WBD288 Audio Transcription
Bitcoin Strengths & Weaknesses with George Gammon
Interview date: Tuesday 15th December
Note: the following is a transcription of my interview with George Gammon. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I talk to George Gammon, an investor and YouTube host who is “bullish Bitcoin, bearish Bitcoiners”. We discuss his Bitcoin thesis, where he thinks its strengths and weaknesses lie and his thoughts on the Bitcoin community.
“What some people in the Bitcoin community have in common is they don’t know what they don’t know, but they think they know everything.”
— George Gammon
Interview Transcription
Peter McCormack: George, how are you?
George Gammon: I'm extremely well, thank you.
Peter McCormack: No, thank you for coming on, man, it's good to finally connect with you because I've seen you out there fighting a little bit with the bitcoiners; they've been giving you a bit of shit! You've been dipping your toes in the water of the Bitcoin world and not liking everything you see?
George Gammon: I think it's all in good fun, and I threw out some questions on Twitter the other day to try to get some answers to questions that I knew nobody could answer. I know that sounds weird, but I was trying to figure out some really complex stuff that was kind of merging the Bitcoin world and the macro world, so I was asking more basic questions that I figured people could answer to try to connect the dots, and people were jumping on me.
They assumed, for whatever reason, it's kind of bizarre, that I just stumbled across Bitcoin a week ago, like I just started thinking about this! I've been obsessing with macro since 2012 and I've thought a lot about Bitcoin. Not only that, but my YouTube channel, I've got over 400 videos now, whiteboard videos and interviews, where I talk about macro; so, it was pretty surprising to see some people would assume it's the first time I've started thinking about Bitcoin. But, I think a lot of people, they probably didn't watch my channel or something like that, but it was all in good fun.
Peter McCormack: Well, I watched a bit of it, but it's a tough crowd, man, it's a tough crowd. If you don't instantly understand Bitcoin and instantly agree with the ideology, then you're immediately wrong and you're an idiot; so, I hope you've learnt that lesson?
George Gammon: Yeah, and unfortunately, macro is still complex for even the pros, like Schneider and Brent Johnson, and with Droman and Lyn Alden, that there's no way that any one human being can possibly know enough to predict everything perfectly. It's like the weather; there are just way too many variables.
I've noticed with some people, not all, but what some people in the Bitcoin community have in common is they don't know what they don't know, but they think they know everything! And those are the people that are dangerous, the people that aren't humble enough to know there aren't things that they have not considered. There are no certainties; there are only probabilities.
But, it's not just them. As human beings, that's kind of our default mode and I think that we need to recognise that as prudent investors, regardless of what we're buying as an asset class, and realise that as humans, that's one of our weaknesses and we need to try to keep that in check.
Peter McCormack: All right. Well, let me give you a little bit of background to my approach and then, I think we should probably work through some of your questions and I'll tell you my thinking.
So, this kind of macro stuff is new to me. When I started the podcast three years ago -- I'm a creative; my background is advertising. I discovered Bitcoin, got an interest in it and I just found the technical side highly complex and the economics side also highly complex. I'm just a creative; I like to design and create stories and create pictures and things. So, I got into this podcast game just to ask people questions and some of it sinks in; but, I do have a strong conviction with Bitcoin.
But, I also clash with some of the bitcoiners, because I am not, let's say, I don't fully agree with all of their ideas, or sometimes some of their ideas take me a little bit longer to get. I get called a "statist" a lot. I theoretically like a lot of what libertarians stand for; when I try and game it out, I still find some certain issues with getting to a libertarian society. So, that's one of the areas I clash with them on.
Sometimes I talk about ideas to do with the state; like recently, I've been trying to understand why the state exists. If libertarian ideas are so good, why do we have a state? And, I'm trying to understand why humans kind of group together, and things like that. So, I tend to just be quite curious and ask a lot of questions, but that does run me afoul with the bitcoiners as well.
But, I do have quite a high bar conviction with Bitcoin at the same time, but I'd like to think I make a show for people who are like me who don't think like Lyn Alden; they don't have ten hours a day to understand economics; they've got kids and they go to work and they come home; and, they've got about half an hour to an hour, maybe, in the car or on the train where they can listen to a podcast and maybe get a few pointers in the right direction to maybe where they should put their investments.
That's me; that's like, try keeping it super simple. And, you've had the conversation with Raoul, which I've watched and I think that was good; I don't agree with Raoul on everything. If you sat down with Saifedean Ammous, he would hammer you into certain ideas. I like to think I can keep things a bit simple, but I want to have a go at some of your -- because, you're looking at it.
So, as a starting point, where are you at with the whole Bitcoin idea, because you haven't dismissed it; you're considering it?
George Gammon: But that's the irony; I'm long Bitcoin.
Peter McCormack: Okay, you're in?
George Gammon: I own Bitcoin. I think that it's a fantastic speculation; there's incredible asymmetry. Just like I said on Twitter, I could easily argue for the price not just going to $100,000, but the price going to $1,000,000; but, that doesn't necessarily mean that I think it's a panacea. I think, at the end of the day, because we are humans, we end up with a very similar system to what we have right now.
What I did in one of my videos is I went back and looked through the history of the gold standard and where we started with banking, and we started with what they call "full-reserve banking"; and in the United States, we then moved to a system called "free banking"; and then it was nationalised at the beginning of the Civil War. Then we had the "central banking", started in our country in 1913; and then we went off the gold standard in 1933, you know, quasi gold standard, if you want to call it that. And then we had Bretton Woods in 1944, and that took us to the eurodollar system which, if you study Geoff Schneider's work, he would argue that that was the catalyst to the GFC in 2008.
