[00:03:37] Preston Pysh: Yeah, I think that’s a great place, place to start.

[00:03:39] Steven McClurg: Yeah. Or, or even go even higher level. Let’s, let’s just recap and remind everybody to number one, not fight the Fed. And number two, that the Fed has a, a mandate that, that’s driving them right now.

[00:03:54] Steven McClurg: And that mandate is really, really focused on number one, fighting inflation. Number two getting unemployment to go up and we’re struggling there. And, and number three, I would even say that, you know, not to completely destroy the economy, but that’s, that’s a, that’s a distant third and they care less about that right now.

[00:04:14] Steven McClurg: So, so, so going back to inflation, I think a lot of people thought that, oh yeah. Inflation’s over, you know, we’ve had, we’ve had lower CPI. Print increases, and I think we talked about this last time I was on your show that it’s like, well, you know, we’re not, we’re not going to see 8% prints anymore.

[00:04:31] Steven McClurg: But the reality is, is if you go up 8% and then you go up another six and then you go up a number seven, like that’s still a lot of inflation. But even though prices did stabilize a little bit, you gotta look at you, you gotta look at future prices. And there are are two different groups of people or industries that I like to dig into right now, particularly, but anytime I’m looking at what inflation is going to look like, right?

[00:04:59] Steven McClurg: Hmm. And that is farming and petroleum or energy. Right. And if you talk to farmers and you know, I’m, I, I, I know a lot of, I know a lot of farmers and a lot of big industrial farmers as well. And if you talk to farmers, they’re going to say that labor cost is higher. petroleum cost to them is higher. And that’s an important part of of, of, of, I would say the, the manufacturing of food.

[00:05:25] Steven McClurg: And feed has also gone up significantly. So, so you have all of these and, and fertilizer of course. So we have all of these factors, you know, fertilizer and feed are the things that feed the food that we eat, right? And if those things are going up and, and, and price, then your food is going to go up in price.

[00:05:43] Steven McClurg: And that’s the basics of everything. Yeah. Right.

[00:05:46] Steven McClurg: And that’s the thing that most people understand too. So like, if it’s some other nuance thing that only applies to 10% of the population, maybe it’s not as shocking. But I think this is so in your face when it’s food that everybody understands it, everybody’s looking at the, if they even have discretionary spending and how it’s eating into it.

[00:06:04] Steven McClurg: It’s just so in your face. .

[00:06:07] Steven McClurg: Yeah. Well, and, and the thing is, look, look at basics, right? Like, you know, the, the basics for everybody is usually like milk and eggs and bread. Yeah. Yeah. , right? So, you know, you know, you need fertilizer to grow, wheat to make bread and wheat costs have gone up. I I, I, I like to look at wheat.

[00:06:24] Steven McClurg: Wheaton corn prices. Wheat. Wheat could be a little bit manipulated because a lot of the wheat in the world has grown in the US but a lot , a lot of it has also grown in places like Kazakhstan and Ukraine. So you’ve got those macroeconomic issues that kind of caused it to bump up and come back down temporarily.

[00:06:44] Steven McClurg: But corn has primarily in the US and corn prices continue to go well, you ha you haven’t, you haven’t seen that, that spike and, and, and, and, and drop, which people are saying, oh yeah, wheat prices are coming down. Well, no, it’s just sort of a reversion to the mean, but, but, but corn and corn is a big part of feed.

[00:07:01] Steven McClurg: Okay. It’s a big part of everything in the US and and there was a period of time, and I, you know, everybody was joking around about the price of eggs. Right. You know, if you could buy a car, you know, buy a dozen of eggs, you’re a rich person. You know, some of the mems were amazing. Yes. . Oh yeah. That’s amazing.

[00:07:16] Steven McClurg: I’m, I’m actually eating eggs right now as we speak because Bitcoin is, you know, or at least was above 20,000, so I can afford eggs again, . But what happened with eggs is the cost of feed went up a lot. And then, and then, and then because the cost of feed was going up the major feed manufacturers changed their formula.

[00:07:38] Steven McClurg: And when they changed the formula, the eggs weren’t produced. I mean, the, the chickens weren’t producing eggs as much and it caused an egg shortage. Wow. . Yeah.

[00:07:49] Preston Pysh: And not to mention, we’re not even talking about the nutritional benefits of whatever they’re eating. Right. Flowing downstream.

[00:07:56] Steven McClurg: Yeah. Yeah. Oh man. And by the way, I mean, I mean really, really to dig in the, the, the highest nutritional value of eggs is when the chickens are actually eating worms.

[00:08:06] Steven McClurg: As opposed to eating feet. So just, just a side note from a guy who, you know, whose grand grandparents had farms when I was growing up.

[00:08:14] Preston Pysh: No, I mean, that’s powerful. So, and it’s the stuff that, that is totally lost when we’re just looking at numbers. And we’re looking around the country and it, and there’s an epidemic of people just grossly overweight.

[00:08:25] Preston Pysh: And you have to ask yourself what’s, what’s driving this? And it’s the stuff that’s not showing up in the numbers, but the, but decisions that are being made in order to try to keep things affordable as nobody has any type of disposable income. And when I say nobody, I’m talking like, , what 90% of people just are, are, you know, trying to make it day-to-day because they don’t have disposable income.

[00:08:48] Preston Pysh: It’s, it’s the stuff that’s not discussed, at least in my opinion, it’s not discussed.

[00:08:52] Steven McClurg: Yeah. So, so let’s go down the supply chain. I mean, I mean, I, we spent a lot of time with eggs, but I think it’s important because it, it is, it’s a staple.

[00:09:00] Preston Pysh: Well, I, you, you brought up farming and energy. Are your two main things that you’re looking at from, from an inflation standpoint?

[00:09:06] Preston Pysh: What are your thoughts on the energy?

[00:09:08] Steven McClurg: Well, energy’s really interesting because what I look at when, you know, I, I spent a long time analyzing energy and, and, and the tra my trai life and the, the main factor that I look at when I look at energy, and of course I’m, I’m originally from Texas, so, everybody, you know, you know, everybody’s involved in the energy business where, where I grew up, my dad spent 40 years in it before he retired and.

[00:09:32] Steven McClurg: the thing with energy is you really, you really look at one thing, right? Well, it’s, it’s applying demand. Mm-hmm. , right? Yeah. But the most important factor that you always look at when you’re looking at potential future energy prices is oil reserves in Cushing. And a lot of people don’t know what Cushing is, but Cushing is a small town and, and Oklahoma, and it’s where the majority of oil is stored.

[00:09:57] Steven McClurg: And the way that you look at the supply in Cushing is you look at how much it costs to rent the space there, right? So anyway, long story short there, the supply of oil is going down. Our strategic oil reserves are going down mainly because the current administration released them. and actually sent most of it to China, which is really bizarre.

[00:10:24] Steven McClurg: So the supply of oil is down, but then if you look around you and you say, okay, what’s, what’s happening? What’s, what’s happening in the macroeconomic sense of what’s working well? Well, people are going on vacations. Right? There’s a lot more travel. You know, air travel is going up. Other types of travel has, has, has spiked as well.

[00:10:43] Steven McClurg: China’s opening up. Hong Kong just opened up. So there’s a demand for travel, there’s a demand for vacations. So you’ve, you’ve got a lot of demand for, for petroleum at the same time that you’ve got a lower amount of supply. So the supply and Cushing is down. And then we will kind of going a little bit down the chain.

[00:11:07] Steven McClurg: Are we going to replenish that supply? Well, no, because in a lot of areas, fracking has stopped. So you don’t have the the amount of fracking, pulling oil out of the ground and sending them, you know, to to be stored to be processed later. And a lot of offshore drilling has also stopped as well.

