The Podcast of the Lotus Eaters - PREVIEW： Brokenomics

00:00:00.400 Hello and welcome to Brokonomics. Now in this episode I wanted to tackle some of your questions

00:00:05.600 because there have been some quite good questions piling up underneath the videos,

00:00:09.680 so I thought to myself, who do I know who can talk about that? Well it's me. Anyway, so we've

00:00:15.040 also got this lovely format thing that they've developed for the Lotus Eaters daily and I thought

00:00:20.400 well yes I can use that in order to have some questions and go through them and hopefully

00:00:26.960 say something rather useful. So here we go, Brokonomics series, you know and love it very

00:00:33.600 well. Let's go into, that was a solo episode, Infinite Money Glitch, I seem to remember there's

00:00:39.120 some good questions in there. So let's have a look. Oh actually, before I start on the questions for

00:00:48.800 that video, earlier today on the podcast our good chap Alex asked me a question. Actually let's

00:00:57.200 see if we can get the editors to insert it here. This question is for Dan. I'm a fairly risk-averse

00:01:03.920 guy and I like to see steady growth over a long number of years and I'm eyeing the SPY ETF trust

00:01:11.040 for the S&P 500 index fund. Is there any downside to investing in something like this? I know you're

00:01:16.240 not going to give me financial advice. Wink, wink. Okay, no need for the disclaimer. I appreciate

00:01:20.960 your help, but it's had a 25% year-over-year increase in the last four years. Seems like a

00:01:26.720 safe bet. Is there something I'm missing? Thank you very much. So Alex is asking about the SPY ETF

00:01:34.880 trust. Now, so SPY is the standard and pause index, presumably what the SP stands for,

00:01:43.520 I don't know what the Y stands for. And it is basically a broad index of the 500 companies in

00:01:51.040 the S&P index. Now, it's really difficult to give personalised advice because I don't know your

00:01:57.360 circumstances. The bit that is relevant in this situation is the SPY has fairly low volatility and

00:02:07.920 reasonably decent returns. And that might be just the trick for you. Personally, I embrace the

00:02:13.920 volatility because I don't mind more volatile assets, which can go down as well as up as long

00:02:19.280 as the net result of the up is much higher than the net result of the down. However, you may be saving

00:02:25.520 for, I don't know, house deposit or something like that, where large amounts of short-term volatility is

00:02:32.720 very unhelpful, because ultimately, you are looking to deploy that money on something else

00:02:39.040 for some practical purpose. In my case, I don't really care if there's a period of two or three

00:02:44.640 years even of downward volatility, as long as I then get, you know, several years of very good up

00:02:50.320 volatility. My other issue with passive funds, so index trackers, all that kind of stuff,

00:02:58.320 is that there was an awful lot of dumb money on trackers. By that, I mean, most of the money

00:03:06.080 invested today is actually going into index tracking, which means there is nobody, well,

00:03:12.240 there's not nobody, but there are far fewer individuals who are making intelligent choices

00:03:16.720 about where the value really is, because so much money is just flowing into these indexes and they get

00:03:23.200 a bid all the time anyway. Quick side note, that's one of the things that makes me a bit bullish about

00:03:31.600 Bitcoin as well, because at the moment, there is, well, basically all working age Americans and lots

00:03:37.760 of other people from various other places as well, they get this constant drip, I think they put,

00:03:42.480 they call it their 401k, where they dedicate money every month. And most of that money then goes into the

00:03:48.960 stock market and into trackers. So there's this perpetual bid for stocks, US stocks, from US

00:03:58.160 investors, but also a lot of other people invest in US markets as well. So there's a constant upwards

00:04:04.080 pressure on stuff. You can't put Bitcoin in your 401k, I believe. So there is no constant

00:04:13.760 big push coming from that. But that could change soon if something like MicroStrategy is included

00:04:20.320 in one of the big indexes. And it might be, in fact, it might have happened by the time you watch

00:04:25.360 this video, because it's the coming Friday that they add in or not. And that could then start adding

00:04:30.880 a push effect that is currently absent from it. So yes, returning back to SPY, Alex talks about the 25%

00:04:38.080 return level that you're getting on it. Okay, that's, that's reasonably decent. Actually, you've

00:04:43.600 got to bear in mind that money itself, US dollar is being debased by about 14% a year. So if you're not

00:04:50.400 earning 14% a year, you are going underwater. So if let's say it is 25%, you know, you're getting that

