Hello, my name is Max Keiser. This is the Keiser Report, seen by billions, both on this planet and by extraterrestrials in parallel galaxies. Stacey? Max, I want to read you a tweet, and I don't know what this tweet really means, but it's funny. It reads like, it invents a new word, kind of like that new word that Trump invented a few days ago, kefefe, or something like that. China may experience liquidity turbulence in June, SEC Journal. Obviously, we're in June, the liquidity turbulence is coming. Liquidity turbulence? Well, you know, we're all on a good ship, my financialization, globalization, marketization. So we all float on a sea of fiat currency. And sometimes the fiat currency gets a slight clone or a hurricane, or there's a tidal pool or a tsunami, and the little ship of the global economy gets tossed. It's like the beginning of Gilligan's Island, if you remember. They went on a three-hour cruise, but they ended up trapped on an island, and you had Ginger, and you had Gilligan, of course, you had the skipper, the professor. And however, just like on Gilligan's Island, where they seem to get an endless supply of coconuts and freshwater, and Thurston Howell III, he had a fantastic wardrobe. His wife never ran out of designer clothes, because they were mining cryptocurrencies on Gilligan's Island, and they called them coconuts, coconut coins. And that's how they got this kind of never-ending source of wealth. And now on the virtual global economy that's floating on a sea of fiat currencies, and now to be refloated on a sea of cryptocurrencies, the turbulence, liquidity turbulence, as China talks about, is part of our new reality. Well, I was thinking, we've covered the fact that a lot of people are saying, well, as all these investors are raising these hedge fund billions in order to capitalize in the next financial crisis, and everybody's counting on a financial crisis coming. But for those who weren't alive during the 2007 to 2008 financial crisis, we had like credit crunch. That was the term back then. You started to hear about credit crunch back in 2007. Well, it's just a credit crunch. This is why Bear Stearns is collapsing. Oh, that's why Lehman Brothers collapsed. Is liquidity turbulence the new invented word for the coming crisis? Well, it's a credit cycle. And the credit cycle has predictable ebbs and flows. And every five, six, seven, eight years, there's an event and the credit cycle contracts and you have a debt crisis or a liquidity crisis. And we're overdue for some kind of debt crisis. And I guess China is trying to warn people about the coming turbulence. Now Nassim Taleb, who wrote famously The Black Swan or a book about randomness, which I randomly can't remember now, something about random, random, randomness is good, I forget the title. But his approach to this world of unpredictability is to simply buy straddles. So you're buying an option straddles. You're going long and short at the same time and you pay for that. And you hope that there's some crisis during the time that you own that option straddle that'll be profitable. If there is no volatility, then the cost of your straddle expires and you paid the cost of the straddle. So what a guy like Taleb will do, and I don't mean to be putting words into his mouth, but the facts are that by simply rolling straddles forward and paying that extra, that sum, eventually you will have a winner. It's essentially the martingale betting system, where if you bet on red at the roulette wheel and just keep betting red over and over and over and over again and doubling your bet each time, eventually you will win. This is what Goldman Sachs famously used during the 2008 crisis. They kept doubling down on losing bets, knowing that eventually the government would bail them out because they were too risky to have go offline. And they were right. And they all got real rich. So basically, you know, anybody out there who is afraid of turbulence on a flight, one thing you look around, you'll often see during bad turbulence is there's often people just sleeping right through it. And then there's the other people like grasp, holding on to the hand rest. That's me. And the other people are like, these planes are built to withstand this. Is our financial system built to withstand liquidity turbulence in China? Is it? Well, planes have two wings, and then they have a tail that's going the opposite way, you know, to create stability up there in the stratosphere. And they have certain thrust, which keeps them afloat for the dynamics, the physical dynamics of flight that were exploited by Wilbur and Orville Wright back in the day. Now in the financial markets, you have financial turbulence, which is only going to increase as the world's economy moves further and further away from stuff, further and further away from jobs. Jobs are becoming less and less important because companies don't need workers to make profits and pay themselves huge salaries. They just need algorithms. They just need program trading, they need access to 0% money at the Fed. And they can print like General Motors is the big one of the biggest financiers in the world. And that business eclipses their car business. Most companies in the S&P 500 that are worth billions and billions of dollars, their primary business is arbitrage trading the Forex market. And by doing tricks on the balance sheet with the 0% money they get from the Fed, they don't necessarily make the drugs or they make the cars or they make the homes. It's not their primary business. And look at Warren Buffett. He took the insurance industry, which is the ultimate business of Rontier, and took that cash flow to buy strategic stakes in numb nuts industries like Coca-Cola and Wrigley Gum and Heinz Ketchup. So things that people, even if they don't have a job, will still get a Heinz Ketchup which might cost a penny. If you go to India or China, people actually buy and sell little packets of Heinz Ketchup for two pennies or a penny. Going back to ancient China, you know, they sold belly button lint for a penny per ball of belly button lint. So that micro economy never goes away. Buffett is going to continue to cash