WBD516 Audio Transcription

Is Hyperinflation Coming? With Preston Pysh

Release date: Monday 20th June

Note: the following is a transcription of my interview with Preston Pysh. 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.

Preston Pysh is a co-founder of The Investor Podcast Network. In this interview, we discuss credit cycles depending on increasing debasement of the USD, accelerating inflation, and other signs of the long-term debt cycle ending. We also talk about Bitcoin changing the economic order.

“This is a math problem, this is just math, they can’t take that out; looking at everything that’s about to go down in my opinion in the coming two to four quarters… things are about to get insane.”

— Preston Pysh

Interview Transcription

Peter McCormack: Preston, how are you doing, man?

Preston Pysh: Doing great.

Peter McCormack: Like the shirt!

Preston Pysh: Absolutely, I had to sport this one.

Peter McCormack: That's amazing.  Do you know, the funny thing is, there's a whole crowd of people around the world wandering around with Bedford T-shirts; for me, it's mind-blowing!  So, I appreciate you, man.  It's good to see you.  How have you been?

Preston Pysh: Great seeing you.  Doing good, doing real good.  Up here in Nash-Vegas.

Peter McCormack: Nash-Vegas, yeah.  Man, I like it here.

Preston Pysh: This is a nice town.

Peter McCormack: Well, we just came from New York, and New York's just -- Danny's surprised how dirty it was, and you saw some rats, didn't you?

Danny Knowles: Saw a few rats, just as I was buying a sandwich!

Peter McCormack: He was buying a sandwich and a rat ran across him!  Everything's expensive and dirty and shit; we've come here and everything's cool, everyone's happy, the sun's shining.  So, good to see you, man.  So, me and Danny were talking about the show a few days ago, I mentioned it to you, I was like, "What show are we going to make with Preston?"  I was like, "Preston's good on the macro stuff and everything's fucked, so shall we do an 'Everything is fucked' show?"  And then you pinged me a presentation, and you literally have the receipts for why everything is fucked!

Dude, I've been trying to understand it, everything's unwinding, what's going on, man?

Preston Pysh: Everything's coming to a head, right.  At the end of the day, it's just coming to a head.  I would start off in the currency space.  So, one, I'm just looking at how strong the dollar has become in the last year; it's starting to become a little unmanageable.  And what's crazy is you're seeing the Fed -- so as the dollar's getting really strong relative to all other currencies in the market, you're looking at the Fed and you're thinking, "All right, so they're going to have to start making the dollar less valuable relative to all these other currencies", and you have the exact opposite dynamic playing out where the Fed's saying, "We're tightening", and they are, finally, and they're doing it in moves that are 50 basis points.

While that's happening, you have all these other central bankers that are not doing that.  Over in Japan, they're still doing yield curve control.  So, when you have them tightening and you have the Japans of the world doing yield curve control, you're not just increasing the dollar's strength by 1X, you're increasing it by 2X, because it's a relative game when you're talking currencies, and boy oh boy, I have no idea how the market's going to be able to deal with that playing out.

So, I'd tell you that's the first thing; it's just the currencies itself are in a situation where they need to start going the opposite way, where the dollar's weakening and everything else is getting stronger, but the global economy can't even begin to entertain that situation.  Then you've got all the currency stuff that's taking place, and I don't even think we are close to any of that adjudicating itself or working itself out yet.  I mean, Europe looks like it's about to -- I mean, you can speak to this way better than I can.

Peter McCormack: I probably can't!

Preston Pysh: Yes, you can!  The prices, I mean I can only imagine going into the grocery store over there right now.

Peter McCormack: Yeah, I mean I've noticed the dollar pricing, because I price all my ad deals in dollars, and I run my accounts in pounds.  So, I have a dollar line and a pound line.  And over the previous year, the pound has strengthened against the dollar.  So actually, my relative income was dropping.  But now, with the dollar strengthening, I'm seeing it, because essentially we earn more for doing the same amount of work.  I'd rather it was more stable.

In terms of pricing over in the UK, things are getting kind of weird.  I mean, fuel is so expensive, because it's much higher than it is here.  You call it gas, we call it fuel; it's much higher.  But just everything's getting more expensive.  There's a real issue with fuel poverty in the UK.  My fuel bill a year ago was about £100 a month-ish, ranging from £80 to maybe worst case, it went to £130.  It's £400 a month now, 3X, and 20% of people are in fuel poverty.  They're about to issue essentially a stimulus cheque, which is a credit for energy bills.  It was October we saw it, wasn't it?

Danny Knowles: Yeah, October.

Peter McCormack: Yeah, to help people with that.  And they're not means testing it, so everyone gets it, which is also completely stupid, because I can afford it and some people can't.  So, I just don't know why they're doing that.

Danny Knowles: Although the poorest in society do get more.  If you're on benefits, you get more.

Peter McCormack: I think what they should do is, someone should do a pay-it-forward scheme.  A lot of people are going to get this and they don't need it.  But yeah, stuff's starting to get weird, and then the news reports are coming out: families skipping meals so their kids can eat; not able to fill up their car; going to bed early and under blankets.  It's really hitting the hardest in society.  Everything's getting expensive.  I don't mean to say this and sound like a twat, I don't notice it as much, because I'm not on the edge; so, I don't notice it as much, except when I do fill up my car, because it's gone from £80 to fill up to £120, which is a big jump.

Preston Pysh: So, Jeff Booth came up with a quote, and I've kind of adjusted it very slightly where it's just, "If your currency isn't scarce, everything else on the planet that people actually desire will become scarce".  So, I gave this talk up in Pittsburgh.  It was an energy summit in Pittsburgh, and I had some slides --

Peter McCormack: We've got them.

Preston Pysh: Yeah, you guys got the slides.

Peter McCormack: Yeah, we got them, because what I think would be useful to do, can we just go through them?

Preston Pysh: Sure, yeah, throw it up there.

Peter McCormack: Do you want to throw them up, Danny?  Some people will be on the audio.

Preston Pysh: Jeez, okay.

Peter McCormack: So, what will happen is, in the video, Ben will put them in the video; but in the audio only, people won't see, so we should explain them.

Preston Pysh: Okay, so before I did this talk up in Pittsburgh, my uncle came over to visit, I was up there visiting some family.  And my uncle came over and I was showing him some of the slides, and he looked at me and he was like, "So, these are really interesting", and he's not in finance or anything, and he's like, "But it's just really confusing.  There's a whole lot here that I just really can't wrap my head around".  He said, "When you're giving this talk tomorrow, you need the level set with people, so that they can understand the gist of what are these slides". 

So, I started off this presentation with this story about Monopoly, and I said, "I want everybody here to picture that we have two Monopoly boards.  You've got four people playing on this board over here, and you've got four people playing on this board over here.  Each of them have their own central banker that's adjusting the money supply in the game; one of the players typically is the banker, and also a player in the game.  But let's just imagine that there's a fifth person there on each table that's adjusting the money supply.

The thing that makes this scenario different than most times when people play Monopoly, is the players on this board can go over and buy the properties off of their own board or the other board, and the same for the players on board two; they can buy properties on either board.  So, if you want to go over and buy Park Place, you want to own Park Place here and on the other board, you can do that.

Then I said, "With this scenario, you're able to understand how we got to this disastrous scenario that we're in".  So, let's imagine that both central bankers on both boards are not debasing the money, they've put a fixed supply of currency in the board.  You're playing it by the rules, you're actually debasing it a little bit; every time somebody goes around Go, they collect $200 and you're adding more currency into the game.  But let's just say that that's the normal way that the game's played.

Peter McCormack: That's your 2% inflation?

Preston Pysh: We'll just call that the 2% inflation.  So, when you're playing this, you're seeing the players play the game, but let's just play out a scenario.  Let's say that one of the central bankers whispers to the other four players on that, let's call it board one, and he says, "All right, instead of collecting $200, I'm going to drop $700 into the game every time you go around Go, just don't tell the other board".

What I'm describing here is when there's no peg to the currency in the globe, it becomes a race to debase; because what's going to happen for those board one players, they're going to get their $700, they're going to look across both boards and say, "All right, where can I capture the most rent for the properties, and which properties pay me the most, and they're just going to gobble that up faster than everybody else.  So, you can imagine these players on board two that don't know that they're getting this $700 instead of $200 as they're going Go, all of a sudden, those four players from board one just keep showing up over on their board and they're just gobbling up all their property and they're like, "What the heck is going on?" 

Well, it doesn't take long for the players on board two to realise, "Why is there so much currency from board one coming over here?"  So, they lean into the table and they're like, "I think they're cheating over there, and the only way we can compete is if we try to cheat as well".  So, they look at their central bank and they're like, "Okay, you've got to match that [or] we need $1,000 added into the game every time we pass go; don't tell board one".

