# The Treasury’s Gold Revaluation Play | Lyn Alden [Source video](https://www.youtube.com/watch?v=xagpUfToyqA) ## Opening highlights **Lyn Alden (Speaker 1):** [00:00](https://www.youtube.com/watch?v=xagpUfToyqA&t=0s) When does the debt matter? My answer is it has been mattering. The Fed’s tools are just not geared toward this type of inflation. Being bearish on stocks basically means you’re bullish on fiat. I write sci-fi because it feels more normal than reality. ## Commodities and scarce assets **Maggie Lake (Speaker 2):** [00:18.590](https://www.youtube.com/watch?v=xagpUfToyqA&t=18.59s) Hey, Lyn, great to see you. Thanks so much for joining us today. **Lyn Alden (Speaker 1):** [00:21.650](https://www.youtube.com/watch?v=xagpUfToyqA&t=21.65s) Thanks for having me. Happy to be here. **Maggie Lake (Speaker 2):** [00:22.990](https://www.youtube.com/watch?v=xagpUfToyqA&t=22.99s) Part of your core thesis right now is that commodities and scarce assets are in a bull market, are the place to be. **Lyn Alden (Speaker 1):** [00:30.950](https://www.youtube.com/watch?v=xagpUfToyqA&t=30.95s) Yeah, I think so. I’ve been bullish on gold. That’s somewhat separate from commodities because that’s more of a competing store of value with the Treasury, primarily. I think that bull market got ahead of its skis for a period of time, but I think it’s still, over the longer term, on track. I think silver is a long-term beneficiary from these trends, potentially platinum, copper. I’m a long-term energy bull, and also just energy assets—even assets that transfer energy, for example—I think are going to be in demand for a very long period of time. I invest in places like Brazil, for example, and sometimes it’s not even a commodity trade. My favorite trade in Brazil has been owning their biggest bank, and it outperforms the index. There are associated ways to be adjacent to that whole trend. But it’s the idea that capital was primarily going to non-resource things, and now it is going toward resource things. There’s a broad way of playing it, and I do think that need will exist for a long period of time. ## Fiscal dominance and the Fed’s inflation tools **Maggie Lake (Speaker 2):** [01:38.790](https://www.youtube.com/watch?v=xagpUfToyqA&t=98.79s) We ask the experts closest to the real economy to make sense of it: the people who build, mine, and power real assets and put their own capital behind them. Then we connect the dots and tell you what it means for your money. Wealthion. So let’s talk about that macroeconomic backdrop. We have CPI, PPI readings coming out. We’ve been above the Fed’s target rate for like 66 months, right? Should the Fed officially abandon this? What is the new norm for inflation? How are you thinking about that? **Lyn Alden (Speaker 1):** [02:10.490](https://www.youtube.com/watch?v=xagpUfToyqA&t=130.49s) I don’t think they should abandon it, but I think the challenge is that the Fed’s tools are just not geared toward this type of inflation. The point that I’ve made a lot in macro is that we’re in fiscal dominance now, not monetary dominance. Basically, what that means is the Fed’s primary tools—especially interest rates, but also, to some extent, the balance sheet—are meant to encourage more bank lending or discourage bank lending and make it tighter. The obvious example is if interest rates get super high, fewer people are likely going to take out a really big mortgage and overpay for the next house, right? They’re going to be more conservative with their housing decisions. Throughout the economy, that’ll trickle out in various ways. Their tools are primarily saying, “Okay, if things are running hot, if a lot of fractional-reserve bank lending is happening, inflation is above target, let’s try to slow down that bank lending and that broad money creation,” or vice versa. If you’re in a stagnation, in theory, they try to lower rates and say, “Go borrow more. Go take out that bigger mortgage, buy that bigger house,” which will take more resources and labor and do all that. That can be effective in, for example, Paul Volcker’s era, where bank lending was the key driver of the rate of money supply growth. It works far less when fiscal deficits are a bigger source of new money entering the economy than bank lending. We’ve actually reached a phase where annual deficits—basically the amount of net new Treasuries created in a given 12-month period—are now bigger than the sum of net new bank loans and net new corporate bond issuance. The Fed can focus all they want on trying to slow down that bank lending channel, but it’s a smaller factor than the deficits. Then, ironically, higher rates make the deficits higher now. In some ways, every time the Fed raises rates, I get a raise. Any investor that has as much cash as—if you have a locked-in mortgage, you’ve got a money market fund, you get a raise every time the Fed raises interest rates. Even at Orange Juice, when we raised our capital, it’s in interest-bearing fiat. The Fed gave us a raise on a pretty large pool of capital, which actually allows us to go out and buy slightly more companies or hire slightly more people, around the margins, obviously. When you’re at 100% of debt to GDP, and the problem is more that deficit than the bank lending, they’re just solving a different problem. It’s not that I would say, “Okay, here’s what the Fed should do.” It’s more, how should they communicate that it’s not really their purview, in some sense? Yet the whole structure of a central bank is designed around the idea that they can solve this. It’s an illusion that we have, that we’ve created for ourselves, which is ultimately not the case. ## War, energy prices, and structural inflation **Maggie Lake (Speaker 2):** [05:15.610](https://www.youtube.com/watch?v=xagpUfToyqA&t=315.61s) Yeah, it’s a sort of 800-pound gorilla that no one seems to be able to say anything about, whether it’s the Fed or Treasury. But you have this other narrative, and again, this goes back to what people hear: we’ve got the president up every day saying, “When the midterms are over, the war is going to be over, fuel prices are going to go down, inflation is going to be solved, the affordability crisis will improve drastically.” There are a lot of people—and sometimes when you look at the markets, it looks like they’re pricing for the end of the war—and we’re going to get the energy shock to go away. Inflation will sort of rein back in. But you’re saying this is all coming from fiscal, so that is not the case. We might get energy prices lower, but will that do anything to resolve the inflation problem? **Lyn Alden (Speaker 1):** [06:03.650](https://www.youtube.com/watch?v=xagpUfToyqA&t=363.65s) It’ll do some. There are always more factors involved. For example, in the ’70s, there was that combination of high levels of bank lending and then crisis in the Middle East, which gave us a real-world constraint. Likewise, now, on one hand, we have that fiscal dominance, the fiscal