I know I'm living and dying with the choices I've made.

Hello, listeners.

Welcome to another episode of the Jacob Shapiro Podcast.

Rob and I are back at it for our weekly chat.

If you want to talk about anything you heard in this podcast, you can email me at any of my email addresses.

Let's just say Jacobacobshapiro.com to make it simple.

Not a lot of preamble for me.

Take care of the people you love.

Cheers, and see you out there.

No, I wouldn't be here today and die with the choices I made.

All right, listeners, we're back.

It's Friday morning.

Usually we record on Thursday, but it's been a busy week and both Rob and I are scraping from the bottom of the barrel.

We're both parents of young, young children, and I've been traveling and Rob is having a renovation of his Paris apartment, so he's not in his normal space.

So I guess that's my preamble to say don't expect too much from us this morning.

That's a great way to start off a podcast.

How's it going, Rob?

It's going okay.

I'm really leaning into this idea that people value authenticity over all things.

So there you go.

I wanted to start I'm sure everybody is sick of the United States and we share that sentiment, but not all things are created equal with what's going on with the United States.

There's the Gaza Strip is about to become the Riviera of the Mediterranean nonsense, which I actually finally read an interesting article article about that.

I posted it on X about sort of what it signaled.

But Rob, I wanted to start off in the news that amid the flurry of things that happened earlier this week, US President Donald Trump signed an executive order about the creation of a sovereign wealth fund within the next year.

These was one of these things that didn't make sense to me because generally sovereign wealth funds are funded by budget surplus and the United States has not had a budget surplus since the second Clinton administration.

But I don't.

And maybe you want to talk about the sovereign wealth fund, too, but I wanted to ask you about something Scott Besant said about it because he said the fund would be set up within 12 months.

And then here was the quote from him.

He said, we're going to monetize the asset side of the US Balance sheet for the American people.

There will be a combination of liquid assets, assets that we have in this country as we work to bring them out for the American people.

Could you translate that into English for me, because I've been doing this for a while now and I have no idea what the f he means when he says we're going to monetize the asset side of the US balance sheet for the American people.

That feels like gobbledygook.

But, but maybe there's something in there that you can explain.

Well, it is a, it's a bit of a puzzler, that one, to be honest.

You're not just missing the gist here.

I mean, let's just try to parse it out and see what it could mean.

Really.

When you're talking about a sovereign wealth fund, you're talking about pooling assets under government control.

So if you look at any other sovereign wealth fund, like take the Norwegian sovereign wealth fund, which is run by Norges bank, which is one of the largest and most most famous and famously well run in the world, they have a huge public equity portion.

I mean, it's run like an endowment essentially and there's some strategic assets in there.

I mean, that's essentially what a sovereign wealth fund is.

And the Middle Eastern sovereign wealth funds have investments in football teams and, you know, trophy assets like that.

So it's really, it could be any combination of assets.

My assumption would be that when they talk about monetizing the asset side of the US government balance sheet, they're really talking about acquiring new assets.

And because the assets of the US government are, you know, tanks and F15 fighters and you know, that sort of thing, which aren't exactly economic in nature.

So I don't know.

I mean, it really depends on how much rubber there is on the road here, how big this could be.

They haven't answered any questions about how they're actually going to finance this.

They spoke about taking it out of tariffs.

Tariffs are not very large as a revenue source in general.

If you were to look at the last month total US government revenue was something like $600 billion, roughly speaking, and tariffs provided 6 billion of that.

So we're talking about really small potatoes in terms of customs.

Like governments haven't financed big stuff out of customs fees since like the 1890s.

Like it's just not, it's just not a thing that's big enough to matter at the scale that governments operate today.

So, you know, we can get into sovereign wealth funds and, and the potential problems there and the fact that in inherently this is going to have to be financed with more US government debt, which is really the 600 pound gorilla in the room.

But I wouldn't make too, too much out of it until we actually get something beyond, oh, we're going to go buy TikTok and put it in this fund.

Forgive me if this is a silly question because I'm trying to parse the language and I'm not convinced that I understand exactly what he means because I'm stuck on this, this monetize the asset side of the balance sheet thing.

US Government debt, is that an asset that can be monetized or is that.

That's something that's already been monetized.

So like you're saying they're going to use government debt to buy things to put into the sovereign wealth fund in this world?

Well, they have to pay for it somehow.

If they're going to go out and buy something, they have to pay for it.

But a Treasury itself is not monetizing the asset side of the US Balance sheet.

You're saying it's like literally like Yellowstone national park.

If they started renting it out or something like, and taking the rental income and parking it into the sovereign wealth fund.

That's monetizing the asset side of the US Balance sheet.

To say that you're monetizing something can mean one of two things.

The first is that you're making it more liquid.

You're making it more like money.

So your home 50 years ago was not very money.

Like it wasn't as liquid.

It was took longer to sell it.

But as housing markets became more liquid and more advanced, it's faster and easier to sell your home than it was 50 years ago.

So you're seeing more monetization of homes, more moneyness of homes.

I mean, this is the concept of money.

When you think of economics and remember M0M1, M2, those are different measures of how close to pure money are different things.

So in some sense, when you say you're monetizing the assets of the US government, it means you're putting them in a form where it's easier to liquidate them, to buy and sell them, that you're shifting that asset base to more liquid assets like corporate equities, ownership stakes and strategic businesses, whatever it may be.

The other way in which you can use the word monetization is sort of what most people think about, which is basically printing money to buy stuff.

And that's why when we talk about what's going on, you know, on this podcast and trying to keep track of all the cuckoo crazy stuff every week now, really, you know, we keep coming back to.

The person to watch is Jay Powell and the Fed, because when you think structurally, and I've said this, you know, multiple times in recent weeks, Trump is not in a good position.

He's been dealt a very difficult hand of cards.

And almost no matter what he does, he's going to do things that are going to make him look bad.

