[00:02:38] And by the way, Justin’s son told the media that he planned to eat the banana. So let’s start, okay, so what is it exactly? By the way, is it a real banana? It’s a very frequent question. So it turns out what he actually bought was not a banana and not a piece of duct tape. He bought a little certificate from the artist named Maurizio Catalan. That says he can go out, buy some duct tape, and tape a banana to the wall, and it’s a piece of art. And he paid 6. 2 million for it, including the fees. How is this even possible?

[00:03:10] Preston Pysh: Hold on, so he didn’t even get a banana to eat?

[00:03:12] Tad Smith: He doesn’t even get a banana. Well, I think he probably got the one that was in the auction room.

[00:03:16] But the point is, what he gets is the right to eat a banana and take another banana and put it up there. And so he gets the right to go to Walmart and pay 26 cents for a banana and tape it to the wall and call it, “World Class Art.”

[00:03:29] Preston Pysh: I’m so confused. I think anybody hearing this, if you lined up a hundred people off the street, I think 99, if not a hundred of them would say, this is insane. This is, this makes no sense. This is it’s chaos. Crazy.

[00:03:41] Tad Smith: And moreover to your point that you made, he wasn’t the only bidder.

[00:03:46] Preston Pysh: Yeah. Right.

[00:03:47] Tad Smith: There were a lot of people with a lot of money lining up to bid for Maurizio Catalanski at the end. It’s banana. And it’s such an interesting moment of the times, right? Because it goes to what is value, what is money, where does money come from? Where does it go to? Why do people, is it, I mean, is it crazy that a banana, which costs 26 cents in Walmart could go for 24 million times that in Sotheby’s? From my perspective, there’s so much to. I hesitate to say unpeel, unwrap, if you will, in this that I think it really is a good place to go to because It goes to the question of value.

[00:04:25] Why do things have value? Why would a banana be worth 6 million in one context and 26 cents in another? Why would a dollar be worth something here and something else be there? Why would a piece of code have value? And that’s really about, frankly, when you get to it, it’s really about evolution. When you think about our, we as a species.

[00:04:45] We tell stories. I mean, there’s objective reality. You know, there’s a wonderful book out currently, Harari’s Nexus, that goes into this. Objective reality is a mountain. There’s a window behind me. There’s a rock. My dog is playing in the yard. Then there’s subjective reality, which is what I think is going on.

[00:05:01] And then, but also there’s a reality between you and me, Preston, and a reality among all the people that listen to your show and also that are in the world, which is called what he calls an almost an intersubjective reality, which is a Storytelling reality and our species is really highly evolved to tell stories and the stories create movements, they create religions, they create manias, they create all these things and guess what else they create money and they create value.

[00:05:32] And they create a stock market. And so when you look around why things have value and what things they are, what you have to understand is it goes back to things have value because we say they do. And the fundamental insight I had that was not immediately intuitive. I don’t think it is intuitive to me.

[00:05:49] I thought the U. S. dollar had value because you have to pay your taxes in it. Yes, check. It is a highly, highly valuable form of currency. The utility of the dollar is phenomenal. It’s really a great instrument. And yet, if we all held hands together tomorrow and we said, You know, Preston, the dollar isn’t worth anything.

[00:06:09] Guess what? The dollar crashes. And that’s a really, again, an insight, which means there’s no difference between that and looking at a Picasso and saying, well, it’s just paint and canvas. So why should it cost 20 million or the most extreme example that you started with, which is a banana. It was 26 cents in Walmart and 6.2 million in Sotheby’s. And you don’t even get the banana. I mean, think about it.

[00:06:33] Preston Pysh: I like this idea that you’re saying that the way we’re wired is around this idea of stories and how powerful the stories are. And so I’m just going to throw this out there. So my take on this right with the banana, this is a social flex.

[00:06:46] This is a story around a person. And, you know, I have no problem calling Justin that he’s socially flexing. 6. 2 million is so meaningless to me because I’m so insanely wealthy. That I can go buy this banana duct tape to a canvas and I’m going to eat the banana and I know I can get the banana for 19 cents and I don’t care.

[00:07:09] I am showing you how insanely wealthy I am, is what I think the story is that’s wrapped around this. Now I had read that the other bidders We’re wanting to buy it because they were going to give it to Elon Musk, or at least one of them was, or something like that. And so that’s a story. The person wanted to be able to give Elon this crazy, super weird thing, you know, maybe they’re trying to suggest that he’s an idiot and here’s the money.

[00:07:35] I have no idea what the story is, but you’re right. There is a story that was attached to the insane amount of money that was being spent. And for these people that have a net worth of call it a billion dollars or whatever, 6. 2 million is pretty meaningless to them. And the whole world is going to talk about it.

[00:07:52] Tad Smith: Exactly. Yeah. And here, now let’s step back from the story, which I think you’ve nailed on fame, and we’re going to set aside the banana for just a minute and talk about a piece of art. Art, you have two almost identical necklaces and one is magnificent.

[00:08:07] Let’s say exactly the same carats, exactly the same gems. Exactly the same era, one just happens to be, have been worn by Marie Antoinette. So the piece can have a story. Yeah. And admittedly, it has all the fame advantages of owning it. You know, you tell your friends, you know, what I just put my wife in. That was once worn by Marie Antoinette. By the way, I’m not sure that’s a compliment and nonetheless, you step back and you say, okay, well, that the piece is a story. And then you realize, wait. Whether it is an NFT, an ordinal art, or frankly, the pedibone behind me. The reason we buy things, the reason we pay more than the cost of materials is often because there’s a story attached to them.