00:04:59.040 extra, you know, 11%. So fine, sounds reasonable, don't particularly have a problem with it. It's got that

00:05:06.880 low volatility. So if you do want to deploy that money at shorter notice, then by all means,

00:05:11.920 it's just not for me, because I will take the time to do my own research on things and find

00:05:21.200 where the specific opportunities are. I'm also willing to tolerate higher degrees of volatility

00:05:28.000 and risk, and therefore I can get higher returns. But no, I don't think it's fundamentally

00:05:33.920 unreasonable, other than the points that I made about index, indexes being, you know, not that they're

00:05:39.360 not smart money. You know, they just they just track whatever's in the index, and they buy or sell,

00:05:45.920 you know, depending on whether they go up or down within the index, so they maintain the proportion of

00:05:50.640 the index. So, so don't have a problem with it. And it might well work for you. I would say that

00:05:57.760 the best performing assets, when you divide them by the supply of dollars, and you can do that by

00:06:06.080 taking the Federal Reserve balance sheet, because that's a close enough proxy for the supply of

00:06:11.200 dollars. When you divide all assets by that, the two things that stand out is crypto and high-performing

00:06:17.280 tech stocks, which I've talked about on a number of occasions. And the best proxy for that is probably

00:06:21.840 the NASDAQ 100, rather than the S&P. But you know, like I say, fine, it's fine, fine. So right, next

00:06:28.560 question. Okay, so return of MacGyver says, while it might be a little bit boring, the basics of stock

00:06:35.840 trading would be great. Standard lingo, when to sell, etc. Okay, so when to sell is not a basic of

00:06:43.360 trading. That's, that's the whole game, really. Well, I suppose along with buying at buying at the

00:06:49.200 right point. But there's lots of people who can buy at the right point, selling at the right point

00:06:53.040 is, is what really sets people apart. But yeah, the basics of trading. Yes. So quite often,

00:06:59.280 actually, I see something either on Twitter or in a comment or something, something which I have

00:07:04.160 internalized to the point that I don't even think about it anymore. And people question the basics of

00:07:10.640 something. So I've long thought that I want to cover the more basic levels of this stuff. But

00:07:17.280 the problem is because I've internalized so much of it for so long, it's not obvious to me

00:07:23.440 where to start on that. So if somebody wanted to put down some questions to get me started,

00:07:33.040 or I could figure out a way to do it, maybe I need to interview somebody who knows nothing or something,

00:07:37.040 I don't know. But yes, I'm open for doing that video. It's just a question of how I do it and how I

00:07:42.080 figure out what it is that the right questions that I answer. Okay, Alfred the Mid says, Dan,

00:07:47.760 can you please cover profit taking in the next episode? I didn't make as much as I should from

00:07:53.280 the GameStop saga. And I don't want to repeat the same mistakes with MSTR, MicroStrategy and Bitcoin

00:07:59.280 if I sell. Yes, so I have been thinking about how to profit take. And my thought process goes at this,

00:08:08.960 maybe I'll come back to it with another episode in more detail. But where I've got to in my thought

00:08:13.120 process is, as you know, I'm not really, okay, let me take you back. The Warren Buffett school of

00:08:20.000 investing is you read for a company's accounts, you look at the profits they're making and their growth

00:08:29.120 rates and their assets and so on. And from that, you work out what you think the company should be

00:08:35.280 worth, you can, you know, say, okay, well, it's earning this much at the moment, you could stop

00:08:38.960 there, you could just you just take that current earning levels, or you can get a little bit more

00:08:42.320 sophisticated, and you can project those earning levels out 20 years in the future, and then this

00:08:46.800 and adding whatever growth rate you want to add. And then you can discount that by whatever cost of

00:08:51.520 capital you want to apply to it back to today. And that will give you a value what you think that

00:08:56.400 company should be worth. And the whole Warren Buffett school of investing is you keep that number in

00:09:01.520 mind as what you think it's worth. And when it drops low enough below it, you buy the stock,

00:09:06.240 and when it goes high enough above it, you sell the stock. Okay, nice and simple.

