WBD697 Audio Transcription
The Breakdown of Trust with Doomberg
Release date: Wednesday 16th August
Note: the following is a transcription of my interview with Doomberg. 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.
Doomberg is an anonymous collective producing the world’s most popular financial substack. In this interview, we discuss the state of scientific research in the context of the potential game-changing implications that a room-temperature superconductor may have been developed. We talk about the framework for evaluating such claims, the importance of critical thinking, and a range of other current topics of debate.
“One of the things that held up the US dollar hegemony was the state of our institutions and the quality of our financial markets and the rule of law… and the level of corruption and criminality that is on blatant display in Washington D.C is appalling. Once you lose your ethical framework as a society, what do you have?”
— Doomberg
Interview Transcription
Peter McCormack: Big green chicken, good to see you.
Doomberg: Yes, good to see you, Peter. How you been?
Peter McCormack: Yeah, really good, really good. Yeah, just busy, travelling a lot. Been out to Argentina since I spoke to you last, and I'm not sure if you saw the results that came in last night from their primaries.
Doomberg: Yes, indeed, making the big news.
Peter McCormack: I might even ask you about that later on. Loads of weird stuff has been happening since we last spoke.
Doomberg: Yes, indeed. Well, the good news is that the news flow means that we'll never have a shortage of things for us to talk about.
Peter McCormack: No. I thought we were going to talk about superconductors. I recently read your piece on the cancer-curing pill, and we've also had the US congressional hearings on aliens, among some of the things so just your standard news flow for a for a post-COVID world!
Doomberg: Indeed, indeed. Where would you like to begin?
Peter McCormack: I know the information has changed, but let's talk a little bit about the superconductor thing, because the internet was feverish with excitement about the potential of the discovery of a superconductor. It turns out that it wasn't. What happened here? Were we hoodwinked; were we tricked?
Doomberg: So, specifically what was claimed was the development of a room-temperature superconductor. Of course, if you cool down certain materials to low enough temperature, they do already display superconductive behaviour. The discovery of such a behaviour that could operate at room temperature, or in this case, they claim that they were able to observe superconducting activity at temperatures above the boiling point of water, that would truly be a world-changing discovery on par with fission and perhaps the development of semiconductors. And it is a holy grail, and that phrase is overused of course, but the advent of such material would truly qualify for one of those.
When we first saw the piece that was published, we were very sceptical of it. We wrote our own analysis of it in the days afterwards, at the peak of the excitement really, called Conducting Diligence, and over the years we have used a five-question framework for analysing such discoveries and we introduced it and applied it here. As background, when I was an executive in the corporate world, I led very large technology groups and many CEOs get most of their science advance information in the Wall Street Journal or the Financial Times, and so it was very, very common for whoever my CEO was at the time to forward such things to me and demand my instant analysis of it. And oftentimes, I had to talk such people out of reorienting investment dollars to chase down the latest hype cycle. And so over those decades, really, we developed this framework that allowed us to systematically write five paragraphs to our executive overlords and to explain to them, most of the time, why such an advance was worth watching, but perhaps not worth acting on yet.
Occasionally, one does pass that screen and in this case we used those five questions and concluded by saying that we're deeply, deeply sceptical. Happy to dive into the details as to why, but I do think that piece that we wrote has stood the test of time quite well.
Peter McCormack: Yeah, before we dive in, can you explain why a superconductor would be such a game-changer though?
Doomberg: There's the superficial reasons that the media likes to write about, which is, "Oh, you can imagine transmitting massive amounts of electricity with no loss and reorienting the entirety of our electricity grid". But in reality, in our view, it would be how a room temperature superconductor could facilitate advances in otherwise unrelated fields. And then the second- and third-order effects of those would be truly game-changing. In particular, quantum computing, for example, would stand to benefit greatly from an advance in room-temperature superconducting. And that field, of course, has had its own hype cycle. But quantum computing, a true advance in room temperature superconductors, for example, we believe could put the world of computing back on pace of exponential growth.
If you squint at the log curves of the rate of computing advances, it seems to have slowed down a little bit in the past few years. Of course, we're still making massive advances, but it's the second- and third-order impacts from the other technologies that would be enabled by such an advance that we think would ultimately transform society. And look, all manner of electronic applications, a quantum computing advance would jeopardise encryption, for example, and there's just countless other ways that a step change like this would be very, very useful. And as we said in the piece, vast riches and a quick ticket to Stockholm to collect a Nobel Prize await those who succeed in demonstrating the phenomenon. And many serious physicists doubt that such an advance is even possible. So, when you see such an enormous claim like this, it is irresistible that the hype wouldn't proceed in the way that it did, it's totally understandable. But at the same time, we had serious, serious doubts from the very beginning for the reasons that we wrote in that piece.
Peter McCormack: Okay, so can you break down why you were sceptical in your piece?
Doomberg: Yeah, so we asked five questions and I'll just list them carefully. They're simple questions and the good thing about this approach is it doesn't require all that much in the way of specific expertise in the underlying area, and I should say up front, this is not something that I personally have a deep level of practical knowledge in the nuances of the science, but it's not needed in this case. So, the five questions are: who is involved; where was it published; where are we in the scientific process; what is the scientific context; and then, what should we expect next?
If you go through each of those questions, the first one, as with most human endeavours, the reputation and pedigree of the people involved matters. As we said in the piece, if Google and MIT announced a computing advance, you probably would be safe to bet that they have the goods. But if your neighbour tugs on your sleeve at a party and whispers quietly about an invention he's been working on in his garage for years that's sure to change the world, you'd probably be justified in having a healthy degree of scepticism here. The researchers involved have very good pedigree. The team is based in Korea, but they also collaborate with a relatively well-known physics professor at the College of William & Mary, and they seem to be trained in the field. And most importantly, one of the main inventors said they would be willing to support anyone trying to replicate the work, and we took that as a good sign.
