Transcription
We have these unbelievable fiscal, you know, issues, and you cannot pay five, six, 7% on a 30-year and survive. It's all going to go away. I don't care if you have to put in capital controls. I don't care if you have to do a yield curve control. It just doesn't work any other way. You've got to get interest rates down. They're going to get interest rates down one way or another. And I think the equity market's going to like it. But I think who's going to love it even more is people that own gold and Bitcoin.
What's going on, guys? Today, I've got a very special treat for you. We have Mel Madison. He's an investor. He's an author. He's a former fintech executive. But more importantly, is this guy has been all over what is happening in financial markets. He understands the Federal Reserve, the history of central banks, what's going on with inflation, interest rates, and why certain assets like gold and Bitcoin are doing so well. Mel is somebody who's got unique views, sometimes contrarian views. Many people don't like him, but he continues to be right over and over and over again over the last year or two. And so I brought Mel in, and we went deep into his view of the world, of financial markets, and even gives us a little history lesson as to what's going on with the Federal Reserve is not new. It's something that is deeply rooted in what's been happening for centuries, both in the United States and internationally. This conversation is one of those that you're probably going to want to listen to twice. It's packed with insights, and I think it'll make you think much more differently about financial markets and the world more broadly. Here's my conversation with Mel Madison.
All right, Mel. I thought a great place to start the conversation is with everyone's favorite topic, the central bank. Bitcoiners have been yelling and screaming on the internet for years. Gold bugs have been screaming for decades about the central bank. The fact that they're not independent, the fact that human-led monetary policy is actually inferior to something that is algorithmic like the Bitcoin monetary policy. On top of that, the central bank of the United States, the Federal Reserve, has now entered the crosshairs of public criticism. We have people saying that they're political. We have people saying that they're not good at their jobs. We have the president of the United States critiquing them as being too late, always behind the curve. You have been impeccable in your understanding of where the market is going, what asset classes and uh individual assets are going to appreciate at certain times. You've had a bunch of market calls that have been eerily accurate over the last couple of months. And so, I'd love to hear you talk about the role of the Federal Reserve today. And do you actually think they're independent? Does it matter?
Yeah. Well, I I think just right off the top, I think there's a lot of commentary out there by what I would call the mainstream financial elites, the the people, the talking heads that come onto the major financial networks that speak about the Federal Reserve with an almost reverence, a sacred tone, which I I think is not only naive, it's it's just ridiculous, and it's not really the situation as it exists. The Federal Reserve has always been political. It has never been independent. Uh members of the board of governors clearly make political decisions. And what we're seeing happen is that we're we're in a situation which is actually not uncommon. It's it it's what's gone on time and time and time again. Whether you're talking about over the 100 plus year history of the Federal Reserve or going back to earlier versions of United States central banks where the the political forces in charge want to see something happen. They exert political pressure and then there's push back from the political members of the board. And so what what we're seeing here is essentially just more of the same. And I don't think that when you look at the Federal Reserve and you think, okay, this is an independent organization like they leave their politics at the door. I just don't think that's the case. I I honestly believe if if Kamala Harris were president and you had Elizabeth Warren calling for lower rates, we would have members like Lisa Cook voting just like Waller did in the last meeting to lower rates. And to act as if this is not the case, that there's no political nature to the Fed is ridiculous. And I think that's where the the algorithmic or you want to talk about a Taylor rule or you want to talk about something else where when you go back in time and you look at like how is the Federal Reserve making decisions, it's it's very politically motivated. And David Zervos, uh, who's a potential candidate, uh, just spoke uh this morning and he was very clear that, you know, there is political motivations even on the part of Pal. And a lot of people look at Pal and they think this is a very straightforward person, but as someone who has listened to every single speech that guy has pretty much made as a Federal Reserve uh chair, his tone completely shifted once Trump got into office. His tone before office was, "We are data dependent. We're not forecasters. We're not good at it. Here's what's been happening. We're going to make decisions on the data." Once Trump got in, he literally said, "The data is telling us to cut rates, but we believe that tariffs are going to be inflationary." So all of a sudden, he goes from data dependent to a forecaster. We believe that these tariffs are going to be inflationary. Therefore, we're going to make our monetary policy based upon this forecast and we're not going to cut rates. So I I think this political nature, it extends throughout it all. And when people talk about, oh, Powell's not political, the board's not political, this is just an independent agency and there's some threat to it right now, I think that's absolutely ridiculous and naive.
Now, when we think about this political nature of the Federal Reserve and the members of the Federal Reserve, uh there's two ways that it could be political. There's like a nefarious, malicious, like I'm going to screw over whoever is in political power. And then there is an element of what I'll call more like human bias, right? Where uh they just show up and they think that they're not being political, but they have a bias and therefore shows up in the decisions. Which one of those things do you think when you say they're political? Is it like intentional and malicious or is it more so just there's human bias if somebody who you disagree with is in position of power, you tend to just make decisions against them?
I mean, I I honestly I don't know the answer to that question. And I don't think it's important. Like like the the reason whether they purposely are like sitting there twisting their mustaches saying we want, you know, higher rates because we don't want Trump's economic policy to succeed or whether they're sitting there saying, you know, the way I'm looking at it, I really think tariffs are going to be inflationary and to maintain credibility we need to keep it, but they're being influenced subconsciously. In either case, I think it's still that influence is there, right? And and you do have, you could go back, um, you know, maybe we'll get into the history later, but you could go back to the Second Bank of the United States, which was the central bank we had before the Federal Reserve, and literally when Andrew Jackson was in office, he also wanted, you know, lower rates. And Biddle, who was the the president of of the Second Bank of the United States, did not like Jackson's politics. And he intentionally raised interest rates, um, to crash the economy. So there is a history in the United States of the central bank raising interest rates, keeping rates interest rates high in order to thwart the economic policy of a president that they don't like. I'm not saying that's the case here for all the members. My best guess if I if I was pushed, I would say there's probably some members on that board that literally hate Trump so much they literally want him to fail and they're maybe more or less explicitly like trying to thwart him. And I think there's other members that are, uh, it's happening to them unconsciously, subconsciously, but I think that is what's occurring.