[00:11:26] Steven McClurg: So this is going to cause a major supply chain issue in, in oil which was really interesting.

[00:11:31] Preston Pysh: What timeframe were you thinking, like, in the next six months?

[00:11:34] Steven McClurg: Sooner. Sooner than that. Wow. Yeah. So yeah, it wouldn’t sur it wouldn’t surprise me if we saw at least a 50% uptick in the price of oil.

[00:11:43] Preston Pysh: Wow.

[00:11:44] Preston Pysh: And, and it seems like the price is coiling. I have a chart here, I’ll try to bring it up real fast. But it seems like the, it seems like the price is coiling a bit, and it looked like you know, when the price really, really spiked in the, what was it, the first quarter of 2022. Really a year ago it seemed like all of the are you, are you seeing the chart right now, Steven?

[00:12:03] Preston Pysh: Yeah. Yeah. So this, this spike that we were seeing a year ago, it’s saying in March exactly. Last year this is when the Biden administration stepped in and they were aggressively using the petroleum reserves in order to suppress the price. I would say around, what was it, October, they, they were saying that they were going to ease up a bit, or that they, they weren’t going to be releasing as many oil reserves.

[00:12:28] Preston Pysh: And now it seems like the price is coiling a bit here since, what is it? December? Yeah, I 50% is a, is a really bold call.

[00:12:37] Steven McClurg: I guess that’s where I’m, I’m just kind of, well, 50% isn’t that bold of a call because if you, if you look at your, if you look at your chart, where it was, it was really naturally going, was around the one 20 to one 30 area and we’re, we’re at 80 today.

[00:12:50] Steven McClurg: Yeah. The you to 1 21. That bold of a call to say that Yeah, we’re going to one 20. Yeah. Yeah.

[00:12:55] Preston Pysh: No, that’s where 6% higher. That’s where it’s, yeah, that’s the number.

[00:12:59] Steven McClurg: Wow. who? I actually think it’s a pretty a pretty muted call. I mean, , it could, it could, it actually could go higher. know, I, I actually think longer term we’ll probably see one 50 oil.

[00:13:12] Steven McClurg: Wow. But yeah, short term, I’m, I’m, I’m looking at 1 20, 1 25.

[00:13:17] Preston Pysh: Wow. Now, okay. So going back to our inflation discussion, if this happens, because the input to everything is energy. Sure. . And so, I mean, I just can’t imagine what that’s going to do to the treasury market. And I I know that’s where you were kind of le leading us.

[00:13:35] Preston Pysh: Before we go there, before we go there, you had said, you had said three things that the Fed is hyperfocused on, one is fighting inflation, two is raising unemployment, and then three was don’t destroy the economy, which wasn’t nearly as important. That second one. I like when you said it, I didn’t want to interrupt you, but I’m, I’m thinking how can that be part of their mandate as, as far as like having unemployment higher?

[00:14:00] Preston Pysh: what do you mean by that?

[00:14:01] Steven McClurg: Yeah, so if, if, if you, if you, and I’m just going to go, I’m just going to go simple, simple, common man from, from the south right now, which, you know, if you, if you go to a restaurant or go to, you know, any, any, any, anywhere where it’s within the service industry, there’s a lack of labor.

[00:14:18] Steven McClurg: Absolutely. And, and it doesn’t affect us, it affects the entire country. Mm-hmm. , the service industry has a lack of labor and it’s causing prices to go up. Mm-hmm. , right? So what the Fed is trying to do is, is increase unemployment to help fight inflation. Because,

[00:14:36] Preston Pysh: but, but aren’t they going to make it worse?

[00:14:37] Preston Pysh: They’re going to raise the prices. Yes. If, if we’ve got, it’s insane. It doesn’t make any sense.

[00:14:44] Steven McClurg: Yeah. And, and by the way, we do have a, we do have an, we do have an employment problem in the US right now. It was, it was mostly caused by, , it was mostly caused by action during Covid. Right. And, and we can, we can dig into the psychology there.

[00:14:58] Steven McClurg: It doesn’t really matter. But, but the reality is, is we now have a lack of a lack of supply of labor. And the Fed is doing everything it can to get there, but what’s happening is, is the tech companies and the banks for laying people off and, and droves. And that’s what’s causing unemployment to grow. But it’s only slightly grown because none of those people are going to go work at the Waffle House.

[00:15:23] Steven McClurg: Yeah, right. I mean, I mean, I would, I’d go work at the Waffle House if if I needed money, any, any, any day of the week.

[00:15:29] Preston Pysh: But most people won’t. I mean, the, the numbers really aren’t coming up on the unemployment front at all. I mean, it’s, it’s up a hair, but I mean, it’s so in the standard volatility that like we’re seeing all-time lows in unemployment right now.

[00:15:46] Preston Pysh: And so Yes, that’s right. Like I’m looking around, like, you go to, you go to any type of service based restaurant or whatever, like you’re saying, and everybody’s shortchanged, but we’re at Max’s employment. So like, I’m just scratching my head and I’m just saying, are, is it because there’s just people that are completely out of the workforce and they’re not showing up in those numbers?

[00:16:05] Preston Pysh: Or like what’s, and then the other thing I’m asking myself is, is it just this, is it just like restaurants that are in your face that you can see the, the lack of, of labor? Or is this across like all industries that are dealing with these issues? And if so, like I don’t get it. It doesn’t make sense.

[00:16:25] Steven McClurg: Yeah, I mean it, by the way, I mean, we, we talked about the airlines a little bit earlier.

[00:16:30] Steven McClurg: It’s affecting the airline industry as well. Yeah. So one of the reasons why we’re having so many delays for flights or, or flights that are completely canceled is because a lack of labor to actually support you know, planes flying, right? And, and if you think about it, you’re like, well, you know, we’re not, we’re not losing pilots and flight attendants.

[00:16:48] Steven McClurg: It’s okay. You’re not. But think about all the people that take that, that it, that it, that it takes to run an airport, to run, you know, you know, you know, to run an airline. You’ve got people that are having to, you know, handle luggage handle catering you know, the, the list, the list goes on.

[00:17:04] Steven McClurg: And those are the jobs that are hard to find, to find people to fill. Right?

[00:17:08] Preston Pysh: It’s crazy. So Jeremy Siegel was he had some quote yesterday on CNBC where he was basically saying similar to what we’re talking about right now, is if they keep raising rates and they’re trying to get after it by fighting inflation, they’re fighting a problem by reducing the amount of monetary units in the system.

[00:17:28] Preston Pysh: And, but the, but the problem is, is you don’t have enough people working in the system in order to sustain it. So like, you’re just going to accelerate inflation, you’re going to make it worse. So that’s your base case Steven, is that none of this is under control from an inflation standpoint. If anything, it’s, it might get worse based on your energy comments.

[00:17:47] Preston Pysh: And so are, are we in a spiral? I guess that’s, that’s where we go next. Are we in a spiral that they’re going to not be able to get under control or, or what’s happening?

[00:17:57] Steven McClurg: Yeah. Look, I, I think we’re in a bit of a death spiral, and I’ll go ahead and throw the word death in there to make it more dramatic, but a bit of a death spiral here.

[00:18:04] Steven McClurg: Because, because you’re absolutely right. It’s if you’re, if you’re, if you have a lack of labor and, and, and not all skills are transferable, right? Yeah. I mean, I, I jokingly say I’d go work at the Waffle House. Well, you know, I waited tables in college. I, I know how to work at the Waffle House. If I had to, I would, but do I know how to go be a wildcatter and go fit pipes and weld and all the things that you need to do to get petroleum out of the ground?

