Forward Guidance: Druck Calls Out Bessent & Will Jackson Hole Derail The Debasement Trade? | Weekly Roundup

Sourced by podcast-ingest on 2026-08-28. Auto-transcribed via AssemblyAI (universal-2, en). Speakers identified by AssemblyAI Speaker Identification using the per-podcast host/regulars hints; the resulting label→name mapping is in the frontmatter. Duration: 53m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG1012068594.mp3.

Show notes (from RSS)

The macro establishment is turning on itself as Stan Druckenmiller challenges Scott Bessent’s efforts to suppress long-term Treasury yields.

This week, we unpack the Druck-Bessent clash and what it reveals about fiscal policy, Fed independence, and market intervention.

We also preview Warsh's Jackson Hole speech this week, potential bond-market manipulation, AI bubble risks, and whether the debasement trade is here to stay. Enjoy!

TIMESTAMPS:

00:00 Intro

02:43 Druckenmiller Calls Out Bessent

05:51 Is Druck Actually Helping Bessent?

08:42 Druck’s AI-Written Op-Ed

13:50 Treasury Escalates Bond Buybacks?

16:05 Why Yield Suppression Fuels Debasement

19:52 Ads (TOKEN2049, DAS Asia, Avalanche Summit)

21:28 Jackson Hole And Warsh’s Dilemma

27:20 America’s Term-Premium Problem

30:43 Anthropic And The AI Bubble

37:48 AI Repeats Crypto’s 2021 Playbook

42:48 Will The Government Bail Out AI?

47:03 The Debasement Endgame

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DISCLAIMER

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Transcript

Jack Farley: Nothing said on Ford guidance is a recommendation to buy or sell any investments or products. All right, what's going on, everybody? Welcome back to another summer edition of the roundup on forward guidance. We're here in the doldrums of summer. It's almost over. It's almost back to Labor Day. It's Jackson Hole meeting this week. Lots going on in the macro world, to say the very least. Lots going on. Marcus, what's going on, Quinn?

B: Not much, man. I'm over in San Sebastian, Spain, eating and postponing my health Bender. That will have to come starting September when I'm back.

Jack Farley: So you're, like, really focused on markets right now, I bet.

B: Yeah. Markets and paella.

Jack Farley: Oh, I love Spain. No, I mean, it's. It's the right thing to be doing right now. I mean, yeah, there's like a lot of big macro events, but, you know, the market structure side of things is still pretty pinned. Like, we haven't really been doing a whole lot other than outside of, like, the debasement trades like gold and. And bitcoin, like equity markets. It just. I don't know, we're just kind of chopping around, I guess, probably waiting for. I mean, we got the PC number today, which we'll talk about, and then also Nvidia earnings this evening, and then the Jackson hall meeting speech. Seems like market's just as kind of waiting for all that to happen, plus, like, you know, Labor Day to hit and for the big money to get back to their desks because the big money is in San Sebastian right now.

B: Definitely. Probably someone. I don't know if I can myself.

Jack Farley: Yeah, yeah, exactly. No, yeah, I mean, it's. It's always important, I think at these. I like the end of the summer to kind of just not try to make any really aggressive moves until Labor Day at least. Obviously, we had, like, this bit of an exception with what happened last week and what we talked about with the gold and bitcoin and precious metals debasement stuff. But otherwise it's like, yeah, don't overanalyze the tape. I think.

B: Yeah, it's already low liquidity, low volume. The policymakers and powers that be are intervening at a extreme pace in a low volume environment. So you're, you know, you're getting bond market invention, oil market intervention, volume compression. Like, it's not a time to make bets against that in a big way, probably because there's no one here to really sell. But, I mean, left tail risk is big if it happens because of that. But we'll get into Warsh and all these things like they're doing everything to remove the left tail. So just bet on the stuff that they're pumping.

Jack Farley: Yeah. Let's get into the meat of this week which is drama and infighting in the land of macro goats. We had the, we had Stan Druckenmiller Druck, the absolute legend and the master who taught all these proteges like Besson and Warsh and he wrote an op ed and we'll talk about the AI thing in a minute but let's talk about the substance first. First which is that yes, the drug rendered an unfavorable opinion of Treasury Secretary Scott Bassen's use of buybacks to defend against higher yields in a market that is functioning normally. He said, I've spent five decades trading on a simple premise. Markets aggregate information no committee possesses and prices are how that information reaches decision makers. The long term treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the US has left. Every basis point of artificial yield suppression is a subsidy to procrastination Return buybacks to their state of purpose. Small scheduled author owned liquidity operations announce a quarterly refundings never off cycle like what just happened. And the last sentence which might jump into anybody who has a keen eye for AI slop if the 30 year must trade at 5.5% declar that isn't a crisis, it is an invoice obviously. So yeah this, you know the message was clear and anybody who's been listening or reading to Druckenbill over the years will know that him coming out here and being a strong critic of government intervention and further increases in the debt loads like he's been banging this drum for, for decades now. So it's, it's not really any surprise. I think what is surprising is that you know I, I wrote this tweet out that I just. There was a moment in time where it felt like there's this really idealistic 40 chess going on that you have like the, you know, if you have Soros as like the goat of all time of macro and then all his proteges are now suddenly in places of power. You have you know, warship the Fed, you have Bessant at the treasury and then you maybe have Druckenmiller in the background as, as the linkage between all these different places players and you know they're going to come in and, and solve the big problems, they're going to solve the debt issue, they're going to solve deficits they're. They're going to unwind yield, curve suppression, all this stuff. And so to see him come out and criticize Bassett, like, the initial reaction is, okay, well, this is obviously not nearly as coordinated as we thought,

