Jeff Park on Why the 60/40 Portfolio Is Already Over

Transcript

Jeff please. Great to meet you, man. Happy to be here. Thanks for having >> Welcome to the show, man. Cheers. >> Jeff, thanks for joining. >> Cheers. Cheers. Cheers for having me. >> Absolutely. What's going on, man? How's the conference treating you? Uh you know, this is I think the biggest turnout I've ever seen for DAS New York, and I'm a New Yorker, so I've seen all the DASes throughout the years. Yep. Everyone's got the sport coats on with the or the suits on and >> of people it's their first crypto conference. >> suits on, so this is all very uneasy for me now. There's too many suits in this [laughter] room.

Jeff, man, we haven't talked much about on this show about STRC, and I don't know if there's anyone better than you to talk about it. There is so much misinformation out there about whether it's going to blow up, the sustainability of Saylor's strategy. He also recently just pushed out a new update and kind of a new kind of product evolution there. What's your honest take on STRC and on Saylor's current accumulation strategy? How are you going to be doing it as part of the Vikram Bitcoin macro lens? Sure. Well, let's go right into it. STRC >> [laughter] >> is complex because it doesn't fit into a box very nicely, and as you know, many things in crypto don't fit nicely into

boxes, which begets a certain amount of uncertainty but excitement, and STRC is one of them. Um at high level, I do think it has found product market fit in the sense that there are investors who want to earn high yield with the understanding that that yield could be collateralized by hard assets. And STRC is a medium that permits that possibility. Um at the same time, I think we have to acknowledge that it's highly unusual as a pref equity structure that has existed in the capital markets environment, and so there are rightfully, I think, concerns as to the sustainability of those underlying strategies. So, for example, I know it's popular to call these digital credits,

but preferred equities are not credit instruments in the eyes of the court, in the eyes of bankruptcy. So, even though there's a credit-like element because it pays a coupon, um credit and the relationship that it represents implies a sense of seniority versus junior investors and shareholders of a company in a capital structure upon the event of a bankruptcy. Preferred equities have slightly different protections when it comes to that as a covenant than true credit instruments would, and I think rightfully, some people may ask questions about those dynamics. This is not to say that STRC, therefore, is an inferior product. Quite the contrary, I

think STRC is uniquely purpose-built for exactly what Saylor wants to do, which is Bitcoin accumulation at a lower cost of capital. And nice thing about these pref securities is that you can do things that you can't do with traditional credit instruments like having a variable interest rate, like having the ability to pick and defer, like the ability to defer payments, and all these things, while they're not kind of black and white favorable constraints of a credit instrument, can long-term be actually good for Bitcoin accumulation. So, I think we'll find out in the future based on kind of the inlays that it makes with new investors, but I think the headline news is this.

People like it. People like it. People like getting paid 10-plus percent on Bitcoin-related risks, and I understand that to be a positive feature for the ecosystem. This is pro-cap versus strategy, race to accumulate as much Bitcoin as possible. Saylor's got a little bit of of the lead here, but we cannot fade Jeff here. We cannot fade Jeff. Yeah, I appreciate that. Uh I'm just curious, where where do you think Bitcoin sits in in the broad, you know, scope of a portfolio these days? Obviously, we saw the run-up in gold as that reacted to global uncertainty. Uh the thesis was that Bitcoin was a better gold. How do you think this plays out over the coming months?

Well, I think in the coming months, the uncertainty for global macro is as high as it has ever been. I believe the world uncertainty index hit a local high, which is pretty astounding and not surprising, perhaps, based on kind of the newsflow that we're all witnessing today. In light of that, I think Bitcoin has been fairly heroic. You may know that Bitcoin actually had its local bottom on February 28th upon the announcement of the war with Iran, and ever since it's been kind of steadying higher. Uh I think as everyone knows who's been in this space long enough, Bitcoin generally sings to its own tune, and that correlation you can measure intermittently between equities or gold

or bonds are dynamic and always changing, but the perpetual state tends to be uncorrelated to most of these asset classes, which is actually how most commodities behave because its price is purely determined by the marginal buyer and seller. And going back to your question, I do feel like right now most of the seller exhaustion has been processed because the uh newsflow that has come out that one could think would be acute to the downside of Bitcoin hasn't been true, and that makes me think that anyone who's actually want to be out of Bitcoin at this point is out. Um and that's generally a great place to be because usually when those exhaustion goes away is when the indifference curve hits and people have apathy towards Bitcoin, and

once there's apathy, that's when people can actually start accumulating more soundly, and then it will tend to have its run-up thereafter. So, part of me is excited that people aren't talking about Bitcoin as much in the mainstream because that means that people are going to be focused on it over longer time horizon than the moment of now. Yeah. Jeff, you're somewhat critical of the traditional investor portfolio through your Twitter and just through your strong, strong, you know, you have an opinion set that Bitcoin should be in everyone's portfolio. You have this kind of radical portfolio view as you call it.