And the person who can give him some form of out, even though it will not be an out, is Jay Powell in the Fed, if they go and they monetize whatever he wants to do, and that is one form of monetization.

So in other words, if the government says, okay, we want to, we want to go buy Tesla, we're going to spend $1.2 trillion and buy Tesla because that's a strategic national asset and we can run it, we're going to do all this great stuff with it.

The Fed, in theory, could monetize that.

The Fed could print money to buy anything.

Like Ben Bernanke famously gave the example in 2002, which scared the shit out of people when he said the Fed could go out and print money and buy ketchup, endless amounts of ketchup, if our ketchup industry needed to get a boost and we needed to fight deflation and catch up.

I was always wondering what the origin of the strategic catch up reserve was.

Now I know it's good.

So, yeah, that's why you got to watch the Fed and you have to watch Bernanke and I'm sorry, Bernanke.

J Pal, we know what Bernanke would do because they are the ones who are holding the keys to the car, the keys to mom and Dad's car.

And Trump would really like to go for a drive.

And right now it doesn't look like that would be an option.

I think quite the opposite.

I think the natural move by the people on the Fed board is to resist, like they're looking at everything going on in this week and the prior week and they're like, these are very sober, academic, serious people and they, they don't like it, I can tell you that much.

You don't need to have them giving speeches to know that that's the tenor of the room.

So, yeah, that's the other kind of monetization.

But do you think Besant.

I can't imagine that Besant is talking about the second.

It sounds to me like he's talking about the first.

So if he's talking about the first, what exactly is he talking about?

Making more liquor?

I think just the fact that the government would buy assets and, you know, be able to buy and sell them would increase the moneyness of those assets.

I mean, now we're getting all philosophical, basically.

I don't think he was thinking too deeply about this.

I think Besson is in a very difficult situation where he's, as I said, he's the smart guy in the room and he wants to do things that he knows he thinks are probably good, but he's dealing with some major constraints.

So when he's making these statements, I think, you know, a large part of this is him trying to say the right, say silly things in, in a way that seems reassuring.

Like there was a Bloomberg headline this morning I thought was great and it said something like, I don't have it up anymore.

But it was like Besson reassures Wall street while claiming to be, quote, completely sympathetic with Musk.

So like, on the one hand, he's trying to be the serious guy, the one you can trust.

Don't worry, we're going to bring the deficit down.

We're going to be serious, responsible adults.

But, oh, at the same time, I'm completely backing all of these people in the administration who are doing crazy things and saying crazy shit every day, which is an uncomfortable position to be in.

Well, and so my next question with this is two things, because he had also been a pretty big critic of Janet Yellen, but the US treasury came out on Wednesday and maintained its guidance on keeping sales of longer term debt unchanged.

So I wanted to ask you how that intersected with these things.

And then I also sort of in the context of the sovereign wealth fund thing, but also there's just been a flurry of things about not just a US Strategic bitcoin reserve, but different US States are now sort of talking about doing this as well.

Like Missouri introduced a bill that would allow the state of Missouri to buy bitcoin in order to deal with inflation.

I think Kentucky has introduced a bill.

South Dakota is pretty fairly advanced.

Utah is advancing bills like this.

So I wanted to ask you about the long term treasury signal that Besant gave.

And then I wanted to ask you how the bitcoin part of this intersects.

Like, could you imagine that the sovereign wealth fund?

Or maybe it's separate.

Maybe there's a bitcoin reserve that the United States is literally taking its debasing currency and buying bitcoin and sticking it there to try and make up the difference for inflation.

It just kind of, it seems a little bonkers, but it seems like that's what we're doing.

Right?

Am I crazy?

Yeah, those are two, two involved questions and they do overlap.

To some extent.

First, let's talk about Besant and the treasury thing, because I think that's probably the most important news this week that wasn't necessarily in the crosshairs of the media.

He did criticize Janet Yellen mercilessly heading into the changeover of power.

My suspicion is that Bessant thought, or at least he convinced Trump, that when the Biden administration left the scene, that inflation expectations would come down and that long term treasury yields would come down.

And my read of this, and just for background, so Janet Yellen very aggressively reduced the tenor of US treasury borrowing.

So prior to her becoming the head of Treasury, 14% of the US government debt was in the form of short term bills.

Now it's 22%, which doesn't sound like it's a huge change and it's not in percentage terms necessarily, but the debt amount has gone up so much.

We're talking about a lot of bills.

And um, Bessant essentially has said, like, look, you're skewing the treasury markets in this way.

This is not sustainable.

We need more long term issuance.

And a lot of the dealers on Wall street have gotten behind him because like you need a lot of Treasuries.

Treasuries are sort of the oxygen of the financial system because you need them for collateralization and all sorts of things.

Right?

So he had made a big stank about this coming into office and there was a lot of anticipation that this week when he did the first treasury auction, that he was going to announce a change to the guidance, like, hey, we're going to start borrowing more long term rather than short term.

And he didn't, he backed out on it.

He flinched.

And I think that's really important.

And I think it shows that he's starting to worry about long term yields.

This is important because it shows the tricky situation that the whole Trump administration is in.

Right?

Because they can't control the long term yield unless the Fed pins it, monetizes it through yield curve control.

It's not in their power.

And they know people are antsy about it because of the way the market has reacted since he came into office.

The background to this, by the way, is a lot of cyclical aspects in the US Economy are turning quite low.

Like the manufacturing cycle is, has been very weak.

You know, it's not like we're in some boom and 10 years are high because growth has just been so high and inflation has decelerated, as we've talked about, but still we're clanking along near the all time highs or you know, highs of recent memory around 4.5, 4.55, which for 10 year treasuries is as high as it's gotten for quite a long time.

So, so that was a big move.

And Besson is still holding to his kind of official line which is we're going to bring yields down and we're going to bring inflation down by, by drilling a lot of oil and gas, number one and by reducing the government deficit, number two.