Now when you think about the current Federal Reserve, one of the things that we've seen, you know, since 1971 is the currency debasement has happened at about a 4% annual rate. Uh, since 2020, the US dollar has lost nearly 30% of its purchasing power. So we're in this like acceleration of this longer term trend. How much of that do you think is on the politicians and kind of the fiscal stuff versus it is on the central bank and some of the decisions that they're making? And the reason I ask that is because when the political power switches, you would think Trump comes into office, the White House has some control over the fiscal policy decisions. They can, you know, start to make decisions that may be more uh accommodative to their economic policies. But if they're constantly fighting with the central bank, the central bank's going to do what they're going to do. And so, h how much can we lay blame, if you will, to the destruction of the bottom 50% of Americans through that currency debasement on the central bank versus the politicians?
Yeah, I mean, I I do think it's a nuanced issue and and I'm not here to impugn anyone's character. Like I said, I don't know what's really driving these people uh in their heads, but what I do know, and this is very historical, you can go back to literally the founding of our country. Um, the the Whiskey Rebellion was kind of the first kind of insurrection we had early in our country and it was over taxes. And essentially what Hamilton, our first Treasury Secretary, and others realized is that in a democracy, it's very hard to directly tax the population. But there is a way to essentially effectively tax and that's through inflation. And I think if if we would have had the government come out and say, "We're going to do a COVID response, but we're going to tax everybody a one-time 20% wealth tax," there there would literally be a Whiskey Rebellion. There'd be a, you know, riots on the street. But at the end of the day, I think that the policymakers made a decision that, and it was all misguided. We don't need to go through all the whole COVID thing, but if we're going to shut down the economy, if we're going to keep people locked up in homes, if these businesses aren't going to be able to operate, we're either going to fall into a sort of an economic collapse, malaise, ala, Great Depression, or we need to stimulate. How do we pay for that stimula stimulus? Well, there's a upfront direct tax. We could say we're going to levy a in an indirect tax or a direct tax that's going to be paid out over years. or they could just print the money and and it gets paid through the the inflation tax. And when you look at academic economists, they look at inflation as a tax. It it is a tax. And the US government since its founding has figured out that the best way to fund what the government wants to do is not through direct taxes. It's through printing and inflating. And that process has existed for hundreds of years. And I I honestly don't believe it's it's anywhere near its completion.
One of the things I like about your work is that you're very much a historian. You you understand where the United States has been. Can you walk us through maybe an abbreviated version of some of these major historical points um in both the United States history, the financial system, and the central bank that is educating or informing your view today of what's happening?
Exactly. So, I mean, I I mentioned Hamilton. I think this was a very big kind of formative period obviously for the United States. He was the first Treasury Secretary. Um, there's a guy named Albert Gallatin who was Jefferson's Secretary of the Treasury and he um, you know, basically was the longest serving Treasury Secretary ever. He also served um under the the Monroe, the the president or Madison, the president after Jefferson. So there was this very big kind of internal battle at our founding and it was, you know, some people wanted to pay off the debt. They wanted the US debt to be kind of like a mortgage where you you'd pay off principal over time. And Hamilton, like I said, they saw this Whiskey Rebellion. They saw the only way to grow the federal government was essentially through printing money and inflation. And Hamilton made the deal that we're never going to pay off the debt. We're we're going to structure US debt treasuries where what we do is we just pay coupon payments and then we roll it over. Very different than a mortgage where you're paying principal every month. This was set in place from the founding. There were people against it. There were big battles around the First Bank of the United States, which was the first central bank that Congress put in place. The second one was the Second Bank of the United States. Andrew Jackson, who was president in the 1830s, he had what was called the Bank War. He went directly after the Second Bank of the United States. And I would add this is a time during the gold standard. This is a time where the sovereign, the government, needed money from wealthy parties to fund the government, which is not the case. Now we are in a fiat world. So the whole kind of rationale for a central bank, which was this is a mechanism for the sovereign to get money to fund operations because the sovereign needs gold and silver, is actually gone. So so there I think there can be a very good argument that there's no reason to have a central bank. Um, but we could get into that later. But just really coming back to the history is Jackson looked at this and he he looked at what was happening with the Second Bank of the United States. He looked at the way they were manipulating policy and there were shareholders of this bank and they were primarily bankers in London. I mean, this was the wealthy European elite funding the United States government through a central bank and he wanted it over. He paid off the debt and what he did was he went back to sound money and he demanded that all payments and one of the major sources of revenue for the federal government in the 1830s was federal land sales out west in the newly uh acquired territory post Louisiana Purchase. And and what happened was he said no more buying land on credit. It has to be in specie, in gold and silver. And the economy collapsed because we did not have enough gold and silver in the country to keep it going. And what happened was even though the central bank was gone, the the states began to charter banks and we got all kinds of money flowing around, um, you know, decentralized currencies, different things happening and that eventually led to a boom without a central bank. So my my point here going back to this is basically that the central bank in the history of the United States has always been a contentious element. There have always been debates about it. There's no reason why we shouldn't have a debate about it now. Even in the history of the Federal Reserve, which goes back a 100 years. Many people know Creature from Jekyll Island, how these uh, you know, wealthy financiers took secret train cars down to Jekyll Island, Georgia. Founded the Federal Reserve, um, was passed into law on like December 23rd, 1913, kind of right before the holidays. And not only that, but Woodrow Wilson, who signed it into law, he was the governor of New Jersey, and and the New York finance seers went to Woodrow Wilson when he was the governor in Jersey, and they said, "We're going to support you for the presidency, but once you get in, you need to pass this Federal Reserve Act." Like the these shady deals go back to the beginning of the Federal Reserve, the beginning of central banking, and you can go all the way back to 1694 in the Bank of England with William the Third. So, we have a whole history of hundreds of years, corrupt central banks, uh, people raising rates for political reasons. Um, shareholders are private banks. Even to this day, all 12 reserve banks of the Federal Reserve are owned by Croup, JP Morgan, you know, uh, Bank of America. That's who owns the the regional banks. So to then look at the Federal Reserve and say maybe just maybe we have a gold standard 20th century institution that needs a little bit of reform that needs to be looked at that needs to be debated in Congress and with the president and so on and something should be changed about it because it's just not working. It doesn't serve the people and it was created for a completely different environment where the government literally needed gold and silver bullion in order to pay the troops.
