1 00:00:00,920 --> 00:00:03,120 Ladies and gentlemen. Welcome to the business brew. 2 00:00:03,120 --> 00:00:07,080 I am your host as always, this episode features Abdul al-Assad. 3 00:00:07,680 --> 00:00:10,880 Abdul founded basic capital which launched in may. 4 00:00:10,880 --> 00:00:14,520 There were many activities pre launch but official launch in 5 00:00:14,520 --> 00:00:19,960 May and when the product was launched there were reactions 6 00:00:19,960 --> 00:00:25,640 from people that were convinced that this was a bad idea that 7 00:00:25,640 --> 00:00:27,640 was bound to blow people up. There were people that were 8 00:00:27,640 --> 00:00:30,000 convinced that this is a great idea that everyone should have 9 00:00:30,000 --> 00:00:32,080 access to. I said I don't know which is 10 00:00:32,080 --> 00:00:35,000 true, so I reached out to Hunter Hopcraft. 11 00:00:35,360 --> 00:00:39,840 Who? Is a friend of the show and he 12 00:00:39,840 --> 00:00:45,000 made the intro to Abdul. My understanding of the. 13 00:00:45,000 --> 00:00:46,080 Product is. It's basically. 14 00:00:46,080 --> 00:00:47,680 Offering four to one. Leverage. 15 00:00:48,240 --> 00:00:49,840 So you put a dollar? In you now have. 16 00:00:49,840 --> 00:00:55,320 Access to $5.00 of funds. Four of those dollars at least 17 00:00:55,320 --> 00:00:59,400 in some of the material that I saw are invested in mostly 18 00:00:59,400 --> 00:01:03,760 double B credit. You're basically borrowing it so 19 00:01:03,760 --> 00:01:08,360 for plus 4 1/2 and lending at so for plus 6 1/2. 20 00:01:08,360 --> 00:01:10,240 So there's a 200 basis point spread. 21 00:01:10,680 --> 00:01:13,800 I still don't fully understand why you're borrowing at a lower 22 00:01:14,160 --> 00:01:16,960 rate than you're lending out, but that's something that you 23 00:01:16,960 --> 00:01:19,200 get to work on for yourself should you find this episode 24 00:01:19,200 --> 00:01:22,920 interesting. And I would just say that I one 25 00:01:22,920 --> 00:01:25,440 of the things that I value about this show is the ability to have 26 00:01:25,440 --> 00:01:28,440 these conversations with people. My initial inclination would 27 00:01:28,440 --> 00:01:30,880 say, don't go anywhere near this product. 28 00:01:31,240 --> 00:01:36,080 I think that that initial inclination has a reasonably 29 00:01:36,080 --> 00:01:38,160 high probability of being the wrong thought. 30 00:01:38,560 --> 00:01:44,320 So I hope that this episode expands, if nothing else, your 31 00:01:44,320 --> 00:01:47,440 knowledge of what is available in the financial space. 32 00:01:47,800 --> 00:01:51,280 So without further ado and after the sponsor reads, please enjoy 33 00:01:51,280 --> 00:01:54,280 the show. Also, none of this investing 34 00:01:54,280 --> 00:01:55,840 advice. Everything in this program is 35 00:01:55,840 --> 00:01:58,560 for entertainment purposes only. Please consult a financial 36 00:01:58,560 --> 00:02:01,040 advisor before making investment decisions and do your own due 37 00:02:01,040 --> 00:02:04,560 diligence. We're going to do this one 38 00:02:05,040 --> 00:02:08,720 reasonably quickly. Fiscal dot AII feel like a lot 39 00:02:08,720 --> 00:02:14,080 of my reads to this point have been to the retail slash 40 00:02:14,160 --> 00:02:17,600 prosumer market. Here's who I'm going to pitch 41 00:02:17,600 --> 00:02:20,640 this time. If you have a business that is 42 00:02:20,640 --> 00:02:25,120 reliant upon financial data and you feel like your current 43 00:02:25,120 --> 00:02:30,000 provider is too expensive, IE fax that, check out fiscal dot 44 00:02:30,000 --> 00:02:31,800 it. They have an enterprise level 45 00:02:31,800 --> 00:02:34,400 tier. And you will be happy with the 46 00:02:34,400 --> 00:02:37,080 data quality. 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Ta.com/brew. 85 00:05:17,880 --> 00:05:21,160 People, people tend to like podcasts where I do think it's 86 00:05:21,160 --> 00:05:24,720 like more of a discussion rather than just like, oh, hey, let's 87 00:05:24,720 --> 00:05:26,600 talk about your corporate pitch, right? 88 00:05:26,680 --> 00:05:28,680 Yeah, yeah, yeah. Nobody wants to listen to that. 89 00:05:29,240 --> 00:05:31,720 It's lectures. Lectures are brutal for a 90 00:05:31,720 --> 00:05:34,120 reason. And I'm a big podcast listener 91 00:05:34,520 --> 00:05:38,400 and to me, I woke up on like a Saturday or Sunday or during the 92 00:05:38,400 --> 00:05:41,800 week on my commute and I just put on, you know, Joe Rogan or 93 00:05:41,800 --> 00:05:43,960 something and you know, I'm in for three hours. 94 00:05:43,960 --> 00:05:47,000 It's like when Lex Friedman drops like a three hour episode. 95 00:05:47,000 --> 00:05:51,400 I'm like, let's go like. Yeah, did he did one with it was 96 00:05:51,400 --> 00:05:54,920 Dylan Patel and another guy on some AI thing. 97 00:05:54,920 --> 00:05:57,840 It was like 5 1/2 hours. Yeah, yeah. 98 00:05:57,840 --> 00:05:59,560 And I was. Singing, I was like, this is so 99 00:05:59,560 --> 00:06:01,600 dense. I need to, like, sit there and 100 00:06:01,600 --> 00:06:05,320 take notes. But if I do this, for this, I 101 00:06:05,320 --> 00:06:08,800 almost have to dedicate half a week just to one podcast. 102 00:06:09,040 --> 00:06:11,960 Yeah, yeah, yeah, yeah. Try to figure out what they're 103 00:06:11,960 --> 00:06:14,440 actually talking about. Yeah, And I'm sure you're a 104 00:06:14,440 --> 00:06:17,200 little bit like me word. Like if I hear something I like, 105 00:06:17,200 --> 00:06:20,720 like if they reference an article or an author, I usually 106 00:06:20,720 --> 00:06:25,560 like to go like be like, oh, let me go find out who that person 107 00:06:25,560 --> 00:06:27,800 is. And there is something really 108 00:06:27,800 --> 00:06:29,520 beautiful about that. There is something really nice 109 00:06:29,520 --> 00:06:34,400 about like discovering like a sub stack or a Twitter account 110 00:06:34,720 --> 00:06:38,880 or a podcast for the first time and you're like, Oh yeah, this 111 00:06:38,880 --> 00:06:42,200 is going to be like good, like two or three weeks worth of like 112 00:06:42,640 --> 00:06:45,520 content going back in the days reading their stuff. 113 00:06:46,000 --> 00:06:49,280 Yeah, but a few. It's a few of five hour dense 114 00:06:49,600 --> 00:06:51,240 podcast. Like, I'm not, I'm not doing 115 00:06:51,240 --> 00:06:53,800 that. Yeah, well, I mean, it was, it 116 00:06:53,800 --> 00:06:58,200 was OK, to be fair. But you know, it was a lot. 117 00:06:58,480 --> 00:07:00,960 I, I was talking to this guy, Adam Robinson. 118 00:07:00,960 --> 00:07:03,880 He's been on the pod and he was on Tim Ferriss's pod, which is 119 00:07:03,880 --> 00:07:07,800 how I found out about him. But I was asking about the the 120 00:07:07,800 --> 00:07:12,040 idea of, of reading 500 pages a week or whatever. 121 00:07:12,760 --> 00:07:17,840 And his comment was, I think he said this on the pot. 122 00:07:17,840 --> 00:07:20,280 He might have said it. We've chatted a couple times 123 00:07:20,280 --> 00:07:26,520 offline, but he he was like, I like to just focus on 10 pages 124 00:07:26,600 --> 00:07:28,320 in a in a day. Yeah. 125 00:07:28,560 --> 00:07:30,760 And like really understand the thought. 126 00:07:31,200 --> 00:07:33,440 Not every day, right. But like, there's certain days 127 00:07:33,440 --> 00:07:36,720 where just thinking about one thought all day long can 128 00:07:36,720 --> 00:07:39,440 actually get you much further than. 129 00:07:39,720 --> 00:07:43,600 So sometimes you do run across podcasts that really causes you 130 00:07:43,600 --> 00:07:46,960 to drive, you know, deep. Maybe this will be that podcast 131 00:07:46,960 --> 00:07:49,200 for some people. I hope so. 132 00:07:49,200 --> 00:07:50,520 I'm here for it. I'm here. 133 00:07:50,520 --> 00:07:55,360 There you go. So I, I reached out to Hunter 134 00:07:55,840 --> 00:07:59,840 after I saw a little bit of, I don't know, there were a lot of, 135 00:07:59,840 --> 00:08:03,000 there were a lot of comments to, I guess you had a tweet that 136 00:08:03,000 --> 00:08:04,600 went kind of viral. Yeah. 137 00:08:05,120 --> 00:08:09,200 And there was some comments and I kind of couldn't figure out 138 00:08:09,200 --> 00:08:14,000 from, from the comments or, or from, you know, the tweet 139 00:08:14,000 --> 00:08:16,640 exactly what you guys did. So I reached out and here we 140 00:08:16,640 --> 00:08:18,240 are. So that's kind of the back story 141 00:08:18,240 --> 00:08:20,600 to that. Do you want to tell people sort 142 00:08:20,600 --> 00:08:23,080 of your background and what you're building right now? 143 00:08:23,520 --> 00:08:26,080 Yeah, of course. My name is Abdul al-Assad. 144 00:08:26,880 --> 00:08:29,560 I'm Co founder and CEO of Basic Capital. 145 00:08:30,240 --> 00:08:34,640 Basic Capital is the first company that gives you credit 146 00:08:34,760 --> 00:08:37,480 non recourse financing. To. 147 00:08:38,039 --> 00:08:42,320 Participate in financial markets to invest today. 148 00:08:42,320 --> 00:08:45,120 In America, it's very easy to access consumer credit to 149 00:08:45,120 --> 00:08:49,920 consume, can buy now, pay later anything. 95% of purchases on 150 00:08:49,920 --> 00:08:53,400 Black Friday were done on buy now pay later people. 151 00:08:53,400 --> 00:08:56,040 Send your credit card to your door to consume. 152 00:08:56,320 --> 00:08:59,520 We're the first company that gives you long term duration 153 00:08:59,520 --> 00:09:02,720 financing to invest. When we launched the business in 154 00:09:02,720 --> 00:09:05,120 May, we've been building it for 2-3 years, but we've been 155 00:09:05,120 --> 00:09:07,680 building it in stealth. Under the radar is the business. 156 00:09:07,680 --> 00:09:12,440 In May, it became like a national sensation on Twitter. 157 00:09:12,760 --> 00:09:15,280 People were like, losing it. Yeah. 158 00:09:15,320 --> 00:09:19,840 The the the reactions that we got is either this is the best 159 00:09:19,840 --> 00:09:22,760 test. This is the best thing the since 160 00:09:22,760 --> 00:09:25,200 sliced bread. This is like really needed. 161 00:09:25,360 --> 00:09:27,960 This is amazing. Like, people need to participate 162 00:09:27,960 --> 00:09:29,800 in capitalism in a more meaningful way. 163 00:09:30,160 --> 00:09:32,160 We give people credit for stupid reasons. 164 00:09:32,160 --> 00:09:35,240 Why don't we give them credit for a good reason or they are 165 00:09:35,240 --> 00:09:37,960 like, this is crazy. This is going to bring back the 166 00:09:37,960 --> 00:09:42,240 Great Depression. This is 2008, all of Michael 167 00:09:42,240 --> 00:09:46,360 Berry like memes, the hey, hey, there is a bubble. 168 00:09:47,880 --> 00:09:50,400 There is no in between. It was it was very, very by 169 00:09:50,400 --> 00:09:52,600 model. It was very, very, you know, and 170 00:09:52,680 --> 00:09:55,040 to me I was like, I think that's good. 171 00:09:55,040 --> 00:09:59,240 I think I think the most fascinating ideas are usually 172 00:09:59,480 --> 00:10:02,480 trigger this type of reaction, this type of extreme reaction. 173 00:10:03,280 --> 00:10:06,840 Yeah, well, not to continue to go back to Adam Robinson, but 174 00:10:06,840 --> 00:10:09,800 one thing he likes to say is there's there's a decent amount 175 00:10:09,800 --> 00:10:12,440 of money to be made and things that are are blatantly obvious 176 00:10:12,440 --> 00:10:16,200 and things that make no sense. And I will tell you that my 177 00:10:16,200 --> 00:10:20,760 general bias when I hear things like let's give people leverage 178 00:10:20,760 --> 00:10:25,360 for their Iras is how is this guy going to fleece people? 179 00:10:25,360 --> 00:10:27,120 And this is bound to end up wrong. 180 00:10:28,680 --> 00:10:33,920 So, but I normally, I normally wouldn't, but then I saw like 181 00:10:33,920 --> 00:10:37,440 Josh Wolf is with you and I saw Hunter and I know Hunter 182 00:10:37,800 --> 00:10:39,760 reasonably well. I mean, I've read him for two 183 00:10:39,760 --> 00:10:41,960 years and he's been on the pot And I was like, all right, 184 00:10:41,960 --> 00:10:44,120 there's probably something I don't fully get here. 185 00:10:44,520 --> 00:10:47,320 So thank you for agreeing to come on the program and, and 186 00:10:47,320 --> 00:10:50,160 maybe explain a little bit about what you think the 187 00:10:50,160 --> 00:10:53,040 misperceptions are or, you know, whatever. 188 00:10:54,080 --> 00:10:57,480 One thing you said, which was hard for me to get my head 189 00:10:57,480 --> 00:11:04,880 around is how do you offer leverage in a way that's non 190 00:11:04,880 --> 00:11:06,760 recourse? How does how does that structure 191 00:11:06,760 --> 00:11:10,000 actually work? Fanet Well, thank you so much 192 00:11:10,000 --> 00:11:14,960 for having me, first of all, and we'll get into the structure in 193 00:11:14,960 --> 00:11:16,440 just a second. But I'm going to take a step 194 00:11:16,440 --> 00:11:23,200 back on a point that you you mentioned by passing and you 195 00:11:23,200 --> 00:11:25,920 said something like, when I hear somebody saying, oh, I want to 196 00:11:25,920 --> 00:11:29,440 give leverage to people's IRA, my first intuition is like, how 197 00:11:29,440 --> 00:11:32,400 is this person going to fleece people? 198 00:11:32,720 --> 00:11:35,160 Yes. And no, no offense taken, no 199 00:11:35,160 --> 00:11:36,720 offense taken, just to be clear, OK. 200 00:11:36,720 --> 00:11:42,840 And no, Mark Andreessen, A16Z Andreessen Howitz Opti of BC, he 201 00:11:42,840 --> 00:11:47,400 has this this incredible thought, let's say, where he 202 00:11:47,400 --> 00:11:52,880 says some of the most important industries in our society, think 203 00:11:52,880 --> 00:11:57,240 healthcare, think financial services have a certain moral 204 00:11:57,240 --> 00:12:00,560 statue to them. And because they have a certain 205 00:12:00,560 --> 00:12:04,280 moral statue to them, innovation, the hurdle for 206 00:12:04,280 --> 00:12:05,840 innovation becomes really, really high. 207 00:12:06,600 --> 00:12:09,520 Nobody actually wants to go into innovating into healthcare 208 00:12:09,520 --> 00:12:11,680 because you're dealing with people's health, right? 209 00:12:11,680 --> 00:12:13,080 Like you do not want to make somebody sick. 210 00:12:13,080 --> 00:12:15,360 You do not want to make somebody else you do not want. 211 00:12:15,480 --> 00:12:18,000 Like there is very little room for experimentation there. 212 00:12:18,480 --> 00:12:22,080 And the same thing with finance. You're dealing with people's 213 00:12:22,080 --> 00:12:24,400 money, you're dealing with people's hard earned dollars. 214 00:12:24,880 --> 00:12:28,720 So it has a sort of moral statue to it like banks a lot. 215 00:12:28,920 --> 00:12:31,800 If you walk into a bank branch from the old days, not today, 216 00:12:32,000 --> 00:12:36,720 they look a lot like churches. High ceilings beg you walk in, 217 00:12:36,760 --> 00:12:39,400 they make you feel small. It's almost like you walk in 218 00:12:39,640 --> 00:12:46,160 into into into a church. And I think this moral statue to 219 00:12:46,160 --> 00:12:49,360 finance is is important because you are dealing with people's 220 00:12:49,360 --> 00:12:52,480 hard earned wages and hard earned capital. 221 00:12:52,920 --> 00:12:57,000 But at the same time, it deincentivized allow of 222 00:12:57,080 --> 00:13:00,280 otherwise good winning people to enter the space and innovate. 223 00:13:01,240 --> 00:13:04,520 So who and who actually ends up entering the space and 224 00:13:04,520 --> 00:13:06,280 innovating in these financial services? 