Mike Green (The gravitational force of passive investing on capital allocation and geopolitics)

The Judgment Call Podcast

• 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).

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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 with the thoughts of Marx and totalitarianism, right? It's entirely plausible that we go back to that world, right? Because the way the system is actually set up, it's designed to narrow the wealth. It's designed to concentrate the ownership of the factors of production into fewer and fewer hands. And that's just how the system is set up. And we're at a point where maybe it's early enough that we can begin to change that and we can begin to make a educated statement about how we want to diffuse the surplus associated with our relatively high levels of productivity or we're not going to. And inertia tends to drive people to say, I'm not going to do anything until a crisis occurs. And so, to me, the crash is an inevitable part of it. But ironically, I'm not sure that it allows the system as it's currently constructed to continue. And that's what I'm fighting against. That's what I'm trying to raise awareness of. That's what I'm trying to get people to be prepared for. The products that we're developing at Simplify and that we offer at Simplify are designed to protect people to a certain degree in those events so that they retain purchasing power in those events, right? As well as products that are designed to allow people to retain purchasing power in a runaway market event, right? Which, in my analysis, is just as plausible in any period as the crash.

Torsten Jacobi: Yeah, I find this, this is the hardest question at all. One of the hardest questions in life is, if you see, if you get, and I think you want to something there, and so other investors, they can see certain bubbles, certain overmilligrations coming. And there's two options that you have. One, you get in and you try and follow. Or you say, well, this is a bubble that might crash. Like, you just see this with Bitcoin. So I'll say on the sidelines. But the thing is with Bitcoin, I stay on the sidelines, but it went up 100x. Just because I thought it's a bubble already, but it was worth 100. Now, but it came up to about $60,000. It's incredible. And I missed out on all of this, which is not my proudest moment in history. So there is a moment where you feel like, is it the 10x? Is it 20x? At some point, even if you felt it is a bubble and it's terrible, then we'll go to zero. I feel bad about that decision looking back, even though it was a rational decision, because I think Bitcoin is a sore value. It's a terrible concept. And it doesn't work as a payment currency on the internet, which was designed to be, now became different things over time. None of these I foresaw. So you are in the end, right? In your mind, and you foresee, and we don't know how Bitcoin will end, but it might still go to millions. But what I'm trying to say is, even if you ride with your hypothesis, seeing this massive wealth generation and being not part of it as a professional fund manager, or just as an individual for decades is a real problem. So with the lifespan that we have on earth, I feel like, even if you are contrarian, you're right, but it takes 20 years to play out. I don't know if you, as a social being, gain any benefits from this, because for 20 years, people will say you are nutcase and you're crazy, and we don't want to talk to you at all.

Mike Green: Well, I've been married for 20 years, so I'm familiar with that experience. Yes. So you hit on a couple of important points, right? Is the classic John Maynard Keynes observation that the markets can remain irrational for longer than you can remain solvent? Most professional money managers have a very finite period of time for their views to come true, right? If I tell you for three years that markets are going to crash and markets don't crash, then you're going to fire me and replace me with somebody who didn't say the markets are going to crash, right? Now, ironically, that process creates conditions for the markets to crash, right? Because eventually, prices get bit up by people saying, you know, I don't think markets could ever crash, and then there's nobody left to buy, right? That process, again, you know, people do not model with that degree of sophistication when they think about something like an efficient market hypothesis, where the idea is it's based on information. So if I do the extra work, it's actually called the Grossman Stiglitz Paradox, right? Theoretically, as markets become more disjointed from fundamentals, the incentive for me to do an increased fundamental work rises, right? But because I have a finite life, right, I've got 12 months, I've got 24 months, or I've got 36 months in which to prove my thesis, and that outcome is largely stochastic in its nature, to bet on that mean reversion, to bet on that solution becomes problematic, right? So again, from my standpoint, the only way to play the game is to participate and to choose nonlinear payout functions where I am sacrificing a portion of the distribution of returns in order to improve my outcomes on either right tail or left tail. And again, this goes back to the work that I've done, which suggests that the markets are increasingly skewed in either direction, right? So the left tail events, the downside events, the extreme events like coronavirus or the volmageddon crash to the fourth quarter of 2018, those become more frequent in their construction and more severe in their magnitude. But the expectancy of the market to drift higher and to drift higher at an accelerating rate is increased, right? So I need to participate but protect my tails. You know, all of this presumes, of course, that my analysis of what's occurring is correct, right? It doesn't have to be, you know, you're effectively paying a small penalty to protect in today's market. But that doesn't necessarily have to be the case all the time, right? And Bitcoin would be a good example of that, right? Bitcoin was a pure call option. Actually, one of your prior guests that I listened to, I mentioned, I listened to Imran, he described Bitcoin as effectively a call option, right? Well, that's 100% correct. That's what it is, right? Now, it has a call option in two fronts, right? One, is it going to, quote, unquote, work as a store of value? And two, is it going to be adopted as a world reserve currency? My analysis of Bitcoin is that there's almost 0% probability of it being adopted. And actually, I would say that that's increasingly clear that it will not be adopted as the world's reserve currency, right? It constrains the behavior of the powers that be too much, right? It was designed in the aftermath of 2008 as a reaction, basically a libertarian reactionary function to the flexibility of the monetary base that people took offense at. And as a result, it's just too hard, right? I mean, crazily enough, it is too hard. That makes it the perfect vehicle for people who want to speculate, because all they have to do, they don't need to worry about the supply schedule, they just need to worry about the demand schedule, right? Stock market is very different, prices rise a lot, the supply schedule will increase theoretically because management teams are going to be issuing additional shares, new companies will try to come public, etc. Bitcoin makes that easier. And you see this in things like the stock to flow models that people tried to use that are now, of course, breaking down, where those presume a supply function and demand function is relatively continuous. My view is that that's likely to fail, that Bitcoin itself is fundamentally flawed, and that we're highly unlikely to see the sort of adoption that people propose. But it's a good vehicle to try to do that. And it also then highlights a second feature, which is that the products that we as professional investors have, by and large, constructed for the investment world are targeted at those who have money, right? So, you know, the design of our retirement programs, things like target date funds, etc., that have become very popular in 401ks, and as a broad philosophy of how people should allocate capital, they're designed to start with the end goal, right? You're supposed to have x number of dollars at your retirement, right? So, I've succeeded in my plan. Now, let's work backwards, right? Well, 69 is just the year before 70, and 68 is the year before 69, and 67 is the year before that. And if I go back in this deterministic fashion, I get to 22, and I say, okay, here's what I need to do as a 22 year old to be able to secure that future, right? Well, nowhere in there are we considering the volatility of the income stream, nowhere in there are we considering the potential rise of or emergence of liabilities that were unanticipated, nowhere in there are we considering the fact that the person may just become tired and not want to actually do this for 40 years, right? Or 50 years, right? And so, the millennials and those younger are looking at this and saying, wait a second, this system, this deterministic retirement system that you're trying to set up using quote unquote, volatile instruments, doesn't come anywhere close to achieving the objectives that I might personally have, right? So again, Imran highlighted the fact that he wanted to establish financial security at a young age so that he could go travel with his wife or he could do various other things, right? Well, those objective functions for young people are not wrong, right? We tend to treat them with disdain and say, you know, just stop eating the avocado toast as if that additional $7 that they would save off their breakfast, if it's slowly accumulated in a deterministic fashion, we'll give them the ability, you know, to retire in style. They're understandably rejecting that and saying, we want more volatile instruments, we want more call like instruments, things that have very asymmetric payoffs, that buy me some of that optionality. I'm not prepared to just sit there and, you know, go into a factory and work for the next 50 years as those before them might have been taught.

