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Podcast episode

Crypto arbitrage searcher Dave Belvedere on crypto and dApps such as Wizards & Dragons – EP178

Dave Belvedere is a software engineer who searches for opportunities to make the crypto market more efficient and to make money at the same time – e.g. by exploiting arbitrage opportunities. Dave gives show host Gene Tunny and his colleague Tim Hughes an overview of cryptocurrency and also talks about NFTs and decentralized applications (dApps), such as Wizards & Dragons.

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You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP178

  • What is Dave’s role in the crypto market? [1:10]
  • What is a chain and how does it work? [3:39]
  • How long does it take to make a transaction? [9:26]
  • What does a crypto exchange (e.g. FTX) do? [15:30]
  • What do we know about miners? [20:20]
  • What’s the future of crypto currencies? [25:44]
  • What is Ethereum and how does it work? [45:57]
  • What are the pros and cons of crypto? [52:07]
  • What are dApps? [57:01]
  • What are the use cases? What would motivate you to have crypto? [1:06:33]

Links relevant to the conversation

Bitcoin creator:

https://en.wikipedia.org/wiki/Satoshi_Nakamoto

Wizards & Dragons game:

https://dappradar.com/ethereum/games/wizards-dragons-game

Transcript: Crypto arbitrage searcher Dave Belvedere on crypto and dApps such as Wizards & Dragons – EP178

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Dave Belvedere, welcome to the show. Thanks for having me. Excellent Dave, joined by Tim Hughes. Of course, Tim, good to have you here too.

Tim Hughes  00:43

Hey, Gene. Good to be here mate.

Gene Tunny  00:44

And Tim, thanks for introducing me to Dave, who is involved in crypto and crypto is something that Tim and I have chatted about before, and we’re conscious that we need to know more about it, we’re at a certain level of understanding of it, and it’d be good to increase that understanding. So to kick off with Dave, could you talk about your involvement with crypto, please?

Dave Belvedere  01:10

Yeah, so I’m what I do is I’m classified as a searcher within cryptocurrency. So a searcher is somebody who looks for opportunities to make the market more efficient. So one of the classic examples is arbitrage. So when somebody adds a cryptocurrency to one side of a pool, so those get created by automatic market makers, which we can talk about, so yeah, yeah. So if they add, say, you know, 20,000 ETH to one side of the pool, and the other side of the pool holds USD t, then there’s an offset of the balance of how much USD T costs versus what the general market says.

Tim Hughes  01:48

So David, USD t is,

Dave Belvedere  01:50

it’s so sorry, yeah, the USDt is tether. It’s backed by sort of the organisation that runs it to maintain a level pay going against the US dollar. So it’s one to one to the US dollar. Okay. So there’s a couple of coins like that, that are referred to as stable coins. So this is within Ethereum, which is USD T and USDC. So us coin but it’s not the US market coin. So it’s not connected to the US government at all. Okay, so ETH is Ethereum and if there’s a theory, okay, and then you’ll have BTC, which is Bitcoin? Yeah.

Gene Tunny  02:29

And is there a simple way to explain the difference between Ethereum and Bitcoin?

Dave Belvedere  02:34

Yeah. In essence, the cryptocurrencies. So it’s cryptocurrency really is just a digital asset that’s backed by a cryptographic hashing algorithm. Digital Asset is something just like a bank account, or something like that. So yeah, we see it every day. Yeah, technically, all Australian dollars, when you start to pay with your credit card, that’s really just a digital asset. In this case, it’s a digital asset that is then secured by cryptography. So when you go visit the bank, you’ll usually see HTTPS, that s stands for secure, and that’s backed by cryptography. So same sort of mechanism. And in this regard, when we talk about Bitcoin and Ethereum , they’re actually two independent cryptocurrency chains. So they’re not really connected together. And what that means is that they operate a little differently. So Bitcoin was the first one, they came in around 2009. So a lot of people would have heard it, because, yeah, that the market value quite, quite hugely, I think, a couple of years ago, it was up to like 80,000, US or 80,000, Australian. And it’s come back down now. But yeah, head has gained a lot of popularity. So when we get into a chain, there’s a couple of things when we talk about what a chain is. So we would have all heard of the classical blockchain. And that’s what sort of secures Bitcoin and Aetherium. So blockchain is really an ledger, we probably always, always heard it. So transactions just get added, and you can’t go back and modify the transactions. And one way, well, the guarantee for that is the consensus mechanism that gets used. So let’s just say I make a couple of transactions on Bitcoin. So I’m sending some bitcoin to somebody else, that transaction gets added to a block. So there can be many transactions or none, no block. Yeah. And then that block then goes through all gets consensus with the rest of the network. So one of the differences are that, I guess one of the big differences with blockchains is that for most of the blockchains, that distributed systems, so nodes all around the world make up the actual blockchain. So there’s no one entity that can control the blockchain itself.

Tim Hughes  04:53

So this is the decentralised term when it’s used. This is what the what they mean by that.

Dave Belvedere  04:57

Yeah, yeah. So that’s sort of like you can shut down, say everything in the US, but the chain will still operate because you know, it’s in Europe, it’s in Asia, it’s in Australia. So you can’t really shut the chain down.

Tim Hughes  05:09

And is that just on that subject, is that one of the reasons that so much energy is needed for a transaction? Is that where that consumption comes in?

Dave Belvedere  05:17

So to a degree, there’s a couple of things that will maintain the security of the blockchain. So a couple of blockchain. So in this case, Bitcoin itself is actually vulnerable to a degree to the 51% attack. So when we talk about distributed systems, it’s different control most of those systems, you can do whatever you want in the system, which is classified as the 51%. Yeah, so I haven’t heard that term before. So if I control 51% of all miners, and let’s just say in Bitcoin, then I can make any transaction valid, because I control the majority. Yeah, the consensus mechanism that gets used as always a majority, if the most of the nodes agree that this transaction is valid, it’s valid, and there’s no going back once that transaction, that transaction has been committed, there’s there is a couple of nuances to that. So you can challenge a block if it hasn’t been finalised. But for the most part, we you can always just assume, as soon as that transaction gets committed into a block, and it’s on the blockchain, it’s there forever.

Gene Tunny  06:19

Yeah, but because it’s so decentralised. And there are so many 1000s I don’t know how many 10s of 1000s of people around the world who are they’re mining or whatever they’re doing. They’re overseas, so they’ve got a stake in it, then the probability of having that 51% attack is extremely low, isn’t it? 

Dave Belvedere  06:40

Yeah, you need sort of a lot of a lot of materials and a lot of money, honestly, to get to that point. Yeah. So when something small, obviously, it’s easy. But yeah, given its past sort of popularity, and its nature, yeah, it gets gets very hard. And yeah, so the Yeah, it’s, it’s extremely hard to try and try and get that in a bunch of, there’s a collection, so you might not be able to create the block. So when we, when we talk about these miners, yeah, suddenly, to I guess sort of to lead up to is why miner are unnecessary in Bitcoin, now and previously, in Ethereum, is that they are looking for the next block. So they’re trying to get consensus on the block. Yeah. So when somebody commits a transaction that doesn’t get added to the blockchain, automatically, it goes to the miners. And what they’re doing is running the consensus algorithm. So the algorithm is just really cryptographic hash. And what it includes is the hash of the header of the previous block, plus all the transactions plus a random number. And what they’re trying to do is run that hash it such that they get a viable block, the block is valid in accordance to the consensus algorithm. That is where all the power is spent all that time, because you’re running a cryptographic algorithm, which is usually quite computationally heavy. Yeah, in the best of times, and they’re trying to beat everyone to the block. Because if you create a block, you get a reward for it. So you might get one Bitcoin, or something like that. So it is viable to try and create as many blocks as you can to get those rewards.

Tim Hughes  08:16

That’s the reward for being a miner. Is that right?

Dave Belvedere  08:20

That’s the reward for creating a block. You spend all your time mining, not create a block and get nothing. Yeah, so one of the things that they’ve done, because obviously, that sort of starts to lean towards people with more money, more resources can deploy more things, is they’ve created these mining pools, such that you can contribute to the pool, and it might make up say, 25% on the network. And then if the pool itself creates a block, you get a you get a little piece of that based off of you know, how much you contribute to the pool.

Tim Hughes  08:57

Quick, quick question with that. So with the people who don’t manage to mine the block, is that part of the excessive amount of energy needed for a transaction because it’s basically wasted energy, they resource is a bit like an Olympic bid or how it used to be. So all that money is spent was for nothing, because it went to wherever

Dave Belvedere  09:18

Somebody else. Yeah, so they’re basically you know, running these things as quick as they can and they might get beaten by nanoseconds.

Tim Hughes  09:26

Yeah. And how long would a transaction normally take roughly?

Dave Belvedere  09:29

So it depends on the on the chain being used, I think at the moment with Bitcoin because they’ve like they’ve mined so much it takes you know, 10s of minutes to actually create a new block in Ethereum. They switched from proof of work the consensus of proof of work, which is what Bitcoin still operates on, to proof of stake which is less computationally heavy consensus mechanism and it also you can argue it distributed through the miners a lot cleaner to, and they’re fairly quick. So compared to Bitcoin, so they generate a new block, I think, every second pretty much and the transactions that get included are just transactions there.

Tim Hughes  10:14

Because yeah, this sorry, Jamie, because this is something like last year or isn’t it when Ethereum. So this is the change that they did way? I think it’s only 10%? Or is it like a 90%? reduction on 99.9%. Wow, okay, of their power, which is enormous. I mean, that’s because that was the we’ve talked about it before with outrageous amount of energy spent. And to hear it, they’re like is completely wasted? Any delegates not necessary for that transaction. So it’s wasted energy. Yeah. So Ethereum have made this quantum leap, basically, to make it far more efficient. Yeah, pretty

Dave Belvedere  10:46

well, efficient in terms of memory. Sorry, in terms of power. Yeah, like the contestants. So proof of stake, the way it works is like a scheduler just goes, you’re going to create the next block. And so only one person is effectively going, here are the valid transactions and pushes the block out, you still got validators that will be like, That’s a good job or challenge to do it. So I guess sort of a little difference between proof of work and proof of stake as the consensus mechanisms. Proof of Work is just really run, like find that cryptographic hash match. Proof of stake is you put up X amount of capital, or for this, in this case, it’s 32 ETH, which is about 80,000 Australian, and you say I will behave correctly and properly. And if I generate a block, you get sort of the rewards for that. Now, in order to avoid bad actors, or just somebody coming in with a massive amount of ETH. And being like, I’m just going to do this, they have challenge periods. So if somebody like, let’s just say, misbehaves as the node and puts in a bad transaction, somebody, anyone on the network, so like, you could be just a little guy on the network and these big, big mining groups around you can challenge the block. It’ll force everyone to go through and actually, like, compute this at a sort of hashing level. And if you’re right, and they did misbehave, they lose all the capital that they put up. So they get slashed, 32. And so the node gets bounced, and then that 32 ETH comes back to the network. Because you challenged it, I think you get like, 90% of that, and a bunch of it gets burnt offs. Yeah. So it’s sort of the that’s the mechanism to make sure everyone is behaving correctly.

Gene Tunny  12:39

Don’t can’t ask a basic question. Yep. Say you bought a couch off, Tim. And you wanted to pay Tim in cryptocurrency? I mean, maybe bitcoins the example to use, since that’s what most people are familiar with? How would it work? I mean, would Tim have to have a wallet, a crypto wallet?

Dave Belvedere  13:01

Yeah, so crypto will only really send to what we call wallets are really just public keys and private keys. So it’s the public key infrastructure that sort of backs a lot of lot of internet, mobile, a lot of sort of infrastructure around the world at the moment. And you have a public key and a private key. Okay, so most people might have heard this, like, somebody’s private key got lifted, and crypto got drained. If you’ve got a private key, you can decrypt anything that gets encrypted with the public key. So in this case, I’m sending it to Tim’s public key, and then only Tim will be able to, to get that from his public key if he’s got the private key.

Gene Tunny  13:43

So who sets up the public key? Tim need to do that?

Dave Belvedere  13:46

And Tim needs to do it. So in order to generate a wallet, you’ll get both the public key and its private key.

Gene Tunny  13:51

Okay. And who are the players that do that for you that is that a an exchange? A crypto exchange?

Dave Belvedere  13:56

Yeah, there’s, there’s a, like, you can do it through an exchange. But then typically, like, there are exchanges out there, okay. They might like to hold the private key or, you know, be able to recover private keys and things like that. Yeah, you can do it through a bunch of, sort of specialised applications. So we call them just wallets. So the most common one in Ethereum is Metamask. So it can you can just plug it in, it’s just a Firefox Chrome app, and you go create new wallet, and it’ll generate that those keys for you.

