The Complete Iceberg of Finance

Hello everybody. This video is a special compilation of a series that I did called the iceberg of finance where in a

typical iceberg meme I will break down terms and concepts in finance from the simplest surface level stuff to the deep

dark crazy. And back then my channel was

dark crazy. And back then my channel was a lot less popular. The production

quality wasn't as good. There's a lot of audio errors. And so in this video, I'm

audio errors. And so in this video, I'm going to compile all the icebergs into one long video so you can watch it all

at once and clean up the sound and some of the production issues to have a smoother, better experience. Um, if I should do this for some of my other

series, let me know and enjoy the iceberg. In this video, I present to you

iceberg. In this video, I present to you the first part of a series called the iceberg of finance. For those of you who don't know, because iceberg memes seem

to be more of a Gen Z type thing. An

iceberg meme basically shows to a topic and this one is going to be financial markets. I mean, there's so much juicy

markets. I mean, there's so much juicy stuff about financial markets. I

probably could have made a whole another iceberg meme just on these that it's the top level is the surface level familyfriendly obvious stuff about the

markets that kind of little fun facts and then as you go down below the surface just like an iceberg the deeper it gets the bigger it gets and the

darker it gets and as we keep going down this iceberg layer by layer it gets more crazy it gets gets more dark. It gets

more conspiratorial or just unusual and unexpected. And the thing is with I made

unexpected. And the thing is with I made this iceberg, I tried to avoid like unsubstantiated conspiracy theories.

Basically, there's so much weird actual true things in the world of finance that I can that that is able to make a very in-depth iceberg. And then there will be

in-depth iceberg. And then there will be in the show notes you could see the link to the image and I showed it in the cover too of this video of the full iceberg. So you can see all the topics

iceberg. So you can see all the topics we're going to cover. But for this video particularly we're going to start with the first layer which is the sky which is above the surface just the the really

kind of general facing things of finance. So, we're going to go through

finance. So, we're going to go through these points, what they are, and uh why they matter and just enough for you to start. If you want to deep dive into

start. If you want to deep dive into each of these topics, you can look them up. So, with that begin, let's start

up. So, with that begin, let's start with level one, the sky level, above the surface. So, the first one we're going

surface. So, the first one we're going to be talking about above the surface is the idea of bulls and bears. is it's

it's common lexicon in finance that a market that's trending higher is a bull market. Generally, if it's a 20% or more

market. Generally, if it's a 20% or more off the trough is considered the start of a bull market and it ends if it

suffers a contraction of more than 20%.

And you have a bare market which is the exact opposite. It's a contraction of

exact opposite. It's a contraction of 20% or more and it ends when you have a 20% or more rally. I mean those are the

technical definitions but generally is it a time where investors are adding risk and prices are going up or investors growing more cautious taking off risk and prices are going down. So

why are they named after these two animals? That's it's there is no

animals? That's it's there is no defining theory or proof of historical record of any evidence that's like this is the thing. But there are a few ideas

out there. These terms started to be

out there. These terms started to be used in the in the 16th and 17th centuries originally. There was a

centuries originally. There was a popular spectator sport if you call it that during these days called baiting.

is where you would tie a wild animal and have it be like harassed by dogs or be forced to fight other animals or people or whatever it is. And you had and

people would just watch this for entertainment. And bulls and bears were

entertainment. And bulls and bears were two popular animals that were used for this sport. And I think that maybe a

this sport. And I think that maybe a bull markets refer to is that the bull was more likely to be used in good times because the animal maybe wasn't needed

for meat. Or maybe the the motion that a

for meat. Or maybe the the motion that a bull attacks is through charging up with its horns. Maybe that's why they use the

its horns. Maybe that's why they use the bull. Whereas a bear, people don't

bull. Whereas a bear, people don't really necessarily eat bears or have other uses for bears. So when times are tough, maybe you couldn't use the bull

for baiting and so you had used the bear instead. Also, bears tend to slash down

instead. Also, bears tend to slash down and so maybe that is why that bear is used for when it's a bad economic

environment. The other origin story is

environment. The other origin story is that in the 1700s, the short sellers were known as bare skin dealers because they were selling the the skin of a bear

before they hunted the bear and took it off, which is kind of like what a short seller does in the sense that they they sell the shares that they don't own. And

so these bare skin sellers may just over time just just became referred to as bears and therefore a bare market. There

is really no similar other or counter origin story for bull market. So it

seems like that's the the bull baiting and bear baiting is the closest thing.

But otherwise it's just a mystery. Wall

Street is not just a single street in New York where it is a street in the southern tip of Manhattan, but that it also is a term that is kind of like

Silicon Valley where it extends beyond the geographic area of Wall Street or Silicon Valley is not just people who

live in the area of San Jose, California and the surrounding cities. It refers to anybody who works in hyperrowth tech or

a big software company or big hardware tech hardware company that is in the United States that is now Silicon Valley even though it may not actually be

there's the physical place still too but it's also just a catch-all term for anybody who works in high-tech. Wall

Street is a street where the New York Stock Exchange is on. I've walked down it several times when I've visited New York. However, it also refers to anybody

York. However, it also refers to anybody who works in capital markets, whether it's asset managers, traders, investment bankers, people who are in

professionally involved in investing, speculating or brokering deals in the capital markets. That is Wall Street.

capital markets. That is Wall Street.

So, you have people who work in Wall Street professions all over the country.

I live just about as far away as you can from Wall Street in 48 continental US.

Yet, I'm still a Wall Street professional. The name Wall Street comes

professional. The name Wall Street comes from the fact that when New York was still part of New Netherlands, the Dutch

colony, the Dutch citizens built a wall on what is now Wall Street, a stone, a wooden palisade wall to protect from an invasion to the north. didn't do any good because the Royal Navy just sailed

into their ports from the south and captured New Amsterdam anyway, which was changed to New York. The wall was torn down once the British came in because the wall was designed to protect the

Dutch from the British and was no longer needed anymore. And where the wall used

needed anymore. And where the wall used to be, there became the street, Wall Street. And why is Wall Street the place

Street. And why is Wall Street the place that finance is regarded? is because

that's where the New York Stock Exchange or what used was eventually built. But

before there was a stock exchange, there was a beach tree near a church on that street where the laws of the city at the

time is where securities dealers would go to exchange their their goods with each other and trade. That was like the designated spot was this beach tree. And

as the industry grew, they needed a proper building to do it in. and they've

evolved into the stock exchange which is just hanging out by a tree. So that is well about the origins of Wall Street.

Funny thing is though is that especially as technology over the past 30 years in the internet the physical place of Wall Street has continued to get less and

less important. Whereas like the

less important. Whereas like the financial industries and cap trading is done just about everywhere. In fact,

even due to a lot of tax policies and suburbanization, you see, it started with hedge funds going to Connecticut in the 80s, but it's now growing to a lot

of banks and other firms are now moving to Florida and Utah and Texas and a bunch of other places. So, Wall Street's everywhere now. It's not just the

everywhere now. It's not just the street. And that leads us to our next

street. And that leads us to our next topic is the rule of 72.

The rule of 72 is basically a shorthand for the time it takes for an investor to double their

money depending on assumed rate of return. So what you would do to solve

return. So what you would do to solve this formula is 72 divided by your expected return is how long it's going to take to double your money. So if you

get a 10% return a year, it'll take you a little over seven years to double your money. And this just shows the power of

money. And this just shows the power of compounding. When you can consistently

compounding. When you can consistently get compounding good returns, your money grows a lot faster. It's not what happens in one day, one week, or even one year. It's really wealth grows is

one year. It's really wealth grows is through compounding. Speaking of

through compounding. Speaking of compounding, that's the next concept on the sky level of the iceberg.

Compounding is the idea that you could have your returns compound on each other every year so that you end up making a

lot more money on even though the percentages of your returns every year stay the same. So if you put say for example a penny in the bank in the year

1600 and you had a 2% return every year that doesn't sound like much but if you compounded that over time then by now

you would have all the money in the world. It's the the same with um like

world. It's the the same with um like say if you put for example you got 2% a day on $100,000 you would have all the money in

the world probably within two years.

It's compounding is powerful and the faster you compound the more powerful it gets. But there's other other there's

gets. But there's other other there's other implications to this like when anybody promises you that you can consistently get 2% a day trading that's

probably not true. Just because as I've told you, if you put in just even $1,000 and you did and you got 2% a day

for every day for a year. So

1.02 to the 365 times 1,000. Yeah, 1,000 would turn into a million $1.3 million. If you did

with 10,000 be $13 million and you don't see any of these day traders. So

starting with their $1 to $10,000 accounts, they're not all millionaires over over a year. If they were, then nobody would work and all these systems

that people sell would would basically replace the need to actually produce capital or supply labor. And that's also but that's like the maybe the negative

side of compounding. The positive side is that if even a much lower rates of return, say like the the best hedge fund guys do, they get 20% a year like the

Warren Buffetts and Sam Rucken Millers, like the real best investors. And if you get 20% a year over 20 years, you're

going to get 38 times your money. So if

you put $100,000 with a and got 20% a year, that would turn into 3.8. 8

million. So it and if it's a and that and also that's how you expect your retirement. That's how your retirement

retirement. That's how your retirement doesn't it grows through it does go through saving more too. But it's the power of compounding is it really allows true wealth to be developed. That's also

why um social mobility people are afraid of is kind of low because it's a lot easier to compound if you have a bigger amount to compound with. Like it's just eventually if you have long enough of a

time frame things work out. And I think that's the other thing about compounding. The other reason why we

compounding. The other reason why we have the so-called wealth inequality now is people are simply living longer. And

because they're living longer, they get to compound their their wealth over a longer period of time before it gets cut by either estate taxes or dividing it up

a large family. So the it's it's a compounding explains a lot of how finance works and wealth

grows and you want to use compounding in your favor versus against you. Like if

you're borrowing and you keep paying interest on something, that's the power of compounding working against you. Like

when you get a mortgage, you end up paying almost the amount the same like at least half the amount of the principal of the house in interest payments just because it doesn't sound

like two 3% a year doesn't sound like that much, but over time it's just years and years of paying that interest, it compounds and you end and this is how

also credit card people get in trouble.

It's it it it's not that much one year, but over time that interest you pay compounds and that's why banks historically have been able to make so much money. Whereas if you're an

much money. Whereas if you're an investor and you have that compound your compounding is working on your side and you gain from your from your interest

payments that you were receiving or your returns on equities or real estate or other assets bound every year. And that

same factor that works against the borrower works in your favor. It's not

quite as straightforward because you have to factor in inflation. But overall, compounding is a

inflation. But overall, compounding is a powerful force and drives the entire financial services industry and the global economy. Albert Einstein even

global economy. Albert Einstein even said the eighth wonder in the world is compound interest. And I think he's

compound interest. And I think he's right. The next thing we're going to be

right. The next thing we're going to be talking about on this iceberg is IP or IPOs.

IPOs are initial public offerings. Like

if you are a business and you're growing fast and you need to raise some money, but you don't want to get into a bunch of debt or the banks don't trust you for some reason, you would do is you could

float your shares public in the form of an IPO. You get an investment banker.

an IPO. You get an investment banker.

They put together all the legal things.

They go on a road show to get the initial amount of investors you need interested in your stock. And then you one and then once that's all done, you

go ring the bell at the NYC and you're public and your stock is trading on the stock exchange. IPOs used to be the only

stock exchange. IPOs used to be the only way you'd go public, but now or spin-offs if it's a already public company, but there's been other methods

over time that have be grown more popular such as reverse mergers, spaxs, which I we talk about level three of

this iceberg and direct listings where a company just they don't need any money, but they offer to float a portion of their shares as listings so that

insiders and early employees who have made newfound wealth being staying with this fast growing company can have the opportunity to cash it out. IPOs

historically have like a big bounce on I like 5 to 20%. That's it's a lot of people try to trade IPOs just by buying

in before and uh selling right the day of. It's more popular on the retail

of. It's more popular on the retail level because for institutional investors there are compliance headaches with dealing with IPOs. Generally, the

reason why you usually get a pop is because the bankers underpric the stock historically as a means to make sure the deal gets done and that the market shows

a positive response initially to the IPO because nothing looks worse for an investment banker than seeing an

IPO crash on the day it goes public because then future companies who are looking to IPO be like, "Hey, this bank they're they're not they're clearly uh

not doing something right because my stock is crashing on the first day. But

it's at the same time you could argue that maybe those bankers who are doing a better job because they got you a above market price whereas if you have a huge pop on the IPO it means that you got

undersold and you could have raised a lot more capital with that same amount of equity. So there's two different ways

of equity. So there's two different ways of looking at it. That's a IPO is a whole another debate. But yeah, that's I that's what I have got to say about IPOs. And the next one, the origin of

IPOs. And the next one, the origin of the capital markets. So why did these cap the capital markets emerge in the first place? Why do we have things like

first place? Why do we have things like stocks and bonds? If you want to learn more about this, a good book to read is Neil Ferguson's The Ascent of Money, which I will put a link to in this in

the show notes of this video. So the

cattle markets emerged for different reasons. Uh the first one we'll start

reasons. Uh the first one we'll start with is the bond market. Bond market was mainly a necessity of modern warfare.

And I mean modern I'm talking about like Renaissance Italy is where the modern bond market really started to develop.

These cities had a longer term sustainable income due to trade and other things, but they didn't have the population base to supply enough taxes

in the near term to cover their wars without killing their golden goose. But

they also needed the money to fight these wars. Otherwise, they would no

these wars. Otherwise, they would no longer be an independent city-state. So

they the Medici family was was part of this, but there's a lot of others who's like, "Look, we need to float bonds. We

need to I mean, there's plenty of wealthy people in our city that are will that could that have the capital for this to help finance this war, but the thing is that there got to be a way to

help them voluntarily contribute. And

the way they've done that is through the bond market where you would basically instead of having to borrow it all from a single bank who did not want who did

not have the resources to take on an entire government's debts for a war or taxes with in the near term there's not enough tax revenue to cover it. Bonds

offer a way to pull the financing of the cost of the war. So instead of like say for example they they needed to raise 1

billion of Florence silver pounds. I

don't really know what the currency they used over in Renaissance Italy. And they

do that instead of having they can issue that by splitting that that million silver pounds into bond contracts of 10,000 each. And by doing that, they

10,000 each. And by doing that, they could have a 100 buyers each buy one of those instead of having uh one person have to take on the whole risk. And then

you could divide it in smaller pieces too if you want a bigger crowd. That's

that's how bond markets work. Like for

example, the US runs a trillion plus dollar deficit every year. There's

nobody who could take that on by themselves. Not a single bank,

themselves. Not a single bank, institutional investor or individual who could take it on entirely on their own.

And so we split the ghost government debt into pieces known as bonds. And

this started with the wars in Renaissance Italy and it spread everywhere because it worked very well for the Florentines and those other and

so that's why we have a bond market. Why

do we have a stock market? Stock market

was kind of like a similar need to pull capital but instead of governments it's private businesses. And back then,

private businesses. And back then, private businesses were not considered the most creditworthy institutions. In

fact, governments were barely creditworthy. You'd be amazed looking at

creditworthy. You'd be amazed looking at interest rates historically in the eras of the Rothschilds in the 17 and 1800s.

They were considerably high. And default

rates for sovereign debt during all the revolutions going on in Europe in the 18th and 19th century were seriously pretty high. And so if government bonds

pretty high. And so if government bonds were not considered risk-f free like they are today, why would you lend money to a private business which is even more

risky? So the Dutch came up with this

risky? So the Dutch came up with this idea of pooling equity. This originally

started as joint stock corporations.

That's where the term stock comes from.

In many other countries, they call it the share market because that's really more what it is that it's you have shares a stock essentially a share of a publicly traded company. And so if you

financed things such as the Dutch East India Company or the first colonial expeditions in England, you would sell shares of these joint stock companies and to pay for the project and

you'd get bunch of members of the British nobility and other wealthy individuals to each buy a share instead of the whole thing. A similar reason with the bond market originated. there

just wasn't there wasn't a single investor or whale out there who could find put the bill by him by him or herself. So instead you had to pull out

herself. So instead you had to pull out the equity and that's why we have stock markets today is companies needed to raise money for various reasons and

therefore you have stock markets to help be able to facilitate that and have it easier because it's easier to get a small amount for a bunch of investors than a large amount from a single one

stock until about fair emergence of spack IPOs shares had been down for a long time because of private equity getting involved earlier and earlier and

these big institutions willing to write bigger checks up front. But then as there's been more enthusiasm in general for stocks and particularly tech

companies at any price, a lot of companies are now skipping the private stage and going straight to public because the valuations are now higher in the public markets than they were in the private markets. Whereas this was the

private markets. Whereas this was the reverse about 10 years ago. things are

like this move in cycles. And the

insurance market, how did that start?

Well, the insurance market actually started as an orphans and widows fund for Scottish clergy. And that is how we

got insurance because basically they had an agreement that he had to pay in for a certain amount so that you so that like if you died your wife and kids wouldn't

have something to live off of. It was

kind of like life insurance before life insurance. So you just and this

insurance. So you just and this eventually came for other communities developed these mutuals too outside just the Scottish clergy in throughout Scotland and England and that's how the

origin of the insurance markets came about is that basically people died for others because of wars or disease or

just life expecties were generally lower. So, but they often left behind

lower. So, but they often left behind wives and kids who couldn't support themselves entirely. And so, that's how

themselves entirely. And so, that's how this thing evolved. And the applications of it have grown over the centuries. And

insurance companies remain a big source of capital and a big profit driver in the financial economy today. The last

one I'm going to talk about for this one is Dogecoin or Doggycoin as some pronounce it. Dogecoin is a really weird

pronounce it. Dogecoin is a really weird story. It was created by some software

story. It was created by some software developers in Silicon Valley as a joke.

Mainly as a way to be able to easier transfer poker winnings among themselves. Also, there are some ideas

themselves. Also, there are some ideas to use it as a way to pay to give gratitude kind of like Reddit gold to various comments on various internet

outlets.