And number one is just a noo because oil prices are already low, gas prices are already low, oil companies have basically come out and said look like we're not going to go lay out a ton of capex regardless of any drill baby drill kind of yay, rah rah stuff because there's the economics just aren't there.

And then on the second one, I mean the notion that these guys are going to reduce the government deficit willingly is not at all in keeping with anything that they've said or done and it's just, it just ain't going to happen.

That's the analysis.

So he's in a tight spot with regards to Treasuries.

The bitcoin thing, this is a hard one to wrap your arms around because there's so much noise around bitcoin reserves and it's a very noisy constituent that's interested in this topic.

What I would say is the US government has no incentive intrinsically to have a bitcoin reserve.

It's like we were talking internally, it's like Superman having a kryptonite reserve and stocking it up and keeping it in his house.

Bitcoin is the, the anti dollar asset.

It's the, it's the, it's the digital gold.

So I think a lot of this is just verbiage in the first place.

I think they want to show that they are in with, you know, pro bitcoin people and they're going to deregulate it.

Which like is great.

There's lots of really laudable aspects of that.

That's, that's fine.

The fact that states and the federal government have spoken about building up reserves, I think there's a very cynical look you could take to that which is if everyone expects that price to go up and up and up, they're basically talking about monetizing the assets of the US Government.

The government would be getting into the bitcoin speculation business which, you know, you can say what you will about that and how wise that is, but unless that's really the play Here, I think from a structural perspective, there's.

There's no reason to do that.

And it's.

It has many negative aspects that would only become apparent if you did it in at scale.

So I think they'll probably do a little as a symbol.

But I wouldn't expect US Government buying to be the driver of bitcoin demand.

Yeah, I don't think it would be the buyer of bitcoin demand.

But I'm just trying to get my mind.

I've been asked this a bunch of times, and I'm trying to get my mind conceptually around it because I don't feel like I'm on terra firma quite yet with what my response is here.

But if you expect the US Is just going to continue printing currency and that faith in the dollar and other currencies is going to continue to decline, and that faith in bitcoin is going to continue to go up as a direct result of that, and you have a bitcoin reserve, theoretically, I guess, if you're being really cynical about this, like, you can print dollars, but then also buy bitcoin and make up for the loss of the value in the dollar with your bitcoin reserve in some ways as a hedge against these things.

And I guess, like, this is where we get into a little bit of, like, regional geopolitics also, if you're like a US State, like the state of Missouri, and you don't have any control over what the Fed is doing necessarily.

So you're almost like, you know, you're basically El Salvador at this point and you want to help your state budget.

Can you park some stuff in bitcoin?

And if the price appreciates greatly, can you pay off state debts and just suddenly, like, does your state government have better budgets than all the states around it?

I guess if everybody and their mom is starting a bitcoin reserve, it doesn't work that way either.

And I remember the internal debate about the Superman analogy.

I believe I was the one who piped up and said, well, if you can corner the market on kryptonite, if you, Superman and nobody else can get it, that sounds pretty good to me.

Like, if you're Superman, like, being in the kryptonite business is probably, why not, like, be Superman and then also control the price of kryptonite and only give kryptonite to the people that you want to.

I don't know.

That's maybe too far, but I don't know.

I'm casting about here trying to understand what's happening because it seems to me that you could argue that this is just the recognition of bitcoin as an asset that is going to have value in the long term.

So everything from states to foundations to endowments are just going to have a bitcoin part of their portfolio portfolio, just like they have a gold part of their portfolio and an equity part of their portfolio and everything else.

Or is it that bubble type activity that you talked about last week in the context of the semiconductor stocks that everybody just thinks it's going to go up and even the people who are not sure that it's going to go up are cynically buying in because they don't want to miss the rocket ship.

I don't know if there's a question in there.

If there's sort of a question in.

There, I would guess that it's 80% the latter and 20% the former.

Like bitcoin has gold like qualities that have been proven out.

Like that's inherent to its nature and it's very convenient to use.

So there's a lot of things working for it.

I mean it is a true real asset and it will be a part of a lot of long term portfolios.

So that's legit.

And especially for smaller countries that are looking to build reserves and are concerned about the dollar and where it could be going, by all means, like there could be some buying at the margin, but states are not the owners of wealth.

Like states are small potatoes.

Just just to be clear, like the amount of wealth in the world, just just to, just to put this into context, right, China has $3 trillion of foreign assets.

And just to be clear, that's not wealth, that's just dollar denominated assets that are offset by renminbi, renminbi liabilities.

So it's not China's wealth, that's not the wealth fund.

The wealth fund is something different.

This is just an accounting entry where they own dollars.

The amount of total US wealth or I'm sorry, total global wealth is like $140 trillion in the world.

Like the states are teeny tiny in terms of moving the needle on this stuff.

So yeah, at the margin it will be something.

I don't think, I don't think that's the story about bitcoin.

The story about bitcoin is individuals, you know, gaining, you know, now I'm going to sound like one of those guys gaining sovereignty to, to own something that, that gets them out of the state led system of currencies.

The US is a drug dealer in that system.

They have the printing press of the US dollar, they can do with that.

You know, very powerful things, powerful things with consequences so that it'll always weigh out, dominate any other interests that they might have.

So Yeah, I think 80% of this is like, it's just like symbolic jumping on the bandwagon stuff with regards to like Missouri and, and that sort of thing.

Like if bitcoin stops going up tomorrow and if it has a 20% drawdown and Missouri puts, you know, a lot of their dollars into bitcoin and loses it, you, you bet your ass that at the first drawdown.

You know, they're not hodling in Missouri state level government, that's for sure.

I don't know.

I mean this has been a success story for El Salvador.

Like Bukele went in on bitcoin and then it went down by about half and he looked like an idiot.

And now it's gone up like, you know, over 2x from where he bought it.

So now he looks pretty good.

And El Salvador's balance sheet looks a lot better than it did before.

Yeah, but El Salvador is a tiny little shithole authoritarian country that has no powerful currency of its own.

I mean those are the sorts of.