Tim Hughes  14:29

Is that user-friendly Dave or is that something that you’d need someone like yourself to help set up?

Dave Belvedere  14:36

No, it’s it’s it’s pretty easy. User friendly now. So yeah, like a couple years ago would have been like, what’s going on what’s up, but now, you know, they’ve made many changes has been very user friendly, like to go through you instal it. It’ll be like, how you like recovering your existing wallet. And if that’s the case, you got to provide the private key, or the seed phrases to generate the key Um, ball. It’s just like, okay, cool. Finding a new wallet, you click a button creates the wallet for you. Yeah, it stores the like, you won’t see the private key, but I’ll give you the seed phrases that are used to recover that private key and record these because if you don’t have the private key, this is the only way to get this back.

Gene Tunny  15:20

Okay, so who would do the transaction? Is that through the exchange? If you understand money to Tim, or is the exchange doing is FTX? I mean, what did a company like? FTX do so

Dave Belvedere  15:33

FTX was primarily changing, like currency for cryptocurrency. So they, they act as the middleman. Okay, so you know, I’d give them Australian dollars from the bank, okay, and then I could buy on their market at their rates, x amount of crypto that they’re holding in their wallet, okay. And then from that I can either like so as a part of that, typically, you’ll find an account with the exchange that will have like an embedded wallet associated with it, or whatever their infrastructure needs. And then I can transfer that to say, my wallet, and then I can transfer some to Tim or I can use that exchange to transfer it to Tim directly. Okay, so exchanges are primarily there for transferring currency. So, so transferring dollars to currency, or transferring between cryptocurrency across chains, or transferring between cryptocurrency on the same chain. So when we talk about an Ethereum is not just ETH it has a bunch of coins on the same chain. And yeah, you can use an exchange to say transfer one Eth to USD C or USD t. So the two stable coins you’re talking about before. Or I can, you do that what they call on chain through DEX’s. Okay, decentralized exchanges. Okay. So they create pools or what we call automatic market makers. Yeah, so they usually have a pool, which is, this is a 50/50 pool. So it has Ethereum and USDC. So the pool itself, ideally, at any point is trying to maintain half of its quantities Ethereum and the other half is USDC. And now what sort of I look for on chain is when somebody then dumps 20k Ethereum into that pool, means there’s an imbalance between the side. So yeah, who would automatically want USDC or getting rid of ETH. So it’ll make eath very cheap to buy, so wants to get rid of it to maintain the balance, yeah, or give me a really good price to put USDC into the pool, because it wants more of that to try and maintain that 50/50. And that sort of is the classical arbitrage from that I can buy low at some other pool or on the decks itself, and then put it into this. And what makes that possible is decentralise exchanges. Don’t look at you know, a fee that says the market price for ETH is x to what exchanges use. So exchanges will typically have, you know, the current market price of ETH is whatever $1,600 And that’s based off of, you know, what’s happening now what’s happening on other exchanges, like Binance and things like that, and they sort of get a get a market price for that. Whereas decentralised applications, their market price is literally what the pool says. So yeah, you can sort of get really good deals. And yeah, when you sort of try and make that market efficient on the decentralised side it Yeah, can can open up a bunch of opportunities.

Tim Hughes  18:55

Can I just ask Dave? So with winning that transaction in your, you know, for that particular situation, is that all about speed? Or is so what are the factors in being able to get that transaction?

Dave Belvedere  19:06

Yeah, so there’s, there’s a couple of things that will impact that transaction. So on Ethereum, it’s not necessarily about speed, you certainly have to be there when they’re trying to create the block. So let’s just say the timing window for creating a block is 100 milliseconds. So as long as my transaction to do that is in that block time creation window, I have a chance to potentially win that transaction. And what it comes down to on Ethereum is you can tip the miner to be like, you want to put my transaction first. So let’s just say I’m going to make three ETH. From this transaction, I can tip the miner 2.5 of that ETH so I get half of that if I can give the miner 2.5 If they put my transaction first, so which means the Miner is getting more money to make sure that my block Isn’t there first my transactions in there first, and then they can put the rest of the transactions. And so that’s sort of making up what we, you know, sort of what gets identified as MeV. So mine extractable value. So they’re looking for the most profitable transactions to put inside their block in order to make the most money. Yeah.

Gene Tunny  20:20

So what do we know about these miners? There are professional miners aren’t there? And are there amateur miners? I mean, is it guys in the basement? Or is it? I know there are some dedicated companies aren’t there that are doing the mining and they’re all around the world? Do we have any here in Brisbane, I’m just fascinated with these miners are.

Dave Belvedere  20:40

Ya know, it’s really it’s, it’s anyone that has the computer with the resources and is running the algorithm, you can be a miner at that point. Yeah, mine is there to operate the chain it does. Under proof of work, it is better to be with other miners, like around other miners, because you want to broadcast the block that you find to the network as quickly as possible, because two people might come up with the same solution or like different transaction orders. But both of the blocks that they produce pass the consensus algorithm, it’s whoever can saturate the network or saturate 51% of the network they’re blocked in is the next block. So you might do all this work, find a block, create the block and then still miss out.

Tim Hughes  21:29

 Right, which was the original problem, anyway. So yeah, just is it? Well, as far as energy consumption goes. So with the changes that Ethereum made, it’s the same process, but just quicker, and with fewer people vying for it. Is that right?

Dave Belvedere  21:41

Just just one person vying for it. So it’s like, with proof of stake, it’s like, it’s your time to create the block. And you have to answer within a certain timeframe. If you don’t, there is a little bit of a penalty, like you lose, start to lose some of your stake, and they just go to the next person.

Tim Hughes  21:56

And how do you be in that little group or chain? Or?

Dave Belvedere  22:00

Oh, it’s just really running the node software, So the actual node software is executing, you just connect to it. And and you’re pretty much in it.

Gene Tunny  22:09

Yeah. What do you know about the profitability of the mining? Because is it something where there’s such low barriers to entry, there’s just, you know, lots of people have come into it seeking the profit. And then that gets, you know, that those opportunities get dissipated? Or? I mean, I’m guessing there are some players in the mining game who have, they’ve just got such great computer capability, or there, they’ve got a better algorithm, that they could get a lot of the winnings, but what do you know about the profitability of mining? And the, I guess, the market structure, I suppose you call it?

Dave Belvedere  22:48

Yeah. So um, under proof of work, mining profitability, I think sort of, when we talk about Bitcoin is starting to fade away very quickly, because you need to spend all this energy. And I’m, I’m pretty, pretty sure that they’ve dropped the block rewards, quite recently. So what you get for actually creating a block that’s come down, so you’re getting less and less, sort of Bitcoin for creating that block now, right? So the profitability is starting to go away. In Ethereum, it’s still kind of there, it’s sort of like a random random shoot, if you get a really good block, where let’s just say something skewed pool a lot. And you’ve got these searches, trying to like get money out of the pool to make it market efficient, you might end up with a block that might pay you say, 50 EtH, in those tips. So that’s random. But the problem is, is that there’s a lot of like, nodes around the world for a theorem, because now it’s just super, super, super basic to set up and those sort of requirements are starting to fall away a little bit. That yeah, it is hard to like, get to that block, like it is pretty much a random chance. Okay.

Tim Hughes  24:04

But, Dave, you mentioned a couple of terms, actually, you have Bitcoin operate and how Ethereum operate, which is essentially then the difference that made it possible for Ethereum to use so much less energy. What was that again?

Dave Belvedere  24:18

They’re their consensus mechanism. So proof of work versus proof of stake.

Tim Hughes  24:22

Yeah, right. Okay. So Bitcoin have proof of work, Bitcoin and proof of work? Yep. Is it possible for them to do the same thing as a theorem and move to proof of steak?

Dave Belvedere  24:33

It is they would have to change how the chain would not have the chain, well, how the miners would operate. So the actual software that the miners run. One of the things with Bitcoin is there are very big miner groups now. So there’s a lot of sort of power in these groups because they don’t want the status quo to change. Because they they’re making they’re making money. So proof of work, works for those miners. Yeah. And so you have to convince like majority of the miners or like 90% of the miners that this is the way forward. Otherwise, what will happen is you’ll get a hard fork. So you’ll potentially see if you’ve looked at sort of some of the crypto you’ll see like, Bitcoin classic and a theorem classic. Yeah, these are hard forks of the chains where miners have just disagreed. Okay, and so, you know, a group of miners went one way. And other group of miners went the other way. People yeah. Always soiling it.

Tim Hughes  25:34

Humans always do. Okay, so, um, because with that, I mean, it looked like such a big change for Ethereum that Bitcoin might have its days numbered, like, Is that a fair assumption?

Dave Belvedere  25:44

I think so. Like, I think bitcoins done really good stuff and trying to like break into the businesses and operate as like, Hey, here’s a digital asset coin and sort of challenge the status quo that was previously that it’s days to look, you know, pretty, pretty bleak. In terms of future it is just a coin, and it’s just a digital asset. And you’ve got other sort of crypto currencies like Ethereum that operate as a coin, but then also have these decentralised exchanges, as you know, on chain games that you can play and like, do stuff with, they’ve building out an entire ecosystem over top of them. So they’ve now got what what gets referred to as layer two chains. So chains that operate on Ethereum. So you can bridge assets, I can take what I’ve got on a theorem and hold it up to this layer two chain, and that layer two chain is secured by Ethereum. So typically, you’d like to take arbitrage, for example, it’s a really popular layer to chain on a theorem, what they do is they’ve got their own. They’re a centralised chain. So the way that they validate and sequence blocks is controlled by off chain labs. But what they do is when they’ve got a bunch of blocks, they roll them all up. So they have a rollup mechanism. And they send that data back down as a transaction on layer one. And so when it gets committed into layer one, I can essentially rebuild the layer two chain from just layer one. And that’s where I sort of think Ethereum is going to head towards the future, is that a Ethereum , what we call layer, layer one will end up being more of a security mechanism, rather than sort of what exists today with DEXIS and coins, that will still be around, but I think the majority of us will start to go towards layer two and potentially even layer three, because they can upscale the amount of transactions they can handle. So that’s, that’s the other one. That’s pretty key, if this was going to take over sort of like, a digital asset is how many transactions you can compute per second. So you know, take Visa, for example, I think can do like, what 4000 transactions a second. And so yeah, that sort of puts a minimum requirement on how many transactions you can compute per second, in order to like, not really notice, it’s like you don’t notice, like when you tap a credit card to go pay a delay of like, hang on, gotta mine that block.

Gene Tunny  28:22

This is where we need quantum computers. And are they, are they something that will actually happen?

Dave Belvedere  28:28

Potentially, yeah, it depends on like, what gets used. So hashing is always a weird one for quantum computers, because hashes are typically not vulnerable to, I guess, you know, Shor’s algorithm, which says, basically, sort of at a high level, anything that’s secured by, say, just a cryptographic algorithm, you can break with Shor’s algorithm. Yes, yeah. it all up. So cryptography today depends on the fact that when I make like input equal output, if I have to break that output, it’s a brute force attack. So I have to just iterate through all possible inputs to try and find what input gave me that output. It depends on that that is pretty much impossible. You need a lot of resources. And it’s going to take a lot of time. Not to say it’s not impossible, but it’s so far out of just, it’s 100 years to like, try and work out what this input equals that output, that it’s just not worth it. So that’s what fundamentally secures all cryptography today in those sort of algorithms. What the concern with quantum is, is that you’ll be able to do that a lot quicker. Yeah, but with hashes, not so much. It’s still just run through how the hashes work.

Gene Tunny  29:56

Right? Okay. Yeah, fair enough. I had another had another question about this proof of work versus proof of stake. One. Criticism I heard at the time when this merge occurred was at the merge, like the merge. Yeah. Was that Well, the great thing about Bitcoin and I think I had Yeah, I had a guest on the show, who was a Bitcoin enthusiast, and he was also a writer of thrillers. Lars Emmerich. I think it was, yeah. It was interesting. Guest fun. Yeah. All right, is excellent. And former fighter pilot and oh, yeah, writes thrillers. And he’s, we talked about crypto among other things. And he’s a big Bitcoin enthusiast because he sees the risk of he’s concerned about the US dollar hyperinflation, etc. So we had a good conversation on that. But he was saying the great thing about Bitcoin is decentralised, the proof of work means that there’s benefits from having proof of work, and it is, I guess what I’m asking is Ethereum  still crypto, is it still, I mean, there’s moving to proof of stake move away from the benefits of having to do that proof of work.

