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  • Howard Marks, Shall We Repeal the Laws of Economics Part III: Treasury Bond Buybacks, the 5.3% 30-Year Yield, $40 Trillion in Debt, Dollar Debasement, and Why Selling Your Stocks Isn’t the Answer

    Howard Marks, co-founder of Oaktree Capital Management, has published the third installment of his series on governments trying to override markets, dated September 22, 2026. Shall We Repeal the Laws of Economics? Part III takes aim at Treasury Secretary Scott Bessent’s decision to double, then triple, the size of the Treasury’s long-dated bond buybacks after the 30-year Treasury yield closed above 5.3%, a 19-year high. Marks argues that buying bonds to push yields down treats the symptom rather than the disease, walks through why US rates are rising in the first place, asks whether the $40 trillion national debt is really a problem, lays out the only fix he believes exists, and answers the question every investor is asking: should I sell my stocks? You can find the memo in Oaktree’s memo archive.

    TLDR

    After the 30-year Treasury yield hit 5.3% on August 17, the Treasury raised its maximum long-dated buyback from $2 billion to $4 billion per operation (and later $6 billion), with Bessent hinting at a “whatever-it-takes” posture. Marks calls this a cosmetic fix. Market support fades when the buying stops (his image is a ball held up by a column of pumped water), it ignores the root causes, and its effect is mostly psychological, which is why yields bounced back within a day and rose again after the September expansion. The real drivers are sticky inflation (PCE at 3.7% versus a 2% target, with Iran-war oil prices on top), deficits near 6% of GDP during full employment, net interest above $1 trillion and larger than the defense budget, buybacks funded by T-bills that shorten the debt’s maturity, roughly $2 trillion in new net Treasury issuance, and a $5 trillion-plus AI data center buildout competing for the same pool of capital. Marks doesn’t expect default, because the US borrows in a currency it prints and the dollar has no real rival as a reserve currency, but he warns the risk shows up as debasement instead. His only solution is behavioral: forget paying down the debt, raise revenue (including higher top marginal tax rates and fewer tax preferences), hold spending growth below GDP growth, and lean on AI-driven productivity, provided the new revenue isn’t spent. For investors, he argues that selling US stocks doesn’t escape a dollar problem and that fleeing the US carries risks of its own.

    Thoughts

    The sharpest line in the memo is the direct rebuttal of Bessent. The Treasury Secretary claimed that “yields don’t reflect the underlying fundamentals.” Marks answers, in effect, that they reflect them perfectly well, and then lists the fundamentals. That flips the usual framing of the bond market as a panicky crowd that needs calming. In Marks’s telling, the 30-year at 5.3% is a well-informed price for lending to a government that runs 6% deficits at 4% unemployment, while inflation sits nearly double its target and the Fed has just raised rates. Seen that way, the buyback program is an argument with the thermometer, and his ice-pack-on-a-fever analogy lands because it’s so plain. Lower the reading and the patient still isn’t well.

    The underappreciated point, and the one most relevant to anyone following the AI trade, is buried in the fourth bullet on rising rates. The AI buildout isn’t just an equity story. McKinsey’s estimate of more than $5 trillion in AI data center spending through 2030 is a claim on the same finite pool of savings the Treasury must tap to roll its debt and fund about $2 trillion in new net issuance. Marks notes that even equity-funded capex draws from total available capital. That makes AI capex, fiscal deficits, and ordinary economic growth three large borrowers bidding for the same money, and the “simplest rule of economics” says the price of money goes up. Few commentators connect the hyperscaler capex boom to the long end of the Treasury curve, but the link is direct. It’s also a reason to doubt that rates fall meaningfully anytime soon.

    Marks is admirably honest about his own track record on debasement. In 2008 he worried in public that the Fed’s balance sheet expansion would weaken the dollar and fuel inflation, and neither happened. Rather than use that as a reason for complacency now, he explains why the situations differ. The 2008 liquidity largely replaced money and credit that the crisis had destroyed. Today’s deficits are self-inflicted and being run during prosperity, when extra spending adds straight to aggregate demand. That distinction, between emergency liquidity that offsets a contraction and structural deficits that stack on top of a hot economy, is the right lens for anyone who tuned out debasement warnings because the last round of them proved wrong.

    The framing that should stick is Druckenmiller’s line, which Marks adopts: a 30-year at 5.5% “isn’t a crisis. It is an invoice.” Much of the fiscal-doom genre waits for a dramatic moment, like a failed auction or a buyers’ strike, and Marks calls that improbable. The real cost is chronic and already arriving through higher servicing costs, which widen the deficit, which pushes rates higher. His prescription is notable for coming from a billionaire investor: raise revenue as a share of GDP, including higher income tax rates at the top, where he says the top federal marginal rate is low by postwar standards, and eliminate tax preferences. He pairs that with holding spending growth below GDP growth and an AI productivity dividend, with the crucial caveat that the added revenue can’t simply be spent. It’s the least ideological way to put it. A country that won’t cut spending has to look at revenue.

    The closing section on portfolios is where Marks is most useful, because it refuses the obvious trade. If the risk is a weaker dollar, then selling US stocks and holding cash, money market funds, or Treasurys keeps you exposed to exactly that risk. The only real hedges are non-dollar assets, hard assets such as gold, non-US companies, or crypto. Each brings its own problems: slower-growing and more heavily regulated companies abroad, uncertain emerging markets, and other currencies that are being debased too. His conclusion is that this is a political problem that happens to affect investors, not an investment problem, and that trading on a reckoning of unknown timing “could easily look like a big mistake for a very long time.” Buffett’s “two years or 20 years” is the key uncertainty, and the memo is built around it.