Things get a little sketchier when you consider where it was published, which is the second question, and here, these results were not published in a peer-reviewed journal of any pedigree. They were self-published as preprints on the internet; two of them, actually, one with three authors and the other with six, and the barrier to publishing a preprint is zero. You and I, Peter, could publish a preprint making claims to this very same website and generate a hype cycle of our own. It's not to say that the work was bad, but in our view, if this had passed peer review at a reputable journal, it would have lent more credibility to the claims.
Unfortunately, this is not the world that we live in, and these preprints were hyped. And one of the reasons why this matters is because, as I believe ultimately the story will dictate, the misinterpretation of the data that this looks like is what happened, this would have been caught in that peer review process and would never have made the hype cycle, which is the third question, where are we in the scientific process since it's unpublished? And basically, nobody would consider these results to be validated until independent researchers reproduce the work in their own laboratories. And one of the reasons why it's important to publish your paper in a journal and pass peer review is because a key job of editors at such journals is to ensure authors provide sufficient specific details that allow others to confirm the work. And the good news with this is, as we pointed out in the piece, the compounds used were pretty simple and the synthetic procedures were rudimentary, which actually gave us even more pause, because typically giant leaps of science don't usually arise from what we call, "Kitchen chemistry", such as this. But on the other hand, the fact that it was so straightforward meant that others would very quickly be able to test whether the results were real.
Then the fourth question is the scientific context. And here, we've had example after example of such claims falling flat, data being retracted. Sometimes it's fraud; most often it is a misunderstanding of the phenomenon. And so, especially, the equivalent would be claims of battery breakthroughs, we've written another piece on this as well. There's certain fields where the prize is so high that the weaknesses of the scientific method, as practiced in the modern era, are really on display, and the pursuit of a room temperature superconductor would be one of those.
Then the last question, what should we expect next, which is exactly what has transpired. A bunch of people tried to reproduce it, nobody has been able to do so. It appears as though experts have studied the preprints and their own experimental work and have come up with an alternative explanation for the phenomenon that was witnessed. And as we said in our verdict, nobody would be more thrilled to see these results validate than us, but we found ourselves deeply sceptical. The last point I would say is the leap was too far, the method is too simple, and the process too premature to get excited, and I think that was a good view at the time.
Peter McCormack: So is their project dead, or are they still working on it?
Doomberg: Well, the problem with making such a hyperbolic claim is that it becomes difficult for people to continue to pursue the work, and there's really not that much to pursue here if the reinterpretation of the data is as the scientific community seems to be coalescing on, because it's just not that interesting of a discovery. And so, back to the drawing board. We were going to write a follow-up piece called What If; it's one of these pieces that was sort of written in my head that never saw the light of day, because by the time we would have gotten it published, it would have seemed a bit silly. But if this had been true, even if it was a small component or a minor byproduct, the state of industrial heterogeneous synthesis using high-throughput techniques is such that the big chemical companies would have obliterated this experimental map across all dimensions: concentration, oxygen, temperature ramp, you name it, they would have done thousands and thousands and thousands of experiments, they would have found the exact molecule that worked. And that it can work itself is a gigantic discovery. And so, if one can work, it would have taken weeks for the industry to isolate an entire family of these things, then the theory would have caught up to it very quickly, and there would have been something about these things that teaches theory something interesting, which then would very quickly inform the synthetic chemists as to how to optimise and create.
It would have been like how the first person to break the four-minute mile, and suddenly everybody does it. This would have been one of those situations where the raw power of the high throughput synthesis discovery workflows in the big multi-deca-billion-dollar chemical companies would have made short work of this, would have optimised it very quickly. There would have been no meaningful barriers to commercialisation because materials involved were so simple and so widely available, that cooking them in a certain unique way is of no challenge whatsoever to the industry. So, if there was even a possibility that this had once worked, that would have been game-changing, but it doesn't look that way unfortunately.
Peter McCormack: What is the general state of scientific research and peer reviews because there was a period, certainly post-COVID, where this would have been hotly debated and the "trust the science" meme was spreading quite regularly with people just having vast doubts about peer review studies and the peer review process; what have you looked at into that?
Doomberg: There's just a huge ongoing retraction scandal in the scientific world. And as we said in the piece, peer review on its own doesn't mean that this is fundamentally accurate science. It still needs to be reproduced in other labs for it to really go from an observation to say an accepted theory or accepted experimental set of results. But the state of modern science is poor right now, and it's because it is performed by humans who are susceptible to the hype cycle, the need for funding. We wrote a piece called Science by Press Release, where we took to task a certain group of scientists who issued some fantastical claims without really any basis for them. A real challenge in science is academicians who've never worked a day in industry, claiming vast industrial relevance where none exists.
One of the strengths of Doomberg is that our team exclusively comes from industry, and we leverage our decades of practical experience to be able to assess hype from solid advances. And as we said in the piece, conducting diligence, the vast majority of science proceeds in very slow, agonising, two inches forward and three-quarters of an inch back kind of approach, and to see such a giant chasm, like literally hopping across the Grand Canyon would be an analogy we would use, really, really should have given everybody involved significant pause. I will say, I think that the researchers genuinely believed that they had accomplished what they claimed to have accomplished. I've seen no evidence that there was any impropriety involved here. Perhaps that might change someday, but this is just not how science normally works, and so it was a kind of an easy bet to make.
I should say, a couple of pieces after that, we used the exact same five-questions approach to assess a potential breakthrough in cancer, and we had a different view of those results. And so it is a framework that is widely applicable that we introduce to our readers, that leverages our own experience, having done this hundreds of times over the years. I can't tell you how many times I wrote about the various battery breakthrough claims that found their way into the tape.
Peter McCormack: Can we talk about this cancer pill? Because again, I read that piece that you wrote, but just explain to people what this proposed breakthrough is, and if you can apply then your five questions to it, and tell us what your conclusions are.