I think this is very rational with the millennials, so that they go to crazy call options like Robin Hood, literally test our call options on Bitcoin. And that they also, and I think this is what Alexander Barth put me up with this, it's this idea of intentionalism in the sense of I want to build something that creates the best possible quality of life for me from, and I start from scratch, like literally, I don't take any preconceived notions like retirement accounts or the boomer world. I just start from scratch on what's the best life and it's often more optimized for quality than the quantity of money, because quantity of money is important and it does how you well be, but there is quite a bit of limits. Warren Buffett famously said more than $100,000, you just don't need it. I don't, he never paid himself, at least that's the tail, never paid himself more than this. And I think this is what a lot of people now not just realize, it's been out there for a while, but they actually put it in production and they go to Bali, become a digital know, I don't feel like, well, I spent 110, now have a better life than when I'm in San Francisco or in the area. And that's quite, you know, it sort of speak, right? But it doesn't really help our GDP numbers. The quality of life is risen, but the GDP numbers probably gone down by quite a bit. And that's the confusing part. I wanted to pick your brain on something that might be related, maybe not, is this huge deflationary pressures that we see from technology and from China, which probably is related, because China is doing what we don't do, right? So they are efficient in the sense of market cap and putting their money in the market, where they feel like they can create something that's cheap and better. We don't see this in the US anymore, maybe having a new startup, it's interesting and it's over, but it loses a ton of money. It does nothing cheaper than taxes, maybe a little bit, but it's producing huge losses. In China, I feel like we still have this old theory of capitalism. If you want to create a successful company, you have to do something better and cheaper, both at the same time, maybe just one of those. Do you think we'll, and that's, that was always a driving force of capitalism, that it drove people forward with better solutions? Do you feel that's something that the US is missing out on? What kind of is our role to contribute? Because for now, we are not exporting a lot of private capital, that's still Japan's role of saving. What is the American role to contribute in the sense of there is deflation out there, we know that technology is happening, but what can we do to bring GDP numbers back to about two, three, four percent without the artificial change that the fat might introduce? Well, so I think that there's, again, a complex question. There's a couple of areas that I would push on. The idea of technology as a deflationary component is absolutely true, but it has certain characteristics to it that I think are important to identify. So there are two different types of technology. There's exploitation and there's conservation. Exploitation is effectively a new discovery. Oil has a chemical energy content that is higher than coal or is higher than virgin wood that is being burned. Therefore, it's able to be used more efficiently. It creates a greater surplus of energy. The discovery of that and the technology to refine it, crack it into kerosene, various other components, powered a innovative type of growth. Things that couldn't have been done before could now be done. The density of energy in a nuclear reaction is similar. It creates conditions under which you can accomplish things that you simply couldn't do before. The other type of innovation that occurs is the conservation component, which is me saying I can do more with less. I can shrink the diameter of a copper wire and send the same amount of electricity over it. So those two vectors have very different implications. A true innovation actually shifts outward both the aggregate demand and aggregate supply curve and does so where the demand tends to rise faster than the supply because you need to build up the infrastructure. It creates a ton of demand for cement, creates a ton of demand for copper, it creates a ton of demand for electrification and therefore consumption of fuel, etc. The natural result of that because we've got this new innovation that raises the return on those higher priced commodities is that you get a durable commodity expansion, you get this capital spending boom, and then the aftermath of that is how do I figure out how to do things cheaper and do it better and use less copper per unit of production. We just went through this expansion where effectively we said, okay, we're going to move production from the United States where we have to pay workers $50,000 or $70,000 to show up in a factory and sit there with a degree of attention and focus. We've taken that and we've moved them to China where they work for $13,000. That process of relocation created a boom in the development of China. Now the problem for China is that yes, they've been very, very efficient in terms of building that capacity and servicing Western demand associated with it, but the presumption that everybody has is that China is ultimately going to be able to consume at a significant level and therefore you're going to create the demand for this. China has such negative demographics that you're already beginning to see the relevant population components, the younger generation begin to collapse. China's graduating high school classes today are about 50% of the size that they were 25 years ago. That means that they are going to have less demand for apartments. That means they're going to have less demand for sofas, dishwashers, air conditioning units, etc. What you actually have done in China is you've built a tremendous surplus of productive capacity that has no outlet other than to sell to the West at increasingly distressed pricing. I don't know if that's, I mean your analysis is correct, but I feel like demand is not created just by booming populations. Yes, there is an element to this and we see this in GDP numbers, of course, and we can just assume the population will be stable or decreasing from now on. This for the next 100 years, who knows what comes after. And that's the whole other issue, but I think the world is one by increasing productivity and I think the productivity of uncertain elements of society, it's not everywhere, but if you go to China, and I went to all over China a couple of years ago, when it would be so good, easily, it's an amazingly productive on this mid, mid level income society, the infrastructure is top notch. You'll see people extremely focused on work ethic on education. So I think the productivity rights is what fuels consumption because you can afford it. Like everyone who has money will sooner or later consume and some people choose to give their money away, but most of us, in some point, we maybe give the money to someone else who consumes our children, maybe we'll get to consumption. I think this is productivity growth is ultimately linked to this and I feel China has done good in productivity growth better than anyone else out there, even if it's on a low level, a cheap level, so to speak. So I didn't answer your question earlier about productivity and I think this is one of the key issues that you ultimately face. When we talk about productivity growth, it's really important to disaggregate it and not treat it as this national phenomenon. So there are multiple avenues of productivity that occur. One is that you can give me more factors of production. You can give me a factory in which to work and therefore I can turn out widgets at a faster pace. The other thing that you can do is you can invest in me as a human being and raise my educational level, my skill level, so that I myself understand the process of widget creation better and therefore can contribute along the technology and human experience matrix that says, hey, have we considered trying this experiment to make the widgets better? There's a third component which is you put me in a widget factory