And it thanks to the endorsement of Elon Musk, which we'll we'll get to my views on Elon Musk when we go deeper into the iceberg. Dogecoin took off from being

iceberg. Dogecoin took off from being worth nothing to 60, which doesn't sound like that much, but it put its market

cap at well over $50 billion. And it was worth more than a lot of major US companies such as major airlines and

major food producers and retailers. At

one point, Dogecoin was worth more than Marriott hotels, for example. It it it was crazy and it was literally designed as a joke. I'm not going to get into the

merits of crypto. You can watch my other video which I'll have in a in a in a little caption here if you want to hear my thoughts on that. But it's and and

then like it kept going until it was well hyped about a couple months ago when Elon appeared on Saturday Night Live and they thought, "Oh, this was going to be the coming out party for

Dogecoin.

But then like he came on there and everybody who bought in anticipation of his big pump up loss this that Dogecoin crashed

50% the rest of that weekend because there was nothing left to it. That's the

lesson you buy the rumor, sell the news.

Was learned by a lot of Dogecoin speculators who probably didn't have that much history as professional traders. And it still has a positive

traders. And it still has a positive value now, believe it or not. And people

will just say on internet like just Tik Tok and social media like, "Oh, Dogecoin to the moon." Because like the world is crazy and stupid enough that why can't

the craziest and stupidest asset go up?

And that's kind of been the mentality.

It's the meme of memes. And speaking of Dogecoin, another funny fact about it is that if you put your money last January

2020 into Dogecoin between then and April of 2021, the return you got on Dogecoin, which is I think well over 10,000%. Was more in that year and a

10,000%. Was more in that year and a half than if you had put your money in S&P 500 for the last 30 years, which is mindboggling. That just shows you the

mindboggling. That just shows you the that again that shows you the power not that of like the fact that I mean the power of compounding I mean in terms of

daily returns but it that is a crazy story what turned into a joke has made and lost people billions of dollars over

the last year. I originally included in the sky level in the image, but this time around I'm gonna move it down one

level and that is libore. A libore for all of those who are not familiar with it stands for the London interbank offering rate. Basically, when banks

offering rate. Basically, when banks need to loan each other money when they're in a pinch for 24 hours or there's a posted interest rate on an

annualized basis.

So that would be libore. So if the when banks feel confident that they're healthy and will be able to pay back each other andor central bank policy

interferes with this rate libore falls.

If banks are skittish and think oh maybe one of my fellow banks is at the risk of default then libore will go up and or general interest rates go up for other

reasons. Liebore is important because a

reasons. Liebore is important because a lot of interest rates in the economy are based off of libore. So say like for example you have a margin account or

brokerage your brokerage account if you want to post margin overnight you're going to pay uh libore plus a certain spread it'll be quoted as say libore plus three which means you're going to

pay whatever liore is that day plus 3%.

So if libore is say 1% 1 plus 3 is 4%.

And it's not just margin accounts, interbank loans, corporate loans, even some just shadow banking type loans to

small businesses. Like I met a lender

small businesses. Like I met a lender when I was playing tennis who offered me liabore plus 3% for any small business who needs

money. Okay. And then there's I don't

money. Okay. And then there's I don't really you don't really see mortgages priced necessarily in liebore spreads.

They have their own market and they have strong collateral in the house itself.

But it's very commonly used in finance.

The dark side of libore had a history of manipulation. About a decade ago,

manipulation. About a decade ago, Barclays was caught manipulating libore and a lot of other banks were participating it. They kept it

participating it. They kept it artificially down when banks were feeling a squeeze and artificially high when they felt they can make an extra

buck doing so. and they got caught by regulators and a lot of people are faced severe legal trouble for being involved with it. It kind of exposed to how a lot

with it. It kind of exposed to how a lot of the financial market is more manipulated than it seems on the sky level. I mean everybody in Wall Street

level. I mean everybody in Wall Street knows that there is there's games occasionally being played in certain asset classes but the fact that Libore which is one of the most important

biggest price setters in all the financial markets was involved in a fixing scheme is that much more concerning. The next one we're going to

concerning. The next one we're going to talk about are derivatives. Derivatives

are seen as a boogeyman. And like you always see like financially uninformed media or people say, "Oh, our economy is so unstable because there's all these

derivatives out there or the banks are going to fall apart any minute because of all these derivative positions they have on their books." A derivative is

not just some spooky boogeyman that means excess leverage. A derivative can mean a lot of things. A just a simple definition of a derivative in a

financial sense is a derivative is a financial instrument that moves based off of the movement of an underlying instrument. So this can include futures

instrument. So this can include futures contracts which trade on commodities and currencies and stock indexes. It can

include options which are the ability to buy a security or a futures contract at a fixed price at a future time. If you

want to know more about options, uh I done several videos on options. I will

post one right up here on my screen on to your onto your right or I will also link them in the show notes too. But

yeah, options are a form of derivatives.

Then there's also forward contracts which are the agreements to be able to borrow money at a certain exchange rate for currency forwards or to accept

payments of different currency or in the case uh or interest rates. And then

there's swaps where you exchange two different source flows of cash one side to the other. These are usually mainly used to hedge currency risk or interest rate risk or credit risk even some of

them such as things such as credit default swaps. But the mainly what they

default swaps. But the mainly what they their purpose is to do is to allow institutional investors to hedge certain

risks in their portfolios. And that's

why a lot of the the derivative gross exposure doesn't really mean anything to me because it's net exposure. A lot of these banks, yeah, they hold a lot of gross exposure and derivatives, but the

most of their positions cancel each other out because they serve as a market maker to cancel against a a position that they take the other side on. Yeah,

I'd be more worried if a bank was all in on a certain direction or a certain level of volatility and needed a certain outcome in the market to happen for

their derivatives to be made whole.

example maybe of this. They weren't

really quite a bank, but a brokerage that got in trouble with this was MF Global in 2001 who had a big bet on European sovereign debt recovering. They

were right, but two years too early and MF Global went under as a result. So

that's really what's more concerning on the derivative side is that is whether they have an excess net exposure one way

or the other versus a gross exposure.

The banks make markets in these things and they get paid a premium to do so.

And so a lot of their positions are just netted out. So and derivatives they

netted out. So and derivatives they allow more precise and often in the case of the options market if you do it

correctly more favorable riskreward ways to get certain exposure in the marketplace. On the other side, a lot of

marketplace. On the other side, a lot of people use these now. It used to be bank hedge funds and banks pre 2008, but now it's more retail investors nowadays to

get more leverage than they could trading underlying. And that's the

trading underlying. And that's the dangerous improper way to be using derivatives. So, those are my thoughts

derivatives. So, those are my thoughts on the derivatives market. The gold

standard is kind of like Camelot of Wall Street. It's this idea and I'm

Street. It's this idea and I'm sympathetic to the gold standard personally because it it did work pretty well preworld war I in most of the

western economies. It was this idea that

western economies. It was this idea that every dollar I'm just going to use the United States as an example here but it applies to just about every country in the world. Every dollar is backed by a

the world. Every dollar is backed by a fixed amount of gold. This really is art effectively in the late 19th century when you got rid of buy metal standards

which was the currency standard before where you had gold and silver as legal tender at a fixed ratio but then the silver supply started to dwarf the gold

supply and this created a a lot of inflation that wouldn't have been there otherwise. So the there was some

otherwise. So the there was some controversial elections about this in the late 19th century in the US. William

Jennings Bryan's cross of gold speech comes from and actually the Wizard of Oz fun fact is rumored to be an allegory of

the gold versus silver debate of whe of how you should have inflationary or deflationary monetary policy and one metal and that also that's why in the

book versus the movie Dorothy slippers are not ruby they are silver because silver is is the pathway for farmers in Kansas to be prosperous because farmers

benefit from inflation. And the yellow brick road represents gold and the powerful interests and oz is the big city that

benefit from the gold standard. Fun

fact, but the idea is that basically every dollar is backed by gold. So if I went to a bank, I'd be able to exchange

$1 for 120th. The gold standard is the idea that you can exchange your gold for a fixed amount of dollars or your dollars more importantly for a fixed amount of gold. For most of American

history, this is at $20 an ounce. It was

changed in the early 1930s to $35 an ounce by President Roosevelt. And then

when Richard Nixon closed the gold window in 1971, the value of the dollar in gold was freely floated, which means you couldn't go to Fort Knox or a bank and

exchange it for gold. Now gold has gone up from $35 to over 1900 since 1971. You do the math on what that means

1971. You do the math on what that means for the rate of decline on the dollar if you assume that gold is actually the hard source of money. And the reason why

people like the idea of the gold standard is that it kept the government honest in terms of its spending. It was

very difficult to have excess deficit spending because your ability to finance that was limited by the bond market or taxes.

Raising taxes obviously is not politically popular. Raising bonds can

politically popular. Raising bonds can work, but if you don't have a central bank to buy the bonds for you, there's only so much paper that the investors

are willing to buy before they demand a higher price for it and get worried about your solvency. So interest rates would go up and this is what would happen. So if you had a a

happen. So if you had a a non-competitive economy, this is what happened to Europe between World War I and World War II, which is what caused the gold standard to get into trouble.

If you want to know more about that, I recommend reading a book called Lords of Finance, which gets into how the gold standard unwound in the 20s30s in Europe. And because these company these

Europe. And because these company these countries were not economically competitive on a manufacturing front while the US was because they weren't damaged by World War I. So all so on a

gold standard, your trade balance is your gold balance. So if you have consistent trade deficits, you're shipping gold to the country that's providing the surplus and you're giving

up your own gold. And because you have less gold but the same amount of currency in your country, the value of

your currency declines. And when it comes to when you have more gold for the same amount of currency, the value of your currency increases. And so this is

supposed to be like a a self-correcting mechanism. So if a

self-correcting mechanism. So if a country keeps having consistent trade deficits and is not competitive, their currency will be cheap and therefore

they'll be able to compete on the global market with cheaper products. And so

therefore because of that people will import from this country and they'll get their gold reserve back. And it was this nice smooth global. worked well until World War I when governments had to

temporarily suspend their gold standards to print money to finance the war. And

when they tried to get back on the gold standard at the same fixed rate as it was preWorld War with that additional amount of money supply, it wre havoc in the economy. What they really should

the economy. What they really should have done is they should have seen what the effective market fee was, the market rate for that gold would have been, and just pegged it to a lower level. That's

how you would have and then just let the old balance of payments way of settling your gold balances correct themselves.

The other thing is Europe was struggling with crazy pol radical politics and and it didn't really and a bad economic system. So they weren't able to recover

system. So they weren't able to recover as quickly from the war as expected and so therefore that natural flow and balances didn't really happen. The US

ended up with all the gold. That's an

entire and that's kind of what why the gold standard started to to break down.

It's mainly because governments needed to cheat to finance World War I. So war

is effectively what destroyed the gold standard the beginning of the end and then in the 70s with the finance the Vietnam war the US government cheated with guns and butter money printing

policies and but they thought they could sneak a fast one on the rest of the world. But then when countries such as

world. But then when countries such as France started demanding their gold back, Nixon realized the game was up and just let go of the gold standard. So

historically, financing wars or excess government spending is what destroys the gold standard. And because you can't

gold standard. And because you can't have excess government deficit spending beyond the means of taxpayers if you have your currency honestly tied to gold. And that's why

you have a lot of the weird economic problems in terms of like bad public finances, income inequality, asset

prices going up in dollar terms, but not in precious metal terms. Actually, if you want to learn more about this, there's a great website called priceding

gold.com and it will just show you like every asset class or consumer product that has like an index divided by the price of gold. And it's amazing how flat

a lot of these charts are. Like I'll

post the one about housing in this video. And as you'll see, housing

video. And as you'll see, housing prices, even though they've gone a lot up in dollar terms and gold terms, they've pretty much done nothing in the

last 100 years. Similar food prices and most other consumer goods. But the one that's been consistently trending down is wages. And that explains why you have

is wages. And that explains why you have a lot of uh I would say social tensions because wages have been collapsing. Not

in dollar terms of course because we keep printing money but in real purchasing power terms. So yeah gold stand then there's the main like I'm going to try to be fair and neutral

here. The main argument against the gold

here. The main argument against the gold standard something called Triffin's dilemma. Driven's dilemma is basically

dilemma. Driven's dilemma is basically the idea that you have too much like like economy grows past a certain point

and gold realistically can only grow at the rate that it's mined which is historically maybe when you have a prosperous year for gold miners 2 to 3% of the total world's gold supply which

is not that big you can fit almost all the world's gold supply and two Olympic size swimming pools so yeah I mean The main problem with Triffin's paradox is

that when you have a global reserve currency such as gold in this case, there's not you need to have it grow at a certain rate to fill all the needs of

the growth of the global economy. But if

gold is not mined at fast enough of a pace to cover that, then you get major financial volatility and squeezes. And

because liquidity dries up, that caused interest rates to go up. It causes

defaults and then an economic depression. Like the downside of the

depression. Like the downside of the gold standard was that there was a lot more economic volatility which has humanitarian and

social consequences when people go bust on their loans and jobs are lost and a variety of other variables. An Austrian

would argue this is just the market cleaning itself out from its excesses.

where somebody who's more interventionist through economic beliefs say I'm fine with having inflation and having savers lose if it causes less

people to get thrown out of work and less violent recessions and violent inflationary booms and just I'd rather have my losses on the my currency

purchasing power being consistent than have a stronger do a stronger currency power easier to save at the expense of a more volatile

economy. So, you're basically choosing

economy. So, you're basically choosing between economic volatility and a truly clean, cleared market. That's a debate I will maybe get

market. That's a debate I will maybe get into on another uh video if requested.

But I've already spent enough time on this iceberg talking about the merits of the gold standard. So, let's move on to

the next topic, which is OPEC. For those

who aren't familiar with OPEC, OPEC is the organization of petroleum exporting countries. They are basically a cartel

countries. They are basically a cartel that controls the supply of oil that is available on the international market.

Prior to 2011 and the fracking revolution, they had a lot more power.

In 1974, OPEC in response to the US support of Israel decided to basically embargo a

export of oil to the United States and caused the spark that would cause nearly a decade of abnormally high inflation.

In the 2000s, OPEC was able to keep oil prices high because you had a new buyer in China, absorb a lot of demand, and the

rest of the world hadn't caught up yet with supply. And this is how you hear

with supply. And this is how you hear about how like the stereotype of how rich like the Shiks of Dubai and Saudi Arabia and Qatar and Kuwait, it's all

came from this oil oil money real. It's

always been there, but it really the peak phenomenon of like the pop culture of oil money from the Middle East was in

this 2002 to 2008 period when oil had its highest prices in real terms of all time. At one point, it got as high as

time. At one point, it got as high as almost 140 over $140 a barrel. U OPEC's

membership has varied over the years, but I mean right now it's 13 core countries. Most of them are in the

countries. Most of them are in the Middle East and North Africa. Saudi

Arabia is by far the biggest producer.

They actually have less prudent reserves than Venezuela, but Venezuela's political turmoil means they're not actually producing that much. So, in

terms of production, Saudi Arabia produces almost as much oil as the rest of the OPEC countries combined. And the

next two in size are Iraq and Iran who combined produce about 80% of what the Saudis do. So yeah, the main players are

Saudis do. So yeah, the main players are Iran, Iraq, and Saudi Arabia, but there's other countries too with the most notable ones outside of the Islamic

world being Nigeria and Venezuela.

Indonesia, Ecuador and Qatar used to also be part of OPEC, but they have left for various reasons. Qatar for

geopolitical reasons and Indonesia mainly because their domestic demand for oil went up enough that they weren't they were not a material exporter

anymore. So that is OPEC. What if they

anymore. So that is OPEC. What if they were doing this on a national level or if a company a private company is doing something like this, it would be

illegal. Cartels are not good in a free

illegal. Cartels are not good in a free market economy. They keep prices above

market economy. They keep prices above what they would be otherwise. But since

this is done on a sovereign national level, they can get away with it. At

least they were able to really until again the fracking revolution, the US became the world's largest producer of oil again. But then as a response, OPEC

oil again. But then as a response, OPEC created OPEC plus which was the original OPEC countries plus the cooperation of

several other major oil producers. The

most important of these being Russia.

And so if you have Russia plus the the main crew at OPEC, now the cartel has a lot more strength. And since OPEC joined, they've been able to have a much

stronger influence to at least help keep oil above a certain floor. I'm not going to get into the fundamentals of the oil market. That's another time. But

market. That's another time. But

basically, OPEC is a legal cartel which has caused a transfer of wealth that would have gone to other places into these oil rich exporting countries.

Depending on how well the country is run, whether the people or the rulers have disproportionately benefited from this in these countries is up for you to

decide. Again, that's I've done that

decide. Again, that's I've done that video and some of my other podcasts back in the day, but that's not really a finance topic. The next one I'm going to

finance topic. The next one I'm going to talk about is Ponzi finance. Ponzi

finance is I mean it comes from the term the Ponzi scheme which is this invented Charles Ponzi which is essentially the

idea that you have an investment that the only way it works is that if more people pay in than take out. So like how

a Ponzi scheme works is say I am Charles Ponzi is that he promises a certain return to investors and then he gets more investors in and they put in the

money and then he pays the old in the old investors money to the to newer investors money he gives to the older investors and claims that they are profits. But you can see how this

profits. But you can see how this doesn't work cuz you always need a consistent flow of new investors to come

in. And once that stops coming at a big

in. And once that stops coming at a big a fast enough of a pace, then the whole scheme falls apart and the losses are exposed because the Ponzi scheme never

actually created any value or actually did any investing. It was just a shell game. I mean the most notable examples

game. I mean the most notable examples of course are Charles Pony's original scheme and later Bernie Maid off.

So now Ponzi finance however is not really refer specifically to Ponzi schemes. When I am talking about Ponzi

schemes. When I am talking about Ponzi finance, it's really the idea that there's a lot of aspects to the economy

where there's companies that particularly and investment schemes that really rely on only survive on more people putting in money than pulling

out. there's not any actual wealth

out. there's not any actual wealth produced through the fruits of the labor or the capital in the given enterprise

as an example is this is a zombie companies where they're deeper in this iceberg but that company like a lot of

these unicorns a tech example where they can't they they can't finance themselves through actual revenue and profits so they have to keep raising money at

higher valuation ations to keep the party going. I mean, so it's really or

party going. I mean, so it's really or like another example would be well cryptocurrencies. They're not Ponzi

cryptocurrencies. They're not Ponzi schemes like the way Charles Ponzi did them, but the only ways and the way they move up is not because they actually

produce any value for say it's not like they're not creating a dividend. It's

that more people are putting money in than out and they go up. And if more people pull more money out than in, they go down. This is also the same in the

go down. This is also the same in the art world or any other collectible as this mechanism of pony finance at least.

