Bitcoin adoption, rate hike expectations, and the case for sound money
A Sunday live stream from Digital Asset News discussing Federal Reserve rate hike expectations, Bitcoin adoption rates, and macroeconomic factors including oil supply disruptions.
Summary
The hosts of Digital Asset News — the main presenter and co-host Jerry — open with a discussion of the upcoming FOMC meeting, where roughly 20 major banks, including Bank of America, Goldman Sachs, and JP Morgan, are predicting rate hikes totalling 75 basis points across 2026. They examine how Houthi disruptions to Red Sea and Strait of Hormuz shipping lanes could further pressure inflation. The conversation then shifts to Bitcoin's historical performance relative to rate cycles, the significance of midterm election years for markets, and why — despite Bitcoin being described as the hardest and most scarce asset available — global adoption sits at only around 4.5%. The hosts use the analogy of the keto diet to explain why people often fail to act on what they know is best for them, and close with a wide-ranging Q&A covering real estate taxes, AI trading bots, and the mechanics of property ownership.
Note: The name 'Ralph Pal' as it appears in the transcript and summary is a misspelling of Raoul Pal, the macro investor and CEO of Real Vision.
Key Takeaways
FULL TRANSCRIPT
Opening and FOMC rate hike outlook
Host: Hello everybody. Welcome to the Sunday live stream. We've got Jerry coming in in a bit, so let's just roll into it because we've got a lot of things to go over. Just like the title and thumbnail suggests, we're taking a look at a couple of things. First, which is the big boogeyman out there — the rate hikes. And it looks like it's not going to be one rate hike, not even two. Looks like three rate hikes are on the table, and that is moving forward because there are only three meetings left for the Fed. So because of that, we're going to have a little bit of a rate hike party, which will be interesting. We'll take a look at the factors that have gone into that, and it's not just me — it's roughly 20 or so banks saying the exact same thing. And then we'll take a look at why Bitcoin itself is not being picked up as much as it should be, and it really does come down to a diet study. So let's get into it with Jerry. Jerry, how you doing?
Jerry: I'm well. Hi, everyone. Happy Sunday and opening Sunday of the NFL season. Yay, fantasy football.
Host: Something to do, something to watch besides macroeconomics and nerdy stuff that we talk about to either increase or decrease our portfolio. Not a bad thing to do.
Hey Jerry, we're just catching everybody up to the macro about what's going to happen at the next FOMC meeting, which is this week. And really, ladies and gentlemen, it comes out of this: the Fed has a dual mandate. They have to protect jobs, make sure there's jobs growth, and they also have to make sure that inflation doesn't grow out of control — which it really has been for a little bit of time. I know some people say it's not a big deal, that we're going to get AI in there and it's going to be both super fantastic and actually deflationary. I think people are a little bit optimistic about the time frame, but we'll see.
As a recap, as of last week, we had PPI come in — the Producer Price Index — and that of course is what the producers, the people that actually make stuff, have to pay for those things. And once they have to pay more for those things, it gets passed on to the consumer via the Consumer Price Index. The PPI came in just where it should. Yes, it's going up — I have a news flash, inflation always goes up for the most part. Because of that, people were quite happy. PPI year-over-year, the expectation was 5.3 and it actually came in a little bit higher at 5.4. Not too big of a deal. And then when Friday's information came out, everybody was excited. CPI came in at 0.4%, which was the expectation, and we hit that. Core CPI was a little bit higher. CPI year-over-year came in at expectations. And then CPI core — the expectation was it would go lower, which strips out food and energy — and we can see it actually came in at 2.4%. Everybody was super happy. That's why we had a little bit of a pump.
But this week is when we get the 2:00 p.m. Wednesday, September 16th — Eastern Standard Time — interest rate decision. And because of that, that's where things might go down the tube. Some people say, "Well, it's already priced in," and perhaps it is. But I will tell you that if Kevin Warsh, who is the chair of the Federal Reserve, is data dependent as he talks about, it's not looking too good.
Oil supply disruptions and inflation pressure
Saudi Arabia's oil production has fallen to the lowest level in three decades. Also, as of roughly 19 hours ago, the Houthis — an Iran-backed Shia rebel group from northern Yemen that has controlled much of Yemen, including the capital Sana'a, for years and has been hitting Red Sea shipping since late 2023 — just tightened the vice on two major oil chokepoints: the Strait of Hormuz and the Red Sea's Bab-el-Mandeb. If tankers can't move, oil gets crushed, and of course inflation goes up.