[00:18:29] Steven McClurg: No. Do you know? No. So if people in Silicone Valley and Wall Street lost their jobs, they’re, they’re, they’re not, they’re not working in the oil fields. So it’s not really helping there, first of all. Second of all that, that, that lack of labor is causing Supply in industries that people don’t want to work in.

[00:18:50] Steven McClurg: Mm-hmm. or people don’t know how to work in, you know, I think people sometimes think, well, you know, isn’t it easy to find farm labor? No. It’s complicated, right?

[00:18:59] Preston Pysh: Everybody in the US has been conditioned to become a service, sit at a computer, you know, make digital file, whatever type job. And when you look around the world and you look at like actual extraction of national resources out of the ground, like this country is not there at all.

[00:19:20] Steven McClurg: I mean, I’m, I’m one of those rare people that, you know, my grandparents when I’d go and stay with them, you know, over the summers they’d make me work on the farm. You know, like, yeah, yeah. You know, and not like, and, and, and not like a lot of work, but like, just enough to know what, I don’t know. , , but. It’s, it’s, it’s number one’s hard work.

[00:19:38] Steven McClurg: It’s, and, and number two, it’s actually there, there’s, there’s, there’s actual knowledge that you need to have to make it work. So, so yeah, these, these, these skills aren’t transferrable. You’ve got a lot of people, I mean, look, you’ve got a lot of people laid off from tech companies. All they know how to do is, you know, monitor tweets and, and, and band people, right?

[00:19:56] Steven McClurg: Like, I mean, that’s, that’s not very transferrable.

[00:20:00] Preston Pysh: It’s crazy. It’s crazy.

[00:20:02] Steven McClurg: We’re only good at spreadsheets and charts. I mean, you take that away, it’s like, what, what, what do we have left ?

[00:20:07] Preston Pysh: So, I mean, all of this really gets into the supply chain. What, what the expertise is of G seven type countries versus the rest of the world.

[00:20:16] Preston Pysh: That’s applying a lot of the elements in natural resources that are, that are saying, Hey, we’re sick of receiving your digital units. We want paid in our own local units, or we want paid in gold, or we want paid in in Bitcoin. . Yeah. So where, where do you go additionally from your macro lens? So you, you started off with inflation, which I think is just the, the keystone of all of this and all valuation around the world starts there.

[00:20:40] Preston Pysh: What else would you say about this moment in time in March of 2023?

[00:20:45] Steven McClurg: Yeah, well, well, to carry on from that, if oil’s going up, I would say minimum 50%, food com prices up minimum 50%. That’s, that’s, that’s a lot of inflationary pressure. It forces the Fed to continue to raise rates. Now what happens is, is when as the Fed raises rates, and they’re already backing up from their rhetoric a few months ago, where they’re like, yeah, it looks like we’re getting this under control.

[00:21:09] Steven McClurg: We’re going to slow down the the rate of of, of, of increases to the to the Fed’s rate. , but now they’re sorting to change their stance a little bit. And saying, Ooh, inflation isn’t quite behind us. We’re going to have to, you know, continue to aggressively raise rates. What that does is create pressure on the treasury market, and that’s really where we’re going here.

[00:21:30] Steven McClurg: Right? So, if the government continues to overspend and has to issue bonds that are now having to pay a, a higher rate of coupon in order to, in order to borrow against them, right? You have this, it’s, it’s almost an exponential curve of the amount of debt service that the US has to pay. Now there’s only one way to offset that, and that’s to print more money.

[00:21:59] Steven McClurg: Right? You print more money, you cause more inflation. . So that’s where the, the death comes into the death spiral. . . That’s where the death comes. And who’s going to take us dollars if all you’re going to do is just continue to print more and more of them just to cover your debt service? Yeah. Just to pay that down.

[00:22:15] Preston Pysh: No, nobody’s going to want that. And, and whose hands do you shove all the printing into as well? Right, because it, it seems like the banks, and we’re, we’re getting a real taste of this, this, this week with Silvergate, Silicon Valley Bank. They’re getting thirsty. These banks are getting thirsty and they’re thirsty for not a couple million, not a couple billion.

[00:22:37] Preston Pysh: But I think when you, when you zoom out that we’re talking trillions, that these banks are getting thirsty for as far as the liquidity that they’re going to need in order to service all of their impairment on their balance sheets. So talk to us about that. and I guess start off with Silvergate because that’s where anybody listening to this show in particular is going to have an interest in, in knowing Silvergate.

[00:23:00] Preston Pysh: And then maybe we can talk about the broader context of, of why this is taking place. I’ve got an awesome quote that you, that you posted on Noster here that that I plan on reading, so I don’t want, don’t take that away from me, .

[00:23:12] Steven McClurg: Okay. I won’t take that away from you. . By the way, I, I posted that to an internal chat about back in June anyway.

[00:23:19] Steven McClurg: We’ll, we’ll, we’ll comment on that later. I got saw this coming really what’s happening with Silvergate, and, and by the way, this applies to Signature, it applies to Silicon Valley Bank is, you know, I, I guess, I guess back in the day I, I used to run emerging markets emerging market debt for Guggenheim.

[00:23:39] Steven McClurg: And one of the, the. Things that I invested in was, you know, non-US banks, right? Mm-hmm. So I had to, you know, I had to look at, you know, the credit worthiness of a lot of these banks. And big, one of the biggest problems of banks outside of the us particularly emerging markets, is their heavily, they’re deposits are heavily allocated to one sector, because generally emerging markets have, you know, one main sector that, that, that drives that economy.

[00:24:09] Steven McClurg: And their, and their banks are going to be heavy, heavily allocated to it. You know, in the US they’re, it’s pretty diversified So I would always avoid banks that had too heavy of a, of a, of an allocation to a sector, because if that one sector got hurt, it, you know, the whole bank, you know, its whole deposit pace would go down.

[00:24:26] Steven McClurg: What happened with Silvergate is they, they found a niche. In one sector, and that sector was crypto. And they overallocated, they didn’t run good risk models and they decided, oh, this is a great niche. We’re going to make a ton of money here. We’re going to be the bank that, that services all the crypto companies.

[00:24:46] Steven McClurg: Well, it’s great in a bull market, but it’s a pretty bad in a, in a bear market and a problem with crypto and I’m, I’m, I’m saying the word crypto on purpose, right? Because they, they mainly focused on crypto companies like FTX is that they got, they got a little bit over their skis. And the problem with that industry is that the crypto industry generally follows Bitcoin economics, which has a, a happening that happens about every four years.

[00:25:12] Steven McClurg: So, Bitcoin runs in four year cycles. We all know that. But crypto closely follow. You know, because be, be because of Bitcoin. So when you’ve, when you’ve got a, a winter that happens every four years you know you’re going to have a problem every four years if you’re, if you’re too allocated. And ftx they decided that, you know, they, they didn’t do due diligence on FTX and Alameda.

[00:25:35] Steven McClurg: And that was also a really big problem when that went down. They should have, they should have worked a little harder there.

[00:25:40] Preston Pysh: Would you say that they were, would you say that they, it was beyond that it was neglect because I mean, they were doing wires to Alameda, isn’t it? Silvergate that was responsible for some of the, the the wires that were going to, even the wrong company.

[00:25:54] Preston Pysh: I mean, it was, it was, yeah. Neglect at the highest order, right?

