WBD345 Audio Transcription

Value Investing and Bitcoin with Peter Doyle

Interview date: Friday 7th May

Note: the following is a transcription of my interview with Peter Doyle. 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 Peter Doyle, the Co-Founder and MD of Horizon Kinetics. We discuss the risks of high inflation, value investing in the current macro environment and why the world needs Bitcoin.

“There’s not many asset classes that could save you the way that bitcoin can, and I think people are just lazy and they’re not paying attention to what’s happening.”

— Peter Doyle

Interview Transcription

Peter McCormack: Peter, how are you?

Peter Doyle: I'm well, how are you, Peter?

Peter McCormack: I'm good.  Good to talk to another Peter.  We are usually the smartest people in the room.

Peter Doyle: Should I go by Pierre and you go by Peter; this way people know?

Peter McCormack: We'll do that.  Are you mildly French?

Peter Doyle: No, I'm not at all!

Peter McCormack: I should probably go with Pedro.  People like to call me Pedro, but it's a bit of an insult normally to me, so I'll go Pedro, you can go Pierre and we'll work our way through!  Listen, it's great to talk to you.  I don't know how much you know about this being set up, but somebody reached out to me and they said, "You have to interview Peter Doyle", and they sent me an interview you did and I can't remember the show, but it was a guy called Jo?

Peter Doyle: Jo Roberts.

Peter McCormack: That's it, and I was absolutely fascinated with it and I immediately replied and I said, "Yes, I need to talk to Peter Doyle", because I don't know how much you know about my show; I try and keep things simple; I try and get the smartest people in the room, but they explain things so anyone can understand.  And we have a lot of Bitcoin people talking about Bitcoin, but it's good to get somebody with a lot of experience of investing who is also interested in Bitcoin and see how that fits into the general landscape; and that's what you kind of did with Jo, so I'm sorry if we repeat a lot of it, but that's what I want to do with you today.

Peter Doyle: Okay, wherever you want to take the interview.  I'm happy to give you the best answers I can.

Peter McCormack: All right.  Well, I won't ask you to tell me all about Horizon Kinetics yet and I won't ask you to tell me too much about your background, because I'm sure that's the first question you get everywhere.  But, what I would like as a starting point is, do you have a general kind of investment thesis that you use as a basis for how you plan investing?

Peter Doyle: Yes, I do and yes, we do, as a firm.  I would define us as classical value investors; and what that means is that, the investments that we make, we want the underlying business operations to determine our success or failure.  And we want, with the passage of time, the businesses to compound and ultimately capture those results.  So, there's a difference between modern value investing and classical.

Modern value investing is, you buy some undeveloped land somewhere and you think somebody is going to come in at some point in the future and pay you a higher price.  There's no operating business to move that intrinsic value higher with the passage of time.  We're looking for something that has intrinsic value, that's going to grow its intrinsic value and it just happens to be mispriced.

Peter McCormack: What kind of investments are they; are these equity investments generally?

Peter Doyle: Generally equity investments, but we look at the complete capital structure.  A lot of times, the fixed income market is saying something very different than the equity market and you want to know about that, primarily because the fixed income market doesn't have a lot of upside, other than collecting their coupon and getting their principal back, and they pay more attention than the equity side.

The equity side tends to be a little bit more bullish and more optimistic.  So, there is sometimes a disconnect; and when that disconnect occurs, you want to be well aware of that.  Many times, the bonds are a much better investment than the equity, so why not take advantage of that.

Peter McCormack: So, this is where I tend to keep things nice and easy for the people listening.  Somebody listening to this might not even know what are fixed income.  Do these tend to be bonds, government bonds, corporate bonds where you've got a guaranteed return?

Peter Doyle: Bonds that are issued by corporations.  They could be straight bonds, they could be convertible bonds, meaning they have a feature where they could convert it to the equity of the stock with the passage of time; but generally, corporate.

Peter McCormack: Yeah, okay.  But you don't tend to invest in, say, government bonds; is that not an opportunity; is that something that's kept maybe more for pensions and annuities?

Peter Doyle: Yeah.  So, we might.  We manage money on behalf of high net worth individuals and corporations and endowments and pensions, so there might be a need, an income need, a component; or there might be a need for near-term cash needs that we would put it into treasuries, but generally that's not what we do.

Peter McCormack: Okay.  So, how have the last 14 months been?

Peter Doyle: We've done extraordinarily well in the last 14 months.  I kind of hate saying that, because I know the rest of the world, a lot of the rest of the world, is struggling.  But if you've been on the right side of all the liquidity that's been injected into the market and you own financial assets, you've done surprisingly well.  Within that world, we happen to be in a lot of the right investments, so our portfolios are up very substantially.

Peter McCormack: Because you coincidentally -- the timing was right and that was fortunate, or because you made moves when the pandemic hit because you were preparing for it?

Peter Doyle: So, we were gradually becoming concerned about the debt situation globally and that situation in the United States, and we were starting to see that there was a mispricing in hard assets, in commodities, etc, and we were shifting over there.  The world really woke up to that reality with the outbreak of COVID and we were in the right place at the right time and those stocks have moved up very substantially.  We still think they have a lot of room to run, but they've done incredibly well over the last six to nine months and even a little bit longer than that.

Peter McCormack: And I guess, therefore, you're even more concerned about the state of debt being held by governments around the world, specifically the US and Europe and such?

Peter Doyle: Yeah.  So, the way we see the world, there are really three main problems.  There's a debt crisis, or debt problem; there's a money printing problem, but that's really an outgrowth of the debt problem; and then there's a valuation problem for a lot of assets.  So, it's a very tricky time and we're trying to navigate that in a way that we think is best.  And we think that the really only viable option that governments have is to debase the money.