The term I think originally comes from Boston Consulting Group and I'll put their article in here as a link, a reference link. But yeah, I mean there's

reference link. But yeah, I mean there's too many of these types of Ponzi finance mechanisms in our economy and it's probably going to make things a lot more

unstable than they otherwise would. So

just when you look at an investment and just think does where so how will I expect to get my return is if it's from

more people just putting it in than taking it out then that that's a little bit scary whe or whether or if the capital's being invested and does produce something that eventually

generates profit then you have a more sound footing. Hedge funds are another

sound footing. Hedge funds are another one of these boogeymen in finance that really aren't. A hedge fund really is an

really aren't. A hedge fund really is an investment vehicle that an asset manager invests in a variety of assets that are

not available to mutual funds and a lot of strategies that are not available to mutual funds. And in exchange, the the

mutual funds. And in exchange, the the the the catch is that hedge funds are restricted only to accredited investors, which by the rules in the United States,

I think it's about $250,000 a year the last two years for individual person or $300,000 for a married couple or a million dollar net worth to $1.5 million net worth

excluding a house. And the reason why they do this is to protect people who are uninformed and risking their life savings from something that is too

speculative for what uh regulatory authorities perceive as their risk tolerance. I get why they do this. I

tolerance. I get why they do this. I

think the credit investors rules should probably be based more on education levels than just pure amounts of money be because there's educational knowledge

of what you're getting your money into is probably helps you better understand what you're risking than just the amount of cash you have. But the point really is is that that's what hedge funds do.

Like there's hedge funds that do long short strategies which they go long a certain buy a certain amount of stocks and they short sell a certain amount of stocks against it to keep a relatively

neutral portfolio and try to get returns just on their ability to pick winners from losers. There's macro funds which

from losers. There's macro funds which is most of my career's experience with which is they bet make big bets and futures contracts and indexes of

countries to figure out what the global trends are and who's going to profit and why. You have trend following which uses

why. You have trend following which uses more technical analysis which I surprised I didn't include in this iceberg but there'll be a technical if I ever make another iceberg it will

include a lot of technical analysis stuff and generate money that way. There

just again they're they're just a more unconstrained version of traditional investment advisors. There's plenty of

investment advisors. There's plenty of there doesn't hedge funds there's nothing really secret about them that makes them apparently inferior or superior investment. In fact, actually

superior investment. In fact, actually hedge funds have been underperforming consistently since the 2009 crisis. But

that's also because the target return of hedge funds is not the S&P 500, which if that's your target, you got to just be heavily long a few big tech stocks. They

have different goals and that depends on what their investor statements are and what their plans are because there's there's hedge funds all over the place.

That's not really what this video is, explain hedge fund strategies. I'll do

that in a different one. But yeah,

they're just another part of the market.

Pork bellies and orange juice I use as a reference to obscure futures contracts.

Features contracts are basically something that you can buy to or sell to really lock in a price to buy or sell a

given underlying commodity, currency or index. They're they're originally used

index. They're they're originally used for farmers to lock in prices if they wanted to sell their grains and into the export market through Chicago or for

buyers. It's like say if you're a a a

buyers. It's like say if you're a a a bakery and you want to lock in of your wheat, you can buy a futures contract and so you'll know you won't pay more than this amount in term delivery and

you can set they have dates throughout the year for these. I'm not going to really get into the mechanics of futures contracts in this video, but when the me mainstream culture thinks of futures

contracts, the two that come up most often are pork bellies and orange juice.

And I think why this the case because there's kind of silly. It's just the idea that people are in the pits in Chicago or digitally

nowadays. But in Chicago trading and

nowadays. But in Chicago trading and aggressively trying to set prices on things as obscure as packages of orange juice or slabs of pork bellies always

captured the imagination in a humorous way. Orange Juice particular reference

way. Orange Juice particular reference comes from the movie Trading Places with Dan Akroyd and Eddie Murphy where the villains in the movie try to make money

from getting a USDA crop report in advance for the orange juice market in Florida and the protagonist trick these

greedy traders by sending them a report that has the opposite implications of the real one. And so then they like these guys load up in based on what they

perceive as insider information, but it's really a red herring. And so when the actual report comes out, they lose all this money in their orange juice contract. And when they try to get out

contract. And when they try to get out of the position, they yell, "Sell, Mortimer, sell." And that's become like

Mortimer, sell." And that's become like a funny quote. And Trading Places is probably even though it's from the 80s, the movie that most people think of when it comes to futures trading or that's

like the pop culture reference of it.

And so Orange Juice futures, they've declined in popularity considerably since I've started my career. I remember

when I first used Pin Viz, which is this tool I use to check a lot of my charts and things. Orange juice used to be

and things. Orange juice used to be something that was tracked and the futures listed there. Now it's not. They

still are trading. It's just their volume is quite lower than it used to be. I think part of it has to do with

be. I think part of it has to do with people being more conscious of sugar and so they're not drinking as much juice period, particularly orange juice. And

yeah, they've just become a less popular contract over time. And also maybe people started prefer to trade index futures and other things. And then pork bellies, those got discontinued outright

in 2011. And there are no pork belly

in 2011. And there are no pork belly futures anymore. when people ask me what

futures anymore. when people ask me what happened to the pork do you trade pork bellies and I'm like I don't know no they haven't been around in 10 years I missed that boat. So yeah that's the

futures market. Next I'm going to talk

futures market. Next I'm going to talk about short selling. Okay, short selling is another one of these. I'm covering a lot of the boogeymen proceeds that aren't actually boogeymen. Like people,

a lot of people like to blame the shorts for a lot of bad things that go on in the market. But really, a short selling

the market. But really, a short selling is basically a way that you can trade to make money off the prices of things going down. You borrow shares, you sell

going down. You borrow shares, you sell them immediately, and you hope to buy them at a price that is lower. It's not

always easy to short because if something is popular among short sellers, the market makers and the brokerage houses know that. So in order to lend the shares, they'll charge you a

much higher interest rate. So if you or say for example want to short a hard to borrow stock, the interest rate is 50 20% annualized. If the stock goes down

20% annualized. If the stock goes down 20%, you hold it for a year, you don't make any money. So you have to so they have to move not just move down and

these more popular shorts they have to move down fast for you to make money and that's why a lot of these will buy people who want to trade hard to borrow

things will buy puts but the puts are often bid high because again people don't want to pay the high borrow cost but yeah shorting is just and I think shorting makes a market healthy and it's

it's often I did a video on whether the world will ban us will ban short selling I will show have I'll I'll show a clip of it. I'll put it right here in this

of it. I'll put it right here in this part of the video and also have a link to it. But short selling has a role

to it. But short selling has a role because it allows for honest price discovery. If people can find bad things

discovery. If people can find bad things going on in a company or see that prices are excessive, they this short selling is kind of a self-correcting mechanism

the market has. Also, when you do have real market turmoil, the first people to buy the dips or the bare markets often are shorts because they got to cover their positions. And in order to cover

their positions. And in order to cover your position, you got to buy the shares back. And that's why often when you have

back. And that's why often when you have a lot of rallies in the markets, any asset class, they're usually started by short sellers. And short squeezes are

short sellers. And short squeezes are popular because that's when too many people get short at the same time. So,

when they have to cover, you see a massive movement higher. So short

selling can work both ways. So that's my thoughts on short selling. The next one is MO MO is short for momentum investing. Momentum investing is

investing. Momentum investing is something that consternates a lot of more valueoriented investment professionals because there really isn't any logical sense to it. But it's just

the idea that if you're a momentum trader, you buy whatever's been going up a lot recently, particularly in the last 3 to 12 months, and you sell or short the stuff that's going down a lot over

that time period. And by doing such a strategy, academic studies have actually shown that these type of strategies outperform just buying and holding and

by a material amount. Uh it's about 1% a month. And some of these momentum trends

month. And some of these momentum trends go back to as early as the 19th century.

The main risk with Momo strategies, one, it requires a lot of turnover. You got

to watch what's hot or what's not. The

second challenge of Momo investing is how do you know when the moment is going to stop? Because these things when they

to stop? Because these things when they go parabolic, it's very difficult to know when the party's over. And usually when you get such a big move up, you get just

a violent, if not faster, of a move down. And so momentum strategies tend to

down. And so momentum strategies tend to have very high draw downs because it's not just like you go on a ramp like this

and then it just flatlined. No. Like what really what

flatlined. No. Like what really what happens is that you've got momentum stocks that they go up but then they go

down just as fast.

So that's or faster and so it's like playing hot potato with the market. So a

lot of people I know have made quite a bit of money off Momo. It's personally

not what I do even though maybe I indirectly incorporate through some of my trend following risk management procedures but yeah it's out there. It's

kind of silly but it it strangely works to a certain degree but it's like selling volatility. It works really well

selling volatility. It works really well until it doesn't and then it blows up.

Share buybacks is the last one we're going to talk about on this iceberg. I

know these are getting kind of long, but these are deeper topics. I may have to split up the future layers into multiple parts given how long this video is going

to be. This one's probably over 40

to be. This one's probably over 40 minutes. So a share buyback is simply

minutes. So a share buyback is simply when a company buys back shares of its own stock to boost the value of the

stock. So say like if I'm a I don't know

stock. So say like if I'm a I don't know Apple and I made a bunch of money and I don't really have any more capital investment. I'm good with my factories.

investment. I'm good with my factories.

They can produce all I need. I sp

already have enough money I spent on research innovation or whatever I'm growing. So, what do I do with the cash?

growing. So, what do I do with the cash?

I just have it sit in the bank. I can

use it to pay off debt or I can write a dividend check and pay it directly to my investors. But the most popular option

investors. But the most popular option is using share repurchases or just buying back the shares. And this has become very popular in corporate finance

for one reason. One, for multiple reasons. First, you can have a tax

reasons. First, you can have a tax perspective. Since dividends are taxed

perspective. Since dividends are taxed higher than long-term capital gains, you can argue it's more tax efficient just to buy back your own shares and shrink the float. And because that your

the float. And because that your earnings per share rise and thus the value of the remaining shares rise by whatever you would have paid as a dividend, if not more. And then instead

of getting right a dividend, investors can sell the amount of shares they need for income purposes instead of they're waiting on a dividend check. There's

also the more cynical reason that a lot of CEOs executive bonuses are priced off of share price. And what's the best

what's the easiest way to boost your share price all things equal? That's to

shrink your float and buy back shares.

And even if it would have been better to pay your CL your investors a dividend, you'll do the buyback because it's better for your bonus payment. I'm not

saying this is their ultimate motivation, but you could see how there's incentives like that are there.

Share buybacks were actually illegal for a large time in American history due to them being accused as market manipulation.

But then buybacks were legalized in the 1980s and then after that you've seen disproportionately much higher stock

markets and so it was 1982 when the SEC passed rule 10B18 which created a legal process for buybacks. They became exponentially more

buybacks. They became exponentially more popular after the 2008 crisis when companies were struggling to grow their top lines due to struggling demand. And

so they wanted to boost their earnings per share. What if your earnings are

per share. What if your earnings are flat? What how do you do that? You got

flat? What how do you do that? You got

to lower the shares. And this also there's studies to show that this has been an effective strategy because the c the country or you look at a country bycountry basis on the performance of

stock indexes the countries where the most amount of net buybacks of shares take place is the ones that have the best relative performance. Buybacks are

fine as long as you're using cash that is on your balance sheet that you can afford to use on buybacks. Where

buybacks become a problem is when companies borrow to buy back shares and then just get themselves into an

unsustainable level of debt and become zombie companies which I talk about in a separate video and also we're going to go in that refer that's in layer four of

the iceberg is all about zombie companies. That's where I have an issue

companies. That's where I have an issue with it. I mean, as long as you when

with it. I mean, as long as you when companies don't have the cash to buy back shares, but do it anyway. That's

that's not a that's in my opinion not a good idea. The next one we're going to

good idea. The next one we're going to talk about is Tulip Mania. Tulip Mania

was a phenomenon in the early 1600s. The

reason why that tulip mania is as famous as it was because it was the first speculative bubble in a semi-advanced economy that we have really good record

or good enough records of price action.

I mean, there have been speculative binges as early as ancient Rome. If you

want to learn about the history of speculation, I recommend reading a book called The Devil Takes the Hindost, which I will also put a link to in the

show notes of this. So, but Tulip Mania stands out because it was kind of the first of its type. The Dutch economy was the first country to ever have a stock market and publicly traded companies.

They had a lot of other innovations in their economy to really have the first truly modern economy. And that's why the Netherlands as a country as small as it

was had a really powerful colonial empire and geopolitical sway throughout the 17th century. So tulip mania kind of

really started in the early 1600s. The

tulip was originally brought to Europe through the Ottoman Empire because it was a Turkish flower and through trade after the repel of after the Ottomans

started to invade some of the Balkans and it made its way eventually up to the Netherlands where it became a very popular luxury item. And then there's a

there's a variety of different colors that had different rarities kind of like I don't know like baseball cards or cryptocurrencies or things like well

like that different levels of scarcity and people started to trade them like collector's items. Classic car is another example of this and it then kind

of started to take a life of its own.

There would be certain like bars, coffee shops where people would go just to discuss tulips or to broker deals for

tulips. Um, it became a it transformed

tulips. Um, it became a it transformed from a status symbol to a chance to make a quick buck. Like they were Amsterdam

merchants who went to um collect tulips from far lands and would make 400% margins on the journeys. Um it

really so it basically this thing lasted for almost a decade but the really the peak run of tulip

mania really started in 1633 and then it that's when it really kind of started to capture the imagination. But then when it really

imagination. But then when it really took like the peak parabolic rally was November 12th 1636. And from November 12,

1636. And from November 12, 1636 to February 1637, tulips rallied from over from like

say like I using the index that I'm using here on Wikipedia page $10 a bulb to over 200. I mean it wasn't

even US dollars obviously they're using Dutch gilders I believe. But for tulip bulb contracts though went up 20x and a lot of people made a lot of money real

fast but then from February 3rd to May 1st they dropped back to November levels and this thing completely collapsed and it's also there's a few implications to

the tulip bania one it shows the potential the madness of crowds and that something that is of as little intrinsic value as a tulip I Tulips are nice

looking flowers, but they don't have that long of a shelf life, especially if they're in a pot, not out in nature, and they they can't they don't generate any

sort of cash flows. But people will speculate on things when there's a perceived shortage or or if the price goes up enough, it captures the

imagination. And you and it's the first

imagination. And you and it's the first real good written example of that type of spec paper. We've seen this in other assets such as.com stocks in the '9s,

railroads in the turn of the 20th century. You've seen it with

century. You've seen it with cryptocurrencies recently, Pokemon cards also around during the time of the tech bubble. They might and you had a similar

bubble. They might and you had a similar phenomenon with the cell bubble and the Mississippi company in the in the 18th centuries. So these things happen on

centuries. So these things happen on relatively rolling basises and then housing too.

There's several different housing markets in the history of the world that have had speculation, but there's with housing, you had a rent cash flow or use as a shelter, but some of the like tulip

mania particularly stands out because there wasn't really a strong economic original argument for it other than the fact that somebody was willing to pay a higher price. That's why I think it's

higher price. That's why I think it's captured the imagination so well. uh

because it is really shows the the folly of greed and I think there's some lessons that could be applied to current speculative markets right now when it came to tullet mania the other

explanation at one point at the peak of it a single bulb could get you like a house it could get you eight fat pigs or

it can get you a,000 lbs worth of cheese it was a kind of a oh actually no I'm reading that wrong you could get a house but you get a whole basket of goods

including two lasts of wheat, four lasts of rye, four fat oxen, eight fat swine, 12 fat sheep, two hogs heads of wine. I

don't even know what a hog's head is in terms of a measurement to be honest with you. Four turns of beer. A hog's head is

you. Four turns of beer. A hog's head is just a giant barrel that's about a fourth of a turn. And then uh you've got a complete bed. You get a whole bed, a

whole closet full of clothes, and a silver drinking cup. So, you can basically start your own life as a gentleman farmer for the cost of one tullet bulb at the peak of this thing.

And also the Netherlands, you see pictures of like the Dutch countryside and what do you see generally? Two

things. You see those windmills that help drain out the water because a lot of the Netherlands is reclaimed and then you see the tulip flowers and the gardens sprouting everywhere. Why are

tulips so common in the Netherlands?

It's because of this. Now, let's move on to our next one, which is taking delivery. I talked about futures

delivery. I talked about futures contracts on the surface level and slightly below the surface, we're going to talk about the idea of taking delivery. So if you have a futures

delivery. So if you have a futures contract and say you buy a contract that's a th000 barrels of oil and it is

due on July 1st and you do not sell that contract or exit the position before delivery date. In theory at least you

delivery date. In theory at least you are stuck with taking delivery of the oil. And usually the people who hold

oil. And usually the people who hold these things in delivery are real users end users such as for an oil contract for example airlines. They need the oil

to turn into jet fuel to fly all the planes around. That's why they're an end

planes around. That's why they're an end buyer or a meat processor wants to buy live cattle or lean hogs. But sometimes

they're speculators where usually not individual traders. are often at big

individual traders. are often at big banks desks or hedge funds, something like that, who just lose trade so many futures and they lose track and forget

to exit their positions and as a result they end up having to take delivery.

Taking delivery means you have to physically pick up the goods from the quering house or wherever the seller has them and bring them to where you're going to take them because that's the

agreement of the features contractor.

You hold it in delivery. you have to take it. Some things isn't a big deal

take it. Some things isn't a big deal like currencies or stock market indices or bonds. These deliveries settle in

or bonds. These deliveries settle in cash. Others they're physical goods.

cash. Others they're physical goods.

Sometimes people intentionally take delivery and even on the investor side like the University of Texas pension fund has famously taken physical delivery on gold futures contracts it's

bought over the years. Others have get stuck with these by accident. There's a

lot of old stories. Some of them may just be myths, but whereas like a futures trader loses something and then like I think Goldman for example had a

trader again this is maybe apocryphal.