on the very first day. I have no idea what I'm doing and I have a very high chance of cutting off my thumbs in the widget making machine. By the time I've been there for 30 years, it's second nature for me to make widgets and I'm incredibly good at it. So when you work across these, and there's actually a fourth vector, which is do I only hire people that look a certain way or that have certain sexual genitalia because of the constraints of my societal behavior, and that reduces the labor matching function. It makes it less efficient if I'm only willing to hire white males. Every single one of those factors of production was meaningfully affected in the 20th century, dramatically affected. So we introduced things like electrification and automation and in carpentry terms, a jig is effectively the thing that you design once that helps you then cut things or measure things, et cetera, on a continuous basis. We made huge investments in the mechanical equivalent of jigs, the manufacturing equivalent of jigs, which is just another way of saying a factory. We also dramatically improved the experience base of the labor force on two vectors. One is the educational vector and the second is the time in the labor force. At the start of the 20th century, the average American had a third grade education. By the time we finished the 20th century, the average American had finished high school and it actually started some form of college. That's a huge gain in educational experience. It wasn't just in terms of the number of years. The years themselves changed. So the number of days you would spend in school in 1900 is far less than the number of days you would spend in school on any given year as you came to the end of the 20th century. So we increased the skill base of the population. The second thing we did is we largely addressed the majority of events that could lead to a premature exploration of your skill set. In other words, we introduced antibiotics, we introduced modern surgical techniques, etc. that allowed people to survive through their middle age, through their middle age, their individual middle age, and obtain tremendous amounts of experience. We also introduced civil rights that allowed minorities and women to participate in the labor force in the way that they hadn't. So when you run through all these vectors and you actually properly account for the impact that they have on productivity, you discover that there's almost no technological impact. It's incredibly small. And so what we're actually experiencing today is many of those factors have moved into reverse. The population is aging. It's moving past the productivity peak, which tends to be around 45 years of age, and increasingly the marginal player in the labor force is somebody over the age of 45. That's definitely true in places like Europe. It's accelerating in terms of places like Japan and China. And as a result, you're going to see a natural decline of productivity on that vector. The educational component, once you move past secondary education, high school, in terms of a general education process, you're not doing anything to enhance your productivity by studying underwater basket weaving. You're basically developing some social skills and the ability to hang out with your friends and drink heavily, but you're not really adding anything to society. And so we are increasingly allocating resources to very marginal forms of education that are not actually enhancing our productivity. And the last component is that we effectively have no mortality before the age of 65 anymore. The prospect of mortality for anything other than a cancer related disease or some form of accident, which again, we're working on that vector, is effectively nil. And so everything is now focused on extending the life of those over the age of 75. And I hate to put this in the most gross terms, but who the hell cares? What's the advantage of extending from an economic basis, somebody's lifespan from 75 to 95? It just means that they're going to be consuming the resources that otherwise could have been passed to the next generation. It's a terrible, horrible thing for an asset manager to say because the vast majority of my clients are older, but it's true. I'm surprised you say that because it seems to me, I mean, I haven't really thought deeply about it, but we had Aubrey de Grey on who's a big proponent of we can live forever, rather than literally very soon, not just like an entire year or so now. And he basically said, well, it's really self fulfilling because we accumulate skills over our lifetimes. Yes, some of them might get outdated, but let's assume a good amount of them are still worthwhile, but at age of 60, why wouldn't that process keep continuing forever? Why do we go through this? You know, I'm going to shut down when I'm 60, I'm going to retire, and then I'm just going to go into a box. Why don't we just keep pushing this our 40s into our 400s, so to speak? Why would it be any different? And he convinced me with this, but it seems really simple to me. And so we will be even more productive at 200 than we are at 40 because we accumulate way more skills. Yeah, so unfortunately, the evidence is actually pretty clear that that's not the case. Right. So remember that productivity is a function of change in skills. Right. So by the time I'm 200, my marginal improvement from the year I was 199 is effectively zero. So in other words, there's no productivity growth. Well, that's interesting. Yeah, never thought about this. So you're saying if you have a lot of old people, then productivity growth is already limited. So you're carrying it more. Correct. The second component is remember that by the time I'm 200, if I haven't bought a house, I'm probably never going to buy a house. Yeah. Right. Interesting. Yeah. You know, the third component is if I live to 200 or 400, you know, I've accumulated a social network in a particular location that effectively means my geographic mobility is zero. Right at 200, I'm not going to pick up and leave my lifelong friends who I've now been in relationship with for 150 years to go strike out and do something else. Right. So geographic mobility collapses. Like it's just, it's a fundamentally flawed way of thinking in a techno utopian framework that is just absurd. Okay, you're very strong in that one. But don't you like the idea of like having different lives? So I say this about myself and I know it's true. I always feel I had three or four different completely different lives already. I can't, I can't even mimic the person I used to be when I was 20. I spoke a different language, lived in a different place. It's something completely different, a different opinions. I don't feel I'm the same person and all the cells have changed obviously too. So I really think from a metaphysical level, I've lived several lives already. And I'm actually very excited to live 20 more lives. Maybe this will run out in five years, who knows. But for now, I'm super excited to have, I don't know, be, be something completely different, be an actor for 20 years and then do something completely different that I've never thought of, that it's only enabled by technology. Isn't that something that, that is possible? Like do, do we, do we only live on this one time stream that goes from, okay, I grow up, go to college, do some work, I'll spend, wait for my retirement and then live a little and go into this box. Isn't there more to it? And it can't be enabled this with this living extremely long and in turn also would seem very different productivity because it's not just, you know, you just keep continuing your behavior you've done 40 years before you, you've become a very different person. You buy a house at 150. Why not? Because you have a new job, new life, I don't know, a new life partner. Utopian? I think it's a little utopian, right? So, so first of all, it's both utopian and I think dismissive of the fact that you literally just articulated that you experience that, right? So I mean, we live multiple lives, right? I experienced life as an infant, I experienced life as a toddler, I experienced life as an elementary school student, I experienced