[0:00]Why was Bitcoin so exciting pretty Trump? It was this idea that Bitcoin is like a national strategic interest that people are going to rally around. And a little bit of that energy has been sucked away because it's AI. AI is the thing that has now found its place where it's it's it's it's a make or break kind of moment. We have to go all in. And that is in itself creating a lot of that energy that I think Bitcoin wanted. Do you think that there's an intersection there between the two? What's going on guys? Today we got a great conversation with Jeff Park. Jeff is a partner and chief investment officer at Procap Financial. In this conversation, we talk about the Fed meeting, why easy money is coming back to the market, what's going on with Bitcoin's price, why everyone is so bad sentiment-wise online. And then we even get into what is going on with Procap Financial, how we close the deal, and what's the vibe? What are we trying to do? And where can you go learn more information? All that more in this conversation with Jeff Park. All right, Jeff, interest rate cuts, my friend. We were headed real deep into the uh deep end of the pool uh for QE. It's back. Like we're going to get loose monetary policy and easy money. What do you think the implications of the Fed's decision here is? Well, it's the last meeting of the year. I think that's why it's especially topical because it'll set the tone for 2026. So, as you said, the rate cut I think is a no-brainer, it's priced in and has it has even inculcated that we should look towards accelerating those rate cuts. Um, and we know it's basically driven mostly by the uneasy feelings we have on the labor market. Um, and I think the labor market challenges we're seeing will probably continue in 2026. So the recent data point we have on October jobs numbers was that there were few things that were happening that are at some level uh contradictory, right? So, you saw that there is uh new openings, more openings than before, but you also saw that people were fired more. And then the quits rate also is going down, which means generally people are feeling a little uneasy about quitting because they don't feel the economic security to pursue something else and they're not going to take that risk. So these all these factors point towards labor market still being a little bit of a conundrum and I think that's what the Fed is focused on in December and it's going to be focused on 2026. If you look at the numbers and actually kind of look at the qualitative aspects of what's happening, what you're seeing is that yes, there are new jobs being added. But the jobs are coming from what I will call um service level uh where people are not really looking at as permanent openings. Like these are kind of like maybe even driven by some seasonal aspects of needing more Starbucks barista kind of stuff. Right? These are not what I would call like permanent fixtures of people who find security in the jobs and the layoffs, they're coming from, as you already know, from high quality sectors like the tech space. And those are the jobs that people want more of. So you you're seeing the quality of jobs changing beneath you, even beyond just the numbers themselves. And I think that's the story that will continue to determine how the Fed categorizes labor weakness going forward. Uh, so that's why I think it's important that we have that in context. So really there's there's a few things to keep in mind. One is, will we continue to accelerate more rate cut? I think that's on people's mind all the time. We know we're getting 25 bips, but the question is like how much lower are we going to get in 2026 and that pace of rate cut I think is really important. Um and then the second thing is really um more kind of about beyond rate cuts like what are the other policies that the Fed is going to implement to ease up liquidity as there are strains that are being seen in the system. So on the acceleration of rate cuts, the US is on a particular spot because we're a little bit off sync with the rest of the world. Like Japan is raising rates, Australia just yesterday announced that they're probably going to end easing policies. So we're moving in a slightly different direction with the rest of like the global um supply of capital if you will. And and that's a little bit um unnerving especially because if you believe like rates are uh the neutral rates are determined by some equilibrium between investment and savings. We've seen a clear big investment boom here, right? The AI boom is real and there is investment capital flowing in. And a PhD in economist would tell you that means that our neutral rate should actually be going higher. Uh all things equal with investments being um drive our function than savings. So I think that pace of cutting is uh is is up for question. And then really, I think the the billion dollar, trillion dollar question really is what is the Fed going to do for liquidity easing purposes as QT has just ended in December 1st. And here we constantly hear about how the concept of bank reserves um right now, $2.9 trillion is not a number that we know to be like steady for where the banks may need additional liquidity for. And so that I think is the thing that is driving a lot of unease. You know, I think over um if you look at the pricing of the overnight GC repo rates, you'll see that it's trading around 4.25% today. And that means by end of the year, people are expecting there to be a a bit of a tightness because there's always tightness at the end of the year where the Fed and the banks kind of reshuffling all their balance sheets. And 4.25 is 60 bips higher than what we think the Fed cut rate is going to be. I mean that's a pretty big spread. So the market is anticipating there's going to be tight liquidity. Um and of course that is compounded by the fact that there's just been more Treasury issuance, which is sucking up liquidity from the markets. And so this is why people think we're going to have some kind of um liquidity injection as early as January