I mean, I hate to be harsh on all of our El Salvadorian.

Careful.

They might have a jail that they can outsource to send you to or outsource the government for.

This is just too depressing to even bring up that subject.

But that's what I'm talking about is countries that don't have the ability to issue currency that is worth anything.

Sure.

I mean, just like they would try to accumulate US dollars, I mean this is just a more speculative form of US dollar accumulation.

So yeah, I mean if you have countries that are willing to take a bet like El Salvador, but in terms of actually moving the needle in any sort of global sense or any even medium sized country doing that, it just seems very unlikely.

Yeah.

All right, well, thank you for indulging me in this, but let me try and recap it and bring it back to.

Because this has been more exploratory than anything else.

But so is it fair to say that all of the things that we just talked about, the bitcoin reserve, monetizing assets from the balance sheet, besant and long term treasuries and things like that, all of this is about the fact that US debt is increasing, that the US debt has become so big that it's almost impossible to tackle itself.

Like I forget what the annual payments are on U.S.

debt.

I think it's closing in on a trillion.

I'd have to double check my statistics there.

But so you've got this sort of, you've got a US Government that has preached both fiscal conservatism and tax cuts and like, all, like, at the same time, and that the Trump administration does not want inflation to run wild, and yet it also, like, wants to rein in spending and it wants to do all these different things and it wants to do Stargate with AI and blah, blah, blah.

And you just can't do all these things at the same time.

And I guess the question that I'm inarticulate leading up to, because this is something I disagreed about with Marco on the podcast that I did with him earlier in the week because he seems to think that fiscal consolidation is coming, that the signals are showing us that maybe the Trump administration will turn like, a little more fiscally conservative.

Do they have to, Is there a constraint on the debt or on some of these, or on inflation or something on the status of the US Dollar that is going to force them, even if they don't want to, to say, we can't just cut taxes, we can't just blow out the deficit, there has to be a return to fiscal conservatism, or is there no constraint and this just continues on until the bug hits the windshield?

Does that question make sense?

Well, they don't have to do anything.

They have choices.

Each of those choices has ramifications is the problem.

And a lot of those ramifications are things that they're not going to like.

So, yes, they could certainly choose to address the debt issue now.

And just for context, in the most recently reported month, the US Spent more on interest payments than it did on national defense.

That's the scale of the debt problem now.

So this isn't like, oh, you know, it's the debt clock, and 15 years from now, it's like it's now, now it's getting to the tipping point of unsustainability.

So this is not a academic discussion.

It's a, it's a practical discussion in the short term.

So they may choose to take the fiscal consolidation route.

They can do that.

But if they do that, they're going to have, they're going to have a recession on their hands, very likely because you're going to have high real interest rates and you're going to have, you know, reduced stimulus after, like, it's hard to communicate to people how much stock markets and businesses have just been juiced on the steroids of stimulus for the last four or five years, like literally people were getting hundreds of thousands of dollars checks from the government and putting them in their pocket and just walking away and buying Ferraris.

And like, like those are not made up stories.

Like literally that has happened.

So you're going from that to now it's the hangover period.

And that's why I say, you know, Trump really faces a dilemma here because no matter what, you're gonna have to deal with that, with the choices I've made so you could fiscally consolidate.

The alternative is if you, if you can't touch the monetization lever, if you can't touch the Fed yet, and I'm sure they would love to at some point, like when things get bad, like right now, they're riding high.

They think they're, you know, they're feeling, you know, generous.

But when things get bad, absolutely, he's going to start bashing the Fed and they're going to want to control that lever as well.

So that's an area to watch, but we're not there yet.

But in the meantime, until they can control that level lever, the other option is to continue doing what they're doing and basically bully their way into trying to hide the problem, obscure the problem, redirect attention.

And by that I mean, okay, maybe they don't actually fiscally consolidate, but maybe they go after the way that CPI is reported.

Maybe they go after, like right now everyone's talking about eggs and the price of eggs.

Maybe they go after Cal Maine Foods and say, you anti American sons of bitches, we're going to put a special tax on you guys.

Maybe they go to large US Corporations and say, hey, you're manufacturing outside of the US and we're going to put a levy on just those assets outside of the US and we're going to basically drain your balance sheet.

I think there's a lot of options that are within sort of what they've already demonstrated that they're willing and eager to do.

That is the bully capitalism sort of playbook that is mostly window dressing, but it's kind of sage.

People politically and make scapegoats for the inevitable sort of inflationary impacts of door number two.

Probably door number two was where we're going.

Unfortunately, this was for.

All of these statistics I'm about to rattle off are from a Pew survey that I read yesterday.

84% of Trump voters said they wanted smaller government.

72% of Trump voters said they think that the government, the government aid to the poor and specifically does more harm than good.

79% think the government should not do more to solve problems for the average American consumer.

And here's the kicker.

77% think Social Security should not be reduced in any way.

So you can say all these nice things about fiscal conservatism, but if you're going to actually be fiscally conservative, you're going to have to cut some of these programs that things are talking about.

Notice that people didn't give a crap about what Elon Musk was doing until it was, hey, he got access to Medicare and Medicaid.

And then suddenly, like, you could literally hear people sitting up in their chairs, like, what he's doing.

What is he doing with Medicare and Medicaid?

And then people started like, giving a shit.

Usaid, fine.

Like, they came for usaid, they came for the treasury, they came for the swamp, fine.

My Medicare, uh oh, like now we've got, the courts are up and everybody's talking about Musk and things like that.

So going to be very hard to go through that door.

All right, so my next question in leading us on, as we meander through here, I noticed some contradictory things happening sort of in macro, at the broad level in the global economy this past week.

And I wanted to pick your brain about this too, because we haven't had a chance to catch up that much.

I don't know if you saw that the bank of England halved its growth projections for the British economy this year and cut their interest rate for the, for the.

For the third time in six months, just a quarter of a percentage point.

And there was apparently argument about how much they should cut.