We can see the Strait of Hormuz over here, which is what people were really concerned about, and now it looks like Bab-el-Mandeb is going to get blocked off as well. This is not looking too good for oil production or for inflation. Jerry, what are your thoughts before we start to talk about where the banks think we're going?
Jerry: It has always amazed me how industries take advantage of circumstances. The oil coming out of the Middle East should not really affect the US consumer, in that we've got oil coming in from Venezuela and the United States is a net monster producer. Yet the industry, every time there's a problem like this, gets their little hooks in us and they gouge us. And it really is kind of troubling, because it shouldn't. The US consumer has access to a ton of oil, and yet every time those headlines pop up we see our gas prices going up. I don't know what can change that except that we should understand that is how the industry works and plan accordingly. So how many of us are investing in oil companies? How many of us are doing something alternatively, like getting out of the grip of fossil fuel dependence? You and I have talked about electric cars and cyber cab fleets and home data centers going off solar energy and all that kind of stuff. But these shenanigans aren't stopping, is my point. And I'm wondering how many people are looking for alternatives to get away from it.
Host: Yeah, it's an interesting thing. There was a piece I put together a while back about oil and where this all comes from, because it's not just about producing it — it's also about how it can go through and be manufactured for the different types of oil that are out there. Let me go over this real quick.
As far as who uses it most and the key exports, you're looking at 85 to almost 90% destined for the Asian markets, made up of Saudi Arabia, Iraq, the United Arab Emirates, Iran, and Kuwait. That's a big huge chunk. Top 10 oil exporters: Saudi Arabia, Russia, then the United States. We do have a good chunk, but it's actually cheaper for us to export it and let other countries manufacture it for their specific needs and goods and services. Top 10 oil importers — as we just talked about — China, then the United States. Again, it's cheaper to import than to produce domestically in some cases, and we actually make money on the exportation. Then India, South Korea, Japan, Germany, and so on.
The key difference is what's called sweet crude. USA oil is some of the best sweet crude you can get. Iran and Venezuela produce thick, heavy crude. The problem is that when they ship it over to China, the refineries over there are set up specifically for that heavy crude. To convert those refineries to process our lighter sweet crude would cost millions — I think the figure was close to billions of dollars. So they can't just take our oil. They have to take that dark crude oil, and changing everything over would take a lot of time and a boatload of money. That's why they're so excited about Iranian and Venezuelan oil. But we did just book a deal with Venezuela, so that works out.
Here's the breakdown on gas price origins: North America has a big chunk at 65%. And China's top oil import sources are Russia, Saudi Arabia, Iran, Iraq, Malaysia, and Brazil. So Jerry, you're right that the American consumer has a boatload of oil available. The problem is the complex supply chain — when it goes over to China and those different places for processing and then ships back to us as goods and services, our costs go up because we're always importing. That was one of the big problems we saw during COVID when everything was shut down. It's a complex weave.
If we take a look at that, we can see that there might be a big issue, especially with rate hikes, because inflation is already a concern. I've got roughly 18 or so different big names in economics, banking, and finance, and they're pretty much all saying the same thing: it's going to be a September hike. Even Bank of America says it's going to be 75 basis points this year — not spread over time, but 75 basis points in 2026. I don't think it's going to be in one sitting, but in 2026. Barclays, BNP, Citigroup, Deutsche Bank, Goldman Sachs, HSBC says no, Jefferies, JP Morgan, Nomura, Oxford Economics, RBC, TD Securities, and so on and so forth.
So if that's the case, where do we go from here? Jerry, where do we go from here when we get this rate hike? And do you think Kevin Warsh is going to do a rate hike, or is he going to say, "I've got different data"?
Fed decision and bond market fragility
Jerry: I think there's a very strong indication from the rhetoric we've heard coming out of Kevin's mouth that they are going to use a new set of data sets to make their decisions. They are not going to follow the old playbooks. I think what you're seeing in that list of banks so predominantly saying to expect a September hike is because they're going off a playbook that's been standing since the old Greenspan days, prior to Bernanke. I completely understand that.