One of the aspects that I like to hear uh my friends talk about is um if you're into Bitcoin, if you're into gold, if you're into kind of this viewpoint of both the central bank and you know kind of asset price inflation, if you were Fed chairman for maybe more than a day, let's say a week or two, what changes would you make? Right? What are the things that you wish that they would uh kind of evolve or modernize that would have a profound impact?
Well, I I I mean this is a little complicated and I think this is a little bit of what the Trump administration is doing is that they have an economic viewpoint. I think one of the ones who's expressed it most clearly is David Malpass, who's who's a contender, where he's talked about how by lowering interest rates on the front end and essentially providing forward guidance that these are going to remain low and even if inflation goes to 3%, we're we're not that in turn will kind of ripple through the yield curve and the 10-year will lower, uh, the 30-year correspondingly. This will help drive housing, right? Which housing is like almost 20% of GDP. It's a huge component of Americans' net worth. And I think this is one of two main goals of the Trump administration right now is how do we stimulate housing and then how do we reduce interest expense on the debt? And so what I would do if I were the Fed chair and it was all up to me is I would begin a process of lowering interest rates perhaps somewhere down to around 2%. This is what uh David Zervos has talked about. He's basically said that people think the neutral rate is higher than 2% because of how inflated the balance sheet got, how how much, you know, uh, money printing was going on during COVID where the Fed expanded the balance sheet to over $9 trillion. And that that was essentially the equivalent of rate cuts. And so people are looking at this economy and they're saying, "Oh, the neutral rate is 3, three and a half, maybe we can lower it a percent." I would argue we could probably lower it closer to two, 250 basis points over time. Get the short rate down. What that's going to do, number one, it's going to crash interest expense because 85% of new debt issuance is in T-bills. That's at the short end, right? This is what Trump wants. He tweets about it all the time. So, what we do is we bring down interest expense. In 2020, we were at 132% debt to GDP and our interest expense was 1.49% of GDP. We dropped from over 130% debt to GDP to 120% debt to GDP. But because interest rates went up, our interest expense went from 1.49% to where it is currently, which is 3% of GDP. What does that interest expense do? It goes into money market accounts. It funds baby boomers' ski trips to Utah. It goes into the hands of our foreign adversaries in China and different places that hold this debt. So, it's essentially a massive trillion dollar, you know, stimulus program every year of interest expense that goes to wealthy individuals, goes to the large banks, right? Because because they hold at the overnight rate and it goes to our foreign adversaries. So you bring that down. Now people are going to say, Mel, that's going to blow up inflation. That's exactly what got us into this problem. I would say on the contrary, that's not what happened. I I I think what happened was when we printed money, which is different than a low interest rate. We literally sent out trillions of dollars to every American getting stimulus checks. They were locked in their homes. We had supply chain constraints. And so what are they doing? They're ordering on Amazon every day. Everybody's going after the same box of toilet paper, the same stuff. Of course, you're going to get inflation. You've got more money going after an even lower level of um goods, right? Then COVID lockdown ends. A bunch of people were working from home, not spending a bunch of money. They had a bunch saved up. Their home values went up. What did they do? They now all of a sudden they want to travel. They So, these were really the main drivers of inflation to me, not interest rates. Indeed, I believe that interest rates have, you know, contradictory effects so that when when you have a 4.5% um yield on the short end, like you're you're actually creating stimulus, like I said, you're sending money into money market accounts that people are getting that they didn't get. It's like a stimulus check for old retirees. And so, we're stimulating the economy with these higher interest rates. A lot of people think, oh, if we if we lower interest rates, we're going to send off this crazy inflation. There are deflationary effects of lower interest rates. This is not commonly believed, but I do believe that this is and Besson has said that Trump has his own views on monetary policy. I believe these are the types of views that Trump has, which is he doesn't think low rates are going to blow up inflation. He thinks he can lower rates, stimulate the housing market, drive economic demand, and as long as there is this manufacturing renaissance and and that goods and supplies are increasing, we we might have 2 and a half, 3 and a half percent inflation, but we're not going back to eight or nine. And real wages will go up, which is what I think is is their main focus.
