00:00:20 How Maciej got started with Amtelon Capital and why he chose Iran as a primary investment target?00:05:33 Why is Iran like Russia (and Eastern Europe ) in the 1990s? Is there a catalyst for Iran making it back to be connected with the rest of the world?00:14:25 A short story of sanctions against Iran.00:26:06 How Iranians and the regime in Iran differ? Why is the regime so successful in controlling power?00:32:32 What are great businesses to invest in Iran?00:48:11 How Iran avoided the 'Dutch disease' of big commodity exporters.00:56:08 Is Iran starting to be a new part of an 'Axis power'? Will this hamper the participation of outside investors in the Iranian market? Maciej Wojtal is the founder and CIO of Amtelon Capital which is focused on investing in Iranian equities. Maciej has worked with Citigroup and JP Morgan before running his own fund. Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply). Torsten Jacobi: Maciej, welcome to the Podcast. Thanks for coming on, really appreciate that. Maciej Wojtal: Yes, thank you for having me here. Torsten Jacobi: Hey, absolutely. You run something really interesting and you are the cofounder and the CIO of Amtalan Capital, which really focuses on investing primarily in equities in Iran, from what I understand. That sounds really cool, really unique. I have never heard about an investment fund out there that actually invests in Iran. How did that happen? How did you get started on why Iran? Why not something that's a little more politically correct, so to speak? Maciej Wojtal: Yes, well, it is super exciting. And when I speak to the local regulator in Iran, they tell us that we are their favorite foreign investor, foreign institutional investor, because we are the only one. There is really no other foreign institutional investor in Iran, so we are the only ones. So I decided to launch Amtalan Capital back in 2016, when JCPOA, the nuclear agreement, was implemented. And the reason why Iran and not something else was actually pretty simple. There was no other market. There's still there is still no other market at this moment in the world with lower evaluations, a higher growth potential, both like a long term structural growth potential, as well as near term growth that will be coming from the reopening of the country or reintegration of the country with the rest of the world. And to be honest, this is potentially the last opportunity of this size. So the type of opportunity, I mean, is a transformational opportunity. So country going from one situation, because it's not from one system to another, I don't expect any political, you know, revolution or transformation there. But the economic situation will change, will change from a, you know, decades of sanctions, where the economy was basically cut off from the rest of the world to the economy that is slowly opening up, catching up with the rest of emerging markets, with everything good that happened in the rest of the emerging markets over the last two decades. And on top of that, no one is there. So Americans cannot touch it. So all the big funds out there have to wait until the primary US sanctions are lifted. So suddenly you get, you get to go to a new market like this of this size and invest before the big US funds go there. It doesn't happen too often. And what I mean of this size, what I mean by this size is, you know, that's another unique thing is that you may have some frontier markets that you can get excited about because of demographics, you know, growth potential, whatever. But usually they have no capital markets. You can go and launch startups, build a factory, a bank, whatever. And here you already have pretty well developed capital markets, stock market with 600 companies. Right now it's around $250 billion market cap. Back in 2016, it was already $100 billion market cap. And right now several hundred million dollars turnover per day. And so, you know, big enough market to be attractive even for big investors. I mean, too big to ignore basically. And for us with a new fund, startup fund that wants to basically focus on this niche and do the initial fundraising and so on. Well, there was looked as an amazing setup with everything that we needed in place. So hence the decision. And, you know, the important thing is that I had no connections to Iran. So I actually had never met an Iranian in my life before my first visit to Tehran. So I had no bias. It wasn't the case that, you know, my, I don't know, half of my family was actually from Iran. So it was somehow convenient for me to focus on this market and maybe travel more, whatever. No, I was able to focus on any market out there. And Iran was just based on the risk reward that I saw there. Risk being obviously geopolitics, but it seemed to be at that time turning in, you know, with the more positive momentum and rewards coming from the lowest valuations in the world. And all this and all this growth potential look to me like, yeah, exactly like the best risk reward out there. Torsten Jacobi: Yeah. So it's either very gutsy or very crazy decision that you made a couple years back. I hope it's the former. One thing that I heard you talk about on another show is that you compared Iran right now to a post 1990s Russia. Eastern Germany that is very low earnings to valuation ratios. You had, where, yeah, just the climate where everyone had this this appreciation of change, appreciation of the future. Entrepreneurship was strong and was really grassroots. I will be seeing now in the U.S. where you need to be a $3 billion. No, it's something where we all fell. Then I was part of that in Eastern Germany, where we all fell. The future is kind of in our hands. I mean, they did this grassroots, massive collabs, grassroots entrepreneurship, as he describes it, what we are missing. And it really drove these in Eastern Europe really quickly into what a decent part of the European community where they are right now, rather than 10, 15 years. It happened really quickly. Why do you say Iran is at a similar precipice? And do you see any catalyst that it will very quickly, say the next 10 years, will be more like a normal Middle East country, which is, you know, the Middle Eastern countries all are, they have quite a bit of turmoil. At least some of them. We just talked about Syria and a couple of episodes ago. What do you think Iran is at a precipice? Maciej Wojtal: Yeah, look, so it is fair to compare it to Eastern Europe in the 90s. It's not the same. It's always different. But what I mean by that is that certain dynamics may be similar. So going from one system that is restricted in some way, in Eastern Europe, it was, you know, socialism slash communism, and this, people were entrepreneurial, but they were not free to really, to really, you know, do what they wanted to do. And then after 1989, all this unlocked. So in Eastern Europe after 1989, all this energy was unlocked, basically, and people started really wanted to work and they started chasing their dreams. And this, and you could see this entrepreneurial entrepreneurship in action. It was quite chaotic in the 90s. You know, I lived in the 90s in Poland, and it was chaos. I mean, there were, you know, institutions were not working properly. It was corrupt. Bureaucracy was a huge headache. It was absolutely a mess in many places. But it worked. And the pace of changes was amazing. So everything was very dynamic. So after 10 or 20 years, Poland changed completely. And the rest of Eastern Europe, it became much more stable, much more easy to forecast, but also hence much more institutionalized in every corner. But hence also the, you know, your expected return also much closer to the mean, let's say, to whatever from, I don't know, investing in real estate right now in Eastern Europe is similar to Western Europe, actually, in terms of your risk reward. So this is what I expect in Iran. A similar growth coming from people who are entrepreneurial and from foreign investment. Because look, the same, the same role as Eastern Europe played for Western Europe in the 90s, for Germany mainly, but also France, Italy, where Eastern Europe was basically a hub, a source of cheap labor, where it made total sense to locate your factories over there, take advantage of this cheap labor force, and then also be ready to benefit from the growing middle class that was showing up there like 10 or 20 years later. And suddenly it was, you know, it became an important consumer market. Same thing will happen in Iran. I mean, Iran, look, Iran is quite a big country. It's 84 million people. They have the largest oil and gas reserves combined, oil and gas reserves in the world. Plenty of zinc and zinc and copper resources as well. But the most important resource is the population, is the Iranian population. It's a well educated society with a median age of 30 years old, where I think it's not, it's unlike the rest of the Middle East. It's not very similar to other Middle Eastern countries. It's, you know, the sense of 5,000 years of history that they have is you can feel that. And this is what's been important for them generation after generation, so this focus on education and so on. So you have very skilled labor force, which because of the sanctions, is right now cheaper than in Vietnam. So, you know, the average salary is probably around $200 in Iran. You can even hire computer scientists, so people who can code for, you know, 800 bucks, whereas, you know, even in usually Novgorod somewhere in the middle of Russia, it costs you $3,000, right, to hire someone. So, right now for you, if you're a big, you know, European or Asian company corporation and want to, looking for a place to manufacture stuff, and then also to start promoting your brand because you will find, you know, you want to be present in the new consumer market, it's a no brainer to go there. But also, you know, it's not only that, it's not only these 84 million people because Iran has very good links with other countries in the region. All the neighbors, so Iran plus all the neighboring countries, it's 500, more than 500 million people. And countries like Iraq or Afghanistan, which is obviously in the news right now, they import most of their products from Iran, the products they consume from Iran, not only oil or gasoline, but, you know, food, cars, car parts, even cement, so things that are not that easy to import. So, companies that are based in Iran are well positioned to export in the whole region. So, this is another argument for big multinationals to go to Iran, as soon as, you know, geopolitics set up. So, this is one, another reason why I think that, you know, it could be similar to Eastern Europe. Of course, the differences are big as well because, you know, Eastern Europe, or at least, you know, Central Europe was on the path to NATO and then European Union quite quickly. So, nothing like this will happen in Iran. But what will, what might be similar, and I think will be similar, is that big investment, big FDI investment should come from European, major European companies, you know, which are already there. A lot of Swiss and German companies and French and Italian companies are already there, have been operating under the radar throughout the Trump administration, just not to get into trouble, but have been, you know, patiently waiting for, for an opportunity to scale up their, their operations. And we are in talk, we are in touch with them with, we're speaking with all of them to understand what's going on. And, and yes, and they're all thinking about expanding their operations, same for big Japanese companies. Torsten Jacobi: Well, when we, we just talked about sanctions, but only briefly, and I think this is, this is a huge catalyst, right? So maybe we, we, we roll up at this story of sanctions a little bit, right? So from what I know, this is very limited, the sanctions were put in place for the nuclear, uranium enrichment, that a lot of countries were concerned that there's a nuclear weapon that Iran will build and use against Israel. I think that was the biggest concern, a really near term concern. And then it was an agreement reached, I think it was under the Obama administration that they stopped doing this. They only use it for civilian purposes for a couple of nuclear power plants. And then once they adhere to this, it would be, and that was, I think the story of the end of the Obama administration, that was basically catalyst for working with Iran with less sanctions, right? So there's still sanctions in place with much less. And then Trump came around, a picture changed in Iran was that the big, big bogeyman, based on the analysis of that administration, that there was a lot of states funded terrorism. And we know that Iran does it through a proxies. And obviously what's terrorism and what's the freedom fight, it's very difficult to say sometimes, right? So we do know that there is a gray line, a gray zone, that we see this in Taliban, with the Taliban in Afghanistan, who were friends, enemies. Now they are like an administration really, really don't know what they are and who they are to an extent. So maybe you can help us understand what happened to these sanctions. Are they justified? And do you think they just going to go away very soon under the Biden administration, which would be obviously huge catalyst? Maciej Wojtal: So there are many different types of sanctions. And those sanctions have been in place for quite a long time. I mean, you know, the first, the first event that influenced the relations between Iran and the US was obviously the Iranian Revolution, 1979. And the takeover of, of, of the US embassy and the American hostages. So, you know, it happened a long time ago. But it's based on what I, what I managed to, to find out and understand. This is something that basically poisoned the relations for the, you know, decades to come. It's, it's, it's actually amazing. But this, this, this one event was so strong that it fueled the, you know, the propaganda on both sides, meaning American politicians were using this argument to, you know, to portray Iran as the, as the bad actor always, and, and, and, and was very much in line, you know, with the recent history and, and with the sentiment in the US. Iran obviously did the opposite. I mean, the same thing, but towards the US in its own country. So, you know, death to America for the last 40 or 50 years. And, and, and, and this is the, the, the big Satan and the whole poll, maybe not the policy, but, you know, the philosophy of the country is very much centered around, you know, the active fight against, you know, the US. So it's a problem because that when they sit down and want to talk, it's just much more difficult because even if they want to make a deal quickly and smoothly and they agree on the principles, they have a lot of this sentiment that is a very, you know, long term and well established on both sides that they need to deal with. So I think this is actually the biggest issue in speaking to each other. Then at some point they also had, you know, more hard line leadership on both sides, right? So either, you know, on the US side, when Iran was getting into the axis of evil or any, you know, this type of philosophy, then in Iran, you had Ahmadinejad, who was, you know, basically talking about removing Israel from the map and, and firing missiles and, and he got, I think, the, the very heavy UN sanctions on the country where even Russia and China voted to impose, you know, sanctions on Iran. So, and that was, I think, you know, somewhere between 2009 and 2013. So what changed later, and then Obama actually initially increased sanctions on Iran before making a move offering to negotiate an offering to, to side the nuclear deal, which happened in 2015, was implemented 2016. And the nuclear deal said that UN sanctions were lifted, and US secondary sanctions were lifted. So what was left were US primary sanctions. Now, what that means is, so US primary sanctions basically say that Americans cannot touch Iran. They cannot invest there. They cannot do business with Iranians and so on. Nothing. And US secondary sanctions say that everyone else should not be doing, you know, either the same thing as Americans or, or to a less extent. So what happened was that the secondary sanctions were lifted. UN sanctions were lifted. So suddenly all non US persons were allowed to engage with Iran. And that was in 2016. That was, you know, where we got involved with Iran, why there was a lot of excitement in Europe, especially about, you know, business in Iran, because the legal obstacles were gone. Now, this, this obviously changed with the change of the US administration. But that was, but that was the situation then. And look, like the big, big opening, meaning when Americans could start to invest in the country in Iran, Iran could happen after primary sanctions were lifted. But this, this will be a longer time process. I mean, this will require a Congress approval. This will require, so Republicans will have to be, I think at least 10 Republicans will have to be on board. So it will not happen soon. And it would have to be combined with, with also, you know, other things that Iran would commit to. So not only the nuclear, the uranium enrichment that you mentioned. So, so yes, okay. So going back to Obama, Obama said, you stop uranium enrichment. And, and we, and we lift the secondary sanctions. And, well, pretty much this, this is what happened. Now, what Obama wanted in the long term. And then what Trump said was that, okay, but we want you to also stop doing other things, like meddling in the region. So stop sponsoring all the, all the militias, all the, all the groups across the region that are causing problems. And, and also stop working on your missiles on your ballistic systems. So when Iran hears that, they are saying, well, first of all, missiles, I think it's a no go. They will, I think they will never agree to, to stop working on, on, on, on their, well, defense systems or missile systems, they say it's only defense systems. Why? Well, they look after the revolution. So 79, where the country was, you know, still not well set up. Saddam Hussein, the leader of Iraq at that time, attacked Iran, using actually a lot of weapons that he got from Americans. And Iran didn't have any missiles at that time. And they couldn't defend against, you know, what, what, what, what Hussein was throwing, throwing at them. And at that time, Iran actually reached out for help, you know, Europe, the US, to the neighbors, and so on. And they didn't get any help from anyone. And now they are using this argument. And I think it actually makes sense that, look, we have the right to protect ourselves. We experienced, you know, a serious eight year war that was devastating. No one helped us. So sorry, but we will not negotiate on that. And so this is one argument. And then when it comes to, you know, the, the groups working in the region, well, it's more nuanced. I mean, obviously, the US will say, look, these are terrorists, and you're just supporting terrorists. Iran will say, look, as you, as you pointed out, these are freedom fighters, or these are Shia minorities in a Sunni, Sunni region. And, you know, and they need help because they are a minority and, and everyone around them is aggressive. So we are just supporting our own. And this is, or we are supposed to supporting, you know, Palestine, or, or the minority in Lebanon, or, or Yemenis, or Shia minority in Nigeria, actually. So yes, this is, this is the philosophy. Then, you know, the US will say, which is a valid argument, look, they behave like terrorists. So, you know, their tactics are like terrorists. So, so that's why, you know, they are terrorists. And, you know, and, and, and the argument, it's, it's not, it's not easy to, to resolve. So, I think it will be, for Iran, it's also part of their defense strategy. Let's say that they are getting involved in the region before anything comes to Iran. Look, Iran is the most stable country in the region. Like really nothing, nothing happens there. Tehran, city of 10 million people, 10pm at night, you see women walking by themselves, nothing is happening. And it's not because police is on every corner. No, it's just, it's just pretty safe. Okay, probably I stick to the better parts of Tehran. But still, okay, it's a 10 million city, 10 million people city. So everything is happening in the city. And, and, you know, in the center, you just feel safe. And they say, Okay, that's partly because we do, we are active in the region, and we don't wait for the problems to come to us. So, well, these are, these are, this is what they're discussing about. I don't think that the Iranians would, that it will be easy to make Iranians just stop getting involved or stop working on their missiles. Unless there is like a really long term incentive, long term deal, where they would get a lot, they would benefit a lot from the only something like this would make them, you know, change their strategy, change their behavior. Torsten Jacobi: Yeah. Well, you know, but what's, what's very difficult from the outside, and you are an Iranian insider now, that's why I'm asking, it's, and I noticed from Eastern Germany, think about it, how difficult it was to see what is what the people on the ground, the actual people who live in that country, what is their opinion, and what is an oppressive government, tyrannic government opinion, right? So we see this in North Korea, we see this in Iran, we kind of assume this for China, maybe true or not, we assume this for Russia, maybe true or not. But we have trouble and I think the US is always very careful to make that distinction, even though it gets lost. We know it is, there's people on the ground who have maybe very different incentives, very different goals, very different objectives, very different opinions, but they are not, they're not allowed, they are not able to, to really create a voice in that country because of suppression, or maybe because they are too stupid, you know, you can say this about Eastern Europe, why did the revolution in 89 not happen in 96 or 49? That's a very interesting discussion to have, I think. So what, when you, and you said that earlier, there isn't a big political revolution that you see coming up, and I think the US was very supportive when there's demonstrations and then they die down after two days because people lose their jobs, and you know, there's a lot of ramifications from this. When you, when you get a sense of what people on the ground actually feel, even though they are not able to officially say that, and maybe that this event, but what do you think are the goals of the population? Do they differ from the administration? Is that something you can talk about? Maciej Wojtal: Yes, so I think it's, in Iran you have, it's a, it's a, it's a quite diverse society. So you have, you know, different parts of population may, may think in a bit different way. So the wealthy parts of Tehran are, in terms of their mindset, in terms of their aspirations, ambitions, the lifestyle that they would like to have, it's, it's very much like, like Western Europe, like, like the Western world. The same goes in terms of how religious they are, their, what, what they need, what they want in terms of personal, you know, freedom, political freedom, and so on. On the other hand, when you go to smaller cities, people are much more conservative. You can even see this in the way, you know, they dress, the way, you know, what, what lifestyle they have, which is much more religious, much more dogmatic in terms of mindset. So, so yeah, so it's, so it's not the case that, you know, all Iranians think the same. There is no opposition in the country. For, you know, different reasons, I probably think it's, it's similar to China, which, which is a, you know, it's a, it's a, it's a quite an efficient machine, right, that is working there, the system, and, and that's it, and it's just controlling everything. So I think it's just similar, similar picture there. And so, but people, you know, at least over the last, you know, four years, when it was really tough, I mean, and it was really depressing, depressing because they had a lot of hope. It was amazing. It was so much hope like 2016, 17. And then Trump came over and, and, and this hope was crushed, right? So without getting into argument, whether, you know, what was justified was what not. Just what I, what I saw when I talked to people was that they're optimism, you know, and, and, and hope that I could see 2016 was gone, completely gone. And, but still, you couldn't sense that people suddenly thinking about, you know, revolution going out on the street and not, I don't know, fighting with the government or who, or whoever, whoever, people were more always focused on evolution. So they won't change. They want, like everywhere, usually want the system to change in one way or another, maybe in Iran, a bit more, but, but more for evolution than revolution. That's, that there was always my, my sense, maybe, maybe it might change, but I've, this is what I've always experienced. Torsten Jacobi: Yeah, I remember the days of 89, when, you know, people were on the streets, but it was all, I mean, it was 99, 99.9% peaceful, right? And then people were like, well, simply if you want to go to Western Germany for a couple of days, and they were like, okay, you can go, but you have to, like, go through this process, right? And then a week later, they said, oh, you can still go, but you can't, you can only go to Berlin. And then a week later, they were like, okay, you can go wherever you want. And a week later, okay, now you get, the Western Germany would give you money when you come over, right? Just to visit Western Germany. It was a very interesting program. And this changed so quickly, like it was an evolution, but the evolution was every week, there was a different reaction to that pressure. So I feel like it always starts with an evolution, but the speed of the evolution looks to the outside of like a revolution, like nobody wants violence. So I think this is true for both sides. Maciej Wojtal: So it's a different pace in Iran, because I think it's more driven by demographics than, than political events, you know, in Eastern Europe, things had a catalyst and it just started, started happening quickly. In Iran, this is actually a similarity with, with other Middle Eastern countries is that, you know, whatever philosophy was the dominant one back in 1979, and over the following, you know, two decades, it cannot be the same philosophy right now, because the majority of the population were born after the revolution, and they just cannot relate to the slogans to, you know, to this, to this original philosophy. So they, they have different aspirations. They have different worldview and mindset. And, and that's why the system has to change, I think. Same thing in Saudi Arabia, right? People are just super young. They, they, they know what they want from the internet, basically. And so that's why they, they, they, they also need to adjust. So it's not because the system wants to adjust, it doesn't have a choice. They need to adjust. So, but that's why it's also happening much slower, I think, over there. Torsten Jacobi: Yeah, I fully agree with that. And I was just in Egypt for a couple of weeks. And I, you can see it in Egypt, too, right? To see this, this huge modern part of Egypt, which is propelled by young people. But I mean, it goes up to the 40s, I feel. And then you have this, this, this other part of Egypt, which kind of clashes with it, which is, you know, very comfortable Muslim values, traditional values, keeping you safe, keeping you in the right mind space, being close to God, which is really what I think the, the most popular philosophy to look at your own country for a long time. And now these young people are there. And they, they kind of, they both just want, I think they just want to be left alone, right? But making a cohesive policy out of this is almost impossible because they're kind of at current philosophy, how we look at the world, they're kind of opposite ends. We see this in Afghanistan right now, right? So we thought it's going to be modern democracy, but oh, you know what, actually, what a good part of their country once is the opposite, which is no democracy and being close to God, being close to Islamic values, being close to Sharia. And that's kind of a surprise, right? So the end of history didn't arrive. Like Fukuyama said, it is the end of history. History is still going on, right? So there's always something new. But talking about something new, I want you to give us an idea of what is really hot in Iran right now. So we know there's a lot of state owned enterprises that are basically probably not your focus, but there must be other great businesses. And we heard of Bitcoin mining, but other businesses that are worth investing into where you think this is really going to rock it the next 10 years, with or without a big catalyst. Where would you, where do you actively research right now what kind of businesses? Maciej Wojtal: So now there's, you know, the good thing about Iran is, is that it's a, you know, proper economy, well diversified economy. So all this oil and gas is just, you know, maybe 5% of GDP used to be 15, 15 before sanctions. And now it's somewhere, I don't know, in single digits somewhere. So the rest you have, you know, manufacturing services, most of, most of industries, most of sectors are there, because they, they didn't have a choice. They had to develop all the different industries to become, you know, to do as much as possible self sufficient because of the sanctions. So, so, so that basically they could survive all the restrictions put on them. And it worked. And so and so this was one thing, but also they had enough scale, a scale of, you know, again, this 84 million people, but also the export markets that are around them, where Iranians, you know, have have traditional historical connections. Many of these countries speak the same language. So, so it was easy, easy for them to export. So what we are looking for is last four years. And I think right now it's also a similar time that it's, it's worth looking at companies that are basically dollar assets that just happen to be listed in Tehran. So you have exporters or companies that sell domestically, but at prices that are benchmarked against some, some global prices. And whenever the local currency drops depreciates, you know, their revenue just jumps together with the dollar, their earnings accelerate even more because of operational leverage. They keep their costs in depreciated real and their revenue is in dollars. So all the, all the additional, you know, dollar appreciation, all this additional revenue goes straight to, you know, to operating profits. And so, so these are the companies that usually tend to benefit, show the acceleration of profits first when the currency depreciates. And so right now the currency started to depreciate again in the second half, which, which we expected to some extent because there's a couple of factors. Usually after the presidential election, the currency depreciates a bit because they try to stabilize it before the election. Then you had lockdowns again. And lockdowns do have an impact because important sources of hard currency that goes into Iran are, is the regional trade. One, one, one source is the big trade, but this is affected by US sanctions. So whatever Iran was selling to China, Japan, you know, South Korea, European countries, and so on. So to China, they still sell, but, but it's not that easy to, to get payment. And so the regional trade, which is not really affected by sanctions, so whatever goes to Iraq, Afghanistan, Turkey, Uzbek istan, whatever. And this is an important source of hard currency. So when you have lockdowns, then, you know, for a couple of weeks, border crossings are closed, then you don't have enough dollars. And there are some imports, imports of some essential goods that just have to happen, whatever the price of the dollar, right? So, so, so very inelastic. So it will just, you know, the dollar could just jump when there is not enough supply. On paper, the central bank has quite big reserves, or foreign reserves. But in reality, they cannot access access them. So they, whatever they can access is just not enough. So, so, you know, at the end, they have to print money more than they would like to, which, you know, again, fuels inflation, which fuels the depreciation of the local currency. So we have this moment right now, when, again, you had some lockdowns, plus Afghanistan was off for some time. But it's actually going back to normal very quickly from the Iranian point of view. So a week ago, the main border crossing for trade between Iran and Afghanistan was reopened. And now all three, I think, are open and working properly. Afghanistan reduced the customs, custom duties on the Iranian gasoline and oil imports. So, so this has has resumed as well. And, well, I was reading that actually the Taliban leadership was interrun six months ago, you know, before the takeover, basically, of the country. So potentially, you know, there was a deal done at that time that Iran would be very pragmatic, basically, with the relations with Afghanistan. And I think this is what's happening. Same, same for Pakistan, same for, you know, Russia, China, and so on. So, so anyway, so what I wanted to say is that right now you have a couple of factors that affect the the currency. So the dollar is is moving higher. Given the exchange rate of the dollar versus real, and the expected future profits, profits of of the Iranian exporters, well, the share prices are way too low. So easy money right now is to buy by shares of the of the exporters of Iranian exporters. Now, what else is interesting, what is driven by macro and all the last four years were very much driven by macro, were the domestically oriented industries. So companies that were selling domestically were benefiting a lot from sanctions and currency depreciation, because their competitors were just priced out of the market. So when you had the big currency move, you know, even exporters from China were just too expensive. And, and everything, and because of sanctions, everything was getting more difficult. So making the payment, you know, arranging the logistics, and so on. So we saw local companies, even though the whole market was was not growing, was was was stable. The local producers were gaining market share so you could see growth there. And, and, and we were able, because there is so much data being reported by by the local listed companies, that we were able to track this on a monthly basis to understand the volumes per product line, and the unit prices, you know, at which they were selling, to understand, okay, so who is doing better and versus our expectations and so on. So these are, these are, they're actually, you know, they're, as you know, there are many misconceptions about Iran in the West, right? In all areas, right, from misconceptions about the population, where, I don't know, many people or newspapers or media are just trying to portrait Iran as country of terrorists who who hate, you know, Jews and Israel and so on, to, to, you know, good misconceptions about the economy of Iran that is just bleeding and and it's just Venezuela or Zimbabwe and just fall apart and so on, which is obviously all far from from being true. You know, when it comes to population, it's a very tolerant and open society. When you go there and someone speaks any, even as a tourist and someone speaks any English, he will approach you and just to have a chat with you, you have, you know, Catholic Christian churches, Orthodox churches, Jewish synagogues, Zoroastrian, you know, churches, temples, and everyone is doing his own thing in terms of religion. So, so it's absolutely not true that they're like intolerant. So it's actually a very open society and same for the economy, where actually, because of the diversification of the economy, because of the fact that big part of the economy is focused on exports, then focus on exports, they end because of the fact that they just allowed the real to depreciate and didn't fight, you know, to just defend it, you know, with, with, with any reserves they had. They, they helped it to, you know, the local companies to improve competitiveness and, and actually help the, the economy under tough sanctions under Trump. If interesting thing is that unemployment actually went down after under Trump, unemployment in Iran, because manufacturing companies had such, you know, great couple of years, I think there were two years that when they had like record profit growth, that they, they increased employment, you know, they started hiring people. So it was like counterintuitive. But going back to your question. So you, we are looking at a couple of manufacturers that are providing specialized machinery to the, to the domestic petrochemical and steel plants. There is a very big petrochemical and steel industry in Iran. You know, petrochemical industry is probably together with, with the Saudi petrochemical industry. These are the most profitable industries in the world, petrochemical industries. Well, obviously thanks to the cheap gas that they have. Also Iran makes more than a million cars per year. So the steel industry is big and all the related industries as well. And there are companies that provide some specialty, you know, parts machinery to these bigger plants, where those manufacturers have very strong pricing power because, well, because they are so small and specialized in the big picture for the, for the big manufacturers that they don't really care that much about the pricing. And it's also very difficult to import them. So, so they have a good pricing power. It's, they don't have a competition from the foreign competition. So, so we are looking at those. We're looking at some local brands in, in the, in the cleaning products and in the companies that make just everyday equipment, household equipment. And they're also

00:00:23 How did Jared's path from Lehman Brothers to Internet personality develop?00:05:06 How did the finance industry develop during the last 20 years?00:08:18 Jared's experience on writing a novel (and how it compares to his other book)?00:11:29 What is Jared's view of the deflation/ inflation debate?00:17:03 Is productivity growth really as low as we assume? What role do stock buybacks play?00:22:01 Is individual risk taking the key to increase productivity growth?00:25:01 What are great areas of investment according to Jared?00:30:01 Will DeFi eradicate banks and most of the financial industry?00:34:01 Is the banking industry a good indicator for the health and competitiveness of an economy?00:38:36 How consistent should financial commentators be? Jared Dillian is the author of Street Freak: Money and Madness at Lehman Brothers, named one of the top business books of 2011 by Businessweek magazine. Jared runs The Daily Dirtnap, LLC, which provides daily market commentary and insight to a range of institutional clients. Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).   Torsten Jacobi : Jared, thanks a lot for coming unto the Judgment Call Podcast, I really appreciate that. Jared Dillian: Yeah. Torsten Jacobi : Hey, thanks for taking the time. And you know, you have a really interesting history, and it's something that's becoming a bit of a theme though, is you started in an investment bank, and you worked for Lehman Brothers, then you wrote a book, you became an author, and now you're an internet personality, you run your own internet business, your own content business. Maybe you can tell us a little bit more about this transition, how this came upon, and how do you feel, was it the right choice looking back, or do you feel like, well, no, I want to go back to an investment bank? Jared Dillian : No, it was absolutely the right choice. It was funny because I was talking to my old boss at Lehman, this is the guy that I worked for 2001, 2002, and he told me a story of, you know, when I worked for him, we used to get the Garmin letter. I don't know if you know Dennis Garmin, but we used to get the Garmin letter at Lehman Brothers, and he had probably the biggest financial newsletter. It was a daily letter, and I used to get this stuff, and you know, I liked it. I didn't, you know, I didn't think his writing was the best, but I said, this is an amazing business. I was like, you can just get paid to write about finance, you know, I'd never heard of this before. So around 2003, you know, I had this idea in my head that I wanted to write a financial newsletter, so I had some ideas, and my initial idea was it would be sort of a retail newsletter. I would charge a very small amount of money, about $150 a year, and I would do personal finance stuff, and then I would do seminars and stuff like that. And I figured if I had 1,000 subscribers, I would make $150,000 a year, and that would be enough. And then what happened was, while I was at Lehman, I was put in charge of the ETF desk, and I was told to just grow the business, because the business was very small. They said grow the business, so my idea was to do that through writing. So I started writing market commentary and sending it out to people, and it was very popular, and it grew, and it grew, and it grew. So by the time the bankruptcy came around, I had several thousand people on my list, and I said, you know, I can easily monetize this, so the day the bankruptcy, I sent out a message. I said, I'm going to start a newsletter, and you know, hundreds of people said I'll sign up. So I quit Lehman Brothers, and I started the business, you know, I formed an LLC, and I got some office space, and about six weeks later, I started sending out content again, and I got a few hundred people to sign up, and that was the beginning of the newsletter. So that was in 2008, and about that time, I was also approached to write a book about my time at Lehman Brothers. There was a literary agent that found me and asked me to write a book about it, and initially I said no, but six months later, I came around and I said yes. So while the early days of writing the newsletter, I was writing this book, and that came out in 2011. So there's just been a bunch of stuff since then, I started writing from Alden Economics in 2014, I wrote another book in 2016, I'm an op ed columnist at Bloomberg, I've taught finance at the undergraduate level and graduate level at school, and I just, I know I had a radio show for the last two years, which is coming to an end tonight, but we're going to convert that into a podcast, and my goal is to make this the number one finance podcast. Torsten Jacobi : So that's really ambitious. Jared Dillian : Yeah, I mean, you're really all in on becoming not just an internet personality, but really making this content machine work, right? Torsten Jacobi : A lot of people, you know, from the VC business, they go into a Substack, right? Jared Dillian : That seems to be the technology platform to use, and also the idea that you pay a relatively small amount, and it's geared towards consumers. Torsten Jacobi : Is that still the model that you're using, or you switch to a B2B model, where you basically do it for hedge funds and other investment banks, small investment banks, from the office? I do both. You know, my customers, I have institutional customers, and I have retail customers. So in terms of substack, I don't use substack, I use a different proprietary system. You know, a substack takes 10% of revenue, so that's a little bit much for me. The nice thing about substack is that they do handle all the payments and stuff like that, so I do that myself now, which is a little bit time consuming. Torsten Jacobi : When you look back, do you feel like the world of finance has changed quite a bit, and thatt here's more knowledge, or people are more aware of what's going on out there, or do you think we're still looking into a similar perplexing environment, as it was 10 years ago? Jared Dillian : Well, I think more people are engaged in finance. But I would say that a lot of people have learned a lot of bad ideas and bad habits. The meme stocks are a pretty good example. I have a Coast Guard friend on Facebook who trades the meme stocks, he's always posting about AMC and stuff like that, and he says these words like I've never heard before. He talks about holding the line and ladder attack and stuff like that. I don't know what this is, but it's not finance. I don't know what you're doing, but this isn't the right way to learn things. So I formed this entity two years ago called Jared Dillion Money, and that was where the radio show came from. I did the radio show under Jared Dillion Money. This is a personal finance platform. So really teaching the basics, not just about investments, but also about debt and credit cards and mortgages and stuff like that. So that's what I've been doing for the past two years. Torsten Jacobi : Well, I think what a lot of people are looking for, and I think this is where the meme stocks came from, is this call option. Jared Dillian : So this is really high, is it beta? Torsten Jacobi : You want something that moves very much, even if the stock doesn't move so much. Jared Dillian : It's more of a big gambling, right? Torsten Jacobi : But gambling not in that sense that the hedge funds always win. It's something where you can actually, we have a weapon that works seemingly enough. We've seen this earlier this year, where you as a 20 year old have a big enough weapon. You can become a millionaire overnight, and the hedge funds give you that money. That's pretty rare, right? Jared Dillian : I don't remember many of those situations in the last 10 years, when it seemed like the hedge funds are at a disadvantage at least momentarily. Torsten Jacobi : No, I think that's a narrative that got put forth after the GameStop incident. Jared Dillian : I don't think, I mean, look, there were a couple of hedge funds that were harmed by that moving GameStop, but I can tell you that retail investors, if you're trading call options on GameStop through Robinhood, people are making money off of you. The market maker behind those trades is Citadel. They have some very sophisticated people who understand volatility, who know how to model a volatility surface, like, I mean, yes, like if you buy a call option on GameStop and it goes up very quickly, you'll make money, but you're at a huge disadvantage. Torsten Jacobi : So it isn't something you can actually win at least, I mean, the odds are definitely against you, right? Jared Dillian : This hasn't changed I think there was a short period of time about four or five months ago, six months ago, when you could