Trish Regan: [Interlude plays] Most Americans are still going about life, investing, retirement planning, as though nothing unusual has happened to our financial system, and few seem to realize the repercussion of the trillions and trillions and trillions of dollars that has all been bumped in the U.S. financial system just in the last 18 months alone. Well, this is a wake-up call. I mean, people are recognizing this. You have at least four billionaires that have stated publicly Americans aren’t paying enough attention to this development.
And now, a friend of this show – a former Goldman Sachs banker – says, “Sooner than most people think, millions of Americans will potentially be pushed down out of middle class, out of private retirement, out of a decent life based on independence and privacy,” into what he calls a “collectivist nightmare” called financial lockdown. So find out how to protest yourself, how to protect your family, how to protect your money. You can get a free copy of his report. In it, he’ll show you the four steps he recommends you take immediately. Go to retirementwarning2021.com to get your free copy. Again, retirementwarning2021 for a free copy of his new report. [Music plays and stops]
Wow. What a week it has been. Facebook in the headlines in a massive way. China with its own issues, including when it comes to crypto. We’re going to get into all of that in this edition of American Consequences With Trish Regan – of course, who I am. It’s good to have you back, everyone. I mean, look. We knew Facebook was bad. Right? You could just kind of feel it whenever you were on the platform. The hate, the vitriol, the anger. I know I felt it [laughs]. Well, it kind of goes with the territory. I get it with my job.
But I think that it had sort of gone beyond what you might see sort of directed at an opinion newsmaker host. And all of a sudden, this hate, this vitriol, was being directed at everyone. And you wonder why this nation is so divided. And I do think Facebook has had a hand in it. Now, let me just back off for a second and say, “Listen. I think people ought to be able to say whatever they want to say.” Right? You know me. “Live free or die.” Big proponent of the First Amendment and free speech. But this is something kind of different. I mean, we’ve all heard from the whistleblower. Right? She was in 60 Minutes and of course on Capitol Hill. We’ve seen the articles in the Wall Street Journal. If you haven’t, I do encourage you to look at them.
One of the most disturbing ones for me, anyway, is what they said about Facebook knowingly going after young girls and knowing that it was extremely detrimental for their well-being and that there was a psychological effect that Instagram was having on these young girls, but they didn’t care and they were sort of playing that up. What we – I find that especially disheartening, discouraging. But what I’m troubled by is, this is a company that puts profit above all else. Right? I can kind of get my head around that. They want profitability. But at what point, then, do you need government to intervene? I would argue one of the biggest issues with this company is that they have effectively throttled free speech while simultaneously allowing all this anger to rise straight to the surface in a really unbecoming way. It’s almost like there’s this like peer pressure to be aggressive. Right?
It’s accepted, theoretically totally – not theoretically. I mean, just fully, entirely accepted on Facebook to be extremely out there. And that’s been encouraged via these algorithms. So yes. That’s disappointing. I, as a publisher myself of trishintel.com, as you know – as well as I’m sure you know American Consequences – we’ve all felt this inability, if you would, to completely reach one’s audience. And I mention this because there’s a lot of shadow-banning. It’s very real. I have encountered this now as a publisher. I see it.
The shadow-banning is what they said it was. And the algorithms effectively try and suppress certain kinds of content. I mean, heck. I’m just talking about inflation most of the time. But [laughs] Facebook doesn’t want to hear it, apparently, because that scene is somehow derogatory, I guess, against the current administration. And they’d get who-knows-who they’re trying to appease. Consequently, it’s been challenging. It’s been difficult to get the message out there, and a lot of people said to me, “Gee. I haven’t seen you on Facebook in forever.”
And I’m like, “Well, you know, I’m there. It’s just hard to break through on these algorithms.” So I’ve thought about this a lot and there’s an interesting analogy that you can draw. I mean, it’s one thing if you have the newspapers out there, local newspapers doing their job, getting the news out, getting opinion out, commentary, all of those things. But what if you suddenly shut down all the delivery trucks? What if you said, “OK. Delivery trucks are going out of business. We’re not going to be able to deliver or get your newspaper to any of the people that should see it, that want to see it, that it might be affected by it.”
And that’s a little bit like what’s happening, and this is why I get back to the monopoly argument, again, and this being an antitrust issue. Because it’s as though Facebook is the delivery truck. And they are just saying, “OK. We’re not going to deliver this content.” Yet, by the way, they’re delivering some content that, frankly, you know, I mean, is really, really bad stuff. You know, you look at some of the challenges that we’ve had around the globe in terms of terrorism, etc. You look at the bullying online. For some reason, that’s OK, but Trish Regan talking about inflation [laughs] – that’s apparently off-limits.
It’s this complete double standard. So they’ve got sort of the worst of all worlds. And it’s very rare where I’m like, “You know what? I really just don’t like a company because, you know, the capitalist in me wants everybody to be able to seize opportunity.” But sort of the humanity-side of me as a person as an investor really doesn’t like this. I mean, this really feels uncomfortable. It feels like, “How can you aid and abet an organization that is encouraging one side while simultaneously hurting our youth, all while effectively shutting off the delivery trucks to people who are perceived as conservative or even libertarian?