[00:08:46] It gives us a story. And by the way, it can be the one you said, which is it accrues to our social status. But often, it’s just the fact of the story creates value. Yeah. And so then there’s a story about all these other things that I know you talk a lot about. There’s a story about Bitcoin. There’s a story about micro strategy.

[00:09:02] There’s a story about crypto. There’s a story about all these different things. And the story is what, in my mind, drives outsized value. Utility is a fundamental feature of many of these things. But frankly, for a lot of the value, it’s not having to do with utility, it has to do with the story aspect.

[00:09:17] Preston Pysh: Yeah. Where I start getting a major problem with some of this stuff, we go back to, I think it was 2022. This rock, this JPEG rock, and it wasn’t like there was one, the artists that put this out there, there was this shade of gray, there was that shade of gray, there was a hundred of them that were sold at this shade of gray, and they were being sold for hundreds of thousands of dollars.

[00:09:39] And so, for me, I’m looking at this, and some of me puts on this military lens, right, because that’s my background, I have a military background, and I’m saying, this is money laundering. These are people that just really want to be able to wash very dirty money. They want to buy something for some very subjective price and then try to offload it through marketing and through a story to then wash the money.

[00:10:05] And I know that’s a very dark and negative turn to look at it, but I think the reason, and I don’t know that I necessarily see this banana thing in that light. But I definitely see these jpeg rocks that were sold by the thousands, I think. Definitely in the hundreds because it was, there was so much of it.

[00:10:23] And because the story gets really kind of wonky there when you’re selling thousands of them. I don’t know that I buy it. I think that there was something very convoluted and hidden underneath of it. And again, this is just Preston Pysh and I have no idea.

[00:10:38] Tad Smith: You’re right on track. . One of the most powerful aspects of any story and one of the most powerful stories we have is get rich quick.

[00:10:44] Meaning the notion that you can win a lottery ticket, the notion that tomorrow you can be free of all your financial burdens, the notion that tomorrow you can be a billionaire. Is a fundamental story. And by the way, and it is almost like rocket fuel for other kinds of stories around it. So I’m not surprised.

[00:11:03] You know, I, I’m old enough to remember what the real pet, you know, Jamie diamond talks about pet rocks. I’m old enough to remember real pet rocks and they didn’t ever explode in value, but we know the stories of tulip bulbs and how those exploded in value and various other things. So, or frankly, many cryptocurrencies or NFTs and earlier incarnations.

[00:11:21] And they have a story. There’s a certain, Oh my gosh, I’m in, I’m on the inside. I’m an insider. The money is moving. I’m seeing my value go up and up and up. And that’s a powerful, powerful, reinforcing story.

[00:11:36] Preston Pysh: It’s so hard. For me, when I’m looking at art and I know artists subjective, everybody has a different point of view. I’m just looking at the proof of work. If the person sitting down with, I really enjoy looking at like pencil art, that’s very hyper realistic in the person I know has spent thousands of hours just working on this and the diligence and the attention to detail. And the fact that if I line up a hundred people off the street, maybe one can even come close to replicating what I know is one copy.

[00:12:05] There’s tons of proof of work. It’s physical. It’s there. Versus a picture of this that can be replicated, you know, online as many times as the artist wants. It’s just to me, those two things are very, very different. Very different from what I would be personally willing to pay. And I guess when I see some of the values of these things that people are willing to pay, I think it’s more of a function of the times with respect to fiat and how grossly out of whack society has gotten between the haves and the have nots.

[00:12:36] That are demonstrating the prices of some of these crazy things that we’re seeing online versus what we would see in what maybe I would call a somewhat under control market or a normalized market where the money is actually scarce and not just being printed by the trillions by clacking on some keys.

[00:12:52] Tad Smith: So many threads to pull on that. That’s really powerful. We can go down the thread about fiat, we can go down the thread about how long art can sustain value in a world where you do not have the fiat sort of basis system. And then we can also go down the thread, which is maybe interesting also, at some point later on, would you be willing to pay for art that’s created by a machine and not a person?

[00:13:13] Is there something inherently human that is required for you as part of the story for art? Because I literally sat on a conference I was at a panel in Christie’s in Hong Kong three or four weeks ago with a poet and she creates art with a machine and she called it not a tool but a collaborator or co collaborator.

[00:13:30] So any one of the threads we could go down all three. Where would you like to go?

[00:13:34] Preston Pysh: Let’s start off with the, I love all that. Let’s start off with the money and just kind of your thoughts on the fiat system and how broke and how it’s divided society.

[00:13:44] Tad Smith: Yeah, so it starts with, from a lay person’s perspective, and I count myself as a lay person in this.

[00:13:50] We can start with a simple question. Why does art in Aspen, I’m sorry, why does a house in Aspen and Palm Beach and I don’t know, Hillsborough or Palo Alto or East Hampton or South Hampton, why do they cost so much? It’s an interesting question. Why is it that Picasso can charge 20 million for a painting and something that looks exactly like it can be 5?

[00:14:11] Why is it that a necklace owned by Marie Antoinette or Josephine Bonaparte can be millions of dollars and the same necklace can be mere thousands of dollars? Why is it that mega cap tech stocks can have sustainable, long, for over a long period of time, they can have very high multiples? And then, by the way, it’s not far removed from inequality.