Doomberg: Yeah, we wrote a piece called Hold My Beer, and the social preview was something along the lines of, "Room temperature superconductor and a cure for cancer in the same week? Come on now, right? Things are getting a little crazy". But here actually, if we use those same five questions, we come to a different answer. And so, at issue is a new drug that has been discovered that attacks cancer in a way that has long been hypothesised to be a potential vulnerability, that is common to all cancers, and through what appears to be high throughput organic synthesis. They've stumbled upon a molecule that works extraordinarily well. So, let's go through those same five questions for this discovery.
First, who is involved? So, this research was performed by a team at City of Hope, and in particular, the City of Hope Comprehensive Cancer Center. And City of Hope is, frankly speaking, one of the best cancer hospitals in the world. This is an elite hospital filled with excellent researchers, routinely ranks in the top 10 in the US which, as you know, dominates the world in cancer research. If you have cancer and you are lucky enough to be treated at City of Hope, you have won the hospital lottery. And so by our view, the pedigree of those involved adds significant confirmatory weight to their claims.
Second question is, where was it published? Here, in contrast to room-temperature superconductor work, this was introduced to the world in a full article in the highly impactful journal, Cell Chemical Biology. And this means that this work has survived the journal's editorial and peer review processes. And the authors provided significant additional supplementary information that described their sources and methods in significant detail. And in perusing this paper, we find no particular red flags. We are relatively well trained in this area for a variety of personal and professional reasons, and in our view, this was a solid, appropriately referenced report that builds on decades of pre-existing research.
Where we are in the scientific process is here, where the hype and reality begins to deviate. This is a new molecule, and it has shown excellent results in cell line testing and in animal studies. On top of that, the researchers have a pretty good understanding of the theoretical basis for why this should work, but it hasn't been tried in humans yet. And the leap from this to "Cancer-killing magic bullet" is premature. And this is something the authors themselves make abundantly clear in their own article. The history of advances in cancer is littered with great results in the lab that don't materialise in humans, which is the answer to the fourth question, where are we in the scientific context? And the hard reality is that 90% of such drugs fail in the clinic, and they fail to gain regulatory approval for a variety of reasons, unanticipated secondary side effects, or there's something unique about cancers in humans that doesn't manifest when the drug is applied. And this is where I think the authors flubbed it.
In their press release, they had what we think and described in the piece as a particularly cringeworthy quote about, "Our cancer-killing pill is like a snowstorm that closes a key airline hub, shutting down all flights in and out of the airport". And to a layperson who doesn't have the sophistication that say trained scientists have, using words like "cancer-killing pill" and "snowstorm" and "shutting down all" in the context of an early-stage drug development risk, giving unwarranted hope to desperate patients in our view, and we would have preferred that they wait to see how it does in the clinic. Luckily again here, what we can expect next, which is the fifth question is, as we showed in the piece, they have in fact started a phase one clinical trial. Patients are undoubtedly receiving doses of this material. If the results are exceptionally positive, we would expect to see two things in short order. We should see them bragging about it in an abstract at a respectable conference. Additionally, we should very quickly see, in the NIH's National Database of Clinical Trials, a phase two trial show up. And if we see that, then we would begin to get excited.
So, our verdict in this case, which again using the same simple five questions is, here we have little doubt that the results published so far are empirically valid. And for decades, people have known that this might be a suitable pathway. They've discovered a molecule that certainly works in the lab and on animals. And if it does work in humans, it could indeed mark a significant step change in cancer treatment. And if it does, we should all expect to hear about it soon enough.
Peter McCormack: So, I think if we applied your five questions to the recent discussions regarding aliens and visits from them, I think you're going to come into the deeply sceptical area.
Doomberg: Yeah, it does seem a little convenient and we are actually going to write about this. I had it in my mind at least, and I'll just riff on it with you here maybe and you can help shape it. My view of this is, this clumsy attempt to change the narrative proves just how cynical people are and have become with their lack of trust in our elite institutions, because if this had happened 15 years ago, it's all we'd be talking about. And nobody's talking about it, because nobody cares, because nobody believes it. As far as I go, I mean I don't believe it, I don't know what you think, but…
Peter McCormack: So, I've interviewed a guy called Matthew Pines, who has worked at high level within government. And rather than saying whether he believes it or not, he talked about -- I guess he had his own framework in terms of who these people are, what they've said, where they are in the chain of command, historical credibility, and why there would be congressional hearings on this. And he said, it's not that he believes it, it's just his position has moved to believing more so that this might be a possibility.
Doomberg: Sure, but the thrust of our piece will be, why isn't everybody talking about this 24/7? And it's because we've lost the trust in authorities, and that is really the insight for us. Because they are trying really hard to put this on people's radars, it couldn't be more overt, right? And this is part of, in our view, an 18- to 24-month pattern of ever increasing statements. Again, in the mid-1990s, if this had come out, it would literally be all that everybody's talking about. I have not had one person in my real life asking about it.
Peter McCormack: Yeah, I remember back in the 1990s where a crop circle would make the news!
Doomberg: Yeah, exactly. I'm still curious about the origins of such crop circles, but that's perhaps a topic for another day.
Peter McCormack: Yeah, well, I'll wait for that piece. Okay, so look, there's stuff I really want to get into you, what our listeners will really care about. Look, you and I talked about this before, but I want to get it back into the BRICS stuff with you and the BRICS nations and what they're doing. I know you've been looking at this a bit further. Just again, for anyone listening who doesn't know who they are, who are the BRICS nations, and what is it they're trying to do?
Doomberg: Yeah, the BRICS nations are Brazil, Russia, India, China, and South Africa. And the first time we wrote about BRICS, we made the critical typo of referring to South Africa as South America, which led to about 250 emails, which is always fun when you make a typo in a piece, but I digress. They are, of course, prominent members of what many would call the Global South, or the developing nations, or the subset of the 4 billion to 5 billion people on the planet for whom the US dollar system is suboptimal. And for decades, of course, people have acknowledged and in many ways lamented the US dollar hegemony and its impact on the Global South and the disproportionate benefit that accrues to the Global North because of this setup. And there is no shortage of people historically who have made overt efforts to try to do something about it.