I mean, you know what our friend, Ron Paul – he was on the program just a few weeks talking about this… because they shut down his page. They shut down his page. And, you know, it’s now fortunately back up and running. But he was lucky to have a public forum, right, to go to complain. What happens when somebody doesn’t have that public ability? Their viewpoint is squashed and this sort of bad cycle perpetuates itself. I mean, if you think about it there’s a lot going on. Right? There’s the antitrust issue, there’s the “freedom of speech” issue and then there’s the “harm to society” issue.
And then, let me just flag one other thing that nobody even talks about. And that’s that if you’re a publisher – or, forget just even a publisher – if you’re just a normal person who’s trying to post, if they flag you and you try and say, “Hey, what’s going on?” Or they say to you, “Hey, we think there’s a security breach,” and you say, “Hey, what’s going on” – think about just like from a consumer-protection standpoint. If your bank did something like that, you could call up and get somebody on the line immediately and they could tell you. You could communicate with them what’s happening.
But Facebook doesn’t even have anyone that you can communicate with. It’s all via these robo systems. And it makes it just so challenging in so many, many, many different levels. So this is a company that’s going to continue to be in the news. Some good friends of mine were saying that they sold it a while back and they felt really good just as a person, as a human being, for selling this company. Because they’re like, “Look. I just have a moral problem with it.” And I think that you’ll see more and more people coming out and saying, “Yes. They have a moral problem with it.”
Simultaneously you’re going to see Congress get more involved in this issue. We saw recently Marsha Blackburn, the senator from Tennessee, along with the Senator Richard Blumenthal from Connecticut. They came out and said, “Look. We need to launch this investigation.” Now you have the Facebook whistleblower, the woman who had worked there, who was trying to actually clean up some of these algorithms. She’s testifying. I think this is just really scratching the surface. Ultimately, we need a lot of delivery trucks. It can’t be that everybody’s going to one system to get their word out. And while we have those delivery trucks, there need to be some standards. There need to be some standards, you know, in terms of not having algorithms [laughs] that encourage hate.
I mean, is that really too much to ask? Or encourage young people to feel bad about themselves. And then, there’s the element of what we as individuals need to do. We need to police ourselves. You know, Facebook was down on Monday for however many hours. It felt great [laughs]. I don’t know about you. I was like, “This is how it should be. We need more days like this,” when the company’s just out of business and people had to go to other platforms. Perhaps they discovered some other platforms, which is good.
The bottom line is, I’ve grown increasingly weary of this company, increasingly cautious. And I would say from an investing standpoint, I don’t like it because of that. From a regulatory standpoint, I think that much, much more needs to be done. From an antitrust standpoint, this company has just gotten too big. And so, I just wanted to get that off my chest with all of you this week on Facebook. I think you will continue to see a lot more, and it won’t be good, coming forward with this company. But let’s turn to the topic of the week, which is bitcoin.
Because, my gosh, China doing everything that we thought we assumed China would eventually do. Right? They’re outlawing bitcoin. The question now is, “Could the U.S., might the U.S., do something similar? And what would that mean for your investments?” We’re talking to a guy who, by the way, if you haven’t followed him, you should. He’s on Twitter. Greg Foss. And he loves bitcoin… @FossGregfoss. We talked to him before here on American Consequences.
And I always like hearing his viewpoint because he’s got a ton of optimism when it comes to this vehicle. He really likes it, and I suspect he still likes it. He might like it even more. There was part of me that was like, “I think I like bitcoin even more when China came down so hard.” I’m so happy to have with us here on the show this week Greg Foss, executive director of the Strategic Initiatives at Validus Power Corp. Good to have you, Greg, welcome back.
Greg Foss: Trish, it’s a pleasure. Thanks for having me.
Trish Regan: So my question is, how are you thinking about this increased regulation, this, just, slam from China regarding cryptos and specifically bitcoin?
Greg Foss: You know, I heard your very interesting talk on Facebook and your opinions. And you termed yourself a capitalist at heart, which I think hopefully all your listeners are. I’m a proud capitalist, and I’m a capitalist with a heart and a capitalist at heart. So I have sensitivities to the privileged and underprivileged people of the world. I’ll say very simply on first principles, generally as a capitalist, I enjoy when I see communist countries do something very foolish.
And I think that China banning bitcoin is absolutely very foolish. And I think there’s a number of Americans who understand that they have a chance to actually take a gift from the Chinese government and turn it into something beautiful in the West. And when I say the West, given that I’m from Canada, I do love the United States, but I also love Canada. I think this is a huge opportunity for the Western nations to take from China the ability to control and dominate the best and most pure store of value ever created by mankind. And that’s bitcoin.
Trish Regan: Wow. Well, I like and I appreciate your comment on being able to kind of stick it to the communist countries. I mean, I think I tweeted it just as this happened. I said, “This makes me like bitcoin more.” [Laughs] But, you know, look. You have to be prepared for the volatility, I think, for sure. Let me ask you this, Greg. And we might’ve touched on this before, and I know you feel like bitcoin is going to the moon and beyond. But at some point, does anybody need to think of this as a store of value like – and I mean really, really like a currency where you can, you know, buy and sell it? Or does it not need to get to that point? Is it more just sort of we have a theoretical currency that doesn’t actually need to transact in everyday transactions? Whether it be, you know, for groceries or cars.
