Hello there, I'm Max Keiser.
This is the Keiser Report.
I'm here with Stacey Herbert.
We're going to be talking about stuff.
Stacey.
Max, so you know what happened this past week?
No.
Amazon went through a thousand dollars a share.
Right.
That was big news.
Apple is close to that.
Apple is heading towards a trillion dollars a share.
I remember with Michael Pinto when we were in New York, you spoke of the fang shares.
Well, everybody's talking about the fang shares now, except for now it's also the fang chairs
because you have to include Adobe, ADBE on the sticker tape.
They're up 38% so far this year and AVGO, which is Broadcom, another tech company and
that's up 36% this year.
So now they've come up with a new acronym and it's fang.
Well, I mean, these are platform companies.
Amazon is a platform, Facebook is a platform, Google is a platform or Alphabet as it's called
now.
So they own, you know, Facebook's got two billion users, just about.
So it's bigger than any country in the world.
And they have, you know, I see Mark Zuckerberg wants to do universal basic income.
He supports that concept.
And I'm pretty sure it's because they want to be the company to distribute the universal
basic income to all those two billion users.
And of course that would bring in another two billion users.
And so they're worth 400 billion, 800 billion, a trillion dollars in market cap.
But I've been saying now for five years that there's no reason to think these companies
are not going to continue to go higher.
I mean, by the standard measure of valuation, they're at the top end.
But you know, I can't use a standard measure of valuation because of the dominance that
they have, more than any monopoly of the past, more than standard oil, more than any dominant
monopolist that was broken up during the robber baron era, U.S. Steel and others.
These are much more dominant.
They're global.
And the cost of scaling, you don't need to pay high price workers.
You just need to get another server.
That server can handle another million users.
And so the economies of scale.
Total profit margins are still in the 60 percent, I believe, for these phones.
And that is an unbelievable margin.
Compare that to a grocery store where the margin might be at most one percent.
Yes, that's with Walmart.
It's about one, two percent.
Margins are one, two percent.
Amazon, the margins are incredibly high because they have Amazon Web Services, which is online
cloud servicing.
Again, the margins are spectacular.
So you can't look at the earnings.
The earnings are whatever Jeff Bezos wants them to be in any particular quarter.
That's true of any CEO of any Fortune 500 company.
And they don't like to pay taxes.
So they tend to understate earnings.
And so they've got room to go until such time as something else comes along to compete for
the investment dollar.
Or unless something comes along like a real Teddy Roosevelt to break up these monopolies
because they are monopoly oligopoly positions.
They are able we've covered it, for example, that Facebook and Google and Google stays
Google for this purpose because of the fact that without a G at the end of we would have
no fang.
We would have fun and so we keep the G for Google.
It is alphabet now.
But Facebook and Google capture almost all the new growth and advertising revenue.
So at some point, some administration, some legislator might come along and try to break
it up, in particular, if there is a competitor in their district who is is against these
monopolies.
Think about the empire of Rupert Murdoch, who shrewdly bought media companies and newspapers
to influence politics in the United Kingdom.
He gave us Tony Blair and Tony Blair gave Rupert Murdoch billions and billions of dollars
of monopoly franchise value.
Now look at Facebook.
Facebook filters our news.
So yeah, there could be an attempt to break up a monopoly.
But who's going to know about it and get their news from Facebook?
Well, look it up.
I don't have all the details here and I don't have the headline here.
But Sheryl Sandberg was found in Ireland.
I believe there was some information that came out that she was speaking to ministers
there, that she wanted she basically helped them pick the person to be their information
minister and the person who would be in control of any data retention policies.
It's no accident that companies like Amazon and others are talking about building settlements
on the moon.
In other words, they see Earth as having been conquered.
They already own Earth.
Amazon owns Earth.
Everything from A to Z.
If you look at their logo, the arrow goes from A to Z. They own it all.
They get a commission on everything.
And Alibaba, of course, is a competitor, but they have a duopoly, essentially, in the
globe's e-commerce business.
But they consider Earth to have been conquered.
We are slaves now on Earth to these companies.
They're looking at other planets to go after, other satellites, other moons.
They're going out into the solar system.
Yeah.
But I did see Josh Brown, downtown Josh Brown, a reformed broker on Twitter, tweet something
along the lines of, Jeff Bezos says, let's go to the moon.