I'm not sure if it's actually true, but took the had accidentally took delivery on a contract of live cattle and therefore had to take a hundred cows and

store them somewhere and feed them because they were his cows. He had and the farmer wanted to he needed to get wanted wanted to get rid of them and he had to contractually obligate to take

them. And so therefore, he had to set up

them. And so therefore, he had to set up a warehouse and a feed stall and just keep these cattle until they had somewhere to put them. There's also been

similar stories about people getting sent bushels of wheat to their garage or a b or a basket of corn. It's really

kind of funny. It's like, oh yeah, you forgot your futures contract. You get a call from the exchange saying, "Hey, Mr. Smith, we got to send you now I don't

1,000 lean hogs because you forgot you didn't take del because I guess you didn't close your contract so you got to take delivery and you have and next couple days you have a bunch of pigs

shipped to your house. It's just funny thinking about it honestly. I mean I think there are some a lot of brokerages and clearing houses have safeguards to prevent this kind of thing and there are

also smart biders who are endusers who will take advantage of this opportunity and be like hey look I know you accidentally going to get stuck with a bunch of pigs but if you if but if you

sell them to me for a heavily discounted price will take those off your hands and usually just to avoid the hassles and

the cost of storage people will fire sale this and take a big loss on the trade. So yeah, taking delivery is a

trade. So yeah, taking delivery is a real thing. Even though it seems like

real thing. Even though it seems like most of the stories you hear about are more urban legends, just make sure if you're long a futures contract to make

sure to close it out before it expires or roll it forward to a future month.

The other thing is the example of where delivery has impacted kind of the market on a more macro scale was happened last year in April when oil because due to

the pandemic oil wasn't being being used because nobody was driving or flying and production was still up you had an issue where there was nowhere to store oil and

on the last day of trading of the of the futures contract that month the April futures contract oil fell from $20 to

minus4 $40 a share because basically people had to pay to get rid of the oil they were having because they had

nowhere to store it. And I never thought I would imagine seeing a commodity like oil ever trade negative. But it just shows you about sometimes if there's nowhere to take delivery, you have to

pay a steep price to find somebody who can store it. And it really weird day. I

can't even remember that when oil went negative. Something I never thought

negative. Something I never thought would happen. Let's move on to spaxs.

would happen. Let's move on to spaxs.

Well, spaxs, we talked about IPOs before. A spa is kind of an alternative

before. A spa is kind of an alternative way to go public to an IPO. It stands

for specialurpose acquisition company, and they became more popular over the last several years. The only time they kind of had a light in the sun was the peak of the tech bubble, but it's

basically a spa is a way to go public where you create an empty shell company that has

the cash to buy a company that's private and then instead of having to go through the formal registration and IPO, this empty company that's is already public

will just announce an acquisition of the private company and then that private company is now a public company through the shares of the dummy company is

created before it. Why would somebody use spaxs over a stock? Well, from an issues perspective, you would usually generally generate a lot more fees um

from spaxs as a percentage of the deal than you would in a traditional IPO.

Also, for both sides, advantage of this is you can get your stocks a lot faster.

So there's a hot market where people are willing to overpay to the moon for any price that the spa market is the way to do it cuz you don't know how long say

for example electric vehicles are going to be a hot commodity and so you want to go public at the highest valuation possible before people like sober up on

the sector. Spa is probably the way to

the sector. Spa is probably the way to go. So you see a lot of companies that

go. So you see a lot of companies that are in hot sectors and are really early in their development that probably do not have the minimum qualifications to

go public and don't have to and also the failure advantage spaxs doesn't require as much due diligence or you don't have to have as strong um you don't have to have proof of earnings or a lot of the

other minimum requirements. So it's a lot more speculative grade type companies, things that would not norm that would not really be public through

the traditional IPO means. But if you want to get the deal done fast and you want to catch a wave or if you want to try to sell something that normally in a

less exuberant market would not be very attractive, spaxs are the way to go.

There are some issues with SEC is looking into with spaxs. Mainly the fact that they offered a lot of these spack dealers offered privileged deals to insiders that they could buy shares of

the spack, but if they didn't like the deal, they could sell it at the price they paid for it, not if the stock fell after the announcement, which is kind of unfair way to do it. In terms of me

trading spaxs, I have never really bought one at like in the early game, but after they've sold off quite a bit that after the initial exuberance and

the fact that people realize, hey, wait, we're overpaying for this back, these things tend to panic and then there's some dips that may be worth buying because not every company that's a spa

is a bad company or an overvalued mess.

Some actually are solid companies, but we're trading too rich at the beginning and then they come down and it gives a good opportunity to buy. Yeah, that's my thoughts on spaxs. They're just a kind

of a more speculative way to go public.

The next one I'm going to be talking about is Zero Hedge. Zero Hedge is a website that started in

2009 by an ex trader who had some issues that no longer had allowed in the

industry. And as a result, he decided to

industry. And as a result, he decided to switch to blogging. And Zero Hedge is originally was kind of a niche thing

more in the financial industry, but has gotten more diversified and developed more of a personality dehand just

finance. The original founder's name was

finance. The original founder's name was Daniel Evangiski and he was a former hedge fund manager. Instead of writing as his own name, he writes as Tyler

Deran. The whole website is themed fight

Deran. The whole website is themed fight club and the slogan for Zero Hedge is on a long enough time frame the survival

rate for everyone drops to zero. I guess

I got a lot of context here, but Zero Hedge has been a very it's been good at exposing a lot of

inconsistencies in the marketplace. like

they were one of the first to get behind the stories say of the high frequency trading issues in the early 2010s.

They're known originally really was for a being overly bearish. They still have a very bearish bias. And people who

follow too much Zero Hedge, including myself earlier in my career, probably lost out on a lot of profits or even lost money shortelling because they read too much Zero Hedge. It's something I

think a lot of people go through in this profession. Ever since really as it's

profession. Ever since really as it's evolved, it's became more of just a general like right-leaning libertarian type news site along with bearish

analysis on the stock market. Like they

even got banned by social media in 2020 for being one of the first people to talk about the lab leak hypothesis. I

don't want this video to get taken down, so I'm not going to go into any more on that. And it was kind of funny because

that. And it was kind of funny because when they got their site banned, the market peaked within a couple weeks.

Yeah, it's kind from Twitter. So like

it's Zero Hedge is like almost a contra indicator in a way because they started right kind of near the lows of 2009 and

then during the pre- pandemic peak they were taken down. So yeah, it's it I don't really read Zero Hedge as much as

I used to. Sometimes they have some interesting headlines and they historically are pretty fast to reporting stuff and they provide a good

bearish alternative especially when the most of the mainstream media especially the financial television is overly bullish. So they provide a good

bullish. So they provide a good counterbalance.

It's just that you can't let zero hedge influence you too much. Otherwise, that

pessimism may hurt your returns. The

next one I'm going to talk about the Cayman Islands for most people associated with one of two things. One,

it's a nice spot to go on vacation. I

went there with my last foreign trip pre pandemic and it was a fun time. The

other thing that it's known for is the fact of monetary secrecy and low taxes.

It's 0% income tax, 0% property tax in the Cayman, 0% inheritance tax in the

Cayman. And so therefore, if you want to

Cayman. And so therefore, if you want to create an entity to minimize taxes, you base it in the Cayman Islands. And

that's why hedge funds do not for any tax evasion reasons actually. It's

mainly because so foreign investors who invest in a fund don't get double tax both in the residence of the hedge fund manager which say for the example is the US and their own residence. They only

get taxed on the money that they that their government believes should be taxed on their local rules. So it's just a way to prevent double taxation. which

are the most common reason to have a Cayman entity more than anything more sinister. However, there is tax evasion

sinister. However, there is tax evasion going on, but I'm not really an expert in that. I can't really dive deep into

in that. I can't really dive deep into it. They're also famous for having gold

it. They're also famous for having gold vaults that and secret bank accounts that you can store things. Like I've

thought about getting a gold vault in the Cayman personally if I ever had enough gold for it to be worth it. just

mainly because just in case if say the world powers decided to nationalize it then maybe the Cayman's a better place but maybe not because it's still pretty

integrated with the US economy and if the US and the powers that be in the whole world decided to ban gold I don't know if things would actually be that safe in the Cayman Islands which is yeah

which is why I think a lot of these tax havens are starting to lose their effectiveness in a world of digital tracking of thing. I think the future of

tax reform is probably going to have more digital trails of things and therefore I think maybe these tax havens may be at risk of becoming a thing of

the relic of the past. I mean it's still great for the people who live there.

They don't have to pay taxes, but it may be harder for foreigners to benefit from these tax havens, especially with Janet Yellen's proposal of a global minimum

tax. The next one I'm going to talk

tax. The next one I'm going to talk about is MMT, which is modern monetary theory. A modern monetary theory is

theory. A modern monetary theory is really kind of monitoism to the extreme, but with a

heterodox view that instead of interest rates that determine the supply of money, it's taxes. So basically, as long as there's not inflation, the modern

monetarists believe that you could print as much money as you want without having to collect taxes. And you that money should be used ideally for

infrastructure, social spending, and providing guaranteed jobs to every worker in your country as they think is the most best use case of this money.

And then you so therefore because if inflation's low it means that the government has room to spend. And so

therefore if you have a slow like a economy that's not growing fast enough or you have inequalities or other things that could be solved by more government

spending there's really no risk of doing it as long as inflation is low. And then

however if inflation goes up what these people believe the solution is not just to raise interest rates and tighten policy and therefore that would result in the losses of jobs or asset prices

falling and a variety of other bad things. Instead, they just believe

things. Instead, they just believe raising taxes, particularly taxes on wealthy people as the solution. Because

if the rich are taxed more, they can't or people in general tax more, they have less money to spend and therefore the velocity of money goes down and inflation stabilizes. I mean, Hower's

inflation stabilizes. I mean, Hower's law kind of shows that governments collect, at least the US government collects about the same amount of money no matter what the tax rate is. I maybe

might do houses on a future iceberg, but that's a topic that's a little bit too complicated for this right now. But

that's the the point is that MMT is becoming popular all of a sudden because there's a lot of politicians who want to promise a bunch of things such as free college, universal health care,

universal basic income, but they know that they can't ever raise enough taxes to cover. And given the trajectory of

to cover. And given the trajectory of the US government deficits and the deficits in other developed countries and the level of national debts across the world, it's not realistic to expect

this to be paid back in equal value dollars. So people like, oh, why not?

dollars. So people like, oh, why not?

Why just not spend? We haven't seen any inflation the last 10 years despite all the quantitative easing which really just help the rich. So why don't we use modern monetary theory just to like

print money directly and give it to the people? versus doing it this roundabout

people? versus doing it this roundabout way that elevates housing prices and stock prices to help the rich versus everybody else. Personally, I'm not a

everybody else. Personally, I'm not a fan of modern monetary theory. I don't

really believe you can create something out of nothing like that and expect society to function. And when you do drastically raise taxes, there are ne at

least income taxes, there are negative consequences to that, particularly disincentives to spend or make capital

improvements. So I don't I I generally

improvements. So I don't I I generally don't think that would work. I'm more of a person who favors more stable money and higher interest rates. But this is not really about my opinions. This is

just I want to give you modern monetary theory and expected to gain more and more traction especially among those who want to give more and more goods and services on the public dole to the

people. Next one's quantitative easing

people. Next one's quantitative easing which I refer to in MMT. Quantitative

easing or QE is known for was a program first initiated near the bottom in March in 2009. It was basically just the Fed

in 2009. It was basically just the Fed printing money to buy bonds to stabilize the financial market and mortgage back securities to help stabilize the alley

market. It worked as it caused a lot of

market. It worked as it caused a lot of the financial assets to stop free falling and that people invest money.

But every time the Federal Reserve had ever hinted at stopping quantitative easing, they've always had to double down with a bigger amount at a faster

pace. So we then had QE2 a year and a

pace. So we then had QE2 a year and a half later. Then QE3 started in

half later. Then QE3 started in 2012 and now and then when they tried to unwind that through first

tapering and then raising interest rates till the markets did not react very well to it and it caused a strong rally in the US dollar and several had a flat

market during the tapering. And then

once interest rates really started to rise, you had a mini crash in the late of 2018, which then they had to reverse a lot of that effort. And then the

pandemic happened and then they just took it to a whole another level where it's basically no end in sight because basically our stock the main consequence

is that by suppressing rates so low the actual rate of interest would be much higher in a world without quantitative easing because if the central banks around the world and the Fed was only the first one to do it all the other

major central banks have done something similar. If you let the market clear,

similar. If you let the market clear, then the natural rate of interest would probably be much higher. And as a result, a lot of these asset prices could not sustain these valuations

because they only make sense because the interest rate environment is so low. And

nobody wants, particularly baby boomers who are just entitled to believe that their stocks and their houses can never go down. It's politically very unpopular

go down. It's politically very unpopular to let the market clear. And also

because there's so much debt and leverage based off of perpetually low interest rates, it would probably risk a default cycle, too. So, you're kind of stuck. And QE didn't cause traditional

stuck. And QE didn't cause traditional inflation because a lot of this money didn't really go directly into the hands of the people like the MMT people are

proposing to do. Instead, it went into banks. And it's not like what a lot of

banks. And it's not like what a lot of these conspiracy theorists say, oh, the banks use QE money to buy stocks. No, it

didn't really work that way. What really

did is that interest rates went down so low that pension funds who used to buy bonds or other people who used to buy fixed income have to move up the risk

curve to get that s that that yield that they they need to fit their obligations.

And so therefore, you got a lot of people forced to speculate who wouldn't otherwise. And therefore, you had a much

otherwise. And therefore, you had a much bigger bid for assets and that's what drove the asset prices up. And then also things that do have income generation

such as real estate is priced on a pre based on the overall interest rate environment. And if the overall interest

environment. And if the overall interest rate environment is lower, housing prices go up because that same amount of rent even if the rents don't go up at a

lower interest rate, the housing house price should go up because that income somebody will pay to get a slightly higher income than they would in in a bond. And so therefore, you get bidding

bond. And so therefore, you get bidding wars for houses, institutional investors. So that's kind of why you've

investors. So that's kind of why you've seen housing prices were able to bounce quite a bit. And that resulted in both higher rents and making increasingly

unaffordable housing for the millennial generation. And that's really where the

generation. And that's really where the inflation came from. The other

consequence of Qi is deficit spending because if interest rates are just kept down, politicians have no incentive to cut spending because there's no immediate consequence the next elector

electoral cycle. And so therefore, we've

electoral cycle. And so therefore, we've had much larger government debt to GDPs in any nonwar period of time in world history. The next one we're going to

history. The next one we're going to talk about speaking of taxes and fiscal policies. Carry interest is the idea,

policies. Carry interest is the idea, this tax loophole that hedge fund and private equity people have that

investments in their funds are considered long-term capital gains even and their performance fees even though

it's based off of trading that more often and work that more often than not would be considered ordinary income.

So that's another example is that your car interest say if you have a 2 and 20 hedge fund, you get 2% of the base and

20% of the profits and you made 10% on it and say you're running a billion dollar hedge fund. So you collect $20 million on the management fee that you

use to mainly cover your expenses and anything you do make off that net expenses you pay as ordinary income.

Whereas say your carry which is 20% of the profits which would be another $20 million you'd only have to pay long-term capital gains on that even though it's

kind of like income earned in a way. And

even though you've seen all this anti- like income inequality tax the rich sentiment occupy Wall Street type stuff, anytime carried interest is mentioned

loophole to be closed, it's never really gotten anywhere because a lot of these same donors who support a lot of progressive leaning causes also happen

to be working in the hedge fun and private equity industry and protect their personal interest. Next one is China as a currency manipulator. This is

a assumption that the Chinese government has been deliberately suppressing the value of its currency. The R&B rem or the yuan

its currency. The R&B rem or the yuan there's many ways you could say it in order to keep their exports artificially more competitive than they would

otherwise. There are some evidence of

otherwise. There are some evidence of this happening particularly when they pegged their currency during the Asian financial crisis in the 1990s and the relatively low

volatility in the R&B which originally is pegged the US dollar but then was changed to the SDR which is a weighted average of several world currencies. But

you could look at it the other way too is that you can argue that China held up its currency artificially strong and

their fears of that as well due to a lot of capital outflows. Like what China is doing is that they chose a different

form of the impossible trinity which we're going to talk about deeper into the iceberg. But they decided they wanted to

iceberg. But they decided they wanted to keep a fixed relatively fixed exchange rate in the exchange of capital controls. So you can't freely move your

controls. So you can't freely move your money in and out of China. There's a lot of restrictions that they're able to keep their currency at a level that it wouldn't be if it was freely floating.

Is China a currency manipulator?

Probably. The question really is more so is which way are they manipulating? Are

they trying to hold up the currency or are they trying to keep it weak? I think

that answer's been different throughout time. Don't fight the Fed is a popular

time. Don't fight the Fed is a popular slogan among traders that doesn't really nothing else really matters other than central bank policy and monetary policy.

You could have an economy that's rolling over, that's structurally broken and relying on zombie companies and paying people not to work and you have

structurally low growth. But as long as liquidity is going up, you still can't short the market because you can't fight the Fed. Or it's the opposite. say

the Fed. Or it's the opposite. say

maybe, oh, the economy is doing well, but if the Fed's raising interest rates, you can't own risk assets because the tighter monetary policy will outweigh

the good things that are happening in the world. And so the common and a lot

the world. And so the common and a lot of people, a lot of smart hedge funds managers particularly got in trouble for trying to fight the Fed several times during QE because economy was the worst

recovery in the history of the United States from 2009 to 2017 at least. You can argue maybe

even as up till now that it was and yeah you had falling living standards in large segments of the population too.

Companies for many stretches in those points and multi-year stretches where revenues and profits and earnings were going down but multiples kept going up.

Why? And stock prices go up mainly due to multiple expansion. Why? Because you

don't fight the Fed. they want they kept adding and adding more liquidity and they were able to fight quote unquote

economic economic gravity and so that is why it's become popular to say don't fight the Fed. The next topic I'm going to talk about are LBOs which is short

for leverage buyouts. Leverage buyouts

are essentially when a private equity firm buys a company but does it mostly debt. Kind of like it's not quite a

debt. Kind of like it's not quite a mortgage because of the payment structure, but it's kind of the same idea of buying a house with a mortgage versus cash. Your cash on cash return is

versus cash. Your cash on cash return is higher because you don't have to put as much money down. And it's the same effect with LBOs except unlike a house

where the mortgage payment is fairly fixed, you can cut your cost of the business operations. So you think the

business operations. So you think the business is poorly run or the management is overpaid or inefficient or whatever the reason. There's there's an

the reason. There's there's an opportunity for cost cutting, you can cost cut and lower that cost and then use that extra cash flow to pay down the

debt faster. And so you you don't only

debt faster. And so you you don't only accrete wealth from paying down the debt, but you also do it from a higher

valuation when you sell it to either another LBL firm or you take it public through the initial public offering or sell it to a strategic buyer. And this

has been a virtuous cycle for the last four decades because the LBO strategy got really got started in the early 80s when interest rates were at their peak.