As a result of that, you want to prepare yourself for inflation.  It doesn't mean it has to come, but you want securities that could do well, maybe extraordinarily well, if that environment occurs, and they could actually do well even if that environment does not occur.

Peter McCormack: Okay, well we can test my understanding here.  You're saying, the only real option the government has is to essentially print their way out of their debt issues.  So, I guess what you're saying is, because interest rates are so low, they've got no real ammo left there and if they were to raise interest rates, that would be a disaster for the economy; and therefore, they still have to pay back their debts, but only nominally, so if they print money, they can print their way out of it; and therefore you, ie the consumer, the saver, is essentially paying off the government debt through inflation?  How close am I?

Peter Doyle: Very close!  The best option, they could default, which is not really an option for most countries.  They could do austerity programmes, which is not really an option for many of the politicians and people rebel against that as well.  Or, they could basically try to pay you back in keeper dollars and nominally work their way out of this with the passage of time, and that's the best option that they have. 

So, I think most investors are waking up to that reality and the money supply, not only here in the United States, but around the world for almost every country, has grown exponentially in the last year and it's a problem; and you're starting to see it really trickle into prices of goods and services.  So, my guess is that you're going to see a lot more of that in the coming months and years.

Peter McCormack: Okay, let me ask you something, and you might not have an opinion on this.  You say it's the only option they really have.  Is that the only option they have in terms of historically, that's what a government has to do whilst trying to retain power; or is that ethically the only thing they can do?  Is there a more ethical way of digging their way out of these holes?

Peter Doyle: So, I'm not even sure it's a question of ethics or not.  I think it's just in the past, I think governments did not want to confront their issues and they didn't allow the necessary pain for the excesses to get wiped out, and they moved the liability from corporations and individuals to the balance sheets of the government, or the governments, in this case.  So now, they don't really have many good options, other than to debase the currency in order to make that debt burden more manageable for themselves.

Peter McCormack: Do you think people really understand inflation?

Peter Doyle: I don't.

Peter McCormack: Because I try and talk to my friends about it when I'm trying to sell the Bitcoin idea to them and I start talking about inflation; and firstly, nobody seems to care.  They seem to think it's a natural part of the economy and that actually, it's a sign of growth?

Peter Doyle: Yeah, so everyone thinks in nominal terms; they don't think in real terms.  Let's say you get a 20% return on your investment, but they debased the dollar, in this case, by 25%; a year from now, your dollars that you now have, 25% more doesn't by you as much that it did a year earlier.  So, people will begin to understand that as they see, whether it's at the pumps filling up their tanks, whether it's putting on a home extension and the price of lumber, the price of natural gas, the price of oil, etc.  That's going to start coming through the economy very significantly in our opinion.

Peter McCormack: And is the inflation driven only by the increase in the money supply, or is it in part driven by the fact -- because there's another situation at the moment where a lot of people have been locked down, they haven't been able to go out and spend any money.  And, I know a lot of friends who've said, "We're just doing work on our houses; we're improving our house; we're looking at spending the money in a different way".  Is that a different kind of inflation that's just driven by demand?

Peter Doyle: So, there can be some of that, no question about it, but I would say it's even more than that.  I'm going to term it maybe in an unkind way, but "the Davos crowd".  They want to limit hydrocarbons, they want to limit the harvesting of forests, etc; all noble goals.  But, when you do that, if you don't have the supply to meet the demand, that causes inflation and that's really what we're seeing now. 

So, there's been a lack of investment across many commodities for the last 12 years and the demand continues to grow, because the world moves forward, and yet the supply is not there.  So, you're starting to see commodity prices really go up very dramatically, and that's a result of ESG investing, pressure from politicians, pressures from environmental groups, etc.

So, everyone wants a clean environment, everyone wants to be able to turn on their taps and be able to get a clean glass of water, but there's a cost to that.  If you're not paying attention to the supply side of it, suddenly it can come back and you can end up with a lot of inflation.

Peter McCormack: Yeah, it's interesting.  I'm looking at a retweet by Michael Saylor yesterday and it highlights commodity prices over the last year.  Lumber is up 265%, gasoline 182%, Brent Crude 163%, copper 84%, silver 65%, sugar 59%; there's a big list here.  Gold's only up 3%!  But, I'm looking at things, for example, like the rising energy costs, but I am also fully aware that those prices dumped a year ago.  So, which of those prices are accurate to look at, because if I see a big jump in the price of Brent Crude, I'm also aware there was a massive drop in the price a year ago.

Peter Doyle: That's correct.  The price of Brent, or West Texas Intermediate oil, is roughly the same as where it was going into the COVID Crisis.  What really people should be paying attention to, as pertains to oil, is what's going to happen in the next six months or so.  If the demand comes back as the world opens up, as you and your friends want to get out, as I do, and we want to travel and go out to restaurants on a more regular basis, what is that going to do to the demand for energy and is the supply going to be there to meet that demand?

The issue that we have is that the supply is probably not going to be there because of all the lack of investment, the shuttering in of projects, etc, that are as a result of COVID; and we think that you could see a real rise in the price of oil.  If that occurs, that affects virtually everything in the economy.  There are something like 6,000 or 7,000 products that are based on petroleum.  You start paying a higher price for petroleum, it's going to show up on the selling price of plastics or asphalt or golf balls; you name it, there are so many different products.  So, that's the world we think we're about to enter. 

So to answer your question, the real inflation has not really necessarily occurred yet, because oil really dictates how much inflation there's going to be.

Peter McCormack: Is that because transport costs increase with an increase in the price of oil?