deficits that are structural, and then we have real-world constraints. Right now, one of the biggest ones is energy, and more specifically refined products. It is absolutely true that if the war is over, if refineries stop being hit, and all the transportation bottlenecks ease, that will contribute to lower energy prices, which then can contribute to mildly lower inflation. That part is true. The problem is that’s one factor among many. We already had a two-speed economy, or K-shaped economy, and above-target inflation before the war. This just added the next layer of it, from what otherwise might have slowly—not necessarily gone down, but just stopped getting worse for a period of time—as it got mildly worse for a period of time. It’s a factor. Policies matter, wars matter, but the other factor is that fiscal side. Then, of course, even things like AI: when you’re building out power, you’re using these resources. It takes away from, for example, building new homes, which makes it harder for home prices to go down despite higher rates. A lot of these factors come together, but a lot of it is still driven by that fiscal side, which is not going to be addressed in any sort of investable time horizon. ## The Treasury’s gold revaluation option **Maggie Lake (Speaker 2):** [07:40.730](https://www.youtube.com/watch?v=xagpUfToyqA&t=460.73s) Yeah. A lot of folks will say Besson’s got his back up against the wall. What do you make of—he’s been appointing some interesting counselors to Treasury. Judy Shelton’s one of them, a known sound-money, gold person. It’s fueled a lot of speculation that maybe Treasury’s planning some sort of huge policy move to try to address these high rates, high debt levels that just stretch out and seem to be unsolvable—maybe revaluing U.S. gold holdings. Do you give any merit to that? Have you thought about that? **Lyn Alden (Speaker 1):** [08:17.330](https://www.youtube.com/watch?v=xagpUfToyqA&t=497.33s) I think it’s worth monitoring. Revaluing gold holdings is one of the break-the-glass mechanisms that they have. It’s one of the few ways where the government can create new money without creating an associated amount of debt. If they increase the official holdings of gold, it basically fills up their Treasury General Account with cash, which they can then spend, which is an interesting effect in the economy. Now, that would be inflationary. That would be a very pro-liquidity move. If the intention is to weaken the dollar, for example, that’s a mechanism that they have. But they have to balance that with the concerns around inflation, because that weakens people’s wages. That weakens a lot of things like that. The problem is, when we’re this far along into the dollar system, into debts and things like that, all these decisions have trade-offs. There are some that might be better than others, but they all, in some ways, screw one group and benefit another group. They have to do a calculation to say, “In our term, is this a lever we want to pull hard, or do we want to kick it to the next people to maybe consider doing that move?” **Maggie Lake (Speaker 2):** [09:31.550](https://www.youtube.com/watch?v=xagpUfToyqA&t=571.55s) Even though kick the can is really popular in Washington, you do have Besson, who’s—everyone’s thinking about legacy, and one would think, based on recent comments, he cares a lot about that. You just had Hank Paulson say, “This is a break-the-glass moment,” right? So there is some support, perhaps, for some sort of extraordinary measure. Who wins and who suffers in the immediate aftermath of that? If you hold gold, are you super happy if they do that? Who comes out on the losing end of that—the average worker? **Lyn Alden (Speaker 1):** [10:02.430](https://www.youtube.com/watch?v=xagpUfToyqA&t=602.43s) I think it’s more complicated than that. If they revalue gold, it’s mostly an accounting trick at first. They’re not necessarily changing the price of gold relative to oil, or gold relative to houses, or things like that. They’re saying that the official bookkeeping for what the Treasury holds their gold at is, instead of 40-something an ounce, it’ll be the current price—call it 4,000-something an ounce. That basically fills up their Treasury General Account, which means they’re able to then spend without issuing bonds to spend, at least until they use up that amount. In theory, they could revalue gold even higher and give themselves even more cash. The more they do that, the more that money flows out into the economy, which then can find itself into assets like gold, for example. It can influence the gold price. It would be a shock, and generally shocks of that nature likely are to lead people to buy something like gold. As a gold holder, I certainly wouldn’t mind that day. Same thing for equity holders or Bitcoin holders, or scarce-asset holders in general, probably would find that day interesting. But because you’re creating more fiat that is spendable without debt issuance, that is a surge for inflation to some extent, or it’s a surge in money creation. It’d be comparable to some of the post-COVID or during-COVID stimulus that they did. **Maggie Lake (Speaker 2):** [11:33.570](https://www.youtube.com/watch?v=xagpUfToyqA&t=693.57s) Uh. **Lyn Alden (Speaker 1):** [11:34.490](https://www.youtube.com/watch?v=xagpUfToyqA&t=694.49s) And, of course, it depends on magnitude. It can feel good in the moment, but then your wages have trouble keeping up years later. In general, that would be probably good for asset holders and probably bad for wage holders, but that has to be tied with what they’re doing in terms of fiscal policy. For example, if they’re doing policies that are beneficial to wage earners, then you could offset that in theory. It’s the full mix of policies rather than any one policy. ## AI financing and systemic risk **Maggie Lake (Speaker 2):** [12:04.190](https://www.youtube.com/watch?v=xagpUfToyqA&t=724.19s) Yeah. Again, I’m going to venture a guess that that’s where people get concerned: how well has this been thought out? Are they using that opportunity wisely, since it’s going to come with costs? I think that’s where we have to take a really hard look. When it comes to AI itself, another big risk I hear people talking about—and there are pieces circulating on this—is that we’re facing this reckoning coming. You mentioned before the inflationary impact of all of the capital that’s being spent in the buildout and the data centers. There’s a lot of concern that there’s going to be a reckoning when it comes to the way the AI companies have accounted for sales, and that some of the economic obligations that are not showing up as debt, but they’re these contractual obligations—the outstanding rival or are greater than subprime crisis—that there’s this reset, except it’s not mortgages. It’s these contracts when it actually comes to delivery. Is that something that you are concerned about in terms of systemic risk? **Lyn Alden (Speaker 