And when interest rates fall, the interest expense is lower and therefore it makes deals at higher valuations make sense. So the LBO multiples have

sense. So the LBO multiples have consistently trended higher since the 80s. And so it's just this chain that

80s. And so it's just this chain that just they keep the private equity firms sell to each other at higher prices. It

also helps that post08 private equity got disproportionate inflows due to the fact that it didn't have as bad markettomarket volatility and the financial crisis because of the nature

of private investments are less liquid.

So that's a whole another topic which I may have to save for another iceberg.

But the question now really with LBOS's is when interest rates start to trend up for a multi-year period, how does that affect the viability of this strategy?

It works. It's worked great on the way down. I'm not so sure on the way up. The

down. I'm not so sure on the way up. The

other notable thing about LBOS's is it's how um 2012 Republican presidential candidate Mitt Romney made his money with Bane Capital was heavily involved in these type of deals and it was

controversial to the practices that they used to cut costs. The next topic we're going to talk about are zombie companies. So what are zombie companies?

companies. So what are zombie companies?

A zombie company essentially, and I did a video on this too, so I'm not going to go too deep into it. It was it's a 12 minutee long video. I commented on it, but that a zombie company is a company

where essentially you have to borrow to pay back interest payments. There's kind of like this downwards spiral that they can

pay back the interest, but they can't pay back the principles. And they a lot of companies got into the zombie condition by doing share buybacks when they didn't have organic growth or to

cover like a um a financial crisis or accepting bailout money. Banks are the most common assets to have be zombie status especially in Europe and

Japan. And the problem is is that these

Japan. And the problem is is that these things choke economic growth because they employ people in firms that are not financially viable in a free market.

They prevent competition who is healthier from coming in and taking their place. And it just makes things a

their place. And it just makes things a lot and this heavy indebtedness also just prevents longer

term strategic actions and just look up whether it's the states bailing them out or it's companies getting really generous financing a low interest rate environment. It c it's one of the causes

environment. It c it's one of the causes why we've had what people think as a more structular stagnation in many aspects of the economy. It's gotten the

pandemic made this worse where precoid like less than 10% of companies in America were zombies. Now it's most likely over 20% at least the last

statistics I've seen. Europe it's over 25. In Japan it's even higher. Yeah. The

25. In Japan it's even higher. Yeah. The

zombies are not good in horror movies and they're not good in the business world either. Again, watch my video for

world either. Again, watch my video for more on zombie companies. The next thing I'm going to talk about though is the Plunge Protection Team, which is kind of

more of a nickname for a Washington organization called the President's Working Group on Financial Markets. It

was started in 1988 by President Ronald Reagan. The plunge whenever the market

Reagan. The plunge whenever the market goes down, there's volatility, but you get a bid unexplicably. The plunge

protection team is often credited for that. There was a creative response to

that. There was a creative response to the 1987 crash where the market crashed 25% in a day, which I think is still the biggest percentage crash in a single

day. It's basically what's the working

day. It's basically what's the working group consists of the secretary of the treasury or their design, the chair of the board of governors of the Fed, the

chair of the SEC and the chair of the CFTC and or their designated appointees.

And what their role apparently is to stabilize markets and to uh I mean there's a lot of conspiracies that they work beyond their their legal mandate and they're buying things such as

futures or ETFs or stocks to support the market or bonds when they really that's not really in their mandate. There's the

evidence on it is mixed. Uh but it's a common conspiracy theory in finance that whenever things get a little shaky, the plunge protection team is going to come and save you. It's also explained kind

of the EV the eulant bullishness right now in the market because people think whether it's the Fed or the like as I said that don't fight Fed in the last video or the plunge protection team, the

government uh has your back. Maybe they

do. But that's kind of my thoughts on the plunge protection team. Next, we're

going to talk about venture capital hurting. Venture capital surprisingly I

hurting. Venture capital surprisingly I like 1990 to 2020 and worse from 2000 to 2020 has actually on a riskadjusted

basis not been one of the weaker performing assets. you would have been

performing assets. you would have been better off just buying a levered Russell 2000 ETF, which is small cap equities in

the US, than you would with the um with venture capital. Whereas venture

venture capital. Whereas venture capital, a lot of people now do invest in it, particularly because it's one, it's a way to make an idle rich person look like they're doing something. And

again, there's a lot of great venture capital funds out there. In fact, all the best deal flow tends to go to the top eight venture capital funds. So if

you look at the SKs of the returns on venture cap on VC and a skew of alpha, it's heavily concentrated in those ones that get the access to deal flow. And

there's a lot of smaller ones that are run by exontrepreneurs who actually kind of know how to see talent because they did it before. But there's also a lot of people who are becoming VCs just because

it's a trendy thing. And there's this whole infrastructure. This guy Jake

whole infrastructure. This guy Jake Train on YouTube did a great video on it where you basically have a company you buy at a seed or series A. You tell your

friends how cool it is and they will bid it up at a higher valuation on series 3 B and some other VC will be bid higher on series C. And these valuations really don't mean anything other than on paper

to make increase the wealth of the founders and the and the venture capital funds. But this hurting to these few

funds. But this hurting to these few concentrated unicorns has created extremely bloated valuations in the technology sector or companies that are

very popular among the VC crowd. And I

thought they would have a problem when it came time to exit or they would have to eventually show a profit. But since

real rates keep falling, the timeline to having to show a profit keeps going away. And then the public market either

away. And then the public market either through traditional IPOs or spaxs has been a very um friendly place for a lot of these overvalued companies to get

sustainable bids because now the public markets and the retail traders have now more venture capital mindset and are willing to skew traditional valuation

and profitability metrics in favor of potential. So when it was really started

potential. So when it was really started as a problem in the San in the San Francisco VC community in the early 2010s that I thought would eventually

result in a there was a minor correction in the unicorns in 2018 like see like we work for example but it evolved really to that

the public market became the new higher bidder and kept the train going a lot longer than I thought it would last.

We'll see how this ends. Next we're

gonna talk about is Jackal Island.

Jackal Island is the island off the coast of Georgia where senators and bank leaders met to draft the Federal Reserve

Act. And they did it in complete secrecy

Act. And they did it in complete secrecy because the general American public did not like the idea of a central bank.

Andrew Jackson got rid of the Bank of the United States in the 1832 and paid off the national debt and his populist belief was kind of more in line with the

general public even 80 years later. But

after the panic of 1907, the bank interests wanted to do something that wanted to arrest market and economic volatility because the main consequence

as I mentioned of the gold standard and a super hard currency is economic volatility. And the Fed creating the Fed

volatility. And the Fed creating the Fed would do that and lowering volatility benefits the bankers greatly. And they

created the Fed as a private organization that has private shareholders but works in the interest of the government. And a lot of these private shareholders happen to be banks

from that era. The fact that they did this in secrecy and they had another shenanigans around it. It made people question the Fed. There's a lot of anti-fed conspiracies. There are

anti-fed conspiracies. There are legitimate criticisms of the Federal Reserve. I'm not a particular fan of

Reserve. I'm not a particular fan of financial repression or keeping interest rates artificially low for extended periods of time. And I can understand why they do that because there are

vested interests who benefit from such thing. But not all the most wild

thing. But not all the most wild conspiracy theories on the Fed are true either. And that's why don't fight the

either. And that's why don't fight the Fed is such a real thing because don't fight the Fed is a derivation of a lot of the Fed, the cynicism towards the Fed through the Jackal Island and all the

conspiracy theories around it. If you

want to learn more about this, read the book, The Creature from Jackal Island.

The petro dollar is the idea that a lot of the Middle Eastern oil countries peg their currency to the US dollar and price the sale of oil and dollars and

therefore effectively the crude oil market and the trade of the crude oil market provides its support and demand internationally for US dollars and a

reason to hold US dollars in reserve.

And the why do these countries are willing only to sell in US dollars is because they do that in exchange for military protection from the United

States. Saudi Arabia and the Gulf States

States. Saudi Arabia and the Gulf States have major geopolitical tensions with neighbors such as Iran. And having the

protection of the United States helps because these countries are ruled by absolute monarchs who use most of their funding on social spending to improve

their country's people's living standards. So people don't question the

standards. So people don't question the fact that they don't really have much political power. and they do spend quite

political power. and they do spend quite a bit on military too, but I've had enough of critiques of Saudi Arabia on YouTube, so I'm not going to really dive

any more into that. Find my other comments on that. But the general idea is that though the dollar is priced in oil and if countries decide to switch

selling oil into other currencies that it would cause the US dollar to collapse. There are conspiracy theories

collapse. There are conspiracy theories that Iraq was invaded by George Bush because they wanted to sell oil in euros instead of dollars and the US was not

gonna put up with that. Same reason why Gaddafi got taken out because he wanted to sell oil in euros or gold or some non-doll asset and Libya is a big oil

exporter. China has recently released a

exporter. China has recently released a futures contract that allows you to buy oil priced in yuan as they are the biggest net importer of oil. now in the

world. And um so far it really hasn't

world. And um so far it really hasn't done much to undermine dollar. The R&B

has strengthened quite a bit, but I think that's more for other reasons that really are not relevant to the whole petro dollar story. So yeah, that's I mean I think oil being priced in dollars

does help, but I think that currency flows are driven by a lot more powerful variables and the import export balance of the US is not entirely dependent on

oil anymore, especially now that the US is one of the biggest producers of oil in the world. The petro dollar may have been more important from 03 to07 when you had the combination of high oil

prices and uh large net importing of energy from the United States. But as

fracking technology and new discoveries and more energy efficiency in the economy has kind of devalued the petro

dollar. John Law is famous for South Sea

dollar. John Law is famous for South Sea bubble. Some would argue he's the Elon

bubble. Some would argue he's the Elon Musk of the 16 1700s of that era because he sold this this imagination of the potential of the new frontier in America

when it's really just the territory he was doing as much swamp land. And he

gained so much power and influence that he was helping cry raft up fiscal and monetary policy for the French king and

it became one of the prior to Bitcoin the biggest percentage rally like in a single asset and in ter in terms of scale and it caught the imagination like

you had a speculative mania kind of like tulip mania except the sal bubble at least wasn't sal company was actually a real company at least had a promise of doing something which is settling the

new world and extracting the resources from New World. There's a similar company that came out of this era as well, Louisiana Company. And when

basically people when the results couldn't live up to the hype, it collapsed as quickly as it rose and John Law suffered the consequences in terms of the reputation and the law. Again,

it's another example of a famous bubble in the economy. Next, we're going to talk about Taleb's Turkey. What is TB's Turkey? Oh, this concept comes from

Turkey? Oh, this concept comes from Nicholas Nasim Taleb. And I have the chart posted as I'm talking about this.

It's the idea when you sell volatility, which is basically betting on things just kind of staying in the same or that things that you're not factoring in risk as much as you should. Like selling

options. It's an example of a strategy that fits TB's Turkey. your returns are very steady on the way up and then one day it just crash and it's like the and it's gone scene in that South Park of

the financial crisis. It's like the turkey. The turkeyy's life progressively

turkey. The turkeyy's life progressively gets better. The first say 200 days of

gets better. The first say 200 days of its life and then November shortly before Thanksgiving its head cut off and it's dead and it's life's gone like that. And that's why it's called TB's

that. And that's why it's called TB's Turkey because he uses the analogy of the Thanksgiving turkey. We saw this with this the the XIV and the short VIX

ETS 2018 where they steadily rallied for years and then one day when the VIX doubled which was volume again in one they went from 100 plus dollars a share

to Z like less than 10 in one day and this things completely got destroyed and generally any sort of all sales strategy

that's what eventually happens. The

thing is is that there's always an excuse on why this time is different. So

people keep doing it and it's also the path dependence of investors preferences and also the sharp ratios which heavily

reward low volatility and consistent returns over volatile returns even if the volatile returns perform better on an absolute basis make this type of

pursuing a TB a strategy that's a TB turkey trap to be financially appealing.

So that's the story of Taleb's Turkey and you got to watch for the risks of that happening to you. And the Chapwood index is just one of many examples of this, but it's just it's all part of the

common theme that people do not believe the actual inflation numbers that the government produces. As part of my

government produces. As part of my research service at my firm, I create alternative research data, alter not alternative inflation data to try to use

more private sector analysis uh components to the CPI and see what I get in terms of an inflation print. It's

generally higher than the government consensus. Not always. But the thing

consensus. Not always. But the thing though is is that a lot of people take think that but I don't think it's that much higher that you're that it's severe

to the point that people are becoming poor and impoverished nations in a decade. You've got things like the

decade. You've got things like the Chapwood index for example or shadow John Williams shadow stats which basically have argued that the US

changed the way it calculated inflation in the '9s which is true and because of that inflation has way higher than

expected. I think they are discounting

expected. I think they are discounting some of the deflationary impact of technology but the thing is and that has lowered the cost or eliminated the cost

of certain things like say an iPhone I don't need to buy a camera anymore I don't need to buy Thomas brothers book anymore but yeah I mean like the chap

index for example thinks that inflation has averaged in New York and Los Angeles 11 12% over the past 5 years which I

just don't find that to be credible.

That means your living standards have gone down 50% less if your wages have gone up to match that over the last 5

years which is just not true. I think in some aspects of the economy you see chapwood like levels of inflation such as real estate and healthcare. Those are

due to more structural reasons and are more fed sensitive. other assets such as manufactured goods, commodities till very recently at least and uh services

where there are lower barriers to entry.

The increased monetary easing is not just demand booster, but it's also supply booster. Like the shale crisis

supply booster. Like the shale crisis was often blamed on QE because they got a bunch of cheap capital to produce more cheap oil. So, you can't really have it

cheap oil. So, you can't really have it both ways with some of this stuff. I

generally think though inflation is higher than what the markets expect it to be in ter through the uh break evens

and the tips bonds contracts and I think the government numbers are a little bit understated and there are valid reasons for them to do that which not to get too conspiratorial but social consu social

security payments and income tax brackets are based off the CPI and are indexed to it so they rise proportionately ly. So, if you're a

proportionately ly. So, if you're a government and you want to raise taxes or cut spending without doing it directly, fiddling around with the inflation number is the best way to do

that without people noticing it outside of economist and investment circles. Try

explain the concept of the chap index to your layman who doesn't follow finance and it might be a little bit over their head. So yeah, I mean I think these

head. So yeah, I mean I think these things serve a role to like just qu you got to question the narrative of a lot of economic statistics not just

inflation other ones might not be as accurate as per se like in some countries like China like even the consensus believes that they're not real

but even in countries like America or Europe you have you have to look at incentives and you have to see the real world around you and see if it matches what you're seeing in terms of inflation

and unemployment and other economic variables and make personal and financial decisions accordingly. Enjoying the water. It's

accordingly. Enjoying the water. It's

getting a little colder now down here that we're in part five of the iceberg of finance, which is part a series I'm doing as part of my YouTube channel,

analyzing finance with Nick. We're now

starting to get into the the weirder territory. I mean, chapwood is kind of a

territory. I mean, chapwood is kind of a little bit crazy, but now we're fully in now. Level five. We're in the bottom

now. Level five. We're in the bottom half of this thing. Let's get started with the impossible trinity. The

impossible trinity is a concept I learned about when I did my semester abroad in um international economics and it's one of the more interesting concepts that I learned, one of the most

useful lessons I actually learned about in my undergraduate education. And it's

basically the idea that a central bank has three goals, but they can only accomplish two of them at a time because

of constraints. They are free capital

of constraints. They are free capital flows, which means like if I want to go and exchange my dollars for euros, I can do it without any sort of barriers or restrictions or minimums or maximums and

people could freely move money in and out of your country. Then you have fixed exchange rates that no matter what you're going to have the exchange rate

be pegged. Say for example like with the

be pegged. Say for example like with the Hong Kong dollar which is pegged between 7.75 and 7.85 to the dollar. You fixed

exchange rates are beneficial because investors and business people and importers and exporters have more stable prices. So they can make longer term

prices. So they can make longer term decisions and not have to worry about FX risk or spend money on hedging or worry about currency affecting their costs or

their pricing power. So fixed exchange rates yeah make things simpler in theory and make economic transactions more

smooth and economic decisions better for the longer term in theory. And then the third one is sovereign monetary policy which means that a government can choose

or central bank can choose whatever interest rate that they want. They don't

just have to have it whatever the market demands based on capital flows or have it at a fixed rate to match the curren the interest rate of the currency that

they're pegging it to. You can see that there's a problem with this. You can't

have all three at the same time. Like if

you try to have both a fixed exchange rate and do what you want in terms of your monetary policy and control interest rates, if the interest rate in

your fixed currency is severely higher or is no is materially higher or lower than the country's currency you're pegging it to, money is going to flow in or out to whichever currency has a

higher interest rate and that's going to put pressure to the upside or the downside your currency. This is what happened with a lot of the Asian financial crisis in the late 90s. They

had a fixed exchange rate and then they and they tried to be a little bit flexible in the monetary policy and it caused crisis. China is an example who

caused crisis. China is an example who solved this problem. They wanted both of these goals through capital controls.

Most people in China cannot take out $150,000 a year in R&B out of the country because if you had free capital

flows, then the Chinese R&B would have to trade at a different valuation than the soft peg it has right now. It's been

increasing right now, but historically, especially when they were first growing as an industrial p merantile power, they kept their currency way lower than it would have been. And if their currency

was allowed to rise, then China would have not been able to had such a big market share in global exports like they've been able to build. Or on the other side, they maybe have kept their

currency too strong because a lot of people wanted to get their money out of China because they don't trust the political situation there or feel like there's too much debt in the system. A

lot of the wealthy in China have been trying to get out money in any means. So

you could argue maybe the currency is overvalued because these people haven't been able to get out money. Well, they

have been to a certain degree through a lot of different means, but they haven't get out an amount as they would have in a free floating currency market. Then if

you want what most governments choose is a sovereign monetary policy they control their interest rates and free capital for like movement money and out. You're

not gonna have fixed exchange rates.