So, I go through a thought experiment; but, my main point there is that we did all of those -- we created all of those derivatives, I think is a good word, because if you look at fractional-reserve banking, it's kind of derivative in the sense that you're not really lending out the money that you're storing; you're creating additional IOUs. But, we did all of this while on the gold standard.
So, if we were on a Bitcoin standard, how would that have changed? I don't know that it would have. I understand all of the arguments that Bitcoin may wipe out the entire banking system, because it's far more decentralised in the sense that with gold, you would need preferably some place to store it, because it's kind of cumbersome. If you had $15 million worth of gold, you couldn't just carry it around in your back pocket, so it makes sense to store it somewhere; and, that's how you kind of transitionary evolve into the whole timeline that I outlined before.
With Bitcoin, I get it. You can keep that $15 million in a thumb drive in your back pocket and you can take it across borders. But, my point is, regardless, at some point, you'd most likely have fiduciaries because people would want a return on their Bitcoin; and, whether you leant it out yourself, your actual Bitcoin, your smart contracts or whatever, you had a centralised entity called a "private equity fund" or an "angel investment fund" do it, you still get to the same point.
Then I argued that even if we started with a full-reserve system, because most of the hard-core bitcoiners, and I would be right there with them; the problems really start to arise when you go into fractional-reserve banking. That's where you really have to start doing a cost benefit analysis, because there could be some benefits, but there are definitely some costs involved there; so, that's what gets us there.
But, even with full-reserve banking with Bitcoin, or a full-reserve system, I think even if it was totally decentralised, I think once we have a war or once we have a natural disaster, or once we have something like that, there's going to be such a demand for more supply of Bitcoin in lending, because you've got to think this through.
So, let's say we have a natural disaster; well, let's say we have COVID. I mean, that's a fantastic example. So, all the people that own Bitcoin, and let's say that Bitcoin is the global money; there's nothing else that exists, it's just Bitcoin. That's the reserve asset; that's the payment system; it's all in one. Well, people aren't going to want to lend that out; they're going to want to hoard it, because they know that we're going to have a severe economic recession, if not a global depression.
So then, the Keynesian would come in and say, "This Bitcoin thing, it's not going to work. For the greater good, we need people to lend out their Bitcoin", and no one's going to want to do it. So then, what do they do? They create some sort of system that's a derivative of the outstanding Bitcoin and, like any government programme, what was it that Friedman said; "Any temporary government programme is always permanent", or something to that effect.
Peter McCormack: "There's no such thing as a temporary government programme".
George Gammon: Yeah. Once you take the cat out of the bag, you're never going to put it back in. So, kind of the conclusion I came to is even if you have perfect money; perfect money is owned by imperfect creatures in an imperfect world. Therefore, we can't expect perfect money to perform perfectly. That's my kind of position on it.
Peter McCormack: Okay, so there's a lot to break down there. I've got a lot of questions for you from that. So, you're main issue with having a Bitcoin-based system where everybody's using Bitcoin is that we no longer have essentially the money printer; is that the issue?
George Gammon: Well, you take away the ability for fractional-reserve banking. Well, you wouldn't though.
Peter McCormack: You wouldn't though; no, you wouldn't.
George Gammon: Yeah, you wouldn't, but that would be most of the hard-core bitcoiners' stance, that they would not want fractional-reserve banking, because they'd know that that just takes us right down the path of where we are today. And, to be clear, I think going to a Bitcoin standard could be very interesting, and I would definitely favour it compared to other options, especially a fiat! And, I do think that you'd go through a wicked, wicked deflationary cycle.
But after that, after you clear out all the malinvestments and everything that happened as a result of the fiat system, you would have a timeframe where you have very, very solid economic growth. So, I'm not saying that it wouldn't work; I'm saying that it may work very well in the next 20 to 30 years but in the next 100 years, I think we'd be pretty much at the same point where we're at right now.
You may take the position of Keynes in that, "Well in 100 years, we're all dead, so who cares?" and that's valid; but, when I was going through this on Twitter and on my video, it's really a thought experiment to try to ask myself the question, "Is Bitcoin a permanent panacea?"
Peter McCormack: Well, nothing's permanent, as you said. I mean some of the guys I speak to, they would say it could be something that lasts for 50, 100, who knows how many years, but not everyone thinks it's permanent. But, at the same time, I think we go through these evolutionary stages, right, and one of the evolutionary stages right now is that perhaps, we are moving away from fiat currencies to a fixed limit currency, such as Bitcoin, and maybe that's a transition that takes, could be multiple decades; but, perhaps we are going to that because of the ills of the fiat system.
I mean, it's funny, I went on your YouTube and watched your first video, and the first thing you say, "This channel is about how to protect your wealth in a world where there are out-of-control governments and central banks", and I was like, "That sounds like what a bitcoiner would say"?
George Gammon: Yeah, I mean philosophically, I'm in line with everything. And 99% of bitcoiners, I think, are pretty much in line with my whole way of thinking, as the gold guys, or gold girls, you know; but, there's just this 1% group out there that are just kind of absolutists that Bitcoin is going to solve all of our global, economic and monetary problems, now and forever. Those are the people that I would slightly disagree with.
Peter McCormack: Well, I probably would as well, because the one thing you don't change is human nature; greed.
George Gammon: Correct, exactly.
Peter McCormack: Okay. But, I don't think that's the biggest issue, if that's the 1%, if you have 99% conviction. Can you remember the other questions you put out there?