[00:14:31] And I step back and I say, well, you know what? One of the powerful things that we see is that when the government, for lack of a better way to say it, creates significant amounts of liquidity in the system, excess liquidity in the economy. Is like bees to the honeycomb on scarce and desirable assets. And that is such a powerful thing to see immediately.

[00:14:54] It sounds obvious. We talk often about, in sort of a clinical way, people that own assets do well, people that are renting out their labor in exchange for earnings or something like that, or sell bananas on the street corner, or the case might be, they don’t do as well. But if you looked at just the money printer, If you looked at just liquidity and the powerful effect it has on not just assets per se, it’s not all assets, by the way, not all assets go up when the micropower is running.

[00:15:20] It’s the scarce and the desirable ones that go up. Yes. And that is why you see massive accumulations of wealth in highly concentrated areas where it’s defined both desirability. And scarcity. And interestingly, if you don’t have that, then we can talk about how people have solved for that and where you don’t have either scarceness or scarcity or desirability.

[00:15:45] It’s generally you lever up, but let’s set that aside. If in the unlevered world, it’s really those things. And that’s it. And the secret to just observing, right? The secret to longterm wealth creation in a world where the money printer runs at a regular pace, we can debate. Whether it’s 6. 6 or 8. 95. I love those numbers.

[00:16:06] You’re throwing that debate. we can have that debate, but if you just step back and you look at it, you see, ah, that is how wealth is being accumulated. And guess what? If you own those assets and you just bought them cheaper and you held them, you didn’t have to do anything. You had to do nothing and you get really, really, really rich.

[00:16:26] Yeah. And that, by the way, and if you didn’t, if you weren’t, if you didn’t have the money to do it, or. You’re selling your labor. You’re doing these other things. You don’t get rich unless you get really lucky.

[00:16:36] Preston Pysh: Yeah. You got me thinking on this idea of a story being attached to art. And I want to go back to the other piece that you highlighted there on the previous question, but you got me thinking on this idea of a story.

[00:16:47] Do you find that some of the best investors in art are leaning into whatever that story is after they own, like, let’s say you’re, you’re just investing in art for the You know, the value add, right? You’re trying to see number go up on whatever piece you got. Do you find that some of these people that are buying it for investment purposes, lean into the story of whatever that piece was to continue the marketing and the story propagation so that it becomes more valuable? Call it when they try to sell it five or 10 years later. Is that part of the strategy?

[00:17:18] Tad Smith: But I want to add one other thing, which is they not only do it for the utility reason you said, which is it enhances the value. They do it because the story is irresistible. Meaning, in other words, the story, if I spend, if I stretch to buy a painting, or stretch to buy a banana, whatever it is, the story becomes part of me, and more importantly, I become part of the story.

[00:17:39] So, you look at it and I have, as long as the banana is in existence. As long as the Da Vinci’s in existence, the Salvador Mundi, as long as any of these famous things that are in existence, I have become a part of that story forever.

[00:17:53] Preston Pysh: So let’s just play on this. So Justin buys this banana on the canvas. He says he’s going to eat it. Let’s say he just does some weird stuff with it, right? He only ate half of it. He puts it in some vault in some, you know, obscure, it catches on fire in two years from now. And you’re just like admonishing and you’re becoming part of this story. And then he’s putting it into, these are the antics or these are the things that potentially make the, I know this sounds crazy folks.

[00:18:19] I’m not suggesting this thing can go over 6 million in the future. I know all this is so crazy. I’m just trying to understand how a person dabbles or plays in this space and does it successfully. These are the things that like add to the story, right?

[00:18:34] Tad Smith: And guess what? When you’re really, really super rich, super rich, not just merely rich, I’m talking super rich.

[00:18:41] Preston Pysh: You need to do these types of things.

[00:18:44] Tad Smith: You realize that you’re going to run out of time. Now, maybe you can make the best investment in the world and work on your health and all this good news, but you are going to run out of time. So how do you transcend time? Well, you can build a pyramid, build a skyscraper.

[00:18:57] You can do a lot of different things. But one is, one is, how do you create? a story and or how do you pick by a story and weave yourself into a story that transcends that transcends your own mortality. This is not a new thing. This is a timeless thing. And it’s part of us. And there you go. And this is interesting.

[00:19:21] This has me thinking. This is very fun. Let’s talk about the AI and the assisted poetry and things like that. So in general, what are your thoughts? So in general, Christie’s hasn’t sort of apparently the panel that I spoke on is off the record. So I, they won’t release it, which is fine. I respect that. But I will say some things that I said on there.

[00:19:42] One is I predicted that within 10 years, nearly all art will be created by machines. Yeah, pause for a minute, right? Because isn’t our fundamental premise that when AI replaces all of our jobs, we’re all going to be doing art? Well, interestingly, some of the best art, in my opinion, that’s emerging right now is actually done in collaboration with machines. And the thing is, we think about machines as a paintbrush, as a tool, you know, the computer is a tool that helps me create art. We’re way beyond that now, Preston.

[00:20:12] We are in the world where the artist has a partner, and the partner is a machine, and the machine is creating, bringing more out of the artist, and the artist is bringing more out of the machine. So the artists are, in effect, both the machine and the person, and so art, which is an endeavor of our species, I would say is no longer an exclusive endeavor of our species. And moreover, I would say, as we go forward, I’m not even sure we’ll be the best artists. I mean, I don’t know how else to say it. That’s pretty direct.