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Now, you mentioned 2 and a half or 3% inflation. Let's stay on uh kind of the consumer inflation number for a second. Um, you had this great tweet a couple of days ago where you talked about the Full Employment and Balanced Growth Act of 1978. How you found this, I have no clue, but in it, it directs the Fed to seek both 3% unemployment and 3% inflation. It is the only time that you're aware of where Congress passed into law a specific inflation target. Wasn't 2%, it was 3%. Now, as you mentioned in the tweet, obviously later it was amended. Uh, they took out the inflation target. The Fed adopted this like New Zealand central bank 2%. And we kind of get to where we are today. But the point being, Congress originally said 3% inflation target, not 2%. And it was a law. It was not guidance. It was not a suggestion. It was law. Does that affect how you think about where inflation should be today? Or is that, you know, hey, back in the 70s was a different world. We live in modern times and we shouldn't really take too much from what was happening back then.
Yeah. No, I I I think it's very important. And I think the other thing and and thanks for bringing that up. The one thing you also didn't mention is in that statute, it literally said if fighting if trying to get to that 3% inflation target gets in the way of getting to 3% unemployment, forget about inflation. Like there there's two clauses in it. Clause one, clause two. Clause two is the inflation clause. And it says if basically putting clause two into effect disrupts your progress on clause one, the full employment clause, you know, uh, defer to clause one.
Mel, here's the exact quote. It says, "Policies and programs for reducing the rate of inflation shall be designed so as not to impede achievement of the goals and timets specified in clause one of this subsection for the reduction of unemployment." So, exactly what you're saying, right, is unemployment and reducing that down to 3% takes precedent over the 3% inflation target.
Exactly. In other words, Congress, our elected officials was telling the Fed, "Hey, we're fine with four or 5% unemployment if necessary to get uh or four or 5% inflation if necessary to get unemployment down to 3%." And and essentially what and and I'm not saying that's the right thing or or whatever. What what I am saying is that like dogmatically saying like this 2% s uh 2% inflation target is some sort of a sacred like papal infallibility type you know mandate is is ridiculous and and having a debate about it and then talking about well look we're in a tough situation right now. Um, we have a massive debt to GDP. Many people have talked about um whether it's Luke Groman or others, the only way you kind of get out of this mess a little bit is by inflation which reduces the real value of the debt. This is how we got out of 120% debt to GDP post World War II. After World War II, we had huge debt from the war and we ran inflation at very high levels, higher than we had in 2022, like 15, 16% inflation in 1946, 1947. Um, and we also had yield curve control. We had all kinds of, you know, things that are heresy today in order to get us back on a solid economic footing. What I would argue is that we might not have just gone through World War II, but we're in that same situation. And we need to be willing to do what we were willing to do in the 1940s and 50s to get us back, you know, in into a sustainable fiscal level. And that's some combination of higher inflation for for longer, lower rates for longer. And and the lower rates beyond stimulating the housing market, which I've talked about, is that they keep uh the interest expense down. And and a lot of people, this is very, you know, consensus right now, is that if the Fed lowers rates like they did in September last year, the long end's going to spike. And and I honestly think it's that's I mean, I I think you're seeing it today. You're seeing a really nice rally in the 30-year today despite what's going on in France, despite what's going on in Europe. And the reason you're seeing it is market participants traditionally look at the long end as a read on nominal GDP. When they're looking at a 5% 30-year, they're saying this is what we think generally over a 30-year period is going to be nominal GDP, which is the combination of real growth and inflation. Maybe 2 and a half real, two and a half inflation. That makes sense because what typically happens, this is like part of the Taylor rule, like how do you make the Fed funds rate what it is? You you essentially use as inputs nominal GDP expectations. And so the traditional expectation in the bond market is that uh Fed funds is going to reflect changes in nominal GDP. This will flow through into the yield curve. If you get a Federal Reserve in place that is saying no, we're not going to respond to NGDP. We're going to run it hot. We're going to keep inflation or Fed funds lower for longer, then the primary the ultimate primary mechanism for the curve is it's essentially a weighted sum of you know, discounted interest payments over time over the curve. And once market participants begin to believe that Fed funds is not going to price off of NGDP expectations, but instead it's going to be held lower because like I said, we want to stimulate the housing market. We want to um limit interest expense, then that's where I think they're going to start to price the long end. And you're going to see the the 10-year, you know, with a three handle on it. I'm convinced of it, if not by the end of this year, within the next 12 months. And that's going to drive down mortgage rates. It's going to it's going to do all of these things that Trump wants to do. And and look, one thing I want to say, and I I I don't mention this all the time when I do my tweets or my posts, is I'm not saying like this is the morally correct thing to do. This is the right thing to do. And I'm also not saying it's not going to have negative side effects. It will. What my point is is this is what they're planning to do. And I would bet that they're going to be able to do it. I would bet that Trump's going to get his people in place at the board of governors. They're going to be able to exert control over the federal bank presidents, the regional banks which you know rotate through the FOMC. They're going to be able to put this in. And the last thing I would add, it's whether Trump, it doesn't matter. If we had Kamala Harris, the same thing would be happening. And what's going to happen is in the ECB, Christine Lagarde, she's going to do the same thing. And at the Bank of England, they're going to do the same thing because all of these massive developed economies, England, France, Spain, Italy, US, Japan, we have these unbelievable fiscal, you know, issues. And you cannot pay five, six, 7% on a 30-year and survive. It's all going to go away. I don't care if you have to put in capital controls. I don't care if you have to do a yield curve control. It just doesn't work any other way. You've got to get interest rates down. They're going to get interest rates down one way or another. And I think the equity market's going to like it. But I think who's going to love it even more is people that own gold and Bitcoin.
