Nick Nemeth: The Everything Bubble Is Ending
Transcript — TFTC
Article: https://www.tftc.io/private-credit-insurance-systemic-risk-nick-nemeth
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Published: 2026-08-05
Machine transcription, lightly cleaned; may contain errors.
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[0:08] Nick Nemeth: Dude, the new update, I don't know where my do not disturb is. And maybe more you can Who's Bridget? that's you. is is is this stuff in the camera? Yeah, it's fine. It's fine. It's fine, okay. Okay. Is is this stuff in the camera? Yeah, it it's fine. It's fine. You need to know people how you're you need to let people know how you're hydrating. Coconut water monster. Yeah. Sponsored. Yeah. Yeah. Sponsored. Nick Namus. It's a pleasure to meet you in person, sir. Yeah, it's good to see you. It's been two months since our first conversation. And what has happened since I I was telling you, it seems

[0:45] Nick Nemeth: And what has happened since that was telling you, I it seems like the whole systemic credit contagion headlines that were in the news when we first spoke have have left the headlines, but it seems like there's still progression on the back end in terms of redemptions, redemption gating, and actually saw we wrote about in the newsletter yesterday, private credit issuance and underwritings down like forty percent month on month. Yeah, she went. Yeah. It's like in March, if you were looking at the AI token numbers, they were just going up, but AI stocks were falling off the cliff. So there's a little bit of there's it it's it's not making sense, right?

[1:51] Nick Nemeth: So it's actually really interesting. I I I've done a lot of work into this and I keep on expecting software to be up at the top and it's not. It's like healthcare and consumer. So software is basically at average levels and again a lot of it's pick payment in kind, which is these guys just instead of paying your credit card minimum every single month, they're just like, Okay, I keep on rolling it up. And These guys just If you don't have any cash commitment, you can't default. I mean, maybe they'll call it quits, but the medallia, you remember s he hearing the medallia story, your audience probably knows that. And I I'll get like really specific. So so medallia had half cash, half pick. Wait, what is the medallion store?

[2:36] Nick Nemeth: So they had some cash component and they actually were Ebidah positive by two hundred million dollars, but they defaulted on their debt because one, Ebidah is not cash flow. But two, they wanted to ask Blackstone, like, Hey, can we switch this over to pick? And Blackstone was like, Nah, we're not we're not really gonna do that for a business that's not likely not growing. And for those who are unaware, these these payment and kind loans they come with egregiously higher carrying costs too. Yeah. Yeah, it's like fourteen percent. So if you look at US equities, the S P five hundred is much higher quality equities with moats, you know, there's some junk in there, there's some value traps in there.

[3:55] Nick Nemeth: Ex exactly. They're just like Claude, go do that. And there might be some value in infrastructure of software, but that value is likely in the public markets. Databricks is in the private markets might be a a a great one, but there's a a a definitely a lower quality in software and we haven't even seen that in defaults yet. So when that picks up and joins the consumer and the healthcare. software and we haven't even seen that defaults yet. So when that picks up and joins the consumer and the healthcare, we're already seeing two thousand eight level defaults. So I mean people don't seem to care until they do care but defaults from a rate of default perspective or magnitude of defaults? We're already seeing two thousand and eight level defaults. So I mean, people don't seem to care until they do care, but

[4:36] Nick Nemeth: I w the rate of default. But I wonder on the magnitude. It's definitely more 'cause the asset class is bigger. but I wonder just a segmenting out are the is the lower lower middle market doing worse than the middle market doing worse than, you know, the big software companies. That's something I don't have off the top of my head. Good idea though. I think that's something we Yeah. No, and I I think that's something we not that, but another thing we touched on a couple of months ago that I'm still trying to wrap my head is like, is this systemic? Like how much contagion risk can can come from this this private credit market specifically.

[6:03] Nick Nemeth: you know, subsidized maybe the loan subsidized by their fund or this huge G P financing industry. Well on this note, I I watch your video described. Well on this note, I mean I I watched your video describing this. I don't think many people realize this, but when you run a fund you're expected to invest in the fund and it's not always coming out of pocket. No. No, they don't have the money for the numbers that they're contributing. I mean, if you the thing is with private credit and this idea as well, at first principle it kind of makes sense. You wanna have skin in the game and LPs wanna see that you have skin in the game.

[7:02] Nick Nemeth: They have they have a technical mortgage. No, no, yeah. I I think that might be what it's called, but then there's on the underlying portfolios there's debt. So you have NAV loans. And this is all basing. So you have the private credit and you have the private equity. If you're just not marked to market consistently. No, well, I nobody trusts the marks. If you ask these guys in private credit, you know, hey, is this company actually worth three billion? And this is all basing, so you have the private credit and you have the private equity. And NAV is not marked to market consistently. The answer more likely than not is maybe like maybe when we extend it for four years and it recovers the multiple or something like that.

[9:14] Nick Nemeth: And they'll invest do leverage buyouts of companies at an extremely rate. So to leverage and do leverage. So what you just described there, I think, highlights to me where this could be come systemic, going back to the Saudi Norway bank. Yeah. Levering up levering up ten X and then spreading the two two hundred fifty million dollar chunks around different funds and Yeah, people don't think about that. the Norwegian banks looking to make a return on that billion dollars that or that nine hundred million dollars that they lent you, essentially. They are incredibly smart. So if they pull the plug in the Saudi and say, Hey, we need more money.

[11:16] Nick Nemeth: just the system. What's going on in their economies? Well tourism's falling off the cliff because I'm on war. Yeah. And a lot of pipelines have been Well, tourism's fallen off a cliff because the Iran war and a lot of pipelines have been slowed or stopped, the Qataris, UAE, Saudis, and they're just shoving. They're right now they're just shoving, right? During March they bought a lot of puts. They didn't sell. Like these guys don't sell. And a lot of people have this perspective that markets just go up, you just gotta buy yourself time. And I think that's creating a massive bubble everywhere. Yeah. No, and you think about it too, you look at Dixie Dixie strengthening and that would validate what you just said 'cause that that's what I've been talking about it on my Monday show with John Arnold.

[12:16] Nick Nemeth: Yeah, I mean people ask me, what's the safe place if if this plays out poorly, I'm not a perma bear, right? I try to make money wherever I see the best place to make money. I had to force myself to buy on the gap up in April, right? And I was like, the market should not be going up right now. It just shouldn't, but it is. So I just gotta force myself to buy something. And then the week late a week later, you know, I'm like, okay, what's the most irrational thing to buy right now? Like, what should I not be buying? Okay, I'm gonna buy that.

[13:45] Nick Nemeth: So people people like will buy it when they're worried about something, but not when they're panicking. And you gotta wait until like the dust settles in order to be like, okay, there's gonna be a bailout or whatever. You know, that's how p people typically justify buying precious metals. There's gonna be a lot of money printing. But the best time to do it is not like it's not before the panic. You know, that's how p people typically justify buying precious metals. There's gonna be a lot of money printing. But the best time to do it is not like it's not before the panic. People will be hedging out over two, three years on gold and then when the panic actually comes, they'll sell it and it'll just be down so so massively in a couple of days.