The Tesla guy says, let's go to Mars.
And Warren Buffett says, let's buy Pepsi.
So he is quite Earth-bound and yet quite wealthy.
Jeff Bezos is wealthier.
But I want to turn to this headline from Zero Hedge, because the NASDAQ has quadrupled since
the 2007, 2008 crash has now passed the 2000 highs.
You were there for the first dot-com boom.
So now, of course, everybody, we've already covered everybody's calling for a crash in
the Dow and the S&P 500, but now people are starting to look at the NASDAQ and see whether
or not we might be in tech boom 2.0, dot-com boom 2.0, and that is the first crack appears
in the second tech bubble.
So Zero Hedge is already declaring it's a tech bubble.
Four weeks ago, Goldman pointed out that in 2017, just 10 companies are responsible for
half of the S&P's rally year to date, with the top five, Apple, Facebook, Amazon, Google
and Microsoft have accounted for nearly 40% of returns.
A few days later, then, Bank of America showed that annualized tech inflows are now the strongest
this century, running at an unprecedented 25% of AUM, which is funds under management,
which Bank of America dubbed a sign of renewed exuberance.
Right.
It was only maybe three years ago that the biggest company by market cap was ExxonMobil,
and it was big news when Apple overtook ExxonMobil in market capitalization.
And now I think four or five companies have overtaken ExxonMobil in terms of market capitalization.
And you still have huge continents to conquer, India, China.
These are huge populations, Indonesia, that will be succumbed to Amazon and Google and
Facebook.
And the margins are high, and the ability to scale is virtually infinite.
And the management teams are the best that we've seen in 150 years in America.
These are...
You mentioned the dot com boom and crash, $5 trillion got wiped out.
There were a few survivors, Google, you had eBay, and three or four others went on to
become now close to trillion dollar companies, Apple Computer, although it's not really a
dot com.
And so this is a phenomenon that will continue to percolate as far as cracks go in the facade
and where is this crash material?
Of course, it is overdue for a pullback for sure.
But there's no other game in town.
Where are you going to put your money?
Gold and silver have been flatlining for half a decade.
Bitcoin and cryptocurrency, it's a $60 billion market versus Apple's $1 trillion market cap.
Sure, it'll go to half a trillion soon enough, but probably not enough to knock Apple off
its perch.
So where else do you go?
One thing to look at is the article in Zero Hedge points out that not in a decade have
the multiples, the PE multiples been so high on the NASDAQ.
But of course, I think a lot of people forget that the dot com crash wiped out a lot of
money and people learn the lesson for a genuine generation, unlike the subprime mortgage collapse,
which a lot of investors didn't actually lose any money because they got bailed out.
In 2000, they didn't get bailed out.
And those people haven't stayed away for so long for real because they didn't want to
get burnt again.
But now, as I said, the assets under management, this is a chart they show that the tech inflows
are the strongest in 15 years.
So this was all during the subprime, the housing bubble, the last housing bubble.
Now you see that it's soaring.
Everybody's pouring all of their money into the tech sector.
Of course, Warren Buffett, as I mentioned, has become a huge investor in Apple after
decades of not participating in Apple.
Yeah.
I mean, I wonder what Carl Icahn is thinking because he sold Berkshire Hathaway slash Warren
Buffett.
And that stake in Apple came from Carl Icahn, for the most part, who had made a big score
on his Apple stock, but has given up huge upside.
I wonder if he regrets that sell decision.
He was also at that time talking about a crash as imminent markets are overvalued.
I mean, this is how it works, Stacey.
Stephen Cohen, who had the SAC fund, I believe it was called, they got in trouble, they shut
it down.
People went breaking the law.
Some folks-
Insider trading.
Insider trading.
Stephen Cohen, the guy who ran it, was untouched.
He's coming back into the market with a $20 billion hedge fund.
Yeah.
In 2018.
Right.
And he'll be buying these stocks to rotting the momentum.
And so if you're not going to apply any rules of law to financiers, to hedge funds, and
it's completely open season, and you have a few oligopolists who can scale virtually
without any cost, you're going to have these things continue to race ahead.
And eventually, yeah, you'll have a correction, but-
Yes.
For every buyer, there's a seller.
And as we're saying, the asset's under management.
