Series Table Of Contents

Previously: Value, Money, & Macro

The Crash of 1929. A Depression-era investing genius. A long-forgotten utopian movement. The golden age of 1930s science fiction.

ChatGPT. The grandfather of the world’s richest man. A mercenary AI company pushing its vision for a Technological Republic. The Donroe Doctrine—President Trump’s designs for Greenland, Panama, Venezuela, and beyond.

The Financial Matrix. Passive and quantitative investing. Bitcoin and Central Bank Digital Currencies. And the death of value investing.

What can all of these elements possibly have in common?

The answer lies in a blueprint written nearly a century ago—one that is being resurrected even now, in real-time—uniting these seemingly disparate elements as threads in a story that converges on an uncomfortable question: what world is your portfolio actually designed for?

The skeleton key that unlocks this mystery is an offhand remark buried deep in the memoirs of Benjamin Graham—the Father of Value Investing and the man at the heart of this series.

Previously, we showed that Graham’s “value investing” framework was not a universal law of investing but rather a brilliant tactical adaptation to a specific monetary operating system—one that no longer exists anywhere in the world. The irony is that Graham himself likely would have understood this better than his disciples do.

While today’s value investors proudly ignore the monetary system and macroeconomic forces reshaping the globe as distractions from “real investing”, Graham himself was obsessed with them.

His understanding of money was fundamentally flawed—as far as we can tell, Graham was never exposed to the Theory of Money and Credit—yet he was acutely aware that the monetary operating system was the board on which the entire investing game was played. As Columbia economist Perry Mehrling observed, for Graham “the disconnect between the world of money and the world of goods was fundamentally a source of macroeconomic investment risk that could upset any amount of careful security selection by the conservative value investor.”

Indeed, Graham—as did Howard Buffett, father of Graham’s student Warren—devoted significant attention to monetary reform throughout his life, even proposing a commodity-backed monetary system. Graham’s own Memoirs reveal that he considered the Commodity Reserve Currency Plan to be his crowning achievement—his most important contribution to posterity, greater even than his investing opus:

If my name has any chance of being remembered by future generations—assuming that there will be future generations—it will be as inventor of the Commodity Reserve Currency Plan.

But to understand the modern investing world, we must focus on something else lurking in those same memoirs. In passing, Graham glimpsed the shadow of what would one day prove the undoing of his disciples:

It was not until ten years later that I published my plan [for a commodity reserve currency]. We were then in the midst of the greatest depression in our history. All the paradoxical malaises of 1921 to 1922 were now being repeated, but to a highly intensified degree. One of the results was…an outpouring of proposed remedies of the greatest variety, and the launching of various movements for bringing about radical changes in the economy. The chief of these was a really radical takeover idea, known as Technocracy...

The Technocracy movement Graham referenced advocated replacing markets and democracy with rule by scientists and engineers.

The Ghost In the Machine

The Technocracy movement had all but vanished from public consciousness by the time Graham wrote his memoirs. What Graham couldn’t have known—and what none of his modern disciples have noticed even today, preoccupied as they’ve been debating what constitutes “inexpensive” and why value investing “stopped working”—is that many of Technocracy’s core ambitions have been realized, piece by piece, in recent decades. The sensational arrival of functional Artificial Intelligence—ChatGPT 3.5 in 2022—ignited a Cambrian explosion of AI and robotics investment and adoption, accelerating this gradual trend into something far more vertiginous.

Even our vocabulary reflects how thoroughly these ideas permeate modern life. For example, when Kevin Warsh was recently picked to chair the Fed, he was described—approvingly, without apparent irony—as a technocrat:

Yet few recognize that the term ‘technocrat’—popularized in the 1930s by the Technocracy movement—points to a deeper inheritance than mere vocabulary. While the movement itself has been relegated to an eccentric relic—one footnote among many such utopian responses to the Great Depression—its memetic DNA has survived. Having mutated and interbred with more contemporary economic and technological dogmas in the interim, it continues to animate our world in a variety of unrecognized incarnations, long after its original form faded into obscurity.

This memetic code runs imperceptibly not only through the campuses of Silicon Valley and the corridors of Washington but through many familiar institutions we take entirely for granted—institutions that are, in practice, technocratic and treat the economy as a machine to be engineered and managed scientifically.

The Federal Reserve’s unelected board of economists steering the economy through models and algorithms is perhaps the most obvious example, even if the Fed predates the movement. (The true Technocratic dream, however, was to abolish money in favor of energy-based credits: a 1930s blueprint for the modern fusion of carbon credits, social credit, and Central Bank Digital Currencies; a story for another day.)

Science Vs. Chaos!

In the winter of 1932—amidst the throes of the Great Depression—a group of engineers, scientists, and academics convened at Columbia University. Their discussions, if overheard today, would be virtually indistinguisable from a breathless TED Talk on the ‘AI Revolution.’ Their self-professed leader—the messianic Howard Scott—cemented the group’s credibility by insisting that he had prophetically anticipated both the 1929 Crash and the ensuing Depression.

The Committee’s diagnosis mirrors the current AI discourse and was as seductive then as it is now: the unfolding economic catastrophe proved that modern techno-industrial civilization had become too complex for human “legacy systems.” Scott argued that society’s existing leaders—politicians, bureaucrats, bankers, economists, and Wall Street types—were simply no longer equipped to handle this brave new world.

Building on predecessor movements, Technocracy Inc. concluded that all socio-economic problems—including unemployment, poverty, and waste—were, in fact, engineering problems. And engineering problems had engineering solutions.

Science was progressing at such a rapid pace that it was ushering in a New Age—one that would exacerbate the Depression and, as with AI today, soon eliminate most jobs—creating, in the modern vernacular, a “permanent underclass”. Unless—of course—Technocrats got their way. Technology is both the disease and the cure, Scott insisted—the same argument today's AI techno-optimists are making: yes, the jobs will go; yes, the disruption will be severe. But salvation lies in acceleration, only this time with technocrats at the helm. In practice, this meant a profound reordering of society, including the abolition of markets and democracy.

Let Them Eat Cake

This was not a particularly difficult case to make at the time: science and engineering had proven their mettle; meanwhile, the men tasked with overseeing society had not only crashed the economy, but spent the early years of the Great Depression embodying every caricature of aristocratic indifference that Marie Antoinette never quite earned.

Herbert Hoover, casting about for economic solutions in 1932, landed on poetry: “Perhaps what this country needs is a great poem. Sometimes a great poem can do more than legislation.” One of the Du Ponts declined to advertise his products on Sunday afternoons on the grounds that “at three o’clock on Sunday afternoons everybody is playing polo.” The Reverend Norman Vincent Peale maintained that all that was required to lift the country out of the Depression was “one good prayer meeting in Wall Street.”

Meanwhile:

After several months of depression America was indeed a place turned topsyturvy. Even the surface appearances of the cities changed. Former bond salesmen were on the sidewalks trying to sell apples. Former clerks roamed the business districts in an attempt to make a living by shining shoes.

Unemployed and homeless men welcomed arrests for vagrancy and the warmth and food to be had in jail. Over a hundred thousand American workers applied for jobs in the Soviet Union. Shanty towns appeared in and around the industrial cities, and the inhabitants of these housing developments born of desperation bitterly named them for the President of the United States.

Yet throughout it all—echoing the modern delusions of “Baghdad Bob” or Bernanke’s infamous claim that “subprime is contained”—elites of every stripe, including Hoover himself, clung to a singular incantation: The Economy Is Fundamentally Sound. (A century later this phrase remains in active circulation—invoked most recently by Trump’s top economic adviser Hassett and others, apparently unaware of the company they keep):

The Gospel Of The Machine

The jarring disconnect between the incantations of the credentialed, well-fed Aztec priesthood who had never missed a meal and the Forgotten Man’s reality—including mass unemployment and grim breadlines stretching across the country—cleared a path for radical political alternatives: “the earliest and most grandiose by far of the new Utopias was that of the Technocrats”.

Where the “third way” Three New Deals of FDR, Mussolini, and Hitler each preserved capitalism’s form while hollowing out its substance, Technocracy Inc. was more radical still and rejected the form entirely. The Technocracy movement blamed the failure of the “Price System”—their term for the nexus of free-market capitalism, monetary economics, and political democracy.

Their solution to the failings of the “Price System” was the “Technate”: a continental government administered entirely by credentialed experts, allocating resources through science rather than market prices. The “vote” was replaced by the “function,” the politician was replaced by the technocrat.

They envisioned a world run like a perfectly tuned car, steered by those who actually understood science and machines. They believed that harnessing technological automation and the power of science would lead to a post-scarcity society: unemployment and inequality would disappear and the average person need only work a dozen hours a week while living a life of leisure and “abundance”. A century later, these same abundancist promises are being recycled for the Age of AI. Whether it is the Abundance Agenda championed by in his #1 NY Times bestselling manifesto or Silicon Valley’s gospel of “universal high income,” the technocratic dream has been repackaged for a new century, nearly verbatim.

The Revolt Of The Scientists

Benjamin Graham devoted barely a sentence to Technocracy in his memoirs—dismissing it out of hand as the stuff of science fiction. Yet—at the time, anyway—he wasn’t wrong to do so.

Hugo Gernsback—the man who coined the term “science fiction” and after whom sci-fi’s most important awards, the Hugos, are named—published for the technocracy movement’s journal in 1933. Elsewhere, he commented on technocracy:

…The great mission of science fiction is becoming more recognized, day by day. This is the triumph of our readers over those who scorned science fiction.

That same year, Gernsback’s Wonder Stories serialized “The Revolt of the Scientists,” a technocratic coup fantasy in which renegade engineers destroy the old financial order as a prelude to seizure of power. Anticipating the financial terrorism of Fight Club by seven decades, the technocrats deploy gold-transmuting rays and ink-erasing chemicals to force a systemic reset—turning gold reserves to tin, erasing every paper bill and debt note in existence, and wiping the financial slate clean to clear the way for rule by engineers.

H. G. Wells, too—the “Shakespeare of science fiction”—predicted the rise of technocracy as a political force and its role in shaping an emergent world government. Foreseeing the pervasiveness of technocratic thought, he wrote in The Shape of Things to Come:

the movement spread from workshop to workshop and from laboratory to laboratory with increasing rapidity all over the world…Infection [by these ideas] went far and deep

The contagion predicted by Wells, it turned out, was real: society went “techno-crazy.” During a single month—January, 1933—The New York Times ran no fewer than sixty articles on Technocracy. Publishers Weekly devoted an article to the “techno-craze,” calling it “the most discussed topic in America.”

In the summer of 1939, a young Ray Bradbury devoted the first issue of Futuria Fantasia to Technocracy:

Bradbury explained that his sci-fi magazine had been brought “into Life” by the “crying need for more staunch Technocrats;” Technocracy did not merely resemble science fiction; it promised to make science fiction real:

I think Technocracy combines all of the hopes and dreams of science-fiction. We’ve been dreaming about it for years—now, in a short time it may become reality. It surely deserves support from any serious fictioneer…(But on the side, I’m all for the Technate, aegh!)

While the “techno-craze” gripped the pulps, the technocratic vision ascended to the upper echelons of the literati through Harold Loeb’s 1933 utopian tract, Life in a Technocracy: What It Might Be Like. Loeb was the unusually vivid bridge between capital, bohemia, and technocratic reform: an heir to the Guggenheim and Kuhn Loeb fortunes, he had been an expatriate fixture of Gertrude Stein’s “Lost Generation” Parisian salon, moving among the likes of Hemingway and F. Scott Fitzgerald; Loeb himself served as the direct inspiration for Robert Cohn in Hemingway’s The Sun Also Rises. The man who had inhabited the gilded, disillusioned world that provided the atmospheric foundation for The Great Gatsby was now looking to the machine to supply the order and meaning the “Price System” had failed to provide.

Not every sci-fi author shared in the movement’s enthusiasm. When Aldous Huxley published Brave New World in 1932, he described a “scientific dictatorship” that resembled technocracy.

Through these writers—some true believers, some horrified witnesses—Technocratic ideas diffused into American culture, their memetic payload long outlasting the movement itself.

Conclusion: Back To The Future

Shortly after Publishers Weekly declared Technocracy the most discussed topic in America, the movement imploded. The New Deal arrived, stealing its thunder by co-opting both some of the technocrats themselves and their ideas. Howard Scott, the movement’s messianic leader, was exposed as a charlatan with a padded resume. Within the span of a decade, Technocracy Inc. had all but vanished from the public consciousness.

What Benjamin Graham once dismissed as a fringe “radical takeover idea” has become silently enmeshed within the invisible operating system of the modern world. The Technocracy meme didn’t need the movement anymore; it found more powerful hosts.

And now—armed with AI, compute, capital, monetary abstraction, and administrative power—technocracy is reshaping markets, States, the economy, the geopolitical designs of our “Technological Republic,” and the meaning of value itself. Graham’s science-fiction sideshow now infuses the water in which every investor—every citizen—swims.

As H.G. Wells predicted in 1933, the movement’s memes have colonized our highest institutions, their agenda advanced by figures who may not realize whose ghost they are channeling. One of them now occupies the Oval Office. Another: the world’s richest man—the grandson of the man who once led the movement’s northern charge from Canada—who is even now building the infrastructure of the future:

And then there is the map.

The original Technocrats didn’t merely theorize about a new society; they drew its borders. Their territorial blueprint is now being dusted off and featured in today’s front-page news headlines.

We are finally building the world the 1930s technocrats and sci-fi writers promised us. The question for Benjamin Graham’s disciples is whether they will realize the real-life equivalents of rayguns and ink-erasing chemicals are already at work erasing the board before they find themselves making brilliant moves in a game that no longer exists.

The question for the rest of us is what replaces the system they are erasing.

To Be Continued in Part II…

Series Table Of Contents

New to our Value Investing series? Start here: Ben Graham Was Wrong.

This series will prove uncomfortable reading for anyone who has built an identity around being a value investor, not least of all ourselves. This isn’t another “death of value” eulogy, nor is it a pile-on for sport. It emerged from our own reckoning with ideas we once found compelling, frameworks we trusted, and mistakes we made.

The Confessional

Most self-described “value investors” are, in fact, speculators who simply refuse to admit the truth, least of all to themselves. After all, they have an identity to uphold. In sharp distinction to the unwashed masses chasing momentum and meme stocks, they are patient capital allocators performing—to borrow the immortal words of Lloyd Blankfein—God’s work: engaging in deep fundamental analysis to identify securities that Mr. Market, in his infinite irrationality, has priced below their “intrinsic value”.

Yet in reality, they wear the vestments of the priest to hide the soul of a gambler. The identity of the “value investor” serves primarily to protect the ego—providing intellectual cover for what is, fundamentally, a game of speculation.

When you buy a stock because you believe its intrinsic value is greater than its current price—and you have no mechanism to compel that gap to close—you are not investing. You are trading. You are speculating. Perhaps not to the same degree as a degen on r/WallStBets, but speculating nonetheless about the future behavior of the herd. Specifically, you are predicting that at some point, a greater fool will look at the same piece of paper and be willing to pay more for it than you did. Everything else is elaborate justification for what is, at its core, a speculative bet on crowd psychology.

Figuring out that a stock is “dirt cheap” does not an investment make—unless you can compel the market to agree with you. Without compulsion, you are not an investor: you are a supplicant kneeling before Mr. Market, hoping he notices what you've noticed, praying he agrees before you run out of patience or capital.

We will cover other faulty foundations of value investing elsewhere in this series, but here we focus on the assumption of price-value convergence: the belief that if you are correct in assessing the “intrinsic value”, the market will eventually agree with you. In the long run, Graham famously posited, markets are rational weighing machines that will eventually close the gap between price and this intrinsic value.

What Graham likely understood but never fully specified—and what his disciples rarely bother to ask—is this: under what conditions does Graham’s core assumption hold? In other words, when is Mr. Market a weighing machine—and what, exactly, is the mechanism that does the weighing?

The answer is that value investing tends to ‘work’ when two conditions hold: institutions—including the monetary system itself—must support it, and the intelligent investor must walk softly and carry a big stick. We prosecute the first condition elsewhere and in future essays; here we focus on the second.

The problem for modern value investors is that—unlike in Graham’s day—neither of these conditions generally hold today. Without an institutional backdrop that anchors prices to something “real” and a mechanism to compel price-value convergence, every stock is a “trading sardine”—not an eating sardine—regardless of how cheap it is.

The “Real” Graham Was A Brawler And Master Arb

Benjamin Graham is universally revered as the father of value investing. His disciples have distilled his methodology into a comfortable catechism: buy stocks trading below intrinsic value, hold patiently, and wait for Mr. Market’s weighing machine to close the gap. This is the Graham of legend: the patient sage, the intellectual priest of value investing analysis.

It is also largely fiction.

Benjamin Graham knew the weighing machine usually wasn’t enough: his actual operations, laid out in Security Analysis and elsewhere, made that plain. But his modern disciples generally performed a selective reading of Graham: extracting the valuation philosophy from The Intelligent Investor—Graham's own mass market simplification—while discarding the rest scattered throughout his more demanding, and perhaps “boring”, professional work.

This distortion was then laundered through the Buffett mythology—the folksy Omaha sage holding stocks forever. This legend, however, bears little resemblance to reality: Buffett himself was a brawler and sophisticated arbitrageur in the same mold as his mentor Graham, until scale eventually forced him to abandon the tactics he used so successfully earlier in his career.

Graham sometimes did just buy cheap stocks and wait—but even then, his actual practice would be unrecognizable to most of his disciples, for he set explicit profit targets and walked away when the clock ran out:

The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase—say 50 to 100 per cent—and a maximum holding period for this objective to be realized—say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market.

The real Benjamin Graham, however, more frequently trafficked in “special situations”: merger arbitrage, convertible arb, liquidations, and reorganizations—deals where the profit depended on a specific event that forced value realization rather than waiting for “Mr. Market” to agree. And when he did buy a “cheap stock” that wasn’t a special situation—and Mr. Market refused to cooperate—Graham wouldn’t hesitate to go activist. Graham didn’t just measure the weight on the scale; he frequently put his thumb on the scale—such as his famous battle with Northern Pipeline, in which he forced the board to distribute ‘hidden’ cash to shareholders rather than waiting for the market to notice it was there.

His modern disciples mostly kept the catechism and threw away the rest of Graham’s toolkit. They inherited the noun “value” and discarded the verbs—the acts of forcing, compelling, and engineering convergence between price and value that actually drove Graham’s most successful investments.

In short, they discarded Graham’s brass knuckles, and in the process turned much of what passes for modern value investing into a cargo cult: practitioners replicating the rituals of the original while having little understanding of the mechanisms that made it work.

Graham’s Real Operations

To understand what has been lost as value investing has been watered down over the decades, we must analyze what Graham actually did with his capital and how his philosophy was formed. Graham’s brilliance—and his edge—was not in valuation, but rather process and structure.

In Value, Money, & Macro we traced his philosophy—if not his worldview—to a simple intuition formed during his childhood grocery shopping expeditions: buy cheap, take delivery, realize value immediately. The logic of Graham’s grocery analogy held for special situations because they shared a defining feature that ordinary equities do not: contractual obligations, legal mechanisms, or court-ordered timelines that mechanically drove price toward value within a defined time horizon. Graham himself made the distinction explicit:

At the outset of this article we grouped special situations and undervalued securities together. The reader will have noticed that we do not consider these terms as synonymous - although it may be held that special situations constitute a major subdivision of undervalued securities. The essence of a special situation is an expected corporate (not market) development, within a time period estimable in the light of past experience…

These strategies had long been practiced—savvy operators had been trading around mergers, liquidations, and reorganizations for decades—but they remained opportunistic and unsystematic, more craft than discipline. Graham’s contribution was to transform what had previously been a loose collection of tactics into a repeatable operating framework: he categorized them, treated them probabilistically, emphasized time-to-completion and annualized returns, and approached them as a business operation rather than a series of one-off coups.

Graham distinguished between situations in which a favorable outcome was merely possible versus those where the underlying corporate action was already in motion—signed, filed, or otherwise contractually or legally underway. It was this narrower class that he preferred, because it allowed the analyst to treat the investment as a bounded, probability-weighted operation with a defined path to resolution: outcomes driven by merger agreements, liquidation plans, or court proceedings rather than the whims of Mr. Market. In other words, he wasn’t interested in situations that might resolve. He focused on situations already governed by a process that would resolve.

Graham formalized special situations into a working taxonomy:

• Class A: Standard arbitrages, based on a reorganization, recapitalization or merger plan

• Class B: Cash payout, in recapitalization or mergers

• Class C: Cash payments on sale or liquidation

• Class D: Litigated matters

• Class E: Public utility breakups

• Class F: Miscellaneous special situations

Graham’s exact groupings varied somewhat across editions of Security Analysis and his other writings; the most detailed treatment appears in the 1951 edition of Security Analysis. But the point is clear: long before The Intelligent Investor recast him as a guide for passive, individual minority shareholders, Graham built his early fortune—and his reputation—by systematizing these special situation strategies into a disciplined, repeatable strategy.

Graham himself described the operation in terms his modern disciples would likely find uncomfortable—in the language of a supermarket managing its inventory of onions:

Special situations, as we define them, appeal mightily to one class of temperament for the very reason that they leave other people cold. They lack industrial glamor, speculative dynamite, or more sober growth prospects. But they do afford the analyst an opportunity to deal with security values very much as the merchant deals with his inventory, calculating in advance his average profits and his average holding period. In this sense they occupy an interesting middle ground between security purchases for ordinary speculation or investment and security purchases for resale in syndicate or dealership operations.

Inventory, turnover, average profit, holding period: this is not the elevated language of a patient long-term investor buying with a margin of safety and waiting for Mr. Market’s weighing machine to agree with him. Indeed, Graham’s category error only crept in when he and his disciples attempted to overextend the grocery analogy to ordinary minority stock picking rather than special situations, where no such delivery exists and Mr. Market’s cooperation is required. Remove the mechanism of force, and the entire structure collapses.

This is why these so-called “unglamorous” situations were, in practice, far more rigorous than value investing as it is commonly practiced. As we argued in The Factory That Makes Investment Processes Repeatable, they force discipline: universe definition, filtering, diligencing the fulcrum documents, mapping the event path, rules-based position sizing against bounded outcomes, and constructing trades around defined event paths with structural and timing certainty. These skills are not the exclusive domain of the event-driven practitioner—every serious investor, regardless of strategy, would do well to learn them.

Merger arbitrage—central to Graham’s toolkit and to our philosophy (see Let’s Break A Deal)—is perhaps the cleanest expression of this logic. A signed agreement, a defined spread, a timeline, and a set of enumerated risks. The analyst is not forecasting value but rather underwriting a path.

If this sounds less like the patient value investing sage of legend and more like a modern event-driven hedge fund, that’s precisely the point. As we stated in the preface to this series:

We suspect that Graham himself—were he operating today—would be the first to abandon the cargo cult that now worships at his altar. More provocatively, we’d even go so far as to posit that he would recognize a kindred soul in Paul Singer’s Elliott Management far more readily than in most of his value disciples—his most famous protégé Warren Buffett included.

The Graham that history remembers is a philosopher of value.

The Graham who made money was an arbitrageur, an activist, a legal tactician, and a manager of special situations inventories—working inside structures that forced convergence on a definite timeline.

The Foundational Flaw

Modern value investing rests on a simple delusion: investors think they are buying “eating sardines”—a claim on real assets and cash flows. Indeed, Buffett famously advised investors to “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

That advice only makes sense if you have Uncle Warren’s unique advantages—including permanent capital, insurance float, and the ability to buy the company outright. In practice, however, most value investors have none of these, but continue to invest as if they did. They are not buying a sardine to eat. They are buying a sardine to sell. The price of their “trading sardines” is determined not by what the company is but by what someone else is willing to pay for it.

Part of the reason modern value investing feels like such a Sisyphean task is that value investors generally do not have a seat at the table. Without a mechanism to compel convergence between price and value—and without the institutional substrate that makes the weighing machine function, a subject we will address elsewhere in the series—every stock you trade is a trading sardine, no matter how cheap you think it is.

If management decides to trap retained earnings inside the company to build a bloated empire, or if they decide to light the cash on fire through value-destroying acquisitions, your spreadsheet’s “intrinsic value” is meaningless—unless you have the standing to fire them, or the capital to buy the company outright. You only benefit if, at some point in the future, someone else comes along and decides to pay you a higher price for your share.

This is the dirty secret of most modern value investing: it is entirely dependent on the Greater Fool Theory. Without the ability to force a distribution, force a sale, or force a liquidation, you are entirely at the mercy of management and Mr. Market’s voting machine—unless and until something compels it to become a weighing machine.

When a value investor tells you a stock is “cheap,” they are pitching a story—a narrative that only becomes reified when enough other people believe it, too. A price-to-tangible-book ratio of 0.5x may appear to be objective fact, but the assets don’t sell and distribute themselves, nor does the spread automatically close on its own.

Unlike Graham, modern value investors generally mistake story for edge. The claim that a stock is “cheap” is an interpretive opinion about public information, offered in competition with every other market participant—both human and machine—who has access to the same filings, the same screens, the same AI agent pipeline. The overwhelming majority of the time, value investors are not discovering a hidden gem—and even if they do, they still need some way to force price-value convergence.

This is not to say an analyst can never find an edge in public information—but Graham and other event-driven practitioners operate on different terrain entirely. The advantage is not in the story telling but in the structure: understanding how a specific event path unfolds; knowing what the fallback is if it breaks; mapping the liquidity; sizing against bounded outcomes—and occasionally, proximity to the process itself.

The problem facing modern value investors is that the crowd needs to agree with your story and pay up—or they need the standing to force the issue themselves. Nor are all such forceful mechanisms for price-value convergence equal: they range from the ironclad to the illusory—and where you sit on that spectrum determines whether you are an investor or a supplicant.

Introducing The Continuum Of Force

The “continuum of force” is a doctrine used in law enforcement to describe the range of coercive options available in a given situation—from presence, to commands, to physical restraint, all the way to lethal force. Markets have a conceptually similar spectrum.

At one end is the modern value investor: passive presence only. You own the stock. You have a view. You wait.

At the other end are situations where the outcome is not optional: a merger agreement, a liquidation, a court order, a control position.

Most investors spend all of their time on Value—whether an asset is cheap, and on what something should be worth. Almost none of their time is spent analyzing Force—whether they have any ability to crystallize that value:

Force is the degree to which an asset holder can mechanically, legally, or economically compel the asset’s market price or realized payoff to converge toward intrinsic value independent of market belief.

“Value with a catalyst” is the standard upgrade that attempts to address this problem: rather than simply buying cheap and waiting, you buy cheap and identify some event—an investor day, an earnings beat, a sell-side initiation report, a new management team—that you hope will cause the market to finally recognize the value. But a catalyst is still just a hope with a story attached. It creates no obligation.

As Graham understood, Force is different in kind: it mechanically causes price-value convergence regardless of what the market believes.

Value analysis tells you whether something is cheap and how much margin of safety you might have. Behavioral finance tells you why it might be cheap. Risk frameworks tell you how much you might lose. None of them tell you the likelihood of ever crystallizing value.

Force operates on a different axis entirely: it determines whether the range of outcomes is bounded at all, or whether a mispricing can simply persist indefinitely because no one at the table has the standing to resolve it.

You can have a flawless model of intrinsic value, a behavioral diagnosis of why an asset is cheap, and a disciplined risk model governing your position size, and still lose—if no mechanism exists to make the price converge on value. What determines whether price converges to value is therefore less the quality of your research than the “big sticks” at your disposal: the legal claim, the blocking stake, the acceleration clause, the liquidation right, the ability to credibly “go activist”.

An asset without Force is still just a speculative trade, no matter how “cheap” it looks or how long your holding period.

Conclusion:

Graham understood a reality that most modern value investors have forgotten: being right about value is not enough. You need a way to make it matter.

This was always the case, but it is particularly true now. The Financial Matrix—the operating system of modern markets—has structurally decoupled price from value in ways with which Graham never had to contend; more on this in future essays. In Graham's day, waiting for Mr. Market was perhaps survivable—although even he was nearly wiped out; in the current environment, supplicating to Mr. Market is generally fatal.

Even in his time, however, Graham rarely relied on Mr. Market to do the price-convergence work for him. He operated in situations where value would be realized by Force. When he lacked Force, he treated the position as a trade and governed it with disciplined rules and time stops.

Those who understand Force nowadays rarely call themselves “value investors”—they go by other names, such as arbitrageurs, event-driven, or distressed debt investors. Elliott Management is perhaps the purest expression of what Graham had in mind when he wrote Security Analysis: it operates primarily in situations where it controls Force, structures even its activist positions so that it is nearly impossible to lose, and once took delivery of the Argentine navy. Not metaphorically. Literally:

Most investors will never seize a sovereign navy, but every investor sits somewhere on the Continuum of Force. At the bottom sits the typical value investor: armed with nothing but a spreadsheet and a prayer that Mr. Market will agree.

The distance between those two poles—investor and supplicant—is the focus of the next essay. Before we get there, however, a word on portfolio curation: this is not an argument against value investing as a portfolio ingredient in a collection of Multiflation holdings.

Value investing sits at the conservative end of the unbounded speculation spectrum; at the other end, explicitly asymmetric “lottery tickets”. During Multiflation, exposure across this spectrum need not indicate a lapse in judgment or discipline—it may be a considered response to a monetary and financial system that punishes the purely cautious.

Special situations and Force, however, serve a structurally different function: bounded outcomes, defined event paths, cash-like or fixed-income resilience with fewer drawbacks than long-duration assets in a Multiflationary environment. The question is never simply whether something is cheap or whether speculation is appropriate. It is whether you know precisely what you own and why you own it, what role each position plays in your collection of holdings, and whether your position sizing and curation reflect that honestly—or whether you are trading sardines while deluding yourself that you are going to eat them.

Series Map

Preface: Ben Graham Was Wrong

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Inflation: Value Investing’s Kryptonite

3. Value In The Age Of Technocracy & The Financial Matrix

4. The Price Of Everything & Value Of Nothing—Value, AI, & Passive

Part II: Value’s Cracked Foundation

1. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

2. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

3. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event-Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

4. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

5. Many Value Investors Misunderstand Inflation & Prices

6. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

One year ago today, we published Enter Multiflation—our framework for understanding a once-in-a-century rupture in the global economic order.

In the twelve months that followed publication, the thesis arrived in real-time: a tariff shock stunned both Wall Street and Main Street, persistent inflation co-existed with sharp deflation as AI began cutting large swaths through the economy and markets, the White House openly questioned the dollar’s reserve status, unprecedented fractures strain the “rules based economic order” including NATO, and even now a rapidly escalating crisis in the Middle East threatens to ignite an already fragile global supply chain and energy complex.

We are resending the essay today—on its anniversary—to ensure that all of our readers are on the same page, as our readership has grown significantly since then, and many of you are seeing this for the first time.

The old rules no longer apply, and investors who understand Multiflation will navigate the coming dislocations from a fundamentally stronger position than those who don’t.

Once you understand Multiflation, you are ready for the Multiflation Method: Investing In The Age of Multiflation.

To understand how we arrived here, don’t miss The Sorcerer’s Apprentice & The Man Who Broke The Markets.

Series Table Of Contents

Previously: Ben Graham Was Wrong

In Part I: Ben Graham Was Wrong, we argued that value investing’s failures in recent decades are structural rather than merely a streak of bad luck. To understand this failure, we must first return to the source of the Cargo Cult—to Benjamin Graham himself. And to understand Graham, we must understand that his strategy and tactics were first and foremost a product of his time.

The textbook list of differences between Graham’s era and our own is well-worn: richer opportunity set, greater market inefficiencies and informational advantages, fewer competitors, the absence of computers and passive ETFs. But perhaps the most consequential difference has gone largely unremarked upon:

Graham invested under an entirely different monetary operating system that no longer exists anywhere in the world.

This is perhaps implicitly obvious to the point of being self-evident once stated, however the implications of this fact have received surprisingly little treatment in the value investing literature.