[00:25:59] Steven McClurg: Oh, absolutely. Yeah, absolutely. So, so, so, yeah, they’re, they’re, they’re heavily weighted to one sector. and within that sector, they’re heavily weighted to one company. Mm-hmm. . And that’s, that’s a problem. And you know, so when, when, you know, when, when your entire deposit base basically shrivels up, the way that banks work is they grow their operations based on their deposit base.

[00:26:22] Steven McClurg: And not only do they grow their operations based on the deposit base, they also make investments based on that deposit base, because that’s how banks make money. They take your money and then they lend it out to somebody else. Well, when you’re in a particular ecosystem, you, you might be holding things like mortgage backed securities or other, you know, fixed income instruments that have a yield, you know, and then, and then they might also do some home loans, some auto loans, things like that.

[00:26:49] Steven McClurg: You know, some of the more reasonable banks will do those types of things. But the problem with Silvergate and Signature and Silicon Valley Bank is they do a lot of venture lending. Hmm. And so, in addition to. Mortgage backed securities that, that, that are, that are now, you know, priced lower because yields have gone up.

[00:27:10] Steven McClurg: They’re, they’re also upside down to some of these venture you know, venture loans that they made. And, and that’s kind of what bleeds more into the Silicon Valley bank base. But no si Silvergate, you know, they just, they just overallocated it to one, to one area. And you, you can’t do that. You’ve gotta have a diversified customer base and a diversified sector base.

[00:27:29] Preston Pysh: When we look at the problem, particularly at Silicon Valley Bank, it’s looking like there’s this much bigger, broader issue that’s, that’s arising out of this idea of high quality liquid. That were purchased at very low interest rates. When we had low inflation prints that just seemed to always go lower for 40 years.

[00:27:53] Preston Pysh: And they all step into the market and they buy all these bonds and they put them on their, on their balance sheet as high quality liquid assets, which they need to have a hundred percent coverage based off of rules that came out of the, the great financial crisis. The problem with this is when you, when you buy these at less than 1% inflation prints and less than 1% yields on 10-year treasuries, and you put them on your books and then all of a sudden things start running to 5% plus the prices of long duration bonds get crushed 10, 15% right off the, right off the value that they purchased it for.

[00:28:30] Preston Pysh: And when you’re lending, and you might only have a 10% difference between what’s out the door and what’s, what’s come in as deposits. This creates just a massive issue liquidity issue for banks. It seems like, based on what we saw yesterday with some of the indexes that regional banks are feeling this pain more so than anybody else.

[00:28:51] Preston Pysh: And talk to us a little bit about this and whether this is a systemic, a systemic issue, which I suspect you’re going to say yes, but let’s, let’s hear your thoughts on all this.

[00:29:02] Steven McClurg: Yeah, look, I, I, I don’t think all regional banks are, are in trouble in this, in this particular time period. You know, the problem with regional banks is they, they, they service a region of the country and usually that region of the country has a very focus.

[00:29:18] Steven McClurg: A very focused economic activity. Right. Back to which one or two different things. Yeah.

[00:29:22] Preston Pysh: It’s just like the Silvergate situation because they’re regionally focused, soreally focused in Silicone Valley, so it’s all tech companies.

[00:29:28] Steven McClurg: Yeah. Wow. Yeah. And mostly startups. Yeah. Yeah. And and look, you know, if you, if you look in other regions of the country, I mean, you know, for instance, we’re, you know, in, in the south, you know, or the Southeast a lot of the focus is going to be in you know, things like banking and insurance sorry uh, farming and insurance.

[00:29:45] Steven McClurg: And, you know, in Texas, you know, they might have a big, you know, energy based. So, so regional banks generally do have a, a, a, a really high allocation to 1, 1, 1 industry generally. But they do try very hard to diversify their deposit base, and they’re generally a little bit more safe when it comes to the, what they lend out to.

[00:30:07] Steven McClurg: So, so in this particular, Price. I’m going to call it a, a mini crisis. It’s not a real crisis. Yeah. It’s a couple of coup, you know, there’s, there’s probably a handful of banks that are going to be in trouble here, and they’re the ones that focused on tech companies because, because we, we go back to our comments earlier about unemployment.

[00:30:25] Steven McClurg: Who, you know, which, which firms are, are, are having the highest levels of unemployment stack companies.

[00:30:30] Preston Pysh: You don’t see the contagion. So, I mean, you’re, you go on Twitter, everybody’s saying this is the, this is the big one. This is the contagion event. And, and so you’re, you’re pushing back on that. Help us understand how, like, explain your lens on why you don’t necessarily see this as, as the quote unquote contagion event.

[00:30:48] Steven McClurg: Well, it’s mostly focused on a few industries. You know, it’s, it’s, it’s banks with deposit basis and, and tech and crypto. I mean, that’s, that’s really it. You know, the other, other sectors of the economy are doing fine and most other banks are diversified in their deposit base. It’s just, it’s a handful of banks that didn’t, that, that, that didn’t have proper risk management or focus too heavily on one sector.

[00:31:13] Steven McClurg: And those are the sectors that are ha that, that happen to be failing right now.

[00:31:18] Preston Pysh: And so, even though there’s tons of counterparty risk because they’re so sector based, you think that, that it’s not going to spill over. Okay.

[00:31:27] Steven McClurg: No, I really, I really don’t, I, I know there’s some calls out there to say, Hey, the US should bail out Silicone Valley Bank.

[00:31:32] Steven McClurg: Like no, they should not. They should not bail you out. Yeah. Bill. Bill.

[00:31:36] Preston Pysh: Billy, Billy, maybe he needs to cough up some more tears to, to get that one through .

[00:31:42] Steven McClurg: Exactly. Well, he was also, he also thought that, that, that, that Sam was a good guy, right? Yeah, yeah. Of course. Of course.

[00:31:48] Preston Pysh: Okay, so as we’re looking at this, so, so, you know, here’s how I read your statement.

[00:31:53] Preston Pysh: Hire for longer get ready cuz they’re going to keep raising rates. They’re not going to be doing 25 Bs or probably doing 50 Bs. What else, what else on top of that? And, and, and is that correct? Am I reading you correct with that statement?

[00:32:06] Steven McClurg: Yeah, a a, absolutely. And and, and, and I’m very worried about inflation.

[00:32:10] Steven McClurg: I, I really, I, I really have been saying for, for a few years now that we are, we are going into hyperinflation territory. You know, we printed way too much money. We had too loose monetary policy for, for over a decade, and it’s finally catching up

[00:32:26] Preston Pysh: with us, and we don’t even have some of the higher numbers in the world right now.

[00:32:30] Preston Pysh: Like, you go to Europe, it’s crazy. Like it is, it’s

[00:32:34] Steven McClurg: really bad. Yeah, that’s right. Particularly, I mean, I was in, I was just in London this summer and, and I really noticed it. I mean, actually it, I didn’t, I didn’t really notice it because I was bringing dollars in, and dollar was stronger than, than the pound.

[00:32:47] Steven McClurg: But I, I noticed that prices were going up on, on basics and that people were very upset about it.

[00:32:54] Preston Pysh: I gotta read the quote. So this is something that you wrote back in June. Banks may be in more trouble than in the rest of the market. I think most banks have been holding mortgage backed securities on their balance sheet to generate yield.

[00:33:06] Preston Pysh: These securities probably yield two to 3.5% the more senior tranches and have seven year expected walls. In rising rate environments, people don’t refi nor move as much. This extends life of the mortgage backed security. Also, rates are at 6% plus now, so these holdings have decreased in price about 10%.

[00:33:24] Preston Pysh: If banks sell these holdings, they’re at a loss. Many regional banks have also taken up venture lending given the higher rates these lines of of credit can command. I’ve seen nine to 12% imagine, if you will, a block chain startup taking a loan and buying, say, Avax or eth heavily on their balance sheet because they’re in that ecosystem.