Peter Doyle: No, it's really the lack of investment.  So, all of the major oil producers over the last decade plus have not really replaced their current year's production.  So every year, they're basically finding less and less oil and the demand continues to grow.  Now, there's been a move and there's trying to be a shift onto renewables, but renewables require a lot of energy as well, just to basically make the solar panels, the wind turbines, etc, to get all of the necessary commodities that you need to do that.

So, the demand for hydrocarbons is going to continue to grow; it's a question of how quickly it comes back.  Then the real question is, if the supply is not there, the correcting mechanism is the price, and that's where things could get very interesting and very ugly, and then you don't know how it really trickles through or rifles its way through the economy.

Peter McCormack: You see, this is where it gets kind of interesting to talk about Bitcoin as well, and I do want to get into your Bitcoin thesis, because I don't know how much you have looked at Bitcoin.  I know you have a history that goes back to 2015 and we will get into that, but I don't know how much time you spend looking at more, reading about or listening to podcasts about the more philosophical side of Bitcoin, or the Austrian Economics side. 

But, a number of things that are playing out in the market are things that have been predicted by bitcoiners, so it's a really interesting time.  Is Bitcoin just another investment for you, or like other bitcoiners, have you been sucked down the Bitcoin rabbit hole and are thinking wider about the economy and the role of the state and central banks?

Peter Doyle: So initially, my view was very narrow and I was looking at it from a supply and demand and from a greed standpoint; not necessarily on my part the greed, but I'm saying the investment community's going to get behind this, because the fee compression on a lot of other investment products was causing problems in profitability and they were going to look for an alternative to get higher fees.  So I thought that ultimately, the investment community, Wall Street, if you will, would get behind it.

As I've come to learn and to listen to podcasts like yourself and other podcasts and listening to Michael Saylor, there are multiple dimensions to what Bitcoin is and now I'm of the belief that the world really needs Bitcoin, or some type of cryptocurrency that can't be debased at the whim of bankers or politicians.

So, to answer your question, I am far, far down the rabbit hole and philosophically, I am cheering it on on a daily basis and I really think it does and has the potential to fix a lot of the world's problems.

Peter McCormack: So, can we go into this Bitcoin background, because I've heard it before, but I want other people to tell the story of what happened in 2015 with your -- was it a colleague or a business partner who presented you the whitepaper?

Peter Doyle: So, my colleague is Murray Stahl and he's a brilliant, brilliant guy.  He has a background in computer science and mathematics and one of his hobbies is cryptography.  So, somebody put on his desk the Bitcoin whitepaper and it sat there for a number of months.  He finally came in one morning and said, "You know what, I need to read this; I've been hearing some things about it.  Let me sit down and read it".  So, it's nine pages long; he reads it; he immediately recognises this is revolutionary.  He gets up; he walks down to my office, I'm literally next to him; he tells me about it. 

I would say within about 90 seconds, I said, "Okay, if you're telling me that you think the security protocol is such that the blockchain itself will never be hacked and there is a finite supply, then ultimately the demand will overwhelm that supply and basic economics says the correcting mechanism is the price" and I said, "I want in".

The reason I could get up to speed that quickly is I can control my risk by the sizing of it, so thinking from a risk management standpoint or portfolio manager's standpoint.  If I make the position a 1% position, people may think I'm a little nutty at the time, but even if it went to zero over the course of two years, three years, I'm losing 50 basis points, 30 basis points; it's a rounding error potentially in the portfolio.  But in terms of what it meant from the upside, I never saw an investment or an opportunity that had such asymmetric upside, and that I understood almost immediately; that didn't require a lot.  I was primed for that understanding. 

My broader understanding has come from listening to podcasts such as yours and Michael Saylor and thinking of it from more a scientific standpoint and more of kind of a battery in transporting wealth into the future without losing any of its charge.  And you know what I find most interesting is that, the people that I find easiest to understand tend to have an engineering background and they just think about things more logically.  When you sit there and you listen to it, that makes a lot of sense and suddenly, you're looking at it from a whole different perspective.  So, I would say that my understanding, as I mentioned, was fairly narrow; it's become much broader with the passage of time. 

It really prevents you from being cheated of your time, which is the most precious thing in life, and your wealth, which is also pretty important to most people.  So, when you commit to working and you get a paycheque, you want that money to basically be able to buy the things that you desire in life and you don't want it to be debased in a way that now suddenly, you've worked your whole life and you're on a fixed income and prices have risen so much because they've inflated the money stock so aggressively that you can't afford the things that you would hope to do.  That's unfortunately the world I think we're entering.

So, anyone that's on a fixed income from here going forward, I think is going to be in for a very unpleasant surprise, and they did nothing wrong and that's unfortunate.  I think that's going to cause some real problems throughout society around the world.

Peter McCormack: I guess more so than anyone, it's people on a fixed income pension are going to be, in some ways, the worst position, because I guess they assume they've retired, they've put their 40 years of work in, they've planned their retirement based on the income they're having and that's going to be debased quite heavily.  Whereas, at least if you're, I don't know, my age, 40, 42, you can go, "Okay, well at least I can put another 20 years' hard work in, I can try and improve my skillset, I can maybe have a --"; I've got opportunity.  It's a pretty dire position for people with pensions.

Peter Doyle: Yes, absolutely.  If you're on a fixed income and inflation comes back in a very aggressive manner, you're really trapped; you're going to be able to afford less.  So, you were hoping to travel but now, instead of travelling, you're going to devote all of your money to basically just your basic maintenance, your food, shelter, etc; and the things that you wanted to do in life maybe now are out of your reach.  That's really the problem with the inflation and the money printing as we see it.

Peter McCormack: I mean, how bad do you envisage the inflation could get?