India cut its interest rates for the first time since May 2020, just a quarter, you know, 25 basis point cut.

It also comes a week after they announced really a fairly huge tax cut on personal income taxes.

So they basically doubled the threshold at which people don't have to pay income taxes in India, so signaling that they're worried there.

I wanted to juxtapose that with Brazil, which a week and a half ago raised its benchmark interest rate by a hundred basis points for the second straight meeting.

And then we know what's going on in China, we know what's going on with the Fed.

So you've got the bank of England out there and you've got India signaling we're gonna loosen.

You've got Brazil saying, nope, tighten.

We're worried about inflation.

You've got the Fed kind of stuck where it is.

And China, the initial data out of China, it still doesn't look Good.

But it looks like maybe we bottomed last year.

Like the growth rates are starting to creep up and the consumption rates are starting to creep up.

But maybe things are getting a little bit better and the Lunar New Year numbers look, maybe they look a little, a little tastier than last year.

So help me make sense of these different points of view.

At the surface, it's just a really good example of how globalization is gone if different countries can look at this global environment and just say, have such different approaches to what is good.

But I wanted to get your take on, on who's right and who's wrong because I have a recency bias to say maybe Brazil is onto something.

Because it was Brazil and Chile that saw inflation before everyone else after Covid and started raising rates ahead of everyone else.

Those were the two countries that got the rate cycle things right.

And they're raising right now even as you've got some of these others that are cutting.

So take that any direction you want.

Yeah, I think your instinct is right.

The backdrop to this is the global economy is very slow right now.

So Europe has been really in.

I mean, whenever you analyze the economy, you have to look at the US you have to look at Europe and you have to look at China.

Those are the three major polls.

That's like 65% of the global economy.

So if you just focus on that, you can get a pretty good sense of what's going on.

And US growth has been okay, but slowing, especially in the traded and manufacturing sectors and investment, fixed investment, stuff like that.

Like the stuff that's been holding up is the consumer, which is more service oriented.

Europe has been sort of in a quasi recession.

Like the service sector is holding up okay, but most of the cyclical stuff has been very weak in Europe.

And China has got a little bolus last year especially, you know, related to this sort of buy forward in advance of tariffs.

There was a little pickup and a lot of the commentators now are saying, okay, China's accelerating again.

The one that I like to follow is the China Beige Book, which I think does a terrific job.

And they're saying the opposite of what all the official data and the more normal commentators are saying.

They're saying that China's little growth bolus actually ended sort of in the autumn and is now growth is getting worse again.

So I think that's probably the truth of what's actually happening.

That's interesting because I like, I like Beige book too, but increasingly I've gone to Rhodium for, for sort of this Stuff and they're not telling a rosy story by any means, but they are saying things a little better than last year.

They were very doom and gloom last year and they were starting to point out that things are a little better.

Although one of the interesting things about rhodium was in their recent report about China for 2025.

They talked about how consumption was basically flat and that it was exports that was the saving grace for China, which really puts the US China trade war in the crosshairs.

But anyway, sorry I interrupted you.

Keep going.

So, so that's the background.

I mean, you've had a lot of growth slowdown that should have brought rates down.

And in many places they did.

Like as you point out, like most countries have been cutting rates or, or at least, you know, keeping them steady.

Brazil and Chile are a little bit weird primarily.

You know, one of the things, I guess what I'm getting at is I think we're starting to see a little bit of supply side inflation rear its head.

And those might be canaries in the coal mine.

I'm not sure about that yet.

But if you look at Brazil, they've had terrible drought.

Food prices are up, the economy's doing okay.

But Brazil had really cranked up rates to fight the post Covid inflation and they had been ringing them down and now they're back almost to the peaks again.

I don't have a number in front of me, but the Salic is at like 11%, which is high for Brazil.

That's, that's high.

And it's against the sort of secular downtrend that we have been seeing.

So I just wonder to what extent, just like the last time they are because they're ultra sensitive to inflation in those places and they're, they're hawkish by, you know, instinct after some of the experiences they've had in the past, that they are signaling that you are seeing some supply side inflation start to creep in again.

Which would make sense because we're seeing nat gas prices increase.

You're seeing food prices start to come off the lows depending on what you're looking at, especially in meat.

Like prices of meat are really ripping prices of beef, those sorts of things.

So I don't have a strong view on this, honestly, but that would be sort of the working hypothesis that I'd throw out there that we should think about.

Yeah, and to be clear, Chile and Brazil were both hiking early on after the COVID stimulus.

Chile's not quite there yet.

So they cut.

Last month, they paused cuts for the a Week ago.

So they're not at the point yet.

Like Brazil has got two consecutive meetings where they're raising significantly.

Chile just kind of hanging out there and they've at least shown us that they're going to pause.

If you're right about that though, how do we make sense of, of India?

And by the way, I think, I think in general in geopolitics, we don't spend enough time talking about India and we need, we need to do a better job there.

Because, you know, you mentioned the eu, China, the United States.

Like India should probably be a part of that conversation.

And I was sort of surprised at, at, at them because if it is a supply side thing, you would think that India would be more exposed to that than anybody else.

Like, they're importing a lot of energy, of course, they're getting a lot of cheap Russian energy and energy is already cheap, but they're also importing lots of different foodstuffs, like blah, blah, blah.

And yet they're signaling caution.

Of course, you know, the other, the other side of this is, you know, they're expected to grow 6.4% this year.

That's the weakest in four years for them.

Any other country in the world would be happy with 6.4% growth.

So maybe they're just digesting some of the gains of the last couple of years.

But you would think that if Brazil was having that trouble on the supply side, that India would too.

Is that, is that right or am I stretching here?

I'm a little outside of sort of the area that I spend day to day time looking at.

But here's what I would think about India.

So first of all, India is huge.

And we don't talk about it enough in terms of its importance, but in terms of kind of the global scales of economics, they're smaller than Germany.

They're 25% smaller than Germany.