All the smart money is pouring into the tech sector.
The NASDAQ is hitting all-time highs.
But this is what the crack that ZeroHedge is talking about are the ETFs, the tech ETF,
the tech sector ETF.
So as the chart shows, investors pulled more than $716 million from the most popular technology
exchange traded fund last week, the $17.4 billion tech sector selector, SPDR fund, or
XLK.
It's the largest weekly outflow in over a year.
You can see that.
These were the sellers.
The buyers were the likes of Warren Buffett.
So one of them is going to be wrong, ultimately.
Maybe they were calling the top.
Who knows?
Well, ETFs are a derivative.
It's not the actual stocks themselves.
And there are more ETFs and derivatives than there are stocks.
So the action amongst that derivative market is huge.
There's hundreds of trillions of dollars in derivatives versus it's 50 to 60 times
bigger than the actual physical slash stock market.
So again, it's hard to extrapolate a lot of meaningful trends from that kind of whipsawing
in a derivative market when you have the fundamentals, if you will, of this tech sector impacted
so profoundly by the fact that a company like Facebook with two billion users heading to
four billion users, Apple computer, huge gross profit margins, this is a new world, essentially.
It's also a new generation, Max.
So many people out there watching this won't have been even maybe born in 2000 when the
dot com bubble crashed.
So they're talking about how high the multiples are now and it's like 24.4 of PE ratio.
I'm sure you remember when it was like 240 was the average PE ratio.
Well, the dot com height, it was almost 100 amongst a certain group of stocks.
So you got a lot of room there.
I mean, it could double from here before you get to the old valuation according to those
numbers.
Yeah.
And of course, into that is a new generation.
As I said, we're in a new generation.
They're exposed to the crypto market.
The crypto market is now merging with the tech sector.
These are also companies that could be IPO-ing if they feel like no longer ICO-ing, which
is initial coin offering.
So there's a lot of money out there, a lot of new billionaires, millionaires, hundred
millionaires from the Bitcoin, from the Maxcoin, from the ethers.
There are hundreds of cryptocurrencies out there and hundreds of new, thousands of new
millionaires to invest in the sector as well.
A 10,000 billionaires bloom.
All right.
Well, we've got to go to the second half.
After the break, don't go away.
Do you know what you will never, ever, ever see on American mainstream media?
You won't hear it anywhere else.
This story was completely, almost completely left out of the Western mainstream press.
You won't see it anywhere else.
This is not talked about on CNN because it's not allowed.
You won't see it anywhere else.
You won't hear it anywhere else.
You have orders to close mines, but how do you make sure that the unofficial mines are
closed?
Does anyone inspect, check?
Yes.
Yes?
But we're still being stopped by the government because it's illegal.
Welcome back to the Kaiser Report.
I'm Max Kaiser.
Time now to go to Jameson Lopp, engineer at BitGo.
Jameson, welcome.
Thanks for having me.
All right.
This is getting very exciting now.
David, those who scoffed at the thought of $1,000 Bitcoin are scoffing at the $10,000
price for Bitcoin and will scoff at $100,000 per Bitcoin.
What's going on?
Well, of course, I don't mean to make any near term price predictions.
I'm a very long term bullish crypto and self sovereign kind of guy.
But really, I mean, even today with these massive bubbles that we've been seeing in
the crypto economy, it's still just a drop in the bucket compared to the rest of the
world.
And so many people have yet to even begin to grasp what's going on, that the idea
of 10 or 100, possibly even a million dollar Bitcoins is not outside of the realm of possibility.
Right.
I remember when Rick Fogvina up there in Stockholm 2011, when Bitcoin was 20 or $30, Bitcoin
was talking about $100,000, Bitcoin based on Bitcoin grabbing a percentage of global
foreign exchange market.
And now here we are five, six years later, a couple of things.
Number one, you're not alone in talking about $100,000 Bitcoin has been talked about on
CNBC and other mainstream outlets now.
And the idea of grabbing a percentage of foreign exchange market is becoming more talked about
because this is where this token, this currency is going, right?
Definitely.
And of course, you have so many people who are using it for different things in a lot
of the debate that's going on in the community is digital gold versus payment rails.