Peter Doyle: You know, I think you're already seeing it in real time throughout the financial market.  Dogecoin is $50 billion, so it memes something into existence and has a $50 billion market capitalisation!  $50 billion is a staggering sum of money.  So, if confidence is lost in the currency, there's no telling where things could go; what they might price a barrel of oil?  It might cost, instead of $160, let's say, in more ordinary inflationary times, maybe they price it at $500 a barrel, $1,000 a barrel, nobody knows.  That's the real threat that is out there.

I listen to Max Keiser and Max Keiser is kind of saying that the dollar could collapse by the end of the summer this year.  If I had have listened to him a year ago, I would have thought he was out of his mind.  Now, I'm saying it's not a zero probability.  I don't think it's a high probability right now, but it's certainly not zero anymore and you need to protect yourself against that probability.

Peter McCormack: Yeah, I mean I don't see it collapsing by the end of the summer and I've known Max for a while and he's been very critical of the dollar and fiat currencies for a long time.  He's obviously a big proponent of Bitcoin.  But I think when he says in terms of collapse, how does a collapse actually happen?

So, for example, we've seen the currency in Lebanon collapse this year, but there still is a currency there people use; it's just its value took a big, I mean what was it, 25%, 50% haircut overnight almost; I'd have to look at the numbers?  Is that what we're talking about in terms of a collapse; it's not the death of it?

Peter Doyle: That's what you're talking about.  So, people just lose confidence.  They say the dollar's backed by the full faith and credit of the United States, but what does that even mean?  They're not going to give me part of Yellowstone Park.

Peter McCormack: No!

Peter Doyle: No, so it means that you can pay your taxes with it, you can do certain things with it.  But, if people lose faith in it and they don't want to hold the dollar, they don't want to be paid in the dollar, you might have to end up saying, what cost me $100 last year, now I want $300 and the value of the dollar gets treated as if it's Monopoly money.  In theory, that could happen.  So, that's the concern that you have as this debt burden has grown and I think they're well aware of it and they're trying the best they can to navigate it without causing that lack of confidence to occur and keep the dollar sound.

But, there's now an alternative.  Now you have this thing called Bitcoin and these other cryptocurrencies that are potentially a much better store of value.  And maybe people migrate ultimately to the Bitcoin standard and that becomes the world's reserve currency, which I think is likely to occur, given enough time.

Peter McCormack: It's pretty interesting that back in 2015, you were willing to make that bet early on.  I guess, like you say, you saw the asymmetric opportunity.  Many other people at similar times have written it off, and still continue to write it off.  Traditional investors, I mean, Ray Dalio has just come around.  I think he said recently that people should have 20% of their portfolio in Bitcoin.  But, we do know Warren Buffet, is it Charlie Munger; do they work together?

Peter Doyle: They do; they're long-term friends, yeah.  And both of those gentlemen are very, very bright people and people should pay attention to what they say and I'm a long-term fan of both Charlie Munger and Warren Buffet and I think they're both incredibly astute and great investors.

Peter McCormack: But, what did you see that they didn't, or what are they missing, do you think?

Peter Doyle: Well, listen, Warren Buffet will tell you that he wants to understand things his circle of confidence and I would say he probably is challenged turning on his computer in the morning; he probably has it done by somebody else.  So, he may not be thinking through and living in that kind of reality that money has migrated to a digital world and people that are much, much younger than he is and much younger than I am are comfortable living in a digital world.  So, I don't think he has an appreciation for that. 

My belief is still today, if you made Bitcoin a 1% position and it fulfils its problem by becoming ultimately the world's reserve currency, that 1% position could ultimately dominate your portfolio, even if you're a very wealthy person.  And given a long enough time horizon, if you don't sell and you don't try to trade around it, it's ultimately going to dominate your portfolio, if the world migrates to the Bitcoin standard.

Peter McCormack: This kind of idea of a Bitcoin standard has been around for some time, especially since Saifedean's book; it's a fantastic book.  But I still want to go back to 2015.  What has surprised you about Bitcoin?  You obviously had your original thesis and you were willing to invest.  We're now six years later, a very different world; we have Tesla invested; we have everything Michael Saylor's done; we have a lot of institutional products; we have a very healthy futures market; but did anything surprise you?  Did any part of your original thesis, did you get any of that wrong?

Peter Doyle: No.  Again, I would tell anyone that I meet today, there's some dollar amount, so for some people it's $26, for somebody else it might be $182,000, that if Bitcoin went to zero, it wouldn't impact your life at all.  That's the minimum amount you should have exposed to Bitcoin.

What really changed and what changed for me in a very dramatic way was the response to COVID and I was actually short volatility, and the trade went against me dramatically, because the markets became very volatile back in March of 2020 and I started to de-lever one of my portfolios and I'm selling things.  And as I'm selling them, I realise that there is now stability in the assets that I'm selling; normally, I would think I would need to sell a lot more; and it's because the government has decided to go out and buy up bonds.  They created a bottom, a floor for the market; not only created a floor, the bonds rebounded very quickly.

So I said, okay, if you're on the right side of this, this Cantillon effect, ie the money printing, you're going to do reasonably well.  I said, "That's not the way the world is supposed to operate; that's not the way capitalism is supposed to operate".  You make a mistake, you're supposed to pay the price for it through the loss of capital, and I wasn't forced to make that mistake or pay that price, if you will.

I said, "Okay, this is not good for anybody; this is not good for society" and now you see things like the Reddit community, they can take GameStop up to this -- it's turned the capital markets into a casino in a way that I never would have envisioned.  And I think it's undermined and eroded a lot of the confidence in the established institutions and I think you need to protect yourself against that potential that that continues to go down that path.  And I think it will, because they haven't de-levered; in fact, they're going to print more money in 2021 and there's going to be some other crisis and they're going to do the same thing.  And you want some portion of your wealth outside of that system.  Bitcoin is that.