[00:20:42] Preston Pysh: Yeah, it does make sense because when I’m just looking at the tools that people have at their disposal. Let’s say I am trying to do a hand sketch, pencil, art, whatever, my ability to tap into AI to help me kind of craft new ideas, whatever, how to, you know, do a certain corner of the painting because I, or the, of the picture, because I want it to look a certain way that how else are you going to be able to get this?

[00:21:08] And I can run it through AI a thousand times until I find exactly what I’m looking for. And then I can replicate that onto the paper, I think as a tool. I just don’t know how artists are going to be able to not be using it in a way. And I don’t even know how anyone would be able to prove that they aren’t using it in the manner that I just described. Right?

[00:21:25] Tad Smith: I think you’re right, but I think it’s also important to see that the AI, the large language models and the neural networks behind them are modeled and improved upon, and they’re both modeled after and improvements on our own brand. In other words, The very brain that you and I are lucky enough to have that’s creative and creates things, there is a machine or non biological version of that brain.

[00:21:49] And for us to believe either A, it can’t create things, or B, doesn’t create art, is just wrong. We have a biological substrate that has a non biological substrate. They both are modeled after exactly the same set of processes, the same set of signals, all of those things. And so, surprise, surprise, Humans have no exclusive monopoly over art, and I believe we won’t even have a significant portion of it, except as an oddity like the banana, or the Mona Lisa, or the Da Vinci, or something like that.

[00:22:20] Obviously, collectible stuff will, and the fact that it, by the way, interestingly, how weird, right, we were talking about stories earlier, how weird that in 2034, you and I buy a piece of art. And the story that we cherish about it is it was created by human being. That’s the story. Yeah. Right. And it’s coming.

[00:22:39] Preston Pysh: And if you, I guess if you go upstream of that, what most people are valuing is the time and the energy that the individual put into the piece, because it’s just so easy to now to go out and have anything made with, you know, a couple of keystrokes in five seconds of your time. People don’t value something that only takes five seconds of somebody’s time.

[00:22:59] They value something that took thousands of hours of time of the creator, I suspect. It doesn’t mean it’ll always be the case with, you know, you line up a hundred pieces of art. I think a majority of the stuff that’s going to be highly valued is the stuff that also has a pretty enormous amount of time associated with it, along with a story, along with something that makes it very unique because of the story.

[00:23:19] Would you agree with that?

[00:23:20] Tad Smith: Well, I do agree with it, but I have a premise that maybe you share, which is that A truly great inspiration, creative inspiration in this example, takes time. Internally, the materials, some art takes centuries.

[00:23:36] Look at Notre Dame, for example, takes centuries, right? And literally generations work on it. Pyramids take long, long periods of time. But some great art really doesn’t take that long. What it is, is it was just an inspiration that was, wow. I never saw it that way before. Oh my gosh. And the story is so memetic and powerful that it’s just, it’s irresistible in some way. And then of course we’ve set aside already the point I think you made earlier, which is very important, which is there’s just social cred in owning something. So the social credit piece, we both agree on that. Let’s set that aside. It’s less interesting than the memetic quality about why art is attractive other than social credit.

[00:24:13] Preston Pysh: How do you see Bitcoin fitting into all this? So when we look at Bitcoin units and you know, we both know that it’s backed by energy, encrypted energy.

[00:24:23] And this is really kind of the thing that sets Bitcoin apart from all the other protocols is that it’s backed by energy. Is that really the thing that sets it apart? Why is Bitcoin quote unquote winning in the face of everything else in your mind? And does that, whatever that quality is or qualities, is that what allows it to continue to win moving forward?

[00:24:43] Tad Smith: Yeah, I love this question. So let’s go back to the point I was making earlier about the thing that creates value and almost the honeycomb for It’s things that are both scarce and desirable. Okay, with that as a, a fundamental way to think about it, you’ve talked many times that there is literally nothing on earth that is both digital, frankly even analog anymore, and more scarce than Bitcoin.

[00:25:09] It is truly fine. It is just done. So you’re not going to win. Nothing else is going to win. No other assets going to win on scares in terms of desire. Well, okay. Maybe a single DaVinci, but not for long. We’ll come to that in a minute. And then the second question, and this is the hard part for people to get comfortable with, let’s volatility is the issue.

[00:25:31] I think volatility is an issue. It sort of amplifies the fear, but the real hard part is the desirability. And for that. The world of Bitcoin calls it adoption, which to me is the proxy for desirability. So at some point, I have bought into the thesis of scarcity, and I’ve bought into the thesis now of desirability as we approach literally billions and trillions of dollars of market cap and so those two things, boxes are checked. And so now my behavior is beginning to change, which goes directly to your question.

[00:26:00] I’ll give you two quick anecdotes. Story number one, I, in July, decided I wanted to buy a little painting to go right here behind me. Right here. And , I had one in mind, and it was a cute little Warhol toy robot. Sort of techy, but old school, and really great. You notice it’s not there yet, it’s actually on the way. But what I said to my guy who was buying it for me, I said, you know what? I’ll put a deposit down now, but I really don’t want to pay for a few months. And he says, why? And I said, I don’t want to pay for months because I’m feeling really good about Bitcoin and really good about some other assets I have between July of this calendar year.

[00:26:38] And now so I paid a couple of weeks ago and lo and behold the value of the thing which hadn’t arrived yet the value of the thing has gone way down relative to my currency right which was bitcoin as an example and so what does that mean what that means is warhol is worth less in bitcoin terms to me in the space of three or four or five months warhol an icon of value in the world of art.

