E55: Valuing crypto projects, Rivian worth $100B+, inflation: causes and corrections and more

we have the stock market at absolute all time highs, ripping. We have crypto at absolute all time highs, ripping. ... the two most important founders of our generation, the two smartest people who have really consistently won, Elon Musk and Jeff Bezos have collectively sold more than 11 billion dollars of their holdings this year alone. ... If the smartest people in the world are now selling their core holdings that they told you they would never sell, and you are not reconsidering your position on things, you're either much smarter than them, or you're being really, really reckless.

The thing I wrestle with is, and Chamath kind of alludes to this, is I think everything's kind of in a bubble right now because of monetary and fiscal policy. ... it could be the case that if there's a crypto bust over the next year, and this thing, crypto has gone through boom and bust cycles for many, many years, that is the standard.

There are other guys that are heavily on the other side waiting for this whole thing to go. Like Druckenmiller has been very vocal about this. And he's he's been the best macro trader in the last 30 years. So his position is what exactly that we're printing too much money and we're in a lot of trouble.

And we are in a very dangerous moment in time right now, where I think people are, whether it's meme stocks or crypto, or NFTs, suspending disbelief, in some cases, SPACs, because they're not all created equal. And certainly in private companies, we're seeing this, where people are giving people an amount of credit, which makes no logical sense, and is getting further and further disconnected in from reality.

So the way to increase shareholder value is to actually split those businesses up. And then the investors that want to own the aviation business will pay more, and the investors that want to own the health care business will pay more. And the overall value of those two businesses goes up by having them be separate. ... They'll buy a bunch of shares, they'll instigate and say, hey, you guys should break up, the share price will go up by 20, 30%. So if you want a stock tip of the day, go find a set of conglomerates that are going to get attacked and broken up.

My point is now we're in this cycle where these conglomerates will get ripped apart so that a brighter, fresher, and probably younger group of executive management can take a different spin on these companies and actually do some... For example, the J&J spin out is really exciting because you take med devices in pharma and you separate it from a really struggling, complicated consumer goods package business, the shampoo, the Q-tips, the Listerine, get all that off-balance sheet.

the benefits of focus are immediate, the benefits of synergy are hypothetical. ... What's going to fuel all this sort of deconglomeration is that the benefits of focus to a company are so huge that the reason why it doesn't happen is because of this instinct that all these managers have for empire building.

The fourth option that people don't talk about, which I think may end up becoming an important option, not kind of oblique option, but more kind of backdrop, is to start a war. ... But the premise that conflict can improve the economy is an important backdrop that starts to play into policy decisions that might get made over the next couple of months and quarters. ... I predict escalating global conflict. That'll be my prediction to mark the Q4.

But we don't need it. It's not going to solve anything politically. OK, I mean, World War Two, you know, famously got us out of the Great Depression because that did stimulate demand. But in the situation we're in today, we have too much demand. ... What we have is a supply shortage and devoting resources, taking them away from the productive economy to go to war would only exacerbate the problem and make it even worse.

I think they, you know, I hate to say that Friedberg is wrong, because I don't think in this case I can. I do think that there is some left tail risk for like a crazy wag the dog moment in Taiwan. It would be really scary. Really scary.

Rivian has 17 billion in cash. Somebody asked me at the poker game last night, what I value Rivian at, I said, 17 plus 3, 17 million in cash plus 3 billion, double roughly what Tesla's was the market's hotter right now, whatever. But I put them at 20 billion and people were giving a hard time about it. I said, I think that's actually the realistic valuation for this company. ... No, but the distance between the valuation and reality is in the $50 to $100 billion range.

other people are coming in and looking at this company and saying they've built facilities, they've built assembly lines, and they've got pre orders and bookings for lots and lots of cars down in the future. ... the market is looking at a time horizon that it has never looked at before, which is making bets that are at 10, 15, 20 years in the future. And that's because of the condition that we're in right now from a monetary policy point of view. Interest rates are so low, there's no where to get yield in other assets.

Rivian, just in defense of Rivian for a second, what I have heard is that it's a it's a well-engineered car or truck rather. They've done a very smart path to market, which is essentially to, you know, build these delivery trucks for Amazon that allowed them to even frankly, you know, be default alive. ... What I have heard from people who were investors in both Lucid and Rivian is that they have sat in the cars, they've driven the cars, they've spent time with them, they've seen the factories, and it's very much real. Now what they're debating is ramp and velocity and scale. I don't know. I don't have a position in either.

I don't know anything about this Rivian company, but where I think J. Cal's right is we've seen over and over again that when a company gets, when a startup gets a billion-dollar-plus valuation without a product, invariably, it ends up somewhere between a disappointment and outright fraud.