life as a post pbs and high school or I experienced life as a college graduate, I experienced life as a young employee in a series of ventures, I experienced life as an entrepreneur, I experienced life as a husband, I experienced life as a father, right? I'll eventually experience life as a grandfather, I hope, right? Like, all of those are different stages in life and are different experiences that I can't gain access to unless there is a timeline associated with it. Now, one of the features of going to 400 as compared to expiring at 90, which is kind of the target for me, getting uncomfortably close to that, more than halfway there, right? It's possible for it to extend out, but the costs associated with that in the form of senescence, right? So losing skills that I have accumulated, losing the capabilities that I have accumulated, become increasingly high. The costs of making changes as I indicated in terms of developing new friendships, right, become increasingly high, right? And so the more you extend all of that, effectively what you're doing is, and this is not, you know, I don't think it's crazy, I think there's actually a lot of evidence behind this, but you create elements of extended natalism, right? So, you know, children don't grow up as fast as they used to, right? They don't move to the next adventure, they extend the time that they stay with their family. Paradoxically, that's actually reinforcing, you know, again, the positive feedback loop, right? And in a very negative fashion, it's reinforcing many of the other components that we're experiencing, right? So if a young man makes it to 25 or to 30, and he hasn't experienced a substantive relationship, if he hasn't actually had a serious interpersonal sexual relationship with somebody else because of this extended childhood feature, the odds are increasingly high, they're not going to procreate. Yeah, right. And so interesting. Yeah, no, I hear you. The question is to, this must have happened before, right? So we've had average lifespans already extended, so like, say, 65 now, before it was 50s, 45, but I don't exactly know the numbers, and infant mortality had a big impact. So maybe it's not as big, but it's fascinating. So GDP growth is really lowering because we stretch out the same development life cycle of a human over more years. So, per year, we will see a less, a smaller GDP growth than this. But if you live longer, it's going to go down even further, right? Paradoxically, yes. Interesting. That's so interesting. I never thought about that. Okay, that's a real problem. We got to get people, but this isn't my change, right? So we can influence people to live slightly different, at least theoretically. Well, there's a number of people, I mean, now we're off very much in theoretical space, right? And it becomes very much a function of philosophy. So there's the techno utopian framework, and I would fully subscribe to it. If I got to live to 250, and I was in top physical condition, and effectively, if I extended the period from give or take 20 to, I'm feeling it as I come out the other side, but let's say 20 to 55. If I extended that period and made that a 250 year stretch, and then I had a 10 year glide off into the sunset fairly quickly after that, right? Effectively, a Logan's run type structure. Sure, then maybe something different would happen. But that's radically different than what has occurred so far, right? So when you talk about the changing lifestyle or the changing life cycle, you effectively addressed infant mortality, right? So give or take in the 19th century, if you were a woman and you gave birth, the prospect of your child dying before their first year was roughly 10%, right? Now the odds are vanishingly small, right? Fractions of a percent. If you were 35 years old, and you cut yourself while you were shaving, and you didn't know to properly disinfect it with soap or alcohol, the odds of you're getting a subsist infection were discomfortingly high, right? And we address that with antibiotics, right? And so, you know, we've managed to kill bad choice of phrase, but we've managed to remove the things that prevent you from living to maturity, right? Those are unquestioned goods. Ben Franklin lived into his 80s, right? Like, you know, made it quite a long way, right? There was no barrier that was addressed there. What we have done to this point is address the kind of, or at least through the 1950s, we addressed the probability that you were going to die before you hit retirement, and we removed that level of mortality. That's an unquestioned good. Extending the retirement period, which is what we've done basically since 1968, that's actually quite debatable how good that is, right? I mean, it's really not at all clear. It's a terrible way to say it. I say it with all respect for the contributions that those who are older have made, and no desire to put it in the reverse, but you're effectively increasing a degree of patriotism, right? Where they are parasites living off of the surplus that is produced by the rest of society. I don't want people to take away that I think old people are parasites, right? I just, like, but, but is this the same thing? I know, I understand. I understand. That's really interesting. I never thought about it that way. I mean, the obvious idea is of longevity research is you can target any age that you want to be, right? So if you can, if you can stop aging, you can push it down to any level you want. So you can target 28, 25, 18, whatever you want. There's a few things you can't do. You probably can't make your skull as small as an infant. But besides this, you can move anywhere you want on that timeline. And you're going to stay there forever as long as you get your shot every two weeks or whatever the time frame will be. And I think this is, this is incredibly utopian. I agree with you. But the, the ability to, to, to transform our consciousness into something so much longer, it seems to me obvious that we get better because I feel I'm much more efficient now than I was at 20. But I really see your argument, the incremental change might not be that big. And that's probably a big problem. No, that's absolutely the case. I mean, if I, you know, look, my knowledge base is deep, but my learning pace is slow. I recently hired a 17 year old intern who's, you know, developed a remarkable interest in financial markets. The pace at which this kid learns and reads is just astonishing, right? I mean, it's, it's, it's so remarkable relative to the way my brain now plods through things, right? Now I have more neural connections and a better understanding of the overall system. But if, if I were to candidly say to you, you know, like, who do you want to place the future bet on? I'd go with him versus me. One thing that transpired to me, I don't know if you, you ever felt that I feel in terms of investment decisions and I mean, broad investment decisions, not necessarily do I pick stock ARB, but like in a, in a broader what sector am I engaged in as an entrepreneur? I feel like as less, I knew as more dumb I was, as more as just, I just want to be part of this. I thought I made better decision in terms of RI than I did when I was procrastinating, very smart about it, doing long, long term models, short term models, because by the time that I was on my investment hypothesis was set, most of the gains were already out. Like I waited too long. So that's my gut feeling as more and no, so now as hard it is for me to make good gut decisions. And that prevents me because other people may also gut decisions and later decisions as well, that prevents me from being early in a cycle and actually make worse. Well, it's different because it's not as risky, but I feel I make worse investment returns than before. Have you noticed this too? Or is it because we're in a paradigm change and we need new hands, you know, we need the 17 year olds to take over. Well, you put me in a difficult position because I'm a portfolio manager and you want me to admit that I make worse investment decisions than I did before. You have 17 year old interns. That's right. I've got 17 year old intern for that. So I think the way I