the Chinese people I don't trust their government and so I don't care what form of transaction you want to do with me.

in in Asia I will not take Chinese wine Will you visit China Absolutely okay I'll visit China and I'm not worried about you saying that and then them like coming. Well no because I'm sure they appreciate the truth if you. If you. if you ask any institution how much of your portfolio is in Chinese one, it's always zero and so that's why they want to be able to trade their equities on the New York Stock Exchange and I'm okay with that.

They have another 20 months to get on side with our accounting rules, right? or they're going to get delisted. We've already given them one extension and then another. Now it's time to comply. And the only reason I say this: I Think the Chinese would appreciate to be put on a Level Playing Field with the US economy And so it's very unbalanced right now.

we need to allow litigation in China to chase R.I.P There, we allow litigation here. they can chase their IP. We need to set the Rules of Engagement so that both sides have an equal playing field on this. And until that happens, we should be very punitive because we are in a competition.

They're a great nation, they're great people, they make great products, and they're very advanced in some sectors, but they are still not the American economy. That's interesting. so I don't treat them that way yet and I would never invest in their currency nor would anybody else unless you're forced by the government to own it to do so. Now that's fascinating because I Thought you were going to go in the direction of saying less sanctions, but it sounds like you're saying maybe be punitive until we get our litigation rights in China Well, I don't want to go to war with China that's a waste for both sides I Want to trade War Real war both I I No I don't want any real War I Don't want any loss of life What? I Want The idea that they'll invade Taiwan is is ludicrous.

That would just do so much damage for them in on the global front I Think in the next two years you're going to see how bad it gets in Russia I Mean you know, but sanctions can work over time. You probably can't even fix your washing machine in Moscow right now so that people are just importing those through uh Kazakhstan or turkey to at higher prices. but just to circumvent our sanctions? No, no, they are. And there there is a a call it rough trade whatever you want.

but it's not enough volume to support the entire country. So you have the Haves and the have-nots It's a horrific situation. a lot of suffering going on. uh, young people being you know, prisoners being forced to go to the front.

There was that horrible story in the Wall Street Journal last week. it's getting pretty rough over there, you said? two years? Yeah. but I'm talking two years from now. Yeah and and what generally happens to dictators or leaders like Putin Hey, I could really use your help I have a sponsorship I'm about to play from the financial times.

Please check them out. They're a fantastic company and I really do get a lot of fantastic content from the Financial Times. So check out this clip and then back to the interview. If you like to know where does Kevin read his news and I personally love the Financial Times I Get the paper edition of the Financial Times I read them online and on my iPad But not only that, check this out! This is the Financial Times Ft Edit App and they have paid to promote this app in my video today.

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Which is great because one of the reasons I like the paper is because the stories don't change on that day. whereas on the regular website it feels like the stories are always changing and I'm missing stuff, right? The cool thing though is let's say I missed yesterday's Financial Times Edit: Watch this I could just go to Monday March 27th. Boom, Click on the 27th and what happens I can read about big Tech facing a reckoning over a Teen Health crisis or who's this? Alvin braggard? or maybe I want to learn about Jay and Janet and how even though Jerome Powell is supposed to be politically independent from politics and the Biden Administration, he has to align with Janet Yellen via pressure. but she has to align with Joe Biden Now that's just an example of information that I learned directly from the Ft Edit app that even though Drum Powell is supposed to be independent, he has to politically align with the political party that's in control to send the same message on financial stability.

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It works for a while until he gets a hunting accident I Know you're right. Yeah, I mean that's sort of and everybody thanks a first service. Or if you look at what they've done to previous leaders that have caused so much harmship to the constituents that support them, they get a dash out and they live out their lives basically in a nice person, right? And one of those two outcomes going to happen to him. He's a war criminal now so he can't really buy anything anywhere else.

He may end up in the Hague one day. I Don't know, there's too many images documented. This is a war. You think they'd send them out to the ICC from Russia.