B: but

Jack Farley: I think some folks have already started to speculate on the secondary reaction, which is like, you know, Druckenmiller is a market killer, right? Like, number one for him is P L. And, you know, you do always wonder if he's just trying to test the bond market that, look, if I can criticize war, sorry, best like this, and maybe even worsh too. And we don't see the, the, you know, we don't see bonds sell off anymore. Maybe that's a, that's a top of yields. I don't know. Anyway, I'm going on a tangent, Quinn. I'm curious, like, what's your read on this whole thing?

B: I probably have a different take than most on it, I think. I do think. I mean, at the end of the day, the problems are so much bigger than Trump or Warsh or Bessant, right? These are things that have. Are 20, 30 years of uses where procrastination and kicking the can. So to think that they can come and solve it in a year and a half of a new administration is just not realistic. And I do think some of the moves they've started to make are positive. Taking reserve management purchases to zero, you know, talking about what they might do on the balance sheet. The. The facts are it's just a much bigger problem than, than them themselves. And so I don't know why everything has to just become instantly political these days, but I guess it's the nature of Trump, Trump's the division or whatever that he kind of drums up. But I didn't think it was that crazy. Like I would say, I'll preface it with I don't know if this was coordinated or not, but there's a lot I don't know about what goes on behind these doors. These are very powerful people. But it would be shocking to me if this wasn't coordinated. And he just lays out what needs to be done and it's nothing new. He's been saying, like, this ultimately has to be fixed by Congress. So in a sense, he's kind of trying to take the pressure off Besson a little bit and saying, like, hey, you know, this is what needs to happen. If yields go to 5.5%, which they very well probably will. It's not Besson's fault. It's Congress's Fault and Bessant shouldn't step in and do this. I, I totally read it as the opposite in saying, like, okay, when shit hits the fan, like a total trial balloon, okay, when shit hits the fan because five and a half percent, two, three, four months ago from now, don't point at Bessant. The best investor in the world, Druck said he shouldn't do that. Point at Congress. They need to fix it. So I just interpreted so differently, like if you remove the politics and in my opinion, he's just kind of pretty objective. And Bessant very well knows this. Bessant has said the same things before he was in office. He was criticizing Yellen. He's criticizing Congress for, for running the, the deficit so big. And he can't unilaterally change any of that. So I think he kind of like asked for some help from, from a friend here to, to plant the narrative. I, I don't know. I've just a totally different read than what I was seeing on Twitter. Like, people were so emotional about it. And

Jack Farley: Claude, you know, right out of, right out of op ed that blames Congress for all our issues and not the head of the treasury.

B: Well, I was, I'm kind of curious. It'd be fun to know how he wrote this. Like, did he, did he post four links to a bunch of interviews he did of him talking about this problem and say. Claude, right. About this. You know, did he give it a synopsis and say, touch this up? Like, it's kind of funny, but I guess it shows he's bullish. AI because it's helping him. Right. Market moving, you know, OP eds.

Jack Farley: Yeah. I mean, there has been an interesting debate on, you know, setting aside the political debate, the actual debate around like, the future of linguistics and society and how we communicate has actually been quite interesting because it's like, okay, one, you have one of the most revered publications ever, the Wall Street Journal, who's, you know, admitting the public the, the published AI generated content, which is one very interesting. You have one of the greatest macro traders of all time who's saying, yeah, of course I use data. Like, he's not shying away from it, you know, and he said that, like, look, my name's on the, on, on the, on the note. Like, it's clearly my message. Doesn't matter how it was formulated. You know, like, obviously a more chill version of this decades ago was like, okay, you spell check and word, right? Like, does that mean it's not my wording? Because of that, it didn't come from my brain, it came from the computer. So I don't know. I mean it's, it's quite interesting. Like I'm certainly, I'm certainly sympathetic to the idea of not like outsourcing your opinion and thinking, but using it to refine and. Yeah, I mean maybe he just wrote out some bullet points and then had AI just try to, try to, you know, just dress it up a little bit. And through that dressing up, like, I feel like, you know, I'm not going to say that Druck is not tapped into AI. Obviously he is, you know, he, he wrote the, the Nvidia trade for a while and all that. But like to really, to really understand like how cringe some of those AI isms are like that. It's, it's not this, it's this type of stuff. Like the, this isn't a crisis, it's an invoice. Like obviously I've had AI write things for me and then sometimes I'll just make sure that those AI isms aren't incorporated. So it's almost like the opposite where I might just use it for idea or structure generation. And then maybe I'll write it out myself. I don't know. It's an interesting debate that's going to just accelerate.