[00:33:44] Preston Pysh: Not too crazy to imagine someone doing that. I just spoke to an entrepreneur, and this is the good part in the NFT space that raised a million bucks and spent 700 K on JPEGs to get in the quote unquote club. I imagine some of those venture loans might be in trouble. It’s insane. . Yeah, I’m getting a lot of flack from people from saying it’s insane, but that’s crazy.

[00:34:09] Steven McClurg: It’s crazy. It’s incredible. It’s incredible.

[00:34:13] Preston Pysh: I, I mean, I don’t know. I, I’m speechless. I, I just, I roll my eyes like what in the world? and, and how is there no due diligence after a loan has been made to some of these companies? I, I, I know they have to say what they’re using the, the funds for when they’re going for the loan, but then there’s no like, follow up or you know, if I go out there and buy some monkey pictures with, with the million dollars I raised, like, how in the world is stuff like that possible?

[00:34:45] Preston Pysh: How is that possible?

[00:34:47] Steven McClurg: You know, that, that that’s what happens when interest rates are too low for too long. Yeah. Right. Yeah. You know, in a, in a normal environment, you’re buying, you know, I would say more plain vanilla, I’ll call it plain vanilla type of bonds. uh, You’re earning a reasonable yield. You’re able to maintain, you know, the, the operations and the deposit base for a bank.

[00:35:10] Steven McClurg: But when interest rates go too low for too long, you know, the, the riskier banks get a little bit more creative in how they generate a yield and, and, and now it’s now it’s blowing it up in their face. I mean, a lot of, a lot of these banks would never have guessed that interest rates would go to 5%.

[00:35:30] Preston Pysh: Yeah. I think if you, if you stop time at that exact moment while they were doing some of these things, they’re making so much money at that moment in time. That it totally clouds their judgment on, on bad times that will come two or three years later. And so the, the, the, but I guess if I was going to argue with myself cuz that that’s me trying to justify how they, they get themselves into that position.

[00:35:56] Preston Pysh: How is there not a protocol that’s been built in inside of these long-standing institutions , that they, that they guard against that behavior and that they guard against doing those things? It’s just crazy to me. And maybe it’s, maybe it’s a function of just fractional reserve banking. You know, I mean, at, at the end of the day, the whole thing is just rolling, rolling debt and there’s the, the amount of deposits never match the, the amount of money going out the door.

[00:36:20] Preston Pysh: So like, maybe, maybe it’s just a function of fractional reserve banking that this will always happen. And I, that’s probably where I I don’t know how you, how you say it.

[00:36:28] Steven McClurg: Well, you look at if, if you look at 2008, right? Some of the bigger banks that actually, you know, do have, you know, I would say more established processes and procedures were also tanking.

[00:36:40] Steven McClurg: Yeah. You know, they, they just weren’t thinking, you know, it was sort of like, you know, you sort of don’t have a choice, but you actually do at the same time. You just have to be a little bit more conservative and patient. You know, but it, but it is a mentality that, okay, well, you know, the bigger banks, you know, they, a lot of them are publicly traded, by the way, Silicon Valley Banks surrogate, they’re all publicly traded.

[00:37:02] Steven McClurg: And the problem with the, with the public markets is that you’re living quarter to quarter and you get angry shareholders if you’re not doing things to boost your earnings on a quarterly basis. So on, on the one hand, they’re making bad decisions because they’re being forced to by public markets.

[00:37:23] Steven McClurg: So that’s, that’s an issue in itself. The other one is they’re just in, in a lot of thing, in a lot of ways just being careless and, and, and don’t have proper risk measures. But, but that goes back to 2007, 2008 as well. Right. Or even before that when, when people started getting involved in that practice.

[00:37:40] Steven McClurg: You know, you’re, you’re always trying to outperform your peers, even if you’re not a public company and you see opportunities and you’re taking those opportunities while, while they, while they last, but you’re not thinking about the long term, the long term risk that you’re taking on. During those periods of time.

[00:37:56] Steven McClurg: Back, back to, it’s like JPEGs, right? I mean, , you know, it’s like, hey, I, I can, I can buy a, a monkey JPEG for a million dollars and sell up for 2 million tomorrow. Why wouldn’t you keep doing that?

[00:38:07] Preston Pysh: It’s like, it’s like a bond . It’s like a bond .

[00:38:12] Steven McClurg: They’ll always go up in value. People, well, people have this, this like psychological, people think that when things are going up, they will always go up.

[00:38:19] Preston Pysh: Yeah, well, I mean, that’s where we were. I remember being in arguments with folks in 2020 with respect to the bond market when interest rates were you know, sub 1% and they’re, and they were adamant that it’s just going to keep going lower. And that’s why I bought, that’s why I buy these yielding nothing percent bonds is because it’s going to go lower and, and it’s going to go up in value if the yield pushes lower.

[00:38:42] Preston Pysh: It’s like, all right, hey, keep picking up the pennies in front of the steamroller, man. I, I don’t know what to tell you. Yeah.

[00:38:48] Steven McClurg: But it also brings up another point on these banks, right? I mean, you, you, you asked the question, when, when, when bonds are at one to 2%, you, you can’t make money as a bank paying one to 2% earning bonds.

[00:39:00] Steven McClurg: So you, you gotta stretch into different areas. And the problem is, instead of diversifying the portfolios into several different areas of the fixed income market, they would focus on just one thing. They’re like, okay, well mortgage backed securities, it’s backed by the US government, you know, it’s, it’s secure, it’s yielding a little bit more.

[00:39:18] Steven McClurg: I’m going to buy a bunch of that. You know, I know mortgages, I’m a bank. I get it.

[00:39:22] Preston Pysh: I think it’s even crazier than that, Steven, where if, if coming out of the global financial crisis, they have to have a hundred percent of the high quality liquid assets and then they define that as US treasuries. What, what else are they going to stick on their, on their balance sheet when, when we’re at 0% or half a percent on the 10 year treasury, they have to own this, this stuff.

[00:39:43] Preston Pysh: And they had to be buying it and they had to be. It’s crazy. It’s crazy.

[00:39:48] Steven McClurg: But the thing is there, there’s, there’s other choices, right? I mean, I mean, look, if I was managing a, a, a, a bank portfolio, I would’ve been buying, I don’t know, I would’ve been buying floating rate asset backed securities at that time, right?

[00:40:01] Steven McClurg: Because when interest rates go up, you reset at a higher rate. Yeah. And your price stays stable. Yeah. I mean, that’s a good point.

[00:40:08] Preston Pysh: Bond . But is there enough, is there enough of the it to buy? Like if, if we take that mindset and we expand it, and I’m not trying to, I’m not trying to justify these stupid decisions, right?

[00:40:20] Preston Pysh: Because you just, you just countered with a, with a fantastic point. But how, what’s the market size of, of those relative to the treasury market for the amount of banks that would be chasing after these things? And that’s not a good, that’s not a good counter to your point.

[00:40:35] Steven McClurg: I imagine it’s a’s a good counter to my point because there’s not a lot of supply, so you know, you, but there’s enough to where you can at least diversify away from only mortgage backed securities.

[00:40:45] Steven McClurg: Yeah. And the ju justification of bankers is, well, well, we understand mortgages. We, we issue them all the time. Well, bankers also are notoriously bad at mortgages. I mean, if, if, if, if banks were so good at issuing mortgages, I wouldn’t have been able to lock in 2.75% a year ago on my home right? I mean, I, I, I saw the bond market going up. They did. And they’re like, oh yeah, 2.75. Great. I mean, they’re losing money on me right now. Oh, yeah. I hope my bank doesn’t go to business because of it, but what, whatever.