History, coincidentally, seems to imply that war and regime change fall swiftly whenever such efforts get to be too serious, but there's a lot of talk and excitement in the gold community that this time might be different, that the BRICS nations might come together and create a unified currency, where international trade imbalances are settled in part, at least, with gold and perhaps a mix of commodities, a commodity basket. And so we wrote a piece on this called Something or Nothing because the hype had gotten pretty big, and in this piece we actually just asked five people we really respect for their opinion and then synthesised it into a story. And ultimately we concluded that we would probably fade this hype.
There's no question that the US dollar system does disproportionate damage to a lot of people; there's no question that many of these people would like a new system; but the speed with which this can be done and the difficulties involved are significant. And ultimately, despite the fact that lots of countries want to do this and the seizing of Russia's assets has only increased their motivation to try, it's probably not going to happen on any reasonable timeframe. And so, there's a summit coming up and we suspect that what comes out of that summit will likely disappoint, although we shall see, we will certainly be watching with significant interest.
Peter McCormack: So, is it that despite the disproportionate benefit the Global North has with the dollar, actually moving away from the dollar technically is just too difficult?
Doomberg: Yes, there's a variety of issues and some of them were highlighted in the piece. Brent Johnson over at Santiago Capital, of course, is probably the most prominent figure on Twitter with his Milkshake Theory on the US dollar, and I just pulled it up so I could quote him carefully, "To be clear, it's not that the idea isn't potentially a big deal, but the ability of the BRICS nations to actually develop it and then successfully implement it is far from the certainty that many on Twitter seem to think it is, and they would still have to deal with their eurodollar debt problems". And so he goes on to talk about a few other challenges, including the US inevitable response.
We've already seen, of course, shortly after the Head of India visited the White House for a state dinner, suddenly India backed out of, or was public about backing out of their participation in a unified BRICS currency. You can't have it both ways. The US dollar system can't be so beneficial, and in many ways so evil, to so many analysts and assume that the US won't pull out all the stops to defend it. And so it's not like -- the US may be waning in its geopolitical power, but it is still the most prominent geopolitical power on the planet and by a long shot. And so, if this is in fact so critical to their maintenance of such power, the last thing you would expect them to do is to go out with a whimper.
Peter McCormack: Do you think we will see more settlements in yuan though?
Doomberg: So, more settlements in yuan is a different beast altogether than a unified BRICS currency backed by gold. And yes, of course, another person we quoted in the piece was Luke Gromen, who has been following this for the better part of several decades, I believe. And there is a pattern, there is a trend, away from the US dollar towards currencies like the yuan or bilateral trade agreements, there's no question that there is a trend. And in Luke's view, the need to diversify away from the US dollar arises from the need to tie a neutral reserve asset to the price of oil, which we agree with the energy lens of his focus on this issue.
The real issue here is the sort of decades-long trade between the US and the Middle Eastern producers that the US dollar shall be, "As good as gold for oil", has been broken since the Global Financial Crisis of 2008/09. That's just one of the many casualties of that financial crisis, including many aspects of our financial rule of law, which is a whole other topic. In Luke's view, we are at peak cheap oil or peak cheap energy, and that this is the underlying trend or the force that is driving all of this. I think we're a little further away from peak cheap energy than perhaps he believes, and that's where our analysis may deviate a bit. But I do think that what's really driving this, of course, is the fact that we have debased the US dollar to a significant extent that now the price of oil has gone to levels that are historically quite high and has stayed there for historically longer periods of time.
Peter McCormack: Why does he say we're at peak cheap oil, because I think people here in the UK would want to challenge that?
Doomberg: The basis of that analysis, and he does, by the way, disclose and make the point that a major breakthrough in the production of energy would change his hypothesis, but it's based on the fact that for the past decade-and-a-half or so, the vast majority of the growth in oil supply has come from the US shale patch, and it is his view and the view of other really respectable analysts that perhaps we're seeing the end of that growth and perhaps even seeing that growth turning over. And few analysts have that in their models.
Now, we would be more bullish on the fact that our access to oil is largely truncated by political processes and not technical ones, and that if prices got high enough or the situation got serious enough, political change is far easier to overcome than technical challenges. And I do think that many of the peak oil proponents are shorting human ingenuity in the field. People think of the oil and gas companies as commodity players, and so on, but these are in fact home to some of the most brilliant technologists and engineers and scientists on the planet. Having spent time, perhaps I'm biased because I come from that area, but if you ever visited the headquarters of Saudi Aramco, you would not leave that tour wondering whether this is a technology company or not. This is why, in fact, we were pretty sceptical of various analysts who were proclaiming that Russia's oil production would collapse simply because western engineers pulled out.
I mean, Sinopec and Reliance and all of these major oil and gas companies of the Global South have thousands and thousands of engineers. They're producing far more petroleum engineers than we are in the US and they're not afraid to steal our technology. And so, this technical arrogance that we had that we would collapse Russia's energy production simply because western oil and gas services companies pulled out was, we thought, a bit foolish and displayed a lack of industrial knowledge. And I do think peak cheap oil is an artifact of politics. And I think there's plenty of oil and gas in the ground for us to exploit for many decades to come, it's just a matter of having the political will to do so.
Peter McCormack: How much have you considered Saudi Arabia's kind of expansion into sports and tourism? I mean, we get endless TV ads for Visit Saudi Arabia in here, we've seen so many of the Premier League footballers head out on huge, like the most obscene contracts to play for Saudi Arabian teams, we've seen what's happened with Liv Golf. How much does that play into all this; have you guys looked at that?
Doomberg: Yes, there's a cynical view, which is they are voting with their feet on the value of the currencies that they're currently holding, and whether they will be able to maintain that value over a timeframe that matters, and they are spending it at a rate that is pretty phenomenal and ultimately, what do you mean by spend? I mean, they're building infrastructure. We talked about this in a piece called Uniting States. It was the opening story where we talked about these tourist destinations that they're developing out of whole cloth, and they're spending several trillion dollars on this, and this is under MBS's Saudi Vision 2030, which is sort of a grand plan to reduce Saudi Arabia's dependence on oil and to diversify its economy into things like tourism and so on. The Red Sea Project is the one that we highlighted in the piece, which is the development of a beautiful international airport and all of these seven, eight-star hotels, if such things even exist. And the opulence is off the charts in these things.