B: I think at least he took out the double dashes. Those are the most dead giveaways. He did a little pruning, but I, I again, I kind of side with them. It's like, you know, it's like in grade school when someone's copying a friend's homework and then they change the structure of the sentence in three words around. It's like, well, did you write that? I mean, I guess so. Like, I don't really see that big of a problem with it. As long as it doesn't, you know, you have to play with it and reread it and what you produce because it does produce some like just totally off base stuff that you're not trying to say. So I kind of agree. I mean we all use it every day for our research and like, okay, I mean I, I still write like 99 of my, my stuff. But I, I'm sure his acceptance moves on. Like, you know, no, you need a graphic for an article. Like the journalist doesn't draw it, right? He finds something on Getty Images or like, you know, some creation. It's kind of the same in my view. I don't know. But I'm not an artist, so maybe I take less offense to that.

Jack Farley: I mean, I guess the other Side of the coin is like human, you know, human communication is like a very sacred, you know, point. Like this isn't about. This is like words coming from our mouths, written into paper. Like, you know, that's, it's like, I don't know, it's. It'd be like, you know, deciding that all of humanity is just going to have like sex robots instead of like actual partners in life. You know, like, it's just like you, like those things are, I don't know, it's like, what's humanity if we don't have those sort of things, you know, Right.

B: On the other side though, it's like 90% of people in the world probably don't want to listen to read a macro Investors like, you know, writing because it's probably boring and shitty. So like, I know when I'm writing it's like number, data, point. This happens then that it's like, so maybe AI could help. I don't know.

Jack Farley: Yeah, I mean, I mean, yeah, it's interesting that Druck felt like he had to do a post interview about his op ed. So, so like another publication interviewed him and that's where he's like, yeah, of course it was AI. And he's like, look, I got, I got more compliments about, you know, he's like, he's a genuinely. One of the most humble probably goats of all time. Like, he's just like, look, I got more, I got more complicated compliments of people saying the writing was great, which, you know, says a lot about my own personal skills. And he said like, yeah, I was a, I was an English major and then I moved into being an economics major because I was so at it. Like, that should have been telling.

B: I love it.

Jack Farley: I mean, he's a, it's so cool.

B: Yeah, he's a beauty. He seems like an awesome dude.

Jack Farley: Yeah. All right. Anyway, yeah, a lot of speculation, a lot of emotional debate going on out there. I want to tie back into markets and what else is. You know, last week we talked about this framework of like the, the maxima of what's possible that Bassin can do and how we felt like it was more in the early innings than, than, you know, shooting all the bazookas at once. Like, just going for 2 to 4 billion buybacks is, you know, it's more just a signal of the starting of the race than the end. Pretty quickly we got this, this news from Steve Leesman at CNBC mentioning that the treasury could use its near $1 trillion in the TGA to help fund Its recently announced plans to increase purchases of government bonds. According to two senior treasury officials, using the TGA would provide the treasury with considerable firepower to influence long term bond yields. So long, lot of, lot of funny circular logic here in terms of just like the technical mechanics of how the TGA works but one, the TGA is funded largely by bills or tax revenue and the reason there's almost a trillion in the TGA is because we issue so much bills and they have to target like they need to be able to have about five days of, of spending within the tga. So as you issue more bills you basically need a higher proportion of, of cash in the tga. So it's all, it's just in this entire circular logic and I mean in practice like the idea of issuing bills to buy bonds versus just using the TGA to buy back the bonds. It's really just like semantics around timing. Like obviously if you just tap what's in the TGA already you don't have to issue those bills. So really it's just like this timing lag. It's almost like this trade of delaying the issuance of the front end to be able to buy the long and so you know we didn't obviously get this from, from Bessant directly. This is more of a leak from the cnbc. But yeah, it just shows that you know, they want to go big here. You know Besson is, he's, he's ready to do the fight against the bond vigilantes and he does not want to see that tenure above 5 how do you think about is this lining up with how you see the sequence?