    Key Takeaways

    • This is the third memo in a series that began in September 2024 and continued in June 2025, all critical of governments trying to override the laws of economics.
    • Marks views economies as naturally functioning organisms. Steering them usually distorts how they work and worsens the overall result, so intervention should be selective and cautious.
    • His analogy is the “Circle of Life” from The Lion King: suppressing a predator to protect prey can send other species out of control and throw the whole ecosystem out of balance.
    • On August 17 the 30-year US Treasury yield closed above 5.3%, a 19-year high.
    • Higher long-term rates depress growth, make cars and houses less affordable, raise the cost of servicing a federal debt that has reached $40 trillion, and signal lost market confidence.
    • The Fed can’t directly set long-term rates the way the FOMC sets the federal funds rate. The Treasury can influence them through issuance and buybacks.
    • On August 19 the Treasury said it would at least double its maximum long-dated buyback, from $2 billion to $4 billion per operation, and Bessent signaled something close to a “whatever-it-takes” commitment.
    • Long rates fell right after the announcement and bounced back the next day.
    • Marks calls the move a cosmetic fix that responds to the effects of rising rates without solving the underlying problem.
    • Objection one: any effect is likely temporary. Once the buying stops, the market tends to return to where it would have gone anyway, like a ball that falls when the column of water pushing it up is shut off.
    • Stanley Druckenmiller, who ran Soros’s Quantum Fund during the 1992 bet against the Bank of England’s defense of the pound, wrote in the WSJ that governments defending prices against fundamentals always lose.
    • Objection two: the buybacks ignore the root causes of the rate rise, which isn’t random.
    • Root cause: inflation is stubborn, with PCE at 3.7% in July against the Fed’s 2% target. The Fed raised its benchmark rate last week, and elevated oil prices from the war with Iran threaten to keep inflation high.
    • Long-term lenders demand an inflation-protection component in yields to preserve the purchasing power of the money they get back.
    • Root cause: a total lack of fiscal discipline. The dollar’s reserve status gives the US a “golden credit card” with no limit, no bill, and a low rate, and the US is using it unwisely.
    • Keynes advocated deficits during slowdowns, repaid in good times. The US is running massive deficits during prosperity, with no talk of balanced budgets.
    • The deficit is about 6% of GDP with unemployment at 4%. Net interest outlays are projected above $1 trillion this year, more than the defense budget.
    • Large deficits near full capacity are inflationary, because government adds more liquidity through spending than it removes through taxes, which feeds back into higher rates.
    • If the credit card is limited, rates rise, servicing costs grow, and the deficit widens further, a negative spiral.
    • Root cause: buybacks are ultimately funded by new issuance. If long bonds are retired with T-bills, total debt doesn’t change, but its maturity shortens and it has to be refinanced more often at whatever rates prevail.
    • Root cause: demand for capital is surging from deficits, normal economic growth, and the AI buildout, and higher demand raises the price of money.
    • McKinsey estimates more than $5 trillion will be spent worldwide on AI-related data centers through 2030. Even the equity-funded share draws on the total supply of capital.
    • The Treasury must roll an enormous volume of maturing debt while adding roughly $2 trillion in new net issuance.
    • Bessent said yields don’t reflect fundamentals. Marks says they reflect them exactly.
    • Objection three: Treasury and Fed announcements work mostly through psychology, and that effect fades if root causes are ignored. After the Treasury tripled the maximum buyback to $6 billion on September 9, Evercore ISI noted that markets looked underwhelmed as yields moved higher.
    • The goal shouldn’t be lower rates. It should be addressing whatever is pushing rates up.
    • Marks sees no serious probability of a US default, because the debt is denominated in dollars the US issues.
    • The dollar was involved in 89% of FX transactions in 2025 and made up 57% of allocated official reserves in Q1 2026. The euro hasn’t closed the gap, the renminbi is about 2% of reserves, and crypto’s reserve role is negligible.
    • According to MUFG Bank, gold recently passed the dollar as the leading central bank reserve asset, though it isn’t used much in transactions.
    • The real risk is to exchange rates and purchasing power: the “debasement trade,” or paying debts back with dollars that buy fewer goats.
    • Distorting markets to cap borrowing costs can backfire, because creditors worried about debasement demand higher yields on new dollar debt.
    • Marks admits his 2008 fears of dollar debasement didn’t come true. He argues the Fed’s balance sheet expansion then offset destroyed credit, while today’s deficits are self-made and come during prosperity.
    • Warren Buffett at the 2025 Berkshire meeting: the fiscal deficit is unsustainable, but nobody knows whether the reckoning is two years or 20 years away.
    • A failed auction or buyers’ strike is improbable. The cost is chronic and already being paid, an “invoice” rather than a crisis.
    • The only real solution is changed behavior: stop talking about paying off the debt, accept that it will never be smaller, care about budgets, and “flatten the curve.”
    • Marks backs raising revenue as a share of GDP through higher income tax rates, especially at the top, and eliminating tax preferences.
    • Spending growth should stay below GDP growth, which means treating resources as finite.
    • Faster GDP growth through productivity (solid growth, AI adoption, and less unneeded regulation) would help, as long as the added revenue isn’t spent.
    • Selling US stocks isn’t the answer. The problem is fiscal management and potentially the dollar, not US companies, and cash, money market funds, and dollar bonds keep the same exposure.
    • Real hedges mean non-dollar assets, gold or non-US real estate, non-US companies, or crypto, each with its own risks.
    • US advantages remain intact: free markets, innovation, rule of law, moderate regulation, strong universities, and deep capital markets. Other countries run deficits too.
    • Modest diversification away from the dollar makes sense for investors with non-dollar needs, but not on a large scale.