Greg Foss: OK. So that’s a great question. So I like to think of bitcoin as a digital store of energy. And I don’t think of it as the currency from a North American perspective. I think of it as an asset. OK? So, yes, there’s volatility. I will throw that out. And I will quote the great Bill Miller, a great investing legend in the United States. He just simply says – who likes bitcoin, by the way. He says, “Volatility is the price of return.” Meaning if you have an asset that isn’t volatile in price, chances are your ability to make many times your initial investment on any asset is reduced.
And you look at the volatility of bitcoin and it’s not that much different than the volatility of Amazon in its first – in its early life. And that shouldn’t scare anybody. The reality is that volatility – again – is a measure of a price of return. Again. You have an opportunity to get involved in bitcoin in my opinion, which is the best asymmetric return opportunity I’ve ever seen in my life. Now, I’ve spent 32 years trading risk in capital markets, primarily in the junk bond markets. And I work at a hedge fund where I would trade junk bonds against the equity of the same company of a junk bond company and carve out the optimism in one market versus the pessimism in another market. And not to get too granular with you –
Trish Regan: Oh, that’s OK. We love granular. Greg, full disclosure. We love it. So go. [Laughs] Go for it.
Greg Foss: So let’s go for this, then. Bitcoin is a store of energy. It’s as Michael Saylor says – as a big bitcoin proponent, chairman of MicroStrategy, ticker MSTR. Michael Saylor says from first principles, bitcoin follows the first law of thermodynamics, which is the rule of conservation of energy. So very simply, I think that bitcoin could become the global reserve asset – not necessarily global reserve currency but the global reserve asset. And why do I say that?
Because I think there’s eventually going to be oil-producing nations and natural gas-producing nations out there in the world, that will want payment for their natural resources in bitcoin. Natural resource energy for digital energy. OK? Now, digital energy in the purest store of value ever created – 21 million coins backed by mapping code on a decentralized platform – makes a whole lot more sense to me. If I put myself in Vladimir Putin’s chair and I’m like, “Vlad Putin, why am I taking payment for valuable, natural resource energy in depreciating U.S. dollar fiat?”
And you think about that for two seconds and you realize it’s not in his best interest. And he may – because he’s been out there looking for payment sometimes in gold – it’s been rumored – certain payment in euros and sometimes in other currencies. The point is, bitcoin can become the reserve asset of the world, replacing U.S. Treasury debt, because it’s a pure store of value and it can create the opportunity for the future population to use that store of value over time and space and not be depreciated like fiat currencies are programmed to be based.
So when you own a U.S. Treasury as your reserve asset, if you’re outside of the U.S. or even in the U.S., that is just a fiat contract, Trish, and that fiat contract, by pure mathematics, is debasing every single day. And that’s unfortunate because if you – like I did when I was young, 25 or 30 years ago… I actually worked on a roof as a summer job. I was a roofer. And I may have made $40. You work eight hours, you make $40. And I’ve never spent that $40 because I continued to make money over time. But if I want to go back to that $40, if I put my energy and time into that roof, how much is it worth to me today if it was stored in pure cash?
And the answer is probably less than $10. And I’ll just look back on the energy and time I put into that roof and say, “Wow. I improved the value of that house.” But if I kept my money in U.S. dollars or Canadian dollars and not invested in other hard assets, I would now have $10. The value of my time and energy, first rules of thermodynamics, would’ve been debased and not conserved for me to use in the future. And that’s all bitcoin is. It’s the most beautiful technology I have ever seen for storing the value of your time and energy over time and space.
And passing it along to your children, whatever, using it for your future retirement, it is the best asymmetric trade opportunity I’ve seen. So to summarize, it doesn’t have to be a currency. But it is an asset and everybody needs exposure to that asset. And flipping that question one station further, El Salvador is using it as a currency and doing a very good job of it, and my prediction is it will become more of a currency in the future. But in the meantime, there are going to be two networks. One is going to be the fiat currency network – which will be used as your checking account – and there’ll be this bitcoin network that people should use as their savings account. And don’t save your money in your checking account. It will be debased over time.
Trish Regan: So, you know, you and I agree I think on a lot of things. I mean, for sure – I like to quote this, which is that in ’19 – or today’s dollars – the value of a dollar has eroded so much in purchasing power that if you look at a dollar now versus a dollar in 1972, it will basically issue or get you 15% of what a dollar would’ve been in ’72, Greg. So I think that to your point about the $40 roof example, the currency as we know it is going to continue eroding.
And that’s, by the way – Greg, that’s without even like a ton of inflation in recent years. Right? I mean, hey. You just look at what’s happening now – 8.3% increase in producer prices, upward of 5% month after month after month… four straight months now, just in consumer prices. We know the dollar is going down effectively in its purchasing power as we speak. With that in mind, how do you think of gold? How do you think of gold versus bitcoin? Because I kind of feel like they do a similar kind of thing.