I'll be honest, I don't have a firm opinion based off of what I've heard Kevin say. He's been very clear they're going to use a different modus operandi, and it wouldn't shock me if there was a hike, but it also wouldn't surprise me one bit if he just said, "Hey, listen, we've got to hold." And the reason being is that on the other side of what a hike does to interest rates is it does affect the bond market. And we all know, if we've been following financial news, how fragile that market is right now.
Host: Oh yeah.
Jerry: You don't want to do anything to upset the long end — the 30-year, or the 10-year for that matter, but primarily the 30-year. You don't want that thing creeping up, because now all of a sudden it actually affects how the government can operate.
Host: Yeah, because they are under obligations to pay the debt that they have. So you don't want interest rates going up on the long end of the bond market.
Jerry: Well, that'll fit into your thesis about the reorganization of debt that's come due. So it could be a good thing if you think about it — for the ones that actually have the patience and drive and everything else.
Host: But just to go through this — I know people would say, "Well, that's very bearish, Rob. That's kind of a bad Sunday for me. I was going to enjoy football, but you come in here and you're a big bear." But Fed rates — as we can see from the effective federal funds rate — it's not just because rates go up that the market goes down. That's not in fact how it always goes.
Historical rate cycles and Bitcoin's performance
Back in the 1970s, look at this. The blue line here is the S&P 500. We're going to overlay Bitcoin in a second, but you can just see that as the funds rate went down, the market actually started to go down too. This is 1974. They said, "You know what, we've got to start cutting rates," and then we did, and the market kept going down. We rebounded over here in 1979. This was the Volcker era. And we can see as we spike with the federal funds rate, and again as it comes down, the market goes down — and then the market actually goes up, which kind of stands to reason.
Moving forward to more modern times, in 1999 up to 2000 we were hiking rates like crazy. No big deal — the market kept going up. At some point the market had to rebound, and it happened right around 2000. This is the dot-com crash. Then off we go. The Fed tried to fix it, went down, market went down, they went flat, and they're pretty much in tandem. Then we have rate hikes in 2004, 2005, 2006, and look at the market in blue — the market didn't care. We're looking at 3–4%. Not too bad.
Then if we come over to more modern times, same thing here. 2022, we started to hike the rates. Now this was a little bit different from January 2022. Remember 2021 — everything was great, prices kept going up, it was fantastic. People will point to this especially for the markets, and you can see as soon as we started to raise the rates, the market started to collapse as they called it. But they kept raising and look what the market does — it's like, "You know what, not a big deal." Then we went flat and dropped a little bit. Now here we are today.
If we take a look at that overlaid with Bitcoin — Bitcoin's in blue and the federal funds rate is in red — look how well Bitcoin did. We started to raise rates in 2015. Bitcoin didn't care so much. In 2016, raising rates again. 2017, Bitcoin didn't really care until a certain point, and then we go into the four-year cycles. I know people are sick of me saying that, but it's four-year cycles for Bitcoin, and there's also a four-year cycle for traditional equities and stocks tied to the midterm years. And oh yeah, we're in a midterm year right now.
Then same thing over here in 2022 — again, four years. January, February, March, we were raising and raising to November 2022, and that was the end. They kept raising rates and we kept going up. Then of course they dropped rates and we did pretty good. Then to this point — October or so — they keep dropping rates until January 2026, but our market goes down.
So yes, I think in the short term you're going to see a little bit of volatility. You're going to see people going, "I didn't know this was actually priced in," and they're going to start selling off because Kevin Warsh is going to come out potentially and say it. But if he does come out and say, "You know what, I've got different data points," like Jerry talked about, and keeps it the same — watch for the market to blow up.
Me personally, I am rooting for the collapse. I'm rooting for it to go down, because I buy every Monday and I buy more when it goes down. I want it to go down because I think we're going to have a nice little bull run getting out of this midterm election cycle. Jerry, thoughts?
Jerry: Interesting. I would love to see a bull run coming out of these midterms. I'm looking at three macro indicators. One is the increase in productivity — what are productivity numbers looking like? Jobs are a productivity proxy. Expansion of money supply can be a productivity indicator, because when that rate goes down it allows for more debt to be created. Debt has become the means by which productivity can be established, because you can hire more people or build more of this or create more of that. These are the things I'm looking at.
I think there are elements that we're seeing a setup for this, but it's so hard because we have this albatross on the other side of all of this — this staggering amount of debt. It is just staggering how much debt was created in that 2020–2021 era. And that debt, if it doesn't get written off in some form of a bankruptcy-type thing, is sitting there and strangling whoever holds it.