00:09:13.680 That's not really what I'm doing that that is what I used to do. In fact, that was that was a part of

00:09:19.920 VC investing that I did for a long time as well. The figuring out your exit is one of the most important

00:09:27.920 parts of it. In fact, before you even buy anything, you include in your investment note

00:09:35.840 what you think the exit should be, who do you think you might sell it for, what kind of multiples you

00:09:40.960 would do. So thinking about that exit is a whole thing. But traditionally method, what I had done in

00:09:46.400 the past and the whole Warren Buffett school, the value investing methodology is all about when it hits

00:09:52.080 a certain price, that's the point to sell. However, that is not what I'm doing at the moment. What I'm

00:09:56.960 doing is my macro thesis is all based around the fact that we have fallen into these four or five

00:10:06.000 year cycles that are based around the fact that, well, however, we got here, and we talked about that

00:10:12.720 in the past, growth of fiat, money, debt, demographics, all that kind of stuff, we have got to a point where

00:10:18.720 there is a structural deficit baked into Western economies. The US is running a 2 trillion deficit

00:10:29.680 during peacetime. It should not be running a deficit anything like that. It's not in a major war,

00:10:38.080 but it's running a 2 trillion deficit every year. So that creates this massive demand for

00:10:45.040 sovereign level debt, which needs to be rolled over. And we've got to the point now where you

00:10:52.080 can't just have interest rates going down forever, because basically they hit zero and it broke stuff

00:10:56.480 in recent years. We've got off that zero bound. But still, you've got to run a liquidity cycle

00:11:08.720 where every four years you get to roll over the debt. Otherwise, the whole game comes to a stop,

00:11:15.200 which then mandates a need to have these liquidity cycles. And when things pump, they drive up risk

00:11:22.480 assets, risk assets not being driven up for the sake of driving up risk assets. Liquidity is being

00:11:28.960 pumped into this system in order to roll over government debts. So that is basically connected

00:11:33.680 to this four year cycle that I've talked about so many times on Brokernomics. So if my investment

00:11:41.680 thesis is not based on picking a price and then determining whether I'm above or below that,

00:11:48.960 my investment thesis is instead connected to the liquidity cycle. And I can determine that that

00:11:55.600 liquidity cycle is connected to basically a four or five year runway, then that means that my

00:12:05.520 trigger to sell can't be price based necessarily. I mean, I will look at a bit of that as well,

00:12:11.200 and maybe we come into that a bit as well. But mainly, it has to be based on time, doesn't it?

00:12:17.440 Because if I'm basing everything on a four year cycle, well, okay, fine. So my sales have got to

00:12:22.800 be linked to that four year cycle as well. Now, the perfect way of doing this would be on the day

00:12:30.560 of peak liquidity, then to draw down to sell and to build up my cash reserve. I don't think I'll ever

00:12:38.240 get out entirely, but I'll build up my cash reserve and then liquidity will fall. Assets which respond

00:12:45.040 well to liquidity injections will drop disproportionately and then I can buy up a

00:12:50.080 greater share of it and I can either spend the money or I can hold it for the next cycle and so

00:12:54.000 on. But I'm not going to know when the day of peak liquidity is. It's the kind of thing you can only

00:12:59.040 know in hindsight. But I can be reasonably sure that it will be the latter end of 2025 or perhaps

00:13:08.480 early in 2026. That's what the liquidity indicators are telling us. Okay, so given that,

00:13:13.520 I know that 2025 should be a very good year for liquidity. Assets that respond to that will do

00:13:22.240 well. So it's just picking my points within that in order to take profits.

00:13:31.280 Okay, so then I think, okay, well, because I'm not going to know when peak liquidity is,

00:13:38.640 and actually there's probably a lot of investors thinking along the same lines as me, the best thing

00:13:43.280 I can do is take profits based on time. And I'm thinking something like I'll pick a day in spring

00:13:51.840 and take a percentage, maybe, I don't know, for sake of argument, I'm still thinking this through.

00:13:56.800 For sake of argument, in the spring, I'll take 10% off.

00:13:58.800 In the summer, I'll take 15% off. In the autumn, I'll take 20% off. And then in winter, I'll take 25%

00:14:10.720 off. And if we're still running into spring of 2026, which is possible, well, maybe I'll take 30% off.

00:14:17.280 You get the idea. Because basically, the best returns are going to be backloaded. The closer to

00:14:23.600 peak liquidity, you are, the better the returns. And if I had to guess, I'd say,

00:14:33.440 I don't know, 26 November 2025, you know, but that could be wildly wrong.

00:14:39.280 I don't want to get left with nothing, because I do want some goodies. So I'm definitely going to

00:14:45.120 take something. And if I start in spring at a fairly low percentage, then I've definitely bagged

00:14:49.920 some lifestyle chips that I can then go and spend on whatever it is that I want to spend on.