He could end up there, but certainly some of his generals will. wow. This is the challenges every. There's so much digital documentation of these Horrors And there's so much technology to actually track how it happened that you know in 10 years when these aging generals are sitting in their 70s sitting on trial, you only have to kill one baby and you're in prison for the rest of your life.

they're killing one every minute. So you know it's sort of. if that is the right outcome for those guys, because it helps the Next Generation Understand, there's a cost to this, right? right? I Mean you still see today surviving Nazi war criminals being tried in Germany Oh, it never ends. I Mean the long tale of Justice never never stops.

That's a good answer. Money supply is Contracting Yeah, would that be deflationary? Against the thesis that maybe inflation will stay higher for longer? It's a great point, but you have to add productivity into the equation. You know people that say we're going into a deflationary cycle are not taking into account the tremendous productivity of the American economy, which hasn't yet been measured on a post-pandemic basis. And so I I You know these questions of Economics are they should be debated and you and everybody should understand what what's being debated.

but I see in my own portfolio of private companies: incredible productivity, incredible abilities to Pivot and change distribution channels and change cost structures and change Communications and and Outsource even domestically Outsourcing costs they never could before. It's it's It's remarkable to watch this happen and how fast that it happens and so it's very hard to get me in the camp that says we're going to go into a deflationary cycle I Personally think inflation's somewhere between four and a half and maybe you know five percent, not 6.1 Yeah, because of real estate hasn't been marked to market yet. I Think it's going to be very gut-wrenching in Q4 of 2024 to Q3 of 2025 on Commercial Real Estate Maybe half a trillions lost there. You want to call your commercial real estate portfolio.

Wow, you were just talking about pivoting. Uh, on this channel. We like talking a lot about flip-flopping. Is it very important for businesses and business owners to change their mind and go towards more profitable things? when post-productive elements are available.

like you described, it's a requirement for success. I Mean that's how I size up my CEOs now in their management teams. What's your ability to Pivot Wow, Because think of the challenge that the American economy had in the second quarter of 2020 when all distribution channels shut down with no vaccine yet. people sitting in their condos needed food needed Goods needed services.

And all of these companies even at a time when Amazon the biggest director you know on online distribution channels shut down for essential Goods only. Yeah. So if you had anything else like Hairspray or detergent or baby diapers or you know, grocery shopping technology or whatever, it was it. And you were a grandmother that never used your cell phone, Well if you didn't learn how to use your cell phone, you starve to death.

So wow, and they did. And they so all of a sudden a whole a whole a whole generation, a third more of the population became digitally Savvy And they've retained that knowledge. So in my building in In Miami Beach which is right on the beach, we have a lot of retirees that never used cell phones. Today we had to do a huge build out.

The number of packages has increased two thousand percent. We have four loads a day of at least 200 packages. So we have an onslaught of a direct to Consumer business and I'm just one building the building beside us. Same thing.

and so the entire economy of South Beach has changed and so it's It's just an on-demand situation and that's because the people that live there learned how to go digital. Wow, You know I think this is so fascinating. This idea of a post-covered economy really hasn't been measured yet. Do you think that will help us completely avoid a recession? It might, or it may extend a softer recession.

Seven eight months ago when the first narrative came through saying compel engineer a soft Landing I was one of the voices that said never, you cannot engineer a soft magic. It's not possible you always have to extend into recession, then pull back sometimes The market oversees it and says okay, I'm willing to invest for the other side of the recession in this case now I'm not so sure. He, of course, everybody hates him, Everybody hates every fed. Okay, everybody hates every chair, Everybody hates them in every you know jurisdiction, all of the time.

In every Administration you always want to beat up the FED since the beginning of time, but they know that and so they sit right in the middle of the track and they do what they're going to do anyways. Yeah, and they just take the slings and arrows and they're called to the hill and they get grilled like a piece of chicken in there. It's over and over and over again. but Powell's done a hell of a good job.