That's why like the the dollar and the euro and the yen keep fluctuate as much as they do is because the market participants are reacting to relative interest rate spreads and growth

prospects and other factors to decide what currency should strengthen or weaken. And if there's a big spread in

weaken. And if there's a big spread in real rates in one currency or another or that's being anticipated, you're going to get mass inflows one way or the other and it's going to cause the value of

your currency to fluctuate. Western

economies have accepted this risk for the most part and as a result you have a active forex trading market. The last

combination you can have is free capital flow and a fixed exchange rate. Hong

Kong is an example of this. Singapore to

a lesser extent is example of this. The

Bahamas, a lot of countries peg their currency a fixed exchange rate to the dollar, euro or some other major currency. And by doing this and having

currency. And by doing this and having free capital flows, your main restriction is that you have to copy the monetary policy of the country you're

paying it to. Because if you don't, then you're going to people speculative attacks to short your currency or people will pull it out because they don't trust it like what happened in the Asian

crisis in the 90s or in Argentina and more recent times. Whereas if you try to have it like you're worried about inflation like this happened to Hong

Kong say in the last 10 years and but the US is keeping its monetary policy low because they've had need it for their own domestic reasons. You get

housing bubbles and other speculative booms like what's happened in Hong Kong and its real estate market. it's

probably trading way higher than it should be because the interest rates for the last several years have been way lower than they should be because it's been tied to the US dollar. So the point

so you basically have to pick two you can do applied for other things in life say like for example finding a job that

pays well doesn't require many hours and uh easy to attain I mean maybe in theory you can do that but it's usually you had

to pick two and you could apply this that's just one example I just threw off the top of my head but you could look at a lot of life as these impossible

trinities or trilmas and you have to learn to pick which two are the best combination for you because it's different for everybody like monetary

policy is different for every central bank in the world. So, I didn't think this is a useful concept that can extend beyond finance. Look at it's a good way

beyond finance. Look at it's a good way to assess certain trade-offs because this triangle appears, believe me, in a lot of other things in your life

decisions. So, little life lesson, but

decisions. So, little life lesson, but let's get back to diving down on the iceberg of finance. The Rothschild

family comes up in a lot of financial conspiracy theories because they are one of the wealthiest families of all time.

They were widespread throughout Europe.

They had banking houses in London and Austria and France. And they eventually expanded to have some presence in the United States as well and Spain and

lesser extent Germany. And they were one of they were able to be one of the first global banking conglomerates because they kept their money in the family and they had connections all over the place

to do that. They made money originally through the government bond market and financing governments particularly wars and they would finance both sides of them. There's a apocryphal story which

them. There's a apocryphal story which I'm not sure if it's entirely true or not but I my guess is that there is a curl truth to it that the Rothschilds had an advantage in getting news faster

than the rest of the world due to their their fleet and of couriers like through boats and personal delivery. So they

found out that the battle Britain won the battle of Waterlue before the rest of the the city of London did. So they

made up rumors that the English lost, bought a bunch of pound and sterling and sterling backed government bonds and then when the news of the real news of water came in, they came in value and

Nathan Rochild made a fortune. Yeah. I

mean, why don't people like the And the thing is because the Rothschilds have had so much financial success and are pretty secretive and private people.

There's a lot of conspiracy theories that they're generally up to no good.

Some of it may just be rooted in class envy or whatever insert reason that typically people have conspiracy theories. I'm not really sure which ones

theories. I'm not really sure which ones are true or not. I mean, my knowledge of the Rothschilds is really only up to say about the mid 19th century. I read Neil Ferguson's book about the origins of the

Rothschild family, part one. I never

really got into part two. And it is kind of strange that you don't really hear from them these days, but that kind of goes back to my theory on old money

nobility, which we're going to get to in the very bottom of this iceberg. It's

not just the Rothschild. They're

actually relatively new money for European standards at least. So that's

kind of uh my take on the Rothschilds.

Like they were great art collectors and wine collectors and now they're more involved in philanthropy and investments more than traditional banking. But yeah,

I mean where is all the Rodschild money?

Did it really all get split so many ways that they're not as wealthy anymore? And

if it's Benthrus and the family can do that or is there another story deeper here with what happened to the Rodchild money and how much influence do they really still have in global affairs? I

know they like to keep a low profile especially after World War II where the Austrian house got completely wrecked

due to the Third Reich, but yeah, that's that's my thoughts on the Rothschild.

The next one is survivorship bias. This

is another dirty secret of finance and I did it a YouTube video on this. It's

basically if you look at the performance of investment firms over long periods and the probabilities of people beating a market benchmark for a certain amount

of time or certain amount of years in a row, it kind of lines up well with the amount of people who are the exceptional winners. Like say for example like the

winners. Like say for example like the pro the probability of beating the market in a given year is 50 is 15%. And I think it's probably higher

15%. And I think it's probably higher than that but I'm just trying to be conservative. And so if you basically

conservative. And so if you basically have that and you do that for 10 years out the probability of being in the

market for 10 years in a row is 0.0000.

00006 which is one out of I probably add a few zeros 173 million people but I again it's probably higher than 50%. Let's say

it's a single elimination tournament like college basketball, okay? And it's

one out of two. So half people beat the market average and half the people lose.

And so if you do that over a 20 year a 10-year period, like you still have one out of 1,000 people competing who's

going to beat the market 10 years in a row. There are 10,000 hedge funds in the

row. There are 10,000 hedge funds in the United States alone and several other mutual funds and other investment vehicles and family offices. So you're

going to get just based on pure probability a decent handful of of wellperforming firms just on raw probabilities who are going to

outperform the target benchmark and every year and I'm using this one in case is the industry average. So it is like a it's 50% beat the median 50%

don't. And I'm not saying that people

don't. And I'm not saying that people are bad at their jobs and the market's efficient because if I did I wouldn't work in my industry. However, you have to look you can't just and this is not

just for finance just for life in general. Just because somebody is

general. Just because somebody is successful doesn't mean that everything they did is automatically the best strategy to go. Because I use the

example of people waking up at 5 in the morning every day. It's a common trope that if you're going to be successful, you wake up at 5 in the morning every day because like you have see a few billionaires who do that. But what about

all the other people who wake up at 5 in the morning and just have normal boring jobs or who are poor or didn't make it?

You don't really hear about those. And

this is what survivorship bias is about because it started this idea of planes in World War II and people looked at, oh, the ones that came back all had

holes in their wings and so therefore we need to reinforce the wings cuz it must be the ones who didn't also must got shot in the wings. But in really there was no planes that got shot like in the

nose by the engine that came back at all. So you have to look at what people

all. So you have to look at what people did wrong and avoid that is just as important if more important than what people did right and let the successful

action successful people took. You want

to look at the divergence there. Good

example is avoiding TB's Turkey as I talked about in last video. That's a

killer for a lot of investment managers.

Monsamusa is one of the most interesting stories of any medieval monarch in the world. near the emperor of the Malian

world. near the emperor of the Malian Empire which is now in the Sahel region of West Africa which not the same exact borders as the current country of Mali but the part of the current country of

Mali was in its empire back then and Monsamusa was known for being one of the richest men of all time because his empire was very abundant in gold mines.

In fact, they traded gold pound for pound with salt. That's how much gold there was at the time and how much they demanded salt. and Msamusa came to power

demanded salt. and Msamusa came to power as a funny story. I'm not really sure again if it's entirely true or not, but his father or or his

predecessor wanted to go see what was on the other side of the Atlantic and try to make it a voyage to whatever was there, which is new world. Now we know North South America, but they didn't

know that back then. And so he got on a boat and brought a bunch of treasure and supplies to last for years, sailed off, and it was never heard from again. And

he let Montsamusa be the steward of his kingdom. And since he didn't come back

kingdom. And since he didn't come back for a long time, Matsumusa just took the throne, and that's how he became a devour. I just thought that's a really

devour. I just thought that's a really funny story. And then as part of his

funny story. And then as part of his reign, he went to Mecca for his pilgrimage because Montusa was a Muslim and that was a mostly predominantly

Muslim kingdom that he ruled.

And he had so much gold and he spent so lavishly that when he stopped in Egypt, he caused borderline hyperinflation for a decade and messed up the Egyptian

economy because he just flooded the gold supply with all the money he had. And

this shows you just kind of how crazy rich this guy was. and several other economies along the way in these various Islamic cities had similar

effects. And yeah, that's the story of

effects. And yeah, that's the story of Monsamusa, possibly the richest man of all time. We don't really know how much

all time. We don't really know how much gold he actually had, how much property he had, but he was enough to mess up the economy of Egypt and enough that his dad

was able to sail off with a giant fleet of ships with years of supply to explore the unknown ocean. Next is Volmageddon, which I kind of talked about with

Talib's Turkey. This was in February

Talib's Turkey. This was in February 2018 when the VIX doubled overnight because there was a raid on a lot of these volatility low volatility ETFs and

they went from having a sizable value to near zero overnight because they got margin called like if you're doing something that shorts the VIX and it's

double short the VIX and it goes the VIX goes up 50% you lose 100% equity in theory with these levered ETFs and it

caused the VIX in 2018 to spike from low double digits in the or low like not even in the teens to 50 within a couple weeks with most of that spike being on a Monday

and vault came back down quickly after that. But there was no systemic economic

that. But there was no systemic economic collapse. It was more just the VIX.

collapse. It was more just the VIX.

People just investment community got overly short ball and using a bunch of option selling strategies in ways that were not the most risk prudent because they look good at sharp ratios and a lot

of people got hurt. Yeah, that's

volmageddon. Volagendon can happen any time. It doesn't need to be a

time. It doesn't need to be a worldending catalyst. There was no world

worldending catalyst. There was no world ending catalyst. Just there's too many

ending catalyst. Just there's too many people shorting volatility. Next I'm

going to talk about is Davos. The world

davos refers to the world economic forum. So this meeting every January

forum. So this meeting every January where a lot of the business leaders, finance ministers and politicians and wealthy people go meet to decide their thoughts on what's going on on the

global economy and what they should do about it. Least a lot of conspiracy

about it. Least a lot of conspiracy theories because the World Economic Forum is a little bit it's very

exclusive. They tend to have kind of

exclusive. They tend to have kind of very elitist beliefs. I don't really They are the most best fodder for conspiracy theories because the stuff

that they propose in their policy papers is outright ridiculous. You've had

articles on the World Economic Forum saying I own nothing. I have no privacy and I'm happy in a world where basically you have to rent out your living room for office space to supplement your

basic income and you don't even own the clothes on your back and everybody in a city just rents everything and rents out everything and the people are happy

about that. That's like sounds like to

about that. That's like sounds like to me no personal freedom whatsoever. You

can't have personal or economic freedom without ownership. But that's one

without ownership. But that's one example. But they've also pitched things

example. But they've also pitched things such as eating bugs and they've been way out there and early in a lot of socially liberal or anti-natalist family trends.

So there's not even really conspiracy because I I'll put links to all of these in the description because they actually propose these stuff and written in

policy papers where I think it gets and Claus Schwab who's the the the founder of it doesn't help himself looking like a real life version of Blofeld from the

James Bond movies and proposing all this like totalitarian top down elite no better than you running of the world type policies all the time. You you're

you're asking for Alex Jones to go after you. Really, my take on it. Maybe that's

you. Really, my take on it. Maybe that's

what they're trying to do is distract people. I I mean, I don't really support

people. I I mean, I don't really support a lot of what what these people propose.

I think it's kind of crazy, but it's it they they have this private meeting in Davos, Switzerland, which is about less than 50 miles away from where my grandma

grew up in Switzerland. It's yeah, they talk about stuff both in private and public. Like there's over 3,000

public. Like there's over 3,000 participants joined the last one that they had with the most attendees being from the US at 674. The UK at second at

270 and the Swiss at 159 at third. Most

of the participants are men and over 50, which makes sense because the average billionaire is 59 years old and is more likely to be a man. But there are women

and minorities there too. Like notable

people who've attended in the past are George Soros, Xihinping, Donald Trump, the Christine Lagard and various other presidents, prime ministers and central

bank heads and corporate leaders too.

Yeah. that it's really I think it's a lot of these people talk among themselves and maybe they kind of build their own little intellectual bubble which has them miss certain trends which

might be another critique of Davos is that it's not very representative of the world and not from it typical diversity means but more in terms of like class and line of work like if it's bunch of

billionaires politicians and their friends they're not very representative of the broad population of the world.

Some people think they actually have power to make policy and there's a lot of DAC room deals that go on these World Economic Forums to push the agenda written in their policy papers. I

haven't seen any proof of that, but I'm open-minded to the possibility. Davos

man is like now a slur for somebody who is a global elite who thinks themselves international citizen of the world has really no tie to their native country

and have no need for national loyalty and just prefer their own self-interests and their click more than what's good for their actual people. I think a lot of this sentiment, whether it's caused

by the World Economic Forum or just general social isolation of the upper classes, has led to a lot of the populist resentment that we've seen in

the last decade. And then yeah, there's there's a whole big rabbit hole with Davos. But basically, it's just a once a

Davos. But basically, it's just a once a year January meeting where the elite go to discuss what the elite want to discuss and figure how they think they

can make the world better, but probably for their own interest more than better for everybody as a whole. Next I'm going

to talk about in this iceberg is now we're done with Davos is financial repression. Manful repression

financial repression. Manful repression is the idea that a government will deliberately hold down real interest rates to pay down

debt or to finance government expansion or projects or such as a war or a massive infrastructure build or to pay down debt from a war, a massive

infrastructure build or increasing the welfare state or whatever the reason is.

It varies. example of this was when the Fed basically pegged the yield curve at 2 and a half% between 1940s like in late 40s early 50s whereas inflation was much

higher than that. So that's a way to get down the real debt to GDP over a 10-year period of time. You can argue that's what happened in from 2009 to 2015 when

inflation was consistently around one and a half to two and a half percent.

But you had interest rates at zero from for almost eight years effectively and that was arguably financial repression because it allowed governments to continue to maintain their spending

trajectories and deficits without and as long as they kept them at a reasonable percentage of GDP the real debt to GDP would still drop. This was also the way Asia built itself up post World War II

is that they held interest rates well below inflation especially for loans that were dedicated to building out infrastructure and the manufacturing base of these countries and that's how

the government was able to ext indirectly extract private wealth to build out its country and I think it's a very popular tool and it's going to

continue to become a popular tool among governments because taxes are at least on it. Income taxes rates are already

on it. Income taxes rates are already very high in western countries and it's a very hard sell especially if you're trying to raise taxes for people who say make less than $400,000 a year which is

what you need to do because even if you taxed all the billionaires everything that would put made that would not be enough to pay down the debts really make

a long-term drop in the bucket given how high deficit spendings are. So, you have to find a way to tax the general public in a politically feasible way. And

financial repression is the easiest because it doesn't require voter approval and most people don't even know what's going on. So, I think it's been financial repression has been pretty

much ongoing for the last since 2009 in the United States and it's been the same in most countries in the world except for those who struggle with historically high inflation.

And that's kind of my thoughts on it. I

think it's going to keep going. It means

you have bond markets are not going to offer the best real returns. And it also makes the economy more fragile because so many people have borrowed money on

the expectation on these interest rates staying as low as they have been for as long as they have been that every time you get a flirtation of real interest rates going positive like the last time

we did was Q4 2018 the market gets in a fit and you have fears of defaults and bankruptcies and all that because it's created this it's back to the whole

zombie loop again where you have companies and individuals ual and businesses and governments who basically have can refinance but they to pay their

interest but not to pay their principal and these interest rates are so low that an interest expense is down. So the fact that they're in this situation means that if interest rates materially rise

and because they're such a low base a a move from 1% to 2% it's a doubling of interest rates whereas a move from 5% to 6% is only a 20% increase. So the the

magnitude on a percentage basis is much higher to get out of it. So that's what it makes. It's kind of like a roach

it makes. It's kind of like a roach motel if you're not careful with it. And

ultimately it really won't change unless inflation really does rise enough to force the hands of central banks to end the financial oppression because too many of the powers that be benefit from

it and more people in developed countries particularly United States are net debtors versus net creditors especially our government. Next is the

crash fire department. This is a story about crashes who was the most wealthiest man in ancient Rome. He

inherited a small estate relatively speaking for a tradition is about $8 million in today's money and he used his entrepreneurial guile to build the

largest fortune in Rome and eventually become an influential political figure console in his own right and he had an attempted career at a military general

ship and his pride took him down with a failed invasion of Partha which how he got killed. He was known for his avarice

got killed. He was known for his avarice particularly and reason why in the iceberg I refer to it as the crash's

fire department is because his most I'd say unethical scheme was that he created some of the first private fire

departments and whether it was an arson or an accidental burning would happen and some would argue maybe he did these intentionally to get property. The fire

department would come, but they would not put out the fire like a normal fire department would be like even a and like what libertarians proposes a private fire department is that you pay for it

like car insurance or something. Pay

fire insurance and if the and if you have fire insurance and your house catch some fire, the fire department will will come and take it out. A private fire.

But that's not what Francis did. No, he

would come, his fire department would come and say, "Hey, we will put out the fire in your house if you sell it to us for below market value." If they didn't

have homeowners insurance back then. So

like if you lot your house burned down, you basically lost all your value or we'll let it burn down and you'll have to sell you'll be destitute and have to sell it on auction or get it foreclosed

on or I don't even know if they had foreclosures in ancient Rome to be honest with you, but they'll lose the house for next to nothing if they let it burn. So the people are now in a hostage

burn. So the people are now in a hostage situation and either he picks it up the burnt property on auction or he will buy

it off them at a discounted price in exchange for them for putting out the fire. And this is how Crash has built a

fire. And this is how Crash has built a massive real estate fortune. Yeah.

Archeos and Ark. Basically this is the story. Archigos with a family office by

story. Archigos with a family office by Bill Huang who got overly leveraged tech companies 5 to1 and he lost $50 billion for banks because a lot of these stocks

moved down on news of secondaries. How

is connected Kathy Wood and her arc fund? Well, according to reports and

fund? Well, according to reports and I'll put the link into the description.