225 00:13:06,560 --> 00:13:09,480 Either somebody who has complete like no moral compass at all, 226 00:13:09,480 --> 00:13:11,720 like they have no moral consideration. 227 00:13:11,720 --> 00:13:14,080 That's like this the classic scammer, right? 228 00:13:14,440 --> 00:13:17,440 Or somebody who is like really like forward on the respective 229 00:13:17,440 --> 00:13:20,040 spectrum, like me, who really believe in that idea that they 230 00:13:20,040 --> 00:13:21,200 are like, OK, I'm willing to do it. 231 00:13:21,200 --> 00:13:25,160 And there are example of that. You think of Jack Bogle 1980s, 232 00:13:26,200 --> 00:13:30,440 he created the index fund and in in the 1980s and on before you 233 00:13:30,440 --> 00:13:32,000 buy a stock, there is no index fund. 234 00:13:32,000 --> 00:13:33,800 So you had to buy a single stock. 235 00:13:34,320 --> 00:13:38,240 What you did is you called your broker, Wolf of Wall Street 236 00:13:38,240 --> 00:13:41,320 style and you ask, or actually I think it back, your broker 237 00:13:41,320 --> 00:13:45,720 called you, your broker called you and said, Hey, I have my 238 00:13:45,720 --> 00:13:49,000 hand in this amazing stock. And you would go buy the stock 239 00:13:49,000 --> 00:13:52,160 and and Jack Bogle showed up and he had this crazy idea which is 240 00:13:52,160 --> 00:13:54,680 don't buy a stock, buy the entire market. 241 00:13:56,280 --> 00:13:58,320 His idea was do zero due diligence. 242 00:13:58,320 --> 00:14:02,760 In other word, his idea was literally do zero work, pay no 243 00:14:02,760 --> 00:14:06,080 attention to equity research reports, buy all the companies, 244 00:14:06,080 --> 00:14:11,000 the good ones and the bad ones. And people sued him for lack of 245 00:14:11,000 --> 00:14:15,600 fiduciary duty because he was quite literally right, asking 246 00:14:15,600 --> 00:14:18,960 you to buy all the companies, the good ones and the bad ones. 247 00:14:18,960 --> 00:14:21,480 And some of them are very like evidently very obviously bad. 248 00:14:21,640 --> 00:14:23,160 Some of them are not a going concern. 249 00:14:23,280 --> 00:14:25,680 And he's like, no, no, just buy the whole thing. 250 00:14:25,920 --> 00:14:27,440 You'll be better off in the long run. 251 00:14:27,680 --> 00:14:30,320 And people, people sued him. People said me things about him. 252 00:14:30,320 --> 00:14:34,680 I have a poster behind me. It says stamp stamp index funds 253 00:14:34,680 --> 00:14:38,800 and American, which is a posters that they literally literally 254 00:14:39,040 --> 00:14:42,840 put on Wall Street and and out New York and around Philadelphia 255 00:14:43,160 --> 00:14:47,840 to discourage people from buying index fund because why, how, why 256 00:14:47,840 --> 00:14:49,800 would you buy a stock with doing no diligence? 257 00:14:50,920 --> 00:14:53,760 Every now and then you have somebody who comes out and they 258 00:14:53,760 --> 00:14:57,960 do a big innovation and they're honest and they're trying to do 259 00:14:57,960 --> 00:14:59,760 their best because they really believe in that idea and the 260 00:14:59,760 --> 00:15:03,400 idea works. But because of this moral statue 261 00:15:03,400 --> 00:15:06,120 to finance, unfortunately, it discourages a lot of otherwise 262 00:15:06,120 --> 00:15:08,640 good actors to innovate and to create. 263 00:15:09,040 --> 00:15:11,240 So I just I just wanted to touch to touch on that. 264 00:15:11,680 --> 00:15:14,320 I mean. Now that we're having this 265 00:15:14,320 --> 00:15:17,040 conversation because we can get back to the structure, I would, 266 00:15:17,040 --> 00:15:19,760 I would just say that I think some of the skepticism comes 267 00:15:19,760 --> 00:15:22,080 from it. It what I'm about to say is a 268 00:15:22,080 --> 00:15:23,560 little ironic after what you just said. 269 00:15:23,840 --> 00:15:28,320 But where I think some of the skepticism comes from is the 270 00:15:28,320 --> 00:15:31,360 history of people successfully using leverage. 271 00:15:32,240 --> 00:15:35,680 I I think is littered with far more blow UPS than things that 272 00:15:35,680 --> 00:15:39,320 go right. Is that is that? 273 00:15:39,320 --> 00:15:41,160 Don't, I don't, I don't know. I don't know. 274 00:15:41,160 --> 00:15:44,160 I haven't seen all the data. So you, you may know that that 275 00:15:44,160 --> 00:15:46,360 is not true. I think that's the skepticism, 276 00:15:47,160 --> 00:15:50,640 especially when put into retail's hands and. 277 00:15:51,960 --> 00:15:53,320 I don't know. I mean, let me, let me push you 278 00:15:53,320 --> 00:15:55,000 back. And I and I think people that 279 00:15:55,000 --> 00:15:58,240 are asking for for reasonably high fees, which you don't have 280 00:15:58,240 --> 00:16:00,600 low fees, we can debate whether or not they're high fees. 281 00:16:01,080 --> 00:16:04,040 That's also something that is against the grain at the moment. 282 00:16:04,520 --> 00:16:09,320 So and then and then I think on the back of some very prominent 283 00:16:09,320 --> 00:16:11,960 promoters of SPAC's that didn't go well. 284 00:16:12,840 --> 00:16:17,080 You probably are suffering a little bit in people's minds 285 00:16:17,080 --> 00:16:22,200 from the taints of 2020 and 2021 that you may you may not have 286 00:16:22,200 --> 00:16:25,560 been a part of, but it's the old sort of. 287 00:16:26,520 --> 00:16:27,920 No, this is my. This is my first. 288 00:16:28,320 --> 00:16:31,040 It's not even the company you keep, but like you're associated 289 00:16:31,040 --> 00:16:31,840 with it. Right. 290 00:16:32,360 --> 00:16:35,760 Yeah, Yeah. You know, Full disclosure, I 291 00:16:35,760 --> 00:16:38,000 never spacked anything. Yeah, Yeah. 292 00:16:38,000 --> 00:16:38,760 No, I know. I've. 293 00:16:38,760 --> 00:16:42,240 Never lost a meme coin. But but the SPAC guys are saying 294 00:16:42,240 --> 00:16:44,720 the same thing, right? Like, oh, look at the innovation 295 00:16:44,720 --> 00:16:45,880 that we're bringing to the market. 296 00:16:45,880 --> 00:16:48,080 So I think that's part of what you're fighting against a 297 00:16:48,080 --> 00:16:49,800 little. So, so let's go back. 298 00:16:49,800 --> 00:16:51,120 Let's go back and test a couple of things. 299 00:16:51,320 --> 00:16:55,000 You mentioned the history of leverage is full of examples of 300 00:16:55,000 --> 00:16:57,840 where people blow up more often than they did well. 301 00:16:58,520 --> 00:17:03,120 And you mentioned the fees as a concern, and then you mentioned 302 00:17:03,120 --> 00:17:06,599 the SPAC's thing. And I want to address the three 303 00:17:06,599 --> 00:17:09,240 aspects of these things, starting from the latter 1 304 00:17:09,240 --> 00:17:10,680 Spacs. I don't believe in single name 305 00:17:10,680 --> 00:17:15,640 investing. So I believe the best and the 306 00:17:16,280 --> 00:17:19,079 third best invention of the 20th century. 307 00:17:19,200 --> 00:17:20,800 And we're going to come back to the first two. 308 00:17:21,240 --> 00:17:23,960 But the third best invention of the 20th century financial 309 00:17:23,960 --> 00:17:29,080 market is Jack Bobo's invention of the index fund because it's 310 00:17:29,080 --> 00:17:32,920 simplified investing and it said do no work, buy and hold long 311 00:17:32,920 --> 00:17:34,680 term, you cannot beat the market. 312 00:17:35,080 --> 00:17:38,120 So I don't believe in Spacs, I don't believe in buying single 313 00:17:38,120 --> 00:17:40,640 name stocks. I don't believe in mid coins. 314 00:17:41,400 --> 00:17:43,880 I, I, I'm, I'm a blockchain enthusiast. 315 00:17:43,880 --> 00:17:47,200 I think there's so much money in financial markets are being made 316 00:17:47,200 --> 00:17:51,720 by middleman, middle, middle men. 317 00:17:51,880 --> 00:17:54,440 They just extract fees for no good reason. 318 00:17:54,640 --> 00:17:56,960 And I think we should try to neutralize that. 319 00:17:56,960 --> 00:18:00,360 And I think, you know, defy offers an exciting opportunity 320 00:18:00,360 --> 00:18:04,400 there, but I'm not in favor of a certain coin or anything like 321 00:18:04,400 --> 00:18:06,480 that. So to start with the last 322 00:18:06,480 --> 00:18:08,480 aspect, I don't believe in single name stocks, I don't 323 00:18:08,480 --> 00:18:11,040 believe in MIMA trading, I don't believe in Spacs. 324 00:18:11,640 --> 00:18:14,960 The fees we're going to come back to the fees is like you get 325 00:18:14,960 --> 00:18:18,120 what you pay for. And that became that is actually 326 00:18:18,120 --> 00:18:21,240 the negative part of Jack Bogle's legacy, which is it 327 00:18:21,240 --> 00:18:24,280 generated this thing where it became fees and, and themselves 328 00:18:24,280 --> 00:18:28,000 became extremely negative. But the problem is that fees are 329 00:18:28,000 --> 00:18:31,240 actually a scale game. And if you go back and you look 330 00:18:31,240 --> 00:18:36,520 at the first index fund that Jack Bogle launched, it was a 2% 331 00:18:36,720 --> 00:18:41,400 expense ratio. I think it was 1.150 beds or 180 332 00:18:41,400 --> 00:18:44,400 beds, but it was close to 2% expense ratio. 333 00:18:45,000 --> 00:18:48,480 And what happens with asset management to create passive 334 00:18:48,480 --> 00:18:50,640 asset management is that it's a scale gain. 335 00:18:50,640 --> 00:18:54,280 So it scales like software. So as you scale, you lower the 336 00:18:54,280 --> 00:18:56,880 fees. But actually the first index 337 00:18:56,880 --> 00:18:58,920 fund, we did not start out with five basis point. 338 00:18:59,160 --> 00:19:03,840 Jack Boko could not have built Vanguard with five basis point 339 00:19:03,840 --> 00:19:06,280 index fund. He started with 180, which for 340 00:19:06,280 --> 00:19:09,680 the time was really cheap because the brokers on the bid 341 00:19:09,680 --> 00:19:13,200 offer side, when they sold you single name stocks, particularly 342 00:19:13,200 --> 00:19:15,880 pink sheet stocks, and particularly highly volatile 343 00:19:15,880 --> 00:19:21,200 stocks, they made massive, massive money on the on the on 344 00:19:21,200 --> 00:19:25,720 the crossing on the bid offer. So that's the point to the fees. 345 00:19:25,720 --> 00:19:28,680 Eventually they will go down, but you can't start from day one 346 00:19:28,680 --> 00:19:30,520 at 0 like that. No fee. 347 00:19:30,520 --> 00:19:32,000 Eventually everything gets commoditized. 348 00:19:32,240 --> 00:19:35,200 But in day one, the fees would have to be high to build a real 349 00:19:35,200 --> 00:19:38,560 business. The first point you said 350 00:19:38,680 --> 00:19:43,920 leverage has a history of more people blowing up then is that 351 00:19:43,920 --> 00:19:47,560 really true or is that just the behavior of bias? 352 00:19:48,120 --> 00:19:51,640 I think we in society and financial markets, we tend to 353 00:19:51,640 --> 00:19:54,640 remember the bad days more than we actually remember the good 354 00:19:54,640 --> 00:19:57,240 days all. Right, hang on, I gotta, I gotta 355 00:19:57,240 --> 00:20:00,080 stop you because I like what you're saying, but all I hear is 356 00:20:00,080 --> 00:20:02,720 background noise. Is it possible for you to get to 357 00:20:02,720 --> 00:20:07,800 like a a quieter room? Hey, guys, You guys just give me 358 00:20:07,800 --> 00:20:08,680 one second. Yeah. 359 00:20:08,720 --> 00:20:11,400 Hey, guys. Is it, I'm sorry, I'm recording 360 00:20:11,400 --> 00:20:13,040 from here. Is that good to keep, to keep 361 00:20:13,040 --> 00:20:15,960 things just with that Logan, I'm really sorry, All right. 362 00:20:16,200 --> 00:20:20,400 Thank you of. Course, Thank you so. 363 00:20:20,840 --> 00:20:22,680 So we were talking about leverage and whether or not it's 364 00:20:22,680 --> 00:20:25,360 really true. Yeah. 365 00:20:25,960 --> 00:20:31,200 The the Third Point that you mentioned is leverage has a 366 00:20:31,200 --> 00:20:34,200 history of more people blowing up them benefiting from it. 367 00:20:35,080 --> 00:20:37,960 And here's what I want to like, challenge your thinking and 368 00:20:37,960 --> 00:20:40,440 challenge the audience. So stay with me here, OK? 369 00:20:40,440 --> 00:20:43,440 Just hear me out. I think at financial markets, 370 00:20:43,440 --> 00:20:47,240 contrary to popular opinion, we remember the bad days more than 371 00:20:47,240 --> 00:20:48,600 them. We remember the good ones. 372 00:20:48,960 --> 00:20:51,560 I mean, if you go on Twitter today, everybody is talking 373 00:20:51,560 --> 00:20:53,640 about crisis, Everybody is talking about a bubble. 374 00:20:53,960 --> 00:20:56,280 Everybody is talking about, oh wait, everybody is talking about 375 00:20:56,280 --> 00:20:59,520 1999. But when you look at the fact, 376 00:21:00,080 --> 00:21:03,040 when you look at historical performance of the stock market, 377 00:21:04,080 --> 00:21:07,840 sure, there has been 30% drawdown every 10 years or so, 378 00:21:08,280 --> 00:21:11,640 but it's every 10 years or so. It's 10% of the time. 379 00:21:11,880 --> 00:21:15,120 It's not 100% of the time. And I think here you get a lot 380 00:21:15,120 --> 00:21:17,800 of the bias that is a lot similar to nuclear technology, 381 00:21:18,160 --> 00:21:22,480 right, where nuclear technology has massive potential to give us 382 00:21:22,840 --> 00:21:25,360 infinite abundance for our society. 383 00:21:25,720 --> 00:21:31,600 But then, you know, you have one or two horrible examples and 384 00:21:31,600 --> 00:21:34,760 that basically makes us move to fossil fuel and makes us move to 385 00:21:34,760 --> 00:21:36,600 something that is much more expensive, much more 386 00:21:36,600 --> 00:21:39,320 challenging, etcetera, etcetera. You look at airplanes, by the 387 00:21:39,320 --> 00:21:43,640 way, you look at airplanes when they first started out, they 388 00:21:43,640 --> 00:21:48,080 were not that safe. Safety is a function of reps. 389 00:21:48,760 --> 00:21:50,920 It's a function of reps like if you look at this financial 390 00:21:50,920 --> 00:21:53,560 markets and we'll talk eventually about about basic 391 00:21:53,560 --> 00:21:56,160 capital, but I think this is fascinating for whole other 392 00:21:56,160 --> 00:21:58,560 reasons. Safety is a function of reps. 393 00:21:58,560 --> 00:22:01,000 When you look at the stock market when it first came out in 394 00:22:01,000 --> 00:22:04,600 the 1800s in America, it used to be the volatility realized, 395 00:22:04,600 --> 00:22:08,400 volatility was much higher. You look at 1929, you look at 396 00:22:08,400 --> 00:22:12,840 the 1930s, you look at the 80s, you look at the 70s, 90s, early 397 00:22:12,840 --> 00:22:14,680 2000s. And what happens though, with 398 00:22:14,680 --> 00:22:18,960 every crisis, a new regulation comes out or with every crisis, 399 00:22:18,960 --> 00:22:22,440 we learn something different about how credit works and we 400 00:22:22,440 --> 00:22:24,760 learn something different about how financial markets work. 401 00:22:25,880 --> 00:22:28,840 I mean, let's actually put numbers on it. 402 00:22:29,240 --> 00:22:32,800 How long does it take for high yield spreads to normalize for 403 00:22:32,800 --> 00:22:38,040 credit markets to basically go back to working functionally in 404 00:22:38,040 --> 00:22:41,200 08? And no, I'll tell you in 08 in 405 00:22:41,200 --> 00:22:44,080 O8 it it took actually a couple of years for a special. 406 00:22:44,080 --> 00:22:47,360 Normal like 24 to 36 months would be my guess. 407 00:22:47,760 --> 00:22:50,320 OK, well, let's look at COVID at COVID. 408 00:22:50,440 --> 00:22:52,320 That was different because then you had the bazooka. 