Dave Belvedere  31:23

I mean, oh, yeah. Yeah. No, not Not really. So okay. It is still crypto. It’s still cryptographically you know, okay, locked in and secured, as is still decentralised, still decentralised.Yeah, so absolutely. So it’s even some people can argue it’s even becoming more decentralised than say, Bitcoin. So Bitcoin itself is moving towards centralization, because you have the big miner groups that start to control more and more of the chain, sort of moving towards a centralised figure. And so that’s that 51% attack that we talked about earlier, with moving to a proof of stake in order to control or sort of start to centralise the chain, I have to control 51% of all Ethereum. So every single ETH that’s ever been issued, I need to hold 51% of that, which is, you know, starting to become trillions and trillions of dollars. Yeah, so it is less viable for me to actually try to attack at the network. And yeah, it’s sort of proof of stake kind of starts to push more of a distributed type of feel to it doesn’t stop big groups coming together and like, obviously, trying to pull the chain towards centralization. But I’d probably argue that proof of stake makes that harder than say, proof of work.

Gene Tunny  32:51

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  32:57

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Gene Tunny  33:26

Now back to the show.

Tim Hughes  33:31

Can I say what would happen with layer one, layer two, if someone was to get that 51% ownership? Do they then become the layer one? They’ve got their? They’ve got the conch as it were, you know, so is that where the layer one status is? Is like yeah, because the majority.

Dave Belvedere  33:49

so yeah, pretty much like yeah, if somebody can control, you know, the, the layer one and you’ve got layer two, and layer three is built on top of it. They call the shots, they call it. Yeah, they effectively have the control of the network.

Tim Hughes  34:02

Because it’s an interesting part of how this seems to be unfolding is that the decentralised nature seems to be one of the big attractions and I’m sure it still is. But as far as confidence in the currency, it seems to be the downfall of, so it’s it looks quite possible that so for instance, Reserve Bank of Australia or Bank of England may want to bring up their own cryptocurrency which would then be centralised that would be layer two as you were saying so if they did it with Ethereum it would for instance, you know, hypothetically will come on as a layer two and be centralised. Yeah. What are the is that the direction we’re heading in? Is that seem to be most likely?

Dave Belvedere  34:47

Yeah. Maybe. I think because they would want to control the chain. So one of the reasons I guess that a lot of people are still You know, fairly excited is that cryptocurrencies do bring some anonymity to the game. You’re just identified by a wallet, not by name, address or anything like that. Yeah, right, sort of what the banks need. So you don’t get KYC in exchanges, KYC so know your customer.

Gene Tunny  35:19

Yeah, that’s the stop money laundering. Dodgy transactions, technically, they’re supposed to know their customers. And this is where some banks have got into trouble. Yeah, he is that they actually didn’t know their customers and all of the money laundering through the Westpac ATMs. I don’t know if you remember that.

Dave Belvedere  35:39

It was it Westpac? There was a little I remember stuff with Commbank, they’ll doing.

Gene Tunny  35:43

maybe it was Commbank, I actually have to check that in the show notes. So I don’t get sued. But I thought it was Westpac is one of those four. Yeah. So

Tim Hughes  35:58

Good to know, because I’ve got to deliver a CAPTCHA apparently. So. Good thing to know.

Dave Belvedere  36:03

Yeah. So So currently, sort of government regulations, sort of say like, Okay, if you are transferring currencies and things like that, you have to KYC. So you have the customer have to provide details. Yeah, and one of the great things about digital coins is, you know, you just identified by a wallet on the network. So, you know, is that really you? I don’t know. So, you know, this is where, yeah, recently I had to go through tax in a year, which is, which was always fun. And yeah, you got to provide like, his wallet addresses, these are all the wallet addresses I touch. These are all the transactions I made to, obviously, ATO, so they can make sure that you are getting taxed correctly.

Tim Hughes  36:48

That’s a really good point. I hadn’t thought of that. So how does this work with a tax return? Like, you know, with your transaction, what you own what you dont own.

Dave Belvedere  36:56

Every transaction is considered an investment or sell, buy or sell order, basically. So cryptocurrency still is considered, well, it’s a high risk investment, right? It is extremely volatile. And yeah, and there are many dodgy things that do happen on chains. And, you know, one of the classic examples is you can’t even trust exchanges, because FTX, for example, they were messing around with customer funds and things like that.

Tim Hughes  37:27

So yeah, sorry I was always going to ask at some point, now is obviously that time, I guess, what happened?

Dave Belvedere  37:33

So sort of the story that we got for the collapse of FTX customers are obviously putting in the money FTX I believe that the time offered, you know, futures options, traditional sort of trading markets that people could play around with. However, they also sort of had a behind the doors deal with one of their sub companies, I think is Ella Mira or something, something similar to that, where they will lend them a bunch of money at them was backed by customer money from an FTX, FTX perspective. And they played around with it and lost, I think it was they lost billions and billions of dollars. And so when customers started to lose confidence in FTX, I can’t remember what the particular event was. And they tried to withdraw their money. They couldn’t, because FTX didn’t have that money anymore. So and that’s sort of what led to the collapse. And what Yeah, ultimately forced the US government to start to step in. And that’s where I think we’ll start to see more changes. I think crypto is here to stay. But in its current form, probably not. I think governments will start to get involved. And yeah, you’ll start to see sort of a traditional securities market approach, I think, come over the top of it. So yeah, whether you’re more KYC or, you know, more rules around what you can and can’t do in particular countries, which makes it quite hard because there is no one thing controlling crypto, and it’s all decentralised. So it’s like, well, if we see you’re coming from the US, you gotta use this. If we see you’re coming from Australia, you got to do this, which, yes, is it’s hard to make that work well.

Tim Hughes  39:27

So that was a failure of the exchange, not the currency.

Dave Belvedere  39:30

Yeah, that’s, that’s purely a failure of the exchange. So the people running the exchange are doing Yeah. Yeah, questionable. Questionable things.

Gene Tunny  39:38

 Yeah, because they should have just been exchanging or holding that money on behalf of their customers. And they were going to use that to purchase cryptocurrencies were they?

Dave Belvedere  39:51

Yeah, so effectively, like, yeah, they would purchase cryptocurrencies and then they would sell it on so they, you know, if starting up they would prop we’ll be running at a bit of a deficit or like have a raw, somebody’s given them a bunch of money too, and have that initial crypto. Yeah. And then yeah, as people come in, and they, like, give money for that crypto, obviously at a particular market margin. Yeah, they start to be able to add more crypto and sort of become profitable in that regard.

Gene Tunny  40:22

Yeah. But they went in, did they go and lend that money that they should have held in trust, or they shouldn’t they were looking out for customers to that. That other company was run by his ex girlfriend. By Sam Bankman-Fried’s ex-girlfriend. Yeah. Yeah, it was a daughter of an economist, economist. MIT economist, I think, I think he’s a professor at MIT or one of those schools. Really good school. Yeah, that was a debacle. The other thing I hear about is the rug pull. Rebuild, goes on about rug pulls. And when coffees Zilla, you probably follow Him or you say he’s really sceptical of crypto. Have you seen coffee Zilla? I will flick you some videos.

Tim Hughes  41:07

I love the fact that rug pulled got a conversation. I’ve never heard of this. About this.

Dave Belvedere  41:13

It’s a funny term. So obviously there with with anything new and like, Give somebody a little bit of anonymity, they just go wild. You know, there are at the moment, a lot of yeah, a lot of good actors that people are trying to, you know, accomplish and create new things. But there are also a lot of bad actors. So classical pump and dump schemes are not uncommon. And yeah, one of the other ones is what gets what got its own name, which is a row pool. So let’s just say, you know, there’s, there’s a, there’s a token that I’m releasing, people buying that token, so they’re sending me money, and I’ve given them the token back, and then on the owner, cool, I can just like swipe all that money out of the account, and then that token is now worthless. That’s, that’s effectively a rug pull. So the people who created that, that have control of that sort of asset, because the assets on an Ethereum are controlled by contracts. So if you’ve got the private key to the contract, you effectively control the contract. And you can just take all the money that’s in that contract, and then the token then becomes worthless.

Tim Hughes  42:20

Actually, on that note, so this, this brings up the question I was going to ask, who started these? Obviously, they’re, you know, whoever is behind bitcoin or Ethereum? Are they known?

Dave Belvedere  42:33

So, Bitcoin, no. There is a famous paper that is written but no one knows the true identity. Within Ethereum, it’s Vitalik. So he traded a theorem and then it’s now run by the Ethereum foundation. So the people who sort of operate and try to improve the chain and things like that are known as a foundation whereas Bitcoin it’s, it’s murky, who started.

Tim Hughes  43:00

It’s very James Bond, the whole thing of like, you know, having something like Bitcoin with, you know, who’s behind it is fascinating that it’s anonymous at that level with potentially a lot of power.

Gene Tunny  43:11

Well, it was this person with a pseudonym was it’s a Satoshi

Dave Belvedere  43:16

Satoshi. It started with Okay, yeah, but yeah, Satoshi, something

Gene Tunny  43:19

like that. I’ll put links in the show notes. And what they did I think they published a white paper. So they publish the code or the rules for Bitcoin and then people read it and thought, actually, yeah, this would, could work. This is a great idea. Let’s go ahead with it. So it’s obviously a computer scientist of some kind, potentially. Yeah, I think is there an Australian who claims that he invented it? I think, as well?

Dave Belvedere  43:44

Yeah. There are claims that the Australian is Satoshi. Ah, right. Yeah, so sort of he released the white paper with the chain already there. So one of the things that you have to do to I guess, you know, start a chain, is you got to create the Genesis block. So the first block that then things build on top of, and typically, if you’re going to create the Genesis block, well, you might as well just create a good fundamental base. So I think, I think Satoshi has like, a ridiculous amount of bitcoin, because you’re effectively controlled. The base asset right at the start, and then you sort of like, give yourself as much as you need as you’re building these blocks, like you might release the chain to the public, say, and it’s got like, 200-300 blocks. So you’ve got all the rewards for those blocks are doing no work, no competition, but now you’re going to release the chain. And so I think, from memory, reading papers, like everyone knows which coins because obviously the coins effectively get numbered based on the block that they were minted in.

Tim Hughes  44:52

And on that note, Dave, there’s a certain number of Bitcoin and then that’s it. Is that right? And was that determined at the very beginning?

Dave Belvedere  45:00

yeah, so that would have been determined by the actual algorithm that that got generated for Bitcoin.

Tim Hughes  45:05

How many other?

Gene Tunny  45:07

21 million, isn’t it? Yeah, I’ll put it in the show notes anyway.

Tim Hughes  45:14

So that’s part of the strength of it, though, that it’s a finite number.

Dave Belvedere  45:18

 It is a finite number. Yeah. So it’s like it is the strength. So once everything’s been mined, you know, that’s it, then it just becomes transactions passing between to and fro.

Tim Hughes  45:28

You need a level of scarcity for it to have a value.

Dave Belvedere  45:31

Scarcity will drive the wealth of the actual element up, or potentially not, depending on which way it flows. But yeah, that’s, that’s the sort of appeal for it is that it’s running out, so if you’re going to grab it.

Tim Hughes  45:45

And Is that comparable to how many Ethereum there are in the in circulation? No. I knew as I was asking the question, this is not right.

Dave Belvedere  45:57

So what gets classified as Ethereum? Has, it does have a max value, but it’s quite big.

Tim Hughes  46:05

So sorry, I mean, this is coming from a very base level of understanding. But I’m sort of fascinated by this. So how does that work? Then with Ethereum? How many? Like what do you call? So Bitcoin is a Bitcoin? Because Bitcoin isn’t what Ethereum? Worked with? ETH. So yes, okay. Yes. So the number of ETH isn’t determined, it’s not finite.

Dave Belvedere  46:28

It, there is a there is a finite, but they can always add more. So it’s, yeah, it’s backed by a contract. And you can always change that contract. Sort of as an example. Like, right at the start, it was ETH. So ETH, is the classical. Everyone knows, sort of what gets defaulted to, technically, it’s not ETH anymore. It’s actually wrapped ETH. So three or four years ago, I think, the foundation or or one of the one of the partners that works with Ethereum, closely, they published the standard that every token should follow, because a token is really just a contract on chain, and you’re calling methods on that contract to say meant, you know, how many does this address have? If everyone is, you know, everyone just goes, I’m going to create a new contract, that API of like, what do I call to, like mean to what do I call the burn could change from token to token. So what got published was what was being classified as ERC. 20 So it’s a standard that every token follows. So an ERC 20 token follows that standard. ETH at the time, didn’t meet that standard. And so they created a contract that did create that didn’t meet the standard called wrapped ETH and you can transfer ETH and wrapped ETH at a one to one. So I can have like eight ETH and automatically make it a wrap ETH, okay? It’s just like taking that asset and making it different. But it’s still what you know, it’s still what we call ETH on chain.