George Gammon: Well, one thing I was trying to figure out is, if you can't -- I was really thinking through, how does it work if Bitcoin was the only form of money on the entire planet? Then, my first line of thinking is, how does that transition work? And I know that most of the bitcoiners would say, "Well, it's kind of this Trojan Horse effect where it goes into local economies and they start to use it, just gradually, because it's a superior form of payment", or maybe once the technology gets to that point. Maybe they would argue that it's a superior reserve asset, but maybe at some point, when the technology catches up, it's a superior form of payment for the billions and billions of transactions that occur daily. So, once you get to that point, then the free market takes over and people just start to use it on their own.
The problem there is that once you gradually transition, you couldn't just do that overnight, because if you just went to it overnight, what would a country do that had absolutely no Bitcoin whatsoever. Let's say they had 10 Bitcoin, they'd have to break their payments down to just a very, very small level in order to facilitate their daily trade.
Then you start analysing things that take you back to the gold standard and Adam Smith, and one of his colleagues or one of his buddies, his name's David Hume; and David Hume came up with the theory called a "price-specie flow model". Basically what that was, in that case that I just outlined, the goods of that country that only had 10 Bitcoin to begin with, relative to countries that had a lot of Bitcoin or, in other words, an increased money supply, is their goods and services would be cheaper. Therefore, they would have a big advantage in the export market, so they would most likely export more goods and services to the countries that had an increased supply of Bitcoin; and then, those Bitcoin would move into that country and then their prices would increase, because their money supply increases. And then, you have this equilibrium or balancing act.
That would work, but that transition; I don't know in today's day and age, where we like to avoid pain, or any economic pain, at any cost that there would be an appetite for that. Now, maybe there would and maybe it would happen just gradually over time. But, that points out another thing that bitcoiners tend to miss, is that they think that, well, there's a set supply of Bitcoin, 21 million, and therefore we'll never, ever again have price inflation. That's not true, because although there may be a set amount globally, there's not a set amount in your local area where you're buying your goods and services. It just goes right back to the price-specie flow model that Hume outlined.
So again, if you're exporting more goods, let's say you're in that country that had 10 Bitcoin. Well, you're exporting more goods; the next year, let's say you have 20 Bitcoin. Okay, well then the cost, you'd have more money supply in Bitcoin, and the cost of goods and services would increase. So, you still don't get away from …
Now, it appears far superior because you're not going to have, like we've had since 1913, where you've had just a gradual depreciation of the unit of exchange; for now, it's 95% lower than it was in 1913 when we set up the Fed, so it is superior. But again, it's not a panacea. It's not to say that we would just have, for the next 100 years, every year a 2% deflation in the cost of goods and services throughout the globe; that's not how it would work.
Peter McCormack: Yeah, so it sounds to me, it's not like you don't disagree that it could happen; it sounds to me more like you're curious about, what are the implications, what are the consequences of this happening?
George Gammon: Correct. I shouldn't say this definitively, but from what I can see on Twitter and my Twitter feed, I'm taking it quite a few steps further than most of the people that are responding by setting up meetings to where they're chopping off my head, or something like that!
Peter McCormack: Are you having fun being poor?! Do you know what; the memes are fun though, actually. I think the memes shouldn't ever be taken too seriously, because they are good fun and it's just, when you're sat there all day being miserable and shouting at each other, they're a bit of fun.
I find this interesting, because this is what I'm curious about. It's not whether it can happen; I don't know. It's how it happens; what are the consequences? So firstly, if Bitcoin gets to -- I did an interview with Gary Vee recently, you know, Gary Vaynerchuk? So, I was chatting to him and I wasn't prepared for it; he actually threw a curveball at me. He said, "Well, what happens when Putin and, I can't remember, the guy from Brazil and India and all these more kind of authoritarian countries turn round and say, 'You can't use Bitcoin, and if you do you'll go to jail', what happens in that scenario?"
I think places like the UK, the US, have got a fair amount of regulatory protection; I don't think they'll ban it. I think it could be highly regulated, but I don't think they're going to ban it. But, he did talk about those scenarios. So in my head I'm like, well, do we end up in a world where we have two different currencies? We have fiat currencies from states that have banned it, and countries like the US who haven't. Does Bitcoin have this gravity that draws people into it and therefore, what's the scenario then for the dollar?
One of the things I wonder is, if there is a transition, how bloody is that transition? I'm not sure if you've read any of the work by Parker Lewis, but I'll definitely send you an article of his called, Gradually, Then Suddenly, and the idea being that there's this gradual growth in Bitcoin, then suddenly it just hits us. But, what are the externalities for that? What happens to the economy; what happens to businesses who have been used to transacting in one currency and now have got another? Or like you say, people who don't have any; could you see a massive economic shock? Is this one of these massive transitional periods in the history of humans?
I'm reading The Sovereign Individual book at the moment. We've gone through the agricultural revolution, then the industrial revolution; we're now at the information revolution. Is it just a natural occurrence, but it's going to be bloody and dangerous and it's going to change society? I don't know the answers, but I'm really intrigued if it does happen, what these are as well?
George Gammon: Well, it's a free market.
Peter McCormack: Yeah.
George Gammon: I mean, that's Schumpeter's creative destruction, and that's something that we should welcome. I think we should want to have a free market of money, and having the government a monopoly I don't think is a good idea; and so, I would welcome that. But, yeah, there are going to be some winners and losers. And, you don't know how it all plays out, because there are just so many variables.
I think the bitcoiners would say, or the real diehards, would say that number one, you can't ban it which, okay, I guess that's kind of true in the sense that you can't literally, because it's computer code, and you can't just prevent people from doing. But, what you can do is you can say, "Okay, if you get caught using it, it's 50 years in jail"; you could do that.