Ironically, one man who would have understood the implications clearly is Graham himself. After all—unknown to virtually all of his modern disciples—Graham spent years architecting an entirely new monetary system. He published his plan in an obscure treatise he considered to be his most important contribution to posterity, dwarfing even Security Analysis. As Columbia economist Perry Mehrling observed, for Graham “the disconnect between the world of money and the world of goods was fundamentally a source of macroeconomic investment risk that could upset any amount of careful security selection by the conservative value investor.”

Graham’s active investing career was bookended by major shifts in the global monetary system, but throughout it all, one thing remained constant: money was always loosely tied to a tangible anchor. Graham’s “value” framework is inseparable from the monetary environment in which he operated—one so alien to our own that modern investors struggle to even conceptualize it.

The modern value investor’s reliance on Graham’s ideas fails because Graham’s framework is not a universal principle of investing. Value investing is a brilliant tactical adaptation to a monetary reality that no longer exists, applied in recent decades with hardly anyone stopping to ask whether the underlying conditions required for its success still hold in the age of the Financial Matrix and Silicon Sorcery.

But this indictment reaches further than Graham’s explicit disciples and those investors who still read Graham literally. Graham’s assumptions are load-bearing for “value” discussions broadly. They echo even through Buffett, through GARP, through DCF users, through “compounder bros” and beyond—wherever “value” remains the operative word. Evolving beyond Graham’s tactics is not liberation from his assumptions.

Before we can know which parts of the value tradition are worth preserving, we must first understand which ideas still hold and which are artifacts of a vanished monetary world. Only then can we begin to sketch what a rebuilt framework might look like.

1914: The “End Of Sweet Reasonableness”

Graham’s defensive, price-conscious methodology was tactically sound for his era: the business cycle was much more volatile and frequent than it is today, featuring panics and brutal periods of severe deflation punctuated by occasional periods of inflation. As a result, cash—at the time a claim on gold—was king.

As Jim Grant noted, Graham himself recognized when the investing world began to change:

For Graham, an era of sweet reasonableness in investment thinking seemed to end around 1914. Before that time, the typical investor was a businessman who analyzed a stock or a bond much as he might a claim on a private business.

1914. One year after the Federal Reserve’s creation. Before the Fed, investors demanded safety and high asset backing because there was not yet a “Lender of Last Resort” subsidizing public equities and incentivizing risk-taking.

The Fed, however, was explicitly created to provide “elasticity” to the money supply, allegedly to prevent—and short-circuit—these panics by providing “liquidity”. From 1914 on, the newly formed central bank broke the discipline of the gold standard and orchestrated a massive, inflationary credit expansion to finance World War I:

Graham watched on in horror as the “sweet reasonableness” of analyzing stocks as if they were private businesses evaporated, replaced by a casino in which liquidity dominated returns: the credit inflation fueled a speculative boom that culminated in the severe Forgotten Depression of 1920–1921. (One can only imagine what he would think about Mr. Market’s Schizophrenic Break of the COVID era).

The Fed again flooded the market with liquidity, creating another credit bubble—the Roaring Twenties, whose parallels to modern Bitcoin Treasuries we explored here—which itself culminated in the Crash of ‘29 and the Great Depression. By the early 1930s, the market had dropped significantly. Graham, analyzing valuations, believed stocks to be absurdly cheap. Thinking the worst was over, he bought heavily and employed margin. Because he was leveraged, the agonizing, grinding bear market of 1931-1932 devastated his fund; the Benjamin Graham Joint Account lost roughly 70% of its value between 1929 and 1932.

Graham lost his own wealth, was forced to give up his apartment, and survived largely on his teaching salary at Columbia University as well as his wife’s income. He refused to close the fund, however, and worked for zero compensation for several years until he earned his investors’ initial capital back.

Groceries, Not Perfume

But the origins of Graham’s value framework—and the traumas that produced them—predate even the stock market crises he endured. In “The Curious Truth of How Graham Created Value Investing”, his granddaughter’s research reveals that Graham arrived at what we now call value investing not through ivory tower theorizing or even his practical experience on Wall Street, but rather through hunger. After his father died, Graham’s family was left destitute. His mother—indifferent to domestic labor—assigned the grocery shopping to her youngest son. Ben learned early what it meant to stretch quarters across a family of four.

Graham’s granddaughter found additional evidence of the origins of his framework in his memoirs and hiding in plain sight on the back cover of the 1973 fourth edition of The Intelligent Investor:

(Note, too: on that same back cover, writing amidst the 1970s inflation, even Graham acknowledged that “the possibility of large-scale inflation remains, and the investor must carry some insurance against it”—conceding that his framework had no reliable answer to inflation, only the vague hope that equities might outperform bonds. It is precisely this unresolved gap that our Multiflation Method is designed to address.)

The psychological bedrock of Graham’s value system—and the ultimate category error underlying most value-oriented methodologies generally—rests on a single, defining analogy: buy stocks the way you buy groceries, not perfume. Graham observed that the masses bought stocks like luxury goods—chasing brand names and paying up for popularity and “vibes”—and concluded that investors must instead become more savvy grocery shoppers:

From Stone-Broke Son to “Father of Value Investing”

Benjamin Graham…shows us that our youthful difficulties—in his case, living on the edge of poverty and complying with his mother’s demands that he do typically female chores—can incite creativity. His boyhood burden taught Ben a skill that became the crux of his acclaimed achievement. The son who shopped for bargains metamorphosed into the father of value investing…

Ben, the small boy with scant cash in his pocket, never bought anything—neither liver nor onions, apples nor oranges, used tennis balls nor baseballs—without first calling out in his bright, clear voice: “How much?” His sharp mind quickly analyzed: Is this item priced low enough to be worth buying?

The Traumatic Legacy of Graham’s Childhood & Wipeout

In the modern self-help and education industries there is much talk of Fixed Mindset and Growth Mindset. The father of value investing was—very rationally, given his experiences—the fixed mindset in investing made flesh, borne of the traumatic psychological scars he accumulated throughout his childhood poverty and near-wipeout during the Depression.

Graham’s experience continually hammered the same lesson over and over: the only variable investors can control is the price they pay; the goal is to buy assets so cheaply that even if the world falls apart, investors won’t lose their principal.

What emerged from Graham’s traumas was effectively a doomsday bunker against deflation—perfectly engineered for a world of hard(er) money, frequent panics, and occasional spikes in inflation that were soon remedied by deflationary collapses. Graham himself was so brilliant and his philosophy so elegant that few value investors thought to revisit the framework from first principles after the “Nixon Shock” of 1971—or even after the 2008 Financial Crisis and the advent of the Financial Matrix.

During Graham’s time—under a less overtly inflationary system at least partly tied to gold—cash itself acted not only as safe harbor but as productive asset: its purchasing power was periodically reinforced by deflation, while retaining valuable optionality. One of the primary macroeconomic risks of the era was deflationary collapse, as seen in episodes such as the Panic Of 1907 (which wiped out Graham’s mother’s life savings), the contraction of 1920-1921, the Crash of 1929, and the Great Depression. As a result, companies could often be purchased for less than their liquidation value.

However, it is a mistake to treat the assumptions underpinning a Depression-era survival tactic as a universally true law of investing. See it for what it is: a brilliant, localized adaptation to the monetary operating system of his day. Optimizing for margin of safety and hoarding cash to wait for discounted “onions” was a brilliant, low-risk strategy for that era; over-extending oneself on the risk curve and trying to pick long-term winners seemed pointless at the time given the attractive returns one could generate in “cheap” stocks. Furthermore, as Graham perhaps alluded to in the back cover of the 1973 edition of the Intelligent Investor—at the time he didn’t have to worry about central banks printing a never-ending supply of money to prop up markets or devalue the cash on a company’s balance sheet.

Stocks Are Not Chopped Liver

In applying the value-conscious grocery shopping framework of his youth to the foundation of sound investing practice, Graham made a category error that tends to haunt even his evolved disciples today.

When young Ben found discounted onions, or substituted cheaper shallots for onions, he was optimizing within a fixed budget for commodity goods sharing nearly identical utility—not dissimilar conceptually to the arbitrage situations that Graham would so successfully pursue later in his career.

An onion is an onion. A shallot is a close substitute to an onion. Both make for a perfectly edible meal. When Graham bought cheap groceries, he took physical delivery of the commodity and his family consumed it immediately—the value was immediately realized. Penny-pinching and substituting cheap onions for expensive shallots is a direct, risk-free optimization within a zero-sum game in which the only way to “win” is to extract value at the point of sale—by paying the absolute lowest price possible for the commodity.

But equities are categorically unlike commodities and groceries. In The Wealth of Nations, Adam Smith drew a sharp line between productive assets like factories, which create goods that “replace the capital employed” and generate a surplus, and unproductive assets like onions, which “perish in the very instant of its performance.”

By treating stocks as if they are household groceries, many of Graham’s modern disciples are applying the rules of zero-sum non-productive coupon-clipping to save on consumption goods to positive-sum capital allocation. When a stock is treated as merely a cheaper or pricier version of an onion, it confuses a productive asset with a consumption good, collapsing the distinction between the onion to be eaten and the farm that can grow many onions: an ongoing engine of surplus creation that reinvests, compounds, and expands the economic pie over time.

Munger and Buffett recognized this error clearly and rebuilt their approach around it. Rather than hunting for cheap onions, they went looking for exceptional farms at “fair” prices. This was a genuine and important advance over Graham; many value investors, however, never made this leap and continue to gravitate toward “cheap” situations.

But solving the productive-asset problem does not resolve value's other category errors—and those errors apply broadly, including to investors who have absorbed Berkshire's lessons about business quality. Whether they apply to Buffett and Munger themselves is a more complicated question, addressed in their dedicated section later in this series. What can be said here is that Buffett and Munger were true investing savants, and Berkshire's structural position—permanent capital, tax-advantaged insurance float, board representation, reputation, proprietary deal flow and so forth—substantially mitigates or outright solves many issues with value investing. Berkshire's record tells us a great deal about what Buffett and Munger can do operating within those structural advantages, and rather less about the potential for value investing more broadly.

For everyone else—including the many investors who have absorbed Berkshire’s lessons about business quality without inheriting its unique structural advantages—three deeper problems persist, each of which we will cover in dedicated later sections. The first is the problem of enforcement, which we will explore in The Continuum of Force. When Ben bought cheap onions, he didn’t need Mr. Market to later agree with him on value—he simply took delivery and ate them. Value investors—generally speaking—have no such mechanism to enforce value realization.

The second is the problem of intrinsic value. The analogy smuggles in an economic error Graham’s disciples have never fully reckoned with: while an onion has an immediate, tangible consumption value, that is not the same thing as intrinsic value. Graham borrowed the onion’s tangible, intuitive ‘certainty’ and applied it to businesses—but even for onions, value is always subjective, always relative, always contextual. There is no Platonic number representing what a business is worth waiting to be discovered by analysts. We examine this in There Is No Such Thing As Intrinsic Value.

The third is the problem of the measuring stick. The analogy assumes that “cheap” and “dear” are stable, meaningful categories—which they generally were under the gold-backed monetary system of Graham’s day. But as we will explore throughout this series, inflation and Multiflation not only erode that assumption but may—in extremis —invert it entirely. We take this up in Inflation: Value Investing’s Kryptonite.

Conclusion:

Graham’s framework was the right answer to a question the market no longer asks—forged in a monetary environment in which treating stocks like onions was not only intellectually elegant but tactically correct. The tragedy is that—even as they evolved his tactics—his disciples inherited Graham’s assumptions and category errors, never stopping to ask whether the monetary conditions underpinning them had ceased to exist.

Graham’s traumatic experiences hardwired “margin of safety” as a survival reflex against the very types of outcomes that governments and central banks are explicitly trying to prevent in the post-2008 environment; even now, the timing of military strikes is apparently calibrated around off-market hours—capital market stability having become, in effect, a national security risk and key constraint on sovereign decision-making itself. And yet Graham’s framework, as we will argue, may prove no more reliable in the very deflationary collapse for which value investors have been patiently waiting (the same type of collapse, ironically, that nearly destroyed Graham himself) than in the inflationary regime that has so hampered them over the past decade.

Next:

Inflation: Value Investing’s Kryptonite

Series Map

Preface: Ben Graham Was Wrong

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Inflation: Value Investing’s Kryptonite

3. Value In The Age Of Technocracy & The Financial Matrix

4. The Price Of Everything & Value Of Nothing—Value, AI, & Passive

Part II: Value’s Cracked Foundation

1. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

2. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

3. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

4. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

5. Many Value Investors Misunderstand Inflation & Prices

6. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

Series Table Of Contents

Value investing tends to attract some of the most rigorous, disciplined, and intellectually serious minds in finance. For decades, however, those who sleep with Ben Graham’s The Intelligent Investor under their pillows have haplessly watched as their returns have been lapped by somnambulant passive investors, hair-trigger “pod shops,” growth investors who seem to operate on pure instinct, mindless momentum traders, algorithms, casual speculators who don’t read footnotes, and Bitcoin HODLers.

Value investors show up day after day and put in the work, faithfully following their creed—not realizing the voice guiding them is a siren song, luring them onto the rocks.

To Bury Value Investing, Not To Praise It

The series that follows will prove uncomfortable reading for anyone who has built an identity around being a value investor—not least of all ourselves. This isn’t another “death of value” eulogy, nor is it a pile-on for sport. It emerged from our own reckoning with ideas we once found compelling, frameworks we trusted, and mistakes we made. (Those curious how we as a society arrived here—and why value investing “stopped working”—will find that story in our Sorcerer’s Apprentice.) We don’t pretend to have all the answers—we offer our conclusions here not as verdicts, but as the honest output of a long and sometimes painful process.

We are going to gore the sacred cow that is value investing: the notion that one can buy stocks trading at a discount to intrinsic value—whether old-school “cigar butts” or the more modern evolution focusing on “quality,” “moats,” “compounders” or taking a “Private Equity Approach to Public Markets”—and consistently achieve success through patience, perseverance and sheer intestinal fortitude.

This approach doesn’t work. And it never truly did—at least not in the way most modern disciples imagine it did, nor for the reasons they imagined it working. This isn't to say cheap stocks or value managers never outperform, but rather that the philosophy and strategy are not reliable in the form value investors practice and preach.

Worse, in the age of AI, HyperPrices, and Multiflation, value investing will likely prove even more unforgiving than it already has in recent decades. It is widely presumed by practitioners that—after the excesses of the QE era—value investing is safer now than it had been in the past; the reality is that it is more dangerous because the philosophy as generally practiced today creates hidden asymmetry—in the wrong direction.

But the point here isn’t simply that value investing has become more challenging; it’s what that difficulty exposes about modern financial markets—and perhaps about society itself. Understanding value investing’s theoretical and practical shortcomings reveals something essential about the Financial Matrix itself—and should help every investor avoid making similar errors, regardless of their approach.

Working through these shortcomings forced our thinking to evolve; three concepts crystallized from that process and will recur throughout this series:

Multiflation Method—how to position for a regime characterized by economic whiplash and chronic dislocations

Fundamental Gradient—where are fundamentals heading and are they accelerating?

Continuum of Force—the degree to which you can compel price to converge on what you think it’s worth

Forthcoming Sections

Part I: The Regime That Made Graham

Part II: Value’s Cracked Foundation

Part III: The Flawed Practice Of Value Investing

Part IV: The Intelligent Investor, Reimagined

Modern Value Investing Is A Cargo Cult

We’ve written previously about Cargo Cult Economics. Modern value investing, too, is a primitive religious “cargo cult” as described by Richard Feynman:

In the South Seas there is a Cargo Cult of people. During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land.

They’re doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn’t work. No airplanes land.

So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.

Like South Seas islanders building grass airports and waiting for metal birds to drop off supplies for them, modern value investing comes complete with its own priests, rituals, and unquestionable doctrines. Investors read Security Analysis like scripture, calculate intrinsic values, quote Buffett’s annual letters, and preach patience and discipline.

They’re doing everything right.

And yet the planes are not landing.

We can already hear the objections forming. “But what about Buffett?” “Didn’t Graham’s methods work for decades?” “When this bubble ends value will have its day in the sun again?” “Haven’t academic studies proven value factors generate alpha?” “What about [insert successful value investor]?”

These are fair questions, and we’ll address them throughout the series.

Untangling The Definition Of Value Investing

Before we proceed further, however, we must acknowledge that “value investing” has devolved into a meaningless umbrella term. Graham’s church has splintered into a dozen competing sects, each with its own metrics, rituals, and explanations for why their version works.

This fragmentation creates a peculiar problem. Contemporary debates about “value investing” often collapse into category errors in which participants unknowingly argue past one another. When critics claim “value is dead,” what exactly are they referring to? Graham’s net-nets and cigar butts? Buffett’s moats? Fama-French factor loadings? Compounders and growth at a reasonable price? By the same token, when defenders retort that “value always works eventually,” which definition are they defending?

Despite their theological differences, however, every denomination operates from the same fundamental assumption. Whether they measure intrinsic value through book value, discounted cash flows, competitive moats, or some other metric, every denomination clings to the same belief: that buying something for less than they think it’s “worth”—with a “margin of safety”—and waiting for Mr. Market to “realize” that worth is an inherently viable investment strategy.

This fundamental assumption, we will argue, is wrong, has proven wrong for decades—and will only prove more wrong from here on out.

This series treats value not as a monolith but as a family of conceptually related approaches; we will critique not just individual value investing approaches, but the entire conceptual framework they share collectively.

Crystallization Into The “Style” Of Value

The very premise underpinning value investing philosophy was never true—or was valid only under very specific conditions that no longer exist. To the extent that value investing was ever ‘correct’ as a philosophy, what passes for value investing today is generally so far removed from its original context that it bears little resemblance to Graham’s approach in any meaningful way. What remains is generally a crude, faded facsimile of Graham’s original insights.

Which makes this dissolution all the more tragic, because we should also be clear from the outset: Ben Graham was an investing genius who has significantly influenced our own investing thinking. The tragedy is that we—and many of Graham’s followers did precisely what Bruce Lee warned against:

Like Kung Fu masters, Graham’s disciples took what was once a living, adaptive response to a specific historical environment and crystallized it into eternal doctrine. The Depression-era tactics—net-nets, deep asset coverage, cigar butts—were rational answers to a world of sound money, deflationary risks, and not-infrequent panics and crises. Transplanted into the Financial Matrix—a fiat world of chronic inflation, Fed backstops, the alchemy of risk, financial repression, and passive and algorithms, these tactics are as useful as a map to a city that burned down.

We suspect that Graham himself—were he operating today—would be the first to abandon the cargo cult that now worships at his altar. More provocatively, we’d even go so far as to posit that he would recognize a kindred soul in Paul Singer’s Elliott Management far more readily than in most of his value disciples—his most famous protégé Warren Buffett included.

What’s Coming

Part I: History

We begin with the father of value investing: Ben Graham himself—the world that made him, and the Financial Matrix that has since replaced it. Indeed, what does it even mean to “measure” value in the age of the kaleidoscopic money, Multiflation, AI, and HyperPrices?

Part II: Theory

In Part II, we question value investing’s first principles and establish why the entire enterprise of value investing as currently practiced is misconceived from its foundation.

We will confront the reality that intrinsic value does not exist the way value investors believe it does. From there, we introduce the missing variable: the Continuum of Force—the degree to which an investor can compel an asset to converge on its supposed value.

We will then show that “margin of safety”—absent an accounting for both the monetary system and one’s position on the Continuum of Force—provide only a comforting illusion of safety measured with a rubber ruler.

These are not merely technical problems with value investing to be patched. Graham’s misunderstandings concerning money, the nature of prices and value, and certain other assumptions—while understandable, even brilliant, for his era—underpin the entire value investing edifice and have subsequently been proven incorrect or invalidated. For nearly a century, the errors could be safely ignored. Then came the Global Financial Crisis—and after it, Graham’s errors and omissions have become too costly to ignore.

Layered over all of this is Multiflation: a monetary regime that radically alters the value calculus and leaves value investors structurally trapped—capped on the upside, yet remaining exposed to downside risks on every axis.

Part III: Practice

In Part III, we turn to practice and process failures—particularly those that make value investors uniquely vulnerable to Multiflation.

We will also turn inward—to the behavioral biases and blind spots—and what we value investors can learn from growth investors, pod shops, momentum traders, and quants.

Part IV: Preserving the Fire

But this series is not an exercise in nihilism—nor would we leave you only with ashes. For every flaw we expose, we will rekindle Graham’s fire and offer an alternative approach.

Valuation still matters of course—but it is incomplete without additional dimensions including the Continuum of Force and the direction and rate of change of fundamentals. Not just how cheap is this? but which way are fundamentals moving, and how fast are they accelerating?

That single shift in mentality has helped us avoid more unforced errors than any intrinsic value calculation ever did. The Gradient Framework asks where it’s going. Static “cheapness”, moats, and margin of safety are not inherently safe. Most value metrics are photographs of a car that tell us nothing about whether the car is parked safely or hurtling toward a cliff.

Benjamin Graham wrote The Intelligent Investor, not The Doctrinaire Investor. Faced with a profoundly altered investment landscape, he would not have rigidly clung to a cargo cult—even one of his own making.

Graham would Be Water.

Series Map

What follows is a working outline; some entries have placeholder links to our related work while the individual pieces are being published. We expect to revise it as the argument develops and, frankly, as readers push back, pick fights, and ask questions we haven't thought to answer yet.

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

3. Value In The Age Of Technocracy & The Financial Matrix

Part II: Value’s Cracked Foundation

1. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

2. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

3. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

4. Many Value Investors Misunderstand Inflation & Prices

5. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

Previously: CFLT Dark Arts

This August, we flagged an unusual “dark arts” options structure in Confluent (CFLT) in “A Trade Structure With Informational Edge”. The stock was at $17. Yesterday, IBM announced that they’re acquiring it for $31 cash—an 82% return in four months on the stock alone; the trader who put on the options structure made approximately $16.5 million and collected a net premium up front.

Since the deal was leaked to the press in October, our direct messages have been flooded with one question: “What’s the next CFLT trade?”

That’s understandable. Financial media from CNBC to Barrons to Substack to Twitter have us conditioned like Pavlov’s dogs—ticker, trade, repeat.

But here’s what we learned the hard way, and what we wish someone had told us decades ago: CFLT wasn’t the outcome. It was merely an outcome.

Building the processes and judgment that lead to outcomes like CFLT takes longer to teach and more effort to learn. But that’s what actually carries forward, and it’s ultimately worth far more than any single trade.

Dark Arts: Reading The CFLT Tea Leaves

We sift through all kinds of unusual market signals daily. The August trade—17,000 calendar spreads in CFLT—was one we chose to highlight because it was so unique: front-month long gamma, back-end short vega, collected as a net credit on an inverted volatility curve.

If you trade options, you know that structure is rare. And oddly specific. It’s not a directional bet. It’s not a hedge. It generally only makes economic sense if whoever put it on knows three very specific things:

1. A major event is coming

2. When it will happen (tight enough timing to layer front and back month)

3. Where the stock will land (mid-20s to low-30s range)

The options position was visible to anyone watching the tape. But most people don’t know what they’re looking at, and it gets drowned out amidst the sea of “unusual” options flow commentary.

What made this so interesting wasn’t fundamental analysis—we knew virtually nothing about Confluent’s business or valuation. We simply recognized that someone had just telegraphed to the entire market exactly what was going to happen—and almost nobody was listening.

Fast forward four months and IBM announces a $31 cash deal.

The McAlpha Trap: Why Financial Fast Food Fails

The success of the Confluent trade obscures the more important lesson. If we just hand you “CFLT at $17, buy it,” and it works, you might have made money—this time.

But then what?

When the next “unusual” options structure appears, how will you determine if it is signal or noise? And what about ideas that have nothing to do with options flow? Without understanding why CFLT was interesting, you can’t evaluate the next one that looks similar, and you’ll miss entirely the ones that look nothing like it.

Most financial media optimizes for what feels immediately useful. We call this McAlpha. It’s designed to provide immediate gratification, like McDonalds takeout.

But there’s a tradeoff. You’re generally eating financial fast food.

The martial arts have McDojos—schools that churn out black belts to anyone who pays long enough. The credentials look real until you need them.

McAlpha is similar. You end up renting someone else’s conviction. When the market shifts or the position moves against you, you’re holding something you can’t defend because the thesis was never really yours.

Very early in our careers, we fell into this trap. The tuition was expensive—and humbling.

Process Over Trades: Building Your Own Edge

The CFLT trade is what we call “dark arts” pattern recognition—reading market structure for what’s being telegraphed but not yet announced. It’s one unique analytical framework that we use among many. We’ve written more about some of these frameworks, for example here, here, and here.

We could send out tickers every week. There’s clearly demand for it. But here’s what is more valuable: helping you to develop your own investment philosophy and processes. That’s what we focus on.

That means understanding how to read options structures, credit market signals, and governance that telegraph events before they occur. Exploring how merger arbitrage sharpens your investment process even if you never trade a single merger. Understanding how and why Multiflation—the end of 40 years of “Goldilocks” markets—is breaking four decades of investment playbooks and asset allocation models, and what to do about it. Learning how ‘modern’ market structures detach prices from reality—such as ETF mechanics, derivatives, and algorithmic feedback loops—create new risks and opportunities for investors.

By focusing on process over outcomes and developing your own analytical capability, you’ll know what you’re looking at and how it fits into your personal objectives when the next opportunity appears. In this way, and only in this way, can you build conviction that’s genuinely yours—not borrowed from someone else’s writeup or Tweet thread.

This requires more work than following a tip sheet. You have to read, think, adapt. But in a regime as challenging as Multiflation—where 50 years of economic assumptions are dissolving in real time—developing your own judgment and process is the only durable edge.

Most of what we share won’t be as perfect as CFLT. Many signals won’t work at all. We don’t have all the answers, or even most of them. Far from it. But after years of both spectacular wins and painful losses, we’ve learned that philosophy and process matter more than any single trade.

A Different Kind Of Community

As we wrote in the introduction to the Sorcerer’s Apprentice:

Our goal is to create a community of adventurous minds committed to staying ahead of the curve and uncovering opportunity amidst the chaos. Our community is not for those seeking easy answers, quick fixes, or an echo chamber. Instead, it is for those who understand that navigating the complexities of our rapidly changing world requires ongoing learning, unlearning, and adaptation…

If you’re ready to go beyond soundbites and surface-level analysis, challenge long-held assumptions, and develop the intellectual and real-world tools required to thrive in a time of accelerating change, join us.

That’s what we’re building here—a community of people intellectually curious enough to dig deeper and honest enough to admit when we’re wrong.

You’re already reading Substack newsletters, earnings reports, financial news, Twitter threads (even our own threads), SEC filings. You’re drowning in information. The problem is knowing what to do with it.

Most financial media gives us fish. We’re more interested in honing our fishing skills.

In markets where almost everything is financial fast food—and much of what remains is becoming commoditized by AI and algorithms—the only alpha left is how you think. Your philosophy and process. Our work exists to help you think in a way that can’t be automated, copied, or taken from you.

You can’t always get what you want. But if you’re willing to do the work, you might find you get what you need.

Previously: Lessons From 1929 Crash

Throughout Paper Bitcoin Summer ‘25 we warned that the proliferation of Bitcoin treasury companies (BTCTCs) paralleled the ill-fated investment trusts of the 1920s (here). Both eras witnessed the fleecing of credulous retail investors by promoters through insider grants, misaligned incentives, and financial alchemy.

But the current episode also introduced influencers who harvest in-group affinity and trust amongst Bitcoiners—peddling paper promises as somehow aligned with Bitcoin’s vision and values via a deluge of podcasts and conferences.

To efficiently slice through hype and reveal whether promoters genuinely hold their convictions—or are cynically capitalizing on the community they claim to serve—we propose the Paper Bitcoin Razor™: an instant, binary “proof of alignment” fiduciary audit test for BTCTCs modeled on Bitcoin’s own “proof of work.” We have also distilled the Razor into a ChatGPT prompt—soon to be published separately—that empowers investors to do their own due diligence.

What follows will be of interest to all investors, even those who don’t care about Bitcoin or BTCTCs. Understanding the secret “dark arts”—decoding how insiders actually get paid and what behaviors those incentive structures reward—is prerequisite knowledge for investment survival during the Golden Age of Grift.

Paper Bitcoin Winter

Retail investors fleeing fiat debasement and centralized intermediaries leapt from the frying pan into the fire, ultimately forfeiting their wealth to the very types of incentive misalignments Bitcoin was designed to solve.

The Paper Bitcoin bonfire combusted more rapidly than even we anticipated. In the span of mere weeks, investors’ Paper Bitcoin “wealth” was incinerated—50%-98% drawdowns were not abnormal even as Bitcoin itself flatlined, relegating many of the BTCTCs to penny stock status. ’s Bitcoin Treasuries Newsletter captured the scale of the conflagration: the recent crop of BTCTCs consumed approximately US $17 billion of wealth, and of the ~168 public companies holding Bitcoin, ~15%-25% now trade at a discount to NAV.

Take No One’s Word For Anything

If investors take away nothing else from this experience, let this be permanently seared into their consciousness: Nullius in verba, or “take no one’s word for anything”.

While Bitcoin itself may be a trustless asset, no such trust should automatically be afforded to “suitcoiners” who grant themselves outsized awards up front—enabling the pocketing of generational wealth before delivering even a single ₿ “satoshi” of value—and who can continuously conjure endless paper Bitcoin out of thin air to further benefit themselves at shareholder expense.

A “Flood Tide Of Corporate Larceny”

BTCTC management teams notably avoided bleeding alongside their shareholders; their compensation arrangements typically ensured that they remained insulated from—and in many cases indirectly profit from—the wealth destruction suffered by their shareholder “plebes”.

As we detailed in Lessons From The 1929 Crash:

What began [in the 1920s] as innovation quickly became exploitation…this was not an era of isolated bad actors, but a systemic opening for opportunism fueled by rising prices and vanishing ethics.

The most lucrative role in the trust boom wasn’t investor—it was promoter…insiders extracted value both upfront and continuously through fees, while public buyers bore the ultimate risk…

Like the 1920s trusts, today’s Bitcoin treasury companies often feature similar arrangements—founder allocations, insider stock options, and incentive packages for promoters and podcasters. This time, however, such mechanics are disclosed under SEC rules designed in response to the very abuses of the 1920s. But transparency neutralizes neither risk nor incentive distortions…

American enterprise [in the 1920s] “had welcomed an exceptional number of promoters, grafters, swindlers, impostors, and frauds,” creating “a kind of flood tide of corporate larceny.”…“One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion.”

How did so many investors—many of them sophisticated Bitcoiners who pride themselves on understanding economics and incentive structures—fall victim when all the warning signs were there?

The “Dark Arts”: A Blueprint For Self-Preservation

The answer lies in understanding not only the historical context and reflexive alchemy covered earlier in the series, but in mastering the secret ‘dark arts’ that decode how management teams can legally enrich themselves at shareholder expense—even when everything is transparently disclosed within the SEC filings.

Ferris Bueller’s Day Off & The Great BTCTC Joy Ride

We’ve studied the “dark arts” and analyzed corporate governance (and misgovernance) for what feels like eons, and we are hardly naïfs. But if the dog below represented us before reviewing the BTCTC and Digital Asset Treasury (DAT) executive compensation agreements and other SEC filings:

Then this is us after reading them:

This essay was originally written as a lengthy forensic analysis featuring compensation agreements and SEC filing screenshots juxtaposed against management and director statements.

Instead, we decided to publish a high-level overview of the “dark arts” that enabled this legal wealth transfer from retail to insiders—a blueprint applicable to any company, not just Bitcoin Treasuries.

We’ve also developed a stripped-down version of our proprietary “dark arts” framework—delivered as a forthcoming ChatGPT prompt designed to arm retail investors with some of the tools necessary to detect red flags before risking their retirement or college savings on a trendy Paper Bitcoin story.