[14:27] Nick Nemeth: central banks have signaled that they're gonna increase their gold holdings year on year from twenty six to twenty seven. The pace of buying over the last three years is surpassing, I believe, the the decade previous. so they have been stacking a lot of gold and I think the price isn't result showing that. No. I no, no, it's not. And that's maybe these are lagging indicators from last year when the price was ripping. But six to twenty seven. The pace of buying over the last three years. The price the price isn't result showing that. Mm. Again, g bring this back to like systemic risk contagion where it may break out. Like give us an update on the interplay between private credit insurance. Yeah, so I think that's the bot. Again, it brings back to like systemic risk contagion, where it may break out. Like give us an update on the interplay.

[15:04] Nick Nemeth: Yeah, so I think that's the bomb. You know, I I talk about the big picture because it's it all happens at the same time. There's so much leverage built into the system. People want to talk about, the consumer's not as leveraged as it was in 08. And it's like their home val values are fake. Like, you know, those homes aren't worth that much, right? Especially if you look forward to, you know, the boomer retirement, you know, p next ten, fifteen years. They're all gonna be retired and a lot of them are gonna be selling their homes for one for one reason or another. So you know, the home mortgages that are at all time highs.

[16:15] Nick Nemeth: God-awful right now, you know. So it's all these asset classes and they all move together. But the private credit is the worst, most untested part of credit. It's not all bad, but it's a lot of real bad junk. And people usually get off the stop in the exit where they go, Do the banks have a lot of this? And for you and me, they do, but for their balance sheets, no, they don't have a lot of it. You know? So it's all these asset classes and they all move together. But the private credit is the worst, most untested part of credit. It's not all that, but it's a lot of real bad junk.

[17:11] Nick Nemeth: It's you know, i it's not a Ponzi scheme, but it's Ponzi like. And you see like a desperation when all of a sudden the money's not coming in because, you know, Bernie made off Said he had 10-15% returns every single year, very smooth. All of a sudden, you know, it's all of a sudden assets are going down. People are like struggling for liquidity and wanting their money back. And he can't find and and typically, you know, just human psychology, then they start panicking and they go into the next one. And right now it's 401ks. But prior to that, all the wealthy people had made money from.

[19:08] Nick Nemeth: It was a lot of bonds. At some point it got into high yields and then executive life blew up. So there has been like r historical blow ups. But there weren't a lot of equities, especially in the fifties. So so Warren Buffett was like, Hey, like, got a hundred million dollars here. Why don't we put f ten percent, fifteen percent in value stocks? And you buy the business for like five million, ten million bucks. some point it got into high yield and then executive life blew up. So there has been like historical blow ups. But there weren't a lot of equities, especially in the fifties. So so Warren Buffett was like, hey

[19:36] Nick Nemeth: So then all of a sudden it's like you're levered, but it kind of spreads out and if you do really good underwriting, you can make a lot of money. Yeah, and his whole play was like Yeah, and his whole play is like we're buying value stocks that have a track record that are sustainable, that are sort of embedded. I mean I mean for Berkshire Hathaway, a lot of cultural brands, Coke, the insurance company, Geico, all that, established economies of scale, pretty predictable cash flows, but bringing this back to like private equity buying these insurers, like their private credit funds are more speculative in nature. Yeah, and also Right.

[20:03] Nick Nemeth: Yes. Yeah. Yeah, and also yes. So Buffett was really good at just being completely ignorant of I mean, he would address it, but he somehow would just put the blinders on and he would be like, Can this business h handle everything? Inside of a portfolio where I may be wrong a few times, but is this just gonna stay intact through whatever cycle comes? And he would do it intelligently, but he would look for pristine balance sheets with motes. That are operating on a cash flow basis. And private equity was like, okay, like we can do that, but let's charge two percent fees, carry, lever up these businesses a lot.

[22:10] Nick Nemeth: Or 10% of assets, but the lesser of the two. And we are talking about, I believe it's 26 times what the limit should be, Apollo and Athene. And this regulator in Iowa, he goes, sure, sign it. And then he has the audacity to go out there and say, Well, we really, you know, we really shouldn't allow it this shouldn't shouldn't be happening. And it's like, you're allowing it, buddy. And we are talking about I believe it's twenty six times what the limit should be. He's like, I wish we could see what's in Bermuda. And it's like, Athene's in Bermuda, like you're allowing that to happen.

[23:06] Nick Nemeth: To sixty to ninety times. And when you look at a theme, and I've done a lot of work on this because I think that there's gonna be money made shorting it. If you look at Athene's capital surplus, they say twenty billion, Fortress balance sheet. It's like, okay, how about we take out the goodwill and the amortized sales credits? All of a sudden it drops down sixteen billion. So the twenty twenty billion go becomes four billion. And then you can take out made shorting it. If you look at a theme's capital surplus, they say twenty billion of for just balance sheet. It's like, okay, how about we take out the goodwill and we amortize sales credits.

[23:55] Nick Nemeth: They're smart in a sly way. They are so they're so evil. They are so they're so evil. They are smart. They're good with the narrative. I'll I'll give Mark Rowan that. But the hubris, the arrogance, and you can see it. They wa they do a couple things intelligently compared to peers. They pull away from certain industries that they just feel like the crowd's getting in and they'll go to the next one. But they run a risk level that is I think it's it's higher at a bigger scale than anything that's ever happened in financial history. May like I keep on going back to the South Sea bubble where there was a government a private private partnership with the government where for the time I feel like maybe that would rival this scale. And people were like, the government's behind it and the the the poems and the first person accounts that I see kind of feel similar. Yeah. And people were like, the government's behind it and

[24:55] Nick Nemeth: I other than that, it's not two thousand and eight. Well Well there are many people who listen to our first episodes like is this guy does he know what he's talking about? But I I DM'd you. I had a a good friend at a big four bank working on basically their private credit desk who texted me yeah immediately after listening. To our episode, he's like, he's dead right. Like show me some presentations that they've been going around giving warning about this risk. And th there are people in the industry, particularly in banking, commercial banking, that understand this risk exists. They're trying to point it out.

[26:13] Nick Nemeth: This ac this gap equity, what Fitch and Moody's are saying is the capital surplus in Bermuda. It's it's not real. And then they go, Okay, these things are gonna take longer than you think. Right. So there is that side that just, you know, it's been a bull market for 15 years, and even long short guys are mostly just trying to stay afloat on on their shorts. Then on the other side. I have to say that there is an extreme understanding that there's a massive problem that could infect absolutely everything. The question is the timing, but there is, and I don't want to lead myself too much, there there is a content there is a segment of the hedge fund community.

[27:43] Nick Nemeth: That's the trillion dollar question. peop people are scarred and they look back to to 2007, 2006 and they don't want to be too early and blown out. I'm you know, w with a a few few partners, I'm like, you can make this carry neutral, right? You you can get paid to wait. And then when it blows up you'll lose on Something and you'll make a whole lot more in something else. but I think we're talking in quarters. I I don't think we're talking in years, and I get I understand the wisdom of like, hey, it's not gonna happen as soon as you you you think, but I also think at the same time it happens sooner than you think, and happens quicker than you think.