00:14:58.640 And as I get later and later into the cycle, I increase the percentage that I'm taking off the

00:15:04.880 top. In the full knowledge that, you know, let's say I were to take off 10% or 5% or whatever in

00:15:11.040 spring, that I would then go on, I could well go on to watch the cash value of that

00:15:20.800 double over the course of the year. But there's not necessarily a better way of doing it, because

00:15:26.800 it's better to get your profit taking in before liquidity peaks rather than after. And actually,

00:15:32.640 I'm going to build out some profit taking models to try and understand this. But my suspicion is that

00:15:39.040 actually, even though it looks like you're giving up a lot when you look at the individual sale,

00:15:44.320 the effect on the portfolio as a whole is fairly small. That's what I'm starting to see so far.

00:15:49.680 So I'm going to flesh out that idea. And maybe I'll come back with the Brokernomics that

00:15:53.760 pins that down a bit. But that's broadly where I've got to so far. Investment criteria is based on

00:16:01.440 liquidity. Liquidity is connected to time and therefore exits need to be connected to time. It needs to be

00:16:06.480 before peak liquidity and therefore it needs to be a structured sale based on time going into that.

00:16:11.760 So yes, I will think that through more and I will come back with something.

00:16:17.840 Right. Ross says, fantastic episode, Dan. I like Ross. He's apparently made some money on that.

00:16:26.480 Now, what does he say there? Now, somebody who's young enough that the pension system will

00:16:29.440 have exploded. How to go about building portfolio? If you could do, I ask that you explain how to go

00:16:36.080 about achieving said task rather than assuming a Neanderthal swings hammers and navigates the

00:16:41.040 financial advice landscape. Okay. So how to build a portfolio?

00:16:46.800 Well, I mean, the way that I do it is to spend hundreds of hours poring over discussions between

00:16:57.040 finance people, keeping an eye on what's hot on Twitter, the latest developments, thinking about

00:17:02.160 future trends and then narrowing down on what I feel that the opportunities are. What I'm really

00:17:08.960 looking forward for is the big trends, the big cyclical trends. So I think a company like Tesla

00:17:19.360 does that for me. It's getting behind the big adoption trends. Crypto is a big adoption trend.

00:17:26.880 And AI, if there was a good way to do it, I mean, if you're going to get into AI, I mean, you kind of

00:17:31.760 you kind of led down the path of Google, probably, perhaps Microsoft, if you want to get into AI. I just

00:17:39.120 don't like those companies, because I don't like Bill Gates. And I don't like the fact that Google hates

00:17:46.000 people like us, because they're Californian, Silicon Valley, Uber libs. But yeah, so that's the way I do,

00:17:54.080 which is probably not going to be helpful to most people because you're not going to have the hundreds

00:17:58.960 of hours to put into it. So for the average person building a portfolio, the old thing always used to

00:18:04.560 be 60, 40, 60, 40. What was it? Was it 60% in bonds and 40% in stocks? I'm not a fan of that because

00:18:15.760 bonds are debt notes for government who have no intention of paying them back and are actively trying

00:18:20.720 to destroy the value of them because I can't afford them. Maybe 60, 40 in Bitcoin and good

00:18:28.480 stocks would be a better way. We talked further up in this episode about Alex and his SPY. So yeah,

00:18:35.600 I mean, I'll give that one more thought as well and come back perhaps with a video. But off the top

00:18:39.280 of my head, you could do worse than maybe going a third, a third, a third into Bitcoin, even though

00:18:46.480 we're getting close to the profit-taking bit rather than the accumulation bit. But over the long term,

00:18:52.960 you know, if your investments are for five years plus, that won't matter. A third into good stocks,

00:19:00.800 you can go for... What you can do is you can go for managed funds. They're quite good.

00:19:06.640 If you find a good investment manager and then you get the diversification of multiple stocks

00:19:13.520 and a manager who's quite sensible. So I'm not necessarily recommending Fidelity,

00:19:20.880 for example, of a big money manager. I mean, there's a whole bunch of asset managers out there.

00:19:25.760 And if you're investing in a 401k or an ISA or something, there are plenty of brokers everywhere

00:19:32.880 who can happily point you towards some of the better fund managers. And then a third,

00:19:40.400 you could put it in property, something real, physical gold. That's one way of looking at it.