He's a very good chair. He's been masterful at using new technology to communicate what he wants to do well ahead of the old leak ways. You know, sure, in the old days, they'd leak a letter or something. Now they just leak it digitally.

Um I I Think we're going to have a period of softness for maybe 18 months. 18 months? Yeah, it could be that long. and it probably will be triggered by this color pig in the python of commercial real estate. It's got to go through the big interesting.

You know it's It's a really big half. A trillion dollar loss has to be absorbed. It'll wipe out 15 percent of the regional. Banks Call us.

Oh, a lot more bank failures. Oh yeah, but it's not that bad. It's you know, don't mind it. It's not that bad.

It's a bankruptcies. Everybody keeps saying. oh my goodness, the Bank of Zort Master is going to go to Zero. Who cares? The American economy is so large the locals do, yes, but it changes your behavior to be a better investor.

Later, you will never put your money into a bank run by an idiot. And so you're naturally going to say, well, maybe I will put all my money into that bank. I'm going to put some of it into a money center Bank some of it into and I'll make sure it's 250 000 or less. That's okay.

but yes, many, many banks will be Consolidated Um, and and this is very healthy. This is very healthy. First to go will be First Republic Could be as early as next week. That's going to Zero for sure.

Wow. Or a version of Zero where somebody bails it out in the equities worthless? Sure, Yeah. And the bonds are worthless. and that's okay.

I've said it the fifth time. Call the idiots, It's good very well. Artificial Intelligence? Big deal right now. obviously.

Uh, there. there's a lot of hope. Uh, who knows if it's just a fad? I Want to ask you about that? but specifically, is it possible because earlier you talked about the debt ceiling? Is it possible that our economy grows so rapidly through to through artificial intelligence that the 30 trillion dollars or 31 trillion dollars that we're in debt now won't matter anymore because our economy will grow so much larger if they start official intelligence? That's a very optimistic point of view. and there are people that believe that I'm not one of them.

Um, I I think we are in right now A AI bubble. Oh wow. and so I Talked to many money managers every day and they are trying to figure out how do I invest in this. and the reason Microsoft is is having such a good time in the last 90 days is it's the go-to for active managers to take a position in Microsoft as your play on AI Exactly.

And so um, now the bigger challenge is monetizing. AI It's not clear to me how that's going to work out. I Listened to the McDonald's call. It was very interesting because their Behemoth globally they disclosed on this last quarter that now 40 percent of their transactions are done in one way or another digitally all around the world and they're looking at AI to try and augment size of order.

So if you're talking to a bot and they're listening to order, they know what you ordered last time. They remember what you tried, so maybe they suggest you you try the new fries last time. Would you like to try them again? Can you give me some feedback on how you like those fries and that kind of narrative which can be done with with these stacks of AI May enhance earnings by just selling more fries? But that's not a watershed event and so you know I talk to Engineers that are coding they're using AI to write lines of code, then modify them slightly themselves. Writers are doing the same, but it's It's not clear to me that it's a Quantum 30 40 enhancement in productivity and I think that kind of optimism is is premature.

maybe 10 marginally or maybe even less because remember, everybody's going to have the same tool. So is it really the internet all over again? Nah, it's a feature because at the end of the day, you know I Hate to squash the optimism. but think of these narratives or think of the narrative. Over the last 36 months, you started with the Crypto Craze 2001 and every investor needed to have a position in crypto one way or another, even before it was regulated.

Before you know, the heavy hand came down from Genzer and everybody else. And then all of a sudden, for a very brief period of time about 10 months was the Metaverse Yeah. and I I saw a hundred Metaverse deals. All kinds of crazy real estate in the Metaverse.

Give me a million bucks and you'll own your own store. All the refine wines on this matter and I thought that was just wonderful. It was just so humorous. And then as soon as you know, as soon as Facebook and Zuckerberg realized well, this isn't working, my stocks lost 78 of its value.