In our view, the most important part of all of this is it just proves that Saudi Arabia needs oil above, you know, Brent above $80 a barrel, if it's going to fund all of these things. And we think that these plans, however ridiculous they might sound to us, are real in the eyes of MBS and are the genesis of a Saudi put under the price of oil. And you notice that any time the price of oil gets down into the $70s, we see OPEC+ coming to the table with more cuts or talk of cuts or other actions that put a put under the price of oil. So we're in this sort of sweet spot right now between $70 and $90 a barrel, where at the high end of that sweet spot, we're seeing in the US today the price of gasoline passing $4 a gallon again nationally. That is beginning to get into the risk zone for Team Biden as they head into a presidential election year. But at the same time, that is a very useful price for the ambitions of Saudi Arabia. And so if they're cycling this "money" into things like football purchases or airport development or hotel development, that does give you some indication of their view of the US dollar long term.
Peter McCormack: Yeah, this election cycle, I think, is going to be even weirder than the last one. As an outsider looking into the US, and knowing our whole political cycle here is particularly weird itself, but kind of looking in at a potential Biden versus Trump, we have Hunter Biden now being investigated, we have Trump currently being investigated and in court. It's a particularly weird time. Are you writing about this at all?
Doomberg: As an insider, I can tell you it is a particularly weird time. You don't have to be an outsider to see how ridiculous it is. To answer your specific question, we try not to be a political newsletter. To the extent that politics is an input into the main things we write about, we are politically aware. We have said on other appearances that we voted for neither of these candidates last time, and we would hope that we would have a better selection than these two this time. And we are. I mean, if you just read out loud the things you just said, again, back in the 1990s, you wouldn't believe it, that this is the United States we're talking about. And by the way, this is bipartisan. Mitch McConnell has no idea where he is. Joe Biden is not all there. I read 1984, you can use all the propaganda techniques you want on me, I can visually see that he's not there. They've charged Donald Trump with 73 felonies and counting, and he's still the front-runner for the Republican nomination. It's banana republic stuff, it's absurd.
This is all coming on the heels of the BRICS discussion we just talked about, and the Hunter Biden stuff that depends on which side of the algorithm that you sit on. To some, he doesn't even exist; and to others, that's the main news story of the day, that the polarisation of the US political discourse is off the charts. But it can't be that the best candidates we have are people in their 80s. I mean, Dianne Feinstein has no idea where she is. It shouldn't be partisan to point out these things. Mitch McConnell, it's time he retired.
I was on a podcast the other day where I said, "Look, why can't we just have something like Gavin Newsom against Ron DeSantis with Joe Manchin running as an independent, and give the country a choice between three people who can complete a sentence? I mean, it's really upsetting. Of course, Donald Trump can complete a sentence, but Donald Trump comes with his own set of legacy issues. But it can't be that this is the best we have, well, it isn't really, and it is a sad state of affairs. That's probably as political as I would ever get, we would never write such a piece because it's not what our audience comes to us for, but it truly is, as an insider, sad really and a bit scary.
Peter McCormack: Well, is it just another signal of a crumbling empire, you know, huge debt? I mean we didn't even talk about the downgrading of US credit.
Doomberg: Yeah, we can, that's something we have certainly spoken about with our approach here and might write about. But yeah, I mean people say it might be at the decline, you know, decline stage of the Roman Empire, but the Roman Empire took hundreds of years to go from decline to collapse. I don't know, in the internet era, maybe things feel like it might be accelerating a little quickly, but yeah, this is unsettling. As a person who is a proud patriot, and by the way, it used to be that that was an uncontroversial statement, you can't even say that you're a patriot in the US political discourse today without receiving ridicule from at least half the country. And what does that say about the state of affairs? I'm not sure what it's like in the UK, but nonetheless, it is not positive.
One of the things that held up the US dollar hegemony was the state of our institutions and the quality of our financial markets and the rule of law and the belief that you could get a fair hearing in the US and the level of corruption and criminality that is on blatant display in Washington DC is appalling. And once you lose your ethical framework as a society, what do you have?
Peter McCormack: Well, I mean I mentioned to you I'd just been out to Buenos Aires, spent a week there making a film about inflation, by the way which was a weird experience because the inflation was so high, I expected to see quite a desperate picture; but actually, the restaurants were full, the shops were full. There's kind of two classes of people; there's the poor and everyone else. The poor are just a large voting bloc and backed by unions and tend to see they get wage increases that go with inflation, whereas the rich have access to dollar or other tools where they can hedge themselves. So, it was a very weird experience but at the same time, I kind of felt like some of the things I was seeing was almost like a window into the future of what may happen, I don't know to the extent, but what may happen in the UK and the US.
I mean, look, we have better institutions, so I don't see us in 150% inflation, well, I hope not. But certainly things that really stood out to me were the difficulties in doing business, how much the state interferes with doing business, setting up of businesses, licences, the weird rules they have there like you can't fire people. You don't have it in the US as much as we do here, but if someone's worked for you for two years, it's very difficult to get rid of them here in the UK. But just doing business here in the UK is very hard. I own three businesses. Setting up a bank account is particularly hard, the taxes you pay are particularly onerous. And so, it was like a window into the future, especially as somebody who's set up businesses for 20 years, it's now harder than ever.
The state here in the UK is in your pocket for everything, and once we hit particularly more challenging times, there's other suggestions that come up. You hear of windfall taxes or you hear of new inheritance taxes, all these different new taxes to solve their overspending problem. You never hear of government austerity, but it just did feel like a window into a potential future.
Doomberg: So, let me give you perhaps a scary interpretation of what you just said. The difference between Argentina and the US is, Argentina has far more practice going through such hyperinflationary spirals.