[28:48] Nick Nemeth: Was the worst thing ever. But it was worth that fifteen hundred dollars. You know, whatever the next gen models, I'm sure they're all gonna do this. Really good at segmenting out and tackling large data sets, sort of almost agentically inside of a a prompt. So it would put out 120 sub-agents and just do one task and then 70 more and do another task. And I was kind of shocked because I'm used to Opus, like I gotta type this out, ask me questions, let's go through it, let's make a game plan. Which gave gave great output. But Matthews was just ripping it. I was like, yeah, you go get Go get Well I'm thinking of Go get it.

[30:17] Nick Nemeth: think it could be I think it could be four th or so things. Well because also when that was going Well, because also when that was going on, like defaults were rising. Rating agencies weren't moving, but the banks were offloading their books at and I think that's starting to happen. Yeah. So that's that's the point I'm getting. Is that happening right now? So they'll do it a And I think that's starting to happen. And you know important. Is that happening right now? Yeah, so they'll do it uniquely, right? Maybe they'll s sell a swap against it, do a bonds. I'm not inside a investment bank, but I do kind of hear things and I have friends and I talk to them.

[31:27] Nick Nemeth: with water. Mm-hmm. Qualified institutional buyers, the f whatever funders, they're really starting to get their hands around this. And ultimately it's only a matter of time. You know, maybe it's not this quarter, maybe it's not next quarter, but it could be three or four quarters from now. And you know, as defaults continue to go up, again, software hasn't even defaulted yet. Right? You know, the idea, I see a lot of people that say, well. Right? You know, the idea I see a lot of people that say, well, AI's you know, AI's a bubble, so software has to be fine. Like there's a potential. And I think AI is more fine than probably the consensus.

[32:49] Nick Nemeth: They've done so mu they've done more than people understand to debt markets. A lot. Well that's the big question. Like, do they go to really tap the debt markets and then all these private credit funds are like we don't have the cash or we need to get liquidity? or do the private credit funds view this as like a Hail Mary, like, yes, let's pile into this and hopefully the ROI makes our nut back on the back. They don't they don't know how to have reservation when allocating capital. Their business is to allocate capital. They get paid to allocate capital. There's no and maybe it's not the best time.

[34:29] Nick Nemeth: They just go into the hot stuff. Okay. Now it's data centers. Now it's, you know, gonna be energy because they can see oil prices. Well, we think it's gonna stay above seventy dollars. So let's go into that. And also we are underexposed there. It's like, yeah, but you you guys are writing seven-year loans. Like, if you go into the hottest thing every single year and expect to exit in seven years, it's not like a public markets person where you know you can buy them a momentum. And if you know how to get out, you'll make money. These guys have no liquidity. So they're going in at not at already elevated multiples, in some cases, extremely elevated multiples.

[36:29] Nick Nemeth: The small lines and Andoral and Anthropic. The rest is hidden in these SPVs. Nobody has any idea what they are. And you know that it's enterprise SaaS and it's infrastructure and it's stuff that like one of them's called Peggy Aggregator LLC. Another one's I have a tweet where I just go through and I'm like reading through and I'm just highlighting. Like one of them's called Peggy Aggregator LLC. Another one's I have a tweet where I just go through and I'm like reading through and I'm just highlighting the craziest names for these SPDs that make absolutely sense. And then I actually like tried to try to figure out what they were, I like, no, okay.

[37:21] Nick Nemeth: You you might not think it's gonna end as poorly as I do. Okay, that's fine. We are closer to the end than the beginning. And these guys are like, SpaceX this year, like this is gonna cagger at 10, 15%. Like their gains right now. They think next year they're gonna have 10% more. And the next year they're gonna have 10% more. And Stepstone particularly is paying mo b mostly for executives, basically 60% of their market cap. Stepstone particularly is paying f mo b mostly four executives, basically sixty percent of the market cap, because they built this retail business. What? Yes, on a multiple of twenty twenty six and twenty twenty seven, it's like fifty percent, twenty six, they're gonna exercise it.

[38:28] Nick Nemeth: And they're gonna dilute the crap out of common ac out of shareholders. And the stories that they tell them like, man, you guys are dumb. You guys sex with investors. Stepstone, the analysts. I came out with a short report and all of a sudden it was it was right before the earnings call and all a sudden all of the analysts were like Yes, are dumb. SpaceX or the investors? Stepstone, the analyst. Reading like a line to ask from from my short report. I swear to God, they had never asked any of those questions before. And all of a sudden they're all asking about the the the put and the space ex valuation and how much it was marked up.

[39:40] Nick Nemeth: Well, another interesting twist here too is with Warsh coming in, I mean, last week's FOMC meeting, I think he made it pretty explicit that he doesn't really want to do bailouts this time around. Like he wants he he he articulated the definition of a recession is when you have over levered, over indebted companies that that got over their skis actually just dying off because that's that's what should happen. And so it'll be interesting to see if that does manifest and he does let go. I yeah. Manifest and he does let him go. Everything he says like ninety five percent I agree with. If you just look at the history of Warsh At Morgan Stanley, they were like, he doesn't do work.

[41:29] Nick Nemeth: Y it was just i yeah. Yeah. Seventeen, twenty Yeah. yeah, so the it's like Rick Reader is actually a genius. I get that he works at BlackRock, but I've grown up listening to him. Every time Rick Reader is on CNBC, I'm like turning up the volume and I'm just listening, I'm like And he's like he uses his hands. I feel like intelligent people, when they're trying to explain something simply, they use their hands a lot. And I just feel like he's just conjuring a mental model that is sufficient to handle most scenarios. Versus when I look at Worsh, I'm like, I don't know if he really understands these things.

[42:37] Nick Nemeth: since the administration has come into office beginning of last year. for lack of a better term, nationalization of core sectors of the economy. putting direct investments in companies like Intel and other infrastructure companies and it seems like we are sectors of the economy. as a country and as at at the Treasury and at the executive level, like on wartime footing in terms of the nationalization of parts of the economy. So like is there like a treasury bailout that manifests through all this? Maybe it's not maybe it it's not a bailout of private equity. It's just like a hey, private equity got over their skis, over indebted. Maybe that's why Warsh is out there saying we're not doing bailouts this time, but Maybe it it's not a bailout of private

[43:21] Nick Nemeth: got over their skis, over indebted. Maybe that's why Warsh is there saying we're not doing bailouts this time, but AI being a systemic national security risk as identified by AI being a systemic national security risk as identified by the administration of like, hey, we're gonna let that fail, but we're gonna ensure that this infrastructure build out sustains itself and that we're there for that. Yeah, no, I I for that it doesn't help these portfolios because you're screwed at 90 90%. It doesn't matter if the government backstops ten percent, right? It just doesn't. I do think that if shit hits the fan, there's gonna be like a you know new deal that's gonna be UBI and pushing it AI. Like that's the fiscal response that I would imagine. You think so?