win at it, but I think that window is closed. Torsten Jacobi : When you wrote two books by now, you wrote first something that is more of a description of what happened at Lehman, and then it's a novel that you wrote later on that is complete fiction, I assume. Was it harder to write a novel than the accounts that you gave for Lehman, or do you feel it's the same amount of effort? Jared Dillian : Oh, it was much harder to write a novel. I mean, just to put this in perspective, you know, Street Freak, my first book, the memoir, it was 135,000 words, and I wrote it in eight months. All the evil of this world, which is my novel, is 70,000 words, and I wrote it in five years. It was much, much harder, much harder. Torsten Jacobi :  Is that because you just wanted to do it perfect? Like, we noticed some Jordan Peterson and his first book took him 20 years to write because he rewrote it literally every week. Do you want it to get the narrative perfect, or because there were so many layers you had to go through? No, I mean, I was a perfectionist about it, but the creative process when it comes to actually dreaming up events and places and people you've never seen before, it's just a lot slower and it's a lot harder. I tell people that book is the hardest thing I've ever done, and I never want to write fiction again, like it's too hard, but at the same time, I'm the most proud of it. I really think All the Evil of This World is an amazing book, and it's the best thing I've ever done. Torsten Jacobi : What is it about? What story are you illustrating? Jared Dillian : So it's about a trade that takes place March 2, the year 2000. It's about when 3Com spun off Palm, I don't know if you remember Palm pilots, but from 20 years ago. So it was a spin off trade, and it's an options trade that takes place on 3Com, but it involves seven different people from a clerk on the exchange to a broker on the exchange, to a market maker in a bank, to a hedge fund portfolio manager, seven different people, and it's just each chapter is their story, and they're all interconnected. And each chapter is written in a different voice as to that person's personality. So each one is written completely different. It was the most ambitious thing that I could possibly do, and the engineering behind it was very difficult, but it worked out. Torsten Jacobi : What's your own personal opinion or something you've learned over time about inflation? Jared Dillian : It's this big debate, and we had deflation versus inflation was actually a big topic, and we now feel the majority has shifted to some form of inflation, and we know how much it is. Torsten Jacobi : What is your personal opinion? Where will this end, and how high will inflation go, or will we just see inflation disappear? Jared Dillian : I'm very much in the inflation camp. Actually, on my radio show last night, I interviewed Peter Atwater, who is at Financial Insights. He really studies behavior and psychology and stuff like that in the markets. And I said to Peter, I was like, I think inflation is 90% a psychological phenomenon. And he says, I disagree with you. I think it's 100%. So what's happened in the last year is we've had a reversal of 40 years of disinflationary psychology, and we suddenly switched to an inflationary psychology. So this is how this works. If you think that there is going to be inflation, if you think prices are going to rise, if you think there are going to be shortages, then you accelerate economic activity. You buy more of things. You buy faster. And everybody doing this together drives prices up. So what happened when Volcker became Fed Chair back in 1979, it was about reversing the psychology. And he had to raise interest rates a lot and crush the economy in order to reverse that psychology. So there's no appetite to do that right now. So inflation is 5% in change. It's undoubtedly going to go higher. I don't know how fast it's going to go higher, but it will go higher. Torsten Jacobi : What I find mesmerizing, and I agree with you, it's definitely, there's a lot of psychology in there, what I find mesmerizing is that we see bond yields that haven't moved at all right there, like 10 year bond is what, 0.2%. If you are somewhat rational investor, how can you, with 5% projected inflation per year, right, so that's at least 30%, 40% of your bond that goes away after a five year period of 10 years, even worse, how would you even think about accepting this rate? Like why does this market even exist? Everybody should have gone away, right? This money should be gone. Jared Dillian : Yeah, I mean, rates should be higher, interest rates are a function of a couple of things, he supply and demand for loanable funds. They're also a function of the supply and demand for treasury securities. I mean, ultimately, like if there's more demand for bonds and like it, it doesn't necessarily have to come from US investors, it can come from overseas or wherever, also from the Fed. I mean, the Fed is still buying $120 billion a month. So I mean, that's where the demand's coming from. Torsten Jacobi : Yeah, we has Harley on and his ETF is kind of a call option for increasing interest rates over the next couple of years and it's a slow moving, like you don't lose a ton, you don't have a huge negative carry, so to speak, where you only lose a little bit every year. And I think everyone agrees with this, but obviously it's down so far, right? Torsten Jacobi : But do you feel like we see much lower rates in the yields first, I mean, effective rates before we see higher inflation price in or we will definitely see interest rates going up? Jared Dillian : I have pretty high conviction that interest rates have bottomed and I think they will go higher. I just, I don't know when that'll happen or how fast it'll happen. I also don't know what the catalyst will be. But I do think rates have bottomed. Torsten Jacobi :  When you look into another topic that a lot of people are kind of worried about and I've been very worried, workily on the podcast is we've seen GDP growth relatively slow over the years and we've really seen a population isn't growing as much as the GDP growth via population growth and via productivity growth. Folks have way more information, they have all these entertainment options, but we don't feel like we get much more for the same amount of investment and that's the lacking productivity growth. So you feel like A, this is real and B, is this something we can do about it and should we do something about it? Jared Dillian : No, I think it is real. I heard something interesting and I'll remember who said it, but if we had this, we had these massive productivity gains 20 years ago, back when the internet first came around and it dramatically increased productivity. We were having productivity growth of like 6%. And that's gone down over time and you'd say, well, technology has gotten so much better. Well, the way people use technology has changed. For example, you used to work an eight hour day and you would work for eight hours and now people work for four hours and they're on Facebook and Twitter for four hours. So they work the same amount of time, but the internet has created diversions where they're actually not being as productive. And if you think about GDP, all it really is is the number of people working times how many hours they work times the productivity. And if GDP growth is slowing, I mean, one of the things you identified as population growth is slowing down, number two, how many hours they work, people are simply working less, average hourly earnings has gone down. You hear these discussions about working four day weeks and stuff like that. People work way less than they did 20 years ago and we just talked about the productivity part of it. So yeah, I mean, we used to have a consistent GDP growth of about 4% a quarter. And now it's about 2% to 3% a quarter. And if you look at Europe and Japan, it's lower than that. And that's where we're going. Torsten Jacobi :  Do you feel like there's something that policy wise we could do? I mean, I always feel like capital allocation is broken. That's why we have such low productivity growth because we put it in enterprises already have way too much money and we give them almost interest free money and it is almost interest free. We kind of price out all the other businesses, small to medium sized companies, basically anything that's not in the S&P 500 doesn't have a chance as a life anymore. Everyone is into this big trend following bigger, bigger, bigger, which makes sense to an extent, But it's like this, the stock market is trend following the venture market is trend following nobody tries something new, it seems from time to time. Jared Dillian : I mean, you've seen some crazy stuff because big tech companies, like you said, basically have these zero cost of capital. And by the way, when companies, if they have a zero cost of capital and they don't have any attractive investment opportunities, then they buy back stock. And that's another thing that's been going on for the last 10 years. Torsten Jacobi : I feel like, and I don't know if you read Nassim Taleb, he came out with this thesis and said, well, we really have to look into individual entrepreneurship in the sense of risk taking, right? So we have to take a risk, do something useful for society, and then we scale it up so everyone in the world can use this advantage that you've come up with, right? It doesn't have to be an actual business, but it's a personal risk that people take. Do you feel like, and he makes it sound like this is a big part of the missing productivity growth that is not enough distributed risk taking, but obviously his book is about fragility. Do you feel like that's something where, when you look at people and you just mentioned your friend from Facebook that you follow on Facebook, do you feel like we're returning the corner there as well, where we see this individual risk taking is really carrying on in the 20 to 30 year old group, or that's something that's still kind of alien? Jared Dillian : I mean, I think it's just a function of the capital markets, because I saw this before. I saw this in the dot com bubble, and you had a bunch of people trading and participating in the markets, and that was a short period of time that lasted for a year or two, and then it disappeared. So I think the same thing is going to happen.  Torsten Jacobi : So we have a bunch of people who go out there, slay the dragon, but we have lots of dragons out there, and then they come back and give us gold. I think that's kind of the metaphysical idea, how we can fix productivity growth. I don't know if there's more or less risk taking now than 10 or 20 years ago. Jared Dillian : I mean, if you go back to like, I mean, I think it's actually gotten better. I think in 2018, you saw some pretty crazy valuations of startups. The scooter company, so Bird and Lime had multi billion dollar valuations. You saw the dog walking app, WAG have a billion dollar valuation, that's kind of come down over time. You know, a lot of this was driven by a Russian to VC funds and also SoftBank, SoftBank alone is probably about 50% of the VC market and push valuations higher. Torsten Jacobi : Well, when you look at stuff that's not crazy overvalued where you feel like this is an opportunity to go long, where would you look right now? Is it energy stocks for instance that seems to be, well, when I talk to investors, they keep telling me about energy stocks and seems to be very undervalued, but where are there opportunities where you feel like people should take a look at? Jared Dillian : Energy, basic materials, agriculture, real estate, any inflation sensitive stuff. Energy's had a nice little pullback in the last month or two, which provides a pretty good entry point. Torsten Jacobi : A lot of people like the uranium trade. Jared Dillian : I think that's got a lot more legs in it, trying to think of what else. Financials look pretty good. If you think that rates are going to go up, which I think they are, the curve will get a bit steeper, banks, insurance companies, stuff like that. .... Jared Dillian  : And, you know, there are very few good financial innovations, and if you go back over the last 100 years, probably the biggest one is the 30 year fixed rate mortgage, right? That enabled 70% of people in the country to own a house. That was a good innovation. Just when the mortgage market, you know, the mortgage backed security was a good innovation. Securitization was a good thing for the mortgage market, it made the mortgage market more liquid, it lowered rates, so I think that was a good thing. When you start talking about, you know, things like CDOs and complex derivatives, I like to call that unicorn piss. You know, that's just complexity for the sake of complexity, and I think when it comes to financial innovations, like complexity is really the enemy, and I really, you know, I don't know, I mean, I hesitate to say this, but I think in the last 100 years, I think we've thought of everything. I don't think there's any more ways to slice and dice what we already have. I don't think there's going to be much in the way of financial innovation, and I think that's kind of reflected in the stock prices of the banks, you know, which haven't really, you know, they've done okay, but they haven't really done all that well since 2007, 2006. Torsten Jacobi : When you look into a world of DeFi, decentralized finance, right, crypto, do you think it's, I think we both will agree that it's a bubble, but do you think it's a crazy bubble, it's, but it or it has the potential to really basically get rid of all the banking out there, right? It's all the banking become computers, right, that run in the cloud and run on the blockchain. Do you think that's realistic? Jared Dillian :  I think it's realistic 20 years from now. Torsten Jacobi : And this is the cycle that all new technologies follow, right? So you have a new technology like the internet back in the late 90s, and you have this massive investment bubble, and then it deflates, and then you have this period of time over the next 10 or 15 years where people forget about it. Jared Dillian :  And if you look at a chart of the NASDAQ over the last 20 years, that's what happened. It peaked in 2000, it bottomed in 2002, and then it didn't do anything for 10 years. So I think Bitcoin is going to, not just Bitcoin, but crypto and DeFi is going to follow the same pattern. I think we are in the midst of a bubble right now, I think two or three years from now, people will have kind of forgotten about it, but these are important innovations. And yeah, 20 years from now, we might have the ability to do this. ... Torsten Jacobi : So when you go to Europe, you have the regulations that you see in the financial markets are extremely, well, I would say comprehensive, right? So banks are basically a piece of the government that is to an extent true in the U.S. as well with certain credit unions, but I think investment banks shows that there's another wall to this. Do you think finance is a good indicator of how well an economy does? Say we compare different countries, would you feel like we can begin analysts just the financial industry and then see, well, this is what we see in the financial industry and that's why we feel like this country is relatively developed, relatively free market, or that's not a good indicator? Jared Dillian : I think it's a good indicator. I mean, I can't think of too many times in history when the economy has done well, but the banking system is not. The banking system has always been an indicator of the health of the economy. Torsten Jacobi : Well, one more thing that I had, and we can make a few cuts here, personalities, and I think finance is really driven by major personalities, who are people that you admire, right? People that you listen to, but you also admire because they've done something incredible in the industry. Jared Dillian :  I had a boss at Lehman Brothers, who was very, very smart and also very, very ruthless and very, very focused, and he's been very successful in the industry. He was a mentor to me. He put me in charge of the ETF desk. He gave me complete freedom to run it, and he was a terrific guy, and I have a lot of respect for him. Torsten Jacobi : I'm curious from how you, when you look at commentators, there seems to be a part of that market that is very stable, very static in their opinions, you know, they have a similar prediction whenever you ask them, and then there's people who change their prediction on the other end of the spectrum, like in an instant, there's this, I think it's an analyst, I forgot which bank he was working on, he literally made within four weeks the prediction that Bitcoin, when it was still going up hit 150,000, and then four weeks later, he changed his mind, so I know it's going to go down to 15,000, because the market, and I'm not sure what changed, and the market actually changed, right, the movement there, the basically trend following, the trend where Bitcoin started to change. Jared Dillian :  I have some thoughts on this, you know, what's interesting, so, you know, as you said, I'm sort of a financial personality on the internet, and, you know, it's a competitive market, you know, there's a lot of people offering commentary and advice, and the people who are most successful financially, doing what I do, never change their minds, never change their minds, take a guy like Lacey Hunt, okay, he's been saying interest rates are going lower forever, he's been saying we're having deflation forever, he hasn't changed his mind, he has followers, he has disciples, he has people who hang on his every word, because it's this one view that they believe in, you know, and I'm more in the second camp, like I changed my mind all the time, I can believe one thing one day, and a couple of weeks later I can believe the exact opposite thing, and in terms of my business, in terms of writing a newsletter and getting subscriptions, it's actually not that good of a thing, because you know, people want you to be consistent over time, but you know, the markets, they have this property called non stationarity, it's a game where the rules are constantly hanging, okay, so you can do one thing in the markets, and it works for a while, but then the rules are going to change, and you have to do something different, so you have to be very adaptable, but it's not, it's not really conducive to selling commentary or advice. Torsten Jacobi : So would the answer be that if you come to a certain conclusion, and let's assume you're right with that, you just have to like wait out the trade, and as longer you can wait out the trade is better, and obviously with Warren Buffett, I think a lot of people overlooking that fact, he didn't do much in his youth, right, in his 20s and 30s, I mean he did stop, he educated himself, but he wasn't like a magical investor, and he started investing and nothing happened for like, what, 10, 15, 20 years, and then suddenly it really became a bigger number, and numbers are massive, but what I think is so unique about him is hat he basically has one similar, it has changed over time and morphed, but he has one similar investment style, but he's seeing the returns now compounded over 50 years, and that's what's giving him, what's giving him these big numbers, and he had to be very consistent to execute this, so is that the right theory, you come to a certain conviction and then you just wait for it to come true, and hopefully it's all alive when it comes through? Jared Dillian : So there's two parts to that, and one part of it is you need a lot of patience, and Warren Buffett has, that's his one virtue more than anything, he has a lot of patience, and you also have to manage risk and conserve capital, so that when your trade is out of favor, which it inevitably will be, you can manage your drawdowns and stay in the trade. Torsten Jacobi : Yeah, but psychologically so hard, right, because that might mean for 20 years you don't see anything in your P&L, the only losses. Jared Dillian : He was, what was the name of the firm he ran, International Value Advisors, I think, IBA, he was a value manager, a deep value guy, almost a stress, but like a deep value guy, and you know, back 20 years ago, he had assets of 20 billion, and it went down to 1 billion, and after 20 years, he climbed to the top of a building and jumped off, and he committed suicide. Yeah, I mean, basically right when value just started to outperform. So I mean, it's, yeah, I mean, it's brutal, like you, it takes an incredible amount of patience and an incredible amount of conviction to say that, you know, I'm right, and I'm going to stick through this no matter what happens, you know, just on a micro level, you know, I'm in the inflation trade, and that's been out of favor for the last couple of months, and that's been a little bit difficult. I've taken a drawdown of about 6%, which is pretty manageable, you know, but you, you know, price determines your mood, and it's very difficult to hold that kind of conviction when you're sustaining losses like that.  Torsten Jacobi : Yeah, it's kind of a buy and forget, right, you should almost never look at your portfolio again, if that's your strategy, right, but you accept massive drawdowns, if you feel you're going to be vindicated once that day comes, it's unpredictable when it comes. I think, well, when I see, you know, Eric, we now had that book about the dead philosopher, the most famous philosopher, the dead, and unfortunately, it's, you know, it takes a long time for your fame to become, to outlive yourself. I feel like this is what very convicted investors in a similar position, right, they built their philosophy, they hang on to it, and they're probably right, but during, in their lifetime, they rarely see, they only see the negatives in terms of social recognition, because they don't get any, right, everyone hates them, and they're outlaw, but then they really have to wait until the end, or often they don't even see it in their lifetime to see being vindicated and being right. There seems to be a connection that people don't really make, so I feel like there's a religion, there's a connection between religion and the VCs, very stoic investors in, in the industry that, as you said, haven't really changed their mind and are willing to sit it out forever. Jared Dillian : I, you know, I don't like taking drawdowns, I'm a little bit of a wimp, so, you know, I can, you know, I can, I have the ability to change my mind, you know, but with regard to the inflation trade, I mean, I think this is, I think this is a secular trade. And in the context of a couple of months, I think that's a, that's a pretty short time around the wait, so I'm willing to stick through it.  Torsten Jacobi :  But we print so much money, it needs to go somewhere, right? So for me, it's really mesmerizing versus black hole. We can say, yeah, as the price is certainly, but it's just a massive amount of money that we printed 60% of all the dollars ever in the last, what, 18 months? But where did they go? It cannot be 5% deflation. That's, that's, that's nothing. Jared Dillian : It's not about productivity or China or anything. It's about psychology. It's, it's 100% about psychology. Torsten Jacobi : I'm going to start finding a way to, to spend money. Thanks for sharing your thoughts. That was really interesting.

00:00:33 How Stephen got started in the world of finance and what motivated him to write his latest book.00:10:05 What is the basic premise of Stephen's analysis of financial statements (forensic accounting)?00:21:01 What is the fine line between fraud and creative accounting?00:27:22 What is Stephen's analysis of the Wirecard fraud?00:32:27 How well do the current accounting standards actually work for provide transparency into profits/ losses of banks?00:39:51 Where does all the printed money (from Central Banks) actually go? What is the best option to 'weather the current low growth environment'?00:51:10 How 'money printing' at this huge scale seems to be deflationary instead of inflationary? Stephen Clapham is a retired hedge fund partner who now trains stock analysts at some of the world's largest and most successful institutional investors. Stephen is also the author of The Smart Money Method: How to pick stocks like a hedge fund pro and hosts his own podcast. Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).     Stephen, thanks a lot for coming on the Judgment Call Podcast. I really appreciate it. Wow, thank you for having me. I'm looking forward to it. Hey, absolutely. I'm sorry about my improvised setup here today, but I hope you can still manage that. So you run a company called Behind the Balance Sheet and you also recently published a book that's called The Smart Money Method. And both I thought are really interesting and we want to dive a little deeper into both of the topics that you illuminate there. Maybe you can give us a very quick intro into how you got into the financial world in the first place and what inspired you to write the book and what's kind of the 30,000 feet view of what's in the book. Okay, so nothing inspired me to get into finance. It was purely accidental and serendipitous. I had accepted a job at a very senior level, one of the largest companies in the UK, where I was reporting to somebody that was reporting to the CFO, Finance Directorate. I was interviewed by the CFO for the job at a relatively young age and they gave me the job and they were delighted to have me and I accepted the role and they then called me up and they said, oh, we made a bit of a mistake because you're too young. You can't be this grade until next year and I said, well, what do you mean? And they said, well, you know, don't worry, only a little bit less money and there'll be a slightly fewer benefits and we'll make you up next year. And I said, well, I'm very sorry, but you know, as far as I'm concerned, we had a deal and I'm not allowing you to renege in that deal. If you have such a stupid philosophy that somebody has to be a certain age before they're qualified to do the job, then I suggest you go and look elsewhere because I'm not really interested in working for an organisation where merit doesn't overcome age. And I was recounting this tale and a friend of mine said, oh, well, that sounds a bit upsetting, but why don't you go into the city? And I said, well, don't be stupid. I don't know any of the cities for people with privileged backgrounds that won't suit me. And he said, well, no, I think you'll find that things are opening up and I said, well, how would I do that? Well, I don't know. How would I get? I don't even know where to start. And he said, well, I don't know either, but my secretary's husband, he works at a stockbroker and I bet you he'll see you and explain, you know, what sort of things you might be able to do. And I said, well, that'd be fantastic, so he called up his secretary at home and she said, oh, yeah, of course, he would be delighted to see Steve of Egan come in next Wednesday at 8.30. So next Wednesday at 8.30, I rock up to this stockbroking firm and this very nice chat Bob Carl spends half an hour telling me what it's like to be a research analyst. And I'm thinking, oh, man, that sounds like fun. And he says, well, why don't you come and work for us? And it was, you know, I hadn't gone there to get an interview, I'd gone there simply to learn and understand what the city was about. And I, you know, I went to work for him and it was a brilliant job. I really loved doing it, found it incredibly interesting, incredibly exciting. And I never really looked back. And so my career spanned the sell side where I was an analyst covering various sectors for many years, and I then was asked by one of my clients, a big hedge fund, if I would go and work for them. And I did that and I thought, oh, wow, this is even more fun because I'm doing the work that I really enjoy, which is, you know, researching companies. And I don't have to deal with a pesky clients because when you're an investment bank or you're on the sell side, there's a reason it's called a sell side because you have to sell to people. And although I really enjoy the relationships, the marketing part of it was, you know, a bit dull, you know, I mean, I remember one firm I worked for, you were given a big cardboard sheet every month and you did it all the days of the month and tick boxes and you had a list of clients you had to call and you had to make a hundred phone calls a month. Surely not anything to say, you know, I thought you shouldn't call people unless you had something interesting to say. Anyway, so I moved to the buy side and it was really an amazing journey, absolutely fantastic fun. And I then ended up setting up my training and research consultancy behind the balance sheet in 2018, the fund that I'd worked for, we decided to close it with the performance hadn't been very good and it really wasn't a lot, it really wasn't much fun coming in every morning at 7.15 and leaving at 7 o clock and not making any money and we decided to close it. I had assumed that I would just get another job, I found it more difficult because nobody wanted to employ an analyst aged 50. So I set up the consultancy and it's been fantastic fun and, you know, why did I set up the book? Well, I started the book because I've been doing all this training and I thought, well, maybe people would, you know, find the book helpful, I could write a book that was interesting and I had the basis of it and so the book was published in November last year and somewhat to my surprise it's been really very popular and, you know, loads of people have emailed me saying, oh, this is the book I wish I had when I was started in investing. Loads of people email me saying, oh, this is fantastic because we now understand what we should be doing. Some people email me saying, this is brilliant because you convinced me that I don't want to do my own investing because it sounds a bit difficult, but I've had all sorts of very positive feedback and the book, essentially, it's kind of got some of my actual real life experiences woven through it, but it's really a book about the process I developed as an analyst at very large hedge funds to research companies and so it's something like a how to guide, but it's a more practical how to guide. We don't really talk about any of the theory at all, we just go through how do you invest and how my process developed and how do I look at a company, so how do I start, how do I find an idea and then once I've found an idea, what do I do with it, how do I examine it, how do I explore it, how do I look at an industry, how do I look at a company and I then go through, I don't go through in great detail with the financials, you know, obviously I sell training courses which help people how to read a balance sheet and how to understand a set of accounts and that could be a whole book and I wanted the book to be something that anybody could pick up and that they wouldn't be turned off by it, that they wouldn't be put off because it was all about reading balance sheets, so we cover a bit about the balance sheets, we cover how to look at management and also stuff like how do you think about the macro, we put in, I finished writing it just as COVID started at peak, so I probably made June last year, I finished the book and I thought I really should put a paragraph or a chapter about COVID, started out as small and then I ended up doing a whole chapter on it which with the benefit of hindsight, I'm not sure that I should have included that, I think the book would have had a longer validity, a longer shelf life without it perhaps, but some of the points that I made there, initially they didn't look that smart because I had been talking quite a lot about the issues in supply chains because when COVID happened I felt that supply chains would get very stretched and it was interesting, you know, now I hadn't anticipated how long it would take for that to feed through into the system, but obviously there's huge supply chain pressures now. Yeah, I mean that's a whole other avenue we could talk about, but I love how positive you see your own career over the years and how you combine that part of that's what I love to do and obviously we know the financial industry pays really well and the interesting way you found your way into it, I think that's pretty unique, that's really awesome. I think one point that you're really famous for is being in forensic accountants, so looking into a company and just from their financials and whatever they have in their public reporting to see if this is a company that maybe makes things look a little bit too good to be true or is probably on the verge of being fraudulent, and we know there's a couple of really active investors who kind of do this all the time and there was a bunch of cases with Rebian where a lot of people said, well, this is the biggest fraud ever, there's so little technology, there's so much potential opportunity that everyone who is investing into this company basically doesn't want to see what's actually going on, it's empty promises and the balance sheet is basically, it's all cooked up and the technology as well. Maybe you can give us a glimpse, what are the things that you're looking out for when you do this? How do you determine there's a pattern of fraud or there's a pattern of something fishy going on? It's very kind of you to say that I'm famous, I don't think I'm famous at all and the forensic accounting is only one aspect of what I do and the thing is that I don't understand I don't believe you can be an effective investor or as effective as you might be without having due regard to the financial statements. Now, obviously in today's markets, there is a lot of stocks that are making very large losses that are very highly valued and people aren't really paying a huge amount of attention to today's profitability but you do for a very large number of companies, a very high proportion of the stock market, you do have to understand how the company makes its money, how it generates cash flow and even for those companies that lost making today, you do have to think about how they're going to generate cash at some point in the future and I know there's lots of people who invest without even opening their accounts, a funny story was I was approached by a group of private investors in London to do a course, an in person course for them and these are a group of value investors, they invest predominantly in small cap stocks and I agreed to do the day with them because I had some clients that paid for a day and I didn't have enough critical mass and so I put the two groups together and I said I'm going to go through a particular example, bring a copy of their accounts because they normally when people did this in my office, I would give them copies of the accounts but these people being value investors, they were chiselling me on the price and they didn't want to do it in my office, they wanted to do it in their premises so I didn't fancy carrying bags, the accounts are quite long right, so you've got 250 pages of accounts and you've got multiple copies, it would be quite heavy to carry with your laptop and everything else, these guys came, two of them came, they didn't bring their accounts, they brought the preliminary release and these two people were full time professional investors and they didn't even know what a set of accounts was, which I find this just bizarre, now they would argue that they'd been perfectly successful and they'd done well and they didn't need anything more than this, obviously if you're in a bull market and we've been in a bull market for over a decade, you can get away with shortcuts, however it's my view that no analysis, no proper research can be done in a company, it can't be complete unless you look at the financial statements and obviously if you're a professional investor and the bulk of my business is doing training for professional investors and every single one of them have a fiduciary duty, they can't not look at their accounts, so their accounts to me are central to an understanding of a business because of a financial representation of what's happening in that business and I can go through a balance sheet and I can tell you, if you showed me a balance sheet today right now and you didn't tell me the name of the company, I could tell you with a surprising degree of precision what sort of business it was, just by looking at the balance sheet, well without looking at being now, without looking at the cash flow and I think people just underestimate the power of financial statements, they're very much less used than they should be. But aren't they, and you outlined a couple of those ways in publicly, aren't they, and I think this is where I come in, I always feel we have all this regulation in financial markets, but it's kind of a, it's a tug of war between the regulatory fiat that's out there and says, well this is how you should construct your own balance sheet, this is how our gap works, right, there's certain accounting practices that are important to you and we have public accounting companies and we have regulators, but it seems like it's a cat and mouse game, you can always hack this, you can always come up with a way where you defer losses, where you bring profits into, that will be future profits, you bring it into the present, it seems like it's so easy to fake that a lot of people are discounting it and say, well, why don't I even look at this, if the company's basically can, well we know that Tesla has very strange cash flows that are definitely not positive, but they're suddenly making enormous profits and made it in the S&P 500, if something is at odds there, I mean the stock price was only moved because they went into the index, not because they suddenly made millions, billions of profits. Yeah, I mean obviously, you know, when you prepare a set of accounts there's a certain amount of judgement involved, there's a certain amount of estimates involved and of course an unscrupulous CFO and an unscrupulous CEO can bend the numbers and make them appear as they wish and you can do that for quite a long period, if you want to commit a fraud, you can do so, but I think, you know, every fraud that I've looked at has given off signals that would have enabled the competent investor to avoid and know that there was something wrong and to steer clear of it and, you know, the problem with a fraud is that, you know, it can do very well for a time because if you're making up the numbers, you can look very, very good, right, people don't make up the numbers to show a declining revenue, they make up the numbers to make them look good and so obviously what happens with all these situations is the stock goes up and sometimes goes up very steeply and can continue going up for years until the fraud is uncovered, but when the fraud is uncovered, usually it's a zero or a near zero, so I think the smart investor understands what they need to look at in order to identify these situations and then once they've identified them, they either steer clear of them or if you've got the appetite for it, you can go short and, you know, going short of fraud is a dangerous activity because the fraudster will force the price up against you and often you'll be in the company of other people who identify the same thing as you are, are also short and as you get this ebb and flow because the fraudster sees the share price going down, ramps it up again, the shorts get scared or forced to cover, the share price gets ramped up even more, more shorts have to cover, then more shorts cover, so you get this seesaw effect, but the ending is always the same because, you know, you can't continue a fraud forever because sooner or later you'll get found out and so if you're smart, you understand the rules, the accounting rules, you understand when companies are taking undue advantage of them and you avoid those situations and maybe, you know, have a long dated put option which will pay off over time or, you know, if you're a professional investor and you're prepared to ride the ebb and flows, then you'll be able to trade on the short side, but without having that knowledge and those skills, I think you're at a massive disadvantage and pre COVID, I've been pointing out that the number of companies in the S&P 500 and indeed in the mid cap space who were exaggerating their numbers was a record, I mean, it was like the latter half of the 1990s when there was a huge amount of fraud, there's a series called NEPA and the NEPA corporate profit margins after tax, if you plotted them against the S&P 500, in the second half of the 1990s the S&P 500 still carried on going up and the NEPA margin started to go down because there's crocodile jaws and exactly the same thing happened from the second half of the 2010s and the S&P is still going up through the roof and the NEPA margin is going down through the floor. Now, there are certain inconsistencies between these two measures because obviously the S&P 500 includes a lot of overseas earnings, more so than it did 20 years ago and the NEPA margins includes a lot of SMEs because they're based on the filings with the Inland Revenue Service, the Inland Revenue Service in the United States, so they're based on tax data, so there's an inconsistency between the two but generally speaking those two numbers, those two trends have always, when they started to go apart, they've always met again, they've always started to recover again and the same thing will be true this time, we've been in a period in which there's been an undue amount of fraud and if you're exposed to it, your bull market will end because if you've got a big position in a fraud and it goes to zero, it will really damage your portfolio and I think people have been too complacent. Yeah, I'm with you, I'm fully with you. What I'm interested obviously in is that where do you see this great line that someone goes to a fraud from a creative accounting standard, right? So when people ask me about Tesla, what I think about Tesla, I think it's one of the most creative accounting frauds ever but it's also one of the most forward looking, most interesting companies I've seen in a long time that also has massive scale effects that isn't a small player, so I'm really not sure what I should think of Tesla is that something I endure and I tolerate because I know this company has that potential in terms of making the world a better place, right, very utopian, not necessarily making a lot of money, hopefully that is part of the game but it's obviously very far out cash flows but how much should them, when you see these signs, where does fraud begin and how much of this would you discount? Where would you say, well I accept that because there is so much to this company that even if they are fraudulent, maybe it's just the CFO and the CEO has no part in it, like do you make this distinction or do you say okay there's one ounce of fraud in this thing going on? Well, I mean I've never said that Tesla is a fraud, I've criticised for that, that's coming from me. Yeah, I mean I've criticised Tesla's accounting and certainly there are a lot of things that are wrong with the way Tesla does its accounting and it's been able to present the numbers that it wants to present because it's been very inconsistent in the way it approaches various issues and the Tesla earnings are not really a proper reflection of what a more conservative finance guy would produce but it's slightly irrelevant because whether they're making $1 of earnings or $2 of earnings is not, today is not what Tesla is about and it doesn't necessarily make any difference to the share price but generally speaking, if I feel a company is fraudulently representing its earnings then I will not invest, it doesn't matter how good the story is because I believe that if I'm going to put my capital to work, I want to put it to work with people who have a high degree of integrity and honesty and if they don't have that, I'm slightly nervous, I think in the book, I can't recall exactly sometimes as I wrote it but I talk about investing with billionaires, family owned businesses have tended to be a very good place to invest, you run the risk with a family owned business or founder led business, you do run the risk that there could be a fraud because they're much more capable of doing something fraudulent but that's in a very small minority of cases and generally speaking, founder led businesses tend to do quite well and if you invest with billionaires, you tend to do even better and I talk about in the book, investing with crooks so if you have someone who has been to jail and they've come out of jail and they've started a business and the business has been highly successful, many institutional investors feel uncomfortable because they think if this goes wrong, people are going to point the finger at me and say how could you not have known because that guy went to jail and as a consequence, there have been instances where it's been possible to make very, very profitable investments simply because many institutional investors would shy away from the stock until the story became too good to ignore, once it becomes super successful, a much larger company, you'll go okay and you get that sweet spot where nobody wants to touch it, the business is doing really well, you can buy it really, really cheaply and then when people eventually get on board, you've made a fantastic return and you haven't taken a huge amount of risk because at the end of the day, that guy that started off in jail, he's found in the company always wealth is in the company, you're in the same, exactly in the same position as he is and I found those that can be really attractive and very profitable opportunity. With that exception, if I feel that there's something dishonest about a company, dishonest about management, usually it's better just to stay away because even if you think, oh yeah, I could make money in this, I think a big part of investing is being able to sleep at night and if you, you don't want to wake up at night wondering about an investment, you want to be able to sleep at night and devote your attention to the next opportunity or to managing your portfolio or whatever, so I believe that honesty and integrity and management is a must have. I don't know if you've had the chance and now we know the result, but if you've had the chance the last couple of years to look into Wirecard and Wirecard was a European business actually based in Germany that seemed to have cornered the market for credit card payments in Europe at the time. It turned out that basically none of their revenue actually existed, so they just swapped revenue between different