And I've actually seen some very interesting analysis that says, you know, if you look
at Bitcoin as a payment rail competing against Visa, MasterCard, whatever, that is actually
tiny in comparison to using Bitcoin as a digital gold, as a store of value.
So if we're really going for the store of value, we have a much larger market where
we only have to capture a smaller share of the market in order for the price to go to
the moon, as they say.
Right.
I mean, I got involved with Bitcoin at that conference with Rick Fugvane back in 2011
when the price was $3 a Bitcoin.
And to me, it was always a store of value.
It was always digital gold.
So as you point out, that market is huge.
But this whole scaling debate kind of gets back to this, whether it's a store of value
versus a mechanism of transfer of value mechanism, a rail system, a rail of transactions.
And so where are we at the scaling debate?
Because you were moderating a panel at Consensus in New York, and this has gone on now for
a couple of years.
Can you just explain what the debate is and where are we in the debate?
The debate is a result of technical limitations with the protocol and the fact that transactions
have to go into blocks and blocks only happen every 10 minutes and they can only be about
a megabyte, have a few thousand transactions.
So the resulting technical attribute of the system is you can only really do about three
to five transactions per second globally on the Bitcoin network, which is pitiful in comparison
to something like Visa or MasterCard.
But if you are looking at more of a digital gold, then it doesn't even compare.
I mean, good luck trying to send gold across the world in a matter of minutes.
Well, let's talk about the Satoshi Nakamoto white paper, which came out in 2008 and really
set the stage for this whole thing.
How would he address this debate, the scaling debate, based on what's in the actual white
paper?
What are your thoughts on that?
Well, in the white paper, he did speak about something called simplified payment verification
or SPV, which is a way that you can use Bitcoin without running a full node and without having
to necessarily use all of the resources required for full validation.
But unfortunately, SPV has not yet gotten to the point that a lot of us would like in
terms of security.
You're still vulnerable to a few potential attacks of nodes lying to you.
So there are a number of different ways that we can scale and make it easier to use Bitcoin
without having as many computational resources.
But Satoshi did not quite fulfill his vision.
And of course, you'll see people quoting Satoshi this way or that way and trying to
use it as an argument for scaling one way or another.
At the end of the day, it doesn't really matter what Satoshi envisioned or even what Satoshi,
if he's out there, thinks today.
All that really matters is what the people in the community who are participating are
arguing about and deciding to move in a certain direction.
So the white papers become like the Bible or the Koran?
For some people, yes.
It is being quoted out of context in many cases.
OK.
So, well, now there are competitors, Litecoin, for example, is faster block times and it's
grown tremendously in market cap.
So why wouldn't there just be more of a- and they adopted SegWit, right?
So we'll get into what that means and what that is all about.
So why not just move over to Litecoin for those who want more transactions?
Absolutely.
And you can.
And in fact, Ryan X. Charles, who is building a project called Yours, has moved his project
over to Litecoin, basically citing that even with SegWit and payment channels, Litecoin
is so much cheaper to create an on-chain transaction and thus open and close these off-chain payment
mechanisms that it ends up being a lot better for his business model.
But he will also admit that at the end of the day, Litecoin is still going to have the
same on-chain scaling problems that Bitcoin has.
It just happens to be able to do about four to five X as much on-chain right now.
But still, drop in the bucket.
If you actually get mainstream adoption, Bitcoin, Litecoin, Ethereum, all of these cryptocurrencies
are terrible at scaling right now and they will all end up kind of buckling under the
load if real mainstream adoption happens, which is why we need to find ways to scale
these systems.
Speaking of mainstream adoption, we're seeing huge growth in India, for example, which makes
sense because the government recently totally revamped the currency system.
They got rid of all the one denomination, brought in a new denomination, remonetization,
total chaos.
And I think the people there are saying, you know, why don't we just get into this cryptocurrency?
It seems to work really well for us.
And will they do an end run around the government?
So far, I guess the topic here is regulation in governments because governments are a little
behind the curve.
They're not sure what's going on, how to regulate it, if to regulate it.
But in the case of India, if there's a critical mass adopts Bitcoin and Bitcoin transaction
and crypto, it'll do an end run around the government.
Is that a fair statement?
What do you think?
Sure.
In my understanding from speaking with people I know from India, I have a number of coworkers
from India, is that there has been a lot of sidestepping of government and taxation historically.