Then you have to ask yourself, okay, well let's say you've got people in the United States as an example, or the UK, and all of a sudden they come out with this 10 or 25 years in jail if you get caught using Bitcoin; sure, a lot of people would move, and that's the bitcoiners' answer. A lot of these people would move to a country that welcomed Bitcoin. And then, that country's economy would grow and expand and all the other countries would see that and they'd be, okay, we need to rethink our Bitcoin strategy because it's working so well in country XYZ that opened their arms and adopted it.
Okay, I see that, but how many people that have a wife and kids, and their kids go to private schools and they're in sixth or seventh grade, and all their grandparents and family members live around them, are going to just pick up and move to Columbia or Argentina or something like that? And the example that I used is Act 20 and 22 in Puerto Rico. I don't know if you're familiar with it, but right now an American can go to Puerto Rico and move their residency, which is very simple, and you just spend six months of the year basically in Puerto Rico and you can take your tax rate from, call it 40% down to zero and a max 4% and you don't have to pay Capital Gains.
So, think about the cost savings there, but yet how many people are actually doing it?
Peter McCormack: Too much friction.
George Gammon: Right, so how many people would actually move? I'm sure there would be some, but I don't know if it would be 100%.
And then you think through, okay, so you've got this group of people that go to several countries, that are transacting in Bitcoin; that's their only currency; that's their main store of value or reserve asset. How are they trading with the countries that banned Bitcoin? So, how does that really work? Are they taking it in fiat? Do they have to create their own paper currency that's backed by Bitcoin and send that; and, how does that not lead to a fractional-reserve system? And, if you get to a fractional-reserve system, then how does that not take us down the path that we have been on with the gold standard? Granted though, it would be far more decentralised.
So, it's definitely a very messy process. I'm not saying that it's something that would be beneficial and I'd like to see it play out; I'd like to see the free market take charge. But again, my point is that it's not a panacea and it's not something that a lot of people on Twitter assume that if we just went to a Bitcoin standard overnight, that all of our economic problems would be solved; we would be able to cure cancer; we would move on to this utopian society where we're all rich and it eradicates poverty and the birds are chirping and the sun is shining! I don't know if we have that, although there may be a significant improvement.
Peter McCormack: So, what is your investment thesis? If you're long Bitcoin, is it just digital gold for you; is it just a scarce asset?
George Gammon: No, it's not digital gold, because I see gold as insurance and I don't see Bitcoin as insurance. I just see Bitcoin as a very good speculation. I divide my portfolio into something I call 10/80/10. So, 10% would be allocated to insurance, for me it's physical gold; 80% would be allocated to what I call "investments", and I define an investment as something that has to pay me to own it, so a dividend paying stock, a rental property; and then, 10% allocated to speculation, where I think there's significant asymmetry to the upside, so Bitcoin is perfect for that.
Back in March, I bought a few more speculative assets. I bought uranium, and that's something that doesn't really pay me to own it, but I saw some good upside there. I think the gold miners, I would categorise them as a speculative asset. So, that's kind of how I fit the Bitcoin into the portfolio. But to me, gold and Bitcoin are not competing asset classes at all; they complement one another.
Peter McCormack: Okay, interesting; we should get into that. But, are you speculating on the faith of other people, rather than your own faith in Bitcoin?
George Gammon: Well, I don't know that I have a faith in anything. I try to look at history and I try to look at just probabilities and then, just try to allocate my portfolio accordingly, based on the structure that I think works best for my personality type. I try to eliminate being married to any belief system when I'm investing and I like to try to unplug as much emotion and bias as I can. That's one thing where I'm a little hesitant with the individuals on Twitter where I say, "I think we should be invested, but I don't think we should be emotionally invested", and that's the big difference there.
Peter McCormack: Yeah, I do think sometimes some of the emotionally invested louder voices, I don't think they're representative of everyone; I think they are a minority. That's not for me to say they're right or wrong, and I think some of that emotional investment, you know, I think you can get emotionally invested in something because you own it and you have a bias and you want the price to go up and you want to realise gains.
But, I think for a certain group of people, whether they're libertarians, it could be people that are just pissed off with the world right now, who just see this as a little bit rebel, a little bit anti-state, anti-government, the fact that you can own something and spend and send it without the government stopping you. And also, they've been sold an idea that maybe -- there is a meme, "Bitcoin Fixes This", so I think some people have been sold that kind of idea.
I guess you get people who are emotional around investments financially, but I think that some people also are emotional around this ideologically?
George Gammon: 100%, and that goes back to Twitter and an article that I posted and referenced from this journalist, not McConnor's, but a journalist with a hypothesis that in the West, we have gradually moved away from religion for many decades and he was not arguing whether that was good or bad; it is what it is. But, he was arguing that as human beings, we need something in our life that gives us meaning, and he thinks we may have filled that void with things like politics, which is why you see in the United States political issues being so divisive.
I was thinking to myself, maybe Bitcoin is filling that void of religion for some people and just to be fair, I think gold may be filling that void for some people and maybe even libertarianism. So again, we just always need to look in the mirror and understand that as human beings, we have these weaknesses; be cognisant of them and make sure that we're just checking ourselves to ensure that we're not making those mistakes that we're prone to.
Peter McCormack: Okay. I still don't fully understand what your investment thesis is. So, it's a speculative investment for you, but what is it about Bitcoin that you like; why do you think it has a value?
George Gammon: So, scarcity. You've got a scarce asset which has a lot of utility for cross-border payments and to carry your wealth in your back pocket; I mean, that's first and foremost. And then, if you do have governments become more and more draconian, which I think they will, then that adds a much greater argument to have some sort of Bitcoin.