So, what you have is this dynamic where the players on the board are trying to claw more and more cash into the game without making it obvious and without it being so over the top, and this is the Cantillon effect, many people in the space talk about these ideas, but I don't think people can really easily visualise why that back and forth in this debasement race is taking place. 

So, when you play this game out, if I was going to ask you, "What's the fastest way to play the game of Monopoly?"  If you wanted to just accelerate Monopoly in the game, the fastest way to do it is just start changing the amount of cash that's getting inserted into the game every time somebody goes around Go, or you can add it anywhere you want; you can come up with whatever rules you want. 

But if you keep adding bigger and bigger amounts into the game, what you're getting is the consolidation of equity; because that equity on the board is scarce, there's no more of it, just like oil.  You can dig more oil out, but the infrastructure is the thing that's limiting how much of that can actually be dropped in the market without more infrastructure growth in that particular area.  Real estate, especially in cities, why is the real estate exploding? 

Michael Saylor goes into this whole idea of inflation being a vector, and when you go and you pull it back and you look at the scarcity around the things that people actually desire: healthcare, education, real estate in Washington DC or any major city where things are being conducted, especially where political things are happening, you can see how that becomes the thing that, going back to the quote that I was talking about, which is, "If the currency isn't scarce, everything else that people desire becomes scarce?" and you can see that play out in that Monopoly example.

Peter McCormack: By the way, that is something I'm going to steal to explain this to people; it's a brilliant way of explaining it. 

Preston Pysh: Oh yeah, it's just so easy.

Peter McCormack: Everyone understands Monopoly, everyone understands £200; well, it's £200 to pass Go in the UK, and you know you're running out of money, so you have to wait, and just wait to get round to get your £200, or maybe I can buy this property.  There's financial discipline involved in the game.  You flood it with cash, there's no financial discipline.  It's brilliant.

Preston Pysh: Well, what's really fascinating, you can also describe UBI and QE with Monopoly.  So, QE is simply, anybody who owns equity; let's say you and I were playing with two other people and you had all the equity on the board.  QE is the central bank coming in and saying, "Peter, we need to get more liquidity in the game, so here's how we're going to insert it.  Sell us these three properties for the price that's listed, or whatever price the collective group thinks it's worth right now, which it would have been bid at this point.  We're going to give you cash and we're going to claw that equity off the board, and it's now going to sit on our balance sheet". 

Now, what are you going to do with that cash?  Is it going to trickle down into the game?  Of course not.  You're going to then go to the other three players who have very minimal equity, very minimal property cards, and you're going to then buy those with the cash you just got.  That's QE.  Instead of it being the properties, it's bonds.  They're coming in, they're inserting that cash into the system, they're clawing the bonds out, the yields are getting compressed.  When yields go down, the values of properties shoot to the moon, and then you, the rich guy with all that inserted fiat, you're like, "All right, I'm just going to buy some more assets that have free cash flows".  I guess you might go buy a couple of high-end yachts, but that's not trickling down into the economy at all.  UBI is really the $200 when you pass Go.

Peter McCormack: Hold on, on the QE, does that actually create locked-up pools of capital with nowhere to go?

Preston Pysh: Absolutely, and that's why, when you go back and look at 2008 until now, the reason you've seen this polarisation of wealth effect into the 1%-ers is because that's what QE does.  QE is this idea, this academic idea, that if we put cash into the system, it will just trickle on down into the lowest levels, and it doesn't.

Peter McCormack: But is it really that, or is it a temporary stopgap to stimulate the market and kick the can down the road, knowing the problems still exist; surely they know this themselves?

Preston Pysh: Well, think about it.  If you're going to do this, it does kick the can, it does get the economy going, and it does it in a way where nobody even understands what the hell just happened.  I think that's the real important part, is that they're able to do this where it's -- because it's total market manipulation in the fixed income space, period.

Peter McCormack: It just sounds to me like it's a tightening of the elastic band, it gets tighter and tighter, ping.

Preston Pysh: That's exactly right.

Peter McCormack: All right, what's the UBI one?

Preston Pysh: So, on the UBI front, so the same idea; you've got to get liquidity into the game.  You're having consolidation in the game into Peter's hands, you own everything, right.

Peter McCormack: Danny and Jeremy are broke.

Preston Pysh: And me, yeah.  You could say that we're the other three players.

Peter McCormack: But I want you to pay rent when you land on my property.

Preston Pysh: Every move I make, it's cash that's coming out of our pocket straight into yours, because you hold all the equity on the board.  And so, the UBI is, how do we convince these guys to keep playing this game?  Obviously, when we were doing the QE, it became very obvious that you were the beneficiary of that and we were the chumps that still sat at the table.

UBI is, "Well, let's just stop the game, everybody gets $500, now go", but you had no reset of the equity.  So, as we keep playing, yeah, we have cash right now and everybody's happy because they can breathe again.  But as we roll the die and we go to the next, "He's got four hotels on that.  All my $500 just goes straight to Peter McCormack".

Peter McCormack: You have to keep providing it.

Preston Pysh: So, you don't get a debt jubilee until the equity and the ownership of the assets explodes.  And so, when I look at Bitcoin and the direction that this is all going, the thing that really explodes in the endgame of all this is the debt blows up.  So, all these people that are sitting on that debt and thinking that they're sitting on an asset, when inflation is 8% and it's yielding 3% and they're -5% by holding it, that's a liability.

Now, it performs better than cash, which is down 8%, but that's the thing that really blows up in the end, is all those debt promises cannot get serviced if, and this is the big if, if there is a new currency that can be trusted and actually inserted into the game that everybody starts trusting more than the old currency.

Peter McCormack: Okay.  Danny, can you just google up, "Monopoly Socialism"?

Danny Knowles: Yes!

Peter McCormack: So, I've got this, I bought this game.

Preston Pysh: I've never even heard of this.

Peter McCormack: I don't know if Monopoly did it themselves, or it's just this rogue thing, but there's a -- just find a box.  Yeah, Monopoly Socialism, "Winning is for capitalists"!  It's a parody.  Has it got any other details of it, how you play it?  I remember playing it with my kids and they hated it.  But you need an example of the cards.  Danny, see if you can google, "Monopoly Socialism Chance cards", and just go to Google Images.  I don't know if you'll get it.

Preston Pysh: The cards!

Peter McCormack: Yeah, because they're just ridiculous.

Preston Pysh: You know, in general, Pete, it's a great example for people to just be able to graphically in their minds just wrap their head around some of these --

Peter McCormack: Here you go, "Free eyeglasses for everyone.  That will make your 20/20 vision better.  Pay the bank $10 from the community".  So, you have the community fund.  So, you put money into the community fund, it goes out and pays for everything.  But you end up playing, you can never get to a point of winning.

Preston Pysh: Oh, wow!

Peter McCormack: Yeah, so I played it with my kids to try and teach them why too much socialism doesn't work.  Anyway…

Preston Pysh: These are some very basic ideas that people can take this fancy jargon, "Quantitative Easing", what the hell's that?  "UBI", what the heck's that?  "Yield curve control", there's another term that we could quickly cover, and this is all leading to some of these slides.  I tried to start off the presentation talking about some of these ideas, and it was amazing because this was an energy summit.  These are people up in Pennsylvania area, which is an energy-rich area, and they're just seeing that they need to mine Bitcoin, because they can see what it's doing to their P&L, but I don't think they fully understand why in the world are people willing to pay for that service of mining; what's all that about; what the heck's happening?

So, I tried to provide this big, giant macro overview, and at the end of the event, I had an hour's worth of people waiting there to ask questions, because they'd never really looked at it from that macro lens, they were just looking at it more from a micro lens of, "Hey, we need to start mining Bitcoin, because obviously it's going to help us make money, and we're way more profitable and we can compete in a much better way than we would without it".  Pete, this stuff, when you look at mining and energy, it's just becoming part of their infrastructure; it's going to have to be if they're going to be competitive in the future.

Peter McCormack: Unless they're in New York.

Preston Pysh: New York just shot themselves straight in the foot.

Peter McCormack: New York keeps shooting itself.  It's like, "Do you not want anyone to live here?"

Preston Pysh: It's fear, it's all fear.  The people that control the equity in that state are fearful of this thing, and they should be concerned about what that change brings.  But that change brings opportunity if they embrace it, but the fear's just driving all their decision-making.

Peter McCormack: Let's work through these charts then.

Preston Pysh: Yeah, go through the charts.

Peter McCormack: Okay, so the first one -- so, I've watched this video twice now, this Ray Dalio one, and so we'll explain the chart in a second, and we'll put it in the show notes, Danny.  People should watch this Long-Term Debt Cycle; it was fascinating for me just to see it visually laid out.  But the chart you've got here, this is essentially…

Preston Pysh: This is Lyn's chart.