B: Yeah, I, I agree. I mean it's all mainly talk for now. And that will work in the short term. It has worked in the short term. So when you think about boogeyman risks to the market, right, you have bond volume and yield blowouts. Bond Vol is now in the gutter as a result of these actions. So you take that big risk factor off the table know oil prices, they've, they've continued to be able to suppress, suppress and manipulate those lower that's take you know, oil volatilities at near its lows yearto date. That's taking that risk sort of off the table. And, and you have a, a Fed under Warsh who you know is talking tough and, and sort of signaling towards things he wants to do to reduce the duration of the balance sheet etc but he's not going to hike rates. He is not going to hike rates. The Fed is not going to do that and so when you zoom out, it's pretty bullish conditions for inflation to stay sticky and trades that have been kind of running on the back to continue working because it just doesn't end this way. You don't calm a multi trillion dollar bond market with, with just some words. But that said, it can work in the short term. So I think that's what's really throwing people for a loop is like, yeah, if, if the, the printer of the currency and, or the, the issuer of the bonds comes out and says like we're going to do all these things to suppress yields, yields are going to fall and speculators are going to say, okay, I'm going to take my ball and play on a different court. Maybe I'm going to go to debasement and, and metals and Bitcoin. And then like, I might as well just do that because if yields blow out, they're going to do this and debasement's going to go up. If yields go down, debasement's going to go up. So like you get that in the short term and that's kind of how I think, you know, I don't see massive broad market risks over the next week or two or three. And I can get into why when we talk about Jackson Hole on Friday. But by no means, as Druck points out, is this solved. Like the deficit still is what it is. It's growing. Interest, expense is rising, inflationary pressures are not going away and they're not going to go away when you continue to stimulate. Economy's fine, growth is probably fine. So I think it will rear its head again. It's just a matter of when and when do they want to let it organically materialize into an actual market event versus stymieing it? And, and it goes back to last week. It's like in early and mid August, you know, three plus months out, out of midterms, they're intervening. Why in the world in the next one week, two weeks, four weeks, would they all of a sudden say, oh, we're going to decide now that we're even closer to the midterms to let this thing, to let this thing go. It just doesn't make a lot of sense to me. So that's, that's how, that's kind of what I'm running with for the next few weeks. Because like, otherwise, like the, they're debasing Fiat and they're telling you what they're going to do and I'll reevaluate as we get closer to midterms because then the incentives change and they actually probably will want to put some disinflationary deflationary pressure and downward pressure to materialize the next series of events. So. But until then, like, I think you can rest on it. Like anything you can't print, you probably want to own.

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Jack Farley: Okay, I'm gonna play a. So let's go into the Jackson Hole thing, the, this, this Warsha speeches on Friday. So we'll have this out tomorrow on Thursday, you know, so we, we'll, we'll frame this as a primary if I were thinking about the framework here. So you know, typically these, these Jackson Hole speeches are opportunities for, you know, fed chairs to really reveal big shifts in how they're thinking about like more longer term policy. You know, they're not just caught in of what are they doing in this singular meeting. So there's a few different ways that this could go for me. It's like, okay, Besson has put his, has laid his card out, his cards out on the table. We know what he's working with and we know what he's trying to do. Now to me the big question is how does Warsh and the Fed react to it and how do they react to it within the context of a war of a Fed chair that's talking to the President on a weekly basis. That's talking to. That's it on a weekly basis. Like it's going to be very revealing how he reacts to what's happened that what Best has been doing in recent weeks. So, okay, if there's a couple ways that this could go of how I'm thinking about it, one is that he will use Jackson Hole as an opportunity to talk as much hawk talk as he can because there's really no repercussions to it because there's no rate, you know, know, decision. So he can talk Hawk during Jackson Hole and then once he gets to the September meeting, not hike or anything like that. Why would he do that? One avenue is to try to try to tame the long end. You know, obviously when he tried to do this in the last press conference, he was trying to talk Hawk without hiking and everybody called his bluff and they're like, okay, well if you're saying all these things like why the aren't you hiking and, and that's kind of why the, the longest hold up. But it's like, look, we're in. There's, there's no rate decision meeting at Jackson Hole. So he can, he can talk a big game, try to attain that long end and then just reverse course in September. So that's obviously one avenue. The, you know, I would say that that's pretty. It's. It achieves some goals that are similar to Besson, one being like lower yields, but it's also like going to cause higher volatility in markets. The second avenue is that he's, you know, maybe he, maybe he talks a bit hawkish on the balance sheet and talks about, you know, you know, we're trying to reverse course out of what we've been doing in the long end. But then he's more dovish on the short end. And why would he be dovish on the short end? You know, maybe he hints at. Actually, I know R P is like reserve purchases are supposed to go back to zero. But look like if, if Bass is trying to issue a bunch of bills on the short end to fund the bonds. Like eventually, if, if you issue too much bills, you start to get pre. A large, you know, SOFR basis volatility. And, and you could see those, those, you know, short term money market rates start to, you know, go above sofr, which is when, you know, things get hiccupy. So you Know, maybe he tries to be a bit more hawkish on the long end so that he can rationalize not hiking on the short end, keep that rate low and then maybe hinting at bringing back rmps so that he can help, you know, smooth in the, the Runway for, for what bass is trying to do, which to me that would be a pretty large signal of, of pretty significant coordination. So yeah, those are the two big ways I'm looking at it. I'm curious like. Yeah, what's your framing for, for Jackson Holcomb?

B: So to your first point or potential scenario of talking tough on the front end and, and you know, being able to push. I'm not so sure. Like, I don't. Although. Well, two problems. One, if he does that just generally, I don't know that it does tame long end yields like a hawk. Like, I'm not certain that the, the market would react that way. But two, this, his whole tenure and all of his material leading up to speeches, et cetera have focused the hawkishness on the long end. Obviously the committee's stuck in this hike the front end and they, they want a huge balance sheet and all this stuff.

Jack Farley: They don't even talk about the law.