    Detailed Summary

    The Circle of Life and the Case Against Steering Markets

    Marks opens by restating the thesis of his September 2024 and June 2025 memos: economies are naturally functioning organisms, and attempts to override the laws of economics are likely to be ineffective and potentially harmful. He allows that intervention is sometimes necessary to prevent outcomes society won’t accept, such as widespread poverty or unemployment, but says it should be selective and cautious. His analogy is nature’s “Circle of Life.” Survival of the fittest has its harsh side, but it keeps the system in balance, and well-meaning human efforts such as suppressing a predator can have second-order effects that send other species out of control.

    Bessent’s Bigger Buybacks

    The trigger for Part III is the Treasury’s response to rising long rates. The 30-year yield closed above 5.3% on August 17, a 19-year high. Higher long rates slow growth, make loan-financed purchases like houses and cars less affordable, raise the cost of servicing a $40 trillion federal debt, and suggest falling confidence. The Fed can’t set long rates directly, but the Treasury can nudge them. On August 19 it announced it would at least double its maximum long-dated buyback to $4 billion per operation, framing the move as liquidity support. The next day Bessent signaled willingness to go further. Rates fell and then rebounded a day later.

    Three Reasons It Won’t Work

    First, the effect is temporary. You can lift a price by buying, but when you stop, the market goes back to what it would have done anyway. Marks pictures a ball held above the ocean by a pumped column of water. He quotes Druckenmiller’s WSJ piece, which calls yield suppression “a subsidy to procrastination,” and notes Druckenmiller’s credentials: he ran the Quantum Fund day to day in 1992 when it bet successfully against the Bank of England’s defense of the pound and reportedly made about $1 billion.

    Second, buybacks don’t address why rates are rising. Marks lists four causes. Inflation is stubborn, with PCE at 3.7%, which is why the Fed just raised rates, and Iran-war oil prices threaten to keep it there. There is no fiscal discipline: the US has a “golden credit card” thanks to the dollar’s reserve status, runs deficits of about 6% of GDP at 4% unemployment, and faces net interest above $1 trillion, more than defense. The buybacks themselves are funded by issuance, so swapping long bonds for T-bills shortens the debt’s maturity and increases refinancing risk. And demand for capital is booming from deficits, normal growth, and AI, with McKinsey projecting more than $5 trillion of AI data center spending through 2030 while the Treasury adds about $2 trillion in net new supply. Marks rejects Bessent’s claim that yields don’t reflect fundamentals.

    Third, the impact is mostly psychological and fades without follow-through on root causes. When the Treasury tripled the maximum operation to $6 billion on September 9, Evercore ISI reported that markets looked underwhelmed and yields rose. Marks’s conclusion is that the goal should be to respond to the forces pushing rates up, not to push rates down. Buying bonds to lower yields is an ice pack on a fever.

    Is the Debt Actually a Problem?

    Marks takes both sides. Herbert Stein’s rule applies: if it can’t go on forever, it will stop. But it’s hard to identify what would actually stop the US from financing deficits. He sees no serious default risk, since the debt is in dollars the US issues. He recalls a Weimar 1,000 mark note overprinted “One Million Marks” as a reminder of where money-financed deficits can lead. The dollar still dominates, with 89% of FX transactions and 57% of allocated official reserves. The euro has stalled in second place, the renminbi is held back by capital controls at about 2%, there’s some talk of a China, Russia, and Iran alternative, gold has reportedly passed the dollar as the leading central bank reserve asset, and crypto barely registers. The world is probably stuck with the dollar for now.

    So the risk isn’t nominal default. It’s debasement. Printing more currency can lower its value against goods and other currencies, a point Marks made in his 2008 memo The Limits to Negativism with the goat that a million-mark note still buys. He quotes the Financial Times on the US being willing to distort markets and let its currency fall rather than tame spending, and notes that such moves can be self-defeating by raising the yields creditors demand. He admits that his 2008 worries about the dollar and inflation didn’t come true, and explains that the Fed’s crisis-era expansion offset destroyed credit, while today’s deficits are self-inflicted and inflationary because they arrive during prosperity. He gives Warren Buffett the last word: the fiscal deficit is unsustainable, over a timeframe nobody can know.

    The Only Solution: Change Behavior

    Marks calls the problem “just math”: spending exceeds revenue, debt is rising relative to GDP, and interest costs are climbing. It won’t fix itself and nobody has stepped up. A sudden crisis is improbable, but the chronic cost is already arriving, Druckenmiller’s “invoice.” His prescription is to stop talking about paying off the debt, accept that it won’t shrink, adopt real budgeting, flatten the curve, raise revenue as a share of GDP through higher income tax rates (especially at the top) and fewer tax preferences, and keep spending growth below GDP growth. Productivity growth from solid economic expansion, AI adoption, and pro-business deregulation would help, provided the extra revenue isn’t spent. Done together, these could shrink deficits relative to GDP and possibly lower the debt-to-GDP ratio, which Marks calls the best we can hope for.

    What Investors Should Do in the Meantime

    A nationally known entrepreneur asked Marks whether he should sell his stocks. Marks said no. The problem lies with US fiscal management and potentially the dollar, not US companies, and moving into cash, money market funds, or bonds that are still in dollars doesn’t escape it. A real hedge means non-dollar assets, non-financial assets like gold or foreign real estate, or non-US companies and crypto. Those bring other risks: slower growth and less scale among many developed-market companies, heavier regulation, uncertain emerging markets, and the fact that other countries’ currencies face debasement too. The reasons behind US outperformance remain largely intact. Modest diversification makes sense for investors with non-dollar needs, but not at large scale. His bottom line: this is a political problem that poses risks for investors, selling dollar assets probably won’t solve it and could look wrong for a long time, and the one real question is whether the US will face the problem and act.