409 00:22:52,320 --> 00:22:54,840 That was like in no time. But, but that's exactly the 410 00:22:54,840 --> 00:22:57,960 point. The point is in O 8, we learned 411 00:22:58,280 --> 00:23:00,960 that, hey, when credit when there is a credit crunch, you 412 00:23:00,960 --> 00:23:03,240 launch a primary credit facility, you launch a credit 413 00:23:03,240 --> 00:23:05,920 secondary credit facility, you lower interest rates and you go 414 00:23:05,920 --> 00:23:08,040 out and you buy you stabilize the bond market and you buy 415 00:23:08,040 --> 00:23:11,040 government bonds and you and you provide ample liquidity to the 416 00:23:11,040 --> 00:23:14,200 banking sector. And when we did that in O8, it 417 00:23:14,200 --> 00:23:17,000 took us a bit longer than we wanted to right, because it was 418 00:23:17,000 --> 00:23:18,480 the first time we're getting grips at it. 419 00:23:18,840 --> 00:23:22,400 But when O 8 hat when, when COVID happens within basically 420 00:23:22,400 --> 00:23:24,960 like a couple of weeks, the market normalized. 421 00:23:25,320 --> 00:23:27,880 Now we ended up doing too much fiscal stimulus. 422 00:23:28,400 --> 00:23:31,120 We sent too much, too many checks to too many people and 423 00:23:31,120 --> 00:23:33,400 they went out and they spent in a time with supply was 424 00:23:33,400 --> 00:23:37,080 constrained and that created that could be inflation. 425 00:23:37,440 --> 00:23:39,120 Yeah, right. But that was actually purely 426 00:23:39,120 --> 00:23:41,040 fiscal stimulus. That was like sending checks to 427 00:23:41,040 --> 00:23:42,360 people. I thought it was all the supply 428 00:23:42,360 --> 00:23:43,480 chain. I didn't think it was the 429 00:23:43,480 --> 00:23:46,240 checks, but I don't know, maybe. It is the combination. 430 00:23:46,240 --> 00:23:47,160 I'm kidding. I'm kidding. 431 00:23:47,960 --> 00:23:49,240 It's the combination of both, right? 432 00:23:49,280 --> 00:23:51,280 I mean like a retrospect, it's the most obvious thing. 433 00:23:51,480 --> 00:23:54,840 You have constrained supply and you're giving people more 434 00:23:54,840 --> 00:23:57,320 ability to do more demand. I mean, what, what, what did you 435 00:23:57,320 --> 00:24:01,200 think was going to happen? So I was on team transitory and 436 00:24:01,200 --> 00:24:03,760 I was wrong so. But yeah, I. 437 00:24:03,800 --> 00:24:06,000 But you look. The size of the checks and then 438 00:24:06,000 --> 00:24:08,520 the continuation of them, that was a problem, but that's. 439 00:24:08,880 --> 00:24:11,640 And then you look similarly by the way you look at the history 440 00:24:11,640 --> 00:24:14,600 of leverage. Let's look at the mortgage. 441 00:24:15,240 --> 00:24:18,160 The mortgage was invented in 1932. 442 00:24:18,560 --> 00:24:23,120 FHA, the Federal Housing Administration, a New Deal, FDR 443 00:24:23,440 --> 00:24:29,400 launched the mortgage 1930s from the 1930s until home ownership 444 00:24:29,400 --> 00:24:35,120 rate in the 1930s was in the low 20s in 2008 or today home 445 00:24:35,120 --> 00:24:39,920 ownership rate is 65%. So 65% of Americans own a home 446 00:24:40,160 --> 00:24:42,760 massive by the way, one of the highest globally. 447 00:24:43,960 --> 00:24:47,920 And basically we had 100 year run where we give everyday 448 00:24:47,920 --> 00:24:53,040 people leverage by a highly concentrated asset and non cash 449 00:24:53,040 --> 00:24:55,560 flowing asset and non diversified asset. 450 00:24:56,320 --> 00:25:00,400 And what we created 80 years later is a nation of owners. 451 00:25:01,240 --> 00:25:05,080 Now in the 80s Bill Clinton came and Bill Clinton created DEI 452 00:25:05,080 --> 00:25:08,320 mortgages, I call them DEI mortgages where he was like, ah, 453 00:25:08,320 --> 00:25:11,200 the banks are not lending enough to the under served communities. 454 00:25:11,480 --> 00:25:14,840 So he passed a bunch of like housing affordability acts in 455 00:25:14,840 --> 00:25:16,920 the in the 90s under Bill Clinton. 456 00:25:17,240 --> 00:25:21,040 And these acts were meant to help people who are underserved 457 00:25:21,240 --> 00:25:24,600 to access the mortgage market. It loosened lending standards 458 00:25:24,960 --> 00:25:28,160 because it was believed that the banking sector is, is being too 459 00:25:28,160 --> 00:25:31,880 stringent and too biased against certain borrowers, particularly 460 00:25:31,880 --> 00:25:35,280 lower income borrowers. And we loosened the lending 461 00:25:35,280 --> 00:25:39,000 standards and we went away from the standard 30 year mortgage 462 00:25:39,000 --> 00:25:43,240 into all types of like, you know, crazy structures are. 463 00:25:43,240 --> 00:25:45,000 Yeah, exactly. And then we blew up. 464 00:25:45,280 --> 00:25:46,400 But let me ask you this question. 465 00:25:46,400 --> 00:25:49,040 Let me, let me challenge you. I got my first house on one of 466 00:25:49,040 --> 00:25:51,840 those one of those liar loans. So so I don't. 467 00:25:51,840 --> 00:25:53,520 Think for the record, I didn't create. 468 00:25:53,520 --> 00:25:55,520 It wasn't total fraud. It wasn't. 469 00:25:55,520 --> 00:25:57,920 I don't, I don't think it was totally honest either, just 470 00:25:57,920 --> 00:26:01,040 because, yeah, I remember somebody said to me they were 471 00:26:01,040 --> 00:26:04,120 like, just fill in this section, I'll fill in the rest and then 472 00:26:04,120 --> 00:26:05,800 you'll have the loan. Yeah. 473 00:26:05,800 --> 00:26:09,800 And I'm almost like this doesn't feel right, but OK, yeah. 474 00:26:09,840 --> 00:26:10,560 But let. Me. 475 00:26:10,880 --> 00:26:11,880 You know what? I had roommates. 476 00:26:11,880 --> 00:26:13,880 It actually worked out pretty well for me, but. 477 00:26:14,200 --> 00:26:16,040 But let me ask you this question about O 8. 478 00:26:16,760 --> 00:26:18,480 You know a bunch of people lost their homes in O 8. 479 00:26:18,480 --> 00:26:19,840 I don't know when I under play O 8. 480 00:26:20,600 --> 00:26:22,040 A lot of people lost their jobs in a way. 481 00:26:22,040 --> 00:26:24,320 It was very problematic what happened where it's very sad, 482 00:26:24,320 --> 00:26:27,000 very tragic, etcetera. But let me ask you this, if you 483 00:26:27,000 --> 00:26:31,000 were a policy maker and you fully knew that at some point 484 00:26:31,000 --> 00:26:34,760 the housing crisis would happen and a lot of people would lose 485 00:26:34,760 --> 00:26:36,960 their home. Knowing what you know about the 486 00:26:36,960 --> 00:26:41,240 mortgage market that we went from 20% home ownership to 65% 487 00:26:41,240 --> 00:26:45,360 home ownership that now home equity or equity, your home 488 00:26:45,360 --> 00:26:49,720 equity makes almost half of the average Americans net worth. 489 00:26:50,160 --> 00:26:52,720 Most of people's wealth is tied up in their home because of the 490 00:26:52,720 --> 00:26:56,320 mortgage because it enables them to present value their future 491 00:26:56,320 --> 00:26:59,040 rent payments and buy an asset instead of giving to the 492 00:26:59,040 --> 00:27:01,720 landlord to fully knowing what happened. 493 00:27:02,400 --> 00:27:07,160 Would you or would you not have given people the 30 year 494 00:27:07,160 --> 00:27:09,760 amortizing mortgage? Yeah, I would. 495 00:27:10,880 --> 00:27:15,520 Credit markets initial fragility and financial instability is 496 00:27:15,560 --> 00:27:17,520 inherent part to financial markets. 497 00:27:17,520 --> 00:27:20,360 You cannot hide from it. You cannot hide from it. 498 00:27:20,360 --> 00:27:22,280 I mean, I, when I was in college, I was really influenced 499 00:27:22,280 --> 00:27:24,040 by this economist called him and Minsky. 500 00:27:24,640 --> 00:27:27,800 And the whole point about him and Minsky is like financial 501 00:27:27,800 --> 00:27:30,400 crisis will keep happening again and again and again. 502 00:27:30,520 --> 00:27:36,640 And I really believe that the system overloads and at some 503 00:27:36,640 --> 00:27:40,000 point it retracts. And the question that we should 504 00:27:40,000 --> 00:27:45,920 ask ourselves today as Americans is would we rather keep 90% of 505 00:27:45,920 --> 00:27:48,840 the country locked out of this system that sometimes go up, 506 00:27:48,840 --> 00:27:54,520 sometimes goes down, or have them participate? 507 00:27:55,760 --> 00:27:59,280 If they don't participate at all, they will for sure get left 508 00:27:59,280 --> 00:28:00,560 behind. And that's what happened. 509 00:28:01,000 --> 00:28:04,720 Percent of Americans own no stocks. 40% of Americans are 510 00:28:04,720 --> 00:28:08,240 asset light. So 50% is asset lists and 40% is 511 00:28:08,240 --> 00:28:10,280 asset light. The average investment balance 512 00:28:10,280 --> 00:28:14,200 is $27,000 and the top 10% virtually owns all the wealth. 513 00:28:14,920 --> 00:28:18,000 If you lock people out in the name of protectionism and in the 514 00:28:18,000 --> 00:28:21,480 name of like this is risky, they will for sure not participate in 515 00:28:21,480 --> 00:28:24,320 the OPS. Yeah, if you allow them in, 516 00:28:24,320 --> 00:28:26,160 they'll participate in the ups and the downs. 517 00:28:26,440 --> 00:28:31,080 And to me, I would rather have people participate in the system 518 00:28:32,000 --> 00:28:36,920 and lose money every now and then than in a condescending 519 00:28:37,040 --> 00:28:41,000 manner say, oh, this is too risky for you, that you know, 520 00:28:41,000 --> 00:28:43,440 oh, this is not for you. Because it becomes a self 521 00:28:43,440 --> 00:28:46,680 fulfilling prophecy and ends up creating the society we have 522 00:28:46,680 --> 00:28:49,720 today massively in a in a group. Not to mention that we're 523 00:28:49,720 --> 00:28:51,400 getting better and better at dealing with crisis. 524 00:28:51,560 --> 00:28:55,440 So long started short, you know, just to kind of keep the the 525 00:28:55,440 --> 00:28:59,400 listener anchored here. You said leverage, you said fees 526 00:29:00,000 --> 00:29:03,320 and you said SPAC's. And I said, I don't believe in 527 00:29:03,320 --> 00:29:06,520 single name stocks. Fees will eventually come down 528 00:29:06,520 --> 00:29:09,240 because when they started, they started high for the index fund 529 00:29:09,800 --> 00:29:13,680 and leverage. We tend to remember the loss 530 00:29:13,680 --> 00:29:16,040 more than the win. That's like a heat classic 531 00:29:16,040 --> 00:29:17,720 human. It's called prospect theory. 532 00:29:18,640 --> 00:29:20,640 Losing money hurts more than winning money. 533 00:29:20,640 --> 00:29:23,720 So we tend to be more traumatized by events like O 8 534 00:29:23,720 --> 00:29:26,080 and 1929 than a lot of people think. 535 00:29:26,240 --> 00:29:27,440 I think everybody thinks the opposite. 536 00:29:27,440 --> 00:29:30,240 Everybody thinks like financial markets get exuberant and they 537 00:29:30,240 --> 00:29:32,240 have short memory. I actually disagree. 538 00:29:32,440 --> 00:29:36,320 O 8 was almost 20 years ago and we still talk about it and we 539 00:29:36,320 --> 00:29:39,960 still put big short memes on Twitter every time we see 540 00:29:39,960 --> 00:29:41,760 something. So I would argue like I don't 541 00:29:41,760 --> 00:29:43,600 know if I would argue we have a short term memory. 542 00:29:43,600 --> 00:29:45,320 I'm not entirely sure I agree with that. 543 00:29:45,800 --> 00:29:49,680 I'll tell you two things. One with respect to to single 544 00:29:49,680 --> 00:29:54,760 stock names, I, I, I do believe in it, but I, but I don't know 545 00:29:54,760 --> 00:29:57,760 how many people are good at it. But if we ever go through 546 00:29:57,760 --> 00:30:00,640 another O 8 and there is ever another consumer products 547 00:30:00,640 --> 00:30:03,560 company like Apple that has lines out the door, despite 548 00:30:03,560 --> 00:30:06,600 what's going on, buy the shit out of that stock that I know 549 00:30:08,000 --> 00:30:10,400 that that one I do believe in. Did you buy it? 550 00:30:11,360 --> 00:30:17,560 And, and look, I, you're, you're obviously correct that everyone 551 00:30:17,560 --> 00:30:20,120 should incentivize participation in the system. 552 00:30:20,560 --> 00:30:24,920 I think that what you as a company are fighting against 553 00:30:24,920 --> 00:30:30,120 from a narrative perspective is why, why should it be in a 554 00:30:30,120 --> 00:30:32,880 levered product and not just the S&P, right? 555 00:30:32,880 --> 00:30:36,200 Like we should give people, we should just drive people to 556 00:30:36,200 --> 00:30:38,960 indexing. And the S&P is the easiest thing 557 00:30:38,960 --> 00:30:40,960 to tell people to own, especially since it's been on 558 00:30:40,960 --> 00:30:44,040 this massive run that's kicked everybody's butt for, you know, 559 00:30:44,040 --> 00:30:46,080 ever. So that's where I think that the 560 00:30:46,080 --> 00:30:48,840 disagreement comes from. To be clear, our customers 561 00:30:48,840 --> 00:30:52,480 invest in index funds that are diversifying bonds and the S&P 562 00:30:52,480 --> 00:30:55,120 or QQQ. So I actually push people to 563 00:30:55,120 --> 00:30:59,760 invest in QQ and the S&P 500. What I am doing is I'm giving 564 00:30:59,760 --> 00:31:03,960 them long term duration financing to buy the S&P and 565 00:31:03,960 --> 00:31:06,440 bond portfolios. So I'm not sending them a 566 00:31:06,440 --> 00:31:08,960 levered ETF and we'll talk about that in a second. 567 00:31:09,240 --> 00:31:11,960 So it's not like I created a new fund and I'm asking people to 568 00:31:11,960 --> 00:31:13,440 buy the ETF. No, no, no. 569 00:31:13,640 --> 00:31:19,320 I give you 10:15 and soon enough would be 20 or 30 year duration 570 00:31:19,320 --> 00:31:25,520 financing at 6%, non recourse to buy the SNP and diversify bond 571 00:31:25,520 --> 00:31:27,920 portfolios. So it's not like I'm asking you 572 00:31:27,920 --> 00:31:30,480 to invest in anything new. I'm not asking you to invest in 573 00:31:30,480 --> 00:31:32,120 my fund. I'm not asking you to invest in 574 00:31:32,120 --> 00:31:33,960 my ETF. I'm not asking you to invest in 575 00:31:33,960 --> 00:31:36,000 my SPAC. What I'm telling you is you can 576 00:31:36,000 --> 00:31:39,800 go take 5 to 1 leverage to buy a house from a bank or you can 577 00:31:39,800 --> 00:31:43,760 come to basic capital and get 5 to 1 leverage to buy the S&P 500 578 00:31:43,960 --> 00:31:48,720 and a diversified bond fund. But going back to I, you know, 579 00:31:49,400 --> 00:31:52,360 on this point of like you want people to participate. 580 00:31:52,360 --> 00:31:54,000 Why is leverage important that do it? 581 00:31:54,160 --> 00:31:55,800 Like why give it like why care about leverage? 582 00:31:55,800 --> 00:31:58,640 Why is the leverage such a why are you so sticky about that? 583 00:31:58,720 --> 00:32:02,360 Why not just buy the index? Well, that's how people build 584 00:32:02,360 --> 00:32:05,360 wealth today as via this mechanism called saving. 585 00:32:05,880 --> 00:32:12,200 OK, how does saving work? Bill makes 100 KA year he can't 586 00:32:12,200 --> 00:32:14,840 afford to save if he lives in New York on a metropolitan 587 00:32:14,840 --> 00:32:18,800 place, 2 or 3% of his income, say 2% after the taxes. 588 00:32:18,800 --> 00:32:21,480 By the way, 100 K 50% is going to the government. 589 00:32:22,040 --> 00:32:24,280 So you're working half a year for Uncle Sam. 590 00:32:25,040 --> 00:32:27,840 So net net you're making 60K after taxes. 591 00:32:28,120 --> 00:32:31,360 The medium cost of living in America, it depends on the city, 592 00:32:31,360 --> 00:32:33,720 but like the medium cost of living in America is somewhat of 593 00:32:33,720 --> 00:32:36,720 the 80s eighty K in places like New York it's 100K. 594 00:32:37,240 --> 00:32:40,520 So you are actually in the hole about 10 grands after taxes. 