So, I've not only taken the small position that I initially took, I've started to migrate a lot of my own personal wealth more to that world.  So, that's how much confidence I have in it now.

Peter McCormack: Yeah, I'm similar, Peter.  I mean, I started really properly investing in early 2017, but over this last year, I've essentially put all my money in Bitcoin, because I have so little confidence in the pound.  But I also have little confidence in the dollar and a lot of my income is affected by the dollar as well.  And it's one of those interesting things where you kind of have that gradually, then suddenly moment.

But, Peter, there are still people who don't believe in Bitcoin, right, and there are people probably in your world, maybe people you talk to on a daily basis, other investors that you've got to know.  Why do you think there are some people that still have this aversion to Bitcoin?

Peter Doyle: So I think most of it is they haven't done any type of homework.  The read the headlines, they read something, "Bitcoin is going to cause the world to melt down because of all the electricity it's using", and that's the extent of their research and their understanding.  And listen, I'll be perfectly frank; I didn't really think a lot about the money supply, the monetary system, until really the outbreak of COVID.  I had my own Michael Saylor moment; in fact, Michael Saylor basically got me there a little bit faster. 

I had already had exposure to Bitcoin, I had already made 30, 40 times my money in Bitcoin in, let's say I made a 2% position and it became a sizeable position in my portfolios.  But then I started thinking through what the implications are.  And when you go down the various asset classes, there are not many asset classes that can save you the way that Bitcoin can.  And I think people are just lazy and they're not paying attention to what's happening.  Ultimately, they're going to be hurt; if we're right about that, they're going to be hurt by that.

Eventually, again if we're right, ultimately they're going to move over to the standard and they'll just buy that at a much higher price.

Peter McCormack: Yeah, you don't want to be the last one joining the Bitcoin train.  Okay, I mean that's really interesting.  I'm still intrigued by people.  I mean, I've been talking to my friends for years about this and I still can't convince them, but I think, like you're saying, it's one of those things where they're going to see it themselves.  We're seeing small amounts of inflation; we're seeing slight hints of it here now, here in the UK; the early signs.  I was chatting to a friend of mine who's a plumber.  He said all of his materials are up 10% now; everything is up 10%.  He said, "I've got to put my prices up 10%".

Peter Doyle: That's probably just since the start of the year, right, 2021?

Peter McCormack: Yeah.

Peter Doyle: And again, most of those materials are petroleum-based.  And what's really happening is that people aren't paying attention that the oversupply that we had as a result of COVID has been drawn down very aggressively and as the world turns back on, they're going to realise the supply may not be there to meet the demand; and then you could be talking, instead of his supplies and material costs being up 10%, it could be up 35%, 40% by the end of the year.  Then you call somebody in to fix your pipe and what you thought was going to be a $200 job is now a $550 job.  So, that's the world I think we're about to enter.

Peter McCormack: But, if Max is right, the potential collapse of currencies, and he may or may not be right and it depends whether it's 5, 10, 15, 20, different values, and it will impact people differently, but there must be a columnist sat there within the government explaining this to the policymakers, explaining this to the people who make the decisions; why do you think they're continuing headstrong to print money knowing this eventual outcome?

Peter Doyle: So, their authority, their power, their prestige is all wedded to a system that they're looking to protect, and that's really a lot of it.  So, Charlie Munger, I think, has a great quote, "You show me the incentive and I'll anticipate what the action is going to be".  So really, and I think we're going to see it in the not too distant future, if somebody from some nation could actually use the dollars that they're legally allowed to print, or they're able to print, and started buying the Bitcoin, they could become a well-monetised nation and possibly basically dictate how things are priced and how goods are traded in the future, by moving that to the Bitcoin standard.

So now, I wish it was the US Treasury.  I wish the US Treasury was doing that and I would fully back that, but at some point, we have a lot of economic adversaries, if you will, that would love to get away from the dollar standard.  Whether they move it to the Chinese digital currency, or some other type of currency, let's be the largest holder of Bitcoin and let Bitcoin become the standard and we could potentially get out of this debt crisis in pretty short order if they embrace that.  But, so far in the United States, it doesn't look like anyone's willing to do that.

Peter McCormack: Yeah, although there's no incentive to admit they are, perhaps, accumulating silently, because I think you create essentially like an arms race for Bitcoin, once you declare to the market that you're accumulating as a nation.  I mean, I'm with you.  I always think, whichever the first nation is, perhaps somebody is doing it, they essentially become the MicroStrategy of nations; that first mover advantage.  But, there's an incentive for Michael Saylor to now teach the world about Bitcoin and teach CEOs and large businesses why they should be considering Bitcoin.  But, I think there's a lot lower incentives for nation states to do this.

Peter Doyle: Well, that's where they derive their power, so they would lose that authority; that power would take away from that.  So, anytime that's going to occur, they're going to fight that, they're going to resist it in a way.  But, I think the train has already left the station and ultimately, the world is going to move that way; it's just a question of how fast it occurs.  I don't think it's going to be by the end of the summer, but is it three years, five years?

Every nation in the world is ultimately going to have a digital currency and they want that for a reason that they can take interest rates down low; you can't demonetise a system with a digital currency.  So, I think China's just the first, but you're going to see it across Europe, you're going to see it in the United States ultimately.  The question is, do you keep your savings or the bulk of your wealth in Bitcoin and then when you need to transact, you move it over to the local digital currency of that particular country, which I think is probably the way the world's going to go?

Peter McCormack: So, have you found that this has shifted you politically or philosophically, your views on central banking, your views on the state?  I've just listened to a fantastic four-hour interview between Lex Fridman and Robert Breedlove and Robert Breedlove makes a very -- through the whole interview there's the undertone of the moral case of Bitcoin and why inflation is, I think he called it, "A cancer on society".  Have you found that you've had a shift yourself?  I'm not saying you've become an anarchist or full libertarian, but have you found yourself shifting with this?