00:19:47.440 Spread it out a bit. It's not the way that I do it, but thinking about what you want your broad allocation

00:19:54.560 to be, whether it's stocks, gold, real estate, Bitcoin, whatever one of those you're comfortable

00:19:59.840 with, spend a bit of time looking into it, fine. That is perhaps a way to go. But yeah, I'll give

00:20:06.240 it some thought. It's just so difficult giving financial advice to people because I don't know

00:20:09.120 what your time scales are, your risk preferences are, what you need the money for, all that kind

00:20:12.560 of stuff. Okay. First name, last name says, low energy Dan is my favorite Dan. You're a tiny bit less

00:20:19.120 filtered, which is always better. Yeah. So this might be a reference to the fact that I sometimes have to

00:20:25.520 record from home, especially when I'm trying to get Americans unless they want to get up really,

00:20:30.640 really early to speak to me. And it has been noted I'm a little bit less energetic in the bunker

00:20:39.440 rather than when I'm here surrounded by the chat. So there may be something to that. I'm certainly

00:20:44.960 probably perhaps a bit more thoughtful in that because when I'm at home, I'm in the more thoughtful,

00:20:49.280 well, that's when I'm scanning through a whole bunch of articles, videos, discussions, graphs,

00:20:55.280 all that kind of stuff. And I tend to get a bit more introspective when I'm here where I'm just

00:20:58.720 booming at people. But yes, no, I will turn that on board. Right. Who do you recommend trading shares

00:21:05.440 through, Dan? Well, I don't know where you are. If you're in the UK, I mean, there's a whole bunch of

00:21:14.320 them. Best Invest, Hargreaves Lansdown, Charles Schwab. I mean, I use Hargreaves Lansdown myself

00:21:21.280 because they're one of the biggest and it's just easy and they've got quite a good interface and

00:21:25.600 you can do your sip and your ices in there. But I mean, brokers, I mean, they're just much of a much,

00:21:32.240 aren't they? So, you know, whatever you want to use. I mean, maybe you could even use that Robin

00:21:37.680 Hood thing. Never touched it myself, but, you know, brokers are brokers. Right. Daniel Lavery says,

00:21:45.600 so you are not saying buy shares in MicroStrategy or not to buy the bonds they offer? Oh, right.

00:21:50.800 Okay. So, well, with MicroStrategy, I mean, I buy just the common stock. The bonds have a really good

00:21:58.640 risk return balance, but I'm not sure if you can access them as an individual. You might need to be

00:22:08.640 an institution to be able to buy the bonds. So I'm not sure if you can, maybe you can,

00:22:14.240 but I'm not sure you necessarily have the option to buy the bond. The other thing actually to be aware

00:22:18.240 of is there are some MicroStrategy trackers out there which try and amplify return. I think it's

00:22:25.520 MSTU and MSTX. And I can't remember which way round it is, but one of them promises to give you

00:22:32.560 2X the return of MicroStrategy and one of them promises to give you 3X return of MicroStrategy.

00:22:38.400 So actually that is a good junction to talk about synthetic ETFs. By the way, 2X return,

00:22:46.320 3X return, that applies down as well as up. I think it's worth avoiding them. The reason is

00:22:53.360 the way that they are achieving those returns is because they are buying options, short dated options,

00:23:00.640 in order to replicate the performance of the stock. Why is that problematic? It's problematic because

00:23:06.880 even in an active options market, if you're doing this at volume, it can be difficult getting hold of

00:23:13.360 the options you need to synthetically replicate the underlying asset. And so therefore, even though

00:23:20.560 you're trying to achieve 2X or 3X, you might actually end up achieving something different

00:23:25.280 because you just can't get the option supply. The other thing I would note about this, and this

00:23:29.280 applies for any synthetic ETF that tries to give an amplification by doing it on options. It could be

00:23:36.320 gold, silver. There's a whole bunch of funds out there that try and give you these amplified returns.

00:23:42.000 When they're option-based, the thing that you need to be aware of is they only work

00:23:46.480 when something is trading up strongly. So if you're thinking of buying a leveraged silver ETF or

00:23:54.560 MSTX, you only want to do it if you think that your underlying asset is going to pump imminently.

00:24:00.640 You don't want to hold it in sideways markets. The reason you don't want to hold it in sideways markets

00:24:06.320 is because one of the key elements of option pricing

00:24:09.600 is the duration left on those options. And as time goes forward, you get time decay.