I mean, as an example, I own some watches that are rather high value and I own them because I know that at a moment's notice, I can just put them in my bag and I can go to anywhere; South America; I could go to Europe; I could go to Asia; and, I've got that purchasing power, significant purchasing power right in my carry bag, and I don't have to announce it or anything. I think Bitcoin serves that type of purpose, in addition to several others. I'm just giving you one example of why more and more people will be interested in Bitcoin.
You see what's happening in Venezuela, or you see what happens in countries where they have a lot of capital controls. Bitcoin, for obvious reasons, becomes very, very popular. And so, I think in the future, in the developed world and other economies, we're going to have more capital controls; we're not going to have less capital controls. I think that that is a tailwind for Bitcoin in an asset that's obviously scarce.
So, you see, for the interim, from where it is now to $100,000, I see a direct path that makes a lot of sense. But, once it gets to the point where people are using it as a global money, then I start to see some areas where it could run into a few issues. That's not to say that it won't power through and get over those speedbumps, but I can definitely see a path.
Now that said, in the short term, I'm not as bullish as I am over the long term. The reason for that is because, whenever I see a lot of people, a lot of retail, really super excited about an investment, I get very hesitant. I like buying things that everyone hates. As an example, I went out the other night and I was with a group of young people, along with some friends, and so I was talking to these young people about investment and these are college students, right? And every single one of them was staying up until like 4.00 am in the morning trading Bitcoin. That's all they were talking about; Bitcoin.
I had my housekeeper come over the other day and she asked me if she should start buying Bitcoin.
Peter McCormack: I hope you told her yes?
George Gammon: Whenever I see that, again, on long term I'm very bullish, but short term, I get a little hesitant. I like owning things that everyone hates, they despise. I like owning things where, if you told someone in the general population that you were buying this, they'd tell you that you were absolutely crazy, or they wouldn't even know what you were talking about.
Peter McCormack: But, there are still a lot of people that hate Bitcoin as well, right? So, trying to look at your echo chamber of Twitter, I imagine what's happened is, because you're on that macro world, the Bitcoin stuff has started to leak in a bit, so you're seeing it a bit more and a little bit more?
George Gammon: My housekeeper is a 65-year-old Hispanic girl that barely speaks English.
Peter McCormack: No, what I'm saying is, it's started to leak into your world a little bit more. You've started to become a bit more exposed to Bitcoin and therefore, you've seen macro people and maybe seen some positives. There are a lot of people who are still very negative about it as well. Equally for your housekeeper, there might be another housekeeper who just thinks it's nonsense.
I guess though sometimes, retail people, when they feel that they're missing out, they get sucked in; we had this in 2017.
George Gammon: Yeah, that conversation, just short term. Just short term, I'm a little hesitant. I mean, contrast that to something else I bought in March which was coal. My housekeeper's not coming to me asking me if she should buy coal. Or, there are no cyber hornets on Twitter who will attack you if you say something negative about coal; that's what I like.
Peter McCormack: Is there no coal Twitter?!
George Gammon: I'm sorry?
Peter McCormack: There's no coal Twitter!
George Gammon: Right! See, those are the investments I like because, probably the main reason is my favourite investor is Jim Rogers.
Peter McCormack: Why do you like him?
George Gammon: Several different reasons. Philosophically, I'm aligned with pretty much everything he talks about and his belief system. I've had the opportunity to interview him personally and he's such a great storyteller. He's had the opportunity to travel the world and take all these adventures, and it's very similar to how I've lived my life since I retired in 2012.
So, probably the biggest reason is because my father passed away in 2005 and he was very, very old when I was born, so he passed away at the ripe old age of 92. But, Jim Rogers reminds me of my father. Every single time I see Jim Rogers or hear him speak, I see my father and it brings back such great memories.
So, all those things combined is why he's my favourite. When I first started studying investing in macro, I really dove into his content, and I remember reading about him in the Market Wizards books by Jack Schwager, when he was doing those interviews in the late 1980s and early 1990s, and it's really resonated.
So anyway, Jim likes going into countries and buying assets that most people wouldn't touch with a 10-foot pole. I mean, he goes in and he's bullish in North Korea, for heaven's sake; he was bullish in Myanmar way back, probably ten years ago he was bullish on Myanmar. He's been bullish in Zimbabwe; he's been bullish in Tanzania; he's now bullish in Venezuela to a certain degree. That's what I like to do.
And again, I want to be clear; I'm not saying that that's the right way to invest, not at all. I'm just saying that that's the way that resonates with me and that's how I feel most comfortable investing, or allocating assets or getting resources. And, I think it goes back to the point where, I think for most people to make money over the long term, you've got to first and foremost understand your strengths and weaknesses. You have to understand how prone to emotion you are naturally. Then, you have to set up your portfolio accordingly.
Most people get hyper, hyper focussed on what to buy and what not to buy and they totally ignore portfolio construction. I think they would be better served taking 90% of their time and energy and allocating it to portfolio construction, compared to maybe 10% where they actually look at the asset.
For most people, 99.9% of their energy goes into picking the asset and maybe 0.1% goes into portfolio construction and understanding how you'll respond to emotion; when are you going to buy; when are you going to sell, how are you going to feel if Bitcoin goes down by 50% in a pullback? If you're someone that's going to lose sleep over it, well then you should have Bitcoin as a smaller percentage of your portfolio.
Peter McCormack: It sounds like your investment strategy is obviously quite sophisticated but also, I know you're big on property; but, you've got to have capital to begin with to be able to invest in property. I know in the UK, for example, you will need a deposit; you have to consider a higher Capital Gains Tax if you ever want to sell it.