Tim Hughes  48:13

Yeah, okay. Yeah.

Gene Tunny  48:14

Here’s another basic question that just occurred to me. So a Bitcoin. I’m not sure what its value at the moment, but is it around 20,000 USD?

Dave Belvedere  48:23

26,00US. 

Gene Tunny  48:27

Okay, yep. Yep, can I have a fraction of a Bitcoin? Can I or, but I How does that work? I mean, all because I thought if it’s in a wallet, does it have to be one Bitcoin? Or can it be gonna be a fraction?

Dave Belvedere  48:40

It can be a fraction of Bitcoin. So typically, with the tokens they’ll have? Like, we call it decimals on chain, but it’s really just precise. Okay, gotcha. So like, I think Bitcoin has a precision of six, I think six or eight. I’d have to double check that. So which means I can have point 000001 of a bitcoin. Right. Okay. Yeah, as long as it’s within that, that precision element, it doesn’t matter. You can you can still operate and work on it. Gotcha. Yeah, so as an example, ETH has a precision of 18. Right. So one eath, actually on chain is one times 10 to the power of 18. That’s what it looks like on chain.

Tim Hughes  49:23

Okay. And what’s a ETH worth nowadays? I think it’s around 1600 USD at the moment. Okay. So, as far as affordability goes in a single as against a Bitcoin.

Dave Belvedere  49:37

An ETH is more affordable.

Gene Tunny  49:40

Okay, can I ask you about smart contracts? So as an economist and speaking with other economists, and just reading about crypto and, and all of that, I mean, there seems to be increasingly there’s a view that will crypto might that There’s a lot of scepticism about crypto itself, but they’re saying, well, the blockchain is great, and smart contracts are great. So, can you explain what a smart contract is? And it’s linked to Ethereum? Is that correct? Yeah. How does that work?

Dave Belvedere  50:13

Yeah. So, um, a smart contract is really just code that’s on the chain. And so one of the one of the sort of, I think, very fundamental things that makes a theorem quite good is that I can store more than just the coin on the chain, I can create code, I can put it on chain, and then that’s the code forever. And so that code can no longer be changed, which does lead to some interesting problems, like, Oh, crap, that’s a bug. How do I actually, you know, patch and fix that bug? And you know, that’s, that’s kind of, we’ve seen consequences of that already. Yeah, somebody’s found a security flaw and just like, stolen millions and millions of dollars from contracts, or from DEXIS in particular. So they’re sort of the common hacks that are in theorem. So whenever you see somebody’s hacked, say, a bridge, or a Dex, that’s typically somebody’s found a flaw in the code and been able to exploit that code. Yeah, so a contract is written in solidity for the most part. So solidity is the most common language used for writing smart contracts. And it’s just, it’s just really code at that point. It’s just structured code. So similar to obviously different but like, similar to as if I was to read a C programme. So well, you know, a Ross programme or anything like that. It’s just common, it’s just code. So that’s why if you’ve ever heard coders law on some of the sort of the defences of hacks, that’s, that’s where that’s coming from, is that this is written as code. And the code allowed me to take millions of dollars, therefore, am I really responsible for it? My view is yes.

Tim Hughes  52:07

That is not a strong defence.

Gene Tunny  52:12

It’s like, if you get a million dollars deposited into your bank account, you can’t go out and buy a Ferrari.

Tim Hughes  52:20

The doors open, so I went in and took what I could carry. With that, as well, because I was zooming out a little bit as well. Dave? Yeah, you know, financial markets. There are so many issues like that may influence like a human emotions, like greed, panic, fear, these things happen all the time, you know, cyclical, or whatever it may be. And banks get robbed, you know, like, you know, cash was stolen, whatever. This doesn’t seem to be answering too many sort of problems, you know, they can get hacked. Yeah. So as far as, as a few questions that I guess, because the number one thing with all of that is trust, in my view is like, you know, if people trust something more and more, then it’s a stronger sort of system, and less likely to be driven by greed, panic, fear, etc. What was the pros and cons, if you like, of crypto, like if we ultimately heading towards something where we might be able to have more trust in a financial system than we currently have?

Dave Belvedere  53:23

Yeah, potentially. So I think if the people in on this so you know, sort of Ethereum, you know, who’s who’s running the show to agree.

Tim Hughes  53:35

So there’s trust there as well, compared to some phantom person with a white paper? Yeah. is less, less trustworthy, I guess. But yeah. Yeah.

Dave Belvedere  53:44

Sort of, yeah. Human nature, we sort of trust. If we can see somebody like that. That’s actually a real person. Yeah, there rather than like talking to a computer screen, we’ll be like, Yeah, who are you actually really talking to on the other side of that? So I think inherently, we will trust, obviously, the traditional market setups more because they are run by people. And that’s where, hopefully, you know, something like Ethereum can start to come in and sort of do that. But while you still have people who can misuse, I guess, the environment of like, these rug pools, and, you know, just doing pump and dump schemes and things like that, it does get hard to trust. Yeah, is everything on there. Really a scam or not? Yeah, yeah. Yeah. So it’s sort of a double whammy where it’s like, you know, for myself personally, it’s like, yeah, I trust a theorem like I don’t think the Ethereum ecosystem or anything like that. It’s going to go away anytime soon. The changes that they’re making to it a sensible and things like that, and you can actually see and talk to the people at conferences. However, that contracts and like opportunities that then can be a part of Ethereum, yeah, that’s where it gets a bit dodgy. And that’s where you need to sort of like, okay, I trust this exchange more than the others, you know, uni swap, for example has been around on Ethereum for so long. Well, probably since, uh, since it started, right. And they’re, they’re a decentralised automatic market maker. I trust that, you know, they’ve been around for so long, you know, probably so many people have tried to hack their pools. Nothing’s really happened to it. So if I’m dealing with any swap as a DEX, I’m pretty, pretty confident that nothing’s bad’s going to happen, other than I might not get the best price on chain for my tokens.

Tim Hughes  55:45

But that’s the most likely weak link in that chain is the exchanges or that the middle the people in the middle between the consumer and the Ethereum safe using us? 

Dave Belvedere  55:56

Yes. And so sort of the users of Ethereum people are actually creating their own what we call DAPS. So decentralised applications. Yeah, that’s that’s where I think that that trust will start to fade. And and because crypto itself is, you know, it’s it’s quite volatile hasn’t had the best sort of, sort of time it’s been ups being down. It’s dumped to come back and don’t again. Yeah, a lot of people I think a lot of people look at and go cool, that might be a good way to, you know, make easy money because it’s just like going left, right and centre. But it can also backfire very quickly. Yeah. Where, where it sort of blurs the line is that it’s not treated as a traditional investment. Like because it is digitalized. And I can interact with it. And I can like, spend money on it. Like people treat it as money. But it’s really volatile money. 

Tim Hughes  56:51

If you’re willing to take advice from Matt Damon and Kiefer Sutherland. I mean, like, it’s so you know, yeah, they are very confident of it being a good move. 

Gene Tunny  57:01

Yeah. I’ve got a couple of two more questions. Dave. We’re probably getting close to time. Have you got a couple more Tim?

Tim Hughes  57:07

I’ve? No, I’m good. Thank you. I’ve been I’ve been enjoying as it’s gone on. And my big ones are gone. Thank you.

Gene Tunny  57:16

Yeah, I’ve learned a lot. It’s, it’s great. Would you have any examples of DAPS? That what are some daps that we might want to look at just so we can understand what what they are? 

Dave Belvedere  57:28

Oh, yeah, um, a couple of pretty, pretty fun ones. So there’s a game called wizards and dragons. Okay, it’s a it’s a decentralised application, but it’s also a game. It’s pretty fun. It released, I think, a couple of years ago. And what it is, is, you meant an NF T, and it has a chance to be a wizard, or dragon. And then based off of, if it’s a wizard, it can, like interact with, you can stake it. So you can actually say to the contract, hey, here’s my wizard, which is staking, and it might earn certain rewards. So there’s a coin that’s associated with the game as well. So there’s a coin called windy. So it’s wizards and dragons. And that coin can then be used to spend on the contracts to interact with the actual game and stuff like that. So it’s not like I’m continually having to feed ETH it’s just like gas fees at that point. Or if you get a dragon like you have chances to steal wizards when they go and stake and non stake . It’s, it’s it’s pretty, pretty fun.

Gene Tunny  58:36

This is a computer game, is it?

Dave Belvedere  58:38

Yeah, it’s a game on chain. Yeah. So it’s a game that actually happens within the blockchain again, So the game is happening per transaction. So I send a transaction to do something with the game, like the contracts that make up the game are there. And then I like create a transaction to say, stake, my wizard, and then there’s a chance if dragons are staked, that my wizard goes to a dragon.

Gene Tunny  59:08

But okay, I’m gonna ask a really dumb question. But do I see a wizard on the screen? Or do I see dragons?

Dave Belvedere  59:15

Yeah, you can see both. So like, depending on what you’ve meant it, you get an NFT, which is a type of token so a non-fungible token so yeah, they were the ones that got talked about, I think, why the last couple of years because like, yeah, okay, and then the punks and the apes they’re all worth stupid amount of money. 

Tim Hughes  59:37

So these are basically like, it’s an in the form of like having something that’s identifiable as being unique, even though it can be copied. So taking the Mona Lisa as an example of one painting, but there’s millions of copies. And so it’s basically a digital form a non fungible token or nifty I’ve heard them called Tim Ferriss calls them nifties. But so base Having something that can be identified as being the original and owned by a person.

Dave Belvedere  1:00:06

Yeah. And so we see that as like a token. It’s just really like a coin is not quite an NFT. Because there are many coins. But it’s like an NFT, sort of superset. There’s only like one coin that represents this thing. And so yeah, so like, it’s just a token. And yeah, that that has things. So like, I can go interact with the contract, you know, meant for a bunch of ETH. So that’s sort of how they get their startup is like, hand over like point zero seven ETH or point zero five ETH, to mint and have a random chance to generate a wizard or a dragon. And then they all sort of give you that NFT. So you’ll get that token back. And then yeah, you can use that token to then interact with the rest of their contract on the actual Ethereum chain.

Gene Tunny  1:00:54

Right. Okay. And are they used in these massive multiplayer games as well, online?

Dave Belvedere  1:01:01

The coins could be. Yeah. So I think they’re starting to come out. I think I read recently with like, digital coins. Yeah. But to sort of looking to go to be fair, that sort of already was kind of going there place anyway. So like, I could pay a bunch of money to the Microsoft store and have like, xbox credits. That was sort of already the lien. And then yeah, what, you know, one of the good things that has come about sort of what’s happening with blockchains? And things like that is Yeah, sort of companies are realising, actually, that’s, that’s a pretty nifty way of like, dealing with this sort of securing that data and making sure like, oh, okay, we can’t accidentally do something. Like, you can’t go back and try and change those records. It’s sort of there permanently. And you can follow a transaction at a time. For bookkeeping purposes, or, yeah.

Gene Tunny  1:01:59

I’m gonna have to come back to smart contracts in a future episode, because I think that’s probably its own episode, is it? 

Dave Belvedere  1:02:07

There’s a lot yeah, there’s a lot, a lot of things to talk about, I guess, in contracts, and yeah, sort of, you know, that’s how that how they get built, you know, how they sort of interact. And you know, that’s where these bugs can can arise. And, you know, people might accidentally do something and somebody takes money.

Gene Tunny  1:02:27

Yeah. And I’d be fascinated to know who the parties to the contract are. I mean, could Tim and I have a smart contract where if certain conditions are met or if the then Tim transfers Ethereum. To me, so if, I mean, is there a way of programming, it’s so that if it’s, say, let’s take the weather, for example, if the maximum temperature for Brisbane ends up being over 35 degrees on one day in the future, then the smart contract, picks that up, and then transfers, I don’t know, one ETH from me from Tim.

Dave Belvedere  1:03:01

Yeah, it can do. So there’s, there’s a bunch of things that need to happen and be in place for that. But yeah, you can store like money. So you can store ETM with the smart contract, because it is itself really just an address. And then yeah, you like a transaction is usually always going to be the trigger just can’t do stuff automatically. You always have to trigger it with a transaction. And yeah, you can just be like, Oh, okay, cool.

Gene Tunny  1:03:27

All you have to trigger it with a transaction. Okay. So it’s not, it’s not going to automatically. It’s not a way of automating transactions. And I understood that.