subsidiaries and different third parties that partially existed, partially didn't exist and so they did this with a relatively small amount of money. So if I remember correctly, it was worth and market cap $100 billion, they were supposedly having about a billion dollars in revenue, a few maybe 100 million in profits, but the actual cash that has been found so far was way less than this. So it seems like with very small amounts of money they could create a massive balloon of revenues and then a massive balloon of market cap because the story was so good. That seemed almost too easy to be true and yes it was a little opaque, but it wasn't completely difficult to say, well something really strange is going on because nobody who was a user of this potential merchant service, nobody knew them in the market, right? There was always a big red flag, nobody really used them, but apparently they made a lot of money, nobody knew who actually used, which companies, which customers actually used that software. Well I mean, Moircard is pretty obvious, I mean the FT did the big expose, I think it was February 2019, if I remember correctly, I remember having an exchange on Twitter with Lucy McDonald who was then the global CIO equities at Allianz and Lucy is a fantastic person, brilliant investor and she didn't own Moircard and she said, well Steve, what is it a fraud? I never like to say in public, yes this is a fraud because if you say that and it is a fraud, they're going to come after you, they're going to start suing you and they're going to cause all sorts of trouble. So I didn't say Moircard is a fraud, but I said there are all sorts of question marks about this and there were some very clear question marks about Moircard. It had, if I remember correctly, a billion and a half of cash on its balance sheet and then it went and raised a Euro bond or, yeah I think it raised a Euro bond and then it did another one and I think at the end it had 2.5 to 3 billion euros of cash on the balance sheet and it had a billion and a half of debt, I don't know why would you, why would you have that, you know, if you've got a billion of cash, why would you be going out and raising debt, that makes sense, sounds like Uber to me, I'm sorry, it sounds like Uber, Uber has this massive cash pile right from the equity investors but they keep on raising debt as well, so they're taking money from wherever they can, that's how they formulate it. Well, you have to ask yourself, if a company has a lot of cash in its balance sheet, you have to ask yourself, well why would it be raising more equity or why would it be raising more debt, I mean cash, you know, in some European countries you've got to pay to hold cash, you know, why would you, why would you want more of it, most genuine companies are desperate to get rid of their cash and you know, I've been very involved with the Greensill de Bac and you know, highlighting what went wrong at Greensill which we started highlighting, I don't know, well over a year ago and one of the, one of the interesting things about the supply chain finance business is that many European corporates that've got cash are funding supply chain finance because of a way of investing the cash profitably in the short term without having to pay interest, negative interest rates on the cash. So you know, any, I think particularly today, any business that you see that has got a big pile of cash in its balance sheet and is then going to the market either for equity or debt, you've got to ask yourself, well is there a good reason for that? Now you may, I don't know the particular case you mentioned, I can't think of why there would be a good reason but maybe there is, you know, I don't, I'm sure there are companies that might do that, I mean one reason you might have is if for example you had a large lease book and you had a lot of equipment coming off lease and you had a lot of short term expires so you might just need more liquidity in order to manage that but generally speaking and certainly in the case of water card, the cash balances and the need for more capital was a very clear indicator that all was not well. Yeah, yeah that's a really good point, when you look at banks and particularly the ones that you know they're a little less step fast so to speak, what do you think of the accounting practices in the banking industry especially? I always feel it's kind of a big leap of faith that you have to take if you look into banks accountants accounts because simply most of what they own are securities that are marked to market and that can change at any time right, so there's a drawdown 40, 50% and then whatever was their profit for the last couple of years just evaporates in a few days. What do you think of the accounting system and how well banks are reflected in this because it seems to me it just doesn't really fit them or maybe I'm just seeing it incorrectly from the outside. Yeah, before I get on to the banks I should have just said on water card what was remarkable about it was that the FT, the big campaign, I think it was February 2019 and then you know Baffin said the other journalists are wrong but it took until June 2020 for the whole thing to unravel and this is the remarkable thing about some of these frauds is that you would imagine that as soon as the FT started asking questions, people started looking, you would imagine the whole thing would implode, you would imagine that stock market investors would run a mile but no, I mean it carried on and it's quite amazing to me how people are prepared to just not ignore all the evidence and still hang on to slender thread of hope that this was really something that was going to make them a lot of money. When it comes to banks, I have a sad admission to make so I worked for the largest financial hedge fund in the world and I was one of, I don't know how many partners we had, seven and eight and we had two portfolio managers, a banks analyst, an insurance analyst, a property analyst and I did the non financial stuff and I used to go out to lunch with my colleagues and the banks analyst would start talking to the insurance analyst and they could have been talking Dutch, in fact the banks analyst was Belgian so they could have been talking Dutch but you know they were, honestly they were talking a different language and from examining up close how some of the best financials investors in the world were looking at banks, I came to the conclusion that banks and insurance companies were for people who were more intelligent than I am. I'm just a simple guy right and banks are incredibly complicated. I remember Sunday Times in the UK was celebrating the 50th anniversary of its business section and they asked me to do a piece on how accounts have changed in 50 years and they managed, I said well get me a set of 50 year old accounts because you know we need to look at what it looked like and only one they could find was the Midland Bank and the Midland Bank accounts in 1967 I think it was, they were something like 30 pages long and it was basically just a balance sheet, there was no data at all and I then got at the successor company which is HSBC and the HSBC accounts that year, I think it was 2017 I might be wrong but the main accounts were 520 pages long, they also published four subsidiary bank accounts each of which was 200 or 300 pages long, just to go through the accounts would have been several man months of work you know because the detail in these things is an extremely difficult thing to do, I work with a guy called Mark Rubenstein who publishes a great newsletter called Net Interest and Mark like me worked at Hedge Fund, he ran the Lansdowne Global Financials Fund which was then the number two financials fund in the world and he knows banks inside out and backwards and if I ever have to do any work in a bank I go to Mark because the point you make is a more general one and this whole thing of having very complex accounts, lots of Mark to Mark accounting, lots of weird spurious investments, that is not a characteristic that is exclusive to the banks, you know if you opened the accounts of any of the Chinese tech companies you would see very similar pattern and they are similarly very opaque because you don't know how those investments have been valued, you don't know whether they have been valued on the basis of an open market transaction or a related party transaction, you don't know who has valued them, you don't know whether the basis evaluation is accurate and I think many of these companies are carrying investments in their balance sheet where the auditor probably doesn't know what they are worth, if anything you know I suspect the CFO of the company would struggle to value the businesses precisely and there is an inherent danger in that, the more complex things become the more opportunity there is for obfuscation if not fraud and the more complicated it is the less chance you have of getting an information edge without doing a huge amount of work and people don't want to do that, people don't want to invest that amount of time you know so if I, I mean if highly unlikely anybody would make me the CFO of a public company but if I were and if I wanted to cheat what I would do is I would make it super complicated because I know once a guy is above a certain level of complexity people just struggle their shoulders and they give up. Yeah, well yeah eventually you are going to run out of cash, it is kind of this pyramid we are building right so we create transactions between different affiliated third parties, we create these valuations that are not marked to market as you say it could be subsidiary that was just moved around different other subsidiaries and that's how we got to the market price, in the end I mean the cash needs to run out and currently we are in this space and you said that earlier that we are in this constant bull market but we also have this rise of the loss making companies which we saw earlier in the 90s and we keep seeing this every couple of years in certain stage of the mania but isn't that slightly different this time and here is why, we print so much money right and we still don't have any inflation nobody knows where all this money goes so that's a big mystery maybe you can help me understand this is like a black hole where all this money sinks in like we know there is people who work in the Japanese central bank they print literally billions every day and this money just disappears it's zero inflation and then the other thing is well if we have such low interest rates generally and the expectation is that they keep on saying though isn't that the only rational thing to do is to go into loss making now but future extensive cash flow so to just change the risk paradigm we basically just invested the call option that's what the millennials have figured out right you just buy call options and they hope for the best it kind of worked out the Tesla and a couple of others but that seems to be suddenly rational that you say well I might lose the whole thing but it's a call option for the future maybe long term in the future and that's the only thing that works because otherwise the growth the normal growth so to speak it's gone anyway so we're never going to go back to three four five percent GDP growth well you've you've made a lot of very bold statements there I mean you said there's no inflation I would disagree with that I mean I know that the headline figures say that there's been no inflation for forever but if I look at what it costs to run my household I can tell you that there is very very real inflation in my household I think we printed 60% including electronic dollars 60% of all dollars I were printed in the last 18 month and we don't have 60% inflation we have maybe 10% or 6% or whatever the number really is yeah but I mean we don't have it today you know you should never underestimate the time lags in the system you know economic systems are very complicated and the things take a lot of time to work through and there is this argument about you know is this current burst of inflation transitory or is inflation endemic in here to say I think quite a lot of economic commentators have said that we are in a new inflationary environment I listened to the podcast I'm trying to remember which one I think it was macro voices and they had David Rosenberg on and David Rosenberg I've got a huge amount of time and respect for it he helped me a lot in 2008 because he was very very she helped me understand the housing market and so on in America and I I respect for him and I thought he did a very good job of a very persuasive job of explaining why there wouldn't be inflation this time around because under Trump you 3% unemployment and you'd know inflation then so why should we have inflation now but I listened to a webinar with Dylan Grice who I used to know when he was a strategist at Societé Générale and Russell Napier who was former strategist at CLSA and who I've known for some years and who's a Palomine and who I think is one of the most brilliant people I've met and you know he's got an astonishingly powerful mind I mean just amazing and he last year said you know I've come to the conclusion that this inflation is coming to an end and we're going to enter an inflationary period and he's got some quite extreme views on the consequences of that I mean I just look at this very simply we have I thought when post the global financial crisis I thought they'd injected enough money to create some inflation and I was slightly surprised that they didn't manage to but you know we've done that in spades again on top of you know money being thrown on top of money and then even ever higher quantities it seems slightly impossible to me that we won't get any inflation and obviously we've got a period right now where we've got rising energy prices and whenever you've had whenever you've had inflation it's usually been accompanied by higher energy prices energy feeds into everything and so we've got higher energy prices we got loads of loads of businesses that are struggling to produce supply and what are they doing they're putting up price and we've had an era in which it's been an era in which the rewards have accrued to the capital owners and labor has had a really pretty bad time and I suspect that labor will seek to have a better time obviously in the 1970s you had powerful unions and they were better able to represent labor and have this cost push inflation labor led inflation and we're not in a period today in which that's as straightforward particularly when you've got the rise of the gig economy particularly when you've got globalization and you can send stuff to India or Vietnam you know I outsource some of my work and some of the subcontracted work to India and subcontract some stuff I had some stuff this morning from Vietnam you know I've got a guy in Vietnam who draws

00:00:31 How Mike researched and developed his theory of a market bubble in passive investing/ index investing? Are markets about information or transactions?00:08:01 Is the bubble of investing just a (bigger) change of the NIFTY fifty or the NASDAQ bubble in the 2000's?00:13:53 Does Mike's theory of passive investing predict higher volatility due to the changes in market structure?00:19:22 Is our low productivity growth linked to inefficient capital allocation due to passive investing skewing investments? Is the Fed to blame for the asset bubbles?00:26:57 Is the Fed's own forecast model broken now that markets follow a flow model much more than a valuation model?00:31:01 Is our retirement model the problem or the solution? Is a future crash inevitable? Is the small enterprise dead forever?00:39:13 How should contrarian investors position themselves? How committed can one be to an 'impending bubble'?00:47:45 What is America's contribution to the world? Does China now have the better approach to capitalism? Can we ever come up with companies that do things cheap and better (instead of just better)?00:55:05 Are societal changes solely to blame for changes in productivity growth?01:01:01 Can longevity research (and the ability to live forever) change how the world will grow?01:09:01 Should we always be 'smart investors' or is 'going with the crowd' often better? What are the dilemmas of the contrarian or cataclysmic investor? How do high profile investors deal with this?01:21:10 What other bubbles does Mike see in today's market and how can retail investors trade against such a bubble formation (if they choose to do so)?01:26:48 Will China start a hot war in Asia in the next 15 years? Will trade (and China's trading partners) matter? How is the chess board stacked towards such a war. What are China's incentives?   Mike Green has been a student of markets and market structure for nearly 30 years. Mike works with Simplify to create ETF products that give retail investors an edge. Before that Mike has worked with Logica Capital Advisers and Thiel Macro. You may watch this episode on Youtube - #100 Mike Green (The gravitational force of passive investing on capital allocation and geopolitics). Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).   Torsten Jacobi: Mike, welcome to the Judgment Call podcast. Thanks for coming. We appreciate that. Mike Green: Thank you, Torsten. It's a pleasure to be here. Torsten Jacobi:  Hey, so your claim to fame is really the passive investment bubble, and you also recently joined Simplify, one of the most interesting ETF creators out there. My first question is for listeners out there who haven't heard of this particular bubble that you've been describing for a couple of years now, what are the core tenants of your thesis there, and what do you think is wrong with passive investment? Because a lot of us think of this as a very safe and potentially very lucrative investing stone. Mike Green: Well, I think this is one of the challenges that in terms of my theory and what I've observed about the market and how it's playing out is that for most investors, there's a natural attraction to being in a passive vehicle. Your objective is very much to just try to match the return of the market, and so it feels like it is the right choice, and you're seeking out lower fees, you're seeking out broad exposure, you're diversifying as you would expect, etc. And so it is a winning combination from the investor standpoint on an individual basis. The problem is, like many phenomenon, when you expand it and it becomes the dominant feature, it becomes a tragedy of the commons. And so the first place you have to start with passive investing is to understand that the basic theory behind it is predicated almost referred to as the efficient market hypothesis. And so the efficient market hypothesis was a theoretical construct that was created in the 1950s and 1960s, most closely associated with Eugene Fama. The idea is very straightforward. The prices in the market represent all of the information or the best estimate, the best intersection of information that exists across the market. And this is the idea that prices are set on a fundamental basis. So I as a single investor look at Microsoft, I make a forecast of the cash flows, I estimate what the future performance is going to be. I make some estimate in terms of what I expect it to be worth in the future, and then I compare that versus my cost to capital, discount that back to the present value and buy Microsoft. So the theory is that millions and millions, potentially billions of people doing this contribute to a market in which it is extraordinarily difficult to gain an information edge. And that's a really important component is that the expectation is that prices reflect information. There's an issue associated with that, which is that prices don't actually represent information, prices represent transactions. So when you look at a market, what you're actually seeing is not where the price is right now. It's where the last transaction happened. And it's a presumption that we're making that the next transaction is going to be close to that price. There are few events in history where we have seen that not be the case. The crash in 1987 would be a great example. The crash in 1929 would be a great example in the volatility space, the events of Allmageddon, February 5, 2018, where the next morning you woke up and the price of a security XIV had fallen 95%. We've seen this in a couple of different situations. That is a good indication of this phenomenon that it's not actually information, but it's transactions that are occurring. And once you recognize that that's happening, then you recognize that passive players violate the actual underlying philosophy of what a passive player is supposed to be. According to the work of Bill Sharp, which is used and cited for the rationale for why passive outperforms an aggregate, the idea is very straightforward. An active investor is one who transacts, who trades off the information. And a passive investor is simply one who holds all the securities in the market. The problem is that leaves no mechanism for how you get in the market or how you get out of the market. It's effectively a pure paper portfolio theory. If I were to track the market, which is what an index is designed to do, then I would meet that criteria. But the minute I begin to participate, I change the underlying structure. That's the flaw in the ointment, because now what we have is we've grown passive to the size, the passive investment strategies, the vanguards, black rocks, even the fidelity, Schwab's, etc., of the world who increasingly rely on S&P 500 indices or total market indices. They are every day in the market representing the lion's share of the net transactions, the buying that is occurring. And when that happens, you need to actually start to disaggregate and say, okay, what is the mechanism that these vehicles are trading off of? And they don't trade off of information. They trade off of flows. The rules for passive are incredibly simple. Did you give me cash if so, then buy? Did you ask for cash if so, then sell? Nowhere in there is there any information about the performance of an underlying security. And within the indices themselves, you also get an inversion of the traditional process of price formation. So one of the things that I did as I began to develop this theory was I went out and I surveyed active investors, people like myself, discretionary investors. And I asked them a very simple question. When you receive a new inflow or you receive an outflow, what is your propensity to invest given valuation? So a Schiller type valuation, zero times or one times earnings up to 100 times earnings, what's your propensity to invest or to sell stocks when you receive an instruction from your end investor? And what you found in that is as you would expect, the discretionary investor is more willing to sell at high prices or high valuations and less willing to sell at low valuations. They're more willing to buy at low valuations, less willing to buy at high valuations. When you run a system that is built on those rules, then it's a mean reverting system. As valuations rise, people become less willing to deploy capital, valuations retreat. Passive works in the exact opposite fashion. As valuations rise, the incremental marginal capital, because you're doing so on a market cap weighted basis. So how does something get to high market cap? It rose in price. If its price is not directly tied to the fundamentals, as is rising in price, its valuations are rising. And so you end up with the perverse dynamic where the market becomes very momentum weighted. Effectively, the dominant flow of capital is money coming in on a momentum weighted basis, which means that the largest companies receive incrementally more capital. The companies that have risen the most receive incrementally more capital. And those that are lagging behind really aren't receiving any significant marginal inflows. It gets even worse than that because as we begin to switch from the active managers, firing the active managers, discretionary managers, and replacing them with the index or passive managers, that signal becomes amplified. The value based or marginal forward return based process of the discretionary manager is under redemption, meaning the stocks that they like are getting sold, the stocks that they hate are getting bought back. And the passive players are dominating it. And in my analysis, this is what's going on in the markets today. Torsten Jacobi: I wonder, and this is very fascinating. And the first time I heard this, I'm like, well, now it finally explains why value investing, and the whole idea of value is really rare, because it simply has made a ton of money the last 20 years. And that's kind of where I come from is where is this margin of safety, right? But where can I see low valuations that potentially rise in the future? And usually that's not what happens in the market. It's kind of a continuous trend following that we see out there. What I want to do is, is that a bit of a maybe bigger follow up to the nifty 50, right? So we saw this in the 60s, 70s, there is this information gap that you just talked about, there is market players on the market that see the whole market, right? They see all the investment opportunities. But there's a lot of people in a not so informed public out there who don't have the time for it. And they just go into the big names, right? They know that used to be Nasdaq in the 2000s. And we just want to be in Yahoo, we want to be in Petz.com, because it sounds good and we heard about it, right? That's the only reason we invest in it. We really don't care about valuations because we think about the future. And in the future, these companies will make a ton of money. And is it just on a bigger scale now that we see these valuations rise so much in the index investing that was kind of a theme that Warren Buffett gave us, I feel, and this will fall apart because the sharks, the smart investors so to speak, they are already circling passive investing and they will come down in it sooner or later, because it's just not such a smart idea to keep buying Apple the same stock, irrespective of the price. Mike Green: So there's a lot to unpack in that observation, right? Everything ranging from people seeking out safety to Warren Buffett. Let's hit each of those in turn. So a recreation of the nifty 50 in the 1970s, right? The nifty 50 in the 1970s was a group of roughly 50 stocks that people basically just said buy at any price, right? They were the Polaroids, the Codex, et cetera, the world that represented effectively unlimited growth potential. I think that there's an element of that in that you see the market narrowing and concentrating, but the question becomes why, right? Is it because people are objectively looking at the top 50 stocks and saying these represent a unique feature and was that the case even then, right? We kind of hear these things filtered through history, right? What I would suggest was likely happening in the 1970s was that you had a broker approved list that they were able to go out and tell their investors. This was also a time period where there was a change in what's referred to as the ERISA rules, right? Which govern all of the retirement pension accounts, et cetera. And so there was in all likelihood an approved list that people didn't have to seek out approval on an individual basis to trade those names. And so the market naturally concentrates there, right? It's a little bit like if you have a teenage son and they need to come to you to get permission to go with their friends in a car, but they don't need to get permission from you to take the car and go out, right? What are they going to end up doing? They're going to end up driving their car to a parking lot somewhere, leaving the car there and then hopping in their friend's car, right? Because they want to remove the frictions associated with it. Ultimately, that I would guess is what happened in the 1970s, right? I spent less time actually studying that dynamic of the market than I have in other areas. Today, you have an even more concentrated variant of that where the money that goes into retirement accounts in the United States, primarily through 401Ks and IRAs, we've introduced a series of rules that make it very difficult for a corporation sponsoring a 401K, right? Which is a defined contribution plan or for a registered investment advisor offering investment alternatives to their clients. We've made it very difficult for them to do anything other than the cheapest, lowest cost index solutions, right? They're actually exposed to liability and being sued by their clients for putting them into products that violate what's referred to as the fiduciary standard, right? Which is a standard that says, ultimately, was their best interest at heart rather than something else, right? Now, whether they're actually guilty of violating that when they put money into something other than a Vanguard product or into a State Street product or into a BlackRock product, I'm very skeptical that that's the case. But having been through legal challenges myself at various points in time, the correct strategy is to avoid litigation risk, right? And so everyone is kind of being forced into these strategies, regardless of whether they think it's a good idea. And then the last thing that I would say on that is, when we talk about the dynamics of value investing or the Warren Buffett margin of safety type approach, the problem is that we know in history this worked, but it hasn't worked for give or take the past 10 years or 20 years, right? It's a little bit more in debate if we include the dot com cycle. But people are ultimately forced to say, am I willing to pay for this theory or do I want to believe my own eyes, right? And increasingly, people are opting out of that process, right? There's no reason why a human being whose job is to go to work and figure out mortgage applications or to conduct surgery on people who have a brain tumor or to be the nurse who's attending under those conditions, right? There's absolutely no reason for them to be involved in a discussion around the theories of the efficiency of markets and whether active managers can add skill, etc. They just opt out because it's a confusing question. And so we're trapped in this situation where the mechanisms that are supposed to provide a negative feedback loop, in other words, meaning dampening these effects, right? Not negative in terms of bad outcomes, but negative in terms of dampening are being eviscerated and we're being replaced increasingly by positive feedback loops that amplify these events. Torsten Jacobi: Yeah, I find that I think this is this is just the other kind of this kind of this the other side of that coin is what the your theory predicts is because we have this this herd is impede into one direction, we would see higher volatility in events like we had last March than we would see otherwise simply because there's no discretionary, no smart virus left, right? Smart virus in our definition right now, they buy when the valuations are low and those are good investments are simply on the price. But what we see instead of passive investors who say, well, I don't I don't think there's something going on in the stock market. So I just shot up this buy algorithm that they usually have because as you say, they have no sell algorithm besides retirement, maybe, but generally there's only a buy mechanism. There's no there's no other side that works against this on selling securities. And so volatility is higher than we would see otherwise. And we a little bit of drawdown was 60% maybe in the S&P during March. It's it's pretty big, right? Even on a historic scale, it went down to what we saw in 1990 and 29, 1930s. Mike Green: Yeah, so just very quickly, it wasn't 60% or anywhere close, it was more like 30%. But it felt awfully bad. And this more important the more important feature about what happened in March 2020 was the speed and from February 2020 to March 2020 was the speed of the fall, right? So barring the single day type events around a March 1980 or October 1987. This was by far the fastest and deepest market decline that we'd ever seen, right? The question is why did that happen? Or was it was it unique to the dynamics of COVID, right? And the fact that the world basically came to a stop and we weren't certain what was going to happen? Or was there something in the structure of the market that contributed to that? My analysis is that it's the structure of the market. And that helped me in the immediate aftermath, to turn around and say on March 26, I published a piece that said, look, I think the markets are going right back to all time highs are going to go faster than anyone thinks. And the reason why is X, right? It's because of the dynamics of market structure. It was you can think about it as simply as when the events of January and February began to occur, many of the thoughtful discretionary traders looked around the world and saw the headlines coming in that this pandemic was gaining steam and that places like Italy were already shut down, right? And shutting down. And they tried to sell the market, right? And tried to short the market, tried to do various things. Because there had not yet been any impact in flows and employment, right? So Paychecks were continuing to roll into passive vehicles. You had this opposite impulse where the market was pushed higher. I would argue in February, you saw people who were too early, right? So we all are familiar with the movie The Big Short, right? And you remember the pain that Christian Bale, Michael Burry experienced as he was early to this trade, right? Investor redemptions, people firing him, you have no idea what you're talking about, etc. You could tangibly feel that in the markets in late February. People are sitting there going, what in the world is going on? Why are markets making all time highs, even as we have this pandemic going on, followed by this incredible crash, right? That incredible crash was effectively a very small fraction of passive players experiencing sales for the first time, right? So the active managers tried to sell. The passive managers did not receive the same net buy order that they normally are receiving. And as a result, the market very quickly shifted into an imbalance that caused a collapse. That's my analysis of what ended up happening. And the scary part about what emerged is if you look at the reports that Vanguard and a few others have come out with since, trying to effectively allay the concerns around this issue of market structure. Vanguard will point out less than 1% of our clients actually sold into this event. Well, my reaction to that is, well, what if it had been 2? What if it had been 5? There is no solution to that when entities of that size try to sell. Torsten Jacobi: Yeah, I would feel, I mean, given that it's basically just a buy program that BlackRock and Vanguard have right now, if money comes in, as you pointed out, if ever they want to sell more, then there's only the fact, there's nobody else, maybe some foreigners, maybe it's going to be Saudi Arabia who's going to buy that, because the price is so good. But besides that, I feel there is no entity left to absorb 10%, 20%, whatever they've accumulated. And I think this is a structural risk, but it's also, the question is a little bit, what is the actual yield on these investments in the future? And what I was thinking about, and I think this also is very interesting given your thesis, what do you see in productivity growth? So we all know that markets sooner or later go along with productivity growth. And the whole world goes along with this. The competitiveness of whole nations or whole places in the world goes along with this. What we've been seeing is relatively low productivity growth. And that's Peter Thielstein, someone you worked with very closely for a couple of years. And what a lot of other scientists pointed this out before, and researchers, what one of the thesis is, is that we are just investing in the wrong vehicle. So this is where the passive investing comes in. It's companies who might not give us a 10%, a 15% return on equity. No, those are companies who are already in layers and layers of that out there. And they're just scraping out 1%, a half a percent in growth. So our GDP growth also on our expectations of GDP growth have been going down so much. Because we're investing in wrong vehicles, we're putting the money, we are not efficient at research allocation and capital allocation, because we're just putting it in bigger and bigger vehicles out there. And we see this in the startup world quite a bit, where we see there is lots of demand in the really, really early stages, but then basically nothing until you're a unicorn and you go IPO of over $50 billion. Do you think that makes sense that it has such a strong impact on GDP growth? Mike Green: Well, again, I think that there's multiple angles there. So first, when you talk about a stock market being tied to elements like productivity growth or earnings growth, etc., that's trying to link it back to the fundamentals. And I'll just give you a very simple thought experiment. What if the government made it illegal for you to sell a stock on a downtick? So in other words, you could or you could only sell a stock at a new all time high. So you've heard me talk about this. So that sounds like a great idea. We're going to change the rules of the stock market because we want the market to be at all time highs. And all that means is that the market stops functioning. And so the classical example of this is exactly Nazi Germany, where it was viewed that the performance of the stock market was an indication of the success of the Nazi regime. Therefore, rules were set in place that prevented the stock market from going down. When you did that, you broke the role of the stock market. So the role of the stock market, and this is one of the things that I also have spent some time talking about, is not to provide retirement to people. That's just not its objective function. The objective of a stock market is to facilitate the allocation of capital. And so when we change the function of the market, when we shift it away, and our regulator is the Federal Reserve, for example, changes the objective function of the market from trying to efficiently allocate capital and set the marginal cost of capital through the discretionary application of investment. And instead, we flip it to a utility that is designed to guarantee a certain level of retirement for people in our society because we refuse to engage in the process of underwriting a social safety net. Well, then we've broken it in the same way that the Nazis broke their stock market and it will increasingly fail in its function of allocating capital. So I absolutely agree with Peter on that, but I do think it's really important to understand that by changing the rules and by changing the structure of the market, changing the behavior of the participants, we're increasingly inhibiting the ability of it to allocate capital. The second point that I would make is that when you look at the technology unicorns, etc., they're increasingly not going through an IPO process. Unless you're an actual market practitioner professional in the space, you tend not to pick up the difference between the two. But for example, Palantir went public through a direct listing, meaning in other words, it did not seek out a pool of active managers who are willing to understand and invest in Palantir and agree to hold it and effectively underwrite and sponsor it. They didn't seek out an investment bank that was going to play that role. Instead, they directly listed it onto the exchange and basically said, here's what we think the valuation is, here's where we're going to list it. And when it shows up there and the advantage of doing a direct listing or of doing a special purpose acquisition company is it actually expedites the process of index inclusion. So more quickly, the vanguards and black rocks of the world have to start buying these names. It's a trick that is being played. Instead of seeking out the active managers who are losing assets, you're trying to get the passive managers to be forced to buy you as quickly as possible. Torsten Jacobi: Yeah, it seems to me as a torrent of money started by the Fed who sets it artificially. It's a Soviet Union instrument. I can never understand why we set interest rates. I grew up in that part of the Soviet Union. I didn't like it. And we have this as the hub of our economy. We have a Soviet planning committee. I think it's 10 people who set interest rates that have a huge impact on what's going on in the whole country or basically in the whole world. And then also we started QE. We started all these programs to come up with an artificial liquidity and it's pumped into the same stream that we just described, this passive investment sooner or later. Because we know, as you said, if prices for securities drop too much, then retirement is broken. And then the whole U.S. is basically broken because we all rely, besides our house assets, we rely on a certain price of assets within a certain range. 10% is probably fine, but 50% real problem. Is there a way out or are we just mere in it until it goes all to zero? Mike Green: I mean, that's a really hard question, right? Because you're asking me to predict a future that.... Well, with all humility, I do not have the answers. I have models that suggest what can happen, right? And so the way I try to approach these problems is I try to figure out the rules that the players are forced to play by. And then I will build agents that effectively mimic that behavior, operate under those rules, and then I'll set them loose. And I will either give them capital or take capital away. I'll allow them to trade with each other, etc., to create a fast forward simulation of what the constraints or the impact of a market can be. Now, by definition, I'm never going to capture all the features of the market. And so where it becomes really interesting is when you have something like passive that is so large that it'd be a little bit like trying to ignore the white polar bear that's trying to break down your door, right? Just pretend it's not there. It's not going to get you, right? It doesn't work. And so you're able to capture a large scale picture of it. The behavior of the Fed is similar, right? So what the Fed is doing is the Fed is increasingly moved from a model where they use interest rates to target inflation and accelerating or weakening economy. And instead, they're recognizing, again, referring back to the efficient market hypothesis, that the market based signals allow them to theoretically expand their information set by working through what's called the expectations channel. So under that model, if stock prices are falling, right, the information that is contained in the market tells you that the economy is weakening. If the market is rising, then the information that is in the economy is telling you the expectations are rising, therefore, the economy is strong, right? By targeting that indirect mechanism, they're trying to effectively get a jump on lagging indicators like unemployment, recessions, et cetera, right? Famously, if you look at the NBR declarations and recessions, they don't occur for 6 to 12 or even 24 months after the event, right? So it's pointless from a forecasting standpoint. The problem, of course, is if the Fed's model of how a market works is increasingly at odds with how that market works, right? So if it's no longer an expectations channel, and instead, it is a flows channel, and that behavior of the market is increasingly driven by the changing character of the holders moving from active discretionary managers to passive managers, if that's clouding the information that you're getting, right? It's like driving through a rainstorm, right? Your windshield is filtering information in a way that it can be confusing for you. You should lower your speed. Ironically, because there's increasing reliance on financial assets for retirement and for spending, particularly for the baby boomer generation, the Fed almost needs to react faster and faster and faster, right? So doing the exact opposite of what you would expect if you're driving in a rainstorm, right? That in turn, if I can predict the Fed's reaction function, and I know that the Fed is going to step in and the Fed is going to try to support financial assets, well, that tells me, as a professional investor, that I now have a Fed put, right? That the regulators are going to step in and support asset prices, well, that encourages me to put on more leverage, right? And to take a more concentrated position and hold less margin of safety because I know they're doing it for me. And in fact, if you have an asset like a US bond, right, that has, because of the Fed's reaction function, now has a negative price correlation with the risky assets, right? Because people expect that the Fed is going to cut interest rates on a risk off event. That would cause the price of the bond to go up, right? So that becomes the same behavior that I would expect from an S&P put. The difference is an S&P put loses money over time. The bond makes money over time as long as interest rates are positive, right? And so I now have a positive carry put. Well, if you run through the math of what the optimal portfolio looks like under a positive carry put, it moves to a levered portfolio. So instead of a 60 40, you move to a 150 100 portfolio. And when you move to a 150 100 portfolio, the demand for financial assets rises, it forces prices even higher than they otherwise would have been. And now we have another positive feedback loop that gets created, right? And so it's positive feedback loop after positive feedback loop that's propelling this thing higher. Eventually, the Fed is going to be forced to respond in one of two ways, either by directly buying financial assets on a risk off event, right? And that is, you know, just to form a closet nationalism, but all the rewards are being given to those who own the assets, or the Fed is going to have to try to get bond prices even higher by taking interest rates negative. And the problem with negative interest rates is it takes that put that I just described to you that says it's a positive expected value put, and it turns it into a negative expected value put, right? So when we cross that threshold, my expectation is actually that the system begins to break that levered portfolio has to be delevered. That's unknowable, right? I can't know that that's what's going to happen. But that's what my model suggests occurs. Torsten Jacobi: I feel like we are what when you said that earlier, we didn't build a retirement model like Europe has done and a lot of countries in Asia have done that's run by the government. What I usually don't like about these models is they they just distribute whatever comes in, right? So whatever billions come in, they distribute it right away. So basically the idea is we can never spend more than we take in, which is great. But on the other hand, there's really no incentive to invest in something useful to invest in your own future. So I think the idea that we put our money into a potential economic growth should reward the US, right? So just just seeing that capital allocation should put us into one, two, three percent more GDP growth than anyone else in the world. And we are a bit like that, right? So our GDP, it has more volatility, but it's better than in Europe and it's better than Asia. So I think this is kind of a winner. And now we are dealing with the with the after effect of being on the winning side of that construction of society. And is there anything else for the crash? I mean, in the end, I think people get the message, I think they're smart enough to realize what's going on, but nobody has to worry about it as long as the asset is rising, right? It's kind of like the house prices. Yes, we heard worries about the big shorts that was out there, that message, but it was completely ignored because people had no incentive for this because for 30 years, they were only rising for 50 years. It's bad. The only way out of this is the big crash of whatever passive investments we're seeing. And people actually have losses. They have retirement portfolio and they say, I want to do this again. I got to get out of stocks now, stay in bumps, or I don't know, do my own startup, whatever the alternative for this is. Mike Green: Well, so to me, the crash is not the solution. It is a symptom of the way the system is set up, right? And I would actually argue that the likely outcome from a severe crash becomes a loss of the role of markets. Effectively, we in hindsight, after the event, begin to make the regulatory changes that we probably should have done in advance, right? So if you see people's pensions destroyed or 401ks destroyed in a market crash, is it politically unacceptable to allow those consequences to emerge, right? Do we end up with money printing in the form that we had with the coronavirus? I think the template has been very clearly laid out. And people are very aware of that, which is part of the narrative around, well, eventually, the dollar is going to collapse. And therefore, you need to be in gold, Bitcoin, whatever else, right? Buy real assets. Again, the future is unknowable. I just can't emphasize that enough. But there are components of inevitability around that in systems dynamics as a phrase. It's called posiWid. The proof of a system is what it does, right? And so when we move to a system that directs savings and retirement assets towards the large publicly traded companies, right? And so even within the Vanguard Total Market Index, it is limited in its representation, basically, to companies over $100 million in market capitalization. And you can see a very pronounced effect when a company becomes eligible for inclusion, right? You saw that with the S&P 500 and Tesla, for example. When that system is set up that way, what it should lead to is a decline in the number of smaller companies and a decline in the number of privately held nonpublic companies, right? Because they have a much higher cost of capital than the subsidized cost of capital created by the inclusion, the creation of these rules. And so this is exactly what we're seeing. We're seeing a loss of dynamism in the small privately held business space and a concentration of resources at the large publicly traded space, right? The unicorn phenomenon, as you might highlight it, right? You cross that chasm and you effectively suddenly enter into a world in which almost unlimited capital is available to you. Tesla, again, would be a good example of a company that has been able to tap capital markets to obtain funds that otherwise couldn't have AMC, GameStop, et cetera. They're all doing the same thing. That's just the way the system is set up. And so it's likely to continue in that fashion. And the frightening thing for me, right? You mentioned the dynamics of warning about the housing bubble or warning about the crash in 2000, et cetera, is that people tended to learn bad lessons from that, right? So the lessons associated with housing were that, oh, well, housing prices got too high and therefore they crashed, right? Well, that's not actually what happened at all, right? The system was set up so that it encouraged fraud and it was the frauds, the first payment defaults that resulted in the structured products, the MBS, effectively failing versus expectations. And once those models were called into question, pricing model uncertainty played through and suddenly you could no longer lever your portfolios and sustain that demand, right? That's what the big short was really all about. We're now at a point where 10 years later, housing prices are much higher, right? And they're even higher in a lot of ways relative to incomes and rents, et cetera, than they were then. Why? Why has that been able to happen if that was so obviously a bubble? Again, it goes back to what's the structure of a market. The thing that worries me most is that throughout most of human history, the vast majority of people had no access to owning the means of production or owning their own house, right? If you were in the Western societies, you were a surf who existed on a thatch covered shack that the Lord of the Manor owned and you could be ejected if you refused to do the work that he wanted you to do, right? You had no mechanism by which you could gain ownership of that or get freehold status. The idea that you could have an ownership of your local factory was completely absurd, right? This is part of what spurred the growth of communism