I think I'll start whacking some guys here and stop talking about the Metaverse. His stock went up 80 percent and now the narrative is AI So you've gone through three cycles of oh, AI is the hot thing. Watch what happens in the next 12 to 18 months these valuations because I guarantee you as soon as the IPO window opens up, they'll be 50 deals with the word AI in the title, everything and it's all going to be no Revenue deals. but they'll burn out pretty quickly.

There's not a lot of aptitude appetite to get into a liquid situation. Yeah now. I Found that very interesting because Google they 69-ish percent of their revenue comes from search and from uh websites displaying their ads and most websites are receiving traffic because of search. I Think the New York Times says 50 percent of their traffic comes from search.

So I've thought about where is the revenue going to be in Ai and I Want to ask you because I don't I'm not convinced that the revenue will be at Microsoft or Google I Think the beneficiary of AI could be businesses with a slight enhancement of productivity or the user getting an answer on Google quicker or a code or getting a little quicker. But where's the true Revenue going to be? And is that potentially? are we on the same page? That maybe if we don't know where the revenue is, Is that why it's a flash in the pan? You think? Well, let's think about that for a second. I mean is AI itself What? Let's start with what is it? So let's make it very simple: AI is simply scraping the internet for information. So it's a a way of organizing what's already searchable on the internet and putting in a narrative.

That's all it does. Okay and you you can train it to do lots of other things and that's good. but it starts with that core amount of information that's already out there. It can't do anything without information and it's constantly adding information.

The the idea that you stopped doing it for six months to save Mankind and I'll buy that. that was nonsense. That was the Elon Musk letter of it. I Love it.

Yeah to allow his deal to get some footing. I Think that's very smart on the guy is I love the guy because he's he is. He's a master marketer. yeah and now he has his own network called Twitter which is brilliant I think maybe overpaid for it, but that's a debate we'll see later.

I I think at the end of the day though, it's just a feature set and so for for Google one of the first Corrections in their multiple was everybody saying oh, this is the Google killer well look at your own behavior I pay the 20 bucks a month for jet GPT to be able to use it. Yeah, and it's a tool and I do use it but I still use my search engines and so because I can't get accreditation for the narrative that's generated by chat Gbt citations in that so well I need that because I have no idea if it's or not so you know. so I'd like and I think that they're saying that they'll bring that in every time you criticize AI they said well, it's going to be the next version and that may be true. That may be true, but the point is, it's not ready for prime time yet because you can't go and publish stuff where you don't know accreditation.

You have no idea. and that's why you call it a bubble. Well, the valuations are Bubble issues. Okay, so and there will be lots of people I Mean they raise money at a 29 billion valuation? Open! AI Yeah, yeah, that I mean that's you know with no Revenue Essentially, that's that's tough to digest.

It's a good point. Speaking of tough to digest, Uh, on Crypto Mr Chemathia. Uh, Spack King says that Crypto is dead on his latest podcast because of the lack of clear regulation in the United States and the lack of a path towards regulation. It seems to me that this is just my opinion.

Congress should probably pass a rule, but they won't Gensler At the SEC and the Commodities and future trading commission, they can't do anything. So they are trying to get the judicial system to basically create case law. but that's going to take years and that's leading some people like Tremont to say Crypto's dead. What's it? Well, he's not entirely wrong.

It's dead to institutional investors. So I I Index. You know we we do indexes I speak to Sovereign Wealth and pension. Um, a lot and they will not touch crypto until there's regulations.

So for all the excitement, Bitcoin is is is locked in purgatory to set a trades 17 to 35 000 for a long, long time because it's basically the same people trading it back and forth and there's no new money coming into it. It's not a a an Institutional product where they get a five percent allocation. there's nowhere to hold it. Um, if you're an institution.