Host: Mm-hmm.
Jerry: And at our current rate environment, it is almost impossible to refinance. To go from zero interest to three and a half or 4% — when you're talking in large numbers, it's staggering. It's going to be interesting. Do we have a big massive die-off? In other words, do we have a lot of these zombie companies go bankrupt, absolve the debt, debt gets reconciled to nothing or pennies on the dollar — just like we've seen in every major expansion and contraction period, these 40–50 year cycles. I think we're at that precipice and we're going to see a lot of that in the next year or two, because the debt cycles match up with the alignment of these things.
Host: Yeah, I think so. The debt cycle — it's kind of interesting how everything pretty much lines up. It's almost like we're in the matrix sometimes. I look at this and I'm like, man, I just don't know if this is reality or if this is just something I'm experiencing, but some days it seems like that's pretty much how it is.
Midterm year market patterns and the bull run question
To get back to this — Echo Lee had a good question. She says, "What kind of bull run? Bitcoin only, crypto only, all markets? Tell me, tell me, tell me." Well, no one knows the future, but that is a great question, especially for these midterm years.
We know about the four-year cycles, the Bitcoin halving and stuff like that. But as a reminder, those post-all-time-high years are always midterm years. So 2014 is a midterm year. 2018, 2022, and now 2026. Remember 2022 — awful. 2018 — really bad. 2014 — super, super bad. In 2018, you could have picked up Bitcoin for $3,000. In 2022, you could have picked it up for $15,000. Right now, I know a lot of you would say, "I'd go back in time and do that." Well, you can't. So we have to deal with what we have right here.
We know that in the midterm years, as far as the S&P 500, it could give back positive returns like it's doing right now, but it's muted. It's a little bit different now because of AI — this might be a generational thing — but historically speaking, the S&P 500 in the midterm years delivers the lowest ROI in these cycles. We can see it there. Midterm years at 4.7%, all years traditionally 9.5% or above.
And to answer Echo's comment — 100% of the time since 1942, if you bought the S&P 500 on midterm election day, that generated a median return of plus 15.2% through June 30th of the following year. That's seven months forward. Let me say that again: since 1942, buying the S&P 500 on midterm election day, median return of plus 15%. That's usually around the lows. So when I talk about the four-year cycles, it's not just me saying, "Hey, this Bitcoin halving thing" — it's rooted in historical facts about what's happening.
So for Echo, I can say that I think it could be not just crypto, not just Bitcoin, but it could also be traditional markets. Jerry, knowing this information, what are you going to do with it?
Jerry: So I know that my two favorite assets — which are basically the Mag Seven in the stock market and Bitcoin — react slightly differently in different environments. Bitcoin unfortunately doesn't react well in escalating rate environments. So as the cost to borrow money increases, Bitcoin tends to react differently than when the cost to borrow is easier.
And so I'm seeing a setup for Bitcoin to be in what I would call a more friendly buying environment for myself, even though it should be going up. It's a scarce asset. The scarcity of it and the adoption of it — the setup is for it to appreciate.
Host: Right.
Jerry: So we're in this weird kind of — it's really idiot land. Bitcoin should consistently be going up based off of those fundamentals, but because it's not adopted by the mainstream yet, it's still like one of these two-and-a-half percent type assets. Only about two and a half percent of the world's population own Bitcoin. So it's not going to react like something like real estate.
Host: Which would be nice.
Jerry: Real estate is different. So it's going to be interesting. I've been kind of stockpiling cash for the last couple of months. And I'm thinking that if Bitcoin suffers another 6, 8, 10, 12% downslide, I'll deploy. I'll go for the one time. Here you go — I'll pack my bag.
Host: Yeah. A lot of people — the ones that have the commitment — they're going to do it. And that would be me and Jerry. We'll see how it all works out.
Why people don't buy Bitcoin — the keto diet analogy
But that would lead me to this last point, and then we'll get into the Q&A. You said it, Jerry — this is the most sound money, this is the hardest asset out there. So you would think people would just be buying, buying, buying like crazy. I was thinking about this yesterday. I was watching Mr. Moritzio — he's got a good podcast, you should check it out. He's over there at Bitcoin Asia and a lot of the guys on a panel were saying, "Hey, Bitcoin is the same thing Jerry just said — this is the hardest asset. You should be in like crazy. You should really just be absorbing this." And a lot of people were saying you should never sell, which I disagree with, because I think you should rotate into different things as time goes on. Maybe you don't sell right into cash and put it in a savings account — that's kind of goofy. But it led me to this thought process.