00:01:00 How Thaddeus got into philosophy and theology in the first place?00:05:45 How political pluralism should work? Is the US actually pluralistic?00:12:23 Has liberalism built a super structure of metaethics on top of religions. Are religions (too) boxed in by the liberal structure? How has our consciousness already been changed by this structure?00:19:13 Is the treatment of religions and reality comparable? How should philosophy deal with quantum physics?00:30:03 What did postmodernism contribute to the current state of philosophy?00:35:03 What did Friedrich Nietzsche really try to tell us in 'Thus Spoke Zarathustra'? How much of his depression should be attributed Christianity?00:39:03 Why are so many people falling out with active Christianity? Is it connected to the different role of idolatry (the replacement of the divine) between the older Abrahamic religions and the New Testament?00:45:02 What kind of love is the most fulfilling - self-centered or selfless?00:51:02 How does Ayn Rand's philosophy (Objectivism) fit into the high regard that is given to selfless love by philosophers? Is altruism self love or selflessness?00:53:01 Why do we have this endless potential of addiction? Is addiction a coping mechanism for reality? Does it help us reconcile long-term and short-term goals? Is it better than being stuck in place?00:57:34 Is religion a system of societal error correction? Do religions give you better life goals (and free you of addictions). Have religions become too lazy and are not challenged enough? Has postmodernism shown us how uncontested religious ideas are a problem?01:07:13 Is the catholic church a good model for a 'world government'? Thaddeus Kozinski is a professor of theology and philosophy at the Divine Mercy University. He is the author of Modernity as Apocalypse: Sacred Nihilism and the Counterfeits of Logos and The Political Problem of Religious Pluralism: And Why Philosophers Can't Solve It. You may watch this episode on Youtube - Thaddeus 'the Catholic' (Pluralism, Liberalism, Postmodernism, Idolatry, World Government). Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).     Today's welcome to the judgment call podcast really appreciate thanks for coming You're welcome. Thanks for having me on torsten. Hey, absolutely I looked into you a little bit and there's two books that you wrote and it stood out and got quite a bit of recognition One is where you talk about what role does religious pluralism have in society? How nation states should actually be a construct and is that even possible which we all think it is right? So that's kept I guess the consensus and the other book that I took a quick look at is How Catholicism really fits into modern society and what what happened to Catholicism? Because it went through so many changes at least the public perception during the last 100 years So i'm excited to talk about this and you're also just in that before when we spoke earlier you mentioned A couple of other topics that I think are really relevant to today's discussion about what's going on in the world So maybe like my first question is how did you start with philosophy and how do you select those topics? So why are certain things closer to your heart like those topics? We just talked about and others that you come across from what you feel others are not as relevant to you You just leave them by the wayside a little bit well, I I started out in college as a pre med major math and science Towards my junior year I was reading And I wasn't practicing religion at this point. I was kind of a Nietzschean In my in my behavior and thought even though I didn't know who Nietzsche was, you know what I mean? I was sort of uh, I was a de facto Nietzschean living for extreme extreme experiences trying to defy uh the status quo you know Trying not to be a conformist all that and I was searching though at that point And I I actually read one particular book which sort of opened up a whole new world to me And was called the screw tape letters by c.s. Lewis Have you heard of the book? I have not no I have not so the screw tape letters are fictional letters written from uh a devil in hell called screw tape To his nephew wormwood and the whole book is about how to How to get this one particular individual into hell and so what lewis does is he incorporates a lot of uh social commentary and spiritual truth in this But what happened to me when I read that was I thought wow, this could be true There really might be the spiritual world out there of of truth of comprehensive metaphysical spiritual truth And I I really felt the the the reality of that from this book It really it really floored me And so at that point I got really interested in reading reading these things. Um reading spiritual works of lewis and uh other other theologians and That got me interested in moving away from the sciences into philosophy and theology and so um I then uh Enrolled in a program called uh saint john's college uh in anapolis, maryland, which teaches the great books only They're one of the first great books colleges and I took the master's program there and read through the whole canon of great works All the philosophy theology literature history that I didn't really get uh undergraduate Um as I was going through that program. I discovered playdough who became uh, I just fell in love with his writings especially the republic And what really floored me was his discussion of democracy and book eight of the republic Where he basically says that he depicts democracy as a kind of relativistic Carnival of everyone doing their own thing and everybody's happy and self satisfied Except that it's the beginning of tyranny For playdough because what happens is is in that vacuum the tyrant Is born and the tyrant is completely a slave to his passions and makes everybody else enslaved to his will And that just floored me. I never I never read anything like that and it he also described the way in which the political order is Uh, a kind of macrocosm of the order of the soul And that was also uh new to me and that got me interested in political philosophy And uh, I had also become interested in the catholic intellectual tradition, particularly its philosophical tradition Combinating in st. Thomas Aquinas So I went to catholic university and and took 12 courses Uh in for my phd. Uh, a lot of them on st. Thomas Um, I discovered allister mackentire's writings at this point and his radical critique of secular liberalism Um, and I also discovered the social encyclicals of the popes, especially leo the 13th Um, where he talked about what a christian political order looks like and should look like and how it connects to the truths of the gospel And so at that point I decided I wanted to write um, my dissertation on Uh, what I call in my in my book that came out of that the political problem of religious pluralism um Looking at plato looking at Aristotle looking at Aquinas looking at jack baritain allister mackentire john walls Um and seeing what the problem really was Uh in our culture And and that's what I tried to um Figure out in that book. Yeah, that sounds fascinating. I mean those are I I feel I've only even heard of the subset of those books And I've only read a couple um of them as well. Um, this sounds really fascinating when when we look into Let's say a popular opinion is that political pluralism So the the the ability to To and compass all kinds of religion into one nation state kind of what the what the u.s. Um It kind of isn't because it's kind of based on a on a christian philosophy, but it kind of Um prides itself in disability to it. So any anyone with any kind of religion and have anyone that have a guaranteed ability to To practice that religion and bring it into this this microcosm of what's modern, um america First question would be do you feel america is? Pluralist is really pluralist as you would perceive it and be what do you think it's not working out so well? Uh the answer to the question of whether we have a genuine plurality of And even and even from the beginning of the founding is genuinely pluralist is is no Um, and you have to sort of think about what it means to be pluralist. Um Uh, you know John Locke in his letter on toleration Um said that uh, the the true the mark of the true church is toleration Uh, he also said every church is orthodox to itself And in his uh Other writings maybe including that one as well. He He forbid uh, both atheists and catholics to be part of this New enlightened, uh, social contract. The reason he did that is because he had a suspicion there that Neither the atheists nor the catholic could actually abide by Uh, the kind of implicit rules of the social contract and what the rules are there is a sort of religious relativism Um, in other words, uh, you could you could practice your religion your philosophical doctrines Whatever you think about values, uh, in the civil sphere in the sphere of private life But when it comes to public life when it comes to the laws Uh, when it comes to the the sort of life of the common good, it's the civil society that determines these things Well, what that means though is that the civil society the political, uh, authority has decided that no religious truth or institution such as the catholic church Has any political authority whatsoever has any authority to determine Um, you know Uh Reality, uh, it's like like he says every church is orthodox to itself So, um, in my opinion lock was was pretty much an atheist. Um, and his his christian noises were superficial and rhetorical What he's really setting up was the first secularist purely secularist state And that is indeed what we have in the united states. It's not a christian, uh, nation It may have been full filled with christian citizens from the the colonies But uh, insofar as you have the constitution and declaration what you really have is a secular regime Uh, where religion is, uh, ultimately privatized And and the church has no political, uh, moral authority whatsoever And so what I mean by saying that pluralism doesn't mean that it's not a christian nation Pluralism doesn't exist is that in order to, um, you know, live in an american culture You have to kind of adopt at least de facto or a modus fivendi A kind of strict separation Of your deepest held beliefs And and the and the common good in the political order, but this is this is a very, um Uh, distorted and perverted way of understanding, uh, your religion Um, the catholic religion for instance has things to say about the common good about the truth and about the purpose of human life It has things to say about, um What political authority is where it comes from and how laws should be made and what and what they should be ordered to It's not a private institution In fact, it has a higher authority than any state because it was instituted by god himself Now when you when you go around and interview catholics about that issue Um, and I was first introduced to this way of understanding political theology by reading leo the 13 Specifically his encyclical called immortale day on the christian constitution of states Most catholics and christians and theistic believers in general um When you ask them the role of their religious beliefs their practices their church um In relation to public authority political authority the culture they will give you an answer That is more or less lockian Which means that we're all lockians now, which means that we're not really pluralist Okay, we have superficial differences in our religious confessions, but we're all accepting a certain understanding of the relation of church and state of the supernatural the natural of reason and faith of nature and grace of um Of the sacred and the profane We're all basically accepting a more or less lockian enlightenment Uh liberal view and I'll just finish with this. Alistair McIntyre says um, what we have in our society are Radical liberals and conservative liberals, but we're all liberals and there isn't a place in public discussion where Liberalism itself is put to the critique is put under scrutiny Because what what's really going on is our our religion is big l liberalism and most people are Are basically practicing denominations of big l liberalism Catholic liberalism protested liberalism even muslim liberalism Atheist liberalism, but the problem is is that the the the main architectonic mode of understanding your own beliefs The relation to your life the relation to public life Uh are all filtered through this ideology Which is antithetical actually to authentic traditional um religious and metaphysical truth Yeah, so if I follow this correctly What and this is this is certainly interesting What do you say we don't have the pluralism because the flow of the religions on its they don't really stand on its own they're not able to To express all the knowledge that they have they stop short of this and we have this this the super meta meta Physics on the method ethics on top of that that actually determine the place of religion So religion cannot grow out of its place of boxing and every religion is hope it's in a similar box So to speak but the actual That the the meta ethics that we have accepted is liberalism and that is something we don't really see right So this is something that came off the enlightenment when we talk about religions all the time But we all feel and I I see this slightly different But I think the popular consensus is this is something that helped the old people It doesn't help us as much anymore. It's still around but the utility has gone down That's kind of what I get from most guests here on the podcast They say if it even has the utility it's so small we can ignore it. I I see that differently I feel there is quite a bit of utility still left But the actual superstructure now is how do we We how do we determine and I mean there's a nation state. There's a global government something that we all expect to happen in The year let me just sit on top of that, right? Let me just jump in with the way you frame that it's very interesting Um, most people don't see any utility now in religious belief and practice. You see more utility That's exactly liberalism liberalism, uh makes everything a means to an end Even those things that are ends and so the idea of looking at religion As a useful thing like even george washington or john ams. I forgot who was said, you know Um religion is good for you know, uh american culture keeps people good and you know, okay The whole idea of religion Of truth of god himself is that it can never be Merely a utilitarian good it is that which everything else is ordered to including the political order Uh, and so but I'm just reading i'm just reading nicolas weight. That's something I I and I think it it goes to the quarter I'm just reading nicolas weight and uh, I think he's getting to the heart of it as as well as as I I couldn't he's really going into so what is the survival value? What is the utility value not just in making us richer, but actually it's a viable value. So why are Religious groups usually blessed with a higher fertility rate. So that means we have more likely answers to those of more religious people as non religious people there's especially good example with the roman empire where in the the older greek Parts the fertility rate was terrible kind of what we what we see right now And in the new christian population, which was initially very small. It was a huge fertility rate so they basically took over the roman empire from within and I I strongly believe they this the utility the survival is the ultimate Utility out there because we all need to survive and our genes need to survive and I think this is this group evolutionary um Biology in terms of how would your group can survive and I think it really illustrates as well I think this is where religion fits in so well and I think this is still true This hasn't changed and I think any kind of superstructure we put on top of this will never change that No, I agree with you that those who get married and have indecisible marriages Tend to have healthier lives too. That's true too. Um, I mean these are all the benefits. Uh, you might say of of living a A life that perfect your soul. There's going to be um, you might say fringe benefits, but again What we're dealing with in the area of religion? um Is something that evolutionary biology can see in from a certain lens, but ultimately it's it's not really what it is It's not what it's about. It's not it's um, again, it's it's we're dealing with so when you mentioned survival as being the only end That's not true or that's debatable at least physical survival Um, obviously the the christian religion teaches us that the ultimate purpose of life is eternal salvation, but god this life is a trial It's not meant to just be a long life or even survival um, and so, um, you know that truth trumps all other true scientific philosophical economic evolutionary biologist biological But let me let me just get back to something. I just want to sort of give you a couple instances of of my thesis about the way in which um Consciousness is transformed by uh, second liberal secularism even in even in religious people um, the the most caricature example is is mario qualmo saying Uh in the 90s, perhaps I forgot it was that you know, I'm personally opposed to abortion, but uh publicly. I support it So we're dealing with an issue of something where you're he's completely divided in his public life and his in his life as a governor um He's going to promote what what he believes privately is the is the murder of unborn babies Because that's what he's supposed to do as as a good, uh, american uh, politician The other example is um, justice kennedy in plan parenthood versus kasey supreme court decision in 1995 Just kennedy is a catholic and he he gave this um This this this statement as a kind of basis for this decision which had to do with abortion rights um at the heart of liberty Is the right to define one's concept of existence? of meaning of purpose Uh of the cosmos and the meaning of human life So if you think about this, um, that's like a first commandment. You have the right to determine reality. It sounds like nichia most um And that is the basis of liberty as uh, david dc schindler has uh come out in a book Very helpful. Yeah, I highly recommend, uh, a book called freedom from reality by dc schindler our catholic theologian um He he argues that that freedom has become um, the ultimate end, but what what what freedom is is potency over actuality in other words the constant um multiplication and availability of options Each option is equally insignificant non teleological Non authoritative but as long as you have the option you're in this Perpetual state of potency to to change your life to to make decisions to change your gender or whatever it is That understanding is a metaphysical understanding. It's false. Um, it It basically is a kind of a front to the actuality of reality of god. It makes us determiners of reality That's very well articulated by justice kennedy there And so these are the deep metaphysical Um problems the metaphysics even before the spiritual the metaphysics is what we're dealing with We have a kind of liberal metaphysics that is Uh, colonizing everyone's thinking and acting and they don't even realize it that that's what I see Yeah, I think this is a fascinating view that I agree with you that isn't really put out into debate as as much and uh, you know, I just said alexander barton a couple of episodes ago And it's something he he's been pondering with is basically when I when I read his books correctly and there's a lot in there is We we we gonna see reality More like quantum physics and what he means by this is quantum physics basically does away with this one true reality one Unmeasurable reality. We suddenly have maybe multiverses. We suddenly we can't really say where the particles are We know they are somewhere in that club, but we can't measure them if we do they go it goes away, right? So I think that is there is in philosophy Especially there is a way to deal with this this problem that the what's kind of there? What's newton's problem right newton felt we can solve this we can find the ultimate truth The ultimate truth is close to where god is and once we find out the ultimate truth We just we just scale up and I think this is what we did with the with the enlightenment But now we we realize that there's so many different truths out there So the speed of light is the truth, but can we overcome it? Yes There's a lot of different ways now We also know that quantum physics and on its basic philosophical challenges It doesn't work with any of the truth, you know spiritual spiritual or physical But the physics can't I mean if you're modern day physicists and want to describe That quantum physics you you sound like crazy person you sound like or you're in some crazy philosophy you sound worse than the Lenin and What I'm trying to say is what do we challenge if we say if we challenge or if we adopt this view that there is not just one single reality Is quantum physics? And the way we see the world there which is it seemingly from my point of view ultimately that there is no single truth There's no single worldview. Isn't that what we do with religions right now? And don't we have to Look don't we have to be guided by quantum physics and philosophy because ultimately we have to solve that Yeah, well, I think a good author on this question is Wolfgang Smith He's wrote he's written quite a bit on quantum physics and theology And he makes a distinction between the mathematical modeling Uh in the natural sciences, especially in the modern enlightenment modeling view a representational view and the sort of deeper perennial philosophy understanding of reality There is of course an interplay between human knowledge and interpretation and perspective and and the real And it's not as if the enlightenment view from nowhere where all we have to do is come up with this um airtight universal cultureless historic history lists Perfect Cartesian kind of modeling where we can then see reality as it is regardless of perspective Regardless of religious belief Relate regardless of our historical cultural situation I think the good thing about post modernity And and I guess quantum physics is that it's taken away that naive realism Uh about how we encounter reality, but I think we go too far When we make statements like you made where there's more than one reality or there is no architectonic, uh, You know metaphysical reality that we can know as it is Um, I could just give you a pretty clear example of how that's self contradictory. Um The law of non contradiction in logic can never be violated Um, so no matter what you you may think that physics is telling us the statement that For instance, there is more than one truth. Okay, that statement itself is either true or false um, if it's true then it's then Then then that statement itself is either true or false about that multiple reality But now you have the easy way out would be making it um Making it relatable to the observer kind of what would Einstein did, right? So if if you move if the if you take the the the movement of the observer into account That's how suddenly the the space time was suddenly not the same I mean space time is still the same but the the time works differently depending on how quickly well But but see that's that's easy way out, but but that statement itself is not perspective. Uh, it's not perspectival. It's absolute uh to say something like um reality is is uh Is determined to some extent by the Perceiver is that statement itself? Uh perceptually determined because if it is then someone else might have a different perception and not accept that what i'm getting at is You you you fall you fall against the rockhard reality of the law of noncontradiction Aristotle said uh in his um in his law in his organ on um when he dealt with uh the law of noncontradiction Um, he did not try to prove it That demonstrate the truth of this principle. The principle is something cannot be and not be at the same time in the same respect Okay, x is x Uh x is not not x. Okay, this sort of what do we do about the multiverse? Say let's assume for a moment the multiverse is is all the possible options in your life and all of our lives They exist somewhere else. There's an unlimited amount an infinite amount of universe. So let's assume it for a moment It's a theory and might never be proven. Whatever. Well, let's assume it's true, right? And we what what that actually what the universe could be is just a quantum computer So we're just a random fluke could be could be Very different anyways So if if we say it's true in that universe and we by definition can't see outside the universe But the opposite is true in the next universe just like a one one consciousness away What do we do about that fact? Um, because the highest order that we look at are all the multiverses at the same time And maybe there is an observer that can see all of them at the same time not us. We have limited to one universe All right do about that. I I'm I'm still I don't think you're tracking the fact that That you still don't you still can't escape the law of non contradiction. Okay if you have one if I say to you that there are multi universes and We can only understand our one universe Um, you should say to me. Well that might that statement itself That you could only know one of the multi universe one of the universes multi universe that that statement itself is only true For the one universe we're in In another universe. It's true that we know all the universes now when you think about that When you think about that's all right another call when you think about that it doesn't it doesn't work. It's self contradictory um It's either the case that we are limited to our perspective to one universe or we're not It's not the case that in some other universe That doesn't apply. You really can't deny the law of non contradiction. So let me just get to what I think Is the upshot of of quantum physics and all this it's this That we do have limited understanding Of reality a great book on this is mysticism by Evelyn underhill. It's the classic work on mystical knowledge. Okay You read way more than I do and I read a lot Well, no, we read we read different. There's an awesome recommendations. No, there's an awesome recommendation mysticism by Evelyn underhill A beautiful a beautiful amazing work by the great mystical writer English writer anglican Um, but what what she gets out of that book and and this is also uh In treatises about negative theology right st. John of the cross for instance um We certainly have um Limited understanding reality is inexhaustible reality is In a in a certain extent infinite. Okay, because it reflects the infinity of God Now at the same time, that's true. God has given us the power of intellect the power of human reason um, which is able to understand reality as it is um, accurately Not perfectly in the sense of exhaustively comprehensively we never stop learning we never stop plumbing the depths of reality in heaven. I believe We will spend an eternity inquiring and thinking and questioning and wondering Um, the beginning of philosophy is wonder Because we wonder why the thing is the way it is that wonder Uh is concludes in knowledge Okay, where we figure out the cause of the effect that we're wondering about whether it's a balloon going up or whether it's quantum physics That knowledge that we have Uh is maybe accurate, but it's provisional in the sense that there may be more truths to learn about this But this is but this this way of understanding knowledge as asymptotic and inexhaustible Is not the same as postmodern skepticism Um, I mean there is something called a scientific method. There is something called certainty in metaphysics and philosophy It starts out in the principles of logic. It's not it's not like there'll be another universe Where the law of noncontradiction isn't true. That's unthinkable. It's unreal Um, I mean it's like saying god can both exist and not exist at the same time And now we know this because of quantum metaph quantum physics What quantum physics as as far as I understand it is teaching us is something about the mystery of being And something about the indeterminacy of matter now. That's something Aristotle knew 25 hinge years ago. Aristotle said matter is intrinsically potency. It has no determinability It's determined by form and in so far as form Is never going to fully be able to Uh bring matter to perfection in this life. There's always going to be a certain kind of uncertain to your Uh Imperfection in our knowledge of material objects as matter itself is indeterminate I think that's what quantum physics is telling us. There's an indeterminacy in in in matter As you get to the reality, I think that's the problem that they can't perceive reality or that That reality becomes things that we are not used to obviously We will find a higher level of obstruction and then we will maybe come back to the ultimate place of reality Can I can I hold you there for one second? Yeah, go ahead Postmodernism a lot of people describe things to postmodernism that it isn't and I think a lot of stuff isn't postmodernism People don't realize. Okay. Well, what's your reading of postmodernism? Not necessarily what we just talked about just what is reality, but what do you feel is is is reading with What did it contribute to to where we are right now in philosophy or maybe there isn't anything useful? well, um In one way postmodernism is nothing more than another Mode or level of modernism. It's not its own thing. I think it takes certain Patterns and trajectories that are found in the Enlightenment and brings them to a logical conclusion So for instance, if you want to say that Nietzsche is the first postmodern perhaps, right? What did Nietzsche do? Well, he took the Enlightenment inheritance Of this kind of evacuated a very very um anemic understanding of reality that that came from Enlightenment science and social sciences Um, and he looked at it and said, you know, this is this is a house of cards This is this is merely just a prejudice of a kind of uh, the last man as bourgeois emaciated You know nonheroic non tragic Uh, person who wants to be able to control his his life and and have comfort and security Um, and Nietzsche said look this is this is just inhuman. This is disgusting. This is aesthetically ugly Uh, and he was right in that sense now Because the secular Enlightenment ideology was a kind of reductionism Um, it it looked at all those, uh elements of human life, uh the mystery of life drama religion the sacred Uh, the Dionysian and it tried to kind of neuter it with a kind of, uh, soft Apollo apollinary and You know Mathematization and and and Reductionism it is disgusting. Um, and he called and he said the last man blinks, right? God is dead Uh, do you know what we've done? Do you know how to uh, drink up the sea and and he blinked the last man blinks because He has no comprehension of even Nietzsche's question So in that sense what Nietzsche was pointing to was a kind of dead end In the Enlightenment now what Nietzsche did though was he instead of trying to return to or progress towards a more Adequate notion of human reason and human will um He abandoned the whole desire of truth at all And he really rejected the creaturely status of human beings. He basically said we're not even creatures. We're gods um The the the the whole sort of uh perennial uh understanding of of humanity beginning with with with homer but but proceeding from Plato and on is that we are participants in Uh reality we are creatures in in a reality that we can know and love and perfect ourselves in uh, Nietzsche wanted to throw all that out because he he saw it uh, resulting in Because it's misreading of christianity uh, resulting in um, uh, uh, a kind of inhuman Uh bloodless kind of kind of enlightenment science Well, that's and and heidegger had the same critique, right? Um in his in his writings But but but I think what Nietzsche did was he threw out the baby with the bath water as it were use a cliche um, because in the end We can't we can't defy Reality and determine it. It's there It beckons us to conform to it to participate in it because ultimately it's the reality of god and so um postmodernism in in its good in a good sense tries to tell us that there's a kind of mystery and um Uncertainty in our human knowledge in a bad sense postmodernism then becomes the enlightenment Uh on steroids when it makes claims like There is no truth. There's only perspective. Um, there is no ability to uh to have uh, you know, metaphysical knowledge These are dogmatic ideological Certainties the kind of certainties that it was supposedly upset about in the enlightenment Right. I don't know where you read those out. Um, I mean, I read some photos and there and they definitely don't mention this So the idea that there is no truth. There's multiple truths. Yes, but there is no truth No, or there's maybe that's that's what you're saying just in different words So maybe that's that's what where the confusion comes from for myself Um, but when I read Nietzsche do I feel he is and I just read the the the thus books our sister Uh last week again, and I felt many this guy's depressed and he's going to the he's coming up into the month He's going to the cake and comes down. It's like, oh my these people don't get it, right? I feel he's not seeing and that surprised me that you you were you totally well I don't know enough about your model of thought But I felt like he is he is too critical of what's going on in his own social environment or what's going on in germany at the time Right, sure. Right. Yes, and he attributes this to christianity, which might be true or not But I grew up in Germany. I know these people are very secular now and they still live in the same very small minded Yes, not great environment for someone who has a philosophical philosophical mind or any kind of Inquiring mind like Nietzsche. So I think he he had the good of all this to christianity, which I think is not true at all Um, there's a lot of the things you should have made and I think he I don't know what it was Maybe he didn't have enough social content. He didn't have enough people not enough statesmen not enough, um, bishops to talk to He never got there because there's a lot of greatness in In what the old testament in utah summit can teach us and he was seemingly never interested in this That's how I read at tsc Maybe he he was and then he got really disappointed never wrote about it But in his books I never see he never explained the greatness of christian dot No, he didn't he miss he look he had a problem. He was raised by his sisters see I mean, um, look, there's a lot going on psychologically But and I do I do admire Nietzsche spirit in some ways, but it ultimately became demonic I mean, uh, in other words, we have to always remember that the word became flesh logos the logos Okay, e michael jones is very good on this. He just wrote a book called logos rising on the history of logos and history of Of um, what he means by logos is the being of things the reality of things um And st. John's gospel in the beginning was the logos the arcay in greek um What this means is the ultimate reason of things the ultimate reality of things we are not determiners of this We are participants in it. We are able to articulate it We're able to live in it participated, but ultimately We are not its determiners and the ultimate way of living What we're here for is to conform our wills to the divine will Okay, and Nietzsche said no I am going to determine Reality by my will And who wants to join me now? That's ultimately satanic Okay, that's ultimately satanic. That's ultimately um, a blasphemous rejection of god's reality Now we don't want to idolize the language so derrida the deconstructionists I've read derrida. I understand what he's doing. He's saying that words um Are referencing other words. We have to be careful not to idolize our linguistic apparatus as if it were The same as the the deep reality we encounter. I can understand that um deconstructing um language Uh might be a way of allowing god's reality to come forth. This is this is what the negative theologians say This is what meister eckhart says. This is what the cloud of unknowing says st. John of the cross um catholic theology understands that although our language Derives from and is able to penetrate into reality because god is language. He is the word We have to recognize that they're still created things our concepts are created our words are created the uncreated Um is an infinite uh distance between anything created. We don't want to become idolaters So in so far as deconstructionism post modernism A quantum theory however you want to put it in so far as it works as a hammer to destroy idols Which masks and counterfeit reality? I think it's a good thing, okay? But in so far as that post modernism deconstruction itself becomes an idol a counterfeit And deprives people of participation In god's reality. I think it could be demonic and evil And so that's that's how I that's how I would put it That's an interesting interesting way to look at this. You know, I I talked to a lot of christians And many of them are not practicing christianity much, you know, maybe a christmas Um, yeah, me too I find this a really odd thing there in there. You know, I asked a lot of people Why did you kind of leave the catholic church or why you end up practicing and they're like, um, They don't really have an answer But then they seem to know it's the right thing to do for them personally, right? And they seem to be in good company because when I go back to germany, for instance, this church is everywhere But literally no attendance outside of christmas but What what I find that interesting a lot. I feel like when I when I read the Quran and it's really strict rules on idolatry Yeah, I think makes a lot of sense that to me goes all the way back to the Torah and it's just taking it It's spelling it out the