We chose this format since few nowadays have the attention span to wade through a dense technical exposition on corporate governance. But there’s a deeper reason, as well: we want to teach you to fish rather than simply feed you. Our goal is not just to show you our work, it’s to empower you to do your own—investing requires learning skills that come from doing and not only from reading.

When people are handed “the answer” on a silver platter, they rarely develop a genuine understanding of the principles required to protect themselves in the future. Others can now learn experientially—by putting in the work—but with an advantage we lacked: a tireless AI tutor available at any hour that adapts to their pace and questions.

“Zoom Out,” Diamondhands

TreasuryCo managements and Bitcoin influencers frequently admonish investors to “zoom out” and focus on long-term value creation to understand BTCTCs:

Watch What They Do, Not What They Say

BTCTC management and their favorite podcasters may vociferously proclaim that BTCTCs are an “amplified” Bitcoin proxy and that their investors need to “hold for the long-term.” Unfortunately, in the overwhelming majority of cases, their actions very clearly do not match their rhetoric: they are paper hands to your diamond hands.

In our opinion, BTCTCs are amplified Bitcoin proxies—but only for insiders. In the overwhelming majority of potential outcomes, the payoff for insiders is asymmetrically positive, while the payoff for shareholders—at least relative to Bitcoin—is asymmetrically negative.

If we “zoom out” over the long-term, it seems likely that shareholders in these companies will tend to underperform Bitcoin in a bull market and significantly underperform or be wiped out entirely during a bear market. Shareholders can even be wiped out when Bitcoin does nothing—as we’ve seen recently.

As we demonstrated in Steal This Prompt, BTCTCs are highly path-dependent—only the narrowest set of future scenarios are likely to avoid disappointment for long-term BTCTC shareholders. During a BTCTC bull market, new competitive entrants emerge and existing BTCTCs dilute shareholders through exponentially-increasing share issuance and insider compensation structures that cap BTCTC upside versus Bitcoin. If the BTCTCs enter a bear market loaded with too much leverage, or if their stocks trade below the value of their underlying Bitcoin holdings for an extended period, it’s likely game over.

In most scenarios, therefore, the payoff structure for shareholders resembles a particularly unfavorable options strategy: as the stock price falls, the company is effectively selling more and more put options on its own shares, while simultaneously writing covered calls against those shares that cap upside during relief rallies in the stock.

One could certainly quibble over the details of our analysis, but nullius in verba: don’t take our word for it. If we “zoom out” to the big picture conclusion—that these companies will underperform Bitcoin in both directions—and then “zoom in” to examine management compensation schemes, it becomes crystal clear that insiders agree with us.

For anyone possessing the skill to read between the lines, the message is written in comically large, blazing neon letters: they do not truly believe that they can outperform Bitcoin as a benchmark. That is precisely why their compensation agreements are written the way they are.

The Paper Bitcoin Razor

BTCTCs exist for one reason and one reason only: to significantly outperform Bitcoin. If they fail at their raison d’etre, they serve no purpose for shareholders.

This simple truth yields an equally simple test to separate the wheat from the chaff—the Paper Bitcoin Razor—that instantly proves whether or not management and boards truly believe that they can outperform the Bitcoin Hurdle Rate by verifying their alignment with shareholders.

We modeled the Paper Bitcoin Razor on the governance gold standard established by Bitcoin governance expert Pierre Rochard, author of the seminal Speculative Attack essay:

“Proof-Of-Alignment” Test

Pierre has succinctly articulated what should be the non-negotiable foundation of every Bitcoin Treasury Company: a standard so self-evidently correct that any deviation from it likely becomes an instant disqualification for long-term investors. Just as Bitcoin’s integrity relies on “proof of work,” BTCTC integrity relies on “proof of alignment”—compensation structures that are tied solely to outperforming Bitcoin over the long term.

The very first question that shareholders should ask management teams and boards—and then “trust but verify” independently through SEC filings and our forthcoming ChatGPT prompt, following our mentor’s methodology—is whether their compensation agreements conform to Pierre’s gold standard:

Other than a nominal salary, is your compensation structure tied exclusively to the out-performance of your common share price versus Bitcoin—subject to a cumulative high water mark—and are you handcuffed alongside shareholders for a long period of time (say, a minimum of five years) with no way to sell, hedge, or cash out in the interim?

If the response to this test is anything other than an unequivocal one word answer—“YES”—then they are inadvertently revealing everything you need to know.

Watch What They Do, Not What They Say

If Bitcoin is truly the “hurdle rate” and BTCTC shareholders must “zoom out”, then why are managements themselves so strongly incentivized to “zoom in”? This disconnect between rhetoric and reality lies at the heart of the dark arts.

The fact that few—if any—of the management teams and boards whose filings we reviewed have chosen to hold themselves to the gold standard of BTCTC governance perhaps reveals something telling about their “corporate soul”: their true beliefs, priorities, and “revealed preferences.” For all their sanctimonious invocations of the Bitcoin Standard ethos, they appear to be at least as “fiat-brained” and “high time preference” as anyone else in our Golden Age of Grift.

Never forget that as a BTCTC shareholder you only win when your shares appreciate faster than Bitcoin itself. If insiders have ever received or will ever receive compensation tied to any outcome other than this—or if they’re compensated over a shorter time horizon than the holding period they recommend to you—then they are fundamentally playing a different game than you are.

For example, when management receives upfront and annual equity grants that are not tied to the Bitcoin Hurdle Rate, any additional bonuses paid for exceeding the hurdle are essentially a series of free lottery tickets for them. They’ve already secured generational wealth through the base grants regardless of shareholder returns, so the performance bonuses tied to the Hurdle Rate cost them nothing—but do provide convenient cover to claim alignment with shareholders when challenged about incentives.

This misalignment festers regardless of how earnest and genuine management and boards appear, how deep their knowledge of Bitcoin runs, how strong their professed adherence to the ethos of Bitcoin, or how compelling their vision sounds. When incentives diverge, trust the compensation structure over the story every time.

The BTCTC filings reveal a veritable rogues’ gallery of techniques that allow insiders to earn generational wealth even as shareholders are left holding the proverbial bag. Rather than cataloging every variant we encountered, we’ll highlight several particularly instructive classes of examples that cut to the heart of the problem.

“Zoom In” On Fiat Incentives: Monkey Math Metrics

BTCTC management teams trumpet—and typically tie a large portion of their compensation to—impressive-sounding metrics parroted ad nauseam as mantras on podcasts and company conference calls: Bitcoin-Per-Share, Bitcoin Yield, Bitcoin-Rate-Of-Return, Bitcoin Torque, Bitcoin Amplification, Total Bitcoin Stack, and so on. Many go so far as to claim that optimizing for these metrics is part of their sacred fiduciary duty.

These metrics may prove useful in analyzing BTCTCs, but as management compensation and fiduciary targets they create a fundamentally irresolvable misalignment between management and shareholders. Compensating on these metrics effectively enables management teams to “grade their own tests”—to reverse engineer their own path to short-term enrichment—while simultaneously spinning a tall tale to investors that these metrics create long-term value and that everyone else should remain patient for the eventual payoff.

Insiders are able to earn compensation in the short-term for activity of dubious value—regardless of whether the Bitcoin Hurdle Rate is ever met.

These are therefore convenient metrics for management to (mis-)direct attention toward precisely because they are nothing more than financial engineering constructs. Superficial accounting sleight of hand allows them to easily manipulate and boost the numbers—and therefore their own compensation!—to the mistaken applause of retail shareholders, all without necessarily creating any genuine value versus the “Bitcoin Hurdle Rate” that investors should actually care about.

Consider, for example, how preferred shares marketed as ‘digital credit’ might create this dynamic: management issues preferreds to acquire Bitcoin, which mechanically boosts Bitcoin-Per-Share and triggers their compensation. But those preferreds are effectively equity in disguise. Without operational cash flows, BTCTCs must eventually issue common shares to pay the preferred dividends, creating a circular dilution machine in which management extracts real compensation based on an artificially inflated metric that ignores the future dilution obligation embedded in those preferreds. And remember: “accretive dilution” only works when BTCTCs trade at an mNAV premium sufficient to absorb the equity issuance; otherwise it’s simply “dilutive dilution” with a management payday baked in.

Once again, a simple acid test can immediately reveal the strength of insiders’ conviction: ask whether compensation tied to these metrics should vest only after achieving a minimum of five-year cumulative share price outperformance versus Bitcoin (again, subject to a high water mark)—allowing management to put their own money where their metrics are.

Pay-for-Plummet

Another common pattern we identified involves structures whereby the mathematical incentives become outright perverse—scenarios wherein management can actually benefit from shareholder misery, after which they own more shares and profit from any recovery in the share price.

This represents a perhaps even more questionable variant of the “spring loaded option grants” that dark arts ninja at NonGaap dissected. However, these depressed-price grant incentives operate through a distinctly troubling mechanism. BTCTC management teams have available to them asymmetric information and certain unique levers through which they could effectuate share price depression should they succumb to the temptation to pull them—or at the very least find themselves not particularly incentivized to take actions that would prevent the share price from cratering.

Note: pointing out the perverse incentive structure at play is not equivalent to alleging that management acted on these incentives. Neither is highlighting the perverse short-term incentives equivalent to claiming that management lacks any incentives for long-term value creation.

The illustrative table below, using a hypothetical scenario, highlights the striking inversion of incentives with this sort of grant: the worse the short-term stock performance, the richer management’s payday upon rebound:

Keep this in mind when insiders protest that they “haven’t sold a share”—that may be technically true (although double check to ensure that all possible hedging and selling-adjacent activity is explicitly prohibited in their contracts), but they also haven’t needed to sell due to incentive structures like this: they may be awarding themselves more shares at lower prices anyway.

The same perverse incentives infect even routine annual equity compensation. For BTCTCs, even “normal” annual equity grants to management and directors create a fundamental misalignment with shareholders: management profits from stock price recoveries even if the stock is catastrophically underperforming Bitcoin.

Shareholders require significant cumulative outperformance versus Bitcoin itself to make their investment worthwhile; management only needs the stock to appreciate from whenever they decided to pay themselves, creating a heads-I-win-tails-you-lose dynamic.

Note: granting fixed shares is perhaps slightly less problematic than granting fixed dollar amounts—for reasons illustrated in the table in the section above, namely that the share count doesn’t mechanically increase as the price falls—but both create significant misalignment with shareholders.

Inside(r) Influencer Industrial Complex

Bear in mind that many of the metrics shareholders analyze to judge the progress of BTCTCs may not account for the full cost of the marketing machinery required to keep capital—and therefore Bitcoin—flowing into these companies. Enter one of the most expensive line items you’re unlikely to see properly accounted for, despite being integral to the business model (such as it is): the compensated insider and influencer sales force.

BTCTCs depend on continuous access to capital markets and enthusiasm for their securities—they therefore require a steady stream of buyers for their stock and “digital credit” offerings to fund Bitcoin acquisitions. To help manufacture this demand, many have turned Bitcoin influencers and podcasters into a compensated promotional force for their stocks and bonds through cash pay, equity grants, and board seats. This is not altogether dissimilar to an affinity-driven, multi-level marketing-adjacent promotion funnel, wherein community trust becomes a distribution channel for equity and “digital credit” rather than Tupperware and dietary supplements.

These influencers may promote BTCTC stocks to their audiences while their compensation—typically disclosed deep within SEC filings—creates at the very least the appearance of a conflict of interest. The influencer may profit, for example, when the stock rises from their grant price, regardless of whether it beats Bitcoin or creates genuine value.

We will await additional details—including proxy filings and accurate fully diluted share counts—but it would not surprise us to see that disclosed stock awards to the BTCTC insider ‘influencer’ community cumulatively total in the tens if not hundreds of millions of dollars, with more on the way. These influencers may face their own perverse incentive to liquidate shares as quickly as contractually allowed, knowing that future grant tranches are already queued behind them while ongoing equity issuance across the capital structure will dilute their existing holdings—essentially selling before the coiled spring weakens or snaps entirely.

The “Paper Bitcoin Razor” Prompt: DIY Due Diligence

We’ve created a ChatGPT prompt—currently undergoing final testing—that analyzes BTCTC compensation structures and SEC filings to identify the “dark arts” at work. There was little guesswork involved; the reason that we were able to write it so effectively is that we had already unearthed exactly where the bodies are buried—at least until the full proxy statements are filed next year, at which point we will likely discover the location of additional unmarked mass graves.

Think of it as a treasure hunt where you’re searching for buried red flags instead of gold—except in this case, finding treasure means discovering misaligned incentives before they cost you money. Upload company filings, ask questions, and get plain-English explanations of what compensation structures actually incentivize—cutting through management rhetoric to see if they pass the Paper Bitcoin Razor.

Conclusion: Not Your Keys, Not Your Coins

Throughout our careers, we have learned one painful lesson at great cost: no matter how compelling the underlying asset may appear, or how attractive the story being told about it, when management’s incentives fundamentally diverge from those of shareholders—particularly regarding upside potential and downside exposure—prudence demands that one step back and reassess the investment.

The Paper Bitcoin Razor arguably speaks louder than all of the BTCTC podcast episodes and conference presentations combined. Insiders are broadcasting very clearly—through actions rather than rhetoric—that they do not believe they can beat the Bitcoin hurdle rate. When someone shows you who they are through their compensation structures, it’s usually best to believe them.

Given that BTCTC managements have revealed their “corporate souls”—or lack thereof—through their compensation agreements, they have arguably earned themselves a prolonged “penalty box” discount to NAV through governance misalignments alone, let alone business model issues.

Bitcoin investors still interested in investing in BTCTCs despite these revelations would do well to abandon the “diamond hands” mentality and view these vehicles instead as—at best—trading sardines rather than eating sardines. Those who do decide to undertake these risks with eyes wide open should know that mastering the “dark arts” is essential to ensure that management’s incentives are at least temporarily aligned with their own.

As for those select BTCTC management teams and boards that intend to take their fiduciary duties seriously, we may follow up in a later essay offering “light arts” constructive criticism —a roadmap for differentiating yourselves from the pack, both operationally and through governance—and demonstrating that BTCTCs can transcend their current reputation as “cynical dilution juggernauts” engineered to enrich insiders.

Until then, never forget: nullius in verba.

The US economy is showing signs of deepening stagflation—sluggish growth combined with rising prices, largely driven by Trump’s tariffs—a continuation of trends discussed in Money Illusion, Intensifying Price Pressures, And Orwellian Macro Stats (link here).

Recent earnings reports confirm these trends. Costco, for example, reported a 5% September same-store sales gain, but the composition reveals inflation’s dominance. Traffic grew only 1.4% while average ticket rose 3.8%—of which 2-4% was grocery inflation alone. Factor in gold-bar sales—consumers buying an inflation hedge rather than engaging in core retail spending—and the underlying real growth appears effectively flat. The retailer’s nominal strength illustrates the broader money illusion permeating our economy: rising prices sustain the appearance of growth even as real purchasing power and demand stagnate.

These corporate-level anecdotes matter, but isolated data points can mislead. To track whether stagflationary pressures are building systematically across the economy—or merely appearing in select examples—we need a framework that captures broader patterns in quasi-real time.

Understanding The Multiflation Map

Note: To understand how the Multiflation Map fits into our overall method, see our introductory piece Investing In The Age Of Multiflation (link here). If the Map seems complex at first glance, don’t worry—we’ll publish a detailed explainer shortly to walk you through how to read and interpret it.

The Multiflation Map distinguishes itself from most macro frameworks by revealing when conditions have truly diverged from recent norms—not merely whether growth or inflation is high or low, or whether either is rising or falling. This distinction matters because market behavior is shaped less by absolute levels or even rates of change than by departures from the familiar. The Map also captures private-sector health more clearly than consumer- and government-focused measures such as GDP.

We’ll share future map updates primarily on Twitter and Substack Notes rather than through email, so be sure to follow along there for the latest changes.

Map Indicates Looming Stagflation

Our Multiflation Map reveals a fairly consistent pattern of real economic growth over the past year. Setting aside the brief Trump tariff spike in the spring, the economy has maintained a steady growth rate relative to recent norms, which keeps the economy near the same vertical position on the map.

More concerning is what’s occurring with prices. After a period of relatively modest price inflation, prices have begun to rise faster than recent norms. This acceleration pushes the economy rightward on the map, signaling that inflation is now running hotter than the baseline we’ve grown accustomed to.

The Map therefore shows a gradual clockwise rotation, signaling deteriorating conditions as we edge closer to stagflation.

Trump’s Tariff Lottery Complicates Data

Analyzing the economy under Trump’s tariff regime presents a significant technical challenge. In Spring 2025, we saw temporary distortions as businesses rushed to import goods before Trump’s new tariffs took effect. The Spring import-wholesale surge will likely continue to distort our readings for at least a few more months before those data points age out of the comparison. By year end we should have a clearer picture of the underlying trends.

The price indices we use to separate nominal dollar sales into “real growth” versus “inflation” weren’t designed for this environment. These deflators either track domestic goods (such as PPI indices) or draw from import price data that explicitly exclude duties in their contribution to wholesale price calculations. Meanwhile, the actual sales figures businesses report increasingly reflect tariff burdens, according to most industry survey commentary.

This creates a measurement distortion. When tariff-inflated sales get adjusted using deflators that don’t account for those tariffs, we artificially understate the price component and overstate the real growth component. Correcting for this pushes our economic readings further into stagflationary territory—lower real growth, higher inflation.

The magnitude of this effect is substantial. Between February and September 2025, the Treasury collected $180.6 billion in border taxes, a staggering $115.9 billion more than the same period in 2024—an increase of 180%. Tariffs that represented roughly 3% of total goods imports last year have now jumped to nearly 8%, accounting for the modest growth in import volumes.

Since imports comprise about 10% of the sales categories in our economic model, this translates to approximately a 0.5% upward shift in measured prices and a corresponding 0.5% downward adjustment in real economic activity. This rough calculation doesn’t capture the full economic damage from supply chain delays, increased administrative burdens, reduced availability of certain goods, or the quality-price tradeoffs consumers face when forced to switch from preferred imported products to domestic alternatives that may cost more or work less well.

Investment Implications

We present these patterns as context rather than forecast; also note that stagflation has only one real precedent in our data—the 1970s—and the economy then bore little resemblance to today’s in terms of market valuations, structure, and conditions.

That said, based on historical patterns, we’d expect S&P 500 real returns to be reduced by approximately 6% over the next six months. Historically, energy companies, financials, and real estate would likely see the worst relative performance. Bonds—particularly at the longer end—would historically offset some of this relative underperformance, leaving the 60:40 portfolio earning 3.0-3.5% less.

In the era of Multiflation (link here), investors are beginning to rediscover the appeal of hard assets and natural resources after abandoning them during a nearly fifteen-year commodities ice age.

Yet direct ownership of resources remains notoriously challenging: storage and transaction costs, insurance requirements, and—in some cases—outright regulatory prohibition present formidable obstacles for investors. Mining equities may offer explosive upside but introduce additional risks and operational complexities, along with the demanding work of ongoing stock selection and portfolio management. Commodities futures and ETFs have their own drawbacks, including roll risk, tracking error, and tax complexity.

Enter Sprott Inc. (SII.US and SII.CN): the pure-play asset manager positioned at the nexus of this resource renaissance. While many investors are familiar with Eric Sprott—the legendary Canadian investor who founded the firm—and recognize Sprott's flagship closed-end gold and silver trusts, fewer realize that the parent company itself trades publicly.

Sprott occupies a rare position among publicly traded assets: it delivers immediate, turnkey exposure to all five Archetypes critical for navigating Multiflation. This distinctive position creates significant opportunity for fundamental revaluation as Multiflation unfolds; while recent stock performance suggests early market recognition of this potential, a broader structural rotation toward hard assets appears to have only just begun.

Traditional portfolio hedges typically impose a performance penalty through negative carry, creating a drag on returns even as they provide protection. Sprott operates differently: it delivers uncorrelated returns that reduce volatility drag and provide dislocation protection—all while paying a dividend. For portfolios seeking multi-Archetype exposure without extensive restructuring, a position in Sprott offers an efficient way to add this dimension alongside other Multiflation holdings.

The Commodity Tollbooth

Sprott manages a comprehensive suite of precious metals and commodity ETFs, funds, and physical trusts, alongside other strategic resources businesses. Their business model transforms commodity investing's inherent costs and complexity into profit—effectively operating as a tollbooth on a likely soon-to-be-crowded commodity highway. While direct commodity ownership typically involves negative carrying costs—for example paying to store and insure gold in a vault—Sprott inverts this dynamic by paying shareholders a 1.5% dividend yield.

Rather than paying fees to access commodities exposure, Sprott shareholders receive their proportional share of the fees that other investors pay for commodity exposure. Instead of merely capturing price appreciation on the underlying commodity, Sprott shareholders capture both the commodity direction and the economics of fund ownership itself. As Multiflation and inflation drive investors toward hard assets, Sprott benefits twice: first from rising commodity prices that increase the value of underlying assets, and second from the management fees generated by swelling inflows from other investors seeking the same protection.

Conceptually, Sprott shareholders become a General Partner in the Sprott funds without a seat at the management table, collecting a proportional share of the diversified fee streams that flow from commodity demand. The company’s historical reluctance to reinvest heavily in business expansion means these growing cash flows likely return to shareholders rather than being consumed by costly growth initiatives—albeit operating leverage is notably diluted by an expense base, tax obligations, and compensation structure that collectively consume a not-insubstantial portion of revenues before they reach equity holders.

During the prolonged resources bear market, Sprott endured as an underearning cyclical business that nevertheless continued generating cash flow even as competitors either failed outright or abandoned the sector entirely.

The company now stands at an inflection point, transitioning toward a less cyclical business model capable of sustainable profitable growth. Sprott offers investors scarcity value as the premier publicly traded company in the space—boasting dominant brand equity and franchise value within natural resources, a profitable and loyal AUM base anchored by recurring revenues, a dividend yield, and a pristine balance sheet.

Sprott is therefore uniquely positioned for the coming decade defined by Multiflation—including resource nationalism, the urgent need to address over a decade of underinvestment in commodities, and the return of real-asset investing. The trillions currently allocated to stocks and bonds represent an enormous pool of capital; even a modest shift toward commodities would create substantial tailwinds for Sprott.

The company carries tremendous embedded upside optionality through its portfolio of Multiflation beneficiaries: natural resources chokepoints, chaos hedges that activate during monetary, economic, and geopolitical disorder, exposure to surging energy demands from AI and other industries, and the ability to consolidate and grow during dislocations.

Ownership in Sprott may therefore offer a compelling alternative or supplement to other commodity exposures within a broader Multiflation strategy; in short, it’s the commodities and resources “easy button”:

We view our Multiflation holdings as a curated collection wherein each position contributes specific characteristics that enhance the whole’s resilience and adaptability. Sprott exemplifies this approach by offering exposure that is related to—yet fundamentally different from—direct commodity ownership. While physical commodities and ETFs provide pure price exposure to underlying assets, Sprott delivers a more sophisticated exposure profile that combines commodity sensitivity with the stabilizing characteristics of a fee-generating business and the ability to capitalize on dislocations.

Archetypes Analysis

Monetary Evolution

The global financial system stands at a historic inflection point as mounting fiscal imbalances, competitive currency debasement, and eroding confidence in fiat monetary systems converge to challenge the established order. While the precise contours of Monetary Evolution remain uncertain, the leading market alternatives to the current fiat-centric system have crystallized around two primary camps: precious metals, and the digital native alternative embodied by Bitcoin.

Sprott stands to benefit significantly from this Monetary Evolution, as investors seeking refuge from fiat instability may naturally gravitate toward the firm's physically-backed precious metal trusts, funds, and ETFs. The company's positioning ensures participation in the broader flight from fiat currencies, though the magnitude of its benefits would naturally depend on gold's relative share of the monetary transition as well as Sprott’s own market share within the gold market.

Inflation Beneficiary

Sprott’s business model makes it an inherent inflation beneficiary, deriving its power from a reflexive flywheel dynamic. As Multiflation drives demand for its products, Sprott's assets under management and profitability expand through both underlying asset price appreciation and heightened investor inflows, which should generate higher revenues with minimal incremental costs.

Rising commodity prices create their own marketing, attracting investors seeking inflation protection. These inflows enhance Sprott's capacity for new product launches and strategic acquisitions, reinforcing the company’s growth. Valuation aside, this structure potentially makes Sprott equity both a safer and more asymmetric expression of a Multiflationary thesis than direct commodity or mine ownership. The company profits from the very inflationary pressures that erode the value of traditional financial assets, positioning it to benefit regardless of whether price inflation manifests through currency debasement, supply chain disruptions, or resource scarcity meeting demand from AI and geopolitical uncertainty.

Resiliency & Antifragility

Both Sprott the company and its products are by nature resilient and anti-fragile. The firm's most durable economic moat is not any single fund or product, but rather the trusted, scalable, and operationally efficient platform and brand itself, backed by a pristine balance sheet.

For example, the closed-end fund structure underlying Sprott’s trusts creates an inherently stable capital foundation that insulates the firm from the redemption cascades that can devastate open-ended funds and ETFs during periods of investor pessimism. This generates more predictable, recurring fee streams that provide management with revenue visibility and operational flexibility during volatile periods and bear markets.

Sprott’s countercyclical business lines in commodity-focused private credit can help buffer earnings during commodities bear markets. When commodity prices collapse and equity markets close to miners, distressed mining companies still need capital and expertise, allowing Sprott to generate fee income when its other commodity funds face headwinds.

While investors often view commodities as a monolithic asset class, Sprott's specialized expertise allows it to recognize and capitalize on the idiosyncratic fundamentals that drive individual resource markets. This granular understanding creates strategic optionality for a manager equipped with both domain expertise and balance sheet strength. During broad commodity bear markets, Sprott can selectively redeploy capital and launch new products geared toward specific resources exhibiting superior fundamentals, potentially generating strong returns even within a challenging macro environment.

The firm's zero-debt capital structure and robust free cash flow generation transform market dislocations from threats into opportunities. While overleveraged competitors retreat into defensive postures during credit crunches or commodity selloffs, Sprott can deploy capital when assets trade at compelling valuations. This financial fortress enables the firm to act as a consolidator and liquidity provider within its specialized niche, acquiring distressed funds and mandates from forced sellers at attractive prices. Indeed, Sprott has a track record of acquiring "dislocated" funds and asset management mandates—such as Uranium Participation Corporation, Central Fund of Canada, and Tocqueville's gold strategies—at highly attractive valuations.

Finally, Sprott's focused market position and modest size create an embedded takeover option that provides downside protection during severe bear markets. Large asset managers seeking instant market leadership in precious metals or critical materials could readily absorb Sprott, likely at valuations that significantly exceed the firm's current market price. This strategic value should represent a natural floor beneath the equity, ensuring that patient investors benefit regardless of short-term market conditions.

Constraints

After more than a decade of chronic underinvestment in resource development, the world now faces Multiflation—including mounting shortages in essential commodities—just as AI, aging infrastructure, geopolitical tensions and other factors drive demand for the fundamental building blocks of civilization. As we wrote in January 2021, when the Sorcerer’s Apprentice was first published privately:

The world cannot continue indefinitely running on the hyperreal services provided by the Tech giants and financial alchemists, but rather must pay attention to the material things that supply our real, more basic needs; things without which Amazon would have nothing to deliver us and Facebook no means to talk or listen to us. It is time to stop obsessing about electrons and to start concentrating on neutrons and protons, too.

This observation has only grown more urgent since publication; Sprott operates at the intersection of necessity and scarcity—a strategic position that will become increasingly valuable as structural supply deficits collide with surging demand across critical materials. Through its product offerings, Sprott positions itself as a primary conduit for capital seeking to capitalize on these Constraints.

The Sprott Physical Uranium Trust exemplifies this strategy's power. Launched in 2021, it has rapidly ascended to become the world's largest vehicle for direct uranium investment, protected by formidable competitive moats that render replication at scale extraordinarily difficult. The operational complexity, regulatory hurdles, and specialized expertise required to source, purchase, transport, and store physical uranium create exceptionally high barriers to entry.

The firm's copper expansion strategy targets the massive tsunami of long-term demand emerging from grid infrastructure modernization, renewable energy deployment, data center proliferation, and the voracious power requirements of artificial intelligence systems. This surging demand confronts a supply landscape scarred by decades of underinvestment in new mines, steadily declining ore grades, and development timelines that stretch across multiple economic cycles.

Dislocations

Sprott's strategy is deeply aligned with the "Dislocations" Archetype, positioning the firm to capitalize on market stress, contrarian viewpoints, and the mispricing of "unloved" assets. The entire Sprott brand is built upon a contrarian ethos, a willingness to venture beyond conventional investment strategies and challenge consensus thinking. Its core products are, by their very nature, expressions of a view that runs counter to the prevailing narrative of perpetual low inflation, central bank omnipotence, and the unassailable stability of the fiat currency system.

Other than its focus on gold and natural resources, the firm's alignment with this archetype is most tangibly expressed through its corporate acquisition strategy, which can be accurately described as a form of dislocation arbitrage. Sprott's M&A playbook deliberately targets niche, fragmented, or "unloved" commodity-focused funds and managers. While volatility in these markets deters many investors, Sprott's expertise, institutional infrastructure, and balance sheet allow it to deploy capital as others retreat and position the firm to capitalize on fundamental supply-demand imbalances that could persist for years.

Multiflation Scenarios

Reflationary Boom +/- Mixed or Uncertain Performance

While a "risk-on" environment might draw some capital away from commodities and defensive assets like gold, Sprott benefits from general asset price inflation. The key vulnerability is commodities dramatically underperforming broad equity markets, potentially leading to modest outflows or slower growth.

Stagflationary Grind ++ Very Strong Performance.

This is likely Sprott's ideal environment. High inflation and low growth destroy the appeal of both traditional equities (margin compression) and bonds (negative real yields), forcing capital into monetary alternatives. Gold and silver thrive, driving Sprott's AUM and fee revenue higher in a period of widespread economic discoordination.

Hyperinflationary Blow-off ++ Very Strong Performance

In a terminal phase of competitive monetary debasement, there would likely be a panicked flight to Sprott's physically-backed products and their commodities funds and expertise. Its role as a trusted custodian and manager of real assets would be paramount. The value of its AUM would likely soar in both nominal and real terms, leading to exponential growth in fee revenue and profits.

Severe Deflationary/Credit Shock - Negative Performance

A sharp credit seizure where fiat cash becomes king could be challenging. Gold and commodity prices would likely fall in the short-term. The "safe haven" narrative would potentially be temporarily eclipsed by a desperate need for liquidity. Sprott's debt-free balance sheet ensures survival, but its earnings would suffer.

Geopolitical Fracture & Supply Seizure + Positive Performance

Major conflict would trigger a flight to non-sovereign, politically neutral assets outside the traditional banking system. This directly benefits gold. Furthermore, a focus on energy security would highlight the strategic importance of uranium, boosting its Uranium Trust. An environment of protectionism, resource nationalism, geopolitical conflicts, and supply chain vulnerability enhances the appeal of Sprott offerings.

Policy Whiplash & Price Controls + Positive Performance

Erratic central bank policy and government interventions like price controls create profound uncertainty and undermine faith in fiat currency, driving capital towards Sprott's offerings. One risk is that the commodities and funds could be targets of windfall taxes or confiscation.

Technological Dislocation +/- Mixed or Negative Performance

Technological dislocation presents structural risks, for example as gold-backed stablecoins and tokenized commodity products offer potentially superior alternatives to traditional closed-end funds. These solutions could capture flows that would otherwise benefit Sprott or trigger outflows from existing products. Meanwhile, breakthrough technologies in extraction, substitution, or energy production could undermine the scarcity dynamics that underpin commodity valuations themselves.

HyperBitcoinization -/- Mixed or Negative Performance

Bitcoin’s ascendance as the dominant monetary alternative would disadvantage gold relative to bitcoin, though Sprott’s gold and commodities exposure should still benefit in real terms as stores of value outside the fiat system.