What does this actually look like in practice for investors, right? I know that the 60/40 portfolio is obviously not the way forward. What is the way forward? How should investors think about building a Bitcoin-oriented portfolio, and what kind of tools and assets are you looking to add to that portfolio? Yeah, no, thanks for the shout-out. The radical portfolio theory is one of my held close to heart projects to espouse the mission of dynamic investing for the next generation. And it ultimately goes back to the view that most economists assume the world will look the way it does in the future based on the past, but the reality is there's

always a great monetary reset that happens every generation, and I do believe that we're in the midst of one where the death of the Washington consensus is unlikely to dissipate. So, everything we've known about investing based on Warren Buffett or Benjamin Graham's Intelligent Investor are built on this foundational assumption of what American capitalism looks like and what that represents in the risk-free rate of the US Treasury bonds. Once you assume that the US Treasury bond may not represent the risk-free rate, and one of the cases I make is actually people should start calling it the risk-full rate rather than the risk-free rate to reflect what it is in the construct of our ever-growing deficit and our debt expenditures,

you have to rewrite what that future's going to look like and the roles of other exotic and esoteric assets that can play into portfolio construction. So, my theory is that there's going to be a very big generational liquidity transfer in the future. And that's because there are certain signs that point towards that inevitability almost with 100% certainty. So, you know, as John Maynard Keynes says, it's better to be probably right than precisely wrong, and the thing that I think most people have precisely gotten wrong is that the demographic trends in this country is inverting. And that inversion is going to result in a wealth transfer that is

almost unavoidable. So, as I've looked at the latest stats, in 2030, which is 3 years from now, all the baby boomers are estimated to be about 65 years or older, and that's one out of five Americans. And then in 2034, which is only 7 years away from now, there's going to be more adults living than children for the first time ever in American history. And then 2 years after that, 2036, the fertility rate of this country is going to go below 1.5, which is well below the replacement value, and it's projected to stay there for another 20 years because, as you can imagine, if you're not having kids then, you got to wait 18 years for them to become adults to even have kids. So, we know this train is coming in that direction,

and I think in preparation of that, we have to think about how to invest for the future, not what we're taught about what 60/40 represented in the past three decades, but what it could look like in the future. Bitcoin is, I think, one of the most canonical asset to imagine what that liquidity transfer can look like for a young generation to not be caught on the other side of the big trade. Yeah. Could you just paint, you know, what the portfolio construction looks like in the radical portfolio theory? >> Yeah, absolutely. So, 60/40 is coming from the idea that you want to own some equities, you want to own some bonds because they tend to be uncorrelated between risk-on and risk-off sentiment, right? People go flight to safety for bonds, and then if you want to be risk-on, people go to equities. So, the decoupled relationship should hopefully

push out the efficient frontier. But I think what we all know is that's false. Literally, bonds and equities now kind of move lockstep together. Right now, it's happening as it is. Like, 30-year bonds, 10-year bonds are all imploding while stock markets are not having a very good moment, and so once you see that, 60/40 just has to look different. So, going back to your question, my framework is to think about compliance assets and resistance assets, And I think this is the key demarcation I'm trying to draw. When you own bonds and equities, those are all what I call compliance assets.

You're all part of the same global liquidity money flows in which assets are moving amongst a compliance system of financialization. It's a big part of what is otherwise called the global carry trade in which money that is coming from Japan's low interest rate funds US equities and it's a pretty circular mechanic of how financial assets rise in price through kind of the way GDP is measured today. The resistance assets, the 40% that I think of as truly radical, do not play a role in that global monetary system.

They're removed one step further and therefore their correlation behavior, by definition, just has to look different. In that world, Bitcoin is certainly one of them. We're finding though Bitcoin is becoming more intertwined with the macro systems as institutional adoption is happening, but a big crux of why Bitcoin was interesting and important was that it was removed from that system. There's actually a lot of assets that should be investable that behave like this that people just don't have abilities to access. And I do think that's why tokenization is a really important project for crypto because I know a lot of folks are interested about tokenization for US equities and uh you know, real estate funds or private