A lot of times this would actually happen with real estate, where you go to buy a house
and there's the official price and then there's the actual price where you're paying a lot
of the value of the house under the table in cash so you don't have to get taxed on
it.
And that was kind of the result of what a lot of the Indian government was talking about
this quote unquote black money that they were trying to get rid of.
And so it's, I think, built into the culture and the history there, like they already have
that concept.
Now, the question is if they can transition to this new digital version.
Yeah, they have in India the concept of blank currency with nothing on it that people use
when they're asked to pay a bribe and to emphasize that this is a bribe and I don't want to pay
a bribe and this is, as you say, it's part of the culture, it's been for quite some time.
So let's, we mentioned segwit, segregated witness, it's a technical approach to this
scaling debate and I guess if you can get into it a little bit, just kind of, if you
can frame it and talk about it a little bit, it'd be nice, yeah, go ahead.
Yeah, I mean there's a lot of different plus sides to segwit and unfortunately a lot of
the vitriol in debate has come down to the on-chain transactions but really the most
interesting technical part of it is the fix for what we call transaction malleability
and without going into the details, there are ways where you can create a bitcoin transaction
and then a third party can slightly modify an aspect of it that doesn't actually change
any of the values or the addresses but changes the hash, which is the fingerprint or the
unique identifier and that causes a lot of problems when you want to do these off-chain
scaling mechanisms.
You need to have a hash that cannot be chained so that you can then kind of anchor in to
these on-chain transactions.
And in order…
So the hash is that bit that refers to the previous block?
Well, so there are a lot of hashes in the system but this specifically we're talking
about the hash of the transaction itself, which is just the way that we uniquely point
to it, either in a block or if it's not in a block, in the mempool.
And in order to be able to point to a transaction and be sure that it will never change, nothing,
no one will be able to manipulate it, you need to have a cryptographically provable
like unchangeable hash and right now we don't have that and it's caused a lot of problems
in the past.
In fact, way back in the day, Mt. Gox had a number of issues where they said, oh, it's
transaction malleability and basically they got fooled.
They got fooled into thinking they were doing what's wrong.
That's right.
I knew that phrase.
It brought back nightmares.
It is.
In the Mt. Gox days, transaction malleability.
That was…
Yes.
It was a long-standing issue in the protocol, many people consider it a bug and it has been
used to fool people in the past to think that they had done a transaction or not done a
transaction and then people would get multiple withdrawals out of Mt. Gox because they would
tell support, oh, the transaction actually didn't happen but what happened was they
had malleated it.
But that's not nearly as interesting as trying to build these second layer networks
on top of it and just needing a fix for that.
Unfortunately, a lot of people are now getting kind of caught up in the on-chain, like how
many on-chain transactions can happen with or without SegWit and I think that's kind
of missing the whole point of it and I don't really bother debating about that too much.
Right.
So you mentioned Mt. Gox there.
So you know, last time Bitcoin was surging toward $1,000 per Bitcoin, the Mt. Gox blew
up.
It was really the only game in town.
It was the biggest exchange in the world.
It was kind of built on an old trading card system, if you will, and it wasn't anywhere
up for the task.
And the community lost hundreds of millions of dollars and the price dropped down to just
under $200 and it looked like people were writing the obituary of Bitcoin.
I think there's been 150 or 160 formal obituaries of Bitcoin.
But it's totally recovered since then and you don't have that kind of single point
of failure with Mt. Gox, it was kind of the only game in town.
Exchanges are there's…
There are hundreds of exchanges.
Hundreds of exchanges.
Yes, definitely a lot better now.
And of course, the problem was that for one reason or another, Mt. Gox was operating as
a fractional reserve and it may have been due to, you know, getting fooled by transactional
malleability.
It may have been due to any number of other bugs that they had in that system.
It was a very buggy system.
But at the end of the day, we have better security.
Of course, now those bugs can be turned into tokens and traded on ShapeShift.
Indeed.
We'll get it off there, right?
We'll pick it up for our second segment if that's okay.
Sure.
All right, well, that's going to do it for this edition of the Kaiser Report with me,
Max Kaiser and Stacey Herber.
We want to thank our guests, James and Luke.
He's the engineer at BitGo.
You can catch us on Twitter at Kaiser Report.
Until next time, bye, y'all.