00:24:18.560 Literally, you're getting closer to the event. And so therefore, the time value element of that option

00:24:24.400 decreases. So if you hold any of these synthetic ETFs on a flat market, it won't stay flat. It will

00:24:34.480 trade off. And it will trade off at the rate of option decay, time option decay on those underlying

00:24:40.880 options. So I think it's just worth staying away from them. Because actually, you don't know when

00:24:48.000 the pumps are going to be. Well, I don't anyway. I mean, maybe you could figure that out. And if you can,

00:24:52.640 you know, have fun using them. But quite often, you have to wait around in something which has

00:24:58.240 high volatility for a while before it moves before it breaks out of a band, whatever it is.

00:25:04.720 So yes, I'm careful of that. So yes, in this particular case, I mean, personally,

00:25:09.200 I just buy the underlying common stock, because that is ultimately what the company is engineered

00:25:14.480 to get the best returns on. But if you can find a way to buy the bonds, great. And like I say, avoid

00:25:21.360 synthetic ETFs.

00:25:22.880 Yes, please on how to take a profits video, Dan. Yes. Like I say, well, I've given you my thoughts on

00:25:30.400 roughly what I'm thinking. And when I get that a little bit more polished, I'll come back with

00:25:33.680 something. Right. John H says, it seems like a lot of people now think the value of Bitcoin

00:25:38.400 will rise that leads most people want to hold on to it. Therefore, Bitcoin, in my mind, will not

00:25:43.920 circulate by ordinary currencies before the price of Bitcoin stabilizes, at least in relation to other

00:25:49.760 commodities, how long do you see how do you see this playing out? Okay, so I mean, if people lock

00:25:54.560 it down and hold it, that just means the value goes up in order to get other people to part with

00:25:59.680 it at the margins. And so therefore, more value can be transacted with a lower amount of coins.

00:26:09.600 So that is an automatic balancing mechanism for it, it kind of doesn't matter that if the price rising

00:26:16.320 does not make it less attractive as a means of transaction, it makes it more attractive.

00:26:21.920 More generally about the stabilization of the price. Okay, so this is going back to the fact

00:26:25.760 that Bitcoin has high volatility at the moment. Now that the institutions are coming in, the Black

00:26:32.080 Rocks and so on are offering their ETFs. Those ETFs are largely being bought by other institutions.

00:26:39.040 Things like pension funds and what have you, insurance funds. When they make an investment,

00:26:46.320 it's not like you or me deciding to do it as private individuals. The way that these guys make

00:26:50.800 decisions is they will have a researcher go and prepare a paper on it, win over the chief investment

00:26:59.200 officer, all that kind of stuff, build support internally. He will go to their investment committee.

00:27:06.560 Quite often investment committee will only, if it's a small active

00:27:10.240 VC fund, like I was involved in the investment committee meets every week. But for something

00:27:18.160 like an insurance fund or a pension fund, the investment committee might only meet once a quarter.

00:27:22.720 They will do a presentation of that investment committee, maybe an initial report to say,

00:27:27.840 look, we think this has promise. Here's a short one page on it and an argument for it. If the investment

00:27:34.880 committee likes it, then they're basically saying, yes, you can take up much more of our time in the

00:27:41.040 next meeting. The analyst will then circulate a much more in-depth paper. The investment committee

00:27:47.600 guys will then read it. And that could be a much more detailed, I know 20, 30 page report

00:27:53.120 ahead of the next investment committee. And then they'll spend several hours debating it. It's not a

00:27:57.760 a simple process. But the upside of this is once they have decided on an allocation, then that is

00:28:05.760 the allocation. And it will sit like that for years. So let's say they decide to assign Bitcoin 3% of the

00:28:15.920 pension fund or the insurance fund or whatever it is. It's now set at that level. And that provides

00:28:21.360 automatic stabilisation going forward. Why? Because if the price of Bitcoin goes up and it goes over three

00:28:27.200 percent, say 3.1%, well, they sell the 0.1% because they've said the allocation is 3%.

00:28:35.840 And likewise, if the price goes down and it goes to say 2.8%, well, they're by 0.2% in order to get

00:28:41.280 it back to the allocation. So once the institutions arrive, they provide an automatic stabilisation

00:28:49.040 effect of selling Bitcoin when it goes too high and buying Bitcoin when it goes too low. That's the

00:28:55.040 benefit of bringing institutions into this. So what should happen as Bitcoin goes up,

00:29:03.200 its usefulness as a payment network improves and its volatility decreases in both directions. And that

00:29:11.360 seems to be what's happening so far. But this is the first cycle where the institutions have really

00:29:15.680 got on board. Buying Bitcoin is incredibly difficult directly for things like pension funds and insurance

00:29:22.640 funds. Because I mean, OK, you can go and buy the coins off the exchange, but then who's going to

00:29:26.320 hold the private keys? And it's really awkward. But an ETF is like a sippy cup for them. It's an easy

00:29:33.280 way where they don't have to faff around with custody problems. They just buy a stock like they buy

00:29:39.200 anything else. They know how to do that. So yes, time of the institutions on this.

