Transcript: Mel Mattison: Why AI Demand Won't Collapse

Marty Bent [0:01] Mill Madison, welcome back to the show, sir.

Mel Mattison [0:04] Well, thank you for having me, Marty. I appreciate it.

Marty Bent [0:07] Yeah, well we're gonna talk about a lot of things today. AI, is it real? Is it hype? Is it a mixture of the two? We've got the Fed, obviously Warsh has taken the helm since we last spoke. we we've got some micro stuff to talk about in terms of individual memory stocks that that you're following, and then we can get into the fiscal side of things, how how much debt the US federal government is and how they can sustain that debt and all the entitlement programs that they've built up and then probably ending it with Scopuscent's sort of call for a new economic regime at the New York Economic Club a couple of weeks ago, which has been a hot topic in my circles.

Marty Bent ⋮ We covered it this morning on the weekly show I do with my partner John Arnold. At ten thirty-one and I'd love to get your thoughts on that. But I think just starting with the hottest chick in the room right now, which is AI. How are you reading this?

Mel Mattison [1:04] Well AI is definitely one of two main forces that I see driving markets right now. I think it's AI, and then what I wanna just kind of encapsulate because a lot there's a lot of interplay, is just kind of geo macro stuff. And you know, d that's Iran, that's Ukraine, that's the Fed, that's fiscal deficits, and those are things that The the reason I categorize those together is because they're not related to like earnings, right? So another simple way to say it is what's going on in the broad market, like broad macro, and what's going on with earnings in company specific. And earnings are all about AI.

Mel Mattison ⋮ And I I just cannot see a way that AI is going away. Like I think there's a lot of people out there that are talking about, you know, who's gonna be the winners, who's gonna be the losers. And I do agree that's not the easiest game to play. But I do think there are certain segments that it's it's very hard to argue, like, for example, why SK Heinex at four times PE should be trading cheaper than it is. Like, like y if you say, Mel, what's what's the base case where Micron at like seven times forward earnings is just the earnings are gonna fall off the cliff.

Mel Mattison ⋮ Cliff between now and the end of the decade. And I just can't picture that case because it's like, okay, is it going to be open source or closed source? Who knows? But at the end of the day, if compute demand is going to just go up exponentially, it's going to need memory. Unless you're stipulating that there's going to be some newfound memory like breakthrough. And I think if you're kind of hurdle rate for investing in something is that there's it's impossible for some black swan new technology to take it out, then there's literally nothing to invest in. Like, you know, I mean, I mean, are you going to invest in Bitcoin?

Mel Mattison ⋮ Well, quantum could come in. Are you going to invest in US treasuries? Well the government could collapse and all of a sudden Congress could say we're not going to raise the debt ceiling. Are you going like i if you literally want to say there's no black swan impossible

Mel Mattison [3:29] downside, then you can't invest in anything. So I will grant you there could be some big memory breakthrough. But absent that, you have companies like Micron signing multi-year agreements, trading at six, seven times earnings. You have capacity growing at two, three hundred percent a year, not capacity, demand of what people want growing at two, three hundred percent a year. while capacity is only growing at twenty, thirty percent a year, and you have companies like Apple saying we've got to raise prices, you've got I mean, if if if there's not truly a a memory shr shortage, if there's an Ed Zitron, you know, false narrative out there that this is all BS, then why is Apple raising prices?

Mel Mattison ⋮ Like, because then there's no demand. Like there's no problem. Why why would Apple want to raise prices if If this is all just gonna collapse in the next three months. And I just can't see it. And I think Ken Griffin put out a post the other day about like the days of like hedge funds monitoring pocket or parking lots and saying I'm betting on this quarterly earnings, like that's the old alpha. The new alpha is like looking at this stuff and taking longer-term views. And I don't know if Micron's gonna be eight hundred dollars or twelve hundred dollars a month from now. But I'll bet it hits three thousand in the next twelve months.

Mel Mattison ⋮ I'll just bet it does. Because it's just too cheap. It's just too cheap not to double or triple from here. And I think people that think, it can't do it. you know, what has Bitcoin done? What did gold do between nineteen eighty and nineteen excuse me, nineteen seventy-nine, nineteen seventy one? when it was we were taking off the gold standard in nineteen eighty, it went up twenty five X. And so I think people that think like these things have run their course, they have to look at the fundamentals. And Micron at seven times, SK Heinex at four times, the Korean stock market, which is collapsing in the last twenty four hours and nine percent down, is now trading at the cheapest P multiple it has in

Mel Mattison [5:47] like the last forty eight months. So I think everything just keeps getting cheaper and people just want to say you gotta sell because it's all a big bubble. And I just don't see it.

Marty Bent [5:57] Yeah, I mean the the Ed Zitron call out is funny 'cause I've seen his commentary and him do the sort of the the cycle of going through C N B C Bloomberg and getting clipped out on X and he's saying there's nothing there, nobody wants these things. And then I'm juxtaposing that to my usage of it, which has gone up I think personally exponentially if you're just looking at all the agents and sub agents we're running here. And then you project that forward of more people adopting this, particularly agents, and we're definitely not even at the one percent ad adoption threshold of of everyday people. And then you think of like robotics and self driving cars and all the compute that's gonna be necessary.

Mel Mattison [6:37] No. W and the memory demand there is like exponentially more. Like it's it's it's ridiculous. And and Ed, I I've listened to I'll be honest with you, I've probably listened to thirty to forty hours of him on podcasts because I do not want to listen to a bunch of bulls tell me how great AI is and just buy micron. I want to listen to the people that are saying, Here's the problem with the story. And he has certain points. And but the thing about him is one one thing I'll say about him, he's one of the cleverest speakers I've ever heard. Like he is so quick and fast with the remark, but he's so quick and fast with with the remark that often you'll listen to him and you're not really processing what he's logically saying.

Mel Mattison ⋮ Because if you really break down logically what he's saying, it really doesn't make any sense. Like he basically says stuff like, Well, anthropic and a open AI can never be profitable. That that's one of his key arguments. That it it it it's all a subsidized good, there'll never be the demand for it, it's never going to be profitable, they're the only buyers of compute. But then at the same time he'll talk about how like open source models are much cheaper, people want to use them. Well, if AI actually has a use case, even if it is open source models. It still requires compute. It still requires the hardware.