Greg Foss: So it’s a great question. And to make sure I’m clear with everybody, I do own some gold in my portfolio, I see the value of hard assets in all respects – so other hard assets including real estate should not be overlooked. But when you have a better technology than gold, I prefer to put more, as Paul Tudor Jones would say, “I prefer to bet on the best horse in the race,” trying to accomplish the same thing. And perhaps I can lay it out in the following example.
Again, gold has been around as a store of value for 2,000 years. It’s very good at storing its value. You mentioned your house price in gold, for example. Your house has not gone up in value, say, for the last couple years where gold hasn’t performed like real estate has. But the point is, everyone thinks they’re making money on their house because measured in fiat dollars your house has gone up. But if you measure your house in gold, the two have maintained their same relationship and your house has not appreciated like it has against a depreciating fiat. But gold has its shortfalls. First of all, gold is not as divisible as bitcoin. It’s not as portable. It’s not as verifiable.
And most importantly, its supply is still uncertain. So run through a quick example with me. Excuse me. Gold right now has a supply growth of about 2% annually. OK? But imagine – just imagine – that gold’s price went up to $5,000 U.S. an ounce overnight for some reason. Do you think that next year, the supply of gold would be probably above a 2% growth rate? And I would say, hands down, yes. Because all these mines that weren’t profitable at a higher extraction cost – lifting cost, they call it – at the end of the day those mines now would be profitable and those mines would come on it and the supply of gold would go higher.
And I’m not going to argue how much higher it’s going to go. The point is, you’re uncertain as to what the supply would be. Whereas, bitcoin, the supply rate does not increase with the price. It’s absolutely fixed. It’s agnostic to the price of the underlying coin. That’s a beautiful thing. That’s math in code. That’s certainty of supply. And I like gold, but I don’t love gold compared to bitcoin.
Trish Regan: So there are differences. Let me ask you this. So the energy thing. It takes a lot of energy. And this is your sweet spot, Greg, because this is your field and you work in energy. Now, how should investors think about the energy it takes to mine bitcoin?
Greg Foss: It’s a great question again. I love your questions. Here’s the truth. First of all, let’s lay out the facts. Bitcoin uses less than 1% of global energy. And it uses less than 1/20th of the amount of energy that the gold industry uses. So let’s start with facts. Gold industry uses 20 times more energy than the bitcoin network. Isn’t that something? OK. So you have that fact. You have the fact that it may consume more energy than an entire nation like the Netherlands. And no disrespect to the Dutch and the people from the Netherlands, but personally, bitcoin’s more important than the Netherlands. OK?
It’s more important for the underprivileged people that have access to a banking system right now that is secured by the most powerful computer networks in the world, and that computer network takes energy. So how does bitcoin get its energy? Well, like anything else, if you believe Elon Musk, every single car that Elon Musk has produced for Tesla gets charged by renewable energy. Now, think about that for a second. Come on. Is that possible? No. It’s not possible.
So certainly, there’s electrons that go into Elon Musk’s Teslas that get burned in – get produced by coal-fired plants. The point is, there are lots of bitcoin applications… that they are extracting wasted energy resources that otherwise would be layered into the atmosphere. These mining operations are making it profitable to mine bitcoin, remove these polluting processes from the environment and create a revenue stream that makes it attractive. There are so many opportunities for bitcoin to actually cleanse the environment. Was there coal-fired plants being used to mine bitcoin in China? Yes. Absolutely.
Are there, quote-unquote, “more dirty practices” for bitcoin in North America that are using fossil fuels? I don’t think that natural gas is nearly as polluting as some people think. And I will prove to you that it isn’t. But at the end of the day, bitcoin – a large part of the bitcoin energy network – is being used on wasted resources. And I’m going attempt to show a very important point. Being from Canada and Ontario in particular, we have one of our largest nuclear power plants in Canada based in a region called the Huron – Bruce region. It’s called the Bruce Nuclear Reactor. And this reactor, like all nuclear reactors, doesn’t power up and down or change its generating capacity as the demand in the system – meaning air conditioners and everything – changes during the day.
There are times late at night where the Bruce nuclear energy that’s produced needs to go somewhere. And we as Canadians have to pay Americans in the peninsula of Michigan and Northern states like that to take out our power. Is that unbelievable? We’re actually paying Americans to take our power at one point. And I’m thinking, “Why are we doing that when this power can actually be used to mine bitcoin and nuclear energy” – despite what everybody might think out there, [nuclear energy] is the cleanest burning fuel there is – “you mine bitcoin?”
So our taxpayer money as Canadians aren’t subsidizing – and not even subsidizing – for paying Americans to take our power. There is a few politicians in Canada that have wakened up to the fact that “Hey, bitcoin mining can change that economic model.” And it’s very exciting because bitcoin miners are the marginal consumers of energy around the world right now. And they are helping the energy industry become more efficient. And they at times are actually stabilizing the grid rather than providing – or rather than exposing the grid to the uncertain fluctuation of its supply and demand realities.