in on both ends of the economy, the Rontier insurance business and the belly button lint Heinz Ketchup individual dispensing business. And they got guys like Talib who are riding the straddles and piloting his personal funds and cashing in one way or the other. The biggest losers are those who think that I'm going to get a job, I'm going to save money, and I'm going to participate like a Norman Rockwell picture from the 1950s. Those people are going to become extinct, like the freaking Sioux or the, you know, other Indian tribes. Well, I have a headline about the irrational exuberance. People are worried about irrational exuberance. But to me, compared to when we were doing this show in 2007, 2008, you really felt the credit crunch, like there were weird, violent gyrations in the market that signaled something bad was coming. And that bubble, the global housing bubble at the time, did rely on highly leveraged consumers whose incomes were declining. This bubble, and I do believe we are in a global bubble, I think, however, warning about the irrational exuberance now is like Alan Griezban warning about the irrational exuberance in the NASDAQ back in 1996, 1997. And of course, the most epic gains happened over the next three or four years. This bubble seems more driven to me by a global 1% or 0.1%. These people have been given loads of free money, endless amounts, and it feels like they've already got all their basic needs covered. Why not flip all sorts of Warhol paintings, or Basquiat, or apartments, and Billionaire's Row, some of them now going up for foreclosure. I think those were just ordinary people competing with the billionaires. But irrational exuberance during Trump rally exceeded all records. We're sailing into a massive stock market crash. This is on Goldseek by David Haggith. Again, so he shows this chart, and you see the little red circles, that's from the NASDAQ bubble and burst. Then that's the 2007, 2008 bubble and burst. And then this is now. And you always see the fastest rise at the very end. So he's saying that, look, this is way bigger than those previous ones. But I think we could go on for quite a few more years in record sort of crazy hyperinflation sort of rates of returns. And you see the parabolic move that he's talking about, which usually precedes some kind of correction or crash. I think the big difference this time around, in my opinion, is the reason why crash is going to be different this time is because of the ability to take these companies private. Because all that free money that the central banks are creating give guys like Warren Buffett the ability to take these companies off the market completely. Heinz is now no longer traded. Many companies are no longer traded because they're just owned privately. The losers, those people who had jobs, those people who were trying to be middle class, they're being abandoned. They're being left to the roadside. They're showing up in Baltimore, in Philadelphia, in Chicago, in ghettos, in slums. They're killing each other. They're over D-ing on opiates. Over D-ing? That's a new word. Over D-ing, overdosing. They're dying, we know, with legalized opiate addiction. And so there's millions of people in America that are simply put on the reservation or the prison complex, and they're going to die. That's how you square the circle. It's not about having balance or equilibrium in that, oh, markets go up, markets go down. No, it's about a few guys taking all the chips off the table and letting everyone else die. I think 9-11 was a big beginning of a mentality amongst the American elite to simply walk away from the table. They were so shocked by that. They felt, we don't want to participate in this economy anymore. We want to just grab what we can, and you all suckers can work it out yourselves. But I want to put another tweet and another chart to put this into context, whether or not we're in irrational exuberance. And this is from a tweet from Alpha Hub, and it says, and by the way, his bio says, markets can stay irrational longer than you can stay solvent. So it's important in looking at these irrational exuberant markets. Interesting chart. Stock markets outside the US aren't that expensive. Sell SPX or buy the others. So the dark blue line is the US market's PE ratio, the Schiller PE ratio, and the light blue line is European ones. But look at where we are now in terms of the PE ratio versus the 2007, 2008 bubble and then collapse, and that is the NASDAQ. As we said in the previous show, the NASDAQ was truly an epic bubble. So maybe the same investors that lost everything back in the dot-com crash, we're now a generation away. They've totally forgotten. They don't remember a single thing. They don't remember the eight campaign of all the losses they suffered, the real genuine losses. And maybe we could get to as high as that, in which case markets could double from here. Well, we'll find out soon enough. I'm on Tinder hooks. Well, we got to go. Stay tuned for the second half. A whole lot more. In case you're new to the game, this is how it works now. The economy is built around corporations. Corporations run Washington. Washington controls the media. The media controls the voters. He's elected a businessman to run his country. Business equals power. Boom bust. It's not business as usual. It's business like it's never been done before. A diplomatic spat of major proportions. The apparent attempt to isolate Qatar among Arab Sunni countries may lead to a number of unintended consequences. Is this all really about Saudi Arabia and Iran? You can see the border from here by the long steel fence that goes down this side, goes all the way down. Like I said, this is, this is autumn land and this is autumn land. I have every right to be here. I have the right to go collect my food, be a part of my family on both sides of the border. I started an organization called Arizona Border Recon. We are a standalone entity that is doing what needs to be done. In the five years, it's getting worse. The violence is escalating because it's no man's land. Ranchers really get our rate when somebody calls it a no man's land. They believe that their