Mel Mattison ⋮ It still requires memory. Does that mean that OpenAI is going to be a $4 trillion company? I honestly don't know. He might be right. Open AI might not be the best buy right now, right? I mean, like if I was a private investor and that's what I did for a number of years was basically secondary market investments in large private companies. Would I be telling people? Go into open AI and Anthropic right now? No, I wouldn't. But does that mean that AI is not going to happen? And I think if you go back, and people love to compare it to the dot-com boom, so let's compare it to dot com.

Mel Mattison ⋮ com, you know, blow up? No. But did the internet, I mean blow up meaning become a huge success. But did the internet become a huge success? Yes. And look at the top companies in the quote unquote Mag 7. You had Apple.

Mel Mattison [8:58] That went public in like the 80s. Microsoft, same thing. These things went through that. They had huge market caps. They came out of it. You also had companies like Google that weren't even public until after the dot-com boom. Tesla, same thing. And so, like the internet and everything that happened there was real and it was a huge thing, and it became a big deal. Did we have a huge blow-up top and then a collapse? And then an even a slow but steady rise to even greater market. I mean, what was the Nasdaq when it collapsed? I think it was like four thousand. It's like thirty thousand today.

Mel Mattison ⋮ Okay. So like you you're you're telling me like, my God, look at the dot com. You could have bought the Nasdaq at the very top of the dot com boom and left it in your IRA if you're a 30-year-old guy and you're coming back in your 50 right now. You've still got 10 years before you can access it, and it's up like, you know, what, almost 10x. So I think i if you zoom out and you look at what's going on, AI is not going away, crypto's not going away, Bitcoin's not going away, the fiscal mess we're in is not going away. It's getting worse every day.

Mel Mattison ⋮ That debasement trade that was so hot last year that let gold get over $5,000 an ounce, Bitcoin over $120, silver over a hundred. That's not going away. It's just we've we're going through all these micro rotations. And every time something happens, like Meta says, we're cutting back on compute, and then it you know skyrockets, you know, twenty percent in the next two trading days, which is what Meta did. you know, it's it's it's the money's rotating, and the thing is is the money's gotta go somewhere, and the money just keeps building. It's the four one Ks, it's now the Trump accounts, it's the the fiscal deficits.

Mel Mattison ⋮ It's the the this whole merry-go-round that has led the SP to go from 666 in 2009 at the GFC lows to over 7600 today, it's gonna keep happening. And if you let yourself get shaken out every time there's a twenty twenty or fifteen percent pullback,

Mel Mattison [11:24] I think you're just missing the big picture.

Marty Bent [11:26] Yeah. I mean before we get into Trump accounts, which I know you want to cover with those passive flows that many people aren't talking about. And I've said this multiple times over the last six months. Like this seems like a there's like an equities market, not like a bailout, but like a a mechanism to produce passive flows. But before we get to that, stick Yeah. Yeah, that's a great one. Yeah. But like bringing it back to like Zitron and some of his criticisms, like one of which being a lot of these companies, particularly

Mel Mattison [11:42] De Ponzi needs more sources. And and that's a good one. And they're gonna keep doing it. So you wanna fight it, go ahead.

Marty Bent [11:55] The hyperscalers have gone from buying back stock to hitting the ATM to issuing stock, raising equity, and even going into more debt. And they're highlighting that as like, this is the end. I've been thinking about this a lot too, because you do want to check your priors and be like, okay, where where am I maybe having a blind spot here? But like when I see that, it's like you could take that signal that way, which is like these companies are desperate. They're diluting equity holders to raise cash to keep. Piling money into a loser is what Zitron would say. But the other one is like, well, maybe there was just a period of time post two thousand eight where the allocation of capital warranted the sort of risk matrix that these companies have warranted, like, hey, we just buy back stock, try to juice EPS.

Marty Bent ⋮ And now there's finally an opportunity to to deploy capital into not only deploy capital, but deploy capital at scales that we haven't seen. that makes sense to do this. So like just trying to get in the mind of like the boardrooms of the hyperscalers specifically in that decision around buying stock back or hitting the ATM, raising debt and does the opportunity of the AI infrastructure build out is it is it so large that it warrants these types of actions?

Mel Mattison [13:11] I mean, everybody used to complain when they were doing all these buybacks like they have nothing to invest in and it's a bad sign because they're buying back stock. And and now it's like, no, well they're not buying back stock anymore. And so look, I mean Apple to me just hitting new highs today and it's up over fifty percent in the last year. I mean, like that's something I wanna stay away from. Like we we just keep going through these micro rotations and it's like, okay, Apple's gonna have to raise prices. It's up over fifty percent in the last twelve months. It's at an all-time high.

Mel Mattison ⋮ Like, maybe I want to go into other things. about a month ago, I basically said I think this sell the suppliers narrative is overdone. And look to buy Amazon, Meta, Google, and Microsoft. And they're breaking out. I mean, i if you know, the these stocks have not made a new high since October. They're still not at new highs. So I do a little tweet once in a while that's essentially just a basic basket of the four hyperscalers and look at where they're at. And they are up well over ten percent from the lows just like ten days ago. they are not yet breaking out. and I think that there's two things that I think Zitron has wrong and I think the market gets concerned about that they shouldn't.

Mel Mattison ⋮ One is debt. I did a post a few weeks ago where I basically said how long would it take for each of the hyperscalers to pay off all of their debt off of cash flows if they stopped AI spend? And every single one of them could pay off every dollar of debt they've raised within two quarters with free cash flow. Meaning, if all of a sudden AI is a bubble, AI is stupid, it all sucks, and we're going to Essentially we're we're Google, we're Amazon, Meta, we've raised some debt. How long would it take from free cash flow, essentially our paycheck if we were employees, to pay off our credit card bill?

Mel Mattison ⋮ 2 months. And they could all pay them off within less than six months. Now what happens after six months when they're now debt free? Now they're gonna trade at price to earnings. And then you look at a meta and you say, it's trading at 18 times or 20 times.

Mel Mattison [15:40] And now they have no more AI spend to do, they have no more debt to pay, they have no interest expense, and that's if AI fails. So if Zitron's right and AI is this big nothing burger, and the big everybody's gonna he's he's said things like, we're gonna look back in a few years and say, What the hell were we doing building all this compute? Well then number one, you gotta take away the threat, right? You gotta say, well, there's no threat to Google, because people might say, Well, Google's No, if AI is a nothing burger and it's going away, then Google's gonna still have its moat, Amazon's gonna have its moat, Microsoft's gonna have its enterprise software moat.