    Notable Quotes

    “Every basis point of artificial yield suppression is a subsidy to procrastination.”

    Stanley Druckenmiller, in the Wall Street Journal responding to Bessent’s buyback announcement, quoted by Marks

    “Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.”

    Stanley Druckenmiller, drawing on the 1992 trade against the Bank of England

    “Forcing rates down by buying bonds is like a doctor applying an ice pack to a patient with a fever.”

    Howard Marks, on why the goal should be the causes of rising rates, not the rates themselves

    “Today, the U.S. is incurring massive deficits during prosperity, and we hear no talk of balanced budgets (and really of budgets at all).”

    Howard Marks, contrasting current policy with what Keynes actually prescribed

    “You can easily turn a 1,000 mark note into a 1,000,000 mark note, but it’s likely to still buy just one goat.”

    Howard Marks, revisiting his 2008 memo The Limits to Negativism to explain debasement

    “We don’t know whether that means two years or 20 years, because there’s never been a country like the United States.”

    Warren Buffett at the May 2025 Berkshire Hathaway annual meeting, quoted by Marks on the unsustainable fiscal deficit

    “If the 30-year must trade at 5.5% to clear, that isn’t a crisis. It is an invoice.”

    Stanley Druckenmiller, the line Marks uses to frame the cost of the debt as chronic rather than acute

    “The problem we face isn’t a problem with the U.S. stock market or with U.S. companies. It’s a problem with U.S. fiscal management, and ultimately a potential problem with the U.S. dollar.”

    Howard Marks, answering a friend who asked whether to sell his stocks

    “This isn’t an investment problem. It’s a political problem, but it poses a problem for investors.”

    Howard Marks, in the memo’s bottom line

    Read the full memo and the rest of Howard Marks’s archive on Oaktree Capital’s memos page.

    Related Reading

  • Raoul Pal: Why the Crypto Bull Run Is Just Starting, the AI Economic Singularity, and Why You Should Never Sell Bitcoin

    Macro investor and Real Vision co-founder Raoul Pal returned to the When Shift Happens podcast for episode 173 to argue that the recent crypto drawdown is a nasty correction inside a much larger bull market, not the end of the cycle. Across an hour and a half he ties together the AI capital race, the coming economic singularity, why layer one blockchains are a kind of universal basic equity, and the deceptively simple discipline that actually compounds wealth: buy, hold, and almost never sell.

    TLDW

    Pal frames everything through what he calls the universal code, the conversion of units of energy into units of intelligence, and says the global race to fund AI is so large that no government or company can stop feeding it capital. That liquidity, plus relentless currency debasement, is the engine under both the AI stocks going vertical and the crypto market that has lagged them. He calls the Bitcoin slide from 126K toward 60K a normal correction in a bull market, says liquidity is now reaccelerating, and argues smart contract layer ones (Ethereum, Solana, Sui) are the best risk-adjusted bet because the entire financial system and a coming swarm of AI agents will run on those rails, giving crypto an effectively infinite total addressable market. He explains why he added Zcash as a Bitcoin-with-privacy and quantum-proof trade, lays out his plan to launch an NFT fund built around grail digital art and NFT-backed lending, and makes a data-backed case that buying oversold dips and never selling beats trying to trade cycles. The conversation closes on a 70/30 bullish framework for 2026 and 2027 and a reflection on kindness.

    Thoughts

    The strongest idea in this conversation is not a price target, it is a reframe. Pal keeps pulling the camera back from “what will Bitcoin do this quarter” to “what is the organizing principle of the entire economy right now,” and his answer is the funneling of all available capital into anything that produces intelligence. Once you accept that frame, the buy-the-dip behavior in both AI equities and crypto stops looking like mania and starts looking like a rational response to a one-way game. The part worth sitting with is his game-theory claim that neither the US nor China can stop, and that even a spectacular failure like an OpenAI blowup would simply trigger an instant asset auction rather than a collapse, because no single player can be allowed to win outright. Whether or not that is fully true, it is a genuinely different mental model than the recession-and-bust cycle most investors carry around.

    His layer-one thesis is the most actionable takeaway and also the most quietly radical. The pitch is that for the first time ordinary people can own a piece of the core infrastructure that the machine economy will be built on, the way you never got to own a slice of TCP/IP or the open web. He calls this universal basic equity and treats it as humanity’s pension plan. The honest tension he admits is that the racy returns may not be in the boring base layer at all, and that the truly investable winners of this era, the private stablecoin companies, are largely closed off to retail. So the layer-one trade is partly a consolation prize for the fact that the best businesses are unreachable. That is a more candid admission than most crypto bulls will make.

    The behavioral core of the episode is the most useful for a normal reader, and it is almost embarrassingly simple. Pal has been in markets for 35 years and says he does not know a single person who reliably buys bottoms and sells tops, including the legends, who he points out made most of their money on management fees rather than heroic trades. His prescription is to add only when the asset is one to two standard deviations oversold on its long-term log trend, otherwise do nothing, and to treat patience as an action rather than inaction. The line that does the most work is “the market owes you nothing.” It quietly dismantles the entitlement that drives people to overtrade, chase, and burn emotional energy on a strategy that the data says underperforms simply holding.

    Where a reader should keep some skepticism is the certainty. Pal assigns the bull case a 70 percent probability and the bear case 30, but the bear case he sketches (Middle East war reignites, inflation forces tightening, liquidity gets starved, the intelligence buildout slows) is not a minor footnote, it is the whole structure failing at once. The thesis also leans hard on the assumption that AI agents will become massive on-chain economic actors, which is plausible but still mostly forward-looking rather than observed. The value here is the framework, not the forecast. If you take one thing, take the energy-into-intelligence lens and the standard-deviation discipline, and hold the specific tickers and timelines loosely.