Peter McCormack: Oh, is this Lyn's chart?

Preston Pysh: Yeah, Lyn made this chart.

Peter McCormack: So, people listening, it shows interest rates and the monetary base.  And then, what, during the 1930s to mid-1940s?

Preston Pysh: You can see where the Bretton Wood Agreement was back in the 1940s, and the blue line is the one that I tell people to focus on.  So, when you're looking at the blue line, and this is the ten-year Treasury, I believe.  Yeah, that's the ten-year Treasury that peaked out at 16% or something like that in the 1980s.  So, what you're able to see with that is, you can graphically see this 80-year cycle.  And you can see that once those yields start getting compressed down to nothing, that's when your supply chains start to break.  And they break because of the cost of capital.

People talk about price controls and they talk about how, "You don't want to control the price of corn, because then that will cause all these disruptions into the market".  Well, when you talk about the cost of capital itself, which is the yield you get on money, on currency itself, that's the ultimate price control.  That's you saying, "I'm going to control the price of everything, everything, with QE".  That's what you're effectively doing.  You're stepping into the market and saying, "We should control --" almost like the genie in Aladdin, you're like, "I'm controlling everything".

So, here at the end, when you start getting down into this 0% yields, you're going to get supply chains that break, because people that cannot perform economic calculation, when there's no cost to borrow; or even better yet, over in Europe, negative rates; or in Japan, negative rates; that makes no sense in nominal terms, not just in real terms, nominal terms.  How can't you think things aren't going to start breaking down in society when you're telling people, "Hey, give me $100 and I'll give you back $95, and it's a deal for you.  I'll lock it up for five years and I'll give you back less"?  That's how insane some of these academics with their MMT and all the other stuff, they're off their rocker.

Peter McCormack: Yeah, but at the same time, if you're holding cash and you're looking at high inflation and you are given that ability to maybe beat it by it being locked up, it might make sense to some people.

Preston Pysh: Well, they're trading it.  Most of these people managing these billion-dollar bond tranches, and Greg Foss, if he was sitting here, he could attest to it; they are trading the Fed, and they're trading whether the Fed, "All right, they're going to have to step in.  And when they step in, they're going to push these yields lower, because they're going to become a buyer, they're going to be that QE buyer", and they're weighing the probabilities of their actions to make money on it, and that's it.  They're not looking at it as, "I'm going to hold this thing through maturity" at all.

So, that's all I was really trying to show with this chart, is I was telling people, "You're in a long-term debt cycle.  Here's the graphical proof where you can see it".  Because, you can say that and people will be, "I don't believe that".  But here's the chart that shows you that you're in the long-term debt cycle.  When you see those jumps, that's your short-term credit cycles that are playing out, and you can graphically see those, and then you can see this response with the monetary base.

So, go to the next slide, guys.  So, here's from 2008.  Here's how they were able to manage all of this, and you can see the nice, smooth line going into 2008, and that's when they started doing quantitative easing.

Peter McCormack: Because of the crisis?

Preston Pysh: Because of the Financial Crisis.

Peter McCormack: The weird thing is, at the time, that felt like a global Financial Crisis.

Preston Pysh: And it was.

Peter McCormack: Yeah, and it was, but the increase in the base, what's that, about $1.2 trillion?

Preston Pysh: Yeah, you can see the move in 2008 and how big of a deal that was, and then you can see how aggressive it has become since.  The response on COVID, they have doubled that response just through more QE that's been happening, and I don't even think people realise that they have continued to do that insertion of this monetary base.

Peter McCormack: Right, so people listening, prior to the 2008 crisis, that looks about $900 billion on the Fed balance sheet, and it looks like it goes up to about $1.4 trillion.  And then, from 2009 to about 2018, it's gone up to $4 trillion, and then in the space of a year, it's gone up to $8.9 trillion.

Preston Pysh: The reason I put this slide in there was to show people, this was what happened in the United States.  But I think if you go to the next slide, I haven't looked at these in a --

Peter McCormack: Hold on, just a question on this.  Go back a second, Danny.  From your analysis of this, it felt like everything that happened in 2008, it was kind of responsible, and they were able to protect the global economy from complete collapse.  Like, in the UK, they were able to rescue Royal Bank of Scotland and Lloyds, and over here it was Fannie Mae and Freddie Mac?

Preston Pysh: Yeah.

Peter McCormack: There were a few that were --

Preston Pysh: Bear Stearns.

Peter McCormack: Yeah, Bear Stearns, they would be rescued.  That seemed like a sensible plan; they rescued the economy.

Preston Pysh: I don't know if I would use the world "sensible".  I would say they had to do it.  If you were in the seat, if I was in the seat, if Danny was in the seat, anybody was in the seat, they would have had to have done something similar.  Now, whether they chose the magnitude that was -- the magnitude of that reaction was a mathematical decision.  I would like to think that they're saying, "Hey, we had this much liquidity explode, impaired, so therefore we need this much of a response", so they insert it into the market.  And each one of these jumps are mathematical decisions that they're having to make, and estimate, "The credit was impaired this many trillions now, and this is how much we have to respond with".

Peter McCormack: So, what happened, apart from it being Donald Trump, what actually happened under that administration, because there was another big jump from 2012 essentially to 2015?

Preston Pysh: So, over in Europe, you had a major crisis in that time frame and there was a big response that also happened.

Peter McCormack: And then, just looking what happened over COVID, there's an increase from $4 trillion to essentially $9 trillion.  Have you actually looked at, could it have been a $3 trillion or $2 trillion; has it been massively irresponsible; or has the increase in the balance sheet essentially been things that they would have to do sat in that seat?

Preston Pysh: I don't know the answer to that, Pete.  I think that they have no idea what the right answer for any of this is.  I think they just know that they have to put more units, more fiat units into the system, to keep social unrest from brewing more.

Peter McCormack: And, do you think the decision-making is based on that, or do you think it's politically-based to try and retain power?  It's not popular to allow things to unwind, it's not popular to not give people stimulus cheques, you know.

Preston Pysh: I think it's just the desire for stability.

Peter McCormack: Right, okay.

Preston Pysh: If you're playing the game, if you're playing the Monopoly game and you're crushing the three of us, the last thing you want is for us to stand up and say, "We're not playing this game anymore".

Peter McCormack: Throw the board off the table!

Preston Pysh: That's right.  You've got to keep giving us stimulus so that we continue to play the game, because if we stand up and quit playing, you've got a real issue on your hands in this world where you own everything.  So, I think they're just looking at it, not from necessarily -- I mean, it is control, but it's more desire to protect what it is you have and keep stability in the system, which is control.  I mean, I don't want to mince words.

Danny Knowles: I was just thinking, so if you look at after 2008, there's a little dip in their balance sheet.  I guess that's maybe 10%, 20%, something like that, where they've reduced the balance sheet.  They're obviously trying to do that now.  Do you think they get another 10%, 20% dip and it goes up again?

Preston Pysh: Do I think they can take $1 trillion out?  I don't think so, I don't think you're going to get there.

Peter McCormack: But at some point, Preston, either they've got to unwind this, or they keep going.  But if they keep going, we enter full Weimar territory.

Preston Pysh: Oh yeah, that's where this is going.

Peter McCormack: Oh, you think we're going?

Preston Pysh: Oh God, yeah, that's not even hard.

Peter McCormack: Okay, fuck!

Preston Pysh: And I don't want to sound like death and destruction, but this is a maths problem, this is just maths; they can't take that out.  Looking at everything that's about to go down, in my opinion, in the coming two to four quarters, the coming year or half a year, things are about to get insane.  And the reason they're talking about, "We're going to tighten, we're going to reduce the balance sheet", they're doing that because they have to get inflation under control.  But they're cornered into the room so far that I just don't know how they could possibly do that based on the inflation that's there, the current existing rates, the other countries that are getting clobbered with dollar-denominated debt and need easing on the dollar; I just don't know how that can happen.

Peter McCormack: Just go back one chart, Danny.  So, looking at the previous chart, where there was a massive increase in the monetary base, it was reduced from the 1950s to the 1980s, the red line, yeah?

Preston Pysh: Yeah, so you're talking about in the previous period of time?

Peter McCormack: Yeah.  So, do you think this will just match it, we'll have a massive rise in --

Preston Pysh: No.

Peter McCormack: Oh, you don't?

Preston Pysh: And here's what I think is very different from back then to now.  Back then, you had a society and a culture that understood why it was important to be financially responsible.  Now, and this is on a global scale, this isn't just a US dynamic, culturally you've got people that are like, "Where the hell's my handout?  Where the hell's the $1,000 or the $4,000 that I need mailed to me?  What in the world are they doing to help me with my gas prices?  I need some type of gas credit".