595 00:32:41,480 --> 00:32:45,240 And that makes sense because 60 percent, 60% of credit card 596 00:32:45,240 --> 00:32:49,280 holders are revolvers. They're not transactors. 597 00:32:49,280 --> 00:32:52,040 So when you have a credit card, 40% is transactor. 598 00:32:52,160 --> 00:32:55,120 This is people like you and I, I assume people who pay their 599 00:32:55,120 --> 00:32:59,000 credit cards on time. 60% are actually revolvers. 600 00:32:59,160 --> 00:33:01,880 So these are 60% who are relying on the credit. 601 00:33:02,440 --> 00:33:05,160 Some sort of Evergreen draw? Yeah, exactly. 602 00:33:05,160 --> 00:33:08,240 And and 95% of Black Friday purchases were done with buy 603 00:33:08,240 --> 00:33:11,520 now, pay later. So first of all, like the way to 604 00:33:11,520 --> 00:33:14,440 build wealth in America today is via this mechanism called 605 00:33:14,440 --> 00:33:17,880 saving. And most people are locked out 606 00:33:17,880 --> 00:33:20,280 of it because they make too little compared to the cost of 607 00:33:20,280 --> 00:33:22,240 living. That's the Michael Green. 608 00:33:22,240 --> 00:33:27,280 A couple weeks ago he said that. The new poverty, the medium. 609 00:33:27,880 --> 00:33:31,120 The medium poverty line IS140K and everybody lost their mind. 610 00:33:31,600 --> 00:33:34,920 But even if that's not true, like let's say actually you can 611 00:33:35,400 --> 00:33:36,160 even if that's. Not Yeah. 612 00:33:36,160 --> 00:33:38,800 Well, it doesn't have to be. It doesn't have to be precisely 613 00:33:38,800 --> 00:33:41,080 true. It's the it's the idea that he 614 00:33:41,080 --> 00:33:42,680 is conveying. Exactly. 615 00:33:42,680 --> 00:33:45,120 But even if that's not true, let's talk about how saving work 616 00:33:45,120 --> 00:33:50,120 and why saving is the most anti American idea and saving is the 617 00:33:50,120 --> 00:33:52,800 most anti Democratic idea. And I know I'm going to get a 618 00:33:52,800 --> 00:33:55,880 lot of hate for this on Twitter because I know Dave Ramsey and 619 00:33:55,880 --> 00:33:58,360 all these guys out there are telling you save, save, save, 620 00:33:58,560 --> 00:34:01,680 get your credit card points. We built a nation of scammers 621 00:34:01,680 --> 00:34:03,040 basically. Like we're telling people to 622 00:34:03,040 --> 00:34:06,320 maximize their credit card points and to do backdoor Roth 623 00:34:06,320 --> 00:34:08,480 and do all this like tax engineering instead of just 624 00:34:08,480 --> 00:34:11,840 simply like giving them a more effective tool to build wealth. 625 00:34:11,840 --> 00:34:14,840 Like we're literally building a nation of some sort of tax 626 00:34:14,840 --> 00:34:17,639 hackers and wealth is not something to be hacked. 627 00:34:18,920 --> 00:34:22,159 Wolf is not a hack. Wolf is about being able to 628 00:34:22,159 --> 00:34:25,080 participate in the market. And unfortunately what we give 629 00:34:25,080 --> 00:34:28,239 people is a bunch of hacks. But why is it a hack? 630 00:34:28,960 --> 00:34:33,360 There is this guy called Thomas Piketty from Paris called the 631 00:34:33,360 --> 00:34:36,679 economics. He Paris School of Economics, 33 632 00:34:36,679 --> 00:34:38,760 years old, published a book called Captain of the 21st 633 00:34:38,760 --> 00:34:40,719 Century. He's going to get a Nobel Prize 634 00:34:40,719 --> 00:34:44,560 for the one day 700 page book. It was the most iconic book of 635 00:34:44,560 --> 00:34:48,840 20/13/2014 I believe and his whole thesis is R is larger than 636 00:34:48,840 --> 00:34:52,480 G which is stocks compound at 8%. 637 00:34:52,480 --> 00:34:56,719 Wages grow at 2 which means mechanically stocks get more 638 00:34:56,719 --> 00:34:59,600 expensive than your wages. Just think about that. 639 00:35:00,160 --> 00:35:03,080 Long term average rate of return of stocks is 8%. 640 00:35:04,480 --> 00:35:08,800 Long term wage growth is 2%. Fact. 641 00:35:08,880 --> 00:35:11,880 This is not me, this is the Federal Reserve's. 642 00:35:13,680 --> 00:35:17,920 What that means mechanically, mechanically, you cannot build 643 00:35:17,920 --> 00:35:22,440 your way to wealth. Like quite literally, stocks are 644 00:35:22,440 --> 00:35:27,440 getting are getting richer, more expensive in nominal terms, and 645 00:35:27,440 --> 00:35:32,280 you're saving our worth. Every year the stock market gets 646 00:35:32,560 --> 00:35:36,280 richer by 8%, but your wage gets richer by 2%. 647 00:35:37,080 --> 00:35:39,920 Let me give you an example. Let's say you make 100 KA year 648 00:35:40,040 --> 00:35:41,960 and you save 1% of your income a year. 649 00:35:43,120 --> 00:35:46,600 That means it will take you 100 years to capitalize your annual 650 00:35:46,600 --> 00:35:49,720 income. Yeah. 100 years your capital 651 00:35:49,720 --> 00:35:52,400 rate assuming no compounding just for to make the math 652 00:35:52,400 --> 00:35:57,160 simple, if you make 400 KA year like lawyers in New York do, 653 00:35:57,280 --> 00:36:01,400 like fight like Wall Street folks do like the guys like the 654 00:36:01,400 --> 00:36:07,040 software engineers on Twitter tell you these guys can save 50% 655 00:36:07,040 --> 00:36:10,360 of their income because they make 400 KA year, which means it 656 00:36:10,360 --> 00:36:14,520 takes them only two years to capitalize their annual income 657 00:36:14,680 --> 00:36:20,120 to get to 400 K and savings. In other words, the richer you 658 00:36:20,120 --> 00:36:25,040 are, the easier for you to save a higher rate that translates 659 00:36:25,040 --> 00:36:30,640 into a higher dollar value. The poorer you are, the lower 660 00:36:30,640 --> 00:36:32,680 the percentage of a lower number. 661 00:36:34,080 --> 00:36:40,680 That's why saving is a scam. It quite literally doesn't work. 662 00:36:41,360 --> 00:36:44,640 The lower income you are, the less effective a tool it is. 663 00:36:45,760 --> 00:36:50,120 The higher income you are, the more effective a tool it is. 664 00:36:50,960 --> 00:36:52,760 Saving is not a middle class tool. 665 00:36:52,760 --> 00:36:56,680 Let's it's a rich people tool. And that's why people fear 666 00:36:56,680 --> 00:36:59,840 gaslit in America. It's because they go on TV and 667 00:36:59,840 --> 00:37:02,640 people tell them the reason why you are poor and the reason why 668 00:37:02,640 --> 00:37:04,520 you're poor and broke is because you do not save enough. 669 00:37:04,880 --> 00:37:07,760 No, no, no. The lower income you are, the 670 00:37:07,760 --> 00:37:11,000 less effective to saving is as a wolf building mechanism. 671 00:37:12,960 --> 00:37:14,640 Yeah. I don't know that I, I don't 672 00:37:14,640 --> 00:37:16,680 know that I like how you're framing this, but I think where 673 00:37:16,680 --> 00:37:20,920 we could totally agree is that the lower income you owe. 674 00:37:20,960 --> 00:37:23,200 I do not like that because it's. Well, well, I don't know. 675 00:37:23,200 --> 00:37:24,160 I don't know. I don't know. 676 00:37:24,880 --> 00:37:26,840 I mean, we're. It's an uncomfortable truth that 677 00:37:26,840 --> 00:37:32,040 nobody wants to acknowledge. Well, yes, I I think, I think 678 00:37:32,040 --> 00:37:36,960 the uncomfortable truth is not that saving is a scam per SE. 679 00:37:36,960 --> 00:37:38,840 I mean, we're going to argue about semantics here. 680 00:37:39,920 --> 00:37:44,520 I think the the uncomfortable truth is if you make $100,000 it 681 00:37:44,520 --> 00:37:47,880 is so hard to save as a sufficient amount of money. 682 00:37:48,280 --> 00:37:50,720 And even if you save, it will take you so long. 683 00:37:51,360 --> 00:37:54,440 Yeah, well, like how much can you possibly save, right, I 684 00:37:54,440 --> 00:37:56,160 mean. Even even if you do it, it will 685 00:37:56,160 --> 00:38:00,000 take you a longer time to get to like one year worth of income. 686 00:38:00,560 --> 00:38:03,200 Yeah, no, no doubt, no doubt. But I think that's a function of 687 00:38:03,320 --> 00:38:05,960 it's. It's hard to save a a a big 688 00:38:05,960 --> 00:38:08,000 percentage. Yeah, yeah. 689 00:38:08,520 --> 00:38:11,400 I mean, it's, it's almost like you talked about Vanguard, the 690 00:38:11,400 --> 00:38:15,480 scale that you know, you have to have an income that enables an 691 00:38:15,480 --> 00:38:18,720 asset like an, an escape velocity that you can save a 692 00:38:18,720 --> 00:38:21,040 sufficient amount to really start to build. 693 00:38:21,320 --> 00:38:23,480 Exactly. So now we have established that 694 00:38:23,480 --> 00:38:28,200 saving is an imperfect tool. We have established that for 695 00:38:28,200 --> 00:38:32,440 most, for most, for me, OK, I'm going to slowly. 696 00:38:32,440 --> 00:38:34,560 Slowly I'm going to 2nd. I like you. 697 00:38:34,560 --> 00:38:37,200 I just, I just want to make sure we're we're agreeing to what 698 00:38:37,600 --> 00:38:39,400 we're agreeing. I'm going to wheel and I'm going 699 00:38:39,400 --> 00:38:41,400 to wheel you in, slowly but surely. 700 00:38:41,400 --> 00:38:43,480 Slowly but surely. All right, fair enough. 701 00:38:43,800 --> 00:38:47,560 Now on we have established that saving is an ineffective wealth 702 00:38:47,560 --> 00:38:52,240 building tool for most. OK, I I can agree on that. 703 00:38:52,240 --> 00:38:54,520 I like. That the question is how do how? 704 00:38:54,520 --> 00:38:56,720 How else can people build wealth? 705 00:38:57,760 --> 00:38:59,120 And today there is no alternative. 706 00:39:00,160 --> 00:39:03,160 There is the four O 1K which is basically like saving based 707 00:39:03,160 --> 00:39:05,720 mechanism that you save A. Well, they could go out and buy 708 00:39:05,720 --> 00:39:08,760 a house they can't afford. How do you how do you buy a 709 00:39:08,760 --> 00:39:11,680 house you. Got to have a 20% down payment 710 00:39:11,680 --> 00:39:13,920 and house prices are through the roof and then you got to have 711 00:39:13,920 --> 00:39:16,320 access to a mortgage that you can't get but other than that 712 00:39:16,320 --> 00:39:19,480 it's easy. But but you get leverage. 713 00:39:19,920 --> 00:39:22,840 Yeah, no doubt, no doubt. You get leverage. 714 00:39:22,960 --> 00:39:25,320 So now let's play financial advisor for a second. 715 00:39:25,720 --> 00:39:28,040 Disclaimer, nothing I say on this podcast is a financial 716 00:39:28,040 --> 00:39:29,600 advice. Do not think this is a financial 717 00:39:29,600 --> 00:39:31,280 advice. Please do your own intelligence. 718 00:39:31,680 --> 00:39:34,720 But Bill, let's play financial advisor for a second. 719 00:39:34,960 --> 00:39:38,040 Imagine you go to your financial advisor and you say I want to 720 00:39:38,040 --> 00:39:41,640 take my, let's say you saved up to 100K, which is a lot of money 721 00:39:41,640 --> 00:39:44,080 to save. As I said, the median American 722 00:39:44,080 --> 00:39:48,760 has $27,000 and their portfolio. Let's say you find a way to get 723 00:39:48,760 --> 00:39:52,200 to 200 and you go to your financial advisor and you say I 724 00:39:52,200 --> 00:39:58,280 want to take 5 to 1 leverage to buy a call option on my zip code 725 00:39:58,600 --> 00:40:02,560 on basically the school district in my neighborhood on the local 726 00:40:02,560 --> 00:40:05,640 labor market, because that's what a house is. 727 00:40:06,560 --> 00:40:11,760 You're taking 5 to 1 leverage to make this highly concentrated 728 00:40:11,760 --> 00:40:18,920 bet on your local labor market. And if Ford moves the factory 729 00:40:18,920 --> 00:40:24,400 out of Detroit to China? That it becomes called flight. 730 00:40:25,400 --> 00:40:27,240 Like what? It's like, it's like literally. 731 00:40:27,280 --> 00:40:28,680 It's got a lot of negative carry. 732 00:40:29,400 --> 00:40:33,640 Well, one negative carry 2 property taxes. 733 00:40:33,800 --> 00:40:37,800 Three, you can be doing everything right and one day you 734 00:40:37,800 --> 00:40:43,080 wake up and the pipe breaks and now you're 30K in the hole. 735 00:40:43,480 --> 00:40:44,600 Yeah. Well, this, I mean, this is what 736 00:40:44,600 --> 00:40:46,840 I mean. The the cost of homeownership is 737 00:40:46,840 --> 00:40:49,680 quite high. You're literally, I mean, not to 738 00:40:49,680 --> 00:40:53,280 mention property taxes, not to mention like, So what we have 739 00:40:53,440 --> 00:40:59,280 taught people is we're giving them 5 to 1 leverage to go out 740 00:40:59,280 --> 00:41:04,720 and make a highly concentrated bet on their local labor market. 741 00:41:05,000 --> 00:41:07,400 And if your labor market happened to be in a highly 742 00:41:07,400 --> 00:41:11,400 volatile place like Miami where some VC tweets, they establish a 743 00:41:11,400 --> 00:41:15,800 bubble, then everybody moves back to SF because SF now is the 744 00:41:15,800 --> 00:41:18,240 height. And you think, and now Miami is 745 00:41:18,240 --> 00:41:20,960 left in the gutter. The variance between how 746 00:41:20,960 --> 00:41:23,840 different markets have performed in real estate is massive. 747 00:41:23,840 --> 00:41:28,160 Real estate has on average, grown at 2% in America over the 748 00:41:28,160 --> 00:41:32,000 past 100 years. At 2%, you know, but you're 749 00:41:32,000 --> 00:41:34,120 levered up five times. So really your rate, your 750 00:41:34,120 --> 00:41:37,040 effective return is like 10% when you're housing. 751 00:41:39,440 --> 00:41:41,280 But that's actually massively varied. 752 00:41:41,640 --> 00:41:44,440 That's actually mostly driven by Los Angeles, San Francisco, New 753 00:41:44,440 --> 00:41:48,280 York, Nashville, Austin, if you lived in like a normal city like 754 00:41:48,760 --> 00:41:53,240 Minneapolis, right? Like that's a big variance. 755 00:41:54,200 --> 00:41:57,720 So let's go back to what is basic capital trying to do. 756 00:41:57,720 --> 00:42:02,960 Why am I talking about leverage? I am a younger guy, if people 757 00:42:02,960 --> 00:42:06,360 cannot tell, not that young. By the way, I'm 30 years old. 758 00:42:07,200 --> 00:42:10,920 I wanted to build wealth, but I did not have enough money for a 759 00:42:10,920 --> 00:42:14,960 down payment to buy a house. And I also did not want to deal 760 00:42:14,960 --> 00:42:16,600 with the headache of buying a house. 761 00:42:17,880 --> 00:42:20,400 And I also did not want to be stuck in one location. 762 00:42:22,120 --> 00:42:25,520 I wanted to have more money to invest, but I wanted to invest 763 00:42:25,520 --> 00:42:29,520 in something more diversified like the S&P 500. 764 00:42:31,280 --> 00:42:35,360 And when I went to the bank, the bank said you can borrow to buy 765 00:42:35,360 --> 00:42:39,880 a house at 6% seven today, but let's say that's 7%. 766 00:42:40,440 --> 00:42:46,240 You can borrow money to go to Community College at 5% called 767 00:42:46,240 --> 00:42:49,360 student loan. You can borrow money to buy a 768 00:42:49,360 --> 00:42:53,320 car, which is a depreciating asset that loses 30% of his 769 00:42:53,320 --> 00:42:56,960 value the moment you're driving outside the house for 8%. 770 00:42:58,440 --> 00:43:03,840 And I said, what about this? Give me that rate. 771 00:43:04,360 --> 00:43:07,000 But I don't want to buy a depreciating asset like a car or 772 00:43:07,000 --> 00:43:10,160 a concentrated asset like a house or an intangible asset 773 00:43:10,160 --> 00:43:14,000 like a college degree. I want to buy the S&P 500, give 774 00:43:14,000 --> 00:43:22,520 me a 30 year non mark to market, non marginable financing at a 775 00:43:22,520 --> 00:43:27,120 low rate and they didn't want to give it to me and that's exactly 776 00:43:27,120 --> 00:43:29,760 what I wanted to build. I wanted to combine these two 777 00:43:29,760 --> 00:43:34,840 ideas, the 30 year amortizing mortgage with diversified index 778 00:43:34,840 --> 00:43:36,920 investing. What is basic capital? 