I I Thought one of the biggest mistakes of recent was coinbase litigating the SEC uh, that sounds like a really bad idea that does not Advance the industry in any way. it makes institutional shareholders cringe that they would be shareholders in Coinbase and be litigating their regulator. Very bad political move. and if I were a shareholder of Coinbase and I'm not um I would let my displeasure known to the board.

This is the kind of thing you want to change management for. Wow. You want you want teams to go in and work it out and figure out under what way can we operate under the regulator so that we can attract institutional capital for the day? When you know maybe a series of 50 tokens and coins are regulated as they are in Canada as they are in in Dubai and Abu Dhabi and Singapore and uh, Zurich Those Regulators say well, these are the ones you're allowed to trade. these are the ones you're allowed to stake.

We don't have any of that here. And so the only narrative continuing on the hill that I'm supportive of and I'm aware of all the bills around Bitcoin and Nfts are all stalled out, but not on digital payment systems that's a bipartisan. Bill Senator Lemus I Know Hagerty's people are looking at it. There's others supporting it so that we can get stable coins to do transactions to replace the Swift system.

the ACH system. Those are really archaic and they're expensive. They're slow and they're not transparent so you know it's a stable coin like Usdc. If it was regulated would be more useful.

Hopefully in the next couple years we can get that. But I don't know that either. So do you think there's a risk? This is always the fear that comes up that. well, if we move to a digital dollar, let's say a Cbdc, the government's going to control our money and take it all away from us or watch every dime we spend.

Uh, that is. it. Is that? An unfounded fear? They already control all the money. They already audit you.

It's called the IRS. They already track what you do, the know your client is how, they know you're not a criminal and allow you to transfer Capital between states and countries. I Don't know where this paranoia came from, but you know, Yes, a digital dollar is bad. If you're a criminal, it's just bad.

It doesn't help you do your business and it's hard to transfer it without you know being tracked, right? But it's backed by the currency that the world denominates Commodities by versus Would you ever use a digital wand where the government would know exactly where you are? Now you know we have privacy laws here when we can litigate them. Um, this does not concern me as much as actually getting the regulation. and there's always going to be you know the way I Always answer this question is you think about Free Speech how controversial it is and yeah, how dare it is to every voter in America Yeah, regardless of what side of the fence you're on. but in order to tolerate it, you also have to tolerate the two and a half percent.

Lunatic Fringe that has a voice that's utterly insane all the time. And so you're going to have that lunatic fridge in Crypto. You're going to have the purists who said what the government involved that that voice is getting quieter and smaller and there's one other aspect I'd like you to consider that. I I've been thinking about lately when I look at the environment today.

with all the litigation and all the regulation and all of the lawsuits coming into crypto, my guess is most of these operators out there today there were the founders of this nation industry have never operated in a compliant environment or borne the cost of compliance. Sure is, they will be pushed aside and a new generation of Founders will emerge that will work with Regulators Yes, so all of these Rogue operators this you know the the people that are stealing your money and all of this crap and the reason I say this is when I went to the Senate hearings for the FDX hearings I learned something the next day that I never even thought of I was talking to the Senators and I won't mention their names but it was. It was a you know a group of them said to me, look here's a message for you. We're tired of this.

We're We've reached the point of tedium was the word We're tired of gathering every six months when the next idiot blows up and loses six million dollars. Yeah, so here's what's going to happen. Go tell your comrades this is going to happen. The heavy hand of the regulator is going to be coming down to squeeze heads starting very soon and you won't find any sympathy here on the hill.

Which happened. It happened faster than I thought. I Marched home and told everybody in my shop whoa, those guys are pissed and they're They don't have any sympathy anymore and the next thing you know, Finance gets whacked with a class action and then regulation slamming FTX U.S and they're chasing them all over the world and he you know they're looking at that B and B token. that's the next thing to blow up and so really you think that'll blow up I Can't see how that survives Finance You don't trust CZ No I thought about trust.

It's about this. Think about what happened in the last 12 months. I mean just follow the dots. Okay, I mean I'm I think Cece's brilliant guy.