People aren't saying, "Well, we need to let the free market, the free and open financial markets figure this out, and if the cost of gas is $9, well then you'd better start driving less".  Ain't nobody on this planet saying those things right now, so you've got a completely different cultural dynamic of financial responsibility.  And think about it; if we just watched, for the last decade, the central banker step in and hand Pete a bunch of money with QE, and Pete goes, "Oh, thanks, and I'll have that final property that you hold, Danny, and Preston, I'll have your final; I'll gobble those up", and now you literally own all the equity on the board and we own nothing, then we'll be happy, according to the WEF, nobody -- and that's why you're seeing that culturally manifest itself where people are so frustrated that they're all at each other's throats, because they own nothing, they're in debt up to their eyeballs.

Peter McCormack: And they're not happy.

Preston Pysh: They're not happy.  Because, think about it, what's a slave?  It's a person who owns nothing and is indebted to make payments with their time and energy to another person, and can't do anything.

Peter McCormack: And, is there any talk of a debt jubilee?

Preston Pysh: Well, it's Bitcoin.

Peter McCormack: Well, yes, but…

Preston Pysh: Because Bitcoin blows up the debt.  When you're looking at Bitcoin's performance on a long enough timeframe versus what people would go to as safety, which was the bond market, and that is so far upside down; right now, 5% of people sitting on that fixed income desk, they're saying, "This is really bad, but eventually the Fed's going to do things and it's going to bring inflation down and we'll be in the positive again in nominal terms and in real terms".  But what if it doesn't; what if it does the opposite? 

For me, that's my base case, is that you're going to continue to see these inflation prints and these supply chains continue to break down, and they're not going to be able to get it under control.  And they're going to then implement yield curve control, which means that they're going to peg the yields at 3%, because people who own homes can't afford for it to go any higher, because everybody's in debt up to their eyeballs. 

So, if they're pegging those yields at really low interest rates, and you've got this massive spread because supply chains are breaking down, you have to ask yourself how long can people in the fixed income space, the bond market, sit there and eat a -5% or a -10% return before they say, "I'm not owning that, I've got to own something else".  Then, all that monetary energy shifts itself, continues to shift itself, into this thing called Bitcoin.

Peter McCormack: Do you think we're seeing any of that, because at the moment, we seem to be a correlated risk asset?

Preston Pysh: You're seeing that, because the market cap is a pittance.  And relatively speaking, we're talking about $100 trillion markets in fixed income versus Bitcoin that's, I don't even know what it is, $700 billion right now, or something?

Peter McCormack: Yeah, something like that.

Preston Pysh: I mean, that's just a joke in relative size.  So, I asked Luke Gromen, "Where do we start to see that pivot start happening?"  He thought it was around $20 trillion and a Bitcoin price that would then really start waking up the market, and the market just, "All right, so clearly this goose is cooked".

Peter McCormack: All right, Danny, let's go forward two.

Preston Pysh: Yeah, go forward.  So, this is the US.  So, when you go back one real fast, Danny, so this was the US's response.  But my point was, this just isn't happening in the US.  So, going back to the Monopoly example, let's say we have five boards instead of just two, and it's not just one central bank that's inserting, it's all five of them, and then it starts getting to a point where things get so unstable that now the central bankers are standing up, let's say there's five different boards, the five central bankers are standing up and they're like, "All right, this is getting unstable.  I'll debase for the next ten moves and then you debase for the next ten moves, and then you debase for the ten moves after that", and it becomes this global coordinated -- think BIS, WEF, IMF.  What the hell do you think they're actually doing behind closed doors?  They have to keep this coordinated. 

So, go to the next slide.  Okay, so you're going to see that there's times when the Fed is debasing pretty hard, and sometimes when the ECB is debasing pretty hard, and so there's the Fed, the European Central Bank, Bank of Japan and the People's Bank of China, the big four central banks.  So now, what if we could take all of those lines, smoosh them into a single line, market cap weight them for the value of that currency and go to the next slide and that's this, and that's what it looks like.  It's this fairly smooth line. 

You can see that at the start of 2018, they collectively, as a global coordinated body, unelected global body, tried to start to, I wouldn't even call that tightening, I would call that normalising, is what the attempt was.  And so, you can see globally, they were trying to normalise together.  And so, that's where you're seeing it go there.  And then, all of a sudden, COVID happened.  But if you went back and you really drilled into the charts prior to COVID, they were already -- you can see a little bit of the bump there in the line.  This market was already going into recession; they were already globally starting to ease again.  Go back a slide, Danny.

You can see it here really well.  Look at the Fed in mid-2019.  COVID didn't happen until 2020, right.  You can see they were already starting to debase, every one of them were starting to debase, except for the ECB, and I would say that's when it was going to start picking up again, whether COVID even happened.

Peter McCormack: So, go to the next chart.  What we've seen, we've seen a dip now here in this total assets of major central banks over the last, is the basically the last three months, or the last month?

Preston Pysh: This is really from the start of the year.

Peter McCormack: Okay, and that's why we've seen equities get absolutely smashed.

Preston Pysh: Absolutely hammered.

Peter McCormack: Bitcoin hasn't survived, but that's a signal of where we're going.

Preston Pysh: I'm stacking cash since the start of the year.

Peter McCormack: Interesting.

Preston Pysh: I have a couple of posts, you can go into Twitter and you can find them.

Peter McCormack: You told me this in Miami though.  You said, "There's going to be a time to jump into equities".

Preston Pysh: No, that's way down the future yet.

Peter McCormack: Okay, so what are you stacking cash for?

Preston Pysh: For me, it's a cash/Bitcoin world, it's the dollar and it's Bitcoin.  And so, when I saw this, and I pay very close attention to these charts, these central bank moves, because they're inserting fiat units into the game, back to Monopoly.  You have the central bankers that are adding units to the game, or they're clawing units out of the game; or they're allowing the credit, which only makes that example more confusing.  And I can kind of explain that if you guys want to get into it.  But when those units are being clawed out of the game, the value of everything has to go down relative to those units.

So, when I saw the central bankers collectively, at the start of the year, they had this massive negative spread in fixed income, I knew they had to get it under control, this is them trying to get it under control; and they have to let impairment happen, which is the promises between individual entities.  They have to let that blow up, because that's money basically disappearing out of the game; and then, they're clawing units out of the game.

When they're doing that, you want to be long fiat, believe it or not, but it's going to be a very short-lived holding period.  If you talk to me in three months from now or six months from now and I wasn't stacking fiat and I was stacking Bitcoin again, that shouldn't surprise you.

Peter McCormack: Okay, I've had this conversation with a few people now.  I've heard a few times now, there's a belief that they're going to be raising interest rates up until the midterms and then, about September is about the time to perhaps be buying Bitcoin.  But Bitcoin's going to get hit with these interest rate rises over the next few months.

Preston Pysh: The thing I would watch for is the headline in the Wall Street Journal for something like, "Central bankers add $3 trillion, $5 trillion, $10 trillion collectively into the global economy with yield curve control", and I don't think it's going to be that.  I think it's going to be more QE and UBI and it's going to be UBI in the form of offsets with the energy expenses; and just anything that is an everyday expense, they're going to be providing some type of offset to that, and they're going to have to do that through -- and they most likely won't be calling it UBI, but it's UBI.  It's, "Hey, if it costs $5 per gallon to fill up a tank of gas, now it's $2 because of some socialised $3 offset", which is UBI.

Peter McCormack: Right, and that's the time to be stacking Bitcoin?

Preston Pysh: If they're doing it at a scale that is in the trillions.  If you're talking like -- if it was $1 trillion, I'd probably be a little hesitant to say that that's the pivot point.  If you're talking $5 trillion to $10 trillion, I think that that's the reversal.  I think it's going to be very obvious.

Peter McCormack: $5 trillion to $10 trillion is doubling the balance sheet again.

Preston Pysh: Yeah, exactly.

Peter McCormack: So, that is going to tighten the band even more?

Preston Pysh: You're providing a narcotic to a dying patient.

Peter McCormack: Have you actually run through how it all eventually blows up?

Preston Pysh: I mean, the blow-up is in bonds, so what does that mean and what does that mean to who?  I don't want to go too far, because any person who says that they know how this is going to play out, I think you've got to be very suspect listening to what they have to say.

Peter McCormack: Yeah, but it's scenario planning.

Preston Pysh: Yeah.  Generically I would say, if that scenario plays out, because that's what's going to provide the relief to the normal person who's in debt up to their eyeballs, is if you own a house and it's 90% levered, and all of a sudden that currency that that contract says blows up, because you own a house that says you're going to pay it back in pounds, mine says I'd pay that back in dollars; for people that have that liability on their balance sheet, and the currency now looks like everybody's pivoting and using something else, that's going to be the thing that provides relief to that person, because it's going to be easier for them to pay that 30-year mortgage back, when they're getting paid in something that's aggressively appreciating in value.