[00:41:16] Preston Pysh: Yeah. I mean, it goes to the short term, quarterly thinking versus, you know, long-term strategic mindset.

[00:41:21] Preston Pysh: For people that are seeing the Silvergate meltdown, they’re now looking at Signature Bank, picking up the pieces, Signature Bank’s stock price is getting pummeled. Is this just, is Silvergate just one in many defaults that are on the horizon? And then more importantly, what does that mean for the overall ecosystem and the liquidity, the rails to participate in, you know, going onto an exchange and buying Bitcoin?

[00:41:51] Steven McClurg: Yeah, so, so, you know, Silvergate, Silvergate really isn’t a, a Bitcoin problem. I mean, or Bitcoin wasn’t the problem. Silvergate is a. fractional reserve banking problem. You know, first of all their issue was, you know, as I, as I, as I stated, they over-levered themselves into one industry, which is never a good idea and, and Silvergate suffering from it.

[00:42:15] Steven McClurg: Now, the deposits are going to be fine. I’m going to, I’m going to, I’m going to make that statement and be very clear. I, I’ve always said that the deposits will be fine. They might get frozen for a little bit, so, you know, if you want to take that risk, but but that’ll be fine. The bank itself is going under. I actually thought that somebody would, would, would come and pick it up for its deposit base, but because banks are always looking for more deposits, it’s really hard to find right now for banks know, in increasing their deposit size.

[00:42:43] Steven McClurg: But I think there’s so much hair around it that they, you know, and, and people are fleeing so quickly, there’s not much of a deposit base left. So, I, I just don’t know if there’s any bidders Silvergate, I mean, sorry Silicon Valley Bank.

[00:42:54] Preston Pysh: Or no Signature. Signature.

[00:42:56] Steven McClurg: Yeah. So, so, so to get to Signature, Signature actually benefited from the Silvergate issue, but it’s now following the Silicon Valley bank issue.

[00:43:08] Steven McClurg: Right? Oh, oh, gotcha. The, the Silicon Valley Bank issue has more to do with you know, their, their mortgage backed security portfolio and their –

[00:43:15] Preston Pysh: venture portfolio.

[00:43:17] Steven McClurg: And people are just afraid that. of what’s under the hood. Its Signature. And by the way, I don’t know what’s under the hood at Signature.

[00:43:24] Steven McClurg: You know, it’s, but it’s, but it’s enough of contagion risk to not want to keep deposits there. Because again, you, you know, if you’re keeping customer deposits at Signature Silicone Valley Bank your deposits could get frozen. Your deposits are fine, but they could get frozen for a period of time and nobody wants that.

[00:43:38] Steven McClurg: We’ve seen what happens when, you know, in, in in the exchange ecosystem, when you freeze things for a little bit. Right. Like, you know, Celsius, even though it was not fine, once they started freezing their withdrawals or, or delaying their withdrawals, that’s when you get the run. And and if, and if there’s ever a freeze, you know, it’s, it, it, it’s all over.

[00:43:58] Steven McClurg: And then your clients, you know, if, if, you know, if I have clients and I have my client deposits there, then they lose trust in me. And then they want to start withdrawing from me, right? Which is why we’re very careful about, you know, what counterparties we use. You know, and, and like I said, we, we’ve never used Silicon Valley Bank or, or Silvergate.

[00:44:15] Steven McClurg: We, we have used Signature as a backup bank just because, you know, you should always be diversified. But but, but yeah, we don’t, you know, we’ve, we’ve got very little on deposits there.

[00:44:26] Preston Pysh: Well, for a person who’s hearing all this, it can sound pretty scary. And let’s just say we’re, we’re talking about the normal Bitcoin.

[00:44:35] Preston Pysh: The, the person who’s doing their job, they want to put some money onto an exchange, they want to buy some Bitcoin, and they want to claw in the self custodys. They’re hearing this and they’re saying the government, whoever is, is stepping in and, and wrecking havoc for these, for these rails into my exchange.

[00:44:53] Preston Pysh: Is this a long-term systemic attack that maybe Wall Street and the government are working together to, to bring these down? Or is these, or are these just companies that. Have mismanaged risk, are these rails always going to be there? It’s in some type of capacity or some, hi, some kind of way to reach these exchanges.

[00:45:13] Preston Pysh: What are your thoughts in, in that area?

[00:45:16] Steven McClurg: I, I actually lean more towards, it’s a mismanagement of risk. I, I don’t know, you know, this is hard to say. I, I don’t know if there’s some big government conspiracy to, to shut down the crypto industry. I believe that there’s certain actors that that, that are, that are, that are doing certain things right.

[00:45:34] Steven McClurg: But I don’t know if there’s like a, a massive conspiracy behind it, like what a lot of other people are saying. I could be wrong, but I, I don’t think that that’s the case. But I, but I, but I do believe the current administration is generally. Against the crypto industry in general. I, I do believe there’s certain politicians and certain others that are against Bitcoin.

[00:45:53] Steven McClurg: I mean, it’s very clear, you know, Elizabeth Warren is a, is against Bitcoin and several other people are but Gary Ginsler, who’s the head of the SEC is not against Bitcoin. I, I would, I would categorize Gary Ginsler as a Bitcoin maximos. So, so, yeah, I don’t know if there’s this massive conspiracy there.

[00:46:11] Steven McClurg: I mean, even the CFTC is pro Bitcoin. They’re either, they’re pro other digital assets as well. I mean, they, they actually just came out and said, yeah, there’s no way that Ethereum is is a Security. So, so yeah, that, those, those are the, those are the kind of data points that make me believe that it’s not some, you know, big conspiracy, but I mean, what do I know?

[00:46:29] Steven McClurg: There’s, there’s been other conspiracy theories that have been proven right, that that has, that has been quite shocking over the last few years. But I don’t think that’s one of them.

[00:46:36] Preston Pysh: Do you have any thoughts on Caitlin Long’s situation with custodian in her application for people maybe not familiar?

[00:46:42] Preston Pysh: So she’s, she’s having a bank startup. She’s trying to be an FDI or, yeah. She’s, she’s trying to bank with the Fed, have a direct account with the Fed, and the application was the decline. I want to say it was the decline back in the summer, June timeframe, maybe. It seems like she is being identified, maybe targeted with, with her application.

[00:47:07] Preston Pysh: And then you have all these incumbent banks that basically get to do all this stuff and she’s, she’s saying, I’m going to be a hundred percent back. She’s doing everything by the, I would say by the book. And she’s being denied and stopped at every, every block, which I just find ironic.

[00:47:24] Steven McClurg: Yeah. It’s kind of interesting.

[00:47:26] Steven McClurg: But I will say this it’s not an easy process of, of doing what she’s trying to do. I mean, if you look at some of the bigger regional banks, I mean, I, I’m sure that they would love to have direct access to the Fed window, and these are massive deposited banks. and, you know, they, it’s a, it’s a long, arduous process for anyone.

[00:47:47] Steven McClurg: I, I think she, she’s probably somewhat targeted, but I don’t think that it’s just her. Hmm. Right. So, you know, and, and I, and I, and I, and I’ll, and I’ll, yeah, the, the only thing I can say there is it’s, it’s hard for any bank to get included in the club. There’s only a few in the club and banks way bigger than her are, are, are going to have issues doing it, even if they have a very I would say a very I hate to say the word clean, but like a clean deposit base.