So there's a a great book that Stanley Druckenmiller uh recommended called The Price of Time by Edward Chancellor. And he talks all about the history of the interest rate. And um, you know, for those who think that it may be kind of uh too nerdy for them, I highly suggest reading it. It's done very well. Um, but it also gives the history of what you're talking about in a lot of this. Um, you mentioned gold and Bitcoin. Uh, there's that's why people are here. They want to understand what do you think is going to be the beneficiary of this situation? You mentioned gold and Bitcoin, kind of sound money principles outside the system. No one can create more of it. Is it that simple? They're going to run it hot. They're going to keep rates lower for longer. Inflation is going to run and inflation hedge assets like gold and Bitcoin will go up more than you know stocks or anything else. And so if you just own gold and Bitcoin, then you're a genius and your portfolio uh appreciates.
I think over the long run, it is that simple. I mean, I I think in the short run, if you want to try to time things and stuff, some people are traders. I'm a trader, so I I do make moves. I do I do try to play the trends. Other people that have a day job and don't can't spend all day in front of their screens and and looking at this stuff like I do and listening to all the commentary. And you know, yeah, it it really is that simple. And I think you know in my mind like there's no debate about like dollar is some sort of a store of value. It's just not a store of value. It it is a means of transaction. It is a unit of account. That is what the dollar is. I think anybody with a brain has understood that for a long time. I think it's becoming completely obvious now. And I think what you say is what are the stores of value out there? And there's two preeminent stores of value and they're gold and they're Bitcoin. And there is no other. Like silver is good. Don't get me wrong. I love silver. I have silver all around me. I I literally This is a 10 oz silver. I have my microphone sitting on a 100 oz silver bar. I I love silver. I mean, I'm I'm not kidding. I mean, this is a 100 ounces of fine, you know, silver, which I bought for like a thousand bucks. It's now worth over $4,000. You know, I love precious metals. I was into precious metals, you know, long before Bitcoin existed because I was always a historian of economics. I understood central banks. I understood fiat. Um, one of the biggest regrets of my life was the first time I found out about Bitcoin in 2012. I tried to buy it. It was before Coinbase. I was trying to set up a browser. I was trying to get into whatever I needed to do um to get my hands on it. And I I didn't try hard enough and I just forgot about it. And like a couple years later, Bitcoin's out and I'm looking at it and I'm like, "Oh my god, $1,000. It's ridiculous." Like I almost I was trying to buy it when it was like $15. Like, you know, like this is this is crazy. And eventually over time and then I I started to understand, no, this thing's got traction and bought my first Bitcoin when it was around $11,000 a coin. you know, not as early as it should have been for me, but you know, there there are these two. That's it. And and and Bitcoin offers certain things that gold doesn't offer. I do think gold offers certain things that Bitcoin doesn't offer.
Explain explain explain that. I think that a lot of people who are into Bitcoin, they know what Bitcoin offers that gold doesn't. What is the argument for somebody to buy gold and not just Bitcoin, right? I think because there's obviously arguments, people do it. Um, how would you articulate that to a friend as this is why gold also should be part of it, not just Bitcoin?
Well, well, well, I think it depends. I mean, like if if you're 25, I think over the long run, I mean, the percentage return, if you're looking at what am I going to have when I'm 55, 65, I think Bitcoin's going to kill gold. But if you're in your 60s and you're thinking about keeping your store value and you uh I think being diversified and even if you're 60 owning some Bitcoin, owning some gold makes some sense. I also think if you're an institution, if you're a central bank, um, there are reasons why gold makes sense. Okay, so number one is it's not on an open ledger, right? So if there's a massive wallet that the PBOC, the People's Bank of China holds Bitcoin in and makes a move that's publicly available, right? If India wants to send something to China and do it through bullion, no, no one knows, right? Not only that, but that bullion can be completely melted down and recast and no one knows where it came from. It's absolutely untraceable. There's no ledger, you know, it's so certain things from a a national security perspective and an autonomy perspective, I can understand why central banks along with the historical um nature of of gold as a store of value, why they appreciate it. I think over time we're going to see central banks put Bitcoin on their balance sheet. I don't know when that happens. I don't know if it happens next year. Um, but the amount of money we're talking about with central banks, right, trillions upon trillions of dollars, like 10, 20, 30, 40x the current Bitcoin market cap, like just a little bit of that is going to be, I think, a fundamental driver, just like a major fundamental driver of the gold move in the last few years has been central banks issuing treasuries and going to gold. Eventually, they're doing it. We're seeing corporations begin to put Bitcoin um on their balance sheet and I think there will there will come a point in time because I don't think there really is an alternative to Bitcoin. I I mean I mean people can talk about Ethereum and the flipping, you know, Ethereum can have a period where it outperforms just like gold can outperform. I mean, you know, shoot, you know, Carvana stock can outperform Bitcoin for a period of time. Anything can outperform anything for a period of time, but Bitcoin is unique. Bitcoin is the first. Bitcoin is the biggest. Bitcoin has that hard cap. Bitcoin is decentralized. Bitcoin has a moat. Bitcoin has the network. It has the thousands if not millions of nodes around um that that make it functional. It has the history. It it has the cost to produce it. You know, it can't just be willed into existence by an Ethereum foundation. It the all of these things are are just very unique. It will not be replaced in our lifetimes. I believe I do think that ultimately a very long-term perhaps risk to Bitcoin could be maybe not the kids of Gen Z, maybe the grandkids of Gen Z say our great-grandparents made all this money on Bitcoin. Let's create a new crypto hard cap just like Bitcoin. This is going to be the new generation of Bitcoin. And they really get behind it and you start seeing, you know, something drive or something there. But I think for all intents and purposes, you know, I mean, there's