Peter McCormack: Yeah, they're used to it.
Doomberg: In many ways, the society is conditioned to proactively hedge to minimise risk to port wealth from one regime to the other. The UK of course had a pretty bad experience in the 1970s, but the US is nowhere near ready for the consequences of the first, second, or third time that this happens. And in many ways, the US in particular is the least prepared for the hardships that would come and would react the worst, and perhaps social unity and institutions would dissolve quicker and harder. Argentina, at least the citizens of Argentina, both categories of people that you described, have seen this movie before, and that does two things. Of course, it does make them particularly susceptible to further bouts of hyperinflation because the pattern recognition kicks in and becomes quickly self-fulfilling.
But also, it does harden them to it. And so you can have this contrast of what you would expect to see at home if this was occurring, and what you actually see on the ground in Argentina, although I would say the election results that came out overnight are fascinating and very interesting. Obviously, it's not our zone of expertise. We'd be curious to get your thoughts on it, but this move to potentially abolish the central bank and adopt the US dollar, while that transition would be difficult, it does seem at least somebody is talking about a curative approach to these problems, and they seem to be catching some resonance with the population.
Peter McCormack: Well, so that was a really interesting part of the filming this documentary, is asking people about Milei, because we're referring to the primaries that happened last night. Milei, what did he have, like 35% of the vote, significantly ahead of anybody else?
Doomberg: Something like that.
Peter McCormack: Yeah, and what's really interesting is you do have this large voting bloc in Argentina, which is the poorest of society, but they are the people that still get screwed the worst. Yeah, they don't have access to the tools other people do, and yes, they may get wage rises backed by unions, but they still get screwed the worst. They don't have access to simple things like credit cards. I mean, some of the people I met, the more middle class people, they would buy everything on a credit card. And by the end of the month, they would have a 10% discount on everything they purchased, just simple tools like that. But Milei seems to have appealed to a lot of the young people who are kind of fed up with this.
So again, a couple of things that really stood out; young people saying, "There is no point me staying in Argentina. I won't be able to buy a house, I won't be able to conserve wealth". So a lot of Argentinians are leaving, they're moving to Australia or the UK or the US, and so that's a real brain drain from the country itself. But there are even people who, not even from the richest parts, are now saying, "Look, I'm fed up with this, this has been decades of inflation that we've dealt with, this is part of our culture now". And so, those people I spoke to, who like Milei who wouldn't vote for him, what they said was, "He doesn't appear to have the experience. We're not sure whether he can deliver against what he wants".
I actually interviewed his economic advisor while I was out there. Everything he said to me makes sense. He said, "We have to cut our spend, we have to stop these huge subsidies, we have to rein in the central bank or obliterate the central bank". One of the things they also have discussed quite heavily, which is becoming a dollarised nation. I mean, it essentially is a dollarised nation.
Doomberg: Correct, The underground economy dominates the official economy, which is what you see in such circumstances. Same thing in Venezuela.
Peter McCormack: Yeah, so I've been to Venezuela as well and both were very different. Venezuela was a basket case, whereas Argentina, if you just dropped into Buenos Aires and nobody told you, you would have no idea there's high inflation. Life's going on relatively as normal as people can do it. Whereas when I was in Venezuela, it was just abject poverty everywhere.
Doomberg: Of course, Argentina used to be a very, very wealthy nation, of course. And so, this is probably a closer analogy to what I fear in the US than perhaps Argentina is today. I will say, to your point, as a protest candidate that is suddenly thrust into the lead and the momentum building behind Milei, I doubt if I want to say it, but I would be concerned for his security first and foremost.
Peter McCormack: What we saw happen in Ecuador recently.
Doomberg: Exactly, such radical shock therapy does not really come without a counterpunch, but we shall see. It's very, very interesting and worth keeping an eye on for sure.
Peter McCormack: Yeah, I just think when I was there, people were like, "Well, what do you think, Peter?" I was like, "Come on, I've been here for seven days. I'm not really an economic analyst and I can't really give you an educated answer. But what I would say is that, what have you got to lose? You had decades of administrations who have robbed the country, who have failed to rein in spending and have slowly destroyed the value of the Argentinian economy. So, what have you got to lose with someone like Milei?" I mean, it doesn't really matter what I think, what will be will be, but it's if he does win, without any risk to his life, can he make change? And if he does make change, I'm quite interested to see the economic impact through all of South America. I mean, we just saw, I don't know, did you see the report that came out with regards to El Salvador?
Doomberg: I did not.
Peter McCormack: I'll have to dig it out. Bukele tweeted about it. Let me see if I can find it. But you have got these leaders in South America who are trying fundamentally different things, trying to stimulate their economies, trying to move away from reliance on the IMF and the World Bank, and it feels like Bukele's had success in El Salvador and perhaps Milei may have success in Argentina, maybe that will reverberate around South America.
Doomberg: Well, there's also the influence of China and the BRICS countries, as well and the relationship between Brazil and China, to circle back to what we talked about earlier. And in many ways, as you mentioned, Confessions of an Economic Hitman is a must-read for most people, and China, in their own way, is repeating some of the tactics of the US they claim with a different approach, but they are sort of manoeuvring it and leveraging their economic relationships to get access to critical minerals, and much of the critical minerals reside in the Global South; but also to pursue their Taiwan policy and to convince nations to step away from the recognition of Taiwan as part of a combo deal, which many people seem to be signing up for, both in Latin America and in South Africa. And so I don't think that we could look at these events in a vacuum. They're occurring in this geopolitical struggle at sort of the top of the bill. But much like in the Cold War, there was lots of skirmishes at the regional level, and perhaps this is at least being driven in some way by that.
Peter McCormack: So, this was a what Bukele tweeted out on X.com, which again, we'll talk about that in a minute. But JPMorgan report on Latin America emerging markets and research says, "El Salvador: solid mix, revising GDP up and fiscal deficit down".