Like, India is incredibly poor still, when you look on a per capita basis, like not even within striking distance of China, which is still very poor.

Oh yeah, it's much closer to Haiti than it is to China.

Yeah.

So it's easy.

Like India is such an incredible place.

It's so easy to forget that, like how much Runway they have if they, if they get this right.

But India is a little bit weird and I'm gonna take a punch on that because India is so driven by food inflation.

Like that is really especially given sort of the consumption basket of the average Indian food is overwhelmingly the most important thing.

And like, some of the foods that India eats has Been, have been doing weird things.

So like rice, we talked about this last year.

Rice prices were totally spiking and exploding last year.

And since in recent months, they've really come off the boil because of things that are just specific to the rice market.

So there's some idiosyncratic stuff happening in India.

I think they were probably a little more hawkish than the, than others because of some of those things.

And now they can release the gas a little bit.

That would be my sense.

So I think it's just a weirdo in this case.

All right, what else, Rob?

Is there anything else on your list of things that you wanted to talk about?

I poked you with all my questions.

What's on your mind?

Do you have any thoughts on Indonesia?

Because the headline that caught my mind, caught my eye this week was this creation of sort of like a Temasek style government entity to consolidate and manage all of the Indonesian state assets, which I thought was pretty interesting.

Let me be a surrogate listener and ask you to what is Temasek, Rob?

It's, it's basically what I just said.

But for Singapore.

I've come, I've come full circle on Indonesia and maybe, you know, maybe time is a flat circle or Indonesia is a flat circle and I'll come back around because, I mean, almost 10 years ago now I did a big project on Indonesia for a supply chain client and came out very negative on Indonesia.

And you know, this was specifically for a manufacturing client.

So I was comparing labor costs to other opportunities and climate risk for where the industrial facilities were and, you know, all the different things you would have to import in the relationship with the government.

And I sort of advise them if like on your list of countries you're considering, this is not the one that I would consider first.

But then as we started doing, doing more investment work around Indonesia, I got a lot more optimistic because they really were ahead of the curve on protectionism.

They were starting to protect Indonesian industries when people still assumed that everybody wanted to join the WTO and hold hands and sing Kumbaya.

So they were restricting the nickel industry and they were telling China, if you want to be here, you've got to invest and build factories when it was not cool to do that.

And now everybody's doing it.

So they've got a bit of a head start there.

The, the flip side of this though is, you know, they recently had an election.

Jokowi could not run again for legal reasons.

And despite people fearing that he might try and usurp the constitution to stay in power, he didn't.

And so instead you've got this Prabowo guy who won.

And Prabowo is, he's a chameleon.

He was associated with the former military dictatorship.

Then he sort of reformed himself into this grandfatherly figure that, you know, made jokes on TikTok and different social media platforms.

And it seems to me that he's a pork barreler.

Like the Indonesian cabinet that he announced is absolutely massive.

He's just sort of greasing all of the different wheels that he needs to, rather than just thinking in terms of market oriented things, really sort of as protectionist as you can get.

Like when I've been talking, for example, to specifically dairy audiences, one of Prabowo's campaign promises was free milk for all Indonesian school children.

Which if you produce milk, you probably want a little piece of that action because that's a really big market in general.

But I mean that's, it's not bread and circuses, it's milk and TikTok.

I don't know, whatever metaphor you want to put in there, you know, it's a country of 200 million plus people.

They're one of the few countries that have a really attractive demographic profile.

There are some serious climate change risks.

Like they're really at the front line of climate change in a way that most other countries are not.

Their major population centers are all in danger of, you know, rising sea levels within the next 15 years, not 50 years from now or whatever else.

So there's going to be a huge cost incurred there.

But they also have a lot of different strategic minerals and things like that.

Like they've got a huge nickel thing and they've got a bunch of other different, you know, they're big on palm oil, they're big on a bunch of different things that you need or that they can sell in order to get currency.

So all of which is to say it's a mixed bag.

And the Indonesian government has always struggled to sort of figure out a coherent way to do this forward because there's no real Indonesian nation.

Indonesia is a patchwork of all of these different groups.

It's, it's really a multicultural, multilinguistic, multinational state in that sense.

And it, for how stable it's been, it's kind of remarkable that it's done so.

But that's also hard then to move the ship of state in discrete directions.

So I guess the, the answer that I'm leading up to here is Indonesia has tons of potential.

I'm not sure that this particular protectionist government is the one that is going to be able to lead things in a particular way.

They're going to have spare capital to do things just because of the resources that they do have.

But also that capital sort of has to go towards fusing the state together by buying off all these different groups or buying off allies and things like that.

So the idea that it's just going to go into one general coffer that is for the good of everyone sounds a little bit idealistic to me.

But hey, most countries can't have this conversation.

Most countries like, you know, are, are scrambling to import the resources that Indonesia has in spades.

So ultimately I'm, I'm pretty positive and constructive on Indonesia, but there's, there's some serious risk here.

And this particular government, I'd be much more comfortable if the previous government was announcing this because they actually had some, some bona fides to do this.

Prabowo, I mean, maybe, but he seems to me to be a protectionist who's just going to do what he needs to do in order to cement his power, not who's thinking long term about Indonesia.

So I think it's such an interesting question and I'll explain sort of what's in the back of my mind and why I think Indonesia is worth even talking about and sort of what maybe we can look at to watch going forward.

Because I could really see two scenarios.

Like the first one is that, you know, this just becomes more inefficient and they just fail in their strategic initiatives and do the usual thing, throw money down a hole, engage in corruption and giving it out to favorite groups that aren't going to do anything useful with it.

That's the one and probably more likely scenario.

But then again, Indonesia has put up incredible growth numbers and they've had a lot of success so far.

How much of that is really attributable to the prior regime versus this one?

I don't know enough about Indonesia to say, but their track record is pretty good, so you got to give them some credit for that.

The positive scenario, which I don't know how likely this is, but I would call it the Tanaka scenario.