Peter McCormack: Like Bitcoin.

Preston Pysh: Like Bitcoin.  Now, where the challenge comes with this scenario is, you're going to have a lot of dislocation in just business enterprises in general, because of this shift and because not every business is going to be able to figure it out.

Peter McCormack: It's musical chairs, right; you've got to go and get chairs?

Preston Pysh: That's right.  So, if you're in a job, let's say you're employed and you have a job in something that is highly sought-after, regardless of what the economic circumstances are, a depression-like scenario or a booming economy, and you're always employed, you're going to be able to make this transition a whole lot easier than a person who has a job that isn't going to perform so well in a depression-like scenario.

So, that dislocation is what's going to make it hard for the person who's in debt up to their eyeballs, they don't have a job to collect the Bitcoin; but the person who can sustain a job and can pivot to owning this new currency, it's just going to get easier and easier for them to make the payment on that house.

Peter McCormack: So, this is probably going to lead to a lot of civil unrest.

Preston Pysh: Yeah, I think this is going to lead to civil unrest.  The scale and the magnitude, I think, is highly dependent on the speed of the transition.  So, if this would blow up quickly, I think that you're going to have way more dislocation.  If this happens slowly over, say, call it a five- or ten-year period of time, I think the dislocation could be handled much more.  Ray Dalio calls it, "A beautiful deleveraging".  I would never use those terms.

Peter McCormack: It doesn't feel beautiful.

Preston Pysh: There's nothing beautiful about it.

Peter McCormack: It's an horrific deleveraging.

Preston Pysh: For most people, yes.  On a net basis, it's not a beautiful anything.

Peter McCormack: So, is it as simple as, the bond market switches over to the Bitcoin market?

Preston Pysh: So, you're just going to find that the owners of the bond market, you have to ask, it's a store of value.  They're just storing value, they're not really trying to crush it, they're not trying to outperform anything, because they're clearly not.  I mean, they have for the last 40 years, because they just keep getting bid.  But here in the short term, they're going to find out that it's slowly disappearing that it's a store of value and that it keeps going up.

So, that's where the transition's going to come to Bitcoin, where it's a store of value and it keeps going up on a long enough timeframe.  And the volatility, over time, will start to -- it'll start getting better, but it's not going to be for a while.  You've got a lot of time left before, I think, the volatility's going to start calming down.

Peter McCormack: Right.  Are there any more charts?

Preston Pysh: Yeah, oh yeah, there's more.  So, this is a neat one here, where you're taking that previous slide where you have the consolidated central bank balance sheet, and you're comparing it just to the S&P 500.

Peter McCormack: Which always is a more volatile reaction to it?

Preston Pysh: Yeah.  The most interesting part on this for me is in that 2018 to 2020 time period, where they were trying to normalise.  You can see the equities markets just throwing a fit, a volatility fit.

Peter McCormack: Wow, yeah.

Preston Pysh: And I think that what you're going to find is that that volatility fit is just going to continue to amplify itself.  You go back into Germany and you look, a lot of people post this gold chart that you go from 1920 to 1925 on the price of gold in marks, and what you find is when you look at just this price action, it just looks like this parabolic rip, just straight up.  But if you plot the volatility, it looks a lot like that chart where the volatility and the price action is actually just blowing out, like you would see in a vibe like an engineering scenario right before something has a systematic break.

Peter McCormack: By the way, do you think gold has any role to play in this at all?

Preston Pysh: You're just trying to get me in trouble now!

Peter McCormack: Now, I mean I've often thought, even put 3% of my Bitcoin into gold, just in case.  And then every time I'm like, "No, don't do it".

Preston Pysh: I'm not a big fan of gold, mostly because just the utility -- when you can't send it immediately and clear it, it opens itself up to so many shenanigans.  So, when you're talking about derivatives markets and everything that's needed to catch this disaster that's brewing, and it's all about trust, this whole transition is about you're going from this system where nothing can be trusted, to something that has to be demonstrating unshakeable, unmanipulable trust; that's what Bitcoin is.

So, to transition over to something like that, then you've got gold competing with Bitcoin.  I don't trust the gold markets for a second.  Now, if I'm sitting on gold bars, which I'm not, for me individually, I guess it's going to retain my buying power of what that is today, into whatever time into the future, I think it will do that.  But I mean gold is the reason that these charts exist on a sovereign level.  The reason that you have that from the 1940s to the 1980s to the 1970s is because you can debase against gold, if you're setting a currency to ride on top of the gold.

Let's go back to the Monopoly example.  Let's just say I have 100 oz of gold that are backing all that currency in the game, and I'm adding more currency into the game, but I'm not actually buying more gold to back that additional currency that's coming into the game, because that's what you have to do to sustain the peg.  So, in order for somebody to call me on that as the banker, one of those other people playing on one of the other boards comes over and he's like, "I don't believe your ledger.  I don't believe that the amount that you have in the game versus the gold that you have underneath the table that you're not showing anybody, I don't believe that the ratio is 100:1, like you did when you started the game".

You know what that central banker is going to say to that other person who's asking?  "Sorry, I'm not going to show you, go piss off".  That's exactly the scenario that's played out.  And the reason that this is all collectively happening, everybody knows Bretton Woods was, the dollar's going to be pegged to gold and everybody else is going to peg to the dollar, so effectively the world is pegged.  But if the person who is managing that peg is changing that ratio and they don't have to prove it, and how do you prove it?  I could go in there and cut the gold bars in half and fill the middle of them with lead, and we're going to do an audit.  Are you really going to strip down every bar of gold?  Are you actually going to show that to another country?

Peter McCormack: If there's any in there.

Preston Pysh: If it's even there.

Peter McCormack: Wouldn't it be wild if they were guarding an empty building.

Preston Pysh: I think the chances of some of that being true throughout the world is extremely high.  And what makes us think that something that has happened time and time again for millennia is all of a sudden going to be different?  It's not!  It requires trust.

Peter McCormack: It's almost like we need a trustless form of money, which separates money from state…

Preston Pysh: Exactly!  So, let's go to the next one.

Peter McCormack: This is interesting.

Preston Pysh: A lot of people have seen this chart.  This only goes up to 2018, and I couldn't find the one that -- I can only imagine what this chart looks like if you carried it out to today.

Peter McCormack: Well this for me was just a big highlight of how the middle classes got absolutely crushed.

Preston Pysh: Decimated.

Peter McCormack: And I used to think, "Why do we care about the middle class?  What about the working class?"  But obviously you grow up and you get a bit older, but I get it now.

Preston Pysh: And look down at the bottom, the TVs and stuff.  Do we need another flat screen in the house?

Peter McCormack: Well, they're so cheap!

Preston Pysh: They're so cheap.  I mean, the technology…  It's just not something you actually need.  Where, look at the top, hospital services.  Yeah, you need that.  I mean, think about how much COVID is amplifying that, in that who wants to go work with three masks on your face?  I'm exaggerating.

Peter McCormack: No, I get it.

Preston Pysh: These poor doctors, these poor nurses.  I just can't imagine that being my profession and dealing with the issues that are showing up in those hospitals right now.

Peter McCormack: Well, there's a couple of things to say on that, because I've got friends who work in the profession, I spoke to them about it.  A couple of the main points is how hard they've had to work over the last year, under a threat of seeing -- I know there's some people who don't believe COVID is a real thing, but there are doctors and nurses who got COVID and died, so they were losing colleagues.  So, they felt like they were in a dangerous situation.  They had all these practices whereby they had to follow strict rules for what they had to wear, how they had to deal with patients.  It's just a two-year stressful thing.

Preston Pysh: I just can't even imagine being in that space.  But this goes back to the quote, "If the currency isn't scarce, the things that people actually desire will become scarce", and you're seeing it in real time in these charts.  I could only imagine if this chart was up to date.  If somebody has it, please share it.  If this chart was up to date and we had it out into 2020, 2022.

Peter McCormack: So, one of the things that stands out is the less elastic items seem to be primarily service-based, in that you need people; whereas, the more elastic seem to be things that come from production line efficiency.

Preston Pysh: That's right.

Peter McCormack: Yeah, and because of the amount of money that's in the system and the people need the money, okay, that makes sense.

Preston Pysh: Yeah, because what's more scarce than your time, my time?  Human beings' ability to actually conduct the work and the energy input.

Peter McCormack: Interesting, okay.

Preston Pysh: So, let's go to the next one here.  Okay, this one here is something that drives me crazy with how few people understand something as simple as just your discount cash flow maths.  So, the present value of anything is the future free cash flows up in the numerator; in the denominator it's the discount rate.  So, if interest rates, let's just say that you're warping back to the 2007 timeframe, when your ten-year Treasury was at 5% to 5.5%, typically premiums above that risk-free rate, 2% for anything that's in the fixed income space that's not government issued, and then another 2% for equity on top of that, prime blue-chip equity on top of that.  So, you could say 4% above that ten-year Treasury rate.