equity funds, but I think the true value of tokenization is giving investors liquidity into esoteric assets that were once uninvestable. So, take for example the idea of bringing liquidity to US farmland. Yeah. >> You know, if you want to own US farmland in a way that represents ownership interest that's not going to look like a private fund or an ETF, but you know farmland is definitely uncorrelated to the rest of the global macro systems because it's not tradeable in that 60/40 portfolio, you should have an allocation to farmland. It's just historically been inaccessible. I think collectibles also represent a bit of that category and sometimes I joke about people buying Pokémon cards and all that, but but but I actually think it's real. I think that

if there are demands for scarce assets, which is again not part of the global carry trade in the financialization of the said Pokémon cards, it retains value in a slightly different way. I think watches, luxury bags that women collect, but all kind of play a role into having a 40% allocation that looks different than what you're taught otherwise in econ 101. I mean, the Hermès Birkin bag, which I don't expect you guys to know, but my wife loves, has basically outpaced the S&P in the last 30 years. Incredible. It's incredible.

It's hilarious. Well, one of the things that that you left out, I think you probably did it intentionally from the 60/40 the the radical portfolio, is private credit. I think you left this out for a reason. I'm curious as to why because well, I think I know why it is because we're starting to see the cracks. Um just talk to us more about why private credit is left out of this radical portfolio theory. How early do you think we are in the you know, where do we stand on the fear greed index of private credit? Um and and how early are we in this cracks? Do we do we think like right now we're kind of scraping the bottom of the barrel when it comes to tokenization. We're going to work our way up to the high quality assets.

How does private credit fit into this? Hopefully it's just a stepping stone to higher quality things, but just generally private credit, where do where do you stand on this? What's happening? Yeah, wow, we're getting to the spicy stuff now and you're right. I don't talk about private credit often in allocation because as a category, I'm fairly pessimistic. It's not to say there are certain aspects of private credit that actually fulfill a function that can be desirable, but private credit as a catchall phrase of what it represents today, to me is not a good value proposition, right? Because private credit's ultimate value and why institutional investors gravitate towards it is precisely the things that you should try to avoid if you can. In

other words, private credit is valuable for most investors because it doesn't market it. It doesn't mark to market every day. There's no price discovery. So, if you can book an asset for 100 and book it at 100 for next month, next quarter, next year, that's great for an institutional portfolio manager because you're not taking any volatility. But when a sharp ratio looks like 4x or 5x, you have to be very careful about what the distribution of two standard deviation events can be once there's price discovery. And what you alluded to exactly what's happening. People are finding out actually it wasn't worth 100 and they're learning it the hard way.

And so, my problem with private credit is that the incentive alignment has been abused. You should want private credit if you think you're truly earning a premium for the risk that you're undertaking, whether it's because of its duration or whether it's because the exotic risk behind that particular profile requires heavy structure that qualitatively demands a premium. But if it's just private credit because it's not traded, to me that's not enough. And in fact, one of the things that I've noticed when I was pitching Bitcoin to a lot of investors over the years is people would gravitate towards private credit for the exact same reason they would hate Bitcoin. They don't like Bitcoin because it's too volatile and

they don't want to have risk towards that portfolio that they're not responsible for because they can't control the price of Bitcoin, of course. But those people generally tend to love private credit because it's the exact opposite alignment of feeling like it's 100 and it's 100 for a while until it's a zero. Yeah. Yeah. That's the that's the cover photo of your Substack is the Thanksgiving turkey. Uh the happiness with turkeys. It's great. It's great and then it's Thanksgiving and that's what >> No, that's right. I think one of the things that sometimes finance mis- educates young investors and old investors is this overly focused physics and kind of focus on like Newtonian laws on what like portfolio theory should

look like, but portfolio theory is only as good as there's liquidity. You can't have sharp ratios on things that do not trade. You can't have sharp ratios on private equity funds that don't mark more frequently than daily. So, the problem is if you abuse the numbers enough, you'll get the output you want, but the proof is in the pudding. And I think if you go back to like your childlike curiosity of just questioning like, well, why do people think this way? Like, why is it valuable that there's no price discovery? It feels like you should want to know what the price is and you go back to those fundamental 101, you'll realize a lot of things they teach you in finance today is ultimately involved in this great liquidity

transformation with incredible duration mismatches that blind the younger generation versus the older generation. Jeff, have you ever thought about being a teacher? No man. >> [laughter] >> My wife's a teacher, so I think I get enough of that at home. You've got a very teaching vibe to you. Like I'm sitting here just learning and and consuming. >> it's really Yeah, man. I appreciate it. Well, no, I'd be a I I I love educating people, but also I learn a lot from having conversations with people. It's a two-way street and that's been one of the most fulfilling aspects of reaching out to the Bitcoin and crypto community.