Mel Mattison ⋮ So if AI is truly a nothing burger, as Zitron says, then there's no threat to the business model of the hyperscalers. If AI is truly a nothing burger and they can literally pay off all of their debt and go back to these free cash flow monsters buying back their stock with both hands, Within six months, then what is the risk buying meta below a market multiple? Like, there is no risk then, if that's the narrative he paints. Now, he doesn't really talk about another narrative, which I actually think could be the actual narrative that plays out, which is that AI is going to become this ubiquitous huge force greater than the internet, greater than You know, the typewriter, the word processor, a lot of the recent big inventions, maybe even greater than radio or TV.

Mel Mattison ⋮ going back to the railroads, I think is a what a lot of people think is the best analogy. If it really is the greatest technology since the eighteen hundreds and the railroads. And the railroads became huge and they became huge money makers, but there were boom towns. Huge boom towns. I was in Colorado hiking last month and there are these ghost towns and they spring up and they existed for like ten years because you know, the railroad went through, they they mined out all the silver or lead or copper that was there, and then they disappeared because it was mined out or you know, the population just gave up of being there.

Mel Mattison ⋮ But during that ten year period, I mean people made fortunes.

Mel Mattison [17:58] And so do I think like you can just buy Micron and hold it for the next 40 years and retire? No. But do I think Micron's got a longer window of stellar returns than six months to a year? Yes. I think it's got a multi-year time horizon for outperformance. And I think a lot of these AI names do. I think a lot of these chip stocks do. I think if you look at the Korean market, which has been selling off, it does. But you look at the Korean market, it's 50% of the Korean market is two stocks. It's SK Heinek and Samsung. The average stock in the SP 500 trades within a 50% band every year.

Mel Mattison ⋮ Well, if two stocks make up half of your index and they're actually a little more volatile than your average stock, they're gonna trade in a 60, 70, 80% band over the course of the year. That's gonna drive 30, 40% fluctuations in the index. That should be expected. But what do investors get in return for increased volatility and risk? They get return. And I think I think people that are looking at Micron hitting the 50 day and buying it at 910, they might not be happy they did that a week from now. I think they're gonna be very happy they did that six months from now, a year from now.

Mel Mattison ⋮ And so I'm not here to say, look, this is what's gonna happen. But if I had to do a short term bet, I think what these stocks are waiting for. Is mega cap earnings coming in the next two weeks and they wanna hear Sundi Pachai, they wanna hear Jassy, they wanna hear these people say we're still gonna be spending. And they are, because they'd be shooting themselves in the foot if they came out and said, you know what, this whole AI thing was a waste. Look, they might say things like, Look, we're experiencing some supply constraints on power. Or, you know, there's some pushback on day data center build out.

Mel Mattison ⋮ And so our capex might actually not increase that much, might even decrease a little bit. Initial market reaction might be, my gosh, it's all over. But I think what people are going to realize is this this is just not going away. Like it's the spending's not going away. They've been worried about it since 2022 when this whole thing started. It goes through these micro rotations, and then all of a sudden

Mel Mattison [20:24] It's like, my gosh, there's open claw. my gosh, there's, you know, anthropic is cash flow or heading into profitability. But no, they're not because actually, you know, Colossus, they gave I I mean, all this stuff keeps going on. And it's just meanwhile, the valuations keep going up, the the profits keep going up, and I think waiting and trying to call the top. has just been the dumbest thing you could possibly do because it it's it it is going to top and and I've had some thoughts that that's probably not too far away. I don't think it's necessarily five years away. Could be two, three years away.

Mel Mattison ⋮ I think it's going to have to do more with fiscal concerns than than the AI thing. But look, the market's not going to be going up twenty five, thirty five percent a year forever. And there's probably going to be a thirty, forty percent pullback I think by the end of the decade, but I just don't see it happening this year. And I think the earliest it could possibly happen is gonna be next year. because the spending is just in place. I mean the the gears are going and you can't stop the train, to kind of borrow a Lynn Alden phrase. You you you you can't stop the AI train on a dime.

Mel Mattison ⋮ It could stop eventually, but you can't stop it, you know. next quarter. It it would it would be a multi-year phase out of it. And I think, you know, the in the meantime, earnings are just, you know, they're they're at unbelievable record paces. I we're gonna do over four hundred dollars in earnings in the S P 500. the PE is cheaper now on the S P than it was at the beginning of the year. you've got companies like Samsung, which I know isn't in the SP. But it's going to do over 200 billion dollars in profit this year. And people are saying, why is this a trillion dollar company?

Mel Mattison ⋮ Well, I mean, if if I told you, look, I can make a hundred thousand dollars a year the next five years in a row, I will give every single dollar to you. And then at the end of it, you're also gonna own every single dollar I make after that for the rest of my life.

Mel Mattison [22:43] I think a million dollars is a I I mean five hundred thousand dollars is a pretty cheap price to pay. And that's what people are paying. I mean that i I I think some of the cheapest stocks I've ever seen in my life are these Korean memory names. I mean, it's just I just don't understand w how like three times earnings Growing at sixty-five, seventy percent, and that's what I mean they've been growing well over that, but this is what's forecast for for fiscal year twenty-seven. These peg ratios are ridiculous. And people are selling it and saying it's a bubble because they believe what? That somebody's gonna come out and there's gonna be a memory ferry that figures out or look, anthropic and open AI can blow up.

Mel Mattison ⋮ That that's not gonna hurt Micron or SK Heinnix or Samsung. In the medium to long term. In the short term, yes. If open I o AI blew up, it's gonna hurt it. But AI is not going away. It requires memory. That's like saying, you know, you know, when I was a kid, a big computer was the Commodore sixty four. If the Commodore sixty four blows up and nobody wants to buy another Commodore sixty four or another Atari twenty six hundred, then the whole video game industry is dead. Like like I mean I mean no, that's not the case. These were the biggest two companies when I was a kid.

Mel Mattison ⋮ They dominated it. Commodore sixty four, Jungle Hunt, you know, Atari twenty six hundred, Pac-Man. I mean, these were the games, the cartridges dominated video games. If you said those companies are gonna be jacked, you know, within a matter of years, therefore get out of all the video game suppliers, how I mean, how did that go for you? And that's what people are saying. That's what Zitron's saying. Open AI and anthropic are shit companies. Those are the words he he likes to use. He basically says they're scams. He says they're never gonna be able to make a profit and they're gonna go away. And because of that, the entire basically financial system's gonna blow up and all of this debt of the hyperscalers is gonna go away.