B: Yeah, yeah, he wants to reverse that. So he wants to be hawkish long end, dovish front end and reduce balance sheet and those things. A month ago I would have said, or two months ago, whatever I would have said and I think I did say on here, like I would expect him to, if he wants to actually be hawkish, he will do that at Jackson Hole and really, you know, start saying these are, this is what we're going to vote on and we're going to implement and this is why the balance sheet should be smaller and less duration, etc. The problem now post the last two weeks is he can't like if he talks hawkish long end, we know he, he fundamentally does not believe the front end should go up and he, he will not in my opinion be hawkish on the front end. So his avenue is the long end balance sheet. He can't. Like he's throwing gasoline in. I mean, you can call it his colleague or his, you know, counterpart or I'd say boss. Like he's throwing gasoline in Besson's face if he talks super hawkish balance sheet because that, that's bad for the long end and causes yields to rise. So I think what was an event or interesting over, you know, two, four weeks ago in terms of this Jackson Hole, I think it got totally neutered because the market started reacting. People are like, oh, you know, this is, there's inflation, you know, the, the law, you know, Warsh wants to sell duration, whatever and it got neutered because they intervened with the, the, the buybacks and the doubling of the buybacks and the tripling of the buybacks and the TGA of the buybacks like consecutive days. So I think there's almost no reason or will or why he would be hawkish because like you said, it goes exactly against what this administration is trying to achieve both politically into the midterms and through their actions near term as to what they've been trying to do in terms of suppress yield. So it feels weird saying this because I don't really have a strong view on bonds here. I, I don't, I surely wouldn't want to own them, but I don't know, like they're kind of yields would come down. Maybe you short them, maybe short bonds here play for higher yields. But going into Jackson Hole in particular, I just, I can't, I don't see any reason or why they would choose that path of, of stirring up and I don't think they have the latitude to do so. So I think it's a nothing burger, to be honest. Like I, I, I'm not really worried about it at all.

Jack Farley: Yeah, that's interesting. I, yeah, probably directionally agree with, with you that it's, it seems very unlikely for him to go against them that aggressively. I mean for sure, like I found these couple charts quite interesting just looking at where the, the move in rates has been and you can see it's, it's largely been termed premia versus rate expectations. Like the rest of the world, their long ends have been repricing quite significantly on, on slightly more hawkish rate expectations. But you can see that like a lot of the move in the US has been in relation to term premium. Term premium. You know, this is just, everybody has an opinion on what term premium measures, but to me I think it's, it's quite obvious when you just look at the contrast between these two that this, this sell off has been in terms of a, it's, it's been a bit more about a crisis in confidence on, you know, the situation that the U.S. whether it's the fiscal situation, the deficits or just, you know, the intervention style. But when, when, when you pair that with the fact that, all right, they've clearly decided that they're going to try to, you know, even though Drucken merely disagrees, they're going to try to force the market to the price that they want. And once you start that process, you cannot stop. And it's a very non linear fight. It's almost like an asymptote where the closer you get to your target, the more money you need to spend because the market knows what you're trying to do. And it's just like exponential more amount of liquidity or dollars. Which is why I'm still extremely comfortable in my debasement trades of, of gold and Bitcoin. It's, it's been a good week for them and you know, I just, yeah, I want to ride those, those coattails. I, I probably agree with you that you know there's some decent short term shorts to be had in bonds, but I'm just like not interested in that game. Like it's such a, just such a market to trade these days like the long end. Yeah, I'd rather just own the assets that are gonna, that are going to do well. Like you said, the things you can't print.

B: Yeah, me too. I mean the bond market and interest rates are more mean reverting than most asset classes. So you have to keep that in your mind if you're, if you're evaluating these markets. Because high rates beget lower rates and lower rates beget high rates. Just like commodities. High commodity prices solve supply shortages because they bring on production and then rate and then prices fall. Low prices stimulate, demand increase, you know, consumption and prices rise until. So it's a similar dynamic where stocks obviously have an upward drift because earnings grow and you know, over time they compound. So stocks and gold and Bitcoin seem to have more of an upward drift. So that's what I would just say. I mean the chart you pointed out, term premiums rose dramatically, yields rose dramatically, real rates rose dramatically to, to very, very high levels on a historical basis. And that has an impact on activity, economic growth, housing, all of these sort of underlying engines in the economy. It restricts financing conditions, makes it more expensive to, to raise debt. So I think that you know, the fiscal impulse conditions aren't really there so much going into the back half a year to really get like a crazy, you know, 2022 style trending yields environment. So I would kind of bet like be biased towards mean reversion. But that sad like there is a just very ugly structural outlook for, for bonds, sovereign bonds that like I, I definitely don't want to long them. But I don't think this is like an attractive place to short either.