[44:03] Nick Nemeth: It's just you can't print enough money for true systemic distrust to be jawboned. You can't. There's only $22 trillion of US dollars in circulation. We're talking about asset classes that are extreme multiples of that, right? So if you double the money supply, okay, but what if people still don't want to own that stuff? Right. You could double the money supply and you could buy private equity companies, right? Based on how much they're levered. Maybe you have a little bit to spare. But I don't want that to ha I'd like I mean it's gonna suck but gonna be worth nothing. Yeah. And and by the way Well like more importantly, like you should have a feedback loop of failures like just getting out of the market.

[45:15] Nick Nemeth: We gotta let it fail. And like last time I'm talking, and I sound like a sourpost, like we need the market to crash. And I I'm like, would it be that bad? Right? I get that young people take more risk and w we're gonna get smoked and it's it is what it is. But imagine just clearing the decks and all of a sudden maybe you can buy a home in the Hamptons for two million bucks again. So you might s go back to, you know, not much, but you have skills Right. You have the opportunity, you have the youth, and you have the vigor. And by the way, those vacation those Florida homes might be a hundred and fifty grand, right?

[46:12] Nick Nemeth: somebody that has s like a real like cerebral palsy or something and you're just putting steroids into them and you're like, okay, are you like better? Like you're not, you're just juiced to the gills. Like real like cerebral palsy or something and you're just putting steroids into it. And you're like, Okay, are you like better? Like if you're not you're just juiced to the gills. Like and and eventually it's gonna be worse. And and eventually it's gonna be worse and it's gonna be worse the longer that it happens and the more cycles, because every time that the repo market blows up, a hedge fund is like, my god, we're gonna lose all money.

[47:32] Nick Nemeth: Yeah, you would hope. That's the question. Again, going back to Warsh's comments last week. Like is he actually gonna stick by them? Yeah, I mean I I hope so. So that's a good comment. Good comment. Don't want to criticize the comment. I just don't trust it necessarily. I will s Yeah, 'cause you imagine the the thick of the madness or like, Fuck it, we gotta fill this hole. Like just print the money. Yeah. So when Yeah, so when people when people th I I do worry about Walsh not being independent, but do you really they've never really been independent. There's been there's been an illusion of independence. But I think that worst is I actually find I actually find the the the explicit cooperation a bit refreshing where it's like, all right, you're not pissing on my face and tell me it's raining.

[48:02] Nick Nemeth: They've never been no they've never been in a p but I think that Walsh is per I yeah, I I I think that there's an opportunity to call, you know, a cat a cat. But I'm worried about his dependency on not Trump. Trump thinks he's his guy. Warsh is not Trump's guy. Warsh is the guys of the people that are currently backing Trump. Right. And if they switch sides, Warsh is immediately anti-Trump. Trump's saying Warsh is the worst pick ever. I can't believe I did this. Mm-hmm. And if they switch sides. Well that's I mean we've had shout out to Matt Dynes who was on the show a few weeks ago and he he said explicitly that same thing, where it's like you have this sort of American heritage rich that are backing Trump to preserve I mean, this gets into a whole meta layer negative one discussion of like what is America and like what are we trying to do here?

[49:29] Nick Nemeth: Yeah, I think it's a different group than Davos. it is. Yeah. Yeah. Yeah. But it but I but it is the same idea. It's a lead group that's like it is. Yeah. That's that's what yeah. But it but I but it is It is an elite group. But it's an elite group that's like Davos, that's not the direction we're going, like we're we're going in this direction. Yeah, so all of those guys operate in circles that have feedback loops that rarely tell them they're wrong. I'm gonna say that they don't get it. They don't get it. Like I don't think they're evil. You know, I d I it takes a lot for me to think people are evil.

[50:53] Nick Nemeth: You know, circles you're running in, who your friends are. Worship's like publicly friends with, you know, a lot of people that do not want to be public. And on photos and it's like, guys, the elitist domination of this country is only gonna hurt the elitists and it's only gonna lead us into fascism or communism. Like just put your guys are successful. Go enjoy the beach. Like stop trying to control everything. Well, I mean in this guy. Well, I mean th and this goes back to something we were discussing earlier, which is sort of the dynamics of the the guys running PE funds and how they can afford their lifestyle using portfolios to get loans out to do all that.

[52:18] Nick Nemeth: the individuals that are involved with private equity and other types of hedge funds. And I I think from a self preservation perspective, what you're getting at here too, it's like, hey, you need to realize like this is not gonna work unless more people are participating in the wealth effect and able to actually go and go about their lives and and put a roof over their heads, buy food and enjoy some some Yeah, no. And I I think from a self preservation perspective what you're getting at here too, it's like, hey, you need to realise like this is not gonna work unless more people are participating in the wealth effects and able to actually go and go about their lives and

[52:47] Nick Nemeth: paltry luxuries, I guess I would say. Like just like the some Yeah, exactly. And that's like to you I think what you're getting at is like the social incohesion that can arise from mishandling this. And I think you just look at consumer spending and the the portion of it that's being driven by the top ten percent. And I think that's proof in the pudding. Like, hey, like if you guys fuck this up on the private equity side, like not only are you gonna mess up your own life you're gonna I guess I would say. Like just like a steak dinner on a Friday? Exactly. And that's

[52:57] Nick Nemeth: Incohesion that can arise from mishandle ruin the economy and so we need to figure out a way to like land that plane and get everybody back on a level playing field. That was a little bit of a ramble but there's something I stoked in my mind while you're saying that. Get everybody back when I love No, yeah. Well th it exactly right. The problem is convincing those people that maybe they got a little bit lucky and they're not God's gift to Earth is hard. You know. I just want to delineate when I'm talking about the people in private equity that make a lot of money and are potentially gonna lose their homes and to take their kids out of private school, I'm not talking about the people that have the fifty million home dollar home in Southampton or Montauk or whatever or Nantucket.

[55:06] Nick Nemeth: As long as l losses are allowed. Exactly. Like, I love risk. I get it. Listen, I want to see somebody, you know, hit a hundred X, but there's gotta be at least 50 zeros. Right. You can't have this. And what's happened in Silicon Valley, like, yes, we've over the past 25 years had a lot of technological innovation and a lot of people have made a lot of money helping. businesses become world changing, right? But it's been too much of a game and a grift. And you know, it's kind of just leading it up and everyone knows it's gonna tank, but we IPO it, right? And it's too much of a club and the good stuff you keep private, that whole th like everything just needs to be stress tested.

[56:43] Nick Nemeth: You know, we synergies synergies, right? It's like it's insane if you listen to these guys. It's insane. And there are really smart people in every industry, but private equity particularly. on the top, you know, if you go to the top five percent of intelligence, and these are probably firms that nobody's heard of, right? Same thing with hedge funds, but I think the you know it's the top 15. there are obviously smart people in every industry. Mark Rowan, think he's evil, but he's a smart guy. John Gregg, not so smart. Mark Rowan, pretty smart. My Argetty, Arenati, Michael Arenati, who's the lawyer? Yeah, yeah. So Michael Arenati of Aries.