Keto diet. Yeah, I know. Just wait. This is a good one.
The question is: why don't people invest in Bitcoin? Because it's the hardest asset. I think it just comes down to diet — keto. There's a great YouTube channel, Dr. Gil Carvalho — he's a doctor and a PhD. He talked about a recent study that came out comparing four different types of diets: keto, Mediterranean, low-fat, and vegan. The study took a look at which ones could have the most beneficial effects across the board.
Carbs were 4% in keto — pretty low — 50% Mediterranean, and low-fat at 7%. What they found was that muscle insulin resistance was pretty good on the Mediterranean and low-fat, not so much on the vegan type. Keto saw similar improvement. But then liver insulin resistance was two to three times greater improvement in keto. Fasting glucose was lower by 12 points. And pre-diabetes complete reversal — half of the participants in this multi-year study who had pre-diabetes had complete reversal.
So you think to yourself, well, that's the best diet — why isn't anybody on that? Mediterranean sounds pretty good, low-fat sounds pretty good, so why doesn't everybody just do keto? And it's the same question you might ask yourself: why aren't people buying Bitcoin? Because like Jerry said, and Michael Saylor and everybody else — Bitcoin is the most sound money. It's absolute scarcity. You can't make any more Bitcoin. You can make Bitcoin SV and Bitcoin Gold and Bitcoin Diamond and Bitcoin couch cushion or whatever, but you can't make Bitcoin. It's purely scarce at 21 million. It's pure digital property, the best asset for you.
And we always look at that and say, "Well, keto is a great diet, but why don't you supersize it for me? I'll take the extra fries." It's because the things that are good for us, sometimes we just don't do them as much as possible. And I think people who run keto or the carnivore diet or anything else — you've got people who are going to say that is the only way to do stuff. And I think we can see that in Bitcoin.
How does that translate to diets in America? Only 5% of people are on keto — it was 7% in 2022. Low carb, 7–8%. Mediterranean, plant-based, 3%. And a lot of people just have horrible diet plans. Why? It's good for them. They should be on something like this. Why don't they get Bitcoin? Because even though they know it's a hard asset, they just don't do it.
How many Americans own Bitcoin? Between 10 and 12%. Bitcoin adoption in 2026 globally — 4.5%. I think the problem is people call it for like it's going to a bajillion or it's going to zero. I think it's somewhere in the middle, because they think adoption is supposed to happen because it's so awesome. That's not how it works. It's just going to take a lot longer than people think. And that's why I track everybody's price predictions, and so far every single person has been wrong. Every single person I tracked in 2017 was wrong. Every single person was wrong.
Samson Mow said Bitcoin would be a million in January 2026 — that didn't happen. Michael Saylor said a million by May 2020 — that didn't happen. Matthew Sigel from VanEck, who has been pretty spot-on, thinks Bitcoin will go to a million by 2029. Adam Back says a million by 2028. Raoul Pal said $450K by May 2026 — again, didn't happen.
I think Bitcoin is the hardest asset like Jerry talked about. I think it's probably the best sound money. I think it's obviously very scarce and it can do great things and it should be in everybody's portfolio. I just don't see the adoption happening like some people do. I think it's going to take a little bit more of a grind, and I think it's more resilient than they actually say. And that's why with this rate hike, I don't expect massive swings, but we'll see. Jerry, that was a lot to go over. What are your thoughts?
Jerry: Adoption — I think as opposed to "number go up," adoption in this element is going to be around education. And I'll be honest, when I found Bitcoin, it was through Bitcoin that I learned financial literacy, that I started to understand monetary policy and the effects of it. So I think the first phase of Bitcoin's adoption was because the number went up.
Host: Oh yeah.
Jerry: People just saw the number go up and piled into it. I was that guy. December of 2017, that massive blowoff top attracted me to the space. One of the things I think is going to be interesting is to see how this new age of information through AI — tools like our ChatGPTs, our Claudes, our Geminis, our Grok bots — how that industry will affect this industry. Because information is the key.
Host: Right.