Jack Farley: Yeah. All right, let's get out into the out of the monetary fiscal world. Talk a little bit about other parts of the market. Anthropic IPOs coming up, which I want to get your take on this just hit the news. But Anthropic expected IPO a larger market cap than SpaceX after telling investors its revenue could exceed $30 trillion. Just like, let's just, yeah, just you know it reminds me of, of during the hype of the crypto bubble Eth Maxis were comparing the price of ETH to global GDP and saying yeah, it could go or like the Global M2 feels like the same thing at this, at the same, at the same vein of them talking about this and trying to rush for an ipo. Yeah, their four week growth rate of, of their revenue has actually been slowing down. And you know, for, for those that are pretty tapped into this side of, of the market, like there's been a pretty significant improvement in competition especially around open weight models. We started to see some, yeah, like really significant improvements on that side of things to the point where like you have to start to question about whether one are these frontier models, are they going to get commoditized, you know, is it going to be a race to zero in terms of margin? I certainly think that, you know they anthropic and open AI are really gonna have to do something really special over the next year to stay ahead of these open weight models. I mean really the bet is that they get to like recursive self improvement before anything else and then that just like permanently keeps them at the bleeding edge. But I feel like if that doesn't happen anytime soon their, their moat's just going to keep getting eroded away. Like you know, SpaceX even is really killing it like Grokbot. I've been using a bunch lately and it's just like absolutely incredible. Super, super fast. Like the cost of GROQ 4.6 is a fraction of the cost of a, of an Opus or a Fable model and it does a really good job. So you know, it's interesting to me that they're racing so quickly to try to get this IPO at the door. You know, you never really want to. You got to wonder what's the rush, right? What are they not telling us? So anyway, yeah, curious how you think about this. I'm a huge structural fundamental AI bull, but it's not like that's more about adoption and use case, not about margin protection for frontier models. I think there's going to be a lot of competition. That's kind of where I'm at Yeah,

B: I mean, first of all, yeah, this is goofy. I mean this is just goofy. I think that there's, there's reasons that are not positive ones why these guys are sprinting to the market. In the same way SpaceX. SpaceX still has over a trillion dollars of market cap to unlock in the next year. Less than nine months basically. Like it's, it's laughable and it's, honestly I just go back to, it's like, you know, it's, it's sad in a way that this stuff is just getting put in, stuffed in on the public and in these indices at these levels. It's just, it's, it's why the populism stuff is just going to keep going up and up because you get these outcomes and events that it, it's, it's so egregious. It's, it's, it's pretty gross. But when you look at that chart, there's a chart floating around of Chinese model token usage relative to us and it's a vertical linear line since earlier this year. And I mean, is that the elephant in the room? No one's talking about that us is losing the AI race. I mean yes, we have the Frontier Labs and okay, maybe the next cancer curing drug is developed using that or what have you, but the, the majority of the value accrual as when it comes from to a company specific basis. It's very clear these Frontier Labs are competing each other to zero and, or that's at best, at best they're competing each other to zero. At worst they're completely losing market share and value accrual to open open models and Chinese models. So it's not pretty. Like no matter how you slice it, it's, it's, it's just not a good look. And if you remember June 12th or whatever day SpaceX IPO was, I think the top in the market in, in, in the nasdaq.

Jack Farley: So.

B: Yeah, well, in these, until then, and then, you know, let it, let it go, I guess.

Jack Farley: Yeah, I mean the, the political volatility is also huge. Like these frontier model CEOs are not doing themselves any favors. Like, like where the, where the hell is their PR team? Like for the last six months they've been just telling people that you know, all jobs are going to be replaced, you're going to be poor, you're going to be the permanent underclass. You know, everything is going to be crazy if you're not working one of the Frontier models. Basically you're, you're screwed. We're going to take your job. And then they act surprised when suddenly, you know, the vast majority of that lower end of the K of the economy is suddenly upset about data centers. And like yes, their arguments are irrational, but their, their reaction is, is actually you know, quite logical. You know, they're being, they're being told that their jobs are going to go away and that there's these big scary buildings being built in their backyards. So you know, it's, it's quite concerning. Like I am, I, yeah, I, I obviously the, the arguments of like water usage stuff like you, they're, they're completely ridiculous. We all know that. But it doesn't matter. It's a, it's a, it's a political reaction to this environment that the frontier model CEOs like Dario created with their hysteria and now it's going to come bite them in the ass. Because you know, what if like there are no parts of the Republican Party that are, you know, people are running into this midterms that are anti data center and then what happens? Okay, so, so your last stronghold is the top end of the K. Are people going to be so pro data center if you IPO anthropic at 2,3 trillion and dump it on their heads and they get smoked? Like that's your last stronghold. And then like I don't know if it'll happen. I mean like you know, SpaceX still hasn't returned to where it IPO'd at. That's a lot of burnt money. I, I imagine it would happen again at Anthropic. Like the moat is just doesn't seem durable to me. And they're going to try to rip this thing on, on a promise of a 30 trillion dollar revenue outlook. Like I don't know, I mean they're, I don't know why they're trying to make the whole society hate them, but they're doing a really good job at it.

B: It's, it's like, I mean maybe this is a part of the market. Crypto investors are well suited if they, if they have any, you know, recollection from the, the bubble in 2021. Because it's all the same things. It's these promises and not delivering, it's these huge pops on the, on the launch of the IPOs and then horrific performance after is all the VCs dump into their, into their liquidity grabs and then on top of that you have the main characters following suit. You have Dario who's doing this and

Jack Farley: like, and they're all effective Altruists once again.