[58:06] Nick Nemeth: And the consensus on how to create value and what val value PE is or real estate private equity, lower middle markets is the best opportunity. Like the justifications if you really test them. And again, public market guys get tested all all the time, right? If you go out and say, I like service now, you know, someone's gonna say you're an idiot and you say, I'm not an idiot, here's why I'm not an idiot, and he says, You are an idiot, here's why you're i'm you're an idiot, right? It's a dialectic and a s And and it's quite frequently discussed on social media or otherwise. Well the information's free, right?

[59:10] Nick Nemeth: In order to try to figure out is this company doing well? All of that stuff. If you're in the public market, the way this is gonna end, I think, and the way that should end and everyone sh should say that it should end, you have to file at least a consolidated state statement of how that, you know, is audited that says how the business is doing. And we don't even know the covenants of of these loans, but just more transparency would do wonders. Because then it would be pretty hard to argue that Plural Site should be marked marked at 100 cents, right? Or 97 cents in some portfolios. That's the Chag company, right? Chug. Because we see in the public markets. Yeah. Companies go down 95% and then the same companies in private equity portfolio in a different flavor. And it's at par, right? Or, you know, what they bought it bought it for four years ago. Check? Cheg. see in the public. Cheg company. Yeah.

[1:00:06] Nick Nemeth: Just it doesn't make any sense, but you also can't short it, right? You can't go into now there's some C D S on private credit BDCs, but you can't go into, you know, Tama Bravo's fund seven and be like, this, you guys are terrible. Like I'm just gonna short all of this. The public marks are here. These public software companies are way better. These businesses are not growing. They're not cash flow positive. You underwrote them like idiots. And now, sure, maybe three of them will survive, but the value is certainly gonna be lower. The fact that you cannot short this stuff. I think, you know, people talk about shorts and they say that they're an evil upon the face of the earth.

[1:01:10] Nick Nemeth: run rampant and that's what the the if you tr press the typical private equity or private credit person on assumptions, they look like a doe. They look like a doe with an oncoming eighteen wheeler and they just like default to the same five things that they say justifies their existence. Well I mean this is Yeah. Well I mean this is why I do what I do when I've been doing this show for nine year nine years now, which is hard to believe. So I think a lot of the I you say the the bears are dying. They're their d extinction is almost predetermined by the monetary system.

[1:02:19] Nick Nemeth: why I'm so passionate about Bitcoin because I think Bitcoin brings it back Going to layer negative one. It's like the the money, literally how the monetary system operates does not allow for this. I think the feedback mechanism is you identify a risk. The risk doesn't, you know, people cry wolf so many times, right? It doesn't materialize into a crisis and then you're back at the next risk that you identify. And that loop has happened so many times where it hasn't blown up recently and you know, the memory of people that are investing today that they think it's just always gonna happen. But the thing is, you look through financial history, things work for a long time before that you know, eventually they stopped working.

[1:04:14] Nick Nemeth: Yes. No, the the Bitcoin people I think are directionally correct, but they have been kind of scarred, kinda like the gold people, where, you know, they're like, it's all it's all bullshit. It's all bullshit. We're just gonna buy Bitcoin, you know, it's some maybe too much, some as a hedge. and you know, you can't pin more print more Bitcoin and we'll just leave it at that. It takes like takes like CTE a certain amount of brain damage. So it's like consistently be like, okay, well I see risk, okay, it's it's I really want to identify six concussions here, so CTE or a certain amount of brain damage to like consistently be like, okay, well, I see the risk.

[1:05:42] Nick Nemeth: Shit. I just see a turn where everyone realizes it's bullshit and it's gonna go completely different than what our leaders think. And you know, our leaders are so you like the you know, the East Hampton private equity, finance, crowd, they think that they're just gonna be able to say, like, socialism is dumb. Yeah. Mm-hmm. They think that they're just gonna be able to say like socialism is a Segway pipeline, dude. Yeah. I'm interjecting with some Instagram meme. If it's like become a meme now. It's like Segway pipeline, play lacrosse in an I have V, go to private equity, live in the Hamptons. Yes, definitely Yeah.

[1:06:38] Nick Nemeth: Yeah, it's private Mr. Private Equity, whatever. It's it's it's so true and I think it tells where this is gonna go because I think that the majority of financial elite think that they have to worry about socialism and socialism's all they have to worry about. But a populist that can intelligently talk about free markets and how the markets aren't free and it's been entitled to A certain segment and it's been sort of like a regulated monopolies times a hundred in every single industry. And you know, capital capture being political capital and isn't a socialist, like they're so unprepared to deal with that narrative. And I think it's gonna swing extremely hard.

[1:08:07] Nick Nemeth: Yeah. And the socialists use that as an inroad to see, say, capitalism got us into this situation, your home value went down, you lost your job because the capitalist system failed. But we do not live in a capitalist society. It is socialism for the the upper class. And again, I want to be very clear. I'm not trying to denigrate Yeah. Socialism. For the the upper class and again denigrate, excuse me, wealth creation or wealth inequality. Wealth inequality is just a foregone conclusion of human society. There are inequalities between each individual. I think Thomas Sowell said it perfectly, no one man is equal to himself on a day to day basis. Like inequality is gonna exist, but I think the inequality is exacerbated by socialism for the rich via these bailouts. excuse me, wealth creation or wealth inequality. Wealth inequality is just a foregone conclusion.

[1:08:38] Nick Nemeth: inequalities between e each individual. I think Thomas Sowell said it perfectly, no one man is equal to himself on a day to day basis. Like inequality is gonna exist, but I think the inequality is exacerbated by socialism for We need class mobility and what that takes is the ability to go from the lower class to the upper class to the middle class to the upper middle class, whatever you want to say, but also from the upper class to the middle class. Also potentially from the upper class to the lower class. And I think that there's the people are kind of like, the company country could swing to like actual AOC socialism or memdani.

[1:10:18] Nick Nemeth: In that case, everyone's looking at you know, AOC and Mimdani. And it's actually that's not the opposition that you have to beat in order to get the bailout that you're counting on for whenever this cycle is gonna end. And listen, what what I would say is like, you know, maybe I'm an optimist. I think that route is gonna have a lot of acute pain, but is gonna lead to the you know, 30 years of a golden age, you know, with technology, with all of this stuff we talked about. But we kind of need a stuff we talked about, but we reset. Well there's historical precedent for it.

[1:11:25] Nick Nemeth: And that's gonna make it worse. But at the end of the day, we could have class mobility. And you know, you gotta take some of the leverage off. And some of these private equity guys that make a million dollars per year and have levered up in every aspect of their life and crap their lifestyle up to n ninety thousand dollars for each kid private school for K through twelve and then go to Duke and whatever. And college is extremely expensive and home prices are extremely expensive. The solution to all of this, I think, is just letting assets go down to reasonable and normal level levels and probably overshoot.

[1:12:56] Nick Nemeth: It's we're gonna try to V recovery it again with the Federal Reserve and it's not gonna go well and it's gonna lead to more wealth inequality. And all of a sudden, Warsh is gonna be the guy that it's like, Well, who why did you bail out your rich friends again? And then we could l then the v the political variants from there could be communism, could be fascism. Right. So I'm optimist that we can thread the needle. And I think that's the only way that we can lead a co to a cohesive society for the long term in the United States, Europe, and you know pretty much the entire Western world is dealing with this problem.