And I think it was Reuters or Bloomberg who first reported it that he was one of the seed investors for Kathy Woods active ETFs which I mean people think oh yeah

there's since he blew up there's some shady going on. No, I mean it's hard to raise money and they went to happened to go to the same church together in New

Jersey, so they knew each other and so yeah, I mean it's a seed investor just because your seed investor is a guy who'd blow up his family office many

years later and Bill Hong had some other history in his past that like in terms of like with regulatory problems, but yeah, I mean she was able to run with it

and has built a business. I'm not really a big fan of her approach to investing, but that's nothing really to there's really nothing ethically I think problem with what's going on and I don't really

think it's really a movie market, but I just think it's a strange coincidence that two of what are known as like the most aggressive mutual fund m well not mutual fund cuz she goes non mutual

family office the more aggressive growth tech investors happen to have such a close ties. The next one is China's

close ties. The next one is China's house of cards. It's really the idea that I briefly hinted this in the last iceberg is that a lot of China's

economic data isn't real. Like they've

been exaggerating their GDP data.

They've maybe underestimating inflation.

They their debt levels are maybe way worse or way higher than they believed.

And a lot of their GDP growth products are building apartment buildings that never get filled. And there's a lot of incentives on the provincial governments and local governments to do useless projects to boost the GDP number because

they were compensated and graded based on how well their performance was on that. And as a result, due to all a lot

that. And as a result, due to all a lot of these perverse incentives and China want look like they're going to become the biggest baddest economy real soon that a lot of people think that a lot of

the economic data and is not real.

There's actually a whole conspiracy out there that Chinese population is a fraction of what they say it is because of the limited number of say mobile

phone plans you would expect for a country its size or power use or other things like that you are either the economy is not doing as well as people think or there's less people there than

people think. One or the other. I mean,

people think. One or the other. I mean,

I do think China's economy has grown a lot over the last several decades because you wouldn't see transformations of their cities or the flow of Chinese capital overseas or the growing influence of the country and the fact

that they've replaced the US the main exporter to over 100 countries around the world. So it's not like the complete

the world. So it's not like the complete mirage and there but there is an idea out there that China is a lot smaller

economically and is a lot less heft than their government claims to be and that's probably true. We just don't know what

probably true. We just don't know what the magnitude of that is. The same thing with their COVID cases. That's a whole another story as well. The next one is

George Soros. Speaking of conspiracies

George Soros. Speaking of conspiracies of the elites, George Soros comes up a lot. He is one of known as one of the

lot. He is one of known as one of the greatest macro traders of all time and also one of the biggest funders of progressive causes through the open

society. I have mixed views on George

society. I have mixed views on George Soros because one I respect him for his professional capabilities and his great instincts as a trader. On the other

side, I really don't particularly like the open society's vision or values.

It's not really in line with my personal beliefs. So, I think a lot of people get

beliefs. So, I think a lot of people get overly political about how they view him. Either he's like the most literally

him. Either he's like the most literally the devil incarnate or he's like this great benefactor for progressive good.

And I mean, neither of those are true.

Would I say that George Soros is a paragon of virtue? No. Would I say that the Open Society, if you read his book,

Soros on Soros, which I do recommend if you want like a an idea of what this guy's about, he generally wants to break down social barriers, cultural barriers

to commerce and to uh transactions and to make every human interaction more transactional in nature. like he doesn't

like the idea that you would say for example sell your house to your son or daughter at a discount because they're family or that you have loyalties to

things such as your nationhood, your religion, your friends, your family and not to just whatever the highest bidder is. And you could see why that rubs

is. And you could see why that rubs people the wrong way. And often synthes it also somewhat synthesizes with progressive causes because a lot of them

want to break down stigmas and cultural barriers against what they consider to be oppressed minorities or reduce the power of what the left considers to be

outdated institutions such as organized religion. But at the same time there's a

religion. But at the same time there's a lot of people who like this type of stuff. And people have inroup

stuff. And people have inroup preferences and people are human. and

they don't want to base everything on a transaction. Like what kind of

transaction. Like what kind of friendship is it if you have to pay to spend time with them at all times or they only value you because of your market value? That's a very sad world to

market value? That's a very sad world to live in which is was my main critique of Soros's ideology. As a trader, I think

Soros's ideology. As a trader, I think you can lot learn more about him than his personal life. I think as he was the one who successfully broke the pound in

the 90s. He has the concept of

the 90s. He has the concept of reflexivity which is the idea that trending price action creates the fundamentals that reinforce the trending

price action and it keeps going until there's a call that breaks it. Like say

for example a currency is weakening.

It's trending down and because the currency is weakening people have more fears. is they sell the currency, it

fears. is they sell the currency, it weakens more. And because the currency

weakens more. And because the currency weakens more, it hurts the it hurts the fiscal balance of the government and or their trade balance because it relies on

they have trade defic relies on imports.

And so therefore, the fundamentals have gotten worse because the curren of the speculative attack on the currency or just the fact there's a random price fluctuation. Man, it

doesn't have to be a speculative attack.

And because of these fears now of a trade deficit problem and a twin deficit problem, then you've got the currency weakens more and it becomes a downward

spiral. And it's not just currencies.

spiral. And it's not just currencies.

This applies to stocks like say for example like games AMC is a great example of this. AMC is in was in trouble because people aren't going to movies anymore because of COVID and

digital delivery. But then there was a

digital delivery. But then there was a bunch of Redditors who bid up AMC. And

because they bid up AMC, the stock price went up. That means their debt levels

went up. That means their debt levels went down. They were able to issue stock

went down. They were able to issue stock to pay down some of their debt and have cash to survive. And so now the company's and therefore the company has a higher intrinsic value than it would

have otherwise because the stock price went up which causes the stock price to go up even more. There's a lot of other dynamics with AMC such as a weird short squeezes and memeish stuff, but like

this applies to other companies too.

Just like just say like there's a a random widget maker who has a lot of debt but like and hasn't been doing so well lately but they have but some

investors believe them have potential that their products can become trendy again. So they buy that causes the stock

again. So they buy that causes the stock to trend higher. their debt to equity ratio drops as a result. Therefore,

their balance sheet looks better.

They're like, "Oh, maybe they're not such in trouble. The stock's recovering and their debt levels are down." And so that encourages more people to buy, which improves the stock's relative

capital position again. And then the cycle repeats and then the stock price higher, gets them more attention, and so more people buy the product because they're like, "Oh, wow. This company

actually does have a cool product. They

must have their stock going up. They

must doing something right." And yeah, yeah, it creates this beneficial feedback loop. And it can work the other

feedback loop. And it can work the other way, too, like the example of the currency. So that's probably the most

currency. So that's probably the most valuable lesson. I just summarized the

valuable lesson. I just summarized the most important part of George Soros's book, The Alchemy of Finance. George

Soros, again, he's a controversial figure. I don't like a lot of his

figure. I don't like a lot of his personal beliefs, but I think his market beliefs are insightful. And the lesson of George Soros is that it's the

importance of splitting somebody's ideas on one thing or their usefulness on another thing. Like you can learn from

another thing. Like you can learn from people who are have completely different political views than you or totally different religious views from you even if you but you don't have to personally like them or respect them either. That's

it's kind of a weird conundrum and George Soros kind of is the epitome of that for me. The Bitcoin origin myth is the idea that Bitcoin was created and

disclosed in a white paper written by an anonymous coder named Satoshi Nakamoto which people still don't know who he is till this day. There's rumors about his

identity, but it's not well known still at this point who it is and I don't even know like it'll be a big news story.

Some people think that there is no Satoshi, just a bunch of coders who just wanted to be anonymous or yeah, it's just like and the fact that he has this whale that holds all this Bitcoin and

won't sell is what provides a lot of faith in the currency. And Bitcoin, I think honestly is more of an act of faith. This this origin story is very

faith. This this origin story is very like common like a lot of other religions. It's like yeah, some unknown

religions. It's like yeah, some unknown guy created it. He has a good story behind it and people believe in it and except the really difference between

Bitcoin and a religion is that it's a financial product and people put their money behind it and the faith in it is

correlated to how much the crypto moves up or down it it's but it's a and a lot of people like you see this funny video

I saw I think was done by Coffeezilla shows like the Bitcoin conference in Miami and a lot the language he uses some of these speeches is very sounds like like a pastor in a mega church it's

very faith-based because it really is either you have faith that Bitcoin is going to be the replacement to the current monetary system and the current one's

going to break down has an apocalyptic vision which is also like a religion too in a way but yeah that's it's that's it's just kind of funny that all the other cryptocurrencies they have clear

founders But that's also the appeal of Bitcoin is that since there is no one person who controls it, it's completely

decentralized. Then as a result, the

decentralized. Then as a result, the whims of one coder or founder can't wreck it or rig the crypto in favor of

themselves, which is makes the appeal of Bitcoin and why people believe in it so much is because it's hard to taint.

Hello everybody and welcome to the iceberg of finance part six. Things are

going to be getting real deep and kind of janky now. So let's get on with the show. Most people know Hillary Clinton

show. Most people know Hillary Clinton for being the Democratic presidential candidate in the 2016 election, being a

two-term senator and from New York, first lady to Bill Clinton, as well as a former secretary of state. But what's

not as well known is that she apparently also is one of the greatest uh commodity traders of all time. Yeah, that was kind of a a curveball. Uh, in the

1970s, Hillary Clinton, when she was the first lady of Arkansas engaged in a series of cattle

futures trades, she turned about $1,000 into nearly 100k or about $356,000 in today's money over a

10-month period. I mean, with that kind

10-month period. I mean, with that kind of return, it'd make even the George Soros's and the Warren Buffetts of the world blush. And the the interest thing

world blush. And the the interest thing about this too is that she did this primarily short selling cattle even

though during this period uh the cattle market was in a strong bullish uptrend.

So how do you make so much money going against the trend of the market with somebody who doesn't really have any experience in commodity trading really

hasn't done any since. It's kind of suspicious and it's controversial due to her personal ties with top people at

Tyson Foods, which is the biggest meat distributors in the country. So, if

anybody knew about when people are buying and selling cattle, it would be Tyson Foods. And if

you just do like the mathematical odds of per success, it would be one out of $31 trillion. There were some

trillion. There were some investigations, but he ended up not being charged of wrongdoing. It became a big piece in the National Review and a

subject of conservative um political criticism in the n mid 90s 94 and '95.

But it's it's just kind of really odd that somebody who was a career politician who really only traded this

time in her life became the greatest cattle trader of all time. What I have to say to you Hillary is congratulations. Maybe you can teach the

congratulations. Maybe you can teach the rest of the world your masterful skills on how to manage the supply and demand of the meat market. The next topic I'm

going to discuss is Confessions of an Economic Hitman, which is a book written by John Perkins, originally published in 2004. I remember reading this when it

2004. I remember reading this when it was fairly new when I was in high school and it really stuck out to me because it

explained a lot of why things that you think would not be in the best interest uh of the US and other major economic

powers to do what's taking place such as lending money to insolvent country otherwise insolvent countries who have a bad history you're paying back. Like the

examples that um Perkins mentioned in his book were Ecuador and Panama and Nicaragua. And basically his his claims

Nicaragua. And basically his his claims is that he worked at a major consulting firm that specialized in international

economic relations and foreign aid and that kind of stuff. is that national security agencies and the World Bank and

the IMF strategically in overly in debt countries and give them financing for projects that may be good for the country, may be good for the incumbent

political regime to keep power or whatever the reason is to they do the financing to these countries and they'd give them an amount of money that is not

reasonable to pay back and they would do this on purpose because the terms of forgiving the loans or not trying to

cause the country to default would be that the government of the weaker third world country would do certain policy

measures that the creditors would want like maybe access to oil in the case of Ecuador or not national not trying to disrupt the Panama Canal or not

nationalizing the fruit industry which is the classic banana republic example where a lot of Central American companies countries I mean have dole and

all these major fruit companies chaita grow a lot of bananas there and are able to hire people at substandard wages and

or not pay taxes or have other favorable political privileges due to outside pressure from the United States government. And basically this book kind

government. And basically this book kind of explains what Perkins claims to be

the mechanism of how this goes about.

And you got a lot of um push back saying particularly mainstream press saying that in the department the state

department that there's a lack of evidence to cooperate Perkins's claims and uh that this is not something that

people do and uh that basically also a lot of these governments do such a small amount of trade with the United States that it doesn't make sense cuz he also

mentions that if a political leader does not comply with the requests of the creditor nation then they will do

political assassinations which they use the example of the presidents of Ecuador and Panama were killed allegedly were

killed in plane crashes or that were staged intentionally because of the owners of the foreign debts of these countries did not like their policy

decisions. Both of those combined are

decisions. Both of those combined are less than 1% of American imports and exports. So I mean I don't think that

exports. So I mean I don't think that materiality especially with the cold war dominance of the US military is a viable excuse. But at the same time, like is it

excuse. But at the same time, like is it really that big of an interest that the US government risk a scandal of regime change and killing for intervening in

foreign politics just over a relatively small amount of debt to be paid back?

I'm not really sure. I mean, when I first read the book, it seemed very compelling to me, but also I maybe was the more conspiratorally minded when I

was a teenager. The thing that also though that makes this interesting is that China is doing a lot of these similar tactics in its neighboring

countries in Asia and Africa. And now you see the Americans

Africa. And now you see the Americans accusing China of doing economic hitman type operations. Yet the US through the

type operations. Yet the US through the World Bank or the IMF is super innocent.

Has never done such a thing. I think

that that's kind of hard to believe at the same time. So, I highly recommend reading this book. It really makes you think. It kind of I think China and the

think. It kind of I think China and the US and a lot of other major powers, the EU, maybe Russia as well, use strategic financial arrangements to achieve

political interests without having to conquer a nation. Like, I think the Rothschilds are actually famous for saying, "Give me a country's banks and I control its government." I don't think

that's the exact quote, but that's the general idea. And I'm just I think that

general idea. And I'm just I think that these type of things go on across the world, especially if you have uh creditor countries that have a lot of

economic pull and desperate debtor countries who would not get financing otherwise. I think it's just more

otherwise. I think it's just more blatant with the Chinese because they lend they at least the the US makes it

look like that there's a reasonable plan of creditworthiness and that it's in the interest of human rights and other positive things and whereas China people

know it's a straight resource deal and then the other difference too is that a lot of the the leverage that that the western credit nations uses to make

political and social reforms such as opening up their liberalizing their economies, having a more socially liberal human rights platforms that have

to be adopted. Whereas China doesn't really care about their domestic affairs. They always want to maximize

affairs. They always want to maximize the amount of resources particularly oil and minerals that they can extract and food that they can extract from the

country. Next I'm going to talk about is

country. Next I'm going to talk about is Swiss banking. Uh Swiss has a reputation

Swiss banking. Uh Swiss has a reputation for certain goods that they are known for manufacturing. They have great

for manufacturing. They have great chocolate including uh Nestle inventing white chocolate in 1939. Uh they're

known for their watches. They're known

for their army knives. Uh they're known for their cheese. But Sen is most famous in terms of its economic weight is in its banking system. The Swiss banking

system really dates back to the early 18th century when the 30 when wars via the great powers of Europe and the

neutrality of Switzerland economically led to a lot of nobility and rulers putting their money in Swiss

banks instead of in their own countries and afraid of seizure due to revolution or war or borders changing or any other variables that made their home countries

far more risky. And then when it comes to Switzerland, it is still one of the most secret banking places. Like the

fact that if somebody wants to ask find out if you have, and this is only for non-Americans, if you want to find out if somebody has money in Switzerland,

they they will not share those records.

They actually codified their Swiss secrecy banks laws in 1934 with a landmark federal law on banking and then uh these laws have been

able to protect assets of many people.

It originally actually protected people who were persecuted by Nazis but later a lot of the leadership in the Third Reich put their own money in Swiss bank

accounts. So, a lot of people argue that

accounts. So, a lot of people argue that a lot of money that was assets that were seized by the Germans during World War II that was put in Swiss bank accounts

were never claimed and that the Swiss banks or government uh just pocketed it and helped contribute to its wealth. I

mean, also Switzerland benefited the fact that it didn't fight in World War II, and so therefore, it wasn't completely destroyed and wasn't forced to rebuild like all of its neighboring

countries who were combatants in the Second World War. The Swiss Bankers Association estimates that there is 6.5 trillion US dollars in assets in their

banking system or 25% of all global crossborder assets. They have three main

crossborder assets. They have three main hubs for banking activities which are Geneva for French speakers, Lugano for Italian and Zurich for German speakers

and really everybody else. And they the total banking assets compared to Switzerland GDP is 467% of their GDP. And in media books,

movies, popular culture, it's too like if you're a rich person, you automatically have a hidden bank account Switzerland. That used to be true back

Switzerland. That used to be true back in the day, but during the Obama administration, there was a rule called

FATKA that was passed and basically FATKA changed it so that the IRS has a right to find look at any international

bank account no matter what the local bank secrecy rules are. at Switzerland

decided to comply with fat cuff with it towards its American clients and it did it probably did result in some tax

evasion cases by the IRS. And I know that I used to have family and friends who were Americans who had to face a

dilemma. Either they would have to

dilemma. Either they would have to disclose their stuff to the IRS, which or renounce their citizenships. And basically for an

citizenships. And basically for an American now, it makes no sense to have a a bank account in Switzerland. There's

no advantage.

And I think that this helped with the popularity of cryptocurrency with among the American market because it did offer that transparency. But even that may go

that transparency. But even that may go away soon. But yeah, they bank secrecy

away soon. But yeah, they bank secrecy there is treated the same way as attorney client privilege or medical records are treated in other developed countries and that's kind of the

rationale for it. But if you're American due to FACA, you don't really get to have a secret bank account. So a lot of banks now just reject American customers

due to not wanting to deal with FATKA compliance and again but for other bank accounts countries there's still plenty of leaders. It's actually pretty famous

of leaders. It's actually pretty famous having a reputation of having dictators from autocratic countries or people who would be earn that money that in a way

that would not be legal or ethically just in their home country would create a Swiss bank account to hide their transparency. Like I wouldn't be

transparency. Like I wouldn't be surprised, say for example, if Vladimir Putin had 10 or hundred billion dollars in Swiss bank accounts because it's it's

hard to track. But in general, a lot of the mystique around Swiss bank accounts was a little bit overrated and is actually completely meaningless in

America. In terms of banks, there's two

America. In terms of banks, there's two that kind of dominate the markets, which are UBS and Credit Swiss, which are both major publicly traded money center

banks. They account for 50% of all

banks. They account for 50% of all deposits in Switzerland and have branches all over the world. They also

have several private banks all over the place too for wealth management and other needs. Uh the tax rates in some of

other needs. Uh the tax rates in some of the cantons are particularly low, particularly Zoo, which is a Canton south of Zurich, which has no Canton tax

and only has 12% income tax. So it's a popular place to to do business and it's also one of the highest cost of living in the world because of that like Switzerland unlike the US where the

federal taxes are the bulk of your tax burden and states are a much smaller amount. It's the reverse there where you

amount. It's the reverse there where you have like the federal tax is 12%. And

then the state tax ranges can I mean state sorry can honel tax ranges anywhere from zero in zoo to

29% in Zurich. So where you live within Switzerland has a big impact on that.