B: And they couldn't be worse. Spokespeople. I remember specifically saying how weird it is the storyline of, of situational awareness was to FTX and the things that were happening where everyone's like, wow, he's. You had one faction that was like, holy cow, this guy's rolling with Bill Clinton's of the world. And he is absolutely the next coming of Christ. And then you have the other side of the world where it's like, this is obviously a huge fraud. He's, it's obviously going to blow up. And like there's something really fishy here. And it's, you know, in the case of situational awareness, now they're getting investigated. The sec, because his wife is the anthropic, you know, chief of staff. And you know, what, who, who to better have inside information on what's happening in the AI trade. Like literally, Sam Bankman freed to a T. And then it turns out he worked with Sam, like at that fund.

Jack Farley: Like, yeah, he ran the venture. Yeah, dude, there's so many, dude, it's, there's so many mirrors to crypt. Like, okay, so for those that don't know or aren't in the weeds of the crypto world, like 2021, the reason it was so ridiculous was this idea of a fat L1 thesis where all the value would accrue to these L1 blockchains. So then all these VCs started to launch all these different L1 blockchains and they would launch these things at billion dollar, like multiple billion dollar valuations on the idea that all the value would accrue to the, to the protocol itself. Not the, not the businesses being built on top of the protocol, but just the, you know, the infrastructure, all the value would accrue there. If that sounds a lot like a frontier model valuation, it's because it's the exact same thing. Like there's this, like, there's been this idea that all the value would accrue to the frontier, to the models themselves and not to the things that people use the models to, to, to build upon. And so what happened is that 2021, et cetera, like they were able to launch all these things at absurd valuations and then they were just down. Only as people started to realize that like, there's no moat for these L1s. They got commoditized, you know, fees, fee generation on these L ones all got commoditized down to zero. And it just, to me, it feels like a repeat with AI where it's like they're going to launch all these frontier models publicly at these absurd valuations and then we're all going to realize that so much of the value is going to accrue to what people do.

B: Or

Jack Farley: then came this idea for crypto is about this app chain thesis or applications that are built on. So that's why you see hyper liquid or pump fund actually generate revenue. You know, they're, they're profitable businesses, wildly profitable and they're built on top of the blockchains that are, that are, that they're leveraging. To me, I think that's going to be the same value generation here with AI is what are the things people are building upon it. You know, maybe the harness that people use, like there's going to be a lot of stickiness there if you build out your workflows there some cool businesses there. But yeah, it feels like the valuation side of things is just completely upside down right now. Yeah. Reminds me to a T of crypto five years ago.

B: It's so scary how similar it is, man, when you lay it out like that. Actually my mind is blown how the storylines are the same, the dumping on retail is the same. The biggest difference though is AI is the government's pumped it so much. It's like the sole driver of our economy and they're now have this like totally systemic, interlinked, circular financed like huge mess on the other side of this in their hands. Whereas crypto was a side thought. Most people didn't own it, most people didn't care. They already thought it was a scam. Like this is like intertwined global economies, government intervention like to a, to a crazy magnitude and scale. So yeah,

Jack Farley: eventually decision, yeah, the ending

B: of that 2021 crypto, you know, every part of the story is playing out so far. Well and if you live through that, that was a disaster.

Jack Farley: So yeah, I think the difference this time is that they will b, they will bail this out at the first hint of, of it going wrong. But I mean this is the whole thing is that there's a, a decision does have to be made eventually. Like do you protect the margin of the frontier models or do you ensure that adoption keeps increasing in, in Western countries to, to beat out China? Like you, I think it's becoming increasingly clear that you can't really have both. You can't be charging absurd margins on frontier model usage and, and dominate adoption because people will just go to these open weight models because they're like, you know, I can get 80% of the intelligence at a fraction of the cost. Like, obviously, I'm going to do that. And you know, you can if you're using one of these models that you run locally. Like, you don't. Yeah, it's. It's your own model. And then you can, like, post train it in certain ways that are relevant to your business. Like we. Right now, it feels like they just want to be able to win in every way, but I don't think that's realistic. Like, something has to give.

B: Well, going back to what you said, this time, the government will bail out. Well, what happens, though, if Dems win the House and maybe the Senate and a bailout requires.

Jack Farley: Yeah.

B: Approval. So I mean, the banks, systemically, you need a bank to buy a car, to buy a house, to get a loan for a business. Like this is sort of opposite. Like, you're. If you're on the fence about AI, it's like, do I vote to save this thing that puts my constituency out of work? Or you have the AI guy, Dario, the face of it, saying, bail us out, save us, nationalize us, because we're going to create a dystopia and lay everybody off.

Jack Farley: You can trust us.