I think to scale property investment so it delivers a solid long-term income, I think you need quite a bit of capital. And I think perhaps, you know, I've got two kids and my son's 16 and he wants to go to university; and I'm thinking, the amount of debt he might collect there. And then once he leaves uni, if he wants to buy a house, I know how the houses are priced, even round here where I live. I'm not even in London.
I think, for some people, maybe they're thinking Bitcoin is a chance. It's quite an easy investment, it's quite a simple one and maybe resonates more with a future vision of the world that they're seeing, and it just kind of reduces a lot of the friction for investing for them. I can imagine trying to build a portfolio similar to yours is quite capital intensive; am I wrong?
George Gammon: I mean, Bitcoin's what; $17,000, $18,000? You need quite a bit!
Peter McCormack: But you don't really, because if Bitcoin went from here, say, and did another 20X, it's just 20X of your initial investment. So, even if somebody puts in $5,000, that could be $100,000; that could be life-changing money. But, if you wanted to do the same with property, you might not even be able to get on the property ladder with that.
George Gammon: Right, but let's do pros and cons. So, let's just say you buy 1 Bitcoin and let's just say that's roughly $20,000. So, right now, you could buy a rental property in the United States for a $20,000 down payment, a very solid rental property, and you'd be cash-flow positive and you'd have a 30-year fixed rate mortgage. So, you're being paid to short the dollar; you're being paid to short fiat. But nothing's guaranteed of course, but the probability of that coming to fruition and working out is far, far greater than the probability of Bitcoin going to, let's say, $100,000, right?
I'm not saying that Bitcoin won't, but let's say the probability of that happening is 80%, where the probability of your little rental property paying you a positive cash flow for the next ten years, while you're shorting the dollar through that 30-year fixed rate mortgage, is probably 95%. Again, you're kind of comparing two things that I think are apples and oranges, because one's an asymmetrical speculation and one's just an investment where you know what it's going to produce.
The delta there is how much you're going to make from being able to pay back your mortgage with depreciated dollars and that could be a significant transfer of wealth from the lender to the borrower. You might even make as much on that as you make on Bitcoin. You see, that's another thing to think through.
Let's just use dollars; in a world where Bitcoin goes to $100,000, or in a world where Bitcoin goes to $1 million, where is the dollar in that world relative to other goods and services? You see, how much goods and services, or CPI price inflation, would we have experienced in a world, or in a US, where Bitcoin was $250,000 a coin?
Peter McCormack: Well, most people who do those predictions tend to do them on the current buying power of the dollar; so they say, when the prediction goes to $1 million, they do it based on market capitalisation based on the current purchasing power. I mean, if you've got inflation as well, who knows? But I think, my point was it's kind of opportunity cost for investors. A lot of people don't even have $20,000 to invest, but just say they did; perhaps that is the problem, George, people just don't have that money to invest?
George Gammon: But you could argue it's an opportunity cost. You're assuming that it's definitely going to go up, so why wouldn't you just take 100% of what you own? Why wouldn't you max out all your credit cards and just buy Bitcoin?
Peter McCormack: Well, do you know what I did today? I wasn't even going to admit this. So, I'm pretty long Bitcoin and when the price dipped, I did an interview yesterday about the MicroStrategy, what Michael Saylor did, which is essentially a speculative attack where he's borrowed money from investors and he's going to take another $550 million position in Bitcoin. He has to pay an interest rate of 0.75%. Now, I can't get access to that, so I was like, right, do you know what; I'm going to do the same.
So, I went straight on to my bank and I was like, "What can I get instantly?" I can borrow £35,000 instantly and at 7.9%, so in six years, I have to pay back £43,000. I was like, right, I can buy 2.55 Bitcoin for that. Will that 2.55 Bitcoin, in six years, be worth more than £43,000? I was like, almost certainly, so I just did it; more of my own little test. And, I guess that's my way of shorting the pound.
George Gammon: But, you're not getting paid for it?
Peter McCormack: No, I'm not getting paid for it, but I've got an income; I've already got an income.
George Gammon: There's far more certainty for rental property. I shouldn't say certainty; the probabilities are greater that that rental property will be worth, in goods and services terms, what it's worth today in ten years than Bitcoin. Although, I would argue again that Bitcoin, the probability is good that it increases significantly.
But, I think you've got to go back to Warren Buffet and what's the number one rule in investing? Don't lose money. And number two and three; don't forget number one!
Peter McCormack: We're talking about risk appetite now then really, aren't we, because I would say therefore property investment's low risk? I only own one property and between you and I, George, if Bitcoin went to $100,000, I might sell a bit of Bitcoin and buy a couple of properties and have a bit of a mixed portfolio. But at the same time, I imagine that you have a lower-risk appetite than I do. I have quite a high-risk appetite and I quite like the idea with Bitcoin of the moonshot; I do like that idea.
George Gammon: Yeah, but that's why, for me, it's just a part of the portfolio. It goes back to portfolio construction. I mean, you're talking to someone that went almost all-in in real estate in the United States in 2012. You're talking to another person that levered up his properties in the United States to buy property in Maine, Columbia, the home of Pablo Escobar, in 2015. So, I don't know that I have a low tolerance for what most people would consider high-risk plays; it's just I always go back to the basics.
I believe, over the long run, that I will make more money if my number one goal is "don't lose any". And, I think that's the irony and again, it goes back to human nature, that people who just start with the priority of not losing money, over the long run, will end up making more money than people who go out and just try to sling for the fences with every single investment.
Peter McCormack: So, is that one of the biggest mistakes you see then; people are essentially going for moonshots and risking overleveraging themselves, investing in things they don't really understand?