00:03:30 What regulation should we employ in the financial industry? Does it make us more safe?00:10:57 How Max got into his current career and what he has learned from his interviewees.00:17:01 Is the world going crazy? Is the 'attentionalism' already changing people and is the financial industry a good showcase for this? Is 'career risk' actually the most important part of financial decision making? How should 'risk taking' work in the financial industry?00:27:00 What is the state of financial media? Why is holding up better than other parts of journalism?00:36:01 Which opportunities are available in the finance sector? Are entrepreneurial opportunities in other sectors of the economy really harder to come by than a few decades ago?00:41:16 Will machines take over everything but marketing and sales? Are humans competitive vs. machines in terms of making complex decisions?00:56:16 Will we see the 'rise of independent curators' in the financial industry?01:10:30 Have preferences for earning money changed? Is quality of life more important than high earnings?01:20:11 Will exploring new planets (and the possibilities of discovering assets) change the society on earth forever?   You may watch this episode on Youtube - Max Wiethe (The state of financial industry and financial journalism). Max Wiethe is an editor and journalist at Real Vision where Max hosts a weekly series of interviews with financial industry heavyweights. Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).   I actually saw something yesterday, a guy who was talking about like, go on zero hedge and there are articles that are promoting stocks. And he actually, he said back in the 80s, he got a call or his dad got a call from basically a boiler room broker telling him that it was the height of Billy Crystal, if you know the comedian Billy Crystal, his career, he said, this company is making the next Billy Crystal movie and got him to invest $2,000 and he ended up losing all of his money. Not a ton of money, but in the 80s, $2,000 was a good chunk of money and he was basically saying these websites where you can promote a stock and then they'll just have a little disclaimer down at the bottom, it's like so and so may have received compensation to write this article. Like that's the same guy as the people in the Wolf of Wall Street who were calling you and saying like, I've got Aerotine international investment and like when you see it on a website, it doesn't feel like it's a broker because it's not a broker, but that person is being compensated to write that article about that stock and if you can't tell, if you can't see those little things, you might not understand the biases of that information. So there's lots of things like that that I think are important. I mean, happy to just talk about content in general and how I think about it. I think you'll find... I want to get into this. Yeah, I said I think you'll find once you get me going, we will have no problem filling time. Yeah. Well, we don't want to just fill time, but I'm really curious about your insight and you've seen the industry from a different point of view than most of us. And maybe you can just go there right now. One thing that a lot of people in the financial industries or industry are very much involved with it, but they're also passionate to an extent with it is regulation, right? So there is a ton of amount of regulation with financial industry. It seems so easy to innovate new cars and just come out with something completely new. And over the century, the last, what is it, since the late, probably since the beginning of time, but we really see what's still left since I'd say that the 18th century, there's been a lot of regulation that prohibits certain behavior, like you just gave us an example about zero hedge. I don't want to put zero hedge. I just like use them as an example of a website where it could be anywhere, right? What I'm trying to say is from where I come from, and we should get into this topic a little deeper, I always feel there is a lot of regulation that's so complicated to enforce that creates so much red tape that it's probably not worth it. If you have trust in the investment, if you have trust in the active participant in that marketplace in the financial industry, maybe people just have to wise up. That's where I come from, where I feel like, well, if you fall for this thing, that's your problem, right? So there shouldn't be a Soviet state that protects you from it. It's called capitalism. And to a large extent, people will always push the boundaries and you have to look at this. The government and the SEC cannot help you. Yeah, to an extent, I would tend to agree with you that there is a certain level of responsibility. And where regulators fall into this, the fact that they have to disclose, for instance, this example that I gave of what seems like an article, a nonbiased editorial article, which is actually a promoted piece where that company has hired this person, whether they paid them in stock, whether they paid them in options, whether they paid them in cash, they do have to disclose that at the bottom. So there is some layer of regulation already in there, or else they probably wouldn't disclose that sort of thing. So their fingerprints are still already there. And there is a level of like, you have to... But is it necessary, right? Is it even... Doesn't it promote a false sense of confidence? Because all these disclaimers under restrictions, they don't do anything. I mean, I don't feel that there is... Unless you have a really strong prosecution and a real way to enforce it, that probably makes it worse. You should only have laws you can enforce 99%, 100%. And most of these laws are barely enforceable, like inside a trading, right? That's basically not enforceable. We hear these every 10 years. Yeah. I mean, it's... And it's generally... I mean, we have... You've got all the news about Nancy Pelosi and the congressmen who are able to trade off of what they know. It's not illegal for them to know that Facebook is only going to get fined $10 billion and that the market is probably going to rally on that and then they can buy call options or something like that. That's not illegal. Yeah. Why would she buy so many call options otherwise? What? Yeah. Well, what's the alternative explanation where she's buying so many call options on these things? I mean, I haven't looked at the specific case and I don't think the Facebook example that I gave is exactly what happened in this case, but the basic premise of that there are two sets of rules. And that actually it's generally easier to go after lower level people than it is higher level people. And I think even the IRS has said that when it comes to going after tax crimes, that it's much easier for them to go after the guy with a small business who's maybe worth a couple of million dollars, who made an honest mistake in trying to navigate the incredibly complex tax system than it is the guy who's worth $200 million dollars, who's actively trying to circumvent the laws through loopholes, which are not intentional. It's much harder for them to go after that guy than it is the guy who's worth $2 million. And I think the same is true a lot of times with financial crimes that would fall under the realm of the SEC, that it's just they're going up against people who, one, know the regulations and two can afford to fight these sorts of things. So it often comes down to the little guy, like there was a story about some junior guy at a bank a few years ago who he made $80,000 off of his insider trading or it was less than a million dollars and like he was one of the people who got prosecuted and think about all the trades that happen out there that people make so much more money on and those are the types of scraps that regulators are going after and not because the right laws aren't in place, but they don't have the resources and if they did have the resources, would it be worthwhile for them to allocate the resources to fighting these fights, which are much harder to win? I mean, it's just it's the sheer intensity is an information problem, right? So we won the laws of Valentine that and I fully understand where the notion of protecting the consumer comes from. And I think this is all good, right? But what we end up with is a massive amount of law that is very, the enforcement is very uneven. That's what I'm trying to say. So you, I'm not sure if I prescribe to the thesis that it hits the little guy. I think it just hits random people. So it's kind of like littering on the on the freeway, right? So the fines are so high because it's basically unenforceable because you would have to have a camera everywhere and, you know, take pictures of the license plates. So that's what I feel we have with the financial regulation. There's a lot out there, but it creates mostly red tape. And I don't think the world would be different if insider trading would not be a crime. I don't even know if it is a crime in other countries. I actually doubt it is in many other countries. Yeah, I would tend to agree with you, but it's not politically palatable to go backwards in that way. Like I just, I just don't, I just don't think it's, I don't think that the average American really understands how, how the whole financial system works. And you know, that's part of the reason that companies like Real Vision and podcasts like yours exist is because people don't want to know. And there's a subset that do want to know. But they either, I think a lot of people don't have the time. They care tangentially, but they really aren't that interested in it. My argument is the entire financial services industry exists partially because people don't really care. Why else would you outsource the most important thing, your financial future to someone else? It's because either one, you don't have the time, two, you don't have the horsepower or three, you're just not interested in it. And I think it's probably mostly a combination of two and three, or I mean of one and three there, that people don't have the time and they don't have the interest. And I think the amount of people who aren't interested in it is surprisingly high. But I mean, just imagine if they took away insider trading laws, how easy of a populist sort of cry of like, can you believe that they did this in a sort of Occupy Wall Street sort of way? A politician could jump on that, whether it would really have the type of change in the way people are actually conducting themselves. I'm sure things would get a little bit more egregious in the fact that people wouldn't be as big into hiding how they distributed this information. But it would be pretty easy for a politician whose consumer or whose voter base were not the traditional financial markets people to seize on that and use it. And so it would be politically, I think, unpalatable for that sort of thing to take place. Yeah. Well, I mean, a lot of people make that argument that, and that's very specific to this is if insider trading wouldn't be a crime, then we would see less volatility if new news come out. Like the market would be slightly more predictable, but less volatile because the insiders would know first and they would buy, and then the markets would move a little more smooth. So that's just one argument for it. I don't want to get stuck with this. You work with real vision and you interview a ton of really smart people. You see what they think about the financial markets where there's options to make money and also to lose a lot of money. Maybe you can give us an idea of how you got into this whole career for you now into that job and what did you learn from people that you interviewed? What do you feel is their sentiment right now? Do they think the world has gone crazy or has it always been crazy? It's just a little more crazy now. Well, I mean, to go all the way back to sort of how I got into it, I was a real vision subscriber fan before I was an employee here. And it started back when I was in college. I was a physics major. I went into school, was very good at math and science, and I thought I was going to be the next great scientist. And you realize very quickly, I think at least if you're self aware, oftentimes that there are certain things where either one, because you don't love it as much as you thought you did, or two, that you actually don't have the same horsepower as some of these other people. And I tested it into basically the highest level of math that you could. And I was passing, but it wasn't easy. And there was a 15 year old in my class, and in the US, we start college at 18. So I was 18, there was a 15 year old in my class, and he was getting hundreds, and not really paying attention all that much, and I was just kind of, it's like watching somebody dunk a basketball. And you realize, I'm probably not going to play in the NBA when you first see that person do that. It's a whole different level of skill than I will maybe ever have. And I kind of quickly realized I'm probably going to have to do something else with my life. And I found that a lot of the skills I was learning in physics were probably transferable, pretty transferable to finance, economics, those areas. And I wanted to probably do that after school, but I didn't want to give up on my physics degree. I really liked what I was learning there, but I realized I needed to learn something outside of what I was learning in school to be able to make that transition. I was fortunate enough that growing up, my dad worked in finance, and he really taught me a lot. And to this day, he's still just like an incredible resource to be able to call and ask, and there are things that he doesn't know. And he's generally pretty honest with me about what he doesn't know, but it's a huge resource to be able to have that. And I definitely can't say that he was super influential because he actually showed me real vision. So he sent me real vision and said, if you really want to do this, you should start watching these guys. And so I started watching real vision. I got out of school, kind of took a dead end job, and something opened up here at real vision. Actually not on the editorial team, it was more on the business strategy side. I was really interested in how to make the business grow. I thought it was a great business, which I really thought I understood the customer and the potential audience and how I could help make it grow. And I was probably under qualified for that job. And so they ended up not giving me that job, but they liked what I wrote. I wrote a cover letter that they thought was interesting and clever. And my first boss took a shot on me and made me a sort of editorial assistant position. And I was low man on the totem pole, and now almost three years later, I've worked my way up and I've seen, we've really grown up a lot since then. I think when I started, it was still very much a startup, and we're kind of in that transition phase coming out of startup, but those environments, those types of environments can really, really, really give you opportunity if you're willing to take a chance on something that maybe you don't have the experience, and really seizing those opportunities allowed me to grow into the role that I am now as an interviewer. And yeah, just getting to interview these people is a pretty incredible job, and you get to learn so much interviewing them on camera, but so much of the learning comes actually off camera in the preinterviews. Like you and I, we talked, and it was pretty brief, but sometimes I'll chat with these guys for three hours off camera, and I'll talk to them for 45 minutes on camera. And it's that sort of off the camera director's cut stuff where I'm getting their truly unfiltered ideas. That's where the real learning happens, I think, for me. And as far as whether the world is more crazy now, as compared to other times, I generally tend to push back against that. Finance is all about cycles. The world moves in cycles, and I think one of the most repeatable cycles that people often miss is Old Man tells Young Man, the world is going crazy. I think that is a cycle that is as old as humanity, and I tend to, yes, there are peaks and valleys, and to say that World War II wasn't a crazy time is just wrong, like that was a crazy time for humanity, but overall, in the world, things are probably just as crazy as they ever have. They're different, and difference is hard to deal with. It's really, really hard to do. We do not change, I think, as beings. Change is hard for us to deal with, and so the longer you're alive, the longer you will see, the more change you will see, and for a lot of people, I think that's really hard to adjust to. Yeah. Yeah, I find that an interesting argument when you say that's an old cycle, and I read Ray Dalos's book about these long term cycles, about the growth of an economy and how to currency develop. He has these cycles going back thousands of years, and I think he's onto something. I just feel maybe both are right. The world is going crazy, but it's also changing, right? As a young person, you don't see it as a change. You just assume this is the status quo. You don't care about what happened the last 50 years, why it happened, you don't care. You just think about the future, and I think both of these play a big role, especially right now when we see this massive change, mostly the room, I think, by technology, software on AI is eating the world, and it might not happen in five years, and the singularity might not happen in 2038, but it's definitely going to happen. That's my conviction. Obviously, we call it the singularity because we're out of words and descriptors, so it could be anything. Literally, it could be just a quantum computer that we have instead of a PC, and that might not change that much in the end, but I think there's more to it, and obviously, we can all just speculate where it goes, and we've done this on the podcast quite a bit. But I find it really interesting when you said that earlier, when you interview people, and that's something that Jim also echoed, and he does these polar exhibitions, and he has the BBC on doing documentaries, and there's a couple of directors and producers, what he said, you know, when I took the teams out, they really only put the most boring parts in the actual documentary. And then I made an episode with them, just 15 minutes extra, that was kind of behind the scenes, the director's cuts and things that didn't work out, or funny moments, but also just elements you would never see. We actually see the crew, and he said that easily became the most popular episode. So there is something weird about that, so we want to see a scripted show, and we want to see a certain element of predictability, and when we see something on TV or on a podcast. But then we also want to see the rest, and we want to see this, how would that actually happen if it would completely be non scripted, be completely random, if we see elements of that semi famous person that we never really expected. And I had to have some guests on the podcast too, where I discovered a side of the personality I just never expected, to the better, to the sometimes the worst, and I'm really still surprised that maybe it's a competitive industry in anything where people stand in front of a camera. Many of them, over time, with the competitive industry, they become, how do I say that, they become especially human being. I don't know if that's something you also noticed. No, could you, what was that last word, I just want to make sure I got it correct. Special human being, right, so in a sense the competitive pressure of being in the limelight of absorbing this attention of, by necessity being different than other people in the industry, by, and especially in the financial industry where this is a billion dollar leverage, right, you make the right call, and you make a five billion dollars a month, so you have a tremendous leverage that puts you, you know, in a very different category, maybe more like a king like position, but you better be right, right, and if you're right, the rewards are basically endless. Oh, and nobody attributes any of it to luck, it's, I think I've heard it called like the trader's put, which is if you're wrong, you got unlucky, but if you were right, you were a genius, and then if you're wrong, it's your client's money, you can always just, if you're, if you can tell your story well enough, you can raise more money, it's not your money, if you've got, if you've gotten good enough at telling the story and being able to sell that, and you know, there's certain parts of the business that are more performance driven, and there's certain parts that are all about asset gathering, certain parts that are all about just reducing frictions for, you know, big institutional investors, like if it's easy for this person, if there's no career risk, some of the most interesting interviews I've done with people delve into this idea of how career risk drives decision making and finance, I would say that that's probably one of the most interesting things, and it's, it's like if, if BlackRock is doing it, how much easier do you think it is to push that through your investment committee? If you're, if you're a pension fund or you are, if you are a big institution, how much easier is it for you to bring something that is exactly what everybody else in the business is doing, the supposed smartest guys in the room are all doing it, that can be very easily pushed through an investment committee, whereas taking a chance on a young guy who's got new ideas is incredibly difficult to push that through, and so, you know, how those sorts of things drive decision making is, is pretty interesting. And what you let this heartening do, I mean, I feel like, so when I look at the perfect economy, we would, we would hope for, you know, there's a, and that's the Taliban explained that quite a bit. And I think this is something that I really wanted to make a theme of this podcast is just this entrepreneurship of taking risk, like, like a fund manager taking a risk and not doing what BlackRock does and not just trying to follow him, but taking a calculated risk, but out of his, his or her own convictions. Isn't it this heartening that this is happening less often than we expect? Like, shouldn't that be the default case that everyone is really just using your own judgment? Yeah, I mean, in the sort of like creative destruction, perfect idea of what drives, what drives an economy, I would, I would tend to agree with you, I try not to get disheartened about too many things. I find that it doesn't work for me as a person to let, let these things get to me. It's very easy for me to, to get sort of like tamped down by these realizations. And I try not to get disheartened, but I know what you mean. I guess my, this is as old as, this is a human, this is a human thing. It's, it's very old. The idea of maximizing outcomes for ourselves versus maximizing outcomes for society. Like, I think that that's an age old problem. Like why would, why would a bunch of knights decide to support the king and, you know, keep the peasantry as, as peasants? But because it, no, they're, they have no chance of becoming the king, the real king. But their lives are still so much better. And is it maximizing things for society in that moment in time? Like probably not. And arguably you could say they didn't know any better. And they thought that, you know, the divine right of kings was the best way to rule it. But I find it hard to believe that there weren't a couple of, of knights in their day who just kind of did the way, weighed their, weighed their odds and said, fighting for the king, that's a good trade. Yeah. But I mean, that's not necessarily what I mean. I, I, I mean, I, I think self interest is 99.9% the right call to make. And I'm fully with Ayn Rand. If you watch the movies, if you read the books, at this very hard to argue against her. But on the other hand, so there is obviously the error correction on society level. But what I'm trying to say is what we want is everyone in this new society, we are building right now, right? And then new quantum society, so to speak, for every, we don't have one reality anymore. We have like millions of realities. What we want is that every single individual actor is not, is really acting rational for in his or her own reality and making a rational, good judgment call. It might be very different because we all have different realities from person to person. Well, what I'm trying to say, it's based on real judgments and not of trend following. Because what I see in, in finance, and you just mentioned that the trend following and being on the safe side, just because it is what other people are doing. I mean, I just started on zero heads today. It was the same analyst who like, I think six months ago would say Bitcoin will go to a million. And then today he said, oh, Bitcoin is probably going down to 10,000. I'm like, so what changed? And like, oh, it, the trend changed, right? So I'm like, really, that's, that's your analysis. And that's where you, you work for an investment back. I mean, holy shit. I mean, maybe he's all right, right? So, so I'm not saying that's a bad call to predict the future, but it isn't any, it doesn't add to the value for society. It doesn't do anything. Yeah, I mean, I don't think I'm all the way there with you on, on it not like it being inherently bad. I just look at these human nature issues as being inherent. And there are people, there are people who are able to, to think beyond them and their personality, their, their means or whatever it may be allows them to, to do otherwise. Like there's a, there's a saying here in America, it's called fuck you money. It's your ability to say fuck you to somebody if you have enough money. It doesn't matter how powerful that person is basically because of, you know, the property rights we have here. There's a certain amount of money that you are going to be fine no matter what. And you can be that contrarian. And so not, I just don't think everybody has that, has that status. And, and I, I just, yeah, I think that that's a part of the, it's a part of the system. And I don't think it's a part of the system that will, that will ever change. I think we are, we are much simpler beings than, than our, you know, our hopes for the, for the height that humanity can reach. We will reach it, but it's not because we're going to achieve some great state of consciousness. I think it's just because we churn forward over time. Slowly we churn forward. Yeah. I think we have slightly different views on humanity there. Maybe two, two high hopes that are not realistic. That's probably, probably true. Well, let's go back to, to what we see with, with financial media right now. So we, we, there is what I see out there, and that's kind of my, my 30,000 feet description of that particular part of journalism is that it's held holding up relatively well. When we, when we look into political news or general interest news, they become really massive, right? They're very, they're very opinionated. They don't have, the facts don't really matter anymore. The facts shouldn't matter. It's, it's, it's something where you want engagement on Facebook. You write this to get a bunch of likes or hates, so to speak. And that's kind of it, right? So it's not, it's not, it doesn't have any, any real content anymore. I feel with financial news, it's, it's not a big problem. There's a lot of interest from the general public and it hasn't gotten as messy as other parts of, of news, right? When you, when you look at Fox News and CNN. Yeah. So, so that is a really good development. And I also feel it's just, maybe me, I feel there is more interest in financial news than ever. Maybe that's because of crypto or because other things change around it or more people have interest by stocks with Robinhood. It's, it's something people deeply care about. And it's not for the others. It's for myself. Maybe I can get ahead of the market. That's what the individual mess of things. Yeah. I think so. I would agree with your assessment that it hasn't gotten even close to as bad. And I can tell you in the feedback that we get from our customers, if we ever stray too far into politics, and you have to cover politics because it does affect markets. I mean, there was a whole period, you know, if you remember in 2018, it was market up on, on easing trade tensions, market down on, on heightened trade tensions. So to not cover it is just wrong. You have to, but there is a bridge too far where we see our audience is just like, that's not why it's not why we're your customers. We are not your, your customers or your subscribers or members because we want to be talked to about politics. We are here for the facts. We are here for markets. And I think that, you know, at least with our customers, I've definitely, definitely seen that. But that doesn't mean that the same sort of pandering doesn't happen from time to time where you're doing something. It's less for hate. I would say that the hate clicks are probably, it's less powerful in, in financial media, but the true love clicks, like bias confirmation, love, I have seen it. I have seen it where, you know, I do an interview on gold in May of 2020. It doesn't do nearly as well as the interview I do on gold in August of 2020 that basically top ticks the market. And it's because people, they, they see that price action, it changes sentiment. And now the interview that is, that is matching their beliefs, that is helping them gain confidence in a belief that they already hold is received much better than the video that is challenging their beliefs. That's trying to get them to say, Hey, there's this thing that might be happening that you need to pay attention to. It's not that that video gets hate, but it isn't embraced in the same way. So I do, I do see some of that bleeding in and, and sometimes, sometimes I would, you know, I, to use your word, it's disheartening. But again, it's human nature that, that people are, are, that this happens. And I fall into it too, like I'm not saying, I'm not saying I don't fall into the same bucket because I'm a consumer. I'm a consumer of the same content. I have an investment account. I'm by no means a sophisticated investor or anything like that. But I, I fall into the same things. And I'm just fortunate enough to work behind the curtain that I am much more in the front of my mind about recognizing these biases. And am I feeling this way because of those human nature flaws that we discussed earlier? Yeah, I was, I was thinking you would say, Well, financial media still has a business model. And so it doesn't need to, as you say, pender, I had a more direct award for what's going on on Facebook. But they, it's just not required because there's enough money, the CPMs are high enough, and there's enough money in subscriptions, you don't have to worry about this. And other industries there, and especially general news receivers, the most, but that's, that's going through tons of other industries. The advertising revenue model is that. And so it's a subscription model. Maybe the New York Times has brought it back, but they've done it through pandering, which I think is a really bad idea. And they got to pay for this. But at least they find subscribers, because they have to have a boogeyman, right? So without a boogeyman, they're not going to keep those subscribers. But who knows? I think this is why we, we see that we just, we see that with universities, wherever you see your business model is faltering, you go into some extreme. And maybe that's actually a rational decision. But financial media didn't have to go through this yet. Maybe it will happen once everything's no fee, right? Robinhood is kind of pushing the edge there. Yeah, yeah, there is something to be said about that. I mean, it is, it is the audience that everybody wants. You either have money, or you want to have money and you're willing to invest your time into something that is educational. Some of it is, I call it infotainment. There is certainly stuff that is hard education. There's stuff that's purely entertainment. And then there's a middle ground. And I think most of it really falls on a spectrum. It's not black or white what it is. But yeah, that's what makes the audience so, so enticing to, to advertisers. I think the subscription model is really what I'm most familiar with. I've seen some of the advertising models. I run, I ran our YouTube channel here at Real Vision for a while, and you get to see some of the CPMs. And in just researching, you know, what the YouTube standards are, like I can tell you that, yeah, finance content is getting, is getting higher marketing dollars than a lot of other stuff out there. And depending upon what's hot at any moment in time, I mean, the numbers can, can get really, really high up there. And that has allowed it. But as you said, there is free stuff moving in. And there is I mean, there's, there's tons of people putting out great, great work for free. And I think that finance, because of how sought after the audiences, and as well, the amount of money that can be made on in some cases, acquiring one customer for certain products is just huge amounts of money. If you can get one customer, if the product is, you know, prime brokerage services, or something that is really, really high level, you can make a lot of money just bringing in one customer. So I think that there will be a moat for a long time. But, you know, the same sort of problems that came to, that came to traditional media will eventually make their way here. And we'll have to, we'll have to think about that. I think, you know, what you said about the New York Times, I do agree that there is some level of like pandering to an audience that comes in, and that's why they've succeeded. But I also think it's very similar to what's happening with hedge funds. Like people talk about how hedge funds are like a dying, a dying business. Well, there are some hedge funds that are doing very, very well. And they're the big platform model hedge funds that are sort of the big names, and they have great infrastructure. And they're now actually taking the best talent instead of the best talent leaving that hedge fund and starting that hedge fund and starting their own shop. It's worth it for that really, really good portfolio manager to just stay there. And that doesn't mean that there won't be money made in hedge funds because the industry is dying. It's just going to be at certain places. It's like the newspaper business is the same way. Yes, the newspaper business is dying. But there's still going to be people making a lot of money at the New York Times, Washington Post, those sorts of places. And I look at it the same way. It's a platform model that is taking over there. Yeah, I mean, I'd love to talk about that further. The opportunities lie. And we have entrepreneurs on the show and we have a bunch of VCs. And that's always one of my first questions. And it seems finance, at least when I follow what other entrepreneurs do, there's always crypto. There's always a DeFi startup that someone is just joining. When I look into my Twitter feed, I feel like the half the world is now in some kind of business that entertains the crypto finance ecosystem. And so this seems to be a huge opportunity and relatively, because that's one complaint, maybe that's an old man complaint, you will say, that I have here on the podcast where I feel the amount of opportunities and the debt of opportunities for people under 30 is relatively, I feel is much smaller than prior generations. I think this is the overhang, this huge debt that we have from the Fed. So maybe it's a generational thing. Maybe they just have other preferences. Maybe there's just something wrong with them. Who knows? I mean, I'm still getting there. I think I have a couple of good theories too. But anyways, I feel the theory, the total amount of opportunities is much lower. But finance, and that's specifically that crypto sector seems huge. Everyone seems to be invested. Everyone seems to be interested in investing. So maybe there's other bubbles that you see. I'm not saying this is a bubble because it's got a pop. But finance, when you look at the finance industry and beyond, where do you see great opportunities right now? We know hedge funds is not one because you shouldn't want to be a hedge fund manager these days. But you should have a decentralized finance startup, right? But what else is out there? Well, if you are raising money, definitely DeFi is the place to be. And I would call it a magnet. It's a talent magnet at this point in time that's pulling in a lot of people. Look, in the same thing, you were talking about the singularity. I don't think we're close to the singularity in finance, but information edge is being eroded as data becomes more and more available. I think, I forget which interview it was on Real Vision, but there's a Real Vision interview where somebody talked about when Warren Buffett started out, he used to have to go to the library in Omaha to learn about a stock. That's edge. People don't have the persistence to go and do that. Now, I can pull out my phone. I can get it all. I can write a program that's reading in new data, scraping the web for data. I can write algorithms to process that. If everybody's doing it, I mean, unless you're the best of the best or you have some literal physical advantage, I mean, I don't know if you've ever read or interviewed anybody who is with Flash Boys. They talk about being a foot closer to the exchange. Unless you have literal physical edge like that, what is your edge? When I think about opportunity in finance, I think about mostly the opportunity for me as a retail investor. Where are they not? Where can they not be? Where can the power players? Where is it? One, either because of regulation, they can't go. Two, compliance. And three, it's just not worth it for them. It's not worth it for a big asset manager to do research on a $30 million stock. And if they did the research, they probably the position that would work for their liquidity needs would probably be so

00:00:36 How Julio's entrepreneurial journey started?00:06:29 How do opportunities for entrepreneurs in Africa stack up currently?00:13:45 How knowledge based and digital content businesses are faring in coastal African countries. How staggered access to digital innovations delays opportunities outside of the US.00:20:48 How to find early adopters for your startup? Can you find them in a 'non early adopter market'?00:24:35 What is the 'correct idea' of a risk-taking entrepreneur?00:29:01 How will we get to nine billion brains and innovating entrepreneurs in the future?00:36:34 How will we deal with the enormous amount of 'cultural download'? How difficult is it to identify opportunities?00:40:14 How do we identify and allocate future revenue streams (that look more like TV/film royalties)? How do we stabilize resource allocation for micro entrepreneurship?00:45:01 Why the 'platform economy' is a short term 'trap' for most entrepreneurs. But is it a good intermediate stage?00:54:01 How do we set the right framework and incentive to encourage and foster entrepreneurship (as an example in Mozambique).01:01:01 Is valuation the only USP of an investor? Are secondary variables more important?01:04:01 Is negative or positive motivation the 'better motivation' for creating the desire to 'improve the world'?01:09:10 What are the best countries to invest in in Africa? Do the 'nation states' even matter much?01:16:15 Is Crowdfunding a solution to the funding problem of African startups? You may watch this episode on Youtube - Julio Maria Muhorro (Tales of Entrepreneurship in Africa). Julio Maria Muhorro is an entrepreneur and business coach based in Mozambique and South Africa. Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).     Julio, thanks for coming to the Judgment Call podcast. We really appreciate that. Thank you so much for having me. I'm so excited to have this conversation with you, man. Hi, same here, same here. We spoke a couple of months ago, and we were just chatting about that. There were a couple of things we really wanted to talk about, and you are a very successful entrepreneur. You're quite young. You do all this for Mozambique, and now you're in South Africa. Maybe you tell us a little bit about yourself, and what really motivated you to become an entrepreneur so early in your life? Sure. It all started for me when I was just about to graduate for university, and I realized I didn't have a job afterwards, like many people. One of my friends, he was already an entrepreneur doing some transportation business, and he wanted to go into developing short term courses. He had all the entrepreneurial experience, but he knew nothing about academia, per se, or knowledge based businesses, but there was my jam. I was a lecturer at a university to help pay for my scholarship and my fees, and the university I was studying in, and my parents were teachers. Education and knowledge based stuff was really my jam. We joined forces and we started this company out of scratch, two young people, and I remember we really went over what we thought it was right, because I had no experience developing courses. My experience at the time was just delivering courses. I remember I had to Google how to build a session plan for a workshop and stuff like that, but then in three months, we trained almost 600 people in total. For you to think this is like a startup that no one heard of, and the key of our success early in the stage is that we were quite doing a lot of interactions with the market. We did all the research piece, we asked students what they wanted to learn, we kept their contact details, so when we launched the courses, we sent them SMS and all that stuff, and the energy was just cool and vibe. I mean, I was giving teachings and classes like eight hours a day, and I didn't want them to be boring, so I really made sure that it was interactive and fun, and people really appreciated. From that place, back in the days in Mozambique, business mentors, advisors, there was not even words we were used to it. It was at a time in the business where I felt I was making good decisions, but I wasn't making great decisions, and I just didn't know how I could make that leap. It made sense to me to get a job while my co founder was still running the business, and that's what I did. I joined them as a mechanical company called Idea Lab. They are major in supporting entrepreneurs in a more of ecosystem level, so they work with different stakeholders to support entrepreneurs, and they work with entrepreneurs directly with trainings, with events, with advisory, and I joined them to work on marketing, and then because of my background, I became a business advisor and mentor to the startups and a trainer. In two years into that business, they invited me to launch the very first business incubation program in Mozambique, so there for me was huge because I was usually the generation that heard that, well, you should start businesses, you should do stuff, but we just don't know how young people, we just don't know how to do those things, and I was given the chance to be in a place where I could help other young people to follow their dreams, so they were super cool, and in two years, their business grew, and for me, what was growing was this sense that I should be able to do more, like I wanted to do more, I wanted to explore the world, I just didn't know how back again, and it really went home when I was in Bahrain in the Middle East, we were doing a speaking engagement there, the Global Entrepreneurship Congress, which is one of the biggest entrepreneurship events in the world, and after speaking, this bunch of one up guys, they come to me and like, Julio, can you just have like a small talk with you after, you know, the big session, we really want to get deep into some stuff, I went there, we talked with them, and I remember the guy told me like, Julio, now I know what I need to do with my life and my business, like, I have, I'm clear, so clear, deep down, I was just feeling empty, like, I was literally just showing up, I was so depleted, because I knew I wanted to do more, and I wasn't doing it, that it was really starting to, you know, down, way down in my productivity and stuff, so that led me to launch my current business for Knowledge International, where we focus on helping entrepreneurs and executives directly, by offering power coaching, training and speaking engagements, and for the corporates, we offer them knowledge consultancy, so we help them harness the power of knowledge of their people, so they can start growing their business from a place that really feels good to them. There was a very long story, the shortest I could tell you. I mean, this seems that a lot has been going on, and, you know, you have your own venture, you already worked with an incubator, and now you're doing your second venture, so this is also what I think a lot, including me, and a lot of people are interested in that is, you know, Africa is kind of, as a bigger destination, and then Southern Africa, Sub Saharan Africa, is always hailed as this enormous potential, and we, in terms of investment opportunities, and in terms of what knowledge based business models could do for the large population, and I had Daniel Gross on who runs a completely virtual incubator pioneer, and he's had a lot of investments that he did in South Southern Africa, but also including Nigeria, so there's a lot of potential. We sometimes, it's hard to grasp this, right? It's a big population, its connectivity is increasing quite nicely. The last time I was in Mozambique, what was interesting for me was I was in Maputo, and most of the internet connections I could get out of hotels, or coffee shops were really slow, but then I just tapped into LTE, and it was like a hundred ambit everywhere, all over the countryside on our holy smokes, so I didn't see that coming. I was super fast and super cheap, it was like a dollar for a gigabyte. Anyway, so there seems to be a slightly different way that each country obviously goes, and maybe it's a different kind of connectivity. What I'm trying to get to, when you look at the opportunities that you see for entrepreneurs, how does this stack up, and I know you've been awarded one of the most prominent entrepreneurs in Africa a couple of years ago, give us an insight where you feel these opportunities are real, and they may be just made up. For sure. I guess we need to start taking a step back, and just put Africa in a bit more of context for our listeners. So the first thing is that when you look at the world map, you see this huge chunk of land altogether is Africa, and unlike other continents like Europe or America, or North America or South America, even though it's a continent, it's all together, we couldn't be more different, even though we have so many similars. So that's the first point, and each country has slightly different nuances in terms of cultures, and what people value, and what type of business can flourish. But something that I found that's quite different from African markets than we have from any other markets, it's how mobile our money is. I mean, if you look at countries like Zimbabwe, they really don't have yet money anymore, and they just use mobile money. And mobile money, it's not like you transfer yourself on PayPal, it's the money that is associated with your mobile phone. So you can transact using your mobile phone. That's a huge difference from the rest of the world when it comes down to Africa. And the original Bitcoin, right? It came from Kenya, right? Yeah, yeah, from Kenya. First, I forgot the name to be, what is it called, in Kenya. I forgot the name. I forgot, but in Mozambique and Tanzania, it's in PESA right now, and it's owned by Vodacom, or Vodafone in other countries. I think that's the one, the original Bitcoin, or the African PayPal. It is, it literally is. And I guess Molotov foreigners, they sort of get stuck with that, like how is it possible? That's one of the main differences. And the other difference is, in terms of logistics, even though it's our all continent, and you will think that, well, it will be so cheap and easy to travel and, you know, travel only people, but also, you know, merchandise, or stuff, travel around the continent. That's not the case. So there is a lot of opportunities and challenges within logistics per se. But to really go to your point, Africa is literally the land of opportunities. What you really need to do to tap into those opportunities is start looking at them from the lenses of the local people, right? So Africa has this whole story of, you know, being colonized by different European countries, and then people finding their independence back again, and then with globalization, we're trying to sort of like align the rest of the world. It's very important that as someone that comes from outside Africa, or even just a different country within the continent of Africa, that you allow yourself to have the empathy with the locals and understand what they're coming from, and what really matters to them. And they will say it's the main reason why a lot of foreign investors, they fail when they come to Africa, is that they try to replicate, you know, either based on the weather, because the weather in subparts of Mozambique can be compared with California, and they think that the same way people