So yeah, the result of having such a a bank, not just a reputation for secrecy, but also just a reputation of fair dealing and trustworthiness and international credibility, it has

resulted in Switzerland having the highest gross domestic product of any country of its population or higher. But

this is about 8 million people and it's got achieved per capita of $95,000 a year. Adjusted for cost of living

year. Adjusted for cost of living though, that's much lower. It's probably

closer to say like what the US would be say like 50 a little more $60,000 a year. But for given an how small it is

year. But for given an how small it is and how it's landlocked, that is very impressive. And again, I'm biased. I'm

impressive. And again, I'm biased. I'm

half Swiss. I'm a Swiss citizen. So, I'm

not going to really trash my homeland or motherland. I guess my mother's side of

motherland. I guess my mother's side of the family is from Switzerland. But

yeah, in general, um that's my thoughts on the Swiss banking. There is secrecy stuff going on, but it's not as I don't

know, James Bondish as they talk about in the media. And on top of that, if you're American, cuz next we're going to talk about the great reset. The great

reset is really this idea coming from our favorite people at the World Economic Forum, which I talked about on

level five that we done the iceberg. And

the kind of the spokesman for this is Prince Charles of the UK. is basically a theme of rebuilding society in a more sustainable way following the CO 19

pandemic. They want to create conditions

pandemic. They want to create conditions for a more stakeholder economy and emphasize ESG measures and a fourth industrial revolution for the public

good and make things more green and smarter and the economy more equal and fair. I mean those all sound like great

fair. I mean those all sound like great platitudes and it's in link to a lot of conspiracy theories as well because of

this name the great reset does I mean these guys do not cannot help themselves as I mentioned in my critique of the world economic forum in part five of

this series the great reset doesn't really help matters the calling it that it's like you're implying that there is

some dark conspiracy to this and you're just asking for it like that type of of criticism with that just with the name and also with some of the other stuff

I've mentioned in part five such the ideas of the bug eating and the I have no property and overemphasizing a far-left social agenda

that is not very popular in not only the United States but many of the more socially conservative parts parts of the emerging world. So you're not again it's

emerging world. So you're not again it's not doing but I mean at the same time a lot of these conspiracy theories surrounding it aren't particularly true

either that it basically it ties all the the really crazy stuff that I cannot say or this video will get taken down. you

know this group and then they throw that all in there and say it's all part of the great reset and it's or the new world order type stuff too is thrown in

here too. Do I think that the people at

here too. Do I think that the people at the world economic form would like to re reorganize things in a way that redistributes global wealth and

opportunity to them? Yeah. Do you think that there are ways that they'll do in their power to try to do that? Possibly.

Do they have enough power alone to do that? That's where I highly doubt it.

that? That's where I highly doubt it.

It's I think they have the motive and there is a strategy. But my question is I I just am skeptical of the ability of

such a small lack of better term cabal of a few wealthy people to be able to secret do all this in secret. and

basically create their open societyesque utopia and without any sort of push back or be able to just steamroll all the

push back as if we lived in a pure top-down global autocracy.

So yeah, I think that I'm not I mean they they probably don't they probably have some self-serving idea and their

criticism is probably true on that front and uh it's again a lot of the the World Economic Forum is to wealthy people to make it look like they care. But at the

same time, I question a lot of the crazy conspiracy theories to describe this as a great communist takeover plan. I'm

definitely not a fan of of communist takeover plans, but and there are probably other ways that if there's going to happen, it'd be not through the

Great Reset. So, that's my thoughts on

Great Reset. So, that's my thoughts on this topic. Next, we're going to talk

this topic. Next, we're going to talk about rogue traders. Basically, a rogue trader is an employee at a major bank.

It's usually a big bank, could also be at a buy side firm that makes unapproved financial transactions and often covers

up the tracks by mismarking their securities. This has happened several

securities. This has happened several times in the last several three decades.

There are mainly happens is that the trader gets themselves into a hole and they don't want to get fired or not miss

out on a bonus because of it and so they take unnecessary risks to try to make the money back and then that backfires

on them again. So yeah, this is it's kind of less likely to happen now as a lot of says digital records and

compliance has changed that now every institutional sales trader, somebody who has the potentially to have a role that involves rogue trading. now has take a

two straight weeks off at minimum per year so that they can't be constantly covering their tracks and their supervisors or whoever takes over for

them will see this happening. I mean,

the most famous example of this is the movie Rogue Trader, which is based off of the story of Nick Leon, who blew up

Bearings Bank by having a $1.3 billion loss in 1995 trading Nikke futures. The

most recent big example of this is Jerome Keriel who lost $7 billion for Societary

General trading European stock futures.

And there's been several other notable ones of over hundred million dollars throughout the last 30 years. It's about

10 of them. I I don't there's I don't really think there's anything that crazy. Yeah, I mean people say like

crazy. Yeah, I mean people say like these are evidence of rigging markets, but it's usually just people who don't

know who either like just get take too much risk for some reason or there are people who don't who try to basically do

one crime to cover up another. It's kind

of like the trading version of Nixon's Watergate. Hello and welcome to the

Watergate. Hello and welcome to the iceberg of finance part seven. Thank you

for joining me this far into the journey. Now we're kind of getting into

journey. Now we're kind of getting into some of the more outright conspiratorial aspects of finance and I'm going to try to sus out which ones are have some

basis behind them and which ones are just plain crazy and out in left field.

And then after this, we have part eight and then we're going to move on to more of our usual analyzing finance with Nick content. But if you like this series,

content. But if you like this series, please uh tell me. And if I ever get to 10,000 plus subscribers, I will do a second iceberg of finance. But now,

let's get on with the topics. This next

one I want to talk about is the barter myth, which is this idea that if money disappeared tomorrow, everybody would go back to bartering. And before the

invention of currency, the way that people exchange goods was via barter.

For those who aren't familiar with the concept of bartering, this is basically the idea if I, for example, wanted to get a pair of shoes, instead of being

able to pay $100 for those shoes, I would have to trade you 12 cartons of

eggs or like 12 dozen would be 144 eggs.

And so since there is no currency, which is kind of a standard unit of account that people can use to buy other goods, you would have to directly offer that because say the shoe salesman doesn't

need what I say. For example, I'm a candle maker and the shoe the cobbler doesn't need candles. He only wants eggs. And so therefore, I would have to

eggs. And so therefore, I would have to find somebody who I had trade my c the egg farmer and trade my candles for his

eggs and then go to the cobbler and trade like the eggs for the shoes. You

can see how this would be really inefficient and complicated. And this is what the theory was is people thought would do direct exchange like that where it was not really the case. That's why

it's called the barter myth. And the our first idea I got on this book was called debt the first 5,000 years by David Greyber which we'll talk about at the

very bottom of this iceberg. And based

on what his research and other economists that I've read about this is that it's not that barter was first core currency. It's just that everybody just

currency. It's just that everybody just exchanged debt or IUS. So like instead, say for example,

IUS. So like instead, say for example, the shoe guy doesn't need a candle from me. So instead, he'd give me the pair of

me. So instead, he'd give me the pair of shoes and if I ever needed something from him, he ever needed candles from me, I would have to owe it to him at a

future point or a future when he would have to come and collect and I'd pay it back or that can be denominated in wheat or eggs or

whatever. that whenever I am able to

whatever. that whenever I am able to exchange my goods and services for that I will pay him and basically so it was kind of a giant bank everybody was kind

of their own individual bank in a sense this example which I have to give credit to Patrick Bole on this with the bank strike in Ireland in the 70s where

basically people would write checks and not be able to cash them so they would just exchange future checks to each

another on an honor system and the old debt system since there was no things such as credit scores or national records of people's purchases. The only

way that people would lend you money and do these agreements is if they knew you.

And villages were much smaller back then in towns and rural communities. So

people did know you. And so you had your your own personal trust and honor was heavily valued back then. And so if you were not if you were known to be a dishonorable person who didn't pay back

your debt, uh sorry, you're not going to have buy any food. This is where there's the evolutionary perspective and the religious perspective of the importance of honesty and integrity which I think

are important on their own midual merits but from an economic perspective this was the original ancient civilization reason why they were so important because pretty much every sort of economic transaction was dependent on

the trustworthiness and the personal honor that people in the society have and why

honor culture does remain stronger now in less economically developed and less technologically advanced societies because that's the only way you can

verify them. And as we've advanced in

verify them. And as we've advanced in technology and the financial system has got more sophisticated, it's gone always more from

trustbased to decentralized nonrust based systems. Like the whole appeal for cryptocurrencies is that and decent is that you don't have to trust a bank or a

counterparty. But at the same time,

counterparty. But at the same time, people I think of one of the flaws of 21st century millennial thinking is that a lot of people don't undervalue the

importance of trust and relationships whether in building a business or just functioning as a member of a moder of society and how your life can be a lot

easier if you develop credibility whether it's your workplace or your town or your school or whatever as an honorable person that actually still mean something even in a world that's

trying to remove trust out of the equation in any way they can. If unless

if we come all digital automatons and never talk to anybody in person anymore, then I think that we can learn something from the Bern myth and about

the importance of trust in society about Joseph Kennedy senior who is the father of John F. Kennedy, president, JF, RFK,

Robert Kennedy, his brother, who is former attorney general, and Senator Ted Kennedy. And the thing, the story why

Kennedy. And the thing, the story why he's in the iceberg of finance is how he made his money primarily through financial speculation. In the 20s, he

financial speculation. In the 20s, he made a fortune in trading stocks, commodity futures, and he also uh on top of that

was one of the most notable short sellers during the 1929 crash. And he

made a lot of money shorting stocks in 1929. By the end of by 1935 1929 before

1929. By the end of by 1935 1929 before the crash his fortune was $4 million and to about 60 million today's money by 1935 in the heart of the great

depression his wealth had increased to 180 million or 3.4 billion today. So

it's interesting that one of the most famous political dynasties in the history of the United States of America was made on the backs of a short seller.

you short sellers are vilified and people hate them so much yet our most beloved president or not I'm not saying he's my favorite president but one of the most beloved presidents in the

history of America was the son of a speculator who financed his children's political ambitions through money made

shortselling and pre and there's a lot of stuff was before the the advent of the SEC and a lot of the other regulations that we now have and the

securities market. So, it is

securities market. So, it is questionable like in today's era how legal some of the stuff he did would have been like such as bear raids or

tactics that would be considered insider trading and market manipulation by today's standards of his brokerage firm in the in the 20s. He later would diversify his money into other assets

such as then the real estate, the shipping industry and in the movie theaters as well. So a lot of people

like to think that u his uh money was made by the bootlegging, but there really is no evidence to truly confirm that. In fact, really his money was made

that. In fact, really his money was made through short selling. And it's also kind of ironic because of the way he

acquired his wealth is that he became the SEC chairman. I think the first SEC chairman in its history in 1934 and did

that for a year. This that he also on the on the I could see why FDR would put him there. Not just because he was a

him there. Not just because he was a prominent supporter, but also was because like the SEC's job is to

regulate and clean up the financial industry. And somebody who would know

industry. And somebody who would know about this is a participant. So he would actually probably be the right guy by

that logic to pick to help get the SEC off the ground. So yeah, that's the story of the Kennedy family and where their money came from. It's a lot more

linked to financial markets than people believe. 14 up 14 down comes from a

believe. 14 up 14 down comes from a concept from economist Philip Anderson who is noteworthy for his book the

secret life of real estate and banking which I highly recommend which shows that real estate historically goes in

patterns that average 14 years of up market followed by a 4-year crash and with the exception of the postworld war

II boom which had some delays due to just the general rebuilding of the global economy. This pattern has held up

global economy. This pattern has held up extremely well in Anglosphere countries, especially the United States. Like I'll

attach a link to an image of Chicago real estate basically since the 1830s. And this pattern has been

1830s. And this pattern has been remarkably robust and has continued to do so. There's a lot of theories on why

do so. There's a lot of theories on why this works due to just people's comfort with credit, but a lot of it comes down

to the fact that most professionals in the real estate business or speculators usually do not have a career that lasts long enough to cover two full

18ear cycles or 36 years. Especially

today where the average person changed jobs or careers multiple times in a decade. There's not that many people who

decade. There's not that many people who last 36 years in any industry, particularly as one is highly speculative and a lot of leverage as real estate. And so they say everybody

real estate. And so they say everybody who's remembered to live through a two whole cycles um in the past is probably no longer in the game. And that's my

theory on why it keeps working. And I

have to give credit to that again to Philip Anderson who I've had direct conversations with on this in a previous discussion for my with my clients on the

future of the real estate market. But

yeah, I think this concept is fairly interesting. It's it's these similar

interesting. It's it's these similar collections of debt and supply relative short recalls and surpluses and demographics. they all intersect to

demographics. they all intersect to create surprisingly predictive pattern for real estate markets. I think also why it's more effective in the

Anglospheres because those cultures are more comfortable with speculating for appreciation whereas other countries maybe such as Germany or Japan have more

of a history of just saving money in the bank and just are less tolerant of volatility whether it's from their financial markets or from their views on risky behaviors in the business world

such as entrepreneurship. And the first one we're going to talk about is the city of London. The city of London is not what you think of as the greater

London area. In fact, there's a small

London area. In fact, there's a small 1.1 square mile area known as the city of London which is operated by a

separate corporation from the rest of the UK called the city of London Corporation and it consists of the land that is the original territory that was

the Roman city of Leodonium. Uh today

the city of London has a lot of major historical and tourist sites such as the museum of London with a St. Paul's

Cathedral, the Bank of England. Several

major banks are headquartered there, the Girkin Tower is there, and just outside the limits are the London Bridge and the Tower of London. The city of London

often shows up in conspiracy theories because of its unique jurisdictional status. It would be kind of like say if

status. It would be kind of like say if downtown Los Angeles was its own county

versus the rest of the LA county or even maybe it's it's somewhere in between that and say say like that DC status where it's kind of its own thing and

it's not part of either the state of Maryland or Virginia and it brings a lot of conspiracies of claims that the city of London is not under the sovereign

jurisdiction of the UK and that the technically the queen does require from at least a ceremonial manner permission to enter the city of London. In fact,

Westminster is where Westminster Abbey is and Buckingham Palace and all that was actually started as a competing city to the city of London back when William

the Conqueror came to the UK in the 11th century. The other thing is kind of

century. The other thing is kind of known for is controversially being called a tax haven even though the tax system is the same as the most of the UK

except they have their own municipal level taxes versus the rest of greater London. But what is different is that

London. But what is different is that they are known for having a reputation of bank secrecy. And so a lot of money from various parts in the world and

various banks like being operating out there because of the transparency laws are different than the rest of the United Kingdom and is more comparable to

a place like Luxembourg or Switzerland.

In fact though the funny thing is that even though London is in the heart of the one of the biggest most important cities in the world itself is the third

smallest municipality in the United Kingdom and it only has 9,000 people.

And the other thing that makes the city of London unique, which is also makes it conspiracy thought, is that not only people are allowed to vote and they have their separate city councilman and one

of the few places that still use aldermen in the UK, but they allow businesses as well as individuals to vote. And so when you have corporations

vote. And so when you have corporations having the right to vote, that raises a lot of eyebrows. And that is really the

city of London. It's just the historical center of London, which has some of its own rules and regulatory freedoms that are not really

available to the rest of the UK. And

it's been criticized for acting like a tax haven and eliminating regulations on things such as executive pay and but it's still there. It's still going. The

city of London is like I think the oldest incorporated in the modern sense of the term metropol like city in the

world and it's keeps going strong to this day. The next thing I'm going to

this day. The next thing I'm going to talk about is banks manipulating markets. Looks like somebody at the

markets. Looks like somebody at the banks didn't want me to talk about banks manipulating markets. On a more serious

manipulating markets. On a more serious note, there have been several scandals involving banks manipulating markets.

Whether it's the liebore rigging scandal, whether it's Goldman calling its unsophisticated institutional clients muppets and giving them bad

fills, whether it was what was going on with JP Morgan silver position on the both the short and the long side.

There's been instances that banks have been accused of manipulating markets and have done so. It's not as often as people think. One, it's just there are a

people think. One, it's just there are a lot of people in this industry who have upstanding ethics. In fact, the vast

upstanding ethics. In fact, the vast majority of people work finance. But

it's just a simple riskreward matter.

Like the downside of getting caught doing any of this stuff in terms of jail time and being banned from in the industry is far worse than usually the

upside and maybe a slightly higher bonus you're going to get from manipulating the markets. And also I think it's

the markets. And also I think it's another thing has to do with is is the overestimation of the power of individual private banks. I mean, if you

really want to be worried about banks manipulating markets, you should look at central banks such as the Federal Reserve and the ECB and the Bank of Japan, what they've done with their

country's government bond markets.

That's a real example of banks manipulating markets. Yeah, I haven't

manipulating markets. Yeah, I haven't expertise on the specific scandals that I've mentioned is not really suitable enough to go into, so I'm not going to

really elaborate more on this here. The

one other point I mentioned in iceberg 7 was HSBC. I was going to add that to

was HSBC. I was going to add that to this series, but then I saw this video from Jake TR who covered the HSBC

moneyaundering scandal and did it in probably a more entertaining and comprehensive way than I would have done with iceberg. So if you want to learn

with iceberg. So if you want to learn more about the HSBC story and uh which I have in later seven, I recommend watching his video.

And then the Rockefellers, it's just it's it's just kind of a derivative of the old money nobility thing that the Rockefellers have a lot more influence than you would think they do given the

fact they really haven't been much in the public eye since outside of a few charitable organizations since Nelson Bachefeller was vice president in the 70s. But I'll

save that for when I go more in my old money nobility