779 00:43:37,520 --> 00:43:41,160 Basic Capital enables you to take what we call the retirement 780 00:43:41,160 --> 00:43:44,840 mortgage. When you come to us, you put 20% 781 00:43:44,840 --> 00:43:47,520 down. This is $20,000. 782 00:43:48,360 --> 00:43:51,200 We give you 80%, we give you $80,000. 783 00:43:51,920 --> 00:43:56,400 So now you're investing. The power went from 20 to 100. 784 00:43:57,680 --> 00:44:00,640 This 100 is invested in a diversified portfolio of stocks 785 00:44:00,640 --> 00:44:06,880 and bonds and it has a 10 year term with no mark to market. 786 00:44:06,880 --> 00:44:10,480 So if the market drops 50%, nobody is going to call your 787 00:44:10,480 --> 00:44:13,920 money. That's the crazy idea that we 788 00:44:13,920 --> 00:44:19,400 launched and that is what drove Finn Twitter crazy. 789 00:44:20,160 --> 00:44:24,040 And but really all we did is we've combined 2 very tried and 790 00:44:24,040 --> 00:44:28,360 true ideas, diversified investing and non mark to market 791 00:44:28,920 --> 00:44:32,040 leverage duration financing into one product. 792 00:44:32,960 --> 00:44:37,280 And people who opened up and read, they became fascinated by 793 00:44:37,280 --> 00:44:40,160 and they became big fans and people who said this is just a 794 00:44:40,160 --> 00:44:43,360 margin loan, they got confused. Yeah. 795 00:44:44,120 --> 00:44:45,840 I hope you're enjoying the conversation. 796 00:44:45,840 --> 00:44:50,320 I am interrupting the program to remind you that this show is 797 00:44:50,320 --> 00:44:54,640 brought to you by fiscal dot AI as well as Trata. 798 00:44:55,520 --> 00:44:59,920 You can go to fiscal dot AI forward slash brew for a 15% off 799 00:45:00,040 --> 00:45:05,640 all paid plans offering physical dot AI, super clean data, super 800 00:45:05,640 --> 00:45:08,680 good UI and and UX. If you want to be the best 801 00:45:08,680 --> 00:45:11,080 analyst you can be, you need physical AI. 802 00:45:11,400 --> 00:45:13,480 If you don't like yourself and you don't care about your 803 00:45:13,480 --> 00:45:15,480 profession, don't sign up. That's fine. 804 00:45:15,680 --> 00:45:18,640 But if you care about yourself and you love yourself, sign up 805 00:45:18,640 --> 00:45:21,040 for physical dot AAI forward slash brew. 806 00:45:21,400 --> 00:45:25,640 Get yourself a trial and see what everyone is raving about. 807 00:45:25,920 --> 00:45:32,080 And by everyone, I mean me. Secondly, Trata TRATA. 808 00:45:32,080 --> 00:45:35,480 Try trata.com/brew. Check it out. 809 00:45:35,800 --> 00:45:39,160 Analyst to analyst transcripts. These people have done the work. 810 00:45:39,520 --> 00:45:42,160 You're not going to read through a bunch of fluff and a bunch of 811 00:45:42,160 --> 00:45:44,440 narrative and a bunch of background information. 812 00:45:44,440 --> 00:45:47,760 You're going to get the analyst to analyst conversations labeled 813 00:45:47,760 --> 00:45:52,120 bull, bull, bull bear, bear bear, bull skeptic, yadda yadda. 814 00:45:52,480 --> 00:45:56,640 End of the day, this is high value for time. 815 00:45:57,000 --> 00:45:59,960 That's what they're going for. They're trying to build the most 816 00:45:59,960 --> 00:46:03,120 useful transcript library that you can find. 817 00:46:03,480 --> 00:46:08,440 So try trotta.com/brew. Check it out. 818 00:46:08,520 --> 00:46:12,120 So why is it not a margin loan? How are you able to offer this 819 00:46:12,120 --> 00:46:14,840 kind of financing to the average person? 820 00:46:15,160 --> 00:46:17,080 Well, it's. I mean, I know it's not 821 00:46:17,080 --> 00:46:19,600 callable, I get that, but like how how did this it's? 822 00:46:19,600 --> 00:46:21,360 More expensive, it's more expensive. 823 00:46:21,360 --> 00:46:24,480 So if you go to Robin Hood right now, Robin Hood will give you 2 824 00:46:24,480 --> 00:46:28,280 to 1 leverage at 5%. By the way, even lower if you, 825 00:46:28,280 --> 00:46:31,560 if you, if you like, if you have 10 million, I think Robin Hood 826 00:46:31,560 --> 00:46:33,440 we can pull it up. Robin Hood margin rates is like 827 00:46:33,440 --> 00:46:35,040 4% today. Yeah. 828 00:46:36,040 --> 00:46:38,240 But here is a catch though. Well, you got. 829 00:46:38,240 --> 00:46:40,680 Called out at any time. Exactly. 830 00:46:40,680 --> 00:46:43,960 You get called out at any time. So margin today, Robin Hood 831 00:46:43,960 --> 00:46:47,240 margin rate is 4.2% if you have a lot of money. 832 00:46:47,320 --> 00:46:49,120 Well, some would argue they don't really care about their 833 00:46:49,120 --> 00:46:51,400 customers, but that that some would be me. 834 00:46:51,520 --> 00:46:54,160 But if you go to, if you go, if you go to your broker, you can 835 00:46:54,160 --> 00:46:56,240 borrow at 4% which is basically prime. 836 00:46:56,440 --> 00:47:00,000 You can borrow at prime. But this catch is if the asset 837 00:47:00,000 --> 00:47:02,760 drops 10%, you go auto liquidated. 838 00:47:03,720 --> 00:47:07,400 This is a horrible idea for 99.9% of people by the way. 839 00:47:07,400 --> 00:47:09,600 Like hedge funds blow up that way, like sophisticated 840 00:47:09,600 --> 00:47:13,160 investors blow up that way. But let's look at what private 841 00:47:13,160 --> 00:47:16,560 equity guys that do which who are very different from hedge 842 00:47:16,560 --> 00:47:19,040 funds. Private equity guys, when they 843 00:47:19,040 --> 00:47:21,360 buy a company, they do not finance it with margin. 844 00:47:21,440 --> 00:47:24,760 They don't go to their prime broker and bought a 5% or 4%. 845 00:47:25,200 --> 00:47:29,280 They go to the high yield bond market and they issue A7 year 846 00:47:29,280 --> 00:47:34,120 bond or a 10 year bond with no maintenance covenants, no mark 847 00:47:34,120 --> 00:47:36,560 to market to take the company private. 848 00:47:36,920 --> 00:47:40,640 It's called leveraged buyout. They are funding the purchase 849 00:47:41,080 --> 00:47:44,600 with duration financing, long term financing. 850 00:47:45,800 --> 00:47:49,440 And the reason what what we do is we provide everyday people 851 00:47:49,440 --> 00:47:53,840 long term duration financing that is non marginable to buy 852 00:47:53,840 --> 00:47:56,560 diversified assets. What's the problem? 853 00:47:56,560 --> 00:48:01,680 The fee we charge 6%, Robin Hood charges 4%. 854 00:48:02,920 --> 00:48:05,560 So if your. 6 is not fixed though, right? 855 00:48:05,560 --> 00:48:10,000 It's, it's basically a spread trade on 90% of the portfolio as 856 00:48:10,000 --> 00:48:11,120 I understand it, right. Yeah. 857 00:48:11,120 --> 00:48:15,520 We charge S + 200 on the financing cost, so it's software 858 00:48:15,520 --> 00:48:16,640 +200. Yeah. 859 00:48:16,640 --> 00:48:20,600 So when people see the 6% cause 'cause this I've seen in the 860 00:48:20,600 --> 00:48:24,760 comments, people like 6%, what happens if bond yields go down? 861 00:48:25,800 --> 00:48:29,000 What needs to happen? And this is not financial 862 00:48:29,000 --> 00:48:31,120 advice, but I would think about it this way is if you're 863 00:48:31,120 --> 00:48:34,400 borrowing it at floating, you should be investing it floating. 864 00:48:34,480 --> 00:48:37,520 Yeah, right. Otherwise the spread has can 865 00:48:37,520 --> 00:48:39,240 create problems for you. Yeah. 866 00:48:39,240 --> 00:48:42,760 And our our customers, 90% of the bond portfolio that our 867 00:48:42,760 --> 00:48:45,400 customers are allowed to invest in and they choose to is 868 00:48:45,400 --> 00:48:49,600 actually floating red mods. So you're investing at S + 500 869 00:48:49,600 --> 00:48:52,840 and you are paying S + 200. So what are we talking? 870 00:48:52,840 --> 00:48:55,680 We're talking like bank loans and PRI and like private equity 871 00:48:55,680 --> 00:48:58,400 or private credit. Yeah, Double B credit, Double B 872 00:48:58,400 --> 00:49:00,600 credit, I mean, let's call a spade a spade, right? 873 00:49:00,920 --> 00:49:03,800 Double, you know, you're, you're, you're earning S + 500. 874 00:49:04,320 --> 00:49:06,800 That's not nothing. That's very juicy. 875 00:49:07,240 --> 00:49:11,960 So it's double B credit. But double B, there's a lot of 876 00:49:11,960 --> 00:49:13,640 work has been done, done on double B credit. 877 00:49:13,640 --> 00:49:18,680 You look at the fault rates in 2008, Double B credit reach the 878 00:49:18,680 --> 00:49:24,120 12%. So if you're earning S + 512% of 879 00:49:24,120 --> 00:49:27,400 your portfolio went delinquent, they stopped paying. 880 00:49:28,240 --> 00:49:34,680 You would be earning S + 400 which is still much higher than 881 00:49:34,680 --> 00:49:38,280 your S + 200 cost of capital. So what do you need to go 882 00:49:38,280 --> 00:49:41,200 delinquent on your payment? Because this is self funding. 883 00:49:41,200 --> 00:49:43,720 You're not paying the mortgage cost out of your own pocket, 884 00:49:43,840 --> 00:49:46,240 you're paying it from the bond yield on your portfolio. 885 00:49:47,200 --> 00:49:50,680 Basically interest you're earning used to go from S + 500 886 00:49:50,680 --> 00:49:54,800 to S + 200, which means basically 60% of double B credit 887 00:49:54,800 --> 00:49:56,200 needs to go bankrupt or deliquate. 888 00:49:58,560 --> 00:50:02,080 Is it possible? Sure, but that would be like a 889 00:50:02,080 --> 00:50:05,280 an event that is like 3 or 4 times worse than O 8. 890 00:50:05,520 --> 00:50:08,320 It's entirely conceivable to have such a massive credit event 891 00:50:08,320 --> 00:50:10,840 in the economy. And the only way this would work 892 00:50:10,840 --> 00:50:14,400 is basically if if everybody shuts down their business and 893 00:50:14,400 --> 00:50:16,080 they do not sell anything anymore. 894 00:50:16,240 --> 00:50:19,040 And that's called COVID. And we saw what happened during 895 00:50:19,040 --> 00:50:22,320 COVID. the Fed went out and they provided grace. 896 00:50:22,480 --> 00:50:25,320 They provided primary credit facilities, secondary credit 897 00:50:25,320 --> 00:50:27,960 facility facilities. They stabilized the market, 898 00:50:28,120 --> 00:50:32,160 lender is extended and amended. We're becoming better at dealing 899 00:50:32,160 --> 00:50:35,160 with these small bursts of, of crises. 900 00:50:35,560 --> 00:50:40,120 But yes, if 60% of double B of double B companies go bankrupt, 901 00:50:40,480 --> 00:50:42,840 that will be A that'll be a problem for our customers. 902 00:50:43,560 --> 00:50:46,880 I mean, in a weird way, it seems like the way that from a timing 903 00:50:46,880 --> 00:50:49,400 perspective, which is always impossible, but it seems to me 904 00:50:49,400 --> 00:50:53,120 like the way that that this could not work. 905 00:50:53,120 --> 00:50:55,840 And and it would not be unique to you, but like as if if a 906 00:50:55,840 --> 00:50:58,960 customer committed to you when the when the spreads were super, 907 00:50:58,960 --> 00:51:03,320 super tight right before a credit event happened that that 908 00:51:03,320 --> 00:51:05,640 could be bad. So how do you do that? 909 00:51:05,640 --> 00:51:08,960 How do you solve this problem? There is tried and true 910 00:51:08,960 --> 00:51:10,520 principles to solve this problem. 911 00:51:10,520 --> 00:51:15,160 It's two things one long time, long time hold just on it 912 00:51:15,160 --> 00:51:20,240 through the down and the off because you eventually if you 913 00:51:20,240 --> 00:51:23,600 you'll come back up. So just have long time horizon 914 00:51:23,960 --> 00:51:28,680 non marginal financing which is what we do and $2.00 cost 915 00:51:28,680 --> 00:51:31,800 average. So make equal weight 916 00:51:31,800 --> 00:51:35,000 contribution over a long period of time. 917 00:51:35,480 --> 00:51:37,880 I'm not saying a big credit event is not going to happen. 918 00:51:37,880 --> 00:51:39,760 I'm not saying it's impossible to lose money. 919 00:51:39,960 --> 00:51:43,480 You could lose money. But a really bad event needs to 920 00:51:43,480 --> 00:51:47,640 happen, and you need to sell at that worst possible time for you 921 00:51:47,640 --> 00:51:49,440 to actually crystallize that loss. 922 00:51:49,920 --> 00:51:51,480 Yeah. Well, sometimes it's hard for 923 00:51:51,480 --> 00:51:54,080 people to dollar cost average through those really bad events. 924 00:51:54,280 --> 00:51:56,400 So that's why we are a four O 1K company. 925 00:51:57,160 --> 00:51:59,960 So we are actually we have two product line, we have an IRA 926 00:51:59,960 --> 00:52:03,920 product line that's direct to consumer and we have 4 O 1K 927 00:52:03,920 --> 00:52:06,120 business where we manage 4 O1 KS. 928 00:52:06,280 --> 00:52:08,200 We integrate with the payroll provider. 929 00:52:08,640 --> 00:52:14,240 Customers put 80% of their money into a targeted fund and 2010 5% 930 00:52:14,240 --> 00:52:19,600 of their money into our LLC. So that, that brings me to the 931 00:52:19,600 --> 00:52:21,760 third best invention of the 20th century. 932 00:52:22,480 --> 00:52:25,120 So we said there is 3 great inventions in the 20th century, 933 00:52:25,240 --> 00:52:29,360 the mortgage which we talked about, the index fund which we 934 00:52:29,360 --> 00:52:32,800 talked about and now we talk about non request financing, 935 00:52:32,920 --> 00:52:36,320 limited liability. When our customers invest. 936 00:52:36,320 --> 00:52:41,360 What we do is we open a comp, we open an LLC in Delaware called 937 00:52:41,360 --> 00:52:46,480 Basic Capital for Bill. Bill puts $200.00 of his 938 00:52:46,480 --> 00:52:51,480 paycheck in it. We give him $800.10 year non 939 00:52:51,480 --> 00:52:53,200 marginable non request financing. 940 00:52:53,440 --> 00:52:58,480 The borrower is not Bill, the borrower is the, it's the LLC. 941 00:52:59,400 --> 00:53:03,520 So now you have $1000 in the LLC and every time you make a four O 942 00:53:03,520 --> 00:53:08,720 1K contribution, you put $200, we give you $800.00. 943 00:53:08,880 --> 00:53:12,200 So your dollar cost averaging your contribution, your dollar 944 00:53:12,200 --> 00:53:15,080 cost averaging your leverage over a long and you're holding 945 00:53:15,080 --> 00:53:18,640 it over a long period of time. So we're A4O1K platform. 946 00:53:18,640 --> 00:53:21,280 Now if you say I want to put all my money in a target debt fund 947 00:53:21,280 --> 00:53:23,640 that I don't want any leverage, you can do that. 948 00:53:23,640 --> 00:53:27,560 We are like just like Vanguard or Fidelity in that sense. 949 00:53:27,840 --> 00:53:30,520 But if you want to put some of your money into this leveraged 950 00:53:30,520 --> 00:53:35,120 LLC that we create for you and get 6% duration financing on it 951 00:53:35,920 --> 00:53:38,840 and dollar cost average that you can't imagine. 