Mel Mattison ⋮ He even referenced in a recent podcast the possibility of NVIDIA going bankrupt.

Mel Mattison [25:01] I mean, like literally, like he's talking about NVIDIA possibly going he said it was unlikely, but he said it's possible NVIDIA is gonna go bankrupt. I mean, Marty, th this amount of fear mongering and then it it's played into you listen to the kids booing at college. Like there's this AI a lot of people have talked about Sam Altman and Dario Modai being like the you know, it's like Mussolini and Hitler. Like they're they're very bad spokesmen. Like nobody likes these guys. They they come across as arrogant, they come across as condescending, they they just they're not relatable and the stuff that they say a lot of the times, it just puts people off the wrong way.

Mel Mattison ⋮ And I think like there there's this whole thing where this is not going to you know, necessarily end in open AI being a ten trillion dollar company. I don't know if it does. But even if open AI eventually becomes a lucent technologies, that doesn't mean that there's not going to be a Microsoft and an Amazon emerging from the internet slash now AI ecosystem. And and I just I just think trying to pick the exact time that this is gonna happen. Like, okay, next week, you know, they're gonna say CapEx is over and it's gonna crash. I think you just wanna you wanna stay invested, stay for the long term, but I think you also want to really stay diversified and not have everything in chips and AI.

Mel Mattison ⋮ You wanna have emerging markets. You like not just Korea, but things like Brazil. You wanna have Bitcoin. You wanna have gold. You wanna have material sector. You wanna y you don't wanna put all your money in chips. It's number one, it's too volatile, you'll get blown out. And number two, the rotation is gonna continue. And I think we're just, you know, probably on the verge of getting started, back into the whole gold, Bitcoin debasement trade.

Marty Bent [27:17] That's a good segue into the next topic, which is the Fed in macro, which we were discussing before we hit record. A lot of people are beginning to price in rate hikes later this month. I think it's at fifty fifty right now. If you look at if you look at the the probability of there being a rate hike or them holding it steady, what's your take on this, Warsh again coming in between now and our last interview? And how how are you viewing all of this, Warsh? At the helm and

Mel Mattison [27:47] I I do not think there's gonna be any rate hikes. I think there's gonna be rate cuts this year. somebody who you know I respect, I've referenced him many times is Jordy Visser. He's talked about a potential for Warsh to hike actually in July and do a surprise hike. This would essentially like assert Fender independence, but then talk it down and say that's it. so like a twenty-five basis point hike possibly. But Nobody is even talking about like a major hiking cycle. And if you listen to Walsh, I think he comes off a little conceited sometimes too. I think he probably needs a better haircut, but he just does not strike me as someone who's oblivious to the broader macro concerns.

Mel Mattison ⋮ as an example, in his first press conference. He was asked kind of a leading question about are financial conditions loose? And it was kind of a left leaning journalist that w that, you know, wanted him to somehow argue they're not. And he basically came back right away. He said, Look, in housing, no, financial conditions are not loose. If you're a hyperscaler looking to borrow debt and spreads are at all time h tight, then yeah, financial conditions are excuse me, financial conditions are not very tight. You know, it's it's pretty easy to borrow right now. And so we have this tale of two economies. We have a housing market, which has been the primary driver of the economy about half of the time, right?

Mel Mattison ⋮ If you look at okay, what happened when the dot com boom bust, housing took over. And then we had like a five, six year housing bubble. if you look at net worth of Americans it's still mostly in real estate. so the biggest market in this country for your average American is real estate. It's the house. and that has just done nothing in recent years, really. there have been certain markets w that are extremely supply constrained, with kind of blue political leanings where they they like in New York where like, you know, they're just not building anything and

Mel Mattison [30:11] You know, rents are I think rents are over five thousand dollars a month right now for an average one bedroom in Manhattan. you know, yeah, prices have gone up in places like that. But if you live like where I do in North Carolina, I mean, you know, the a house has not moved up or down more or less in the last four years. You know, you gotta go back to the last World Cup, you know, to see you know, house prices cheaper or more expensive than they are right now. I mean, like housing just has not moved. And yet at the same time, during that period, earnings, nominal earnings, and I'm using nominal because housing prices haven't moved, are up like over twenty percent.

Mel Mattison ⋮ So for your average American, if you want to buy a house in Durham, it's twenty percent cheaper now than it was four years ago. People say, Well, what are you talking about, twenty percent cheaper? Because houses have not moved, nominal earnings are up that much. compounded over the last four years. And I can I can go down my street and look at Zillow and look at like like what did a house sell for in like September twenty twenty two and you put a house on the market right now, it's gonna sell for the same thing. And then if you look at what is the average, you know, hourly earnings increase, nominal terms, not real, it's up over twenty percent compounded over the last four years.

Mel Mattison ⋮ I mean, that's a twenty percent reduction in housing. And that's basically the biggest segment of wealth in the entire US economy. And the most directly interest rate sensitive segment of the economy. So if you're Warsh and you're saying, okay, if I raise rates, what am I gonna do? I'm gonna hurt housing. That's gonna hurt construction spending. That's gonna hurt Joe Schmo American, where most of their wealth is in housing. Is it gonna stop Open AI from spending? Is it gonna stop Meta from borrowing because their interest rate on their debt just went up twenty five basis points? No, it's not. And so I think Warsh recognizes that the Fed's interest rate tool is a very blunt tool, and that by raising rates, he's not gonna stop, you know, electricity inflation because of AI.

Mel Mattison ⋮ Like th that's on a course.

Mel Mattison [32:41] That's absolutely separate from whatever you know the two year yield is at. And so all he's gonna do is hurt the average person, and also stymy bank lending, which I think he wants to stimulate. and that and that goes into Besson and Besson's speech about you know, tokenization, about deregulation, and so there's this big strategic narrative. That I think the Trump administration has right. And then at the same time, we're fighting this big tactical narrative that I think the Trump administration has wrong. So they keep making these tactical mistakes, these fumbles, but their long-term strategic vision of embracing digital assets, embracing deregulation, letting AI, you know, letting America compete, bringing back manufacturing.