1):** [13:09.650](https://www.youtube.com/watch?v=xagpUfToyqA&t=789.65s) Longer term, potentially. I don’t think we’re there yet. I think people are right to bring that up. I just think we’re still in early to mid innings of this. Generally speaking, things that are less so in the banking system tend to be less catastrophic than something like subprime, so I wouldn’t put it quite in that camp. But it is true that, for example, the hyperscalers are taking on increasing lease obligations. If you’re doing all this capex for a data center, you’re looking for a client that’s willing to sign a very long-term lease. That’s all happening. Then you have even some of the semiconductor companies have incestuous financing, where it’s like vendor financing. They’ll help funds be raised to build out data centers and buy chips, and they’ll backstop some of that as the chipmaker, right? So you get a circular complexity there. Then, of course, a lot of venture capital went into the models themselves—OpenAI, Anthropic—and they’re being chased by the open-weight models. It’s very hard to justify a trillion- or two-trillion-dollar valuation when you’re aggressively unprofitable and you’re only months ahead of your closest copiers. I do think a lot of this will run into a pretty big drawdown at certain points, but I think we’re still in the buildout phase. We still have massive bottlenecks in semiconductors. A key thing I watch is: are businesses spending more on AI or less than they were months ago? We always see the occasional headline, “This business spends so much, they’re pulling back,” and they were spending so much, and now they’re putting more safeguards in. Those keep happening, and yet the overall spend keeps going up. Again, my earlier point: when a new technology unlocks, there’s a zero-to-one moment where everyone has to get from not using it to some baseline of using it. There are tons of studies that show, for example, that companies that are higher adopters of AI tend to be winning and taking market share versus ones in their field that are not, and ironically tend to increase headcount. You have this idea that it’s zero-sum: if you use AI, it means you’re firing your employees. Sometimes it means that you’re making each of your employees do twice as much effectiveness with their time. Your company is able to run on better margins and better pricing, so you take market share from competitors, and you can actually grow headcount despite using more AI. I still think that this has room to run, even though on any given thing that gets brought up—the vendor financing, the massive AI capex, shifting things from the corporate bond side to lease obligations, questions around depreciation, what is the true useful life of a leading-edge GPU, for example—these are all very valid questions. I think it’ll probably take more time before we run into a little bit of a reckoning about them. ## Membership and the sources of commodity demand **Maggie Lake (Speaker 2):** [16:20.650](https://www.youtube.com/watch?v=xagpUfToyqA&t=980.65s) Everything we do on this channel has one goal: to make you a sharper, better-informed investor, someone who understands the macro forces shaping your money before the mainstream catches on. But information is only half of it. The other half is acting on it, and that’s what Wealthion Membership is for. It’s how you go from watching these conversations to putting them to work in your own portfolio. Membership opens three doors: access to advisors, helping build real assets into your portfolio, and, for accredited investors, access to specialized funds. To learn more, the link to become a member is in the description box below. So commodities have been the safe way to play the AI trade for a lot of people, or the desired way to play it, given some of the questions. But if AI slows down, does that kill the demand for commodities? How much of that trade is related? They seem like they’re opposite ends, right? The scarce-real-asset crowd is suspicious of the AI trade. Yet are they connected in a way where that demand is what’s fueling commodities? **Lyn Alden (Speaker 1):** [17:26.130](https://www.youtube.com/watch?v=xagpUfToyqA&t=1046.13s) I think the feeling part of commodities—on the margins, they matter. In terms of global commodity consumption, AI is still a very small share. Of course, certain commodities can be more in demand than others in a given area. What makes this different than, say, the 2010s internet companies is they were very low on hardware. They had to have data centers, but social media and search engines are not that computationally intensive. It’s more about putting everything into mobile, into the cloud—pretty low physical costs—whereas now there are a lot more physical costs. This type of computation is just inherently different. I do think that the whole structural need for compute does, around the margins, mean we need more power. We need more compute materials and things like that. So that’s a real trade. But total energy use is still primarily going, obviously, to not AI. Total commodity use, like copper and things like that, in various types of construction is still a massive deal elsewhere. That’s one thing I would consider. It’s also the increased militarization of the world: Europe spending more on defense, the U.S. Treasury—defense secretary asking for a $1.5 trillion defense budget in the U.S. These things all have commodity implications as well. If you’re building more missiles, sadly, that is a source of commodity demand. Then other major factors—for example, the slowdown in China, China reaching peak demographics—is one of the biggest weights on commodities, because they have all this oversupply, not just of buildings they’ve made, but also manufacturing output. They can actually output more than they are currently without a ton of buildout necessarily. There’s an overhang there. AI is asking for more commodities, and defense spending is asking for more commodities, whereas, say, China is asking for maybe not less, but less growth of commodities, for example. Those have to be considered as competing things whenever someone wants to have a macro argument for their commodity position. ## Owning both gold and equities **Maggie Lake (Speaker 2):** [19:45.470](https://www.youtube.com/watch?v=xagpUfToyqA&t=1185.47s) I get this question a lot. I just got this in my inbox, listening to you talk about gold and silver and the hard assets. This was from someone called Peter. I wonder your thoughts on this. He wrote: “I find it fascinating that just about every other financial podcast has guests, one after the other, predicting doom and gloom for the stock market, and gold is the savior. Yet markets continue to climb the wall of worry while gold struggles. Is this sensationalism to get the public to watch or listen?” What do you think is going on? We get a version of that a lot. When you’re a bull on gold or hard assets, what do you say to folks like