So there’s just so many ways to debunk that concern, Trish, and it’s all about energy – again, going back to the law of conservation of energy, there’s so many wasted sources of energy, things that aren’t being used…. think about a dam, for example, or a beautiful hydroelectric dam whose turbines are turning all the time, even if the power isn’t being demanded by the system. Well, you might as well mine bitcoin with it when it’s off-peak hours and create more resilience and more profitability to the grid.
So that’s always what I’ve come back to. The amount of power it’s taking on a global scale is very small. It’s much less than many other industries out there. It is necessary, yes. The proof of work function of bitcoin is absolutely necessary to secure the network. But let’s focus on things that really matter – including all the energy that’s produced in the world today… that isn’t actually used and is, therefore, wasted. And that’s what bitcoin can help solve.
Trish Regan: Really, really fascinating. So with all this in mind – and by the way. I’m trying to remember what you felt like fair value of one bitcoin was. And I want to say it was over $1 million, maybe even $2 million, a coin. Are you still in that camp?
Greg Foss: Yes, I am. But I need to qualify it. OK? Quantifying it is this. I feel bitcoin today – and I’ve done study valuing the intrinsic value of bitcoin today as a function of credit default swap insurance on a basket of fiat currencies. I believe that bitcoin’s worth over $150,000 U.S. per coin today, as an intrinsic value. And that intrinsic value will increase over time as more and more countries default – and the concerns with things like what’s going on in China and the Evergrande situation in China leaking into the cost of credit in China. But that intrinsic value of bitcoin will continue to go up over time. And my price target for bitcoin over time in today’s dollars is over $2 million a bitcoin. But that’s not its intrinsic value. That’s its price target as a function of its total addressable market in the context of bitcoin becoming a reserve asset.
Trish Regan: So sort of your view on it now is, it should be – I guess that would make it quadruple. And then, you see it sort of infinitely rising.
Greg Foss: Can I just say why it is? Because of things like adoption, countries adopting it. The nations. I think you saw the other day that Powell said, “There’s no plan to ban bitcoin in the U.S.” In fact, again, I’ll say this. If the United States was smart, they could embrace bitcoin mining. They would embrace this beautiful store of value as a reserve asset and still have the U.S. dollar as the fiat reserve currency. Again, checking account, fiat reserve currency, store of value, bitcoin… your reserve asset. And the fact that the Chinese are serving this up on a platter for the West, I’m really excited because again, if you generally over time do the opposite of what the communists do, you’ll probably do pretty fine.
Trish Regan: So let me ask you this. What’s your thought on – first of all, let me just say I think the digital yuan is kind of a joke in terms of anybody ever wanting to invest in that. I always look at China and say, “Look. The problem with this is that the government can take it away.” You know? Anytime it wants. And so, I don’t like the idea of being invested, frankly, in anything Chinese. Just look at what’s happened with the education stocks recently. Right? They can turn those all upside-down.
And so, having a government with that much power to me really interferes with what the free market needs to be doing. And so, when I look at the digital yuan and I know that the government’s entirely in charge of that, it really concerns me. But there are people that are saying, “Well, you know, they’re trying to create this digital currency to basically rival bitcoin.” Which I kind of chuckle at, but I’ll let you take that one. What is your response? What do you think of the digital yuan?
Greg Foss: So very simply, like, what is the central bank digital currency, first of all? It’s nothing more than digital fiat. There’s no supply cap on it. They can print as much of it as they want. But let’s take it one step further. What is the digital yuan? It’s digital fiat with surveillance and potentially best-before dates. OK? So first of all, I saw you were spending – you spent money at a restaurant that was right beside the parade group for an anti-presidency parade. So you were obviously at the parade, so I can prove that it was using digital surveillance that you were against the communist government. So look out because I’m the communist government. OK. I don’t want to start all those conspiracy theories, but that’s just fact.
Trish Regan: No. No. But what you’re saying is not off-the-wall at all. I mean, that’s the whole social credit system that they have there. Now they’re going to be able to effectively control your, quote-unquote, cash – your digital yuan – they’ll know everything you spend exactly where you spend it. I think those are very valid concerns, Greg.
Greg Foss: And it’s true. And just understand that there’s potentially – imagine you need to use this currency before it expires in your account. So you go out and promote the consumption side of the world, which is not good for – you know, if you wrap yourself in the ESG flag, one of the biggest problems with the consumption side of the world is half the stuff people purchase is junk and it ends up in junkyards.
Trish Regan: No. No. I hear you on that. And just to elaborate so that people understand, I think what you’re saying is – you know, and we’ve had a lot of people on this show that has said ESG is a bubble because the fundamentals really aren’t entirely there. I mean, you’ve got sort of everybody championing something because they think it’s socially, you know, consciously the right thing to do but they don’t actually – you don’t actually have a real reason for it being, then you’re going to run into problems. And I agree.
Greg Foss: Yeah. On that side, ESG is a whole another topic, for sure. But what I want to stress more than anything is that it’s digital fiat. OK? We know the problems with the fiat currency. It causes, you know, the people at the top of the privileged ladder are the ones that benefit when you print money and the people at the less privileged are the ones that get hurt. That’s well documented. It’s not more – it’s easy to explain because most of the people at the lower end of the spectrum do not have exposure to the hard assets that maintain their value in the face of endless fiat printing.