would describe your skill set as you get older is you get better at saying that can't be true. That can't be right. If you're really good at what you do, you have developed a skill set that allows you to say the math there must be wrong. And we talked a little bit at the start about what I would consider unique about Peter Teal or the approach that he has taken or that has led me to these types of insights. What I would argue that Peter has, and I probably have it to a much smaller extent, is a lack of embarrassment of saying why. Why do you say that? Why do you say there's a God in the sky? Why do you say that the earth was created in this way? Why do you say that markets behave in this fashion? Why is that the case? The fact that US markets have returned 8% on average over the past 100 years in the form of US equity markets, why? And if you are comfortable asking that question and having people effectively treat you as if you're a moron, it requires a certain level of intellectual arrogance to be able to continue to question where people are like, dude, I answered your question. I told you because. Well, that's not a satisfactory answer to me. It's not a satisfactory answer to Peter. And so what you're actually doing is you're creating the conditions for you to potentially develop a deeper understanding or a vector of attack in an option framework that says, well, what if that's not true? How do I exploit it? And how can I place a small bet that could grow into a large bet? So there's elements of that that I think you get better at as you gain experience and you get older as long as you're willing to retain that plasticity. And you don't want to try to become this August respected citizen who nobody ever questions themselves, right? Because unless you're willing to have yourself questioned in the same way on your beliefs, then you can't really actually embrace that approach on your own. And it's one of the things I really try to do. Like I always encourage people when I talk to them about passives that challenge me, tell me why you think I'm wrong. Maybe there's a piece of information that I haven't considered, right? And so you just, you constantly have to be open to that, right? Now, with all candor, can I also feel elements of that slipping away, right? Is my memory as good as it was when I was 25? No, right? My ability to form novel and interesting thoughts is probably less than then, right? Actually unquestionably less than then. But my ability to push in the right areas to direct the increasingly limited resources that I have is unquestionably better, right? Now, back to the productivity discussion, if I make it to 200 and I don't look like a crypt keeper, is that going to continue to improve? I'm very skeptical of it. That's a really good question. So a lot of investors that don't want to do trend following and don't go into the three months cycle, they strike me as very contrarian, right? And they built their brand portfolio with their contrarian view. So I'm, I have Mark Farber on, he definitely does that. And we talked about, you know, usually ends up by gold, or I find it's a little, not a disrespecting, because you know, way, way, way more than I do, probably all of us. But it seems to me, so there's two problems being contrarian, investor one seems to me, the recommendations always ended by silver, by gold, maybe by crypto. And I'm like, okay, this, this is really boring, right? I mean, this is all you come up with after 60 years. It doesn't, it doesn't sound that interesting to me. And then, so there's always an element of this is not just that, but I feel like this is really intellectually boring. And that's strange for me. And then the other problem is, as a contrarian investor, you basically, you're literally against everyone. And you, you've got to be out there and face what you just said, you're a moron for a while, but you might have to sit it out for 10, 15 years, you can really lonely. Like maybe you're right. And maybe you're not just maybe maybe 100% right. But I feel that is a price to pay in social, the social dilemma, so to speak. So I'd rather be a part of society and be wrong for 20 years than be right. But like, nobody wants to talk to me because I'm so abrasive. I don't know how you deal with this. You seem to have a way to deal with this. I think it challenges in the mess more or less is a lot of other really successful investors who are or their tradeoff is, I don't know how they did the tradeoff. They're very successful. They have a lot of money, but I think that is they paid a heavy price for their success. Yeah. So, so look, I look at strategies, you know, if you think about what gold, silver, Bitcoin or crypto have in common, they are all mechanisms of saying, I think the tribe is headed in the wrong direction. And therefore, I'm going to opt out of participating in the tribe. Right. You guys all go on your nomadic adventure, heading off in search of, you know, XYZ, right, the waters, the watering hole, the, you know, next source, I'm going to stay here in my cave and not participate and just wait for you guys to recognize what a terrible choice you made. And when you come back, I'm going to own the cave and you're going to have to pay me rent. Yeah. Right. Like, yeah, that's functionally what we're trying to do. Right. It's a terrible strategy, but it has an evolutionary precedent. Right. Think about lions hunting or cheetahs hunting on the African plains. Right. Antelopes in general have the strategy of trying to stick together. Zebras are intentionally designed so that their stripes make it confusing when they stick together to attack the tribe. Right. But there are, there's an evolutionary feature that leads to some zebras and antelopes to occasionally take a left as compared to a right. Right. And the reason for that is, is it builds robustness in the system in two fronts. One is if you're actually being chased by a lion, right, then the, the, it separates that individual from the herd and becomes effectively an altruistic sacrifice. Right. The other one though, is what happens if everybody's veering right and you're actually headed for a cliff. Right. And so that actually enhances the evolutionary robustness of the population. There's a reason why we pay attention to cataclysmic forecasts. Right. Like I, I can sound much more serious if I say to you, there's going to be a crash. You have to protect yourself this way, et cetera. And exactly to the point, I'll have about a three year time horizon in which that can be borne out. And if it gets borne out, then I get to become very wealthy and very successful. And what am I going to do? I'm going to tell you, there's an impending crash that's going to come next. Right. Like I'm just going to keep doing the same thing over and over and over again. I sound far less sober by saying, no, look, the way the system is set up, it's designed to cause this. Right. And so you have to participate. You have to stay with the tribe, but you also have to have a effectively a parachute so that if you go over the cliff, you know, you're able to land successfully. Right. Yeah. That's a far more nuanced and difficult conversation to have. Right. And I agree with you. You know, I've said this elsewhere, like just from an evolutionary perspective, we are wired to take very seriously cataclysmic events. If I say to you, there's berries in the bush, your reaction function could be, yeah, that's great. I see the berries too. Right. I'll have to remember that and come back to that at some point in the future when I'm hungry, but I'm not hungry right now. If I say to you, we're on the plains of Africa, obviously, if we're in San Francisco, as we both are, if I say to you, there's a lion in the bush, you're going to think I'm a kook. But if we're on the plains of Africa, I'm like, holy crap, Torsten, there's a lion in that bush. Right. You're really not going to spend a lot of time going over and looking in the bush, be like, you sure that's a lion? I don't think that's a lion. Maybe it's a lion. You're going to run. Right. You're just going to get out of there. Right. And so that's what those contrarian, right, and I would actually