[1:14:27] Nick Nemeth: We're talking about hundreds of trillions of dollars in the debt markets, hundreds of trillions in just government debt, corporate debt, you know, any sort of real real estate related debt, whether residential or commercial, the asset stuff, the you know, leverage on the companies. When you put all of that together, if that is all coming down at the same time. The federal balance sheet may have to expand at such a level. It's this idea of a jaw bone. You know, people in financial markets understand the jaw bone. The average American doesn't understand the jaw bone, where the Fed will backstop and be like, you guys are good, like we got your back.

[1:16:22] Nick Nemeth: it it would be hard to create true value, you know. If you just hoard commodities like gold and Bitcoin, you're not creating value. You might be hiding your wealth. But you know, and the volatility involved in that, you know, it would it would be gross. Yeah, because you just think might be hiding your wealth. But you know, and the volatility involved in that, you know, it would it would be gross. Yeah, because if you think of the return on capital necessary in the scenario you just laid out where you're debasing the currency potentially Approaching hyper deflation. I mean, we've seen this throughout history. I mean, I think the early episodes of the show had people from Venezuela, Argentina, Brazil that told the stories of hyperinflation, you literally can't allocate capital 'cause you don't have time to think about it.

[1:17:04] Nick Nemeth: You get your paycheck and you run to average person yeah I mean listen if I were to think about the best way that I can climb the the relative wealth channel it would be hyperinflation like I think I have the skills to navigate that environment very adeptly it's a zero sum game at that point in time right and I don't want to live in like I I'll do like I'll do well in a deflationary environment you know Just go and buy bonds. Go be able to read balance sheets and cash flow statements and be like, okay, well, I'll buy that debt. Right. The hyperinflation is where you really need skill, right?

[1:18:17] Nick Nemeth: Yeah, a peg or a window or something like that. I think that's kind of what we're doing with inflation. If there's massive deleveraging, you're gonna see pretty significant potential Stay here, it's it's tarwash. And well it's not even objectively true. I mean the like they say we're staying here, but if you look at real inflation, we're way out of it. Like we're way out of that band. say we're staying here if we look at real. The money supply, yeah. Yeah. I I I like when Bitcoin guys point to the money supply instead of the CPI because CPI is bullshit. Right. You can grow the money supply consistently ten percent every single year, but what you will see over the course of doing that Initially, CPI will be low because where that money supply grows goes into lending and goes into credit that potentially provides more supply.

[1:20:03] Nick Nemeth: You know this. We got so many drugs in our financial system, it's insane. And then, you know, it's just fine. That's how you operate and nobody ever gets health effects. We're I think we're starting to experience that health effects. And I don't think that We got so many drugs in our financial system, it's insane. And then, you know, it's just fine. That's how you operate and nobody ever gets health effects. just because certain things have worked for 15 years that they will always work. And I would say the best scenario that I see is like a good healthy correction. And based on the levels where we are, that healthy correction might be forty percent, you know, across asset prices.

[1:21:09] Nick Nemeth: Same to matter. Seems Matthew Mazanchius and he's he's one of my favorite monetary autists in the space. He's basically gone back and collected all the central bank data across the world, going back like fifty years now at this point, I think starting in nineteen seventy. And even before that, he's got some data too. But he's around the number. The global monetary supply over the last thirty years has a, I believe like a twelve point five percent kagger rate. so that's twelve point five percent new monetary Breath around the number, the global monetary supply over the last thirty years has a I believe like a point

[1:21:36] Nick Nemeth: Twelve point five percent. Twelve. On a global basis. So add on a global basis, so adding all currencies together and sort of measuring the growth of the global monetary base over time as a twelve and a half percent kagger over thirty years. So maybe So maybe ten percent on ele eleven, twelve percent on equities isn't so good. Yeah, that's the argument. That's yeah. I like the idea of investing in businesses and you know, having smart people work for you. but when the money supply is growing so much it can completely corrupt any investment decision. Yeah. That's the argument you. Well it i i it inherently does because you're forced to think like you y pa patient capital completely leaves the market because it doesn't have the luxury of being patient, right?

[1:22:42] Nick Nemeth: Buffet is patient capital, like epitome of patient capital. A lot of the people that think they're patient capital are now FOMOing into quantum computing or something. Like they're like, wait a minute, like we've l missed out on the past four years. And that's really where you get the pain because you did so good. You avoided it for so long. And now you're, you know, into, I don't know, maybe it's megacaps and hyperscalers or whatever. And Ha ha. Ultimately, it's unfortunate. It's unfortunate that so many people have gotten rich being, you know, not investors. Like we're we're not we're not compounding a basis on cash flows anymore, right?

[1:23:55] Nick Nemeth: Did you see this morning? So this is apparently Black Thursday. I haven't checked the market, so it was ugly in the morning. We did Warsh bring out the plunge protection team. Black Twos. Let's see where we're at now. We got Nasdaq down one point seven. Hmm. It's better. people think two and a half percent in one day is like the the worst it can get. It's like shh. Yeah. Yeah. Hank Paulson's on his knees right now. Print the money. Yeah. So I I mean I think your point earlier about getting threading the needle, again, bringing this back to the juxtaposition of socialism, fascism, and true capitalism in free markets. It's like that's the message that needs to get out there. We live in a quasi me at best. describe what we have quasi quasi capitalism. There are capitalistic sort of features of the economy, but at the end of the day That's the mess.

[1:24:46] Nick Nemeth: at best. It's crone crony, quasi quasi capitalist there are capitalistic That money printing and that backstop is pure socialism for a particular subset of the population, which just so happens to be the rich. And it it makes sense. You're gonna backstop that because it's holding up everything else. But to your point, I think we have to eat the pain in the short term, clear the board and get back to wise capital allocation decisions, backing legitimate businesses, pr providing goods and services that people value at a profit to the economy. to the market. And I mean there are certainly companies that are doing that and people that are allocating those businesses, but the amount of businesses that are not doing any of that but are still able to susist and raise and sit in these portfolios is is way too much. Yeah. But businesses that are not doing any of that are still able to susist and raise and

[1:25:44] Nick Nemeth: Yeah. I mean I I don't want to completely demonize the, you know, elitists. I just think that they're dumb sometimes. They're really dumb. And you wanna get back like elite they d they don't see it. They don't see it. What you want to get back like elite like social social hierarchy is like just natural and we just need to get it back to like a hierarchy that's actually based on based on meritocracy. Yeah, you guys can s you guys can still be rich. Like we're not we're not trying to take your money. We're just trying to take your, you know, profit centers. Your backdrop. Yeah, yeah, yeah.

[1:26:31] Nick Nemeth: You know, the boomer billionaires, you know, and the senti millionaires, right? Just like over the reins. Yeah. Well, and that's I didn't say there are there are boom boomer billionaires. Yeah. Well, and that's and say there are there are bo boomer billionaires and centimillionaires that I know that actually like have legitimate family businesses. Most of them are private, right? And like they're great businesses and it's like but they're operators. They're operating businesses in most cases. The financialization that's been sort of embedded on top of that where you have like somewhat parasitic class of financiers that are just trying to For sure. And like they're great businesses. If you guys are fine. It's like but they're operators. They're operating businesses. Yeah.