that, who hear the argument, it makes sense to them, but they just watch that stock market? They’re so conditioned to look at their 401(k) equity positions and have a hard time pulling away and thinking about diversifying out of it. **Lyn Alden (Speaker 1):** [20:42.710](https://www.youtube.com/watch?v=xagpUfToyqA&t=1242.71s) I say, “Yes, and,” which is basically to say that one can be bullish on gold and stocks. If one looks at the S&P 500-to-gold ratio, we are in the fourth major bear market in stocks relative to gold over the past century, even though it’s been pretty mild. You can pick a point years ago, and gold has outperformed stocks in that time. Of course, there are years where the opposite happens. I like to own both assets, and this goes back to my whole view on fiscal dominance. That’s why I keep fading the equity bears. When we’re running 7% of GDP deficits as far as the eye can see, being bearish on stocks basically means you’re bullish on fiat, because you’re saying stocks are going to go down versus the dollar. Certainly, in a year, they can. Stocks are volatile. They went down in 2022, for example. They can get over their skis for a period of time. Gold can go down versus the dollar. When it goes from $2,000 to $5,000 as quickly as it did, as big of a market as it did, that needs time to take a breather. I do generally fade the doomer narratives of, “Sell all your stocks, just own gold, the reckoning is just around the corner.” It’s more like we’re identifying that we’re going to run in a hot environment, which has winners and losers, and generally speaking, hard assets have been the winners. Owning gold, let’s say since COVID, for example; owning Bitcoin; owning high-quality equities; owning the best real estate with a fixed-rate fiat debt attached to it—those have all generally been good trades to do. It’s been one of the worst five- or six-year stretches to hold bonds in our parents’ and grandparents’ lifetimes. It’s been a massive bond bear market, both in nominal terms and especially in real terms. I think the degree of that’s probably over. When you go from almost zero rates to 5% on the 10-year, a lot of that move is over. But we’re still in this fiscal-dominance phase, which does continue, to some degree, fueling equities. That’s why I’ve been a long-term equity bull, despite raising concerns around various things. Anyone who studies emerging markets, for example, when they have a currency crisis, their stocks go up in their local-currency terms. They might go down in dollar terms. They might go down in gold terms, but they’re often going up in their local-currency terms. So I’ve been a bull on equities and gold. ## Profitable companies and the cost of capital **Maggie Lake (Speaker 2):** [23:35.410](https://www.youtube.com/watch?v=xagpUfToyqA&t=1415.41s) Yeah. Well said, because I think that in this world of FinTwit, people get in their tribes. That’s what makes it difficult when you’re talking about diversification. By the way, Lyn puts a model portfolio up on her newsletter, and you’re very transparent about it, which I think is awesome when you’re explaining some of these things. You can see some of the areas that she’s investing in. Profitable equities: in a digitized world where intelligence is going to be ubiquitous, what does a profitable moat look like? Is that still what we’re looking for? Because it seems like it’s hard to know now what that’s going to be. **Lyn Alden (Speaker 1):** [24:18.290](https://www.youtube.com/watch?v=xagpUfToyqA&t=1458.29s) Good question. For example, the semiconductor companies are incredibly profitable. The reason I put that there—and that’s a phrase I’ve been using since the 2010s, really—there’s this long stretch of just owning unprofitable companies. In a zero-rate environment, people are saying, “I don’t care when you have a profit. Just focus everything on growth. The cost of capital is almost zero anyway.” But now we live in a world where there is a cost of capital. Those unprofitable, grow-at-all-costs things—that’s not how you optimize things anymore. That’s not where I think most of the value-add is. Instead, it’s more like profitable growth. Obviously, in venture, for example, we’re investing in usually non-profitable growth. That’s the whole point of a venture fund: you’re getting scale before you profit. But in public markets, I generally want to see profitable companies. If I want to get unprofitable, that’s what I do venture for. I’ll go into private markets. Once a company’s large enough to be public, I generally think that at least most of them should be optimizing toward being profitable enterprises. ## Open models and regulatory moats **Maggie Lake (Speaker 2):** [25:27.210](https://www.youtube.com/watch?v=xagpUfToyqA&t=1527.21s) Yeah, balance sheets matter again. I just want to finish up and reference back to the conversations you’ve had with Jock Dorsey about open source. When we’re looking at profit models and revenue, is there tension between equity investors who want to benefit from profits and walls and moats, and then citizens who maybe benefit from networks that are open? It seems to be playing out very much in the AI space, where OpenAI, philanthropic want their models closed, and their investors likely want them to be able to monetize that. Then all the other conversations we’re having about open source, and should this be used differently? **Lyn Alden (Speaker 1):** [26:15.590](https://www.youtube.com/watch?v=xagpUfToyqA&t=1575.59s) There are a couple phases there. One is, from your own company perspective, should your model be open or closed? Then there’s the somewhat more nefarious one, which is: should you try to get government to ban your open competitors to preserve your closed decision, right? That’s where some of these companies, I think, have gotten to. Companies can do with themselves what they want to do with their own code or their own systems. The question is to what extent they want to lock that in with a regulatory moat. But I think the long-term arc here is it’s a losing game. Open-weight models exist, and trying to put out those fires is just slowing down the inevitable. I think open-weight models, to some degree, have to be understood as existing now. It’s like whack-a-mole trying to make them not exist. They make it so that more than just a small number of companies can control the tech that we’re all using, and people can customize and run locally and run more privately. I think all of that is valuable. ## Demographics, deficits, and the two-speed economy **Maggie Lake (Speaker 2):** [27:19.270](https://www.youtube.com/watch?v=xagpUfToyqA&t=1639.27s) What economic trend worries you the most? **Lyn Alden (Speaker 1):** [27:23.470](https://www.youtube.com/watch?v=xagpUfToyqA&t=1643.47s) I would say it’s a couple coming together. It’s not one thing, because these things tend to come in clusters. One is the really big demographic trend. Things are easier when you have