George Gammon: It is, but it's not just with Bitcoin. I want to be very, very clear; I want to be fair. I don't just see that in Bitcoin; I see it in gold as well; I see it in silver. I see people that comment on my videos the exact same thing that you just talked about with your credit card; they're doing the same thing with gold. So personally, I wouldn't do that with any asset, not just Bitcoin, for the reasons we're talking about.
Peter McCormack: Do you not think though also, have you not got a slightly bigger concern right now with the state of borrowing, with the pandemic, how much the US government's borrowed, how much the UK government's borrowed? Is it something like 80% of the money that's been borrowed has been in the last year, trillions at a time?
George Gammon: Well, I can't give you stats on the UK, but I can definitely give you stats on the United States. So, this year in the United States, our deficit will be right around $5 trillion. To put that in perspective, the United States Government accumulated about $5 trillion in debt from 1776 to 1996.
Peter McCormack: Wow.
George Gammon: So, the first 220 years of the existence of the United States, we racked up the same amount of debt as we will just this year. So, those are just staggering figures, and that's another tailwind for Bitcoin and for gold; anything that's of limited supply.
Peter McCormack: Does that stuff worry you though, because my worry is just holding pounds in the bank? I mean, the other day, I can't remember, it was like Wednesday, I woke up and the purchasing power of the pound had dropped by another 1.16% due to the Brexit negotiations and I was thinking, my business does okay, I've got okay savings and I was just thinking, I don't want to be holding these pounds?
George Gammon: That's a very nuanced question, because it depends on what you're wanting to buy longer term with those currency units, because inflation or deflation, it doesn't happen in a vacuum. So, let me give you an example of the 1970s in the United States. We had consumer price inflation. Most people remember that; it was a time of stagflation, so high consumer prices, higher and higher consumer prices, and high unemployment.
So, most people would assume that in that type of environment, assets increased in value, because the nominal price went up. But, we look at 1972 to 1974 and we had a huge bear market in S&P 500; it went down by almost 50% in nominal terms. When you adjust for inflation, it went down by more than that.
So, my point is, you can have consumer prices going up and assets go down; you can have assets go up and consumer prices stay the same; you can have consumer prices go up while, at the same time relative to other currencies, going up or down in value. So, my point is, if you're someone who wants to buy, let's say stocks with that money, then you might want to keep some dry powder there, based on what you think the probabilities are of the stock, whatever stocks you want to buy, coming down in value, therefore your currency gaining purchasing power.
That's another reason I like gold, because gold isn't as volatile and I understand Bitcoin may get to a point where it's maturing, so it may have the same volatility of gold, or something similar to it. But, if you've got gold, you're kind of maintaining your purchasing power to a certain degree and if you've got a little bit of cash, I think that's prudent right now to take advantage of any significant downturn we have in the market.
As an example, going back to March of this year, I had a decent amount of cash just on the sidelines and although I didn't want to have the cash, because to your point, I was losing purchasing power, at least 2% or 3%, that's if you believe the CPI, every single year, and that compounds after ten years; that's a big number. But, I was still okay because there, it's a cost-benefit analysis.
So, you have a cost of holding the cash, in a sense that you're losing purchasing power by 2% or 3% per annum, but you have a benefit if you think that stocks are in a bubble and you think there's 75% chance that they correct. So, you've got to weigh up the cost benefit there and determine how much you think is smart to keep on the sidelines, and in what form.
Some people do that in Bitcoin. Okay, for me, I don't see that as a good move, because it's going up and down, up and down so much and if I wouldn't have had the cash I could have just instantly put into play back in March, I wouldn't have been able to buy a lot of things very, very cheap, or as cheap as I was able to end up purchasing.
Peter McCormack: Yeah, so I think the big difference is, I do think it's a different type of risk appetite. Yes, you have an appetite for risk based on your investments, like you said, in 2012 and in Columbia. I think someone like myself, a bit like Michael Saylor, this is kind of like a moonshot still; it's still a moonshot. If Bitcoin continues to perform as it has done over the next decade, yes, I might not have something like a property that delivers an income stream back; but, it might be something that delivers life-changing money, and I think some people like that kind of risk and they're interested in that.
The other thing is, with what you're doing, it's quite sophisticated. I imagine it's a lot of work; a lot of work to manage those investments; a lot of work to constantly look at the market. I don't have the time and I don't even understand it. For me, it's quite simple; I buy it and I hold Bitcoin and every year, I just kind of track it. Do I have the same conviction? If I do, do I invest more or do I take some out? I'm four years in now and I have pretty high conviction, but I just think perhaps it's just different investments for different folks.
George Gammon: Yeah, and it also depends on your personal cash flow and how secure you are in your business or your job, and if you're making $500,000 a year and you're very confident that even in a recession, or an economic depression, that you're still going to be making that $500,000 a year, why not take a flyer on Bitcoin, or even a gold mine, or something speculative like that? It can make sense. Then, for others that might not have that cash flow, maybe they inherit $100,000 from their grandparents and they're making $30,000 a year, barely making ends meet; maybe it's not as good of an idea. It's all kind of an individual decision.
But, I think people should be very cautious that they're investing and they're not gambling. For each person, they may define that a little bit different, but I think it starts by actually defining what that means for you and make sure you're not falling on the side of gambling. If it is gambling, then it's probably more efficient to just go down to the local casino and just put it all on black!
Peter McCormack: I would disagree with that, but I understand the sentiment. I think there's a certain amount of a gamble involved in … There's very low risk; it's not very much of a gamble with property, because you're owning an asset, right; you have a thing. It's similar with gold; you have a thing.