So, if we go back into that period of time, that's about a 9% to 10%, so we'll use 10% to keep it simple.  So, your discount rate would be around that 10% mark to figure out the value.  So, if you can give me $100 in one year and I'm discounting that at a 10% rate, the value's $1,000.  And you can quickly see that if we adjust that discount rate lower, what does that do to the present value?  It shoots the present value up to the moon.  So, go to the next slide, and we're going to take point one -- oh, I didn't do it, did I?  Go back!

All right, so I thought I had it in the slide, but evidently I didn't.  If we take the 0.1 and we turn it into 0.01 for a 1% discount rate at, what's the ten-year Treasury at today?  It's coming up, but it's still extremely low.  I mean, we got below a 1%.  We were at 50 basis points, 0.005, is what that got compressed down to.  So, what does that do to the $1,000?  Well, it turns it into $10,000.  If you're going the 50 bips, it's times two that, it goes to $20,000.

So, you're taking something and my point with this is, when you're manipulating that fixed income market, you're not just manipulating the price of bonds, you're literally manipulating the price of everything, especially equity, and the prices are getting big, because they're just capitalised, which means they become a multiple higher, because that's how all equity is measured.  If you were going to sell your company, or I would sell my company, you would be talking in multiples, you'd be talking in discount rates, and you'd be talking about, "All right, what's the going rate?"

So, if they compressed these yields by quantitative easing, and these yields keep going lower and lower, you go from companies that should be valued at $1,000 to companies that are valued at $20,000.  So, when we talk about inflation, and Michael Saylor talks about this a lot, where he's saying, "Inflation is a vector".  If you want to go buy a premium business, well it's 20X what it was ten years ago.  Talk about high -- I mean, that's some serious inflation.

Just think of it like this, Pete.  So, when we're playing the game, and you're inserting cash into the game, the value of everything is going to go up relative to that cash.  But that's a 1:1 ratio.  Every $1 that gets put into the game, the value of everything proportionately would go up by that $1, but it would be much smaller.  But equity isn't valued that way.  Equity is valued as a multiple.

Peter McCormack: Oh, I see, I get it.  Yeah, okay, that makes sense.

Preston Pysh: So, the inflation in those asset prices that are only owned by you, and we don't even have those, you're not only getting richer in the multiple of the fiat entering the game, you're getting richer in the multiples of the equity getting bid, because we would do anything to own even one property, we're that poor; we would do anything to have a piece of it.  You're like, "Well, here's one-hundred-thousandth of a share of one of my properties you pee on"! 

That's what's being played right now, and those are your Robinhoods; that's your Robinhood, "We're going to give you free trades, but we're going to then suck off of your data like a parasite you pee on"!

Peter McCormack: Okay!

Preston Pysh: So, that's the point I'm trying to make.  When you're valuing equity and you're talking about inflation, and it's such a smooshy word, this inflation thing, boy does it get convoluted when you start talking about equity premiums and multiples and discount rates.  So, go ahead to the next one, and I had it in the parentheses, "Not captured in CPI".  They're telling you, "The price of corn is up [whatever]%", especially in academia. 

I got in some Twitter war with some academic one time and I was like, "Well, the price of assets aren't even captured in CPI data", and they threw a fit, because it just breaks whatever model that they think they know about inflation, and it just flips so much of it on its head.  And this is why so many people don't understand this stuff.  No one talks about it.

Peter McCormack: We'll come back to this.

Preston Pysh: Yeah, you can skip over it, those are words.  Let's go to the charts.

Peter McCormack: What's, "yinz"?

Preston Pysh: It's a Pittsburgh thing.

Peter McCormack: What does it mean?

Preston Pysh: Just down here in Nashville, they say, "Y'all"; in Pittsburgh it's, "Yinz".

Peter McCormack: What do we say?  "You, you lot"!

Preston Pysh: Okay, you can skip over this.  Okay, so this is a post that I did, these next couple of slides, they're a post that I did, I don't know, maybe half a year ago.  And what I'm trying to do is, I'm trying to frame things for people in a very global kind of way.  So, this is the top.  The chart starts, all these lines start at zero, they're all at the same spot, back before the 2008 Crisis.  You can see the selloff there, and that was the size of the 2008 Crisis, compared to how much all of these global indexes have grown since the top in 2007, 2008.

Peter McCormack: Oh, God.

Preston Pysh: So, when you look at this chart, you can see India, you know, anybody who would look at this chart would be, "Well, India crushed it.  US, they did pretty well.  Hong Kong, down -23% since that period of time".  So, when you're looking at these on -- these are the major global markets that are out there.  And the index that I used for Europe, people can go to the SXXP and see what basket that falls into.  But all your major companies over in the EU are in the basket.

Peter McCormack: But…!  I'm looking at this going, "But the previous chart from about 2020 looks the same"!

Preston Pysh: Yes.

Peter McCormack: It compares to the money printing chart, and this is what happened in Venezuela when they hit hyperinflation.  The first thing that happened was the stock market accelerated in growth.

Preston Pysh: Yes, because there's scarcity in the shares.  If the company's making money, they don't have to debase the shares.  If they're losing money, they've got to debase the shares and come up with cash so that they can keep the thing living.  But if you're dealing with businesses that actually make money, they're not going to debase the shares, which means that's a scarce thing to own.  That's why you're seeing people run to the equity market, and they're going to continue to run to the equity market in fiat terms on a long enough cycle.  You're going to see equities meld up, in dollar terms, and any fiat currency that you want to say; it will continue to meld up with enough time.  Right now, it sure don't seem like it, but on a long enough time horizon, you're going to see it continue to meld up.

So, the thing that's important on this chart, this is the performance in local currency terms.  So, the rupee, for India, that's in rupee terms; for the US, that's in dollar terms.  Japan, you've got the yen, that's the performance in yen.  So, let's go to the next slide.

Danny Knowles: I'm assuming everything's down against the dollar in the next one?

Preston Pysh: Well, we'll see.  Go to the next one.  There you go.  This is the same exact chart, but I put every index in dollar terms, okay.  So now, you can see India still did pretty well at 82% from the top, before the 2008 meltdown.

Peter McCormack: Was does this show, that their currency isn't performing?

Preston Pysh: It's just putting it -- when you're looking at that previous chart, you don't know -- let's just say that in India, they heavily debased their currency against the dollar; that could be a negative performance as you go from one to the other.  Now obviously, it wasn't, but it's down significantly from, what was it, 180%?  Go back one.  It was 200%.  So, it's 120% lower when you put it in dollar terms.

Peter McCormack: But interestingly, with Hong Kong it performed better.

Preston Pysh: Because they had a very slight improvement relative to the dollar over that period.  And some of it, if you dig into the numbers, it's almost near perfect because of them pegging to the dollar.

Peter McCormack: Interesting.

Preston Pysh: Okay, so we're looking at this, so let's go to the next slide.  And so I say, "But the dollar itself is changing".  So, when we put it all in dollar terms, that made more sense.  But what if the dollar itself, the thing we're comparing it to, is also shapeshifting and morphing and different from the top of the market in 2007, 2008 until now?  And it is, because this is the chart.  This is dollars.  If you'd go back and you'd look at 2007, 2008 dollars and you compare it to a 2022 dollar, this is the difference, and it's 182%.  There's more in the system.

Peter McCormack: Next chart, you've accounted for that?

Preston Pysh: Yeah, so we'll account for that next.  So, going back to the Monopoly example, we're playing the game over some period of time.  And if we're using that currency in the game, and if we started with 100 units in the game, but at the end of the game there were 200 units in the game, how do you compare it?  How do you compare the moments in time, as that currency itself is changing as far as returns and yields go?  So, that's what we're going to do next, so let's go ahead and jump to the next slide.

Now, here's our performance when we go back into each one of these, and I think the chart was in weeks, so in a weekly term, in a discrete weekly term, we take those adjustments to M2 to each one of those indexes around the world, and this is the performance from the top; not from the bottom, but from the top of the 2007, 2008 Crisis.  And, this chart's probably two or three weeks old; but at that moment when I captured it, this was a -1% return for the US.

Now, think about this.  You're a business creating economic value for society; you're retaining profits; you're a life form; you are taking energy and turning it into something that the market values, and your return, adjusted to the 2007, 2008 right there, at that mark, dollars, you've returned -1%.  You can see how everybody else fared.  So, go to the next one.

I put this slide in here and this is totally unfair, and if people are looking at this and saying, "That's not even fair, Preston", I agree with you, but it was just fun for me to do, so I put it in there.  Okay, go to the next slide.