six workers per retiree than three workers per retiree, for example. As the world has aged, that is a really big challenge. All of our systems are designed with the theory that every generation is going to be bigger than the prior one. When that stopped happening, and then decades pass, we’re in the paying-for-it moment now. We have really big challenges ahead, like Social Security, Medicare in the U.S. Obviously, Japan’s going through it. Europe’s going through it. These are very real challenges. China’s going through it. That’s the massive background thing that’s happening. Then when you add, obviously, breakdowns in international law compared to—we went through this multipolar stage toward a unipolar stage, and then going back toward a multipolar stage in terms of geopolitics, which is really the more natural stage of things. But that transition can be tumultuous. As we deal with the demographics, and as we have these fiscal things locked in, I think the two-speed economy that we have in the U.S. is—to your point, that’s a huge factor in trust. **Maggie Lake (Speaker 2):** [28:52.530](https://www.youtube.com/watch?v=xagpUfToyqA&t=1732.53s) Right? **Lyn Alden (Speaker 1):** [28:53.010](https://www.youtube.com/watch?v=xagpUfToyqA&t=1733.01s) People will ask me, “When do fiscal deficits matter? When does the debt matter?” My answer is it has been mattering, right? It’s not the moment a bond auction fails or something crazy, because that’s not the point here. The point is that when you have these really structural fiscal deficits, there are recipients on some sides of them. Then there are others that are not recipients, but they’re paying the cost. For example, higher rates and a new family looking to buy their first home— **Maggie Lake (Speaker 2):** [29:21.310](https://www.youtube.com/watch?v=xagpUfToyqA&t=1761.31s) They’re— **Lyn Alden (Speaker 1):** [29:21.610](https://www.youtube.com/watch?v=xagpUfToyqA&t=1761.61s) —kind of indirectly paying the cost, or some of the costs, for these deficits. That’s where you get, for example, record-high stock prices and record-low consumer sentiment, which we touched on for a period of time. Now we’re off the ultimate lows, but you still have this unusually big divide between asset holders, deficit recipients, and non-asset holders and not deficit recipients. It’s a mess, I think, and it does concern me. ## Economic division and the power of algorithms **Maggie Lake (Speaker 2):** [29:52.090](https://www.youtube.com/watch?v=xagpUfToyqA&t=1792.09s) Yeah, it’s a mess. I feel like this is, back to your point about the lack of information, we’re going back down in information. If you have any young people in your life, this is incredibly apparent to you. I have college-age kids, and it’s the level—and people like to say they’re anxious. No, they’re not. They’re accurately looking at what’s going on and the fact that they’re getting screwed, and they’re very concerned about the future. But you talk to other people, and depending on what space you’re in, the media that they’re getting directed at them and the messaging, the campaign ads—this is not reality. I talked to Mike Green one time, and one of his concerns was that rich people aren’t even in shared spaces with other folks now. That’s a big change. You’re not even crossing over and seeing anyone else’s reality. Pointing that out, I think, is really concerning, but it’s out there. It’s right underneath. I’m wondering and worrying when that flips to anger, when that anxiety flips to anger. I think the midterms are going to be really interesting to see whether folks decide to vote on that, or whether they just have given up on the systems and the process altogether, which carries its own risk, I think. You’re doing something really interesting. Can we remain on that path, first of all, before I ask you about this? Can we remain on a path where the economy, the consumer, generationally, things are so bifurcated? Is that sustainable? Can we live in this two-tier economy for a long period of time, or does this necessarily come to a head somewhere? Yeah. **Lyn Alden (Speaker 1):** [31:35.250](https://www.youtube.com/watch?v=xagpUfToyqA&t=1895.25s) It’s a good question. I think it can go on longer than people think. The entire political structure of aristocracy, for example, was able to sustain something like that for a very long period of time. Obviously, that’s a different era, different time and space, but you can absolutely have very different economic realities. Obviously, political structures matter differently. For example, people vote and things like that. But the risk is that it breaks one way or the other. You get the two—kind of the horseshoe theory—the radical poles start to gain power, because people say, “Well, if the status quo is not working,” they’re going to shift away from anywhere near the center. They’re going to either go hard right or hard left. That means different things to different people, but basically, you get these more extreme decision-making points at some points, or more extreme election outcomes and things like that, and that can start fraying certain things. But I think it can often take a lot longer than people think. I also think that the algorithms are a really big deal. You mentioned the anxiety that people have. In social media, just from a natural standpoint, people being able to communicate with each other over long distances and find their own groups and tribes is, in theory, a pretty good thing. One of the risks here is that there’s a handful of really big platforms, and they have algorithms, and they can tune how those algorithms work. Their incentives are not necessarily to promote virtue among society or promote truth among society. They’re either to profit-maximize, or they’re to be a funnel for something else—to change discourse around something that might make profits in an adjacent area. Actually, I did an interview with Jack Dorsey about this a couple years ago, the founder of Twitter, because we were looking at decentralized social media’s market, that let you choose your own algorithm and stuff like that. **Maggie Lake (Speaker 2):** [33:46.310](https://www.youtube.com/watch?v=xagpUfToyqA&t=2026.31s) Because— **Lyn Alden (Speaker 1):** [33:46.890](https://www.youtube.com/watch?v=xagpUfToyqA&t=2026.89s) He was arguing that it’s not just—because that was a whole topic, obviously, social media censorship and things like that—and he was arguing, and I agreed with him, that it’s not just about censorship. It’s about what the algorithm even has you look at in the first place. Because I’m pretty active online, I’ve seen specific cases of people gradually falling into these rabbit holes that are not very healthy. I can just see the step by step by step by step, where to them it seems normal, but I can see that person’s in a bubble now. That person used to be talking about this; now they’re in a deep bubble. I think the algorithm feeds into that. Going