Peter Doyle: Yeah.  Listen, I would always opt for the best, most fair system and to me, I think as you study Bitcoin, you come to the conclusion that's the likely best system.  So absolutely, I would be in favour of it and philosophically, I'm on board with that.  And again, as I've learned more and I've read more and I've listened to Robert Breedlove and Michael Saylor, etc, their thinking, I think, is very sound and I think it would be better for humanity if ultimately we adopted this.  Again, I think ultimately that's going to happen; it's just a question of how fast.

Peter McCormack: How fast do you think?

Peter Doyle: I think fast.  I think, again, as you mentioned, there's no real incentive for a country to come out and say that, but if it ever became known that some country was using its printing press to basically buy Bitcoin, you would see that the price could jump up very dramatically.  So, my guess is that you will see, at some point in the future and I'm not promising or guaranteeing this, but you're going to start seeing some real spikes as a result of the supplies being sucked out of the market by people that are real believers. 

The demand has continued to grow and the ultimate supply is fixed and the correcting mechanism is the price.  So, that's why I ultimately believe a single Bitcoin will go to some number into the millions easily.  But, how it gets there from point A to point B, I don't know.

Peter McCormack: So, anyone holding 1 Bitcoin would be in a very fortunate position?

Peter Doyle: It's true.  The question is, when you convert that back into the dollar, what does the dollar buy you at that point?

Peter McCormack: Exactly.

Peter Doyle: You want to keep your interest in two things: you're interested in the return that you get and then ultimately, what that money will ultimately buy you.

Peter McCormack: Yeah, that's fair.  I still think that some people are struggling with that idea that sovereign currencies, such as the pound and the dollar, or the euro, can collapse, because I think we've -- I mean, someone like myself, it's always existed.  Yes, we've been through massive inflation over my lifetime, but it's so slow and insidious, you don't really notice it.

Peter Doyle: I'll take exception with that statement, because the dollar and the pound have already collapsed relative to Bitcoin.

Peter McCormack: Okay; of course, yeah.

Peter Doyle: So, it's not so much that Bitcoin has gone up; it's that actually, it now requires more dollars to buy a single Bitcoin than it did five years ago; substantially more; I would say, a collapse.  The question is, how much further does that occur?  My guess is that's going to occur in a very dramatic fashion even from here. 

So, I still think it's very cheap and ultimately, it's going to cost you $2 million, $5 million, $10 million for a single Bitcoin and people are looking at it like Bitcoin is rising; I'm looking at it that people are losing confidence in the currency of that particular country and now, it requires a lot more of that currency to buy you a single Bitcoin.

Peter McCormack: I'm not sure I agree 100% there.  Where you say the dollar or the pound has collapsed against Bitcoin, I find that hard to agree with, because the prices of standard goods, if I go shopping, they haven't dramatically increased.  They have in terms of Bitcoin, but that, to me, you could flip that alternatively and just say, recognition of these future collapsing currencies, people are speculating and then buying.  But I would say, to say the dollar's collapsed against Bitcoin, I would say I don't buy that one; sorry.

Peter Doyle: Well, what's happening is you're looking at it from a standpoint of, "I'm still paying in pounds", so things haven't really risen that much in pounds.  But, every asset that you went out has collapsed relative to the price of Bitcoin.  So, take an asset that cost $60,000.  You bought Bitcoin in March at $4,000.  A single Bitcoin that cost you $4,000 now can buy you something $60,000 in US dollars, so it's collapsed in price. 

So, people look at it as if Bitcoin is going up dramatically.  My thing is turn it upside down and it's really now that the dollar, the pound, the euro, the yen, etc, it requires much more of those currencies to buy a single Bitcoin than it did in March of 2020.

Peter McCormack: Sorry, that's where I see it as just the price of Bitcoin's going up and getting more expensive a unit level to buy, because this is about relativity; relative to the pound, everything that was $60,000 five years ago is fairly close to that price still.

Peter Doyle: Right, but relative to Bitcoin, it's not there.  So, every asset that you're interested in, almost every asset that you're interested in buying, is cheaper in Bitcoin today than it was a year ago, even six months ago.  So, those relative prices are much cheaper today than they were three months ago, six months ago, five years ago.  And my guess is that they're going to get cheaper in Bitcoin terms looking out into the future.

Peter McCormack: That's when we face that ever problem, when you do spend your Bitcoin; do you ever spend your Bitcoin?

Peter Doyle: The answer is, you want to live your life, right, and part of it is that money is meant not just to merely collect, it buys you freedom, it buys you a lifestyle that you desire, it buys you potentially health, better healthcare, etc; so there are definitely times that you should let go of some of your Bitcoin.  I haven't come across that!  I'm letting go of my more traditional assets, because I still think we're in the very early stages of that.  But at some point, if the world migrates to a Bitcoin standard, and Bitcoin is deemed to be this better store of value, then all of the other nominal stores of value are going to get sucked into the value of Bitcoin. 

At some point, Bitcoin is not going to rise that dramatically and it's going to rise relative to how much the other currencies debase themselves on an annual basis; but we're a long, long way from that.  So, you can think about all of the money supply, all of the short-term treasury bills in every country around the world; that's the potential market for Bitcoin.  There shouldn't be an arbitrage between the two; they should actually have more or less the same valuation and then, on an annual basis, Bitcoin will rise relative to, if the United States if debasing their currency by 7%, Bitcoin should go up 7%.  But from a $1 trillion market cap today to maybe a $150 trillion market cap, you can make a heck of a lot of money.