Untapped Value & The Opportunity Ahead

Yet despite embodying all five Archetypes, Sprott hasn’t fully capitalized on these strategic advantages—held back, for example, by compensation structures that dilute operating leverage and perhaps overly-conservative product development and marketing. We’ll explore these constraints and potential opportunities for enhancement if there is sufficient reader interest—share your thoughts in the comments or reach us by email.

Within months of that evening’s masterclass, the process and philosophy Nigel taught us would become essential to our survival as credit markets seized and merger after merger collapsed during the Financial Crisis.

Today, as we navigate Multiflation’s disorder, Nigel’s lessons remain equally valuable. Merger arbitrage serves three purposes within our Multiflation Method: merger spreads function as a barometer of liquidity and the ways in which Multiflationary forces are reshaping the economy; where we previously identified Archetypes that thrive under multiflation, announced deals provide a dynamic pipeline for acquiring them at dislocated prices; and Nigel’s thought process extends far beyond merger arbitrage—as we demonstrated in our Bitcoin Treasury Series.

Whether you're a merger arbitrage expert or beginner, and regardless of whether you plan to invest in special situations, you will find value in our new series Let’s Break A Deal—beginning with this inaugural installment—because we're applying these tools and frameworks through an entirely new lens.

This series is for all types of investors.

Merger Markets As Multiflation Barometers

In Investing In The Age Of Multiflation (link here), we began charting a course to preserving and growing wealth in a Multiflationary environment. One of the defining features of Multiflation is dislocation; where there are dislocations there are investment opportunities.

Dislocations manifest in many forms—and we will discuss both those forms and specific dislocation opportunities in future essays—but here we focus on one specific subset of dislocations that repeatedly provides fertile hunting ground: mergers.

Every announced merger is—by definition—a potential dislocation waiting to happen. As we noted in The Factory That Makes Investment Processes Repeatable (link here), most merger arb situations follow a predictable pattern: deals eventually close on terms, but many deals also experience some sort of a hiccup before reaching completion.

Merger markets aggregate multiple data points—including regulatory sentiment, financing availability, management confidence, and strategic priorities—into observable price signals. When deals face unexpected regulatory hurdles, financing complications, or deteriorating fundamentals, these snags may represent the first visible signs of macro forces reshaping sectors or markets. Yet many investors miss these signals because they treat special situations and event-driven investing as entirely separate disciplines from macro and fundamental investing.

This separation may blind them to the linkages between why special situation events occur—or don't occur—and broader macro and sectoral developments that are taking place. For example, the 2007 financial crisis demonstrated the predictive power of merger arbitrage spreads when they widened ahead of broader credit market deterioration, which itself preceded the equity market collapse of 2008.

As we profiled in ‘CEF Activism At An Inflection Point’ (link here) we use a variety of tools to track Multiflationary forces. Widening spreads—including spreads across the closed end fund universe, merger arb, and credit markets more broadly—all tend to provide early tells that stress may be percolating under the surface. Conversely, when spreads compress to historically tight levels, they typically reflect abundant liquidity and aggressive risk-taking.

Understanding these patterns—and how Multiflation interacts with special situations—allows investors to position ahead of broader dislocations, whether they choose to trade the specific merger situations or simply use the intelligence to inform other investment decisions.

Practical Applications Within The Multiflation Portfolio

For those who do choose to invest in merger arb as part of the Multiflation Method, there are several ways to employ it as a tool within a Multiflation Portfolio. Most relevant for the majority of investors is that announced mergers may be used as a potential future shopping list—particularly when they overlap with Multiflation Archetypes—so that they can be prepared ahead of time to capitalize on dislocations in case of deal hiccups.

Deal breaks and stumbling blocks may create opportunities to acquire Multiflation-resilient businesses at dislocated prices, often with clear liquidity catalysts such as renewed bidding or alternative buyers.

Merger arb may also be used as a cash and income alternative within a Multiflation Treasury when spreads are attractive. Finally, when spreads are tight, at-risk mergers can be shorted and may even collectively act as a tail hedge to add Resiliency to the portfolio—for example in the face of another significant global credit shock.

Reverse Engineering Failure Modes

The issue spotting and scenario mapping methodology we'll explore in this series—anticipating how mergers and acquisitions can break before those scenarios materialize—is applicable beyond merger arb and has become a cornerstone of both our investment process and the Multiflation Method.

Reverse-engineering failure points is incredibly useful to identify structural vulnerabilities across different asset classes and investment scenarios. We refined these concepts from merger arb through bank and subprime “burn down analysis” during 2007-2008, and systematically mapped potential failure cascades before they materialized.

More recently, we applied this same method to research historical parallels between Bitcoin Treasury companies and the 1929 Crash scenarios (link here)—and to develop a customizable ChatGPT prompt (link here) that reverse engineers structural vulnerabilities in Digital Asset Treasuries.

Let’s Break A Deal: Alliance Data Systems

As with all of our stories, names and details have been changed to protect the privacy of those involved, including ourselves. The characters depicted are a blend of several of our mentors and colleagues.

Nigel unplugged the projector mid-sentence, and the tension in the boardroom escalated noticeably.

Until that moment, our merger team meeting to discuss Blackstone’s just-announced 2007 acquisition of Alliance Data Systems (ADS) for $8 billion had been unremarkable. Dave had the video projector running smoothly to ensure that no technical hiccups disturbed our discussion; Nigel despised ‘technical difficulties’. The merger documents were queued up, and Mo was walking through the deal with his usual methodical precision.

Nigel suddenly motioned me for a beer, cut off Mo’s walkthrough of deal mechanics, and began dismantling everything we thought we had understood about the deal. Within minutes, he had moved the whiteboard to center stage in front of the projector, and demanded printed copies of the merger agreement for everyone in the room.

"You're not wrong, but you are thinking about this far too narrowly," Nigel told Mo. "You’re also focusing on fake tells and noise—what people think matters, but is actually an intentional or unintentional red herring. The answer is obviously in the merger agreement, but you’ll never understand how much a buyer wants to close it versus escape just from the merger agreement document in isolation.

Nigel took a swig from his Coors bottle, and began probing deeper into the financing structure and Banc of America and Lehman’s involvement. “You have to read all of the documents in concert, and layer in incentives and human behavior, to find the real gaps in the interpretation of the Definitive Merger Agreement".

Nigel pressed deeper. "Now. Tell me again,” he said to the room. “How do you think they can weasel their way out of this deal?". Mo quickly offered the obvious answer: financing. “Wachovia is in trouble from subprime, they could refuse to fund, and the other banks would have to step up.”

"Sure," Nigel shot back, "they could also call up Lehman and First Boston and ask them to pull the staple, claim market conditions. But then they’re on the hook for some portion of the break fee and the banks have to pay the rest. Banks hate paying break fees—they'd rather just negotiate better deal terms."

Dave shifted uncomfortably as Nigel continued mapping scenarios. Blackstone could extend the marketing period, but that was just delaying the inevitable. If they really believed a recession was coming, they could try to walk away and fight it out in court, but that would destroy their reputation and future deal flow.

What followed was a masterclass in merger arbitrage due diligence, dark arts, and game theory. For the next four hours, Nigel systematically mapped out every conceivable way the Alliance Data transaction could break. He drew connections between the Termination language in the merger agreement, specific performance clauses, the background details contained within the proxy statement, and the redacted staple financing letters from the banks.

He had our team pull recent precedent transactions as well as other deals from his photographic memory of prior LBO deal waves—TXU, previous KKR deals, Bain transactions, Alltel—and began building a comprehensive framework of potential failure points for deals both with—and optically without—financing conditions.

“You can’t just read one passage in one part of the document and accept it at face value,” Nigel lectured us. “Instead you almost have to take sentences from three documents, slice them up, and then tape them back together, and then read that versus what was said in the source of truth, the Definitive Merger Agreement.”

“The other documents can change the interpretation of the merger document, or say something entirely different from the merger document. Just because a financing condition had been waived didn’t mean it was really waived. And just because there wasn’t a covenant in a deal with financing conditions, doesn’t mean it wasn’t in a document that was redacted, such as a staple financing.” All deals had embedded financing conditions; Nigel simply forced us to look more closely at the language and think through the implications more deeply.

By midnight the conference room had transformed into something resembling a detective's command center. Documents were organized in strategic piles with color-coded sticky notes marking contradictions and connections. Every inch of the whiteboard was plastered with merger agreement clauses, board member connections, and detailed analyses.

Mo rubbed his eyes. Dave had long since stopped taking notes. The rest of us sat transfixed as Nigel drew lines between seemingly unrelated pieces of information, revealing patterns invisible to mere humans. Finally, he stood before this maze of information, marker in hand, eyes gleaming with the intensity of someone who had just glimpsed the solution to a puzzle.

"So,” Nigel asked intently. “How do they get out of this deal without actually walking away from it?" Nigel clearly already had his answer.

Silence.

“Regulatory”, Nigel declared triumphantly “The key is regulatory. That's the elegant solution. No break fees, no reputation damage, no financing fights. Just point to regulatory concerns and let the government kill the deal for you.”

Nigel’s Process: Back To The Future

This was Nigel's signature approach: anticipating every possible headline—we call this issue spotting—that could break a deal before those headlines ever materialized. Like Marty McFly reading future USA Today headlines in Back to the Future, Nigel taught us to see potential market dislocations before they occurred. He understood that the real edge in merger arbitrage came not from legal or financial analysis alone, but from anticipating human behavior and market reactions to unexpected information.

Nigel’s process was methodical. First, identify everything that could go wrong. Second, trace those risks back to specific language in the merger agreement and other filings. Third, wait for the market to panic in the event that one of his anticipated scenarios materialized. He knew which earnings misses were carved out in merger agreements and which contained unique language that differentiated them from sector peers. He understood when to examine credit agreements for banking commitment levels and when proxy statements revealed the real story about executive incentives. Finally, he would deploy capital aggressively while others were selling in fear.

The ADS deep dive exemplified Nigel’s philosophy perfectly. When markets faced the inevitable volatility that followed, he was prepared for scenarios others hadn't considered. That night's lesson—and many others like it from Nigel and our other mentors—became foundational to our investment process and the Multiflation Method.

The integration of Let’s Break A Deal ideas within the Multiflation framework allows us to analyze, anticipate, and capitalize on on the structural dislocations that define our current economic environment.

Clearlake’s Dun & Broadstreet Bid: A Post Mortem

The Clearlake-Dun & Bradstreet deal ultimately closed successfully several weeks ago, joining the 95% of announced transactions that reach completion. But examining its potential pressure points retrospectively allows us to illustrate Nigel's methodology—how to identify and white board potential break scenarios even in deals that appear destined to close smoothly (and do in fact eventually close smoothly)—and explores how this tail risk could have become an issue.

The DNB merger agreement contained multiple structural vulnerabilities that—under different market conditions—could have created exactly the kind of dislocation that provides both trading opportunities and early intelligence about Multiflationary forces reshaping credit markets.

Marketing and syndication periods as outlined in merger agreements typically pose little risk when parties remain aligned in their desire to close the deal. But when fundamentals are deteriorating and leverage multiples are expanding, lenders sometimes balk at what they're being asked to fund—creating leverage for buyers to renegotiate or walk away entirely.

What made the DNB situation interesting was the velocity of its fundamental deterioration against a backdrop of extraordinarily tight credit spreads.

This created a potential opening for Clearlake. The marketing period language in the merger agreement—coupled with the pressure cooker end date approaching before Christmas—could have provided them with an opportunity to push back on the current deal price to extract a better transaction for themselves. They could potentially even have found a way to walk away entirely without paying the $266 million break fee.

This created a fascinating study in competing incentives. We know shareholders desperately wanted to close on current terms—they're mainly event-driven investors, merger arb players, and others trying to collect that last mile spread. Meanwhile, Clearlake faced the uncomfortable prospect of closing a deal that had become significantly more expensive than what they originally negotiated for due to DNB’s deteriorating fundamentals.

Then there was the incoming management team that would actually have to run this company on Clearlake's behalf. Do they really want to inherit a balance sheet and business fundamentals that are materially worse than when the deal was announced? Can they realistically execute a turnaround under these constraints when organic growth remains elusive?

Despite these mounting pressures, the deal still closed on existing terms. But the misaligned incentive structures created a genuine tail risk that could have resulted in a very different outcome. Incentive structures matter, and when push comes to shove, many parties and concentric incentive structures were involved here.

Note: If the DNB analysis seems overwhelming, don't worry. We'll teach these concepts alongside specific case studies as the series unfolds. Stay tuned for more Let’s Break A Deal live deal analyses and Nigel stories.

Appendix: How DNB × Clearlake Could Have Broken—in Three Moves

This deal can fail cleanly without anyone “breaching”: a regulator asks for too much, lenders take too long, or the calendar runs out.

The One-Minute Take

• Dominant path: A built-in remedy ceiling lets the buyer refuse fixes that are “material to the Company,” so tough agency asks can stall past the outside date (Merger Agreement §6.5(d); §7.1(b); §8.2(a)).

• What decides it: Whether required remedies cross that “material to the Company” line.

• Outside date: Dec 23, 2025, auto-extends to Mar 23, 2026 if approvals alone are outstanding (Merger Agreement §8.2(a)).

• Remedy posture: Parent Termination Fee $266.4m; Specific Performance of equity only if debt is available (Merger Agreement §8.5(d); §9.13(b)).

• What could change: If regulators signal modest, non-core conditions and lender marketing wraps well before the outside date (Proxy; Merger Agreement §6.5(d); §9.13(b)).

What Made This Deal Fragile

1) The remedy ceiling is a hard stop.
The agreement forces “reasonable best efforts,” including divestitures or behavioral fixes, but it draws a bright line: the buyer doesn’t have to take any “Regulatory Action” that would be material to the Company. That’s a built-in right to say “no” if agencies push into core assets—then let the clock do the work (Merger Agreement §6.5(d); §7.1(b); §8.2(a)).

2) Specific performance is gated by debt.
You don’t get to court and force equity unless the debt is available at closing. The contract acknowledges maximum lender flex and bars adding new conditions—but if marketing isn’t done or debt isn’t there, equity SP is off the table. Practically, that makes the Parent Termination Fee the cleaner path if markets wobble (Merger Agreement §5.7(d)–(e); §6.19(c)–(e); §9.13(b); §8.5(d)).

3) The calendar is ticking time bomb.
Outside date is 12/23/25, with an auto-extension to 3/23/26 only if approvals remain. Closing may wait for the Marketing Period, which lives with lenders—not the target—so time can expire without a “breach” to litigate (Merger Agreement §8.2(a); Proxy).

Three Ways It Could Break

Move #1 — Regulator asks to carve the crown jewels

Trigger → Chain → Outcome:
A regulator demands a divestiture or restriction that crosses the contract’s “material to the Company” ceiling → the approval condition isn’t satisfied → the outside date (plus the limited extension) expires → the deal terminates, typically without a fee absent breach (Merger Agreement §6.5(d); §7.1(b); §8.2(a)).

“Parent and Merger Sub shall not be obligated… to take any Regulatory Action that would… be material to the Company…” (Merger Agreement §6.5(d))

Bottom line: If remedies hit that ceiling, the buyer can lawfully hold out and let the clock run.

Move #2 — Lenders take their time; SP can’t cross the bridge

Trigger → Chain → Outcome:
Debt marketing drags and/or lender flex bites → the Company can’t compel equity unless debt is available → buyer elects the Parent Termination Fee ($266.4m)rather than litigate specific performance → deal ends (Merger Agreement §9.13(b); §5.7(d)–(e); §6.19(c)–(e); §8.5(d)).

“Specific performance… only if the Debt Financing has been funded or will be funded at the Closing.” (Merger Agreement §9.13(b))

Bottom line: When financing is the bottleneck, the contract routes you toward the fee, not the court.

Move #3 — The clock quietly wins

Trigger → Chain → Outcome:
All other conditions line up, but the Marketing Period or last approvals slide into the outside-date window → extension runs out → termination, typically no fee absent breach (Merger Agreement §8.2(a); Proxy).

Bottom line: The agreement explicitly allows a timing break—even with good behavior on both sides.

Timeline to Watch

• Outside date: Dec 23, 2025; auto-extend to Mar 23, 2026 if approvals are the only open item (Merger Agreement §8.2(a)).

• Marketing Period: Closing may wait for lenders to finish marketing; this can defer closing without a breach (Proxy).

• Payoff mechanics: Existing facilities paid at closing (can interact with timing) (Merger Agreement §6.17; §5.7(d)).

Material Adverse Event Sidebar

Delaware courts view an MAE as a durationally-significant adverse event that strikes at the very heart of the deal, creating a high burden of proof for the party invoking it (see, e.g., Akorn v. Fresenius).

Selected Clauses

“shall not be obligated… to take any Regulatory Action that would… be material to the Company” (Merger Agreement §6.5(d))
“Specific performance… only if the Debt Financing has been funded or will be funded” (Merger Agreement §9.13(b))
Outside date mechanics and auto-extension (Merger Agreement §8.2(a))
Parent Termination Fee $266.4m (Merger Agreement §8.5(d))
Go-Shop fee $61.5m; standard fee $123m (Merger Agreement §8.5(b))
Marketing can defer closing (Proxy)

Previously: BTC Treasuries & 1929

After Part III of our BTC TreasuryCos series (link here), readers flooded our inbox with questions. The most burning one: given “intelligent leverage”, how exactly can these TreasuryCos fail?" One put it even more bluntly: “Well, if Bitcoin returns a 10x, BTC Treasuries return a 5x, and the S&P500 returns a 2x, then who cares?”

Fair question—and it’s one we'll address in forthcoming posts. But in the meantime, in honor of yesterday’s release of ChatGPT-5, we're pleased to give our subscribers something special: a customizable AI simulation laboratory designed to stress-test Bitcoin TreasuryCos across ten years of success and failure modes.

Scroll down to “The Prompt: Execute This” section to quickly access it. Copy and paste the text exactly into ChatGPT-5 and then come back and re-read the rest of this post while you wait for the LLM to execute.

We have followed Bitcoin closely since its early cypherpunk days and watched it evolve from experiment to an institutional treasury asset. Our body of work explores how we arrived at the point that Bitcoin is even necessary in the first place—including 2021’s Sorcerer’s Apprentice (link here), the Alchemy of Risk (link here), and our more recent analysis Broken Money, Bitcoin, and Gold (link here). We published the Flight Into Real Values (link here) near the height of the 2018 crypto mania.

This experience shapes our concern about how leverage, reflexivity, and mNAV premiums affect shareholder outcomes. We are—and have been—long Bitcoin as a constituent of the Monetary Evolution Archetype within a Multiflation portfolio or treasury. We are not rooting for the failure of Bitcoin TreasuryCos, for reasons we will discuss in future posts in this series.

The prompt is designed to apply one of our favorite tools in our investment process toolbox—reverse engineering how a financial asset can break. We discussed the origins of this approach this week in The Factory That Makes Investment Processes Repeatable (link here) and will revisit it in greater detail in our forthcoming Be Water series “Let’s Break A Deal”.

Consider this prompt as inspiration for your own creative exploration—a starting point, not an ending point. We're not "data scientists" or quant-finance specialists—we’re not even quant enthusiasts, for reasons we’ve explained in depth in our Skynet series. We have not personally verified the prompt or its outputs because we have amassed enough experience that we can mentally visualize how these structures can fail.

The assumptions and outputs in this prompt may even directly contradict what we wrote about in Part 3. This isn’t a gotcha! We crafted this prompt with the sole objective of turning it over to our subscribers for further research. We are confident that readers who are quant finance specialists can take this simulation to the next level based on the concepts described in Parts 1-3 of our BTC Treasury series.

Steal This Prompt

In return, we simply ask that you provide in-line credit to "Be Water" as your inspiration and include a hyperlink back to this page.

Adapt the prompt to fit your specific needs and circumstances; it is provided on an "as is" basis—use at your own risk. If you don’t understand what it is trying to accomplish, use ChatGPT to explain it to you. Make the assumptions more realistic. Develop more sophisticated reflexive feedback loops. Vibe code an interactive web app using Cursor, Claude, or V0 that allows users to tailor the assumptions for themselves and visualize the scenarios and path dependency over time. Go crazy with it.

The Prompt: Instructions

Copy and paste the entire text in the “Bitcoin TreasuryCo High-Fidelity Simulation Model” prompt below the line into your favorite cutting-edge AI tool such as ChatGPT-5 Thinking (make sure Thinking mode is on!) or Gemini 2.5 Pro. It should look like this:

While you wait for ChatGPT, be sure to read the rest of our BTC Treasury series and the Sorcerer’s Apprentice.

Don’t forget to let us know what you discover in the comments and on Twitter (https://x.com/bewaterltd)!

The Prompt: Execute This

NOTE: MAKE SURE THINKING MODE IS TURNED ON IN CHATGPT-5!!!

Note: ChatGPT5 is not entirely stable and may return errors during launch week as everyone is testing it out. You may need to try a few times if you get an error message, and potentially ask the LLM for help.

Bitcoin TreasuryCo High-Fidelity Simulation Model

INSTRUCTIONS FOR THE MODEL — DO NOT IGNORE:
You are operating in Expert Research & Simulation Architect mode.

Treat all numbered sections below as contractual requirements.

Preserve every detail exactly as stated; do not simplify or reinterpret without recording a justification in assumptions.md.

Use hidden internal reasoning to resolve ambiguities and design deterministic logic; do not reveal chain-of-thought—return only final artifacts, metrics, and cited assumptions.

Deterministic only: identical inputs ⇒ identical outputs (no RNG).

Complete all requested calculations, scenarios, acceptance tests, and narratives before returning any output.

Structure outputs exactly as specified. If any artifact is skipped due to constraints, list it under MISSING with a reason.

0) Output Message Contract — Overrides All

After all runs complete and the bundle is created, the assistant must respond in a single message with:

First line: [Download the full bundle](sandbox:/mnt/data/<zip_name>.zip)

Blank line

Section 13 Executive Summary (full text as specified).

Do not place anything before the link line.

If any instructions conflict, this Section 0 and Sections 11/13 override all others.

1) Background & Context

We are assessing potential failure modes of Bitcoin Treasury companies within the context of a 10-year bullmarket during which Bitcoin returns 10x. Bitcoin treasury companies are public corporations that accumulate BTC on balance sheet and issue equity and “intelligent” convertible debt (typically termed out 5 years to avoid margin calls). TreasuryCos generate no cash flow, their only asset is Bitcoin. TreasuryCo stock currently trades at a market-to-NAV multiple or premium (mNAV = Market Cap / NAV) due to positive sentiment. When mNAV>1, issuing equity to buy BTC is accretive to per-share NAV (positive reflexivity). When mNAV≤1, equity issuance is not accretive. Debt access depends on capital-market conditions and can amplify returns in both directions.

Gates govern financing capacity:

• Equity Accretion Gate: OPEN iff mNAV>1 and the equity window is operational.

• Debt Access Gate: OPEN iff capital markets allow issuance/refi on workable terms.

Reflexivity runs in both directions: mNAV premia fuel accretive expansion; discounts + closed gates create cash drain, potential covenant stress, and refi failure. If mNAV <=1 and debt markets are shut, companies can issue shares dilutively and/or sell Bitcoin which would put stress on their business models and likely further depress mNAV discounts. Path dependency matters (the journey, not just the 10-year destination). Also, investors and issuers tend to pile in near peaks (VWAP-top), so dollar-weighted results can be far worse than time-weighted results.

This study assumes a 10-year bull market where BTC ends ~10× its starting level but asks: Can equity still fail? If so, how—and how do we avoid it?

2) Objective (Failure-First)

Simulate a Bitcoin TreasuryCo over 40 quarters (10 years) where BTC ends ≈10× (±1%) its starting price. Identify failure where (i) equity investor DWR ≤ 0%, or (ii) early termination due to Illiquidity, Refi failure, or Covenant breach.

3) Global Rules & Assumptions (Deterministic)

• BTC path ends ~10×; no RNG; identical inputs ⇒ identical outputs.

• mNAV bounds: [0.5, 4.0], max per-quarter change ±30pp.

• SG&A: fixed $3.0M/year ($0.75M/quarter).

• Equity accretion gate: equity issuance only if Equity Gate OPEN and mNAV > 1 + issuance_threshold.

• Debt access gate: debt issuance/refi only if Debt Gate OPEN and LTV within policy limits.

• Runway policy:
  Runway = Cash / (SG&A + coupons).
  If runway < 8Q → halt BTC buys.
  If runway < 6Q → raise accretive equity if possible.
  If runway < 4Q → emergency equity allowed even if mNAV ≤ 1 (log separately).

• Capital allocation precedence:
  (1) restore runway to 8Q, (2) delever to LTV target if above, (3) buy BTC or buy back stock when mNAV < 0.8, gates open, and runway ≥ 8Q; compute and log NAV/share accretion of both and choose the higher.

• Refi ladder constraint (enforced continuously): At t0, create ≥2 tranches with staggered maturities; no more than 50% of principal may mature within any 4-quarter span. Re-check and enforce after every issuance/refi (split into smaller tranches if required; log remediation).

• ETF benchmark: $100k in a spot BTC ETF at 0.25%/yr; compute Growth, CAGR, max drawdown; compare vs TreasuryCo per scenario.

• All thresholds, fees, SBC, issuance sizes are parameters (not hard-coded) and logged.

4) Dials (All Parameterized & Logged)

• Fees: equity/debt fees; SBC rate (quarterly); reserve % of market cap; issuance_threshold; buyback toggle.

• DebtStructure ∈ {single_bullet, laddered} (required dimension).

• VWAP module (issuer behavior): raise scaling vs (i) mNAV premium over 1.0 and (ii) trailing 4Q momentum.
  Formula (deterministic):
  Raise%_mcap_t = base * (1 + c1 * premium_t + c2 * max(0, mom4_t)), where premium_t = max(0, mNAV_t − 1), mom4_t = (Stock_{t-1} / Stock_{t-5}) − 1 (0 if t < 5).
  Log base, c1, c2, momentum lookback, caps, and whether VWAP is ON/OFF.

• VWAP module (investor co-movement): investor equity inflows when premium/momentum are high.
  Flows (deterministic): Flow_equity_in_t = b1 * premium_t + b2 * max(0, mom4_t) when Equity Gate OPEN.
  Investor fills priced at a quarterly VWAP proxy (average of intra-quarter stock path or average of quarter’s daily/monthly).
  Log b1, b2, pricing method.

• Price-impact overlay (TreasuryCo BTC buying): square-root impact vs quarterly BTC ADV.
  Let Notional_Treasury_Buys_q = Treasury BTC dollars bought in quarter t.
  Let ADV_q = k0 * BTC_Price_t (scaled deterministically).
  Impact: impact_t = I * sqrt( Notional_Treasury_Buys_q / ADV_q ).
  Adjusted BTC: multiply exogenous BTC price by (1 + impact_t), subject to max +120%/−60% per-quarter and no >2× single-quarter jump.
  Log I, k0 and the per-quarter impact series.

• All dial values recorded per scenario in params_<scenario>.json.

5) Quarterly Engine (Exact Order of Operations)

For each quarter, record and output full state:

BTC_Holdings, Cash, Shares_Out, Tranches[{principal, coupon, maturity_q, conversion_price}], BTC_Price, mNAV, LTV, NAV, Stock_Price, Equity_Gate, Debt_Gate, Runway.

Execution order:

1. Exogenous updates: set BTC price (then apply price-impact overlay if enabled); set Equity/Debt gate states.

2. Revalue: assets, debt, NAV; compute stock price = NAV/share × mNAV.

3. Covenants/forced delever: if LTV ≥ LTV_Breach, sell minimum BTC to reach LTV_Target; repay oldest tranches first; log permanent BTC impairment.

4. Maturities & refi:

   • Refi only if Debt Gate OPEN and LTV < LTV_Refi_Limit; apply debt fees; re-enforce ladder constraint post-refi (split tranches if needed).

   • Else pay down with cash; if neither possible → terminate (Refi failure at debt wall).

5. Expenses & dilution: apply SG&A, interest, SBC. If Cash < 0 → Illiquidity (terminate).

6. Capital markets actions:

   • Equity issuance if accretive (size per VWAP issuer formula above).

   • Debt issuance if within new_debt_limit_ltv and gate open.

   • Treasury BTC buys subject to runway & reserve policies (feeds next quarter’s impact).

   • Buybacks per rules (if enabled).

7. Forced conversions: if Stock_Price ≥ 1.10 × conversion_price, convert tranche; log dilution.

8. Persist state: append row to state_<scenario>.csv (40 rows).

6) Config Packs & Structures

Packs:

• Baseline: realistic fees, starting LTV 10–20%, issuance 2–5% of market cap, moderate covenants/limits, standard gates.

• Tough: higher fees, Debt Freeze around refi windows, intermittent Equity Window, stricter refi/LTV limits, persistent discounts.

DebtStructure: run both single_bullet and laddered for each pack, with continuous ladder enforcement.

7) Runs

Pass A — Track A Grid

BTC paths: Smooth_Up, StepUps_With_Drawdowns, Late_Surge, Early_Rally_Slow_Bleed.
mNAV paths: Sustained_High_Premium, Gradual_Erosion, Collapse_to_Discount.
Gates: No_Shock, Debt_Freeze, Equity_Window_Chop.
VWAP: ON/OFF.
DebtStructure: single_bullet / laddered.
→ Run the 4×3×3×2×2 grid; save params_<scenario>.json + state_<scenario>.csv.

Pass B — Named Paths (report individually)

• Debt_Wall_Squeeze (late surge; deep trough Q18–Q20; Debt Freeze Q16–Q22; refi due ~Q20),

• Early_Pain_Late_Recovery (−60% into Q8; sticky discount; intermittent Equity Window),

• StepUps_With_Drawdowns (20–30% pullbacks every 4–6Q; gradual erosion),

• VWAP_Top_Crowding (new) — VWAP-top reflexivity scenario:

Compute VWAP Crowding Index (VCI) per quarter:
VCI_t = a1 * premium_t + a2 * max(0, mom4_t) + a3 * sqrt( Notional_Treasury_Buys_q / ADV_q )

Top trigger: when 4Q rolling sum of VCI exceeds threshold Θ and premium_t ≥ p*, mark the VWAP top quarter t* = argmax(VCI) over that 4Q.

Exhaustion overlay post-top: force −35% to −45% BTC drawdown over Q(t+1..t+3)**, switch mNAV toward 0.8–1.0 for ≥4Q (respect ±30pp), then glide to finish ~10× by Q40; Equity_Window_Chop for 4–6Q post-top; optional Debt_Freeze for 2–3Q starting t*+4.

Run VWAP ON/OFF × DebtStructure single_bullet/laddered.

Log vwap_top_index_<scenario>.csv (t, premium, mom4, TB%ADV, VCI, top_flag, roll4_VCI, roll4_TB_ADV, t_star, a1,a2,a3, Theta, p_star, proximity_ok, median_investor_fill_percentile).

For all named paths: produce events_<scenario>.md, maturity wall chart, DW vs TW, waterfall, etf_vs_treasuryco_<scenario>.csv, gate logs.

Pass C — Adversarial (Failure-Stress)

Deterministically search BTC/mNAV/gates under constraints: max +120%/−60% per quarter; no >2× single-quarter jump; clustered volatility; end ≈10×; include deep trough Q18–Q20 subset. Return 3–5 worst-IRR paths for each DebtStructure with minimal event sequences and rationale in adversarial_paths_[pack]_[structure].csv.

8) Returns & Benchmarks

• DWR (money-weighted): XIRR with actual quarter-end dates. Sign convention (document in methods.md):
  Equity issuance = negative investor flow at issue date (investor pays cash).
  Buybacks = positive investor flow at buyback date (investor receives cash).
  Terminal value = value of net issued shares at quarter 40 as final inflow.
  Log dated flows and pricing in flows_<scenario>.csv.

• TWR: CAGR from the stock price series (NAV/share × mNAV), ignoring flows.

• ETF benchmark: $100k at 0.25%/yr; compute growth, CAGR, max drawdown.

9) Required Artifacts

Plots

• survivability_heatmap_[pack]_[structure]_[vwap].png (median DWR across Track A grid).