So regardless if that’s a paper dollar or it’s a digital paper dollar, the effect on the economy and the effect on society is the same thing. OK? And then, you pull in the control aspect and potential for a best-before, use-before, “This coupon expires or this currency that was issued expires at this date,” and you just get into a whole rigmarole of potential conflicts between what money should be – which is a ledger to keep track of transactions that have taken place in the world.
You know, we don’t need barter trading your house for goats, etc. You actually can do it with currency. But that currency is not a store of value particularly when they continue to debase it and print more and more. So you will never print yourself to prosperity no matter what AOC thinks. OK? You cannot print yourself to prosperity. It’s pure mathematics.
Trish Regan: You’re totally right. And by the way, this is so darn obvious, it’s frustrating. And yet, we’ve seen these people – including I played a quote on my program the other day, Trish Intel, the Trish Regan Show – where we had a guy who is the head of our budget committee. His name, I’ll never forget it, because everywhere you go in New England you can get a fried haddock sandwich, otherwise known as the Yarmuth sandwich.
And John Yarmuth stood up there in front of a Rotary club just from a couple months ago and said, “We don’t have to balance our checkbook. We are not like a business. We are like the banker” – I quote direct, “We are like the banker in monopoly. We print the money, everyone else plays the game with it.” I’m like, “OK. Well, glad we got out there. Glad you guys are just admitting it full-on.” And there is truth to that in terms of what we’re doing and every country is doing in terms of printing its money. But, Greg, there are consequences that go with that as well. Are there not?
Greg Foss: Well, absolutely. So I don’t like to always look at extremes to try and evaluate the logic of an argument, and I’ll just take the extreme on that. It’s, “OK, Mr. Yarmuth. Then why in fact do we even pay taxes? Why don’t we just print money just to give everybody in the world – why are there jobs? Why” – you know, so you can’t just say we’re only doing now to solve this problem. The fact is, it’s like cocaine. It’s an addiction.
And every single politician that had the chance to get in there, to stop the money-printing and actually pay down the debt that we’ve accumulated by successive financial crises like… I started in the financial markets in 1988. And that financial crisis was Latin American debt. And then 10 years later, we had long-term capital management. And then 10 years after that, we had the great financial crisis.
Trish Regan: Oh, my gosh. You’re right. You know, it’s funny because I sort of came into the financial markets around long-term capital. But you’re totally right. You had the Latin American debt crisis about 10 years prior and then long-term – and all of these things are related, going into even what we saw obviously in 2008.
Greg Foss: It’s bad, and every successor is trying to transfer risk from the balance sheet to the financial assistant, to the balance sheet and again… and now it’s too late. But I think it’s here to stay with you because this is how severe it is. When I started work, I left Cornell University in New York and came back to Canada to work for Canada’s largest financial institution, the Royal Bank of Canada. And it was insolvent because of Latin American debt.
And they had invoked the Brady plan in honor of Treasury Secretary Nicholas Brady or named after him. It was a brilliant plan to change a five-year loan to the LBC countries that it was trading 25 cents on the dollar – which for the viewers or the listeners means you lost 75 cents on your dollar. If you had marked those loans to market, the Royal Bank of Canada book value of equity was vaporized. But Treasury Secretary Nichols Brady didn’t design the Brady plan to rescue the Royal Bank of Canada. He designed the Brady plan to rescue all of the global financial system.
because every single money center bank in New York had the same problem as well as all global banks. The system was insolvent in 1988. And I graduated from Cornell, I came back to Canada and I’m like, “What? This is how this system works? They don’t teach you this in school.” And by the way. He turned a five-year loan obligation into a 30-year obligation backed by U.S. Treasury’s zero-coupon notes. It would’ve crept in value back to parity or 100 cents on the dollar… was a brilliant solution, but it was an accounting gimmick.
It was nothing but an accounting gimmick to allow the banks to not have to write down the loans on their books and therefore vaporize their entire equity or the risk-exhorting capital. The system was teetering in 1988. It teetered in 1998, the great financial crisis in 2006, 2008, or 2007 to 2009. I lived through. I actually thought the world was ending a number of times. And you had the chance to solve that by paying down the debts that each time the Treasury absorbed to solve the financial crisis, but we never did.
As soon as they tried to paper, the equity markets had a tantrum and they took their foot off the brakes and they continued to print money to the point where now it is 100% certain, Trish, that it is too late. There is nothing we can do in the debt spiral that we are in right now to stop the debasement of currency. Now, Mr. – I forgot his name, but he’s not very good at math. OK? And he’s certainly never sat in a risk chair. Meaning, he’s never sat in a chair with trade risk when the world is unraveling.
Trish Regan: Mr. Yarmouth, right? Is that who you mean?
Greg Foss: Yarmouth. Yeah. Yeah.
Trish Regan: Just think of the Haddock sandwich.