operating in California in the US is going to be the same way they're operating in Mozambique. So no, there are opportunities, but really look at them from the perspective of the locals. Yeah, yeah, absolutely. It's interesting that you mentioned the weather. I think that's when you think about a couple of episodes ago, we talked about impact investing. When you talk about pure agriculture investments, I think those are something, when you think of enabling local farmers, have organic products, those are investment ideas that are very popular. I don't feel they are, they're not easy to pull off, let's put it this way, because of the issues you just described. It's possible, I know there are stories in Malawi, for instance, but it's hard to scale them, so you end up with relatively small farms, and it's a patchwork, and logistics is a huge issue of getting anything out. For instance, I was dreaming to become a nuts farmer in Malawi. I talked to a couple of people in Malawi, and they have those, what is that called, the really high nuts, oh my gosh, I forgot about those. Anyway, so this is another one. It's grown in Hawaii. Macadamia? Macadamia, yeah, sorry, couldn't come up with the name. No worries. So there's a big internal market for macadamia nuts, so there's a bunch of farms over there, it's very fertile grounds, but getting those macadamia nuts, and it's apparently extremely cheap to grow them, compared to anywhere else in the world, but getting those nuts out was incredibly difficult, because even just small quantities like the FedEx or UPS, which are present, it was a logistical nightmare. So sooner or later, you can get them for one fourth of the price that you're waiting for, if you have even small quantities and their high quality. So if something is missing in between, this missing link is something you just look at certain variables, and then, well, I gave up becoming a nuts farmer in Malawi. Maybe this was a good idea, or maybe not. I still love the idea. But you know, there's also something both mentioned. So for those who doesn't know, Malawi is a country that sits almost in the center of Africa, so there's no straight link from any port or shore to Malawi, unless it's the Lake Malawi, and it's a huge lake, but then it's a lake, it's not the sea, you don't have connections to other places in the world. They're making hard for logistic companies to really work on, that's one, and also there is the whole political tension, and I guess the Lake Malawi is a great example. So it's one lake that in Malawi, it's called Lake Malawi, in Mozambique, where I'm from, it's Lake Nyasa, which is the province that the lake sits on, and in Tanzania, it's Lake Tanganyika. So there is a lot of this ownership over different African assets, I'll say, and sometimes it can be hard for all the countries to agree. One of my clients is working to build a railway, they were supposed to connect Malawi, Mozambique, and Tanzania. But even then, we don't have a railway link in the entirety of Mozambique, for instance, in the same country. So yeah, there are challenges in that, but also there are opportunities on how we can be creative in building those bridges and building those links. Yeah. Well, one thing I feel that strikes me as coming with great potential and relatively limited challenges is digital content. So the internet connectivity has gone up quite a bit. The last time I was in Akra in Ghana, I probably hit the fastest internet, I was like 3, 400 mbit in any random location, I'm like holy smokes, what is this? Because they probably have this new undersea cable that just goes through on the location where Akra is, and it's close to the sea. So that was great to see, and it's a very English speaking population with very high levels of English proficiency. And I was thinking, well, you can start from call centers, but also producing content, we all think about the YouTube world, right? We think about premium content you can actually sell. I thought, this is easy because, well, all you need really is fast internet access, and from then on, you basically just keep going from there and find premium. Obviously, you can do this for the local market, but with the connectivity, you can also do this for the non local market. And that seems to be where Indian Bangladesh is really taking off. They have been doing this for 20 years and they seem to be successful. I don't know how billions, how big these businesses have gotten, but they seem enormous to me from what is visible to me on the internet. It's not something I see so much that has taken off yet that my change or is already changing in coastal communities in Africa. Yeah, 100%. And I see a rising of knowledge based or really just online essence based business that I'm going to call it that way. And I actually have examples. So here in South Africa, there is this comedian called Lassizwe. So he managed to, he has a million and a half followers on Instagram, if I'm not mistaken. So basically, he's all comedies around the different tribes in South Africa and the main ones being the whites, the collards, and the black. And he always have like, you know, how will a black mom react? How will a white mom react and stuff like that. And it's very relatable in South Africa and some of other African countries. But he has grown so much in such a short period of time because of the digital, as you mentioned. But then I also got a chance to meet Elsa Majimbo from Kenya. So she now has two million followers and she collaborated with people like Naomi Campbell, Big Brands, Valentino and stuff. And her like comedies more around, you know, people not showing up on time and more of like international stuff. So that even though her and Lassizwe did start quite on the same time, because one is like targeting the world, you know, more general stuff, she was able to grow a bigger audience. So there is this growth happening there and associated with that there is a growth of personal brands and knowledge based companies happening as well. And I guess the most challenge or what entrepreneurs really struggle here in Africa is deciding if they want to stay local, if they want to go national or global. Because unlike many other countries in the world, at least in Europe or in America, we don't have just one language in African countries, right? We have many languages, usually one or two are the official languages. So there's a ton of languages too, right? But whatever. I think the general issue oftentimes seems to be, and that's always the issue obviously in a content based economy, is how do you monetize it, right? How do you develop it from a free product into a premium product or a decent premium product? And that's always really hard. That takes a lot of money, it takes a lot of resources to get there, right? Because you need to challenge, you need to know what customers want at what point of time, so they are eager and interested to buy into it. And, you know, Netflix is probably the best example. Early on, we're bidding with a lots of money for those content rights to stream in different countries. And they had it per country, and then they changed it, and then they didn't want to go international, and then they only wanted to go international. They changed every couple of years, right? And this is a good example where obviously it's foreign content, and it's very expensive content, but still, it's a good example where they also changed the way what they charge. So it's about $10, $14 a month in the US, but I know in France and Mexico, it's only like $5. I don't actually know what it is in Kenya, but they figured out a way to price it for each individual country. And that's obviously the, you could start local, you know, if obviously nobody can bid for Hollywood rights, you know, Musk can help us, but there is always content that's that's bringing people are ready to pay for if you find that audience, right? So if you find an audience that has enough of a pain point, so to speak, that doesn't have too high enough opportunity, because so they actually pay for your content. Yeah, and I will say that in the end, really, it becomes comes down to the revenue model you want to have in your business. So, you know, you can go in models where you charge the beneficiary, the end user, but you can also have sponsors or corporate clients, they pay you so that you can give your product and service for people that actually need, but cannot afford it. So you can be quite creative. And I think this point ties back with your investment point. Because something that I found, especially with a foreigner starting to come to invest in Africa, is the sense of is the knowledge and the trust on the knowledge people are presenting to them, you know, and being able to really rely on the partner, because usually you cannot fly in and out every time, or, you know, their language barriers and it is just the local context that as a foreigner, you don't know, but the locals might know, and they might be able to build the bridges to help you out. So I guess, yeah, it comes down to the revenue model and how you just monetize your trust in general, you know, the social capital you're bringing and you want to bring in your company. Yeah, not everyone can be like Mark Zuckerberg and launch a couple of balloons, right, to bring the internet to Africa. And, you know, when you look at it now, it looked kind of, it looked good on paper, right, it was a good PR stunt. But when we now look at Facebook, it's this weird spying machine that he wanted to get to everyone, right, because it's Facebook traffic that he wants, he doesn't care about the other services. Yeah, and being honest, when you're open a conversation, I was actually talking about how Instagram is disrupting markets. Because usually people look at, you know, governments disrupting markets, developing governments, you know, from Europe, coming to Africa to disrupt the market again, and we forget how corporations do it. And I was talking about if you have picture to entrepreneurs, like doing the same business, let's say they are in photography, and they all have 2000 followers in December 2020, the entrepreneur in the US, let's say he is in Florida, he get access to reels, he's able to crazy expand his reach, not just in a local level, but in international level, that will probably mean that he will have more followers and probably more money after six months, while the entrepreneur in Mozambique didn't have access to real in the first place. And I understand the difference or the tailoring made by location, but we're talking about a digital product. And what's worse is then when entrepreneurs have access to reels, you won't have the magnified exposure anymore. So literally, you see a corporation completely disrupting international markets, even though it's a digital company. So therefore, location shouldn't be a problem unless the person doesn't have access to internet, but still you see it happening. Yeah, that's a really good topic. When we see these big platforms, obviously, it's kind of they're all made like a pyramid scheme, right? So you want to be in early, and then you have the biggest benefit. And then as long as later you come, it's more like you're your dad consumer. So you're not getting the two way traffic that you want. It's basically you just you're liking someone else's post, nobody will like your post, right? So it's for the for the narcissists, you want to be really early in that game with that eventually pays off. You notice narcissism entrepreneurship, maybe that's a little too little too harsh. But building your personal brand, you want to be early in those markets and that often this can be a challenge. I think it's also a cultural challenge, right? So I grew up in Germany, and they are generally they rather be late adopters, so they don't want to be early adopters in anything. They're good at being late adopters, and then really excelling at building perfect products. But if you have with this mindset, then it's it's not good to be early, because the product hasn't doesn't have this maturity yet. So as an entrepreneur, it's really difficult to sell early adopter products, it's basically impossible. So say we have the same the same product is the same example you just made. And say it's a software product and targets early adopter early adopter companies or consumers. It's really tricky to get an initial critical mass in Europe, it's almost impossible. And I think the same probably applies to a lot of African markets. But the same product in the same sales pitch will get you a million customers in the US, because there's so many early adopters here, right? And they will test it, they will like it or they think it's crap, and then you will never go anywhere. But at least you have that potential and then you roll it out globally. But you don't have that option. I think a lot of Israeli companies have found that niche, they develop their tech business role, because they know how to develop tech, but they know there's no there's very small country. And it's they're not exactly super early adopters from a marketing perspective, they are in terms of hardware technology. So what they've done, they've basically just said, we're never going to market it here, we just have the back end here, and we just do all the marketing in the US. And if it works, it works in the US, and then we roll it out in Israel. So even if a lot of products developed in Israel are not even available, unless you have a VPN, there's always a way around it, but they're not directly marketed to Israeli customers. And I totally relate with that. I mean, my first 100 coaching customers, they are all from US, Canada, and the UK. I mean, for many reasons, the early adoption is one of them, but also the the, you know, the buying power, right, like people in the US and Europe, they're using dollars and euros. And the amounts that I feel my work is being honored, I mean, it will probably take six months for the regular moves and become to be able to afford a one hour session with me, right. So even as an entrepreneur, I had to work around my mindset and understanding that, you know, if I am finally able to charge what I really deserve from my high paying clients, I can then build initiatives that really support the entrepreneurs that need support, but they cannot afford it. So that's one that's super important that you mentioned that. And when it comes down to Africa, I feel most people just assume that people are not early innovations because they don't want to be early innovation, which is not true. Usually what happens is that there is so much risk associated with that early innovation that I actually prefer to see it validated, you know, and proof bulletproofed before I can afford to take the risk. And it's actually something that I do my best to entrepreneurs is even when it comes down to investing. If you're coming from a background where you feel you cannot take that much risk, don't gamble about, you know, on how much you can make, really choose your affordable loss, right. So I usually say to entrepreneurs like you have an idea, you want to validate it. How much are you willing to lose? Let's say you try it out and you figure out that the business doesn't work for you, or doesn't work at all. How much are you willing to invest and lose? Chances are you're not going to lose that money, you're going to learn something from it and sometimes even make the money back. But just having that mindset that it's not about how much you're going to win, but how much you're willing to lose, just give you that piece of mind to start making the steps to break the poverty cycle. Does it make sense for you? Yes, I mean, yes. Obviously, I think that that's that's why it's a good topic. Your your league as into is, you know, what I think entrepreneurship has gotten a lot of this, that the word entrepreneurship people immediately think of the Silicon Valley type entrepreneur, right, that needs billions of venture capital. And this venture capital obviously is a very trend following. So they invest into a trend and they want to get out of this investment as soon as possible, definitely within the next two or three years, if they can, right. So it's kind of this soft bank idea that you have to have this massive one billion dollar minimum, that's kind of their minimum now, right. And they can invest up to 10 billion in the start of like, think about rework, nobody knows why they invest that much money, but they must have a plan, right. So someone has a plan at soft bank, I hope, I don't know. We hope we hope people can do whatever they want with their money. But I'm trying to say this, but I agree much more with NASA talent subscription of entrepreneurship, which is really the individual risk taker. So what we want is an as as high as possible, ideally, 20, 30, 40, 50% population is an enormous way bigger than what we see right now in the description as entrepreneurship. And we don't want necessarily a company that has hundreds of million dollars of venture capital or any kind of capital infused into it. For me, that's not a startup. What I want is the entrepreneur who goes out just as you said that earlier, who goes out validates an idea conviction of his or hers, and then runs this against the market and sees what comes out of it. And yes, most of them will still fail, this will not change. But this risk that someone took will solve a big, small part of that equation, but it adds up to a bigger, bigger, bigger equation for the whole population. And the whole population benefits because they then realize, oh, well, this is how this is how good this specific thing can be solved. Right. So when we think about how good digital solutions have gotten, how good the iPhone has gotten, this is possible, but iPhone's maybe not a good example. But because it's too centralized. But if we all go out and do our, do contribute to the betterment of the world, right, of society, then it really adds up. So this wave of entrepreneurship multiplies throughout the society. The problem obviously is, how do you convince yourself to take this six month off, this 12 month, right, to say, well, you know, I'm already living in squalor, so to speak. So I really can't afford to do this. But I think this is really doesn't really matter how it's a routine mindset, right? It's, it doesn't really matter how poor you are, how you can afford it. It's, okay, there is something on the other side that A helps me, but also B has a huge upside. And this is why I should start now. And I think this is so difficult to get this motivation pinpointed for entrepreneurs. And I often feel the public initiatives, like government initiatives, they don't really do much about that, like they want to, but they don't really, it's important to have the opportunities. It's you want to, you want to look more to the outside than, okay, you're covered for the next six months. That's my personal point of view. That's obviously very difficult to instill in people. 100%. And being honest with you, you know, all my work is based on the concept that success is 80% internal game and 20% external game. So the 80% you have your identity, your mindset and your energy. And only then you work on the strategies, you're going to change the context, which is the 20%. And I like to give this laptop example to people. It's like, when you want to buy a computer, you get to choose between a Windows based or a Mac based computer, right? That's the identity of a computer, the hardware and the software. But then if you buy the brand new Mac book on earth, you still need to install some programs to make it run and work for you and do whatever you want, like Adobe Photoshop, Zoom, whatever it is. And that's your mindset. It's all the beliefs that you have and all the programs that are running in your mind that allows you to show up in the way that you want to show up. And then going back to the laptop example, if we have the most expensive laptop in the world, with all the premium programs installed, eventually you need to connect it to a power source, otherwise it will die out. And that's how you see the entrepreneurs trying and going back and giving up and try it again and giving up. But the thing is, if you work on upgrading your identity and updating your mindset, so you can start shifting your energy to create the strategies and implement them becomes way more easier, compared if you didn't have that prework done before. And I always say, like, everyone knows that if they want to lose fat and be muscled, they need to do three things, sleep right, eat right and exercise right. And if you grab your phone, you're going to find a professional to help you out. So why is not everyone in their optimum fitness level? I was asking the same thing when I was managing the business incubator, where we actually had pretty good success rates, like 80% of people increasing revenue, and at least 70%. But then my question was, what was wrong with the other ones? They didn't made it. They had a great idea. They were actually showing up. What was wrong with them? And then only when I found that is all this mindset piece that is missing when it comes down to entrepreneurship, that gets people blocked. If you go and Google entrepreneur images, you're going to see people on their suits in New York, as you mentioned, in Silicon Valley. And that's not the true of what really being an entrepreneur really means. And a lot of my work, especially with early stage entrepreneurs, is just break all those false belief systems and really start helping them create their own definition of entrepreneurship and understand how they can play full out. And also associated with the concept of you need to quit your job to start your business. And that's not true. Especially if you're starting out, you do want to be accountable and responsible with your time and your money. And like 99% of the times when you start a business, it doesn't need a full time employee. Even if you put all your hours, do you still need to give the market some time to give you feedback so you get to interact and keep moving forward? Yeah. I like what you just said. I think this is very very motivational. What I hope we're going to see is really 9 billion people, 9 billion brains, to generate one unique idea and market that with India and each. And hopefully we're going to see this in the next 50 or 100 years. And in the end, what happens is you do a succession of different projects or events. Alexander Bard would call them events. So the event is less than a company. So the company is, you know, you have HR, you hire people, and it's all just nonsense. Nobody wants to do anymore. So an event is you create something that can be like an idea, it can be a product, it can be a website, it can be an app, whatever that is, and you get traction either. And generally, it's some viral kind of route, right? People for whatever reason love what you're doing. Now, the hit rate is pretty low. You cannot assume just because you're smart, intelligent, you're going to have 100% hit rates. Now we're going to have, right? There's tons of other people going for the same market. But if everyone just does a succession of these events in his life, in her life, and what's so cruel about this is it will be a going viral if it makes sense, if it's productive, right? If it saves the problem, that's real for very, very low cost. And we would have access to 9 billion super apps, right? That's someone else, bro. That's kind of in my mind. Now this won't be apps, right? There's going to be AI, it can be any kind of algorithm, can be any kind of backend software. But if you get to this level to never have to repeat the same thing, and the same workflow that we do every day that we are all bored of. And now we have this problem in the US that many, many labor jobs, there's just no labor anymore, right? So this is very difficult. And I feel like what is a good thing, right? I want people to get out of this and get into something creative. Obviously, we still, we probably have to solve with automation. But we would all be so much better off because we all would make so much more money if we adopt this mindset in my mind. Obviously, you got to get some payoff. That's obviously the problem, right? So with all these, say you do 100 of these events in your life, right? So one a year. But if your payoff comes on average of the 50, what do you do in the first 50 years? You're going to be really poor because you literally have no income. So and I understand that you can keep your job. And that's great. I think this is great. Otherwise, you don't have to do this full time. But you have to come up with 100 unique ideas that could become a product. And I think this is what we should teach our children. And this is what, the market is global immediately. So that's, that's, I think it's this wonderful incentive you said earlier. If you have enough bandwidth, you have the same market access in, I don't know, in Mombasa than anyone in Silicon Valley, there's literally no difference. And that's such a great incentive. Like you did the millions of dollars right in front of your keyboard, so to speak, right? It's obviously there's more to it. It's not that easy. But that's the mindset that I would love that our children have and our young adults, and then I think they have this with Bitcoin, right? Bitcoin, but it's a maniac, it's a bubble. But that's really all going to because we say, well, why don't I buy some calls on Tesla because I just downloaded Robinhood and it's $500, maybe it's going to make me a million dollars, maybe not, but that's okay. 100%. And I guess the main thing for me is as we're changing mindsets of individuals is like one of the reasons why I'm so obsessed over power is that my understanding is that the world is not a better place yet because there's so many people struggling with their own relationship with power, right? So you have people in positions of power, but they're not in tune with their own power. So they're doing this horrible stuff trying to protect themselves and have a safe life, completely ruin over the life of countries and nations, sometimes even entire continents because of that egoistic and fragile state they are right now, right? That's one thing. And the other thing that I always state my entrepreneurs is that you need three pillars to build your legacy, whatever that means like for you, right? If you're talking about long term or generational wealth or just living a life you love, you need to focus on your income, in your impact and your integrity, meaning that and most people think that it's either one or the other, which is not, but you need to have your bills paid as a human being, your basic needs, and you have to have all the money that you need to build the life that you want to have. But the thing is that money most probably going to come if you are really in tune and connected with your impact you want to create in the

00:00:30 How Alexander and his co-author Jan have managed to produce such an enormous (and prophetic) body of written work over the last 20 years00:04:43 What Alexander thinks about postmodernism?00:09:01 What are 'Netocrats'? How is the world changing due to the Internet? Who is ready for the digital future and who is not?00:14:01 What is the future of (representative) democracy and politics in general? What is a 'sensocracy'?00:19:30 How should a 'world government' work? How much subsidiarity will it allow? What role will 'charter cities' play?00:24:15 Will we be able to switch between city state benevolent dictatorships (i.e. will countries/ cities be run like companies) as part of our life?00:27:01 Why was Jesus Christ actually killed & the surprising utility of 'empires'.00:30:42 How our future laws are already emerging throughout Internet.00:34:31 Is competition increasing for companies? Should we react with more collaboration to improve our competitiveness?00:42:31 What role do Internet platforms play? Do they actually have a monopoly?00:45:21 Is marketing as a whole evil? How has it changed over the years and how it is connected to 'attentionalism'? We will abolish advertising soon to protect our 'sacred space'?00:51:01 Why is productivity growth so low? Are we not daring enough? Is the focus on marketing ('useless products') to blame?00:58:43 Why wars (as terrible as they are) are good measures of productivity and ideology.00:59:55 After the 'Death of God' and the 'Death of the Individual' how are we now orient ourselves?01:07:32 Why 'native tribes' don't see a crisis of meaning or depression currently? Why some religions are more static than others.01:11:23 What is our best bet for a future religion? Is it likely to emerge or will we have to live with many parallel truths? Will we see 'weird activism' instead?01:18:11 Why the world will look more like India and Singapore soon?01:24:12 What surprised Alexander the most (compared to his predictions) the within the last 20 years?01:26:58 What will happen in 2038? Will AGI actually emerge by itself?01:31:01 Are we (co-)created by an alien intelligence? Is the multiverse theory useful? Should we investigate spacetime more thoroughly? You may watch this episode on Youtube - #96 Alexander Bard (The philosophy of everything). Alexander Bard is a musician, author, lecturer, artist, songwriter, music producer, political activist and philosopher. Alexander is co-author of a number of books incl. Syntheism - Creating God in the Internet Age, The Futurica Trilogy and Digital Libido.   Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).   Torsten Jacobi: Alexander, welcome to The Judgment Call broadcast. Thanks for coming. Really appreciate it. Thanks for taking the time. I know you're busy. Alexander Bard: Well, thank you for having me. Torsten Jacobi: Absolutely. Hey, so you are a 21st century philosopher, and I feel after reading two of your books, you wrote a couple of those over the last decades. I actually read Fruturica Trilogy and The Digital Lividone. I started with Sintiism. I feel they're very, very accessible. It's a philosophy that's relatively easy to read, which is, you know, not easy to find. And I feel like you've seen the future, and now you just write about it. So how did that happen? How did you make yourself so aware of the future? Alexander Bard: Well, I should first of all honor my co writer, Jan Söderkvist. He's very experienced and extremely learned. And we're the same age. We met about a year before we started writing together, but I would say the accessibility in our work, and I'm glad if they're accessible. We do our utmost to make velocities as accessible as it possibly can be without losing any of the quality. We don't compromise on the quality. And I think Jan is the guy who really does a lot of the work in making the text in Swedish and German language as accessible as possible. But we don't compromise on the quality. And these are, of course, this is philosophy. I mean, the philosopher is the guy who tries to observe the world at the furthest possible distance. But if somebody's even further behind the philosopher trying to see the bigger picture, that's the philosopher. So the philosopher is always the guy who tries to look at the world with the biggest possible picture. And of course, then also the biggest time scale. And that's what we try to do as philosopher. And of course, we are humans ourselves and we write to humans. So we are discussing the human condition constantly, but from a very large degree. Torsten Jacobi: Yeah, what I love about your books is that, you know, you go come from really first principles from very abstract principles, but you make really concrete predictions. And that's something that I admire with the records while he goes from very abstract predictions and come or thinking frame of thinking and he goes down to very specific predictions. So it becomes way more accessible. I think this is pretty rare. It's pretty awesome. Alexander Bard: Yeah, our first three books were redistributed or actually relaunched as the Ferturica trilogy. And the term Ferturica actually is a new literary term. It literally means the mixture of philosophy and futurology. And when you think about if you're going to do futurology really deeply, you're also going to discuss things that do not yet exist. Because obviously, there are new things happening constantly in history. And since you have to speculate on that which does not exist yet, you are going philosophical because you're actually philosophical the same day you use a new term to describe something. So philosophers are when they're good, they're really good at just nailing something you have a sense of, but suddenly there's a word for it. And because you have that word, you can start discussing it. I give an example, in our first book, The Net of Crest, we discovered that there wasn't really a term for using resources in a sustainable way over time. So say you're trying to you have a certain resource here, and you don't want to exploit it because if you exploit the resource, you're basically exhausting it. What happens if you actually have in your mindset, you're set that you're going to use a resource, but you're going to refurbish it, you're going to replace it again, it's going to turn back against you can use it all over again. For example, you do that in agriculture, compared to mining and mining, you take the ore out, you take the metal out, and you throw in the garbage cans, where in farming you actually have to renew it because you have to use the same earth the next year. And there wasn't a word for that. So we started using the word exploitation as the opposite explanation. And then it became a standard term in sociology and anthropology. And now it's a widely used term. These kinds of things you want to do as a philosopher, you want to find these new words, where you actually nail something that people have already considered, but there isn't probably a possible term for it yet. And that's what we do as philosophers called the invention of concepts. Torsten Jacobi: Yeah. Well, we often associate, at least in the current time, making up new boards with postmodernists, right? And they are also, that is kind of the prior generation of philosophers, right, the last 30, 40, 50 years. And they have been really interested in the human collaboration and about themes that are inside our human existence that are governing us, but they, we don't really know they're there, right? So they've been criticizing them for the longest time and trying to find out what is actually, why are we here? What are those themes of human interaction that are governing us? But none of us really consciously knows about them. From reading your books, I never really found out what is your thought on postmodernist. Do you think they were spot on or did they were right at that time frame or they are just wrong? Alexander Bard: No, I mean, I mean, you make, you make your priorities and philosophers do too. And yeah, I read Baudrillard and Lyotard, they were great, certainly Derrida, they profound work that I find very useful. But a lot of the so called postmodernists were very obsessed with the symbolic. And this will live in a very medialized world to the media is very, very important to us. They would then go through, for example, history of literature and then describe the work of literature and have a critique on that. And they stayed very much in what's called the Symbolic Order. Now, what I found fascinating though, when I started working in the 1980s, this was like 20 years before I started writing, because you have to think through your philosophy properly first before you write it. And I'm 60 years old, and I debuted when I was 39, but I had a career in music industry before that. But most philosophers should actually have another career first of some kind. And I was an economist and a music producer. Then I became a philosopher because you have nothing to say when you're young. And the young philosophers are right, brilliantly when they're young, they have to regret it the entire life, even Heidegen and Wittgenstein regretted their works of their youth, their entire life. So it's a good thing to do like a monocon, just work hard and then wait and then publish everything in a few years. That's important. My career moves were very smart. But anyway, so what I did in the 1980s and 1990s, when I started exploring the idea, maybe I should be a philosopher after all, was to discover that the two major revolutions in human society in the 10th century, which were cosmology, we suddenly discovered that cosmos was huge, right? And also on the micro level, we discovered of course, philosophers didn't deal with this. A few of them did, of course, and some of them even inspired the quantum physicists and the cosmologists like Alfred Jordan. But the vast majority of philosophers were stuck in big academic institutions, most in France, Germany, the UK, and they were only about going through the texts and going through the hermeneutics of what we're finding in monocon. Whereas our entire worldview is rapidly changing, both in the cosmic level on the microsoft. And at the same time, the new technology came along, what we call the internet today, which is data talk for zeros and ones, and not only were there zeros and ones that could be processed at almost, you know, enormous speeds and make the world more intelligent itself, but also this was happening globally. And now we got the satellites everywhere, we got this one thing, like the world has now become one huge computer. And that's what the internet is. And nobody was writing about it. It's just like, it's just flabbergast, which is like, why aren't philosophers spending time in cosmology, quantum physics and digital, when these are the big new themes of our times, we're actually philosophers should come to be. So I was, I'm kind of, I don't, I'm not part of the postmodernist agenda at all. I found the overcoming of modernism also kind of dated and not too exciting. And I wasn't really interested. I agree with Bruno Latour. He, he wrote a little, a clever little book with a perfect chapter called We Were Never Moderns. And, and in a way, human beings have not changed at all. And over the last 10,000 years, we have not changed. If anything, we become more stupid, but our environment around us has changed. Environment is becoming increasingly technological, increasingly informative. And that's something we have to respond to. That means the human condition is changing. The proper philosophy for the 21st century deals with the time it's asked me to what it means to be human, and then rapidly changing aspect, what it means to be human within a highly technological environment. Torsten Jacobi: Yeah, that's what I love about your books. You, you talk about the netocracy. So the, this emerging change, and it's been a class struggle, a power struggle that comes upon, I think they already see this when we, when you talk about that, is that the intention that goes to only very few accounts in this, in the very active nodes of this social network that we all are plugged into. And I've been criticizing this for a long time, is that, you know, 99.99% of the interaction of the engagement social media go to a very, very tiny amount of accounts. Everything else doesn't really exist out there. Those are the ones with the power, right? Those are the ones that are favored in the next 10 to 20 years. Alexander Bard: Yeah, the telecom companies all sold us the light 30 years ago that the internet will be accessible for everybody, which it is to a certain extent. And then we somehow power will be dispersed equally for everybody. And of course, that was not the case. It wouldn't be the case. We have different types of talents and some people are just very, very sad to witness the media. And it's a lot about being able to network and collaborate. And that's why the old ideas, for example, being an atomic cell, being individual or dying, because that's no longer a functional strategy in the internet world. You have to be incredibly collaborative. And we shouldn't be too impressed with the things we've seen so far, because a lot of the things we've seen so far, for example, the influencers who came along in the 2010s, they will evaporate and disappear in no time at all, because they're actually using old ideas and old ideology, which is to promote myself at all times, very American, always be ready with a sales pitch. But they're actually doing an environment that eventually will kill all of them, because that's not what the internet is about. You have to sort of figure out how does the internet work? And over time, what will pay off? And over time, what will not pay off in this kind of environment? And we wrote the netocrats the first book 21 years ago, we basically said we use both marks and each and we started looking at the internet society and sort of the digital age and how this would be different from previous periods of history. And when we did that, we discovered that it's almost like being in Paris in 1789, knowing that the old paradigm are all out in Versailles having a party. And none of them can read or write or count. They're just old money. They're not even old money. They're just old titles, old entitled, right? And they have a party out there and they think the future is going to be precise. They're all locked up there, 40,000 people. Whereas in Paris, you have hundreds of thousands of people who can read, write, and count, and read tabloids, newspapers every day, and start to read encyclopedias, which are like works of everything that's ever could be imagined from A to Z, you know, the precursors to be completed today. Yeah, that's the story of this information, this knowledge. And of course, these people who live in the small departments of Paris thought that, what the heck, we should take over around the world. And the world should be run from cities and not from the countryside. It shouldn't be run by nobility. It should be run by a new bourgeoisie. And the bourgeoisie will then build factories. I mean, the factories, they will manufacture things that the world would love to buy. And this will cause world trade to explode. And of course, all the power should move to us. And this was key in the French Revolution. Of course, it got bloody and messy because people didn't know what they were doing. But when Napoleon came along, 11 years after the French Revolution, and he was not nobility, he was not a royal, he was not from the church, he was a poor, peasants guy, of course, like the lowest of the low in French society, but he was therefore he had a perspective of the whole new paradigm. He had everything to gain by playing himself to be the king of the new paradigm. And he was, and of course, Hegel and the other philosophers were incredibly inspired by what Napoleon achieved. He basically said that, yeah, Napoleon conquered Germany, and he plundered us and he burned us down. Doesn't matter. Napoleon is the shit. If you just look at Napoleon and then start constructing institutions, Napoleonic institutions, the way schools are universities, hospitals, political institutions, parties, corporations, companies, factories, all these institutions we created over the last hundred years are Napoleonic structures, because they built on the idea that all those involved in these structures can read, write, and count. And that unleashed enormous amounts of power and creativity in human society, put Europe at the center of the world map. It even made it possible for the Europeans to conquer and slaughter three other continents, which they did. You cannot deny that it was successful. And that success was down to the fact that what happened in Paris was interesting, whereas what happened in Versailles was dying. And ever since Versailles slowly died, and we're going to see the same thing now, because the internet, just at the printing press before, it's a revolution on such a massive scale, it completely changed how we communicate one another, how we intelligently try to foster value out of the different systems that we create, that it takes a whole new set of skills to be a netocrack in that case, to be successful in this environment. And we've only seen the beginning of that right now in the 20th century. People will then see more and more of it, but we'll see the old institutions of politics and academia and old industry fall apart. So it's going to get very messy before. Torsten Jacobi: I find this really interesting. We see this power struggle right now playing out, right? So we have kind of a revolution in the US, and then the capital was taken for a moment, and then we don't know what actually goes on with our elections. So the trust in the institutions and in representative democracy is at all times low. Everybody sees that, but we, a lot of people just push it towards, well, this is part of this, this is a transitionary process, and we're going to go through this digitalization. But in the end, we'll come back to things that we've learned, like democracy and some of these core values will never end, core democracy and representative democracy as we developed it. But you, you draw a different outlook, right? That might look quite different from what you've known during the last 100 years or so. Alexander Bard: Yeah. To begin with, my favorite philosopher is Hegel. And he was a German. So here we go. Yeah. Okay. What would Hegel say? Well, Hegel would say, why are you making the assumption that the political zone will be of equal size over time? Politics can either be more or less important in a society. And what we've seen over the last 30 years is that politics become less and less important, why it's become more and more entertaining and had more and more media attention. Now, the fact that something gets media attention, like this Biden Trump, Biden Trump, that's more like television. That's our television. It's basically a reality show. And I always remind people that what actually happened was that Donald Trump took his TV show to the White House for four years, Nancy Pelosi played the evil witch, and finally it was over four years later. And then a really lukewarm Biden show moved in or something. But if you look at politics in itself and its influence as a whole, the power of politics has been diminishing over the last 30 or 40 years. And it's doing so quite rapidly now. And that's exactly why nobody who really wants to be powerful moves into politics any longer. We lead politics to kind of mediocre people who are more interested in the attention of it. They see it as a reality TV show. And that's essential politics is also becoming. So the question is, then, if power is a constant in society, the power is leaving politics, it's not really interesting to spend any more time on trying to resuscitate politics because politics is over. It's more interesting where is power moving inside. And the term we use for that in our work is sensocracy. So if you think of like digital, like we have satellites now everywhere around the planet, and we have, you know, fast Wi Fi cables everywhere, and everything is getting connected with everything else on the planet, and it's moving towards zero cost as well. So everywhere on the planet connected with everywhere else, it's almost so cost efficient now, it's moving towards zero cost. That is the internet. The internet on the book, the global empire basically said, here's a planet called Earth. Here's a network. And then you put the network on the planet and we call it the global empire. Please note that the global empire we use the term is not a human empire. It's a logical empire. Technology has no reason to have any borders at all. Technology will work itself towards being one huge cloud covering the entire planet because that benefits technology. So that's where we'll end up. Now, if you see that worldview, then, okay, so for example, you might say that, oh, I'm going to go offline today. I'm going to turn off my laptop. I have too many Zoom meetings. I go off with the kids somewhere. I always tell the guys, well, I congratulate you on thinking you're going offline because if you go into public park, you will actually have sensors everywhere, follow whatever you do. Look at your eyes and they know who you are, know who your kids are. You can't go offline anymore. Now, if you can't go offline any longer, that itself is a system. And that system is called synsocracy. Sensors and sensors. Sensors that measure our senses, the interactive human senses and all that they call this synsocracy. Now, the people who are interested in this idea, of course, the Chinese, but the Chinese have decided they are going to create their version of the synsocracy and it's going to be a dictatorship. Rome by one guy at the top. Since 2014, the impingus implemented the Chinese version of the synsocracy. So it's about time the rest of us try to figure out an alternative to that, because we obviously don't want a dictatorship. And I'm not going to moralize against the dictatorship. I'm just going to say they're not very sustainable. They tend to be bloody over time. They tend to be very dysfunctional. They tend to be virus resistant leak out of laboratories when you have the dictatorship. So nobody wants to tell the dictator because he might be upset. To take six months for the virus news to reach his ears and therefore these societies are very vulnerable. We know that communist China today is vulnerable. We don't want it. Now the question is then what possibly could be a synsocracy that, for example, has installed power sharing as a function of the technology cell from day one? And these are questions that very few people have even started to think about. But once you start to think about things like politics and law and AI and economics and future relations of power, boom, you understand synsocracy is the shit. You need to deal with these things. You need to do so. Torsten Jacobi: Yeah, I'm fully with you. I think this is really the future lies in its often, well, there's a couple of things that scare people. And I think that's when they stop thinking about this and kind of kind of get worried. One is that you also, and I think this goes along with all of this, you talk about the demise of the nation state. And what we're going to get in turn is a supranational major world government. And what we think of is that it's going to look somewhat Chinese, like the European units, tons of bureaucrats. And there's, you know, it's going to look like a COVID regime. Some bureaucrats, the sites that we all have to follow, there's really no wiggle room. It doesn't have to be that way. But a lot of people associate that immediately, I guess. And then I think a lot of people now what happened is because of this loss in institutions, they have gone very much in this anarcho liberal thinking frame. So anything that's coming from the government, any regulation is terrible. And we should have Bitcoin and it should be like an algorithm that basically rules us. That's what Bitcoin is, right? It's kind of, there's some people involved, there's some voting rights, but generally you're ruled by even more algorithms. And I think the European Union tried this, especially the Germans. And I don't think it's really successful. So humans want to be ruled by other humans. Ideally, they can select kind of the group, but, or maybe by them, by their own decision making only. But I feel like we go on one side very far off into, I don't want to be ruled by anyone. I basically want to live in my virtual forest. And on the other side, you have the super monocultural, strong bureaucratic UN idea. And that's what I feel people are worried about. What do you think is a good solution?  