Mel Mattison ⋮ All these broad strategic goals, you know, one big beautiful bill, depreciation, tax cuts, all these are huge strategic tailwinds. But then at the same time, we keep getting these huge tactical headwinds, whether it's tariffs, the RAN war, whatever. And this is the wall of worry the market keeps fighting, and we keep getting the ups and downs, we keep getting the rotations, and then at the end of the day you look back and you say, my gosh, Apple's up fifty percent in the last twelve months.

Marty Bent [34:08] Yeah. Well let's talk about the big strategy from Bissent and Trump administration, what they're getting right long term, and then follow that up with what they're getting wrong and how they can maybe write course there.

Mel Mattison [34:22] Yeah, I think you know, what like I said, what they're getting right is, you know, deregulation. I think one thing that has not been understood enough is the relationship of the balance sheet to interest rates and what Warsh has said. So I think this is where the market has been getting it wrong. The market looked at Warsh, they see him as a hawk. They think he's gonna like decrease the balance sheet. That's gonna decrease money supply. Look, inflation and inflationary aspects are primarily driven by money supply. Money supply does not necessarily need to be increased by the Fed balance sheet. It can be increased by bank lending, it can be increased by the velocity of money.

Mel Mattison ⋮ And those are the things that Warsh really wants to increase. He wants to start, and this is already starting. Move back more lending from banks and less from private credit. Why is that important? If I'm a millionaire and I've got a hundred thousand dollars I want to put into a bond issue, and I do it through private credit, I take that hundred thousand, it essentially gets withdrawn from the economy and it goes lend it's lends it to the company. Net net it's zero. I had a hundred thousand spending power. I now lose that $100,000 spending power. I loaned it to a company, they got $100,000 of spending power.

Mel Mattison ⋮ If a bank says, I want to loan you $100,000, they credit your account $100,000, and then they debit their liabilities $100,000, there's no decrease. It's it's money printing. there have been so many people fed, you know, I'm a big central bank guy. The biggest printers of money are not central banks, it's commercial banks. Commercial banks, the reason they're regulated the way they are, the reason there's the OCC, the reason there's the FDIC, the reason there's the Fed is they can literally make credits on their balance sheet, or excuse me, debits on their balance sheet for their for their own liabilities and credit you with an asset.

Mel Mattison ⋮ That's money printing, that's money creation.

Mel Mattison [36:45] We had so much money being created through private credit. That's essentially you know, g putting a ceiling on M2, right? And so we don't need the Fed's balance sheet to expand if commercial banks start lending more. This is what Warsh the deregulation, this is all part of the best and plan. this is, you know, We don't need to raise interest rates every time growth comes up. We d we don't need to have a huge Fed balance sheet. You know, we can absorb treasury supply through stable coins or tokenization. We can so there is this bit broad strategic plan that I believe is out there that I think is going to be necessary because if you do not address and we're already at over eight hundred billion dollars in net interest expense this fiscal year and we've still got the rest of July, August, and September.

Mel Mattison ⋮ Fiscal year ends at the end of Q three. You know, we're ha how can like people are worried about like eighty billion dollars in Google equity raise. I mean like look, just net interest expense is is over ten times that already this year. And it's just growing. And this is the thing that is a nasty little secret. This is what my my big concern is longer term, is that almost all the expense of healthcare for an individual comes in the last 24 to 36 months of life. And we are just now getting into what I would call an accelerated death range for baby boomers. Where if you look at, you know, when was World War II over?

Mel Mattison ⋮ 1945. Okay, so the first boomers, let's say born in forty six, were now exactly eighty years, right? So the oldest baby boomers are now eighty. I don't know about you, but most of the people I know, they do pretty good in their seventies. I mean there's always exceptions. Look at Lindsay Graham. But really where the health problems start cropping up for most of the older adults that I know is in their eighties. And boomers, this is the first year

Mel Mattison [39:10] The oldest boomers are just hitting 80. And if you look at fiscal projections for Medicare and health spending, it's gonna blow up. And so we're getting interest expense blowing up. At the same time, we're gonna have healthcare spending blow up because boomers are hitting what I would call peak medical care years. And that's not gonna end anytime soon. And it's just gonna get worse. And so like if you look at the we're gonna hit forty trillion dollars in in US debt in the coming months, we're gonna hit over a trillion dollars in interest expense year to date in a couple months. how you can look at the US dollar and not say, I wanna own gold, I wanna own Bitcoin, I wanna own silver in the same way that people thought was so smart twelve months ago.

Mel Mattison ⋮ And the debasement s you know, guys from Morgan Stanley coming on Bloomberg, debasement trade. And now it's like, look, AI stole a little bit of thunder from this. I mean, look, there's no question about it. Like stuff's going up four or five times. But people are starting to see the the easy money days are over. you know, Micron, I think, like I said, it could be three thousand dollars a share in the next twelve to twenty-four months. But that's not what it did in the last twelve to twenty-four months. And I think once people start to recognize this and once people see the plan, the the the OCC, the Office of the Control of the Currency, which is the largest bank regulator, was on C N B C today talking about how he just approved Circle to be a bank.

Mel Mattison ⋮ You know, like this this stuff is starting to happen where crypto, Bitcoin, they're They were fighting like up a river for four years under Biden. Like he basically said, like, Carl Quintania asked, like, aren't you worried about giving Circle a bank license? He's like, look, all I'm doing is following the statutes and the laws as they're written. And I can speak from firsthand experience that until recently, if you mentioned crypto.

Mel Mattison [41:38] To a regulator, you were like, you know, it was it you did you just didn't do it. I started three different broker dealers: SecFi Securities, Equity B Securities, Vested Securities, they're all broker check. People want to start them as the CEO of them. I went through the whole FINRA application process with all three of them. Two as new broker dealers, one as a continuing application, which is where you buy a broker dealer and then you appro apply for another broker dealer license. Every single time, and we had the best Manhattan attorneys that advised us, we were VC funded, and we had these fancy guys from a firm called Lowenstein Sandler.

Mel Mattison ⋮ Every single time they would tell us, look, just don't mention crypto. Like once you mention that, you're going to be persona non grata, you're gonna go to the back of the list. If you have to mention it, but otherwise allude to you might go into other aspects of business, like it it And there was no legislative statute law in the books that said if you're involved with cryptocurrencies, you can't have a broker dealer or you can't have a bank. There's no law prohibiting it. It was just a stance that the regulators took because they were essentially in the back pockets of the big banks. And and it was a threat to the big banks, and it is a threat to the big banks.

