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Big Beautiful Bill

Our investment thesis was and remains that governments will spend money they don’t have at an accelerating rate. Demographics, and therefore politics, point to this. 

The monetisation of huge state debts is really a universal basic income of sorts. We will continue to pay for everything with money we don’t have. Accordingly, lots of things will continue to be free but will have the unfortunate consequence of making everything else more expensive (housing being the most noticeable one, but really all assets). 

The ASX reached an all time high last week. Is it really because Australian companies are doing so well? How is it that markets make nominal highs that always exceed economic growth? It’s simply the consequence of the free stuff. The gains are nominal, particularly in the case of the ASX. 

Our view remains then. We need scarcity; we need to be on the digital trend; we need to be with the demographic trend. 

Long Bonds

Last week we discussed that gold has been on a good run. Perhaps then, this chart is unfair. It measures ETF:TLT which holds US Treasuries of 20 year maturity and greater. In my mind, a horrible product. Over the course of the last five years those treasuries have fallen by 70% in value versus gold. 

Despite the run gold has had, the comparison should be theoretically a reasonable one. If the government prints a lot of money, interest rates will fall, bond prices will rise. The gold price will also rise as people seek a store of value. If those vectors were roughly equal then the line would be flat or closer to flat. 

The mismatch, at least in my view, is that the official statistics do not properly reflect the level of debasement that is going on. Investors know. They are piling into gold because they know that bonds are a disaster. 

This is financial oppression. We don’t need to wait, there is no “over the next few years”, it's here. It’s been here for a while and the owners of these garbage products are the world's largest pools of savings. Superannuation funds and insurance funds. Most likely I own some and so do you, without even knowing it. 

Every family office in the world is aiming for 12% per annum just to stand still. They know. When your superannuation statement arrives and declares another year of +8%, you just got poorer. 

Australian Super, one of the country's largest funds, has the following returns. For such large pools of money they are excellent. In real terms, my sense is……they are negative. 

The Demographic Trend

“We found no strong correlations across many dimensions--race, ethnicity, religion, relationship status, income, education, or financial literacy--with owning bitcoin. Age and gender were the exception”

Good research this week on the trends in Bitcoin ownership. They confirmed what I think we knew, it skews young. It also skews male which is also not surprising given how techy it is perceived to be. The good news here is the large pools of money that are currently not addressed, specifically the female population and those over 50. 

The charts and reports were produced by the Nakamoto Project. You don’t need to sign up; you can just hit the download button on the left of their website to get the PDF. 

The other thing I noticed was this.

“Our most surprising finding in 2024 was that bitcoin ownership was not skewed conservative.”

This point is going to be really important going forward. As Trump’s power wanes in 18 months or so, we really do need both sides of American politics on board. Bashing this sector is now a well known vote-loser so I think it is unlikely to happen but it was certainly encouraging to learn that bitcoin ownership is spread across both sides of politics quite equally. 

Bitcoin is for all people in all places. As an industry we have done a bad job of making that clear. 

Power

In the USA the equivalent price of energy is about $40 per MWh (similar to China) so comparable to that of France. It is simply impossible for Europe to have any energy intensive heavy industry with power prices where they are.

The situation is even worse in the United Kingdom where the wholesale energy price is $105/MWh. London happened to be a little bit warm last week, any temperature above 28 degrees is considered unbearable because so few places have air conditioning. Residents of the UK might reasonably ask their government how it is that their power costs exceed those of the Ukraine. 

It’s surprising how little discussion there is about energy policy and energy choice. No economy outgrows its power capacity. It’s pretty much that simple. Governments ought to start there. 

In Australia the ‘relief’ from high power bills is not arriving from a supply based solution. The Federal Minister for Energy put out a statement this week. You will notice it is full of “Stop, Prevent, Ban”. There is absolutely nothing about supply (other than denying nuclear any chance). 

At the state level, the government has simply opted to give everyone money. Indeed irrespective of circumstances everyone in New South Wales will be receiving $150.

As a foreteller of where the economy was going, it’s worth remembering this from the World Economic Forum. It was 2017 and they declared that “by 2020 Bitcoin will consume all the energy in the world”. It was false, simply another attack vector on a protocol that governments did not want. What it showed was an incoming shortage of the thing the world needs the most, energy.

Now, bitcoin competes with AI data centres for power. AI data centre growth is going exponential. The whole world will be hammering NVIDIA GPUs for decades to come and we know exactly where the centre of gravity for the newest industries will not be. Europe, UK, Australia. 

All dead as a dodo because their power is simply too expensive, what’s more there is no strategy to change this other than to give away money. Politically, we hear nothing about the environmental impact of AI data centres, despite their footprint vastly exceeding that of bitcoin. That’s because governments are desperate to get on the AI train but seem clueless as to how to get there. 

They would do well to know their memes.

Euro-Trash

After all, it must be at least three weeks since Christine won an award. There was never any reason for concern though. I hope you weren’t worried?

I wonder whether these causes will die out in the digital age? Here’s an interesting story from Google founder Sergey Brin who outsourced his appraisal process to an AI. Since it operated without bias it identified the person who was actually doing the work, someone unnoticed and not terribly vocal. 

Increasingly, as work is done online and the “office” culture dies, assessments of people will simply be based on talent and output. “Show me what you did” as opposed to how much you can talk about yourself. 

This of course is my principal criticism of Lagarde. Her track record is absolutely appalling; it’s all awards and puff pieces. As French Finance Minister she ended up in court, found guilty of negligence (a criminal trial). By the time the chickens came home to roost, she had left and was at the IMF. 

The IMF gig culminated in the Argentine debt debacle. In her defense, she did not have much choice but to loan money to Argentina. The point really was there was no need to dole out $56 billion that was obviously never coming back. Perhaps $2bn or $3bn, but $56 billion? Again, no consequence. 

Once again by the time the milk turned sour, Christine had left and was running the European Central Bank. 

While she has been Europe’s Economic Steward, the continent has gone backwards. The United States which once had an economy the equivalent size of the Euro has doubled in size and now dwarfs Europe. The EU and the ECB are mired in regulation and rules that are impossible to follow. So much so that the American tech companies have nearly given up. Apple announced this week that some of the features in its latest upgrade will not be available in the EU because of the Digital Markets Act (the maddening thing that gives you all the cookie pop-ups in Europe). 

Lagarde’s term ends in October 2027; I’m sure Europe will limp along in the meantime.  As soon as she leaves, someone will lift the sheets and something terrible will happen. 

Time moves quickly though, in 12 months time all eyes will be on her successor. There has never been a German ECB president, which is surprising. We had Wim Duisenberg (Dutch: 4 years), Jean Claude-Trichet (France: 8 years), Mario Draghi (Italy: 8 years), Christine Lagarde (France: 6 years, 2 to go). 

I would suggest that Isabel Schnabel who is both a current Board Member and a German is the likely favourite. The French will think of the role as theirs, so the horse trading will be considerable. If they don’t get it, expect some significant appointments of French bureaucrats to other roles. 

Incidentally, the previous paragraph captures the entire European issue. You get the jobs in Euro-bureaucracies because of who you are, not what you can deliver. For that reason, I wish them every failure. 

Further Information

Our June 2025 report to investors can be found here.