    Key Takeaways

    • Pal’s central frame is the universal code: the universe, and now the economy, continuously converts units of energy into units of intelligence, and capital flows to whatever produces the most intelligence.
    • The AI buildout is a race of nations and corporations that nobody can exit. Game theory means neither the US nor China can stop, because the other side would gain a decisive advantage.
    • Even a catastrophic AI failure would not break the trend. If OpenAI ran out of money, its assets would be auctioned instantly to multiple buyers so no single company could double its compute and win the whole game.
    • The economic singularity is the point where institutions and the way we measure the economy can no longer keep up with the speed of technology, made worse when AI and robots are added to the population as economic actors.
    • AI is the first real-world example of Reed’s law, the exponential of the exponential, where most past technology followed the slower Metcalfe’s law log channel.
    • By around 2028, roughly five to six years after AI went mainstream, AI will have produced more words than all of humanity has produced in sum total since the Gutenberg press.
    • The current run is funded by cash flow, not debt. Unlike the late-1990s tech boom, the buildout is paid for out of the earnings of the most cash-generative firms in history.
    • Chips and energy are the binding constraints. Companies report being booked out three years and beyond, and xAI is reportedly handing older data centers to Anthropic because no one can get enough compute.
    • Pal expects the Fed to run a Greenspan-style playbook, cut rates and then get out of the way, letting a productivity miracle grow the economy faster than the debt pile so debt to GDP falls.
    • Bitcoin falling from 126K toward 60K is a nasty correction in a bull market, not a bear market. Pal has seen many 50 percent Bitcoin drawdowns since 2013, and altcoins always fall further on the risk curve.
    • The 2025 to 2026 correction has been choppy and slow rather than the fast V-shape of 2021, which is part of why sentiment feels so bad.
    • Crypto lagged because liquidity is finite. The government shutdown withdrew liquidity, which hits crypto with about a three-month lag, while AI capex and Chinese gold buying sucked capital away.
    • Liquidity is now reaccelerating in the US, China, and globally, which Pal sees as the reason the worst is likely over for crypto.
    • The birth of economic agents in late 2024 gives crypto an effectively infinite total addressable market, since agents will be economic actors that hold treasuries, make payments, and transact on-chain.
    • Smart contract layer ones are Pal’s preferred bet. He compares the structure to operating systems and cloud, where value concentrates into three to five major players plus a few specialists.
    • He calls owning layer ones universal basic equity and humanity’s pension plan, the chance to own the rails the agentic economy will run on, something the internet never offered retail.
    • Discounted cash flow analysis is the wrong tool for valuing a blockchain. The whole purpose of the network is to be the cheapest, fastest, and most programmable, so high fees are a bug, not a strength.
    • Pal measures layer ones by intelligence density: number of developers, programmability, speed to finality, applications per user, and the ratio of stablecoins to total value locked as stored energy.
    • Only three tokens maintained economic density when the market fell 80 percent: Ethereum, Solana, and Sui. ETH is the safe Microsoft-like choice, Solana is faster and cheaper, Sui is earlier but extremely fast and programmable.
    • Pal added Zcash in the correction as a Bitcoin-with-privacy trade. The left-curve case is simple privacy value, the right-curve case is that it is also quantum-proof and a hedge against AI-enabled state surveillance.
    • He admits he did not execute the Zcash buy well, kept meaning to add more while traveling, and watched it run up 50 percent. He treats it as a small position, not a portfolio overhaul.
    • On Hyperliquid he is complimentary but uninvested, because he does not trade, use perps, or use leverage, and he expects Robinhood and Coinbase to compete hard for that niche.
    • DeFi is better suited to machines than humans. Agents may not even need front ends or websites, just low-friction access to swap across multiple stablecoins and currencies instantly.
    • DeFi is not dead despite mega-hacks. Pal argues hacks force better products, and notes that banks quietly absorb theft losses too, so the answer is to build more secure systems.
    • The entire financial system is moving to blockchain rails because they are the most efficient way to operate, a prediction Pal first made in 2014 before smart contracts existed.
    • Pal is launching an NFT fund focused on grail assets (one-of-one alien CryptoPunks, top artists) trading from roughly 600K to tens of millions, plus a convex middle tier of artists with social consensus.
    • He names artists like Dies with the most likes (whom he compares to a Hunter S. Thompson of art) and Kim Asendorf, whose work uses tokens at the pixel level.
    • The fund will also lend against NFTs for yields around 15 percent or more, acquiring assets cheaply if borrowers default and recycling yield into emerging artists.
    • His real estate analogy: a smaller NFT in a great collection is like a modest apartment in a billionaire neighborhood, while grails are the 20 million dollar penthouses that actually compound.
    • Bitcoin is partly an AI proxy because global savings should rise as AI lifts economic growth, and Bitcoin targets a share of those savings as a digital store of value.
    • The core mindset shift: if you know where the world is going and roughly where market cap is heading on the log trend, you would never sell, you would only ever accumulate.
    • Selling well is nearly impossible. Even if you take profit at two standard deviations overbought, adding it back at the bottom is something almost no one actually manages.
    • The people who made the most money in crypto are the ones who did not trade it. Pal cites holders who profited by doing essentially nothing while active traders lost their edge.
    • Pal’s discipline requires roughly two to three actions every five years: add when one to two standard deviations oversold, optionally trim when two standard deviations overbought, otherwise nothing.
    • By his standard deviation measure, Bitcoin and crypto are as cheap as they have been in their long-term uptrend versus the NASDAQ, which he reads as a signal to allocate more to crypto.
    • Fear and greed sat below 10 for the longest stretch in the index’s history during this correction, hitting its lowest reading ever, a classic oversold extreme.
    • His 2026 to 2027 bull case stacks stablecoin explosion, the Clarity Act getting signed, rising global liquidity, debt rollovers forcing money printing, a strong business cycle, AI agents, and a cheap entry point. He puts it at roughly 70/30 to the upside.