Danny Knowles: Just for people listening, that's Bitcoin up 111,000%!

Preston Pysh: I just had to have fun!

Peter McCormack: I wish I'd have bought some back then!

Preston Pysh: Now, I wanted to zoom in here, okay, so this is the same chart that we were looking at, the M2-adjusted, and let's look at from COVID until now.  And what I think you're starting to see is, you're starting to see mini credit cycles that are just completely dependent on just Fed debasement and inserting this fiat into the system.  It's accelerating.  An example I'd used a couple of times, and people keep teasing me about it, but that's fine, I think it's a good example, is just childbirth.

So, when a woman goes into labour, the contractions are far apart, they're happening every 10, 20 minutes, something like that, maybe even a half hour.  They're not real strong, but they're strong enough that she's like, "Okay, get me to the hospital".  You get to the hospital and maybe now, they're every 10, 5, 10 minutes, she's having contractions, they're getting stronger, she's getting uncomfortable, she's saying, "Hey, get me the epidural". 

Then you start getting up to the final moments of the birth, and the contractions are so absurdly strong and aggressive, the magnitude of those contractions, they're happening every minute, every 30 seconds, whatever it is, but the frequency is picking up.  So, the magnitude and the frequency are getting more powerful as time goes on, more energy. 

So, when I'm looking at this chart and I'm looking at these -- everybody's familiar with a business cycle and they say, "Oh, it's five to eight years, the typical business cycle".  We saw earlier on the first slide that was up there, we were talking about the short-term business cycle.  I think what you're seeing now is, their actions and their manipulations of adding credit and adding units into the system is becoming so pronounced and at such a high frequency and at such a high magnitude that you can start to see it graphically representing itself on the chart.  So, we're going to zoom into that circle that's there.  So, go ahead and hit to the next slide.

Okay, so there's the drop, there's the COVID drop.  You saw the stimulus back on the M2 in the central balance sheets of how much stimulus was added into the system.  This is M2-adjusted, and you can see that in the US, which is the dark blue line there, the third one down, you can see we barely got to above neutral from where we were at pre-COVID, barely got there.  And now you're -16%, -17% down from before the COVID drop.  So, Dalio, he'll do interviews where he's saying, "You're pushing on a string" or, "The quantitative easing is having less of an effect as you go further into time".  I would tell you that this is graphically representing this talking point that he often says.

Then you can see Hong Kong and China, the GXC there is China.  You can see they're just getting crushed in this last cycle, when you M2 adjust it.  So, they have to step in, they're going to have to step in again.  I think it's coming within the coming 12 months that they're going to have to step in aggressively, and the magnitude of their response is going to be huge.  And I think if you M2 adjust it, and you're looking at how much they actually capture out of that, you're going to see it's even harder, it's getting harder and harder for them to stimulate any of this.  So, that was really the point of the slide.

Peter McCormack: But that is straight Weimar Republic?

Preston Pysh: Absolutely, yeah.

Peter McCormack: So, do you think hyperinflation is coming, or is a possibility of coming?

Preston Pysh: So, when people say the term "hyperinflation", to me it's against what?  What are you saying it's hyperinflating against?  So, we've had hyperinflation against Bitcoin for a decade.

Peter McCormack: Okay, but I think that almost real-world effect of the money you're earning collapsing, and you don't have Bitcoin, because plenty of people don't, don't understand it, won't have it.  That complete collapse of your money, similar to what happened in the Weimar Republic, or even what happened in Russia, where people were just having to sell anything they could, do we see disaster scenarios like that?

Preston Pysh: It's too difficult for me to be able to theorise what that looks like.

Peter McCormack: My assumption is, if they keep doing this, that comes, because the playbook's there in When Money Dies.  It's whether they stop doing this and they accept.

Preston Pysh: Well, I'll say this.  I think that the scenarios where you see this get really bad are the locations where they don't have access to Bitcoin, or they're not able to use that as a unit of account, for whatever reason.

Peter McCormack: Or no reserves.

Preston Pysh: Yeah.

Peter McCormack: Is something like Sri Lanka foreshadowing what's going to happen in other nations?

Preston Pysh: Oh, yeah.

Peter McCormack: I mean, Turkey's pretty bad as well now.  That's a developed nation.

Preston Pysh: That's exactly what's foreshadowing, yes.  So, if those locations have access to Bitcoin and most people have smartphones, the government hasn't done anything crazy with trying to prevent its use; I don't know how they can, to be honest with you, really shut it down in any kind of way that they can actually enforce; but let's just say that the nation doesn't have it readily available, or have a lot of plumbing to incorporate it, they're going to struggle the most with the transition.

Peter McCormack: Why do you have so much conviction regarding Bitcoin?

Preston Pysh: I think it comes down to just how difficult it is to stop it.  Everything that I've seen, it's truly decentralised, it actually has proof of work.  I think the proof of work is what makes it so important, because there's actual economic work associated with those units being put into the game.  If we go back and that central banker actually had to do some work in order to insert more units into the game, that's a completely different situation than just, "All right, yeah, sure, here's another $1,000", because that's your proof-of-stake system, and that's what's causing the problem in the first place.

Peter McCormack: Yeah, that transition's interesting.  The only thing I think about with it is, will there be supply shocks?  Can everyone get access to it if there is a real flight to Bitcoin?  Those supply shocks can become a real issue, and then will we see some kind of reverse, weird prophecy?

Preston Pysh: There's going to be a lot of weird stuff that pops out of this, because when you think of the whole economic system, it's just this giant decentralised -- the prices are providing the queueing as to where the ants, the people, need to go and perform their work.  They're just sniffing out margin.  They're just going around doing economic calculation.  Whether they know it or not, they're constantly performing economic calculation, they're looking at where the margin is, because the margin is telling you what the market desires, what the participants in the system are desiring.

So, when you take these actions and you're doing these things, you're mutilating, you're disrupting that signalling to its core.  The ants don't know where to go to find the food anymore, they don't know where to go to conduct useful activities, because the queueing, the margin is just completely jacked.

Peter McCormack: The distortion of money.

Preston Pysh: It's just distorted beyond comprehension.

Peter McCormack: Is that the last chart?

Preston Pysh: Yeah, it's good enough!  I don't know what comes next.

Peter McCormack: So, you took everyone through this.  Were people shocked?  Were they like, "I had no idea what was going on?  I feel like we've been discussing this on Bitcoin Twitter and amongst friends and on podcasts for…  I feel almost like Caitlin Long and Travis Kling were talking to us about this two and a half years ago, and then we've spoken about it and we've seen people talking about it on Twitter.  But we're fully aware of what is happening right now.  My friends just think, "We're just in a slightly difficult economic period, there's a bit of inflation, we'll be fine in a year".  They've got no idea this complete unwind collapse could be coming.

Preston Pysh: Reality doesn't care what your opinion is.

Peter McCormack: Yeah, I know.

Preston Pysh: It does not care whether you've got a strong opinion, because it's just going to do what it does.  It's just maths and physics and it's just going to work itself out.  I would explain it like, you go and you pour toxic sludge into a pond, and nature's going to try to figure out a way to deal with it.  It might end up being some weird coloured red bacteria that then grows out of that and somehow filters it and removes it from the pond.  I would describe Bitcoin as being that thing that's emerging out of the ether that is dealing with the toxic sludge that's there and getting worse. 

For me, it's going to deal with it and it's going to deal with it in a way that actually benefits some actors, probably a smaller number of people that are the first movers.  And then, the people in the middle are actually going to see relief through this.  On a long enough timescale, they'll look back at the end of their life and they'll be, "That was really beneficial that that happened, because I ended up having a better life".

Then, the people who are really just -- and a lot of these people are the ones who hold a majority of the buying, it's the guy winning the game right now.  He doesn't want this new system to come along, because in that reset, relatively speaking, he's not as powerful as he was when he was at that point in the game.  So, they're the ones that are going to pay most of the bill, they're still going to be in a very good position to do whatever they want in their life, most likely, but they're probably going to be the ones that are fighting it the most, they're going to be the late adopters, and they're going to be the ones who, in the end, are going to look back and be like, "Man, I shouldn't have been fighting it, I should have been assisting it and trying to help".

Peter McCormack: Probably have to sell off some of their assets.

Preston Pysh: I have it pinned right now, but that's what my quote that I have pinned on my profile is.  Danny, I don't know if you can bring that up quickly, but you can read my quote.  That's what my quote is all about, is once you get far enough on the other side of this, how a lot of this Bitcoin is going to really distribute itself, the actual Bitcoin units, are going to distribute themselves throughout the world, is going to be people like me are then going to start buying equity.  And who am I going to buy it from?  I'm going to be buying it from the person who has to sell their equity, because they've got to have some of this in their portfolio and they've got to make that transition.