[1:27:03] Nick Nemeth: Somewhat parasitic class of financiers that are they sort of squeeze everything that they can from that. That's where in the fact that they have a money printer sort of safety net, for them alone. Obviously maybe we get SNI checks, UBI, which would help or quote unquote help the common man, but like historically, at least in our lifetimes, it's been for that class. And Maybe we get snippy checks UBI, which would help. historically at least in our lifetime since we were that class. Yeah, I I mean I do think that we probably need UBI, but it should not be abandoned like it it cannot be the solution. Well shit, if we how do we No UBI.

[1:27:41] Nick Nemeth: How do you have unemployment go to 14%? Like I think demand stimulation is better than supply stimulation. Like I think if you just evenly distribute 30 grand per person for maybe a two-year period through a recession and assets are getting crushed, maybe some of that money's going back into assets. I think that's pro like you the laissez faire side I just don't think is actually truly gonna work. I think there has to be something. I I if we wanna do an intelligent, you know, okay, we rebuild the infrastructure, you know, I I think a lot of the stuff in the New Deal is a kind of bad, really bad long lasting consequences.

[1:28:43] Nick Nemeth: but a slight, you know, i if if we have to do something, do it to the demand side, evenly distributed. But let's let's not use that to obscure what what has actually happened. And if people just tread water through bad times, sure, maybe you don't have as much disposable income to go to Florida or the Bermudas or whatever. You're not less wealthy. If everyone is wealth is down forty percent and your wealth is down forty percent, you're just as wealthy. It may not feel like it. On a comparative basis. On a comparative basis, right? Just try to take more intelligent risk and f find more security. And and save some money. Jesus. On a comparative basis.

[1:29:26] Nick Nemeth: Well the the part of the equation that's really gonna fuck this up is the fiscal side. Like the government needs to cut their spending by arguably ninety percent and I mean yeah. Well On the on the boomers? Hey, boomers want to raise more taxes on the young people that are working. Pomp Pomp has some bangers sometimes. That was a banger. I'm like, God. They would literally vote to tax a child. They would be like, You are two years old. Now you need to start running on a treadmill to power a data center. You sent me a video today of Pomp talking about this. Yeah. Like

[1:30:02] Nick Nemeth: Well Well the other way they're doing that is Trump accounts. It's like you are two years old, we're gonna print money and you're gonna throw it in equities markets. That's gonna increase our four one K's. That is true. Yeah, no, that's that it that is true. It's funny how that didn't happen in two thousand and eight and now when they need the liquidity and the permabid to all of their assets, they're like, Yeah, now we're gonna give we're gonna print money, give it to babies, they can't touch it, they can't sell it, they can't sell it until after we sell it. And after we sell it.

[1:30:49] Nick Nemeth: I the the Bitcoin, you know, I think we're clearly in a bear market. What do you think? Yeah. What what would make you think that? I it just feels bearish. I think that Bitcoiners, I would hope, would look a little bit internally at like the leadership. And I am of the opinion that you think? What what would make you think that? No. What are you talking about? Bitcoin will fail if Michael Sailor is the face of it. Because there's so much hogwash that guy says that an intelligent person in a corporate or sovereign wealth fund like, We're not pumping this guy's delusion. And if the consensus doesn't get adopted, we lose the beautiful picture of Bitcoin.

[1:31:54] Nick Nemeth: It's really divisive in the Bitcoin space. People think that anyone that buys Bitcoin and kind of like buys at all-time highs and is good and finds it's so one thing I would say is you know, really savvy people understand who is with them on the side of the trade that they're on, and that they're just because someone is buying a stock that you're in, they could be weak hands, they could be perverse, have perverse incentives, and it doesn't net just because they take a step. From 17 to 18 by buying it doesn't mean that it's good that they did that. Right. but also Bitcoin is inherently consensus based, right?

[1:33:46] Nick Nemeth: But it's like Yeah, no, literally. They're like, no, we just need the boomers to buy in. It's like, brother, if everyone if all if all boomers go into, you know, I'm going with Gen Z and I'm going tank that, right? Like that's that's what I'm talking about, like the crowd and looking behind and being like, okay, like, how do we have better ideas? Because Michael Saylor has raised all of this money on financial engineering that has nothing to do with the lightning network, has nothing to do with development, has nothing to do with crypto broadly blockchain improvements. Like What we've we we've lost the plot a little bit.

[1:35:00] Nick Nemeth: Really? Yeah. He he's he's really intelligent in some ways, but he's also says the dumbest shit I've ever heard. He tries to talk in analogies make sense. Yeah, he also lives in he he lives in a feedback loop that is very tight and a lot of yes maths. Yes. And He tries to talk in analogies that just don't make sense. It's a lot of sycophants, yes. And I completely agree with you. And that's actually been a point of focus on this show over the last six months is really getting back to basics. Like what are we here for? Peer-to peer digital cash with no trusted third parties.

[1:35:50] Nick Nemeth: building these products to to equip agents with wallets and and money that they can spend between each other and with other and form fit for that particular use case. And not only that, but it's like going back to what we were saying earlier about like the compound annual gross rate of the global monet monetary supply, your your comments on Turkey, and what they're doing, like that that is an economy that has experienced something close to hyperinflation recently. Like people need Bitcoin, monetary system and a monetary good outside of the purview of central banks and governments and Not only that, but it's like going back to what we were saying earlier about

[1:36:37] Nick Nemeth: mm, arguably they've never needed it more than they do now. And so it's like instead of pushing people to buy preferred equity with a dividend or a common share. Well well that's the question. I don't think Sailor's gonna stop. And so and I think that's what a lot of people on I won't even say the the the opposite side of Sailor. I would say people who say, Hey Michael, like cool, you're doing your thing but we really need to get back to these base principles of of Bitcoin. Pushing people to buy it for Yeah, that only works if Bitcoin works and by the way we're gonna take the excess scans.

[1:37:26] Nick Nemeth: energy surpass sailor's energy with the idea in mind that sailor's not gonna stop. He's gonna try to get a million better I he's sort of pot committed to this strategy. Yeah, but but but if we tell the story that that's bullshit and you're the sucker and by the way just buy Bitcoin, if MicroStrategy equity is permanently trading at a discount, if the SDRC never gets back to par and he can never issue at par again, he's probably gonna issue at 95 cents. People, you know, he said he wouldn't sell Bitcoin. He said he wo would only issue above par. Just watch. You know, that that guy is very, very greedy.

[1:39:05] Nick Nemeth: Yeah. Do you understand that this has to be a collaborative ecosystem that actually grows or do you want to fuck off? Because, you know, if it is just dominated by those guys, Bitcoin I think will fail. And the reason why it will fail is because every four years, mining costs double, right? Functionally. Nah. Well well mining card. Yeah, supposedly. But but from four years ago the price hasn't gone up. And there is the death spiral potential. No, death spiral's complete bullshit. But what if the security drops down because the hash rate goes down? No. Well well if the price goes up. Yeah. There is the death spiral potential. No, the death spiral's complete bullshit.