I've been watching the Taiwan situation like a hawk. And I don't know if you saw this this week to go off on another tangent, but the US is testing Israelis Iron Dome and Guam as a defense against Chinese cruise missiles. Obviously, for possible deployment in Taiwan.

Yeah, what is the accomplishment that's going to really put him in that league? And you'd have to say it's the annexation of Taiwan. I mean, that's the thing that he must be looking to do before, you know, his time to reunify China. That's the thing that could put him in that league. ... And it's like the Persian Gulf because the new oil are the semiconductors, the chips that are fabbed in Taiwan at TSMC. And so all the resources that we're dependent on for the new economy are all right there.

his motivation will be, it seems, at least to bring China back into that spectrum of power, which is really about a consolidated country and a single nation state. And that has to include Taiwan. It can't it can't not. So to your point, David, it's almost more motivation for him to go off on some crazy adventure and try to reclaim it.

Just to build on that, so that second step of their overcompensating, their inability to open with money is so true, because then what happens is your labor force stays impaired because people make enough money by not working.

So we have these labor shortages, people dropping out of the workforce in record numbers. ... And to stop these disincentives for production and work.

I've only been a buyer. I haven't sold a single Solana token. We are net buyers and we're buying a bunch of stuff. ... I think the writing is on the wall, which is Bitcoin is gold, Ethereum looks like it's trending to be silver, and Solana could be the first, but there will be others that come after it of real developer ecosystems that can be built on top of it.

I mean, I learned a lot of really bullish things about Solana, you know, at this conference. ... you could say that I'm long Solana versus ETH ... I can tell you right now, like this second, we are sitting on Solana that we have not sold. So, you know, I am long in that sense.

So there's going to be enormous pressure on the Fed not to raise rates. You already are hearing Biden rattling the saber saying that Pal may not be his choice for a second term. By the way, Pal is very dovish.

I have spent no time understanding crypto markets, because it's so deep and it's so fluid. It's changing every day, it's changing every week. So if I can't get smart enough to feel confident about the opinions and decisions that I would be making as an investor, I decide not to invest and I stay out. And so I'm not an active crypto investor for that razor.

We have inflation at a 30 year high. We have 10 year break evens at a 25 year high. ... So I think that it's a it's this is the beginning of a persistence.

I think it's persistent. And the reason I think it's persistent is that all of these things are intertwined. ... Fertilizer makes corn more expensive. Lumber makes house prices more expensive. Chip prices makes the iPhone and cars more expensive or completely backlogged. ... If you go back to the original measurement, it looks like inflation in CPI is much more pernicious than we would otherwise think if we just look at the new CPI that we started to look at as of 1980

The thing I'm seeing now is I think we've moved into what I'll call a contagion phase of inflation, which is people are hearing about inflation. They're seeing it. ... They're just saying, everything's going up around me. And so they raise prices.

Yeah, I made one in January that said the same thing. ... So it's very likely that, you know, tax revenue could kind of present itself again as a driver if inflation continues to spiral up.

Inflation is very simple. It's too much money chasing too few goods. And we have both sides of the equation going on right now. ... You've got this massive expansion in the amount of money. Look, too much money chasing too few goods creates this problem. It was very predictable. What I said back in May, this is what I was warning about.

Well, I would say for Fisker and Nikola, two related companies, those ones seem very, very shaky.

The psychology of this could be could be self-fulfilling as well, because what's going to happen is you're going to have everybody raise prices because it's now become an escalation. ... And then people are going to say, you know what, fuck it, I'll just drive this one for two more years. That's going to cause stagnation.

Anyways, the net net of it all is like, you know, that was very inefficient capital deployment. And as I look at it now, it's like, you know, I'm down. Well, I'm technically up 19%. But that's really because of one deal, if I take that one deal out, which was a total outlier, I'm down 17% on about $200 million of investment. ... And so all these pipes, I'm in the midst of sort of cleaning up and selling down. And they've been just a kind of a disaster for me.

So the problem we have now, okay, here's the problem we have, is there's going to be no Paul Volcker. Why? We can't afford to jack up rates, because the federal government's debt is so much bigger than it used to be. ... we don't have effective tools to fight it anymore because we've given up our ability to raise rates because it would increase the cost of the debt so much.

There's a lot of what's going on now that is what I would call speculative assets, which is the only way you make money is if someone else pays more in the future versus what you're paying and there isn't an underlying productive asset to what you're putting money into. ... It went into someone else's pocket that sold that asset to you and you're eventually going to try and sell it to someone else.

Just buy productive assets, great businesses that have durability, and let them ride for 20 years. ... why trade the market when you can just buy great businesses, own stakes in them, and let it rest?