And like, specifically I'm thinking of during the really high growth period in Japan, also a, you know, traditionally fragmented nation with lots of interest groups you have to keep together and geographically kind of broken apart.

Tanaka sort of perfected this.

He was the prime minister for a very long time and essentially created the flywheel of greasing palms and, and did so in a in a very effective way.

So in other words, you know, it was an investment driven model and if you supported the LDP politically, you received benefits, but they distributed those benefits in such a way that the investment was pos.

Was value generating.

Like they had the discipline to not just throw money down a hole, which is what most developing countries do.

And you sort of did have this flywheel effect where the more this went on, the more value was created, the more was available to distribute.

The more you distributed and created more value, the more your political power grew.

And everyone kind of cohered around the money machine, the money flywheel machine.

And that was a very successful model for a very long time really until Japan kind of hit the natural limits of catch up growth and started going out and buying Rockefeller center and Van Gogh's and shit.

Um, I don't know if that's likely here, but it's possible.

And if it is sort of the outcome that we're looking at that could be extremely pop.

Extremely positive for Indonesia.

So it's just something I, I have on my radar screen and it's worth us checking in on it every once in a while because you know, it's a big one.

If they get it right, it's huge.

And you know, Indonesia was a victim of bad timing too.

Like the Asian financial crisis in 97 was particularly ill timed for them because they were basically forced to de.

Industrialize before they were ready.

They were just seeing the fruits of industrialization and sort of becoming the next South Korea or Asian tiger.

And then the financial crisis hit and the share of manufacturing as a percent of their economy actually declined since then.

And it's funny, like the top line growth rates are there and people are more constructive about Indonesia than they've been before.

But if you go back and read like IMF and World bank reports from the mid 2010s, Indonesia is the redheaded stepchild everybody loves to point out to.

Oh, their infrastructure sucks and their productivity sucks and the government is this.

And like all the politics are really screwy.

So it's really only a recent thing that people have come around.

But I do, I throw Indonesia in that category, in that category of countries where this is the.

They have the profile of the type of country that should do really well in the current environment where we are deglobalizing, where spheres of influence are rising, where people are looking for new sources of cheap labor that are away from key geopolitical, I won't say geopolitical choke points because obviously the Strait of Malacca is there, but if you're thinking of, you know, geopolitical threats in Asia Pacific, you're thinking about the Korean peninsula and the South China Sea.

Indonesia is removed from things.

You could have a full on US China war or a Chinese invasion of Taiwan or something like that.

Indonesia is really far away from all of that.

So you could still sort of have stuff around there.

It's its own ecosystem.

There's a reason why when Japan launched its empire, its failed empire building campaign in the 1940s that, you know, they tried to get to Indonesia.

Indonesia was the place where they had to displace the British and then try and set up shop.

And if they could have held the line there and defended it, like you would have had an imposing empire to go there.

So I think it's a really critical country.

And you know, in the same vein of India, it's the type of country that nobody's really talking about because we don't know a lot about it and there's not a lot of good English press there.

But yeah, I, I find myself more constructive than not.

But there are a lot of risks and it's, it's also hard for the individual investor to find things to do here because even if you and I are right about the macro, like go look at the iShares, Indonesia ETF, it's like all banks and stuff like that.

Like, if you're gonna, if you're gonna actually invest in Indonesia, you probably have to have A, a high risk tolerance, B, a lot of money and C, you have to be willing to go there and buy physical assets and develop personal relationships.

Like, I don't think this is a story that is going to lend itself well to public equity investments at any point in the next 10 to 15 years.

I mean, you correct me if I'm wrong, but I think it's that sort of opportunity.

Well, the only exception is there's Japanese companies that have meaningful exposure there and it's, you know, there's real implications for some of them.

But yeah, I mean, for the most part that's totally right.

There's like five big banks on, you know, some commodity producers.

There's not a lot to choose from.

Well, yeah, and if you're investing in the Japanese company that's doing that, again, like you're investing in the Japanese company that is going down there and rubbing shoulders with the people and figuring out who needs checks and how big the checks need to be and where they set up the manufacturing facility and all these other sorts of things.

Yeah, it's a fascinating country.

We did a big episode on it with an Indonesia expert, I think.

Was that a year ago now that we did that?

It might have been.

I think it was a year ago.

Maybe I'll try and repost it and maybe I'll try.

That was a really good episode.

Maybe just a request to readers.

So I've heard of this Revoluci book that's supposed to be very good.

And I have this book by Vincent Bevans here next to me, which is really focused on.

It's not like a history of Indonesia.

If there's any good books on Indonesia, I would love to study this.

So recommendations are totally welcome.

If you can flip an email to us.

Sounds good.

All right.

Anything else on your list, Rob, or do you want to say goodbye to the.

I guess do you want to talk about Gaza for two seconds or should we just punt there?

I don't know.

Well, I don't have any views on Gaza, but if you want to note anything, I would love to hear it.

I think there is a pattern that we can discern now with Trump.

And this pattern was there before, which is he is taking extreme positions at the start, and that is the beginning of a negotiation process.

And I think the Gaza thing was so confusing.

And go look at the press conference.

It's confusing to Netanyahu.

Like, even Netanyahu in the moment is like, what is he talking about?

Like, maybe he was just hiding it.

Well, I don't know.

But it looked to me like Netanyahu had no clue what was going on.

But I think one of the reasons it was so shocking was because besides the fact that it violated a bunch of international norms and the idea that the United States was going to take over land in the Middle east, like, takes us back to, like, Sykes Picot in the early 1900s.

That seems to be the theme.

But it wasn't discernible who he was negotiating with or what he wanted.

Like, when you slapped 25% tariffs on Canada, okay, like, USMCA renegotiation is coming.

You've got these trade issues back and forth.

Like, okay, you can make the case that it's part of this grand renegotiation.

Who are you negotiating with if you're saying you're going to own the Gaza Strip and turn it into a beach development?