Dave Belvedere  1:03:35

Yeah. Yeah, everything that happens on the chain has to have triggered from a transaction. Okay, so transaction might trigger a bunch of things to happen. Yeah, and interact with a bunch of stuff on chain. But yes, every everything will come through from a certain transaction has triggered this thing, which might then trigger events, but, you know, cascade of roll on.

Gene Tunny  1:04:00

Okay, I might have to look at that in a future episode. I promise. I’ve only got one more question. You got any more, but,

Tim Hughes  1:04:07

you know, I just want to comment, um, not surprisingly, to hear that wizards and dragons entered the conversation seems to be a natural progression from the smartest of the smart in, you know, the 80s or whatever it is, whatever they’ve come through to this point. And no doubt behind some of this technology or this, these theories.

Dave Belvedere  1:04:31

We’re all we’re all nerds on the inside. Right. So

Tim Hughes  1:04:33

yeah, but it’s great. It’s sort of like a bit there’s a human element to that as well, which is nice to see.

Gene Tunny  1:04:39

Great. Final question, Dave. For you. What are the use cases for crypto Why do you think it’s good to for you personally to be in crypto?

Dave Belvedere  1:04:51

It’s it’s a fairly exciting field. So I’m I’m a software engineer by trade. I studied as a computer systems engineer And it’s can be difficult to try and see how technology technology progresses through the years. So that, you know, unless you’re sort of, say deep in with Google and working on their, you know, bleeding edge stuff. For the most part, it’s all kind of pretty much the same. And so it’s pretty cool to see something. So you know, there’s this whole blockchain theories and the cryptographic proofs and stuff. I think we’re around since I think the 80s. So it’s always interesting to see how that is getting transformed and evolved into something new. And then yeah, then being used and sort of one of one of the cool things, I think that’s coming, a part of this, it’s sort of attaching itself to sort of a wider push of everyone should be and I think, you know, I think if you look at the world today, most of the kids growing up today are very computer literate. And it is sort of continuing to push that, like, computers are just going to become more and more part of it. And I think the common school like programming, or reading or writing code, should be sort of start to become one of the fundamental things just because of the heavy involvement that we start to have. So understanding why things are doing things, right. Yeah.

Gene Tunny  1:06:21

Now, the other part of that is your you personally, so assuming I may be incorrect, but I’m assuming you own some crypto of some kind. So do you what are the use cases? Why? What value do you see in having it all? So Lars Emmerich, for example, he’s concerned about the value of the US dollar, he’s concerned about all of the money printing, he’s concerned about hyperinflation, what are the what are the use cases? Or what would motivate you to have crypto?

Dave Belvedere  1:06:52

Yeah, it’s, I guess, you know, personally, I’m pretty, pretty basic. For me, it’s just a fun, high risk investment. So I see it as something that that might pay off. Or it might not. You know, personally, I don’t have a lot of money in it. But it also, because I’m in the area, it helps me like interact with chains. And yeah, play around with like, games, such as, like wizards and dragons. sort of have

Tim Hughes  1:07:18

There as a confession. Yeah. But

Dave Belvedere  1:07:21

I still see it as a very high risk asset. Yeah. Yeah. I’m still relatively young. So to me if I lose, lose what I’ve got, personally, I’ve only got about 20k. There. It’s not gonna hit me hard. Hit me hard in terms of I’m gonna make that back over my lifetime of work. Yeah. But you know if it if it goes and like, whoo, and yeah, all of a sudden that 20k goes to 100k. Yeah.

Gene Tunny  1:07:47

Right. Yeah. 

Tim Hughes  1:07:49

But that’s actually a good point. Because none of this is in any way. investment advice from us. Oh, goodness, exactly. You know, like, it’s not investment advice. And the one thing that gets mentioned all the time, it’s like going to the horse races or something like that, you know, if you’ve got something that you can afford to lose, then go for it, because there’s a high risk investment and see what happens.

Dave Belvedere  1:08:09

I honestly look at this and go, it should be treated as a casino like, yeah, you gotta walk into a casino going, like, I have money. If I lose it, I’m not gonna, like get carried out by security. Yeah. Sounds like you can afford to lose the money. It is. Yeah, extremely high risk. And I think, like, especially now with the sort of scenarios that happened, like the FTX collapse, and you know, some of the other things that are happening there. And like the US government sort of taking notice, or like the SEC, taking notice more parts and like, pulling out rulings and stuff, it will become a little bit of, like, no one is really certain what’s going to happen in the area. Yeah. So it’s probably, you know, at this point still, quite, it’s probably riskier than it was before, because, you know, the SEC might turn around and say no, crypto goodbye, and like, you shut out the entire US market, like, that’s not gonna play well, for crypto.

Tim Hughes  1:09:07

Sec? The Securities

Dave Belvedere  1:09:08

and Exchange.

Gene Tunny  1:09:10

Okay, that’s been terrific. I mean, we’ve learned so much. I mean, I’ve never I’ve been blown away with all this info. And I think it’s helped me understand more what’s going on and it’s dispelled some, or it’s got rid of some ideas or misunderstandings I had. So that’s been really good. Are there any final thoughts? Any final words before we wrap up?

Dave Belvedere  1:09:37

No. Like, yeah, I encourage everyone to like, play around with it. Obviously, I think it’s an interesting technology. I think it’s going to be around for a long time. But in its current form, hard to say. I wish I would probably say I’m confident that as we know crypto today is probably not what we’re gonna see in the future. Yeah, this is sort of the first building block towards something that will become widespread.

Tim Hughes  1:10:08

Terrific. Now Dave, I really appreciate it because so we’ve often talked about this gene and I and it we we have fumbled in the dark somewhat. And I’ve been looking forward to the time where we can get somebody on and talk in depth, as we have done today. So yeah, I’ve really enjoyed that and got a lot from it. So thank you for coming in.

Gene Tunny  1:10:28

Dave Belvedere, thanks so much for your time. Thanks. Right. Hi, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com, or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

1:11:19

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Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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Podcast episode

Investing for success w/ Paul Mladjenovic, author of Stock Investing for Dummies

Paul Mladjenovic, CFP is the author or co-author of several dummies guides on investing, including Stock Investing for Dummies and Investing in Gold and Silver for Dummies. Paul shares his views on what makes for successful investing with show host Gene Tunny in episode 133 of Economics Explored. They discuss what types of companies to look for, an often unappreciated benefit of investing in gold and silver, and what Paul thinks about real estate and crypto assets.

You can listen to the conversation using the embedded player below or via Google PodcastsApple PodcastsSpotify, and Stitcher, among other podcast apps.

This episode contains general information only and does not constitute financial or investment advice. Please consult a financial planning professional for advice specific to your circumstances.

About this episode’s guest – Paul Mladjenovic

Paul Mladjenovic, CFP, is a certified financial planner practitioner, writer, and speaker. He has helped people with their financial and business concerns since 1981. You can learn more about him at ravingcapitalist.com. He has authored or co-authored several popular Dummies guides on investing and affiliate marketing. You can learn more about Paul and his online courses at https://www.ravingcapitalist.com/

Links relevant to the conversation

Some of Paul’s books mentioned this episode:

Stock Investing For Dummies

Investing in Gold & Silver For Dummies

Transcript of EP133 – Investing for success w/ Paul Mladjenovic

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:01

Coming up on Economics Explored.

Paul Mladjenovic  00:04

The bottom line is, Gene, is that healthy quality companies will keep zigzagging upward no matter what you throw at them.

Gene Tunny  00:13

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist based in Brisbane, Australia, and I’m a former Australian Treasury official. This is Episode 133, on investing for success. My guest this episode is the author of several of those yellow dummies guide that you may have seen in bookstores, Paul Mladjenovic. He’s written Stock Investing for Dummies, High Level Investing for Dummies, and Investing in Gold and Silver for Dummies, among other books. Paul Mladjenovic, CFP is a certified financial planner, practitioner, writer and speaker. He has helped people with their financial and business concerns since 1981. You can learn more about him at ravingcapitalist.com.

The usual disclaimer applies to this episode. This is for general information only, and nothing in this episode should be interpreted as financial or investment advice. Please consult a financial planner for advice specific to your circumstances.

Please check out the show notes for links to materials mentioned in this episode and for any clarifications. Also, check out our website, economicsexplored.com. If you sign up as an email subscriber, you can download my e-book, Top 10 Insights from Economics. So please consider getting on the mailing list. If you have any thoughts on what Paul or what I have to say about investing in this episode, then please let me know. You can either record a voice message via SpeakPipe – see the link in the show notes – or you can email me via contact@economicsexplored.com. I’d love to hear from you. Righto, now for my conversation with Paul Mladjenovic on investing for success. Thanks to my audio engineer, Josh Crotts, for his assistance in producing this episode. I hope you enjoy it. Paul Mladjenovic, welcome to the programme.

Paul Mladjenovic  02:20

Thank you kindly. What a pleasure to be on.

Gene Tunny  02:22

Yes. Thanks, Paul. Yes, it’s good to be chatting with you today about investing. You’ve written several books on investing. One of your books I’ve been reading is Stock Investing for Dummies. I’ve been getting a lot out of that. I think it’s a really great book and has a lot of sensible things to say that are consistent with economics. Really, really positive about that book. I’d like to ask, just to start off with, what is your general approach to investing? Does that vary over the lifecycle? Would you be able to take us through that place?

Paul Mladjenovic  03:04

Oh, absolutely. First of all, as you know, probably one of the most important foundations of investing is good economics. You’re on the right topic in many respects. If people make good choices, and with some economic reasoning, they could prosper, among the many choices you can make out there. And it also depends on many other things, such as politics and that kind of economic environment, etc. For me, I prefer looking through things through the prism of value and fundamental analysis.

Like many folks, when the people who make sense about this, whether it’s economics from that gentleman who’s behind you there, Mr. Friedman, or in my case, somebody more in the narrow vertical of stock investing, someone like Benjamin Graham, who was like the father of value investing. And I think it’s an important concept, because many things have to make sense. In economics, once you understand the basics of your own chequebook and household budget, it’s not that far-fetched to understand choosing good companies to invest in, etc.

I’ve been teaching about investing since the 1980s. I find that if you have common sense and have some basic of economics and grasping long-term success in stock investing and other assets as well, it’s not that difficult. You are much more proficient. It’s when you understand that. Common sense and value, it goes a long way in the world of investing.

Gene Tunny  04:34

Okay, so you’re looking for companies that are reliable over the long term. Am I reading that right?

Paul Mladjenovic  04:46

Absolutely. Actually, I’ll give you a few points from my investing class that I love. You’re a very astute man, and the people in many of my classes, many of them are beginners or beginning intermediates, and the first thing I tell them is, select… I say, remember two words, when you’re choosing your investments, whether it’s directly in stocks, or indirectly through ETFs and mutual funds, two words, human need. Think about all the products and services people will keep on buying, no matter how good or bad the economy is. And I think that especially for beginners who are looking for long-term success, human need will really, I think, crystallise it very much for folks moving forward.

For example, some of the greatest companies in the last 20 years that have been chugging along, no matter what, with the crises and market crashes and booms and busts and all the rest, companies that are profitable, involved in things such as food, water, beverage, utilities, etc. This is where you start. You start with human need before you start going into other pursuits, such as growth investing, or speculating, or everything else for that matter. The first thing is get to the right category.

The second thing is, I look for companies that are profitable and have low debt. Those may sound common sense to maybe folks like you and I, but when I’ve seen the kind of selections people have made for their portfolios over the last, I don’t know, ever since I’ve started teaching, my eyes bug out. People go for the flashy stocks, big names, glamour headlines, and that kind of thing. Those stocks may go up or down in a short term. But if they don’t have star power, in terms of their fundamentals, good profitability that they’ve done year in and year out profitable… Very important.

To me, profit isn’t just a cornerstone of a good stock. I can make the argument that it’s the cornerstone of a successful economy. I was born in a communist country. They obliterated the concept of profit, which means you obliterate the incentive to produce. That’s why you invest in companies because these produce goods and services. That’s the hallmark of a successful company, so profitability.

Again, anybody in our audience, you look at your own budget, what do you look at? If your income is greater than your expenses, you’re doing fine, especially whether you’re a billion-dollar company, or you’re a household budget. That’s one aspect of it. The second one is I like companies that have good balance sheet. And again, assets exceeding liabilities, it doesn’t have to be complicated. Many people think when you’re looking at stock investing, you have to have a degree from the Wall Street school of analysis, but no. A lot of them have gone wrong, because they went beyond the scope of good economics and good common sense.