[00:48:14] Steven McClurg: Because the reason I say it that way, cause I’m sure the FDIC doesn’t see, or the Fed doesn’t see deposit base. based in, in digital assets as clean. So that’s, that’s that, that, that, that’s, that’s my comment there. But, but yeah, I mean, I think, I think it would be interesting if she could get her application through that.

[00:48:32] Steven McClurg: That’d be, that’d be fantastic. I have a lot of respect for Caitlin. Yeah.

[00:48:36] Preston Pysh: Just brilliant. And, and so upfront in, in what Right. Looks like in being vocal about it, if there’s anybody that policy makers need to latch onto that understands the industry better than anybody out there, it’s her. And it’s, it’s very frustrating to see her sidelined, I guess, from congressional hearings to just the policy making at large.

[00:49:00] Preston Pysh: It’s, it’s frustrating. And we, we got, we got senators up there talking about like running an ice cream truck and how it relates to proof of work. I mean, it is, it is frustrating. Very, very frustrating. I don’t know if you saw that clip. Oh my God. Oh my God. What an eye roll. Last time you were on, we talked about GBTC, DC G, Genesis, the, the Barry Silver conglomerate of, of pain,

[00:49:25] Preston Pysh: I said that about you. What are, what are your thoughts moving forward in, in this particular space, particularly you know, etf and, and if you can’t comment, no, no sweat, but I’m just kind of curious how you see some of this evolving.

[00:49:38] Steven McClurg: Yeah. So, I think the most interesting development has been the FTX lawsuit against Genesis.

[00:49:45] Steven McClurg: And grayscale. Mm-hmm. , I mean that I’ll say this. When, when FTX went down, that’s, that’s when my eyes kind of opened up that, wow, Genesis and Gray Scale is involved in every bankruptcy that’s happening in the entire ecosystem, right? They were involved with Celsius Block Five, three Arrows, Voyager, now, FTX and Alameda.

[00:50:10] Steven McClurg: It’s not a coincidence, right? They, they over levered the entire system. Ftx, you know, they’re You know, the, the, the team that’s taking them through bankruptcy, the, that’s taking the estate through bankruptcy is obviously seeing more than what all of us know, and they think it’s definitely worth a you know, a legal challenge there.

[00:50:30] Steven McClurg: So, that’s pretty eye-opening. It’s, it’s pretty rare. I would think that a a, a bankruptcy estate would, would go after a company like that. There’s, there’s gotta be a good reason. I don’t know what that is, but there’s, there’s gotta be good reason. By the way, did, I don’t know if you saw the Peter McCormick interview of Soine.

[00:50:48] Preston Pysh: I didn’t, but I saw that you had comment on it, so Yeah, gimme the, the rundown on it.

[00:50:53] Steven McClurg: That is, that is probably the most, the most interesting podcast I’ve seen in a year.

[00:51:02] Preston Pysh: Not because of Peter, that’s for sure.

[00:51:04] Steven McClurg: No, no. Peter . No, it’s it was pretty eyeopening and you, you, you have to see it, but TLDR is, you know, it, it, it seems like there’s a lot more interconnectivity between Genesis DCG and Gray Scale than, than, than what’s being allowed on.

[00:51:20] Steven McClurg: Wow. So, so that’s, that’s pretty

[00:51:22] Preston Pysh: interesting. I need to get a listen to that. Yeah. Well, you know how, you know how Elon Musk is the, is the CEO of Tesla SpaceX boring company, maybe John Ray, who’s the CEO of Ftx can become the CEO of FTX, DCG, Silvergate, Signature. I mean, maybe he can be basically the Elam Musk of all the failed crypto.

[00:51:44] Steven McClurg: all of it all. And after watching him being drilled by the, by the, by the House of Representatives. Yeah. I like that guy. Yeah. No, I mean, I, I would, I would support that.

[00:51:52] Preston Pysh: You have to know what you’re doing to, to pick up the pieces of what this guy’s dealing with. I mean, literally the whole company was being run by by Signal app, you know, like, I can’t even imagine what that was like stepping into it.

[00:52:04] Preston Pysh: So I’m, I’m sure this dude’s a beast. Yeah. So, yeah. All jokes aside, I’ll have to check that out. That sounds really fascinating. And so was Peter like grilling him? Like what was he, was he trying to s , was he trying to spin it and Peter wasn’t buying it? What happened?

[00:52:18] Steven McClurg: Oh yeah, for sure. I mean, I would say that, look, the, the last 15 minutes were the most important 15 minutes.

[00:52:24] Steven McClurg: Oh, I’m checking this out. But you have to watch the whole thing. Yeah, because he just, he just leads him right into it. It’s it. I mean, it reminds me of like, you know, the old school Barbara Walters interviews of dictators man. Like, like just, just leading them right into an ambush and then and, and then springing the trap.

[00:52:42] Steven McClurg: I’ve never seen any, I haven’t seen something like that in . I mean, I mean, we’re talking, this is real journalism. I’m, I, I love it. I’ve seen real journalism in decades.

[00:52:50] Preston Pysh: I love it. Well, you know what, we, we usually don’t do this, but I’m going to have a link to Peter’s interview in the, in the show notes here.

[00:52:58] Preston Pysh: and him and Danny.

[00:52:59] Steven McClurg: Exactly. I’ve gotta listen to this for me to talk about somebody else’s podcast. No, it’s cool. I love those

[00:53:04] Preston Pysh: guys. I love guys. I love those guys. Oh, that’s good. I, we’ll have to check it out.

[00:53:10] Steven McClurg: But, but the answer really your, your, your question. It’s, it’s, you know, there’s, there’s a lot going on there and I, I’m, I’m curious to find out where, where it’s all going to lead and then, and then, and then to get back to the ETFs.

[00:53:23] Steven McClurg: You know, the I, I actually think that there’s a good chance that grayscale might. Might win the lawsuit. Now here’s the thing though, a lot of people don’t realize this and and of course gray skill’s not going to talk about it, but just because they win doesn’t mean that they get an ETF. Yeah.

[00:53:41] Preston Pysh: I was talking to Joe Carlasare already about this exact point and this is what he told me.

[00:53:45] Preston Pysh: He says, yeah, they could win, but that doesn’t mean that they’re going to get the et tf after all, cuz it goes, I guess it goes back to the SEC for their, their decision. And he’d be like, yeah, no, we still don’t want to do it. Even after the ruling. That’s right. That’s nuts.

[00:53:59] Steven McClurg: I mean, it could go all the way to the Supreme Court and they can say, yeah, you win.

[00:54:02] Steven McClurg: Okay, well what do you win? Maybe some damages. What are your damages and how do you prove your damages?

[00:54:09] Preston Pysh: That’s right. Right. They can’t. Yeah. so broke. That’s insane. How is that plausible?

[00:54:18] Steven McClurg: So that, that, that’s, that’s why I say this whole thing is kabuki, right? It’s, it’s like, all right, look over here and we’re collecting fees over here, and we’re not going to op and we’re not going to open it up for redemptions.

[00:54:30] Steven McClurg: They could be doing this, they could doing both things simultaneously. They could be filing for Reg M exemption to get to offer redemptions to their clients instead, you know, while they’re, while they’re su, the SEC, great, but no, they’re, they’re just, it’s, it’s, it’s all theater. It’s all, Hey, look over here.

[00:54:49] Steven McClurg: We’re, we’re fighting for you guys. You know, we’re, we’re fighting for, for an ETF, for the, for the ecosystem. You know, I mean, it, when, when we think about it, the Bitcoiners over here. Meanwhile we have a Bitcoin cash trust that you can buy. Yeah. Ethereum Classic. No, I’m not buying it.