952 00:53:38,840 --> 00:53:42,560 Basically the key is how to this is going to bend your mind. 953 00:53:42,920 --> 00:53:46,920 Imagine if you could buy $1000 home, put a $200 down payment 954 00:53:47,200 --> 00:53:49,600 over a 30 year period. So like. 955 00:53:50,000 --> 00:53:52,680 Imagine your your dollar cost averaging your way into a 956 00:53:52,680 --> 00:53:54,840 mortgage for 30 year. Yeah. 957 00:53:55,360 --> 00:53:57,560 It's the same concept, but you're not buying one house, 958 00:53:57,560 --> 00:54:00,480 you're buying multiple. I guess what's what I don't 959 00:54:00,480 --> 00:54:05,640 understand is why am I borrowing at a lower cost than like a 960 00:54:05,640 --> 00:54:08,480 private credit company? I guess because they have more 961 00:54:08,480 --> 00:54:10,040 leverage maybe. Yeah. 962 00:54:10,040 --> 00:54:12,800 Like, like, why is my risk profile lower than theirs when 963 00:54:12,800 --> 00:54:15,680 they're like a legitimate company and I'm me? 964 00:54:16,040 --> 00:54:18,200 Yeah, well, you're not borrowing, so I'm not. 965 00:54:18,440 --> 00:54:21,600 You're borrowing is the answer the LLC? 966 00:54:22,360 --> 00:54:26,160 And the LLC is backed by 20% equity, which is your equity 967 00:54:26,160 --> 00:54:28,760 contribution, right. So there is a first lost 968 00:54:28,760 --> 00:54:31,600 tranche, you're not very pursuit to the loan. 969 00:54:31,600 --> 00:54:33,960 The loan is senior to you or the financing is senior to you. 970 00:54:34,480 --> 00:54:36,640 So you you are you're the first lost tranche. 971 00:54:37,200 --> 00:54:39,000 So there is some equity question there. 972 00:54:39,560 --> 00:54:43,280 And the difference is the company you're lending money to 973 00:54:43,520 --> 00:54:48,800 is concentrated Folio is diversified. 974 00:54:49,600 --> 00:54:54,480 When you lend money to 1 double B company, you charge them as 975 00:54:54,480 --> 00:54:59,320 plus 500 because this is 1 double B1 small business or 1 976 00:54:59,560 --> 00:55:02,640 medium sized middle market PE firm or middle market thing. 977 00:55:02,880 --> 00:55:06,880 So there is some concentrated risk, but the diversified 978 00:55:06,880 --> 00:55:10,320 portfolio, the expected losses or diversified portfolio of a 979 00:55:10,320 --> 00:55:13,960 double B credit is much slower. You see it's it's. 980 00:55:14,360 --> 00:55:16,920 Diversification is you don't have like too much sector 981 00:55:16,920 --> 00:55:19,640 exposure or whatever in the in the offering. 982 00:55:20,080 --> 00:55:22,320 Exactly, right. So it's diversification, which 983 00:55:22,320 --> 00:55:25,520 is the only free launch, right. Like basically that's what you 984 00:55:25,520 --> 00:55:31,000 do is you take a, a bundled pool of assets that are high yield or 985 00:55:31,000 --> 00:55:34,040 high risk and you bundle them together and the weighted risk 986 00:55:34,040 --> 00:55:36,880 of the portfolio is lower than the risk of each one 987 00:55:36,880 --> 00:55:40,120 individually. Now of course, every now and 988 00:55:40,120 --> 00:55:43,360 then there is a big correlated event where they, a bunch of 989 00:55:43,360 --> 00:55:44,720 them go bankrupt at the same time. 990 00:55:45,160 --> 00:55:48,040 That's what happened in O 812% of double B companies went 991 00:55:48,040 --> 00:55:50,560 bankrupt. But then you size your bits 992 00:55:50,560 --> 00:55:52,320 appropriately. You do not put too much money 993 00:55:52,320 --> 00:55:54,720 into this lever product. You put only 10% of your money 994 00:55:54,720 --> 00:55:57,640 in it. You finance it with long term 995 00:55:57,640 --> 00:56:00,280 leverage, not short term leverage like a margin loan. 996 00:56:00,360 --> 00:56:03,560 And you know, you make sure that there is a meaningful spread 997 00:56:03,560 --> 00:56:07,040 between your cost of financing, which is S + 200 and the 998 00:56:07,040 --> 00:56:09,080 interest you're receiving which is S + 500. 999 00:56:09,240 --> 00:56:12,400 So you can withstand material portfolio losses. 1000 00:56:12,520 --> 00:56:14,800 We put some thought into this. I mean, I hope. 1001 00:56:14,920 --> 00:56:18,600 No, I know you did. I were like 50 minutes into the 1002 00:56:18,600 --> 00:56:21,800 podcast and I hope I've demonstrated to the listener 1003 00:56:21,920 --> 00:56:23,360 that we're not like some sort of Yolo. 1004 00:56:23,360 --> 00:56:27,320 Oh yeah, like Yolo. Like, like what I'm saying is 1005 00:56:27,440 --> 00:56:30,880 saving, it's really hard to build wealth with saving alone. 1006 00:56:31,120 --> 00:56:34,640 Because if I was wrong, if I, if this is, if actually it's 1007 00:56:34,640 --> 00:56:37,600 possible to build wealth with saving, we would not have the 1008 00:56:37,600 --> 00:56:39,880 wealth inequality we have today, right? 1009 00:56:39,880 --> 00:56:42,240 Like we would not have the issues that we have today. 1010 00:56:42,480 --> 00:56:44,960 Like we would not have 50% of the market people locked out of 1011 00:56:44,960 --> 00:56:46,440 the stock market. You didn't have many percent of 1012 00:56:46,440 --> 00:56:51,480 Americans on very little like so saving is not effective way. 1013 00:56:52,480 --> 00:56:54,160 Let's look at what has been effective. 1014 00:56:54,160 --> 00:56:56,840 The mortgage, the mortgage brought home on the shift and 1015 00:56:56,880 --> 00:57:01,120 20% to 60 percent, 50% of the middle class wealth is home 1016 00:57:01,120 --> 00:57:03,480 equity. Like why not enable people to 1017 00:57:03,480 --> 00:57:08,200 take simple long term duration financing to buy diversify 1018 00:57:08,200 --> 00:57:11,600 portfolio of stocks and bonds. But we're OK giving them buy now 1019 00:57:11,600 --> 00:57:14,120 pay later. We're OK give them a credit card 1020 00:57:14,120 --> 00:57:16,680 at 24% to buy whatever they want. 1021 00:57:17,200 --> 00:57:20,240 We are OK giving them margin loans with, you know, mark to 1022 00:57:20,240 --> 00:57:24,400 market. Like the hypocrisy is hilarious. 1023 00:57:25,400 --> 00:57:28,440 It's like, oh, like, you know, like anyway. 1024 00:57:28,720 --> 00:57:30,240 Yeah. Well, the, the, I mean, the 1025 00:57:30,240 --> 00:57:35,200 argument is going to be against your product is going to be 1026 00:57:35,200 --> 00:57:38,440 you're releasing a double BA levered double B product at the 1027 00:57:38,440 --> 00:57:40,200 wrong time. And don't you know the private 1028 00:57:40,200 --> 00:57:42,920 credits going to blow up? Don't you know that it's 2008 1029 00:57:42,920 --> 00:57:44,320 all over? Again, I don't actually. 1030 00:57:44,320 --> 00:57:46,920 I actually don't I. Know that's what I'm just 1031 00:57:46,920 --> 00:57:48,280 saying. That's what the Dumors are going 1032 00:57:48,280 --> 00:57:49,520 to say. Actually, I actually don't know 1033 00:57:49,520 --> 00:57:51,080 I'm from smart enough to do that. 1034 00:57:51,200 --> 00:57:54,160 And, and I also think, I mean, there is this great paper I 1035 00:57:54,280 --> 00:57:58,040 somebody tweeted yesterday on Twitter, they were saying like, 1036 00:57:59,000 --> 00:58:01,400 I think it's a Vanguard paper where looks like buying at the 1037 00:58:01,400 --> 00:58:06,160 highs has the exact same returns as buying at the lows. 1038 00:58:07,240 --> 00:58:11,280 If you have a long time horizon, like basically it doesn't matter 1039 00:58:11,280 --> 00:58:15,120 if you buy at the highs because if you have long enough time 1040 00:58:15,120 --> 00:58:18,080 horizon, like your entry price literally doesn't matter. 1041 00:58:18,720 --> 00:58:21,800 If you have like 15 2013 horizon, like doesn't matter. 1042 00:58:22,280 --> 00:58:27,000 And I think a lot of people lose more money in trying to time the 1043 00:58:27,000 --> 00:58:30,960 highs and timing the lows than just if they were to dollar cost 1044 00:58:30,960 --> 00:58:33,760 average and be patient for 20 years. 1045 00:58:34,000 --> 00:58:36,960 I am not smart enough to know where we are in the cycle. 1046 00:58:37,120 --> 00:58:40,400 I started my career on the high yield distress credit desk at 1047 00:58:40,400 --> 00:58:44,560 Goldman Sachs and I used to trade high yield bonds and 1048 00:58:44,560 --> 00:58:46,960 distress credit and Special Situations. 1049 00:58:46,960 --> 00:58:52,200 And I'll tell you this, I've I've been now in my career in 1050 00:58:52,200 --> 00:58:57,480 finance approximately 10 years since I started. 1051 00:58:58,680 --> 00:59:02,120 There has been some sort of short going on. 1052 00:59:03,040 --> 00:59:07,400 Michael Berry has protected 50 of the last two bubbles. 1053 00:59:08,600 --> 00:59:11,680 Yeah. It's very easy to be a doomer. 1054 00:59:11,680 --> 00:59:14,520 It's very easy to say like, oh, there is a bubble coming and 1055 00:59:14,520 --> 00:59:17,840 eventually you'll be right. But by the way, the longer the 1056 00:59:17,840 --> 00:59:20,400 time horizon between you protected the bubble and when 1057 00:59:20,400 --> 00:59:23,400 the bubble happened, the less impressive the insight is. 1058 00:59:24,040 --> 00:59:25,640 If you tell me, oh, there is a bubble and then the bubble 1059 00:59:25,640 --> 00:59:28,320 happens after 10 years, you can't say, oh, I told you so. 1060 00:59:28,840 --> 00:59:31,120 Yeah. Obviously, eventually there will 1061 00:59:31,120 --> 00:59:33,840 be a credit event. Obviously eventually, like 1062 00:59:33,840 --> 00:59:35,640 somebody is going to be like, oh, what is Abdul? 1063 00:59:36,080 --> 00:59:38,680 Bankruptcies are high. Like I agree with that. 1064 00:59:38,920 --> 00:59:42,080 Eventually that will exist. But what I'm trying to say is 1065 00:59:42,080 --> 00:59:46,960 it's really difficult to decide to figure out when that time is. 1066 00:59:46,960 --> 00:59:49,400 And I don't think sentiment is a good measure to it. 1067 00:59:49,520 --> 00:59:53,520 Just because people are tweeting about the stress and private 1068 00:59:53,520 --> 00:59:55,640 credit, it does not necessarily mean that the stress is actually 1069 00:59:55,640 --> 00:59:57,760 material. I would argue that the fact that 1070 00:59:57,760 --> 01:00:02,480 people are tweeting about it is actually positive because it 1071 01:00:02,480 --> 01:00:04,160 means people are more diligent off it. 1072 01:00:04,240 --> 01:00:07,160 Yeah, they're thinking about it. By definition, the way you get a 1073 01:00:07,160 --> 01:00:08,560 bubble is if you're not thinking about. 1074 01:00:09,360 --> 01:00:14,120 It that that does seem to be correct, I, I the history would 1075 01:00:14,120 --> 01:00:18,440 be would agree with you. The material I saw and I don't 1076 01:00:18,440 --> 01:00:21,480 know, it's got privileged and confidential all over it. 1077 01:00:21,480 --> 01:00:23,200 So I'm not going to cite too much. 1078 01:00:24,240 --> 01:00:30,000 Directionally speaking, you're what like between 30 and 10% S&P 1079 01:00:30,000 --> 01:00:33,200 or do you want to narrow that range a little bit or does does? 1080 01:00:33,200 --> 01:00:37,080 That work my goal. Because most of it's private 1081 01:00:37,080 --> 01:00:38,560 credit, correct? Yeah, yeah, yeah. 1082 01:00:38,960 --> 01:00:42,640 And now, sorry, I don't mean I just want to be precise here. 1083 01:00:42,640 --> 01:00:46,200 Within private credit, do you also have like tradable double B 1084 01:00:46,200 --> 01:00:49,120 loans or is it all sort of private credit? 1085 01:00:49,440 --> 01:00:51,560 Yeah. It's, it's actually not private 1086 01:00:51,560 --> 01:00:53,960 credit. It's actually what we invest in 1087 01:00:53,960 --> 01:00:59,480 is interval funds, private funds that invest in a mix of public 1088 01:00:59,480 --> 01:01:03,200 credit and private credit, OK, asset backed securities and 1089 01:01:03,200 --> 01:01:06,080 corporate. Are you comfortable divulging 1090 01:01:06,080 --> 01:01:11,880 who runs those? Yeah, I mean the top five 1091 01:01:12,240 --> 01:01:16,240 private credit mastery and I'm and I'm saying like, like, you 1092 01:01:16,240 --> 01:01:19,360 know, we don't have. KKR, Blackstone, Aries, 1093 01:01:19,360 --> 01:01:22,560 whatever. Yeah, like the best of the best. 1094 01:01:22,880 --> 01:01:25,080 Yeah. You know, you can say you can be 1095 01:01:25,080 --> 01:01:28,240 skeptical of those, you can blah, blah, blah, but they are 1096 01:01:28,240 --> 01:01:30,960 the best at what they do, right? So I'm not going to like some 1097 01:01:30,960 --> 01:01:34,280 sort of like niche manager lending or some sort of like 1098 01:01:34,280 --> 01:01:35,840 specialty real estate thing, right? 1099 01:01:35,840 --> 01:01:37,520 Like this is the best of the best. 1100 01:01:38,480 --> 01:01:43,000 Here is my today our portfolio, you can customize and choose the 1101 01:01:43,000 --> 01:01:45,240 private credit funds that you like or the private funds that 1102 01:01:45,240 --> 01:01:47,800 you like. You can choose SPY or QQQ or 1103 01:01:47,800 --> 01:01:49,960 MSCI. That's like what we provide with 1104 01:01:49,960 --> 01:01:53,160 an equity is only these three things and the financing is 10 1105 01:01:53,160 --> 01:01:56,920 year term. My dream is when I come back to 1106 01:01:56,920 --> 01:02:00,760 the podcast again in a few years, I'll be able to tell you 1107 01:02:00,760 --> 01:02:06,440 that today our financing is actually 30 year instead of 10. 1108 01:02:07,320 --> 01:02:10,120 How could you get that done? Well, that's on me. 1109 01:02:10,440 --> 01:02:14,400 Let me worry about that. And two, you can go 100% spy, 1110 01:02:14,400 --> 01:02:19,520 100% spy. Well, that's the thing I kind of 1111 01:02:19,520 --> 01:02:25,920 like about the bond at allocation is the ability for 1112 01:02:25,920 --> 01:02:28,760 the cash flows to sort of match up fund and pay. 1113 01:02:28,760 --> 01:02:31,080 Yeah. Like it is tough to ask people 1114 01:02:31,480 --> 01:02:34,880 to, to actually, I mean, I don't know, but 100% SPY, they got to 1115 01:02:34,880 --> 01:02:36,600 come out of pocket to to cover them. 1116 01:02:36,600 --> 01:02:38,960 Correct, Right? Different people will want 1117 01:02:38,960 --> 01:02:42,720 different things, right? So like somebody will say, I 1118 01:02:42,720 --> 01:02:48,080 actually can spare the interest payment on this and I'm happy to 1119 01:02:48,080 --> 01:02:49,920 pay for it. And somebody might say, actually 1120 01:02:50,280 --> 01:02:54,040 I would, I can spare 200 bucks a month to save and I want to get 1121 01:02:54,040 --> 01:02:56,840 leverage on my savings and dollar cost my average weigh in 1122 01:02:56,840 --> 01:02:59,360 or something. You know, I mean, somebody might 1123 01:02:59,480 --> 01:03:02,080 somebody might be a lot. Somebody might be constructive 1124 01:03:02,080 --> 01:03:04,520 on equities and they want to go along equities. 1125 01:03:04,800 --> 01:03:07,520 Somebody might be bearish on equities and they want to be 1126 01:03:07,680 --> 01:03:12,200 more senior in the cap stack. Somebody might hate credit and 1127 01:03:12,200 --> 01:03:14,200 they just want to own equity. They hate private credit because 1128 01:03:14,200 --> 01:03:17,040 they read an article online because Michael Green tweeted 1129 01:03:17,040 --> 01:03:22,080 about it or something. I know you know, so, so the goal 1130 01:03:22,080 --> 01:03:25,000 is to just like you can take a mortgage to buy a ski chalet 1131 01:03:26,040 --> 01:03:29,800 house, right, And you can pick your own zip code. 1132 01:03:31,200 --> 01:03:33,200 You're going to be able to take a mortgage and pick your own 1133 01:03:33,200 --> 01:03:35,280 financial asset within guardrails. 1134 01:03:35,600 --> 01:03:38,240 You're not going to be able to go like I want, you know, 1135 01:03:38,240 --> 01:03:40,680 Bitcoin. But the idea is can we give 1136 01:03:40,680 --> 01:03:45,040 people duration financing to buy financial assets instead of 1137 01:03:45,040 --> 01:03:48,040 margin financing? That's the idea very simple, 1138 01:03:48,280 --> 01:03:51,760 like can we give people duration financing to buy assets instead 1139 01:03:51,760 --> 01:03:56,760 of margin, margin financing? And there will be different 1140 01:03:56,760 --> 01:03:59,320 rates for different asset classes, right? 