Those are the things I look for, human need, profitability, do they have good balance sheets, in other words, making sure they’re not overloaded with debt, etc. Of course, they have to be in a free market economy, because obviously, the free market is a very important and very powerful part of any successful economy out there. Beyond that, I look at other things as well, does it pay dividends and so forth.

A lot of these things, obviously, I detail that in my book, Stock Investing for Dummies. I try to also crystallise that in my courses online, etc, whenever I’m doing live programmes or recorded, because I think people, I don’t know, to me, the more they understand about good investing and their own situation, the better choices they make, not only for their portfolios, but also when they walk into the voting booth, believe it or not. I feel that’s part of it. People forget that during the Great Depression of the 1930s, people forget that many people unwittingly voted for the Great Depression, because they voted for policies,  because they didn’t understand economics, and those in turn, created just wretched conditions in many respects. But anyway, on to your other points, my friend.

Gene Tunny  09:09

I’m interested in this concept you mentioned, value investing. That’s contrasted with what’s called growth investing, if I remember correctly. This is one of the things you write about in the book. Would you be able to explain what those differences are, please, Paul?

Paul Mladjenovic  09:28

Well, value investing means that you’re not going to be putting your money into a company that’s overvalued right now. And how do we mean about valuation? You see, when people are buying a stock, they’re buying the company, and if they’re buying a stock that’s very overvalued, then you have less chance for it to grow or do well over the long term. You’ve seen that happen very frequently. I look for something like is it a fair valuation, because I can look at a company and see things like its book value, the price-to-earnings ratio. Again, I’m happy to explain all of these to folks that need it. But there are some very key ratios that tell you if you’re paying too much.

How often have people saw a company that was say losing money, but it had a very hot sexy technology, people kept on bidding up the stock, bidding up the stock, and all of a sudden, you’re paying a fortune for a company that’s not making a profit, which means that the moment the economy starts to get a little bit worrisome, unstable, recessionary, these are among the first that that see that stocks fall. If people are paying a fair amount for the company itself…

Here in 2022, it isn’t like the way it was when I first started investing. You had to go to the library and dig through 27-pound books just to find some of the right numbers. But now you’re online and on your smartphone, and you can find out the key numbers and the key metrics very quickly. And so it should be easier than ever before. But I think people get waylaid because they see all the financial commentators and everybody is… There’s that sales pitch from Wall Street, etc. But my thing is, you always go back, the way you look at the ingredients of a good recipe, you look at the ingredients of a good company, and then say to yourself… One of the things I mentioned was the price-earnings ratio. I like to find a price-earnings ratio of under 25, because that’s a fair valuation. But people buy these stocks where… Would you like me to briefly just explain the P/E ratio for the audience?

Gene Tunny  11:36

Yes, please. Yes, I think that would be great, please, Paul. And yeah, what it roughly means.

Paul Mladjenovic  11:44

The price-earnings ratio tries to make a relationship between the stock, what you’re buying, and the essence of the company. The essence of the company is its profit, of course. And what we do is take a look at the price per share and the earnings per share.

Let’s say for example, you have a company that makes a million dollars net profits, and they have a million shares outstanding. Well, that’s a $1-per-share profit. The earnings per share is $1. Okay, so we can understand it. A million shares, a million dollars. It’s $1 earnings per share. Great. But now, let’s say that company’s stock is $10. Alrighty, so basically, you’re paying $10 for the stock, and you’re paying for $1 of earnings. So that’s a 10-to-one ratio. But that’s a P/E ratio of 10. Very fair valuation. Of course, if the stock is $15 or $20, you’re still in the ballpark. I think that’s a good price that you’re paying for it. In that case, if it’s 15, you’re paying $15 per stock, and you’re getting $1 of earnings.

What happens is this. If everyone’s excited about the stock, and they bid that stock all the way up, but the earnings are still down here, then you start getting into dangerous territory where you’re over, that there is an overvaluation, the price is much higher than what the company has in basic intrinsic worth. Back when the Internet stocks crashed, many of those P/E ratios were not 15 or 20 or whatever. They were north of 100. Some of them were over 1000, which means you’re paying an awful lot of money for the company. When it’s a nosebleed territory, then it’s in greater danger of a pullback.

The reason why they bid up the stock is that they’re assuming, oh, that’s a great company, the earnings are going to come in. They’re assuming that they’re buying up the stock, that the earnings are going to eventually rise, but you don’t know that. You’re basically speculating. You’re buying stocks today, hoping that tomorrow or next year, they can have a sensational profit, but that doesn’t always materialise. So at that case, you’re speculating. You’re not investing. Investing means you look at the reality of the moment, what you’re paying for, and the actual key components that a company are in a good price range, a good valuation, and the price is closer to it. Then it’s less risky.

I prefer people starting off with value investing, because it brings out much of the risk to begin with, because if you’re paying a lot of money for a stock, then the risk is, what happens if the earnings don’t materialise? What if they start to have losses? What if the economy slows down, and 100 other variables. Then that stock gets up here. It could easily be in bubble territory, pop and come back down and you’re sitting on a loser. That’s the issue with this. You want to go for valuation early on.

It’s like if you buy a dozen eggs, if they’re on sale for $1.99 for a dozen eggs, it’s a lot cheaper than if you were going to pay 10 or 20 bucks for the same dozen eggs. The eggs don’t change, but the price in the relationship does matter. This is among the things I emphasise, hopefully, throughout the book, and to casual readers everywhere. Hopefully that are not that casual with their money.

Gene Tunny  15:03

Yes, yes. I was just checking the P/E ratio for Tesla at the moment. I’m just looking at this one site. It says it’s 193.24, March 22, 2022. That’s a P/E ratio well in excess of–

Paul Mladjenovic  15:24

Exactly. Now, I have no problem with people investing in that type of stock. But they need to tell themselves that they’re not investing. They’re speculating. Could Tesla stock keep going up? Sure. Could it crash? Yes. And if there’s a slowdown out there, and less people are buying automobiles, and that puts a drag on the entire automotive industry, that’s going to put a drag on Tesla as well. Plus, it doesn’t pay a dividend. It’s not that you’re getting paid to hold the stock. For me, that’s a speculative choice. Nothing wrong with that. There’s nothing wrong with people speculating. But they need to know that there’s a very material difference between an investment and a speculation. And they need to know that.

Gene Tunny  16:06

If my portfolio was heavy with stocks like Tesla, I would be a growth investor, rather than a value investor. Is that how I should be–

Paul Mladjenovic  16:21

If they all have that kind of valuation, you’re hoping for growth. But the thing is, in reality, you’re speculating, because you’re expecting a stock with a 200 P/E ratio, that you’re hoping that it goes to 250 or higher, translation meaning that their income is coming in and the stock price is going up. They’re bidding it up, and that way you’re holding it, and your stock went up. But you don’t know that. To me, there’s a greater risk in those kinds of stocks. But the thing is this. Fortunately, it’s not all or nothing. There’s nothing wrong with having a few aggressive speculations in your portfolio, but they better not make the majority of the foundation of your portfolio, otherwise you’ll be at risk, especially since when you juxtapose it today’s macro economic environment, it is riskier out there.

I don’t see anything here that’s going to say that a particular automotive company are going to double the number of their cars they’re going to sell next year, when there’s a lot of debt out there. Interest rates are rising. A lot of people buying automobiles. Some of them, fine, you could buy it all cash, well, good for you, I cheer you on. But the majority of the market out there would tend to be borrowing money. And if interest rates go up, then they may not choose that Tesla. They might choose a competing model for now. I think there’s a lot of fragility in today’s economy, if a lot of these things continue the way they’ve been going. I was expecting inflation and everything else over a year ago, and it’s materialising now. Gene, from what I know about you, you’re a smart guy. You were probably there even before me, and hopefully people have benefited from some of your insights months ago.

Gene Tunny  18:10

Our mutual friend Darren Brady Nelson and I were chatting about this, definitely last year, the potential inflation, just because of, as you would have seen, all of the money growth that we’ve been experiencing associated with quantitative easing, and the housing credit boom that we’ve had in here in Australia, and then in other countries. So yeah, certainly something we’ve been expecting. I’d like to ask all about the P/E ratio again. Clearly, it’s relevant to particular stocks. Are you also looking at it from the whole market point of view? There’s a measure of the P/E ratio for the whole market is in there. Is it the cyclically adjusted P/E ratio?

Paul Mladjenovic  18:58

Exactly. Whenever I see that, what is the cumulative P/E ratio for the S&P 500, for example, which is considered obviously a major yardstick and a major barometer of the general health of the stock market. I haven’t looked at it lately, but I do know that it is elevated. It is higher than it should be the last time I looked. That is also a cautionary tale.

For me, because I like to invest in human needs stocks, they tend to have a lower P/E ratio. And so that’s a measure of safety for me. Not the only one, but certainly one of the primary ones. The other side I like to look at, again, especially when I’m dealing with beginners or beginning intermediates, one of my criteria is also they should be investing in stocks that are paying dividends. We call them stock dividends, but they’re really company dividends, because a dividend that’s being paid out by a company. Obviously, if it’s a successful company, the dividend tends to rise, over an extended period of time, like years and decades. And it’s a sign of health. It’s a clear, tangible measurement of the company’s financial success. If they’re having a dividend that’s rising every year, that’s a good sign. So I like that.

And the other point of it is too is that whenever there’s a market crash or a major market event and stocks go down, you’ll find out that dividend stocks tend to be among those that tend to recover a little bit sooner. For me, if my stock goes up or down 10 or 20%, but my dividends are coming in, quarter in, quarter out, I’m not that worried about it. For many reasons, including in family accounts, we talk about having the cash flow coming in. I have clients and students that I remember from decades ago, that today, they’re getting annual dividend payouts greater than their initial stock investment from decades ago. It’s gotta make you feel good.

If a stock falls, then what happens is that… For example, again, using a simple example, if I have a $20 stock, and it’s paying a $1 dividend, that’s the equivalent yield of 5%. 5% of 20 is $1. All right. So let’s say that today, the market is crashing big time, and my $20 stock went to $10 a share. All right. Obviously, I’m not happy. But the thing is, now that $10 stock, if it’s still paying a $1 dividend – again, I’m looking at the health of the company, it’s making a profit or whatever – if it’s still paying $1 dividend and the stock is $10 now, that tells me that the dividend yield at this moment would be 10%. That is a very attractive yield. So what happens is other investors will go in and bid it back up again. And so it has an easier time recovering.

The bottom line is, Gene, is that healthy, quality companies will keep zigzagging upward, no matter what you throw at them, whereas companies that are not financially stable, don’t have all the numbers, are losing money, they’re going to be zigzagging downward. So, which zigzag you want to be part of? You look at these things, because they’re not mysteries. This is public data.

Gene Tunny  22:18

Yeah, I think it’s great advice. And it’s consistent with what David Bahnsen recently told me when I chatted with him, and he was talking about his views on dividends. He’s very pro dividends. I think it’s also consistent with Warren Buffett, isn’t it? I mean, Warren Buffett looks for those companies that deliver reliable earnings over the long term. And in his day, I’m not sure if it’s still the case now, it was Geico, the Government Employees Insurance Company, and also Coca-Cola, I think. So those are the sort of dependable companies that… Not that I’m making any particular recommendations, but it’s those sort of companies, I’m guessing.

Paul Mladjenovic  23:06

And by the way, the human needed investing, as much as I love it for beginners, etc, in the generic sense, also it tends to be a great approach and strategy during inflationary times. The last year and a half, especially with my end with the Federal Reserve, printing up trillions, look, people forget that inflation is not the price of goods and services going up, it’s the value of money going down. When you over-produce something, and you have more units of it out there, chasing the same basket of goods and services, then don’t be surprised that the prices go up.

Plus, in addition, during the pandemic, and people were worried about their economic situations, etc. , when people are worried, and there’s anxiety, and there’s a declining or low consumer confidence, then people will not invest in their wants. They won’t spend on their wants. They’ll spend on their needs. They may want fancy whatever, trips and vacations and snazzy restaurants and so much more. But if the economy is contracting, and there’s more worry on the radar screen, and people are worried about their companies, their jobs, etc, then they’re going to shrink what they’re spending on that that is want-driven. And they will keep on buying things that are need-driven, so that they’re trying to adjust accordingly to the economic environment.