[00:27:04] Okay so that’s story one so already you can see that art, if I’m not alone, I can’t be alone. If I’m not alone, art is, and Bitcoin is beginning to encroach even on things like art as a store of value. Second point, I’m literally coming back from, I think, North Carolina last night, late, landing in Miami, I had to drive up, landing in Miami. And I’m sitting next to this nice guy on the plane. And we were talking about, you know, it’s really fun to live in Florida and beautiful night. It’s great.

[00:27:32] And I said, you know, he says, do you live here? I said, yeah. How often do you get to North Carolina? He said, he goes quarterly. And I said, oh, you’re on a board. He says, no, he’s an executive coach. And then somehow we got on a real estate cause you can’t talk about Florida without talking about real estate.

[00:27:46] Right. And he asked me, oh, do you live here? I said, yeah. I said, do you live anywhere else? Which is code for, are you also a New Yorker? And I said, well, no, the only home I own is actually here in Florida. And he says, oh, that’s interesting. Me too. And I said, well, why? He says, well, because, you know, I just think it’s, I just only want one home.

[00:28:03] And I said, well, what do you do? I said, well, I actually invest in tech. And he says, Oh, really? I said, yeah. And I’m, you know, I also invest in Bitcoin and crypto. He says, really? I do too. The guy is older than I am. I’m sort of a first year of the Gen X. He’s probably a boomer sort of a few years older than I am.

[00:28:19] And we talked about it and guess what? Both of us agree that we wouldn’t put any more money into real estate when we can put it in Bitcoin. In other words, even real estate in Florida is beginning to get eroded by that conceptually. And so I don’t see that stopping Preston, I see that beginning to accelerate.

[00:28:39] And by the way, we’re not Gen Z, we’re not Millennials, you’re talking about, call it a boomer, and a Gen X that is right on the cusp of boomer. I’m close enough to boomer to know it when I see it. So that’s, by the way, if it’s happening here, it’s gonna happen everywhere, and it’s inevitable. And my guess is it accelerates.

[00:28:57] Preston Pysh: I think that you’re the line of thinking of the two of you on that conversation is very early for most people that have really kind of preserved a lot of their buying power in real estate. Saylor talks about this a lot. It’s like, Hey, if you, if your net worth is over a hundred million dollars, how are you going to preserve a lot of this, you know, in a way that’s not super volatile or super risky?

[00:29:17] Well, you plowed it into real estate because interest rates just kept getting compressed for 40 years from the eighties until. you know, COVID. And it was kind of a surefire way to just have some nice properties. You, you made a lot of money in the process, relatively speaking to everything else that was out there.

[00:29:33] And there wasn’t a lot of vol in all of it. And now I think that I truly believe that what we saw in the compression of the yield curve and the compression of interest rates for 40 years, I think that we’re in very early days of a lot of that starting to unwind itself. And for the people like yourself that are recognizing and seeing this very early, They’re transitioning out of that. They’re saying, I have to put my money. Yeah. I have to go somewhere else. I can’t deal with this anymore.

[00:29:58] Tad Smith: That’s by the way, initially the bellwether for me is my wife who, cares obviously about family finances and she doesn’t want to buy any more property. Yeah. She wouldn’t even think of it. She’s like, absolutely not.

[00:30:09] Let’s put it in Bitcoin. Let’s put it into something else. It’s equivalent to Bitcoin, Bitcoin or proxy or something. And it’s a complete non starter for her. And I, again, this is going to accelerate, I mentioned, I alluded to several minutes ago, there are ways in a Fiat world, we compensate for the fact that real estate or other things don’t meet the hurdle rate.

[00:30:30] And we should talk about leverage briefly. You can imagine when I’m talking about comparing real estate to a Bitcoin investment, I’m talking about two unlevered investments. Yeah, right. Now, the way we solve that, right, is we have the government give us a subsidy on our mortgage debt. And so we can have a long term fixed rate at, I don’t know, whatever it happens to be.

[00:30:50] If you’ve been in it a while, maybe you’re as lucky as 300 basis points. If you’ve been in it more recently, it’s 700 basis points and everywhere in between. So the way that we have managed to deal and outrun the money prior to value is that we lever up. Now, I’m not sure whether that is good for society or not.

[00:31:06] It’s not clear to me, but I’ll tell you one thing, everything else being equal. And by which I mean, if we’re talking about unlevered versus unlevered, I would go with Bitcoin any day of the week. Yeah. Yeah. And if you are still, you can do a hybrid too, right? And I think the ownership of one home is, is effectively the hybrid, maybe two, depending on what your net worth is. You own your own home, then you can do whatever you want to it. But that to me is a lifestyle expense.

[00:31:31] Preston Pysh: Yeah. And I think that this is such a salient point because people. Or looking at this and like, well, how did you outrun the money printer when it’s doing seven to 8 percent annualized if we’re using M2 growth rate or whatever to kind of represent the basement?

[00:31:43] The thing is, is if you put 10, 20 percent down on a home and you were getting it at, this speaks to this cycle, this 40 year cycle, right? Let’s say you locked in a 7 percent yield and then rates went lower. Well, you just refied and got it at 4 percent then, or you got it at 3%. Exactly. And so you were able to just keep that leverage on the whole time. And while the price just kept blowing out, you know, as it shooting the move.