1141 01:03:59,320 --> 01:04:02,400 There will be there like, and, and you're going to be able to 1142 01:04:02,400 --> 01:04:04,240 customize, you're going to be able to play around with it. 1143 01:04:04,240 --> 01:04:08,120 And and that's really the division here and, and I'm 1144 01:04:08,120 --> 01:04:10,880 really excited about that future because I think more and more 1145 01:04:10,880 --> 01:04:14,840 people want to participate in capitalism, but but saving is 1146 01:04:14,840 --> 01:04:18,840 not, is not really giving them the the participation that you 1147 01:04:18,840 --> 01:04:23,520 need to be an effective shareholder of our great 1148 01:04:23,520 --> 01:04:26,960 country. Interesting. 1149 01:04:27,200 --> 01:04:30,160 I do know that you did a decent amount of back testing. 1150 01:04:30,600 --> 01:04:35,160 What is a scenario that if you were telling people like sort of 1151 01:04:35,840 --> 01:04:39,000 prepare yourself for mentally, obviously nothing's financial 1152 01:04:39,000 --> 01:04:41,640 advice and you got to do your own work, but like when you were 1153 01:04:41,640 --> 01:04:46,680 going through the, the cohort level data, I mean, what, what 1154 01:04:46,680 --> 01:04:49,200 was a, a setup for the worst return? 1155 01:04:49,600 --> 01:04:54,800 Yeah, liquidating, having short time horizon, please, please, 1156 01:04:54,800 --> 01:04:57,920 please, please, please, please do not even consider the basic 1157 01:04:57,920 --> 01:05:01,240 capital if you have anything less than 1015 time Chrysler, 1158 01:05:02,560 --> 01:05:06,440 this product only works if you have a long term bet. 1159 01:05:07,480 --> 01:05:10,000 And if you to some degree, I mean, even if you do not cut 1160 01:05:10,000 --> 01:05:11,960 dollar cost average by the dollar cost average, it even 1161 01:05:11,960 --> 01:05:15,080 becomes better. But even if you do not cross 1162 01:05:15,080 --> 01:05:18,320 average, you need to have 10 year plus your horizon. 1163 01:05:18,320 --> 01:05:20,560 And by the way, this is not like an easy sell like right to go 1164 01:05:20,560 --> 01:05:22,960 out to customers and be like, I want who wants to invest for 10 1165 01:05:22,960 --> 01:05:24,400 years? There's actually the entire 1166 01:05:24,400 --> 01:05:29,120 photo and case space, but. Turns out anyone with a longer 1167 01:05:29,120 --> 01:05:31,560 time horizon. Yeah, not, not the meme stocks 1168 01:05:31,560 --> 01:05:34,080 guys and the meme stock guys are making fun of us on Twitter. 1169 01:05:34,080 --> 01:05:36,640 But that's fine. You can go buy meme stocks. 1170 01:05:36,760 --> 01:05:38,960 We're going to go give the Russian financing to people who 1171 01:05:38,960 --> 01:05:42,280 have duration. Listen, asset prices are set to 1172 01:05:42,280 --> 01:05:45,360 exhibit a random walk. They call it random walk over a 1173 01:05:45,360 --> 01:05:48,640 short period of time, but it has a positive drift. 1174 01:05:50,200 --> 01:05:53,160 And basically what I'm enabling people is to level up that 1175 01:05:53,160 --> 01:05:57,560 drift. If that drift cease to exist, 1176 01:05:58,960 --> 01:06:01,080 it's a problem. By the way, that drift like 1177 01:06:01,160 --> 01:06:05,280 cease to exist in Japan, they stagnated. 1178 01:06:06,240 --> 01:06:09,720 Yeah. But that's, that's Japan, that's 1179 01:06:09,720 --> 01:06:13,480 not America. And I don't know, there's no 1180 01:06:13,480 --> 01:06:15,840 like logical, I mean there is some a lot of logical arguments 1181 01:06:15,840 --> 01:06:19,440 I can enter here, but I just believe in America just like 1182 01:06:21,000 --> 01:06:24,440 Warren Buffett does. We're not Japan, we're not 1183 01:06:24,440 --> 01:06:26,600 Europe, we're we're the United States of America. 1184 01:06:26,600 --> 01:06:28,960 We're the epicenter of innovation globally. 1185 01:06:29,440 --> 01:06:32,040 Every great company wants to go public in our stock market. 1186 01:06:32,240 --> 01:06:35,720 Every great global company wants to go public in our market. 1187 01:06:35,880 --> 01:06:39,960 Every great company in the past 100 years came out for market 1188 01:06:40,760 --> 01:06:46,920 the US dollar and I really yes, if you do basic capital in 1189 01:06:46,920 --> 01:06:49,480 Japan, you could lose money because the market was actually 1190 01:06:49,480 --> 01:06:52,680 flat for like 30 years. If you do basic capital in like 1191 01:06:54,000 --> 01:06:56,360 assuming you are 100% equities, if you have bonds and you did 1192 01:06:56,360 --> 01:06:58,880 the spread thing that we talked about, you actually would have 1193 01:06:58,880 --> 01:07:01,720 been fine because you are just levering up the spread between 1194 01:07:01,920 --> 01:07:04,080 the double B credit and what you're borrowing at. 1195 01:07:04,480 --> 01:07:07,800 Let's say you are 100% equities in Europe or in this order in 1196 01:07:07,800 --> 01:07:09,680 Japan, you wouldn't have done as well. 1197 01:07:10,080 --> 01:07:12,640 You would have just only clipped the, the, the spread. 1198 01:07:13,880 --> 01:07:18,800 But but the way people get hurt here is if they have like two or 1199 01:07:18,800 --> 01:07:21,520 three-year horizon and they're trying to like get rich quick. 1200 01:07:21,520 --> 01:07:25,360 And this is, like, it could work for you, but you could get hurt. 1201 01:07:25,520 --> 01:07:27,680 It's kind of like house flipping, you know? 1202 01:07:27,680 --> 01:07:30,480 I mean, like, if you flip a house, yeah, you could get 1203 01:07:30,480 --> 01:07:33,200 lucky. But like, if you stay in your 1204 01:07:33,200 --> 01:07:35,800 house for 30 years, you'll probably make a decent return on 1205 01:07:35,800 --> 01:07:37,040 it. Yeah. 1206 01:07:37,480 --> 01:07:39,320 Nothing crazy, but a decent return on it. 1207 01:07:40,000 --> 01:07:42,000 Yeah. And going back to the the 1208 01:07:42,000 --> 01:07:45,280 information that I perused, I mean almost everything in the 1209 01:07:45,280 --> 01:07:49,720 models, unless I'm reading it wrong has a substantial bond 1210 01:07:49,720 --> 01:07:53,680 allocation. And then it looks to me like the 1211 01:07:53,680 --> 01:08:01,400 return clusters are higher. But the the volatility you've 1212 01:08:01,400 --> 01:08:05,640 got to be able to live with which would jive with having 1213 01:08:05,640 --> 01:08:09,560 leverage generally and having duration. 1214 01:08:09,560 --> 01:08:13,160 Yeah, You need to be OK with like the market being down 30% 1215 01:08:13,160 --> 01:08:16,439 and you are on paper down like basically your equity is wiped 1216 01:08:16,439 --> 01:08:18,960 out. But like you need to be able to 1217 01:08:18,960 --> 01:08:20,479 be like, I'm just not going to do it. 1218 01:08:20,560 --> 01:08:22,479 Like I'm not going to sell. Why would you? 1219 01:08:22,720 --> 01:08:24,319 Because like now you have a call option. 1220 01:08:25,160 --> 01:08:27,080 Like if you actually think about it, it's kind of like what you 1221 01:08:27,160 --> 01:08:31,040 what you have here is like if the market goes down 30%, if you 1222 01:08:31,040 --> 01:08:34,359 do not get forced liquidated, you have this like massive call 1223 01:08:34,359 --> 01:08:40,000 option, you have 70K worth of call option on on the upside. 1224 01:08:40,600 --> 01:08:41,840 So why would you? Why would you sell? 1225 01:08:41,960 --> 01:08:43,160 Unless like if there's like a rash? 1226 01:08:43,240 --> 01:08:45,760 Loss aversion is the is the real answer, right? 1227 01:08:45,800 --> 01:08:48,560 And panic. But yeah, you don't know how 1228 01:08:48,560 --> 01:08:50,920 you're going to react until you're in that situation, would 1229 01:08:50,920 --> 01:08:54,120 be the devil's advocate side. Exactly. 1230 01:08:54,120 --> 01:08:56,040 And, and I think you can educate people around them. 1231 01:08:56,800 --> 01:08:58,800 Yeah. How do you, how do you view your 1232 01:08:58,800 --> 01:09:02,479 role in that in the education process from that perspective? 1233 01:09:02,479 --> 01:09:07,040 Because I would think that would be a a risk to the business is 1234 01:09:07,040 --> 01:09:09,680 everything's going pretty well and then we do have one of those 1235 01:09:09,680 --> 01:09:11,640 events and then your clients kind of panic I. 1236 01:09:13,279 --> 01:09:16,399 Mean I, I go back to where we started this whole thing about 1237 01:09:16,399 --> 01:09:21,240 why there is no innovation in financial markets because it's 1238 01:09:21,240 --> 01:09:26,720 such an important model business dealing with people's hard like 1239 01:09:27,080 --> 01:09:32,160 hard earned dollars. And I go back to Jack Bogle and 1240 01:09:32,160 --> 01:09:33,800 Jack Bogle really had to be a prophet. 1241 01:09:33,800 --> 01:09:36,200 He had to like walk around basically like advocate for this 1242 01:09:36,200 --> 01:09:39,960 idea of the index fund for like 30 years before it became really 1243 01:09:39,960 --> 01:09:41,760 big. And I, I see my role the same 1244 01:09:41,760 --> 01:09:43,120 way. And my role is to educate 1245 01:09:43,120 --> 01:09:45,080 people. But the only way to get rich, 1246 01:09:45,399 --> 01:09:50,120 the only way to build wealth is really to have long time horizon 1247 01:09:51,319 --> 01:09:56,400 and to be part of the system. And, and if you use credit, 1248 01:09:57,080 --> 01:09:59,680 credit is like a knife. Credit is like any tool. 1249 01:10:00,000 --> 01:10:03,560 It's a general purpose technology, GPT general purpose 1250 01:10:03,560 --> 01:10:04,920 technology. That's what credit is. 1251 01:10:05,400 --> 01:10:09,760 You can use it for a good reason, like investing, or you 1252 01:10:09,760 --> 01:10:12,880 can use it for a bad reason, like consuming. 1253 01:10:12,880 --> 01:10:16,400 We're trying to do at basic Capital is give you credit, 1254 01:10:17,320 --> 01:10:20,040 which is not inherently bad. Leverage is not inherently bad. 1255 01:10:20,760 --> 01:10:22,320 It's it's why you use the leverage. 1256 01:10:22,320 --> 01:10:25,720 You use it to consume on party and buy stuff you do not need. 1257 01:10:26,040 --> 01:10:29,080 Or do you use it to invest? We're trying to give people 1258 01:10:29,080 --> 01:10:33,360 credit to invest, and our role is to educate them that credit 1259 01:10:33,680 --> 01:10:37,840 can be a powerful tool if it's used in the right way and you 1260 01:10:37,840 --> 01:10:41,000 should not use it for the wrong thing, like buying depreciating 1261 01:10:41,000 --> 01:10:45,120 assets or like consuming. And when you use it, when you 1262 01:10:45,120 --> 01:10:47,920 use credit to invest, you should have a really long time horizon. 1263 01:10:48,880 --> 01:10:53,520 And I plan to spend the rest of my life educating people about 1264 01:10:53,520 --> 01:10:57,000 this. And I hope one day we can create 1265 01:10:57,000 --> 01:11:02,760 a legacy where the vast majority of Americans have a material 1266 01:11:03,080 --> 01:11:09,360 endowment in the stock market, and it's called universal basic 1267 01:11:09,560 --> 01:11:12,680 capital, not universal basic income. 1268 01:11:13,080 --> 01:11:16,600 Whether you're relying on Sam Altman to write you a check or 1269 01:11:16,600 --> 01:11:20,800 some freak to write you a check, you're relying not on the 1270 01:11:20,800 --> 01:11:23,160 government, on your own endowment in the market. 1271 01:11:23,880 --> 01:11:25,600 I like how you called him a freak, not him. 1272 01:11:26,080 --> 01:11:28,200 A freak, he freaks. Me out. 1273 01:11:28,200 --> 01:11:30,440 For the record, I think he is the freest billionaire. 1274 01:11:30,480 --> 01:11:32,840 Anyway, I'm not. First of all, that was a very 1275 01:11:32,840 --> 01:11:34,960 emotional segment. I found myself very emotionally 1276 01:11:34,960 --> 01:11:36,880 tied to what you were saying. I didn't mean to break it up 1277 01:11:36,880 --> 01:11:40,600 with a joke, but when you said some freak, some of these guys 1278 01:11:40,600 --> 01:11:42,320 that are making decisions are freaks. 1279 01:11:42,320 --> 01:11:46,960 So I like your thought you'd let you let the universal basic 1280 01:11:46,960 --> 01:11:50,200 capital provide the universal basic income. 1281 01:11:50,520 --> 01:11:52,920 Exactly, exactly right. That's. 1282 01:11:52,920 --> 01:11:55,440 Actually, wealth. That's actually wealth. 1283 01:11:55,440 --> 01:11:57,880 You're not waiting on the government, you're not waiting 1284 01:11:57,880 --> 01:12:00,760 on anybody to give you a handout. 1285 01:12:00,840 --> 01:12:03,000 You are like, hey, dude, I got my own portfolio. 1286 01:12:03,160 --> 01:12:06,920 It spits out 10% every year and I live on it. 1287 01:12:06,920 --> 01:12:08,400 And I don't need your basic income. 1288 01:12:08,400 --> 01:12:10,720 You can keep it up. You can, you can have it. 1289 01:12:10,720 --> 01:12:12,800 You can't keep it. Like, I don't need your basic 1290 01:12:12,800 --> 01:12:13,920 income. I don't need your hand out. 1291 01:12:13,920 --> 01:12:15,120 I don't need your Social Security. 1292 01:12:15,120 --> 01:12:18,200 I have my own endowment. But the problem is it's really 1293 01:12:18,200 --> 01:12:22,280 tough to build endowment. If yeah, it takes a lifetime. 1294 01:12:22,280 --> 01:12:25,280 Leverage, if you're going to have some like ironically like 1295 01:12:25,360 --> 01:12:29,200 you, it's really hard to build an endowment using saving alone. 1296 01:12:29,440 --> 01:12:32,640 It's it's really tough to buy a house using saving alone. 1297 01:12:32,640 --> 01:12:35,360 Let me tell you that. Well dude, how are I mean, how 1298 01:12:35,360 --> 01:12:37,280 are most hedge fund managers paid? 1299 01:12:37,440 --> 01:12:42,040 One would argue it's leverage. How are most GPS paid? 1300 01:12:42,080 --> 01:12:43,960 It's leverage. I mean, it's all other people's 1301 01:12:43,960 --> 01:12:46,800 money at the end of the day in some way, shape or form. 1302 01:12:46,800 --> 01:12:49,920 It's just can you can you structure the leverage in a way 1303 01:12:49,920 --> 01:12:52,440 that's non recourse and not going to blow you up at the 1304 01:12:52,440 --> 01:12:53,920 wrong time? Yeah. 1305 01:12:54,480 --> 01:12:59,640 And I think, I think we created crazier things like like we made 1306 01:12:59,640 --> 01:13:02,160 AI and you're telling me there is no way to structure leverage 1307 01:13:02,160 --> 01:13:05,920 in a non recourse like like the way that doesn't blow you up. 1308 01:13:05,920 --> 01:13:10,320 Like I'm sorry, but we created student funds, car loans and 1309 01:13:10,320 --> 01:13:13,360 mortgage-backed securities, buy now, pay later. 1310 01:13:13,360 --> 01:13:15,880 Like the human ingenuity is, is massive. 1311 01:13:15,880 --> 01:13:18,440 We created AI. You have airplanes that fly. 1312 01:13:18,440 --> 01:13:22,120 We have we can't structure a simple way for people to buy and 1313 01:13:22,120 --> 01:13:25,240 hold the market. I find it difficult to believe 1314 01:13:25,240 --> 01:13:26,600 where there is a world, there is a way. 1315 01:13:26,880 --> 01:13:28,920 You just have to go out there, put yourself out there, be 1316 01:13:28,920 --> 01:13:31,800 willing to get the criticism, be willing to get feedback, keep 1317 01:13:31,800 --> 01:13:34,600 iterating, keep pushing, and eventually you will make it. 1318 01:13:34,600 --> 01:13:37,400 And instead of giving people prediction markets the gamble of 1319 01:13:37,400 --> 01:13:40,120 the Grammys, we want to give them credit to invest. 