Greg Foss: OK. Well, here’s the funny thing. Like, Yarmouth Nova Scotia – here’s the reality. It’s really, really unfortunate when you get armchair quarterbacks who have never sat in a risk chair and are intellectually lazy about the truth of the financial system. We can print the money, yes, and I’m a capitalist with a heart. Yes. If you’re going to print the money, you need to understand that the consequences are going to be that your car in 10 years will cost twice as much as the same car cost today, because it’ll take twice as much of dollars that we gifted to people to pay for the same car.
And you’ll think you’re making money on a house, but you’re not. Because if you measured the house in gold, they’re most likely just to keep pace with other hard assets. But bitcoin is the most beautiful hard asset ever created by man, secured by the strongest computer network in the world today, and also helping the people at the bottom of the spectrum. The people who live in El Salvador. So it’s my sense to take a shot at a person who I believe is being a disgrace to the intellectual – call it intellectual honesty of America.
And his name is Steve Hanke, and he’s a professor at Johns Hopkins. And he is taking issue with El Salvador adopting bitcoin to the point where his comments are disingenuous and actually downright disgraceful. And this is a man who’s in an endowed chair in Johns Hopkins University, a very prestigious institution in the U.S. Well, my advice to Johns Hopkins is, the value of your diplomas are going down every time Steve Hanke opens his mouth.
Trish Regan: To be fair, I mean, he’s not the only one. You have JPMorgan that said some similar things. Right? I believe there was a client note that they put out saying that they didn’t think that the tangible economic benefits associated with adopting bitcoin as a form of legal tender would really be there. And there’s bene a lot – you know, I’m pointing out that this is… I mean, one of the reasons why bitcoin is so contentious is because they’re sort of this really strong emotion, I think, on both sides.
Greg Foss: Could it be that JPMorgan’s worried that bitcoin will disintermediate their business? Could it be that Western Union – who was taking 4% of the GDP of El Salvador, the equivalent of 4% in fees of the GDP of El Salvador – to use remittances? Money that immigrant workers in the United States were Sending back to El Salvador, if they sent $100 back, 20% of that was in fees and they’d only get $80.
Trish Regan: This is a faster, cheaper way to spend money. You can send remittances to these countries and people can, I guess, cash them in is the – that’s the thinking now in a place like El Salvador. I mean, how does it really work?
Greg Foss: Well, so it does work because I’m in touch with the boys that are on the ground in implementing the merchant solutions for places like Kentucky Fried Chicken and Starbucks and McDonald’s in El Salvador, and it’s working. And you can buy a cup of coffee with lightning, which is a Layer 2 solution for bitcoin. You can pay less than one cent for transaction fees. And it’s working to make the economy more efficient.
And I want to go one step further. I’m a partner in some pubs in Montreal. That’s why I’m on my way from Montreal back to Toronto today. I’m a partner in some Irish pubs in Montreal for the last 30 years. We pay 1.5% of sales to credit card merchant fees… 1.5% of sales is meaningful because our EBITDA margins – the profitability margins of the restaurant business – are maybe 10 to 12% on sales to begin with. When 10% of that is going to merchant fees, that’s a lot. You know what the merchant fees for credit cards in El Salvador are? 7%, Trish. So people who pay with bitcoin in El Salvador, who are saving 7% more, are efficient for the economy. This adds up.
Trish Regan: What does the coin cost to send?
Greg Foss: One penny on the lightning network. That’s the whole thing that this brilliant man by the name of Jack Mallers – young kid, he’s 20-something years old who’s going to change the world… he onboarded the country of El Salvador based on the technology that he has built on top of the bitcoin network called lightning.
Trish Regan: Wow. Well, we should talk to him too [laughs]. I would love to. I mean, it’s incredibly fascinating. And look. I think you are going to see a lot of sort of institutions not be so happy with this. So the question is, “Can it get big enough and strong enough before somebody tries to take it out?” I know you’re expressing some optimism in Powell. You may have more optimism than me because I do worry that the U.S. government will come along and try and squash something like this… which is why I worry somewhat about investors in this, but I love it. I love the idea and I think it could be a tremendous, tremendous vehicle that could help so many people – to your point – around the world. It’s just, “Can it get to, you know, third base?”
Greg Foss: Can never be 100% certain about anything. Right? The only thing I’m 100% certain of is that fiat currencies will continue to debase. That’s 100% mathematic and I’m 100% certain about that. Otherwise, in any investing, you have to play probabilities. Right? Very simply, bitcoin is the best asymmetric return opportunity I’ve ever seen because in basically the chance of it going to $2 million, which I think is somewhat likely but not 100% certain, the market is only telling you there’s a 2% chance it will get there.
Because 2% of $2 million is $40,000, and $40,000 is plus or minus the trading price of bitcoin. I know it’s maybe $50,000 today. So the market’s only telling you there’s a 2.5% chance it’ll get to my price target. And I’m like, “Mr. Market, you’re wrong. I think it’s way higher than 2.5%. I think it’s close to 40%.” But if I was right and the market also believed it was a 40% chance, it would be trading at $800,000 a coin, Trish. And it isn’t.