[00:32:06] Tad Smith: But for those starting out, we want a home. Yeah. And they say, what do I do? I mean, this is not financial advice, but the observation, I’ll say the best way to look at it’s history. And if you go back and I’m gonna get the numbers approximate correct. ’cause they came around on Twitter, I think, from home or somebody. He said that the median house price in, I think it was 2016, was 6 66 Bitcoin. And when he said it again more recently, it was six. Now, it’s actually lower because that was before the most recent pump. So the question is, wow, if we had simply, sorry, in reverse, 6 initially, 666 recently.

[00:32:37] You look at it and you say, no, I was right, 666 initially and 6 recently. you look at that and you say, oh my gosh. If you just invest in an asset, or you just put away a little bit of any sort of asset that’s growing 50 percent a year, 43 percent a year, whatever the current growth rate is, you will catch the home, meaning you will catch up, you will be able to afford one.

[00:32:55] Now, again, not financial advice, but it shows when you look at the way these assets are accelerating, Bitcoin in particular, you say that’s pretty exciting. Now, admittedly, we’ve set aside the volatility, we can talk about that too, so.

[00:33:08] Preston Pysh: What I think is going to be hard, especially for these younger generations that are, you know, let’s say you have a couple that they’re 30 years old. They recently got married and they’re wanting to buy a home. The advice they’re probably receiving from their parents and others is lever up. Let’s go, like, get after it. And it’s interesting because we’re at such a strange shift. I think as to like what good financial advice is moving forward. And I think to your point, the volatility only makes Bitcoin that much more confusing and difficult for people to wrap their head around.

[00:33:39] And a lot of the times once they become interested in it, it was almost always the worst time to become interested in it because of the volatility and then the speculative forces that brought them there to ask these questions. And I think it’s really hard to give advice to some of these people that are kind of in this period of their life, call it 30 years old.

[00:33:56] What kind of advice do you give to somebody like this who’s just trying to break through and, and it’s very challenging with the inflationary forces that everybody’s dealing with today?

[00:34:05] Tad Smith: And I agree with you. I think it’s very difficult to come up with advice, but I will tell you what I told my 25 year old son about that. And it’s not necessarily a financial advice, but what it was was a little bit of life advice, which touches financial advice, which is those you too, by the way, Preston, because you’re, I think considerably younger than I am. One of the things to think about is the probability that you live a very, very long time, and I’m talking about a century and healthy century, not an unhealthy century is really high.

[00:34:37] It’s really high. And by the way, every day it’s looking better and better and better by the minute. I’m telling you, it looks good, which is, that’s a point. The second thing for the vast majority of that century. Machines will do better tasks better than you do even creative ones as we were talking about earlier and what that means is how you think about building a life of a house ownership as strange and controversial as it’s going to be when I finish the sentence, is less important to me for my kids than how they think about a life of purpose. What does it mean? Because when I think about it, I certainly in my generation, all of us were creatures of the late industrial era. We got our education. We got all of our life choices were framed, not all of our life choices, our professional life choices were framed around how do I earn a living?

[00:35:28] How do I. Have the ability, the blessing, if you will, to be able to pay 6, 000, 000 for a banana and eat it. All that, all of that, but that isn’t going to be the situation with the generations behind us. They have a different question, which is, Oh my gosh, I can’t even make a piece of art that is better than a machine does.

[00:35:50] So what is my purpose? And I don’t know the answer to that question, but I’ll tell you one thing. I’m optimistic. I think it means we’re going to be freed up to think about what it really means to be human beings. And, and that’s really powerful. Oh, I like that spin. I like that a lot. And, but yeah, you’re right.

[00:36:07] Like this is getting weird, like really fast. yeah. What does it even mean? Let’s talk about money management. What does money management mean in the 2030s? You know, Raul Powell talks about this and he’s not wrong. I mean, when he says it, he almost apologizes for talking about it because it sounds so completely crazy.

[00:36:23] But let’s just step back. I mean, what does it mean to be managing, managing money in the 2030s when the machines do it? Yeah. I don’t know. HODL, I guess.

[00:36:33] Preston Pysh: Yeah. I’m looking at it like when we get an AI that can go out, do an assessment. Across the market and say, all right, I think there’s an efficiency here that I can create with this piece of software or whatever, it can then prompt itself to write the piece of software. It can prompt itself to go market the piece of software. It can prompt itself to set up all the deliverables to the receivables and it’s creating a bottom line on its own without a human in the loop.

[00:37:01] Tad Smith: Exactly.

[00:37:02] Preston Pysh: Is this intelligence? Is this like, is this life when something can create a consciousness, that consciousness, right? Yeah, that’s because it’s creating value for others at that point on its own. And I don’t know. Some of this stuff gets super deep.

[00:37:18] Tad Smith: You go deep on this, but guess what? It’s. It’s profound for anyone who thinks about money, value investments, because it’s here now. It’s not something that we can defer to the future. It’s coming now. So a hundred percent. Yeah. Can I thank you?

[00:37:33] Preston Pysh: Oh, let’s hear it. What’s that?

[00:37:35] Tad Smith: You appeared in January of this calendar year and I would, I shouldn’t have dug it out before our chat. I’m so sorry, Preston. And there was a moment. I’m sorry. Quick digression. I became interested in micro strategy sometime in the summer of last year.

[00:37:50] And so I bought a moderate position and I don’t remember what it was. And of course it went up a year ago and had a nice rally. And then in January, I’m thinking, Hmm. How do I feel about this with the new ETFs coming out, if it’s basically just an ETF? And there, it was actually you, by the way, and I don’t remember where, I’m going to find out where it is.