only two threats I see to Bitcoin. One, very long-term is is that a generational shift. Um, two is, you know, I do think quantum is something to be taken seriously. And I think that, you know, look, it's probably a long ways away. Um, you know, Bitcoin, it uses SHA 256. It's a very hard algo to crack. Everything that everybody looks at with quantum says, you know, this is a 10, 20, 30 year time period before we're going to get to some sort of so I do think that needs to be addressed. The wild card there is if super intelligence comes into play and and speeds up that timeline and instead of 10 or 20 years away it becomes five or six and then Google comes out and says, oh, we just established uh 2,000 qubit quantum and you know, if we just increase this much, it's going to be able to to crack certain encryption algorithms and people flip out about it. So I I do think that's something the Bitcoin community needs to address. I think it will eventually. I don't think it's a a short-term danger. I think the long-term danger would be just, you know, something else coming up at some point in time, but I'm very doubtful that happens. I I personally think Bitcoin is kind of a once in a millennium type opportunity and there's not going to be another one and it's going to have its ups and downs. And like last month, August was a great month for Bitcoin. People were like flipping out like I'm like you had higher highs in August than you did in July. You had higher lows. So, so we didn't hit the July lows and we overshot the July highs. Like, that's a great month in a strong uptrend. And I was watching very closely um on Sunday night because Bitcoin trades a lot off of monthly candles. And I'm like, this is hovering right around this key point, like is it going to print a lower low than it printed in July? And honestly, it was like at midnight when we turned to September 1st. That was basically the bottom, you know, like 108. And now, I mean, I don't know exactly what it's sitting at, you know, um, you know, 1112. I mean, you know, a nice move, right? A nice $4,000 move in a couple of days. I was buying Bitcoin uh micro futures, you know, on Monday because it's like, look, this is at 108. We held it. You know, I think September looks like a strong month for Bitcoin. Um, my original end of year target was 150. I still think we're going to get there by the end of the year.
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So, what's interesting is um we just published a video recently that um I hear everyone talking about September is weak seasonally for stocks and Bitcoin. Everyone's got their charts out. They're showing, hey, this is what happens. Uh, August is weak. Uh, or usually August is strong during the year after a Bitcoin having we just had a negative one. That's a worry sign. All the stuff. The more I hear everyone agreeing that September is supposed to be down, the higher my confidence level is that September's going to be up, right? And it just feels like um X, Reddit, YouTube, Substack, and all these platforms, they have been incredible for investors, access to information, informing them, allowing them to communicate, all this kind of stuff. They have been horrible for critical thinking in many times because everyone just starts to get into this echo chamber of September's down, September's down, September's down. And to your point, I agree. I actually think September will be very attractive. Um, and I, uh, 150 is, uh, the only number that I've put out there as in this bull market I could see Bitcoin hitting. And I think that people are underestimating this idea of Bitcoin's volatility coming down, being a positive for the large pools of capital to come in. And your point earlier about diversification between Bitcoin and gold, I almost look at the two of them as like a blending of volatility, right? To your point, like Bitcoin will go up more. It also should go down more on the down swings. Gold should be somewhat more stable. You know, I think since uh January of 2024, gold's up like 70%, Bitcoin's up like 300. Okay, great. Well, when it goes down, guess what happens? Bitcoin goes down more. By holding both of them, you get some blended volatility in there. And there is a very big market for some volatility, but not extreme volatility. And that's basically what that portfolio of gold and Bitcoin provides. Now, to your point, if you're 25 years old, I don't know very many 25 year olds are like, I don't want so much volatility, right? Most of them are like, I want max volatility. Like, how high can this thing go? And Bitcoin obviously serves that purpose. And so, um, it's a very fascinating thing to start to think about, you know, the legacy system is actually driving people away from the system and into the hands of gold and Bitcoin.
And you can see it, you know, I think the data that I I last saw was gold has outperformed the S&P over the last 25 years. I mean, that violates every single thing we've ever been told about, you know, productive assets and cash flow and equity premium and, you know, like the entire argument of the stock market investor is invalidated by one data point, which is just like the gold investors outperformed.
Now, again, to your point, depending on what states you choose, they're trailing 25 years, right? It kind of goes back and forth. now, but the fact that it's even a conversation 25 years ago would have never been an idea. Like it should significantly outperform. And so I guess the question then becomes, okay, gold and Bitcoin are a part of the portfolio in terms of a solution for lower rates and kind of higher inflation for longer. Is there an argument to own stocks? Is real estate like like what about the other things that people are putting into their portfolio if gold and Bitcoin are going to be kind of a magic solution to uh to this problem?
Yeah, I mean those are great points and and I think the whole Warren Buffett, Ben Graham era of investing is over. Like that that was that worked great during the 40-year period where interest rates were going down. That's exactly what you wanted to do was think like Warren Buffett and you were going to do great. And I don't think it's a surprise that when he announced his retirement um is coming up that Berkshire Hathaway is not anywhere near where it was that day. And I don't know how long it'll be to get there. In my mind, he's the they have missed out with $300 billion of capital on one of the greatest bull markets in history. And if there's eventually a crash and people look back and say, "Oh, what geniuses they were." I mean, I'm sorry, but but this is going on for years now. Th this is like dereliction of of duty to their shareholders. 30% 30% destruction of purchasing power on 250 then 275 now 300 plus billion dollars at some point you're like hey you're losing billions of dollars and you're not and you're not reporting it by the way and it's not being reported in the financials.