Jerry: The moment somebody realizes that their currency is not money — that it's just currency, and money is things like gold and Bitcoin — it changes. It changes how you look at stuff. And therefore, when those perceptions change, a lot of times action and behavior will follow. You start putting currency into assets.
Host: Right.
Jerry: And that is the virtuous cycle that I'm hoping will continue. Bitcoin will get adopted if education is spread and adopted.
Host: You know who's doing a great job of education is Natalie Brunell.
Jerry: She's great.
Host: I had her on the show for that 20-hour live stream — I think she was like two sessions before we did our interview. She's always on Fox News, going to all these different conferences. The video we dropped today was just a rehash of that interview, but she talked about going to Bitcoin Hong Kong. She said — and I thought, well, how was it? You know, just a couple of people? She said, "When we did it, we had so much enthusiasm for the Q&A that we actually went 15 minutes over and pushed everybody back because everybody kept asking more and more questions about it." She goes, "Yeah, people want it. They are excited about it, but it really comes down to education." And that was an eye-opener for me. I'm like, "Oh, maybe things are going to be just fine." We'll see.
Q&A — Real estate, rate hikes, and property taxes
Alrighty. So everybody, that will conclude it for that section. If you want to stick around, we'll do a little Q&A. Jerry's going to answer your questions.
There was a good one from Shaolin. He said, "With 70% of real estate sellers not finding a buyer at their ridiculously high prices" — I just saw one. I was on the beach yesterday playing volleyball and one of the new guys was there. He just moved to Puerto Rico. I said, "Hey, how's everything going finding a place?" He's like, "It sucks here." He was looking at beachfront property — a condo, fourth floor, two-bedroom, one bath. Not anything grandiose. I said, "Well, how much do they want?" He says $1.5 million, and it needs $400,000 worth of renovation, and the owner owes back taxes and expects that to be paid by the buyer. I'm like, yeah, that's not going to happen.
But Shaolin says, with real estate sellers not finding buyers at their high prices, how is Warsh going to raise rates? Housing would collapse. Or am I wrong? Jerry, what are your thoughts? Because if he raises rates, it can or cannot affect the 30-year.
Jerry: So there are two popular means by which real estate gets financed: short-term variable elements or long-term fixed elements. And it's going to always be easier to get a very low introductory rate. If people really want a house, they're going to do that.
Host: Yeah.
Jerry: It's those 30-year mortgages that are most affected by the long tail of the bond market. So I think you'll see that kick up. Then the other element is: can you cash flow a property? If you're buying a property as an investment, cash flow trumps cost as long as cash flow exceeds cost.
Host: Right, right, right.
Jerry: And so like that seller in Puerto Rico selling the condo — probably a 1,000 or 1,200 square foot condo for $1.5 million, needs $450,000 in renovation, plus has how many years of back taxes?
Host: Oh, I don't know how many years it was. It was heavy.
Jerry: That sucker probably cash flows pretty well.
Host: Probably.
Jerry: But if you're going to buy it to live in it, then it's not a cash flow situation, and it's like, "Oh my goodness, this is ridiculous."
Host: I know. And what's funny — people would say, and it makes sense if you lay it out — don't pay off your mortgage, especially if you have a low rate, especially if you locked something in like 2020 or 2021, right after COVID. You're looking at like 2.75%, 3.125%, 30-year mortgage — nothing. And it's true.
Me and the wife, we paid off our properties. It wasn't at 3%, it was a little bit higher. And then I saw this yesterday and I was kind of blown away. Graham Stephan — I think most of us know him for real estate — he talked about in this video, he goes, "I paid off my 2.875% mortgage. Dave Ramsey was right." And he talks about how it wasn't a super efficient investing move to do that. He could have saved that money and bought into something else — more equities, more types of crypto, whatever. But he said, "There's something about just having it off the books and not having to deal with it that is like a big stress relief." And I've got to tell you, I agree with him. But as far as investing goes, it's not great investing advice. It's good mental health advice.
All right. A1 Rising says gas convenience stores are cash machines. If you've got a good spot, just one store, you can retire in 10 years from the money made. I'd always been under the assumption that gas station companies don't make much money on the gas themselves — it's when you go inside to buy your Coca-Cola or your popcorn or whatever else. That's their real revenue. So I'm curious how they gouge the prices, why they would gouge the price when they just want people to come in. Jerry, thoughts on that one?