He's a great entrepreneur. What he's built is remarkable. I I Just think he's the largest unregulated Central exchanger in the world and that's hard to become now. He has two choices.

He's on the path in the road. come to Washington settle his grievances with all these charges that he's faced with. Let's just put a price tag on it. 8 billion yeah and then get a license and be the the giant.

Behemoth licensed Exchange broker dealer attachment exchange with a license. in the world. If it were me, I would take that path. Yeah, but that's not a very profitable path because the cost of compliance is very high because you don't get to put like think about these tokens.

Ftt did the same thing you know FTX you're in exchange you say oh, I'm unregulated I just launched a token it's called BNB I say it's worth 64 billion dollars and the reason you're going to buy it from me is I'm going to give you trading discounts if you hold at least 20 000 in your in your account. That is so illegal in in a regulated environment. You couldn't do that in a bank anywhere. not just the United States And it's very profitable because two wallets own over 90 percent of 64 billion.

Who owns them? Who owns them? Unknown what happens if one of them wants to sell them. Does Finance have 30 billion dollars in cash? No. And so who backs it? A No. Like these are the questions that Regulators want answers to and that means CZ has to come to: America Disclose ownership? Disclose Who backs it.

Disclose everything. Know your client And all of a sudden lose 80 90 percent of the profitability or he can just work in the shadows as he's doing now and just say the US. Okay, I'm closing my operations down the U.S The only problem with that is a few months later, the regulator in Switzerland says well, if the US is doing that, maybe we're going to do that too. and then Dubai and Abu Dhabi go oh CZ that's what it is now in Dubai.

Yeah and they say, you know CZ love you baby. But you know this thing with the SEC uh, the U.S Regulators We do a lot of business in the United States In fact, most of our money's over there. Could you move to Geneva or whatever Cuba Oh, you know, always somewhere. just get out of here and I think that's his Destiny This is my own speculation, but it's going to be one jurisdiction after another that says rather work with the U.S than support this Rogue operator.

and I think that's the downside of the that's the end of the binance story now. look I don't I'm speculating. but would I have any money in finance ever? Wow, like never because only in the last six months. look at the onslaught of litigation they face right? right? and so and I've met with all those all those Regulators in Abu Dhabi in Dubai they're not stupid and so now this was different previously.

I mean people operated in D5 all the time and that wasn't uh, a bad idea. I mean people were able to make money and trade or whatever and D5 Is it different now because of how the regulation has come down? Do you think is that why you feel the optimism of which you speak? Was it a time even just two years ago? Euphoria Euphoria Around the idea that you know somebody would finally get that regulated ticket in the U.S and they would lead the standard passport for all other jurisdictions as they do in stocks and Bonds. If you look at the regulations in Abu Dhabi or in Zurich or in London or in Paris or orange, you know in in Singapore they're remarkably similar to the Sec's regulations on exchanges. It's the blueprint for the world.

And so the Canadians, the Osc. They're all the same. These Regulators actually talk to each other every week and they they coordinate together. And so the Euphoria was around.

Okay, they're going to do Crypto now. They're going to integrate Crypto into the financial services around the world. That's not the case right now. And so in order for that to happen, we're going to have to have regulation.

And so that's why the Euphoria is gone. That's why people are saying crypto's dead and it is effectively dead unless you you know And and I love the the rah-rah cries. In fact, I've had great performance on Bitcoin. I bought some at 17 000 and change.

it's gone up 68 percent. That's great. Um, but it's a tiny portion of my portfolio now because I am not fighting Regulators There's no upside for me in doing that. Yeah, and I'm certainly not suing them.

That's the stupidest idea I've ever heard. and I've seen lots of stupid ideas, but that is the top of the Cherry No, they would probably say they've been trying to work with The Regulators but it's not working should they just stay patient? Are they getting impatient by suing? hahaha The regulator has unlimited resources and the backing of the federal government. The whole idea is when you end up in a call it a roadblock or an impasse, You don't put out a press release, you fly to Washington and you sit down in a room with no tape recorders and talk it out. Find out what they want, not zoom call.