Yeah. I I put out a tweet that when Buffett retired I said Berkshire is the most overvalued company in the S&P 500. I'm like I mean if you look at their individual holdings like it should be like 50% of the value and then they've got this huge cash position that they're just I mean it's horrible like like because he's operating from a postWorld War II declining interest rate environment perspective and props to Warren Buffett. Lord knows I'm not trying to say I'm a better investor than Warren Buffett. What I am saying is that even geniuses kind of have their moment. They have their time and what worked for the genius at this moment might not be what type of genius is required for the next moment and we have transitioned to a different moment. We have transitioned to a massive like like this whole situation like I said where we have to kind of inflate down the real value of the debt where all these things happen.
And so what you have is you have, you know, the stock market and the housing market have traditionally been when we get kind of these excesses in kind of fiat, you know, reckless abandon. Here's the release valve. But we are getting valuations very high, right? We are getting valuations very high in housing. And that's something people need to live in. And then when you look at the stock market, you know, there should be some sort of rationale for that of what that price is. But there are two assets that are not really that important to the real economy and that can go to whatever price is necessary to absorb this monetary premium and that's gold and bitcoin right um people look at it as a bug but it's really a feature that bitcoin is not necessary to make your plumbing work right I mean like like like copper you need copper right you you need copper to to to to you know get the grid going to to build skyscrapers ers to have, you know, internet connections to to build data centers. You don't need Bitcoin to build data centers. You don't need gold to build data centers. And and so Bitcoin and gold can be the instruments. And this is ultimately, I think, to sum up this whole conversation is we've talked about the history. We've talked about where we're going. We've talked about what the Trump administration's plan is. The side effect of that MMT like strategy where they're going to keep interest rates low is going to be some sort of financial asset inflation. And where do you want that inflation to go? The stock market can only go so much higher. The housing market can only go so much higher before you have revolts on the street. But what can skyrocket and not put anybody out on the street? Gold and Bitcoin. And I think that's where the where the monetary premium is going to get released in this moment in time as opposed to the Buffett moment where it got released into stocks and housing. This moment it's going to get released into gold and Bitcoin. And that's why I'm so bullish on it over the long term. I don't know. I think it's going to go up in September. I could be completely wrong, but I think over the long run, you just don't have any really good solid alternatives to gold and Bitcoin for where do you deposit that release valve, that monetary premium that's going to be created by these low interest rate strategies that central banks around the world are going to be forced into, otherwise they're literally going to collapse.
You know what's funny is um I wrote this piece uh I don't know maybe a year ago or so probably um I said boomers had housing and young people had Satoshi, right? And if you think about they both benefit from the same thing which is the depreciation of uh the dollar and boomers were able to use low interest rates and depreciation of the dollar and make an absolute killing in their homes. And by the way, if I was alive in the 50s, I would have probably been doing the same thing. Look, it was smart and they benefited and so they took risk, they got rewarded. No one should hate on them for that. But now that the younger generations are priced out of homes and there's no, you know, liquidity in those markets and interest rates are higher and so they're unaffordable in terms of their real wages, what else are they going to do? Well, how about if you can dollar cost average into an asset that has liquidity that you can buy fractional shares of and you get a benefit from all the same trends? Like, of course, people are going to do that. And so I do think that in a way each generation finds their idea of how to express it.
And um I I've started to tell people that uh I've come to the conclusion after studying a ton of these investors, famous ones, not famous ones, um operators, investors, all of them. Everyone gets one idea. That's pretty much what you're allocated. You get one good idea and then your job as an investor is to express it as many times as possible throughout your career. and Buffett as as we were speaking about, he pretty much figured out you can buy things for less than they're worth. That was his big idea and he just went for, you know, 70 years and just kept doing it over and over and over again and put together one of the greatest track records. If you go and you look at, you know, I don't know, Steve Cohen, his one big idea was a, you know, kind of multi-asset, multi-strategy, research-driven hedge fund. He just kept doing that for a very long period of time. Call Icon, he said activism. I can be kind of the baddest guy on the street and I can show up with a lot of capital and I can create these events that actually improve a business and I can drive a return. He just did it over and over and over again. I think our generation the one big idea is they are never ever going to stop printing money. Like that is it. That is that is the intelligence test of financial markets today. If you understand that there's a lot of ways you can express it. We talk about Bitcoin and gold a lot but there's other ways you can do it as well. But if you understand that you will end up doing very well over a long period of time.
I think that what you're talking about here is the Federal Reserve is really being forced to do that. Now, my question becomes, and I know something you've thought a lot about, I think that MMT and AI are part of why they're willing to push lower interest rates for longer. How does that quotequote deflationary force play into this? And does that give them an excuse to go even harder and faster at this strategy?