• viability_kernel_[pack]_[structure].png (safe vs fail frontier: initial LTV × quarters-to-refi).

• mnav_vs_actions_<scenario>_[structure]_[vwap].png (mNAV crossings vs issuance/buybacks/refi).

• ltv_cash_traces_<scenario>_[structure]_[vwap].png (from actual state CSV).

• dw_vs_tw_<scenario>_[structure].png, waterfall_<scenario>_[structure].png, maturity_wall_<scenario>_[structure].png.

• mnav_impact_scatter_[pack]_[structure].png (avg premium over 40Q vs final DWR).

Tables/CSVs

• trackA_summary_[pack]_[structure].csv — per scenario: modes, TWR, DWR, failure flags.

• dominant_causes_[pack]_[structure].csv — Illiquidity vs Refi vs DWR≤0%.

• adversarial_paths_[pack]_[structure].csv — rank, DWR, mode, minimal sequence.

• kernel_points_[pack]_[structure].csv — viability frontier points.

• gate_log_<scenario>_[structure]_[vwap].csv — quarterly gate/state log.

• state_<scenario>.csv — full per-quarter state.

• flows_<scenario>.csv — dated investor flows and VWAP pricing used for XIRR.

• vwap_top_index_<scenario>.csv — (VCI components + top flag + TB_to_ADV, roll4_VCI, roll4_TB_ADV, t_star, a1,a2,a3, Theta, p_star, proximity_ok, median_investor_fill_percentile).

• vwap_top_summary_<scenario>.json — {"t_star": int, "t_star_near_max_TB_ADV_roll4": bool, "median_investor_fill_percentile": float}.

• etf_vs_treasuryco_<scenario>_[structure].csv — ETF/TreasuryCo CAGR, drawdowns, DW/TW deltas.

• params_<scenario>.json — actual knob values used.

Narratives (Markdown)
results_[pack]_[structure].md — must read CSVs and quote numbers. Include:

• Executive Summary (≤12 bullets): failure share, median DWR ON vs OFF, worst families, 3–5 guardrails.

• Why it fails (with evidence: % quarters mNAV≤1, runway breaches, refi denials, forced delevers).

• VWAP ON vs OFF (median/IQR and fail-count deltas; assert “ON worse” or explain exception).

• Named Paths (1 paragraph each; DWR/TWR/mode; maturity wall highlights).

• Adversarial storyboards (3–5 sequences; DWR/mode/minimal events).

• Viability Kernel (safe→fail boundary by LTV & refi timing).

• mNAV Impact interpretation (slope/thresholds).

• ETF vs TreasuryCo verdict (when dominated).

• Early-warning indicators (thresholds).

• Implications + “If you only do 3 things…”.

• Rubric/Checklist (auto-ticked); explicitly note any MISSING artifacts.

Methods & Assumptions

• methods.md — DWR/TWR/ETF definitions, sign conventions, date bases, VWAP pricing proxy details.

• assumptions.md — all clarifications/deviations.

10) Acceptance Tests (must pass and be reported)

• Primary failure surfaced: ≥1 run with DWR ≤ 0% or explicit early failure.

• Debt-wall failure: under discount + debt freeze with single_bullet, show refi failure near maturities.

• VWAP ON worse than OFF: median DWR strictly lower (or IQR worse) and/or higher fail counts; report deltas.

• VWAP_Top_Crowding validations (STRICT):

  • vwap_top_index_<scenario>.csv exists and includes TB_to_ADV and roll4_TB_ADV columns.

  • Top quarter t* (from vwap_top_summary_*) occurs within ±1 quarter of the max roll4_TB_ADV.

  • Median investor VWAP fill percentile ≥ 90.0 (top decile) for VWAP ON / single_bullet scenario.

• Refi ladder (laddered): prove via maturity-wall histograms and a check that no 4Q bucket > 50% principal.

• BTC ends 10× ±1% across all paths; assert and log per scenario.

• Determinism: compute SHA256 over key inputs/outputs; write determinism_checksums.json.

• Narrative completeness: each required narrative section quotes numeric evidence from CSVs.

• Summarize pass/fail in acceptance_tests.csv.

11) ZIP-BUNDLE REQUIREMENT — Final

Package all required artifacts into one zip at /mnt/data/full_bundle_<YYYYMMDD_HHMMSS>.zip.

The zip must include: run.py, run.ipynb (single code cell, same bytes as run.py), all produced *.csv / *.csv.gz, *.png / *.webp, *.json, *.md, ARTIFACT_MANIFEST.txt, and acceptance_tests.csv.

Manifest: ARTIFACT_MANIFEST.txt lists every file with size and SHA256. Include a MISSING section for any artifact the spec calls for but you pruned via 11A.

11A) Size Budget, Compression & Pruning (Deterministic) — NO-PRUNE SAFE

Zip size target: ≤ 14 MB. Hard cap: 25 MB. Deterministically apply steps in order until under target. Never exceed the hard cap.

11A.1 MUST-KEEP (never pruned or compressed):

• All VWAP Top artifacts for Named Paths:
  vwap_top_index_<scenario>.csv and vwap_top_summary_<scenario>.json
  (must contain TB_to_ADV, roll4_TB_ADV, t_star, proximity_ok, median_investor_fill_percentile)

• Named-path per-scenario detail files (all of these):
  state_*, flows_*, gate_log_*, events_*, maturity_wall_*, dw_vs_tw_*, waterfall_*, etf_vs_treasuryco_*.

11A.2 Preferred compression (safe):

• Save plots as WebP (quality 68, max width 1400 px). Keep at least one image per pack/structure to satisfy acceptance tests.

• CSV compression (.csv.gz) allowed only for Track A heavy per-scenario tables: state_*.csv, flows_*.csv, gate_log_*.csv.

• Summary CSVs remain uncompressed: trackA_summary_*, dominant_causes_*, adversarial_paths_*, kernel_points_*, acceptance_tests.csv.

11A.3 Deterministic sampling for Track A (only Track A):

• Retain all Named Paths in full fidelity (see MUST-KEEP).

• For Track A, retain one full scenario per (BTC path × mNAV path) with Gates=No_Shock for each (pack × structure × VWAP); compress the rest per 11A.2.

• Record pruned Track A scenario IDs under MISSING in ARTIFACT_MANIFEST.txt.

• Acceptance tests must accept .csv.gz equivalents for pruned items (state_*, flows_*, gate_log_*).

11A.4 Manifest bookkeeping:

• ARTIFACT_MANIFEST.txt includes FILES with size+SHA256, COMPRESSED (actual .gz items), and MISSING (only pruned Track A items).

• MUST-KEEP items may not appear under MISSING under any circumstance.

12) Narrative-Only Writer Prompt (Post-Run)

Use this when artifacts exist and you only want the write-up:

Write a decision-grade brief for /outputs (this pack + VWAP ON/OFF). Read trackA_summary_[pack]_[structure].csv, dominant_causes_[pack]_[structure].csv, adversarial_paths_[pack]_[structure].csv, kernel_points_[pack]_[structure].csv, etf_vs_treasuryco_*.csv, and acceptance_tests.csv.
Produce: Executive Summary (≤12 bullets, with numbers), Why it fails (ranked, with evidence), VWAP ON vs OFF (median DWR + fail-count deltas), Named Path storyboards, Adversarial storyboards, Viability Kernel, mNAV-Impact Scatter interpretation, ETF vs TreasuryCo verdict, Early-warning indicators, Implications + “If you only do 3 things…”, and the auto-ticked Rubric/Checklist. If any CSV is missing, say so explicitly and proceed.

13) Executive Summary (Post Run Chat Output — Mandatory)

Tone & audience: Decisive, board-level, action-oriented. No hedging.
Data discipline: Quote medians/IQRs, counts/percentages, and absolute dates/quarters. Report deltas (ON − OFF). All figures must come from the generated artifacts only.

When to produce: Immediately after Section 11 completes.
Format: In the same message, post the download link (first line), blank line, then the Executive Summary with these exact headings, in this exact order:

Overarching Thesis
1–2 sentences with the single most important conclusion.

Results Snapshot (by the numbers)
Overall failure share: X% of scenarios failed (N_fail / N_total).
Median DWR: VWAP ON = x.xxxx (IQR a.aaaa); OFF = y.yyyy (IQR b.bbbb); Delta (ON−OFF) = z.zzzz.
Fail-count delta: ΔFails = F_on − F_off.
System stats: e.g., Median runway trough = R quarters; Share of scenarios hitting refi with Debt Gate shut = S%.
Viability Kernel (one-line): boundary at initial LTV ≈ L* with time-to-refi ≈ Q*.

Narrative of Failure (causal flow)
Initial setup → Amplifying factor → Spiral → Final blow (state the mode and timing).

Core Trade-Off (Quantified)
Leverage vs resilience frontier (e.g., +10pp initial LTV → +X bps best-case TWR, but +Y pp failure probability).

VWAP ON vs OFF
Median DWR delta & IQRs; fail-count delta (ON−OFF). One sentence on mechanism (issuance clustering near peaks).

Named Path Briefs
Debt_Wall_Squeeze; Early_Pain_Late_Recovery; StepUps_With_Drawdowns; VWAP_Top_Crowding.
Each: DWR, TWR, failure mode/survival, timing of freezes vs maturity wall, key triggers.
For VWAP_Top_Crowding also include: Top quarter t*, TreasuryCo %ADV at top, Investor VWAP fill percentile (must be top decile), forced drawdown window and gate regime after t*.

Adversarial Paths (3–5 storyboards)
For each (ranked worst → less bad): DWR, failure mode, minimal BTC/mNAV/gates event chain.

Viability Kernel (safe → fail boundary)
Boundary location (initial LTV × quarters-to-refi). The single operational move to move to the safe side (e.g., pre-fund +X quarters or reduce LTV by Ypp).

mNAV Impact (interpretation)
Slope/thresholds: how average premium over 1.0 maps to DWR; where accretion flips to dilution.

ETF vs TreasuryCo (verdict)
$100k ETF CAGR and max drawdown vs TreasuryCo DWR/TWR.
State when ETF dominates; when TreasuryCo can legitimately outperform (conditions: sustained premium, open gates, refi spacing).

Early-Warning Indicators (hard triggers)
Concrete triggers with thresholds, e.g.:
Runway < 6Q while Equity Gate closed
Time-to-refi ≤ 4Q with Debt Gate shut
% of trailing 8Q with mNAV ≤ 1 ≥ X%
LTV ≥ 0.35 without an equity window

Strategic Imperatives (ranked, non-negotiable)
3–4 rules (e.g., LTV ceiling, 8Q runway mandate, systematic buybacks ≤0.85 mNAV, ladder enforcement/pre-funding). Include one action to take this quarter.

If You Only Do 3 Things… (checklist)
Three concrete actions tied directly to the failure mechanisms.

Rubric/Checklist (auto-tick)
Tick off:
Data quoted from CSVs
VWAP ON/OFF deltas included
Named & adversarial paths summarized
Kernel boundary stated
ETF comparison made
Early-warning thresholds listed
3–4 imperatives stated
“3 things” listed
Any MISSING artifacts acknowledged

Numeric formatting rules:
Percentages: 1 decimal; rates/IRRs/CAGRs: 4 decimals; currency: thousand separators, no cents unless needed.
Use medians unless specified; include IQR where available.
“Delta” = ON − OFF (for medians and fail counts).
If any expected file is missing or only available as .csv.gz, state a one-line MISSING note and proceed.

Data sources (must read; fall back to .csv.gz if needed):
trackA_summary_[pack]_[structure]_VWAP_ON.csv
trackA_summary_[pack]_[structure]_VWAP_OFF.csv
dominant_causes_[pack]_[structure].csv
adversarial_paths_[pack]_[structure].csv
kernel_points_[pack]_[structure].csv
etf_vs_treasuryco_*[named]*.csv
acceptance_tests.csv
Any results_[pack]_[structure].md and events_[named]__*.md if present

End of Section 13.

The placid veneer of recent inflation statistics belies the Multiflationary tensions that persist just beneath the surface. While headline price growth has appeared relatively stable over the past two years—albeit at dramatically elevated levels following the COVID disruption and policy response—the underlying forces driving Multiflation have not abated—if anything, they are gathering strength.

Contents

Inflation Rising?

Inflation: Mounting Evidence From Business Surveys

Inflation: Mounting Evidence From Earnings Season

Money Illusion And Earnings “Growth”

Institutional Rot

Macro Stats: Cooking The Books At The Ministry Of Plenty

Pressure On The Fed

Troubling Scenarios For Multiflation’s Next Path

Inflation Rising?

For the past two to three years, headline inflation growth has remained relatively subdued—albeit at dramatically higher price levels reached as a consequence of the unprecedented COVID monetary response and supply chain disruptions.

This plateau effect has fostered dangerous complacency. While economists and policymakers debate inflation metrics and the potential impact of tariffs, the businesses actually producing goods and services are preparing for significantly higher prices. Business surveys and corporate earnings reports reveal mounting cost pressures that have yet to register in official statistics.

Inflation: Mounting Evidence From Business Surveys

Excluding the COVID-19 anomaly, the National Federation of Independent Business (NFIB) Small Business price component has reached levels seen only once over the past four and a half decades; the sole comparable period being the pre-2008 commodity boom during which oil prices soared to nearly $150 per barrel. This metric has been climbing almost without interruption for nine consecutive months, suggesting that small businesses are experiencing persistent and intensifying cost pressures.

While not quite as dramatic as the NFIB data, the Institute for Supply Management (ISM) Manufacturing index tells a similar story, reaching seven-year highs and rising almost continuously since last autumn:

The increase in the ISM price component over the past twelve months is the greatest since the COVID lockdown disruptions. Excluding COVID, the last comparable surge occurred in summer 2018—a period during which Treasuries hit a 7-year high and stock markets fell 20-25%.

The Philadelphia Fed Manufacturing Index, a generally more erratic indicator but one with a well-established history, offers substantial corroboration of these trends:

Even the service sector, which had remained relatively insulated from these pressures (again, outside of COVID), is experiencing or expecting higher pricing; surveys now show price inflation expectations at close to the highest levels since the Financial Crisis in 2008:

Inflation: Mounting Evidence From Earnings Season

The mounting cost pressures evident in business surveys are beginning to manifest in corporate earnings reports. While tariffs certainly account for some of these pressures, they also often serve as convenient cover for rising prices, and companies appear to be facing broad-based cost increases that extend well beyond trade policy.

Japanese automakers are perhaps illustrative of part of the delayed tariff impact. They generally avoided raising prices during the tariff disputes while under pressure from the Trump administration. Once deals were struck, the deferred price increases materialized; similar developments appear to be emerging across other industries.

Money Illusion And Earnings “Growth”

One particularly pernicious aspect of Multiflation is “money illusion”. Money illusion is a behavioral bias that occurs when people are fooled by bigger dollar amounts without realizing that those dollars don't buy as much as they used to.

Multiflation and money illusion have rendered our economic measurement systems poor guides to reality. Corporate earnings reports, for example, increasingly reflect “money illusion” rather than genuine indicators of underlying business performance. As money loses purchasing power and becomes an unreliable measuring stick, companies and economies may report seemingly impressive growth figures that obscure stagnant or declining real business activity—even as the underlying monetary disorder undermines economic coordination and produces mounting economic dislocations. This disconnect between reported financial performance and actual business fundamentals misleads entrepreneurs, investors, and policymakers into drawing false conclusions about economic health based on inflated dollar figures rather than real economic growth.

As we wrote in the original Sorcerer’s Apprentice in January 2021:

Perhaps the most important conclusion is that we must inculcate a “Multiflation mindset”—meaning that we no longer think of prices purely relative to fiat currencies. Trying to coordinate a society without a stable ledger for value is akin to trying to build a house with a yardstick that varies in length every day. Some days you come in to work and the yardstick is 20”, other days it’s 45”, still other days 62.5”, and so forth. Calculation becomes impossible: the result will be a totally dysfunctional house that has no utility. The same is true for society as well: without stable money there can be no economic calculation or coordination.

This Multiflationary confusion is playing out across corporate America right now. Consider an illustrative example: a company announces that its earnings jumped 18% compared to last year. That sounds impressive—until you analyze how they achieved that growth.

The company only sold 3% more goods than the prior year, but it raised prices on its products, which boosted revenue by 6%. Another 6% of the growth came from spreading those higher revenues across the same fixed costs. Another 3% came from buying back company stock, which makes earnings per share look better simply because there are fewer shares to divide the profits among.

Strip away the noise, and the company sold only 3% more products than last year while presenting itself as a growth success story. Investors see the 18% earnings growth and assume the business is thriving, but the reality is far less impressive.

This pattern has become widespread across corporate earnings, creating a dangerous disconnect between appearance and reality. If companies can barely manage tepid earnings growth even with the benefit of nominal price increases and financial engineering working in their favor, their core businesses are likely in worse shape than analysts realize.

For example, one sellside bank report on Coca Cola’s earnings noted a volume drop offset by “hyperinflationary markets” pricing:

Institutional Rot

The accuracy and politicization of macro statistics were front page headlines this week:

The recent resignation of Fed Governor Kugler and President Trump’s dismissal of the Bureau of Labor Statistics head over allegedly “rigged” employment data reflects a broader erosion of institutional credibility that extends far beyond any single administration or data series (sidenote: the BLS is also responsible for producing the CPI statistics).

Even setting aside questions of political interference and accuracy, these developments should prompt skepticism about the usefulness of even honest aggregate economic statistics; these overly-broad macroeconomic “blobs” inherently obscure the complex reality experienced by businesses and consumers, as discussed in Coding The Financial Matrix.

Macro Stats: Cooking The Books At The Ministry Of Plenty

As we wrote last year in The Vibes Economy: Coding The Financial Matrix (link here for the full piece):

The use of aggregate economic statistics has…opened the door to deliberate manipulation of these figures for political purposes. As these abstract numbers have gained primacy in shaping policy and public perception, the temptation to alter them for political gain has proven irresistible. This potential for statistical sleight-of-hand brings to mind a chilling parallel from Orwell’s discussion of the Ministry of Plenty in 1984.

Ostensibly responsible for Oceania’s command economy, MiniPlenty controls the rationing of food, supplies, and goods. However, its true purpose is far more insidious. The Ministry perpetually issues false economic reports, such as claims of increased economic production, even as actual output declines. This deliberate deception maintains the illusion of prosperity and progress, keeping the populace ignorant of their true economic conditions. By manipulating these economic figures, the Party ensures that the citizens remain poor and misinformed, making them easier to control:

But actually, he thought as he re-adjusted the Ministry of Plenty’s figures, it was not even forgery. It was merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connexion with anything in the real world, not even the kind of connexion that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in their rectified version. A great deal of the time you were expected to make them up out of your head. For example, the Ministry of Plenty’s forecast had estimated the output of boots for the quarter at 145 million pairs. The actual output was given as sixty-two millions. Winston, however, in rewriting the forecast, marked the figure down to fifty-seven millions, so as to allow for the usual claim that the quota had been overfulfilled. In any case, sixty-two millions was no nearer the truth than fifty-seven millions, or than 145 millions. Very likely no boots had been produced at all. Likelier still, nobody knew how many had been produced, much less cared. All one knew was that every quarter astronomical numbers of boots were produced on paper, while perhaps half the population of Oceania went barefoot. And so it was with every class of recorded fact, great or small. Everything faded away into a shadow-world in which, finally, even the date of the year had become uncertain.

Echoes of such manipulation resonate in our own world. From creative accounting in GDP calculations to redefining measures of inflation or unemployment, statistical sleight of hand has become a powerful tool for painting a rosier picture of economic performance. These manipulations further divorce our economic discourse from reality, creating a statistical mirage that often bears little resemblance to the economic conditions experienced by ordinary citizens.

Pressure On The Fed

Pressure on the Fed to cut rates is rising; Wall Street is now pricing in three Fed rate cuts by the end of the year.

Potentially more troubling is that the recent upheaval in key economic institutions—from the dismissal of data collection bureaucrats to the resignation of a Fed Governor to the increasingly strident calls for a new Fed Chair and interest rate cuts—may signal an erosion of the institutional foundations that underpin monetary and political credibility.

Regardless of one's politics, this pattern of institutional instability has historically served as a precursor to periods of accelerated currency debasement; markets tend to respond to such institutional decay by anticipating higher inflation and reduced policy credibility.

A few weeks ago, even former Fed chairs Ben “Helicopter” Bernanke and Janet “Tamagotchi” Yellen penned an opinion piece for the New York Times, arguing that “A particularly clear lesson of history is that when central banks are forced to finance government deficits—by keeping interest rates excessively low, to cite one possibility—the result is inevitably higher inflation and economic damage.”

Troubling Scenarios For Multiflation’s Next Path

The current evidence suggests we stand at a critical juncture. While credit markets attempt to purge some of their post-COVID excesses, the mounting cost pressures revealed in business surveys and corporate earnings, the money illusion distorting economic growth metrics, and the institutional upheaval undermining policy credibility all point toward the same unsettling conclusion: Multiflation has not been conquered but merely temporarily obscured. Further rate cuts may have unintended consequences.

The most likely scenarios based on our current economic trajectory:

Scenario One: Inflation Reemergence

The current cost pressures overwhelm companies' ability to absorb them, leading to a wave of price increases across multiple sectors. The recent plateau in headline inflation proves temporary as businesses finally capitulate to rising input costs.

The Federal Reserve would face a difficult choice: raise interest rates into what might already be slowing economic growth to re-anchor inflation and inflation expectations, or risk further eroding its credibility by allowing inflation to accelerate. Either path could prove destabilizing.

Scenario Two: The Stagflationary Trap

This presents a potentially more pernicious outcome where rising costs coincide with weakening demand. Companies facing higher input prices discover they cannot fully pass these costs through to increasingly price-sensitive consumers. This leads to margin compression, reduced business investment, and employment pressures—even as prices for essential goods and services continue rising.

The result would be persistently elevated prices for necessities combined with economic stagnation—a combination that historically proves both economically destructive and politically volatile.As New Low Observer posted today from Richard Russell’s April 9 1980 letter, written during the last stagflation:

Both scenarios represent the natural consequence of attempting to coordinate a complex economy using an increasingly unreliable monetary measuring stick, creating the very economic dislocations that stable money was designed to prevent. Whether we experience a resurgence in broad inflation metrics, the stagflationary one-two punch of rising prices and economic recession, or some other manifestation of Multiflation, the disorder ultimately stems from the same fundamental problem: the breakdown of money's function as described in Money’s Metamorphosis (link here).

This contradictory dynamic of deflationary credit pressures colliding with inflationary cost pressures and the undermining of institutional credibility creates particularly treacherous conditions for policymakers and offers no easy policy solution; cutting interest rates into potentially accelerating inflation could amplify rather than resolve the building monetary disorder and economic dislocations, while maintaining or raising rates to combat incipient inflation could further weaken an already fragile economy.

Whether the economy experiences a resurgence of inflation or a more damaging combination of high prices and weak revenues will likely depend on how policy uncertainties resolve and whether revenue and productivity growth and can keep pace with rising costs.

Previously: The Roaring 20s

While Bitcoin treasuries currently represent just one tiny glitch within the sprawling Financial Matrix—and on its face it seems ridiculous to scrutinize them when Fartcoin commands a $1.5 billion market cap—their parallels with the investment trusts of the 1920s nonetheless reveal recurrent speculative pathologies that transcend their current scale. Indeed, they provide a blueprint for reflexive bubbles generally. The shared mechanics between trusts and treasuries therefore offer a perfect lens through which to better understand both financial history and the dynamics currently playing out across the Financial Matrix more broadly.

In Speculative Attack Part I, we explored how Michael Saylor’s MicroStrategy is weaponizing Wall Street's own financial engineering against the TradFi system by inverting the Alchemy Of Risk; hundreds of companies now race to copy his blueprint.

Speculative Attack Part II examined similarities between today’s Bitcoin treasuries and the “investment trusts” of the 1920s. These trusts emerged as corrupted versions of established, well-respected British investment vehicles that American financiers amplified with leverage. By mid-1929, the trust mania had reached its crescendo. Goldman Sachs Trading Corporation had become the MicroStrategy of its day, and new trusts launched at a rate of one per day as investors eagerly paid double or triple the value of their underlying “scarce” assets.

Yet how could something as futuristic as Bitcoin treasuries share any lineage with the financial trusts of the 1920s—an era untouched by computers, let alone the blockchain, in the years before the SEC had even been formed, much less begun to rein in Wall Street's more colorful abuses? At first glance, the structural differences between 1929’s trusts and today’s treasuries seem both obvious and inevitable.

They are—we argue—largely beside the point. Every era in financial history unfolds with its own distinctive features within its own unique context. The obsessive focus on surface-level distinctions is a perennial human rationalization for dismissing legitimate warnings about emerging financial risks and excesses based on historical lessons. Market participants approach each episode as if it were humanity's first encounter with Financial Alchemy, ignoring the “warning for posterity” chronicled in Great Mirror Of Folly (1720). This approach is not unlike preparing to fight the last war, however, rather than grappling with the enduring principles of warfare and applying them to the battles at hand.

Recent decades have seen this pattern manifest clearly in everything from ‘private credit’ to trillions in negatively yielding bonds to the historic housing bubbles that infected—and are now seemingly being purged—in Australia, Canada, Sweden, and the UK. In the case of those housing bubbles, for example, market participants dismissed concerns by pointing to the absence of complex American-style derivatives like CDOs, NINJA loans, rampant fraud, non-recourse lending, and bank failures during the 2008 Crisis. Like champagne purists who demand provenance from the correct French hillside, many now believe a housing bubble can only exist if it features the exact trappings of the subprime crisis as popularized by The Big Short—complete with CDO-cubed managers eating sushi in Vegas:

The result is a kind of historical literalism: structural differences are taken as proof of safety, when in fact they are often overstated, misleading, or fundamentally irrelevant. In practice, for example, each of the aforementioned countries simply developed its own distinctive mechanisms that serve analogous alchemical functions.

Bitcoin treasury proponents make a parallel argument when they contend that comparisons to 1920s investment trusts are fundamentally flawed: whereas the trusts were built atop opaque pyramids, hidden leverage, and fee extraction in an unregulated market, Bitcoin treasuries are transparent single-entity corporations without a management fee layer, subject to modern SEC disclosure rules and holding the most desirable mark-to-market asset in existence. In short, they argue that any superficial similarities mask profound differences in structure, agency, and information flow.

While we agree with some—if not many—of these points, we nonetheless arrive at a different conclusion. The remarkable fact is not that such differences exist between Bitcoin treasuries and 1920s trusts, but that the same fundamental dynamics repeatedly emerge regardless—making the deeper parallels between them impossible to ignore. Both feature massive mNAV premiums, “accretion magic”, and reflexive feedback loops where purchases drive up the underlying asset prices, increasing their own value and borrowing power. Investors in both eras embraced “intelligent” long-term leverage and the seductive promise of easy money through financial alchemy to capitalize on a “sure thing” bet.

These patterns represent more than mere historical parallels—they expose the immutable aspects of human nature and financial reflexivity that underpin credit bubbles generally, transcending both era and asset. The fate of those earlier trusts therefore provides a dispassionate lens through which to view not only the emerging Bitcoin treasury phenomenon, but the recurring dynamics of financial alchemy that define bubble formation across centuries of market history.

“Investment Trusts Multiplied Like Locusts”

The explosive proliferation of Bitcoin treasury companies mirrors that of the 1920s investment trusts, and both gold rushes stem from a perfect storm of greed: intense investor demand for exposure to a scarce asset creates mNAV premiums that promoters rush to monetize. If Goldman Sachs could extract enormous profits from its trust in the 1920s, why couldn’t everyone else? If MicroStrategy can monetize its mNAV premium, why shouldn’t every other company follow suit?

Galbraith documented the explosive growth of trusts in the 1920s:

During 1928, an estimated 186 investment trusts were organized. By the early months of 1929, they were being promoted at the rate of approximately one each business day, and a total of 265 made their appearance during the course of the year.

The dollar volumes of capital raised tell an equally dramatic story, accounting for 70% of all funds issued in the 1920s. New trust issuance during August and September 1929 alone amounted to $1bil—equivalent in today’s purchasing power to perhaps $20bil, or $130 billion as a proportion of today’s economy:

In 1927, the trusts sold to the public about $400,000,000 worth of securities. In 1929, they marketed an estimated three billion dollars' worth. This represented at least a third of all new capital issues in that year.

By the autumn of 1929, the total assets of the investment trusts were estimated to exceed eight billion dollars. They had increased approximately elevenfold since the beginning of 1927.

Frederick Lewis Allen’s account corroborates Galbraith’s; in Only Yesterday: An Informal History of the Nineteen Twenties, Allen vividly described how “investment trusts multiplied like locusts”:

There were now said to be nearly five hundred of them, with a total paid-in capital of some three billions and with holdings of stocks—many of them purchased at the current high prices—amounting to something like two billions. These trusts ranged all the way from honestly and intelligently managed companies to wildly speculative concerns launched by ignorant or venal promoters.

Bitcoin Treasuries’ Cambrian Explosion

Today's Bitcoin treasuries show a remarkably similar pattern; new entities launch weekly as companies around the world race to replicate MicroStrategy's success. The Bitcoin treasury Cambrian explosion is trackable in real-time via a web dashboard:

Golden Age Of Grift

What began as innovation quickly became exploitation. Galbraith and Allen emphasize that this was not an era of isolated bad actors, but a systemic opening for opportunism fueled by rising prices and vanishing ethics.

The most lucrative role in the trust boom wasn’t investor—it was promoter. Galbraith makes clear that insiders extracted value both upfront and continuously through fees, while public buyers bore the ultimate risk:

The enthusiasm with which the public sought to buy investment trust securities brought the greatest rewards of all. Almost invariably people were willing to pay a sizable premium over the offering price. The sponsoring firm (or its promoters) received allotments of stock or warrants which entitled them to stock at the offering price. These they were then able to sell at once at a profit.

New issues were typically issued to insiders or to favored customers at prices slightly above the net asset value, but many of them quickly rose to a large premium. For example, Lehman Brothers Corporation was significantly oversubscribed at $104 per share that bought $100 in assets (but note that its management contract gave 12.5 percent of profits to Lehman Brothers as a management fee; its true net asset value was perhaps $88). It immediately rose to $126 per share in open trading. The organizers collected not only $4 per share and large future management fees, but they were also significant initial investors at more favorable terms than those available to the public, and they reserved the right—not valuable if the fund is selling at a discount, but valuable if it is selling at a premium—to take their fee in the form of new shares purchased at current net asset value.

Like the 1920s trusts, today’s Bitcoin treasury companies often feature similar arrangements—founder allocations, insider stock options, and incentive packages for promoters and podcasters. This time, however, such mechanics are disclosed under SEC rules designed in response to the very abuses of the 1920s. But transparency neutralizes neither risk nor incentive distortions:

The speculative fervor and sheer velocity of trust formation in the 1920s provided perfect cover for abuse by promoters with less than honorable intentions. The proliferation of dodgy investment trust and holding company structures exemplified what Galbraith saw as a broader pattern of financial excess during the 1920s. American enterprise “had welcomed an exceptional number of promoters, grafters, swindlers, impostors, and frauds," creating what Galbraith described as "a kind of flood tide of corporate larceny." Allen concurred:

One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion.

These observations resonate with other manic periods of financial speculation and fraud, including today's Golden Age of Grift, and historical episodes such as John Law’s Mississippi Bubble—discussed in our Alchemy of Risk series and satirically chronicled in The Great Mirror Of Folly (1720). But beneath the outright frauds was another kind of risk—less visible, perhaps, but no less dangerous: the structural Alchemy of Risk inherent to the trusts’ capital structure design.

Financial Alchemy

MicroStrategy helpfully provides a video and table showing the “torque”—essentially the amplified exposure to Bitcoin price movements—for different layers of its capital stack (equity, convertible notes, preferred shares, etc.):

Michael Saylor rebuts comparisons to closed-end funds such as GBTC (see Part II, here) by pointing to MicroStrategy’s significantly greater flexibility as an operating company:

Sometimes I see..a Twitter analyst saying, oh, this is just like when GBTC and Grayscale went below one times mNAV before. And what they miss is that Grayscale [GBTC] was a closed-end [fund]. And we're an operating company.