Peter McCormack: Right, okay, you see it going that big.  So, do you also see the hyperbitcoinisation story whereby, perhaps, sovereign currencies die and Bitcoin just becomes the currency that people use?

Peter Doyle: No.  I don't think any nation's going to give up their currency.  I think you're going to have many, many competing currencies.  So, Bitcoin is going to coexist with the US dollar digital coin and the euro digital coin, etc; they're never going to give up that.  But I think, in terms of historic value, those currencies are going to collapse relative to Bitcoin.  And, there shouldn't be an arbitrage, there should be this opportunity -- if everyone woke up tomorrow and said, "Bitcoin is by far the best store of value; I should move my money out of Japanese treasuries, US treasury bills, cash, etc and move it into there", the price of Bitcoin would immediately go to some very high number.  Then, it's only going to rise relative to how those currencies, on an ongoing basis, devalue themselves and how much money printing they do.  But, we're in the very, very early stages.

So, in a baseball analogy, I'm not even sure we're in the first inning.  We're basically the players just getting to the stadium; that's how early I still think we are.  And I say that and the price of Bitcoin went from a penny to roughly $55,000 today.  But, where it ultimately could go to is just staggering.

Peter McCormack: Yeah, it's quite hard to comprehend actually!  What about metals then?  I mean, you must have invested in gold in the past, you must have recognised gold as a store of value.  Do you think gold is losing its place to Bitcoin, or do you think it will sit alongside Bitcoin?  I know Peter Schiff isn't a fan of it; we have him up here!

Peter Doyle: Yes!  So, my colleague makes, I think, a very valid point.  There's a case that you can make that if the global internet went down, Bitcoin wouldn't have much value.  If you couldn't get access to the internet on a global scale, and you needed some type of money to get out of a country, or something like that, it would be worthwhile to have some gold or silver coins, and things like that.  So, I don't think gold is going to be demonetised 100%, but I could see how it could be demonetised a very significant amount from here.

We never particularly liked gold companies, because there is a lot of production risk.  So, we owned a lot of the royalty companies and we recently started a fund, an ETF, here in the United States, that is hoping to benefit greatly if inflation comes back, but would do relatively well even if inflation doesn't come back.  It could actually have a full cycle, meaningful return.  It could potentially have an extraordinary rate of return if inflation really comes back.

What I mean by that is we're trying to find companies that really have very light balance sheets, not a lot of assets, but they derive a lot of their revenues from those types of commodities, or trading, or something like that and they can pass through or operationally, they scale in a much better way.  So, one of the problems with inflation is that, maybe you can pass along the cost to your customers at 10%, or you can raise your prices 10%, but your costs go up 12%.  Now, even though your prices are 10% higher, you're actually making less money.

You need to find companies, and I think we've done very well with this, we've found companies where we really think that if that world comes, they're going to be the true beneficiaries of that inflationary world and they're not going to be hurt by the cost because operationally, they actually have very little in the way of assets.

Peter McCormack: You see, for a lot of people, there's a lot to think about here.  There are a lot of smart investors in the world.  I'm pretty sure they don't listen to my podcast; there are probably better podcasts than that.  But, there are a lot of people, I always talk about my friends, who probably don't fully comprehend what's going on around us, despite me telling them, "Hey, you should read this and you should try and understand what's going on with inflation, the central banks and money printing" but there's a lot to take in.

There's also a certain amount of people who don't have a huge amount of disposable income, perhaps they own their own, maybe they've got a couple of kids.  What kind of advice would you give to people, heading into this, well, within this current environment, if they were wanting to plan for the next 10, 15, 20 years and they don't have a background of investing like you and they probably can't read markets like yourself; are there simple investing tips you would give to people?

Peter Doyle: There is actually.  I don't think you have to have great brainpower to be a good investor; you have to have a couple of things.  You have to be in control of your emotions and you have to understand business operations.  So, there are certain business operations that have just wonderful characteristics, meaning that when they earn a dollar, they can put that full dollar in their pocket and they don't have to reinvest a lot to basically remain competitive.  So, certain businesses, they may report a dollar's worth of earnings, but then they have to turn around and spend a dollar just to remain competitive, so it's kind of prosperity, but it's not real prosperity. 

Other businesses, I'll use one of Warren Buffet's early investments, it's a company called See's Candies, and he bought the company for $25 million and maybe two decades later, the company was throwing off operating income of $400,000 and it was this tremendous brand.  The cost of the equipment is not very high and you don't have to replace it that frequently, so any money that he really earned, he could either keep for himself, or he could expand the business and make it grow and produce more profits. 

So, that's really what you need to look for.  You need to look for companies that have great operating characteristics and predictability.  And then, you just need to have patience.  So I think actually a very average investor could beat most of the pros if they selected a basket of stocks and then left it alone, went on vacation for 15 years and never touched it.  What they would find is that they made some mistakes, they had a bunch of average investments, and then they had two or three great investments; and those great investments grew and now dominate the overall portfolio and outperform most of the professionals.

So, one of the things that we do, as investors, we have very low turnover.  We think we own something great, and I'll even apply this to Bitcoin, except Bitcoin doesn't have operating characteristics; if you think you have something great, leave it alone.  Let the business prove you right with the passage of time.

So, that's what I would say to your friends and somebody that doesn't have a background.  And then, I would say that right now, you need to be thinking about that more probably than ever, because if the world is really going to go through an inflationary period of time, because of scarcity of commodities, etc, you need to find those companies that can benefit from that, but don't get hurt from the cost structure that might rise as a result of that higher inflation.

Peter McCormack: Can you give me some examples, or one or two examples, of the types of companies you're thinking about right now that fit that?