describe them as cataclysmic investors, are trying to do, right, by creating an element of perceived sobriety while everyone else is alleged to have lost their minds. They're drawing attention to themselves. They're attracting attention, et cetera. And, you know, I'm on record as telling people, like, the solution is just to vote better. Right. If we all try to leave the tribe, the tribe disintegrates, and we're unable to, you know, conduct productivity enhancements and surplus enhancing activities, but we could pick our leaders better. Right. We could soberly say, like, what are we actually trying to accomplish? Right. Do we really want to try to all march off this cliff, you know, with the idea of being on the other side of this cliff, there's nirvana? I think that's a terrible choice. Right. And so what would I try to do? I try to say, look, the guy who is leading us is a sociopath. Right. We shouldn't be following them. Right. Vote better is the language that I try to use for people. The problem is, is that we're just so distracted. We're so frantic right now. The survival function of people trying to retain their standard of living in a society with the type of surplus that we have in the United States or the developed world is a degree of panic associated with it. And I just don't think people are able to assess it in a rational, fundamental framework. And there's a cost to that as well. Right. I mean, I mentioned being married for 20 years. Like the number of times my wife has been driven completely insane by my insistence on saying, well, wait, what are the actual facts? Forget the emotional content. Let's, you know, try to figure this out. You know, what are the rules of the system and how the game should be played, et cetera. It doesn't make you a very social. It's not an easy person to get along with. Right. And so money management tends to be a solitary, you know, a solitary process. Yeah. I like how you put this. And I like the approach that you take. And I think I'm very opposed to the libertarianism, the extreme or narco capitalism that says, well, we'll just get rid of the dollar and the introduced Bitcoin. I mean, even just let's take it at face value and say, let's do this in practical value. This is crazy. And it's so easy to, to, to fix what's wrong with the dollar compared to this, right? Because it's such a proven value working system. If you feel there is something really wrong with this as a reserve currency. So I, I, I like the approach that you introduced where you say, well, the incremental changes is what we should focus on, even if it takes a little more of a push to overcome what's wrong with the system over the, the status, the systems and so to speak. I think that's awesome. What, if we talk about, let's go back to finance a little bit one more time. We obviously talked about the passive investment bubble. Where else do you see there is a bubble that we could potentially relatively easily trade against? I think there was a problem with the 2007 bubble, that it was so hard to trade against. I spoke with Harley about that, finding someone who sold you CDS and CDS option was like impossible. Like there were like 10 people even had access to this outside of an investment bank. But what, where do you feel there is a bubble that's forming relatively cheap to trade against with, with a certain instrument that others on our listeners should look at? Well, so this was part of the, this is part of the objective function for simplify. And one of the reasons why I transitioned away from the hedge fund space and into the ETF space. So, you know, my, my work is always focused on this dynamic of what is the market structure, what are the rules, how does it guide, you know, effectively trying to turn it back into a board game effectively and say what are, what are the rules and strategies that would optimize or that this system would lead to, right? Yeah. The rules were changed in September of 2020 about what can be included in an ETF. There's something called the derivative rule that has now standardized the process that allows me and the, the rest of the team, it's simplified to design products that facilitate access to those types of trades, right? So we're actually in the process of, of building a strategy that will allow retail participation in things like CDX type structures, right? Harley has introduced a product that has a character to it that, that embeds what's called a, an OTC over the counter customized derivative designed to protect against interest rate increases, right? So we're trying to facilitate the access to these vehicles and we're trying to detune them in a way that makes them appropriate for use in retail portfolios, right? So exposure to the markets with protection embedded in, etc. So, so this is getting easier because the rules are changing, right? And I think that's a really, really important component. And we're not yet at the point where I would argue the feedback loops are such that these trades have become crowded in that fashion. They represent a tiny fraction of the market at this stage. In terms of the, the challenge that we have on trading bubbles, right, is it's very, when you trade a bubble or you experience a bubble, you always have to ask yourself, what is the catalyst for it to end, right? Because otherwise you're trying to effectively step in front of a steamroller. And you know, my flows discussion that I had at the start is the right way to think about that. If everybody wants to buy a house and everybody is buying houses and has access to the credit that allows them to buy houses, right, then the prices of houses are going to continue to go up. And anything that is built on the assumption of housing prices continuing to go up in terms of its suitability is going to be very, very difficult to bet against. It's when that capacity to borrow money is withdrawn, right? And so the next marginal buyer is not there. And they're not able to drive prices higher that those systems begin to break, right? Now, it's in examining those rules that you ultimately have to get to it. Now, if I look at markets, the obvious break that is occurring is the baby boomers heading into retirement, right? They are beginning to take withdrawals. The challenge is this different type of investment, right? So I mentioned that passive investing is now about 44% of the market. In the US, it's less than that elsewhere, although gaining share rapidly in much of the rest of the world for regulatory reasons. But that's not a homogenous distribution, right? Meaning it's not equally distributed, right? So baby boomers own much more active. Millennials and younger generation own much more passive. And so as that aging is occurring, we're continuing to see money flow into passive strategies with very little in the prospect of outflows. Until that breaks, I don't think that you actually see these bubbles correct. And so you need to be able to participate in trade in both directions. On the other side of where do I think that there are bubbles or where are things that are more proximate? I keep getting drawn back to these debates on what is inflation and are we going to experience inflation? Are we going to see a collapse in the dollar, et cetera? I'm very, very skeptical of that because if I look at where I think the actual fundamental bubbles are, it's in places like China, right? Where they have optimized the Chinese system to sell the labor product of their population to the rest of the world. As their labor population declines, the productivity and the efficiency that would have to be realized by that declining share of the population rises. So effectively, there's a standard level of productivity improvement that is required that actually goes up even though the easy changes have already been made. And the domestic population that can consume that falls, right? So China is increasingly in this scissor move that to me feels very much at odds with the way the rest of the world thinks about it. And the biggest concern that I have about China is the potential for China to receive false signals about this, right? Because as that surplus emerges, as you sell to the rest of the