back to sci-fi, for example, that was one of the things I thought about a lot: what does the internet structure even look like decades out? I envision almost like a two—one is a very centralized, censored, geolocated, fully wrapped-up system, and then there’s all this stuff happening on the edges. I think that’s the direction we’re going in. But it’s something I think about a lot, that centralized algorithm feature. It’s quietly one of the most powerful things in society and in our lives. ## AI and the role of smaller businesses **Maggie Lake (Speaker 2):** [34:58.430](https://www.youtube.com/watch?v=xagpUfToyqA&t=2098.43s) Yeah. I think the stakes are getting higher with AI in the picture now, too. We’re seeing that. You’re doing a very interesting thing. On this two-tier—and correct me if I’m wrong—but on this two-tier economy, we’ve been talking about age and demographics, but it’s also so much money being centralized and directed toward the AI trade or big companies or mega-cap tech, and then everything else seeming to struggle. We have interest rates right now. Have we just reoriented our economy around mega, that they are now the driver? Or do we need those smaller, medium-sized businesses, those startups, in order to have a healthy economy? Well— **Lyn Alden (Speaker 1):** [35:49.250](https://www.youtube.com/watch?v=xagpUfToyqA&t=2149.25s) I do think we need the startups and the smaller companies to have a healthy economy. Still, most employment is disproportionately smaller and medium-sized businesses. I would separate the current rapid wave of AI capex from other things, because whenever you have a new technology unlock, naturally there’s a surge toward that area. It doesn’t mean that that rate is going to continue forever. It just means you’re going from zero to one because some low-hanging fruit or some unlock has happened. Whether it’s, for example, the tech finally coming into place to make real railroads work, or once they had both aluminum and hydrocarbons, suddenly the entire field of aviation just opens up. Whereas you spent thousands of years going practically nowhere on flight—we made a little progress with balloons—but once you have hydrocarbons and aluminum, the runway for years and decades is really big. Then it levels out once you get the benefits of that unlock, or get good. Obviously, the combination of hardware and software has gotten good enough now. It has this new unlock, and it can do things that it couldn’t do a few years ago. There’s a massive temporary reorganization around where we put our resources. Now, the good news is, for example, in the 2010s, a lot of the rising tech companies—a lot of that value concentrated in them. I think the good news about AI is that even though, obviously, the winners of that get very large, the end users still are a major benefit if they use it correctly. In some ways, it’s never been an easier time or better time to start a small business. Instead of asking someone else for capital—now, some businesses still need capital—but the amount of resources and things you can do with a very small team has never been better. It separates people that are willing and able to use those tools and understand how to get the benefits out of the tools without the drawbacks of those tools. Obviously, one of the drawbacks might be “AI brain,” where you just don’t think about anything; you just ask AI. But if someone is using it to solve problems, I think it’s actually, in some ways, an equalizer. ## Orange Juice, private equity, and permanent capital **Maggie Lake (Speaker 2):** [38:16.570](https://www.youtube.com/watch?v=xagpUfToyqA&t=2296.57s) Yeah. You’re doing this interesting thing with Orange Juice, you and the team at EgoDeath Capital. It’s really fascinating because it seems to me that it’s solving for a problem that not a lot of other people are addressing. You’re acquiring small- to mid-sized businesses and then transitioning them into a Bitcoin treasury company. How does that solve for the challenge? Talk to me a little bit about why this idea came up, because it seems really unique to me. **Lyn Alden (Speaker 1):** [38:46.910](https://www.youtube.com/watch?v=xagpUfToyqA&t=2326.91s) Good question. It came up because some of us are both Bitcoin bulls and value investors. The way we look at it is it’s not a Bitcoin treasury company. It’s a company that happens to have a Bitcoin treasury as part of its strategy. If you back up for a second, private equity solves a problem, which is that one of the hardest things you can sell is a business, because it’s large, illiquid, and everyone’s unique, right? That’s inherently a very challenging, illiquid market. Private equity comes in and says, “Well, we’re willing to buy and sell businesses.” For decades, that has been a useful service. The problem is, especially during this 40-year period of declining interest rates that is now over, really the process there was: buy a business, lever it up on ever-cheaper debt—you have better cost of capital than the seller did—fire half the staff, and then flip the company in a few years. You’ve maximized near-term profits, and you’ve made money, but you set that business up to not really be successful 10, 20 years down the line. You pulled forward some of the profits. You rip the soul out of a company, or the quality out of the company, or the—and you’ll see all the time, people are like, “Oh, I loved this veterinary clinic in my area before private equity took it over. Now they’re trying to cross-sell products, and they’re cutting services and raising prices. It’s run by someone with a spreadsheet rather than someone who loves animals,” for example. Obviously, you have to balance business with the true passion of what you’re doing, but a lot of private-equity businesses have that outcome, where it’s geared more toward the spreadsheet. Private-equity companies have a larger-than-average failure rate because they get loaded up with debt and have some of their soul ripped out. Structurally, a permanent-capital vehicle is interesting, and that’s just a jargony way of saying a company. Private-equity managers are not evil. They have an incentive structure. They have, say, a 10-year fund life, and their mandate is to go buy businesses, quote-unquote fix them up, and then flip them out and return cash to investors. **Maggie Lake (Speaker 2):** [41:06.290](https://www.youtube.com/watch?v=xagpUfToyqA&t=2466.29s) And they— **Lyn Alden (Speaker 1):** [41:06.690](https://www.youtube.com/watch?v=xagpUfToyqA&t=2466.69s) Kind— **Maggie Lake (Speaker 2):** [41:06.830](https://www.youtube.com/watch?v=xagpUfToyqA&t=2466.83s) —of use the same blueprint, right? Right. Like they— **Lyn Alden (Speaker 1):** [41:08.830](https://www.youtube.com/watch?v=xagpUfToyqA&t=2468.83s) Kind— **Maggie Lake (Speaker 2):** [41:09.050](https://www.youtube.com/watch?v=xagpUfToyqA&t=2469.05s) —of take on debt, fire some people, squeeze the hell out of the rest of them that are left. I