Mel Mattison ⋮ This is the whole reason why the Clarity Act hasn't been passed yet. Because you know, the banks do not want you know, stablecoin issuer like Circle, basically paying out interest and not being regulated like a bank. Well guess what? Now Circle's a bank. So like we're gonna get through these hurdles and we're gonna get over this. We had securiti Securitize SEC Z is the ticker, go public via SPAC a week or so ago. you know it traded down quite a bit and I actually bought some late last week and some today. I'm not making an investment recommendation, but you know, it went public with SPAC, traded up to like fourteen and got down to six dollars sixty six cents last week.

Mel Mattison ⋮ And you know th this is a a a tokenization company. you know, blockchain, again to reference

Mel Mattison [43:53] Jordy Visser, he likes to talk about agents, the a the agentic economy. It's gonna be, you know, they're not gonna be using dollars. once people start to realize this, they're gonna say, my gosh, I need to be there. Just like a year ago, people were like, my gosh, debasement trade, I need to be there in gold and silver. Then it ramps up, you know, 150%, sells off, everybody hates it for six months. And then and and then it starts again. And so I think the same thing hap is happening right now with some of these chip stocks. And what was hated, some of the hyperscalers, like I said, I mean they're having amazing returns.

Mel Mattison ⋮ I mean, I don't know. I mean, I just look at something really quick, like a a meta, I mean, this thing was literally five hundred and forty bucks a share. like five, six days ago and today it hit six seventy-five. But yet if you hear people talk about meta hyperscalers, what a dog, well, look, these things are in ranges, they're trading around, the money is moving. and I think at the end of the day, if if you're gonna argue, and maybe this could be our last quick topic, would be or like the Trump accounts, like What's gonna keep this party going? It's just an endless stream of passive bid.

Mel Mattison ⋮ This is a Michael Green argument. It's you know, PEs can blow up. They don't need to stay at twenty-five. They could go to thirty, thirty-five. Like, because the passive bid is not going away and it's only getting augmented by the tune of hundreds of billions of dollars a year in perpetuity, just from one law. going into effect on July fourth, which is the Trump accounts.

Marty Bent [45:52] Yeah, so let's jump into that. How how I mean what should we follow there in terms of adoption to then try to port to the flows that you just described? Like what wha what 'cause everybody has access to a Trump account, you have to physically go out and get them for your kids. w how's this gonna play out in your mind?

Mel Mattison [46:17] I think it's being way underestimated by the markets because I don't think people fully understand the tax advantage of these accounts. And it's not just the thousand dollars that the government's gonna give. It's the ability for anybody to give to a kid that and and it's five thousand dollars a year and it's available to every single person under eighteen years of age. So Every American under 18 can go create or their parents can go create a Trump account. Not ever if if you're sixteen, you're not gonna get a thousand dollars. So it's like you have to be born, I think, since Trump took office or something like that.

Mel Mattison ⋮ 2025, 2026. There there's a there's a there's a lower age range where you get the thousand dollars. And then there's other people making big gifts like Michael Dell, Brad Gerstner, different people that are you know like Gerstner's just doing the state of Indiana. But the big thing is the tax advantage savings of it, which is that okay, I talked about boomers turning 80. We all know boomers have 70 plus trillion dollars in wealth. They can put five thousand dollars a year for each of their grandkids into this account and it's gonna grow for their grandkids tax free. When they're eighteen, if the kid wants, they can roll this over into a Roth IRA, and then when they're fifty nine, they can take it out tax free.

Mel Mattison ⋮ There have been some studies showing that if a kid that's born now and for the next eighteen years five thousand dollars is contributed, which granted, that's a lot of decent amount of money, it's less than a hundred thousand dollars though. That should the markets perform as they have, by the time that kid is fifty-nine and a half and could withdraw it, it should be between thirteen and fifteen million dollars. Because you're starting that early. This is the power of compounding. It's the same thing that AI guys talk about how humans think linearly. We don't speak exponentially or

Mel Mattison [48:42] Einstein talking about compounding the most powerful force in the universe and you're like, you know, is that really right? Like you put ninety thousand dollars into some kid's account and he's gonna have thirteen million? Well, yeah, because of compounding, because it's that many years. It's sixty years. We're starting from year zero when the kid's born to fifty nine and a half. So it's called sixty years. Nominally SP's up ten, eleven percent a year. You're putting that money in And so whether that's going to happen or not, that can be up for debate. What I don't think is going to be up for debate is that there's going to be a lot of well-off grandparents putting money into their grandkids' accounts.

Mel Mattison ⋮ Now, what has to happen with that? It goes in the SP 500 and it can't be sold, right? I mean the kid can't, the I put it into the my six-year-old grandchild, I just put 5,000 in, you know, next month I'm going to sell it. No. This is a passive bid. It's an unstoppable passive bid because every year there's new kids born. So you I think it's three and a half kids million kids born. some of these numbers were gone through on a recent all-in podcast podcast with Brad Gersner, which I think really spells all this out well. and you know, they don't tie it necessarily to SP returns, they just talk about the great tax savings.

Mel Mattison ⋮ But I think if you combine what they're talking about with the tax savings Combine that with Michael Green's, you know, passive bid thesis. combine that with the fiscal deficits, and that we literally can't clamp down on inflation. Like we can't just start raising interest rates when the government is primarily funding itself through US Treasury bills and start hiking up those rates when we're running over a trillion dollars a year. Like, Lou Growman, you know, what are you gonna do? Sacrifice the currency or bonds, right? I mean, like, are we either gonna let the bond market blow up? Or are we going to sacrifice the currency, in other words, inflation?

Mel Mattison ⋮ we're we're gonna have that. Now there's gonna be counterproductive or or or counter forces with productivity, but at the end of the day, this whole market fear, my gosh, we've got the second coming of ball of Paul Vochner in the Fed chair seat.

Mel Mattison [51:03] And he's just gonna start hiking rates because inflation's at three point two percent, which I wouldn't be surprised if tomorrow, and it's always risky making a call less than twenty-four hours before a number comes out. I wouldn't be surprised if we're well below expectations tomorrow on CPI and even more low next month. And I think we could have some deflationary prints, like literally negative numbers. especially if the Trump administration would get out of its way a little bit with the SirAN stuff, because those are the tactical headwinds I talked about. But when you had oil go from a hundred and twenty dollars a barrel down to six handle in a matter of weeks, I mean that's gonna be good for reducing inflation.