world, you actually paradoxically build up domestic resources that make you think that you're invincible. And it becomes a very short hop, skip and jump to saying, okay, well, now let's try to invade Taiwan and take it over in the way we did Hong Kong. Or let's try to expand in other ways, right? I feel this is definitely going to happen. If you ask me, there's a 99% possibility that China is going to be on the expansion on a territorial regime. It's not going to be just Taiwan, it's going to be most of Asia. And that's obviously going to be a pushback from Australia, the US, Europe, Europe to a lesser extent. And that's, I think, and I don't actually know what the reason is. I've been talked about on the podcast here for psychological reasons. We talked about the reason that the model of China, as you just outlined, is a monoculture and it maybe comes to an end of its growth. I think this is also putting pressure on it. I think there is a huge, but this event is probably necessary, right? A, for now, we say that for the US to wake up, to actually figure out where our strength and what should we do with our economy, because if it's just rolling a lot comfortably, we will never make any useful changes. And then on the other hand, it will, it's this ultimate show of productivity growth, right? So when we look back into wars in the past, as terrible as they are, they also show usually that the more productive society wins. And often that's the more free society, not always, strangely enough, but generally, this is the more free society. So we know how this will turn out, but I'm pretty convinced this will be the catalyst. So there will be a strong or maybe not a strong, but some of a hard war building that China, this probably is the catalyst of China being a much smaller economy after that, maybe 10, 20 years from now. I wish we could avoid it, but I just don't feel that the ingredients are right for avoiding such a war. I think it's, I tend to agree with that. I think it's hard to put that sort of determinism on it, right? So the, you know, the conditional probability was referred to as a Bayesian probability is, you know, if X happens, you know, what is the probability of Y conditional on X, right? The point that I would make with China is that if China moves relatively quickly to a militaristic framework, then that scenario is almost definitionally true, right? So if China decides to invade Taiwan in the next two or three years, then, you know, you'll almost unquestionably see China try to expand in that fashion. The flip side of that though is that the costs of their demographic pressures are going to become increasingly obvious. And so, you know, we tend to think about China as this place that has unlimited population component, but that population component is increasingly skewed very, very old. And when you're skewed old, you can't participate in the military. And the fighting force is a fraction of the military, right? So the U.S. currently has a support ratio because we project ourselves internationally of about 10 to 1. So you need roughly 10 people working in logistic support for every fighting member of the army, right, or the military. China has a much lower ratio because it's all domestic. They don't have foreign bases deployed with the exception of their first bases that they built in places like Eritrea, etc. Sri Lanka may may may may fall in the same fashion. But as they expand, that support ratio is going to rise as you try to expand the size of the military, right? And you try to expand the geographic scope of the military. And that then flies directly in the face of their demographics because the population that is available to fill that is shrinking. Right. And so I actually think that there's a high probability of something happening relatively soon. But if it doesn't, then China moves fairly quickly into a much less powerful mode. Yeah. Yeah, I tend to agree with you. The interesting part obviously is that we are still by far the largest trading partner of China, right? So I always wonder, you can't go to war with the largest trading partner. I mean, you can. I think Germany did this, but that that was it worked for like five years and the economy fell apart. I think everybody knows that. So that's kind of the only thing that where I say, well, this is not going to happen because that's what you can replace your largest trading partner a little bit. But in the end, you've got to feel the pain sooner or later. But if you extend credit or you find a lot of customers that are not as rich as Americans. Well, again, I think that there is an element of it depends, right? So the largest trading partner is always domestic. So what matters is their domestic economy. What matters is our domestic economy. Yeah, the proportion that comes through import, export and global trade is relatively small for almost all countries other than Korea, Germany, it's, you know, Taiwan is a great example, etc. The second question becomes, can you not, can you create a knockout punch that effectively invalidates your trading partner's response function, right? So if China were to rapidly take Taiwan, what are we going to do about it? Yeah, nothing. We will not immediately at least. Not immediately, potentially, not never, right? I mean, what is our reaction function been to the very clear violation and takeover of Taiwan in advance of the 2047 deadline, right? Nothing, or not Taiwan, I mean, Hong Kong. Absolutely nothing, right? We've done nothing. Do you guys want to go to war with Taiwan? Maybe, I think, Vietnam, but I don't think so. Maybe Korea, I think this is where the line will be drawn eventually. But definitely, I don't think Taiwan will be an issue. I mean, it will be an issue, maybe Australia will go to war, but I don't think the US will be involved. I think the prospect of Australia going to war without the US against China is functionally zero, right? Yeah, but they surprised me and that already puts us away a topic, but we're really surprised in Australia, despite being so politically correct and being having really strange attitudes the last five years on China, they seem to be really harsh, which is really surprising to me. I don't know where this comes from because they need so much money for China. So some things, they were like the biggest friends of China for a long time because they made the most money from that. Yeah, I mean, I think it's important to distinguish what you mean by friends, right? So they were very strong trading partners. A tremendous amount of commodity wealth was created, a tremendous amount of real estate wealth has been created by Chinese nationals effectively seeking a democratic regime as an exit vehicle, right? So there's been a tremendous amount of disruption that's occurred. The domestic Australian population, I think, is increasingly frustrated by that, but they have an identifiable external feature there that is maybe different than the US. The US has not quite figured out the role that China is playing in disrupting a lot of the standards living, although I think that's starting to change, right? If we go back five years ago, these discussions were far less common. There's a huge difference between kind of the ability to stand up on principle and the ability to stand up in practice, right? And Australia's economy is so deeply integrated and tied with China that it becomes very hard. But everything that China is doing, right, they have this idea of wolf warrior diplomacy, et cetera, that you've heard talked about, right? The Australians see this very, very clearly. They understand that they are at threat from this. And the Chinese are being very explicit in their behavior and making it easier for Australia to separate itself from China, right? By overreacting to everything that Australia does, where Australia says, hey, that's not a good way to behave. And China says, shut up, sit down, you're our bitch, right? That naturally causes Australia to be like, what? No, we're not going to do this anymore, right? And effectively, that becomes the overwhelming phenomenon at some point. But that is what China is doing. China is way prematurely effectively standing up