Yeah, definitely. And I think one thing about MMT which I think it's misunderstood by for two key reasons. One, I think it was popularized in the, you know, media as the government can print however much money it wants and there's never going to be inflation. That's not at all what MMT is. The other reason that I think MMT gets scoffed at a lot and people say it's all BS is that most of the main proponents have been extremely far-left leaning even socialists. And so what they do and if you listen to a Warren Mosler or L Randall Ray, these are the some big guys that helped create it. They'll say there's MMT, the framework for financial plumbing, but what they always do is then they go into policy prescriptions from that. So they say, well, if the government can print more money, all it needs to do is tax more and that will keep inflation down and now we can do government job programs and now we So basically what they want to do is they want to take the MMT framework for understanding how money works in a modern economy and then they want to apply leftist socialist policy prescriptions to it and so people get turned off by it or they think that MMT says you can just print money like crazy and there's not going to be inflation. as farst thing from the truth, I would really ask people to watch like an L. Randall Ray explanation on YouTube of what MMT is before you say it's all a bunch of Because if you haven't spent at least a few hours trying to really understand what MMT is and you're just saying it's BS because you heard that MMT says people can print as much money as they want. MMT predicts better what's happening in our economy than all this BS you hear about, oh well the Fed's going to raise rates to 5% and we're going to have a big recession. No, we're not because we just injected a trillion dollars in stimulus every year into the economy through interest rate payments. I mean, you know, and and people talk about like foreign central banks. Foreign central banks do not own that much treasuries. Like like Japan and China, they're like 800 billion, dude. It's like the Fed has like 9 trillion. 75% is owned by the US and intergovernmental agencies. It's like 20 25% is owned by, you know, England and Cayman Islands and Saudis. Like it's a small percentage of foreigners that own uh US treasuries. Most of this is US-based. Those interest payments get recycled into the US economy. They're stimulative. They're stimulative. And and so when people talk about, oh, if we lower rates, we're going to just blow up the economy. You're taking away stimulus when you're lowering those rates. So there are deflationary forces to lowering the Fed funds rate. And people just don't want to admit it. And that's what MMT says.
So I'm almost forgetting what your original question was, but my point I guess my point is is that take some time to think about this because this is kind of where we're going. Whether you agree with it or not, you think I'm a nutso, you think this is just sending us on a one-way path to Armageddon, I think this is the path that not just the United States, not just Donald Trump, I don't care if it's JD Vance or AOC sitting in the White House in 2029. They're going to be doing the same damn thing because the economics make it necessary. This is what the United States needs to do at this point in time. We need lower interest rates to keep down our interest expense. We can't be paying 5 6% on our debt. It's too high. And we need the same dang thing in Europe and in Japan and in a lot of the world's major economies. And that's what's going to happen because it has to. Otherwise, the entire system is going to collapse.
Other than Bitcoin and gold, is there anything that you're doing in your portfolio that you think other people should be aware of?
Well, I mean, I I have those as my anchors of a portfolio because I do follow markets and trade a lot. I, you know, I might look at something. I love things like, you know, Robin Hood has been a big position of mine for a long time. I've just I see I see it as something that's kind of eating the lunch of a lot of things and you're able to get, you know, massive returns on it. It's not done that great in the last couple of weeks, but to me, if I look at a Robin Hood and I say, could that be a major player in the internal kind of financial plumbing and infrastructure of not just the United States, but the world 5 or 10 years from now? And could that take it from a hundred billion dollar market cap company to a $500 billion market cap company? I say yes. So, I think, okay, here's a stock that could go up 5x. So the one thing I do do in my portfolio is I I look at what are some companies that I think can be the next Google's, the next Apples, the the next Alphabets, and try to take advantage of those when they're when they're being sold on sale. Um, and hold those for the long haul. And I have some names that I I feel that way about. I also try to play like short-term macro things like, you know, people were freaking out about bonds yesterday morning and I was looking at the 30-year bond future charts and I'm like, look, this thing's in an uptrend. If you look at the futures chart, if you look at absolute yields, it's not, but people want to look at my posts, I spell it all out like like, you know, bonds look like a buy here. And I, you know, I was making a short-term call, kind of risky small bet on some TLT calls for today, and they they they played out well. So, I make small things sometimes. I have these core anchor positions of Bitcoin and gold and then I move around it with like a satellite of, you know, more medium-term bets of things that I really like like a Robin Hood. And so I do those things. I manage the money. And I think it depends on your risk tolerance and how much time you can devote to it. If you don't have a lot of time to devote to it, I do think there's a there's a point for diversification of having a, you know, if you're younger, make Bitcoin your core and then maybe satellite it with some equities and gold. If you're older, maybe you want gold to be your core and satellite it with Bitcoin and equities. Um, you know, everybody's situation is different. So, I I I don't want to spend the next 20 minutes talking about my philosophy of portfolio management, but um you know what I think is just important is get comfortable with what you're at. Don't put yourself in a situation where you're making bets that if things move against you, you're going to be forced into a hard situation and try to keep leverage to a minimum, if not even, you know, part of it, you know, because that's how a lot of people get in trouble.
I think that makes sense. Mel, where can we send people to find you online or or read more of your stuff?
Um, find me online at Melmadison1 um on X. Uh, it's Mel M- T1. Um, I also have a book I wrote called Quas. It's a financial thriller. It came out last year. Talks about, you know, the central banks of China and India and Russia colluding to put in place like a gold back central bank digital currency. It's kind of a financial thriller that has gold revaluation. there's a stock market collapse where to everybody's surprise, the dollar actually doesn't go up and yields uh go up. Um something like we've been seeing in recent times. So, it's it's an interesting book. It's available wherever books are sold, Audible, Amazon, wherever. Um those are my main things. I got a website, milmadison uh.com. But really X and if they're interested in a financial version of my financial outlook uh or fictional version of my financial outlook uh there's always quas a financial thriller.
Amazing. Well, thank you so much for doing this. We're definitely going to have to do it in the future. I learn something every time I see you uh talking online. So I appreciate the time and we'll do it again soon.
Really appreciate it. Thank you.