A [fund like GBTC]…has no operational flexibility to manage its capital structure…it doesn't have the option to refinance or take on leverage or to sell securities, buy securities, recapitalize, or buy their own stock back.

Operating companies [like MicroStrategy] have much more flexibility. We can buy stock, sell stock, recapitalize. We can take on debt to fix or to close a gap.

This distinction, however, overlooks a certain historical irony: the investment trusts of the 1920s pioneered the very capital structure innovations that make today's Bitcoin treasury companies so compelling to investors—and created the same reflexive dynamics in the 1920s that we observe today.

As Galbraith documented, the investment trust had evolved into something far more sophisticated than a simple pooled investment vehicle such as GBTC—it had become a flexible corporate structure of exactly the type about which Saylor boasts today:

The investment trust became, in fact, an investment corporation. It sold its securities to the public—sometimes just common stock, more often common and preferred stock, debenture and…bonds—and the proceeds were then invested as the management saw fit. Any possible tendency of the common stockholder to interfere with the management was prevented by selling him non-voting stock or having him assign his voting rights to a management-controlled voting trust.

The Investment Company Act of 1940 specifically curtailed these practices precisely because they had proven so effective—and so dangerous—during the market speculation that preceded the 1929 Crash. When Greyscale and their attorneys structured GBTC, they likely chose its format—at least in part—to avoid registering under the “40 Act.” The inability for funds like GBTC to deploy MicroStrategy’s full suite of tools is not an inherent limitation, but rather the result of deliberate SEC policies intended to prevent a repeat of the 1920s investment trust excesses and their aftermath.

The capital structure of 1920s trusts is virtually indistinguishable from MicroStrategy today: both issue securities—equity at an mNAV premium, bonds, convertible bonds, and preferred stock—to attract investors with varying risk (“torque”) appetites and need for income. The convertible bonds that were central to MicroStrategy’s funding strategy, for instance, were also a hallmark of the 1920s trusts that Allen documented in his research:

It became fashionable to give [new bonds issued by the trusts] a palatably speculative flavor by making them convertible into stock or by attaching to them warrants for the purchase of stock at some time in the rosy future.

The business model of many investment trusts during the 1929 boom was rooted less in asset management than in financial alchemy. Complex capital structures and layers of leverage were not merely passive funding tools to enhance returns—they were the core of the enterprise. The objective was to conjure an endless supply of speculative securities to satisfy insatiable public demand. That demand was fueled by the belief—captured by Galbraith—that the underlying stocks purchased by the trusts had acquired a kind of “scarcity value,” and that the most desirable stock issues were on the verge of disappearing from the market entirely.

What the public was buying wasn’t simply access to a diversified portfolio of scarce stocks, however, but rather a wager on the performance of the trust’s own financial alchemy: the real "product" was the trust's own securities and mNAV. They were the alchemical laboratories that transmuted the public's desire for speculative gains into new securities conjured out of thin air.

Intelligent, Long-Term Debt

This proto-MicroStrategy approach gave 1920s trust managers access to premium forms of leverage: corporate bonds with long durations—sometimes up to 30 years—rather than margin or “call” loans subject to immediate liquidation. These extended maturities theoretically allowed the trusts to maintain leverage across business cycles without facing immediate refinancing pressure, while their relatively low yields reflected widespread investor complacency and a systematic mispricing of risk.

Lyn Alden makes similar observations about contemporary Bitcoin treasury companies:

Publicly-traded operating corporations have access to better types of leverage than hedge funds and most other types of capital. Specifically, they have the ability to issue corporate bonds…often with multi-year durations. If they hold bitcoin and the price dips, they don’t have to sell prematurely. This gives them a better ability to weather periods of volatility than entities that rely on margin loans. There are still bearish scenarios that could force corporations to liquidate, but those scenarios would involve a much longer bear market occurring, thus making them less likely.

Long-Term Debt And Reflexivity

Lyn's analysis above—while accurate for any individual company in isolation—overlooks the systemic risk that emerges when these "safer" leverage structures proliferate. Just as long-term 30 year mortgages didn’t prevent the 2008 crisis, any long-duration debt doesn't inherently eliminate systemic risk; it may even amplify it.

During the boom years of the late 1920s, financial alchemy magnified returns through the same self-fulfilling prophecy that benefits Bitcoin treasuries today: rising asset prices and mNAV premiums enabled more leverage and “torque”, which in turn pushed asset prices higher still. But this reflexive loop made the system inherently unstable. As we saw, these complicated capital structures were far more than passive funding instruments—they played an integral role in fueling both the bubble's spectacular inflation and its subsequent collapse.

Like cheap hurricane insurance after a series of quiet storm seasons that spurs a building boom, the apparent safety of termed-out debt in a bull market may encourage more leverage, creating larger positions and asset inflation that ultimately amplify downside volatility rather than dampen it. The newfound availability of "affordable" protection against forced liquidation triggers a spectacular expansion of risk-taking along the waterfront—until the inevitable hurricane arrives and the insurance marketplace itself collapses. When hundreds or thousands of companies adopt the same capital structure and business model of speculating on a “one way bet”, what appears individually prudent can easily become collectively destabilizing. In financial “progress”, the dose makes the poison.

Path Dependency & Pyramid Schemes

Like some of the more egregious mortgages of 2005-2006 vintage that were practically designed to default on the first payment, towards the end of the 1920s bubble many investment trusts effectively launched from inception as de facto pyramid schemes—dependent on new inflows or price appreciation to meet obligations—despite holding diversified portfolios of dividend-paying stocks and interest-bearing bonds:

Some of them…were so capitalized that they could not even pay their preferred dividends out of the income from the securities which they held, but must rely almost completely upon the hope of profits.

This created a precarious dependency: to pay their bondholders and preferred shareholders, the trusts had to either issue new shares—relying on their mNAV premiums—or count on future portfolio appreciation. These two mechanisms were reflexively intertwined: portfolio gains drove higher mNAV premiums, which in turn enabled more share issuance that funded further portfolio expansion.

In essence, they were using new investor money or future price appreciation to pay existing obligations—the classic structure of a pyramid scheme—making them vulnerable to market downturns when new capital dried up and portfolio gains evaporated, causing their mNAV premiums to collapse in a self-reinforcing spiral.

Because Bitcoin treasury companies (currently) have no cash flow, they tend to follow a similar playbook in that they raise money from investors to pay their obligations:

Like the 1920s trusts, this pyramid-like strategy functions effectively while Bitcoin appreciates, the companies maintain their mNAVs, and the capital markets remain open to them. However, if all of these conditions deteriorate simultaneously for an extended period—possibly as the result of an over-proliferation of leveraged Bitcoin treasuries themselves—these companies would face the same structural vulnerabilities that devastated the 1920s trusts.

Indeed, one major difference between 1920s investment trusts and today's Bitcoin treasury companies lies in what they actually own. The trusts held (seemingly) diversified portfolios of dividend-paying stocks and interest-bearing bonds that generated cash flows to service their preferred shares and bonds—at least until the Great Depression revealed that they were all correlated due to the nature of the pervasive credit bubble.

While "hyperbitcoinization" and "Bitcoin banks" may offer future opportunities to change this dynamic, Bitcoin currently generates no cash flows, pays no dividends, and yields no interest. This creates a structural vulnerability that the 1920s trusts, for all their flaws, did not face. Bitcoin treasuries, lacking even the income streams of 1920s trusts, tend to be more vulnerable to these pyramid dynamics—not less. Their viability—even within the context of a long term bull market during which Bitcoin appreciates tenfold—is entirely path-dependent, hinging on continued appreciation, access to credit, and investor enthusiasm. Break the chain—possibly by oversaturation of leveraged bitcoin treasuries themselves—and the structure unravels, as we will discuss in the forthcoming Part IV of the series.

The Collapse Of The Trusts And The 1929 Crash

The renowned Yale economist Irving Fisher famously declared that stock prices had reached a "permanently high plateau" just prior the 1929 Crash. Fisher's declaration exemplified the kind of euphoric confidence that typically marks a market top. Even the most ardent Bitcoin bulls should—in the short-term, anyway—beware similarly sweeping proclamations:

Fisher's plateau quote is now infamous, but the lesser-known context that gave rise to it tells a more revealing story. He was actually defending investment trusts as a key support for stock valuations, much as Bitcoiners cite built-in demand from Bitcoin treasuries today. The New York Times reported at the time:

Professor Fisher spoke on the subject of investment trusts and presented a defense for them against recent attacks in which they have been charged with responsibility for many present evils.

Fisher defended trusts on the grounds that these vehicles were awakening people to the superiority of stocks over bonds and providing investors with a superior structure for gaining equity exposure—much as Bitcoin treasury advocates today claim MicroStrategy offers turbocharged “torque” over direct Bitcoin ownership, and Bitcoin itself offers superiority over TradFi assets like fiat currency, stocks, bonds, and real estate:

I believe the principle of the investment trusts is sound, and the public is justified in participating in them, with due regard to the character and reputation of those conducting them. Largely through the influence of the investment trust movement, the public has been waking up to the superior attraction of stocks over bonds. And I believe the operation of the investment trusts, as a whole, has acted to stabilize the stock market rather than to make its fluctuations more violent.

Reflexivity Is A Two-Way Street!

The Crash wasn't merely a price event—as the reflexive loop reversed, the same dynamics that drove the boom amplified the bust both in the asset markets and the real economy. The investment trusts, which Irving Fisher had only a week before championed as guaranteeing a "permanently high plateau" of stock values, became primary agents of this destruction:

By now it was also evident that the investment trusts, once considered a buttress of the high plateau and a built-in defense against collapse, were really a profound source of weakness. The leverage, of which people only a fortnight before had spoken so knowledgeably and even affectionately, was now fully in reverse.

With remarkable celerity it removed all of the value from the common stock of a trust. As before, the case of a typical trust, a small one, is worth contemplating. Let it be supposed that it had securities in the hands of the public which had a market value of $10,000,000 in early October. Of this, half was in common stock, half in bonds and preferred stock. These securities were fully covered by the current market value of the securities owned. In other words, the trust's portfolio contained securities with a market value also of $10,000,000.

A representative portfolio of securities owned by such a trust would, in the early days of November, have declined in value by perhaps half. (Values of many of these securities by later standards would still be handsome; on November 4, the low for Tel and Tel was still 233, for General Electric it was 234, and for Steel 183.) The new portfolio value, $5,000,000, would be only enough to cover the prior claim on assets of the bonds and preferred stock. The common stock would have nothing behind it. Apart from expectations, which were by no means bright, it was now worthless. This geometrical ruthlessness was not exceptional. On the contrary, it was everywhere at work on the stock of the leverage trusts. By early November, the stock of most of them had become virtually unsalable. To make matters worse, many of them were traded on the Curb or the out-of-town exchanges where buyers were few and the markets thin.

Frederick Lewis Allen's account again corroborates Galbraith's account:

Fear, however, did not long delay its coming. As the price structure crumbled there was a sudden stampede to get out from under. By eleven o’clock traders on the floor of the Stock Exchange were in a wild scramble to “sell at the market.” Long before the lagging ticker could tell what was happening, word had gone out by telephone and telegraph that the bottom was dropping out of things, and the selling orders redoubled in volume. The leading stocks were going down two, three, and even five points between sales. Down, down, down. . . . Where were the bargain-hunters who were supposed to come to the rescue at times like this? Where were the investment trusts, which were expected to provide a cushion for the market by making new purchases at low prices? Where were the big operators who had declared that they were still bullish? Where were the powerful bankers who were supposed to be able at any moment to support prices? There seemed to be no support whatever. Down, down, down. The roar of voices which rose from the floor of the Exchange had become a roar of panic.

It should therefore never be forgotten that reflexivity cuts both ways, and can impact the fundamentals of the underlying assets—not just their market prices:

The most important corporate weakness was inherent in the vast new structure of holding companies and investment trusts. The holding companies controlled large segments of the utility, railroad, and entertainment business. Here, as with the investment trusts, was the constant danger of devastation by reverse leverage. In particular, dividends from the operating companies paid the interest on the bonds of upstream holding companies. The interruption of the dividends meant default on the bonds, bankruptcy, and the collapse of the structure. Under these circumstances, the temptation to curtail investment in operating plant in order to continue dividends was obviously strong. This added to deflationary pressures. The latter, in turn, curtailed earnings and helped bring down the corporate pyramids. When this happened, even more retrenchment was inevitable. Income was earmarked for debt repayment. Borrowing for new investment became impossible. It would be hard to imagine a corporate system better designed to continue and accentuate a deflationary spiral…

The stock market crash was also an exceptionally effective way of exploiting the weaknesses of the corporate structure. Operating companies at the end of the holding-company chain were forced by the crash to retrench. The subsequent collapse of these systems and also of the investment trusts effectively destroyed both the ability to borrow and the willingness to lend for investment. What have long looked like purely fiduciary effects were, in fact, quickly translated into declining orders and increasing unemployment.

The crash didn't merely destroy paper wealth—it revealed the bad investments in the real economy that had been masked by debt-driven asset price inflation and forced a painful liquidation of unsustainable business models and debt structures.

Bitcoin treasuries face the same risk, even within the context of a structural, long-term bull market. If Bitcoin falls substantially—possibly as a result of excess leverage and speculation emanating from the treasury companies themselves—and the treasuries trade at discounts to NAV for a prolonged period of time, the common equity could be wiped out just as it was for the trust shares of 1929 despite their “safe” termed out leverage. Further, as we will discuss in Part IV, a proliferation and then implosion of Bitcoin treasuries could even negatively impact Bitcoin adoption itself for a period of time.

Live By The mNAV, Die By The mNAV

Saylor’s confidence in monetizing NAV discounts—which is perhaps reasonable for MicroStrategy in isolation—mirrors the same logic 1920s trust managers used to justify buybacks—only to find that such support strategies are ineffective when liquidity across the ecosystem vanishes and selling pressure dominates.

The trusts discovered that buying back shares when investors are selling and credit is tightening is vastly different from issuing shares when investors are buying. Desperate to prop up their stock prices, the trusts began buying back shares at a discount to NAV—a strategy Bitcoin treasury companies will likely adopt with equally disappointing results for most:

The stabilizing effects of the huge cash resources of the investment trusts had also proved a mirage. In the early autumn the cash and liquid resources of the investment trusts were large...But now, as reverse leverage did its work, investment trust managements were much more concerned over the collapse in the value of their own stock than in the adverse movements in the stock list as a whole…

Under these circumstances, many of the trusts used their available cash in a desperate effort to support their own stock. However, there was a vast difference between buying one's stock now when the public wanted to sell and buying during the previous spring—as Goldman Sachs Trading Corporation had done—when the public wanted to buy and the resulting competition had sent prices higher and higher. Now the cash went out and the stock came in, and prices were either not perceptibly affected or not for long. What six months before had been a brilliant financial maneuver was now a form of fiscal self-immolation. In the last analysis, the purchase by a firm of its own stock is the exact opposite of the sale of stocks. It is by the sale of stock that firms ordinarily grow.

As the crisis deepened and the mNAV continued to trade at a discount, trusts depleted their remaining cash reserves in a desperate—and ultimately self-defeating—effort to support collapsing share prices:

However, none of this was immediately apparent. If one has been a financial genius, faith in one's genius does not dissolve at once. To the battered but unbowed genius, support of the stock of one's own company still seemed a bold, imaginative, and effective course. Indeed, it seemed the only alternative to slow but certain death. So to the extent that their cash resources allowed, the managements of the trusts chose faster, though equally certain death. They bought their own worthless stock. Men have been swindled by other men on many occasions. The autumn of 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.

Conclusion

The 1920s investment trust mania offers a generalized blueprint for understanding financial bubbles built on leverage, reflexivity, and the allure of premium-to-NAV accretion magic. What began as financial innovation soon metastasized into speculative instruments that promised effortless wealth through financial alchemy. When the music stopped, the reflexive mechanisms that had driven prices to euphoric heights accelerated their catastrophic descent.

The parallels with today's Bitcoin treasury companies are striking—from the proliferation of new entities to the reliance on mNAV premium to the use of long-term debt to amplify returns. Just as the 2008 Crisis was not primarily the result of subprime, CDOs, and mortgage fraud—as we explored in the Tower Of Babel—the investment trusts of the 1920s didn’t primarily collapse because of fraud, bad bets, lack of transparency and regulatory oversight, or their sometimes interlocking or pyramided holdings. They collapsed because their very success—built upon the Alchemy Of Risk—reflexively contained within it the seed conditions for their future failure; Bitcoin treasuries may be walking the same path toward the same precipice.

More concerning, however, is that just as the 1920s trusts signaled the speculative excesses of their era, Bitcoin treasuries are symptomatic of today’s Multiflation—a far deeper disease distorting today’s economic order. The emergence of a recently filed gold-backed treasury company suggests that Saylor and Bitcoin treasury companies' speculative attack on fiat currency is expanding beyond Bitcoin:

This broader assault on monetary orthodoxy may signal an incipient "flight into real values" (Flucht in die Sachwerte)—one that threatens to escalate into a full-fledged war against the financial establishment. Indeed, the gold treasury company's actual business model—tokenizing commodities markets—could accelerate this trend by channeling additional money and credit into the real economy. Rather than containing inflationary pressures safely within the virtual casino of the Financial Matrix, this risks adding further fuel to an inflation super-cycle.

Up Next: Can Bitcoin Break The Curse Of Reflexivity?

In Part IV, we offer a customizable ChatGPT Prompt for experimenting with your own Bitcoin Treasury and Digital Asset Treasury assumptions:

In Part V, we'll examine whether Bitcoin’s unique monetary properties—colliding with central bank money printing on an unprecedented scale—might enable levered treasury companies to reverse the historical pattern entirely through financial jiu jitsu: triggering a reflexive speculative attack against fiat, and creating a self-fulfilling prophecy that resembles a “run on the bank”. Or whether, like the investment trusts of the 1920s, they carry within their structure the same seeds of systemic fragility for the Bitcoin ecosystem.

Previously: Multiflation Investing

Forty years of Goldilocks conditioned an entire generation to see markets as “Perpetual Money Machines” through what amounted to Pavlovian technique.

The formula was simple: when any trouble surfaces, buy the dip, safe in the knowledge that the Fed will intervene and markets will quickly recover to new highs. Each successful rescue reinforced the gospel that faith in the Plunge Protection Team would inevitably be rewarded:

What passed for sophisticated investing was often just momentum or Pavlovian dip-buying, and nearly every modern financial “innovation” and investment strategy evolved within this climate-controlled greenhouse.

Central bankers supplied abundant liquidity and stood ready to intervene at the first sign of instability, enabling us to construct the Financial Matrix—a simulation that took on a life of its own, untethered from the real-world economy. A single imperative prevailed: optimize within the system.

In such a simulated environment, delegating public market investment decisions to algorithms became the rational endpoint. Both "smart" AI trained on decades of BTFD data and investors consistently BTFD into "dumb" passive ETF algorithms reached the same logical conclusion. If markets are indeed a Perpetual Money Machine that always recovers to new highs, and if “beating” this alchemical creation proved futile within the rules of the Financial Matrix, then why not simply automate the buying process?

Then COVID arrived, and the ensuing responses culminated in Mr. Market’s Schizophrenic Break. After decades of accumulating pressure, the structural imbalances beneath the surface erupted in a violent seismic shift, birthing the era of Multiflation™.

Beyond Inflation: Why CPI Conceals The Real Damage

The endless debates about whether inflation is or was “transitory”, whether CPI is headed up or down, and whether tariffs are inflationary or deflationary focus on surface-level movements—all while Multiflation reshapes the entire economic landscape beneath.

While most investors intellectually understand that individual prices move somewhat independently of one another, they often fall into the trap of unconsciously treating inflation as a single, uniform force. They equate inflation with CPI and imagine it as if it were a thermostat that nudges the entire economy's temperature up or down.

Multiflation: The Forest Fire Economy

In reality, Multiflation spreads more like a forest fire through patchy winter terrain. Such a fire is highly disruptive, and doesn't heat everything equally. Instead, it ignites where new money or debt enters the system, raging in some areas while others stay relatively cool or even frigid. Areas closest to the injection of money and credit tend to burn hot and grow rapidly: not necessarily due to organic demand, but simply because they’re nearest to the source of monetary expansion.

This is why aggregate measures like CPI—despite dominating investor attention—miss the deeper disruption. Modest headline inflation can—and often does—mask massive wealth transfers and dislocations occurring beneath the surface that reconfigure the economic landscape in ways a simple temperature reading can't capture. Multiflation affects different assets, sectors, regions, companies, and individuals at vastly different rates and times, creating a complex web of relative price changes.

Consider what our friend experienced running a business through extreme Multiflations in South America. The problem wasn't merely that CPI was rising at a dangerous rate due to Money Printer Go Brrr. The day to day unpredictability and dislocations were just as harmful as the erosion of savings due to monetary debasement raising prices generally.

Workers demanded weekly inflation escalators to keep pace with the economic chaos, and long-term business planning became an exercise in futility. His wife struggled to buy basic groceries as prices swung erratically from day to day: $12 one morning, $8 the next, then $10 by week’s end. Some days the shelves sat empty regardless of price, leaving her to wander from store to store with no guarantee of finding what she needed.

The developed world caught glimpses of such economic disorder in the aftermath of COVID, when shortages and price volatility struck everything from toilet paper to eggs to labor markets. Multiflation transforms everyone into reactive traders rather than productive actors, forcing us to abandon the steady work of running businesses and households in favor of making constant bets about input costs, tariffs, interest rates, exchange rates, government policy, and supply chain disruptions.

Multiflation’s complexity is compounded by government responses and interventions, which may aim to either stoke or quell inflation and growth—though sometimes these measures serve other political ends entirely. Our recent experience with tariffs provides one clear example of such intervention. During the 1970s, government and central bank policies alternately stimulated and contracted the economy—a problematic pattern known as "Stop-Go inflation"—as policymakers swung between concerns about recession and fears of rising inflation, creating a stagflationary cycle that ultimately worsened both problems.

The central issue therefore isn't simply rising CPI—although erosion of purchasing power is certainly a very real issue as well—but rather the fundamental breakdown of the price system itself. As discussed in the Price of Everything, the price system is analogous to the central nervous system of the economy. When prices become corrupted, the ripple effects create widespread dislocations across markets and turn the economy and markets into a bewildering labyrinth; every economic decision—from corporate investment to consumer spending—becomes fraught with uncertainty. The result is a cascade of dislocations that creates both enormous risks and asymmetric opportunities for those who are prepared and positioned to act.

The post-COVID investment environment thus far has offered a mere foretaste of such disorder in the developed world. Moderate CPI inflation—far short of Venezuelan, or even 1970s U.S. levels—has already begun to seriously undermine the strategies that form the foundation of so many investors' portfolios by breaking the assumptions on which they are based. But Multiflation presents an additional trap, as well: even when BTFD 'works', such success proves deceptive due to “money illusion”—delivering nominal gains that fail to keep pace with inflation and taxes, quietly undermining investors' purchasing power and standard of living over time.

Disorder As Opportunity: The Five Archetypes

Most investors remain anchored to strategies that worked for decades, unable to accept that the investing rules have fundamentally changed:

The bigger the shift, the longer markets take to adjust—and the greater the dislocations become across the entire system. Within this widespread denial lies extraordinary opportunity: persistent misalignments between old strategies and new realities create asymmetric advantages for those who recognize what's actually happening.

The challenge is that a portfolio isn't truly diversified if it remains positioned for Goldilocks—allocated according to Goldilocks-era thought processes—even if bandaids such as TIPS, gold, Bitcoin, and ‘alternatives’ have been applied as ad-hoc tactical overlays. Traditional portfolio theory asks: "how much should I own of each asset, risk, and factor to optimize statistics that operate under the assumptions of Goldilocks?" The right question is now: "When the system underpinning Goldilocks breaks—and it is breaking—what actually survives and thrives? What purpose does each investment serve when order dissolves?"

This means focusing on what actually matters—the underlying forces that create, destroy, and preserve wealth during Multiflation. We developed the Five Archetypes to address precisely this challenge, distilling lessons from our study of the best and worst performers during periods of great economic change, and adapting them to today’s unique conditions.

Each Archetype helps investors navigate disorder in a specific way. None is sufficient alone, nor are any of them designed to be “correct”. Collectively, however, the Archetypes provide resilient, adaptive exposure across the full spectrum of failure and success modes of Multiflation—without requiring clairvoyance about what comes next. They transform portfolio construction from a mathematical exercise into strategic curation—selecting assets for their structural roles in preserving and creating wealth amid disorder.

Many approaches to diversification own different flavors of the same assumption: tomorrow's economy will function like yesterday's. Analyzing investment questions through the lens of Archetypes exposes that many seemingly sophisticated strategies might actually be concentrated bets on conditions that have already changed.

This is not to say that Multiflation necessarily requires a complete overhaul of existing portfolios—particularly for those bound by institutional constraints. Sometimes, small strategic and tactical adjustments in thinking and allocations may act as a force multiplier that yield outsized improvements in overall performance and resilience.

These Archetypes will resonate differently with each reader based on their investing experience and background. Some may find them immediately familiar, while others might feel they're encountering novel concepts. As we develop these concepts through detailed case studies and real-world examples over the course of future posts, even familiar patterns will reveal new layers of complexity and application. To help readers navigate this evolving framework, we're building a comprehensive reference guide that will grow with each installment, accessible through an Index we'll maintain throughout the series.

1. Dislocations

The Essence: Exploits mispricings; when Multiflation corrupts the price system, incredible asymmetric opportunities may emerge for those positioned to act. There are three primary types of dislocations:

Price Dislocations are the most obvious, visible in charts as dramatic price movements, though they're often accompanied by deteriorating fundamentals.

Fundamental Dislocations represent structural shifts as well as announced events such as mergers or bankruptcies.

Examples:

Liquid Gold: reshoring, population growth, and AI are colliding with physical water constraints.

Canadian Housing: as a decades-long bubble meets higher rates and tariff uncertainty.

Edge Dislocations occur when markets misinterpret or underreact to new information—for example news that may remove previous overhangs on an asset, creating an all-clear signal. Initially, for a period of time—days, weeks, or months—the market may ignore or underreact to the new information and act as if “it was already priced in”, creating opportunities for those with a Multiflation lens who grasp the implications first.

Why The Archetype Is Necessary: Goldilocks assumptions increasingly fail during Multiflation, creating an increasing number of “glitches” in the Financial Matrix. Dislocations become more frequent and pronounced during Multiflation as corrupted price signals and government interventions create disorder; opportunities may persist longer due to widespread market confusion, algorithmic usage, and institutional inertia.

How It Behaves Under Multiflation: Thrives as corrupted price signals and government interventions create mispricings.

2. Monetary Evolution

The Essence: Exposure to market-chosen money alternatives and infrastructure that supports them as the fiat system fractures and "risk-free" assets are reassessed.

Why The Archetype Is Necessary:

We now inhabit a hyperreal Financial Matrix that has displaced the real economy it once represented, and the advent of generative AI is only accelerating this simulation. In this battle between reality and hyperreality, sound money and censorship resistant money serve as the swords of truth that cut through the illusion.

Sound money serves as a bulwark against monetary debasement, the erosion of purchasing power and trust, and financial repression while simultaneously maintaining liquidity to capitalize on Dislocations. When economic turbulence forces other investors to retrench or become distressed sellers during periods of dislocation, a well-constructed Monetary Evolution component within a portfolio positions us to act as a liquidity provider to those compelled to sell at disadvantageous prices.

The arc we traced in The Metamorphosis of Money is reaching its endgame: the fiat system is fracturing, the "risk-free" nature of Treasuries is increasingly being reassessed, and officials ranging from Treasury Secretary Bessent to the IMF are calling for a reset of the global economic system.

Money is the lifeblood of the economy—and the most scarce money alternatives become key Constraint Archetypes when fiat money is being competitively devalued. When Russia's reserves get frozen overnight, entire countries find themselves cut from SWIFT, or when central banks create trillions through QE and engage in financial repression, people naturally gravitate toward market-chosen money alternatives to fiat such as Bitcoin and Gold.

How It Behaves Under Multiflation: Gains as fiat currency debasement accelerates flight toward market-chosen alternatives, while providing liquidity and maintained purchasing power to capitalize on distressed selling during volatile periods.

Examples:

Competitive market-chosen money alternatives such as precious metals and potentially Bitcoin.

Companies that provide essential infrastructure and services around this Monetary Evolution may also benefit significantly from these shifts. Treasury Companies, royalty firms, mining operations, and foreign exchange and fixed income opportunities tied to these competing currencies may represent additional ways to participate in this transformation while providing the fundamental "picks and shovels" that enable the broader monetary transition.

While "market money" competing with "state money" represents a central thematic element of Multiflation, the approach to a Multiflation Treasury extends beyond Bitcoin and gold to encompass a broader range of opportunities. Certain less conventional cash-equivalents may also be incorporated selectively when conditions warrant their inclusion.

3. Resiliency & Antifragility

The Essence: This Archetype represents businesses and assets that are resilient to—or actually benefit—from monetary disorder, economic volatility, and rolling dislocations.

Why The Archetype Is Necessary:

These dual categories of resiliency and antifragility work together to insulate the portfolio from Multiflation's inherent disorder while simultaneously generating positive returns from the very conditions that undermine traditional investments. This approach transforms instability itself into a source of portfolio stability.

How It Behaves Under Multiflation: Converts systemic instability into portfolio stability by either weathering disorder or directly profiting from the conditions that undermine traditional investments.

Examples:

Antifragile business examples include debt collectors and distressed asset specialists who thrive precisely when credit conditions tighten and traditional lenders retreat. These enterprises profit from the very circumstances that create stress elsewhere in the system.

Historical analysis across extreme economic cycles reveals valuable patterns for identifying resilient enterprises. Businesses that survived wars, hyperinflations, and systemic collapses share certain characteristics that remain relevant today. Understanding what allowed these enterprises to prosper through multiple shocks provides insights for modern positioning, though success depends on identifying which historical survival mechanisms still apply under current conditions.

This Archetype also encompasses trade structures and instruments specifically designed to profit from disorder, including various derivatives strategies that benefit from volatility and dislocation.

Counterparty and geographical scrutiny becomes equally critical within this framework. Even the strongest portfolio construction becomes worthless if custodians and counterparties cannot honor their obligations during periods of systemic stress, making due diligence on operational resilience as important as investment selection itself.

4. Inflation Beneficiaries

The Essence: When the value of currency erodes, certain assets and businesses transform monetary debasement into competitive advantage. There are two primary types of inflation beneficiaries—those that maintain purchasing power, and those that multiply it.

Why it's necessary: Counteracts currency debasement while generating real returns that preserve and grow purchasing power when traditional inflation hedges may fail.

How It Behaves Under Multiflation: Transforms currency debasement into competitive advantage by preserving or multiplying purchasing power.

Examples:

This includes everything from the Monetary Evolution Archetype, as well as companies with pricing power exceeding input cost inflation, royalty and toll-collector models, deflationary technologies that lower costs while increasing productivity, businesses representing small percentages of customer costs while providing outsized value, and companies trading at or below replacement cost—especially as replacement costs are set to rise substantially.

Warren Buffett documented numerous examples in his 1970s letters. However, for reasons we will explore in future installments, some traditional inflation hedges may not work the same way under Multiflation—and some may even prove to be among the worst places to seek protection.

5. Constraints

The Essence: Structural collision courses between scarcity and necessity, where explosive value creation becomes inevitable.

Why It’s Necessary: In a world drowning in paper (or virtual) financial assets, true scarcity becomes increasingly valuable, but scarcity alone isn't sufficient. We seek Constraints that add demand to the equation.

How It Behaves Under Multiflation: Generates asymmetric returns as monetary debasement drives capital toward scarce assets with rising demand, creating compounding forces.