know some folks who end up working for something that’s been acquired by private equity, and it’s impossible. The quotas are so much harder. They feel like they’re running on a treadmill. **Lyn Alden (Speaker 1):** [41:24.310](https://www.youtube.com/watch?v=xagpUfToyqA&t=2484.31s) Yeah, because all the incentive is basically the next few years. It’s not about, “How do we build a foundation 10 years out?” But with a permanent-capital vehicle, with the most famous example being Berkshire Hathaway, they buy companies and they just hold them for decades. Obviously, they want that company to be successful, competitive, to trim areas that need to be trimmed, and to do well. But it’s all incentivized toward being an indefinite holder that wants the decades of cash flows and growth from that company, not short-term maximization. Orange Juice is a permanent-capital company that seeks to buy companies and then hold them indefinitely. Decisions are geared toward that longer term rather than, “How can we maximize profit three years out?” Permanent-capital companies in general, because they’re not just flipping and near-term optimizing things, need a kicker that makes that long-term strategy work well. For Berkshire Hathaway, it’s insurance. Berkshire Hathaway basically has the lowest cost of capital in the world, more or less, the most stable source of capital, so that gives them a huge advantage. For people that are bullish on Bitcoin, having Bitcoin on the balance sheet can be rocket fuel, as long as you manage it appropriately. It helps you build up a fortress of assets that are volatile but can’t be debased. We’ve generally found that that synergy is interesting. Also, there’s a market of people that own businesses and like Bitcoin, and they’d rather sell their company to something with legacy in mind versus something that’ll flip it and rip it apart. Then there’s also a really big market of people that want to keep working for the business, but, for example, they want more liquidity. They might be wealthy on paper, but it’s 95% in one business. They want to keep working on the business, but they also could use liquidity, de-risking, and/or help with backend. For example, we hired a CTO from Nvidia. Our new CTO is from Nvidia, and so we can come into these companies that wouldn’t necessarily have the best AI advice in the world— **Maggie Lake (Speaker 2):** [43:38.030](https://www.youtube.com/watch?v=xagpUfToyqA&t=2618.03s) And— **Lyn Alden (Speaker 1):** [43:38.650](https://www.youtube.com/watch?v=xagpUfToyqA&t=2618.65s) We can give them world-class AI advice. Not to come in and say, “Okay, we’re going to fire all your backend staff and just automate it,” but it’s basically saying, “Okay, here’s how we can help.” Again, it’s not geared toward a three-year outcome. It’s saying, “How can we make you competitive, as streamlined as possible, and reduce the busywork as much as possible so that you can get back to treating animals,” or whatever the business might be, for example. ## Acquisitions and countercyclical capital allocation **Maggie Lake (Speaker 2):** [44:04.290](https://www.youtube.com/watch?v=xagpUfToyqA&t=2644.29s) Yeah. It’s fascinating you said that, because when I was reading about it, I was like, “This sounds like Berkshire Hathaway, but with a different twist, and maybe in an environment that requires something different than what Warren Buffett did, for the modern day.” It’s fascinating to hear you bring that up. Is there pushback from small companies? Because this solves for a problem. I think a lot of them, based on the experience that they’re hearing about, seeing about private equity, it’s not the fit for them for that reason. But on the Bitcoin part, what’s the biggest hurdle? Is there explaining? Do you look for companies that already have a leaning toward Bitcoin, or do you find a good-value company and then say, “Hear me out. Listen to why this might work and be a better option”? **Lyn Alden (Speaker 1):** [44:56.010](https://www.youtube.com/watch?v=xagpUfToyqA&t=2696.01s) Yeah, good question. Our early batch of companies—we’ve had hundreds of companies reach out—and the funnel in this early stage tends to be company owners that like Bitcoin. **Maggie Lake (Speaker 2):** [45:07.050](https://www.youtube.com/watch?v=xagpUfToyqA&t=2707.05s) Yeah. **Lyn Alden (Speaker 1):** [45:07.450](https://www.youtube.com/watch?v=xagpUfToyqA&t=2707.45s) Right. Because those of us that founded Orange Juice, some of us have pretty large audiences, and people hear about it through us, and then they come to it. Our view is that if we execute the early acquisitions well, and if we grow larger, then probably some of the later acquisitions will be founders that don’t care about Bitcoin, don’t know about Bitcoin; they just like the permanent-capital structure. Kind of like how, if you’re selling your company to Berkshire Hathaway, you don’t really care about insurance necessarily. That’s the way we’re approaching it. Basically, it gives us more avenues of things to do. We can ideally do things in a countercyclical way. There are pure Bitcoin treasury companies, like Strategy, for example. Investors tend to want to give them more capital during Bitcoin bull markets, so they go out and buy more Bitcoin when it’s high. Then when Bitcoin’s in a bear market, all the capital pulls away, and the company can’t buy as much Bitcoin. They end up often having procyclical accumulation. Whereas with Orange Juice, if we primarily focus on acquiring cash-flow-producing businesses—that’s our main focus—and if our funnel is really good, we can buy more businesses. If at any given time we have a softer funnel, we have this whole other avenue of, “What is Bitcoin doing? Is it in a bear market? Is it surging?” It gives us that whole second avenue of things that we can be doing with our capital in what is historically a volatile but strongly performing asset. ## Science fiction and long-term macro thinking **Maggie Lake (Speaker 2):** [46:43.870](https://www.youtube.com/watch?v=xagpUfToyqA&t=2803.87s) Yeah. At the same time, giving small businesses, which are struggling and are facing an environment which is going to be really tough if you look at interest rates or devaluation, an option other than private equity, which for many people is not the answer. Really fascinating stuff. It certainly feels that we’re living in a sci-fi movie right now. I was just reading all these headlines about AI agents, and I think we all have this weird sensation. When you were writing your novel—because, as most people know, you are a published author of a sci-fi novel, if you describe it as that, you tell us—when you were writing *The Stolgard Incident*, did your macro view influence the book, or did the process of writing the book and thinking about living in the future impact your macro thinking at all? **Lyn Alden (Speaker 1):** [47:29.670](https://www.youtube.com/watch?v=xagpUfToyqA&t=2849.67s) Good question. I would