and some people think it will happen within Q1 but not January, but there's a lot of expectation that starting January, bang, right in the new year, we are going to have some kind of liquidity injection from the Fed that is going to have to be a part of helping us discover what this ample reserve capacity should be around this 2.9 trillion in the bank reserve side. And of course on the other side of that balance sheet in the ledger booking is uh is uh is the Central Bank's reserves at $6.5 trillion. Now, what's interesting to me is if you read headlines, you'll see headlines that say uh everything's amazing. You'll see that it's literally next to a headline that says everything is horrible. Uh both of them seem to be true. And I think that what you're highlighting here is like there is a lot of investment going into AI. At the same time, there is no investment going into other industries. And so, uh what I've always thought is very interesting is uh, you know, theoretically, uh, or an academic uh may look at an economy and they kind of like broad brush stroke, you know, is there investment? Is there not? Well, what sector, how much, you know, when, sequence, right? Oh, there's all these kind of different things and um, it's kind of like inflation. Like different people experience different levels of inflation depending on what the actual inflation in the economy is, but also like what is the basket of goods they buy and and all that type of stuff. The reason I bring that up is because it does feel like there's obviously an uh investment in AI. Uh, a plethora of investment is going there. Um, but the Federal Reserve only has a one size fits all monetary policy. Right? And so they have to almost like put weight on, do we covet the AI industry more or less than maybe other industries? And it just seems like once you get into the like minutia of thinking through this stuff to simply answer the question of like, does the United States have investment or not? It's a little bit harder than just like, you know, oh yes, uh there's a ton of money flowing into one sector because I think there's a lot of people who in many sectors who are saying, wait a minute, we have none. We we actually see a exit of talent and capital and, you know, uh productivity and so how do you think through that as an investor and trying to understand how the Fed is thinking about making these decisions? Yeah, you're hitting on a really good point, which references back to the quality of the actual uh changes matter beyond just the numerical aspects as we've talked about with unemployment and jobs number. And quantitative easing too, uh as people are anticipating will make a revival for, I actually do think it will have industrial elements to it. Because we're at that point where fiscal and monetary uh functions in relations to government expenditures and private sectors are all kind of merging. Uh and in a weird way, quantitative easing, signifying on the quantity of money, ignores the fact on the quality of money, right? Actually, where is this money going for what purpose to drive what qualitative outcomes for society at large. So I think personally that we're going to venture into a new era where the next versions of QE will look maybe qualitatively eased than quantitatively eased. And it's because the K-shaped economy is real and everything we see. We see it in the labor market. But we also see it in the ways that goods and services are being priced differently. There's inflation in certain things, there's deflation in certain things. But this is the problem with society at large where the things that are experiencing inflation are generally the things that people need beyond kind of goods, right? So when you talk about like education being expensive, healthcare being expensive, um services being expensive, child care being expensive, all that stuff, it's hard to know if AI can actually reduce that as much because ultimately it's human capital, human labor, and these things, of course then become a little bit circular. Because we're all trying to grow the economy where everyone's playing a role and contributing their human capital, right? And so the reason AI is so fundamentally different is because it has the potential to replace human capital. And that's why it's just categorically different than any kind of technological technological revolution in the past. It's not just an amplifier of human capabilities, there are certain jobs that will completely be eliminated where if you think about the way society is generally structured. We've always still needed jobs for kind of the um base of the pyramid if you will, because it's a part of like the social contract of earning a livelihood to participate in society, right?
[10:21]And those are really the people most at risk. And so even when we think through kind of the migration of human capital that's been happened post all the technological growth, we ignore the fact that like part of why we're here in this great movement of populism is because so many people have still been left behind and has never recovered, right? Like the coal miners and whoever was in that industrial sector actually never recovered into doing anything else. And so imagine that happening at the level where we're now talking about quality of jobs being fundamentally different. I think um this is where QE will just have to look different because it's going to have to start being targeting a little bit more specific industrial policies, specific kinds of jobs creation, and like a specific kind of growth that is good for society at large. And as you said, right now, all of it being skewed in AI is creating this K-shaped market as well in the S&P 500, where the top 10 companies are just dominating the rest of the index. If you take out the top 10 companies and look at the rest, they've generally not been performing very well. So, I mean, that alone tells you that everything is hinged upon the quality that is not being as as widely dispersed across society as it should be at this point.