Alexander Bard: Let's try to find the nectocrats that exist already and then look at their current behavior. And I will say the best place to find nectocrats today is to go to places like Panama, Dubai, and Singapore. Small countries, right? Tightly controlled. They were like gated communities to happen to small nation states. And when you talk a little bit about Singapore, yeah, it's kind of a, it's almost dictatorship, but really not. So you can speak your mind, but actually there's a small elite that controls and runs everything. But the way it works is that people move to Singapore from all over the world if they can't afford it. It's terribly expensive. Taxes are low, though. Social services are fantastic. Do you get the best value for money you could possibly have anywhere in the world? As long as you can pay the rent, Singapore is fantastic on the not only country, it also has an airport. You can fly anywhere in the world in 24 hours without any problems at all. Dubai is the same thing. That's why these places are located where they are. Now, when you talk to people, though, who live in Singapore are highly successful, they work tech, socially successful, they use the online world to their advantage. So they have all these, all these sort of, they sort of fill all the boxes for being netocrats. We wrote about 21 years ago when they weren't getting it. We have many netocrats there. So for example, we have to sit with an Iranian young woman in Dubai, and she has three kids and Nani's, and a great husband who works hard like her, and they have careers. And then I ask her, what is the shake of Dubai, which is actually a local dictatorship? What if the shake of Dubai doesn't give you what you want? Well, then I'm just going to pack everything, take my Nani, set everything with me, and move to Singapore in 10 hours, or somewhere else. And you're going to see more and more of these places like Singapore, Dubai, Panama is one of them. What's interesting with Europe is this also possible in Europe. You've got places like Slovenia, Estonia, small countries that, for example, I've been working with these countries. The working philosophy is trying to figure out what's the benefit of having a small country of only maximum two million people, what everybody knows, everybody else. There's just basically one major city and airport, and then maybe some of, you know, like, Slovenia has a fantastic scene in one end, and Mediterranean beaches in the other. I mean, what more could you ask for, right? Now, these small countries are the new model, I think, brought in this huge empire like China and America that's hard and hard to contain. They're more and more problematic, more and more internal conflict that could even tear them apart eventually. Because when it comes to technology, technology would be imperial. Technology would be global imperial. It doesn't owe more to the way human beings do. We have time borders. We go criminal no time at all. As soon as we live tribal size, so we can move to anything larger than tribal, our loyalties disappear in no time at all. And that's how we human beings operate. So these systems have to take that into account, and people can be tribal and give them tribe, give them clan, give them family, for God's sake, because otherwise they will not be mentally fit at all. So I'm all for the reinvention of these sort of forms of social gatherings that work for humans. But I would say when it comes to nation, that took a huge effort. The nation state was actually originally invented by the Hebrews and the Phoenicians through an alphabet they constructed 800 before Christ. Prior to that, the Persians invented the first proper empire that a power sharing installed. The US Constitution's origin are actually the Persian empire about 500 years before the Hebrews created the first nation state. So we know people have experimented reforms that are larger than tribe, they're called nations, they're called empires in the past, but it's been this way hard to make people collaborate in larger social gatherings unless you have technologies and law to reinforce those processes. That's what we should keep in mind. I would say today, I would go and ask these guys to move to places like Singapore and Dubai and talk to them and say, what do you want? Because what they want will be the demands of the new sort of nature of practice. Torsten Jacobi: Yeah, I had Pablo on my friend Pablo a couple of episodes ago who lives in Dubai and I think he would absolutely agree with you. And at the end, I was jokingly saying, well, you love Dubai so much, right? So you're running for public office and he's like, well, what are you talking about? So even on a local level, there is no self government, it's all it's a dictatorship completely top down. I was really surprised by this because a lot of dictatorship allows a certain level of local governance. You can be not the mayor, but you can be your neighborhood director, so to speak, but those don't exist. And I thought, well, this is really odd, right? So it's as you said earlier, these dictatorships, even if they've been never lent dictatorships, that the risk goes higher and higher every year that they're just going to come crashing down. They're great if they are going the right way, but they are terrible if they're going the wrong way. Alexander Bard: Yeah, but they're not corporations. You think corporations are dictatorships. In a corporation, you've got owners and the owners install a board and then before the board, somebody's responsible for running the corporation. It's run like an dictatorship. If it doesn't suit you, you can leave. And that is the model that I see a lot of these things have been run because you can run things quite efficiently that way. And of course, Singapore will have its peak and it will have its fall and Dubai will have its peak and will have its fall because all systems, all human systems always have rises and falls. And the question is then for how long can these sort of city states that would dominate the world now, how long will they last? And I think here's what benefit of being European rather than American at the moment. Europe has a long history of city states. It was called the Middle Ages, right? And actually, there was quite a good time in European history. So for example, Germany is both in a lot of different smaller city states, and it's tried to be an empire that mimics the French and the British and tried to create the German Empire in the 19th century for a brief while. But actually, I think all these models that are smaller, more decentralized actually work better now because the technologies will take care of all the other things. So all the benefits of scale you had when you built the nation states, certainly to build an empire, all these supposed benefits of scale, the European Union sort of built the idea that we could have benefits of scale equal with the United States of America. And therefore, the European Union was a good idea. But now it turns out there are no benefits of scale left. Actually, the most prosperous places on the planet are now small city states. And when it comes to example, the COVID 19 vaccination programs, who was the head? Israel? Who else? United Arab Emirates? Who else? Bahrain? Europe? Iceland? Yeah. Then you go again. You see, when it comes to something like that, quickly get the vaccine. So get people vaccinated and get the economy back to normal. These small city states were far better, even in China and America. I think there's a lot of magic there. And a couple of episodes ago, I talked to Joshua about the nation states and he was very clear and he was like, well, these things were only there to rally the people, they motivated people and they were they were better than the empires because nobody could really attach themselves emotionally as much to an empire. So the nation states were better at this. And now this is not with the case anymore, because we are more and more rallying about what we see on Facebook. But if that's something that happens in Germany and Sweden or the US, it doesn't really matter anymore. Yeah, I would even add that Empire nation haven't really stood against each other. Two different alternatives and actually work very well together. So for example, why Christ was killed, we should be honest about it. But the Saddukite sect killed Christ, the ones who killed the Jewish sect, the Jewish sect. It was because Christ clearly, whoever was historical figure, Joshua Nasser, was really rebellious. As a result, the Hebrews who break loose from the Romans. And to them, that was ridiculous. The Hebrews were a special nation within the Roman Empire, highly privileged. Under Herodists, for example, prior to Christ's arrival, then uncertain, they were the central things because actually, they were trained to be the first nation ever within the Persian Empire. Just switch from Persian Empire to Roman Empire. And the way it works is that in an empire, you have a court language. And the court language, how you communicate on the top level of the entire empire, but then you can allow people on a lower level, have their own folk religions, folk languages, their own dialects and things. And that's how you run a good empire. That's the Roman Empire was run for hundreds of years. That's the Persian Empire, for example, thousands of years prior to that. That's what the best Chinese empire can run too. And that actually makes sense. So if you have a sort of court language that unifies the military, the priesthood, and the court, then you can have local cultures. And actually, the idea of universal human rights and freedom of speech and freedom of thought all originate in imperial structures. Because it's precise about having an imperial structure that if you can locally do what you want, but globally, we have to be coherent, then you're ready to create a different place where you can allow people to do that. And it's the same thing when it comes to freedom of speech, freedom of thought, freedom of religion or whatever, you still have to live within a Germany or a France where actually adhering to the nation's laws, it's an ultimate religion or a system, that's the court language equivalent, you can then allow for expression of smaller entities within that larger container. So if you look at empire that way, then we understand, okay, that's how we learned, for example, why freedom of thought, freedom of expression of good ideas, long term good ideas, they make society more sustainable, and also more creative, and therefore they're good ideas. So, but then nation, nation is essentially, we can all read and write the same language, and it requires a highly educated population until the printing press came along. And here's the beauty of it. What Christianity told the Europeans inherited from the Jewish religion was that you could have different layers of community. And it's that Christianity said there's a community called church, and there's another community called state. So pay to the emperor what you do to the emperor, that state structure, and then pay to the lord to be part of the church. And the beauty of doing that is that the Europeans could think at different levels. And what then happened was that when Christianity started falling apart after the printing press arrived, and people could read and write to begin with their own Bibles in their own local language, but they could also read and write in a local language or communicate in that language, we got the nation states of Europe. And so if you, for example, spoke the dialect of Hanover, or rather, you wrote the way you spoke in Hanover, you became a German eventually. If you wrote the way you spoke in Oxford, you became an Englishman. And that's where we got the nation states of Europe. They became one. Yeah, a lot of people bring forward that argument. I don't know if this is something you would refer to as our future. There is a, there is a super national but very limited government that's more resembling a dictatorship that's more strict. And then we have the US state system that's relatively independent. So we have a federation of global states that are relatively independent. It can't be cities or it can't be states, doesn't have to be a certain size of body. Everyone can kind of choose and might look similar to what we have or very different, but we have one super national government that's relatively strict and not as accessible as more like what we think of a dictatorship. So

00:00:38 How Imran found his way from Wall Street to teaching option strategies at Options Insight.00:09:42 What retail traders should learn before trading options. Why meme stocks options are such a 'rational choice' right now?00:14:42 Where are the best opportunities for trading options to still have an edge?00:24:45 What is Imran's view on the delation/inflation scenario? Are commodities a good hedge?00:29:35 Why does a 'rational investor' buy negative yielding bonds (or very low yielding bonds) at all considering the inflation risk?00:36:35 Did Softbank successfully manipulate the stock market for mid-tier tech stocks in 2020?00:43:19 Is there a 'low risk' strategy to buy/sell volatility?00:48:56 What are excellent, low risk hedging strategies for a portfolio? Can a option based 'hedge' actually make money?01:03:15 What is the strong relationship between low interest rates and money losing tech companies?01:08:10 Is there are place for 'value investors' left? Why does the investment world basically just 'bet on more free money' instead?01:13:14 What is Imran's strategy to use options trading Bitcoin upside/ downside? You may watch this episode on Youtube - #95 Imran Lakha (How to use option strategies to improve your market edge). Imran Lakha has been working with Citibank, Bank of America and Credit Suisse trading options. He now teaches options strategies at Options Insight.   Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).   Torsten Jacobi: Yeah, we love to have you on and we know your specialty is option trading. And do we also know you've been all old, all street, different banks, credit, Swiss, city bank over the years, and you've been doing this for a long time. And I was curious, what attracted you to the financial industry in the first place? And then why did you leave Wall Street at some point? Imran Lakha: Okay, so in terms of what attracted me to Wall Street, I guess, you know, I did mathematics and economics at university. I was the son of an accountant. So my dad was in finance, both my brothers were kind of in finance as well. And so because I was always pretty decent at maps and had those quantitative skills, it was like, what career can I go into and utilize the skills that I have? And, you know, going to London School of Economics set me up to be able to, you know, be attracted by those big banks on Wall Street where, you know, as a 20, 30 year old, you can you can make good money and, you know, you can get some decent security and live a good life, right? That was the kind of goal when I originally started. I was brought up to be very motivated to get myself secure and comfortable in life, right? So, you know, my dad struggled, you know, he moved here. When he was 20 years old, he struggled through various jobs that he would, he was quite skilled, like in terms of knowledge and stuff, but he had to do jobs that were kind of, you know, maybe a little bit basic for him. And he didn't want us to go through the same strife, right? So he, he kind of taught us that, you know, work hard at school, get the skills, get a good job and make set yourself up, basically, right? So it's very Asian, very Asian mentality. But it kind of worked, right? It was, it was certainly worked on a materialistic level, like allowing me to earn enough money to get myself comfortable, you know? Torsten Jacobi: Yeah. Why did you end up, and I know you changed positions for different banks over the years, but I know you took a break a couple of years ago, and then you left Wall Street once out. Imran Lakha: So actually, you know, a lot of that initially was driven by my wife. Yeah. So she, she was really keen on traveling before we had kids. So we were married for about, you know, seven years. We weren't in a rush to have kids, but we were like, you know, if we're going to have kids, she really, really wanted to see the world a bit and travel. And because my career was going pretty well, you know, I hadn't really taken the plunge until then. And, and it just came to a nice point in my career where I was feeling pretty burnt out. I've been doing it for about 10 years. And she really wanted to travel before we had kids. So I was like, you know what, I'm going to put my hand up, take voluntary redundancy, and let's use the money I get to travel the world. So that's what we did before we had kids. It's amazing. Torsten Jacobi: Yeah, it sounds a bit like Jim Rogers, right? He, he took his money, he went on this two year long trip, you know, I think he did two trips around the world, both of them were around two years old. And then he ran his own shop after that, right? So he, he joined the ranks of the legendary investors who run their own shop, the company, the publisher, publishing newsletter, we know this is something that is as a business model, really, really popular right now, the stack exchange. Is that something that you, where you felt like, well, I can either make more money, or this is just fits my lifestyle better? How did you, how did you transition this way out of Wall Street at that point? Imran Lakha: Well, my, my actual transition out of Wall Street happened later. So when I came back from traveling, I wasn't desperate to go back to banking. I was, I was kind of fishing around to see if there were any hedge fund opportunities, didn't manage to find any, and then ended up joining an old boss of mine at Citibank, and actually got back to banking, which was slightly annoying, because I was kind of enjoying not being in it. But it was only later after I had kind of, you know, had my little go on the buy side, you know, satisfied that sort of itch, scratch that itch as it were. And then it was only then that I was okay, now it's time to maybe try something else. And that was the teaching, because I'd always quite enjoyed the idea of teaching and I'd always in, you know, throughout my career at banks, I'd always trained people that came through, and, and that was something that I really liked to do. And I found that I was quite effective at it. So then I was like, okay, so I've got a bunch of knowledge on a subject that's quite niche, and I've got a lot, I've got a big network of contacts that I could probably, you know, turn into clients, you know, ex colleagues or whatever that I might have. So why not give it a go? So that was the night when I created Options Insight. Torsten Jacobi: And Options Insight help us to understand that a little better. It's really about trading options in the market, what's available to the retail investor, or does it go in a different direction? Imran Lakha: No, well, when I first started Options Insight, it was about how, how do I leverage my network, right? So I've got a bunch of old colleagues at banks, some of them are asset managers who are old clients of mine. I've got some brokers who I used to be their clients, all these people who have, I've probably have staff, junior staff who need proper training, and probably don't get proper training, right? So it was actually at the start, it was more of an institutional product and an institutional offering that I was giving, because that was the contacts that I already had, right? And no one, no one in the public sphere, no one in retail knew me, right? So, so it was very much the first couple of years, just leveraging those contacts, building up my content, building up my sort of product suite. And it was only post COVID, really, that I realized that, you know, the people who really need the education and are still out there looking for it, and are more consistently always going to be there, are the retail traders, right? And as the growth in retail trading exploded in the last couple of years, particularly in options, and I was seeing some really basic sort of errors or mistakes that I think, you know, novice option traders kind of make, I was like, these are the people that I need to try and educate, right? So then it was a case of try to build that sort of profile that I'm not just for institutions, even though I've been on Wall Street for 20 years, and those are the people who I know and know me, I'm happy to teach the retail people, because, you know, it doesn't have to be only professionals, you can, you can teach this knowledge to anyone, right? So that was the goal and that was the idea. Torsten Jacobi: Yeah, I feel like they should make your initial course mandatory on Robinhood. I was really surprised, you know, I had a portfolio for, I don't know, 25 years, first eTrade, you know, that was the first online broker a long time ago. Anyway, from the minute I started, but Robinhood, about two years ago, 18 months ago, I was really surprised that the approval to, for option trading used to be a pain, like it was possible, but you needed to file some documents and you need to text something, you needed to validate your ID. I think that's all true with Robinhood too. But I feel like I was instantly approved for options trading, and I couldn't believe it, I could suddenly, I could, I could sell calls, I could buy points, it was amazing. But from, and I think I know what I'm doing, well, we all think that, right? But I do have 20 years of experience with the subject, not in detail. But I was really surprised that Robinhood really opened up options trading to the masses. And I had this suspicion, that might be just me, that most people have no idea what these options actually do, right? Why are they so different, why are they different than the equity that I'm investing in? What is all this game about, why would they decay? That seems to be not really open to the retail investor, at least from what I see in the Robinhood app. Imran Lakha: Yeah, I mean, that's a no brainer. I mean, I actually, the regulators should make it compulsory for platforms that offer the use of leveraged products, like options, to make sure that those, those people using that platform have got a minimum level of education, because you're totally right, you know, people can lose all their money in a week with some of the crazy things that they're doing by buying one week call options on a, on a crazy hot meme stock. I mean, it's insane. Yeah, so yeah, I totally agree. I mean, I think that's the problem. Like, people just, you know, get into fads and trends, right? And the fad and the trend was, okay, what's the next hot stock like Tesla or whatever, that's going to explode? And how can I turn a small amount of money into a large amount of money? And, you know, on these, on these Reddit forums, they all got excited and they all started doing the same trades and it became self fulfilling, I guess to an extent. But yeah, I would love to be able to, and it's not, it's not because I want to necessarily, you know, capitalise on this, right? But I just don't like the idea that these, a large part of a large percentage of these people at some point are going to lose all their cash, right? And if there was a way of preventing that, that would be a good thing, right? Because the idea of all these retail traders losing the 10 or 20 grand that they have to play with is not a nice thought really, right? You know, banks can afford to take it on the chin and lose a few billion here and there, because they'll always get bailed out by the government, right? But the retail guy won't. Torsten Jacobi: Yeah, I found it quite mesmerising when they, when the data that I've seen about raw trade is extremely young, it's most likely male. And they bet a relatively small amount of money, between $500 and $1000. Yeah, I think it's a little bit, you know, we, I've been talking on the podcast a lot about the dearth of opportunities. This generation probably has the highest overhang from the previous generation in that, in, in, in mainstream thinking that is hard for them to, to break out and use new opportunities. Yes, you can drive for Uber, but it's not going to, not going to change your life, right? Do you know there's a level, there's like a glass ceiling, so to speak, as an Uber driver, and it makes cash. And I think from that point of view, I actually feel it's kind of smart what they do. They take this bet that most likely won't go anywhere. But if it pays off, you're going to have a few hundred thousand in your portfolio, just two days later. But worst case scenario, and most likely scenario, your money is gone. And this, this virtual casino, what the odds are certainly probably better than going to Vegas to get, if you're thinking about $200,000 or a million dollars that you want to, want to, want to bring back. I think this is actually a pretty, I almost want to say it's a smart way to make money. I know how crazy it is, right? But if, if you don't have enough opportunities to get to these levels, because most people, you know, under 30, they can never buy a house in San Francisco. I don't, I don't know if it's ever going to change. Imran Lakha: I guess, you know, another way to think about it is they're all buying a lottery ticket, but you can have multiple winners and they can share, share the payout basically, right? And the more, the more people they get to buy the lottery ticket, the more likely they are to get paid out, right? So that's kind of the game that they're playing, which, like I say, it's fine. And it's great when it works. And, you know, I wrote an article, one of, one of the things that I do occasionally is, is write articles about the market and just, just to sort of put my thoughts down on paper and they go on my blog on my website. And I wrote an article about the retail army, because I was loving what was going on with the retail army and how they were, you know, sticking it to the, to the hedge funds and stuff and creating short squeezes and stuff like that. And it's great, but it's great while it works. But then when you, when you get these problems, like, oh, you know, your account just got, your account got frozen because we've got margin issues on our side. And now you can't do anything. You know, had they had the foresight or the knowledge to be able to maybe do some smarter trade implementation, right? Then maybe they could protect themselves against that tail risk. I don't know, right? I don't know for sure. I mean, trade, even if you know how to trade options well, it doesn't mean you're always going to call the market correctly. But it's just, you know, the trade, for example, the trade that I was doing when the GameStop stuff was happening was quite funny. It was in one of the other stocks, BlackBerry. And BlackBerry was kind of following the AMC and the GameStop price action. It was one of the meme stocks as well. And it was, I think it was at like $26, $27, something like that. And I was like, you know, this thing might just keep going. It might do a GameStop, right? So, but the bowl is absolutely on the moon, like the bowl was in the hundreds. Okay. So I sold, I think the stock was at $26, $27. I sold the $15, $10 put spread, the $15, $10 put spread. And I collected $2.5 for that thing. And it was expiring in like two or three weeks. Okay. So it was miles out of the money. And I was collecting half the premium of the most it could ever be worth. Okay. And that was happening in two weeks, it was going to expire. Right. So I was like, rather than trying to buy this stock and take the risk that it drops in my face, that's the best expression of being long this stock. Right. And as it happened, I was completely wrong. The stock dumped 40% over the next week. And I lost no money. Right. So if I just bought the stock, I would have lost 40%. But because of the pricing of that put spread and understanding how the optionality works and where the opportunity lies, I was able to sell that put spread and take a zero hit on a 40% drop in the stock. And then I just cut my position. And it was fine. Right. So, so that's what I want to learn. That's what I like to be able to empower people to learn how to kind of swing the odds in their favor a little bit. Torsten Jacobi: Right. Yeah, I love that. You know, what I am, what I was my experience with options, it's the market is incredibly illiquid. It's very difficult often to get a good price for that option. Depending even on relatively well known stocks, I think I had some Uber calls. And I felt like, I don't know what the strike price was, but there were like five of them traded the whole day. I'm like, holy smokes. I mean, this is not exactly a small stock. Right. And there's always something going on where I feel like the market maker, someone on the other side is way more inside than I have. That's probably true in all of Wall Street. But I feel with options, I feel like, especially that's, I don't know actually what's going on behind this. So maybe you can help us a little bit, but when you just eliminated one of those strategies, what are the strategies where you feel like you still have an edge out there, even do Wall Street is basically against you. And these computers are super smart. Imran Lakha: Yeah. I mean, when you're talking about liquidity, I mean, I think that's a bit of a special case on the Uber side. Like, you know, big large, relatively large cap names, options markets are quite liquid if you know what the expires are that trade, right? So the problem I think you had there was most likely you were picking some obscure expiry that was like a weekly expiry rather than one of the monthly expires, where that's where most of the trading volume is. So you'll get better pricing on that. So you kind of need to know what is the stuff that trades liquidly, like even on something like the VIX, for example, right, the VIX index, you can trade options on the VIX, but the monthly expires are super liquid, whereas the weekly expires are horrible. And that's on something as deep and as liquid as the VIX, right? So you kind of need to know what you should be, which instruments provide you the liquidity, right? In terms of where the edge is, the edge is in understanding how to implement a trade, right? So you're right, on trade execution, you are probably going to give some edge away, right? But so if you're like trying to trade it on a super short term horizon and day trade it, then the odds are not in your favor, right? But the odds, the way to swing the odds in your favor are to have slightly longer time horizons, right? And know that the structure or the strategy that you're using is optimal for the market conditions and for your view, basically, right? And you should also be careful to not constantly buy options all the time across everything, right? Because systematically paying premium is generally a losing game. So you want to try and be a bit more selective about how much premium you burn and when you burn it, basically, right? That's kind of how I, that's my general sort of feeling. Torsten Jacobi: Yeah, I read the original post of the GameStop saga and I think it appeared in early November, second week of November. And basically the idea that was given in that original post was why don't we buy really long dated call options? And the same thing happened for Tesla. So this was, this was like the go to strategy for people on Reddit by long dated three months, as long as they could find it on Robinhood, basically, and I think they don't go so far out. That's a big problem. You can't buy a two year option. Even if that exists for professional traders, it doesn't really show up on Robinhood. And what I found interesting, they bought this three month or two and a half month option, it was a long user was available. And the stock barely moved during that time. And the second it expired two days later, it started to explode when like 5,000% higher. So it was a little bit from the original post this year, if you don't roll over your options, you would have given up all the upside through your health and position basically till the end, it only moved 20% until then. When you look into two options strategies, what does it kind of do? You just said that short term, it's a problem. What is a typical investment horizon? Is it two months? Is it one week? Imran Lakha: Yeah, that's a good question. I mean, generally, I prefer to err on the side of buying a bit of extra time. So I might have a view on an underlying, but I'm not arrogant enough to think that my timing is going to be perfect. Maybe it's just because I've been doing it for 20 years, so I know how often I'm wrong. So the idea then is say, okay, well, how much does it really cost me to give myself an extra month for this view to play out? So rather than buying a July option right now, maybe I should go to August or September. Yeah, so always err on the side of buying a bit of extra time for your view to play out is kind of my default. And then it's like, how much am I having to really pay extra in terms of volatility premium to push myself further out the curve basically, right? So that's kind of, and then that's one thing, that's my general sort of default in terms of if I'm expressing directional views using options. And then like you said, rolling is very important, right? So if if it turns out that my thesis isn't playing out as quick as I thought, or so I can change my mind, right? And then just say, okay, can I salvage back some premium? Because my views changed. If my view hasn't changed, and I still like the scenario that that stock or that underlying is going to go in the direction I think, but it's not playing out, and I'm getting within a month of expiry of my trade, then I think, how can I make that premium that's left? How can I make that live for longer? So where could I roll that premium to what strike and what maturity to just keep that premium alive for a bit longer, right? Because you just don't want it to get to the point where it's very digital, where it's very binary, whereas you get one bad week in the stock, and now your options definitely dead, basically, right? And that tends to happen when you let the option get too close to expiry. So the people who play it from the professional side and the more statistical side will always want their long premium to be sitting in maybe a one to three month expiry. And when it gets too short dated, and it starts to get too binary, and the theta, and the theta bleed basically gets too heavy, then you push it out to a longer expiry to make it live for longer. Well, that's kind of how I think about it. You would have to sell that option and just buy a new one, right? Correct. Yeah, exactly. When you look at the markets right now, there seems to be a lot of trend following going on, right? So it seems there is, and that's kind of my green topic a little bit, there's too few people who buy on value, who buy on their conviction, right? So we always have those, those contrarians, right? So they buy things and they're ready to hold it forever, some worn buffets, you know, as long as it's my return on equity is the same as what I projected. I'm good. It doesn't matter what the stock prices ever, because it will eventually be realized. But there seems to be what when you look at the markets right now, there seems to be a ton of trend following, right? Nobody actually is able to go out there anymore and say, well, this is the mania, crypto is crazy. But crypto, I mean, it just came down a little, but usually it would just double the next day, just because we're because someone said, oh, we're gonna be in in a bubble. When you, is that for you an investment criteria? You feel like, well, this is too, too big. I'm looking at more specific trading opportunities. So I would say trend following is definitely a valid strategy. You know, think about CTAs and why they exist, right? But go back to the turtle traders, right? And the birth of the CTAs, you know, that was trend following. And that worked, right? And they managed to teach people who knew nothing about trading and make them profitable traders by following a very simple trend following strategy. So clearly, it used to work and there was value in it. Now, whether or not there's as much value in it now, or it's as consistently profitable, it is debatable. I would argue there is still value in it just because why, you know, when you're a momentum or a trend follower, what I think you're basically getting rewarded for is patience. So you will, you will, you will basically find a trend, right? You will establish a trend that is established and you will say, you know, this is why I think that trend is, is going to continue. And I'm willing to just be in that trend and stay with it basically, right? And if you have the ability to size your risk and be patient enough with that position, that's kind of your edge, right? That you're not getting puffed out of the position on the first sign of a drawdown basically, right? So I think momentum seeking does get rewarded because it's some, but it depends on the time horizon, right? You need to probably look for, so the way I think about momentum is find longer term trends that you, that you expect can persist for years maybe, right? And have some sort of way to size into those trends and follow those trends and some indicators maybe that you use to identify those trends, right? But then around that, what a nice overlay strategy on top of that is to look for mean reversion in the shorter term time horizons, right? Because that's a valid strategy as well, right? You know, things can get frothy and things can get overstretched away from their mean. Simple things like Bollinger Bands allow you to sort of see that in terms of charting. So, you know, but then you look at daily time frequencies or even, you know, four hourlies or whatever, and they will give you a different sort of outlook about your short term tactical positioning that will sometimes kind of neutralize your longer term trend holdings. But then once those things mean revert back to their averages, then you're happy to unwind your tactical mean reversion bets and get back to the trend following position, right? So I think they work hand in hand as complementary strategies basically, but just across different time horizons. If that makes sense. Yeah, I'm trying to parse it. I'm obviously not from the industry. One thing that I think a lot, which is a big struggle right now, is basically all the trades are heavily impacted by either deflationary or inflationary scenario. Whatever you do right now, you have to have a position more or less. You can basically, this is very difficult, I feel to find anything right now that's completely neutral and not affected if either of the scenario comes true. So you've got to have a view of the future. Will it be inflationary and strongly inflationary? It seems to be this very bifurcated right now. Or will this continuous technology deflation keep going? China is very deflationary. It's just the bigger trend, which isn't this little trend that basically is a blip over the years. And we've seen deflation or deflationary scenario for a long time. Where do you stand on this? Yeah, I sympathize with both sides of the argument. And I've been talking about this on my YouTube channel recently. So I did one video a couple of weeks back, which was talking about how inflation looks like it might overshoot in the short term. And these are the reasons. And then literally the week after I was spelling out the case for the case against inflation. And I think David Rosenberg in his latest piece, and he was on podcasts recently, and he was spelling out why he doesn't believe in inflation longer term and he thinks it will be transitory and he actually agrees with the Fed. It's hard to argue against what he's saying. The structural forces are strong. And these inflationary dynamics are because of factors that clearly are temporary. So you've got to assume these stimulus checks are not just going to keep coming forever. I mean, maybe they will, but your default base case needs to be at some point, they're going to expire because you're seeing the disincentives for people to work in the non farms numbers. And we've got another one coming this Friday. And if that's a bad number, it's going to be not because there's not demand for jobs, not because we don't want people to work. The job vacancies are sky high, but no one wants to go and work because they're getting paid free money from the government. So you are starting to see states in the US, you know, stop the unemployment benefits in an attempt to force people back to work. And hopefully you'll see that come through the jobs numbers over the summer. So June, July, August. So that I think that needs to happen. And that will address some of the kind of potential wage inflation that maybe we might start to see. And then, you know, people talking about Europe is not affected by this, right? So Europe seems to be because we have this scenario for the US, but beyond Europe, I'm currently too. It seems Europe has always had great generous benefits, right? If you if unemployment benefits, I remember that when I left in Germany, where large stretches of the population were all unemployment benefits, nobody had worked in 20 years. And that was not that was pretty normal. It was still in the decent neighborhood, right? It wasn't a neighborhood where you get shot at night. And it's somehow, I mean, Europe doesn't have any inflation, right? So it keeps giving people checks for 20 years. But inflation hasn't really shown up in the longest time in Europe, if anything, it's negative not rates. Yeah, that's true. And I mean, the structural I suppose the structural deflationary forces, you know, that spring to mind, right, are obviously technology, the big one, right? Demographics is another one. So what what is the demographic profile of Europe look like versus maybe places where we are seeing more inflation? That's probably a factor. And those and those structural demographic forces aren't going away, right? So, yeah, I think longer term, I kind of agree that we're not going to get some massive runaway inflation that's going to that's going to force yields higher. And it's the end of it, right? Is the end of bomb markets, basically. But I think in the short term, we might get an overshoot, right? In short term, we could get an overshoot. I don't think it will be enough to force the Fed to act. And so I think the interesting thing is what what a commodity market is going to do, right? So the way I've been playing and using, I've been using commodity markets as a bit of an inflation hedge, right? I think everybody's onto this trade. That's what commodities have done so well, you know, energy stocks and commodities obviously are kind of somewhat in sync. And they've been doing pretty decently. There's a whole electric car thing going on in the background with precious metals. But I sometimes I'm not sure it's just because all the traders think this is a good hedge or maybe because it is a good hedge. Yeah, no, that's, I mean, it's valid point, right? Because at some point, it's fully priced or, you know, too much money's in it. And it requires an unwinder, you know, that these are the whole trading game theory and psychology aspects you need to be aware of, right? Is the money in commodities, is it fast money? Is it fickle weak hands that are going to dump it at first side of trouble? Or is it a structural mega trend that's going to keep going for a long, long time? Now, arguably, because of the governmental sort of agenda towards clean energy and electrification and all that stuff, you'd have to think, or it's certainly easy to construct the argument that the demand for copper is going nowhere, right? And then not only have you got a strong demand story, because we need to have a shitload of copper to, you know, to do what we need to do for the electrification of the world, right? So demand side's there, and then you look at the supply side and you see there hasn't been enough capex, there's a supply shortage, it's going to take a while for that supply shortage to be addressed. So you can see copper, the copper mega trend being there, but then maybe some other commodities are getting a bit, you know, far ahead of themselves, like the agricultural commodities, like corn and wheat and things that have started correcting a little bit recently. You know, what if there is some bumper harvest in the US, right? This time round, all of a sudden, that supply shortage goes away and those things get sold another 30% quickly, right? Who knows, right? So I think you've got to be careful about what you own in commodities and make sure that you're comfortable with the underlying fundamental trends that are there, but then they also offer you a general kind of inflation hedge and a real asset type thing in your portfolio, right? Because having too many bonds in your portfolio right now against your equity exposure doesn't feel that sensible and that that goes back to your recent podcast with Harley, right? Talking about the correlation between bonds and equities going higher, if rates go higher, you know, then bonds aren't offering you any diversification. So how do I get that diversification in my portfolio? And I think some move towards real assets and commodities that have got a real demand, a real supply demand story going on that isn't about to disappear. Maybe that's the pivot that people are making in their portfolios away from bonds and into real assets, right? Yeah, sometimes I feel like the demand from bond is kind of came in by default because remember for the last 40, 50 years, people had been pitched, the simple investment approach put 60% on equities, 40% on bonds and more people got on the train to invest, right? So either that's demographic or this is just because we're richer, whatever it is that seems to be surplus of savings and we haven't put them in government savings as you would have to do in China, right? So what we did, we followed the 6040 model. I did it quite some time ago and I felt really confident with this because it gives you some stability, like think back to 2008, the bonds were doing well, relatively well compared to the equity portfolio that didn't do so well at least initially. Yeah, there is a lot of science to it, but I feel like that's what I'm trying to say, people are buying these bonds not because they want to buy bonds, no, just because it's basically inherent into this strategy. It's kind of what Mike Green is saying with the passive investors, they don't want to actually buy this stock, they just buy it because it's in that index and because it's in this index and you buy into that mutual fund or this index tracking fund that they're being bought. So it's in the fall of the investment because I cannot come up with any scenario where rational investor buys 0.2% bond with a perceived inflation of 2% that we always had, right? You can argue it's more like a point five or it's a 3.5, but it's somewhere we always had 2% more or less the pet target over a long time, right? Why on earth would you buy such a bond if you want to hold it, right? I couldn't agree more, like negative real yielding bonds, why are you putting them in your pension fund? You're basically saying I want a guaranteed loss, right? That's what I want, right? Maybe they know something they don't know, right? Maybe they're ahead of us, that's what I sometimes say, but there's something going on there. Yeah, I think it's more related just to the mandates of some of these funds where they just have to hold X amount of bonds, right? They have to hold some paper that doesn't look like equities because of the riskiness of equities and the volatility of equities. So they've got nothing else to own, right, other than these ridiculous negative real yielding bonds, but and then the truth is the price appreciation of those bonds hasn't been that bad until maybe recently as yields have backed up. So even though the yield on it is negative, I'm getting price appreciation out of it. So as long as I don't hold it to maturity, I'm getting a total return off it, right? Sounds like Bitcoin to me. You know, I don't want to hold it down, right? I just want to write it up all the way. Well, there you go. The definition of a bubble, right? Then, you know, if people look at Bitcoin and say it's a bubble that they should look at what bonds have done for the last 50 years, right? 