Doomberg: Yeah, he's a controversial figure, of course, and one person's crackdown on crime is another person's suppression of political opponents. And I can't say that we've studied this situation as carefully as those who are interested in Bitcoin have, for obvious reasons. But again, I would say the entire future of Latin America, it does feel like one of those times where you have decades and weeks. And we've often warned, for example, just to bring it back to energy, that the path function matters and pushing too hard too quick can lead to a "far right", to use a favourite term of The New York Times, even as they describe Milei today in their report, it does lead to sort of reactionary populist movements. And I would say that just over the weekend, I read with a slight smirk that Germany is considering banning the AFD, as though banning political parties has proven to be so effective historically within Germany. And so, we are seeing this sort of rise of populist campaigns as people become fed up with the existing system and who benefits.
This is all really a symptom of this massive inequality that has grown in all western countries, and in fact by extension, between the have and have-not countries as well. The winners are taking way too much of the pie and if they continue to take bricks from the bottom to put them on top, the entire Jenga tower will soon collapse.
Peter McCormack: I think this is why this Rich Men of North Richmond went viral so quickly because of I think everything he sung about in that song. I kept seeing this tweet but I wasn't properly looking at it. It felt like just a story of someone as a musician who'd got some relatively viral success. I hadn't actually paid much attention to it and I listened to the song the other day and I was like, "Holy shit!" he's basically relaying the experience that most people are living right now. It doesn't matter if you're a developed nation or a developing nation, if you are not part of the elite side of society, you are getting screwed constantly. And I just think he hit the mark perfectly.
Doomberg: Yeah, and in the case of Argentina, again, this anger manifests itself, at least initially in the polls. And then if that doesn't work, then sometimes things turn violent. And so, it is interesting to see, both in Argentina and in Germany and in the UK, even here in the US, this polarisation isn't occurring in a vacuum. And everybody can sort of diagnose what the problems are, but it's very, very difficult to find out what the solutions are that those in power would accept, because once you accumulate enough wealth, you have all manner of tools to protect it.
Peter McCormack: Yeah, and it just feels harder in places like the UK and the US to have this kind of outsider candidate, like a Bukele, like a Milei, who isn't part of the established political groups. So, I think it's interesting in Argentina, I just don't hold much hope I'd see --
Doomberg: Well, look, Donald Trump was that candidate in 2016.
Peter McCormack: Yeah.
Doomberg: And look what happened to him!
Peter McCormack: Well, I just think I think there's a lot we could talk about.
Doomberg: Sure.
Peter McCormack: And I think I think RFK is perhaps in that similar kind of category, although I'm reticent to compare him exactly to Trump. But we don't have anything, certainly don't have anyone in the UK, that anti-establishment person that is making any ground. We had Farage a couple of years back on Brexit. He was very polarising and wasn't like an inspirational leader.
Doomberg: He was also a creature of the establishment himself. He just held anti-establishment views, right? And so we've written in support of his troubles with banking, which I'm sure you would agree with, but yeah, he's certainly a polarising figure. But again, we wrote a piece about the AFD situation in Germany, and that's one of our key leading indicators, is how they're doing in the polling and how the political establishment is dealing with it. And I would say that the piece we saw in the Financial Times over the weekend doesn't inspire too much confidence.
Peter McCormack: All right, well as I'm conscious of time, let's talk about X.com.
Doomberg: Yes.
Peter McCormack: The artist formerly known as Twitter. You don't have a blue check.
Doomberg: We're no longer active on Twitter. So, last week we wrote a piece explaining it, a piece called Notes on X. And we have put our account into lurker mode for reasons that we described thoroughly in that piece. This is a bit personal for us because it has to do with the new owner of Twitter's treatment of Substack authors on the platform, and this is something that we have experienced directly. Anything and everything to do with Substack is being significantly throttled, including our account. In tweets, when we would publish a piece with a link to our piece on Substack, historically we might get 500, 600 likes or 1,000 likes for a good piece. Our latest ones were getting 14 likes after 24 hours, even though we allegedly have 260,000 followers. And as we said in the piece, to be very clear, the new owner of Twitter is free to do what he likes with his private property.
But we, as a business owner, had a decision to make and we decided that we're going to participate on Notes exclusively, which is the Twitter competitor that Substack rolled out in April and was the genesis of the throttling of various Substack authors. And as we said in the piece, we would rather lose with our partners than win with an antagonist. And we're not claiming that he is specifically targeting us, but as a large Substack account with several hundred thousand followers, the real damage being done here is to the people just trying to grow an audience today and to the extent that we could influence perhaps others to join us on Notes, jumping ship felt like the right thing to do.
So, when you were mentioning earlier about things that had gone viral, I've actually missed those things! And by the way, in lurker mode, that means I still have the account, and I look at it twice a day for various lists of people that I follow that produce interesting content, just so that I'm not missing anything too badly. But having freed myself from the algorithm, which is designed to make you angry and to keep you engaged, I have found not only no impact on our business, but I've gotten more productive at researching, writing, and publishing these pieces, which is what we were meant to do anyway. And so, we left Twitter last week and we have no intent of going back.
Peter McCormack: So you're saying to me if I get off Twitter, I'll be happier?
Doomberg: If you get off Twitter with a good solid plan in a way that doesn't impact your business -- look, if this was purely about driving our revenue we would have plugged our nose and made a go of it. But at some point, it was just the return on effort. Look, we're a very small team. We have created the work of our lives. I did an interview with the co-founder of Substack discussing this decision where I said, " Hamish, if you'd have asked us to write down on a piece of paper before we started this what our wildest dreams would have been, we've lapped that number several fold over". And one of the things we've worked really hard at resisting doing is recalibrating our wildest dreams, such that this need for more and to keep growing, even if you are far beyond what you could ever possibly need, is a disease, and we don't want to succumb to it.
So, we're going to rely on our audience for growth, which actually aligns our incentives, if we continue to delight them. We've provided them with tools to refer us, to gift subscriptions, to selectively forward our pieces and inviting them to join us on Notes for perhaps a more civilised discourse. And if it turns out to hurt our business in the long term, that's okay because we have enough and we've enjoyed the journey. And as I said, we would rather lose with our partners.