[11:58]I do think there's something about um this feeling that people have where technology should solve my problems. It should make my life better, it should make everything around me cheaper, it should make my quality of life go up, it should make me happier. Um, there are some people who have harnessed that for sure, and I tend to think that they're in the technology industry. Right? They kind of have an expertise and experience. Um, but the challenge is like, how do you bring that to everybody? Right? And uh obviously the negative side of this is people say, oh, we're going to lose our jobs or you know, there's going to be these these issues. Um, but if you actually look historically at what has happened. You know, I always go back to, I think it's like 1870 to 1900, 1870 really probably is a good time frame. Um, there's a a great book, I forget the guy who wrote it, but uh, it's basically like the history of American growth. And uh Dave Collum at uh, uh Cornell, um suggested I read it one time, and I started reading this thing. And all I keep thinking about in this book is homes had no electricity, no running water, no infrastructure, no telephones, no, you know, there was like completely unconnected. And so you had like a farm, you had a house, you had to like travel places to do things. Right? Literally you were like a single, you know, uh uh unit of account if you will, in kind of housing. Yeah. And this book talks about basically two things in particular really changed the way that uh society interacted in commerce and all this stuff. Uh one of the most important inventions was the elevator. The ability to go up rather than have to go out, right? Um, so you can create density now. And so like you don't think about that, right? But like, yeah, that's been pretty helpful for New York City and many other cities around the world. But then also the connection of these homes where then they had roads and running water and electricity and they had telephones and all this kind of stuff. Now, you plugged yourself into a network. And one of the things that I I constantly go back to is I think what we're trying to do is plug a business into a network. That network is, there's the Bitcoin network, right? And the balance sheet and kind of what we can do there. It's also plug it into this idea of like an independent investor and and kind of the rise of these independent people who get their information online and how to keep their capital directly and are chasing independent uh kind of financial independence. Um but it's also plugging yourself into almost like a technology matrix of there's AI and there's Bitcoin and there's drones and rockets and humanoids and you just go through all this stuff. You just feel like the world is rapidly changing. Yeah. And I think maybe the the way that I have come to sum this up, um and we've we've got on the website, you know, I constantly keep saying it online is just like the age of abundance is coming and Bitcoin is the hurdle rate. And when you think of those two things, it's like, look, like there are positive benefits, and then every capital allocation decision is against Bitcoin as a return profile. And if you can hold those two things in your head, I think it gives you kind of a nice framework for for kind of, you know, not only where's our business going, but where is the world going? Yeah, no, it's well said. I think um technology by and large has been so useful for people because it gave us time. And when you think about the inventions that you've mentioned, a lot of the things as we've known it in the past are what I would call like intrinsic kind of value gains where um it's pretty linear. Like again, like working a little bit longer because you have light on that you didn't have, you know, lights before because there was no electricity or elevators or cars that help you transform faster. Like, you're gaining time and time that you can then spend for other things, which can be for investing, your own personal growth, or consumption, or um, you know, whatever you want, but you got time. The thing that's happening with the most recent rounds of technological growth is that it's actually not linear because the growth that they're enabling is very intrinsic to you. So it's not just about me going from point A to point B faster. You and I can ride the same car and the net benefit is the same for you and me. But if there's like a tool that's going to make me better and you better, well, now it's not the same outcome. It's not like we both just shared a car from point A to point B. It's how did you use that tool? How did I use that tool? And actually knowing how these things can help you intrinsically become better is a different um benefit. So here again, I think there's an element of self-determination. Like elevators are great, and everyone benefits in the same way. But the but the but the most cutting edge exponential things that are happening that are now going to improve the principal like personhood of you, they need to be um used in the most proper way for what you have to assign a value proposition for. And uh that's a mindset. I actually think it's a mindset, much kind of like you'll still see old people who are like not into reading emails and they want to print stuff and, you know, it's fine. They can get by like that. But, you know, I would say we're kind of at that inflection point where um if you don't embrace these uh these changes to help your own productivity, you're going to be left really behind. Like even when you look at Wall Street, you'll still see some of the senior bankers that are like, you know, 50 plus that don't know how to use Excel. And it's fine because they actually have a whole world in which they've built their livelihood around relationships and broad based conceptual thinking, and they get to the goals they need and they can utilize other things. But you have to imagine they grew up with a calculator, right? They were literally punching buttons in a calculator. Um, you know, the generation going forward, I mean, they're going to be using all these toolings in ways to help become better investors, better thinkers, becoming more independent. And uh part of this ethos, I think, really does come back to Bitcoin where like understanding the frontier of how these things can help and change is exactly how you also improve yourself and your own society at large. So, it's really an exciting time. I I actually think the age of abundance is is is so there's so much we need to uh root for and be optimistic and optimism actually is not as easy as people think. I think there's this general misconception too that optimism is like a foolish thing, and so pessimism is actually the educated kind of take on like being right. But it's my opinion quite the opposite. The world is in a state of entropy always. By the steady state of physics, the world is always falling apart. It's very easy to be a pessimist. It's actually an optimist that takes a lot of work and a lot of deliberate conscience uh appreciation because you're fighting against the tide of what general entropy looks like in the world. And we all need to train our minds to be more optimistic about the future. I uh I couldn't agree more, my friend. All right, well, we'll do this again next week. Sounds great.