[00:38:12] I’m going to send it to you. You made this incredibly thoughtful, eloquent description of where MicroStrategy could be going and why it would create value and why the ETFs were not a good model. And it’s because of you, I didn’t sell.

[00:38:29] Preston Pysh: Yes, I love this.

[00:38:31] Tad Smith: Thank you. No, it was so powerful. And that’s why I think I said to you at some point how much I appreciate your wisdom in that. Because it set in motion this whole other series of things that really created a lot of value for me and my family over quite a short period of time. And I’m eminently appreciative of your contribution. It’s a real example of how you actually really have made a big difference, at least in my mind. So thank you for that.

[00:38:58] Preston Pysh: Thank you so much, Ted. I’m, blushing.

[00:39:00] Tad Smith: Yeah, it’s true.

[00:39:01] No, it’s true, honestly. And by the way, I’m going to dig out the YouTube. You were on YouTube.

[00:39:05] Preston Pysh: Oh, man, that’s awesome.

[00:39:07] Tad Smith: It makes a difference what you do.

[00:39:09] Preston Pysh: It’s more fun when you’re lucky together, right, sir?

[00:39:12] Tad Smith: Yeah, 100%.

[00:39:15] Preston Pysh: Hey, let’s talk about Michael. So this is getting really interesting.

[00:39:18] My concern moving forward, you know, if I was going to, like, Discuss this, the fact that you’re a three X of a nav or somewhere in that ballpark 2. 5 over what he has in the treasury back in January, it was easy. It was less than what he had in the treasury and like, it would just kind of made a lot of sense.

[00:39:33] Now you’re starting to get this really large premium because everybody’s expecting him to go out. He’s going to issue more shares or he’s going to do, you know, coupon list debt issuance. But some of this is also dependent on how far does the underlying Bitcoin price run. I’m of the opinion that I think 2025 is going to get really, like, we haven’t even seen anything yet.

[00:39:51] You know, some of that is very speculative and, and in the way that I’m viewing it, and I fully recognize that. But at a certain point, If the speculation gets too far and if we go through another cycle and all these other things, there’s going to be some point where I’m looking at it and I’m saying, Hey, this is, and I’m just going to throw out crazy numbers, right?

[00:40:09] This is seven times or 10 times the nav. Like what am I doing? I should just sell this and buy Bitcoin with this or keep it. If you think it’s another cycle or market timing, I know I’m going on and on, but my concern, my concern is like, What is too far and I know you have this guy Jeff punter and some others out there that are looking at the whole GameStop Scenario and how the influx of short sellers is something that you have to really pay attention to Especially if you think that the underlying is gonna continue to set new highs.

[00:40:43] They’re gonna blow out you’re gonna get an even higher Premium over the nav and like, I don’t want to leave too early if I think it could go to five or 10 X because of the short sellers and all these other things that are looking like a pretty high probability that are going to play out in the coming year. So with all that, I’m curious your opinion, Tad.

[00:41:02] Tad Smith: So let me tell you what I have been doing. And on March 5th, sorry, November 5th, I remember cause it was election day. I appeared in other contexts and someone asked me about this and I said, I like the stock. And importantly, the stock was in the two hundreds at the time.

[00:41:18] Now I am privileged to have as a partner in our investment firm, Dan Tapiero, who has been. For years, a very, very astute observer and a participant in the markets. And I asked his opinion about two weeks ago and he said, you know, Ted, I would take a little profit if I were you. And, when Dan says something like, you know, and he wasn’t giving financial advice, certainly give it to me.

[00:41:41] I take it. In fact, I’m an investor in the fund. So I rely on his investment advice. But, I took it. And so what I did several weeks ago was collar the stock. And interestingly, that gave me a lot. And then also on the high end of the collar, but the collar was approximately 300 to be real math. and then bought call options on the 600 because I was at the time thinking this thing could go far higher.

[00:42:06] It’s so easy, right? Again, it’s a story. I buy into the story of going up into the bright. But one of the things that concerned me about it is exactly what you’re saying, which is, if we’re in a world of price discovery, people can disagree on what the value of something is, particularly when it’s well above MNAP.

[00:42:22] Now, we can make arguments about it, but really, you and I are debating a story, or anyone who’s short is debating a story with us if we’re long. In that environment, things can get volatile and the prices can plunge or soar and they can stay where they are for long periods of time or plunge for long periods of time.

[00:42:40] And that’s what’s so powerful about taking profit. I did buy a call option to protect me if it soared back through 600. Then when a week before last, I think it was when it started going 75 per day. I took the call options off and I think we got out at like 535 and now we’re at 380 or something. And by the way, this is not anything other than luck, which is the discipline of taking profits when things get a little nutty is good.

[00:43:08] Now, I have to tell you at 380, For my portfolio, I kind of like the stock again. I kind of like it again. Now I wouldn’t put as much as I had sort of in January when you, a year ago, when you gave me a real vision about where it could go. But, I think it’s more interesting than it was at 500 and I’m not knocking the stock.

[00:43:29] I’m not knocking anything about it. I’m just saying the stock is memetic. And above a NAV, when you start getting NAVs 2. 5, 3, 3. 5, 3. 8, 4, anybody can just weigh in and say what it is, which means the value of that asset to me becomes more volatile than I’m willing to pay for. And that’s where it is to me today.