Peter McCormack: Yeah, "Dear stock and bondholders, I don't think you appreciate the discount rate that my Bitcoin deserves.  I have no intention of trading it for profit, producing equity, until existing multiples are drastically lower than what you get with this worthless fiat.  There are many like me"!  We're coming for you.

Preston Pysh: That goes back to the real generic discount cashflow equation that we were talking about earlier.  So, discount rates in equities today are a multiple of 30; that's crazy.  I'm not paying that!

Peter McCormack: So, is what you're really saying here, there's a swing to Bitcoin, the people who've been accumulating Bitcoin, not everyone, we have our Saylors, but there's a lot of plebs, a lot of normies, if we then have this swing to Bitcoin out of fiat, someone like myself suddenly swings to being one of the people with more capital.  And as people require that capital, I get to take some of their assets off them?

Preston Pysh: That's right.

Peter McCormack: So, this is like a rebalancing.

Preston Pysh: Absolutely.

Peter McCormack: That is beautiful.

Preston Pysh: It is beautiful.  So, if you're the guy winning the game right now and you're holding tank loads of equity, you're going to have to sell it eventually, and I hate to tell you, you're not going to be selling it at multiples of 30 or 35, you're probably going to be selling at multiples of 10 or 5.  I have a feeling that the swing, when it eventually goes, the multiples in equity are going to be very juicy.  At that point, it makes way more sense for me to own equity than own Bitcoin, because those companies are going to be dealing in Bitcoin, they're going to be making Bitcoin.  So then, I want to own the equity, because at a P/E of 5, it's making 20% a year in Bitcoin, and I'd rather own that than just owning Bitcoin.

Peter McCormack: And the new game has been reset without any ability to manipulate it.

Preston Pysh: That's why I'm here.  There's nobody controlling a ledger; there's nobody saying, "We'll settle in 30 days when the gold arrives".  "No, here's my public address, send it right now, I can see it pending in the mempool and I know that it's coming.  And then, when it clears, then we can exchange whatever good it is".  How in the world do you defeat that?  You don't.  All you can do is participate in that system, because it doesn't require any trust, it clearly works, it's just code, it's fully auditable.  Every time I accept it, it's like me running the gold through the machine and flattening it out, every single time.

Peter McCormack: Checking it, yeah.

Preston Pysh: That's why I run a node.

Peter McCormack: Oh, man, it's lucky we have Bitcoin, because there's weird shit going on now.

Preston Pysh: I can only imagine how weird this would get if we didn't have Bitcoin.

Peter McCormack: Yeah.  Do you think there's people perhaps within the US Government that kind of recognise this, and recognise the advantageous position the US has, in that it has the majority of the Bitcoin companies, and probably a disproportionate high share of Bitcoin; do you think there's anyone who's making those calculations?

Preston Pysh: I don't know.  I would think, just based on how many people around the world, I think there are people out there that are seeing some of this.  I don't know that they've fully wrapped their head around how big it really is, but there has to be, there has to be people out there.  I mean, the Ross Stevens of the world, people like that, there are billionaires out there that are accumulating this, and from their vantage point, they don't have to be really right about this.

If a person has a portfolio of $1 billion-plus, they've just got to have a 1% position at today's price, where it's at in the adoption curve, I think a 1% to 5% position in this, and they're fully protected with their buying power on the other side.  So, when you get to that level, they're playing a lot of defence.  As they get more confidence in their position, maybe they bump it up to 10%, right.  If you had 10% today and you were a billionaire, you're going to be ten times richer on the other side of this than you were before it even happened.

Peter McCormack: The asymmetric opportunity.

Preston Pysh: That's how asymmetric all this is at this point in time.  Now, if the price went to $500,000 a Bitcoin, now all of a sudden, they have to have a 10% position to protect them if this is playing out like we just described.

Peter McCormack: Oh, so we go from a position where they should to where they have to?

Preston Pysh: And the further you go down the path, the more it's going to be, "All right, I have to have this much of a position to protect myself from just --"  I mean, they don't have to, if they don't mind losing some of their net worth and their buying power, then they can have a smaller position, but I think it's going to start evolving to that.  What's going to be weird for people is they're going to look at the price of $500,000 and then they're going to really be saying, "I can't afford that"!

Peter McCormack: Well, do you know what, I first bought Bitcoin when it was £80.  I didn't hodl any of it back then, and I've bought Bitcoin at all different prices.  Never once have I ever bought Bitcoin and thought, "That's cheap today".

Preston Pysh: Never.

Peter McCormack: Even now, if Bitcoin dipped to $20,000, I'd be straight in buying and I'd still be thinking, "Fucking hell, that's a lot of money" for some ones and zeros.  It's that weird thing where it just never feels cheap, but you know you have to have it.

Preston Pysh: I said something earlier that I want to clarify for people.  I said, "I'm stacking cash since the start of the year".  I have not sold 1 Bitcoin.  This is with my free cashflows and people have to understand that.  So, when I look at capital allocation, when I find something that I really like and I start amassing it, I'm not selling it, I'm not realising capital gains and playing all that, because this is the hard part, I don't know when the Fed's going to reverse course and say, "Enough's enough, we're back in debasing mode".  That could happen tomorrow, it could happen in a year.

Peter McCormack: Yeah, we've talked about this.  Knowing tops and bottoms is hard, and you've also got to account for 20% of the capital gains within that as well, and then it's like, "Where's the bottom?"  It's a tight range to play in when you know this is a decade play.  I just keep stacking.

Preston Pysh: I just know right now, fiat is bidding; as much as that sounds strange for people, especially after all the charts we just showed.  It's probably going to bid for a short window, at the longest I would say a year that it could bid without something really breaking.  And while it's doing that, I'm just stacking fiat, because that's the thing that's outperforming.  And once I feel that they've just totally reversed course, I just take that clump of stacking of fiat that I've got and I just drop it right on top of the pile of Bitcoin that's there.  Then it's just whatever my free cashflows are each month, it's just going straight into Bitcoin during that period of time.

Peter McCormack: Did you hear him say "pile"!  Okay, wow, mixed feelings.  Mildly scared and quite optimistic.

Preston Pysh: I don't want to say anything that --

Peter McCormack: My fear is more, it's not on a personal level.  My fear is more civil unrest, societal collapse, what it means to people.  That's the stuff that I worry about, I just naturally do.

Preston Pysh: We need people in this space who have been in this space for a while, that have the financial means to just have deep empathy for the collective that are going through -- they've been playing a game that has been extremely unfair.

Peter McCormack: It's been rigged.

Preston Pysh: It's been rigged, and the education system is not there to inform people as to these things that we were talking about.  So, most people are performing productive value to society, but they're performing it in this system that has just totally sheltered them from being able to access and understand.  And everyone's got to take self-responsibility.  I really want to push this idea of Extreme Ownership, the Jocko book.  That's one of the core things from my military background.

Anything that happens bad in my life, I immediately point to myself and I'm like, "All right, what can you do different; or, what did you do to bring that upon yourself?"  But what I would say is, we're about to go through just change that I don't think people can comprehend.  And if you have the financial means, and you have the ability to just harness that deep empathy that I know everybody listening to this has, for other human beings, then go out of your way to just -- even small things, large things. 

The whole Bitcoin Beach story, $100,000 went down there and look at the impact that that has had in that local community, and then the country, and then other countries.  The ripple effect of that action is so profound and so deep, and I would just challenge people to think about the reciprocals that pop out of this, the fractal that spins out of that one action, and we need so much of that during this transition.  And the more empathy that this community can harness for others is going to be the thing that I think truly makes this, I don't want to say the Ray Dalio phrase, because I hate it, but it begins with a "B" and ends with "leverage".  It will make it more like that.  I don't know that you're going to get that, but I think that it's going to bridge that transition a whole lot better.

Peter McCormack: Okay, man.  Well, it's beautifully put.  Thank you, that was really, really awesome.

Preston Pysh: My pleasure.

Peter McCormack: Great to see you, man.

Preston Pysh: Great seeing you, Pete.

Peter McCormack: We don't get to hang out enough, but when we do, I always appreciate seeing you, man.  Do you want to tell anyone where to go?  I mean everyone who listens to my podcast probably knows about the Investor Network that you have, and We Study Billionaires.  I noticed actually, have you got a new show within the feed, the blue one?

Preston Pysh: Yeah, we've got a bunch of different hosts covering all aspects of finance.  Not everybody's down the Bitcoin train like you and me, but we try to put out a lot of content around just finance in general, and it's all about education and teaching people discount cashflow models and whatever, right; all the fun stuff.

Peter McCormack: Well, listen, I'm in your shadows and I love it, but keep doing what you're doing, Preston, and hopefully every few months we get to do this.

Preston Pysh: Absolutely.  Thanks for having me, Pete.