    Detailed Summary

    Two economies and the money illusion

    The conversation opens loosely with travel, stablecoin spending, and a riff on why people agonize over a 75 dollar airport breakfast but happily lose money on an NFT that drops 80 percent. Pal’s explanation is that we live in two economies at once. The crypto and tech economy can grow 50 to 150 percent in a good year, while the real economy grows around 2 percent. Money earned in the fast economy does not feel real, which is why people spend and speculate so freely with it. This sets up the rest of the episode, where Pal treats the fast economy as the place serious capital is being forced to go.

    The AI capital race nobody can stop

    Asked why the stock market only seems to go up, Pal gives two reasons: liquidity expansion and the most extraordinary capital event in human history, the funneling of all capital into intelligence. He frames it as a race of nations, corporations, and individuals that cannot be slowed because of game theory. No superpower can let another reach AGI alone, only the US and China can afford the race, and neither can stop without ceding the advantage. He even games out an OpenAI bankruptcy and concludes the US would instantly auction the assets across many buyers rather than let one firm double its compute and win, which is why he calls the whole thing too big to fail. The practical conclusion is blunt: buy the dip, because the structure forces capital to keep flowing.

    The economic singularity, Reed’s law, and electricity through sand

    Pal defines the economic singularity as the moment when institutions and our economic measurements can no longer cope with the speed of technology, especially once AI and robots count as population. He explains that almost all past technology adoption followed Metcalfe’s law, a log channel visible in the charts of Google, Facebook, and the NASDAQ, but AI is the first observed example of Reed’s law, the exponential of the exponential. To make it concrete he cites ARK research showing AI will, by roughly 2028, have produced more words per year than all of humanity, and notes Anthropic expected 10x growth and got 80x in a quarter. He marvels that we are putting electricity through silicon, the second most common element on Earth, and producing intelligence six orders of magnitude faster than a human neuron.

    Why crypto lagged and why the worst is over

    Pal explains the crypto underperformance mechanically. There is only so much liquidity, the government shutdown withdrew it, and that hits crypto with roughly a three-month lag, landing right in the middle of the October drawdown. At the same time, the AI buildout and Chinese gold buying pulled capital toward the longest-duration assets, leaving SaaS and crypto with nearly identical charts as they got left behind. His read for 2026 is that liquidity is now reaccelerating across the US, China, and the world, so there is nothing to worry about yet. The Bitcoin move from 126K toward 60K is, in his framing, a normal correction, comparable in length to the roughly six-month 2021 pullback that resolved into new highs.

    Layer ones as universal basic equity

    The heart of the investment thesis is that smart contract layer ones will accrue a growing share of crypto value as the investable infrastructure layer. Pal argues the entire financial system plus a coming swarm of AI agents will use these rails, giving crypto an infinite total addressable market. Like operating systems and cloud, value will concentrate into three to five chains plus specialists. He measures them by intelligence density rather than discounted cash flow, since the point of the network is to be cheapest and fastest. By his analysis only Ethereum, Solana, and Sui held economic density through an 80 percent drawdown. ETH wins on developers, security, and Lindy effects (the Microsoft you do not get fired for owning), Solana is faster and cheaper, and Sui is earlier but offers a different order of magnitude on speed, finality, and programmability. He frames owning a basket of four or five as humanity’s pension plan.

    Zcash, privacy, and the quantum hedge

    Pal reveals he added Zcash during the correction, alongside buying more Sui. He had said in December he would wait for it to pull back, and he did, though he admits he did not buy enough as it ran up 50 percent. His left-curve case is that privacy has real value and people will understand it more, making it essentially Bitcoin with privacy that could plausibly reach 5 to 10 percent of Bitcoin’s value. His right-curve case is that it is also quantum-proof and a hedge against governments wielding AI-enabled control over people. He dismisses the mid-curve worry that it will be banned, noting that the ban fear has shadowed crypto his entire career and never materialized.

    Agents, DeFi, and financial rails

    Pal argues the biggest future users of DeFi and crypto payments will be AI agents, whose scale is effectively infinite. Setting up agents himself, he keeps hitting walls that require small payments, and sees agents making endless micro-payments plus larger transactions, holding treasuries across multiple stablecoins and currencies, and rebalancing through DeFi instantly without any human involved. DeFi, he says, is actually better suited to machines than people, and may not even need front ends. On the wave of mega-hacks he is unbothered, arguing they force better products, that banks quietly absorb theft too, and that the financial system always migrates to the most efficient rails because that is how you make more money. He first predicted blockchain would become the financial industry’s infrastructure rail back in 2014.

    The NFT fund and grail digital art

    Pal is launching an NFT fund because so many people told him they want exposure but do not know how. The fund targets grail assets, the scarce one-of-one pieces with proven social consensus that trade from around 600K into the tens of millions, plus a convex middle tier of artists who have long-term proven value and could be wildly re-rated. He names Dies with the most likes, an Indiana artist cataloging the decline of middle America whom he likens to Hunter S. Thompson, and German artist Kim Asendorf, whose 3D works are built from individually tokenized pixels. The math of convexity is the draw: an artist re-rating from 20 to 200 ETH while ETH itself multiplies could compound into a 100x. The fund will also lend against NFTs for yields above 15 percent, acquiring assets cheaply on default and recycling yield into emerging artists, and will build a club connecting investors to artists. His real estate framing reassures smaller holders: owning a lesser piece in a top collection is like a modest flat in a billionaire neighborhood.