say both, to some degree. When I do investing, because I come from a background that blends engineering and finance, naturally, when I think about the future, I think about the path of tech adoption in addition to all the financial considerations I’m doing. But from an investing standpoint, really three- to five-year time horizons, or 10-year time horizons if you’re doing venture or buying a whole business, that’s about as far as someone can realistically look out and have a thesis. That’s really when the investment should have worked out or not. Whereas when you want to think about much farther ahead, I’ve definitely found that fiction is just a more interesting way to express that. That can eventually come back and feed into the present, which is, “Okay, if the world might look like this in 50 years, what is it likely going to look like at the halfway point? What is it going to look like a quarter of the way there?” That starts to inform certain things. I would separate—part of it is just entertainment, right? I previously wrote *Broken Money*. That’s nonfiction. In this case, for a long time, I just had a separate interest. We all need hobbies, and I had a separate interest in certain narratives, certain concepts that I thought would just be fun to explore. Sci-fi sometimes is described as tech-focused or idea-focused and is usually weaker on character, whereas I generally actually wrote more toward character-driven sci-fi. It’s more about the characters and what they’re going through than the tech. It was a fun thing to work on. But in that world, I did try to put realism as, “Okay, what is tech going to look like in, call it, 45 or 50 years? What political structures are likely going to still be relevant or have changed?” Then, of course, I threw in some fantastical elements that are just on their own. But outside of those specific categories for the plot and for fun, I did try to make that background context what I think is somewhat reasonable and to go from there. ## Technology, trust, and a shrinking shared reality **Maggie Lake (Speaker 2):** [49:39.570](https://www.youtube.com/watch?v=xagpUfToyqA&t=2979.57s) Yeah, that makes sense. I find it so fascinating. It has to be where your mind goes, even if you’re not really conscious of it. If you’re living in that sort of decade experience, I think it’s natural that it would be where you speculate things might go. I’m really interested in this at the moment. I joked about feeling like we’re all in a sci-fi movie, but I, with my friends, have said recently, “How did they get it so right?” Are they just seeing the future, folks in that genre? Or are we mapping out the future based on what we’ve read? It’s a really interesting chicken-and-egg situation that feels very relevant right now. I don’t know. Do you feel that when you see these headlines? **Lyn Alden (Speaker 1):** [50:24.950](https://www.youtube.com/watch?v=xagpUfToyqA&t=3024.95s) I do. One of the jokes I’ve made is that I write sci-fi because it feels more normal than reality, which is not how it’s supposed to be. Even though the book came out earlier this year, it was in the works for a couple of years, and the idea stage goes back over a decade. It’s funny because my natural instinct is to tune certain things down: don’t exaggerate things. Then you get to the present, and it’s like, if anything, I’m under-tuning things. I should just be more direct. In sci-fi, for example, there will be dystopias, and more rarely there are utopias. Something like *Star Trek* is actually closer to a utopia. **Maggie Lake (Speaker 2):** [51:04.210](https://www.youtube.com/watch?v=xagpUfToyqA&t=3064.21s) Uh. **Lyn Alden (Speaker 1):** [51:04.610](https://www.youtube.com/watch?v=xagpUfToyqA&t=3064.61s) Whereas, obviously, there’s no shortage of dystopian science fiction. Generally speaking, conflict creates story, so people are more likely to write something closer to a dystopia. My world is intentionally messy. It’s our world, just extrapolated in technology and then, by extension, extrapolated some of the social trends around technology. A world where, for example, people naturally distrust video, or crazy things can happen, and they’re like, “I don’t know if that actually happened or not.” Even in that world, there are safeguards against it. For example, you can have a device that takes a photo and cryptographically signs the photo, so you can say, “This came from this Apple device with this serial number.” It’d be very hard to prove otherwise, to hack it and make that not the case. But the human brain still has only so much bandwidth to matter for all that. Investigators might look through and pinpoint what happened, but a lot of people are like, there’s so much noise out there now that almost their world shrinks. One of the sci-fi things I brought into reality is this idea that technology has so far given us almost a bell curve of global awareness. Obviously, a long time ago, before we had even the telegraph or things like that, we were very confined to our communities, our local areas. Traveling far was a rare thing that only a few people did, and even information arrived very slowly. Then, I would say in the 20th century, when we have video and all this, we’re suddenly in this really connected world. We’re in a world where it’s much easier to capture and share video than it is to doctor videos, fake videos. So we had a peak understanding of what is actually happening in the world. Then we also had trust in media, trust in institutions. For example, the combination of video and Walter Cronkite saying, “Here are things that are happening”—we all would agree on roughly what is happening and then disagree on certain margins. Whereas now, when we get to the age of AI and things like that, video as proof has gone down a ton. Trust in authorities has gone down a ton: institutions, governments, and all this. When things happen, people are like, “Did that happen? If it did happen, is the narrative blowing it out of proportion or shrinking it compared to what’s happening? Why is my intent—out of 10 things that happened, why is the algorithm focusing on this one? Is this actually the biggest thing? Maybe it is. Or is it just that the algorithm wants me to look at this thing because it doesn’t want me to look at this other thing?” That clutter, in some ways, shrinks our world back down because people are like, “That’s all crazy and messy and sad, so I’m going to focus a little bit more locally.” I think that’s actually a trend that technology has contributed to. ## Closing **Maggie Lake (Speaker 2):** [54:01.710](https://www.youtube.com/watch?v=xagpUfToyqA&t=3241.71s) Fantastic stuff. Lyn, such a great, fun conversation. Thank you for wearing so many different hats with us today. It was great to get your thoughts on so many different subjects. So appreciate it. **Lyn Alden (Speaker 1):** [54:10.950](https://www.youtube.com/watch?v=xagpUfToyqA&t=3250.95s) Of course. Thank you for having me.