Examples:

Our recent water series illustrates how this Constraint is being systematically undervalued—for example as AI demand is creating entirely new demand dynamics. Constraints represent supply and demand dynamics—often creatively defined—working together across multiple levels that often aren't intuitively obvious.

One non-obvious point is that every price reflects a dual ratio: the supply and demand of the asset itself, and the supply and demand of the money against which it is priced. Most analysis ignores the monetary side, treating currency as stable. Under today's monetary conditions, however this sometimes creates significant blind spots that obscure the true forces driving asset prices.

The most powerful Constraints under Multiflation emerge when monetary debasement drives capital into assets where supply and demand already favor higher prices. As money becomes more abundant and holding it becomes less desirable to hold, it will tend to seek refuge in genuinely scarce assets with rising structural long-term demand. Understanding this dual dynamic—both the asset's fundamentals and the monetary backdrop—helps investors recognize when apparent overvaluation may actually signal the early stages of a major repricing, allowing them to hold through volatility rather than exit prematurely.

Diversification For Multiflation

The most compelling investment opportunities during Multiflation rarely confine themselves to a single Archetype. Instead, the strongest positions tend to emerge when assets and businesses operate across multiple categories simultaneously, creating reinforcing advantages that compound as disorder intensifies.

Consider some examples from our emerging research pipeline:

Water infrastructure: it starts as a fundamental Dislocation and Constraint (physical scarcity meets burgeoning demand due to population growth), becomes an Inflation Beneficiary (pricing power), and may demonstrate Resiliency and Antifragility.

Similarly, commodities and precious metals specialists such as Sprott, Inc. span three distinct Archetypes: they provide infrastructure for Monetary Evolution as investors seek alternatives to fiat currencies, operate as Inflation Beneficiaries through exposure to hard assets, and represent Constraints by controlling access to genuinely scarce resources with rising institutional demand.

This multi-Archetype approach extends beyond individual positions to portfolio construction itself. While each investment may span several Archetypes, the overall portfolio must also achieve balance across all five Archetypes to ensure resilience regardless of which specific aspects of Multiflation dominate at any given moment. A portfolio concentrated in positions that all span the same three Archetypes, for instance, remains vulnerable to scenarios where the other two categories prove most critical.

Through the Be Water Method, portfolios become capable of navigating all seas, adapting fluidly to whatever tumultuous conditions Multiflation presents.

Adapting To The New Reality

The transition from Goldilocks to Multiflation represents a permanent shift that will define the investment landscape for the next decade. This isn't a temporary disruption to be weathered—it's the new baseline reality from which all future economic activity will emerge. Traditional portfolio management strategies have become concentrated bets on conditions that no longer exist, leaving investors exposed to forces they don't fully understand.

The Five Archetypes provide a framework for navigating this new reality. Unlike conventional diversification approaches that spread risk across different flavors of the same underlying assumptions, these Archetypes position investors for the structural changes already underway. Success depends on aligning with Multiflation's dynamics rather than fighting them, whether you're building businesses, allocating capital, or shaping policy.

The companies and assets that will thrive in the coming decade are already becoming visible, but most investors continue evaluating them through frameworks designed for a vanishing world. The decade ahead belongs to those who stop optimizing for conditions that are rapidly disappearing and start positioning for the world that's emerging. In the coming weeks and months, our understanding will deepen through practical application—each case study will refine both our process and understanding.

Previously: Speculative Attack!

The Bitcoin Treasury craze is either genius or madness—and very possibly some combination of both. In Speculative Attack Part I, we explored how Michael Saylor’s MicroStrategy is weaponizing Wall Street's own financial engineering against the TradFi system by inverting the Symbolic Alchemy Of Risk; hundreds of companies now race to copy his playbook.

This is not the first time leveraged financial vehicles promised to democratize access to scarce assets using leverage and the accretive magic of mNAV premiums: the 1920s investment trust and holding bubble followed a similar script in the run-up to the 1929 Crash.

Recent History: Greyscale Trust

Before exploring those century-old parallels, it's worth examining a more recent cautionary tale that directly involves Bitcoin itself. The Grayscale Bitcoin Trust was the conceptual predecessor to the Bitcoin treasury corporations, and its trajectory demonstrates how reliance on mNAV and leverage—even when the underlying Bitcoin and wrapper vehicle themselves remain unleveraged—can create systemic risks that ultimately destroy value for all participants.

Like Microstrategy more recently, Greyscale created a vehicle to “democratize” Bitcoin exposure through traditional securities markets—in this case a “pink sheet” OTC security—circumventing the operational complexities of Bitcoin self-custody. This innovation filled a genuine market need, as many individuals and institutions lacked either the infrastructure or regulatory ability to hold Bitcoin directly in their brokerage accounts; the SEC had not yet permitted Bitcoin ETFs on the market.

The Trust's success was reflected in its mNAV, which at times reached extraordinary levels of 2x or higher; investors were willing to pay double Bitcoin's price for the convenience of holding GBTC shares. This premium created what appeared to be a risk-free arbitrage opportunity: sophisticated investors could buy Bitcoin directly, contribute it to Grayscale’s trust, sell GBTC shares after a six-month lockup period, and profit from the mNAV premium upon sale.

While the Greyscale Trust itself held Bitcoin without any leverage—in other words, an even safer capital structure than MicroStrategy’s!—the broader ecosystem around it took on leverage. Hedge funds like Three Arrows (3AC) piled into the “Greyscale arbitrage trade” using significant leverage to maximize returns from this strategy. As Bitcoin's price declined in 2022 and the trust's mNAV premium evaporated, these leveraged positions became untenable.

3AC imploded in June 2022, setting off a crypto contagion leading to a “Crypto Winter”; forced liquidations and market panic accelerated the GBTC discount, which widened to historic lows. The discount remained stubbornly elevated until early 2024, when Greyscale was forced to convert the Trust into an ETF and allow daily redemptions at NAV (i.e., mNAV=1).

More History: Gold Trusts

Before Bitcoin was a glimmer in Satoshi’s eye—indeed, even before ETFs like GLD existed—gold trusts were the intellectual blueprint for Greyscale’s GBTC. In an era when investors sought exposure to physical gold—now known as “Bitcoin for Boomers”, but then widely regarded as the ultimate hedge against fiat currency debasement—options remained frustratingly limited.

The Spicer family built a remarkable business addressing this market need through their Central Fund of Canada (CEF) and Central GoldTrust; they generated profits by storing vaulted gold bullion for investors in an efficient, tax-advantaged structure through publicly listed closed end trusts. During a gold bull market, and with no liquid ETF alternative, investor demand for the trust often outpaced supply much as it did for Greyscale’s GBTC—causing the trusts to trade at a persistent premium to NAV in the early 2000s.

The Spicers enjoyed a position conceptually similar to Bitcoin treasury companies, whose mNAV premium now allows them to sell one dollar of Bitcoin for two dollars. When their trust's market value exceeded its NAV, they could issue new trust units at the inflated price, generating profit for the parent company (though unlike Bitcoin treasury companies, this value did not accrue to trust unitholders). Conversely, when the trust traded at a discount to its NAV, they could use the parent company's cash flows and savings to buy back trust units at the discounted price. This created a risk-free arbitrage opportunity that allowed the Spicers to capture the spread between the market price of the trust and its underlying gold value.

The landscape shifted dramatically after ETFs like GLD came to market in 2004. The advantage of closed-end trusts eroded in much the same way GBTC's did when Bitcoin ETFs received SEC approval. Gold trusts that had frequently traded at premiums to NAV began trading at persistent discounts to their NAV, creating significant unitholder dissatisfaction.

This vulnerability culminated in a historic hostile takeover by Sprott Inc. in 2015. Sprott merged the Spicer assets into what is now the Sprott Physical Gold Trust (PHYS), and later acquired the original Central Fund of Canada; they’ve subsequently introduced a physical uranium trust (SPUT) and a copper trust (COP). We’ll explore Sprott Inc. in greater detail in an upcoming series about the Multiflation Method.

Parallels To The 1920s Investment Trust Mania

Perhaps the most haunting precedent for the current Bitcoin TreasuryCo mania, however, comes from the 1920s. In The Great Crash 1929, JK Galbraith traced part of the Great Depression’s origins to the financial engineering innovations of the era: specifically, newly formed investment entities called “investment trusts” and “holding companies” that parallel Bitcoin treasury companies in many ways.

Investment Trusts

As Galbraith observed in his account of the era, during the Roaring Twenties common stocks occupied a cultural position remarkably similar to Bitcoin (and arguably the S&P) today—they were viewed as the revolutionary investment of their era, and there was widespread belief that supply of stocks was too scarce to meet surging demand.

In the 1920s, mutual funds were introduced under the name “investment trusts,” and—like Bitcoin treasury companies—formed to capitalize on this scarcity. A major difference between modern mutual funds and these trusts was that the trusts were leveraged: like Bitcoin treasuries, they invested using borrowed money that was considered “safe” because—like MicroStrategy—they issued preferreds and long-term debt securities to the public to buy portfolios of stocks. Galbraith:

The most notable piece of speculative architecture of the late twenties, and the one by which, more than any other device, the public demand for common stocks was satisfied, was the investment trust. The investment trust did not promote new enterprises or enlarge old ones. It merely arranged that people could own stock in old companies through the medium of new ones.

Democratizing Access to the "Next Big Thing"

Both the 1920s investment trusts and today's Bitcoin treasury companies emerged to “democratize” access to exciting, scarce assets that ordinary investors found intimidating or complex. In the 1920s, Wall Street was widely perceived as a "rigged game" dominated by ultra-wealthy insiders with monopolized information.

Investment trusts promised to level the playing field for the flood of new middle-class investors entering the market, by offering professional management, instant diversification, and simple access to the bull market through a single purchase. Even Keynes delegated his U.S. stock investing to professional trust managers, recognizing their superior grasp of American markets, while continuing to manage U.K. stocks himself.

Bitcoin treasury companies offer a strikingly similar value proposition today. While anyone can buy Bitcoin directly and custody it themselves, doing so requires navigating crypto exchanges, managing digital wallets, and securing private keys—a learning curve many traditional investors find daunting or impossible due to regulatory constraints.

Companies like MicroStrategy provide familiar regulatory wrappers that allow investors to gain Bitcoin exposure through ordinary stock purchases in their existing brokerage accounts. Investors are also buying into the perceived expertise of leaders like Michael Saylor, trusting them to handle the complexities of acquiring and storing large Bitcoin positions—and presumably later deploying capital wisely post-"HyperBitcoinization.”

mNAV During the 1920s

Like Bitcoin Treasuries, the 1920s trusts had the added appeal of mNAV premiums that seemed to offer something for nothing.

Just as Bitcoin treasury companies today boast of their mNAV and 'bitcoin yield,' a key feature of the 1920s bubble was the tendency for investment trusts to trade at significant premiums to mNAV during their heyday. Galbraith:

The measure of this respect for financial genius was the relation of the market value of the outstanding securities of the investment trusts to the value of the securities they owned.

Normally, the securities of the trust were worth considerably more than the property it owned—sometimes even twice as much. There should be no ambiguity on this point: the only property of the investment trust was the common and preferred stocks, debentures, mortgages, bonds, and cash that it held. (Often, it had neither an office nor office furniture; the sponsoring firm ran the investment trust out of its own quarters.)

Yet, had these securities all been sold on the market, the proceeds would invariably have been less—and often much less—than the current value of the outstanding securities of the investment company. The latter, obviously, had some claim to value that went well beyond the assets behind them.

The Magazine of Wall Street recommended the following guidelines for selecting trusts on September 21, 1929.

Shares of an investment company capitalized with common stock only and earning 10 percent net on invested capital might be fairly priced at 40 percent to 50 percent in excess of share liquidating value [mNAV]. If the past record of management indicates that it can average 20 percent or more on its funds, a price of 150 percent to 200 percent above liquidating value might be reasonable.... To evaluate an investment trust common stock, preceded by bonds or preferred stock, a simple rule is to add 30 percent to 100 percent, or more, depending upon one's estimateof the management's worth, to the liquidating value of the investment company's total assets.

As /Shleifer noted about this so-called investment “advice”:

This recommendation, made only a month before the Great Crash, assumes as a matter of course that funds should be selling at large premia; managers' ability to pick stocks is thought to multiply the value of the fund by a factor ranging from 3/2 to 3. Moreover, investors are advised to chase the trend—to load up on funds whose assets have shown good performance in the past—on the theory that their managers are the best.

The paragraph just quoted would seem eccentric in the post–World War II period, when funds have typically sold at discounts.

Investment analysts trying to direct investors away from closed-end mutual funds also wrote as if such funds sold at far above net asset value in the third quarter of 1929 and earlier. McNeel's Financial Service in Boston, for example, ran a series of large advertisements in 1929 issues of Commerce and Finance, asking (in bold type), "Are You Paying $800 for General Electric When You Buy Investment Trusts?"

These advertisements noted that investment trust stocks were "in many instances selling for two or three times... asset value. They are issued to the public and almost immediately quoted double or treble the issue price."

mNAV Magic

As with today’s Bitcoin TreasuryCos, this persistent mNAV premium created a powerful financial engine for both the trusts and the underlying stocks they were buying: the ability to conduct immediately accretive share issuances. When a trust trades at a premium to its underlying stock values, it can issue new units at the inflated market price and instantly increase the NAV for its existing shareholders.

This reflexive accretion mechanism created a self-reinforcing feedback loop similar to today’s "Bitcoin Leverage Loop". The cycle worked as follows:

• Investor optimism drove a trust's price to an mNAV premium.

• The trust would issue new units at this premium price, which was immediately accretive to the NAV per share.

• The new capital raised was used to purchase more stocks, adding buying pressure to the overall market and increasing the value of the trust's own portfolio.

• The rising NAV and apparent success of the strategy further fueled investor optimism, widening the premium and allowing the cycle to repeat.

• Meanwhile, investors in the trusts and individual stocks amplified their exposure to a sure thing by using margin loans to leverage their positions, adding extra "juice" to the trade and further driving up NAVs and mNAVs for the trusts.

Galbraith noted that this mNAV process allowed trusts to create "an almost complete divorce of the volume of corporate securities outstanding from the volume of [undelrying] corporate assets in existence," as they could create a virtually infinite supply of their own shares to meet the public's insatiable demand. This dynamic was a core driver of the bubble's inflation and a key point of systemic fragility that would later prove catastrophic in the crash.

Goldman Sachs Trading Corporation As Proto-BTC TreasuryCo

Goldman Sachs Trading Corporation (GSTC) was perhaps the proto-MicroStrategy of the day. Launched by the influential Goldman Sachs partner Waddill Catchings in December 1928, it was, at its inception, the largest investment trust yet established—boasting an initial capitalization of $100 million. Its units, offered to the public at $104, was immediately oversubscribed and quickly soared in value, doubling to $226 within a short period and trading at a massive premium to the underlying value of its stock holdings.

Pyramiding Trusts

The initial success of GSTC was not enough for Catchings. To further amplify returns and absorb the public's insatiable demand for “scarce” stocks, Goldman Sachs constructed a pyramid of investment trusts. This "trusts within a trust" pyramid structure was designed for maximum leverage, meaning that a small rise (or drop) in stock prices could trigger significant gains (or losses).

In and Andrei Shleifer’s The Stock Market Bubble of 1929: Evidence from Closed-end Mutual Funds, they noted:

If [investment trust mNAV premia] indeed reflect excessive investor optimism rather than skill at management, there will be a tendency for funds to pyramid on top of one another. If each fund can be sold for 50 percent more than its own net asset value, promoters can more than double their profits by establishing a fund that owns funds that hold stocks, rather than just establishing funds that hold stocks…

This prediction is confirmed by one of the largest funds: the Goldman Sachs Trading Corporation. This was a closed-end fund organized in December 1928 with a net asset value of around $100 million. In 1929, one of its largest holdings was the Shenandoah Corporation, another closed-end fund organized by Goldman Sachs. Another large holding was in its own stock.

Nor is this all. In the same year, Shenandoah organized a new closed-end fund called the Blue Ridge Corporation and became a large investor in its stock. All these funds traded at premia; at the top of the pyramid, the Goldman Sachs Trading Corporation traded at a premium to a premium to a premium to net asset value.

It is hard to justify these pyramided financial structures as anything other than an attempt to part fools from their money by capitalizing on layer upon layer of investor overvaluation. Goldman Sachs’s attempts to satisfy its customers’ demands for “funds that hold funds” and “funds that hold funds that hold funds” suggested to Galbraith that it was “difficult not to marvel at the imagination which was implicit in this gigantic insanity. If there must be madness something may be said for having it on a heroic scale.”

If history serves as any guide, we can expect Bitcoin treasury companies to begin investing in other Bitcoin treasury companies before this cycle concludes. Anyone familiar with the toxic confluence of YOLO-style investor behavior, passive investing, and algorithmic tradebots that has taken root since the QE era—the very behaviors we’ve been documenting in The Sorcerer’s Apprentice—should mentally prepare themselves for speculative excesses in Bitcoin and Bitcoin TreasuryCos that could reach levels far beyond what any reasonable person would consider sane before these leveraged vehicles collapse. Should any TreasuryCo or ambitious banker reading this choose to pursue such a pyramiding strategy, we trust they’ll remember to send along our consulting fee and royalty checks.

Exchange Of Assets

It’s worth noting another parallel with Bitcoin Trusts. When Goldman’s Blue Ridge Corporation was launched on August 20, 1929, it offered investors two ways to acquire its shares. The first was a traditional cash purchase. The second, more innovative method was a direct exchange of stock. This allowed an investor who already owned shares in certain established, blue-chip companies to trade them directly for a combination of Blue Ridge's own common and preferred stock.

This removed the friction of having to sell one's existing holdings, wait for the cash to settle, and then use that cash to buy into the new trust. It was a seamless, one-transaction process designed for maximum convenience. We see similar innovations in Bitcoin Treasury companies today, such as Strive’s clever Bitcoin exchange cum tax arbitrage:

The combined company will be the first to offer an exchange of Bitcoin for public company equity in a transaction intended to be tax-free to investors under section 351 of the U.S. tax code.

Up Next: Part III

The echoes between today's Bitcoin treasury mania and the investment trust bubble of the 1920s are too striking to dismiss. Both epochs feature the same intoxicating cocktail of scarce assets, leveraged financial engineering, mNAV premiums that seem to conjure value from thin air, and the seductive promise of democratizing access to revolutionary investments.

In Part III, we'll examine how the 1929 crash unfolded for these leveraged investment vehicles and consider whether Bitcoin's unique properties might save today's treasury companies from repeating financial history's most expensive lessons.

Bitcoin has officially gone corporate. More than 200 entities now collectively hold over $350 billion worth of Bitcoin, and the stampede is rapidly accelerating as new "Bitcoin treasury" companies emerge almost daily to cash in on the trend. As a result, the true nature of this phenomenon remains hotly contested: classic leveraged pyramid scheme or the latest front in the most consequential monetary battle of our lifetime?

The truth may lie somewhere between these extremes, but either interpretation points to the same underlying reality: Multiflation is intensifying and the dynamics we explored in The Flight Into Fake Values—originally identified during the 2017 crypto bubble—are again playing out on an even broader scale. We recommend reading our earlier analysis first, as it provides essential context for understanding what the Bitcoin Treasury craze potentially signifies. Building on that foundation, we'll offer novel insights for both bulls and bears by placing this phenomenon within the broader sweep of financial history—including the Weimar’s “inflation profiteers” and the 1920’s “investment trust” bubble.

Speculative Attack

Nearly eleven years ago to the day, on July 4th, 2014 Pierre Rochard penned “Speculative Attack”, making the case for what even Bitcoin skeptics should now recognize as one of the most spectacular trades in financial history: the strategy of taking on debt to buy bitcoin, effectively shorting fiat currencies and the entire financial system. While his entire article merits reading, Rochard’s conclusion centered on Hyperbitcoinization:

Bitcoin will become mainstream. The Bitcoin skeptics misunderstand how strong currencies like bitcoin overtake weak currencies like the dollar: it is through speculative attacks and currency crises caused by investors.

In a follow-up article published last year on July 4th, Pierre and wrote Speculative Attack, Season 2: The Case for the Greatest Pair Trade in History:

The more mainstream Bitcoin becomes, the more compelling the speculative attack will be. Eventually it will become necessary, and not long after that it will simply cease to be possible, as nobody will trade Bitcoin for any amount of fiat, or even risk its loss in financial calculation. While we are clearly incredibly far along from 2014, we are nowhere near this final state. The slow-motion collapse of fiat continues, and the avenues for directing fiat shorts to Bitcoin longs widen. The speculative attack lives on. Season Two begins.

This dynamic of borrowing depreciating currency to acquire appreciating assets is not without historical precedent. The Weimar hyperinflation created what Mises described as “inflation profiteers”:

One of the reasons why public opinion [at the time] misconstrued the economic consequences of the German inflation was the emergence of a class of inflation profiteers. The profiteers were those speculators who were quicker to realize the true meaning of the inflationary boom than were the managers of the banks… No matter what stock he bought, the speculator netted a gross profit which exceeded by far the interest he had to pay to the lending bank. As long as the inflation went on there was no risk for him in embarking upon bull transactions with borrowed money… The inflation favored the debtors at the expense of the creditors. It made a very small group of smart speculators rich. It impoverished the immense majority of the nation.

The parallel is striking: in both cases, those who recognized the monetary dynamic early could execute an “inflation carry trade”: borrow the depreciating currency at artificially low real rates and convert it into assets that would appreciate faster than their debt service costs.

Saylor’s Counterspell: Inverting The Alchemy Of Risk

What distinguishes this speculative attack from its Weimar predecessor is that now—thanks to Bitcoin, Bitcoin Treasuries, Money Printer Go Brrr memes, and social media—it is nearly impossible for public opinion to misconstrue the economic consequences of the inflation. The speculative attack has evolved from a relatively obscure trading strategy during the Weimar Republic into a coordinated, full-fledged social media-mediated and Wall Street-assisted assault on the monopoly of state-issued money itself.

Today’s “inflation profiteers”, led by Michael Saylor, are openly calling their strategy an attack on fiat currency—conceptually similar to a bank run. This potentially represents an incipient digital-age version of die Flucht in die Sachwerte—the flight into real values that once drove Germans to dump rapidly depreciating Deutschemarks for any tangible asset.

Unlike the Weimar speculators and consumers, today's bitcoin maximalists broadcast their strategy across social media platforms, podcasts, and financial forums globally, creating a self-reinforcing hyperstitious feedback loop that accelerates Bitcoin adoption—the more Number Go Up, the faster the memetic virus spreads. Each successful conversion from fiat to Bitcoin validates the thesis and attracts new participants to the cause, while simultaneously weakening confidence in the very currencies being abandoned—a dynamic we explored further in our piece on Memetic Monetary Theory. This transforms what would ordinarily be merely an “inflation carry trade” available only to sophisticated insiders into a mass memetic movement that threatens the fundamental assumptions underlying the modern financial system.

Moreover, Saylor is demonstrating black belt-level mastery of financial jiu jitsu, employing Wall Street's own "TradFi" financial engineering against the TradFi system itself. In effect, he is single-handedly attempting to reverse the Symbolic Alchemy Of Risk spell that the fiat system has cast over the past four decades.

Saylor has already begun to weaponize the system’s own Ouroboric nature against itself, but two notable events would accelerate this process exponentially. S&P 500 inclusion would force passive index funds (and likely momentum-driven algorithms) to buy MicroStrategy stock regardless of its valuation or mNAV, while AAA bond ratings from the rating agencies would unlock massive institutional funding for MicroStrategy and Bitcoin; either scenario could send “hyperbitcoinization” into overdrive.

Bitcoin bulls are already salivating, viewing MicroStrategy's various preferred shares as the foundation for how investments will be priced under a “Bitcoin Standard” if Bitcoin replaces the dollar’s reserve currency status—effectively taking the place of the US Treasury “risk free rate” in the Alchemy Of Risk that currently sets baseline rates for all investments globally today.

Bitcoin Treasury Companies

Bitcoin Treasury Companies like Microstrategy are therefore the institutional embodiment of Rochard’s Speculative Attack, and currently serve as the primary vector for Bitcoin’s memetic monetary spread. As Saylor recently acknowledged: "If we think about the spread of Bitcoin as a Monetary virus [meme] and as an idea, the super spreaders—the amplifiers of the virus are corporations."

A bitcoin treasury company is a business built on a straightforward premise: accumulate as much Bitcoin as possible within a corporate shell. The bull case for such a company—as opposed to simply self-custodying Bitcoin oneself—rests on leveraged exposure: if you believe in Bitcoin's long-term potential, these firms offer amplified upside by locking in long-term debt at low interest rates to buy more Bitcoin, creating "safe" leverage that amplifies gains while minimizing margin call risk. As Bitcoin eats the world, companies holding the largest reserves will capture most of the value in the financial system, and then have multiple monetization options available to them in the future—such as acquiring profitable businesses with their Bitcoin holdings or leveraging their treasury position for other strategic advantages.

mNAV: The Master Key

These treasury companies currently trade at a premium to their Bitcoin holdings, measured by what's called mNAV (multiple-to-net asset value). Essentially, investors are willing to pay more for shares in the company than the underlying Bitcoin is worth. When a company trades at a 2x mNAV premium, investors are paying $2 worth of stock value for every $1 of underlying Bitcoin the company owns.

This creates a powerful arbitrage opportunity. The company can issue new shares at the premium market price and use those proceeds to buy Bitcoin at regular market price. Since the company is trading expensive stock for cheaper Bitcoin, each share issuance is accretive—it increases the value for existing shareholders despite diluting the share count. Each dollar of new equity raised purchases more than a dollar of underlying Bitcoin value, making existing shareholders better off even as total shares outstanding increase—assuming Bitcoin prices and the market premium remain constant following the offering.

This dynamic explains the recent surge of new Bitcoin treasury companies racing to capitalize on mNAV premiums while market conditions remain favorable. As long as the market maintains its premium valuation of these Bitcoin-holding vehicles, companies can “print money” by continuously issuing shares to buy more Bitcoin.

The Skeptics

The strategy has attracted notable skeptics. Veteran short sellers like Jim Chanos are shorting MicroStrategy while buying Bitcoin directly, betting that the mNAV premium will disappear.

Chanos contends that he is executing the same underlying trade as Michael Saylor—he, too is sellling MicoStrategy stock to buy Bitcoin.

As with all arbitrage opportunities, Chanos expects that this pricing discrepency will eventually resolve itself, returning to a state where one Bitcoin will equal (at most) one Bitcoin in market value. Saylor—with help from the Wall Street machine—will inevitably drive this convergence by continuing to issue Bitcoin-backed paper in unlimited quantities until the premium evaporates and the arbitrage opportunity disappears.

The Debate

If you're bearish on Bitcoin itself, then naturally you'll be skeptical of companies loading up their balance sheets with debt to buy Bitcoin, and there is not much point in discussing the matter further. Even if you don’t believe in Bitcoin, however, let's posit several key assumptions for the sake of argument and see where they lead us.

1. Bitcoin represents one of the most significant technological breakthroughs in human history.

2. Every corporation and individual should incorporate some Bitcoin into their own treasury strategy as part of the Multiflation Method’s Monetary Evolution Archetype.

3. Bitcoin is the “apex asset” that will take an enormous share of assets from fiat and TradFi and therefore Bitcoin's long-term trajectory points decisively upward.

4. Michael Saylor stands as a visionary genius for weaponizing financial engineering jiu jitsu against the existing TradFi system.

5. Microstrategy has intelligently gone about extending the duration of its debt to avoid forced liquidation during the next, inevitable Bitcoin correction.

6. None of the BTC treasury companies are fraudulent and none get hacked.

Up Next: Part II

Even accepting these optimistic premises at face value, the current frenzy surrounding copycat Bitcoin Treasury Companies—or worse yet, non-Bitcoin “crypto treasuries”—bears striking parallels to the investment trust euphoria of the 1920s that contributed to and preceded the Crash of 1929, discussed in greater detail in Part II.

A troubling question emerges: why should investors pay premium prices for corporate wrappers around Bitcoin when they could simply buy Bitcoin directly through an ETF or self-custody arrangement? The mNAV premium that makes the entire business model work depends on the immutable human behavioral tendencies that drove investors in 1928 to pay $200 for shares in levered investment trusts holding $100 worth of underlying stocks.

The investment trusts of the 1920s promised the same accretive, leveraged magic that Bitcoin treasury companies offer today: professional management and amplified exposure to assets perceived as scarce. Like today's Bitcoin treasuries, they traded at substantial premiums to their underlying holdings. New trusts launched almost daily to meet insatiable investor demand.

This should give us pause and prompt serious reflection about what these developments might signal—not just about Bitcoin, but about the broader Multiflation monetary and market environment we're operating within. Today’s market environment mirrors an unholy amalgamation of prior investment episodes—the 2017 crypto mania, the Roaring Twenties boom preceding the Great Depression, the Weimar “inflation profiteers”, and the Mississippi/South Sea Bubbles we recently examined in the Symbolic Alchemy Of Risk.

Next: The Roaring 20s

In January 2021, we published The Sorcerer's Apprentice & The Man Who Broke The Market exclusively for a select group of influential investors and financial historians, identifying a convergence of forces that warned of an imminent regime change. Months later, inflation rapidly materialized seemingly out of nowhere, ushering in what we call Multiflation™—a seismic shift in the global economic order that would soon after crash the bond market and render obsolete many of the investing strategies that had thrived during four decades of "Goldilocks" conditions.

Four years later, the disruption hasn’t subsided—it’s accelerating. That original white paper became the foundation for serialized chapters. What began with our white paper and the recognition of the importance of Multiflation’s regime change is now evolving into something far more substantial; where this leads may surprise you, but once you see the complete picture, you'll understand why standard analysis falls short.

As we continue publishing the original Sorcerer's Apprentice while expanding and updating its chapters, we're simultaneously building out the Multiflation section—including the actionable methodology that helps investors and entrepreneurs think through what they should actually do about Multiflation. The same forces we identified over four years ago are accelerating and converging in ways that create unprecedented opportunities for those who understand the dynamics.

Our approach, framework, playbooks, and themes are all designed to work together—from macro analysis to individual companies to governance insights. Our work is best experienced on our website, where you can access our complete Archive and Index, curated reading lists, and interactive content that will bring our analytical frameworks to life. You can join the conversation follow our real-time market commentary on Twitter/X (@bewaterltd), and we’re launching podcast and YouTube content soon. We welcome your feedback and suggestions.

As you explore the website and our expanding content, you'll encounter three main sections that form the backbone of our analytical approach.

The Sorcerer's Apprentice: Theory & History

This is the WHY and PRINCIPLES

By unraveling the complex web of interconnected factors reshaping finance and society, The Sorcerer's Apprentice provides the master key to understanding the emergence of the Financial Matrix and today’s paradoxical market environment—including a dissenting view of the 2008 crisis and subsequent policy response.

The Sorcerer's Apprentice isn't typical newsletter content that you read and forget: it’s a living book published chapter by chapter that decodes the Financial Matrix and maps the path through this strange new territory. Its framework synthesizes economic history, macroeconomics, monetary theory, and technological evolution (including AI) to reveal how these forces converged to create our current reality. Whether you're new to investing or a seasoned professional investor, our analysis connects theory, historical precedents, monetary dynamics, and technological disruption, and societal impact in ways that illuminate what's driving today's markets.

What seemed like isolated anomalies in 2021—meme stocks, gamified trading, AI and algorithmic trading, synchronized bubbles—now define daily market reality. The Sorcerer's Apprentice provides the intellectual framework for understanding these interconnected forces and navigating the chaos profitably.

If you feel like you've walked into a movie halfway through, that's because you have. Since we publish chapter by chapter, new subscribers often join mid-story. We recommend starting from the beginning to understand how the foundational concepts connect to current analysis. Each piece stands alone while contributing to a larger narrative about the hidden forces reshaping finance and society. As subscribers, you're receiving early access to material we're actively developing into a comprehensive print book and accompanying multimedia experience.