Peter Doyle: Sure.  One of our biggest companies, biggest positions, is a company called Texas Pacific Land Trust and Texas Pacific Land Trust has been around since the 1880s.  If you look at the performance over the last -- pick any time period really; 1 year, 10 years, 15 years, 20 years, 50 years, you will see that it has done extraordinary well.  The reason for that is it essentially cashed cheques, or it did up until fairly recently; that was their only business.

So, if somebody wanted to raise cattle on their land, they would pay them a cheque.  If somebody wanted to drill on their land, they would pay them a cheque.  If somebody wanted to lay a pipeline on their land, they would pay a cheque.  So, you don't need a lot of employees and there's not a lot of expense to cash a cheque.  So, you look at the operating characteristics of that company and it rivals the best monopolies in the world.

Peter McCormack: Okay.

Peter Doyle: And now, they happen to sit on an ocean of, or the land that they get royalties from oil, there's an ocean of oil down there and it's among the most secure and easiest and low cost to extract.  And the price of oil's going to do what it's going to do; it's going to go up and down; and some years, they'll cash bigger cheques, some years smaller.  So, they can use that cash flow, they can pay a dividend, or they can buy back their shares, and that's what they've done. 

If you held that stock, I tell anyone, even today, but I would have told you the same thing 20 years ago, you should buy a couple of thousand dollars of this if you have a child, and by the time that child goes to college, that couple of thousand dollars will pay for their college education, because of the compounding effect.  So, that's a perfect example.

A more recognisable example is, if you look at the various exchanges, so the Chicago Mercantile Exchange, the Chicago Board of Options Exchange, etc; generally, the liquidity for a particular product centres around one exchange, so it tends to be an oligopolistic or monopolistic contract or product.  And exchanges are really technological platforms, they're computers talking to one another; and the more volume that you put through there, the more the profitability, because the marginal cost is virtually zero.

So, I would own the exchanges.  If you think they're going to continue to inflate the money stock, more money sloshing around trading, the exchanges benefit dramatically as a result of that.  And there's really no cost.  They don't have to pay their employees more, they don't have to add another 50 people because there's another $1 billion dollars of daily trading.

So, those are companies that just have wonderful, wonderful business characteristics and again, this is right out of a page of Warren Buffet or Charlie Munger.  Buying those things that are understandable, likely to be used 5 years from now, 10 years from now, 15 years from now; pay a reasonable or fair price for it and leave it alone, and you'll end up doing extraordinarily well.

Peter McCormack: And maybe chuck a little bit of Bitcoin in there?

Peter Doyle: Definitely chuck a little bit of Bitcoin in there!  Bitcoin is not something that you can value on cash flow, it's not anything like that.  It's whether or not you believe this is going to become the new store of value, the new world reserve currency, and I think it has a very, very legitimate chance of that happening.  So again, asymmetrically, the upside is so large.  You know what you can lose; you can lose 100%, right.  Upside could be literally, it's still from here, even in the thousands of percent.  So, it's definitely worth having some small amount at a minimum.

Peter McCormack: I wish I'd met you in 2015 and had this conversation!

Peter Doyle: Well, as my children tell me, "Knowing about this, dad, does not really make you that interesting", but I do have, I literally have this conversation probably four or five times a day with strangers that I meet.  I say, "I'm going to do you a favour today; I'm going to introduce you to Bitcoin", and I tell them about that.

Peter McCormack: Your kids are out of order; they're out of order!  I think my kids think I'm pretty cool because I got into Bitcoin.

Peter Doyle: I have a great relationship with my children.  They like to give me a hard time and I give them a hard time too sometimes.

Peter McCormack: Well listen, if you've got more Bitcoin than them, they need to be nice to you!  Okay, are there any final thoughts you want to leave with people?  These are strange times.  It is mildly concerning that currencies could collapse, because I spoke to someone in Lebanon not long after the collapse of their currency and it's awful; these are troubling times.  Any warm words you can give people?

Peter Doyle: Yeah.  I mean, from a philosophical standpoint, find the things that bring you joy and bring you happiness and pursue those and obviously, continue to expand your horizons and don't be closed off to things.  What I really found, and it sounds like you had a similar experience, is that people seem very closed off to things and they have very strong opinions about things that they know very little about; and that's not a recipe for either happiness or an understanding of the world around you.

So, I think everyone is different, everyone has their own joys, but you should pursue those.  I would definitely, if you haven't taken the plunge into Bitcoin, or you don't understand it, or you haven't given it a true, fair shake, take the time and look into it, and I think you'll walk away saying, "I really need to be involved with this".

Peter McCormack: Do the work, don't be scared of the price.  Okay Peter, look, if people want to find out a bit more about yourself or Horizon Kinetics, how do they do that?

Peter Doyle: Sure, we have a great website, www.horizonkinetics.com, and we bring a lot of great articles and principally my colleague, Murray Stahl, has written a lot of great articles on cryptocurrencies and Bitcoin and other research there.  And, it goes into a lot of the products that we have.  So, I'm not a natural salesperson, but I think we do pretty interesting stuff and I think it's worth paying attention to what we're saying right now.

Peter McCormack: All right, well I'll ping that into the show notes.  Always good to talk to another Peter, really enjoyed this and look, fingers crossed with Bitcoin; I think you made a shrewd early bet there, I wish I was as early.  But, I think we're all going to be rewarded and I wish you the best and have a great rest of this year.

Peter Doyle: Thank you, Peter, appreciate that and really enjoyed myself and I still think it's so early; so, if people are listening to this, it's not late, you don't need to buy a whole Bitcoin, you can buy a fraction of a Bitcoin and that fraction of a Bitcoin could ultimately provide you with tremendous financial safety if you do it.

Peter McCormack: I support that message.  Okay man, listen, you take care.

Peter Doyle: You too.