B: Yeah. Or do you have these people elected by populists, say, you know what? No. Like, you guys siphoned trillions in wealth in three of the largest IPOs of all time dumped on retail heads. Huge. You know, the wealthy got wealthier. No. So I. This setup is just. There's way more like, I think the midterms. So you have this huge intervention. So that's smoothing over all the liquidity cracks going into the midterm. So people are like, oh, stock car at highs, it's fine. Meanwhile, under the hood, you're like, oh, my God, like, they've drained the SPR and the straight still closed. Like, the AI trade is cracking left and right and Chinese China is now out ahead and these problems are massive. And I think, because everyone knows that they're going to lose the House, like Trump's approvals in the gutter and the Senate's kind of a toss up. So there's not like a lot of uncertainty in terms of the outcome. Right. It's not like Trump versus Harris going into 24, where everyone's like, oh, who's going to win? What's it going to be? I think you kind of know the outcome here. But what people aren't probably appreciating enough is like, what sits on the other side of that? What sits on the other side of that? It's a debt ceiling crisis. An AI crisis. Like no agreement. You know, we've seen that the Dems and Republicans can't work together. I don't know man.

Jack Farley: Yeah, just gridlock.

B: Yeah. It's a weird state of affairs.

Jack Farley: I mean you, yeah. The only actions it's going to go to either the executive branch or the Fed. Like I mean the Fed could just buy, buy AI corporate bonds. I mean they bought, they bought corporate bonds in 2020. Like you know, it's just like you know. Yeah, we're buying, we're buying Oracle bonds. Like I don't know.

B: It's definitely not a zero percent.

Jack Farley: Oh my God. He would probably be front running it. Honestly. He's a killer. He's probably, he probably owns the bonds that they're buying.

B: Yeah, true, true, true. Y. I mean, I don't know.

Jack Farley: I mean it's, it's not a zero percent odds.

B: I mean they did it already. Like we, we just forget about it because every time in between these crises is like five years. So everyone's like forgets that these things happen. But when you zoom out you're like oh, in 2002 they like stimulated like 50 billion. Oh my God. In 2008 they stimulated like a couple hundred billion. Oh my God. In 2020 they stimulated 4 trillion. And then you're like wow, the numbers are all orders of magnitude bigger now. Like yeah, what's that gonna look? Yeah, I mean it, it, that's why the debasement trade is going to work because yeah, this, the end state is inflation and fiat going to zero.

Jack Farley: Yeah. And even the games with the bond market are not new. Like you know the 20 year bond they suspended in early 2000s and then only brought it back in 2020. Like they just stopped issuing 20s. I think they did the same thing with the 30s. There's a, there's a time period back then where they just stopped issuing 30 year bonds. No reason why they can't repeat.

B: I think it was 2003. He increased buybacks. Yeah, it's, it's just a circle man.

Jack Farley: It's, it's, it's been the same one way direction of can kicking basically since long term capital bailout. Like. Yeah, it's just been a one way track. Yeah.

B: The gold bull market from then until 2011 was an absolute monster and also nowhere near to way, way bigger than where we're at right now.

Jack Farley: Yeah, yeah.

B: The question is when do you start rotating into the beta metals outside of gold and going for the stuff that's really going to fly like, like what's the time.

Jack Farley: I haven't done that yet.

B: The silver blow up. Like, surely it's going to come back where we at, right?

Jack Farley: I mean, okay, yeah. Silver's at 67 bucks. Yeah, it got up to 120. That was insane in February. I don't know. I wouldn't be surprised if it happens again.

B: Yeah.

Jack Farley: You see the timing, like.

B: Yeah, yeah, I think it will. I think it's. It's kind of like in crypto, right, man. Like, you know, it's like a reflex. It's like, okay, gold ripping conditions are. Are. Are, you know, loose. And then the speculators. Maybe the speculators aren't fully gone from their AI yet. They will be soon, right? Anthropic's gonna send. It's gonna be like, you know, the next dagger. Once that IPOs. So then you have two $2 trillion companies unlocking their shares. So then. Then everyone. The hot money and the AI trade is probably really gonna leave for good after that. And then where do they go? Like, you go to the basement.

Jack Farley: Crypto just in time for the next cycle.

B: Yeah, exactly. Four year theory strikes again.

Jack Farley: Yeah. I am never talking shit about that cycle ever again. I ate my humble pie.

B: Yeah. We were bashing it and then boom. It happens.

Jack Farley: Like. Yeah, yeah, yeah. Taking that. L. That's okay. I mean, still. Still long near the bottom and got out fairly. You know, obviously impossible to time it on the top and the bottom, but you just try to ride the. The meat of the move. So, you know, long and strong and right in the wave here.

B: There's a lot of trades. Always new opportunities.

Jack Farley: Yeah. All right, well, I think we can leave it there. Yeah, Always. Always a good discussion as ever. We'll see where this all pans out. But the basement's back on as usual.

B: Yeah, brother. I might. Might be. Oh, next week. So listeners might have to wait until post Labor Day for our next Rent rendition.

Jack Farley: Yeah, go touch some grass. Like it's. Yeah. Well, we'll all lock in and after Labor Day. That's the plan.

B: I love it. Good stuff. You have a good week.

Jack Farley: Have a good week. See you. Nothing said on for guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research.