Mel Mattison ⋮ So I think you know, all these signs, like there's so much noise out there. There's s a lot of volatility, but Like if you just can block that out and say, look, I think I want to have a four percent allocation to memory stocks, a twelve percent allocation to gold, eight percent allocation to Bitcoin, whatever those allocations are right for you, and hold on to them, you're gonna be very happy with where you're at six months, twelve months from now. And I just mentioned that because there are a lot of Doomer voices out there. There are a lot of people saying this AI thing's gonna blow up, private credit's gonna blow up, you know, Iran war is gonna send oil to two hundred.

Mel Mattison ⋮ There are a lot of people that I think could be scaring people into saying, my gosh, I need to take my money out of all risk assets and put it into a a a C D. I I I think that's gonna be the wrong decision. I could always be wrong, but I mean I I I'm I'm about as bullish as I've I've ever been. I think I think fifteen thousand by the end of the decade on S and P for example is probably conservative.

Marty Bent [53:05] You've always been very bullish on the show. And it seems like it's I mean, the AI stuff, like when he when I hear Ed Zitron I have to wonder, like, is there some sort of nefarious incentive driving it? 'Cause or is he not using it or is he not using it the right way? 'Cause you you can

Mel Mattison [53:22] No. He just sells his research. He makes money on that.

Marty Bent [53:27] Yeah. But is the research good? Like 'cause I'm using the stuff. We've like basically automated a ton of the back end stuff, a TFTC, and like I said, my token usage is going up exponentially, it feels, particularly with the new frontier models launching. We're hopping on them right away. And it's undeniable. Like objectively, they're just looking at my micro situation, looking at my business, like it it is helping us be crazy productive. Like it is a multiple and productivity. the cost are manageable for us as a small team. Maybe that's different for enterprises. And it does seem like enterprises are trying to figure out how to manage token spend and what the right mix of frontier models and open source models is. But I think to flatly say that this is a bubble built on idiotic technology that that hallucinates and

Mel Mattison [54:19] Nothing. Yeah. He he claims it's nothing. He he doesn't even make the claim that like open AI and anthropic are, you know, insecure business models. Like he literally makes the claim that we're gonna look back on this period and say this was the biggest waste ever and we're gonna be like massively oversupplied with compute. And I would I like will grant him That there's no guarantee, like I said, that open AI becomes a ten trillion dollar company one day. In fact, I kinda doubt it ever does. But that does not mean that AI, that data setter builds outs are worthless. That that you know, meta like I I made this argument months ago where I was basically like, Look, everybody's talking about shortages of compute.

Mel Mattison ⋮ The hyperscalers own compute. Microsoft owns compute with Azure, you know, Amazon, with AWS, Meta with what they built out for themselves, which are now selling. Google with Google Cloud and what they built out for Gemini, they own compute. If there's a need for compute, it doesn't matter if it comes through OpenAI, Anthropic, Grok, GOM, you know, Kimi, Minimax. Like it doesn't matter Quinn, the the Baba model. Like if it needs to be computed, it needs the hardware. And the hardware's gonna be valuable because that demand is going up crazy. And like you talked about and mentioned earlier, we're not even getting into robotics. I mean, we're not even getting into all this stuff.

Mel Mattison ⋮ And like is a lot of that stuff going to be on the edge? Yes. But guess who's gonna make the memory for the robots, right? Is that so so it's like, you know, mine the miners, you know, this is this is the the railroads, man. I mean it was like the same thing, picks and shovels, mind the miners. you know, like I said, honestly, I would not invest in anthropic or open AI right now. I just wouldn't. I mean, not anything significant. and I think we've seen SpaceX, you know, not have that great of a reaction in the markets. so I think there's a valid criticism that

Mel Mattison [56:35] When people are willing to draw out, like where's SpaceX gonna be in fifteen years? Like who the heck knows where SpaceX is gonna be in fifteen years? And so that deserves a pretty heavy discount, even if you grant that it's gonna access this twenty-four trillion dollar TAM and it's a like granted it all, but you gotta discount the hell out of that. but was it a big leap once the automobile was invented to say automate Autos are gonna be a big thing. Didn't know if Ford was gonna be great, Studebaker, a lot of companies went bankrupt, a lot of railroad roads went bankrupt, a lot of dot coms went bankrupt.

Mel Mattison ⋮ But at the end of the day, this was a transformational technology. I just don't see how, and Zitron argues this a lot of the times. He basically says AI is not a transformational technology. Like it's it it's not good, it doesn't do anything, it hallucinates, it's like Look, it's getting better every month. It does a lot of stuff. I mean, I'll tell you what, you could make the same argument about a word processor. You could be like, what's a computer? It's a keyboard. I already have a typewriter. It's not transformational. I mean, sometimes the differences don't even have to be that huge. Just the fact that you can now talk to computers is huge, right?

Mel Mattison ⋮ I mean i I mean, before the big L O M's. the best talking, you know, back and forth was like Alexa and Siri and they all sucked. And now like I'm like, you know, you start talking to these models and they're picking up on slang. You're picking up on like that is just a huge, huge leap. I mean, it's so easy to, you know, imagine like glasses and, you know, automatically, you know, translating and all the stuff that these things have already proven they can do. Are huge. They just haven't been fully implemented in society yet because people don't change as fast as the technology does, but they will get implemented.

Mel Mattison ⋮ Just like I'm old enough that when I was a kid, we had a radio, we had a rotary phone, and we had a dial black and white TV with an antenna. Okay, that was the like epitome of electronics in like a 1981 household. There were people that first got

Mel Mattison [59:01] VHS, then they got betas. My dad didn't like that stuff. There were people that got cable. My dad didn't like that stuff. there were kids that got video games. I mentioned the Commodore 64, the Atari 2600. My dad didn't like that stuff. He bought a new video game console called the Atari 400, which even though it was less than the Atari 2600, was actually more expensive, but it was supposed to be a better computer, but nobody liked it. Everybody liked the 2600. So like All this stuff happened. All this stuff happened and these companies came and went, but they have literally just transformed the world over what is a relatively short period of time.

Mel Mattison ⋮ I mean, it's not like the iPhone's been around for even a decade, right? I mean it came out in two thousand and seven. I mean, excuse me, for for twenty years. You know, it it hasn't been around for twenty years. I mean, that's that is not a long time. That that's I mean, I I got pairs of socks older you know, been around longer than iPhones. Like this stuff changes the world and AI is gonna change the world, that's not gonna end. Does that mean you know, SpaceX can't trade down to thirty dollars a share in the next twenty four months? Sure it can. I actually don't think it will.