So what are you supposed to do? You’re supposed to buy a little bit and say, “I listen to this knucklehead Foss out of Canada saying he thinks this is the best asymmetric return opportunity he’s ever seen. And what has he done again? Oh, yeah. He spent 30 years in the financial markets, so maybe he has a point. But I’m not going to put all my money in it.” And never would I invite anybody to put all my money in –
Trish Regan: No. Listen. You’re spot-on with that. I mean, I say that all the time. You need diversification. You’re crazy to go all eggs in one basket. I mean, I think what you’re saying, Greg, is this could be an amazing opportunity. You believe in the technology, you believe in the theory, you believe in its value. And because of that, why shouldn’t someone have some exposure to it?
Greg Foss: I say that if you have zero exposure to bitcoin, ladies and gentlemen, you are taking more risk than if you have a proper portfolio allocation, which in my opinion – and backed by the opinion of Yale University – is between 6 and 8% of your portfolio in bitcoin. Very simple, full stop, “Do not overthink this. It is the best trade I’ve ever seen and I can’t guarantee you it’s going where I think it’s going. What I’m telling you, if it does, you’re going to wish you had some exposure. Very simple.
Trish Regan: Sure. I mean, 6 to 8% is a lot. It’s a little higher than I might’ve sort of instinctively thought of. But again. I always say to people, “Be aware. You need that diversification, and you’re running risks with every asset class.” But look. I think it’s a fascinating space and I hope it continues to grow. I think this could be something that is also a needed sort of influence, if you would, in the world in terms of helping to control fiat currencies.
Greg Foss: And every single day, it is more likely that it will achieve my price target simply because adoption is increasing, use case is increasing, understanding of it is increasing. Bitcoin’s actually protection. It’s insurance, OK? It’s a long volatility position. And the world is short volatility, and bitcoin is your hedge against a short volatility world. What happens when volatility increases? All other assets tend to go down. When you see the VIX increasing, it’s because credit spreads are increasing. It’s because junk bonds are going down.
It’s because equities are falling in value. Well, bitcoin is the hedge against that. It is a long volatility position. And it will come to be accepted as that over time as the bigger institutional money embraces it and understands it. But think about it as being insurance on irresponsible money-printing and the same thing with the credit quality deteriorating hand-in-hand of fiat nations. So as the credit quality of sovereign nations decreases, the value of bitcoin increases.
Trish Regan: Interesting stuff. Interesting stuff. Foss, a pleasure to have you back on the show. Thank you so much. We appreciate all your insight and we will all check you out on Twitter. If you’re not following Greg, do make sure you go and – you got some interesting tweets out there. I would say that. And I appreciate them, so thank you again, Greg. Much appreciated having you here.
Greg Foss: It’s so much my pleasure. Keep doing what you’re doing. It’s all about education, and we’re doing this for the kids. This is about making a better future for the kids in all nations, not just Western nations but all nations in the world. Thank you for having me. [Music plays and stops]
Trish Regan: So thank you so much for tuning in. What a fascinating conversation, again, with Greg. If you have not heard his first podcast, I encourage you to go back and listen to that because there is a lot there. I know it’s a lot to absorb. But if you’re interested in bitcoin, you want to know it all. Right?
Eric Wade, as well, was on the program a couple of months ago and he writes a newsletter for Stansberry, the parent company of the American Consequences. So I encourage you to check that out as well. There’s a lot of interesting aspects to this, and you’ve got to know it all and be prepared before you venture into this crypto environment specifically, of course, with bitcoin, which is considered sort of the favorite in this space – in terms of volume, anyway. I want to thank you again for tuning in to this week’s edition of the podcast.
You can see more of my writing online, of course, at americanconsequences.com; at my own website, trishintel.com. we’ve got in both locations lots and lots of information about the economy, about the markets, about the policy that is going to affect you and affect your portfolio right now. And my gosh. As we’re teetering here on the edge of possible default, there’s a lot you need to know. What I would say is, in a lot of this – keep in mind – is political theater. Do I think we’re actually going to default on the debt? No. No, I don’t. I think the Democrats can actually manage this one on their own. They do control the House and the Senate.
They ought to be able to get this one through as well as the Oval Office. There’s a lot of finger-pointing that’s happening. A lot of finger-pointing will continue because of this political theater. But at the end of the day, we will still pay our bills. It’s what we do. If we don’t, Joe Biden would go down [laughs] as the worst president in history. I mean, you may already think he is. I mean, you may not.
I don’t know where your politics are, but this would most definitely qualify him if he were the first president in history of the United States of America history to default on our debt. He would go down in the history books as being pretty bad. I don’t think that’s going to happen, so don’t worry too much about that. And I guess enjoy the show as much as you can because there will be a lot more in-fighting as we get closer and closer to mid-October. A reminder. Go to americanconsequences.com, sign up for our e-mail there, and I will see you right back here on the program next week.
Announcer: [Music plays] Thank you for listening to this episode of American Consequences. Want more Trish? Read her weekly articles Thursdays in our magazine at americanconsequences.com and subscribe for free to get of our daily articles and the monthly magazine. We’d love to hear from you too. Send Trish a note, [email protected] This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Trish Regan’s American Consequences is produced by Stansberry Research and American Consequences and is copyrighted by the Stansberry Radio Network.
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