ranch is their ranch and they don't believe that their federal government is taking responsibility for their security like they would for anywhere else in the country. Welcome back to the Kaiser Report. I'm Max Kaiser. Time now to return to Jameson Lupp. He's the engineer at BitGo. Jameson, welcome back. Thanks. All right. So we've been talking about Bitcoin and altcoins and tokens and the global phenomenon that is cryptocurrency. You mentioned on your tweet stream often you make reference to individual sovereignty, how this relates to cryptocurrencies. Can you talk a little bit about that? What does it mean to you? Well, I really got into the idea, of course, after reading the sovereign individual like a lot of people do, and the idea that nation states will continue to exist, but as we continue to empower individuals with technology that allows them to decide who they interact with, who they pay their taxes and money to, that really the whole nation state system will become more of a system of the nation states trying to convince these citizens, these sovereign individuals to become their citizens, and kind of a flipping, if you will, of rather than us paying fealty to the state, the states trying to give us incentives to come and give them some taxes in return for whatever protections from other states or other regulations. Right. So going back to medieval times, the state would offer protection in relation to for taxes. And then the states would go to war with other states, and they'd ask you, they'd conscript you, you're going to fight for the state now, but we're going to protect you. And there's a big social contract going back to Locke and the thinkers of the Enlightenment that you allow the governorships to govern, but they give something back. And this relationship has been alive and kicking in the United States of America. It's built on some of these concepts with the Constitution and the Bill of Rights. But the power elite have co-opted much of that social contract, and they are really abusing the population in a huge way. Any country is similar in this way. And now with crypto coin, with Bitcoin, one of the ways that the state has to co-opt the individual, the money printing press and the central banking and the fractional reserve banking, that's being removed, right? Exactly. They're taking some of those powers away from the state and handing them over to the individual. And as a result, individual now has a bargaining chip, if you will, because they aren't as dependent upon some of these services that the state is providing. Yeah. So this, of course, it's interesting because people want to compare this to other schools of economics or other schools of politics, but I don't think you can make a direct comparison to any school. People talk about it in terms of libertarianism. I think there's some shortcomings in that comparison. They talk about it in terms of anarcho-capitalism, which again, I think there's a lot of shortcomings in that comparison as well. But have you given this any thought in terms of if you were to compare it to something else as a segue, what would it come closest to? I mean, it sounds very utopian in one way, or what would you think about that? Well, I have a lot of problems with people ascribing any one particular philosophy. The biggest pushback I think you get from anyone if you start pushing the libertarian or anarchism type ideals upon them is that they believe that you are saying this is going to be some sort of utopian society. And fundamentally, I don't think any of these philosophies really say that it's a utopia. They're at least from the libertarian standpoint saying that what we want to do is create a more fair society where you're not having to live under rules that you don't agree with. And so while it will never be equal or fair from the standpoint that every man and woman is born into the same particular conditions, it will be more equal in the sense that you're not subjected to rampant theft of whatever your income that you're able to use your skills to generate for yourself. Right. So you might have that opinion that I'm being thieves upon, and then the state would have a different opinion. But now, as you point out, there's a bargaining chip of the individual now because they can opt out of their system in a way. And it doesn't appear as though the state can really do much about it. The regulators are trying to regulate it. It's different in different countries. It seems like there is no way to regulators to regulate Bitcoin and cryptocurrencies at the end of the day, short of shutting down the Internet, which is not they're not going to do that. Is that a fair statement? They will not be able to regulate the protocol itself. There will always be at least some entities that are running the code and they're running machines that are in jurisdictions that are outside of any particular regulator's grasp. But of course, the regulators will have power over any incorporated entities that have physical presences within their jurisdiction. So from that standpoint, there definitely will be some regulation and some clamp down on specific activities because at the end of the day, we are physical beings. We have to physically be somewhere. And wherever we are, we are going to be subject to jurisdiction of some government entities. All right, now, here's a chart, by the way. I guess this is a Bitcoin chart. It looks pretty impressive, right? It's pretty rocking solid here. Very nice chart. You kind of look at it and you say, wow, Rick Falkvina and Amir Taki and those guys back in the early days, Charlie Schramm, Roger Ver, Bitcoin Jesus. These guys were completely correct that this is a transformative, technological, spiritual upheaval. And we're talking about regulations. Let's talk about initial coin offerings because this is, you know, it's interesting there's a transition because first there was Bitcoin, then there became blockchain. Now we're back to Bitcoin. But now we're talking initial coin offering. Token, token, token. Yeah, people are gravitating toward this phrase token now. So everything's a token. And certainly at ShapeShift, everything's