[00:43:49] Preston Pysh: Yeah, I like to define it really in the one or two buckets, which is, am I investing or am I speculating? And yeah, back, back in January, it was, to me, it was just really obvious. This is an investment. It was trading, you know, the per share price was below what, how much Bitcoin he had per share. And I just saw that he had this flywheel that he could tap into, which is the public markets and also the debt markets.

[00:44:14] And I just saw that as something that I thought was really investable. Today I’m looking at it and I’m saying, I don’t want to sell my shares. I don’t want to sell my call options that I have on it, but because I think that there, it has to be, I think the potential of it getting crazier is pretty high.

[00:44:34] Yeah. And so I continue to sit there. I don’t want to, I have it in a tax advantage account, so I could sell it and not really have tax ramifications, but that’s always a really important consideration for people who don’t have it in there. It’s like, okay, like, what do you think this trend is? How do you assess that?

[00:44:49] And if you do want to pull some off the table and deal with the tax burden, like that’s a huge consideration too, as you look. For other places to put it, but yeah, in general, it’s, it’s getting, it’s, it’s already getting hard to really kind of wrap my head around what the right point will be, but I think that we have another strong six months coming here and I’m just going to kind of sit back and enjoy the ride and see where it takes me.

[00:45:13] Tad Smith: For someone who has an interest in it, well, for my, in my own personal opinion, I would feel really badly if I didn’t have a call option or some position in it. But you’re right. It’s for, I don’t want to miss out the speculative fervor. It’s different than it was a year and a half ago. Oh yeah.

[00:45:31] The value proposition. Now, admittedly, the story about MicroStrategy is vastly more evolved than it was even three months ago. I mean, Bernie’s call was a work of art in terms of story. And I’m, I’m, I’m saying that with, Yeah. I’m not diminishing what he did, but the story, and it’s actually a story he wandered into, is incredibly powerful and it has a memetic quality set aside the sort of get rich thing.

[00:45:57] It makes sense, right? How do you unlock. A multi trillion dollar multi hundred trillion dollar debt market and give it access to Bitcoin in a world where the regulatory environment hasn’t quite caught up. And you know, there are lots of countries where you can’t spend on it. The convertibles have a unique quality, all these things are possible.

[00:46:15] Preston Pysh: The funniest thing to me, and I always remember this, I had this conversation with Michael back when he first bought Bitcoin in 2020 and he did this convertible debt issuance. And I want to say it was at like 75 bips. And I said to Michael, I said, Michael, I think you could have done it for way lower. It was oversubscribed.

[00:46:32] Like the fact that it was oversubscribed tells you, you can do it for like 25 bips or maybe nothing. Maybe it could be couponless. And I remember him just laughing at me and saying, Preston, I think you’re overzealous. And then just this past four years later, he literally issued it with a zero coupon and like, and that was oversubscribed by a billion, which is crazy, crazy, exactly.

[00:46:55] Tad Smith: So, I don’t know, we’re on for a wild ride, and, I think it’s gonna be really interesting. I will say, I don’t think his recent CNBC appearance was as clear as he has been. He is world class at communicating, and, that to me was not, I didn’t really follow the story particularly well in that interview for what it’s worth.

[00:47:14] Preston Pysh: Yeah. I mean, it’s crazy how descriptive and detailed and thoughtful he can just kind of plow through something very complex, but what a ride. It’s pretty exciting.

[00:47:24] All right. This is my last question for you, Tad. Help us. I’m no expert in art. And I would imagine most people that are listening to the show also aren’t experts in art. When you’re talking to a commoner like us that don’t understand art, what is something that…

[00:47:39] Tad Smith: A commoner who taught me a lot about microstrategy before that commoner. You’re a high, and by the way, we all want to be a commoner like you, Preston.

[00:47:47] Preston Pysh: Thank you, sir.

[00:47:48] Tad Smith: We’re all going to queue up.

[00:47:50] Preston Pysh: No, I’m serious. I’m a total idiot. When it comes to this stuff, what is the person missing or what is something that for you being the CEO of Sotheby’s, as many years as you were that like, you know, you’re in there, you’re seeing this stuff, what is something that is missed on so many people that is somewhat obvious to a person that’s played in this space for as long as you have?

[00:48:10] Tad Smith: It’s really simple. Embarrassingly, so I don’t know how many times I’ve been asked, is art a good investment? I really don’t. I mean, that question is a thousand times a day forever. And by the way, I’m chairman of the board of the fine art group now, which is the largest art advisory merchant bank when I say merchant bank, we also do art lending in the world. It’s based in London.

[00:48:30] And so I still get the question and you know what art can be a very good investment in my opinion, but honestly you should buy art that you love. It’s really that simple. And by the way, then if it’s an expensive piece, maybe get a little help to make sure that you’re not getting fleeced.

[00:48:47] But if you buy something you love, you’ll always love it. And by the way, and you’ll become a part of the story of it. And the story will become part of you. And that’s really what we’re buying.

[00:48:55] Preston Pysh: I love that.

[00:48:55] Tad Smith: Every time you look at it, you’ll say, wow, that rocks.

[00:48:59] Preston Pysh: I love that advice. That’s a win.

[00:49:01] All right, Tad. I’ve really enjoyed this. I learned a ton. Yes, this is awesome. And, hopefully we can connect again in the future.

[00:49:09] Tad Smith: I’ll look forward to it. Have a great afternoon and happy Thanksgiving.

[00:49:11] Preston Pysh: You as well, sir.

[00:49:13] Outro: Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes.

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