    Never sell, and the math of patience

    The behavioral spine of the episode is Pal’s argument that buying, holding, and accumulating beats trading cycles. He has built a Real Vision indicator that signals a buy when an asset is one to two standard deviations oversold on its log regression channel, and says it compounds at a stupid rate. The problem with selling is deciding how much and then having the discipline to buy it back at the bottom, which almost no one does. In 35 years he says he has never met anyone who reliably buys bottoms and sells tops, and notes the trading legends made most of their money on management fees. The people who made the most in crypto are the ones who did nothing. He reframes holding as patience, an active stance, and ties it back to the universal code: buying Bitcoin and doing nothing is the most energy-efficient trade you can make, while overtrading burns mental and emotional energy for a worse outcome. His advice to those tempted by AI’s vertical charts is to go play with AI and just hold your Bitcoin.

    The 2026 to 2027 outlook

    Pal closes the macro case by stacking the bull factors: a massive stablecoin expansion over the next 24 months, the Clarity Act getting signed and freeing builders, rising global liquidity, trillions in interest payments that force more money printing, a strong business cycle recycling earnings into speculative assets, the arrival of AI agents, and a cheap entry point with fear and greed at historic lows. He even floats a permanent resolution of Middle East conflict as part of the upside. The bear case is the mirror image: war reignites, inflation runs hotter, tightening starves capital, and the intelligence buildout slows. He puts the odds at roughly 70 percent bullish, 30 percent bearish, and says he does not see the bear case yet. The episode ends on a personal note about kindness, with Pal unable to name a single kindest act because, he says, everything is made of kindness.

    Notable Quotes

    “We’re going through the most extraordinary time in human history. Nothing else matters. This whole funneling of all capital into intelligence is the biggest race that’s ever happened.”

    Raoul Pal, on why capital keeps flooding into AI

    “The game is so big that nobody will stop.”

    Raoul Pal, on the game theory of the US and China AI race

    “This is how amazing it is. We’re putting electricity through sand and creating intelligence.”

    Raoul Pal, on silicon and the universal code

    “It’s a nasty correction in a bull market. I’ve been in crypto since 2013. I’ve seen many corrections, non-bear markets of 50% in Bitcoin.”

    Raoul Pal, on Bitcoin falling from 126K toward 60K

    “The market owes you nothing. You would just have to be better at doing a job.”

    Raoul Pal, on the entitlement that ruins crypto investors

    “This is humanity’s pension plan. We get to invest in the infrastructure rails of which all the agentic economy will run.”

    Raoul Pal, on owning layer one blockchains

    “The people who’ve made the most money out of crypto are the people who don’t trade it.”

    Raoul Pal, on why holding beats trading

    “Your job is to be a mercenary for your own capital. You want to make the most money over time.”

    Raoul Pal, on why no one has to stay loyal to crypto

    “Bitcoin and crypto is as cheap as it has been in its long-term uptrend versus NASDAQ.”

    Raoul Pal, on the relative value signal he watches

    This is a compressed look at a wide-ranging conversation. Watch the full episode on When Shift Happens here for Pal’s complete reasoning, the charts he references, and the back-and-forth that the summary above leaves out.

    Related Reading

    • Real Vision the financial media platform Raoul Pal co-founded, where his Global Macro Investor research and exponential age thesis live.
    • Metcalfe’s law (Wikipedia) the network-value relationship Pal uses to model the log regression channel for crypto.
    • Reed’s law (Wikipedia) background on the exponential-of-the-exponential growth Pal says AI is the first real-world example of.
    • Technological singularity (Wikipedia) context for the economic singularity Pal argues is now only about four years away.
    • Zcash the privacy coin Pal added in the correction as a Bitcoin-with-privacy and quantum-proof trade.

  • Ray Dalio Warns: The Fed Is Now Stimulating Into a Bubble

    https://x.com/raydalio/status/1986167253453213789?s=46

    Ray Dalio, founder of Bridgewater Associates and one of the most influential macro investors in history, just sounded the alarm: the Federal Reserve may be easing monetary policy into a bubble rather than out of a recession.

    In a recent post on X, Dalio unpacked what he calls a “classic Big Debt Cycle late-stage dynamic” — the point where the Fed’s and Treasury’s actions start looking less like technical balance-sheet adjustments and more like coordinated money creation to fund deficits. His key takeaway: while the Fed is calling its latest move “technical,” it is effectively shifting from quantitative tightening (QT) to quantitative easing (QE), a clear easing move.

    “If the balance sheet starts expanding significantly, while interest rates are being cut, while fiscal deficits are large, we will view that as a classic monetary and fiscal interaction of the Fed and the Treasury to monetize government debt.” — Ray Dalio

    Dalio connects this to his Big Debt Cycle framework, which tracks how economies move from productive credit expansion to destructive debt monetization. Historically, QE has been used to stabilize collapsing economies. But this time, he warns, QE would be arriving while markets and credit are already overheated:

    • Asset valuations are at record highs.
    • Unemployment is near historical lows.
    • Inflation remains above target.
    • Credit spreads are tight and liquidity is abundant.
    • AI and tech stocks are showing classic bubble characteristics.

    In other words, the Fed may be adding fuel to an already roaring fire. Dalio characterizes this as “stimulus into a bubble” — the mirror image of QE during 2008 or 2020, when stimulus was needed to pull the system out of crisis. Now, similar tools may be used even as risk assets soar and government deficits balloon.