So all of a sudden, you start to think that those things that we do need, all of a sudden in an inflationary environment, it’s almost like they’ve switched hats to be more growth-oriented. You have found that in the last 3, 6, 9, 12 months, the things we’ve invested in that we needed, all of a sudden, they become spectacularly solid  things to put your money in. Grains, for example. I spoke to some of my students last year. I said, “If you’re investing in money, where it’s tied to things that are rising in price such as human need, and you’re talking about energy, gasoline, you’re talking about groceries, which means food and commodities, those things have performed very well.” So, in many cases, I tell people out there and yeah, yeah, good, you can keep complaining about inflation, but part of your action plan is to be invested in those things that benefit from inflation versus being hammered by inflation.

Gene Tunny  25:34

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  25:39

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you frank and fearless economic analysis and advice, we can help you with funding submissions, cost-benefit analysis studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, http://www.adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  26:08

Now back to the show. Now with an action plan, Paul, I’d like to explore that, what that means for an individual or for a household, because we need to think about how diversified should your portfolio be, and then also how actively or passively you should manage it. Do you have views on those that you could take us through, please?

Paul Mladjenovic  26:35

Yeah. There’s the simple 80/20 rule, if you want. All things being equal, I’d love to see people put 80% of their foundational investment money into human need things, food, water, beverage, utilities. Again, it’s a very simple question. Ask yourself, what will people keep on buying, no matter how good or bad the economy is. If people are unemployed, they’re still going to eat, they’re still going to turn on their lights. And that’s where you should have your money, especially if you’re a beginner, and especially if these are worrisome times.

And I like the dividend portion, because then I know that, in many cases, especially many brokerage accounts, they give you the ability to reinvest the dividends. So even if you don’t need the money, if the stocks are down and contracting, the dividends will buy more of it. Then on the other side of it down the road, when you’re ready to have the money being sent home to you, it’d be good to know that over a period of years, and you started with 50 shares, now you have 75, 100, 150, and now their dividends are higher, plus there’s more shares, which means you’re going to have more money coming in to make yourself more financially secure in your later years.

A lot of stock investing, it doesn’t have to be mysterious or crazy. A lot of people think that to make the real big bucks got to be extra risky and extra speculative and extra growth-oriented. Well, that might be true with a portion of your money, but it shouldn’t be the bulk of your money. Absolutely. So 80% value to human need. And I’m saying this real time too, March 2022. And I think a lot of people’s experience with human need is bearing these points out. There, at least 80%. How’s that?

Gene Tunny  28:24

So yeah, 80% on investments–

Paul Mladjenovic  28:27

Of your investable money should be in human need things.It doesn’t have to be just stocks. There are ETFs. There’s actually excellent dividend ETFs, where they’re tied to human need and pay dividends. Again, I can’t get specific with this audience because I don’t know who I’m talking to. But everybody knows they can go on a search engine and find dividend ETFs. They can find ETFs.

For example, when the economy is doing very well, and everybody is flush with cash and they’re positive, then they might go for, I said wants, and that basically is a reference to consumer discretionary. When you have extra cash, what do you do? Fancier restaurants, vacation, take the missus out for the weekend somewhere, all good stuff. When you’re talking about a contracting or problematic economy and commensurate issues in the stock market, then you think consumer staples, that’s where a lot of those human needs are going to be.

There are ETFs that invest just in consumer staples or utilities. You don’t have to worry about trying to choose one winning stock. Why not a winning ETF or winning mutual funds? There’s a lot of sector mutual funds out there. There are food and beverage mutual funds. There are food and beverage ETFs. And these would make a lot of sense in today’s environment, for 2022 and probably for the remainder of this year, because I don’t see any spectacular rebound coming in the economy. And if they’re going to raise interest rates, because they’re fighting inflation, somebody’s going to win, somebody’s going to lose.

Right now, there’s people out there who have a lot of fixed bond. That bonds market is huge. You can have a spectacular problem with the bond market, because if there’s a lot of fixed debt, and interest rates are rising, what will people do? You want to get rid of your, whatever, 2.5% bond and buy a 5% bond? That’s fine, but then that means a lot of selling. And so in this environment, I tell people, if you are going to be in bonds, make sure they’re high-quality AAA, and that they’re adjustable rates. And that could be another component of your portfolio, if you want something diversified away from the stock market. Those are the kind of choices, AAA, high quality, and adjustable rates involved so that you’re not stuck. You don’t want to be stuck with a fixed interest rate, like say, 30-year bonds, and rates are going to be driven upward. That’s going to be like a hammer to the value of the bonds you’re currently holding. Okay, so adjustable rate, quality, AAA, if you can have that, that’s the kind you should have.

Gene Tunny  31:03

That’s 80%. There’s another 20%, is there?

Paul Mladjenovic  31:09

Yeah, exactly. If you’re ultra worried, and you don’t want growth, then maybe 20% should be an adjustable rate, high-quality bonds.

Gene Tunny  31:16

Oh, gotcha. Right. So that’s a really safe part of it.

Paul Mladjenovic  31:20

That’s a possibility, exactly. If you’re more growth-oriented, then put 20% into growth-oriented stocks or ETFs, again, depending on… See, the interesting thing is that investing and speculating can be something in a generic, but in many cases, it depends on the person involved. If I’m talking to somebody who’s a year or two from retirement, then you’d bet they’d have to be much more so into very secure things, human need, high-quality, adjustable rate bonds, money in the bank, low debt, and a few other features. That would be important. But if you’re talking to a 25-year-old, I’d still say, keep the bulk in your human need, but now you could put your money into growth-oriented things that are out there, some types of commodities, because inflation is pushing some of these things up. If people have seen the price of gasoline and wheat in recent months, then they get a good idea about the kind of things that grow in an inflation-driven environment, as we’re in right now.

Gene Tunny  32:18

Yeah. What are your thoughts on real estate, so both your own home and also investment properties? Do you have any thoughts on that? One of the challenges we’ve got in many advanced economies is just the very high cost of housing at the moment. And I’ve seen some commentators questioning whether buying your own home actually does make sense for a lot of young people. So yeah, I’m interested in your thoughts on that.

Paul Mladjenovic  32:48

First of all, obviously, owning your own home I think is fine. I see no problem with it. Obviously, I don’t argue with real estate folks. I know some people who will rent a cheap apartment, then they have their money and invested it and buy rental real estate. That’s fine. Some of this is a personal proclivity. Me, for example, I love real estate, but I don’t buy fixer uppers or other type of thing. My favourite type of real estate investing is true real estate investment trusts that I can buy with a few mouse clicks through my brokerage account. Those people who want to be beginners in the world of real estate, and you’re nodding your head so I think you generally agree, that I think real estate investment trusts is a great place for the beginners to be.

I like the idea that with a few mouse clicks I can get in, and a few mouse clicks, I can get out. The same rules of real estate apply when you’re talking about real estate investment trusts, REITs. You look at the type of real estate, and you look at the location, very important. For me, I like that there are a couple of hundred different REITs out there, certainly in the American market. I’m sure there’s more. I’m sure there’s some in your neck of the woods, etc. But REITs are a way that I can buy a few shares, whether it’s 5 shares, 50 shares, 100 shares, or more, I can participate in a real estate property, get my dividends, CD appreciation, but somebody else is… You have an executive team that’s managing all the properties and that’s their specialty. I prefer that.

Keep in mind, real estate investing, think about the types of real estate. Right now, in the last couple of years, I’ve told my students that I would avoid things like office building real estate investment trusts, because I think if the economy’s going to shrink, and you got pandemic residual issues, why do you want to be there?  I would be invested in REITs that are in the residential complex. For example, the last few years I’ve avoided like the plague shopping centre REITs, and instead I’ve been looking into REITs that specialise in data storage. They still pay dividends. And you see more movement there. There are REITs that are cell tower REITs. In other words, their property is cell towers. They pay good dividends. And cell towers won’t go out of style anytime soon. And if you have teenagers, you know what I mean.

Gene Tunny  35:23

That’s interesting. I’ll have to have a look at some of those. I wasn’t aware of those. That’s fascinating. Paul, can I ask you about gold and silver? You’ve written on gold and silver in the past.

Paul Mladjenovic  35:36

I’ve written two books on precious metals. And I’ve been very bullish on gold and silver and other metals over the last few years. And I feel that when everything finally shakes out, I see no reason why gold and silver couldn’t be at new market highs in the coming months. I have associates of mine who feel that these things will go to new multiples of where they’re at now. That remains to be seen. But the bottom line is, I do think that gold and silver will be appreciating for a variety of reasons. And I think they’re part of a portfolio that’s really…

Let me tell you, I can give one important reason why everybody in your audience should own at least a little bit of gold and silver. Are you ready? I’m going to give you a reason that you won’t hear very often. And by the way, if your financial advisor talks you out of them, tell them to call me. And this is what I meant. Okay, so anybody within the sound of my voice, remember the following phrase, counterparty risk. Counterparty risk. That’s the number one reason why you should have some. I’m not asking you to head for the hills and live in a cave and have a tonne of either one. No, not really. You should be diversified away from the risks of paper assets.

Me, I love gold. I love stock investing. I love the paper assets, definitely. But I favour gold and silver, the physical, because gold and silver are two assets that  are among the few assets on the landscape of choices, of investment choices that do not have a counterparty risk. You talk to your financial advisors about this, see if they know this point. It’s very important. Years ago, I remember I used to even teach financial advisors, and I think this is an important factor.

What is counterparty risk? See, here’s the thing. If you invest in any type of paper assets, you’re undergoing counterparty risk. For example, if I buy stock, the counterparty risk is the performance of the company. In other words, counterparty risk means that if you invest in an asset, the value of this asset is directly dependent upon the promise or performance of the counterparty. If I buy stock, and that company is doing great, my stock will be fine, I’m sure. At the moment that counterparty fails, falters, goes into debt, goes bankrupt, what’s going to happen to the value of my stock at that point? You follow? There is counterparty risk with stocks.

Bonds, perfect example of counterparty risk. If I invest in a bond, the first risk I think of is that, will the payer of this bond pay back the principal and the interest as stipulated in bond agreements, to me as the bond holder. There’s counterparty risk there. What if that entity defaults? Many times in history, especially during bad economic times, people have defaulted on bonds. And so you have to understand that, but also to currencies.

Right now, inflation means that that money is losing value. And that’s a counterparty risk, because a currency is only as good as the counterparty being the central bank of that country, managing, hopefully, properly, that money supply. And we’re seeing that there’s inflation everywhere, the ruble falling apart in Russia, because of the conflict, runaway inflation in Venezuela, etc. In many cases, the currency of a country is similar to the dynamic of the stock with the company. When the company is doing well, the stock does well. If the country is strong and doing very well, and they’re managing their currency, then that currency will be strong. But once you mismanage that, and the currency goes into hyperinflation…

By the way, you’re talking to a guy who has experiences personally with my family. In 1963, as a four-year-old with my family, we escaped communist Yugoslavia. And by the way, communism is a horrible thing, but that’s a different conversation. But they, in 1993, 1994, tried to help out their own economy with inflating the currency, the dinar, and you had one of history’s greatest hyperinflationary catastrophic incidents occur in Yugoslavia, and it collapsed into nothing basically. No more Yugoslavia as of 1994 . I got married in 1993. So my wife and I were thinking about going to Yugoslavia for our honeymoon, but as the civil war it was going through and collapse, these things ruin a good honeymoon. So we opted for the Caribbean instead. And in retrospect, am I glad I did.

Gene Tunny 40:18

Absolutely.

Paul Mladjenovic 40:19

Currencies have counterparty risk. Virtually every paper asset you can think of has a counterparty risk. Its value is directly tied to the promise or the performance of a counterparty. Gold and silver have their own intrinsic value. Gold and silver have never gone to zero. They had value thousands of years ago, they have value now, and likely, gold and silver will continue to have value far into the future. So precious metals, and I mean, the physical, look into bullion coins and the like. Do your shopping. As you know, I did the book Investing in Gold and Silver for Dummies. It’s a whole book on how to choose and shop for it, etc. But gold and silver, again, are a diversification away from currency mismanagement, away from the risk of paper assets, away from geopolitical and other risks. And I think that that is an important fact. And let’s face it, you hear about the rich over the aeons, the centuries, they always had gold and silver. The people are in the know. They know something, I think that’s something for you, that should be a clue to you to start figuring it out and seeing if a small portion does make sense in your overall picture. And I think given today’s economic realities, a portion of it doesn’t make sense.

Gene Tunny  41:38

What about NFTs and crypto that everyone’s talking about? Have you had any exposure to that or do you have any thoughts on that? There’s a lot of excitement about it.

Paul Mladjenovic  41:52

Let me tell you, a few years ago, I was asked about writing a book on cryptocurrency. And the point is, I think I’m good at what I know, but I know the limits of what I know. And I got them a great author on that book. So my publisher does have one called Cryptocurrency Investing for Dummies, and she does a great job with it.