Jerry: I never had this thought until after I was out of the United States, but that particular statement — A1 is 100% on point. When you can get a widget, whether it be a bottle of water, a bottle of Coca-Cola, a candy bar, at a wholesale rate and sell it at retail — make 120% margin — and be busy from 6:00 a.m. to 10:00 p.m., it is a license to print money. But again, location is everything. In those particular businesses, the most valuable asset you have is your location. You need to be in proximity to a market that has constant inflow. The gas — if you even just break even on the gas, which most people don't, they're going to make a margin on the gas — but it's nowhere near the margin of the products inside the doors.
Host: Right. JD says margins are thin on gas. Slim Jims are marked up 10,000%.
Because they're delicious.
And Memes has a good point here — worth a reminder for everybody. Warsh is only one vote. He's the chair, whatever. Even if he votes no, I think we will see a small rate hike because the other members, the governors, seem to be leaning that way. I remember in the last FOMC minutes, it looked like they were leaning more hawkish toward rate hikes — they just wanted to see more data come out. And the data that's coming out, unless the data they're looking at is something completely different from what we're seeing, doesn't look great. But we'll find out on Wednesday.
Housing inventory, AI trading, and Bitcoin ownership
Houses are still going fast in pricier markets. That's true. Although I was surprised to see that in Florida they have so many houses available. I think it was like a 10-year high in the amount of inventory.
Jerry: Wow.
Host: Yeah. Well, I mean, that would make sense. The majority of Americans with net worth — some wealth — the majority of it is because they have a home. It's not because they have a monster stock portfolio or a cold storage wallet with 25 Bitcoin in it. It's because they own property. And higher inventory levels speak to two things.
Jerry: One, the need for money. You sell things when you need money, when you need currency. And that speaks to the overall economic environment. A lot of people are hurting because inflation is not being matched by income. Income and inflation are disparate categories. And I feel for those of you out there that are working your ass off just to stay afloat. I know some of you are. I feel very grateful that I've been able to get to this ripe old age and move myself into a location where my income matches my expenditure. But that's not the case for a lot of you in the United States. I know because I'm seeing what gas costs, what electricity costs, what water costs, what food costs. All these things are just stepping up. And I know incomes aren't leveling up on average to match that. Some people in some industries are skyrocketing, obviously, but that's not the majority.
Host: That's the truth.
Hey, this is a good one. Echo's got a good one today: what's going to happen with trading as more people use AI trading bots? I just saw a popup from Robinhood which said, "Hey, use our AI bot to trade crypto. It's available right now." And I'm thinking to myself, I wonder how that is going to change the dynamics of trading for everybody. Because before, you had these big institutions that would get data, process it, pay millions of dollars for access to API integrations, which would make them faster, leaner — they could make really good deals and bets and trade faster, and they would crush it. And now it looks like we've got AI to do some of that for everybody. I wonder if that will offset that or if they'll find another way to get an edge.
Jerry: It'll compress margins, and you will see more parity. In other words, there won't be a small group making a ton and another group making a little bit more than the tier below them. It'll compress and kind of homogenize itself because everybody will be using the same tools. And it's only those who can make the decision faster than the other. Proximity — like those companies that invested all those millions and billions into data centers literally next to the stock exchange.
Host: Right. That would be the big thing.
Black Mama Trader said, "The home does not belong to them. 50% is a mortgage. Please be accurate. It's the feeling of owning an asset." Well, if you think about it that way — and it's true — you don't own anything. You do own Bitcoin though. That is a big distinction. It's one of the very few things you actually do own. Because people say, "Well, you do own your house, Rob." No, you don't. Because even if you pay it off like we've done, unfortunately, if you miss a couple of your tax payments in the county that you're in, the government comes in and says, "We're going to seize your land." "But I bought it." "No, you did. We appreciate that. But we just had a meeting with the different representatives of El Paso County and we've decided that 6.25% is too low. It's 7%." And then of course in a couple of years, it's 8%, it's 10%. It's really awful. And then of course as time goes on, you either pay it or you get kicked out.