Mel Mattison ⋮ But yeah, I mean that thing's got barely any revenue. It's not profitable. You know, I I I I'm just saying, look, would I want to put a bunch of money into SpaceX? No. I own some shares. I got a little allocation on the IPO and I bought some the very first day, small amount, and I'm just put it away. because I do believe in the potential of it. But like I'm not gonna like be a SpaceX maxi, like let me put it all into that. You know, and I I think like a diversified portfolio, crypto. Bitcoin, gold, silver, equities, emerging market equities, like everything except for bonds.

Mel Mattison ⋮ I just don't like bonds because I just don't see a way for the fixed income return to keep up with the inflation that's gonna be necessary to handle the fiscal issues that every major developed country from Japan to UK

Mel Mattison [1:01:30] to France, to the United States, is to even China. Just swamped in it. And the basement trade's not hot right now, that doesn't mean it won't be, you know, three or six months from

Marty Bent [1:01:43] Yeah, when it's not hot, it's the best time to allocate typically.

Mel Mattison [1:01:46] It is. It's it every single time people hate the hyperscalers. It's ridiculous how many times when everybody thinks it's the sm smartest thing to do, that's when everybody's invested in it and it's got nowhere to go but down. Like about four weeks ago, everybody's like, you gotta bet on the the the builders, you know, you don't bet on the spenders, get out of the hyperscalers. Everybody was saying that. Hyperscalers knocking the socks off of the you know quote unquote, you know, the the picks and shovel plays in the last three or four weeks. Because it just gets overdone and the narrative gets old, and now you've got micron down a few hundred bucks from the high and you've got meta up eighty bucks in the last couple of trading days, and people are saying, What the hell happened?

Mel Mattison ⋮ Like I thought a month ago you were supposed to buy micron and sell meta. No, actually a month ago you were supposed to sell Micron and buy Meta. and it's like longer term, I think you just be diversified because it's hard to pick the perfect dates, right? I mean like when am I gonna pick that perfect day that Meta's topped or Micron's topped? And I think you just wanna be involved in these long term themes. And this is why even when like Bitcoin and gold were ripping last year. And I did once in a while ago on a podcast and someone would say, Mel, you believe so much in gold and Bitcoin and the debasement trade.

Mel Mattison ⋮ Why do you own equities? I'm like, because it doesn't mean that the debasement trade's always gonna be, you know, doing what I think it's gonna do. Do I think gold and bitcoin will outperform the S P five hundred over the next ten years? Yes, I do, and I still do. But it's not happening this year. And you know what? it's good to have that diversity. There's a old saying in investing, you know, the only free lunch in investing is diversity because it know increases your sharp ratio, it reduces the volatility, increases your expected returns. And and that's why I've never been a fan of like just put every dollar you own into Bitcoin or put it all into ETH or put it all into gold or put it all into the NASDAQ or put it all into Monster or Nvidia or Strategy.

Mel Mattison ⋮ I I I do believe in diversification

Mel Mattison [1:04:11] And you wanna take short term bets, take short term bets, but I do, but I do it with a small percentage of the portfolio. Most of it is a long term diversified portfolio.

Marty Bent [1:04:24] I that's sage advice. Any predictions between now and the next time we meet at after Q three?

Mel Mattison [1:04:29] what what's a let me see if I can come up with a shocker for you, Marty. You know you're my favorite person to talk to. I don't know if I have anything that's actually too out of consensus or crazy. I d I do think that with gold right around four thousand, Bitcoin not too far away from sixty, that the next time we meet, I would I would wager that gold and Bitcoin are going to be outperformers. relative to equities and and even some high flying equities. I I would much rather invest in Bitcoin or gold right now than I would Micron or SpaceX. It doesn't mean I don't think they're they're they're not they're they're they're not good.

Mel Mattison ⋮ I just think that especially by the end of the year, w we could be looking at some really, really nice returns. I I I think this was before we came on. But we're like three months away from the four year anniversary of the FTX low in Bitcoin. I mean, it was October twenty twenty two, sixteen thousand, four year cycle. I wasn't a believer in four year cycles, but you know what? We seem to be following one pretty damn well. And if we're gonna bottom four years four years after the last bottom, I mean that's October. We're in the middle of July. I mean Like if i if people have said okay bitcoin winner like well winter's getting ready to end because you know if we're bottoming in the next couple of months you know I think you need to be start adding now.

Mel Mattison ⋮ And you know, I i i like to me Bitcoin fifty seven thousand, whatever it hit last week, I mean that's a gift. Gold at four thousand. Silver sixty. now's the time to be buying those things. not you know, I don't know what's the hottest thing out there in the on the books these days. Not not SpaceX in my opinion. That's for sure.

Marty Bent [1:06:53] Yeah. Yeah, it is funny. The four year cycle does seem to be repeating. And no, it's always good to zoom out with you, Mel. I think this was like the most dense high signal sort of we ran through all this in an hour and eight minutes here now. So thank you for coming on. Let's catch up in the fall when Q three is is over and I'm always looking forward to our end of year. retrospective and predictions for the following year. So this is gonna be a fun one.

Mel Mattison [1:07:25] Yeah. I'm too. I and I've got a few that I'm I'm actually thinking could still come to fruition that nobody thought. One of them was Mag Seven outperforms S P five hundred. I had Bitcoin outperforming gold. You know, I I I had some things that didn't seem to make sense back in January, that I that I predicted at the end of the year, and they still don't make sense to be honest with you. But I think there's still plenty of time left in the year for some of those things to come full circle. And I think a lot of people that kinda gave up on the Mag Seven early in the year or gave up on Bitcoin and thought gold was the B's knees as it hit fifty six hundred and there's no way Bitcoin's gonna outperform it. I still think Bitcoin's gonna outperform gold for twenty twenty six and I still think Mag Seven's gonna outperform S and B.

Marty Bent [1:08:20] Clip it and send it to Peter Schiff freaks.

Mel Mattison [1:08:23] Mm.

Marty Bent [1:08:25] Mel, we'll we'll catch up in the fall, brother. Enjoy the rest of your summer.

Mel Mattison [1:08:29] All right, thanks, Maureen.

Marty Bent [1:08:31] Peace love freaks. Tiki.