Again, I feel the same way, having a small portion of it is not a bad idea. But there’s been just a lot of, I don’t know, overwrought speculation about it in recent years. And the thing is this. Part of the success of cryptocurrency, again, was the idea that it’s limited in scope. And, and so obviously, if you don’t over-produce it, and more people are buying it, then of course, you’ve seen how well it’s performed. I mean, it’s been amazingly volatile, crashing here and there. And I think investing small amounts here and there, again, as a small diversification away from everything else, is not a bad idea, but a lot of these people who are going whole hog into it, etc, we have to be careful. You have to remember that the governments of the world look at cryptocurrencies as a competitor, and nothing stops them from waking up one morning, passing a few laws and regulations, and all of a sudden, your cryptocurrency becomes problematic versus being an asset. So again, tread lightly here. Obviously, you may get a cryptocurrency expert on who will have a totally different opinion. And I’m not here to argue with those folks.

Again, I think having some cryptocurrencies is fine. And for me, some of my clients, I say to them, why not get some of the blockchain technology companies, because that way, you’re indirectly working with it. And that worked out to be a pretty good speculation. But again, same feelings as with gold and silver, have some of it, not an overwhelming amount, because you never know, because cryptocurrency… Everything we’re talking about has some kind of risk. With cryptocurrencies, what happens? I mean, it’s extremely dependent on electricity. What happens when there’s a power outage? Can you trade with it then? I doubt it.

The whole point about guys like me, in my industry… I was a certified financial planner for 36 years. I retired it a year ago, but I’m still active with education and teaching about this and I love my topic. I doubt I’ll retire anytime soon. I love what I do too much. However, the world of CFPs and financial advisors, they live and breathe the word diversification. Every asset has some type of risk attached to it, if you have money in the bank, fine, you’re away from financial risk, but now how about inflation risk, purchasing power risk, and a few other ones out there? What if the bank closes its doors because there’s a national crisis with the central bank, etc?

This is why you have a little bit across the board. That diversification just makes you stronger and not dependent on the goodness or wellness or the speculative success of an individual entity or asset class. Again, have some cryptocurrencies, fine. Have a couple of different ones, fine. But don’t have your life savings in it. Don’t put too huge of a percentage of your investable assets in it. Same thing as I would say with many other things that are out there. And of course, everything mitigates things. If you are a real estate expert, then having more of a portion of your assets in real estate is not that big of a deal, because your personal expertise is mitigating the extra exposure, but that’s fine. Knowledge is always the thing you should be accumulating the most, after accumulating your wealth, because the both of those things are tied together.

Gene Tunny  45:40

Yeah. Very good observation there, Paul. A couple more questions on how actively should a person be managing their portfolio. Typically I’ve just sort of said, maybe I made some decisions, like a couple of years ago, I’ll invest in this ETF or I’ll have these investments. And I’ll just commit to putting a certain amount in every month or whatever. And you get that, they call it that dollar cost averaging technique. You’re not worried about what the prices are at any particular time. And then over time, you do better out of that. How do you think about how actively investors should be managing their portfolios? How frequently should they be reviewing their selections? Any thoughts on that?

Paul Mladjenovic  46:36

Again, everyone’s a little bit differently, but if you’re not reviewing monthly or quarterly statements, if you’re not speaking to whoever you trust at least once a year or once every half year, then there’ll be issues, obviously. The more you’re aware about what you have, the better. I mean, I look at decisions every day, for my family. And the interesting thing is, if there’s one thing that people need to understand also, it is that to be successfully monitoring your situation, keep in mind that successful investing isn’t just what you invest in, but how do you go about doing it. If your positions are residing in a brokerage account, then nothing stops you. I highly encourage everybody within the sound of my voice to speak to your customers, to your brokerage firm’s customer service department, ask about things, about tutorials and things like stoploss orders, trailing stops. Sometimes you could do some, again, to a small extent, things such as covered call writing, which gives you income. It’s a hedge on a position as well, in some cases.

For example, trailing stops, I’m a big one on this, if, if you’re nervous about what you’re holding, alrighty, then again, it’s not just what you invest in, it’s how you go about doing it. Then you should consider trailing stops to minimise the downside. Now, what does that mean? Well, well, first of all, the generic about a stoploss order. If I bought a stock at 20, and I’m nervous about it, then I should put a stoploss order in at 18, 10% below, just as a generic point. 10% lower, you give it room to fluctuate. My stock at 20, if I bought it, obviously, there’s no upside limitation. But at 18, I now have downside limitation. In other words you’re adding discipline to your situation. You’re not just blindly watching this stuff. You could put that stoploss order in for the day or make it good until cancelled. It could sit there for three months.

If you’re worried about the coming weeks and months, go through your portfolio. If you need to go with your financial advisor, by all means, and say, I’m nervous about position x over here, what should I do? Well, they should be telling you. First of all, if it’s quality, that should remove some of the anxiety. But if you’re still worried, then either, A, sell it if you need the money, or if you don’t need the money, then put in a stoploss order in it. And then what happens? Let’s say your $20 stock zigzags up to 30. Okay, well, now what? That $18 stoploss, cancel it, like it says, good until cancelled, and replace it with one at 27, as an example. Now, what happens? The stock is at 30, you put a stoploss in at 27. Well, now what? Now if there’s a market crash, stock will go down, will trigger a sell order at 27, and you’re out. And you kept 100% of your original $20 plus a $7 per share profit. You added diligence and safety and discipline to your situation, not because you were expecting it, but because you started worrying etc. Then put those on. What’s the worst that happens? You’re selling and protect your money and keep a portion of your profits. Well then, that’s the very essence of prudent investing. You follow?

So in other words, everybody within the sound on my voice, if you have a brokerage account, go to their site. They’ve got to tutorials and other things. Call them up. Ask them, hey, what can I do if I’m worried about my stock dropping? What can I do? Have that conversation. But I find that a lot of people don’t have those conversation, and then what? Then when there is a market crash, and your positions plummet all the way down to the bottom or whatever, or lose 50%, then you do could’ve, would’ve, should’ve, you have anxiety, and so much more.

Right now, as I’m talking to you, the markets are generally in good shape today. But that could change next week. You could have a 1,000-point drop on a Monday morning, because you have trillions flowing in and out. You’ve got sanctions and unintended consequences. You don’t know when the next crisis is going to blow up, which in turn will blow up point A, point B, point C, and all of a sudden, you wake up one morning and your position or your broker has been hammered to pieces. Again, diversification. Remember that you have many tools and tactics in your pocket with these brokerage firms that you should be fully aware of. When you’re fully aware of these and you start applying some of these things in a very modest way, your confidence grow, your knowledge grows, which means more importantly, your financial security does better.

Gene Tunny  51:18

Yeah. Okay. I might ask one more question before we wrap up, Paul. There was an interesting passage in your book on Stock Investing for Dummies, where you’re asking what school of economic thought does the analyst adhere to? So this is things you should ask about analysts when you’re assessing the value of their contributions, what they’re saying, what their advice is. You make a point that if there was one that adhered to the Keynesian school of economic thought, that’s analyst A, and analyst B adhered to the Austrian School. Guess what? I’d choose analyst B, because those who embrace the Austrian School have a much better grasp of real world economics, which means better stock investment choices. Could you explain what you mean, there, please?

Paul Mladjenovic  52:05

Well, it’s funny, you brought up an interesting point. I mean, I love the Austrian School. And as you know, Darren is a devotee of that. It doesn’t necessarily mean the Austrian School… There’s a couple of other schools that are pretty good. There’s the Chicago school, Milt Friedman, I admire his work. It’s just that there are many financial advisors out there who… Obviously, Maynard Keynes, I don’t think highly of him. I mean, if I had a financial advisor who loved Karl Marx, I would be terrified, because that tells me they know nothing about economics. I’m serious about this. Yeah, I’m very serious about it.

By the way, to me, it’s not that I look for a financial advisor who’s into these particular schools. Question number 17, that helps me hone my selections. I want to make sure that they’ve been around for a few decades, they’ve seen bear markets and bull markets. That’s a much more important criteria for me that they understand these things. But if it ever comes down to the school, I’m going to make sure they understand, because remember, it was the free market schools out there were warning about the Great Depression, they were warning about stock market bubbles, and they were warning about these things. I found out that these disciplines helped me be a better tactician and strategist with the money.

I mean, I remember when I read an article about the stock market bubble in 1999, and that was from the point of view of the economics. That just cemented some of my concerns about the stock market. What did it mean? For those students and clients who were your conservative, retirement-oriented, made sure they were in safer waters. But those people out there who were speculators, like me, for example, I made sure that I was not invested in the internet stocks of 2000, because the first wave, you don’t know which ones are going to survive or not. They were all losing money. So in terms of investment, I stay away from them. However, my speculative side, I was buying long-term put options on these. So when these things collapsed, my speculative put options garnered some very nice gains. And that was my speculating.

Understanding basic economics and following some of these schools of thought would just enhance  your ability,  because obviously, understanding the macro picture makes you a better choice of which micro choices, which stocks and ETFs are going to either survive or thrive in that kind of economic environment, and it actually gives you another leg up. When you understand the big picture, it just makes it better choices in your own portfolio, so you could sleep better at night and serve the family that you love.

Gene Tunny  54:48

Okay, that’s a great point, Paul. I was just thinking about Keynes. Keynes himself was a rather good investor and made a lot of money for King’s College in Cambridge. However, I think there’s some speculation that he may have benefited to an extent from insider knowledge he gained while working for the Treasury.

Paul Mladjenovic  55:13

That’s very possible. And actually, when you think about it in the 1920s, look him up, there was an economist called Irving Fisher. When the stock market was in bubble territory, he was notorious for making the call that he feels that they’ve reached a permanent plateau. And this was whatever, like six or nine months before the crash of 1929, and he had been filing for bankruptcy. So no one should have listened to Irving Fisher, including Irving Fisher.

Gene Tunny  55:42

Exactly. Okay. Paul, any final points before we wrap up? I think this has been great. You’ve given me a lot to think about. And I mean, I think we could chat for hours on this stuff. But I think I’ll have to wrap up now. And yeah, I’d be keen to chat with you again.

Paul Mladjenovic  55:57

I really appreciate it. I mean, obviously, you mentioned Stock Investing for Dummies, I’ve done a lot of books out there. So I certainly invite people to see if those things help them with theirs. And if people want to find me, I’m at ravingcapitalist.com. But the point is this. Knowledge is really so important with all of this, and the idea that you’re a better consumer or a better investor, it also makes you a better voter, too, , and it also makes you much more aware of what policies out there will do harm and which ones will do right, and which investments will go up or down accordingly. It’s all about the knowledge. Ignorance is going to be extremely problematic in the coming months. So I invite them to get as much knowledge as possible, apply it, talk to everybody, you’ll be much better off. If they keep on listening to gentlemen such as Gene Tunny, then I think they’ll be served well, and thank you again and again. God bless your audience, and I wish them all prosperity.

Gene Tunny  56:54

Thank you. Paul, it’s been a pleasure. Really appreciate your time. And yeah, I hope to chat with you again soon. Thanks so much.

Paul Mladjenovic  57:02

Continued success to all of you. Take care, Gene.

Gene Tunny  57:04 Thank you. Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.

Credits

Big thanks to EP133 guest Paul Mladjenovic and to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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Economic update

Crazy Crypto charts

The forthcoming EP120 of Economics Explored includes a discussion of the massive price growth seen in some cryptocurrencies over 2021. In the conversation, to be published at 12am UTC+10 on 1 January 2022, show host Gene Tunny refers to a couple of great charts from data service provider Macrobond showing just how incredibly crazy that growth has been.

The first chart shows the percentage growth in the value of different types of assets, including Bitcoin, gold, and stocks on the Nasdaq, relative to their levels at the start of the years they arguably each became the subject of a “bubble”. This clearly shows just how much of an outlier Bitcoin is. Note all data in this chart and the next one were current as at 29 December 2021.

Chart from Macrobond comparing Bitcoin’s price growth far exceeding that of other assets which have allegedly been subjects of speculative bubbles since the seventies, including gold, Japanese stocks, and tech stocks.

The second chart shows the mega growth in the value of a range of cryptocurrencies, including the Gala and Axie Infinity cryptocurrencies associated with their respective online games.

Chart from Macrobond showing incredible growth in the value of particular cryptocurrencies over 2021, particularly Gala (+31k%) and Axie Infinity (+17k%).

This post is for general information only, and does not constitute financial or investment advice. Please see a qualified professional regarding any investment decisions.

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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