There is one caveat, and I've talked about this before. In Puerto Rico, everything has been frozen to 1957 levels. I think it's a specific act — it's either 1997 or 2004. What it does is say, whatever your house is, especially in your homestead, you pay super low. It's static at a certain percentage and the valuations don't go up. If you build a new house, that's even better, because they value the materials at 1957 levels and it never goes up. People say, "Well, the politicians will at some point repeal that and get something else in." And if they do — which has already been tried multiple times — they commit political suicide and they don't come back, because that's not what the people in Puerto Rico want. They've tried that numerous times. That's one of the things I like here in Puerto Rico. Jerry, how do you guys do it over there in Costa Rica for taxes?
Jerry: Well, I'll tell you. I've got five acres.
Host: Nice.
Jerry: And I pay $120 a year for property tax.
Host: How much?
Jerry: $120.
Host: What? Very expensive.
Jerry: Horrible. It should be zero.
Host: Oh my god. Oh wow.
Hey, this is a good one. William says he wrote a letter and showed recent homes sold in the area to prove that they can't raise the property tax on assessed value. That's a good one to do. And then someone said, fight to lower your property taxes, which is also true. You can do this. It happens to my wife all the time. The county comes in and says, "Hey, this apartment complex is worth this." She says, "No, it's not," and she has to get a lawyer and they fight over it. This happens every couple of years or so. It does kind of suck. At least you don't have to deal with that with Bitcoin.
Jerry: You don't have to deal with that with Bitcoin.
Host: That's right. This is why I own a bit of Bitcoin, a bit of real estate, a bit of equities, a bit of precious metals, and a retirement account. I kind of work things all over, because hopefully when one goes down, another one will go up a little bit. Or if for some reason something gets hacked, at least I have the other stuff.
Mojo says, "Add at least two zeros to that, Jerry — here in West Palm."
Jerry: No question. No question. West Palm is growing fast.
Here's the bad news, folks. The government has only two ways to finance itself: tax receipts and the issuance of debt. We have already seen in the debt world that the world outside the United States and the citizens of the United States do not want to buy US debt. They don't want to fund debt. Hence why we're having all these issues in the backside of the 30-year. And so what other recourse do governments have? They have to raise taxes. And where can they raise taxes and actually get it acquired? Property owners aren't going anywhere. So counties in the United States are the ones allowed to levy that. They don't get federal funding for that type of stuff. So their only recourse is to raise taxes, because nobody wants to buy county bonds anymore. Municipal bonds — they used to be really lucrative. You'd get a municipal bond for 6.5%, whereas if you were trying to go to the Fed or the Treasury, you might get one for four or three and a half or two and a half. But a county would give you 6% or 8% in some cases. People aren't going there anymore. Too high a risk. They're not getting paid back.
Host: Not getting paid back. Yeah. And you're right.
There was another one — one more thing about property. Everything belongs to the state. You have limited permission to use until further notice.
There's a little way around these things, though. If you pay off your house at some point and you get into some kind of dire straits, there's always a secondary mortgage type of thing. Let's say you've got a $100,000 house and you've got taxes of $1,000 every year. Maybe you take a secondary mortgage and start to just use that, and then let that go until maybe you pass away. You pass away with debt on your house of whatever — $10,000 — but it's worth now, over five or 10 years, gone from $100,000 to $150,000 or $110,000. Give it to the kids, sell it, they pay back the loan, everybody's good.
Another thing I always think about is this: as a landlord, the problem with taxes is that when it hits me, at some point it's going to hit you. So if you're renting from me, I can't raise it during your initial time frame, but if things go up enough, I've got to pass this on to you. I'm sorry. And then you'll say, "You know what, Rob, the hell with you. I'm out of here. I'm going to go find some other place." And then you look at another place and it's been a couple of years and you're like, "Wow, things got more expensive. How did that happen?" Well, it's because the government keeps printing money, and that's just how it is.
And then as time goes on, people just kind of, as a blanket, write off, "I'm just going to rent for the rest of my life and not have to deal with it." And we can get into the different things you have to do as far as improvements, fixing things, tenant problems, and all this stuff. It's a thing. There are different things you can do.
Jerry, let's get out of here. It's late. What are you doing today?
Jerry: I've got a service commitment. I have a volunteer thing I do with this entity and they have a board meeting in an hour, and then the rest of the day for me, folks, is season-opening NFL football. I love football. I'm going to be glued to my TV, red zone, drinking Kool-Aid, having a good old day.
Host: Is that what you call Keystone Light — Kool-Aid?
Jerry: I don't drink alcohol, but yeah, sounds pretty good.