Peter McCormack: My friend, Matt Odell, I don't know if you know him, but he convinced me to drop my blue checkmark, which I did over a month ago and I still have it. I don't know why it hasn't gone, but I cancelled my subscription. But he talked more about that Elon Musk is building a massive KYC platform, whereby essentially you have to pay to get access to the most important tools, and if you don't pay, then you're not part of it. But he said he worried about the impact of having all that data centralised through Twitter. And I kind of agreed with him. So like I said, I cancelled my blue check, I still have it for some reason. But I don't know. I personally, I don't like the direction Twitter's gone under Elon Musk. I think it feels like a plaything, a $40 billion play thing, and I feel like it's being used to spark even more hostility between people, make people even more angry and have more fights. I don't know, I've not been keen on it myself, other people seem to love it.
Doomberg: So, we tried hard not to make this about the direction of Twitter, except in the following way. What made the entire thing viable on old Twitter, look, there were lurkers, there were participants, and there were creators. Lurkers just watched and for a variety of reasons, personal and professional, never participated, but extracted useful information. Participants liked and retweeted and commented and helped drive the algorithm. But the thing that made it viable were the several hundred thousand creator accounts, like celebrities and musicians and journalists and influencers and all manner of expert analysts that contributed original work. And the unspoken deal between the site and the creators was, Twitter would sell ads against your impressions and keep all that revenue.
But creators were free to derive benefit from billing an audience. And sometimes the way in which creators derived that benefit was to temporarily invite followers to click away from Twitter, where creators could capture that value offsite, which was fine enough with old Twitter management. The symbiotic relationship meant both sides had to win. And Twitter is an addictive platform; anybody who leaves it to go visit Peter's website temporarily is going to go back, and so that deal is not broken. And because of the debt load and the regret of purchasing, the decision that he quite correctly feels, that value that was being created by creators offsite is a pool of cash that new Twitter is looking to grab for themselves. So, once you view the behaviour of Twitter through that lens, it makes a lot more sense.
Having built a business at the nexus between old Twitter and Substack, Twitter has left us. It just took us several months to realise that we should perhaps reciprocate and leave Twitter ourselves. I wish the man all the luck in the world, it's a wonderful resource, it truly has the potential to be a great town hall. Whatever his long-term ambitions are, if he can keep ownership of the thing with the debt load that it's carrying, who knows? He is a survivor, if nothing else, and has long ago crushed his cynics as to what is possible and what isn't. But in the context of having built our business, we decided that the best decision for us was to be done with all that and to wish our friends on the platform the best of luck and to jump in the canoe with our partners and row in the same direction.
Peter McCormack: Well, good, fair play and good luck to you with that. I think anyone listening, I mean I think most people listening to my show will know you by now, but if they don't, definitely go and check out your Substack, doomberg.substack.com, we'll put it in the show notes. I mean, I love your emails. Whenever something big is happening in the world, usually I get an email from you guys within a week explaining it to me in a way that's like, "Okay, this is actually what's happening, this is the bit that's relevant and this is the bit that's nonsense", so I love what you're doing. I think it costs me, was it like $300 a year, I think I pay?
Doomberg: Yeah, that's the cheapest way to do it, or $30 a month. I mean, you get a discount for signing up for annual alerts; $30 a month if you just want to sample it. And we also have a pro tier for wealthier investors as well. But look, Peter, that is our exact brand ambition, so thank you for articulating it. And as always, it was a really amazing time. I can't believe an hour is already gone. I feel like we could go on for twice as long and never notice. So, that's the sign of a great discussion as always, and I appreciated the invite to come back.
Peter McCormack: Well, every few months, we will be in touch when there's new stuff we want to talk about. Oh look, before we go, have you changed on Bitcoin yet? Last time I spoke to you, you said to me --
Peter McCormack: Thanks for that, by the way. One of the reasons we left Twitter, but go ahead!
Peter McCormack: Yeah, you said to me last time, "Look, if Bitcoin got down to $5,000, I would be interested, I would be diving in". Where are you now? Are you the same, or have you changed at all?
Doomberg: Yeah, so I actually said two things. It's so funny, because that comment has generated thousands and thousands of trollish responses on Twitter, and frankly was probably 2% or 3% input into the ultimate decision to leave. But I digress, I kid, of course. We said that the Tether situation would need to be resolved so that we could be more confident that the price on the screen was real, and that if it then fell to $5,000, we might allocate some of our saving budget on a flyer on Bitcoin. And by the way, if the price of Bitcoin goes to $10 million tomorrow, that is not going to affect our life, our relative wealth. I would be happy for my friends who are long Bitcoin and I would not feel an ounce of regret for not having participated in it, in the same way that we've never owned or speculated in Nvidia stock in any meaningful way. The fact that it has gone bananas because of the AI revolution does not somehow send me home each night with my head down in regret that I don't own any Nvidia stock.
But I wish you and the other Bitcoin enthusiasts nothing but the highest financial success. If the Tether situation becomes resolved and if the true price of Bitcoin, in our view, becomes known, we would be interested to speculate in Bitcoin at the right price. As value investors, you make money when you buy. We're not traders, we're not speculators. Last thing I would say is, luckily for Bitcoin, this room-temperature superconductor claim has fizzled out, because the development of quantum computers is one of the potential existential threats to the Bitcoin network and would potentially diminish the long-term value of Bitcoin and change even our view that we expressed last time. But it's just funny, every once in a while you make a comment on a podcast and that comment with you on your podcast has generated more tweets and mentions than anything we've ever said, which is kind of funny!
Peter McCormack: I remember seeing it all. Well, listen, you're not on Twitter anymore now, so you can say what you want. They're not going to be able to control you.
Doomberg: Those trees are fallen and we ain't hearing them!
Peter McCormack: Well, listen, keep up the great work, love what you're doing, and I'm sure we'll chat again before the end of the year.
Doomberg: You bet.
Peter McCormack: All right, Doom.