    Dalio points out that when central banks buy bonds and expand liquidity, real yields fall, valuations expand, and money tends to flow into financial assets first. That drives up prices of stocks, gold, and long-duration tech companies while widening wealth gaps. Eventually, that liquidity leaks into the real economy, pushing inflation higher.

    He notes that this cycle often culminates in a speculative “melt-up” — a surge in asset prices that precedes the tightening phase which finally bursts the bubble. The “ideal time to sell,” he writes, is during that final euphoric upswing, before the inevitable reversal.

    What makes this period different, Dalio argues, is that it’s not being driven by fear but by policy-driven optimism — an intentional, politically convenient push for growth amid already-loose financial conditions. With massive deficits, a shortening debt maturity profile, and the Fed potentially resuming bond purchases, Dalio sees this as “a bold and dangerous big bet on growth — especially AI growth — financed through very liberal looseness in fiscal, monetary, and regulatory policies.”

    For investors, the takeaway is clear: the Big Debt Cycle is entering its late stage. QE during a bubble may create a liquidity surge that pushes markets higher — temporarily — but it also raises the risk of inflation, currency debasement, and volatility when the cycle turns.

    Or as Dalio might put it: when the system is printing money to sustain itself, you’re no longer in the realm of normal economics — you’re in the endgame of the cycle.

    Source: Ray Dalio on X

  • Inside the Mind of Stan Druckenmiller: Investment Strategies, Market Insights, and Timeless Financial Wisdom

    Stan Druckenmiller discusses market insights, trading strategies, and lessons from his career in investing, focusing on adaptability, timing, and risk management. He emphasizes macro investing from the ground up, relying on both data and intuition, and warns about inflation and debt risks similar to the 1970s. He underscores the importance of humility, cutting losses quickly, and valuing mentorship. Druckenmiller advocates for investing in innovation early, using AI and anti-obesity stocks as examples. He discourages pursuing finance solely for money, emphasizing passion and continuous learning.

    In an insightful conversation with Nicolai Tangen, CEO of Norges Bank Investment Management, legendary investor Stan Druckenmiller shared his views on market dynamics, investment strategy, and the philosophies that have guided his success. Known for his unique approach to macro investing, Druckenmiller offers a wealth of knowledge on balancing data, intuition, and risk.

    The Current Market Landscape and Inflation Concerns

    Druckenmiller expresses caution about the potential resurgence of inflation, likening current conditions to the inflationary 1970s. While the Federal Reserve has made moves to stabilize the economy, Druckenmiller critiques its focus on a “soft landing,” warning that it might prioritize short-term gains over long-term economic health. According to him, the Fed’s reliance on forward guidance has reduced its flexibility, limiting its ability to respond dynamically to market changes.

    “I’m more concerned about inflation now than the economy itself,” he shared. Reflecting on past cycles, Druckenmiller notes that economic downturns often re-ignite inflationary pressures, a lesson he suggests the Fed should keep in mind.

    Investment Strategy: Combining Intuition with Data

    One of Druckenmiller’s most famous approaches, “macro from the bottom up,” combines in-depth company data with broader economic analysis. This strategy has served him well across different market conditions, giving him an edge in identifying underlying trends without solely relying on overarching economic indicators.

    Druckenmiller is known for trusting his intuition, refined through years of experience and quick, decisive actions. His philosophy? “Invest first, analyze later.” He argues that taking an initial position upon identifying a trend is better than overanalyzing and missing potential gains. However, he’s equally unafraid to cut losses when a position underperforms, emphasizing the importance of emotional detachment from individual trades.

    Lessons from the Past: The Value of Big Bets and Risk Management

    Reflecting on trades like his historic short against the British pound in the early 1990s, Druckenmiller highlights the importance of conviction in high-stakes positions. When confident in a trade, he isn’t afraid to go big, a principle he learned from his mentor George Soros. This approach has led to some of his most successful trades, underscoring that in finance, it’s often “not about being right or wrong, but how much you make when you’re right.”

    This experience has made Druckenmiller adept at recognizing and quickly exiting losing positions. According to him, clinging to poor trades in hopes of a turnaround often traps investors, whereas quick exits allow for greater financial agility.

    The Power of Early Investing: AI, Tech, and Anti-Obesity Drugs

    Druckenmiller’s investment acumen is evident in his early positions in Nvidia and the AI sector. Noticing a shift among Stanford and MIT engineers from cryptocurrency to AI, he took a significant position in Nvidia even before AI became mainstream. His interest in tech extends to industries with high growth potential, like anti-obesity pharmaceuticals, where he identified a societal trend in Americans’ demand for convenient weight-loss solutions.

    Druckenmiller maintains that staying open to innovation is crucial but acknowledges that even seasoned investors face challenges in timing and identifying the most lucrative long-term plays.

    Advice for Young Investors: The Importance of Mentorship and Passion

    Druckenmiller advises newcomers to finance to seek mentors rather than MBAs, stressing the irreplaceable value of experience and guidance in honing investment skills. He believes those entering the field solely for monetary gain may lack the resilience required to endure market losses, which can be psychologically taxing. In his view, passion and persistence are critical, with success depending more on an insatiable curiosity than on financial motivation.

    Wrapping Up

    Stan Druckenmiller’s insights offer a masterclass in balanced investing, emphasizing the need for quick, informed decisions, openness to emerging trends, and an understanding of macroeconomic cycles. From inflation warnings to a nuanced view on the role of intuition, his strategies exemplify how financial wisdom, adaptability, and humility form the foundation of sustained success.

    In today’s volatile markets, Druckenmiller’s insights remind us that a successful investor isn’t just one who “beats the market”—it’s one who understands it deeply, stays grounded, and learns continuously.