00:29:44.800 Mario Cat says, can you do an episode on Hegelian economics? I have no idea what that is. Is that

00:29:51.840 is that based on Frederick Hegel, the ethics guy? So is that is that all about ethics of economics? I

00:29:59.200 don't know. I will look into that. I don't think I'll do an episode on it unless I find it incredibly

00:30:06.400 compelling. The ethics of economics. Well, I'm assuming it's that. I'm assuming it's that Frederick

00:30:10.960 Hegel. Right. Mike on the roof says, good video. I didn't realize how substantial this would be

00:30:16.240 until after Hayes talked about it on a show, which would still be a good time to get in in it

00:30:24.080 under 200 pre-election discount. Keep up the content from the bunker, Daniel. Definitely doing

00:30:31.040 better on the distant action stuff today. The audio sounds a little a little low bit rate with a few

00:30:37.120 sloshing. Yeah. So this is why I joined the Lotus Eats in the first place is because

00:30:42.480 I had a go at doing this stuff myself. And the button stuff is just an absolute bloody nightmare.

00:30:48.480 In fact, a number of people have made the point about my mic at home, that it clips at the top,

00:30:53.840 or that I need more gain on it. The problem is, is when I had the gain turned up, you then you very

00:30:59.920 easily go past the top limit and it clips out. And then if you turn the gain down too low, people

00:31:04.720 complain that you're, that you're, you know, not coming across strong enough. So fiddling around

00:31:08.560 with sound, it was an absolute nightmare. Um, but yes, I suppose we learn on how we go. Yeah.

00:31:13.840 Skyman says a thousand percent on profits on, on taking profits. Yeah. Well, I hope my,

00:31:18.240 my comments so far have been helpful and I will continue to, to polish that and, uh, come back

00:31:23.200 with something good. Um, Callie, uh, it was a kale. Right. Well, whatever it is. Um,

00:31:29.840 you are, or have bought MST or Bitcoin. Is there a big risk this, um, cycle is over?

00:31:35.520 Oh, right. Okay. Yes. Saying, well, if, if you're now at the point where you're doing this kind of

00:31:39.440 stuff, you know, and you know, if, if your mum's talking about it, if your taxi driver's talking

00:31:43.280 about it, then perhaps that indicates you're near the end of the cycle. Um, could be,

00:31:47.360 I think almost certainly not because what I'm actually looking at is the liquidity flows.

00:31:55.360 The, the debt has not been rolled over by the big soft and something they're starting to do it, but

00:32:01.920 there's a lot of debt that needs to be rolled over in 2025. I don't think that Western governments,

00:32:08.000 and it's all of them, it's not just the U S I don't think Western governments want to roll over

00:32:11.920 a massive amount of debt when interest rates are high and liquidity is still lower than is optimal

00:32:20.800 for that. I think they are highly incentivized to massively increase liquidity over the course of

00:32:27.120 2025, bring interest rates lower, all that kind of stuff in order to cycle over their debt. And the

00:32:35.440 side effect is that I think the market has a lot further to go specifically on Bitcoin. And this

00:32:42.640 is not a price prediction. It's me just thinking through the logic of what I see in the charts.

00:32:48.000 If you take the log regression of Bitcoin and you project it forward to the end of 2025, it gets you

00:32:54.640 to, um, quite a high price point. In fact, what is it? I've got it. I've got it on my other,

00:33:01.760 bear with me a second while I call up my other screen because I, I saved it as my background.

00:33:06.640 Yeah. It, it, it, it takes you to something like 170,000 over the, over the fullness of this cycle.

00:33:12.880 And then you think, okay, um, that's the center line of the log regression. What if, um, you get

00:33:22.800 one standard deviation overbought or what if you get two standard deviations overbought and bear in mind

00:33:29.120 that it has never not got two standard deviations overbought, that takes it sort of north of 350.

00:33:37.520 And that feels really toppy right now. I'm just saying that's what the chart shows you. Typically

00:33:42.800 it does tend to surprise to the upside. Now what, why is that? Why is it that you get this sort of blow

00:33:50.080 off top effect when liquidity gets really good? You have to remember that when things are trading,

00:33:56.160 it's not, it's not the entire underlying asset that trades at that higher price.