and saying, we're your largest trading partner, we're your largest trading partner, don't tell us what to do. Right? Yeah. I don't know if it's premature. I feel like I can't measure it and you have way more access to data. I feel like the self confidence, the new self confidence of China is probably based on real data. I don't know, maybe it's just made up. Who knows? But I feel like there's something going on, either profits or just the way the economy runs, where they run out of investment vehicles. I think that seems to be what you reflected on earlier, that there is this jump from a mid level economy that they're not making. They don't know how or they don't know what to, and that's kind of, they have the same problem. We all have certain leaders, we don't know where to put our money. They have this generous amount of savings that you could put in infrastructure, but that's kind of done. So they don't know what to put in the next level and maybe territorial expansion is what they're looking for to keep the peace internally. I think there's a separate issue. So democracies are very messy because they allow democracies and republics to a lesser extent are very, very messy because they allow a diffuse set of objectives to exist. What I want to accomplish with my voting pattern and what I would prefer to occur can be radically different than what you want to occur. We have to effectively negotiate that out. As you move towards a more totalitarian system, and this is really what's happened with China is that they've unquestionably moved to a more autocratic totalitarian system since the emergence of Xi in 2013. As that occurs, there's paradoxically both a gain in efficiency and a loss of information. So the efficiency is we stop all the squabbling about, do we build the Three Gorges Dam? You just disappeared for me. I'm not sure if you're back. We remove all the discussions around, do we build the Three Gorges Dam? And it becomes, how quickly do you want us to build the Three Gorges Dam? You saw this with the Roman Republic into the Roman Empire. Once Augustus takes charge, what does he do? He builds beautiful, wonderful structures that exist in the center of Rome and give the indication that everything is better than it's been before. Why? Because I've taken a diffuse set of objectives and I've focused them. You see this within team building exercises all the time. You need a leader, you can't have everybody be a chief. China is experiencing Nazi Germany the exact same thing. So you experience this coalescing of objectives that creates the perception of improved productivity. The resources can grow. Mussolini, Hitler, etc. What were the phrases that the population used? At least they made the trains run on time. The single biggest risk though that you face in that is that that also has its own negative feedback loop in which the information that makes it to the decision maker is increasingly filtered by those who want to avoid losing influence with that individual. So it becomes a series of yes men and that in turn actually raises the risks of military conflict. Can we take Taiwan? Yes, we can, sir. That's a perfect description of how this end game looks like. This is the last question. I know your time is very valuable. I've really enjoyed this. What do you feel is beyond if we say this happens in the next 10 years? That will be my conviction two days of war. It's partially a hot war which ends up being China being a different animal than it is now. Obviously, we still want to be a China. If you take that a little further, do you see any other big trends out there where you're relatively convinced they're going to happen? Because you analyze the transport so much. These things are going to happen. We don't know who the winners are yet, but those things are going to happen next 20 or 30 years. Is there any gut feelings that come to mind right away? Well, I mean, so I do a little bit of advisory work for the US government. What I keep emphasizing is it's almost impossible for us to lose this battle, but we can lose the war by becoming our enemy in the process. So republics and democracies are messy. They are naturally inefficient in their provision of services because they're such a diffusion of objective functions. What do I want out of my government? Maybe different than what you want. When you eliminate that and you focus it, you raise the productivity of the public sector. It becomes very good at doing one thing, producing military equipment to fight a war. But there's an inevitable loss in terms of the individual freedoms that are associated with that. The thing that worries me most is I've seen how quickly we as Americans are confronted with the inefficiencies of the public sector and how we're increasingly beginning to say, would somebody just make the damn trains run on time? Or could we at least have trains? Can we get trains? I'd like to have trains. We're moving in that direction where we're effectively saying our elected representatives are incompetent and engaged in squabbling and corruption. We need to move toward the authoritarian system where it's set to achieve exobjectives. You see the US splitting in terms of tribalism along those objectives. That's my single biggest fear. On the positive side and where I'm much more positive than most people is I look at human innovation and I tend to think that what we're experiencing right now is, I mentioned the two different types of productivity. The innovation and the exploitation are almost exhausted on the exploitation. The things that we're doing more with less, like we've taken the ultimate form of it, we don't even need to have factories in the United States. We can accomplish it with extraordinary productivity by paying Chinese to do it for us. We're at the tail end of exhausting that exploitation feature that is tied to things like telecommunications, etc. I can get on a phone and I can get on a Zoom call and I can talk to my factory in China and I can say, I need you to produce X for the US market and the logistics features that allow me to ship that across the ocean, etc. We're approaching the exhaustion of that process. Does that create the opportunity for innovation on the other side as we reassure that productive capability? Do we introduce automation so that our TVs and patio furniture and clothes are made with much lower labor content and with much greater degrees of customization, etc.? I think the answer is probably yes. But what does that require also? It requires us to advance factors of production. The single biggest factor of production that we're struggling with right now is the provision of very, very low cost base load energy. I'm extremely hopeful, probably utopian in my belief that we will eventually move to various forms of nuclear power that provide that base load energy that has everybody turn around and say, man, there are so many things that I can do now that I couldn't do before because the energy is so much cheaper and so much more uniformly available that that's where my hope lies that will advance in that way. I'm very good friends with people like Josh Wolfe, etc. That sort of techno utopianism where it's not about some magical, hey, we can solve the world's problems if I only get to live forever. We can actually take the structures of the factors of production and meaningfully improve the life experience and this capability of the human capital capability of the average individual or the median individual, much more than the average, increasingly, because of the character of the distribution of wealth and skill sets in our population. I'm very excited for that, but it requires hard choices and there's risk associated with those hard choices that we move in an authoritarian path. That's my guarded, optimistic outlook on where we stand. Well, I'm very happy that I got an utopian thought out of you. You're welcome. I'm actually an optimistic person. You are. I wouldn't say utopian, I wouldn't say utopian, but that's great. I mean, that's, it's a fine line to walk. I fully agree. Mike, thanks so much for doing this. It was awesome. I learned so much. Thanks for sharing. I really appreciate that. Take care.