[1:39:54] Nick Nemeth: Then the difficulty adjusts lower, which makes it more profitable to mine. So people turn the hash rate on. Right, but then the system can be hacked easier. no. The death spiral. Don't Yeah. The death spiral. That that the hash rate is an important thing to maintain. Yeah, but like yes, I agree. So I've been Yeah, but like yes, I agree. So I've been in the mining industry for ten years. The the or nine years now. The that like that's the beautiful part of Bitcoin. Like right, is the difficulty adjustment is one of the secret sauces that like so like if hash rate falls off, prices down. It's happening now. Hash rate had its l we had the eleventh largest difficulty adjustment in Bitcoin's history two weeks ago on the thirteenth. And anybody who's plugged in there is more

[1:40:17] Nick Nemeth: The It is. But it it's also less secure. So if if then you can hack blocks. Well, now we're getting into like the real game theory war gaming here. Yes, technically it is. maybe not even it's not technically less secure. It is because for it to be attacked, right? Like there's an amount of ASICs that exist in the world at any given point in time. The ones that are turning off because the price is going down, their electricity costs are too lot. too high and it's not profitable. Like they're going off the market for when that happens to attack the network. If so if a nefarious actor were to attack the network, they would have to go scoop up all those ASICs, scoop up a PPA, build infrastructure, plug those machines in and intentionally fifty one percent attack the network after that logistics problem solved, which takes time and a ton of capital.

[1:41:36] Nick Nemeth: After that. And that's not to say that there could be a nefarious actor who's been planning to fifty one percent the network over a long time horizon. They've been opportunistically acquiring ASICs waiting for hash rate. acquiring ASICs for it's China. Chi it's it's China. Ch China is theoretically the player that you would probably have to worry about on c the compute and power. And they already banned Bitcoin, you know, it didn't work. Yeah, I mean, listen, I think that's a really interesting conversation. Mm-hmm. Yeah. It's a n I'm not gonna say it's a not a risk, but I'm gonna say like the logistics of eff effectuating that attack or waging that attack are are har much harder than people make it out to be.

[1:43:01] Nick Nemeth: Yeah. And so like they're hyper efficient at that. Like a G like we went from CPU to GPU to FPGA to ASICs. So like GPUs are two sort of compute levels back from where the cutting edge, not even the cutting edge, like there's ASICs that were produced in twenty sixteen that are still running today profitably if you have free energy. and then if you're China you have to weigh the opportunity cost of transitioning your GPU. in twenty sixteen. Interesting. and then if you're compute towards Bitcoin mining versus training large language models. Like do you believe you're in a systemic existential race to AGI versus the US?

[1:43:49] Nick Nemeth: viable is a fifty one percent attack based off of a falling difficulty hash rate actually. opportunity cost equations that you have to run in your mind. And I think as it stands right now, transitioning GPUs to mine Bitcoin, it just doesn't make sense for China. If if they believe and I I do believe that they believe that they're in an e existential race for A GI against the US. opportunity cost equations you have to put on your mind. And I think as it stands right now, transitioning GP If they believe, right? That they're an existential race for AGI at the US. Yeah, yeah. I think I think it's not a concern now per se, you know, but it might be the next bear market.

[1:44:50] Nick Nemeth: Yeah. No, no, I think I I think it's necessary too. Like Trump the whole world liberty fi, the Trump coin, Milani coin, just complete so disappointing. That was brutal. And Solana's completely insider owned, you know. It a lot of the cryptos it just there's so much to like. And I think that a rational assessment of like what's going wrong can only make the space stronger. Yeah, I think we need to Yeah. Yeah, and I think we need to do a better job of holding up what's going right. Like I think Dorsey and what he's doing at Block, disclaimer, Block is a sponsor of the show, but I think what they're doing to actually make put a concerted effort forward to make Bitcoin everyday money and to make it more accessible to their millions of users is the type of building that we should be lauding in the space.

[1:46:34] Nick Nemeth: And what they're doing over the last year. Wa WAP is doing some interesting things with crypto and just fintech in general. You know, the PayPal Venmo, it's like, how are you guys fucking up so bad? Like I think that fin tech can get there. but you know, these are these are positives. It doesn't, you know, it would still address the negatives while you're pushing the positives, you know. Mm-hmm. Yeah. And going back to like the we're getting we're getting long now and it need give you back your time, but I wanna like the whole concept of digital credit, the way it's been explained, particularly if a strategy is bullshit.

[1:47:25] Nick Nemeth: We backed a company called Battery Finance, traditional credit fund. They spun traditional credit credit fund, new market capital. He's a parent company, founder Andrew, really into Bitcoin, said, I think Bitcoin is a collateral asset and these credit structures actually solves one of our problems, which is like we need to get a return and we don't want to go further out in the risk curve. What we can do is go and refi high grade credit, commercial real estate, Yeah, in top tier cities. The first one they did was Philadelphia, but you imbue and you put Bitcoin in the collateral package and instead of sort of trying to demand a higher return on the cash flow of the commercial real estate property, you're willing to offer lower cost of capital because Bitcoin sits in the collateral stack and the credit fund appreci or participates in the appreciation of Bitcoin, appreciation of Bitcoin.

[1:48:12] Nick Nemeth: lower cost of capital because Bitcoin sits in the collateral stack and the credit fund. Participates in the appreciation of Bitcoin. Yeah, at the essence. Yeah, at the end. But like I think duration, like that's a ten year loan. And so like you need to be able to have Bitcoin sit there and do its thing for a longer period of time. And to your to our discussion earlier about like how do you delever and how do you like I I do think there is a place for Bitcoin as for lack of a better term, digital credit, but it's not in the way that sailors doing it. It's like, no, you make it part of collateral packages for long duration loans and then you start sort of de risking Yeah.

[1:48:46] Nick Nemeth: Sailor's doing it, it's like, no, you make a part of collateral. the the capital that is focused on the underlying assets that have idiosyncratic risk and you sort of pair that with with Bitcoin, which if we get out of this bear market and people come to their senses and focus on what Bitcoin actually is, you you have Bitcoin which is sort of a risk profile that's completely separate from the individual assets that you're underwriting. I will say assets that you're right. I will say when ca capital stacks get more complex, there's a sucker at the table. You can have debt and you can have equity and both can win and both can be, you know, taking different risk profiles.

[1:50:05] Nick Nemeth: No. So you don't like this digital Bitcoin as collateral? I don't even like preferred. I think preferred is just get out of there. Do convertible debt, do senior debt. Don't tell me your senior debt is senior if there's something super senior or if it's the, you know, only the private credit loves to do this. They say s senior secured. It's like there's no subordinated debt. That's Unitronch. Okay. Like cut the shit, you know, or senior secured debt, but they have agreement among lenders and all of a sudden there's like senior first senior and second senior. You know, or a senior security And the first scene or or the subordinated debt actually owns the IP, which is the only liquidation value of the business.

[1:51:23] Nick Nemeth: Great to meet you in person. to do it again. Yeah. Round three. At some point in the future. Peace and love.