I love that all the folks I meet through the Bitcoin community came for different reasons. Bitcoin can sometimes be a mirror to reflect the social values that you feel that is most important and pertinent to you. And in some ways, the common value that I see amongst all of us is we're all high agency people. We all want self-determination. We all want to think independently and critically and I cannot imagine these features being more important now than ever and if I can be a part of educating that importance more and more, I will be a part of that story any day. Yeah.

Jeff, are you bullish on BitTensor? You know, I haven't spent nearly enough time on it as I should, uh but from the time I've spent, I think that uh I think the meta is super important. Um I I think it is one of the keystones to be had in the age of understanding what agentic finance and agentic commerce could look like, especially with the inability to price intent. So, I think the meta is very worthwhile. The same way I think that the meta behind privacy coins are very worthwhile. I often have a hard time ascribing the value of the meta to the actual price action of a single token, but the people that are behind it, the foundations that

are supporting it, are credible people that I've come to like in the space and so, it should probably sit on my research queue a little higher and you can ask me next time when I'm back. I'm going to ask you another one. Are you bullish on Hyperliquid? That one I can answer a little more conviction and say yes. Uh I am bullish on Hyperliquid. Um I'm bullish on Hyperliquid because whether you like it or not, whether your politics lean left or right, it's pretty clear that hyper-financialization is an unstoppable trend.

Um and it's not a crypto story. That's actually happening everywhere. We're seeing that with private equity and private venture companies being stuffed into public ETF formats that are trading at premiums outside of its NAV. We're seeing that with the rise of 2x levered ETFs and 3x levered ETFs. We're seeing that with the rise of zero day expiry options. I don't know if you guys saw, but in February, 60 plus percent of all S&P options, 60% plus were zero day expiry options. It's a new record. Now, I'm not saying whether that's good or bad, I'm just saying it's happening.

And so, the thing that I appreciate about what Hyperliquid at least is doing is they're trying to create a market structure around these thematics with more transparency than I think most traditional markets permit. And as there's growing unrest in the roles of how automated market makers are abusing our US capital markets, I think it's important that there's a competitor that can stand behind it in a different way to offer a parallel system. And that keeps competition, that keeps people in check about a value proposition because in the end without customers exchanges are nothing. So, it is one of the purest businesses in my opinion where if you do a good job, you're rewarded. And if you do a bad job, the customers don't come.

And Hyperliquid clearly has proven something valuable based on the tremendous success it's had. And I do believe that trading derivatives is just going to become a larger part of how people think about risk taking and hedging. And so, those types of developments at the frontier is where the exciting things are happening. Yeah. Last thing for me, I'm just curious to just hear about anything that you think we didn't cover that that you think is particularly interesting that you have your focus on as of late and and you want to make sure that you you educate the people on.

Man, uh I've only been thinking about crypto for so long that uh it's hard to sometimes get my head out of it. Look, I read something pretty scary the other day, which is that uh most Americans are reading less and actually kind of the growing population um are having hard time reaching even the fluency of a sixth grader amongst the cohorts that are rising. And to me, this is a problem. This is a problem that is universal beyond the issues at crypto. This is a problem about again going back to human agency.

And so, one thing that I do feel really passionate about is we have to start reading more. Um and by reading, I don't mean doom scrolling Twitter. I don't mean TikToking. I mean, pick up a book. Sit down with it. Read it from cover to end. And don't check your phone. And try to actually teleport yourself into this other world because that's how you build focus. And focus, believe it or not, is a muscle. >> Yeah. And if you don't build it, you're as good as an NPC and a bot. And my bigger virtue above all of crypto is I want people to live a high agency life.

And to do that, you have to read more. And I will go even one step further to say, you have to read fiction. Fiction? >> Fiction. Because I think non-fiction is read with a different deliberation for purpose, which is information discovery and knowledge gathering. But it's really in reading fiction when you are allowed to have creative thoughts that can metamorphosize into something intelligent and unseen. And especially in the rise of AI where you're already seeing how everybody sounds like slop because they're repeating the things that otherwise is consumed as common knowledge amongst news, it's actually in fiction that you find the art of communication that allows you

to be convincing and empathetic and all the ways that you're not going to learn from participating in AI slop. And so, I think reading fiction is so important. And it's a little out of favor. I know this because none of my guy friends read fictions, but it is I think probably the most important thing we can do for ourselves, for our own longevity for the decades to come. Great take. Awesome. Jeff, thanks so much for joining the show. Is that right? >> It's been a pleasure. Have you so fun. Let's do it. Education's one of our main missions here and you certainly educated us and the audience. So, really appreciate it.

>> I love it. No, thanks for the kind words. Absolutely. We'll see you next time.