When you're investing in -- I've never really done stocks and shares, but with that, you're at the risk of the company, if something goes wrong with the company. And Bitcoin, you're at the risk of a catastrophic bug, or a government stopping it. But, these are the threats we've heard for 12 years now and it's a lot stronger these days. It's a risky investment. I guess, like you say, it depends how you define "gamble", but I certainly think it's a better bet than putting it on black at a casino.
George Gammon: Look, I want to be clear. I'm not saying that buying Bitcoin is like going down and playing roulette; that's not what I'm saying. I'm saying, for some people it may be, if you're that individual that's got $30,000 a year and you could lose your job because of COVID, or what have you, and you get that $100,000 inheritance, and you just take every single penny to buy Bitcoin, or buy gold, same thing, I think that would be just as much of a gamble.
So again, I think it goes back to portfolio construction and if you're setting up your portfolio in a way where you have an edge long term, then that is investing; if you are setting up your portfolio to a point where you don't have an edge, then that's gambling. That goes back to your personal, emotional stability, because that guy or girl who is just making a modest salary must think about how much pressure they would feel if they had 100% of their portfolio in one asset, regardless. They would have that app on their phone and they would be checking it ten times a day, ten times an hour, and they would be going through emotional swings, up and down, every single time the price goes up. That's not investing right there.
Peter McCormack: You're describing my life there, George, this is what it's like, so 100% there!
George Gammon: To each their own but for me, investing is where I'm not looking at my phone … Let me put it to you this way: I check my portfolio so little that I don't even remember what my password is for my brokerage account, because I haven't checked it since March; I have no clue what it is, and that's perfect.
Another example: I bought shares in Cyprus. This was maybe 2013, maybe. It was when they had their bail-in; remember that? Their market went down by 99%. So, I went in and bought some shares and I literally didn't look at it until I did a whiteboard video in 2019 and I needed to pull up some -- I was like, you know, I'm going to check on those shares and see what they've done. I didn't look at them for years. And again, that's just my personal opinion. I think that's how it's prudent to invest, when you've got your portfolio set up in a way where you're completely emotionally detached.
I remember again, going back to a story of Jim Rogers, where he was talking about going through Africa. There was this country where, you know, very obscure; he was bullish for whatever reason. I guess, maybe he was riding his motorcycle through on one of his adventures. And, he set up a brokerage account just so he could buy basically every stock on the exchange; it might have been four or five stocks.
His broker calls him and says, "Mr Rogers, would you like me to send you a statement once a month?" and he says, "Absolutely not! Whatever you do, don't send me a statement", and the guy says, "How about once a year?" and he says, "No way!" He says, "If you send me a statement, I'll fire you!" So, his broker was kind of baffled, he says, "Why?" He's like, "Because, if you send me a statement, I'm going to be tempted to sell". He says, "I don't want to know about it, I don't want to know; I'll figure it out in four or five years when my investment thesis plays out".
Peter McCormack: All right, George, well I'll tell you what; I'm not going to check the price of Bitcoin tomorrow.
George Gammon: Good!
Peter McCormack: I'm going to have a whole day off of it! Well, look, I get it, man. Having spoken to you now, I understand a bit more; it's just a different way of investing. You've obviously got a very sophisticated approach, which obviously has been very successful to you. So, listen, I appreciate you coming on and talking about it.
I guess a good way to end, if people are listening and they're thinking, "Okay, George is smart, I'm going to go and check out his YouTube channel", which I'll share in the show notes; what would you leave people, with a bit of advice? What's a very important lesson that you've learnt in investing, or a good starting point?
George Gammon: I think especially in today's day and age, you've got to be prepared, or you're going to be a victim. I've been saying that a lot lately because, going back to our earlier conversation about these governments in the developed world which is taking their debt through the roof and printing money, who knows whether we're going to have UBI? They're distorting the free market in incredible ways that we really can't fathom with the misallocation of resources, and there's no free lunch. And, at some point, those chickens have to come home to roost.
So, I think the worst thing you can do right now is just kind of whistle by the graveyard and pretend that we're just going to wake up after COVID goes away and everything's going to be back to "normal", as far as economically. I can assure you that's not going to happen. We're going to go through some significant changes and there's going to be a big transfer of wealth from certain individuals to other individuals and if you're not paying attention, it's a lot like 2008 where the people that weren't paying attention just got crushed, and especially if they're in the baby boomer demographic. You can't afford to lose 50% of your net worth; you don't have enough time to make it back.
So, just watch or listen to podcasts and shows like yours; if you listen to Macro Voices; listen to Real Vision; listen to the other Bitcoin podcasts. There are a lot of Bitcoin guys out there that are real, real sharp, super sharp when it comes to macro; they are very sophisticated. Listen to those and just absorb as much content and educate yourself as much as you can to where you're cognisant of what's going on, to where you can assess the probabilities for yourself and then take action.
Peter McCormack: Some great advice there; brilliant. Well listen, appreciate you coming on, George. You see, we'll not all mean in the Bitcoin world; some of us are friendly!
George Gammon: No, it was good fun going back and forth, and I actually poked a little fun at them in my whiteboard video the next day, so we're all in the same team!
Peter McCormack: Where do you want people to go; do you want them to go to your YouTube channel; have you got a website; where should people go to find out more about what you do?
George Gammon: Just go to my YouTube channel; it's George Gammon; they can check me out on Twitter, same handle @GeorgeGammon; my website is georgegammon.com; whichever they prefer.
Peter McCormack: All right, man. Well, listen, appreciate you coming on and yeah, have a nice weekend.
George Gammon: Awesome. Thanks for having me?