00:34:04.480 It is a tiny fraction of the asset trades. So it's really the margin that that level is thing.

00:34:12.400 And when things start to get exuberant, those small number of shares or small number of coins

00:34:17.680 get bid up, bid up, bid up, bid up, which nominally revaluate, revalues the entire asset

00:34:25.280 or blockchain or whatever it is. And it gives the impression that things have got incredibly toppy,

00:34:31.680 but it was never really real. The real price action does not take place in that sort of late

00:34:38.960 period of exuberance. It's price discovery over the long term. So the log regression is probably

00:34:48.800 the right level. Bitcoin over this cycle to 170 seems entirely reasonable to me, but don't exclude

00:34:56.880 the possibility that there is a period of a couple of months where it gets bid up very heavily.

00:35:02.880 It's not impossible. In fact, if you go on past markets, it's actually even likely. Now,

00:35:12.240 the last cycle was a somewhat stunted cycle because of, well, all the weird things that were happening

00:35:20.560 last cycle back in 2020 and 2021. And so the last cycle never really played out as expected.

00:35:27.040 A lot of people thought we were going to 100k then. It's perhaps possible that this cycle for Bitcoin

00:35:34.000 plays out more like 2017, which would mean 350,000 is in play, which sounds ridiculous now,

00:35:45.840 but it is only the log regression plus two standard deviations,

00:35:48.720 which when you base that on market behavior from past cycles is possible. I'm not saying that's a prediction.

00:35:58.240 And if it does happen, it will be, like I say, it will be ethereal. It won't be real. It will just be a,

00:36:05.200 it will be a blow off top. But nevertheless, there is that possibility to sell into that sort of

00:36:13.600 blow off top type event, which then takes me back to my profit taking ideas that I talked about earlier,

00:36:20.320 that you want to be, you want to try and achieve the top, but you're not going to achieve the top.

00:36:25.440 And that's why you want to sell in stages. But the very last bit is the bit which is truly spectacular.

00:36:34.960 So yes, I'll give all of that more thought and come back to that. But you can see how I'm thinking it through.

00:36:42.960 Okay, so Dan's jawline jowl jiggler, interesting name, says up 10% in the day between the video releasing it

00:36:50.880 and me seeing it. Sad face. Yes. So this, again, is one of the reasons I'm so reticent to sort of talk

00:36:59.120 bullishly about things when we've entered the liquidity cycle. But I mean, I've spent the last

00:37:03.600 two years saying that this period is coming. So I kind of need to follow it through. Bear in mind that

00:37:10.400 I was doing most of my buying for the stuff that I like, well, two years ago. That's why I made so

00:37:15.360 many videos about Bitcoin back at the time and, you know, mentioned it then and various other things

00:37:20.960 that I liked. But yeah, it is difficult for somebody like me who has people who listen to him

00:37:33.200 because we've entered the phase where the volatility is going to be notable both up and down.

00:37:41.280 And if you were to follow the things that I'm saying now, then you might well end up going the

00:37:47.520 other way. For example, you might go down 10% the day after you buy it. And for you,

00:37:53.680 that level of volatility may be something that you're completely uncomfortable with and you'll

00:37:57.760 freak out in your cell and then you've just lost 10%. So yeah, it's very difficult. I do believe that

00:38:08.000 the kind of things that I talk about and like are going to be good over a five-year cycle,

00:38:14.320 even if you do buy at the top. You know, if you bought at the top of the last Bitcoin cycle,

00:38:21.600 whatever it was, 70-something, you know, you're already in profit now, but you did have to wait

00:38:27.200 a period of years. So I don't think you're going to be worse off over the long term, but you might be

00:38:32.880 underwater for a period of a couple of years if the cycle is shorter than I anticipate. But I suppose

00:38:39.040 buying now is better than buying once the liquidity caps really come on. But yes, just bear in mind

00:38:46.240 you've got to see this series as a whole. You know, when I was jumping up and down about buying

00:38:52.320 this stuff 18 months ago, that was really the time to get in. Not that I'm saying there isn't some

00:38:59.760 upside left from here. If you would like to see the full version of this premium video, please head

00:39:04.080 over to lotuseaters.com and subscribe to gain full access to all of our premium content.

The Podcast of the Lotus Eaters - January 07, 2025

PREVIEW： Brokenomics ｜ Q & A

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