a token. But is that is that a fair I mean, it's not a coin because it's not because it's a different beast. It's a commodity like gold, but it doesn't has different properties. So is token ultimately the best term for this stuff? Well, I mean, I kind of see tokens as a second layer. Most of these tokens today are being created as EC 20 tokens on Ethereum. Some people are creating tokens using counterparty on Bitcoin. But yeah, like you said, it's not a coin. It's kind of built on top of some other coin or some other crypto system. So it really is a just a a private key where you have the ability to unlock some token and transfer it to someone else. I think what's the more interesting thing is the tokens that actually fuel some sort of application. Because if your token doesn't have some sort of functionality that it's unlocking, then all it really is is usually a type of security or a type of equity in some other company or some other system. And then you have to ask yourself, you know, what am I actually buying a piece of if it's not unlocking some sort of functionality? Yeah, well, OK, so let's stick on this initial coin offering or ICO for a second, because the SEC, the Securities and Exchange Commission, has come out and said, you know, we've got to look at this. We're trying to get our handle around this. We don't want to thwart innovation, ha, ha, ha. But you know, they do have their constituency to protect the New York Stock Exchange and others. And but these things are coming out pretty rapidly now. I mean, just six months ago, all so-called altcoins, you know, became, you know, S coins. And it was completely condemned as a wasteland. But now ICOs and these initial coin offerings are seen as, you know, the next phase of the development of the crypto universe. And they don't have a lot of the negativity, probably because of the price rises across the board. It's gotten everyone thinking it's fantastic, but initial coins, OK, companies instead of going down the path of Wall Street or a venture capitalist, they can put out a coin and within the coin, all the rights of the stakeholders are embedded in the coin, all, etc. is there. Is this a superior way to approach this type of fundraising in a capitalist society and will it eclipse the current model? It's definitely more in tune with the rapid pace of technological innovation. I was hearing recently that it's, you know, millions of dollars, if not 10 million dollars in order for a company to jump through all of the regulatory hoops to do an IPO. And of course, with an ICO, maybe get a few lawyers together, write up your prospectus, put it out there for the community. And now we're seeing people raising tens of millions of dollars in 15 minutes. Whether or not this is going to end well, well, nobody really knows. Some of them will probably do very well. Some of them will not. That's the free market for you. Though I think it's kind of a misnomer of ICO versus IPO because with IPO, you generally already have a product or service that is very well vetted and now you're offering equity stake to the public. With ICO, it tends to be closer to the side of crowdfunding of we have this great idea, we just need venture capital. So it's almost more like angel investing, if you will. It's almost womb investing. Indeed. So this is pre anything. Although in the IPO market that goes through stages on cycles and the end of a cycle, typically companies do go public with almost nothing. Like a biotechnology company would say, you know, here's a one page summary of what we want to do. Give us 100 million dollars and we'll go do it maybe. You know, this is goes through those cycles. But the initial coin offering participant is not a sophisticated market veteran in any way. So what about the the next let me change gears for a second. Another philosophical question. So in the case of these altcoins and various coins, many of them are created and they have no functional basis to exist. However, they are expanding the crypto universe, which is at 70 billion, 80 billion, 90 billion. It got to recently. So that space of encrypted space, if you will, is expanding. And that alone has value, even though the coin itself has no specific application or practical value. As long as people are moving fiat into a crypto, they're moving money out of the corrupt system into this new universe. Your thoughts? Yeah, and you could argue that that is, you know, another form of decentralization of this system, though if you actually look at the spread of value, I think you find that there's a fairly long tail distribution and that it's really like the top ten, top fifty or so cryptos that have most of the volume and value in them. But that's once again part of the idea of the sovereignty and the permissionless of the system is anybody can do it. Well, I mean, we launched Maxcoin on this show. Yeah. A couple of years ago and a couple of students in Bristol University. And we just wanted to show how it's done. And it's hitting, you know, all time record volumes and close to new all time highs. Now, it's just basically a student project and people are they participating in it. It's expanding the crypto universe. It's I guess a good fall into the category of a meme coin. But you can't really say it's a negative because it's just expanding that universe. If people want to participate in that universe, they they can. And now there are six, seven, eight hundred of these various coins out there. But the tide is so great, Jameson. And if we go to a trillion dollar market cap on these coins, which you're nodding your head like, yeah, we're going there, you know, 600 coins moving forward into the into the future on a higher plateau seems like it's going to happen. So, yeah, the rising tide lifts all crypto coins. All right. Well, we're going to have to cut it there. Thanks so much for being on the Kaiser Report. My pleasure. All right. Well, that's going to do it for this edition of the Kaiser Report with me, Max Kaiser and Stacey Herbert, our guest today, Jameson Lopp. He's the engineer at BitGo. Find him on Twitter. He's a sane crypto guy in an insane world. Until next time. There you go.