40 years. I mean, that's clearly a bubble too, right? So one thing I want to pick your brain on is they call it the gamma meltup. So something that happened last year and we know a little bit about that story what SoftBank did. We don't know all the insights, but there's a rumor that they had the trader with lots of experience and options from Deutsche. And the idea was that SoftBank said on this portfolio with very strongly depreciating assets, all of these were underwater. They're real investments, right? And they put a billion each usually into those investments. So yeah, they raised 100 billion and two funds are 200 billion and they usually put a billion or more in. And the trouble was the valuations were falling because the real tech market was was dropping, especially because everything was dropping, right? In March and April last year. And the strategy came up with was why don't we try to manipulate the global market for tech stocks? And they weren't really focused on game stock and the meme stocks, but they were focused on why don't we push up the valuation in the public markets of the main trading stocks. And that includes Amazon, includes Apple, but mostly the mid tier, I'd say not necessarily the banks, because they of course were on a strong high valuation already. And I'm curious if that's even possible. So the conspiracy theory goes like this, they put a few billion, maybe five to 10 billion into call options. And what these call options did, of course, they wanted to drive up and did lots of leverage in it, they wanted to drive up the valuations, but it created this this effect that prices for these options went higher than the options or the equities went higher, the options dealers had to buy it because

00:00:14 The short history of Erik's discovery (and theory) of faster than light speed travel.00:06:20 How Faster Than Light Speed travel would actually work?00:16:20 How much energy would be required for a warp drive propulsion? Is there enough energy in the universe to make faster than light speed travel feasible?00:25:29 Why the 'twin paradox' will be solved with a warp drive?00:32:47 Did Stargate get the 'warp' drive idea right after all?00:39:13 Are Black Holes a form of cosmic pollution left over by 'misconnecting warp drives'?00:44:50 Is time the same for everyone in the universe?00:50:10 What compels us to be pioneers?00:53:05 Do we live in a simulation?01:03:43 What are other 'faster than light' phenomena in the universe?01:14:34 How does 'dark energy/ dark matter' work? What do we know about it?01:25:10 Are there more dimensions than the four we can easily interact with? Does time exist without a conscious observer? You may watch this episode on Youtube - #94 Erik Lentz (How to build an actual warp drive). Apologies for the sound quality during the first few minutes - it gets much better after the initial five minutes! Erik Lentz is a Ph.D. physicist and focuses on the theoretical, computational, and experimental aspects of searching for dark matter as well as faster than light travel. Big Thanks to our Sponsors! ExpressVPN – Claim back your Internet privacy for less than $10 a month! Mighty Travels Premium – incredible airfare and hotel deals – so everyone can afford to fly Business Class and book 5 Star Hotels! Sign up for free! Divvy – get business credit without a personal guarantee and 21st century spend management plus earn 7x rewards on restaurants & more. Get started for free! Brex – get a business account, a credit card, spend management & convertible rewards for every dollar you spend. Plus now earn $250 just for signing up (Terms & Conditions apply).   Torsten Jacobi: Eric, thank you so much for coming on the podcast. I really appreciate it. Thanks for taking the time. Erik Lentz: Oh, thank you for inviting me. Hey, absolutely. Torsten Jacobi: Eric, you changed the world recently and you gave us faster than lights if you travel, at least theoretically, right? You published a paper recently where you outlined the options, how we can achieve that. And it's been so long and I had many people here on the podcast who were very, very convinced that this barrier can never be broken. So I'm really curious about your thoughts and maybe you can help us a little bit more, how you came up with this, what did you do before and what makes you so confident that this could actually be a possibility? Erik Lentz: I mean, I've been interested in this field for decades. I think a lot of people who get into STEM as a profession, we're all fans of science fiction in one form or another as children. And for me, it was definitely Star Trek. And I was really fascinated by the whole world that was set up by all the series and movies and whatnot. And I really resonated with the technology that seemed to facilitate all these things. And one that really stood out to me, that was really the physical link between the interstellar community possible was the warp drive. Otherwise, you'd be spending tens of thousands of years just trying to communicate across this vast network of civilizations. And so this seemed to be a really key point. And as it became older, it became obvious to me that someone would have to invent such a thing. And so it's been a fascination to see if something like one of these plot devices like the warp drive technology would actually be possible in the real world. And it took some time in order to build the technical acumen in order to be able to pursue that. But the desire was always there. And so what happened that, say, 2021 or really 2020 became the year that this paper came out for me is that I found the time to actually really delve into the topic. And we can, I guess, thank the pandemic for that because I found myself sitting at home with a lot of free time on my hands trying to find a way to fend off cabin fever and this project that I really wanted to do. And so I built into the literature to see what the status of people who had passed had been because, as your listeners may know, there is some existing literature on the concept of warp drive. You could say it kind of started seriously with Al Cubietti in 1994 when he was still a graduate student. He made this Al Cubietti drive this first example of a mechanism that could transport observers like you or me, people who move primarily through time rather than space, find a way that they could move effectively through this manifold of space time effective papers in the decades since then. And like you said, the literature seemed to indicate that this was while you could create such imaginary geometries, they were not really feasible because they had all sorts of problems, namely having to do with what sort of matter and energy would be needed to force them. And so this was something that was still problem in the literature when I looked back into the spring of last year. And I wanted to see if there were any loopholes, if there were any stones left unturned in all of the possible solutions to Einstein's relativity. That would allow for both a mechanism that could transport things at arbitrary speed, including faster than the speed of light as well as – that not necessarily need these exotic sources of energy and matter. And so the process that I undertook to do that was essentially just start to delve in the different types of geometries that would provide these properties that I would use that I would use that I would use that I wanted and constrain down, come up with a set of rules that would narrow down that set of solutions and these other constraints like positive energy and other things. And eventually, I found this vision set of rules that I could construct via a computer simulation how one of these geometries would take the example of one of these geometries and that's what you saw in the paper last year and what's been circulated in the past few months in the media. So this is all very exciting. I don't know if I'd say I've completely changed the world yet because there are still a lot of challenges ahead to this sort of research, but it is very exciting. Torsten Jacobi: That sounds fascinating, Eric. When you published this paper and it's been a couple months since then, when you would have to explain your theory to a 13 year old, how would that work? Maybe we can be in that same position. How can we actually get to that point where we can travel faster than the speed of light? What is necessary and what effect are we taking advantage of? Erik Lentz: Well, we're taking effect of the advantage that unlike special relativity, special relativity is usually what we appeal to when we think of nothing can move faster than the speed of light. That's relativity. That's actually not quite true in the context of special relativity and the principle of special relativity says that two objects cannot move relative to each other at a single point faster than the speed of light. So this is a very local statement when we bring it into the context of general relativity. So because moving from special relativity where we're all moving on this flat background space time and Kosti space time, and we make that space time in the context of general relativity dynamic and reactive to the matter and energy that lay on it, there are a few tricks that we can take advantage of. Namely that if we separate bodies, there's now no longer a principle that says that the bodies cannot move away from each other or towards each other, being at two different points effectively faster than the speed of light. In fact, we see a phenomenon like this, we believe, in our own universe, namely this acceleration quantity, the fact that galaxies very far away from us appear to not just be moving away from us, but accelerating away from us. This is a phenomenon called inflation. There's also a period that we believe in the early universe where a much more violent form of inflation happened where objects moved away from each other at a rate that increased exponentially with time. And as it becomes further. Torsten Jacobi: Some of those outer galaxies and planets, from what I remember, they move away faster than speed of light. So we can never catch up, never see that galaxy. Erik Lentz: Precisely, precisely. And by virtue of them being further apart and this acceleration mounting with that increasing separation, eventually they start moving away from you faster than the speed of light and they fall out of what's called causal contact. It means that you can't communicate with them anymore via something like a light beam. And they fall behind what we refer to as a horizon, an event horizon, of a different type than say you'd find around a black hole, but similar in effect that you can no longer communicate between these two bodies. And we're essentially doing something similar with the warp drive. We're taking advantage of something that kind of looks like inflation, a much more complicated form of inflation because it doesn't necessarily just inflate. It also contracts. And use this to our advantage in order to effectively make some motive device that propels us through this space time. The alkybietic metric is maybe the most intuitive form of this concept in that when you calculate what's called the extrinsic curvature, it's the form of curvature. It essentially tells you how space is being curved in the presence of the higher dimensional space plus time manifold. But what it tells you is for the alkybietic metric, you have this nice picture of what almost looks like a wave. And this is what is propagated in the media very often, that you have some flat region in the center of this warp bubble. Also can be referred to as a soliton because it's nice and compact in size. And in this center flat region is where you'd put a ship or some such thing. In front, on the leading edge of the bubble in the direction of travel, you have this dip in the graph that's most often circulated. And this tells you that we have a relative contraction of this extrinsic curvature. It's kind of telling you that the space is being compressed in front of the bubble. And behind, we have this peak in the extrinsic curvature which is telling us that the space behind is relatively expanded. Now, the combination of these things kind of gives us an intuitive feel that we are kind of making the distance to our destination shorter and the distance from our origin point longer. This is not entirely accurate because this region of locally contracting expanded space does not extend all the way to the destination or from the origin. But it does give us a nice intuitive feel for that you're essentially dragging yourself along by pulling yourself by contracting space in front of you and renormalizing it behind you by expanding it. Now, other solutions are a bit more complicated in that and the interpretation becomes a little less clear. But most of these solutions do have similar, all of the solutions have curvature of one form or another. The particular type of curvature that's put in this plot of this nice acubiety drive wave shape, most of them are nonzero but not all of them. There is one example, one well known example called the Natadio drive where that particular form of the curvature is zero everywhere. Torsten Jacobi: Yeah, well, I know that was mentioned in what I read about the white paper. It would reduce the speed of travel, say to the next star system, to a few years or a few dozen years instead of, I think, a current propulsion systems that we have would be a few hundred years, a few thousand years, right? Erik Lentz: Well, current chemical rockets, they're limited by their exhaust velocity and how much fuel you can carry, which the limit is, the entire vessel is made of fuel. And at that limit, you are essentially, I believe, limited to about twice the exhaust velocity, instantaneous exhaust velocity. So with current chemical rockets, we're talking about some tens of kilometers per second, which translates to tens of thousands of years to get to Proxima Centauri, which is a bit excessive. There are somewhat fewer terms. Torsten Jacobi: There was recently a story about that. I think it was three generations, right? I don't know if you watched that movie. What do you think? They had children. They basically had children that were born in a traveling rocket, so to speak. And they were primed and raised by themselves and no parents around. There was one parent around, but he kind of dies early. And then the idea is that they will, their grandchildren will actually be at the same age when they reach their destination. It's only about 100 years, right? That's not super long. And then the whole ship kind of falls apart until then there's a lot of struggle, and eventually they make it. So it's a good movie, though, it's well done. Erik Lentz: But I believe the rocket probably used in that movie was a nuclear rocket because their exhaust velocity is much, much higher. The energy levels able to be utilized from nuclear fuel, whether it's fission, fusion's obviously much better. The utilization percentage is much higher. But I believe, yeah, there have been some studies to say that, say, with a nuclear fusion rocket, it may be possible to make the trip to speed one ship up to some tens of percent of the speed of light. Of course, that would take some time. And so the journey would take maybe a generation or two. Torsten Jacobi: Yeah. Freeman Dyson worked on the Orion spacecraft. He was one of the co conspirators. Right. And they had supposed to have micro explosions, nuclear explosions, and that would propel them if they were controllable. Also, depending on how much material they take with them, unless they go close to a star and refuel, I don't know, that's so feasible. But at least it sounds faster, it sounds more and more sustainable. But it never, because of the nuclear arms treaty, it never went into any testing from what we know. Maybe it's hidden from us, that part of history. Erik Lentz: Perhaps I knew though that there were some tests of fission rocket systems, I believe, all the way up into the early 70s. But those were also discontinued. There are some, I guess, small collections of engineers and physicists who would like to resume those tests. Just because the specific propulsion of those engines is much higher than chemical rockets. But I don't know what the status of that is. Torsten Jacobi: Yeah. Well, there's people who say we have these bases on Mars. In the movie, we communicate with the aliens there. And that's where we build all the rockets, on the dark side of Mars, right? Well, maybe that's a little bit too much of a conspiracy. Going back to what you came up with, it generally seems so with the precedent that lights we traveled initially, it all sounds relatively easy until we realized, whoa, the amount of energy that's required. And often, that seems to be bigger than the sun. And that's where the discussion ends, because we don't know how to harvest even a portion of the sun properly, the solar cells here. But we are really far away from harvesting the full sun power. Fremant dice was working on something similar. How does that work with your theory that you are suggesting? Erik Lentz: Well, my theory is, I guess, also impractical from a total magnitude of energy viewpoint. The previous studies, previous warp drive studies, required, yes, on the order of solar mass magnitude energy. And I'm not just talking about the radiative pressure of the mass. I'm talking about converting every kilogram of mass in the sun into an actionable form of energy, the E equals mc squared type of conversion. A perfect conversion. Not only was it. A perfect conversion, right, that has never been achieved. Well, only via matter, antimatter annihilations. Those are the only ones that I'm familiar with. We don't use them to often. Not only. Seasonings. It's a little expensive at the moment. I think some thousands of trillions of dollars per gram. It's a little out of our reach. But in any case, not only did the total magnitude of energy need to be of the order of solar masses, the sign was also what made it impractical. Not only did you need that magnitude, but you needed to make it out of some media that we don't know exists in that sort of concentration and that sort of density. We needed exotic matter, things with negative energy density, of some very astronomical size. We needed to be able to make that. We needed to be able to make it stable. There were some initial papers. I think by fending in forward, they were the first ones to make the computation of the Alcubietti Drive to say, OK, it may be possible that we use properties of the vacuum, use a chasmier effect in order to make naturally occurring exotic matter. We essentially make the width of this bubble so small that we get a chasmier effect so the local energy density can, via quantum effects, become negative. But in order to make that bubble wall thin enough so that these would naturally occur, we would need to make them on the order of hundreds of Planck lengths. Planck lengths are, oh gosh, what is it? Oh, it's 10 to the minus 30 or so centimeters or so across. It's extraordinarily small, far beyond the distance scales that we can probe, say with the LHC, some many orders of magnitude beyond that. But you'd need to make that all the way around a bubble and say, if you made the bubble interior 100 meters in radius, the total effective negative energy you'd have to make that bubble in the bubble wall would exceed the total magnitude energy in the visible universe by orders of magnitude. So it becomes extremely impractical, very much a problem. So instead of making it naturally occurring a chasmier effect to fuel this, you'd want to find some naturally occurring stable source of negative energy density, which we may have some hints of something similar to that going on with dark energy, sources of inflation that we seem to be observing in the universe, but we don't know precisely what the sourcing media looks like. But in order to make that in such high densities and such concentrated quantities, we have no idea. It's much easier to, say, take things with positive energy density, atoms, things that you and I are made of, and try and manipulate that to make very high density dynamic fluids in order to source such things. But before last year, we didn't really know how to make a solution that could utilize these sources and actually make a warp drive out of them. And that was the impetus for me looking into literature and making the paper that we saw come out last year and get published in the early months of this year. Just to be sure, with what you're suggesting in that paper, what is the amount of energy required just to go to Alpha Centauri? Right. Right, right, right. The energy question. So the energies are similar in magnitude to the old estimates. But the sign is correct now. Now we have positive energy densities. But to make something radius 100 meters go at the speed of light, we would need some tens of percent of the solar mass equivalent in order to do that. So very high amounts. 20% of the sun, we would need. Yeah, say 20%. Right. So five times 10 to the 29 kilograms of material compressed into something that is 200 meters across. And that's to go the speed of light. Not faster. In order to go faster, you'd need more energy. But then you could get to Alpha or Proxima Centauri in a little over four years. Torsten Jacobi: Yeah. When we think of this, and we obviously in an extremely early age, that's all theoretical. But if we take this all the way out, say we're going to be way more efficient. And it's only going to take 1% of the sun to travel that far. And maybe an even better speed. So we make magnitudes of improvements. I'm thinking of the early days of the internet, right. We put all this fiber under the ocean. We thought, oh, it's not going to be enough. And then five years later, we realized, oh, man, we 100 times more efficient. So we actually put too much fiber underneath the oceans. But as I'm saying, there's going to be a huge amount of efficiency gains to be made if you ever get into a practical solution. But I mean, we only have one really easy applicable source of energy in our solar system, right. It seems like still an amazing amount of energy that we have to procure. Even if you get way more efficient, interstellar travel, we're going to get rid of all this suns, right. If you take it from such a solar source, it doesn't mean that's what it's going to be. But it seems inherently very limited. So if anyone comes up with interstellar travel, it seems to be we have to agree. Right, wouldn't we be seeing a blinking out of all the stars in our galaxy? The stars should be going away. That's what I'm trying to say, right. Because I mean, the equations that you make, they're right. Or you can't do much about it. The energy seems to be, if we are curving space, just to go to the next star system, it seems to be a huge effort. There shouldn't be a lot of stars left. If someone else in the universe sooner or later has come up with such a travel system. Erik Lentz: Right. So I would agree that if we cannot make extreme savings in the energy efficiency of these warp drives, then if they ever become feasible, that would pose an existential threat to the rest of the galaxy. I still have some hope that gains in efficiency can be made far beyond the one or two orders of magnitude that you just mentioned. I'm hoping that something on the order of tens of orders of magnitude can be of savings can be made in the energy density. There have been studies, again, in the context of the acubi eddy drive, the natario drive, things that already used exotic matter, in order to save energy on tens of orders of magnitude scales. So maybe bringing the energy from 10 to the 30 kilograms to 10 to the 20 kilograms, 10 to the 10 kilograms, maybe even down to the kilogram scale. And if we're talking about a kilogram scale, then maybe we're in the realm of something like a fusion generator or even a fusion generator. Especially if we say, slow ourselves down for the prototypes, which I think would be inevitable. You'd want something that is both smaller in diameter. So maybe you are putting something the size of a small satellite into one of these warp bubbles, and you're making it move, say, some kilometers per second in orbit. Maybe you're just having it change orbit above the Earth. Then you don't need nearly as much energy as well. You can scale it down in that way, but you'd also need some other energy saving mechanisms just to get there. Yeah, that's where we want to go. We want to go to the stars, because otherwise we begin almost to go there right now. I mean, it takes a little bit of effort, but maybe Elon brings us to Mars in 10 years from now. One of those problems that we have with traveling close to the speed of light is that time is so relative that the people inside that spacecraft have a very different perception of reality and how time goes than the people who haven't traveled. So we would never be able to return into the same time. I think depending on the speed, it could be thousands of years different when you return, like the Earth has either. I know I always confuse who's traveled quicker, but you definitely, in hundreds of generations after you've left, I don't know, that's only for one eight year trip to Opposite Ari and back in 10,000 years into the Earth's future. But with a warp drive, we can avoid this, and of course, how this works. Right, so the twin paradox, that example from special relativity, where you have two twins, one moves away, experiences time at seemingly a slower rate because when they return, the one that went on a trip has aged relatively little compared to the one that stayed on Earth. So how this changes is because they change reference frames. Right, they start in the same reference frame, then one twin accelerates to something close to the speed of light, and you get all of these dilation effects. They accelerate again to return, and then they come to a standstill relative to the original twin. But Eric, if you travel at the speed of light, the time stands still and you don't age, right? It's not possible. Sorry, close to the speed of light, near light speed, near light speed. Sorry, I was being imprecise. But in the case of the warp drive, if you were to recreate this twin experiment, you start off with one on Earth, one gets in a ship, the bubble forms around it, and off they go, seemingly accelerating from the viewpoint of the one on Earth. They see the ship go get farther away. But within the warp bubble, the second of the twins never feels any acceleration. They do not accelerate. They do not effectively change frame of reference with respect to the original twin. So the rate of passage of time locally for both of these twins remains the same. Because the ship is in the same position. The reason why they're separating, while not necessarily experiencing different rates of passage time, yes, is because of the curvature. But so the twin that's traveling goes to Proxima Centauri. The curvature collapses so they can actually, say, look around. And this twin has aged, say, if they're moving at the speed of light, the drive moves at the speed of light. They've aged four years. They've seen four years go by from within the ship. Then they get back in the ship, the warp bubble reaccumulates, and they come back to Earth to tell everyone about what they've seen. And they come back, and it's been total, say, eight or nine years. But also, the original twin on Earth has also aged that same amount. So you don't necessarily have the same problem of being able to explore the universe, but never being able to tell anybody about it because your civilization is long since dead. Yeah, that's really neat. It really solves a lot of practical problems on that. I guess, although it does necessarily mean that in order to really see much of the surrounding galaxy, you really have to be able to accelerate faster than the speed of light because you're still limited by the passage of time for the people in the ship. So you really want to not just meet the speed of light. You really want to get beyond a 10, 100, 1,000 times in order to really be able to travel, say, to the galaxy center and back in a reasonable amount of time within your lifetime. Yeah. So there's still that shot. What happens if we travel, say, 10,000 times the speed of light? So let's assume that's in that warp drive. That's in a future scenario. What happens to time when that person that travel comes back to work, would that still hold true that time has moved the same for both twins? Or would that be a different constellation? I mean, I think it would be effectively true. You can, of course, design one of these warp drives that does have the ship inside experience some acceleration. So you do have this difference in time rate of passage. But beyond that, no, they should match fairly precisely up to, I suppose, what happens during the process where the warp bubble is sort of accumulating in magnitude, what would be seen by somebody outside of it as the acceleration phase as the ship moves off. And that is actually something that hasn't been done in the literature, a precise mechanism for accelerating or decelerating one of these. Although I imagine because of the very calm nature of the spacetime inside of the bubble, it would be fairly straightforward to maintain that throughout the entire process. So they wouldn't experience any acceleration, so the rate time of passage wouldn't change. But there's the question of, OK, so what happens if you are going to see a star that is moving relative to the Earth? You're going to have to, there's going to be, effectively, some dilation between your original frame of reference and your destination. So you're going to have to match that in some way. And so there'll be some effect when you're exploring whatever that star or other galaxy, whatever your destination is. There'll be whatever physics goes on during that time. And then you'll have to reverse the process and come back. So there may be some effects from matching the trajectory of your destination. But if we're just dealing with the plainest of scenarios and the two objects are sitting on a relatively flat spacetime and moving, not really moving relative to one another, you shouldn't really see that sort of impact. You know what it sounds like? It's a bit like the Stargate universe. I'm a big fan of the science fiction shop. And what their pseudoscience, so to speak, is, right? So they have these gates, and you basically go through an event horizon. And you don't even have to move, right? So you're exactly being rerepresented on the other side of the event horizon. And it's not a beaming device. It doesn't sound like Star Trek. But when I hear that, I feel like the ship is basically, it only needs to move a few inches, right? Because space is moved so much around that the ship movement doesn't matter much anymore, right? And depending on how much you use, how you create that warp bubble. But let's assume we can make it a gate, like literally something we have at home, like a home device. You literally just enter the warp revenue, and you jump in, and you jump out on the other side, or push it out, let's say that. And we wouldn't necessarily, I mean, we can basically travel in a space suit, right? Because we are in it only for a few seconds, and then we come out on the other side. Do you think we can go that far? I mean, that's kind of the general assumption that I put into my solution. And what has been done with the other solutions is that it's a very calm area inside the bubble. You're essentially in free fall, right? So if like somebody out on a spacewalk, you have the sensation of floating. And even as the bubble forms around you, or dissolves around you as you reach your destination, you feel virtually no sensation whatsoever, as far as motion is concerned. Our typical intuition about motion really is based on acceleration or vision of things moving relative to us. You would have some sensation of seeing things move by, but you wouldn't have the sensation of acceleration. You wouldn't feel that you were being cold or pushed or anything like that. So there's also no radiation problem, right? A lot of people felt that warp drives were huge radiation issues. Well, yeah, so there are problems with radiation from a couple different viewpoints. There's the hawking radiation issue that if you create a warp drive fast enough, you create an event horizon. You essentially isolate the inside of the bubble from the rest of the universe. And that has its own just classical physics problems in terms of how do you, if you were able to make one of these things and you have a horizon, how do you communicate with the rest of the bubble? So when you reach your destination, you can actually dissolve it and rejoin the rest of the universe and actually observe what destination you went out to go see. And that's a whole other problem. But having to do with radiation, once you create one of these event horizons, there is this concept of hawking radiation where if virtual particles are created on either side of the horizon, they will be out of causal contact and be unable to annihilate with one another. And so you get effectively radiation of particles that are created on your side of the event horizon and they can impinge on you. And there have been some calculations of the radiation that would possibly result from such a horizon. And it's not good. However, however, the, I think some of these difficulties can be overcome simply by virtue of geometry of the interior region, right? The initial Cubietti drive was very spherical in shape. The shell, the shape of the event horizon was very spherical. So everything that would appear on either side of the horizon would propagate towards the center. So the ship would, the entire volume of the interior would be radiated. It's possible that if you shape the edge of the horizon in such a way, you may be able to create regions that are radiation free. Correct. Yeah. So that may be one way around it. It's not necessarily omitting radiation within that calm region altogether. But it's, I think, a step in the right direction. There's another problem having to do with radiation in that you have this shell that's moving at faster than the speed of light. What happens to things it runs into, right? There's space dust, there's comets, there's all sorts of things that it could possibly encounter on the way to its destination. What happens to those? Well, with the standard QBA drive, it seems like all of these objects that impinge on the leading edge of the bubble get stuck. They get their time rate of change as they move through this high region of high curvature. Essentially, they get swept up with the bubble and they move along with it. So you have this mounting shell of energy on the leading edge of the bubble. And what happens when you then stop the bubble, if you're able to overcome this horizon problem and stop your drive at your destination, what happens to all this energy on the leading edge? Well, it seems like it gets radiated out in front of you in almost kind of some very coherent pulsed laser beam. And so that could also be potentially very dangerous to your destination mostly. But that might also be something that can be overcome via geometry that you could perhaps instead of necessarily catching everything, you could change the front end of the shell or change the geometry, not just the shape, but the actual degrees of curvature so that instead of getting caught in the leading edge, you might be able to deflect it around. And it would essentially come out the back end of your drive relatively unimpinched on. One thing that I immediately thought of is when we now think about, I love how detailed you are already into this, when we think about a faster than light speed travel, someone in this universe must have done it. So that's known as kind of a Fermi paradox, which isn't going to be a paradox, it seems to be just a lunch note. But anyways, it's become quickly known as this. Others must have done this and why didn't they visit us? And maybe when you talk about the issues that there are of a faster than light speed travel, is it possible that some of the things we see in the universe are kind of a pollution created by other people creating warp drives, thinking about black holes, thinking about pulsars, car stars. All these things that we see, maybe they are just pollution, where some of the warp craft didn't work properly. Is that something that ever occurs to physicists or this is just too much science fiction? I think it occurs to physicists. But I also believe that there is a mantra that happens in physics, particularly in astrophysics, as they encounter new phenomena that they are unfamiliar with, they don't know, they see some gamma ray source, some repeating gamma ray source or unrepeated, some new phenomenon that they are unfamiliar with, what exactly is causing it. And I think for a lot of them, not some small part of their brain is saying, oh, maybe it's some sign of intelligent life of some advanced civilization. But then this mantra also comes into their mind, okay, it can't be aliens. I can't say it's aliens because that's perhaps, that I'll get branded as the person who says everything is aliens. And so they look everywhere, but for a result. And so far, that seems to be working out fairly well. But as we advance our own knowledge of what different phenomenon we can create via technology, like possibly this warp drive, we're confronted with questions, Fermi Paradox like questions, do these things, can they actually exist? And if they exist, and we can create them, why hasn't everyone else? Why don't we see signs of this? In the case of the warp drive, you already mentioned one, right? Why don't we see suns blinking out because we need so much energy seemingly to make one of these? And maybe if these things are actually happening, there is a means of saving vast amounts of energy so you do not need so much. Maybe you only need an asteroid's worth, something like 10 to the 12 kilograms. Those are much more difficult to see disappearing from other star systems. As far as seeing the effects of, say, the creation and acceleration and deceleration and diffusion of one of these drives, it may be that such signals are very focused. That instead of seeing some gamma ray burst, which radiates in many different directions, fortunately for us, with such intensity that we even being light years or tens of thousands of light years or millions or billions of light years away, we can pick up some few light particles, some few photons in our telescopes. It may be that these drives are very efficient in that they don't give off much in the way of excess radiation. That's also possible. I'm a little less sure of that one considering some of my recent thoughts on how one would actually accelerate one of these drives. Because not only do you need to satisfy the Einstein equations, which are what tell you, given a particular source of matter and energy, how the space time is going to react. You also need to satisfy the general relativistic form of conservation of momentum or refer to as conservation of stress energy, the covariant conservation of stress energy. You need to, if you're going to create something that propagates across space time, this thing cannot just create non trivial stress energy out of nowhere. There has to be some equal and opposite type of reaction in a covariant geometric sense. What does that look like? That might be a possible signal, but precisely what that sort of radiation or geometric disturbance, maybe there's some gravitational wave given off by one of these drives as they accelerate or decelerate. I don't know yet, but these are definitely things that I'm thinking about. What's great about the warp drive is it gives us the option that someone could visit us mostly in real time, but we think of the long term space travel. So far we always felt like, well, the time horizon is so far off. We notice from light that by the time the light gets here from a few million light years away, that's a million years have passed from the