[00:55:06] Preston Pysh: When we think about it from the lens of incentives, The US currently has the global settlement layer with the US dollar.

[00:55:14] Preston Pysh: It, it should make sense, not that I’m saying it’s a good thing, but it should make sense that they’re reluctant to allow something like this to be so turnkey for anybody’s corporate treasury or whatever, to just step in and buy an etf that, that tracks the spot. I think that’s the battle we’re up against.

[00:55:32] Preston Pysh: I think we’re absolutely in a fight. I think the last year and a half demonstrates that we’re in a fight and we know what, what comes after the fight stage. But would you, would you agree, Steven, that we’ve been in a, in a battle over the last year and a half, whether it’s, whether it’s organized or indirectly organized?

[00:55:51] Preston Pysh: What, what are, what are your thought.

[00:55:54] Steven McClurg: Yeah, I, I would agree with that to a certain extent. I think, I think for us, you know, I think, I think different people are in different fights. You know, I mean, I, I try to think about the two, the two fights that I care about the most, the fight for Bitcoin.

[00:56:09] Steven McClurg: Right? I think I, you know, I really care about that. And that has, that has been a challenge globally, right? I mean, if you look at what happened in Canada, if you look at what’s, what’s happened in other places a little bit in the us that’s, that, that’s been a bit of a fight. But, but, but the other fight is really, you know, our, our industry.

[00:56:31] Steven McClurg: And we actually don’t see that as, as much as other people do. . And, and it’s mainly because when, when we do things at, at Valkyrie, we kind of look at, okay, well what are the rules? What are securities laws? You know, what are the, what are the where, what are the bounds? And we kind of understand where the boundaries are.

[00:56:49] Steven McClurg: And we try to stay just within those bounds. I mean, we’re, we’re a registered company, so we, we, we, we, we stay within clear boundaries. A lot of people will say, well, we don’t know what the boundaries are. We don’t know. You know, there’s no clear guidance. Well, actually there is, there’s a, there’s a, there’s a lot of guidance in, in, in securities laws.

[00:57:05] Steven McClurg: And, you know, if you want to stay within them, great. If you want to go into the gray areas, that’s, that’s your business. But, you know, get ready, . Yeah. Get ready for a fight. You know, so we haven’t seen the fight as much as other people have in, in that particular sense. Our, our main fight has been against bad actors.

[00:57:21] Steven McClurg: Yeah, right. You know, the bad actors being, you know, the Celsius and the block fi and you know, the FTX and the genesis of the world.

[00:57:29] Preston Pysh: How do you see, and this is my last question for you, cuz I know you gotta run. When you think about paper Bitcoin I know Caitlin has talked about this a lot and the, and the implications of having paper Bitcoin.

[00:57:41] Preston Pysh: Do, do you think that this has been a major way to suppress price over the last couple years? Do you think that this is an issue moving forward that we don’t have a spot ETF to kind of offset some of maybe what’s happening in in the futures paper, you know, U S D settled markets?

[00:58:02] Preston Pysh: What are your thoughts around that?

[00:58:05] Steven McClurg: Yeah, you know, I’m, I’m in the minority when it comes to thoughts on a, on a Bitcoin spot, et tf and, and I, and I hate to say it like this because we are also in the business of launching ETFs and we are trying to get a Bitcoin spot etf. But and, and so, so, so that’s how we make money.

[00:58:24] Steven McClurg: But on the other side of things, I am a true believer in not your keys, not your cheese. So, you know, buy your Bitcoin, hold it locally if you, if you can, not everybody can. And that’s why, and that’s why we offer funds and ETFs that, that, that at least some do and some attempt to hold Bitcoin for the people that don’t know how to do it themselves.

[00:58:46] Steven McClurg: But I would rather educate people on how to, how to purchase Bitcoin, how to hold it on your own hard wallets. You know, I’m, I’m a big fan of a lightning network. You know, we, we, we get a lot of trans, you know, I love, I love Noster because I love the it’s an unreal culture of like, it’s unreal of, of sending, sending SATs to people.

[00:59:04] Steven McClurg: It’s, it’s, it’s amazing. And it’s, it’s, it’s crazy. Like PE I, I got, I got, I got, I got a few SATs even this morning just, just from you and I going back and forth, which is kind of bizarre. I had a person, not usually, I spit it all at Bitcoin part.

[00:59:17] Preston Pysh: Listen to this. So , yeah. I love the way they have things set up there.

[00:59:21] Preston Pysh: A person this morning on the, they zapped me 21 SATs, 21 sat, they did it 21 times and my phone just went, bing, bing, bing, just kept, it’s like, what is so much person doing?

[00:59:33] Steven McClurg: It’s hilarious. It’s crazy. I mean, they’re literally throwing pennies at you. Yeah.

[00:59:37] Preston Pysh: They’re just like, they’re just like hitting you on the head with a penny, just like bing, bing,

[00:59:42] Preston Pysh: It’s hilarious.

[00:59:42] Steven McClurg: But it’s, but it’s fun to do, and then you just throw, it’s a blast. Look at them. It’s, it’s kinda cool. It’s a blast. But, but I guess my point is it’s like, okay, you know, I, I don’t, I just don’t think a Bitcoin ETF is as relevant as it would’ve been five years ago. There’s, it’s too easy to buy Bitcoin today.

[00:59:58] Steven McClurg: It’s too easy to use the Lightning Network. It’s too easy to there, there’s so many tools available to you to set up your own either hot wallets or cold storage, and there’s too many people available to help you do that. I mean, this is, and by the way, I hate, I hate keep talking about Bitcoin Park, but, but it’s a really cool place, you know?

[01:00:15] Steven McClurg: Yeah. That, that those guys set up. Like if you wanted to say, Hey, I need some help moving $20 worth of Bitcoin onto my, onto a ledger. If you showed up there, somebody will show you how to do it. Yeah. Right. And, and there’s places like that everywhere where it’s like, yeah, let me help you. It’s just a, it is just a really cool community, but um, globally too.

[01:00:36] Steven McClurg: Globally. Yeah. I mean, even a year ago it wasn’t as easy to do it, and, and now it’s just, it’s, it’s easy to buy Bitcoin. Like, what, what, what do you need the ETF for? Come on.

[01:00:44] Preston Pysh: Yeah. Yeah. Well, I, I think it just comes down to the technical competence. Like if your grandparents or somebody who just, there’s no way they can, they, they can figure out how to even, they’re struggling to turn on their phone, right?

[01:00:56] Preston Pysh: Like that’s where the, that type of vehicle, I think. Is appropriate, but I agree. I agree. And, and if people are, can, if they have a te a person of technical competence to assist them and maybe help them with the custody, that’s more optimal for sure. But if, you know, yeah.

[01:01:12] Steven McClurg: There’s all sorts of situations out there as, as the years go by or the months go by, the relevance of needing one goes lower and lower.

[01:01:19] Steven McClurg: Yeah. That’s, that’s, that, that’s all. It’s still relevant, but it’s just not as relevant as it was a year ago or even five years ago.

[01:01:24] Preston Pysh: Yeah. Steven, thank you so much for coming on. A lot of these, a lot of this banking stuff can get really confusing and difficult and you are just just a sound source of knowledge to have these discussions with, and I just really appreciate every time that I get a chance to talk with you.

[01:01:41] Preston Pysh: So thank you, sir.

[01:01:42] Steven McClurg: Oh man. I love hanging out with you too. Thanks for having me.

[01:01:45] Preston Pysh: Absolutely.

[01:01:47] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener if you enjoyed the show or you learned something new or you found it valuable.

[01:02:04] Preston Pysh: If you can leave a review, we would really appreciate that and it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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