1320 01:13:40,600 --> 01:13:44,040 Dude, this that would you just touched on that as a father of 1321 01:13:44,040 --> 01:13:47,400 three boys that scares the shit out of me like we're watching 1322 01:13:47,400 --> 01:13:50,680 football games now and they're asking about what the lines are 1323 01:13:50,680 --> 01:13:54,080 because you like you can't avoid it at this point let. 1324 01:13:54,320 --> 01:13:55,880 Me ask a question. Would you rather your son come 1325 01:13:55,880 --> 01:14:00,480 to you and say hey dad I have a grant on a prediction market or 1326 01:14:00,520 --> 01:14:05,240 hey dad I put a grant down in an LLC I'm board for and the LLC 1327 01:14:05,240 --> 01:14:09,200 board for the grant and I have 5 grand portfolio. 100% the 1328 01:14:09,200 --> 01:14:11,760 latter. Sure, if there is big. 1329 01:14:11,840 --> 01:14:14,280 If there is a big bad event I guess they could lose the 1330 01:14:14,280 --> 01:14:16,240 grants. But like on a prediction market? 1331 01:14:16,640 --> 01:14:18,800 Well, I can't. I can't cite the study that I'm 1332 01:14:18,800 --> 01:14:20,960 thinking of because I don't want to say something wrong, but I'm 1333 01:14:20,960 --> 01:14:24,680 almost certain that I just, I had a guess not too, too far ago 1334 01:14:24,680 --> 01:14:29,200 that like proved that double B credit and and anyone in the 1335 01:14:29,200 --> 01:14:32,000 credit markets can probably know this, but double B is where you 1336 01:14:32,000 --> 01:14:35,560 want to be through the through the curve, right? 1337 01:14:35,560 --> 01:14:37,400 Or and I'm when I say curve I mean like. 1338 01:14:38,360 --> 01:14:39,920 Risk. Premium time series, right? 1339 01:14:39,920 --> 01:14:44,040 Yeah, yeah. So it makes sense, especially if 1340 01:14:44,520 --> 01:14:48,760 like the thing that that got me about the debate that was going 1341 01:14:48,760 --> 01:14:51,560 on on Twitter with some of the replies. 1342 01:14:51,600 --> 01:14:55,720 And then especially with Hunter, like I, the Hunter is a pretty 1343 01:14:55,720 --> 01:14:58,520 thoughtful guy about this stuff. So when I saw he was involved, I 1344 01:14:58,520 --> 01:15:01,320 was like, OK, there's there's probably more there than I'm 1345 01:15:01,960 --> 01:15:06,560 appreciating. I think people mischaracterize 1346 01:15:06,560 --> 01:15:09,480 your product as more equity than exists. 1347 01:15:11,040 --> 01:15:13,640 What the upfront fee kind of pissed some people off. 1348 01:15:13,640 --> 01:15:15,720 You want to address that? What's the deal with that? 1349 01:15:16,280 --> 01:15:19,840 Yeah, we, we, we charge 2 fees. We charge financing fee, which 1350 01:15:19,840 --> 01:15:21,640 is 200 basis point of our software. 1351 01:15:21,880 --> 01:15:26,200 We charge 50 basis point servicing fee like a mortgage 1352 01:15:26,200 --> 01:15:27,880 servicer. So that's like that's the 1353 01:15:27,880 --> 01:15:28,920 you're. Going to get that anywhere 1354 01:15:28,920 --> 01:15:30,720 though, you can't. You're going to get half assets 1355 01:15:30,720 --> 01:15:33,320 anywhere and not have. But the reason, the reason why 1356 01:15:33,320 --> 01:15:38,000 people went crazy is we used to charge $25.00 a month 1357 01:15:38,440 --> 01:15:40,880 subscription fee, which is $300 a year. 1358 01:15:41,240 --> 01:15:44,000 Yeah, yeah, yeah, yeah. But the reason why we did that 1359 01:15:44,320 --> 01:15:48,240 is we did not want somebody to put $100 in and that's it. 1360 01:15:49,120 --> 01:15:51,720 Interesting. So we created the fee structure 1361 01:15:51,720 --> 01:15:54,840 in a way to deincentivize anybody from putting less than 1362 01:15:54,840 --> 01:15:57,000 5K. Basically, you see what I'm 1363 01:15:57,000 --> 01:15:59,280 saying? Because if you put $100 and you 1364 01:15:59,280 --> 01:16:02,960 pay $300 subscription fee, you're paying 300% of your 1365 01:16:02,960 --> 01:16:07,000 principal as a fee. Now we, we thought like Finn 1366 01:16:07,000 --> 01:16:10,920 Twitter was able to do the math and basically say, OK, this only 1367 01:16:10,920 --> 01:16:13,920 makes sense if you put at least 10 grands, because if you put 1368 01:16:13,920 --> 01:16:16,600 less than 10 grands, the subscription fee is too high. 1369 01:16:17,480 --> 01:16:20,840 But but people were like, they did not say, hey, like this 1370 01:16:20,840 --> 01:16:22,400 doesn't make sense unless you put 10 grand. 1371 01:16:22,600 --> 01:16:26,520 People said if you put $100 in, you're paying $300 in fees. 1372 01:16:26,640 --> 01:16:28,680 This is disgusting and. I'm. 1373 01:16:29,880 --> 01:16:33,600 Like, no, it's like it's supposed to create a hurdle and 1374 01:16:33,600 --> 01:16:35,600 we, we got rid of the subscription fees since then 1375 01:16:35,600 --> 01:16:40,040 because like it, it created such a big backlash, not because of 1376 01:16:40,040 --> 01:16:41,240 the backlash, because like we just. 1377 01:16:41,840 --> 01:16:43,120 No. Well, I mean, look, we just have 1378 01:16:43,160 --> 01:16:45,080 a messaging issue. You might as well address it, 1379 01:16:45,080 --> 01:16:45,440 right? Yeah. 1380 01:16:45,440 --> 01:16:46,560 Yeah. Huh. 1381 01:16:47,760 --> 01:16:50,840 Does this is going to sound really dumb to those that are 1382 01:16:51,520 --> 01:16:54,840 more informed than me, but I would imagine being an IRA is a 1383 01:16:55,120 --> 01:16:56,840 tax advantage way to do this right? 1384 01:16:57,320 --> 01:17:02,080 Tax is done. And any potential issues with 1385 01:17:02,440 --> 01:17:05,240 what am I unrelated business income, how is that? 1386 01:17:06,120 --> 01:17:07,560 Because the financing is not alone. 1387 01:17:07,560 --> 01:17:08,960 The financing is preferred equity. 1388 01:17:08,960 --> 01:17:11,840 We're core investors with you. So we're not actually giving you 1389 01:17:11,840 --> 01:17:12,800 a loan. It's not even a loan. 1390 01:17:12,800 --> 01:17:14,640 That's why we cannot call it back because it's not even a 1391 01:17:14,640 --> 01:17:16,320 loan. It's like imagine if there is 1392 01:17:16,320 --> 01:17:22,320 like a GPLP and the LP gives you 80% of the capital and you know, 1393 01:17:22,320 --> 01:17:26,240 they get they get 6% and then you get the rest. 1394 01:17:27,440 --> 01:17:29,520 That's basically like that's basically what's going on here, 1395 01:17:29,520 --> 01:17:30,920 right? Like we're Co investing with 1396 01:17:30,920 --> 01:17:33,000 you. We are, we are preferred equity 1397 01:17:33,000 --> 01:17:34,880 in the LOC. We're not common equity. 1398 01:17:34,880 --> 01:17:37,640 We're not alone, we're not credit, we're Co investors with 1399 01:17:37,640 --> 01:17:39,440 you. So that everything is structured 1400 01:17:39,440 --> 01:17:41,840 as a, as a Co investment, especially we're not, we're not 1401 01:17:41,840 --> 01:17:44,000 even lending you money. We're Co investing with you, 1402 01:17:44,240 --> 01:17:47,840 which is our structurally senior and we're entitled to 6% 1403 01:17:49,280 --> 01:17:51,000 preferred dividend. By the way, banks do this all 1404 01:17:51,000 --> 01:17:52,760 the time. Instead of issuing debt, they 1405 01:17:52,760 --> 01:17:55,920 issue something called Coco's contingent convertibles with the 1406 01:17:55,920 --> 01:17:59,320 issues on the court preferred equities to fund them, to fund 1407 01:17:59,320 --> 01:18:01,280 their operations because banks are not allowed to take on debt. 1408 01:18:01,280 --> 01:18:03,240 They're not allowed to be that levered because they're already 1409 01:18:03,240 --> 01:18:05,120 levers from deposits. Listen directly. 1410 01:18:05,120 --> 01:18:07,520 We are backed by the best investors in the space. 1411 01:18:08,800 --> 01:18:12,640 You know, we as lawyers, On the contrary, working, you know what 1412 01:18:12,640 --> 01:18:16,880 legal bills and the millions of dollars a year, we have 1413 01:18:16,960 --> 01:18:18,960 literally the best lawyers working with us from the 1414 01:18:18,960 --> 01:18:22,440 Department of lawyers, former SEC guys, former D oil guys, 1415 01:18:23,760 --> 01:18:26,920 we're serious about this. Like the way I get paid is in 10 1416 01:18:26,920 --> 01:18:29,240 years from now when basic capital is a multi billion 1417 01:18:29,240 --> 01:18:33,280 dollar company as big as Kaushi, as big as Polymarket, as big as 1418 01:18:33,280 --> 01:18:36,560 a firm, as big as Robin Hood. Robin Hood is an $80 billion 1419 01:18:36,560 --> 01:18:39,320 market cap business. So the way I get paid is when 1420 01:18:39,400 --> 01:18:42,720 this becomes really massive. I'm not trying to pull like a 1421 01:18:42,720 --> 01:18:44,760 quick one when you hear, you know, I mean like this is a, 1422 01:18:45,480 --> 01:18:48,760 this is like we have classic VCO long term oriented. 1423 01:18:49,160 --> 01:18:50,800 We're doing this for the home for the long. 1424 01:18:51,000 --> 01:18:53,080 We're doing this to change the way people invest. 1425 01:18:53,280 --> 01:18:56,360 We're not doing this to get a couple $1,000,000 an AM. 1426 01:18:56,880 --> 01:18:59,480 Yeah. So in 10 years when that comes 1427 01:18:59,480 --> 01:19:02,000 to fruition, do some of the Co investments that you have 1428 01:19:02,000 --> 01:19:06,320 basically that like create an exit event for you, is that is 1429 01:19:06,320 --> 01:19:08,800 that how the incentives are aligned? 1430 01:19:09,760 --> 01:19:12,560 Yeah, but we make more on the on the regular fee, right. 1431 01:19:12,560 --> 01:19:15,880 So like we're making more money on the ongoing 50 basis point 1432 01:19:15,880 --> 01:19:17,720 fee, we lose money on the landing. 1433 01:19:17,720 --> 01:19:20,600 So right now our our cost of funding is higher than what we 1434 01:19:20,600 --> 01:19:22,720 give to you. Interesting. 1435 01:19:23,640 --> 01:19:27,520 Why? Yeah, with subscale, the bigger 1436 01:19:27,520 --> 01:19:31,360 you you, the bigger you become, the more you have to, the easier 1437 01:19:31,360 --> 01:19:32,960 it is to raise more money. Yeah. 1438 01:19:32,960 --> 01:19:35,160 So your borrowing cost should come down. 1439 01:19:35,280 --> 01:19:36,800 Exactly, Exactly. Not yet. 1440 01:19:36,800 --> 01:19:38,080 Interesting. Not well. 1441 01:19:38,080 --> 01:19:40,280 Because the way it works on Wall Street is if you have a billion 1442 01:19:40,280 --> 01:19:42,240 dollar problem, everybody wants to help you. 1443 01:19:42,240 --> 01:19:45,320 If you have $100 million problem, it's too small to care. 1444 01:19:45,320 --> 01:19:47,480 Yeah, that's right. Yeah, that's your problem, not 1445 01:19:47,480 --> 01:19:49,640 mine. You know what I mean? 1446 01:19:49,640 --> 01:19:53,800 So it's one of those things where like you have to go out 1447 01:19:53,800 --> 01:19:57,960 educate the credit market. Just like the Henry Kravis when 1448 01:19:57,960 --> 01:20:01,520 he created leveraged buyouts in the 80s, he had to go out and 1449 01:20:01,520 --> 01:20:03,840 work with market market and to educate the market on higher 1450 01:20:03,840 --> 01:20:06,880 bonds and to the higher bonds are like this big massive space. 1451 01:20:08,120 --> 01:20:11,280 Just like when a firm Max Option created the firm in America, he 1452 01:20:11,280 --> 01:20:14,080 had to go on the road and teach people about what by now letter 1453 01:20:14,080 --> 01:20:17,640 is and teach the you not only have to teach the customer, you 1454 01:20:17,640 --> 01:20:19,240 also have to teach the capital markets. 1455 01:20:19,440 --> 01:20:22,200 Yeah. So I spent a lot of time on the 1456 01:20:22,200 --> 01:20:25,200 road talking to lenders, banks, insurance companies. 1457 01:20:25,800 --> 01:20:30,040 Yes, some are in the US, some are in over overseas, you know, 1458 01:20:30,240 --> 01:20:32,120 to educate them on this new space we'll create. 1459 01:20:32,640 --> 01:20:36,320 Huh. So if I have a five year line of 1460 01:20:36,320 --> 01:20:40,680 credit or a 10 year line of credit with you, what? 1461 01:20:40,680 --> 01:20:44,440 And I don't mean to ask you a scary thought for you, but what 1462 01:20:44,440 --> 01:20:46,680 happens if your company goes under? 1463 01:20:46,680 --> 01:20:48,720 Is my line of credit called at that time? 1464 01:20:49,520 --> 01:20:52,040 You can keep it. Who's my counterparty? 1465 01:20:52,440 --> 01:20:56,000 Whoever, whoever takes over the thing, so basically 10, you 1466 01:20:56,000 --> 01:20:57,400 know, but they can't call it back. 1467 01:20:57,400 --> 01:20:58,800 They have to hold it for 10 years. 1468 01:20:59,320 --> 01:21:02,560 So that yeah, so you would you would theoretically do some sort 1469 01:21:02,560 --> 01:21:05,520 of for sale and those people would have to honor the 1470 01:21:05,520 --> 01:21:08,320 contracts that they're buying and they basically Chapter 7. 1471 01:21:08,600 --> 01:21:10,800 Yeah, somebody sits down. Yeah, somebody sits down and 1472 01:21:10,800 --> 01:21:13,080 wait for 10 years until they get paid back, basically. 1473 01:21:13,400 --> 01:21:16,440 And you know, you sell at $0.50 on the dollar because, you know, 1474 01:21:16,440 --> 01:21:19,000 you're liquidating or whatever. It's kind of like classic like, 1475 01:21:19,000 --> 01:21:21,440 you know, if you, you have a, if somebody give you a mortgage, 1476 01:21:21,440 --> 01:21:25,320 like physical mortgage from First Republic or Silicon Valley 1477 01:21:25,320 --> 01:21:27,080 Bank, a second Valley Bank went under. 1478 01:21:27,480 --> 01:21:30,120 You still have your mortgage. She's just like, you know, at 1479 01:21:30,120 --> 01:21:32,000 some point you. Get the best bank in the world. 1480 01:21:32,440 --> 01:21:33,760 Yeah, yeah. Who's your? 1481 01:21:33,760 --> 01:21:35,760 Who's your kind of way, exactly? I'm saying if I was at First 1482 01:21:35,760 --> 01:21:37,760 Republic, now I'm with JP Morgan, that's a pretty good 1483 01:21:37,760 --> 01:21:39,600 place to end up. Right, exactly, exactly. 1484 01:21:39,600 --> 01:21:41,880 So basically, you know, you the assets end up moving to 1485 01:21:41,880 --> 01:21:44,680 somebody's balance sheet and they just sit on and they clip 1486 01:21:44,680 --> 01:21:48,720 the 6% and yeah, it's, it's very try the two things in financial 1487 01:21:48,720 --> 01:21:49,800 markets. It happens all the time. 1488 01:21:50,520 --> 01:21:52,000 So how are you funding your business? 1489 01:21:52,000 --> 01:21:54,600 You don't have to divulge this for the record, but is it like a 1490 01:21:54,640 --> 01:21:58,520 a revolver? You know, we have to, we have 1491 01:21:58,720 --> 01:22:02,200 the funding partners and we're diversified and I'd rather not 1492 01:22:02,200 --> 01:22:03,800 share more. OK, that's fair. 1493 01:22:03,800 --> 01:22:05,880 That's fair. I I used to work in a bank, 1494 01:22:05,880 --> 01:22:08,840 which is the only reason I'm, I'm kind of curious, but that 1495 01:22:08,840 --> 01:22:11,520 makes sense. I would also, I would, I would 1496 01:22:11,520 --> 01:22:14,560 err on the side of protecting proprietary information, so. 1497 01:22:15,000 --> 01:22:16,320 Awesome. All right, cool, man. 1498 01:22:16,320 --> 01:22:19,840 Well, I appreciate your time and you know, this is fun. 1499 01:22:19,840 --> 01:22:22,040 I'm glad that we could do it. I will get it out quickly. 1500 01:22:22,600 --> 01:22:27,040 It'll be out this week. But I, I sort of I saw the the 1501 01:22:27,040 --> 01:22:31,240 fury of activity and I was like, I, I don't know, whenever I see 1502 01:22:31,240 --> 01:22:35,360 highly polarized issues, I feel like that the answer is probably 1503 01:22:35,360 --> 01:22:38,040 somewhere in the middle or something. 1504 01:22:38,040 --> 01:22:39,520 Something's not being understood. 1505 01:22:39,520 --> 01:22:42,960 So I appreciate you taking the time to at least tell me your 1506 01:22:42,960 --> 01:22:45,400 story and the listeners. So thank you very much. 1507 01:22:45,760 --> 01:22:47,040 Thank you for having me. Appreciate it. 1508 01:22:47,040 --> 01:22:48,120 All righty. Have a good one.