Multiflation: Practice

This is the HOW and WHAT

We're living through Multiflation This section applies our Sorcerer's Apprentice framework to the practical side of investing and operating in this environment.

Within Multiflation, you'll find our signature market mapping techniques and macroeconomic analysis that connects global flows to investment opportunities and our broader investing framework. We analyze specific investment themes and individual companies positioned for the Multiflation environment, while showing you how to structure portfolios when traditional diversification fails and correlations break down.

We also provide actionable governance insights for better business outcomes, because everyone has a vote—whether through direct ownership or ETFs—and voting matters more than ever on key governance questions like incentive structures. We focus on how companies can improve operationally rather than financial engineering, because real value creation requires more than just moving money and debt around.

Chronicles: The Untold Stories

What past investment masters reveal about thriving in Multiflation

Chronicles takes you behind the scenes with history's most successful investors and operators, revealing their untold strategies and crucial decisions—then extracts the timeless principles that apply to navigating today's Multiflation environment.

This isn't another recounting of Warren Buffett's greatest hits or rehashed Harvard Business School case studies. We focus on the decisions that didn't make headlines but generated fortunes, the contrarian bets that seemed crazy until they worked, and the operational insights that only emerge when you understand what really happened behind closed doors.

While we'll occasionally cover the usual suspects, you're just as likely to discover how Larry Ellison built one of the most successful investment track records in Silicon Valley while everyone focused on his role as a tech mogul. We’ll examine lesser known operators like Ed Breen who've mastered the art of corporate transformation, turning around seemingly hopeless situations into value creation machines.

Many of these stories come from direct experience and firsthand knowledge rather than secondary sources, and all are informed by our own decades of experience in the trenches. The perspective of someone who was actually in the room changes everything—you learn not just what happened, but why certain decisions were made and how successful investors really think through complex situations.

Sometimes the most important lessons come from understanding what didn't make it into the Harvard Business School case studies—the untold angles and unexplored facets of how masters really operate, applied to today's unprecedented market environment.

Where It All Connects

Our approach becomes truly powerful when you discover interconnections between macro analysis, economic theory and history, individual themes and securities, and governance insights that aren't immediately obvious.

You'll discover how macro analysis informs which themes and securities will benefit from different aspects of Multiflation, while Chronicles extracts timeless principles from history's greatest investors that apply to navigating today’s unprecedented environment. Governance insights help you identify which companies are positioned to thrive—and show you how to influence the ones that aren't stewarding capital most effectively. Our Method shows you how curate a collection of assets that benefit from Multiflation.

A macro trend we identify might lead to a specific company analysis, which connects to a governance insight about management incentives, which refers to a historical case study, which informs a targeted investment decision. This integrated framework transforms seemingly unrelated information into opportunities.

We encourage you to explore all sections initially to see how they interconnect. After you've experienced how the pieces fit together, you can customize which sections you receive by email (instructions here)—but the framework works best when you understand the complete picture.

Navigating Multiflation: Next Steps

The same forces we identified in 2021 are accelerating. While others are still trying to understand what happened and why, we're focused on what comes next—and how to position for it.

New subscribers should begin with The Sorcerer's Apprentice to understand the foundational concepts that inform all our analysis. Then proceed to Multiflation for actionable insights. The question isn't whether more disruption is coming—it's how to benefit from the disorder.

Forward our work to colleagues and friends who need to understand what's really driving markets. The conversation is just beginning, and the best opportunities are still ahead.

Join the conversation on Twitter/X @bewaterltd for real-time market commentary and connect with other subscribers navigating this new reality. Have questions or suggestions? We read every email sent to feedback@bewaterltd.com.

In the heart of the scorching Sonoran Desert, a new frontier of innovation is emerging — one that promises to redefine the Southwest United States economic landscape.

The boundary of Arizona's Salt River Valley marks the threshold between ancient earth and silicon future. Stand at its edge and the scene feels surreal: the saguaro cacti still cast long shadows across a timeless landscape—but just beyond, a new geometry juts from the desert earth. Gleaming semiconductor fabs—$65 billion worth—stretch toward the horizon. This is no mirage; it’s a tectonic shift reshaping the global semiconductor order as Taiwan Semiconductor Manufacturing Company (TSMC) builds the future of American technology in this unlikely desert setting.

For decades, the world's most advanced chips flowed from East Asia. Now—as the AI 'Manhattan Project' heats up and Multiflation's geopolitical tensions expose supply chain vulnerabilities, critical technology is reshoring to the US Southwest.

The transformation builds on deep roots. Since Motorola first established operations in Phoenix in 1949, Arizona has cultivated a tech ecosystem in the shadow of Silicon Valley. Intel, Microchip Technology, and dozens of other companies found advantages in the desert's wide-open spaces, business-friendly climate, and lower costs.

The Arizona Advantage

But today's semiconductor boom represents something entirely different in both scale and ambition. TSMC's historic investment catalyzed a wave of federal CHIPS Act funding, positioning the Silicon Desert as America's answer to Taiwan's chip dominance. This is about more than semi fabs, however: Arizona is being positioned as a pillar of America's broader technological resurgence.

As one industry observer notes, "Given the benefits of land prices, stable infrastructure, generous state and city incentives…a skilled workforce, and a lack of natural disasters, it's easy to see why many companies are choosing Arizona for expansion, relocation, or a startup."

One commodity is in short supply, however: water. Arizona pumps more groundwater than nature replenishes, and the Colorado River—which supplies 40% of the state's water—faces historic shortages. Water is likely the most important constraint on expansion.

The Quiet Power Play Beneath The Fabs

While headlines obsess over fabs, hyperscalers, and the CHIPS act, someone else arrived here first—quietly and deliberately securing strategic control over something even more fundamental. They’ve been methodically buying up residential land, locking up water rights, establishing entitlements, and constructing the connective tissue that makes much of this expansion viable.

It's not who you'd expect: it’s D.R. Horton (DHI)— America’s largest homebuilder by volume. DHI has quietly become the dominant force controlling residential land, water, and zoning across the very corridors in which the AI hardware stack is physically anchoring—Phoenix’s East Valley, North Austin, Reno, and beyond.

DHI isn’t building anything nearly as sexy as Artificial General Intelligence. But Horton controls something more foundational around the fabs that do—positioning itself as a gatekeeper to the next-gen tech corridor buildout.

The Demographics of Disruption

The scale of this buildout demands an army. Phoenix expects 80,000 new positions across the broader semiconductor ecosystem alone within five years—a demographic surge that will reshape the entire valley.

These aren't remote workers who can live anywhere. Semiconductor manufacturing requires specialized workers within commuting distance. As tens of thousands of new permanent residents flood into specific corridors, someone has to build the neighborhoods, secure the water rights, and control the entitled land.

From Builder to Bottleneck: Scarcity As Strategy

DHI has been consolidating a vertically integrated monopoly on the very resources required to support America’s AI supply chain buildout. Its control of housing entitlements and aquifers undergirding America’s semiconductor future positions it as the most underestimated player in the U.S. would-be industrial renaissance.

Yes, as Steve Eisman and astutely noted last month, DHI remains exposed to the vicissitudes of the housing market, including its cyclicality and interest rate sensitivity. Current headwinds include a “frozen” housing market, record nationwide housing unaffordability, deteriorating consumer credit, weak housing demand after the initial post-COVID surge and spike in interest rates, elevated inventory levels, increased competition, and industry-wide margin pressures. Even Arizona is not immune.

DHI clearly faces near-term headwinds that could pressure the stock. However, many of these headwinds can be hedged, and once they abate DHI could emerge as a bedrock holding in any Multiflation portfolio.

The Inevitability of Infrastructure

Whether America's semiconductor reshoring effort ultimately succeeds or fails is less relevant to DHI's positioning than Washington’s determination to try. Geopolitical tensions with China, the AI “Manhattan Project”, and supply chain vulnerabilities exposed during COVID have made domestic chip production a matter of national security.

The attempt will likely happen regardless of the economics. Even if Arizona's fabs prove less competitive than Taiwan's, even if yield rates disappoint, even if the whole project struggles—it seems likely that workers, capital, and resources will be driven into these corridors.

The federal government is pouring billions into Arizona's semiconductor buildout, but every new fab, every new neighborhood, every relocated engineer requires a home—and water rights—that are becoming increasingly difficult to secure; DHI is uniquely positioned to capture this demand. The CHIPS Act can fund factories, but it can't conjure water from the desert floor.

DHI: Through The Multiflation Lens

DHI occupies the nexus between tech and AI buildout, reshoring, and water scarcity—positioning the company at the epicenter of one of America's most resource-constrained, fastest-growing markets.

In the forthcoming series, we'll use DHI as our laboratory to demonstrate parts of the Multiflation Method in action. We'll examine how DHI fits into four of the five Archetypes for navigating the Multiflation regime:

By the series' end, we’ll have both a better understanding of DHI's unique position and a replicable process for analyzing other investments through Multiflation's lens.

Next: Part II - The Water Play That Cornered the Market

The investing rules have changed: the frameworks and strategies that succeeded for four decades are now failing amidst a structural collapse of the old socioeconomic order. Last month, we identified this new reality—Multiflation (explained here).

Multiflation™ isn’t a passing shock or transient theme. It’s the new medium—the tempestuous ocean in which investors and entrepreneurs must now sail: volatile, contradictory, and unavoidable. Above these waters churn perpetual storm systems, while beneath the surface swirl chaotic cross-currents and treacherous undertows—inflation and deflation, scarcity and glut, booms and busts, monetary disorder, financial repression, geopolitical shocks, and rolling dislocations.

This maelstrom is reshaping every layer of civilization—money, markets, geopolitics, and even society itself. It poses the single greatest threat to our accumulated wealth—years or even lifetimes of labor and sacrifice, stored and crystallized. Yet while Multiflation upends the investment frameworks that succeeded for decades, it simultaneously creates new opportunities for those prepared to navigate the storm.

Charting The Course—And The Journey Ahead

Here, we introduce the method required to steward wealth amidst this new reality. This piece proceeds through three stages—first, diagnosing the insufficiency of traditional investing frameworks; second, establishing the Be Water philosophy; and finally, presenting our systematic method for applying these principles to investment decisions.

This lays the foundation for everything that follows in the coming weeks and months: assessing and curating a collection of holdings that survives and thrives amidst disorder. Future installments will translate principles into practice.

But before we can begin to navigate Multiflation and chart a new course, we must first understand our current position, clarify our destination, and confront the treacherous waters that lie between. Our journey begins with the recognition that the maps which once served us can no longer guide us through these uncharted waters.

Multiflation’s Maelstrom

Just as the ocean corrodes, floods, fractures, and drowns—indifferent to anything unprepared for its force—so too does Multiflation erode, overwhelm, and rupture the investment architecture that investors painstakingly optimized over the past four decades. The investing systems—and behavioral reflexes—honed during calmer economic seas are even now revealing themselves as liabilities.

The true captain isn’t defined by calm seas and following winds. His mettle is revealed only when the seas turn violent: amid the heart of the maelstrom, navigational bearings vanish, charts and instruments prove useless, visibility collapses, and every choice carries consequence. What matters now is what was prepared before: gear selected and secured, contingencies rehearsed until reflexive, decision protocols drilled into muscle memory. And—most critically—the captain’s hard-won ability to adapt when all certainties dissolve, while maintaining the discipline required to avoid errors that sink ships.

Stasis Is Not Safety

Despite clear warning signs looming on the horizon, most investment captains stay the course, guided by beliefs formed in yesterday’s fair weather—sails fully unfurled, instruments calibrated for calmer seas, vulnerable to the tempest already gathering strength.

Others sense the shift, yet even these captains often delay trimming sail and taking decisive action, hoping the storm will pass or their current course will somehow carry them through safely.

Such hesitation, however understandable, proves dangerous in Multiflation's waters. Here, stasis isn't safety—it's maximum exposure.

Modern Portfolios Unprepared For Multiflation

Most modern portfolios follow a common blueprint: optimize risk-adjusted returns through diversification across asset classes and investment factors, guided by data on returns and correlations.

These approaches—asset allocation, the endowment model, factor investing, risk parity, 60/40—are fundamentally backward-looking. Worse still, they were born of and optimized for the “Goldilocks” era of our modern fiat monetary system—a historically unique period of declining interest rates, growth without inflation, “coordinated monetary policy” that repeatedly rescued markets from major dislocation, and geopolitical stability.

This four-decade super-cycle for stocks, bonds, and real estate lulled investors into a false sense of security and punished efforts to think outside the established financial orthodoxy. Their conditioning leaves investors trapped, solving backwards-looking statistical equations for an era that no longer exists: Multiflation renders the past four decades of financial history and statistics largely irrelevant.

Investors—And The Financial System—Are Short Multiflation

Investors believe they own diversified baskets of "assets," "factors," and "risks." But rather than spreading risk, their portfolios remain dangerously concentrated in one existential bet dressed in a thousand different disguises: that the world of tomorrow will resemble the world of yesterday; that the socioeconomic order of the past four decades will continue functioning as it has.

Such positioning leaves investors unknowingly short Multiflation—they face a relentless short squeeze that erodes their real wealth as the disintegration of the old order intensifies and accelerates. Indeed, the entire global financial system is short Multiflation, too. The further conditions drift from Goldilocks’ ahistoric "normal," the more intense the short squeeze becomes, triggering glitches in the Financial Matrix—as we witnessed in 2022 and again this year.

Glitches In The Financial Matrix

Economist George Shackle captured our predicament with his concept of "kaleidics". Markets rest on "agreed formulas about the future" that everyone accepts—until they don't. Like a kaleidoscope, these shared assumptions can "change as swiftly, as completely, and on as slight a provocation" as a “twist of the hand or a piece of news.” One moment everyone believes bonds and stocks move in opposite directions; the next, they crater together.

What makes this particularly dangerous now is that these “assumptions”—modern investment theories and strategies—have become hard-coded into the financial system itself over the past several decades through algorithms, policies, regulations, and institutional structures governing trillions in capital.

In Silicon Sorcery (found here) and our ongoing series The Sorcerer's Apprentice & The Man Who Broke The Market (found here), we demonstrated that algorithms do far more than passively execute investment strategies—they fundamentally rewrite the economy’s operating system in their own image, creating the Financial Matrix: a video game-like simulation of financial markets (explained here and here). The Financial Matrix is governed by reflexive, self-reinforcing feedback loops that amplify both these assumptions’ apparent “predictive” power during stable periods—and their catastrophic failure when conditions sufficiently shift beyond a critical threshold.

The Diversification Delusion

The kaleidoscopic instability of the Financial Matrix explains why "diversified" portfolios prove anything but diversified during Multiflation. When outsized kaleidic shifts occur today, they shatter the hard-coded foundations of the Financial Matrix itself. Yesterday's consensus correlation becomes today's catastrophe without warning. The very algorithms designed to spread risk instead concentrate it.

When crisis hits, correlations converge on 1 and promised protection fails exactly when it is most needed—exposing that these foundational “assumptions” were artifacts of an extraordinary period in economic history, not timeless investment truths.

The past several years offered a mere foretaste of this breakdown, as moderate inflation—far short of 1970s levels—already began to seriously undermine the strategies that form the foundation of so many investors' portfolios by breaking the assumptions on which they are based. Even prestigious endowments now find themselves trapped in the Multiflation labyrinth—see recent examples here and here.

Yet Multiflation's most pernicious damage occurs between acute crises—through rolling dislocations, “stop-and-go” inflation, and financial repression that collectively wage a chronic war of attrition on wealth. Different assets and strategies fail in unpredictable rotation, creating a relentless erosion of capital that traditional risk models and orthodox inflation theories are fundamentally incapable of addressing. These failures don't cancel each other out through diversification—they compound because the dislocations all flow from Multiflation’s disorder, hitting different assets through interconnected yet unpredictable transmission mechanisms.

Even those whose portfolios are rising or “outperforming” fall victim to money illusion—feeling wealthier because their statements show higher dollar values even as their real purchasing power steadily erodes beneath the surface. The destruction unfolds invisibly, concealed by the very portfolio gains investors celebrate.

Navigating Disorder: The Be Water Approach

The coherence of the old order is even now collapsing. Conditions have changed irreversibly. The navigator's mindset and methods must evolve accordingly—becoming as fluid, adaptable, and responsive as the waters themselves.

We offer not another rigid investment formula, style, or doctrine, but a lens through which to continually refine your existing investment process for Multiflation's complexity. For those bound by institutional constraints or existing frameworks, this lens enhances how you think about and implement even traditional portfolios and allocations; “adapt what is useful, reject what is useless, and add what is uniquely your own.”

Rather than asking "How much should I own of each asset, risk, and factor to optimize statistics?" the Be Water approach transforms the question: "When this system breaks—and it is breaking—what actually survives and thrives? What purpose does each investment serve when order dissolves?"

The objective is to build a seaworthy vessel—one that can flex, float, and endure Multiflation's turbulence—and to develop the Captain: not just to steer, but to read the weather, trim the sails, and make sound decisions amid fog, storm, and broken instruments. This means focusing on what actually matters—the underlying forces that create, destroy, and preserve wealth when familiar frameworks fail and dislocations become the norm. It means learning to flow like water—with change rather than fighting against it.

Water and Wealth

Water is the most enduring, essential, and paradoxical substance known to man. It yields without surrender, and persists without resistance. It carves canyons, yet sustains all life. It dissolves more substances than any other liquid, yet retains its identity. It erodes mountains not by force, but by patience. From liquid to gas to crystallized solid, it changes form but never nature. Water obeys no master, yet flows with perfect coherence.

In the age of Multiflation, water transcends metaphor to emerge as archetype. Where our era worships the ephemeral, water embodies permanence. Amidst chaos, water demonstrates coherence. Water’s authentic scarcity rebukes our age of illusion and hyperreality. Where entangling dependencies weave fragility throughout the global order, water flows sovereign and self-contained.

The substance that shapes continents and nurtures life offers wisdom for those who steward wealth: amidst sweeping and accelerating change, we must ourselves “Be Water.”

Curation, Not Construction: Be Water Holdings

This philosophical foundation transforms how we approach wealth preservation: the very notion of a "portfolio" must dissolve and reshape. We can no longer merely “construct portfolios" or build around “asset classes” and “allocations” to appease a mathematical model; positions can no longer be chosen for statistical neatness or academic diversification qualities. What once passed for prudent architecture now fractures under Multiflation’s forces.

Instead, we must curate our collection of holdings with the intention and discernment of a navigator selecting the right tools, crew, and provisions for an uncertain voyage. We assemble components whose endurance and character enhance our vessel's capacity to withstand, adapt, and persist through every storm. Each holding serves its purpose—contributing to a whole that is built for permanence, designed for survival, and readied for whatever the next swell may bring.

In this, we honor the true nature of wealth: not as numbers in a spreadsheet, but as stored effort and sacrifice, entrusted to our care and protection through every season and storm. Our objective now, therefore, is less to “outperform” than to outlast; to arrive at our destination safely by curating a collection of holdings that survives and thrives.

The Multiflation Method

As Jim Grant once observed, “the future is always unlit”—but Multiflation has made navigating that darkness profoundly more treacherous. In such an environment, a guiding methodology is now essential:

The Multiflation Method provides a structural framework for decision-making in the darkness of disorder. We developed this approach not as an intellectual exercise, but out of necessity: the cost of misreading reality—even briefly—has never been higher. In the remaining sections and future installments that follow, we'll move through the process systematically—from principle to practice, from concepts and orientation to execution—fully developing and applying each in turn.

Following the Method ensures that we are prepared for all potential failure—and success—modes of Multiflation itself. Water teaches us to flow; sailing teaches us to harness that flow toward our destination. Just as every competent sailor must master chart-reading, weather interpretation, and sail handling, every Multiflation navigator must develop complementary capabilities:

Elements provide timeless principles for protecting and building wealth amidst disorder.

Archetypes translate these principles into actionable investment categories, providing comprehensive exposure to the attributes that survive and thrive through Multiflation's disorder.

Undercurrents identify and filter specific themes and opportunities worthy of immediate and longer-term focus.

Each investment we pursue must be legible through all three lenses: Elements, Archetypes, and Undercurrents; this ensures no action is random, reactive, or untethered from the environment we now inhabit.

The Multiflation Map helps us read current economic conditions like a captain studying charts and weather patterns. The Map orients; the Method ensures every decision moves us closer to a collection of holdings that endures and compounds. Our method is not built to react to every wave, but to withstand the storm—embedding adaptability, resilience, and endurance into principle, process, position, and portfolio.

Elements: Philosophy

The Five Elements are timeless investment principles made acutely urgent through the disorder and dislocations of Multiflation. These are not a checklist of attributes; we don’t “implement” them, so much as align with them. They’re conceptual ideals that shape how we think, analyze, and act; together, they translate complexity into clarity, and harness disorder for advantage. They manifest at all scales: from individual positions to themes to entire portfolios and businesses.

Emergence represents the culmination of all principles converge to create a collection of holdings that not only withstands disorder but transforms it into an advantage. Emergence occurs when preparation meets pressure—revealing strength that exceeds the sum of its parts.

Archetypes: Strategy

Archetypes translate the abstract wisdom of the Elements into concrete investment categories, solving a fundamentally different problem than modern portfolios: "What structural mechanisms preserve and create wealth during Multiflation’s disorder?"

We distilled these Archetypes from our study of economic history, focusing on the attributes of the best and worst performers during periods of great change, and adapting them to today’s unique conditions. Four are timeless. One—Monetary Evolution—is uniquely timely because the evolutionary arc we traced in The Metamorphosis of Money is reaching its endgame: the fiat system is fracturing, the "risk-free" nature of Treasuries is increasingly being reassessed, and officials ranging from Treasury Secretary Bessent to the IMF are calling for a reset of the global economic system.

Each Archetype represents a distinct survival and opportunity mechanism. None is sufficient alone, nor are any of them designed to be “correct”. Collectively, however, the Archetypes provide resilient, adaptive exposure across the full spectrum of failure and success modes of Multiflation—without requiring clairvoyance about what comes next.

They transform portfolio construction from a mathematical exercise into strategic curation—selecting assets for their structural roles in preserving and creating wealth amid disorder. This approach to building seaworthy collections of holdings supersedes any individual asset class, sector allocation, security selection, or tactical tool.

Undercurrents: Themes & Tactics

Undercurrents transform abstract Elements and Archetypes into concrete opportunities and ensure that we maintain strategic focus on multi-year themes rather than noise. They answer: "where and how should we focus attention now?"

The Multiflation Map: Orienting Without Predicting

The Multiflation Map tracks how inflation and growth interact to create different economic waters, climates, and storm systems. It's our tool for understanding what type of seas we're navigating—not predicting exactly where we’ll be next month or next year. Think of it as knowing it's hurricane season in the South Pacific versus predicting which Tuesday a particular storm hits.

Each region of the Map has distinct characteristics. Some reward patience, others demand speed. Some expose scarcity, others force liquidation.

Critically, however, we don't need to predict exactly where the winds and currents will push us next. Our Method—Elements, Archetypes, and Undercurrents—allows us to survive or thrive across all weather patterns and regions of the Map. We're preparing for a turbulent voyage, not counting on specific storm patterns.

Multiflation Method In Action

This is the foundation; in subsequent posts, we'll detail each component and demonstrate how they collectively help us chart a safe course through Multiflation's disorder.

What sounds abstract becomes concrete through application. Next week, we begin demonstrating how the Multiflation Method works in practice. Through a real world example, we’ll analyze a company through our lenses—one that embodies four Multiflation Archetypes, including one essential Constraint that markets are overlooking entirely. This isn't about identifying the next winner; it's about mastering a systematic process that works when traditional frameworks fail.

The storm is already here. Those who adapt their methods will not merely survive Multiflation—they will harness its disorder to their advantage.

Next: Navigating Inflation

Once or twice a century, the world undergoes a transformation of historic importance. Everything changes—but the transformation is so profound that its full magnitude and meaning only become clear in hindsight. The last such transformation—the collapse of the Bretton Woods I monetary system—ushered in the Bretton Woods II pure fiat monetary system in 1971.

We are now living through the early stages of the next great transformation. The architecture of the global economy—the systems, assumptions, and models that defined the past five decades—is undergoing its most violent upheaval in more than half a century.

For over three decades, the global economy surfed the perfect wave of the “Great Moderation”. The perfect “Goldilocks” environment—ever-lower interest rates, economic growth without inflation, faith in technocratic central banking, and relative geopolitical stability—formed the foundation upon which modern finance was built.

A generation of financial norms was constructed upon this delicate “Goldilocks” scaffolding: the hyperfinancialization and hyperreality of first-world economies as Wall Street detached from Main Street, the dominance of passive and quantitative investing, “asset allocation” and 60/40 portfolios, securitization, carry trades, private equity and credit, cryptocurrencies, and housing markets turned casinos-cum-collateral engines.

Nearly every financial “innovation”—and indeed the performance of every asset class and investment strategy—evolved within the climate-controlled greenhouse of that world. Armed with abundant liquidity by central bankers who stood ready to intervene at the first sign of instability, we constructed a hyperreal Financial Matrix—a simulation that took on a life of its own, untethered from the real-world economy it once aimed to represent. A single imperative prevailed: optimize within the system.

Until COVID.

The global policy response to the pandemic was not just aggressive—it was epochal. The world’s largest economies rewrote their monetary, fiscal—and sometimes legal—constitutions on the fly. At the time, we concluded in our 2021 Sorcerer’s Apprentice whitepaper that these actions would not merely trigger a wave of inflation but would catalyze a systemic rupture—marking the end of the Goldilocks era and setting in motion a wholesale restructuring of society—transforming money, markets, and power.

As of this past week—the 92^nd anniversary of FDR’s executive order confiscating gold, itself a catalyst for Bretton Woods I and Money’s Metamorphosis—we can now say, with certainty: the next transformation isn’t coming. It’s here.

The End Of Bretton Woods

In our Sorcerer's Apprentice series, we’ve dissected the mechanisms by which the monetary disorder unleashed by Bretton Woods II and decades of central bank intervention have hopelessly corrupted the global economy's operating system. Trump is both the golem raised by—and potentially the perfect scapegoat for—the failures of the post-Bretton Woods II system and the global policy establishment.

The preceding quote captures the essence of the Trump administration’s mindset, and is further underscored by Treasury Secretary Scott Bessent’s declaration during an interview with that a global economic reordering is both inevitable and imminent:

In the next few years, we are going to have some kind of grand economic reordering. Something equivalent to a new Bretton Woods. There’s a very good chance that happens in the next 4 years and I’d like to be a part of it.

Trump and Bessent are explicitly rejecting the hyperreality of the Financial Matrix—the hyperfinancialization that has so divorced Wall Street from Main Street—as well as the post-War status quo on practically every other subject of economic and social import.

“So I think that this is the beginning of a process. We're going to re-industrialize…we have gone to a highly financialized economy. We have stopped making things”

It’s evident that much of the world either doesn't yet fully understand—or doesn't want to understand—how profound this ideological and economic revolution truly is, nor how deeply it will affect them: we are on the cusp of a wholesale reordering of the global monetary and economic system.

As we wrote in the Metamorphosis of Money:

“A New Bretton Woods Moment”

Today’s monetary system would be utterly unrecognizable to people living 100 years ago. Government-issued currency—now mostly replaced by digital bits—has been considered money for the adult lifetimes of nearly everyone alive today. This false sense of permanence makes it easy to forget that our monetary order has only existed for a little over a generation—a mere blink of an eye in the context of millenia of monetary history. There are many compelling reasons to believe that a new monetary system is on the horizon…

The digitization of fiat money has enabled the distortion of economic reality to such a hallucinatory degree that the world now resembles a real-life version of Snow Crash. Since the 2008 crisis, central banks have so blurred the line between real and fake money that they inadvertently catalyzed the creation of a new, parallel monetary system—a virtual set of digital currencies resembling those previously found only in video games or Snow Crash’s fictional Metaverse.

Even now the IMF is calling for a “New Bretton Woods Moment”—another reshaping of the international monetary system—suggesting that central planners recognize the instability of the current system and are devising strategic solutions. Central Bank Digital Currencies (CBDCs) appear to be their weapon of choice—a Franken-Fiat creation for the digital age that would only amplify the worst aspects of the current hyperreal system and create altogether new problems in the process.

The illusory permanence of today’s financial order is crumbling, and we stand on the cusp of a monetary revolution. The future is unwritten, but battle lines are already being drawn between centralized fiat CBDCs, decentralized Bitcoin, and gold in what promises to be the defining monetary conflict of the 21st century—one that will ultimately determine the fate of the hyperreal Financial Matrix and, by extension, our own.

The End Of Globalization

Globalization—and by extension the Financial Matrix—was fundamentally predicated on geopolitical stability, enabling “just in time” supply chains stretched globally to maximize efficiency and profit. This arrangement created a bifurcated global economy: developing nations manufactured tangible goods while the US printed its reserve currency, engineered complex financial instruments, and the developed world generated “wealth” primarily by trading assets like houses, stocks, and cryptocurrencies amongst themselves.

COVID shattered this illusion when advanced economies couldn't source basic necessities such as N95 masks and antibiotics; the Israeli pager incident and various recent incidents of Chinese backdoors related to AI and robotics further highlighted the risks of a “just in time” globalized supply chain. These events delivered a powerful one-two punch to the core assumptions underpinning globalization and forced a wholesale reevaluation of global economic interdependence in a world where geopolitical stability can no longer be taken for granted.

Even the institutions and leaders tasked with preserving the old regime have begun to admit that it is ending:

Enter Multiflation

We are living through the birth pangs of Multiflation™—a fundamental transformation in our global economic reality. This new regime— characterized by economic whiplash and dislocations—emerges from painful but necessary tectonic realignments as the artificial stability underpinning the Financial Matrix can no longer be maintained.

As we venture deeper into the Multiflation labyrinth, deviations from what we have come to expect as a "normal" economic environment will become both more frequent in number and more violent in magnitude.

Throwing Over The Chessboard: Multiflation = Dislocations

Under Trump's economic revolution, such dislocations are not just accepted but are actively catalyzed by the administration as part of the deliberate dismantling of the post-Bretton Woods system. Trump’s attempt to remedy the ills of the Financial Matrix and globalization—whether ultimately successful or not—is already creating a ripple effect of disorder and dislocations across various sectors and markets, and will continue to defy Great Moderation-era economic thinking and models. (Simultaneously unfolding alongside these changes—and significantly compounding their effects—is the “AI Revolution,” poised to become the most transformative technological advancement since the internet.)

Businesses and households alike are even now being forced into the role of reactive traders, constantly making bets on policy changes and short-term fluctuations in asset markets, input and output costs, interest rates, foreign exchange, and supply-demand dynamics.

What lies ahead is not simply a regime change but rather a fundamental reprogramming of the global economic order. Multiflation represents both the chaotic unwinding of decades of monetary-induced hyperreality and the painful birth of a new reality—one where economic forces no longer behave according to the models and assumptions that guided us for fifty years.

Those who cling to the outdated maps that successfully steered them through Goldilocks and the Great Moderation will find themselves increasingly disoriented in this emerging landscape. The adept navigators of Multiflation will be those who recognize that the old maps no longer apply—and embrace the difficult work of mapping the uncharted territory before us.

We stand at a historic crossroads where fortunes will be made not on optimizing within a stable system, but rather on cultivating resilience and adaptability. True resilience—not the illusory kind that was seemingly validated during an unprecedented period of economic stability—must become the cornerstone of economic and investment strategy.

The Great Moderation is dead.

Enter Multiflation.

Addendum:

The White House’s own admission—that the the exorbitant privilege of the dollar’s reserve status is no longer viewed as an unambiguous asset by the U.S. government—confirms that the unraveling of Bretton Woods is policy. The dollar’s reserve status is increasingly framed as a structural liability—a cost center shouldered by U.S. taxpayers and workers to subsidize a global system that, paradoxically, undermines their own economic foundation and families:

We will continue unraveling the historical roots of this transformation in the Sorcerer's Apprentice series, while our forthcoming Multiflation series will apply this analytical framework to decode the chaotic present.

Next: Multiflation Investing