Like, it wasn't immediately clear.

And it wasn't immediately clear to me, too.

I, like everybody else was like, this is absolutely nuts.

But a guy named Ted Sasson on Times of Israel, he had a post out, which I thought was actually, I was jealous of it because I thought he did a good job of bringing it back down to earth.

And he identified four audiences for the Gaza Strip takeover by.

By the Trump Development regime.

The first was a message to Hamas, which is to say, if you don't return the rest of the hostages and leave the Gaza Strip, you know, this Trump guy is crazy enough to transfer all of you out of there, that things will get worse.

So a real threat to Hamas in this sense.

The second audience was the Arab states.

All, you know, the countries like Egypt, Jordan, Qatar, uae, Saudi Arabia.

Saudi Arabia came out a couple hours later and said, you know, they want a Palestinian state before they normalize relations with Israel, which is something the Trump administration was pursuing.

Pursuing the first time.

But maybe one of the audiences was these Arab states, which is.

Trump wants them to pressure Hamas and wants to see them come up with some kind of plan for security and reconstruction.

Because if they don't do it, he's saying, we will step in and we'll do whatever the United States is going to do.

This one was a little bit more of a stretch, he said.

The third audience was the Israeli far right, which he said that really what Trump was saying was, good things are going to come to you if you support the ceasefire, that Gaza can be redeveloped the way that you want, but you can't keep trying to knife Netanyahu in the back, which the Israeli far right literally has been trying to do over the past couple of weeks.

So the opposite of empowering them actually sort of saying, hey, if you, I'm on your side, I want what you want ultimately, but stop messing with Netanyahu.

Like, Netanyahu is my guy.

I'm going to work through him and he's going to get these concessions, not you.

And then last but not least, the Republican Party base trying to, you know, play up the fact that maybe Biden and.

And this, I.

This is another one of Biden's real missteps here.

But Biden was sort of seen as not supporting Israel enough to the far right and to Trump's base.

Even though if you ask somebody on the left or somebody who's critical of Israel, Biden, like, didn't do nearly enough to stop what Israel was doing generally.

So he said, like, those were the four audiences that maybe Trump was attacking there.

And I sat there and read that article, like I said, I was a little jealous of it because it was okay.

Like, maybe that's right now, maybe.

Maybe Trump is just nuts.

Like, maybe he just says crazy stuff.

Well, That's, I mean, just basically you just, like, that's a lot of messages for a lot of people with just.

I mean, that's pretty brilliant if he packaged all of that into one little.

One little package like that.

And, oh, it's the message like this for these guys.

Like, that sounds like a really smart person trying to put an analysis on this.

Maybe Trump just says things like, like, like Sam Altman famously said, you can just do things.

Like, maybe Trump just says you can just say things.

Well, and he did during the first administration.

But that's one of the big differences.

He's not just saying, like, this was read off of a script and he doubled down on it in the Q and A, and he's gotten other folks in his own government to talk it up in the same way he did with Columbia and some of these other things.

So, yeah, like, maybe he's.

Maybe he's.

I mean, yeah, it seems like fourth dimensional chess if he did all those things.

But if you do just take a step back and look at it, it does reset the field.

Like it says, okay, the way that things were going before obviously wasn't working.

I'm going to change things, and the threat I'm going to use is we'll just take it.

If you don't listen and if you are like any one of these actors, like, maybe you have to stop and consider.

Like, maybe he would, Would he do this?

Like, what is he talking about?

We've never seen in a hundred years somebody do and say this thing.

Maybe we.

It, like, puts the pressure on them where Trump is just, like, sitting there.

You know, it's like he threw a grenade in the mix and now he's going to watch everybody scurry about.

Maybe it'll.

Maybe the grenade will blow back up in his face.

Or, or maybe he's just nuts, like you said.

But I will say I notice a little bit of.

But I, I didn't, I didn't say that he's.

That he's nuts.

I mean, it seems very much in keeping with his whole history.

I mean, his whole history has been to say outrageous things, unthinkable things that get everyone saying, oh, my God, how could he say that?

And it puts him in a position where he's controlling the debate.

And I think that's a very simple strategy that has worked in the domestic sphere for him.

And he's just going to double down on that over and over and over and say outrageous things, whether he means them or not, because he feels like it puts him In a position of leverage and strength.

I mean, like, isn't that what you're just describing?

Like, everyone is saying, oh, my God, how, like, now the tables are all turned upside down.

Like, that's probably the extent of what he wanted.

Like, just throw a grenade in there and keep everyone off balance.

Because you're.

Did you.

Did you post this on the knowledge platform, or did I read it somewhere else?

But someone was basically pointing out, like, how Trump has said publicly on multiple occasions, you know, they think I'll make them think I'm crazy.

You know, like, they think I'm crazy.

They don't know what I'm going to do.

Like, kind of admitting that this is the approach.

Right?

Yeah.

There's a quote.

Somebody claims that they spoke to Trump.

Or maybe it was a.

I have to go back and look at the source because it was in the context of Xi Jinping.

This is important enough that I should find the exact thing.

Yeah, it's right here.

Yeah.

Donald Trump in an interview with the Wall Street Journal.

I guess this was in 2024, that he wouldn't have to use military force against China because Xi Jinping respects him and knows that he's crazy.

I believe fucking crazy was the exact thing, or at least that's the quote that is out there.

So there is this notion that, you know, Trump is going to scare people around because, you know.

No, it's literally.

He said.

That's the exact quote here.

Yeah.

He said this to the Wall Street Journal that Xi Jinping would not invade Taiwan because he respects me and he knows I'm fucking crazy.

So there's your quote.

Yeah.

So this seems in keeping with that approach.

But it's one thing to say that when you're in the opposition, when you're a teenager, so to speak, but when you're running the household or running the government, it's a different effect.

Yeah.

Well, it will create plenty more interesting statements and interest for us, but I think we can.

We can call it there.

So we'll see you out there.

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