There's no Zoom call here. You find out what they want, what they would agree to, What may be the path is there's all kinds of lawyers that do this for a living to find the compromise. You don't tell them how you're going to run your business and that you know more than they do, and that they're ignorant at the ways of financial services. That strategy is so dumb it guarantees you an impasse in perpetuity.

Wow. I Think that the companies that do that, we don't have to name them. We are going to have to change their boards and managers before they ever get any traction. Oh wow, yeah, because those reputations are done.

That's right. Destroyed. Wow. now.

Elon Musk I Can't remember if it was the FCC or the FTC communication or trade. Um, he wanted to meet with the Uh Top dog at one of those agencies. Let's just say it was the FTC the commissioner of it or whatever. Uh, However, she said no thanks.

come into compliance with all of our rules First Before I'm willing to sit down and talk to you. Are there politics in this? Should he accept that and sit down with maybe the other regulators and not necessarily the time. If you understand how Regulators work, that's the beginning of a negotiation. Ah, that is actually an invitation to come on site.

Oh and the question is I would have you know I'm not saying how Elon's a very successful guy and I absolutely love him, but my answer would have been which regulation should I be compliant on first? Oh, and give me a priority order and get into that dialogue. that rhythm of what it takes And when they see you moving in that direction, the Spigot opens for further dialogue. I've been regulated my whole life and I understand the Cadence of how Regulators work. There's a law.

They basically have an enforcement arm to enforce it, but they also want you to be successful. You're you're a part of the economy. Everybody thinks the regulator wants to put you out of business or the the IRS wants to put you out of business. That's not true.

They simply want you to comply with the laws they've been told to administer it. And so if you come in with that white flag, you get to the front of the line. You don't beat them up. You: if you don't understand that you're an idiot like, that's how it works.

Would you say that? Um, just to use an analogy. coinbase. Suing Uh, the SEC is much like throwing a rock and a cop. Oh no, it's worth.

it's. worse. it's spitting on the cop, then throwing a rock at him, then when he's on the ground spitting on him again and doing something worse. And they don't forget, they won't be forgetting.

So Kathy would should sell coinbase I Don't think that's been one of her. really good. Investments Okay, we'll leave without that. Hey quick reminder to check out my wonderful programs on building your wealth linked down below I Regularly add content to them I Go live every single day with course members providing not only my commentary financial analysis, real estate analysis but I Answer your questions.

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whoever wants to and we'll be exploring what your financial Journey has looked like. Check it all out! Link down below: I've had some uh, tinfoil hat ideas about Binance and CZ that CZ never had an intention of buying FTX which that failed that purchase, never had an intention of buying Voyager the Canadian brokerage which failed. uh, those those purchases failed. um I Have I have a suspicion and maybe it's just tin foil hat that perhaps he offered to buy those companies knowing he would never because he would never be compliant enough.

it would never be approved or whatever. or they didn't have the money to do it simply to prop up the price of Bitcoin since about 80 percent of trading volume for Bitcoin is on Binance and they just moved some of their busd over to Bitcoin about I think it was around a billion dollars Am I Wrong To think that way no I think I think CZ is the most brilliant strategist I've ever seen. He is he is the ultimate. Digital Warrior I saw what he did the week of November 6th.

Uh, I was you know part of that whole thing I know exactly what happened at least I think I do. And um, he he was a brilliant chess player. He put his only competitor out of business in a matter of 48 hours. Now the cost of that is going to haunt him for a while because there may be clawbacks to that 2.1 billion.

He stripped off the FTX balance sheet and certainly the shareholders of FTX would like that and it's going to be tied up in litigation for years. Um, but the you know the narrative on FTX has moved to recovery because we've now got over seven billion dollars and what was the loss was about eight. Ye